UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

☐

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: 001-37964

 

WildHorse Resource Development Corporation

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

81-3470246

( State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

9805 Katy Freeway, Suite 400, Houston, TX

 

77024

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (713) 568-4910

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

 

Common Stock, par value $0.01 per share

 

New York Stock Exchange

(Title of each class)

 

(Name of each exchange on which registered)

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

 

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   ☒     No   ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes   ☒     No   ☐

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 the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

☐

 

Accelerated filer

☐

 

 

 

 

 

Non-accelerated filer

☒

(Do not check if a small reporting company)

Small reporting company

☐

 

 

 

 

 

 

 

 

Emerging growth company

☒

 

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

 

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. ☒

As of April 30, 2017, the registrant had 93,987,541 shares of common stock, $0.01 par value outstanding.

 

 

 

 

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

 

 

Glossary of Oil and Natural Gas Terms

 

2

 

 

Commonly Used Defined Terms

 

6

 

 

Cautionary Note Regarding Forward-Looking Statements

 

8

 

 

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

10

 

 

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

 

10

 

 

Unaudited Condensed Statements of Consolidated and Combined Operations for the Three Months Ended March 31, 2017 and 2016

 

11

 

 

Unaudited Condensed Statements of Consolidated and Combined Cash Flows for the Three Months Ended March 31, 2017 and 2016

 

12

 

 

Unaudited Condensed Statement of Stockholder’s Equity for the Three Months Ended March 31, 2017

 

13

 

 

Note 1 – Organization and Basis of Presentation

 

14

 

 

Note 2 – Summary of Significant Accounting Policies

 

15

 

 

Note 3 – Acquisitions and Divestitures

 

15

 

 

Note 4 – Fair Value Measurements of Financial Instruments

 

16

 

 

Note 5 – Risk Management and Derivative Instruments

 

18

 

 

Note 6 – Accounts Receivable

 

20

 

 

Note 7 – Accrued Liabilities

 

20

 

 

Note 8 – Asset Retirement Obligations

 

20

 

 

Note 9 – Long Term Debt

 

21

 

 

Note 10 – Stockholders’ Equity

 

22

 

 

Note 11 – Earnings Per Share

 

23

 

 

Note 12 – Long Term Incentive Plans

 

23

 

 

Note 13 – Incentive Units

 

24

 

 

Note 14 – Related Party Transactions

 

24

 

 

Note 15 – Segment Disclosures

 

25

 

 

Note 16 – Income Tax

 

26

 

 

Note 17 – Commitments and Contingencies

 

26

 

 

Note 18 – Subsequent Events

 

27

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

Item 4.

 

Controls and Procedures

 

42

 

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

43

Item 1A.

 

Risk Factors

 

43

Item 2.

 

Unregistered Sales Of Equity Securities and Use of Proceeds

 

43

Item 3.

 

Defaults Upon Senior Securities

 

43

Item 4.

 

Mine Safety Disclosures

 

43

Item 5.

 

Other Information

 

43

Item 6.

 

Exhibits

 

43

 

 

 

 

 

 

 

Signatures

 

44

 

 

 

i

 

GLOSSARY OF OIL AND NATURAL GAS TERMS

The following are abbreviations and definitions of commonly used in the oil and natural gas industry:

3-D seismic: Geophysical data that depict the subsurface strata in three dimensions. 3-D seismic typically provides a more detailed and accurate interpretation of the subsurface strata than 2-D, or two-dimensional, seismic.

Basin: A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.

Bbl: One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs.

Bcf: One billion cubic feet of natural gas.

Boe: One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

Boe/d: One Boe per day.

British thermal unit or Btu: The quantity of heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.

Completion: Installation of permanent equipment for production of oil or natural gas, or, in the case of a dry well, to reporting to the appropriate authority that the well has been abandoned.

Condensate: A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

Delineation: The process of placing a number of wells in various parts of a reservoir to determine its boundaries and production characteristics.

Developed acreage: The number of acres that are allocated or assignable to productive wells or wells capable of production.

Development costs: Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and natural gas. For a complete definition of development costs refer to the SEC’s Regulation S-X, Rule 4-10(a)(7).

Development project: The means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

Development well: A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Differential: An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

Downspacing: Additional wells drilled between known producing wells to better develop the reservoir.

Dry well: A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Economically producible: The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. For a complete definition of economically producible, refer to the SEC’s Regulation S-X, Rule 4-10(a)(10).

Estimated ultimate recovery or EUR: The sum of reserves remaining as of a given date and cumulative production as of that date.

Exploratory well: A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

2

 

Field: An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations. For a complete definition of field, refer to the SEC’s Regulation S-X, Rule 4-10(a)(15).

Formation: A layer of rock which has distinct characteristics that differs from nearby rock.

Generation 1:   With respect to our Eagle Ford Acreage, a hybrid fracking technique using approximately 1,500 pounds per foot of sand and 33 Bbls per foot of fluid, with 200 foot stages and five clusters per stage at 80 barrels per minute. With respect to our North Louisiana Acreage, a slickwater fracking technique using approximately 1,450 pounds per foot of sand, with 200 foot stages and one cluster per stage at 57 barrels per minute.

Generation 3: With respect to our Eagle Ford Acreage, a slickwater fracking technique using approximately 3,700 pounds per foot of sand and 75 Bbls per foot of fluid, with 150 foot stages and nine clusters per stage at 90 barrels per minute.

Gross acres or gross wells: The total acres or wells, as the case may be, in which a working interest is owned.

Held by production: Acreage covered by a mineral lease that perpetuates a company’s right to operate a property as long as the property produces a minimum paying quantity of oil or natural gas.

Horizontal drilling:   A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

MBbls: One thousand barrels of crude oil, condensate or NGLs.

MBoe:   One thousand Boe.

Mcf: One thousand cubic feet of natural gas.

MMBbls: One million barrels of crude oil, condensate or NGLs.

MMBoe: One million Boe.

MMBtu: One million British thermal units.

Net acres or net wells: Gross acres or wells, as the case may be, multiplied by our working interest ownership percentage.

Net production: Production that is owned less royalties and production due to others.

NGLs: Natural gas liquids. Hydrocarbons found in natural gas which may be extracted as liquefied petroleum gas and natural gasoline.

NYMEX: The New York Mercantile Exchange.

Offset operator: Any entity that has an active lease on an adjoining property for oil, natural gas or NGLs purposes.

Operator: The individual or company responsible for the development and/or production of an oil or natural gas well or lease.

Play: A geographic area with hydrocarbon potential.

Possible Reserves: Reserves that are less certain to be recovered than probable reserves.

Present value of future net revenues or PV-10: The estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property-related expenses, discounted to a present value using an annual discount rate of 10% in accordance with the guidelines of the SEC.

Probable Reserves: Reserves that are less certain to be recovered than proved reserves but that, together with proved reserves, are as likely as not to be recovered.

3

 

Production costs: Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and fac ilities and other costs of operating and maintaining those wells and related equipment and facilities. For a complete definition of production costs, refer to the SEC’s Regulation S-X, Rule 4-10(a)(20).

Productive well: A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.

Prospect: A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

Proved area: Part of a property to which proved reserves have been specifically attributed.

Proved developed reserves: Reserves that can be expected to be recovered through (i) existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well or (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Proved properties: Properties with proved reserves.

Proved reserves: Those quantities of oil, natural gas and NGLs, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. For a complete definition of proved oil and natural gas reserves, refer to the SEC’s Regulation S-X, Rule 4-10(a)(22).

Proved undeveloped reserves or PUDs: Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations are classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. Under no circumstances are estimates for proved undeveloped reserves attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

Realized price: The cash market price less all expected quality, transportation and demand adjustments.

Reasonable certainty: A high degree of confidence. For a complete definition of reasonable certainty, refer to the SEC’s Regulation S-X, Rule 4-10(a)(24).

Recompletion: The completion for production of an existing wellbore in another formation from that which the well has been previously completed

Reliable technology: Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

4

 

Reserves: Estimated remaining quantities of oil and natural gas and related substances antic ipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potent ially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, s tructurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Reservoir: A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Resources: Quantities of oil and natural gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable and another portion may be considered to be unrecoverable. Resources include both discovered and undiscovered accumulations.

Royalty: An interest in an oil and natural gas lease that gives the owner the right to receive a portion of the production from the leased acreage (or of the proceeds from the sale thereof), but does not require the owner to pay any portion of the production or development costs on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

Service well: A well drilled or completed for the purpose of supporting production in an existing field.

Spacing: The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.

Spot market price: The cash market price without reduction for expected quality, transportation and demand adjustments.

Standardized measure: Discounted future net cash flows estimated by applying year-end prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period-end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.

Stratigraphic test well: A drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intent of being completed for hydrocarbon production. The classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon exploration. Stratigraphic tests are classified as “exploratory type” if not drilled in a known area or “development type” if drilled in a known area.

Undeveloped acreage: Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

Unit: The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property interests. Also, the area covered by a unitization agreement.

Unproved properties: Properties with no proved reserves.

Wellbore: The hole drilled by the bit that is equipped for natural gas production on a completed well. Also called well or borehole.

Working interest: The right granted to the lessee of a property to develop and produce and own natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.

Workover: Operations on a producing well to restore or increase production.

WTI: West Texas Intermediate.

5

 

Commonly Used Defined Terms

As used in this Quarterly Report unless the context indicates or otherwise requires, the terms listed below have the following meanings:

 

•

the “Company,” “WildHorse Development,” “we,” “our,” “us” or like terms refer collectively to WHR II and Esquisto, together with their consolidated subsidiaries before the completion of our Corporate Reorganization and to WildHorse Resource Development Corporation and its consolidated subsidiaries, including WHR II, Esquisto and Acquisition Co., as of and following the completion of our Corporate Reorganization;

 

•

“WHR II” or our “predecessor” refers to WildHorse Resources II, LLC, together with its consolidated subsidiaries, which owns all of our North Louisiana Acreage;

 

•

“Esquisto” refers (i) for the period beginning January 1, 2014 through June 19, 2014, to the Initial Esquisto Assets, (ii) for the period beginning June 20, 2014 through February 16, 2015, to Esquisto I (iii) for the period beginning February 17, 2015 (date of common control) through January 11, 2016, to Esquisto I and Esquisto II on a combined basis and (iv) for the period beginning January 12, 2016 through the completion of our initial public offering on December 19, 2016, to Esquisto II;

 

•

“Initial Esquisto Assets” refers to the oil and natural gas properties contributed to Esquisto I in connection with the formation of Esquisto I on June 20, 2014;

 

•

“Esquisto I” refers to Esquisto Resources, LLC;

 

•

“Esquisto II” refers to Esquisto Resources II, LLC;

 

•

“Esquisto Merger” refers to the merger of Esquisto I with and into Esquisto II on January 12, 2016;

 

•

“Acquisition Co.” refers to WHE AcqCo., LLC, an entity formed to acquire the Burleson North Assets;

 

•

“Previous owner” refers to both Esquisto and Acquisition Co.;

 

•

“Management Members” refers (i) in the case of WHR II, collectively to the individual founders and employees and other individuals who, together with NGP, initially formed WHR II and (ii) in the case of Esquisto, collectively to the individual founders and employees and other individuals who initially formed Esquisto;

 

•

the “Corporate Reorganization” refers to (prior to and in connection with our initial public offering) (i) the former owners of WHR II exchanging all of their interests in WHR II for equivalent interests in WildHorse Investment Holdings and the former owners of Esquisto exchanging all of their interests in Esquisto for equivalent interests in Esquisto Investment Holdings, (ii) the contribution by WildHorse Investment Holdings to WildHorse Holdings of all of the interests in WHR II, the contribution by Esquisto Investment Holdings to Esquisto Holdings of all of the interests in Esquisto and the contribution by the former owner of Acquisition Co. of all its interests in Acquisition Co. to Acquisition Co. Holdings, (iii) the issuance of management incentive units by WildHorse Holdings, Esquisto Holdings and Acquisition Co. Holdings to certain of our officers and employees and (iv) the contribution by WildHorse Holdings, Esquisto Holdings and Acquisition Co. Holdings to us of all of the interests in WHR II, Esquisto and Acquisition Co., respectively, in exchange for shares of our common stock;

 

•

“WildHorse Holdings” refers to WHR Holdings, LLC, a limited liability company formed to own a portion of our common stock following the Corporate Reorganization;

 

•

“WildHorse Investment Holdings” refers to WildHorse Investment Holdings, LLC, a limited liability company formed to own all of the outstanding equity interests in WildHorse Holdings other than certain management incentive units issued by WildHorse Holdings in connection with our initial public offering;

 

•

“Esquisto Holdings” refers to Esquisto Holdings, LLC, a limited liability company formed to own a portion of our common stock following the Corporate Reorganization;

 

•

“Esquisto Investment Holdings” refers to Esquisto Investment Holdings, LLC, a limited liability company formed to own all of the outstanding equity interests in Esquisto Holdings other than certain management incentive units issued by Esquisto Holdings in connection with our initial public offering;

 

•

“Acquisition Co. Holdings” refers to WHE AcqCo Holdings, LLC, a limited liability company formed to own a portion of our common stock following the Corporate Reorganization;

6

 

 

•

“North Louisiana Acreage” refers to our acreage in North Louisiana in and around the hi ghly prolific Terryville Complex, which has been historically owned and operated by WHR II, and where we primarily target the overpressured Cotton Valley play;

 

•

“Terryville Complex” refers to the play located primarily in Lincoln Parish, Louisiana, and northern Jackson Parish, Louisiana;

 

•

“RCT Area” refers to our Ruston-Choudrant-Tremont acreage within the Terryville Complex located primarily in Lincoln Parish, Louisiana;

 

•

“Weyerhaeuser Area” refers to the acreage that we have the right to lease within the Terryville Complex located in northern Jackson Parish, Louisiana, which acreage is included in our North Louisiana Acreage;

 

•

“Eagle Ford Acreage” refers to our acreage in the northern area of the Eagle Ford Shale in Southeast Texas, which has historically been owned and operated by Esquisto;

 

•

“Burleson North Assets” refers to certain producing properties and undeveloped acreage that Acquisition Co. acquired from Clayton Williams Energy, Inc. prior to or contemporaneously with the closing of our initial public offering, which acquisition is referred to as the “Burleson North Acquisition;” and

 

•

“NGP” refers to Natural Gas Partners, a family of private equity investment funds organized to make direct equity investments in the energy industry, including the funds invested in WHR II, Esquisto and Acquisition Co.

7

 

FORWARD–LOOKI NG STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under “Part I—Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”) and “Part II—Item 1A. Risk Factors” appearing within this Quarterly Report and elsewhere in this Quarterly Report.

Forward-looking statements may include statements about:

 

•

our business strategy;

 

•

our estimated proved, probable and possible reserves;

 

•

our drilling prospects, inventories, projects and programs;

 

•

our ability to replace the reserves we produce through drilling and property acquisitions;

 

•

our financial strategy, liquidity and capital required for our development program;

 

•

our realized oil, natural gas and NGL prices;

 

•

the timing and amount of our future production of oil, natural gas and NGLs;

 

•

our hedging strategy and results;

 

•

our future drilling plans;

 

•

competition and government regulations;

 

•

our ability to obtain permits and governmental approvals;

 

•

pending legal or environmental matters;

 

•

our marketing of oil, natural gas and NGLs;

 

•

our leasehold or business acquisitions;

 

•

costs of developing our properties;

 

•

general economic conditions;

 

•

credit markets;

 

•

uncertainty regarding our future operating results; and

 

•

plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the development, production, gathering and sale of oil and natural gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks described under “Part I—Item 1A. Risk Factors” of our 2016 Form 10-K.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development program. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

8

 

Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, o ur actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.

9

 

PART I—FINANCI AL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except outstanding shares)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

93,342

 

 

$

3,115

 

Accounts receivable, net

 

 

27,046

 

 

 

26,428

 

Short-term derivative instruments

 

 

5,674

 

 

 

—

 

Prepaid expenses and other current assets

 

 

2,310

 

 

 

1,633

 

Total current assets

 

 

128,372

 

 

 

31,176

 

Property and equipment:

 

 

 

 

 

 

 

 

Oil and gas properties

 

 

1,666,340

 

 

 

1,573,848

 

Other property and equipment

 

 

36,893

 

 

 

34,344

 

Accumulated depreciation, depletion and amortization

 

 

(226,587

)

 

 

(200,293

)

Total property and equipment, net

 

 

1,476,646

 

 

 

1,407,899

 

Other noncurrent assets:

 

 

 

 

 

 

 

 

Restricted cash

 

 

752

 

 

 

886

 

Long-term derivative instruments

 

 

8,393

 

 

 

—

 

Debt issuance costs

 

 

1,954

 

 

 

2,320

 

Other long-term assets

 

 

1,319

 

 

 

—

 

Total assets

 

$

1,617,436

 

 

$

1,442,281

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

19,751

 

 

$

21,014

 

Accrued liabilities

 

 

56,003

 

 

 

23,371

 

Short-term derivative instruments

 

 

4,708

 

 

 

14,087

 

Asset retirement obligations

 

 

90

 

 

 

90

 

Total current liabilities

 

 

80,552

 

 

 

58,562

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

338,783

 

 

 

242,750

 

Asset retirement obligations

 

 

10,868

 

 

 

10,943

 

Deferred tax liabilities

 

 

124,253

 

 

 

112,552

 

Long-term derivative instruments

 

 

367

 

 

 

8,091

 

Other noncurrent liabilities

 

 

1,393

 

 

 

1,495

 

Total noncurrent liabilities

 

 

475,664

 

 

 

375,831

 

Total liabilities

 

 

556,216

 

 

 

434,393

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: 50,000,000 shares authorized; no shares issued and

   outstanding

 

 

—

 

 

 

—

 

Common stock, $0.01 par value 500,000,000 shares authorized; 93,987,541 shares and 91,680,441 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

 

940

 

 

 

917

 

Additional paid-in capital

 

 

1,050,425

 

 

 

1,017,368

 

Accumulated earnings (deficit)

 

 

9,855

 

 

 

(10,397

)

Total stockholders’ equity

 

 

1,061,220

 

 

 

1,007,888

 

Total liabilities and equity

 

$

1,617,436

 

 

$

1,442,281

 

See Accompanying Notes to Unaudited Condensed Consolidated and Combined Financial Statements

10

 

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED AND COMBINED OPERATIONS

(In thousands, except per share amounts)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Oil sales

 

$

39,077

 

 

$

13,253

 

Natural gas sales

 

 

12,145

 

 

 

10,206

 

NGL sales

 

 

2,663

 

 

 

945

 

Other income

 

 

407

 

 

 

723

 

Total operating revenues

 

 

54,292

 

 

 

25,127

 

Operating expenses:

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

6,928

 

 

 

2,760

 

Gathering, processing and transportation

 

 

1,700

 

 

 

1,891

 

Gathering system operating expense

 

 

19

 

 

 

54

 

Taxes other than income tax

 

 

3,899

 

 

 

1,472

 

Depreciation, depletion and amortization

 

 

26,443

 

 

 

22,063

 

General and administrative

 

 

7,482

 

 

 

4,449

 

Exploration expense

 

 

1,615

 

 

 

7,443

 

Total operating expense

 

 

48,086

 

 

 

40,132

 

Income (loss) from operations

 

 

6,206

 

 

 

(15,005

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(5,571

)

 

 

(1,972

)

Debt extinguishment costs

 

 

11

 

 

 

(358

)

Gain (loss) on derivative instruments

 

 

31,291

 

 

 

3,246

 

Other income (expense)

 

 

15

 

 

 

12

 

Total other income (expense)

 

 

25,746

 

 

 

928

 

Income (loss) before income taxes

 

 

31,952

 

 

 

(14,077

)

Income tax benefit (expense)

 

 

(11,700

)

 

 

(139

)

Net income (loss)

 

 

20,252

 

 

 

(14,216

)

Net income (loss) attributable to previous owners

 

 

—

 

 

 

(2,517

)

Net income (loss) attributable to predecessor

 

 

—

 

 

 

(11,699

)

Net income (loss) available to WildHorse Resources

 

$

20,252

 

 

$

—

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

 

n/a

 

Diluted

 

$

0.22

 

 

n/a

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

93,216

 

 

n/a

 

Diluted

 

 

93,216

 

 

n/a

 

 

See Accompanying Notes to Unaudited Condensed Consolidated and Combined Financial Statements

11

 

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED AND COMBINED CASH FLOWS

(In thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

20,252

 

 

$

(14,216

)

Adjustments to reconcile net income (loss) to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

 

26,293

 

 

 

21,965

 

Accretion of asset retirement obligations

 

 

150

 

 

 

98

 

Dry hole expense and impairments of unproved properties

 

 

683

 

 

 

—

 

Amortization of debt issuance cost

 

 

838

 

 

 

117

 

(Gain) loss on derivative instruments

 

 

(31,291

)

 

 

(3,246

)

Cash settlements on derivative instruments

 

 

(983

)

 

 

3,373

 

Accretion of senior note discount

 

 

42

 

 

 

—

 

Deferred income tax expense (benefit)

 

 

11,700

 

 

 

114

 

Debt extinguishment expense

 

 

(11

)

 

 

358

 

Amortization of equity awards

 

 

495

 

 

 

—

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Decrease (increase) in accounts receivable

 

 

(8,047

)

 

 

(4,534

)

Decrease (increase) in prepaid expenses

 

 

(735

)

 

 

177

 

Decrease (increase) in inventories

 

 

—

 

 

 

1,728

 

(Decrease) increase in accounts payable and accrued liabilities

 

 

8,433

 

 

 

(9,003

)

Net cash flow provided by (used in) operating activities

 

 

27,819

 

 

 

(3,069

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisitions of oil and gas properties

 

 

(3,019

)

 

 

(2,201

)

Acquisition post-closing adjustment receipts

 

 

3,905

 

 

 

—

 

Additions to oil and gas properties

 

 

(63,345

)

 

 

(39,821

)

Additions to and acquisitions of other property and equipment

 

 

(1,521

)

 

 

(2,288

)

Acquisition deposits

 

 

(1,319

)

 

 

—

 

Change in restricted cash

 

 

135

 

 

 

(86

)

Net cash used in investing activities

 

 

(65,164

)

 

 

(44,396

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Advances on revolving credit facilities

 

 

15,500

 

 

 

84,000

 

Payments on revolving credit facilities

 

 

(258,250

)

 

 

(77,000

)

Debt issuance cost

 

 

(9,016

)

 

 

(431

)

Termination of second lien

 

 

—

 

 

 

(225

)

Proceeds from senior notes offering

 

 

347,354

 

 

 

—

 

Proceeds from over-allotment option

 

 

34,457

 

 

 

—

 

Cost incurred in conjunction with over-allotment option

 

 

(1,872

)

 

 

—

 

Cost incurred in conjunction with initial public offering

 

 

(601

)

 

 

—

 

Predecessor contributions

 

 

—

 

 

 

12,776

 

Net cash provided by financing activities

 

 

127,572

 

 

 

19,120

 

Net change in cash and cash equivalents

 

 

90,227

 

 

 

(28,345

)

Cash and cash equivalents, beginning of period

 

 

3,115

 

 

 

43,126

 

Cash and cash equivalents, end of period

 

$

93,342

 

 

$

14,781

 

See Accompanying Notes to Unaudited Condensed Consolidated and Combined Financial Statements

12

 

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands)

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

Common

Stock

 

 

Additional

Paid in

Capital

 

 

Accumulated

Earnings

(deficit)

 

 

Total

 

December 31, 2016

 

$

917

 

 

$

1,017,368

 

 

$

(10,397

)

 

$

1,007,888

 

Net income (loss)

 

 

—

 

 

 

—

 

 

 

20,252

 

 

 

20,252

 

Proceeds from over-allotment option

 

 

23

 

 

 

34,434

 

 

 

—

 

 

 

34,457

 

Costs incurred in connection with over-allotment option

 

 

—

 

 

 

(1,872

)

 

 

—

 

 

 

(1,872

)

Amortization of equity awards

 

 

—

 

 

 

495

 

 

 

—

 

 

 

495

 

March 31, 2017

 

$

940

 

 

$

1,050,425

 

 

$

9,855

 

 

$

1,061,220

 

 

See Accompanying Notes to Unaudited Condensed Consolidated and Combined Financial Statements

 

 

13

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Note 1. Organization and Basis of Presentation

WildHorse Resource Development Corporation is a publicly traded Delaware corporation, the common shares of which are listed on the New York Stock Exchange (“NYSE”) under the symbol “WRD.”  Unless the context requires otherwise, references to “we,” “us,” “our,” “WRD,” or “the Company” are intended to mean the business and operations of WildHorse Resource Development Corporation and its consolidated subsidiaries. We are an independent oil and natural gas company focused on the acquisition, exploitation, development and production of oil, natural gas and NGL resources.

Reference to “WHR II” or our “predecessor” refers to WildHorse Resources II, LLC, together with its consolidated subsidiaries. Reference to “Esquisto I” refers to Esquisto Resources, LLC.  Reference to “Esquisto II” refers to Esquisto Resources II, LLC.  Reference to “Esquisto Merger” refers to the merger of Esquisto I with and into Esquisto II on January 12, 2016.  Reference to “Esquisto” refers (i) for the period beginning February 17, 2015 (date of common control) through January 11, 2016, to Esquisto I and Esquisto II on a combined basis and (ii) for the period beginning January 12, 2016 through the completion of our initial public offering on December 19, 2016, to Esquisto II.  Reference to “Acquisition Co.” refers to WHE AcqCo., LLC, an entity that was formed to acquire the Burleson North assets (see Note 3—Acquisitions and Divestitures). Reference to “WildHorse Investment Holdings” refers to WildHorse Investment Holdings, LLC.  Reference to “Previous owner” refers to both Esquisto and Acquisition Co.. Reference to “Esquisto Investment Holdings” refers to Esquisto Investment Holdings, LLC.  Reference to “WildHorse Holdings” refers to WHR Holdings, LLC. Reference to “Esquisto Holdings” refers to Esquisto Holdings, LLC. Reference to “Acquisition Co. Holdings” refers to WHE AcqCo Holdings, LLC. Reference to “NGP” refers to Natural Gas Partners, a family of private equity investment funds organized to make direct equity investments in the energy industry, including the funds invested in WHR II, Esquisto and Acquisition Co.

Contemporaneously with our initial public offering, (i) the owners of WHR II exchanged all of their interests in WHR II for equivalent interests in WildHorse Investment Holdings and the owners of Esquisto exchanged all of their interests in Esquisto for equivalent interests in Esquisto Investment Holdings, (ii) WildHorse Investment Holdings contributed all of the interests in WHR II to WildHorse Holdings, Esquisto Investment Holdings contributed all of the interests in Esquisto to Esquisto Holdings and the owner of Acquisition Co. contributed all of its interests in Acquisition Co. to Acquisition Co. Holdings and (iii) WildHorse Holdings, Esquisto Holdings and Acquisition Co. Holdings contributed all of the interests in WHR II, Esquisto and Acquisition Co., respectively, to us in exchange for shares of our common stock. We refer to these reorganization transactions as the “Corporate Reorganization.” As a result of the Corporate Reorganization, WHR II, Esquisto and Acquisition Co. became direct, wholly owned subsidiaries of WildHorse Resource Development Corporation.  WHR II has two wholly owned subsidiaries – WildHorse Resources Management Company, LLC (“WHRM”) and Oakfield Energy LLC (“Oakfield”).  Esquisto has two wholly owned subsidiaries – Petromax E&P Burleson, LLC and Burleson Water Resources, LLC.  WHRM is the named operator for all oil and natural gas properties owned by us.  

Basis of Presentation

Our predecessor’s financial statements were retrospectively recast due to common control considerations. Because WHR II, Esquisto and Acquisition Co. were under the common control of NGP, the sale and contribution of the respective ownership interests were accounted for as a combination of entities under common control, whereby the assets and liabilities sold and contributed were recorded based on historical cost. As such, the financial statements included herein for the three months ended March 31, 2016 have been derived from the combined financial position and results attributable to our predecessor and Esquisto. For periods after the completion of our initial public offering, our consolidated financial statements include our accounts and those of our subsidiaries.

Certain amounts in the prior year financial statements have been reclassified to conform to current presentation. Gathering, processing, and transportation costs were previously accounted for as revenue deductions and are now being presented as costs and expenses on our statements of operations on a separate line item.  Oakfield drip condensate was reclassified from oil sales to other income.

All material intercompany transactions and balances have been eliminated in preparation of our condensed consolidated and combined financial statements. The accompanying condensed consolidated and combined interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

14

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Use of Estimates in the Preparation of Financial Statements

Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts 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 on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate the estimates and assumptions on a regular basis; however, actual results may differ from these estimates and assumptions used in the preparation of the financial statements. Significant estimates with regard to these financial statements include (1) the estimate of proved oil, natural gas and NGL reserves and related present value estimates of future net cash flows therefrom; (2) depreciation, depletion and amortization expense; (3) valuation of accounts receivable; (4) accrued capital expenditures and liabilities; (5) asset retirement obligations (“ARO”); (6) environmental remediation costs; (7) valuation of derivative instruments; (8) contingent liabilities and (9) impairment expense. Although management believes these estimates are reasonable, changes in facts and circumstances or discovery of new information may result in revised estimates, and such revisions could be material.

Note 2. Summary of Significant Accounting Policies

A discussion of our significant accounting policies and estimates is included in our 2016 Form 10-K.

Supplemental Cash Flow Information

Supplement cash flow for the periods presented (in thousands):

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Supplemental cash flows:

 

 

 

 

 

 

 

 

Cash paid for interest, net of capitalized interest

 

$

656

 

 

$

1,882

 

Noncash investing activities:

 

 

 

 

 

 

 

 

Increase in capital expenditures in accounts payables and accrued liabilities

 

 

25,528

 

 

 

6,535

 

 

New Accounting Standards

Improvements to Employee Share-Based Payment Accounting.  In March 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update to simplify the guidance on employee share-based payment accounting. The update involved several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. This new standard became effective for annual periods beginning after December 15, 2016. The Company adopted this guidance as of January 1, 2017 and it did not have a material impact on our consolidated financial statements.  We elected to account for forfeitures on share-based payments by recognizing forfeitures of awards as they occur.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on our consolidated financial statements and footnote disclosures.

Note 3. Acquisitions and Divestitures

Acquisition-related costs

Acquisition-related costs for both related party and third party transactions are included in general and administrative expenses in the accompanying statements of operations for the periods indicated below (in thousands): 

 

For the Three Months Ended March 31,

 

2017

 

 

2016

 

$

599

 

 

$

—

 

2017 Acquisitions

We announced multiple transactions to acquire certain oil and natural gas producing and non-producing properties from third-parties in Burleson County, Texas.  On February 2, 2017, we closed one transaction for approximately $2.4 million, subject to

15

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

customary post-closing adjustments.  We allocated $2.3 million of the purchase price to unproved oil and natural gas properties.  See “Note 18—Subsequent Events” for further information.   

2016 Acquisitions

Burleson North Acquisition .  As discussed in our 2016 Form 10-K, we completed an acquisition of approximately 158,000 net acres of oil and natural gas properties adjacent to our existing Eagle Ford acreage on December 19, 2016 in connection with our initial public offering (the “Burleson North Acquisition”). Funds wired on December 19, 2016 were $389.8 million.  During the three months ending March 31, 2017, we received a post-closing receipt of $3.9 million.  The following table summarizes the fair value assessment of the assets acquired and liabilities assumed as of the acquisition date after customary post-closing adjustments (in thousands).  We allocated $162.9 million of the purchase price to unproved oil and natural gas properties.  

 

 

 

 

Purchase Price

 

Oil and natural gas properties

 

$

395,591

 

Other property and equipment

 

 

478

 

Accounts receivable

 

 

1,257

 

Accounts payable

 

 

(1,816

)

Asset retirement obligations

 

 

(3,101

)

Accrued liabilities

 

 

(6,503

)

Total identifiable net assets

 

$

385,906

 

 

Supplemental Pro forma Information .  The following unaudited pro forma combined results of operations are provided for the three months ended March 31, 2016  as though the Burleson North Acquisition had been completed on January 1, 2015. The unaudited pro forma financial information was derived from the historical combined statements of operations of the predecessor and previous owners and adjusted to include: (i) the revenues and direct operating expenses associated with oil and natural gas properties acquired and (ii) depletion expense applied to the adjusted basis of the properties acquired. The unaudited pro forma financial information does not purport to be indicative of results of operations that would have occurred had the transaction occurred on the basis assumed above, nor is such information indicative of expected future results of operations.

 

 

 

For Three Months Ended March 31, 2016

 

Revenues

 

$

35,334

 

Net income (loss)

 

 

(14,229

)

Basic and diluted earnings per unit

 

n/a

 

 

Note 4. Fair Value Measurements of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a specified measurement date. 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. A three-tier hierarchy has been established that classifies fair value amounts recognized or disclosed in the financial statements. 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). All of the derivative instruments reflected on the accompanying balance sheets were considered Level 2.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying values of cash and cash equivalents, restricted cash, accounts receivables, accounts payables (including accrued liabilities) and amounts outstanding under long-term debt agreements with variable rates included in the accompanying balance sheets approximated fair value at March 31, 2017 and December 31, 2016. The fair value estimates are based upon observable market data and are classified within Level 2 of the fair value hierarchy. These assets and liabilities are not presented in the following tables.

The fair market values of the derivative financial instruments reflected on the balance sheets as of March 31, 2017 and December 31, 2016 were based on estimated forward commodity prices (including nonperformance risk). Nonperformance risk is the

16

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

risk that the obligation related to the derivative instrument will not be fulfilled. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement in its entirety. The significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities a nd their placement within the fair value hierarchy levels.

The following table presents the derivative assets and liabilities that are measured at fair value on a recurring basis at March 31, 2017 and December 31, 2016 for each of the fair value hierarchy levels:

 

 

 

 

Fair Value Measurements at March 31, 2017 Using

 

 

 

Quoted Prices

in Active

Market

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Fair Value

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

—

 

 

$

15,689

 

 

$

—

 

 

$

15,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

—

 

 

$

6,697

 

 

$

—

 

 

$

6,697

 

 

 

 

Fair Value Measurements at December 31, 2016 Using

 

 

 

Quoted Prices

in Active

Market

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Fair Value

 

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

—

 

 

$

7

 

 

$

—

 

 

$

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

—

 

 

$

22,185

 

 

$

—

 

 

$

22,185

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are reported at fair value on a nonrecurring basis as reflected on the balance sheets. The following methods and assumptions are used to estimate the fair values:

 

•

The fair value of AROs is based on discounted cash flow projections using numerous estimates, assumptions, and judgments regarding such factors as the existence of a legal obligation for an ARO; amounts and timing of settlements; the credit-adjusted risk-free rate; and inflation rates. See “Note 8—Asset Retirement Obligations” for a summary of changes in AROs.

 

•

If sufficient market data is not available, the determination of the fair values of proved and unproved properties acquired in transactions accounted for as business combinations are prepared by utilizing estimates of discounted cash flow projections. The factors to determine fair value include, but are not limited to, estimates of: (i) economic reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital. To compensate for the inherent risk of estimating and valuing unproved properties, the discounted future net revenues of probable and possible reserves are reduced by additional risk-weighting factors. The fair value of supporting equipment, such as plant assets, acquired in transactions accounted for as business combinations are commonly estimated using the depreciated replacement cost approach.

 

•

Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate the carrying value of such properties may not be recoverable. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity prices, the timing of future production and capital expenditures and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties. We did not record impairments during the three months ended March 31, 2017 and 2016.

17

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

 

•

Unproved oil and natural gas properties are reviewed for impairment based on passage of time or geologic factors.  Information such as remaining lease terms, drilling results, reservoir performance, seismic interpretation or future plans to develop acreage is also considered.  When unproved properties are deemed to be impaired, the expense is recorded as a component of exploration expenses.  For the three months ended March 31, 2017, we recorded $0.7 million of impairments of unproved properties.  We did not record any impairments for the three months ended March 31, 2016 .

Note 5. Risk Management and Derivative Instruments

We have entered into certain derivative arrangements with respect to portions of our oil and natural gas production to reduce our sensitivity to volatile commodity prices. None of our derivative instruments are designated as cash flow hedges. We believe that these derivative arrangements, although not free of risk, allow us to achieve more predictable cash flows and to reduce exposure to commodity price fluctuations. However, derivative arrangements limit the benefit of increases in the prices of oil and natural gas sales. Moreover, our derivative arrangements apply only to a portion of our production and provide only partial protection against declines in commodity prices. Such arrangements may expose us to risk of financial loss in certain circumstances. We continuously reevaluate our risk management program in light of changes in production, market conditions, commodity price forecasts, capital spending, interest rate forecasts and debt service requirements.

Commodity Derivatives

We have fixed price commodity swaps, collars and deferred purchased puts to accomplish our hedging strategy. Collars consist of a sold call and a purchased put that establishes a ceiling and floor price for expected future oil and natural gas sales. We recognize all derivative instruments at fair value; however, certain of our derivative instruments have a deferred premium. The deferred premium is factored into the fair value measurement and where the Company agrees to defer the premium paid or received until the time of settlement. Cash received on settled derivative positions during the three months ended March 31, 2017 is net of deferred premiums of $0.1 million.

Derivative instruments are netted when the right to net exists under a master netting agreement, future liabilities and assets correspond to the same commodity type and future cash flows have the same balance sheet current or non-current classification. We have exposure to financial institutions in the form of derivative transactions. These transactions are with counterparties in the financial services industry, specifically only lenders under our revolving credit facility. These transactions could expose us to credit risk in the event of default of our counterparties. We have master netting agreements for our derivative transactions with our counterparties and although we do not require collateral, we believe our counterparty risk is low because of the credit worthiness of our counterparties. See “Note 4—Fair Value Measurements of Financial Instruments” for further information.

18

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

The following derivative contracts were in place a t March 31, 2017:

  

 

 

Remainder 2017

 

 

2018

 

 

2019

 

Natural Gas Derivative Contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MMBtu)

 

 

6,346,000

 

 

 

11,565,800

 

 

 

9,877,900

 

Weighted-average fixed price

 

$

3.15

 

 

$

3.03

 

 

$

2.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MMBtu)

 

 

4,140,000

 

 

 

—

 

 

 

—

 

Weighted-average floor price

 

$

3.00

 

 

$

—

 

 

$

—

 

Weighted-average ceiling price

 

$

3.36

 

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put options:

 

 

 

 

 

 

 

 

 

 

 

 

Volume (MMBtu)

 

 

3,095,895

 

 

 

—

 

 

 

—

 

Weighted-average floor price

 

$

3.40

 

 

$

—

 

 

$

—

 

Weighted-average put premium

 

$

(0.37

)

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil Derivative Contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price swap contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Volume (Bbls)

 

 

1,526,900

 

 

 

1,638,500

 

 

 

1,381,300

 

Weighted-average fixed price

 

$

52.82

 

 

$

53.68

 

 

$

54.92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collar contracts:

 

 

 

 

 

 

 

 

 

 

 

 

Volume (Bbls)

 

 

43,872

 

 

 

25,096

 

 

 

—

 

Weighted-average floor price

 

$

50.00

 

 

$

50.00

 

 

$

—

 

Weighted-average ceiling price

 

$

62.10

 

 

$

62.10

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Put options:

 

 

 

 

 

 

 

 

 

 

 

 

Volume (Bbls)

 

 

1,325,036

 

 

 

—

 

 

 

—

 

Weighted-average floor price

 

$

55.00

 

 

$

—

 

 

$

—

 

Weighted-average put premium

 

$

(4.77

)

 

$

—

 

 

$

—

 

Balance Sheet Presentation

The following table summarizes both: (i) the gross fair value of derivative instruments by the appropriate balance sheet classification even when the derivative instruments are subject to netting arrangements and qualify for net presentation in the balance sheet and (ii) the net recorded fair value as reflected on the balance sheet at March 31, 2017 and December 31, 2016. There was no cash collateral received or pledged associated with our derivative instruments since the counterparties to our derivative contracts are lenders under our credit agreement.

 

 

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

Type

 

Balance Sheet Location

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Commodity contracts

 

Short-term derivative instruments

 

$

6,626

 

 

$

4

 

 

$

5,660

 

 

$

14,091

 

Netting arrangements

 

Short-term derivative instruments

 

 

(952

)

 

 

(4

)

 

 

(952

)

 

 

(4

)

Net recorded fair value

 

 

 

$

5,674

 

 

$

—

 

 

$

4,708

 

 

$

14,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contacts

 

Long-term derivative instruments

 

$

9,063

 

 

$

3

 

 

$

1,037

 

 

$

8,094

 

Netting arrangements

 

Long-term derivative instruments

 

 

(670

)

 

 

(3

)

 

 

(670

)

 

 

(3

)

Net recorded fair value

 

 

 

$

8,393

 

 

$

—

 

 

$

367

 

 

$

8,091

 

19

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

(Gains) & Losses on Derivatives

All gains and losses, including changes in the derivative instruments’ fair values, are included as a component of “Other income (expense)” in the Statements of Unaudited Condensed Consolidated and Combined Operations. The following table details the gains and losses related to derivative instruments for the three months ending March 31, 2017 and 2016 (in thousands):

 

 

 

Statements of

 

For the Three Months Ended March 31,

 

 

 

Operations Location

 

2017

 

 

2016

 

Commodity derivative contracts

 

(Gain)   loss on commodity derivatives

 

$

(31,291

)

 

$

(3,246

)

 

Note 6. Accounts Receivable

Accounts receivable consist of the following (in thousands):

 

 

 

March  31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Oil, natural gas and NGL sales

 

$

17,309

 

 

$

13,390

 

Joint interest billings

 

 

8,993

 

 

 

7,898

 

Severance tax

 

 

89

 

 

 

392

 

Other current receivables

 

 

755

 

 

 

4,848

 

Allowance for doubtful accounts

 

 

(100

)

 

 

(100

)

Total

 

$

27,046

 

 

$

26,428

 

 

Note 7. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Capital expenditures

 

$

43,462

 

 

$

17,934

 

Deferred rent

 

 

392

 

 

 

386

 

Lease operating expense

 

 

2,565

 

 

 

2,608

 

General and administrative

 

 

2,849

 

 

 

1,471

 

Severance and ad valorem taxes

 

 

2,220

 

 

 

194

 

Interest expense

 

 

4,014

 

 

 

346

 

Other accrued liabilities

 

 

501

 

 

 

432

 

Total

 

$

56,003

 

 

$

23,371

 

 

Note 8. Asset Retirement Obligations

The Company’s AROs primarily relate to the Company’s portion of future plugging and abandonment costs for wells and related facilities.  The following table presents the changes in the asset retirement obligations for the three months ended March 31, 2017 (in thousands): 

 

Asset retirement obligations at beginning of period

 

$

11,033

 

Accretion expense

 

 

150

 

Liabilities incurred

 

 

60

 

Revisions

 

 

(285

)

Asset retirement obligations at end of period

 

 

10,958

 

Less: current portion

 

 

(90

)

Asset retirement obligations – long-term

 

$

10,868

 

 

20

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Note 9. Long Term Debt

Our debt obligations consisted of the following at the dates indicated (in thousands):

 

 

 

 

For the Year Ended December 31,

 

Credit Facility

 

2017

 

 

2016

 

WRD revolving credit facility

 

$

—

 

 

$

242,750

 

6.875% senior unsecured notes, due February 2025 (1)

 

 

350,000

 

 

 

—

 

Unamortized discounts

 

 

(2,604

)

 

 

—

 

Unamortized debt issuance costs - 6.875% senior unsecured notes

 

 

(8,613

)

 

 

—

 

Total long-term debt

 

$

338,783

 

 

$

242,750

 

 

(1)

The estimated fair value of this fixed-rate debt was $338.2 million at March 31, 2017.  The estimated fair value is based on quoted market prices and is classified as Level 2 within the fair value hierarchy.

Borrowing Base

Credit facilities tied to borrowing base are common throughout the oil and natural gas industry.  Our borrowing base is subject to redetermination, on at least a semi-annual basis, primarily based on estimated proved reserves. The borrowing base for our credit facility was the following at the date indicated (in thousands):

   

 

 

March 31,

 

Credit Facility

 

2017

 

WRD revolving credit facility

 

$

362,500

 

 

Subsequent Events .   On April 4, 2017, WRD’s revolving credit facility borrowing base was increased to $450.0 million in connection with the semi-annual borrowing redetermination by the lenders.  On April 27, 2017, standby letters of credit of $1.9 million were issued to the Railroad Commission of Texas under our revolving credit facility. 

2025 Senior Notes

On February 1, 2017, we completed a private placement of $350.0 million aggregate principal amount of 6.875% senior unsecured notes due 2025 (the “2025 Senior Notes”).  The 2025 Senior Notes were issued at a price of 99.244% of par and resulted in net proceeds of approximately $338.6 million.  The 2025 Senior Notes will mature on February 1, 2025 and interest is payable on February 1 and August 1 of each year.  The 2025 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by all of our existing and certain future subsidiaries (subject to customary release provisions).  The consummation of our 2025 Senior Notes offering automatically reduced the borrowing base of our revolving credit facility by $87.5 million. The net proceeds from the 2025 Senior Notes were used to repay borrowings outstanding under our revolving credit facility and for general corporate purposes.

We may redeem all or any part of the 2025 Senior Notes at a “make-whole” redemption price, plus accrued and unpaid interest, at any time before February 1, 2020.  We may also redeem up to 35% of the aggregate principal amount of the 2025 Senior Notes prior to February 1, 2020 in an amount not greater than the net cash proceeds from one or more equity offerings at a redemption price of 106.875% of the principal amount of the 2025 Senior Notes, plus accrued and unpaid interest.

21

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

In connection with the issuance and sale of the 2025 Senior Notes, the Company and our subsidiary guarantors entered into a registration rights agreement (the “Registration Rights Agreement”) with a representative of the initial purchasers of the 2025 Senior Notes, dated February 1, 201 7. Pursuant to the Registration Rights Agreement, we agreed to file a registration statement with the SEC so that holders of the 2025 Senior Notes can exchange the 2025 Senior Notes for registered notes that have substantially identical terms. In addition, we have agreed to exchange the guarantees related to the 2025 Senior Notes for registered guarantees having substantially the same terms as the original guarantees. The Company and the guarantors will use commercially reasonable best efforts to cause the exchange to be consummated within 365 days after the issuance of the 2025 Senior Notes. The Company and the guarantors are required to pay additional interest if they fail to comply with their obligations to register the 2025 Senior Notes within the specif ied time periods.

Weighted-Average Interest Rates

The following table presents the weighted-average interest rates paid on our consolidated and combined variable-rate debt obligations for the periods presented:

 

 

 

 

For the Three Months Ended March 31,

 

Credit Facility

 

2017

 

 

2016

 

WRD revolving credit facility

 

 

3.52

%

 

n/a

 

WHR II revolving credit facility terminated December 2016

 

n/a

 

 

 

3.00

%

Esquisto - revolving credit facility terminated December 2016

 

n/a

 

 

 

2.81

%

Esquisto - revolving credit facility terminated January 2016

 

n/a

 

 

 

2.97

%

Esquisto - Second lien terminated in January 2016

 

n/a

 

 

 

9.50

%

Unamortized Deferred Financing Costs

Unamortized deferred financing costs associated with our consolidated debt obligations were as follows at the dates indicated (in thousands):

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

WRD revolving credit facility (1)

 

$

2,479

 

 

$

2,904

 

6.875% senior unsecured notes, due February 2025

 

 

8,613

 

 

n/a

 

Total

 

$

11,092

 

 

$

2,904

 

 

 

(1)

We classified $0.5 million and $0.6 million of unamortized deferred financing costs at March 31, 2017 and December 31, 2016, respectively, under current assets as a component of “prepaid expenses and other current assets.”

Note 10. Equity

Common Stock

The Company’s authorized capital stock includes 500,000,000 shares of common stock, $0.01 par value per share. The following is a summary of the changes in our common shares issued for the three months ended March 31, 2017:

 

 

Balance, December 31, 2016

 

 

91,680,441

 

Common stock issued

 

 

2,297,100

 

Restricted common stock issued

 

 

10,000

 

Balance, March 31, 2017

 

 

93,987,541

 

 

On January 17, 2017, we issued and sold 2,297,100 shares of our common stock at an offering price of $15.00 per share pursuant to the partial exercise of the underwriters’ over-allotment option associated with our initial public offering the (“Option Exercise”). We received net proceeds of $32.6 million from the Option Exercise, all of which was used to repay outstanding borrowings under our revolving credit facility.

22

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

See “Note 12—Long Term Incentive Plan” for additional information regarding the shares of restricted common stock that were granted in conn ection with our initial public offering. Restricted shares of common stock are considered issued and outstanding on the grant date of the restricted stock award.

Predecessor Equity

The predecessor received capital contributions of $12.8 million from its members during the three months ended March 31, 2016. 

Note 11. Earnings per share

The following sets forth the calculation of earnings (loss) per share, or EPS, for the three months ending March 31, 2017 (in thousands, except per share amounts):

 

 

Numerator:

 

 

 

 

Net income (loss) available to WildHorse Resources

 

$

20,252

 

Denominator:

 

 

 

 

Weighted-average common shares outstanding (in thousands) (1)

 

 

93,216

 

Basic EPS

 

$

0.22

 

Diluted EPS (1)

 

$

0.22

 

 

(1)

The Company determines the more dilutive of either the two-class method or the treasury stock method for diluted EPS. The two-class method was more dilutive for the three months ended March 31, 2017.  For the three months ended March 31, 2017, 6 incremental shares were included in the calculation of diluted EPS under the treasury stock method.

Note 12. Long Term Incentive Plans

In connection with our initial public offering, our board of directors adopted the 2016 Long-Term Incentive Plan (or “2016 LTIP”). The 2016 LTIP, authorizes the issuance of 9,512,500 shares of our common stock.  The following table summarizes information regarding restricted common stock awards granted under the 2016 LTIP for the periods presented:

 

 

 

Number of Shares

 

 

Weighted-Average

Grant Date Fair

Value per Share (1)

 

Restricted common stock outstanding at December 31, 2016

 

 

353,334

 

 

$

14.50

 

Granted (2)

 

 

10,000

 

 

$

14.22

 

Restricted common stock outstanding at March 31, 2017

 

 

363,334

 

 

$

14.49

 

 

(1)

Determined by dividing the aggregate grant date fair value of shares subject to granted awards by the number of awards.

(2)

The aggregate grant date fair value of restricted common stock awards granted in 2017 was $0.1 million based on grant date market price of $14.22 per share.

For the three months ended March 31, 2017, we recorded $0.5 million of recognized compensation expense associated with these awards.  Unrecognized compensation cost associated with the restricted common stock awards was an aggregate of $4.7 million at March 31, 2017.  We expect to recognize the unrecognized compensation cost for these awards over a weighted-average period of 2.58 years.

 

23

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Note 13. Inc entive Units

The governing documents of WHR II provided for the issuance of incentive units. WHR II granted incentive units to certain of its members who were key employees at the time of grant. The incentive units were accounted for similar to liability-classified awards as achievement of the payout conditions required settlement of such awards by transferring cash to the incentive unit holder. Compensation cost was recognized only if the performance condition was probable of being satisfied at each reporting date. The payment likelihood related to the WHR II incentive units was not deemed probable for the three months ended March 31, 2016.  As such, no compensation expense was recognized by our predecessor.

In connection with the Corporate Reorganization, the WHR II incentive units were transferred to WildHorse Investment Holdings in exchange for substantially similar incentive units in WildHorse Investment Holdings and WildHorse Holdings, Esquisto Holdings and Acquisition Co. Holdings granted certain officers and employees awards of incentive units in WildHorse Holdings, Esquisto Holdings and Acquisition Co. Holdings. The fair value of the incentive units will be remeasured on a quarterly basis until all payments have been made.  Any future compensation expense recognized will be a non-cash charge, with the settlement obligation resting with WildHorse Investment Holdings, WildHorse Holdings, Esquisto Holdings and Acquisition Co. Holdings, respectively.  Accordingly, no payments will ever be made by us related to these incentive units; however, non-cash compensation expense (income) will be allocated to us in future periods offset by deemed capital contributions (distributions). As such, these awards are not dilutive to our stockholders. Compensation cost is recognized only if the performance condition is probable of being satisfied at each reporting date. The payment likelihood related to these incentive units was not deemed probable at March 31, 2017.  As such, no compensation expense was recognized by us.  Unrecognized compensation costs associated with these incentive units was $27.6 million at March 31, 2017.

The fair value of the incentive units was estimated using a Monte Carlo simulation valuation model with the following key assumptions:

 

 

 

Incentive Unit Valuation As Of March 31, 2017

Expected life (years)

 

1.29 - 5.54

Expected volatility (range)

 

57.0% - 64.0%

Dividend yield

 

0.0%

Risk-free rate (range)

 

1.09% - 1.99%

 

Note 14. Related Party Transactions

Board of Directors Relationships

Mr. Grant E. Sims has served as a member of our board of directors since February 2017. Mr. Sims has served as a director and Chief Executive Officer of the general partner of Genesis Energy Partners, L.P. (“Genesis”) since August 2006 and Chairman of the board of directors of the general partner since October 2012. Genesis is one of our purchasers of hydrocarbons and other liquids. During the three months ended March 31, 2017, we received $0.9 million from Genesis.  

NGP Affiliated Companies

Highmark Energy Operating, LLC.   During the three months ended March 31, 2017 and 2016, we received net payments of less than $0.1 million and $0.2 million, respectively, from Highmark Energy Operating, LLC, a NGP affiliated company, for non-operated working interests in oil and natural gas properties we operate.  

Cretic Energy Services, LLC.   During the three months ended 2016, we made payments of $0.1 million to Cretic Energy Services, LLC, a NGP affiliated company, for services related to our drilling and completion activities. We did not record any related party payments or receipts for the three months ended March 31, 2017.

PennTex Midstream Partners, LP. During the three months ended March 31, 2016, we made net payments of less than $0.1 million to PennTex Midstream Partners, LP (“PennTex”), a former NGP affiliated company, for the gathering, processing and transportation of natural gas and NGLs.  Our related party relationship ceased in the fall of 2016 when a third-party acquired controlling interests in PennTex.

24

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

WildHorse Resources, LLC . WildHorse Resources, LLC (“WHR”), an entity formerly under common control with WHR II, ceased being a related party in September 2016 when its parent company was acquired by a third party. During the three months ended March 31, 2016, we paid net payments of less than $0.1 million to WHR’s parent company for non-operated working interests in oil and natural gas properties we operate.  

NGP X US Holdings LP.   Our predecessor paid NGP X US Holdings LP. less than $0.1 million during the three months ended March 31, 2016 for director fees.

CH4 Energy.   CH4 Energy entities are NGP affiliated companies and Mr. Brannon is President of these entities.  During the three months ended March 31, 2017 we had net receipts of $0.3 million from certain CH4 Energy entities for non-operated working interests in oil and natural gas properties we operate.  We did not have any related party payments or receipts for the three months ended March 31, 2016.

Promissory Notes.   WHR II issued promissory notes in favor of certain members of WHR II’s management to fund future capital commitments and carried an interest rate of 2.5% .  On November, 9, 2016, the management members conveyed to the predecessor certain ownership interests in the predecessor in exchange for the discharge in full and the termination of all the promissory note advances then outstanding. There were no management payments of promissory note interest during the three months ended March 31, 2016.  

Previous Owner Related Party Transactions

Notes payable to members.   During the three months ended March 31, 2016, Esquisto accrued $1.0 million, as general and administrative expenses payable to its members. In connection with our initial public offering, the Esquisto notes payable to its members were paid off.

Services provided by member.   Esquisto paid Calbri Energy, Inc. (“Calbri”), a less than 1% former owner, $0.1 million for the three months ended March 31, 2016, for completion consulting services.  

Operator. Esquisto paid Petromax Operating Company, Inc. (“Petromax”), who was the operator of the majority of Esquisto’s wells, $0.3 million during the three months ended March 31, 2016 for overhead charges on drilling and producing wells at market rates as set forth in joint operating agreements and in accordance with an operating agreement between Petromax and Esquisto. Petromax is owned 33.3% by Mike Hoover, the former Chief Operating Officer of Esquisto, who also indirectly owned one of the former members of Esquisto.  

Related Party Agreements

Registration Rights Agreement and Stockholders’ Agreement

A discussion of these agreements is included in our 2016 Form 10-K.

Transition Services Agreement

Upon the closing of our initial public offering, we entered into a transition services agreement with CH4 Energy IV, LLC, PetroMax and Crossing Rocks Energy, LLC (collectively, the “Service Providers”), pursuant to which the Service Providers agreed to provide certain engineering, land, operating and financial services to us for six months relating to our Eagle Ford Acreage. In exchange for such services, we will pay a monthly management fee to the Service Providers.  NGP and certain former management members of Esquisto own the Service Providers.  During the three months ended March 31, 2017, we paid the Service Providers $0.1 million.

Note 15. Segment Disclosures

Our chief executive officer has been identified as our chief operating decision maker (“CODM”).  We have identified two operating segments – the Eagle Ford and North Louisiana – that have been aggregated into one reportable segment that is engaged in the acquisition, exploitation, development and production of oil, natural gas and NGL resources in the United States.  Our reportable segment includes midstream operations that primarily support the Company’s oil and natural gas producing activities.  There are no differences between reportable segment revenues and consolidated revenues.  Furthermore, all of our revenues are from external

25

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

customers.  The Company u ses Adjusted EBITDAX as its measure of profit or loss to assess performance and allocate resources.  Information regarding assets by reportable segment is not presented because it is not reviewed by the CODM.

The following table presents a reconciliation of net income (loss) to Adjusted EBITDAX (in thousands):

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Adjusted EBITDAX reconciliation to net (loss) income:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

20,252

 

 

$

(14,216

)

Interest expense, net

 

 

5,571

 

 

 

1,972

 

Income tax (benefit) expense

 

 

11,700

 

 

 

139

 

Depreciation, depletion and amortization

 

 

26,443

 

 

 

22,063

 

Exploration expense

 

 

1,615

 

 

 

7,443

 

(Gain) loss on derivative instruments

 

 

(31,291

)

 

 

(3,246

)

Cash settlements received (paid) on derivative instruments

 

 

(983

)

 

 

3,373

 

Stock-based compensation

 

 

495

 

 

 

—

 

Acquisition related costs

 

 

599

 

 

 

—

 

Debt extinguishment costs

 

 

(11

)

 

 

358

 

Public offering costs

 

 

182

 

 

 

—

 

Non-cash liability amortization

 

 

—

 

 

 

(183

)

Total Adjusted EBITDAX

 

$

34,572

 

 

$

17,703

 

 

Note 16. Income Taxes

The Company is a corporation subject to federal and state income taxes. Prior to our initial public offering, we were primarily organized as pass-through entities for federal income tax purposes and were not subject to federal income taxes; however, one of our predecessor subsidiaries previously elected to be taxed as a corporation and was subject to federal and state income taxes. Compensation expense or benefit associated with the incentive units (discussed in Note 13) creates a nondeductible permanent difference for income tax purposes. 

Income tax expense for the three months ended March 31, 2017 was $11.7 million compared to income tax expense of $0.1 million for the three months ended March 31, 2016. The period-to-period increase was primarily a result of being a corporation subject to federal and state income tax subsequent to our initial public offering. The effective tax rate for the three months ended March 31, 2017 and 2016 was 36.6% and negative 1.0%, respectively. The effective tax rate differed from the statutory federal income tax rate during the three months ended March 31, 2017 primarily due to the impact of state income tax (net of federal benefit).  The effective tax rate differed from the statutory federal income tax rate during the three months ended March 31, 2016 primarily due to the impact of pass-through entities and state income tax (net of federal benefit).

The Company reported no liability for unrecognized tax benefits as of March 31, 2017 and expects no significant change to the unrecognized tax benefits in the next twelve months.

Note 17. Commitme nts and Contingencies

Litigation & Environmental

We are party to various ongoing and threatened legal actions relating to our entitled ownership interests in certain properties. We evaluate the merits of existing and potential claims and accrue a liability for any that meet the recognition criteria and can be reasonably estimated. We did not recognize any liability as of March 31, 2017 and December 31, 2016. Our estimates are based on information known about the matters and the input of attorneys experienced in contesting, litigating, and settling similar matters. Actual amounts could differ from our estimates and other claims could be asserted.

From time to time, we could be liable for environmental claims arising in the ordinary course of business. No environmental obligations were recognized at March 31, 2017 and December 31, 2016.

26

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Firm Gas Transportation Service Agreement

The Company has an existing firm gas transportation service agreement with Regency Intrastate Gas LLC as discussed in our 2016 Form 10-K.

Letters of Credit and Certificate of Deposit

The company has existing standby letters of credit issued to the Louisiana Office of Conservation and the Railroad Commission of Texas.  These standby letters of credit are cash collateralized by certificates of deposits.  The fair value of the certificates of deposits were $0.8 million and $0.9 million at March 31, 2017 and December 31, 2016, respectively, and were recorded on our balance sheet as restricted cash.  

Dedicated Fracturing Fleet Services Agreement

During the three months ended March 31, 2017, the Company entered into a 20-month dedicated fracturing fleet services agreement to complete wells in a timely manner following conclusion of drilling operations. The agreement may be extended for an additional twelve months. We have agreed to pay a fixed monthly service fee of $2.7 million that covers the cost of equipment and personnel.  In addition to the fixed monthly service charge, we have agreed to pay $6,000 for each stage completed in excess of 360 stages per calendar quarter.  We have also agreed to pay a pass through fee for the cost of chemicals and fuel plus 10%.  We have the right to terminate the contract with appropriate notice; however, an early termination fee of approximately $1.4 million times the number of months remaining under the initial term of the contract would be payable on the termination date.

Interruptible Water Availability Agreement

The Company entered into an interruptible water availability agreement with the Brazos River Authority (“BRA”) that began on February 1, 2017 and ends on December 31, 2021.  The agreement provides us with an aggregate of 6,978 acre-feet of water per year from the Brazos River at prices that may be adjusted periodically by BRA. The agreement requires annual payments to be made on or before February 15 of each year during the term of the agreement.  We recorded a payment of $0.4 million during the three months ended March 31, 2017.

Note 18. Subsequent Events

APC/KKR Acquisition

On May 10, 2017, we, through our new wholly owned subsidiary, WHR Eagle Ford LLC (“WHR EF”),  entered into a Purchase and Sale Agreement (the “First Acquisition Agreement”) by and among WHR EF, as purchaser, and Anadarko E&P Onshore LLC (“APC”), Admiral A Holding L.P., TE Admiral A Holding L.P. and Aurora C-I Holding L.P. (collectively, “KKR” and, together with APC, the “First Sellers”), as sellers, to acquire certain acres and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (the “Purchase”). Also on May 10, 2017, WHR EF entered into a Purchase and Sale Agreement (together, with the First Acquisition Agreement, the “Acquisition Agreements”), by and among WHR EF, as purchaser, and APC and Anadarko Energy Services Company (together, with APC, the “APC Subs” and together, with the First Sellers, the “Sellers”), as sellers, to acquire certain acres and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (together, with the Purchase, the “Acquisition”).

Pursuant to the Acquisition Agreements, we are acquiring approximately 111,000 aggregate net acres and the associated production therefrom. The aggregate purchase price for the assets, as described in the Acquisition Agreements, subject to customary adjustments as provided in the Acquisition Agreements, consists of approximately $556 million of cash to the APC Subs, as applicable, and approximately 6.3 million shares of our common stock valued at approximately $69 million to KKR (in the aggregate, the “Purchase Price”).  The common stock portion of the Purchase price payable to KKR will be issued pursuant to a Stock Issuance Agreement that was executed, on May 10, 2017 (the “Stock Issuance Agreement”), by and among us and KKR. We and KKR have made customary representations, warranties and covenants in the Stock Issuance Agreement. The closing of the common stock issuance is conditioned upon and will occur simultaneous with the closing of the Acquisition. We and the Sellers have made customary rep resentations, warranties and covenants in the Acquisition Agreements. The Sellers have made certain additional customary covenants, including, among others, covenants to conduct its business in the ordinary course between the execution of the Acquisition Agreements and the closing of the Acquisition and not to engage in certain kinds of transactions during that period, subject to certain exceptions. The Sellers have agreed not to take certain specified actions without our consent during the time between execution of the Acquisition Agreements and the closing of the Acquisition.

27

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

Consummation of the Acquisition is subject to customary conditions. The Acquisition is expected to close on or about June 30, 2017 with an effective date of January 1, 2017. The Acqu isition Agreements may be terminated under customary circumstances.

Preferred Stock Issuance

To partially fund the cash portion of the Purchase Price, on May 10, 2017, we entered in to a Preferred Stock Purchase Agreement (the “Preferred Stock Purchase Agreement”), by and among us and CP VI Eagle Holdings, L.P. (“Carlyle”), an affiliate of The Carlyle Group, whereby we agreed to issue and sell to Carlyle, and Carlyle agreed to purchase from us, 435,000 shares of our preferred stock, par value $0.01 per share, designated as “Series A Perpetual Convertible Preferred Stock” (the “Preferred Stock”), having terms set forth in the Certificate of Designations, a form of which is an annex to the Preferred Stock Purchase Agreement.

The Preferred Stock will rank senior to our common stock with respect to dividend rights and with respect to rights on liquidation, winding-up and dissolution.  The Preferred Stock will have an initial liquidation preference of $1,000 per share and will pay a dividend rate of 6% per annum in cash or, if a cash dividend is not declared and paid in respect of any dividend payment period, by adding additional amounts to the liquidation preference in kind. The Preferred Stock will also participate in dividends and distributions on our common stock on an as-converted basis. If at any time following the 30-month anniversary of the issuance date the closing sale price of our common stock equals or exceeds 130% of the Conversion Price (as defined below) for at least 25 consecutive trading days, our obligation to pay dividends on the Preferred Stock shall terminate permanently.

The Preferred Stock is convertible at the option of the holders at any time following the first anniversary of the closing date into the amount of shares of common stock per share of Preferred Stock (such rate, the “Conversion Rate”) equal to (i) the quotient of (A) the sum of the Liquidation Preference (as defined in the Preferred Stock Purchase Agreement) plus an amount equal to the accrued but unpaid dividends and distributions not previously added to the Liquidation Preference divided by (B) a conversion price of $13.90 (the “Conversion Price”), subject to customary anti-dilution adjustments.  The holders of Preferred Stock may also convert their Preferred Stock at the Conversion Rate prior to the first anniversary of the closing date in connection with certain change of control transactions and in connection with sales of common stock by certain of our existing shareholders.

Following the fourth anniversary of the closing date, the Company may cause the conversion of the Preferred Stock at the Conversion Rate, provided the closing sale price of the common stock equals or exceeds 140% of the Conversion Price for the 20 trading days ending on and including the date of delivery of the Company’s notice to convert and subject to certain other requirements regarding registration of the shares issuable upon conversion.   Notwithstanding the foregoing, the Company shall only be permitted to deliver one conversion notice during any 180 day period and the number of shares of common stock issued upon conversion of the Preferred Stock for which such automatic conversion notice is given shall be limited to 25 times the average daily trading volume of our common stock during the 20 trading days ending on and including the date of delivery of the Company’s notice to convert.

If the Company undergoes certain change of control transactions, the holders of the Preferred Stock shall be entitled to cause the Company to redeem the Preferred Stock for cash in an amount equal to the Liquidation Preference, plus the net present value of dividend payments that would have been accrued as payable to the holders following the date of the consummation of such change of control and through the day that is 30 months after the closing date, in the case of any change of control occurring prior to the 30-month anniversary of the closing date (the “COC Redemption Price”).  In addition, the Company will have the right in connection with any such change of control transaction to redeem any Preferred Stock that is not otherwise converted or redeemed as described in the preceding sentence for cash at the COC Redemption Price.

At any time after the fifth anniversary of the closing date, the Company may redeem the Preferred Stock, in whole or in part, for an amount in cash equal to, per each share of Preferred Stock, (i) on or prior to the sixth anniversary of the closing date, the Liquidation Preference multiplied by 112%, (ii) on or prior to the seventh anniversary of the closing date, the Liquidation Preference multiplied by 109% or (ii) after the seventh anniversary of the closing date, the Liquidation Preference multiplied by 106%.

Until conversion, the holders of the Preferred Stock will vote together with our common stock on an as-converted basis and will also have rights to vote as a separate class on certain matters impacting the Preferred Stock. However, the Preferred Stock will not be entitled to vote with the common stock on an as-converted basis, will not be convertible into our common stock and will not be entitled to the board election rights described below until the later of (i) the 21st day after the date on which we mail to our shareholders an information statement regarding the issuance of the Preferred Stock and (ii) the date certain required regulatory approvals are obtained.

In addition, Carlyle as a holder of Preferred Stock will be entitled to elect (i) two directors to our board of directors for so long as Carlyle owns 10% of our outstanding common stock on an as-converted basis and (ii) one board seat for so long as Carlyle holds 5% of our outstanding common stock on an as-converted basis.

The closing of the Preferred Stock issuance is conditioned upon and will close simultaneously with the closing of the Acquisition.

28

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

 

As conditions to closing under the Stock Issuance Agreement and the Preferred Purchase Agreement we have agreed to amend and restate our existing registration rights agreement with WHR Holdings, LLC, Esquisto Holdings, LLC, WHE AcqCo Holdings, LLC, NGP XI US Holdings, L.P., Jay C. Graham and Anthony Bahr in order to grant certain registration rights to KKR and Carlyle.

The remainder of the cash portion of the Purchase Price is to be funded by borrowings under our revolving credit facility.

Eagle Ford Acquisitions

In February 2017, we announced multiple transactions to acquire certain oil and natural gas producing and non-producing properties from third-parties in Burleson County, Texas.  We closed one transaction in February 2017 as discussed in “Note 3—Acquisitions and Divestitures.”  The remaining transactions closed in April 2017 for an aggregate price of approximately $13.2 million, subject to customary post-closing adjustments.

 

 

 

29

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and related notes in “Item 1. Financial Statements” contained herein and our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 31, 2017 (“2016 Form 10-K”). The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGLs, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, drilling results, regulatory changes and other uncertainties, as well as those factors discussed in “Part I—Item 1A. Risk Factors” of our 2016 Form 10-K, “Part II—Item 1A. Risk Factors” contained in this Quarterly Report and “Cautionary Statement Regarding Forward-Looking Statements” in the front of the Quarterly Report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.  We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

WildHorse Resource Development Corporation (the “Company”) is a Delaware corporation, the common stock, par value $0.01 per share, of which is listed on the New York Stock Exchange (“NYSE”) under the symbol “WRD.”

We operate in one reportable segment engaged in the acquisition, exploitation, development and production of oil, natural gas and NGL resources. Our assets are characterized by concentrated acreage positions in Southeast Texas and North Louisiana with multiple producing stratigraphic horizons, or stacked pay zones, and attractive single-well rates of return. In Southeast Texas, we primarily operate in Burleson, Lee and Washington Counties where we primarily target the Eagle Ford Shale. In North Louisiana, we operate in and around the highly prolific Terryville Complex, where we primarily target the over-pressured Cotton Valley play.

As of December 31, 2016, we had assembled a total leasehold position of approximately 467,319 gross (371,198 net) acres across our expanding acreage, including approximately 321,661 gross (262,742 net) acres in the Eagle Ford and approximately 145,658 gross (108,456 net) acres in North Louisiana. We have identified a total of approximately 4,548 gross (2,350 net) drilling locations across our acreage as of December 31, 2016.

Recent Developments

APC/KKR Acquisition

On May 10, 2017, we, through our new wholly owned subsidiary, WHR Eagle Ford LLC (“WHR EF”),  entered into a Purchase and Sale Agreement (the “First Acquisition Agreement”) by and among WHR EF, as purchaser, and Anadarko E&P Onshore LLC (“APC”), Admiral A Holding L.P., TE Admiral A Holding L.P. and Aurora C-I Holding L.P. (collectively, “KKR” and, together with APC, the “First Sellers”), as sellers, to acquire certain acres and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (the “Purchase”). Also on May 10, 2017, WHR EF entered into a Purchase and Sale Agreement (together, with the First Acquisition Agreement, the “Acquisition Agreements”), by and among WHR EF, as purchaser, and APC and Anadarko Energy Services Company (together, with APC, the “APC Subs” and together, with the First Sellers, the “Sellers”), as sellers, to acquire certain acres and associated production in Burleson, Brazos, Lee, Milam, Robertson, and Washington Counties, Texas (together, with the Purchase, the “Acquisition”).

Pursuant to the Acquisition Agreements, we are acquiring approximately 111,000 aggregate net acres and the associated production therefrom. The aggregate purchase price for the assets, as described in the Acquisition Agreements, subject to customary adjustments as provided in the Acquisition Agreements, consists of approximately $556 million of cash to the APC Subs, as applicable, and approximately 6.3 million shares of our common stock valued at approximately $69 million to KKR (in the aggregate, the “Purchase Price”).  The common stock portion of the Purchase price payable to KKR will be issued pursuant to a Stock Issuance Agreement that was executed, on May 10, 2017 (the “Stock Issuance Agreement”), by and among us and KKR. We and KKR have made customary representations, warranties and covenants in the Stock Issuance Agreement. The closing of the common stock issuance is conditioned upon and will occur simultaneous with the closing of the Acquisition. We and the Sellers have made customary representations, warranties and covenants in the Acquisition Agreements. The Sellers have made certain additional customary covenants, including, among others, covenants to conduct its business in the ordinary course between the execution of the Acquisition Agreements and the closing of the Acquisition and not to engage in certain kinds of transactions during that period, subject to certain exceptions. The Sellers have agreed not to take certain specified actions without our consent during the time between execution of the Acquisition Agreements and the closing of the Acquisition.

30

 

Consummation of the Acquisition is subject to customary conditions. The Acquisition is expected to close on or about June 30, 2017 wi th an effective date of January 1, 2017. The Acquisition Agreements may be terminated under customary circumstances.

The foregoing summary of the Acquisition Agreements and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Acquisition Agreements, which are filed as Exhibits 2.2 and 2.3 to this Quarterly Report, and incorporated herein by reference.

Preferred Stock Issuance

To partially fund the cash portion of the Purchase Price, on May 10, 2017, we entered in to a Preferred Stock Purchase Agreement (the “Preferred Stock Purchase Agreement”), by and among us and CP VI Eagle Holdings, L.P. (“Carlyle”), an affiliate of The Carlyle Group, whereby we agreed to issue and sell to Carlyle, and Carlyle agreed to purchase from us, 435,000 shares of our preferred stock, par value $0.01 per share, designated as “Series A Perpetual Convertible Preferred Stock” (the “Preferred Stock”), having terms set forth in the Certificate of Designations, a form of which is an annex to the Preferred Stock Purchase Agreement.

The Preferred Stock will rank senior to our common stock with respect to dividend rights and with respect to rights on liquidation, winding-up and dissolution.  The Preferred Stock will have an initial liquidation preference of $1,000 per share and will pay a dividend rate of 6% per annum in cash or, if a cash dividend is not declared and paid in respect of any dividend payment period, by adding additional amounts to the liquidation preference in kind. The Preferred Stock will also participate in dividends and distributions on our common stock on an as-converted basis. If at any time following the 30-month anniversary of the issuance date the closing sale price of our common stock equals or exceeds 130% of the Conversion Price (as defined below) for at least 25 consecutive trading days, our obligation to pay dividends on the Preferred Stock shall terminate permanently.

The Preferred Stock is convertible at the option of the holders at any time following the first anniversary of the closing date into the amount of shares of common stock per share of Preferred Stock (such rate, the “Conversion Rate”) equal to (i) the quotient of (A) the sum of the Liquidation Preference (as defined in the Preferred Stock Purchase Agreement) plus an amount equal to the accrued but unpaid dividends and distributions not previously added to the Liquidation Preference divided by (B) a conversion price of $13.90 (the “Conversion Price”), subject to customary anti-dilution adjustments.  The holders of Preferred Stock may also convert their Preferred Stock at the Conversion Rate prior to the first anniversary of the closing date in connection with certain change of control transactions and in connection with sales of common stock by certain of our existing shareholders.

Following the fourth anniversary of the closing date, the Company may cause the conversion of the Preferred Stock at the Conversion Rate, provided the closing sale price of the common stock equals or exceeds 140% of the Conversion Price for the 20 trading days ending on and including the date of delivery of the Company’s notice to convert and subject to certain other requirements regarding registration of the shares issuable upon conversion.   Notwithstanding the foregoing, the Company shall only be permitted to deliver one conversion notice during any 180 day period and the number of shares of common stock issued upon conversion of the Preferred Stock for which such automatic conversion notice is given shall be limited to 25 times the average daily trading volume of our common stock during the 20 trading days ending on and including the date of delivery of the Company’s notice to convert.

If the Company undergoes certain change of control transactions, the holders of the Preferred Stock shall be entitled to cause the Company to redeem the Preferred Stock for cash in an amount equal to the Liquidation Preference, plus the net present value of dividend payments that would have been accrued as payable to the holders following the date of the consummation of such change of control and through the day that is 30 months after the closing date, in the case of any change of control occurring prior to the 30-month anniversary of the closing date (the “COC Redemption Price”).  In addition, the Company will have the right in connection with any such change of control transaction to redeem any Preferred Stock that is not otherwise converted or redeemed as described in the preceding sentence for cash at the COC Redemption Price.

At any time after the fifth anniversary of the closing date, the Company may redeem the Preferred Stock, in whole or in part, for an amount in cash equal to, per each share of Preferred Stock, (i) on or prior to the sixth anniversary of the closing date, the Liquidation Preference multiplied by 112%, (ii) on or prior to the seventh anniversary of the closing date, the Liquidation Preference multiplied by 109% or (ii) after the seventh anniversary of the closing date, the Liquidation Preference multiplied by 106%.

Until conversion, the holders of the Preferred Stock will vote together with our common stock on an as-converted basis and will also have rights to vote as a separate class on certain matters impacting the Preferred Stock. However, the Preferred Stock will not be entitled to vote with the common stock on an as-converted basis, will not be convertible into our common stock and will not be entitled to the board election rights described below until the later of (i) the 21st day after the date on which we mail to our shareholders an information statement regarding the issuance of the Preferred Stock and (ii) the date certain required regulatory approvals are obtained.

In addition, Carlyle as a holder of Preferred Stock will be entitled to elect (i) two directors to our board of directors for so long as Carlyle owns 10% of our outstanding common stock on an as-converted basis and (ii) one board seat for so long as Carlyle holds 5% of our outstanding common stock on an as-converted basis.

31

 

The closing of the Preferred Stock issuance is conditi oned upon and will close simultaneously with the closing of the Acquisition.

As conditions to closing under the Stock Issuance Agreement and the Preferred Purchase Agreement we have agreed to amend and restate our existing registration rights agreement with WHR Holdings, LLC, Esquisto Holdings, LLC, WHE AcqCo Holdings, LLC, NGP XI US Holdings, L.P., Jay C. Graham and Anthony Bahr in order to grant certain registration rights to KKR and Carlyle.

The remainder of the cash portion of the Purchase Price is to be funded by borrowings under our revolving credit facility.

The foregoing summary of the Preferred Stock Purchase Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Preferred Stock Purchase Agreement, which is filed as Exhibit 4.4 to this Quarterly Report and incorporated herein by reference.

Borrowing Base Redetermination

On April 4, 2017, our revolving credit facility borrowing base was increased from $362.5 million to $450.0 million in connection with the semi-annual borrowing base redetermination by our lenders.  In addition to our semi-annual borrowing base redetermination, we amended our revolving credit facility to add additional lenders.

Eagle Ford Acquisitions

In February 2017, we announced multiple transactions to acquire certain oil and natural gas producing and non-producing properties from third-parties in Burleson County, Texas for an aggregate price of approximately $15.6 million, subject to customary post-closing adjustments.  One transaction closed in February 2017 and the remaining transactions closed in April 2017.

Sources of Our Revenues

Our revenues are derived from the sale of our oil and natural gas production, the sale of NGLs that are extracted from our natural gas during processing, and the gathering charge paid by certain third parties for their share of volumes that run through our gathering system. Production revenues are derived entirely from the continental United States.

Natural gas, NGL and oil prices are inherently volatile and are influenced by many factors outside our control. In order to reduce the impact of fluctuations in natural gas and oil prices on revenues, or to protect the economics of property acquisitions, we intend to periodically enter into derivative contracts with respect to a significant portion of estimated natural gas and oil production through various transactions that fix the future prices received. Our oil, natural gas and NGL revenues do not include the effects of derivatives.

Principal Components of Cost Structure

Costs associated with producing oil, natural gas and NGLs are substantial. Some of these costs vary with commodity prices, some trend with the type and volume of production, and others are a function of the number of wells we own. The sections below summarize the primary operating costs we typically incur.

 

•

Lease Operating Expenses. Lease operating expenses (“LOE”) are the costs incurred in the operation of producing properties and workover costs. Expenses for utilities, direct labor, water injection and disposal, workover rigs and workover expenses, materials and supplies comprise the most significant portion of our LOE. Certain items, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to our pumping equipment or surface facilities result in increased LOE in periods during which they are performed. Certain of our operating cost components are variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases. For example, we incur power costs in connection with various production-related activities, such as pumping to recover oil and natural gas and separation and treatment of water produced in connection with our oil and natural gas production.

We monitor our operations to ensure that we are incurring LOE at an acceptable level. For example, we monitor our LOE per Boe to determine if any wells or properties should be shut in, recompleted or sold. This unit rate also allows us to monitor these costs in certain fields and geographic areas to identify trends and to benchmark against other producers. Although we strive to reduce our LOE, these expenses can increase or decrease on a per unit basis as a result of various factors as we operate our properties or make acquisitions and dispositions of properties. For example, we may increase field-level expenditures to optimize our operations, incurring higher expenses in one quarter relative to another, or we

32

 

may acquire or dispose of properties that have different LOE per Boe. These initiatives would influence our overall operating cost and could cause fluctuations whe n comparing LOE on a period to period basis.

 

•

Gathering, processing and transportation (“GP&T”). These are costs incurred to deliver production of our natural gas, NGLs and oil to the market. Cost levels of these expenses can vary based on the volume of natural gas, NGLs and oil produced as well as the cost of commodity processing.

 

•

Gathering System Operating Expense. Gathering system operating expenses include contract labor, water disposal, dehydration equipment rentals, chemical and facilities-related expenses and facility termination fees that are incurred in the operation of our North Louisiana gathering system.

 

•

Taxes other than Income Taxes. Production taxes are paid on produced oil and natural gas based on rates established by federal, state or local taxing authorities. In general, the production taxes we pay correlate to the changes in oil, natural gas and NGLs revenues. Production taxes for our Texas properties are based on the market value of our production at the wellhead.  Production taxes for our Louisiana properties are based on our gross production at the wellhead. We are also subject to ad valorem taxes in the counties and parishes where our production is located. Ad valorem taxes for our Texas properties are based on the fair market value of our mineral interests for producing wells. Ad valorem taxes for our Louisiana properties are assessed based on the cost of our oil and natural gas properties. Louisiana imposes a capital based franchise tax on corporations based on capital employed within the state.

 

•

Depreciation, Depletion and Amortization. Depreciation, depletion and amortization (“DD&A”) is the systematic expensing of the capitalized costs incurred to acquire and develop oil and natural gas properties. We use the successful efforts method of accounting for oil and natural gas activities and, as such, we capitalize all costs associated with our development and acquisition efforts and all successful exploration efforts, which are then allocated to each unit of production using the unit of production method. Our DD&A rate can fluctuate as a result of impairments, dispositions, finding and development costs and proved reserve volumes, which are all impacted by oil, natural gas and NGL prices.

 

•

Impairment Expense. We review our proved properties and unproved leasehold costs for impairment whenever events and changes in circumstances indicate that a decline in the recoverability of their carrying value may have occurred. Impairment of unproved leasehold costs are recorded within exploration expense.

 

•

General and Administrative Expenses. General and administrative (“G&A”) expenses are costs incurred for overhead, including payroll and benefits for our corporate staff, costs of maintaining our headquarters, costs of managing our production and development operations, stock-based compensation, public company expenses, IT expenses, audit and other fees for professional services, including legal compliance and acquisition-related expenses.

 

•

Exploration Expense. Exploration expense is geological and geophysical costs that include seismic surveying costs, costs of unsuccessful exploratory dry holes, lease abandonment and delay rentals. Exploration expense also includes rig standby and rig contract termination fees.

 

•

Incentive unit compensation expense. See “Note 13—Incentive Units” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report for additional information.

 

•

Interest expense. We finance a portion of our working capital requirements and acquisitions with borrowings under our revolving credit facility and senior note issuances. As a result, we incur substantial interest expense that is affected by both fluctuations in interest rates and financing decisions. We expect to continue to incur significant interest expense as we continue to grow.  Interest expense includes the amortization of debt issuance costs as well as the write-off of unamortized debt issuance costs.

 

•

Gain (loss) on derivative instruments. Net realized and unrealized gains on our derivatives are a function of fluctuations in the underlying commodity prices and the monthly settlement of the instruments. Given the volatility of commodity prices, it is not possible to predict future reported unrealized mark-to-market net gains or losses and the actual net gains or losses that will ultimately be realized upon settlement of the hedge positions in future years. If commodity prices at settlement are lower than the prices of the hedge positions, the hedges are expected to mitigate the otherwise negative effect on earnings of lower oil, natural gas and NGL prices. However, if commodity prices at settlement are higher than the prices of the hedge positions, the hedges are expected to dampen the otherwise positive effect on earnings of higher oil, natural gas and NGL prices and will, in this context, be viewed as having resulted in an opportunity cost.

 

•

Income tax expense. We are a corporation subject to federal and certain state income taxes. Prior to our initial public offering, we were primarily organized as pass-through entities for federal income tax purposes and were not subject to federal income taxes; however, one of our predecessor subsidiaries previously elected to be taxed as a corporation and was subject to federal and state income taxes.

33

 

Critical Accounting Policies and Estimates

Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts 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 on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

We evaluate the estimates and assumptions on a regular basis; however, actual results may differ from these estimates and assumptions used in the preparation of the financial statements. Significant estimates with regard to these financial statements include (1) the estimate of proved oil, natural gas and NGL reserves and related present value estimates of future net cash flows therefrom; (2) depreciation, depletion and amortization expense; (3) valuation of accounts receivable; (4) accrued capital expenditures and liabilities; (5) asset retirement obligations; (6) environmental remediation costs; (7) valuation of derivative instruments; (8) contingent liabilities and (9) impairment expense. Although management believes these estimates are reasonable, changes in facts and circumstances or discovery of new information may result in revised estimates, and such revisions could be material.

A discussion of our critical accounting policies and estimates is included in our 2016 Form 10-K. There have been no significant changes to our critical accounting policies and estimates.

Results of Operations

The results of operations of our predecessor were retrospectively recast due to common control considerations. Because WHR II, Esquisto and Acquisition Co. were under the common control of NGP, the sale and contribution of the respective ownership interests were accounted for as a combination of entities under common control, whereby the assets and liabilities sold and contributed were recorded based on historical cost. As such, the results of operations presented below for the three months ended March 31, 2016 have been derived from the combined results attributable to our predecessor and Esquisto. For periods after the completion of our initial public offering, our consolidated financial statements include our accounts and those of our subsidiaries.                          

Factors Affecting the Comparability of the Combined Historical Financial Results

The comparability of the results of operations among the periods presented is impacted by the following:

 

•

the acquisition of approximately 158,000 net acres of oil and natural gas properties adjacent to our existing Eagle Ford acreage on December 19, 2016 in connection with our initial public offering (the “Burleson North Acquisition”) for a final purchase price of $385.9 million, net of customary post-closing adjustments;

 

•

incremental G&A expenses as a result of being a publicly traded company   including, but not limited to, Exchange Act reporting expenses; expenses associated with Sarbanes Oxley compliance; expenses associated with shares of our common stock being listed on a national securities exchange; incremental independent auditor fees; incremental legal fees; investor relations expenses; registrar and transfer agent fees; incremental director and officer liability insurance costs; and independent director compensation; and

 

•

the February 2017 private placement of $350.0 million aggregate principal amount of 6.875% senior unsecured notes due 2025 (the “2025 Senior Notes”).

As a result of the factors listed above, the combined historical results of operations and period-to-period comparisons of these results and certain financial data may not be comparable or indicative of future results.

34

 

The table below summarizes certain of the results of operations and period-to-period compa risons for the periods indicated.

  

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

Oil sales

 

$

39,077

 

 

$

13,253

 

Natural gas sales

 

 

12,145

 

 

 

10,206

 

NGL sales

 

 

2,663

 

 

 

945

 

Other income

 

 

407

 

 

 

723

 

Total operating revenues

 

 

54,292

 

 

 

25,127

 

Operating expenses:

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

6,928

 

 

 

2,760

 

Gathering, processing and transportation

 

 

1,700

 

 

 

1,891

 

Gathering system operating expense

 

 

19

 

 

 

54

 

Taxes other than income tax

 

 

3,899

 

 

 

1,472

 

Depreciation, depletion and amortization

 

 

26,443

 

 

 

22,063

 

General and administrative expenses

 

 

7,482

 

 

 

4,449

 

Exploration expense

 

 

1,615

 

 

 

7,443

 

Total operating expenses

 

 

48,086

 

 

 

40,132

 

Income (loss) from operations

 

 

6,206

 

 

 

(15,005

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(5,571

)

 

 

(1,972

)

Debt extinguishment costs

 

 

11

 

 

 

(358

)

Gain (loss) on derivative instruments

 

 

31,291

 

 

 

3,246

 

Other income (expense)

 

 

15

 

 

 

12

 

Total other income (expense)

 

 

25,746

 

 

 

928

 

Income (loss) before income taxes

 

 

31,952

 

 

 

(14,077

)

Income tax benefit (expense)

 

 

(11,700

)

 

 

(139

)

Net income (loss)

 

 

20,252

 

 

 

(14,216

)

Net income (loss) allocated to previous owners

 

 

—

 

 

 

(2,517

)

Net income (loss) allocated to predecessor

 

 

—

 

 

 

(11,699

)

Net income (loss) available to WildHorse Resources

 

$

20,252

 

 

$

—

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.22

 

 

n/a

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

93,216

 

 

n/a

 

Oil and natural gas revenue:

 

 

 

 

 

 

 

 

Natural gas

 

$

12,145

 

 

$

10,206

 

Crude oil

 

 

39,077

 

 

 

13,253

 

Natural gas liquids

 

 

2,663

 

 

 

945

 

Total oil and natural gas revenue

 

$

53,885

 

 

$

24,404

 

Production volumes:

 

 

 

 

 

 

 

 

Natural gas (MMcf)

 

 

3,849

 

 

 

4,801

 

Oil (MBbls)

 

 

783

 

 

 

446

 

NGLs (MBbls)

 

 

160

 

 

 

111

 

Total (MBoe)

 

 

1,584

 

 

 

1,357

 

Average sales price:

 

 

 

 

 

 

 

 

Natural gas (per Mcf)

 

$

3.16

 

 

$

2.13

 

Oil (per Bbl)

 

 

49.90

 

 

 

29.72

 

NGLs (per Bbl)

 

 

16.65

 

 

 

8.51

 

Total (per Boe)

 

$

34.01

 

 

$

17.98

 

Average production volumes:

 

 

 

 

 

 

 

 

Natural gas (MMcf/d)

 

 

42.8

 

 

 

52.8

 

Oil (MBbls/d)

 

 

8.7

 

 

 

4.9

 

NGLs (MBbls/d)

 

 

1.8

 

 

 

1.2

 

Average net production (MBoe/d)

 

 

17.6

 

 

 

14.9

 

Average unit costs per Boe:

 

 

 

 

 

 

 

 

Lease operating expenses

 

$

4.37

 

 

$

2.03

 

Gathering, processing and transportation

 

$

1.07

 

 

$

1.39

 

Taxes other than income tax

 

$

2.46

 

 

$

1.08

 

General and administrative expenses

 

$

4.72

 

 

$

3.28

 

Depletion, depreciation and amortization

 

$

16.69

 

 

$

16.26

 

 


35

 

Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016

For purposes of the following discussion, references to 2017 and 2016 refer to the three months ended March 31, 2017 and the three months ended March 31, 2016, respectively, unless otherwise indicated.

 

•

Oil, natural gas and NGL revenues were $53.9 million for 2017 compared to $24.4 million for 2016, an increase of $29.5 million (approximately 120%). Production increased 0.2 MMBoe (approximately 14%) primarily due to the December 2016 Burleson North acquisition and to drilling successful wells in the Eagle Ford. The average realized sales price increased $16.03 per Boe (approximately 89%) due to a higher percentage of oil in the production mix. Oil revenues increased $15.8 million and $10.0 million due to favorable pricing and production variances, respectively. Natural gas revenues increased $3.9 million due to a favorable pricing variance offset by a $2.0 million decrease due to an unfavorable volume variance.  NGL revenues increased $1.3 million and $0.4 million due to favorable price and volume variances, respectively.

 

•

LOE was $6.9 million and $2.8 million for 2017 and 2016, respectively.   On a per Boe basis, total LOE was $4.37 and $2.03 for 2017 and 2016, respectively.  The increase in LOE on a per unit basis is largely attributable to the Burleson North acquisition which came with less efficient legacy production. Net production in 2017 consisted of 49% oil compared to 33% oil in 2016.  Generally, the production of oil is more expensive than natural gas on a per Boe basis.  

 

•

GP&T expenses were $1.7 million and $1.9 million for 2017 and 2016, respectively.  The 11% decrease in GP&T expenses was primarily attributable to lower fee gas purchasing and processing contracts associated with the Burleson North properties.  On a per Boe basis, GP&T expenses were $1.07 and $1.39 for 2017 and 2016, respectively.   

 

•

Taxes other than income tax were $3.9 million and $1.5 million for 2017 and 2016, respectively; an increase of $2.4 million (approximately 160%).  On a per Boe basis, taxes other than income tax were $2.46 and $1.08 for 2017 and 2016, respectively.  The 128% increase was primarily due to higher price realizations, higher ad valorem taxes, and Louisiana franchise taxes incurred as a result of our corporate reorganization that occurred in conjunction with our initial public offering.

 

•

DD&A expense for 2017 was $26.4 million compared to $22.1 million for 2016, a $4.3 million increase (approximately 20%) primarily due to an increase in production volumes related to drilling activities.  Increased production volumes caused DD&A expense to increase by $3.7 million and the change in the DD&A rate between periods caused DD&A expense to increase by $0.7 million.

 

•

G&A expenses were $7.5 million and $4.4 million (an increase of approximately 71%) for 2017 and 2016, respectively.  The $3.1 million increase was primarily due to increased staffing for 2017 compared to 2016 and increased costs associated with being a public company.  Salaries and wages increased by $2.4 million primarily due to additional staffing.  Fees related to accounting and audit services increased $0.6 million between 2017 and 2016.  During 2017, we recorded $0.6 million in acquisition costs and $0.5 million in stock-based compensation costs related to our long term incentive plan.  These increases were offset by the previous owner’s $1.0 million G&A accrual payable to its members during 2016.  

 

•

Exploration expense was $1.6 million and $7.4 million for 2017 and 2016, respectively.   The $5.8 million reduction (approximately 78%) in exploration expense was primarily due to an increase in undeveloped leasehold impairments of $0.7 million, and an increase in seismic acquisitions of $0.3 million, offset by $6.8 million in expenses associated with the early termination of a rig contract, which was laid down in March 2016 due to low commodity prices.

 

•

Interest expense was $5.6 million and $2.0 million for 2017 and 2016, respectively.  The $3.6 million increase (approximately 180%) was due to an increase in the average debt outstanding as a result of the February 2017 issuance of the 2025 Senior Notes. Interest is comprised of interest on our credit facilities, interest on our senior notes and amortization of debt issue costs. Amortization of debt issue costs was $0.8 million for 2017 compared to $0.1 million for 2016.  The amortization of debt issue costs included a write off of $0.6 million due to the automatic reduction of our borrowing base in conjunction with the issuance of the senior notes.

 

•

Debt extinguishment costs were $0.4 million in 2016 due to Esquisto’s retirement and termination of its revolving credit facility and second lien in January 2016 in connection with the merger of Esquisto I and Esquisto II. There were no debt extinguishment costs in 2017.

 

•

Net gains on commodity derivatives of $31.3 million were recognized during 2017, of which $31.2 million was an unrealized gain and $0.1 million was a realized gain. During 2016, we recognized a $3.2 million gain on derivative instruments, of which $3.1 million was a realized gain and a $0.1 million was an unrealized gain.

 

•

Income tax expense of $11.7 million was recognized in 2017 in comparison to income tax expense of a $0.1 million in 2016. The period-to-period increase was primarily a result of being a corporation subject to federal and state income tax subsequent to our initial public offering. The effective tax rate for 2017 differed from the federal statutory income tax rate

36

 

 

primarily due to the impact of state income tax. The effective tax rate for 2016 differed from the federal statutory income tax rate primarily due the impact of pass-through entities and state income tax.

Calculation of Adjusted EBITDAX

Adjusted EBITDAX is a supplemental non-GAAP financial performance measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We include in this Quarterly Report the non-GAAP financial measure Adjusted EBITDAX and provide our calculation of Adjusted EBITDAX. Adjusted EBITDAX is not a measure of net (loss) income as determined according to GAAP.

We define Adjusted EBITDAX as net income (loss):

Plus:

 

•

Interest expense;

 

•

Income tax expense;

 

•

DD&A;

 

•

Exploration expense;

 

•

Impairment of proved oil and natural gas properties;

 

•

Loss on derivative instruments;

 

•

Cash settlements received on derivative instruments;

 

•

Stock-based compensation;

 

•

Incentive-based compensation expenses;

 

•

Acquisition related costs;

 

•

Debt extinguishment costs;

 

•

Loss on sale of properties;

 

•

Initial public offering costs; and

 

•

Other non-cash and non-routine operating items that we deem appropriate.

Less:

 

•

Interest income;

 

•

Income tax benefit;

 

•

Gain on derivative instruments;

 

•

Cash settlements paid on derivative instruments;

 

•

Gain on sale of properties; and

 

•

Other non-cash and non-routine operating items that we deem appropriate.

Management believes Adjusted EBITDAX is a useful performance measure because it allows them to more effectively evaluate our operating performance without regard to our financing methods or capital structure. We exclude the items listed above from net (loss) income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net (loss) income as determined in accordance with GAAP. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. Our presentation of Adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or non-recurring items. Our computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

37

 

Reconciliation of Net Income to Adjusted EBITDAX

The following table presents a reconciliation of Adjusted EBITDAX to net (loss) income, our most directly comparable financial measure calculated and presented in accordance with GAAP.

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Adjusted EBITDAX reconciliation to net (loss) income:

 

(in thousands)

 

Net income (loss)

 

$

20,252

 

 

$

(14,216

)

Interest expense, net

 

 

5,571

 

 

 

1,972

 

Income tax (benefit) expense

 

 

11,700

 

 

 

139

 

Depreciation, depletion and amortization

 

 

26,443

 

 

 

22,063

 

Exploration expense

 

 

1,615

 

 

 

7,443

 

(Gain) loss on derivative instruments

 

 

(31,291

)

 

 

(3,246

)

Cash settlements received (paid) on derivative instruments

 

 

(983

)

 

 

3,373

 

Stock-based compensation

 

 

495

 

 

 

—

 

Acquisition related costs

 

 

599

 

 

 

—

 

(Gain) loss on sale of properties

 

 

—

 

 

 

—

 

Debt extinguishment costs

 

 

(11

)

 

 

358

 

Initial public offering costs

 

 

182

 

 

 

—

 

Non-cash liability amortization

 

 

—

 

 

 

(183

)

Total Adjusted EBITDAX

 

$

34,572

 

 

$

17,703

 

Liquidity and Capital Resources

Our development and acquisition activities require us to make significant operating and capital expenditures. Our primary use of capital has been the acquisition and development of oil, natural gas and NGL properties and facilities. As we pursue reserve and production growth, we plan to monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements.  Historically, WHR II’s and Esquisto’s primary sources of liquidity were capital contributions from their former owners, borrowings under their respective revolving credit facilities and second lien loans and cash generated by their operations.  Our future success in growing proved reserves and production will be highly dependent on the capital resources available to us.

Based on our current oil and natural gas price expectations, we believe our cash flows provided by operating activities and availability under our revolving credit facility will provide us with the financial flexibility and wherewithal to meet our cash requirements, including normal operating needs, and pursue our currently planned 2017 development drilling activities. However, future cash flows are subject to a number of variables, including the level of our oil and natural gas production and the prices we receive for our oil and natural gas production, and significant additional capital expenditures will be required to more fully develop our properties and acquire additional properties. We cannot assure you that operations and other needed capital will be available on acceptable terms, or at all.

As of March 31, 2017, we had $93.3 million of cash and cash equivalents and $362.5 million of available borrowings under our revolving credit facility. As of March 31, 2017, we had a working capital balance of $47.8 million. As of March 31, 2017, the borrowing base under our revolving credit facility was $362.5 million and we had no outstanding borrowings. The borrowing base under our revolving credit facility is subject to redetermination on at least a semi-annual basis based on an engineering report with respect to our estimated oil and natural gas reserves, which will take into account the prevailing oil and natural gas prices at such time, as adjusted for the impact of our commodity derivative contracts. Unanimous approval by the lenders is required for any increase to the borrowing base. On April 4, 2017, our revolving credit facility borrowing base was increased to $450.0 million in connection with the semi-annual borrowing redetermination by the lenders; however, we currently anticipate the borrowing base to increase to $650.0 million upon the closing of the APC/KKR acquisition.   The next scheduled borrowing base redetermination is set for October 2017. A continuing decline in oil and natural gas prices could result in a reduction of our borrowing base under our revolving credit facility and could trigger mandatory principal repayments. On April 27, 2017, standby letters of credit of $1.9 million were issued to the Railroad Commission of Texas under our revolving credit facility. 

 

 

38

 

 

Preferred Stock

We are authorized to issue up to 50,000,000 shares of preferred stock.  Please see “Recent Developments” for additional information.

Capital Expenditure Budget

We established a $550.0 million to $675.0 million 2017 drilling and completion capital expenditure budget. For the three months ended March 31, 2017, our drilling and completion expenditures were approximately $85.4 million primarily related to the development of our Eagle Ford properties.

Debt Agreements

Revolving Credit Facility. In December 2016, we, as borrower, and certain of our current and future subsidiaries, as guarantors, entered into a five-year, $1.0 billion senior secured revolving credit facility.  In April 2017, our revolving credit facility borrowing base was increased from $362.5 million to $450.0 million in connection with the semi-annual borrowing redetermination by our lenders.  Our revolving credit facility is reserve-based, and thus our borrowing base is primarily based on the estimated value of our oil, NGL and natural gas properties and our commodity derivative contracts as determined by our lenders in their sole discretion consistent with their normal and customary oil and gas lending practices semi-annually .   In the future, we may be unable to access sufficient capital under our revolving credit facility as a result of (i) a decrease in our borrowing base due to a borrowing base redetermination or (ii) an unwillingness or inability on the part of our lenders to meet their funding obligations.

We believe we were in compliance with all the financial (interest coverage ratio and current ratio) and other covenants associated with our revolving credit facility as of March 31, 2017.

See “Note 9—Long Term Debt” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report for additional information regarding our revolving credit facility.

2025 Senior Notes

In February 2017, we completed a private placement of the 2025 Senior Notes.  The 2025 Senior Notes, issued at 99.244% of par, mature on February 1, 2025 and are fully and unconditionally guaranteed on a joint and several basis by all of our existing and certain future subsidiaries (subject to customary release provisions).  The 2025 Senior Notes are governed by an indenture dated as of February 1, 2017.  The 2025 Senior Notes accrue interest at 6.875% per annum and payable semi-annually in arrears on February 1 and August 1 of each year.  We used the net proceeds to repay the borrowings outstanding under our revolving credit facility and for general corporate purposes, including funding our 2017 capital expenditures.

See “Note 9—Long Term Debt” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report for additional information regarding the 2025 Senior Notes.

Commodity Derivative Contracts

Our hedging policy is designed to reduce the impact to our cash flows from commodity price volatility.

For additional information regarding the volumes of our production covered by commodity derivative contracts and the average prices at which production is hedged as of March 31, 2017, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk — Counterparty and Customer Credit Risk.”

Counterparty Exposure

Our hedging policy permits us to enter into derivative contracts with major financial institutions or major energy entities. Our derivative contracts are currently with major financial institutions, certain of which are also lenders under our revolving credit facility. We have rights of offset against the borrowings under our revolving credit facility. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk — Counterparty and Customer Credit Risk” for additional information.

39

 

Cash Flows from Operating, Investing and Financing Activities

The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated. Our predecessor’s cash flows were retrospectively revised due to common control considerations.  As such, the cash flows for the three months ended March 31, 2016 have been derived from the combined financial position and results attributable to the predecessor and  the previous owner. For periods after the completion of our initial public offering, our consolidated financial statements include our accounts and those of our subsidiaries.  Because WHR II, Esquisto and Acquisition Co. Holdings were under the common control of NGP, the sale and contribution of the respective ownership interests was accounted for as a combination of entities under common control, whereby the assets and liabilities sold and contributed were recorded based on historical cost.

For information regarding the individual components of our cash flow amounts, see the Statements of Unaudited Condensed Consolidated and Combined Cash Flows included under “Item 1. Financial Statements” contained herein.

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

 

 

(in thousands)

 

Net cash provided by (used in) operating activities

 

$

27,819

 

 

$

(3,069

)

Net cash used in investing activities

 

$

(65,164

)

 

$

(44,396

)

Net cash provided by financing activities

 

$

127,572

 

 

$

19,120

 

Three Months Ended March 31, 2017 Compared to the Three Months Ended March 31, 2016

For purposes of the following discussion, references to 2017 and 2016 refer to the three months ended March 31, 2017 and the three months ended March 31, 2016, respectively, unless otherwise indicated.

Operating Activities. Net cash provided by operating activities was $27.8 million for 2017, compared to $3.1 million of net cash used in operating activities for 2016. Production increased 0.2 MMBoe (approximately 14%) and average realized sales prices increased to $34.01 per Boe for 2017 compared to $17.98 per Boe during 2016 as previously discussed above under “Results of Operations.”  Higher G&A and interest expense also contributed to the overall period-to-period increase in net cash provided by operating activities.  Net cash provided by operating activities included $1.0 million of cash payments on derivative instruments during 2017 compared to $3.4 million in cash receipts during 2016.  There was an $11.3 million increase in cash flow attributable to the timing of cash receipts and disbursements related to operating activities during 2017 compared to 2016.  

Investing Activities. During 2017 and 2016, cash flows used in investing activities were $65.2 million and $44.4 million, respectively.  Acquisitions of oil and gas properties were $3.0 million and $2.2 million during 2017 and 2016, respectively. We received post-closing adjustment receipts of $3.9 million during 2017 related to the Burleson North Acquisition.  Additions to oil and gas properties were $63.3 million during 2017 primarily related to our drilling and completion activities in the Eagle Ford.  Additions to oil and gas properties were $39.8 million during 2016, of which $31.0 million was attributable to Esquisto’s drilling and completion activities in the Eagle Ford and $8.8 million was attributable to our predecessor’s drilling and completion activities in North Louisiana.

Financing Activities. Net cash provided by financing activities during 2017 of $127.6 million was primarily attributable to $34.5 million and $347.4 million in proceeds from the partial exercise of the underwriters’ over-allotment option and from the issuance of our 2025 Senior Notes, respectively. These cash inflows were offset by net payments under our revolving credit facilities of $242.8 million during 2017, debt issuance costs of $9.0 million, $1.9 million of costs associated with the underwriters’ exercise of their over-allotment option and $0.6 million of costs related to our initial public offering which were previously accrued and cash settled during 2017.  

Net cash provided by financing activities of $19.1 million during 2016 was primarily attributable to capital contributions of $12.8 million from our predecessor.  Net borrowings under our revolving credit facilities were $7.0 million during 2016. Amounts borrowed under our predecessor and previous owner credit facilities were primarily used for additions to oil and natural gas properties and working capital. Debt issuance costs were $0.4 million. Costs associated with Esquisto’s termination of its second lien were $0.2 million.

40

 

Contractual Obligations

During the three months ended March 31, 2017, there were no significant changes in our consolidated contractual obligations from those reported in our 2016 Form 10-K filed except for the additions of a long-term dedicated fracturing fleet services agreement and interruptible water availability agreement both of which were entered into as part of our ordinary course of business. For more information see “Note 17—Commitments and Contingencies” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report. Additionally, we had no indebtedness under our revolving credit facility at March 31, 2017 compared to $242.8 million at December 31, 2016. As previously discussed, our 2025 Senior Notes were issued in February 2017. See “Note 9—Long Term Debt” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report for additional information on our indebtedness.

Off–Balance Sheet Arrangements

As of March 31, 2017, we had no off–balance sheet arrangements.

Recently Issued Accounting Pronouncements

For a discussion of recent accounting pronouncements that will affect us, see “Note 2—Summary of Significant Accounting Policies” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk, including the effects of adverse changes in commodity prices and interest rates as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil, natural gas and NGL prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses but rather indicators of reasonably possible losses. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.

Commodity Price Risk

Our major market risk exposure is in the pricing that we receive for our oil, natural gas and NGLs production. Pricing for oil, natural gas and NGLs has been volatile and unpredictable for several years, and we expect this volatility to continue in the future.

For additional information regarding the volumes of our production covered by commodity derivative contracts and the average prices at which production is hedged as of March 31, 2017, see “Note 5—Risk Management and Derivative Instruments” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report.

Interest Rate Risk

At March 31, 2017, we had no borrowings outstanding under our revolving credit facility or any other debt with variable interest rates. We do not currently have any derivative arrangements to protect against fluctuations in interest rates applicable to indebtedness we may incur but may enter into such derivative arrangements in the future. To the extent we enter into any such interest rate derivative arrangement, we would subject to risk for financial loss.

The fair value of 2025 Senior Notes is sensitive to changes in interest rates. We estimate the fair value of 2025 Senior Notes using quoted market prices. The carrying value (net of any discount and debt issuance cost) is compared to the estimated fair value in the table below (in thousands):

 

 

 

 

March 31, 2017

 

 

 

Carrying Amount

 

 

Estimated Fair Value

 

2025 Senior Notes, fixed-rate due February 2025

 

$

338,783

 

 

$

338,188

 

41

 

Counterparty and Customer Credit Risk

We are also subject to credit risk due to the concentration of our oil and natural gas receivables with several significant customers. We do not require our customers to post collateral, and the inability of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.

Joint operations receivables arise from billings to entities that own partial interests in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we intend to drill. We have little ability to control whether these entities will participate in our wells.

In addition, our derivative contracts expose us to credit risk in the event of nonperformance by counterparties. While we do not require counterparties to our derivative contracts to post collateral, we do evaluate the credit standing of such counterparties as we deem appropriate. Each of the counterparties to our derivative contracts currently in place has an investment grade rating. See “Note 5—Risk Management and Derivative Instruments” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report for additional information regarding credit risk associated with our derivative instruments.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) and under the Exchange Act) as of the end of the period covered by this Quarterly Report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon the evaluation, the principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2017.

Changes in Internal Controls Over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2, respectively, to this Quarterly Report.

42

 

PART II—OTHER INFOR MATION

ITEM 1. LEGAL PROCEEDINGS

As part of our normal business activities, we may be named as defendants in litigation and legal proceedings, including those arising from regulatory and environmental matters. If we determine that a negative outcome is possible and the amount of loss is reasonably estimable, we accrue the estimated amount. We are not aware of any litigation, pending or threatened, that we believe will have a material adverse effect on our financial position, results of operations or cash flows. No amounts have been accrued at March 31, 2017.  For additional discussion of current legal proceedings, please see “Note 17—Commitments and Contingencies” of the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included under “Item 1. Financial Statements” of this Quarterly Report.

ITEM 1A.  RISK FACTORS

In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, Item IA. “Risk Factors” in our 2016 Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes with respect to the risk factors since those disclosed in our 2016 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

(a)

Recent sales of unregistered securities.

None.

 

(b)

Use of proceeds.

None.

 

(c)

Purchases of equity securities by the issuer and affiliated purchasers.

During the three months ended March 31, 2017, there were no repurchases of our common shares by us or our affiliates.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The information required by this Item 6. Exhibits is set forth in the Exhibit Index accompanying this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

43

 

SIGNAT URES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

WildHorse Resource Development Corporation

 

 

 

 

(Registrant)

 

 

 

 

 

 

 

Date:

 

May 15, 2017

 

By:

 

/s/ Andrew J. Cozby

 

 

 

 

Name:

 

Andrew J. Cozby

 

 

 

 

Title:

 

Executive Vice President and

Chief Financial Officer

 

 

 

44

 

 

Exhibit

Number

 

Description

 

 

 

  2.1

 

Master Contribution Agreement, dated December 12, 2016, by and among WildHorse Resource Development Corporation and the other parties named therein (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on December 16, 2016).

 

 

 

  2.2*##

 

Purchase and Sale Agreement, dated May 10, 2017, by and among Anadarko E&P Onshore LLC, Admiral A Holding L.P., TE Admiral A Holding L.P., Aurora C-I Holding L.P. and WHR Eagle Ford LLC.

 

 

 

  2.3*##

 

Purchase and Sale Agreement, dated May 10, 2017, by and among Anadarko E&P Onshore LLC, Anadarko Energy Services Company and WHR Eagle Ford LLC.

 

 

 

  3.1

 

Amended and Restated Certification of Incorporation of WildHorse Resource Development Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on December 19, 2016).

 

 

 

  3.2

 

Amended and Restated Bylaws of WildHorse Resource Development Corporation, effective December 19, 2016 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on December 19, 2016).

 

 

 

  4.1

 

Indenture, dated as of February 1, 2017, by and among WildHorse Resource Development Corporation, the subsidiary guarantors named therein and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on February 1, 2017).

 

 

 

  4.2

 

Form of 6.875% Senior Note due 2025 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on February 1, 2017).

 

 

 

  4.3

 

Registration Rights Agreement, dated as of February 1, 2017, by and among WildHorse Resource Development Corporation, the subsidiary guarantors named therein and Wells Fargo Securities, LLC, as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed on February 1, 2017).

 

 

 

  4.4*

 

Preferred Stock Purchase Agreement, dated as of May 10, 2017, by and among WildHorse Resource Development Corporation and CP VI Eagle Holdings, L.P.

 

 

 

10.1*

 

First Amendment to Credit Agreement, dated as of April 4, 2017, by and among WildHorse Resource Development Corporation, each of the guarantors party thereto, and Wells Fargo Bank, National Association, as Administrative Agent  for the lenders party thereto, BMO Harris Bank, N.A., as Syndication Agent, the Lenders party thereto and the other parties party thereto.

 

 

 

10.2

 

Indemnification Agreement, dated as of February 10, 2017, by and between WildHorse Resource Development Corporation and Grant E. Sims (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on February 14, 2017).

 

 

 

31.1*

 

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

 

 

 

31.2*

 

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.

 

 

 

32.1*

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

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 or furnished as an exhibit to this Quarterly Report on Form 10-Q.

##  

Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.

 

 

Exhibit 2.2

 

PURCHASE AND SALE AGREEMENT

BY AND AMONG

ANADARKO E&P ONSHORE LLC,

ADMIRAL A HOLDING L.P.,

TE ADMIRAL A HOLDING L.P.,

AND

AURORA C-I HOLDING L.P.,

AS SELLERS

AND

WHR EAGLE FORD LLC,

AS PURCHASER

__________________________________________

EXECUTION DATE: May 10, 2017

EFFECTIVE TIME:  12:01 AM, January 1, 2017
__________________________________________

 

 

 

Table of Contents

Page

ARTICLE 1 DEFINITIONS AND INTERPRETATION

 

Section 1.1

Defined Terms1

 

 

Section 1.2

References and Rules of Construction1

 

ARTICLE 2 PURCHASE AND SALE

 

Section 2.1

Purchase and Sale2

 

 

Section 2.2

Assets2

 

 

Section 2.3

Excluded Assets4

 

 

Section 2.4

Effective Time; Proration of Costs and Revenues4

 

 

Section 2.5

Procedures5

 

ARTICLE 3 PURCHASE PRICE

 

Section 3.1

Unadjusted Purchase Price6

 

 

Section 3.2

Deposit6

 

 

Section 3.3

Allocation of Unadjusted Purchase Price6

 

 

Section 3.4

Adjustments to Unadjusted Purchase Price7

 

 

Section 3.5

Parent Guaranty.9

 

ARTICLE 4 TITLE MATTERS; CONSENTS

 

Section 4.1

Sellers’ Title9

 

 

Se ction 4.2

Title Defects10

 

 

Section 4.3

Title Benefits13

 

 

Section 4.4

Title Disputes14

 

 

Se ction 4.5

Limitations on Applicability16

 

 

Section 4.6

Consents to Assignment and Preferential Rights to Purchase17

 

 

Section 4.7

Casualty Loss or Condemnation20

 

ARTICLE 5 ENVIRONMENTAL MATTERS

 

Section 5.1

Adverse Environmental Conditions21

 

 

Section 5.2

Adverse Environmental Condition Disputes24

 

 

Section 5.3

Limitations on Applicability26

 

ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Section 6.1

Organization and Power27

 

 

Section 6.2

Authorization and Enforceability27

 

 

Section 6.3

Liability for Brokers’ Fees28

 

 

Section 6.4

No Conflicts.28

 

 

Section 6.5

Litigation.28

 

 

Section 6.6

Taxes and Assessments28

 

 

Section 6.7

Capital Commitments29

 

 

Section 6.8

Compliance with Laws29

 

 

Section 6.9

Contracts29

 

 

Sectio n 6.10

Consents and Preferential Purchase Rights31

 

- i -

 

 

Section 6.11

Leases 31

 

 

Section 6.12

Advance Payments31

 

 

Section 6.13

Surface Agreements31

 

 

Section 6.14

Imbalances31

 

 

Section 6.15

Suspense Funds32

 

 

Section 6.16

Bankruptcy32

 

 

Section 6.17

Condemnation32

 

 

Section 6.18

Permits32

 

 

Section 6.19

Plugging and Abandonment32

 

 

Section 6.20

Labor, Employment and Benefits32

 

 

Section 6.21

Environmental Matters33

 

 

Section 6.22

Payout Balances34

 

 

Section 6.23

Certain Disclaimers34

 

ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Section 7.1

Organization35

 

 

Section 7.2

Authorization and Enforceability35

 

 

Section 7.3

Liability for Brokers’ Fees36

 

 

Section 7.4

No Conflicts36

 

 

Section 7.5

Litigation36

 

 

Sectio n 7.6

Financing36

 

 

Section 7.7

Securities Law Compliance36

 

 

Section 7.8

Independent Evaluation36

 

 

Section 7.9

Consents, Approvals or Waivers37

 

 

Section 7.10

Bankruptcy37

 

 

Section 7.11

Qualification37

 

 

Section 7.12

Tax37

 

 

Section 7.13

Limitation37

 

ARTICLE 8 COVENANTS OF THE PARTIES

 

Section 8.1

Access38

 

 

Section 8.2

Government Reviews40

 

 

Section 8.3

Public Announcements; Confidentiality41

 

 

Section 8.4

Operation of Business42

 

 

Section 8.5

Operatorship44

 

 

Section 8.6

Change of Name44

 

 

Section 8.7

Replacement of Bonds, Letters of Credit and Guaranties44

 

 

Section 8.8

Amendment to Schedules44

 

 

Section 8.9

Further Assurances45

 

 

Section 8.10

Employee Matters45

 

 

Section 8.11

Suspense Funds46

 

 

Section 8.12

Access to Financial Information47

 

ARTICLE 9 CONDITIONS TO CLOSING

 

Section 9.1

Sellers’ Conditions to Closing48

 

 

Se ction 9.2

Purchaser’s Conditions to Closing49

 

- ii -

 

ARTICLE 10 CLOSING

 

Section 10.1

Time and Place of Closing51

 

 

Section 10.2

Obligations of Sellers at Closing51

 

 

Section 10.3

Obligations of Purchaser at Closing52

 

 

Section 10.4

Closing Payment and Post-Closing Unadjusted Purchase Price Adjustments53

 

ARTICLE 11 TERMINATION

 

Sectio n 11.1

Termination55

 

 

Section 11.2

Effect of Termination56

 

 

Section 11.3

Remedies for Breach; Distribution of Deposit Upon Termination56

 

ARTICLE 12 ASSUMPTION; INDEMNIFICATION

 

Section 12.1

Assumption by Purchaser57

 

 

Section 12.2

Indemnification57

 

 

Section 12.3

Indemnification Actions60

 

 

Section 12.4

Limitation on Actions60

 

ARTICLE 13 TAX MATTERS

 

Section 13.1

Responsibility for Tax Filings and Payment62

 

 

Section 13.2

Apportionment of Property Taxes63

 

 

Section 13.3

Cooperation.63

 

 

Section 13.4

Like-Kind Exchange64

 

 

Section 13.5

Refunds65

 

 

Section 13.6

Audits65

 

 

Section 13.7

Characterization of Certain Payments65

 

 

Section 13.8

Transfer Taxes, Recording Fees & Transaction Fees65

 

 

Section 13.9

Tax Characterization66

 

ARTICLE 14 MISCELLANEOUS

 

Section 14.1

Counterparts66

 

 

Section 14.2

Notices66

 

 

Section 14.3

Governing Law; Jurisdiction68

 

 

Section 14.4

Knowledge Qualifications; Schedules69

 

 

Section 14.5

Waivers70

 

 

Section 14.6

Assignment70

 

 

Section 14.7

Entire Agreement70

 

 

Section 14.8

Amendment70

 

 

Section 14.9

No Third Party Beneficiaries71

 

 

Section 14.10

Construction71

 

 

Section 14.11

Limitation on Damages71

 

 

Section 14.12

Recording71

 

 

Section 14.13

Conspicuousness71

 

 

Section 14.14

Time of Essence71

 

 

Section 14.15

Delivery of Records72

 

 

Section 14.16

Severability72

 

 

Section 14.17

Specific Performance72

 

- iii -

 

 

Section 14.18

Seller Representative 72

 

 

Section 14.19

Sellers’ Liability72

 

 

 

 

 

- iv -

 

APPENDICES :

Appendix A - Definitions

EXHIBITS:

Exhibit A‑1 - Leases

Exhibit A‑2 - Wells

Exhibit A-3 - Undeveloped Leases

Exhibit A-4 - Excluded Assets

Exhibit A-5 - Contracts

Exhibit A-6 - Surface Agreements

Exhibit A-7 - Permits

Exhibit A-8 - Units
Exhibit B - Form of Conveyance – AEPO

Exhibit C - Form of Conveyance – Admiral Sellers

Exhibit D - Form of Certificate of Non-Foreign Status

Exhibit E - Form of Letter-in-Lieu

SCHEDULES:  

Schedule 1.1(a) - Contested Liens

Schedule 3.1 - Allocation of Purchase Price Among Sellers

Schedule 3.4 - Imbalance Procedures

Schedule 5.1 - Disclosed Environmental Conditions
Schedule 6.4 - Conflicts
Schedule 6.5 - Litigation
Schedule 6.6(b) - Taxes and Assessments
Schedule 6.7 - Capital Commitments
Schedule 6.8 - Compliance with Laws
Schedule 6.9(a) - Material Contracts
Schedule 6.9(b) - Exceptions to Material Contracts

Schedule 6.10 - Seller Consents and Preferential Rights to Purchase
Schedule 6.11 - E xceptions to Leases

Schedule 6.13 - Surface Agreements

Schedule 6.14 - Imbalances

Schedule 6.15 - Suspense Funds

Schedule 6.18 - Permits

Schedule 6.19 - Plugging and Abandonment

Schedule 6.20 - Employee Pension Benefit Plans

Schedule 6.22 - Payout Balances

Schedule 7.5 - Purchaser Knowledge Individuals
Schedule 7.9 - Purchaser Consents
Schedule 8.4 - Operations
Schedule 8.7 - Replacement Bonds

Schedule 14.4(a) - AEPO Knowledge Individuals

Schedule 14.4(b) - Admiral Sellers Knowledge Individuals

 

- i -

 

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “ Agreement ”) is dated as of May 10, 2017 (the “ Execution Date ”), by and among:

 

(a)

Anadarko E&P Onshore LLC, a Delaware limited liability company (“ AEPO ”);

 

(b)

Admiral A Holding L.P., a Delaware limited partnership (“ Admiral A ”), TE Admiral A Holding L.P., a Delaware limited partnership (“ TE Admiral ”) and Aurora C-I Holding L.P., a Delaware limited partnership (“ Aurora ” and together with Admiral A and TE Admiral, the “ Admiral Sellers ” and collectively with AEPO, “ Sellers ”); and

 

(c)

WHR Eagle Ford LLC, a Delaware limited liability company (“ Purchaser ”).

Sellers and Purchaser are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS:

A.

Sellers own certain interests in oil and gas properties, rights and related assets that are defined and described herein as the “ Assets .”

B.

Sellers desire to sell to Purchaser and Purchaser desires to purchase from Sellers the Assets in the manner and upon the terms and conditions hereafter set forth.

C.

Purchaser, WildHorse Resource Development Corporation, a Delaware corporation (“ Purchaser Parent ”), and the Admiral Sellers have entered into a Stock Issuance Agreement, dated as of the date hereof (the “ Stock Issuance Agreement ”).

NOW , THEREFORE , in consideration of the premises and mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound by the terms hereof, agree as follows:

ARTICLE 1
DEFINITIONS AND INTERPRETATION

Section 1.1 Defined Terms

.  In addition to the terms defined in the introductory paragraph and the Recitals of this Agreement, for purposes hereof, capitalized terms used herein and not otherwise defined shall have the meanings set forth in Appendix A .

Section 1.2 References and Rules of Construction

.  All references in this Agreement to Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses and other subdivisions refer to the corresponding Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses and other subdivisions of or to this Agreement unless expressly provided otherwise.  Titles appearing at the beginning of any Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses and other subdivisions of this Agreement are for convenience

 

only, do not constitute any part of this Agreement and shall be disregarded in construing the language hereof.  The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection, clause or other subdivision unless expressly so limited.  The words “this Article,” “this Section,” “this subsection,” “this clause” and words of similar import refer only to the Article, Section, subsection and clause hereof in which such words occur.  The word “including” (in its various forms) means including without limitation.  The words “shall” and “will” are used interchangeably and have the same meaning.  All references to “$” or “dollars” shall be deemed references to United States dollars.  Each accounting term not defined herein will have the meaning given to it under GAAP as interpreted as of the date of this Agreement.  Unless (i) expressly provided to the contrary herein or (ii) used to set forth a l ist of elections available to a Party pursuant hereto, the word “or” is not exclusive.  Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.  Appendices, Exhibits and Schedules referred to herein are attached to and by this reference incorporated herein for all purposes.  Refere nce herein to any federal, state, local or foreign Law shall be deemed to also refer to all rules and regulations promulgated thereunder, unless the context requires otherwise, and reference herein to any agreement, instrument or Law means such agreement, instrument or Law as from time to time amended, modified or supplemented, including, in the case of agreements or instruments, by waiver or consent and, in the case of Laws, by succession of comparable successor Laws.  References to a Person are also to it s permitted successors and permitted assigns. Any requirement that a Party use “commercially reasonable efforts” hereunder shall not be construed to include any requirement of such Party or any of its Affiliates to expend money, commence or participate in any litigation or offer or grant any accommodation (financial or otherwise) to any Third Party.   

ARTICLE 2
PURCHASE AND SALE

Section 2.1 Purchase and Sale

.  At the Closing, upon the terms and subject to the conditions of this Agreement, Sellers shall sell, convey, assign, transfer and deliver the Assets to Purchaser and Purchaser shall purchase, acquire, accept and pay for the Assets and shall assume the Assumed Purchaser Obligations.

Section 2.2 Assets

.  As used herein, the term “ Assets ” means, subject to the terms and conditions of this Agreement, all of Sellers’ right, title and interest, whether real or personal, recorded or unrecorded, tangible or intangible, vested, contingent or reversionary, in and to the following (but excepting and excluding, in all such instances, the Excluded Assets):

(a) The oil, gas and mineral leases, subleases and other leaseholds that are identified on Exhibit A‑1 (collectively, the “ Leases ”), subject to the depth limitations and other restrictions that may be set forth in the Leases or in any conveyances in the chain of title, together with (i) all rights, privileges, benefits and powers conferred upon the holder of the Leases with respect to the use and occupation of the lands covered thereby, (ii) all rights, options, titles and interests of Sellers with respect to the Leases, including rights to obtain or otherwise earn any interest in the Leases or within the lands covered by or described in the Leases or any acreage pooled,

-2-

communitized or unitized therewith (the “ Lands ”) and (iii) all royalties, overridi ng royalties, net profits interests, carried interests, reversionary interests, leasehold interests and other rights in and to the Lands;

(b) All pooled, communitized or unitized acreage which includes all or a part of any Lease or the Lands (the “ Pooled Acreage ”), and all tenements, hereditaments and appurtenances belonging to the Leases and Pooled Acreage;

(c) All oil, gas, water, carbon dioxide, water disposal or injection wells, whether producing, shut-in or abandoned, located on the Leases or Lands together with the Allocated Leasehold for such well, including the interests in the wells identified on Exhibit A‑2 (the “ Wells ” and collectively with the Leases, the Lands and the Pooled Acreage, the “ Properties ”);

(d) All flowlines, pipelines, gathering systems and appurtenances thereto located on the Properties or used, or held for use, in connection with the Properties;  

(e) All contracts, agreements and instruments to the extent, but only to the extent, applicable to the Properties, the production of Hydrocarbons from the Properties or the other Assets, including operating agreements, unitization, pooling and communitization agreements, production sharing agreements, declarations and orders, area of mutual interest agreements, joint venture agreements, farmin and farmout agreements, participation agreements, exchange agreements, joint development agreements, storage agreements, crossing agreements, agreements for the sale and purchase of Hydrocarbons and gathering, processing and transportation agreements, including those contracts, agreements and instruments described on Exhibit A-5 , but excluding (i) any contracts, agreements and instruments to the extent transfer is restricted by Third Party agreement, a Governmental Body or applicable Law (unless and until the necessary consents or approvals to transfer have been obtained pursuant to Section 4.6 or unless as otherwise set forth in this Agreement) and (ii) the Leases and Surface Agreements (subject to such exclusions, the “ Contracts ”);

(f) All easements, licenses, servitudes, rights‑of‑way, surface leases and other surface rights appurtenant to and used or held for use, in connection with the Properties, including those described on Exhibit A-6 ; but excluding, in all instances, any such interest or right to the extent transfer is restricted by Third Party agreement, a Governmental Body or applicable Law (unless and until the necessary consents or approvals to transfer have been obtained pursuant to Section  4.6 or unless as otherwise set forth in this Agreement) (subject to such exclusion, the “ Surface Agreements ”);

(g) All equipment, machinery, tools, fixtures and owned rolling stock, including (i) trailers, rolling test equipment, rolling machinery and other portable wheeled equipment, and other tangible personal property and improvements and (ii) manifolds, well equipment, casing, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines, processing and separation facilities, pads, materials, SCADA equipment and transmitters, telecommunications equipment, field radio telemetry and associated frequencies, pressure transmitters and central processing equipment, in each case, that is owned by any Seller and that is used or held for use in connection with the ownership or operation of the Properties (the “ Equipment ”);

-3-

(h) All Hydrocarbons (or proceeds from the sa le of Hydrocarbons) produced from or attributable to the Properties after the Effective Time and the Stored Hydrocarbons, together with Imbalances associated with the Properties, which would otherwise accrue for the Sellers’ benefit;

(i) The Records;

(j) To the extent assignable or re-issuable into Purchaser’s name (which reissuance will be at Purchaser’s sole cost and expense), all permits, approvals, allowances, emission or pollution credits, or authorizations by, or filings with, any Governmental Body and all water rights relating to the construction, ownership or operation of the Assets , including those described on Exhibit A-7 (the “ Permits ”);

(k) All trade credits, account receivables, receivables, take-or-pay amounts receivable, and other receivables to the extent attributable to the Assets and attributable to periods after the Effective Time, excluding any items (i) related to the Retained Seller Obligations or (ii) to which Sellers are otherwise entitled pursuant to Section 2.4 ; and

(l) All rights, claims and causes of action of Sellers against Third Parties arising under or with respect to any Asset, excluding items related to the Retained Seller Obligations.

Section 2.3 Excluded Assets

.  Notwithstanding anything to the contrary, the Assets shall not include, and there is excepted, reserved and excluded from this transaction, the Excluded Assets.  In the event Purchaser comes into possession of any Excluded Assets, it shall deliver such Excluded Assets, as promptly as possible, to or as directed by Sellers.  Notwithstanding any term of this Agreement to the contrary, to the extent any Asset is excluded hereunder pursuant to Sections 4.2(b)(iii) , 4.6(b) , 4.6(c) , 5.1(b)(iii) , 5.1(d) or 8.1(a) , Sellers shall retain any Assets directly associated therewith.  To the extent Purchaser reasonably requires use of any such Asset for the continued operation of the Assets (in the manner operated by Sellers prior to Closing), Sellers shall grant Purchaser such use upon reasonable request.

Section 2.4 Effective Time; Proration of Costs and Revenues

.

(a) If Closing occurs, Purchaser shall be entitled to (without duplication of any amounts paid pursuant to Section 3.4 or otherwise) (i) all production of Hydrocarbons from or attributable to the Properties after 12:01 a.m., Central Time, on January 1, 2017 (the “ Effective Time ”) and all products and proceeds attributable thereto and (ii) all other income, proceeds, receipts and credits earned with respect to the Assets after the Effective Time, and Purchaser shall be responsible for, and entitled to any refunds with respect to, all Property Costs incurred after the Effective Time.

(b) Sellers shall be entitled to (without duplication of any amounts paid pursuant to Section 3.4 or otherwise) (i) all production of Hydrocarbons from or attributable to the Properties prior to and at the Effective Time and all products and proceeds attributable thereto and (ii) all other income, proceeds, receipts and credits earned with respect to the Assets prior to and at the Effective Time, and such Sellers shall be responsible for, and entitled to any refunds with respect to (including, for the avoidance of doubt, any Tax benefit attributable to any reduction in severance (or impact) Taxes that may be realized after the Effective Time but that results from payments or production for periods prior to or at the Effective Time), all Property Costs and

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other costs attributable to the ownership and operation of the Assets or the production of Hydrocarbons therefr om incurred prior to or at the Effective Time.

(c) With respect to Property Costs paid by AEPO on behalf of Third Parties, regardless of whether such Property Costs were paid before, at or after the Effective Time, AEPO shall be entitled to retain all proceeds of cash calls, billings and other funds received as reimbursement in respect of such Property Costs.  With respect to Property Costs paid by AEPO prior to the Closing on behalf of Third Parties and attributable to periods after the Effective Time that remain unreimbursed (the “ Unreimbursed Third Party Property Costs ”) as of the date the final settlement statement is prepared pursuant to Section 10.4 , regardless of whether such Property Costs were paid before, at or after the Effective Time, Purchaser shall pay to AEPO an amount equal to the amount of all such Unreimbursed Third Party Property Costs and Purchaser shall be entitled to all receivables with respect thereto and all proceeds of cash calls, billings and other funds received as reimbursement in respect thereof.  As part of the final settlement statement, AEPO shall provide reasonable supporting documentation in respect of such unreimbursed Property Costs and include the payment to be made by Purchaser pursuant to this Section 2.4(c) in the calculation of the final settlement statement.

(d) Should any Party receive any proceeds or other income after the Closing to which another Party is entitled under this Section 2.4 , such receiving Party shall fully disclose, account for and promptly remit same.  Similarly, should Purchaser pay any Property Costs after the Closing for which Sellers are responsible under this Section 2.4 , Sellers shall reimburse the Purchaser promptly after receipt of an invoice, accompanied by proof of payment, with respect to such Property Costs.  If Sellers receive any invoice for Property Costs after the Closing for which Purchaser is responsible under this Section 2.4 , Sellers shall promptly forward such invoice to Purchaser.   Each Party agrees that this Section 2.4(d) shall not be interpreted to require a Party to remit or reimburse, as the case may be, any such amounts more frequently than once per calendar month, unless the amounts owed exceed $100,000.00.

(e) Notwithstanding anything to the contrary contained in this Section 2.4 , following the third anniversary of the Closing Date, Sellers shall have no further entitlement to amounts earned from the sale of Hydrocarbons produced from or attributable to the Assets and other income earned with respect to the Assets and no further responsibility for Property Costs (other than Property Taxes specifically allocated to Sellers as provided in Article 13 ) incurred with respect to the Assets.

Section 2.5 Procedures

.

(a) For purposes of allocating production and accounts receivable with respect thereto under Section 2.4 , gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the delivery point sales meter closest to the well. Sellers shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings or gauging and strapping data is not available.  Sellers shall provide to Purchaser evidence of all meter readings and all gauging and strapping procedures conducted on or about the Effective Time in connection with the Assets, together with all data necessary to support any estimated allocation, for purposes of establishing the adjustment to the Unadjusted Purchase Price pursuant to Section 3.4 .  The terms “earned” and “incurred” shall be interpreted in

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accordance with GAAP and Council of Petroleum Accountants Society (“ COPAS ”) standards, and expenditures which are incurred pursuant to an operating agreement, unit agreement or similar agreement shall be deemed incurred based on when services are rendered, when the goods are delivered or wh en the work is performed.

(b) Purchaser shall handle all joint interest audits and other audits of Property Costs covering the period for which Purchaser is in whole or in part responsible under Section 2.4 ; provided , however , that Purchaser shall not agree to any adjustments to previously assessed costs for which any Seller is liable, or any compromise of any audit claims to which any Seller would be entitled, without the prior written consent of Sellers, which consent shall not be unreasonably withheld, conditioned or delayed.  Each Party shall provide the other Party with a copy of all applicable audit reports and written audit agreements received by such Party or its Affiliates and relating to periods for which any such Party is partially responsible.

(c) Notwithstanding anything to the contrary herein contained, right-of-way fees and other Property Costs (other than delay rentals, lease extension payments, lease bonus payments and/or insurance premiums due prior to the Effective Time which shall be the sole responsibility of Sellers and Property Taxes) that are paid periodically shall be prorated based on the number of days in the applicable period falling before and the number of days in the applicable period falling on or after the day of the Effective Time.  Property Taxes shall be prorated as set forth in Section 13.2 .

ARTICLE 3
PURCHASE PRICE

Section 3.1 Unadjusted Purchase Price

.  The purchase price for the Assets shall be an aggregate amount equal to $505,000,000.00 (the “ Unadjusted Purchase Price ”), which shall be adjusted as provided in Section 3.4 ; provided , however , that the portion of the Unadjusted Purchase Price payable to the Admiral Sellers (as set forth on Schedule 3.1 ) at the Closing (the “ Stock Purchase Price ”) shall be paid, delivered and issued in the form of Purchaser Common Stock, subject to adjustment pursuant to Section 3.4 .  AEPO, for the avoidance of doubt, shall be paid the portion of the Unadjusted Purchase Price (as set forth on Schedule 3.1 ) at Closing in cash (the “ Cash Purchase Price ”), subject to adjustment pursuant to Section 3.4 .  The number of shares of Purchaser Common Stock payable to the Admiral Sellers at Closing shall be calculated pursuant to the Stock Issuance Agreement and such shares shall bear an aggregate value equal to the Stock Purchase Price, subject to adjustment pursuant to Section 3.4 .

Section 3.2 Deposit

.  Within one Business Day after the Execution Date, Purchaser shall pay to AEPO on behalf of Sellers, in immediately available funds by wire transfer into an account designated by AEPO prior to the date hereof, an amount equal to 10% of the Unadjusted Purchase Price (the “ Deposit ”).  The Deposit shall be applied against the Cash Purchase Price at the Closing or be distributed in accordance with the terms of Section 11.3 , as applicable.

Section 3.3 Allocation of Unadjusted Purchase Price

.   

(a) Within sixty days after the Closing Date, Purchaser shall prepare and deliver to Sellers, using and based upon the best information available to Purchaser, a schedule along with

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reasonably detailed supporting documentation, setting forth an allocation of the Unadjusted Purchase Price and any other item s properly treated as consideration for U.S. federal income Tax purposes among the classes of assets provided for in Treasury Regulation § 1.338-6, in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder (and any sim ilar provisions of state, local or foreign Law, as appropriate) and, to the extent allowed by applicable Law, in a manner consistent with the Allocated Values (the “ Preliminary Allocation Schedule ”).  Notwithstanding anything to the contrary in this Agreem ent, the “Allocated Value” for (i) any Well equals the portion of the Unadjusted Purchase Price allocated to such Well on Exhibit A-2 ; (ii) any Undeveloped Lease equals the portion of the Unadjusted Purchase Price allocated to such Undeveloped Lease on Exh ibit A-3 ; and (iii) any Unit equals the portion of the Unadjusted Purchase allocated to such Unit on Exhibit A-8 .  Notwithstanding anything to the contrary in this Agreement, Sellers have accepted such Allocated Values for purposes of this Agreement and th e transactions contemplated hereby but make no representation or warranty as to the accuracy of such values.

(b) As soon as reasonably practicable, but not later than forty-five (45) days following receipt of the Preliminary Allocation Schedule, Sellers shall deliver to Purchaser a written report containing any changes that Sellers proposes to be made in such schedule (and specifying the reasons therefore in reasonable detail).  The Parties shall undertake to agree on a final schedule no later than fifteen (15) Business Days subsequent to the receipt by Purchaser of Seller’s proposed changes (such schedule, if any, the “ Final Allocation Schedule ”).

(c) If Sellers and Purchaser reach an agreement with respect to the Final Allocation Schedule in accordance with Section 3.3(b) , (i) Purchaser and Sellers shall use commercially reasonable efforts to update the Final Allocation Schedule in accordance with Section 1060 of the Code following any adjustments to the Unadjusted Purchase Price pursuant to this Agreement, and (ii) Purchaser and Sellers shall, and shall cause their Affiliates to, report consistently with the Final Allocation Schedule in all Tax Returns; provided, however , that no Party shall be unreasonably impeded in its ability and discretion to negotiate, compromise and/or settle any Tax audit, claim or similar proceedings in connection with such allocation.

Section 3.4 Adjustments to Unadjusted Purchase Price

.  All adjustments to the Unadjusted Purchase Price shall be made (x) without duplication (in this Agreement or otherwise), (y) in accordance with the terms of this Agreement and, to the extent not inconsistent with this Agreement, in accordance with GAAP and COPAS as consistently applied in the oil and gas industry in Texas and (z) only with respect to matters, (A) in the case of Section 3.4(b)(iii) , for which valid notice is given on or before the Defect Claim Date and (B) in all of the other cases set forth in Section 3.4(a) or Section 3.4(b) , identified on or before the last day of the three year anniversary of the Closing Date (the “ Cut-off Date ”).  Any adjustments to the Unadjusted Purchase Price hereunder shall be made between the Cash Purchase Price and the Stock Purchase Price, in the same ratio as the Cash Purchase Price bears to the Stock Purchase Price (the “ Consideration Ratio ”); provided that any adjustment to the Unadjusted Purchase Price as a result of a Title Defect affecting only the Admiral Sellers’ interest in the Assets will reduce the applicable Admiral Sellers’ portion of the Stock Purchase Price on a dollar-for-dollar basis (with no adjustment to the Cash Purchase Price) and any adjustment to the Unadjusted Purchase Price as a result of a Title Defect affecting only AEPO’s interest in the Assets will reduce the Cash Purchase Price on a dollar-for-dollar basis (with no adjustment to the Stock Purchase

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Price).  Without limiting the foregoing, the Unadjusted Purchase Price shall be adjusted as follows, resulting in the “ Adjusted Purchase Price ”:

(a) The Unadjusted Purchase Price shall be adjusted upward by the following amounts:

(i) an amount equal to all Property Costs that are (A) incurred after the Effective Time but paid by any Seller and (B) incurred prior to the Effective Time but allocable to post-Effective Time periods pursuant to Section 2.5(c) and paid by Sellers, but excluding, in each case, any amounts previously reimbursed to Sellers by Purchaser pursuant to Section 2.4(d) ;

(ii) an amount equal to all proceeds and other income to which Sellers are entitled pursuant to Section 2.4( b) to the extent that such amounts have been received by Purchaser and not remitted or paid to any Seller;

(iii) an amount equal to any Tax benefit as of the Cut-off Date that can reasonably be determined by Sellers as attributable to any reduction in severance Taxes that may be realized after the Effective Time but that results from payments or production for periods prior to or at the Effective Time;

(iv) to the extent that proceeds for the associated production prior to and at the Effective Time have not been received by or remitted to any Seller, an amount equal to the aggregate volumes of Hydrocarbons stored in stock tanks or other storage as of the Effective Time (the “ Stored Hydrocarbons ”), in each case, from or attributable to the ownership and operation of the Assets or the production of Hydrocarbons therefrom multiplied by $48.08 for oil;

(v) any amount equal to any upward adjustment for Imbalances as determined  in accordance with the procedures set forth on Schedule 3.4 ; and

(vi) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by the Parties as an upward adjustment to the Unadjusted Purchase Price.

(b) The Unadjusted Purchase Price shall be adjusted downward by the following amounts:

(i) an amount equal to all Property Costs and other costs attributable to the ownership and operation of the Assets or the production of Hydrocarbons therefrom that are incurred prior to the Effective Time but paid by Purchaser, but excluding any amounts previously reimbursed to Purchaser by Sellers pursuant to Section 2.4(d) ;

(ii) an amount equal to all proceeds and other income to which Purchaser is entitled pursuant to Section 2.4(a) , to the extent that such amounts have been received by Sellers and not remitted or paid to Purchaser;

(iii) any undisputed (as agreed upon by the Parties or determined by the Title Expert) Title Defect Amounts for Title Defects determined pursuant to Section 4.2 (as offset by undisputed Title Benefit Amounts for Title Benefits determined pursuant to Section 4.3 ) or the

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undisputed (as agreed upon by the Parties or determined by the Environmental Expert) Remediation Amounts for any Advers e Environmental Conditions determined pursuant to Section 5.1 ;

(iv) the amount of (A) any reduction in value of the Assets caused by Casualty Losses, as set forth in Section 4.7( a) , or (B) the Allocated Value for any portion of the Assets taken in condemnation or under right of eminent domain, as set forth in Section 4.7( b) ;

(v) an amount equal to the Allocated Value, if any, of any Assets excluded from this transaction pursuant to Section 4.2(b)( iii) , Section 4.6(b) , Section 4.6(c) , Section 5.1(b)(iii) , Section 5.1(d) or Section 8.1(a) ;

(vi) any amount equal to any downward adjustment for Imbalances as determined in accordance with the procedures set forth on Schedule 3.4 ; and

(vii) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by the Parties as a downward adjustment to the Unadjusted Purchase Price.

Section 3.5 Parent Guaranty .

(a) Simultaneously with the execution of this Agreement, Purchaser shall cause WildHorse Resource Development Corporation to deliver to Sellers the Parent Guaranty.

ARTICLE 4
TITLE MATTERS; CONSENTS

Section 4.1 Sellers’ Title

.  Except for the special warranty of title set forth in the Conveyances and the representations and warranties set forth in Sections 6.5 , 6.6 , 6.10 , 6.11 , 6.13 and 6.14 (the “ Specified Representations ”), Sellers make no, and expressly disclaim any, warranty or representation, express, implied, statutory or otherwise, with respect to Sellers’ title to any of the Assets and Purchaser hereby acknowledges and agrees that, subject to Section 4.5 , Purchaser’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Assets, (a) on or before the Defect Claim Date, shall be as set forth in Section 4.2 and (b) from and after the Defect Claim Date (without duplication), shall be pursuant to the special warranty of title set forth in the Conveyances and/or Section 12.2(b)(iv) for breaches of the Specified Representations of Sellers; provided , however , that Purchaser further acknowledges and agrees that Purchaser shall not be entitled to protection under the special warranty of title provided in the Conveyances for any Title Defect reported under this Article 4 .  The special warranty of title contained in the Conveyances shall be subject to the terms and provisions of this Section 4.1 ( mutatis mutandis ). If, after the Closing, Purchaser provides written notice of a breach of the special warranty of title in the Conveyances to any breaching Seller, such Seller shall have a reasonable opportunity to cure such breach (not to exceed ninety days following notice of such breach). In any event, the recovery on a breach of Sellers’ special warranty of title contained in the Conveyances shall not exceed, in the aggregate, the Allocated Value of the affected Asset.  Disputes regarding the existence of a breach of the special warranty of title contained in the Conveyances, the amount by which the affected Asset is adversely affected by

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such breach or the cure of such breach shall be resolved in accordance with Section 14. 3 of this Agreement.

Section 4.2 Title Defects

.

(a) To assert a claim of a Title Defect, Purchaser must deliver a claim notice to Sellers (each, a “ Title Defect Notice ”) at or prior to 5:00 p.m. Central Time on the Defect Claim Date. Each Title Defect Notice shall be in writing and shall include (i) a description of, and a reasonable explanation of Purchaser’s basis for, the alleged Title Defect, (ii) identification of each Well, Unit or Undeveloped Lease (each, a “ Title Defect Property ”), in each case, that is adversely affected by the Title Defect, (iii) the Allocated Value of each Title Defect Property, (iv) all documents in Purchaser’s possession or control (or references thereto if such documents are also in Seller’s possession or in the applicable county records) upon which Purchaser relies for its assertion of a Title Defect, including, at a minimum, supporting documents available to Purchaser (or Purchaser may include references thereto if any such documents are also in any Seller’s possession or in the applicable county records), to the extent reasonably necessary for Sellers to verify the existence of the alleged Title Defect, (v) the identity of the Seller(s) affected by such Title Defect (based on the reasonable belief of Purchaser); and (vi) the amount by which Purchaser reasonably believes the Allocated Value of each Title Defect Property is reduced by the alleged Title Defect calculated in accordance with Section 4.2(c) , and the computations therefor.  To be valid, each Title Defect Notice must be substantially in compliance with each of the requirements of the foregoing sentence. Notwithstanding any other provision of this Agreement to the contrary and subject to Purchaser’s rights under the special warranties of title contained in the Conveyances and Section 12.2(b)(iv) for breaches of the Specified Representations, Purchaser shall be deemed to have waived its right to assert any Title Defects for which a Title Defect Notice in substantial compliance with each of the requirements set forth in Section 4.2(a)(i) – (vi) above has not been delivered on or before the Defect Claim Date.

(b) Remedies .  To the extent Purchaser delivers any valid Title Defect Notices prior to the Defect Claim Date, then, subject to the Defect Threshold and Aggregate Defect Deductible, Sellers may, on or before 5:00 p.m. Central Time five Business Days following the Defect Claim Date (the “ Remedy Period ”):

(i) elect to cure such Title Defect, which curative work may extend up to 90 days from and after the Closing (the “ Post-Closing Cure Period ”);

(ii) notify Purchaser that Sellers do not intend to cure such Title Defect, in which case the Unadjusted Purchase Price shall be reduced by the Title Defect Amount, as agreed upon by the Parties attributable to such Title Defect; or

(iii) elect to retain the entirety of any Well or Undeveloped Lease that is adversely affected by such Title Defect (including the directly associated Assets reasonably necessary to own, use or operate such Well or Undeveloped Lease, as the case may be) in the event that the Title Defect Amount with respect to such Title Defect exceeds ninety percent (90%) of the Allocated Value of the affected Well or Undeveloped Lease, in which case the affected Well or Undeveloped Lease and directly associated Assets will be become Excluded Assets, and the Unadjusted Purchase Price will be reduced by an amount equal to the Allocated

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Value of such Well or Undeveloped Lease, in each ca se, including the Allocated Value of any other directly associated Assets so excluded;

provided , however , that if Sellers fail to elect a remedy prior to the end of the Remedy Period, Sellers shall be deemed to have elected the remedy described in Section 4.2(b)(i) ; provided further that, in the case of Sellers’ election (or deemed election) of the remedies described in Section 4.2(b)(i) or Section 4.2(b)(ii) , the Title Defect Properties shall be conveyed to Purchaser at the Closing in accordance with the terms of this Agreement.  For any Title Defect with respect to which Sellers and Purchaser agree on the validity of the asserted Title Defect and the Title Defect Amount and for which (1) Sellers have elected the remedy described in Section 4.2(b)(ii) or (2) Sellers have elected the remedy described in Section 4.2(b)(i) and such Title Defect is not waived by Purchaser or cured by Sellers prior to the expiration of the Post-Closing Cure Period, then, in each case, subject to the Defect Threshold and the Aggregate Defect Deductible, the Unadjusted Purchase Price will be reduced by the Title Defect Amount of such Title Defect; provided , however , that any downward adjustments made pursuant to clause (2) of this sentence shall be made and accounted for at the time of the final calculation of the Adjusted Purchase Price pursuant to Section 10.4 .  An election by Sellers to attempt to cure a Title Defect shall be without prejudice to their rights under Section 4.4 and shall not constitute an admission against interest or a waiver of Sellers’ rights to dispute the existence, nature or value of, or cost to cure, the alleged Title Defect or the adequacy of any Title Defect Notice or any curative action.  No reduction shall be made to the Unadjusted Purchase Price to the extent Sellers have cured any asserted Title Defect.  To the extent Sellers partially cure any asserted Title Defect, any reduction to the Unadjusted Purchase Price shall equal the portion of the Title Defect Amount relating to the uncured portion of the subject Title Defect.

(c) The “ Title Defect Amount ” resulting from a Title Defect shall be the amount by which the Allocated Values of the adversely affected Title Defect Properties are reduced as a result of the existence of such Title Defect and shall be determined in accordance with the following methodology, terms and conditions:

(i) if Purchaser and Sellers agree on the Title Defect Amount, that amount shall be the Title Defect Amount;

(ii) if the Title Defect is a lien, encumbrance or other charge that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from Sellers’ interest in the affected Title Defect Property;

(iii) with respect to any Well, if the Title Defect reflects a discrepancy between (A) Sellers’ actual Net Revenue Interest for the affected Well and (B) the Net Revenue Interest stated in Exhibit A-2 for such Well, and there is a corresponding proportionate decrease in the Working Interest for such Well below that stated in Exhibit A-2 for such Well, then the Title Defect Amount shall be an amount equal to the product of the Allocated Value of such Well multiplied by a fraction, the numerator of which is the amount of the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest stated in Exhibit A-2 for such Well; provided , however , that with respect to any discrepancy in a Reversionary Net Revenue Interest, the Title Defect Amount shall be appropriately adjusted to reflect the likely economic effect of the asserted Title Defect over the life of the affected Well;

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(iv) with respect to any Unit or Undeveloped Lease, if the Title Defect represents a discrepancy between (A) Sellers’ actual Net Acres for the affected Unit or Undeveloped Lease and (B) the Net Acres stated on Exhibit A-8 or A-3 , as applicable for suc h Unit or Undeveloped Lease, then the Title Defect Amount shall be an amount equal to the product of the Allocated Value of such Unit or Undeveloped Lease multiplied by a fraction, the numerator of which is the amount of such Net Acre decrease and the deno minator of which is the Net Acres stated in Exhibit A-8 or A-3 , as applicable, for such Unit or Undeveloped Lease;

(v) with respect to any Undeveloped Lease, if the Title Defect is based on Sellers’ having an actual Net Revenue Interest in such Undeveloped Lease less than the Net Revenue Interest Floor (or the Net Revenue Interest set forth on Exhibit A-3 for such Lease, as the case may be) , then the Title Defect Amount shall be an amount equal to the product of Allocated Value of such Undeveloped Lease multiplied by a fraction, the numerator of which is the amount by which the Net Revenue Interest Floor ( or the Net Revenue Interest set forth on Exhibit A-3 for such Lease, as the case may be) exceeds such actual Net Revenue Interest and the denominator of which is the Net Revenue Interest Floor (or the Net Revenue Interest set forth on Exhibit A-3 for such Lease, as the case may be);  

(vi) if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in clauses   (i) , (ii) , (iii) , (iv) or (v)  above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property adversely affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property, the likelihood and timing of potential capital expenditures over the life of the Title Defect Property, the values placed upon the asserted Title Defect by Purchaser and Sellers and such other factors as are necessary to make a proper evaluation;

(vii) the Title Defect Amount with respect to a Title Defect shall be determined without duplication of any costs or losses included in any other Title Defect Amount hereunder or of any amounts for which Purchaser otherwise receives credit in the calculation of the Adjusted Purchase Price and shall be calculated in a manner that is net to Sellers’ interest in the applicable Title Defect Property; and

(viii) notwithstanding anything to the contrary in this Article 4 or any instrument or undertaking delivered pursuant hereto (except in the case of Title Defect Amount(s) under Section 4.2(c)(ii) attributable to Title Defects arising from clause (g) of the definition of Defensible Title), the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of such Title Defect Property.

(d) If Sellers and Purchaser cannot reach an agreement on alleged Title Defects and Title Defect Amounts by (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date curative work, the end of the Post-Closing Cure Period, the provisions of Section 4.4 shall apply.

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(e) The Parties acknowledge that the L eases set forth on Exhibit A-1 and Exhibit A-3 are divided into tracts.   Exhibit A-3 sets forth a separate Allocated Value for each subdivision of each Undeveloped Lease.  Reference to the term “Lease” throughout this Agreement will be interpreted to refer to each subdivision of a Lease reflected as a separate line item on Exhibit A-1 and Exhibit A-3 , regardless of whether any particular line item represents an entire Lease or only a particular tract of such Lease.  By way of example only, if an Undeveloped Lease is subdivided into four tracts, then Exhibit A-1 and Exhibit A-3 will identif y all the subdivisions of such Undeveloped Lease using four separate line items.  If such Undeveloped Lease is affected by a Title Defect, the “Title Defect Property” will be the specific tracts affected, not necessarily the entire Undeveloped Lease.

(f) Exhibit A-8 identifies, in part, Sellers’ interest in the existing Units and the Leases included within each existing Unit. Following the Execution Date, upon request, Sellers will use reasonable efforts to assist Purchaser in identifying the specific number of Net Acres contributed by each Lease to each Unit.

Section 4.3 Title Benefits

.

(a) Sellers have the right, but not the obligation, to deliver to Purchaser prior to the Closing Date a notice (a “ Title Benefit Notice ”) in writing that includes (i) a description of, and a reasonable explanation of Sellers’ basis for, the alleged Title Benefit, (ii) identification of each Well or Undeveloped Lease affected by such Title Benefit (each a “ Title Benefit Property ”), (iii) the Allocated Value of each Title Benefit Property, (iv) all documents in Sellers’ possession or control upon which Sellers rely for their assertion of a Title Benefit or references to such documents to the extent the documents are in Purchaser’s possession, including, at a minimum, supporting documents available to Sellers to the extent reasonably necessary for Purchaser to verify the existence of the alleged Title Benefit and (v) the amount by which Sellers reasonably believe the Allocated Value of each Title Benefit Property is increased by such Title Benefit and the computations therefor. To be valid, each Title Benefit Notice must be substantially in compliance with each of the requirements of the foregoing sentence.

(b) With respect to each Title Benefit Property affected by Title Benefits reported under Section 4.3(a) , any reduction to the Unadjusted Purchase Price pursuant to Section 4.2 or Section 4.4 for a Title Defect will be offset by an amount (the “ Title Benefit Amount ”) equal to the increase in the Allocated Value for the Title Benefit Properties affected by such Title Defect, as determined pursuant to Section 4.3(c) .  Any such offset shall be made and accounted for in the final calculation of the Adjusted Purchase Price pursuant to Section 10.4 .  For the avoidance of doubt, the Unadjusted Purchase Price may be adjusted for any Title Benefits only as an offset to any Unadjusted Purchase Price adjustments for Title Defects.

(c) The Title Benefit Amount for any Title Benefit shall be calculated using methodology substantially similar to the methodology used to calculate Title Defect Amounts pursuant to Section 4.2(c) ( mutatis mutandis ), with such adjustments as are necessary to permit the Parties to use such calculations and methodologies to determine the amount by which the Allocated Value of the affected Title Benefit Property is increased as a result of the existence of such Title Benefit.

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(d) If Sellers and Purchaser cannot reach an agreement on alleged Title Benefits and Title Benefit Amounts by the Closing, the provisions of Section 4.4 shall apply.

Section 4.4 Title Disputes

.

(a) Sellers and Purchaser shall attempt to agree on all asserted Title Defects/Title Benefits and Title Defect Amounts/Title Benefit Amounts (including, in each case, the adequacy of notices thereof or any curative actions with respect thereto) prior to the Closing Date.  If, by (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date curative work, the end of the Post-Closing Cure Period, Sellers and Purchaser are unable to agree on an alleged Title Defect/Title Benefit or Title Defect Amount/Title Benefit Amount, including the adequacy of any notice thereof or any curative actions with respect thereto (the “ Disputed Title Matters ”) such disputes, and only such disputes, shall be exclusively and finally resolved in accordance with the following provisions of this Section 4.4 .  Any Asset subject to a Disputed Title Matter shall be conveyed to Purchaser at the Closing, and a cash amount equal to the alleged Title Defect Amounts/Title Benefit Amounts shall be placed in escrow with the Escrow Agent, and any adjustments to the Unadjusted Purchase Price resulting from the expert determination shall be reflected in the final calculation of the Adjusted Purchase Price pursuant to Section 10.4 .  Any initiation of an expert determination of any Disputed Title Matter shall be in accordance only with the following subsections (b) through (k) .

(b) No later than ten Business Days following the (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date curative work, the end of the Post-Closing Cure Period, either Party may submit any Disputed Title Matter to expert determination pursuant to this Section 4.4 by written notice to the other Party, together with all reasonably supporting documentation in its possession or control regarding such Disputed Title Matter.  If a Party does not submit a notice of expert determination to the other Party in accordance with this Section 4.4(b) , such Party shall be deemed to have waived all such Disputed Title Matters, which shall be deemed conclusively resolved in accordance with the Title Defect Notice or Title Benefit Notice or subsequent correspondence between the Parties.

(c) By not later than ten Business Days after a Party’s receipt of a written description of any Disputed Title Matters, such Party shall provide to the initiating Party a written response setting forth its position with respect to such Disputed Title Matters, together with all reasonably supporting documentation in its possession or control.

(d) There shall be a single title expert (the “ Title Expert ”), who shall be an attorney with at least 15 years of experience examining oil and gas titles in the region of Texas in which the Assets are located.  Within two Business Days following the initiating Party’s receipt of the other Party’s response as described in Section 4.4(c) , Sellers and Purchaser shall each exchange lists of three acceptable, qualified title experts, and shall certify that each potential title expert set forth on its list has not, and such title expert’s firm has not, represented the certifying Party or any of its Affiliates within the previous two years.  Within two Business Days following the exchange of lists of acceptable title experts, Sellers and Purchaser shall select by mutual agreement the Title Expert from their original lists of three acceptable title experts.  If no such agreement is reached, the Houston office of the American Arbitration Association shall select a title expert from the original lists provided by Sellers and Purchaser to serve as the Title Expert.

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(e) Within two Business Days following the sel ection and engagement of the Title Expert, the Parties shall submit to the Title Expert one copy of (i) this Agreement, with specific reference to this Section  4.4 , the other applicable provisions of this Article  4 and any defined terms in Appendix A relevant to this Article  4 , (ii) the initiating Party’s written description of the Disputed Title Matters provided pursuant to Section  4.4 (b) , together with the supporting documents that were provided to the other Party and (iii) the other Party’s written response to the initiating Party’s written description of the Disputed Title Matters provided pursuant to Section  4.4(c) , together with the supporting documents that were provided to the initiating Party.  The Title Expert shall resolve the Disputed Title Matters based only on the foregoing submissions.  Neithe r Purchaser nor Sellers shall have the right to submit additional documentation to the Title Expert or to demand discovery on the other Party.   

(f) The Title Expert, once appointed, shall have no ex parte communications with any Party concerning the determination required hereunder.  All communications between any Party and the Title Expert shall be conducted in writing, with copies sent simultaneously to the other Parties in the same manner, or at a meeting in Houston, Texas, to which the representatives of all Parties have been invited and of which such Parties have been provided at least five days’ written notice.

(g) The Parties will instruct the Title Expert to make his determination by written decision within 15 Business Days following submission of the Disputed Title Matters to the Title Expert pursuant to Section 4.4(e) , which shall be final and binding upon the Parties, without right of appeal.  In making the determination, the Title Expert shall be bound by the rules set forth in this Article 4 .  The Title Expert may consult with and engage disinterested Third Parties to advise the Title Expert but shall disclose to the Parties the identities of any such consultants.  Any such consultant shall not have worked as an employee of or consultant for either Party or its Affiliates during the two-year period preceding the expert determination and shall not have any financial interest in the dispute.  The written finding of the Title Expert will set forth the Title Expert’s finding, if applicable, as to (A) whether the subject Title Defect exists or has been cured and, subject to the following sentence, the resulting Title Defect Amount, (B) the existence of the asserted Title Benefit and, subject to the following sentence, corresponding Title Benefit Amount, (C) the deficiencies in any notice of the foregoing and the specific supplemental information that, if provided, would cause such notice to be in compliance with the terms of Section 4.2(a) , and/or (D) the adequacy of any title curative action, including any such additional curative actions necessary to cure properly any asserted Title Defect, as applicable, in each case, including the Title Expert’s rationale for the determination.  With respect to a Title Defect Amount or Title Benefit Amount, the Title Expert shall be limited to awarding only the final amount proposed by either Party in its submissions provided pursuant to Section 4.4(e) .  The Title Expert shall make a separate and independent determination with respect to each Disputed Title Matter submitted and shall provide a detailed written finding supporting such determination.  For the avoidance of doubt, the submission of a Disputed Title Matter for interim determination ( e.g. , a determination about the adequacy of a Title Defect Notice) shall not prohibit any Party from subsequently disputing the existence of an asserted Title Defect or Title Benefit, the corresponding Title Defect Amount or Title Benefit Amount or the adequacy of any curative actions taken with respect to an asserted Title Defect, unless the Title Expert has already made a determination with respect to such matters.

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(h) The Title Expert shall act as an expert for the limited purpose of determining the specific disputed Title Defects or Title Benefits and shall not be empowered to award Damages, interest or penalties to either Party with respect to any matter.

(i) Each Party shall bear its own legal fees and other costs of preparing and presenting its case. The costs of the Title Expert shall be borne (i) by Sellers in a ratio equal to a fraction, the numerator of which is the aggregate amount awarded by the Title Expert in favor of Purchaser, and the denominator of which is the aggregate amount of the Title Defects Amounts submitted for determination to the Title Expert, and (ii) the remainder by Purchaser.

(j) Subject to the Defect Threshold and the Aggregate Defect Deductible, any amounts determined to be owed by either Party shall be accounted for in the final determination of the Adjusted Purchase Price pursuant to Section 10.4 and Sellers and Purchaser shall deliver documentation to the Escrow Agent required to release the amounts determined by the Title Expert to be owed to either Party .  Any alleged Title Defects/Title Benefits determined not to be Title Defects/Title Benefits under the decision of the Title Expert shall be final and binding as not being Title Defects/Title Benefits, and any such decision of the Title Expert shall be enforceable by either Party in any court of competent jurisdiction.

(k) Any dispute over the interpretation or application of this Section 4.4 shall be decided by the Title Expert with reference to the Laws of the State of Texas.  The Parties intend that the procedures set forth in this Section 4.4 shall not constitute or be handled as arbitration proceedings under the Federal Arbitration Act or any applicable state arbitration act and that the provisions of this Section 4.4 shall be specifically enforceable.

Section 4.5 Limitations on Applicability

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(a) This Article 4 , the special warranty of title provided in the Conveyances and Section 12.2(b)(iv) for breaches by Sellers of the Specified Representations shall comprise, subject to the limitations set forth in this Agreement, the exclusive rights and remedies of Purchaser with respect to Title Defects.

(b) Notwithstanding anything to the contrary in th is Agreement, in no event shall there be any adjustments to the Unadjusted Purchase Price or other remedies available in respect of Title Defects under this Article 4 unless the sum of (i) all such Title Defect Amounts that exceed the Defect Threshold and (ii)  all Remediation Amounts for Adverse Environmental Conditions that exceed the Defect Threshold exceeds the Aggregate Defect Deductible, beyond which point, Purchaser shall be entitled to adjustments to the Unadjusted Purchase Price or other remedies elected by Sellers in accordance with this Article 4 only to the extent that the sum of such Title Defect Amounts and such Remediation Amounts exceeds the Aggregate Defect Deductible.  

(c) In the event (i) Purchaser is entitled to a remedy pursuant to clause (b) above and such remedy is that a Property is removed from this transaction or not transferred to Purchaser or (ii) a Property is removed from this transaction or not transferred to Purchaser pursuant to Section 4.6(b) , Section 4.6(c) or Section 8.1(a) , the Allocated Value of any such removed Property shall not be included in the Aggregate Defect Deductible .

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(d) The Parties acknowledge and agree that a Title Defect may affect multiple Properties and in such event the Parties acknowledge and agree, for the avoidance of doubt, that if the Title Defect Amount associated therewith (which shall be the aggregate reduction in Allocated Value of all affected Properties) exceeds the Defect Threshold then, subject to the Aggregate Defect Deductible, Purchaser shall be entitled to the remedies provided in this Article  4 .

(e) Notwithstanding anything to the contrary herein or in the Northstars Purchase and Sale Agreement, in the event a Title Defect hereunder additionally constitutes a Title Defect under the Northstars Purchase and Sale Agreement, then, for such Title Defect, the “Defect Threshold” referenced in Section 4.5(b) of this Agreement shall be equal to $60,000.00 and the “Defect Threshold” in Section 4.5(b) of the Northstars Purchase and Sale Agreement shall be equal to $15,000.00.

Section 4.6 Consents to Assignment and Preferential Rights to Purchase

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(a) As soon as reasonably practicable following the Execution Date but in any event no later than ten Business Days following the Execution Date, Sellers shall send (i) notice to the holder of any consent to assignment or similar approval necessary for the Parties to complete the transactions as contemplated hereby that will be triggered by the consummation of the transactions contemplated by this Agreement (including any Required Consents but excluding the Customary Post-Closing Consents), requesting consents to the Conveyances and (ii) notice to any Third Party holder of any Preferential Right to Purchase  that is triggered by the transactions contemplated by this Agreement (each notice to be in form and substance reasonably acceptable to Purchaser), requesting waiver of such Preferential Right to Purchase, in each case, in accordance with the contractual requirements pertaining to each consent to assignment, approval right and Preferential Right to Purchase.  Any such Preferential Right to Purchase must be exercised subject to all terms and conditions set forth in this Agreement, including the successful Closing pursuant to Article 10 as to those Assets for which such Preferential Right to Purchase has not been exercised.  The consideration payable under this Agreement for any particular Asset for purposes of Preferential Right to Purchase notices shall be the Allocated Value for such Asset, subject to adjustment as described in Section 3.4 .  Sellers shall use commercially reasonable efforts to obtain such consents and approvals and waivers of such Preferential Rights to Purchase (or the exercise thereof) prior to the Closing; provided , however , that Sellers shall not be required to (i) make payments or (ii) remain liable for (post-closing) or undertake obligations to or for the benefit of the holders of such rights in order to obtain any such consent, approval or waiver.  Purchaser shall reasonably cooperate with Sellers in seeking to obtain such consents and approvals and waivers of Preferential Rights to Purchase, which cooperation will include providing evidence of creditworthiness.  Subject to clauses (b) and (c) below, if Sellers are unable to obtain such consents, approvals or waivers by the Closing Date, Sellers shall have no further obligation to seek to obtain such consents, approvals or waivers after the Closing.

(b) Required Consents .

(i) If any Contract or Surface Agreement is subject to a Required Consent and such Required Consent has not been obtained prior to the Closing or is subject to a Soft Consent and such Soft Consent is denied in writing (and the holder gives a reason for such denial in

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writing) prior to the Closing (such Required Consents and Soft Consents, the “ Unobtained Contract Consents ”), (A) such Contract o r Surface Agreement, as applicable will be excluded from the Assets conveyed at the Closing and will be treated as an Excluded Asset, and (B) Purchaser may request that Sellers execute and deliver such instruments and take such other actions as Purchaser m ay reasonably request to carry out the intent of this Agreement and the transfer of any Property and its related Assets related to such Contract or Surface Agreement, as applicable, including, to the extent reasonably practicable, the execution of back-to- back agreements to effect the transfer to Purchaser of the benefits to and burdens on Sellers under the Contract or Surface Agreement subject to such Unobtained Contract Consent; provided , however , that entering into such back-to-back agreements does not: (x) expressly result in a breach of the Contract or Surface Agreement subject to such Unobtained Contract Consent, (y) result in a violation of Law by Sellers or (z) impose a burden on Sellers that is materially disproportionate to the benefit received by Purchaser under the Contract or Surface Agreement subject to such Unobtained Contract Consent (such arrangements, the “ Back-to-Back Arrangements ”). Sellers’ obligation to perform Back-to-Back Arrangements with respect to any Contract or Surface Agreement p ursuant to this Section 4.6(b)(i) will terminate upon the earlier of (x) the Cut-off Date, (y) the date that the Unobtained Contract Consent with respect to such C ontract or Surface Agreement is obtained and (z) the date Purchaser notifies Sellers that it has made alternative arrangements that vitiate the need for such Contract or Surface Agreement, which notice shall be provided by Purchaser as soon as practicable after such alternative arrangements are made ( provided that such Contract or Surface Agreement does not prohibit such alternative arrangement).  If Purchaser is assigned the Property or Properties to which such Contract or Surface Agreement relates, but su ch Contract or Surface Agreement is not transferred to Purchaser pursuant to the terms of this Section 4.6(b)(i) , Sellers shall continue after the Closing to use co mmercially reasonable efforts to obtain any Unobtained Contract Consents that have not been affirmatively denied so that such Contract or Surface Agreement can be transferred to Purchaser; provided , however , that if Sellers are unable to obtain such Unobta ined Contract Consent by the Cut-off Date, Sellers shall have no further obligation to seek to obtain such Unobtained Contract Consent and, at Purchaser’s election, unless the affected Contract is a midstream or marketing Contract, the affected Contract or Surface Agreement shall be assigned to Purchaser by Sellers.  For the avoidance of doubt, any Damages arising from or relating to any such assignment shall be Assumed Purchaser Obligations and not Retained Seller Obligations.    If Purchaser does not so ele ct, the affected Contract or Surface Agreement shall be deemed an Excluded Asset under this Agreement for all purposes .

(ii) If any Lease is subject to a Required Consent and such Required Consent has not been obtained prior to the Closing or is subject to a Soft Consent and such Soft Consent is denied in writing (and the holder gives a reason for such denial in writing) prior to the Closing (such Required Consents and Soft Consents, the “ Unobtained Lease Consents ”), then, in each case, (i) the affected Lease and the Assets directly associated with the Lease shall be excluded from the Assets conveyed at the Closing and shall be deemed to be Excluded Assets and (ii) the Unadjusted Purchase Price shall be reduced by the Allocated Value of such excluded Lease and directly associated Assets, if any.  If such Unobtained Lease Consent is subsequently obtained prior to the Cut-off Date, then Sellers shall notify Purchaser and an additional Closing shall be held within five Business Days following receipt of such consent at which (A) Sellers shall sell, assign and convey the affected Lease and related Assets that were excluded at Closing to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) and

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(B) Purchaser shall pay to Sellers an amount equa l to the Allocated Value of such Assets, adjusted ( mutatis mutandis ) in accordance with Section 3.4 .  In the event of such assignment, the term “Closing Date” with respect to any such Assets shall mean the date of assignment of such Assets from Sellers to Purchaser.  If such Unobtained Lease Consent is not obtained by the Cut-off Date, Sellers shall have no further obligation to seek to obtain such Unobtained Lease Consent and, at Purchaser’s election, an additional Closing shall be held within five Business Days following such election at which (A) Sellers shall sell, assign and convey the affected Lease and its directly associated Assets that were excluded at the C losing to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) and (B) Purchaser shall pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis ) in accordance with Section 3.4 .  For the avoidance of doubt, any Damages arising from or relating to any such assignment shall be Assumed Purchaser Obligations and not Retained Seller Obligations.  If Purch aser does not so elect, the affected Lease and its directly associated Assets shall be deemed an Excluded Asset under this Agreement for all purposes.

(iii) For purposes of this Section 4.6(b) , a Required Consent shall be deemed obtained if the Person holding the Required Consent grants consent or is deemed to have consented pursuant to the terms of the document in which the Required Consent is contained.  For the avoidance of doubt, if Sellers do not obtain consent from the holder of any Soft Consent, then, except for those Soft Consents constituting Unobtained Contract Consents or Unobtained Lease Consents, the underlying Asset shall be conveyed to Purchaser at Closing and Sellers shall not be liable for failure to obtain such Soft Consent.

(c) Preferential Rights to Purchase .

(i) If, prior to the Closing, the holder of a Preferential Right to Purchase that will be triggered by the consummation of the transactions contemplated by this Agreement (A) notifies Sellers that it intends to exercise its Preferential Right to Purchase or (B) has failed to exercise or waive its Preferential Right to Purchase, and the time for such exercise or waiver has not yet expired, (i) the Unadjusted Purchase Price shall be decreased by the Allocated Value for such Asset and (ii) the affected Asset shall be excluded from the Assets conveyed at the Closing and shall be deemed an Excluded Asset under this Agreement for all purposes.  In such case, Sellers shall retain the consideration paid by the holder of such Preferential Right to Purchase and shall have no further obligation with respect to the affected Asset under this Agreement.

(ii) If, on the Closing Date, any holder of a Preferential Right to Purchase triggered by the consummation of the transactions contemplated by this Agreement has failed to exercise or waive its Preferential Right to Purchase as to any portion of the Assets and the time for such exercise or waiver has expired, the affected Assets shall be transferred to Purchaser at the Closing.

(iii) If, following the Closing but prior to the date that is 90 days following the Closing , the holder of a Preferential Right to Purchase triggered by the consummation of the transactions contemplated by this Agreement (A) who exercised such right fails to consummate the purchase in accordance with the applicable agreement or (B) fails to exercise or waive such right and the time for such exercise or waiver has expired, in each case, Sellers shall notify

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Purchaser and an additional Closing shall be held within five Business Days following such failure at which (A) Sellers shall sell, assign and convey the affected Assets to Purchaser pursuant to the terms of this Agr eement (using the form of Conveyance) and (B) Purchaser shall pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis) in accordance with Section 3.4 .  In the event of such assignment, the term “Closing Date” with respect to any such Assets shall mean the date of assignment of such Assets from Sellers to Purchaser .   Following the date that is 90 days following the Closing, Sel lers shall have no further obligation to sell and convey any Assets subject to a Preferential Right to Purchase triggered by the transactions contemplated by this Agreement which have not yet been conveyed to Purchaser pursuant to this Section 4.6(c) , and Purchaser shall have no further obligation to accept and pay for such Assets, and such Assets shall be deemed Excluded Assets under this Agreement for all purposes.

(iv) If the Parties inadvertently close on any Asset burdened by a Preferential Right to Purchase that is triggered by the consummation of the transactions contemplated by this Agreement, either (A) without having provided the required notification to the holder of such Preferential Right to Purchase or (B) without such holder having waived such Preferential Right to Purchase or the time period for the exercise of such Preferential Right to Purchase having expired, and, after the Closing, the holder of such Preferential Right to Purchase successfully exercises such Preferential Right to Purchase, then Purchaser shall convey such Asset directly to the holder of such Preferential Right to Purchase and shall be entitled to retain all proceeds paid for the affected Asset by the holder of the Preferential Right to Purchase.

(d) Customary Post-Closing Consents .  Purchaser, within 30 days after the Closing, shall file for approval with the applicable Governmental Bodies all assignment documents and other state transfer documents required to effectuate the transfer of the Assets.  Purchaser further agrees promptly after the Closing to take all other actions reasonably required of it by Governmental Bodies having jurisdiction to obtain all requisite regulatory approvals with respect to this transaction, and to use its reasonable commercial efforts to obtain the approval by such Governmental Bodies, as applicable, of Sellers’ assignment documents requiring approval from such Governmental Body in order for Purchaser to be recognized by such Governmental Body as the owner of the Assets.  Sellers shall provide Purchaser with the resignation and designation of operator instruments, and Purchaser shall provide Sellers with approved copies of the assignment documents and other state transfer documents within ten Business Days of the receipt of such items by Purchaser.

Section 4.7 Casualty Loss or Condemnation

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(a) If, after the Execution Date but prior to the Closing Date, any portion of the Assets is affected by Casualty Losses and the Damages as a result of such Casualty Losses exceed, in the aggregate, $1,500,000.00, Purchaser shall nevertheless be required to close, subject to Section 9.2(f) , and the Sellers whose Assets are affected by such Casualty Losses shall elect by written notice to Purchaser prior to the Closing to (i) cause the Assets adversely affected by such Casualty Losses to be repaired or restored to at least their condition prior to such Casualty Losses, at the affected Sellers’ (or Seller’s) sole cost and expense, as promptly as reasonably practicable, (ii) indemnify Purchaser against any costs or expenses that Purchaser reasonably incurs to repair or restore the Assets subject to any such Casualty Losses to the

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condition such Assets were in prior to such Casualty Losses, provided that Purchaser has consented to accept such indemnity or (iii) make an appropriate monetary adjustment to the Unadjusted Purchase Price reflecting the cost to repair or restore the Assets adversely effected by such Casualty Losses to at least their condition prior to such Casualty Losses, or if such Casualty Losses are not capable of being repaired or restored, then the “reduction in value” caused by such Casualty Los ses; provided , however , that such “reduction in value” shall not exceed any amount mutually agreed upon by the Parties as the reasonable cost of repair; provided further , that in no event will any calculation of Damages, cost of repair or reduction in value hereunder take into account any loss of production or changes in production as a result of such Casualty Loss, through an emergency shut-in or otherwise.  Notwithstand ing the foregoing, Purchaser shall only be entitled to a remedy in respect of Casualty Losses pursuant to the foregoing sentence to the extent, and only to the extent, such Casualty Losses exceed $1,500,000.00 ; provided , however , that with respect to any p ortion of such Casualty Losses that does not exceed $1,500,000.00, Purchaser shall be entitled to all sums paid to Sellers by Third Parties by reason of such Casualty Losses and all of Sellers’ right, title and interest (if any) in unpaid awards, condemnat ion payments, rights to insurance and other rights and claims against Third Parties (other than Persons within the Seller Group) arising out of such Casualty Losses.

(b) If, after the Execution Date but prior to the Closing Date, any portion of the Assets is taken in condemnation or under right of eminent domain by any Governmental Body, (i) the affected Asset shall be excluded from the Assets conveyed at the Closing and shall be deemed an Excluded Asset and (ii) the Unadjusted Purchase Price shall be decreased by the Allocated Value for such Asset.  If any action for condemnation or taking under right of eminent domain is pending or threatened with respect to any portion of the Assets after the Execution Date, but no taking of such Asset occurs prior to the Closing Date, Sellers shall, at the Closing, sell, assign and convey to Purchaser, or subrogate Purchaser to Sellers’ right, title and interest (if any) in such taking, including any insurance claims, unpaid awards and other rights against Third Parties (other than claims against Persons within the Seller Group) arising out of the taking, insofar as they are attributable to the Assets (or portions thereof) threatened to be taken.

ARTICLE 5
ENVIRONMENTAL MATTERS

Section 5.1 Adverse Environmental Conditions

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(a) To assert a claim of an Adverse Environmental Condition, Purchaser must deliver a claim notice to Sellers (each, an “ Environmental Condition Notice ”) at or prior to 5:00 p.m. Central Time on the Defect Claim Date.  To be valid, each Environmental Condition Notice shall be in writing and shall include (i) a description of, and a reasonable explanation of Purchaser’s basis for, the alleged Adverse Environmental Condition, including a description of any standards that Purchaser asserts must be met to comply with Environmental Laws, (ii) identification of each Asset adversely affected by the Adverse Environmental Condition (each, an “ Environmental Defect Property ”), (iii) the Allocated Value of each Environmental Defect Property, (iv) all documents in Purchaser’s possession or control upon which Purchaser relies for its assertion of an Adverse Environmental Condition, including, at a minimum, supporting documents available to Purchaser to the extent reasonably necessary for Sellers to verify the existence of the alleged Adverse Environmental Condition, and (v) the Remediation Amount that

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Purchaser asserts is attributable to such alleged Adverse Environmental Condition and the computations therefor . To be valid, each Environmental Condition Notice must be substantially in compliance wit h each of the requirements of the foregoing sentence. For the avoidance of doubt, Purchaser may not assert any Adverse Environmental Condition to the extent constituting a Disclosed Environmental Condition, which are set forth on Schedule 5.1 .  Notwithstanding any other provision of this Agreement to the contrary, but without limitation of Purchaser’s rights and remedies pursuant to Section  12.2(b)(iv) for breaches of the representations and warranties of Sellers in Section 6.21 , Purchaser will be deemed to have waived its right to assert any Adverse Environmental Conditions for which an Environmental Condition Notice in substantial compliance with each of the requirements set forth in Section 5.1( a)(i) – (v) above has not been delivered on or before the Defect Claim Date.

(b) Remedies .  To the extent Purchaser delivers any valid Environmental Condition Notice in accordance with Section 5.1(a) prior to the Defect Claim Date, then, subject to the Defect Threshold and Aggregate Defect Deductible, Sellers may, on or before the end of the Remedy Period, elect any of the following remedies:

(i) Notify Purchaser that they intend to Remediate such Adverse Environmental Condition and undertake such Remediation, which Remediation work may extend to the end of the Post-Closing Cure Period under a mutually agreeable form of access agreement containing reciprocal forms of the applicable terms binding upon Purchaser in Section 8.1 , in which case Sellers shall retain such Environmental Defect Property (including any directly associated Assets) at the Closing, and the Unadjusted Purchase Price will be reduced by the Allocated Value (if any) of such Environmental Defect Property and any other directly associated Assets so retained;

(ii) Notify Purchaser that they do not intend to Remediate such Adverse Environmental Condition, in which case the Unadjusted Purchase Price shall be reduced by the Remediation Amount, as agreed upon by the Parties or determined by the Environmental Expert, attributable to such Environmental Defect; or

(iii) To the extent the alleged Remediation Amount exceeds $500,000.00, retain such Environmental Defect Property (including any directly associated Assets) or the portion thereof subject to the Adverse Environmental Condition (at which point such Environmental Defect Property (including any directly associated Assets) or portion so retained will become an Excluded Asset), and reduce the Unadjusted Purchase Price by an amount equal to the Allocated Value, if any, of such Environmental Defect Property, or portion thereof, and any other directly associated Assets so retained;

provided , however , that if Sellers fail to elect a remedy prior to the end of the Remedy Period, Sellers shall be deemed to have elected the remedy described in Section 5.1(b)(i) ; provided further that in the case of Seller’s election of the remedy described in Section 5.1(b)(ii) , the applicable Environmental Defect Properties shall be conveyed to Purchaser at the Closing in accordance with the terms of this Agreement and, subject to the Defect Threshold and the Aggregate Defect Deductible, the Unadjusted Purchase Price shall be reduced by the Remediation Amount of such Adverse Environmental Condition.  In the event that Sellers have elected the remedy in Section 5.1(b)(i) and (i) such Adverse Environmental Condition is

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Remediated at or prior to the expiration of the Post-Closing Cure Period, within five Business days after such completion, Sellers shall convey the affected Environmental Defect Property (and its directly associated Assets) to Purchaser pursuant to the terms of this Agreement (u sing the form of Conveyance) and Purchaser will pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis ) in accordance with Section 3.4 or (ii) such Adverse Environmental Condition is not fully Remediated prior to the expiration of the Post-Closing Cure Period, then within five Business days after such expiration, Sellers shall elect to either (A) convey the En vironmental Defect Property to Purchaser (in accordance with the provisions of clause (i) of this sentence, except that Purchaser shall pay Sellers an amount for such Assets equal to their Allocated Value less the remaining Remediation Amount or, if the re maining Remediation Amount is greater than the adjusted Allocated Value of such Assets, Sellers shall pay Purchaser the amount of such excess) or (B) to the extent the remaining Remediation Amount asserted by Purchaser is greater than $500,000.00, retain s uch Environmental Defect Property and its directly associated Assets permanently.  An election by Sellers to attempt to Remediate an Adverse Environmental Condition shall be without prejudice to their rights under Section  5.2 and shall not constitute an admission against interest or a waiver of Sellers’ right to dispute the existence, nature or value of, or cost to Remediate, the alleged Adverse Environmental Condition or the adequacy of any Environmental Condition Notice or any curative action.

(c) If Sellers select the remedy in Section 5.1(b)(i) or  Section 5.1(b)(ii) and Purchaser waives such Adverse Environmental Condition or Sellers fail to Remediate and the Unadjusted Purchase Price is adjusted for such Adverse Environmental Condition, then in each case Purchaser shall be deemed to have assumed responsibility for Remediation of such Adverse Environmental Condition and such Adverse Environmental Condition and all liabilities with respect thereto shall be deemed to constitute Assumed Purchaser Obligations.  With respect to any provision of this Article 5 that refers to any Remediation completed by Sellers, Sellers will be deemed to have adequately completed the Remediation upon mutual agreement of the Parties that the Remediation has been implemented to the extent necessary to comply with Environmental Laws applicable; provided , however , that if the Parties cannot reach an agreement, the issue of whether the Remediation is completed may be resolved by the dispute resolution procedures set forth in Section 5.2 .  Without limitation of Purchaser’s rights and remedies pursuant to Section 12.2(b)(iv) for breaches of the representations and warranties of Sellers in Section 6.21 , following the completion of any Remediation in accordance with this Section 5.1(c) , Purchaser shall have no further remedies against Sellers with respect to the Remediation of the applicable Adverse Environmental Condition or the corresponding Remediation Amount.

(d) Notwithstanding anything to the contrary herein, including this Article 5 , in the event the Remediation Amount for an alleged Environmental Conditions exceeds $500,000.00, then Purchaser shall have the right to elect ((X) prior to Closing, if (i) the Parties have agreed on the Remediation Amount prior to Closing or (ii) Purchaser believes in good faith the Remediation Amount exceeds $500,000.00, or (Y) promptly following the Environmental Expert’s decision, if there is a related Disputed Environmental Matter) to exclude such Environmental Defect Property and its directly associated Assets from the transactions contemplated hereby; in which case Sellers shall retain such Environmental Defect Property (including any directly associated Assets) at the Closing, and the Unadjusted Purchase Price will

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be reduced by the Allocated Value (if any, and as adjusted hereunder) of such Environmental Defect Prope rty and any other directly associated Assets so retained.  For the avoidance of doubt, Purchaser’s remedies under this Section 5.1(d) shall be subj ect to the Defect Threshold and the Aggregate Defect Deductible.

Section 5.2 Adverse Environmental Condition Disputes

.

(a) Sellers and Purchaser shall attempt to agree on all asserted Adverse Environmental Conditions and Remediation Amounts prior to the Closing Date.  If, by (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date Remediation work, the end of the Post-Closing Cure Period, Sellers and Purchaser are unable to agree on an alleged Adverse Environmental Condition, on the completion of Remediation or on an alleged Remediation Amount (including, in each case, the adequacy of notices thereof or any Remediation actions with respect thereto) (the “ Disputed Environmental Matters ”) such disputes, and only such disputes, shall be exclusively and finally resolved in accordance with the following provisions of this Section 5.2 .  Any Asset subject to a Disputed Environmental Matter at the Closing shall be retained by Sellers at Closing and a cash amount equal to the Allocated Value of such Asset shall be placed in escrow with the Escrow Agent.  Any initiation of an expert determination of any Disputed Environmental Matter shall only be in accordance with the following provisions.

(b) No later than twenty Business Days following the (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date Remediation work, the end of the Post-Closing Cure Period, either Party may submit any Disputed Environmental Matter to expert determination pursuant to this Section 5.2 by written notice to the other Party, together with all reasonably supporting documentation of such Disputed Environmental Matter.  If a Party does not submit a notice of expert determination to the other Party in accordance with this Section 5.2(b) , such Party shall be deemed to have waived all such Disputed Environmental Matters, which shall be deemed conclusively resolved in accordance with the other Party’s written position in the Environmental Condition Notice or subsequent correspondence between the Parties.

(c) By not later than twenty Business Days after a Party’s receipt of a written description of any Disputed Environmental Matters, such Party shall provide to the initiating Party a written response setting forth its position with respect to such Disputed Environmental Matters, together with all reasonably supporting documentation.

(d) There shall be a single environmental expert (the “ Environmental Expert ”), who shall be an environmental consultant with at least ten years’ experience examining environmental matters involving oil and gas producing properties in the region in Texas in which the Assets are located.  Within two Business Days following the initiating Party’s receipt of the other Party’s response as described in Section 5.2(c) , Sellers and Purchaser shall each exchange lists of three acceptable, qualified environmental experts, and shall certify that each potential environmental expert set forth on its list has not, and such environmental expert’s firm has not, represented the certifying Party or any of its Affiliates within the previous two years.  Within two Business Days following the exchange of lists of environmental experts, Sellers and Purchaser shall select by mutual agreement the Environmental Expert from their original lists of three acceptable

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environmental experts.  If no such agreement is reached, the Houston office of the American Arb itration Association shall select an environmental expert from the original lists provided by Sellers and Purchaser to serve as the Environmental Expert.

(e) Within two Business Days following the selection and engagement of the Environmental Expert, the Parties shall submit to the Environmental Expert one copy of (i) this Agreement, with specific reference to this Section 5.2 , the other applicable provisions of this Article 5 and any defined terms in Appendix A relevant to this Article 5 , (ii) the initiating Party’s written description of the Disputed Environmental Matters provided pursuant to Section 5.2(b) , together with the supporting documents that were provided to the other Party and (iii) the other Party’s written response to the initiating party’s written description of the Disputed Environmental Matters, together with the supporting documents that were provided to the initiating Party.  The Environmental Expert shall resolve the Disputed Environmental Matters based only on the foregoing submissions.  Neither Purchaser nor Sellers shall have the right to submit additional documentation the Environmental Expert or to demand discovery on the other Party.

(f) The Environmental Expert, once appointed and engaged, shall have no ex parte communications with any Party concerning the determination required hereunder.  All communications between any Party and the Environmental Expert shall be conducted in writing, with copies sent simultaneously to the other Parties in the same manner, or at a meeting in Houston, Texas, to which the representatives of all Parties have been invited and of which such Parties have been provided at least five days’ written notice.

(g) The Parties will instruct the Environmental Expert to make his determination by written decision within 15 Business Days following submission of the Disputed Environmental Matters to the Environmental Expert, which shall be final and binding upon the Parties, without right of appeal and shall be enforceable by either Party in any court of competent jurisdiction.  In making the determination, the Environmental Expert shall be bound by the rules set forth in this Article 5 . The Environmental Expert may consult with and engage disinterested Third Parties to advise the Environmental Expert but shall disclose to the Parties the identities of such consultants.  Any such consultant shall not have worked as an employee of or consultant for either Party or its Affiliates during the two-year period preceding the expert determination and shall not have any financial interest in the dispute.  The written finding of the Environmental Expert will set forth the Environmental Expert’s finding, if applicable, as to (A) whether the subject Adverse Environmental Condition exists or has been Remediated and, subject to the following sentence, the resulting Remediation Amount, (B) the deficiencies in any notice of the foregoing and the specific supplemental information that, if provided, would cause such notice to be in compliance with the terms of Section 5.1(a) and/or (C) the adequacy of any Remediation action, including any such additional Remediation actions necessary to Remediate properly any asserted Adverse Environmental Condition, as applicable, in each case, including the Environmental Expert’s rationale for the determination.  With respect to a Remediation Amount, the Environmental Expert shall be limited to awarding only the final amount proposed by either Party in its submissions provided pursuant to Section 5.2(e) .  The Environmental Expert shall make a separate and independent determination with respect to each Disputed Environmental Matter submitted and shall provide a detailed written finding supporting such determination. For the avoidance of doubt, the submission of a Disputed Environmental Matter for interim

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determination ( e.g. , a determination about the adequacy of an Environmental Condition Notice) shall not prohibit any Party from subsequently disputing the existence of an asserted Adverse Enviro nmental Condition, the Remediation Amount or the adequacy of any Remediation actions taken with respect to an asserted Adverse Environmental Condition unless the Environmental Expert has already made a determination with respect to such matters.

(h) The Environmental Expert shall act as an expert for the limited purpose of determining the specific disputed Adverse Environmental Conditions and shall not be empowered to award Damages, interest or penalties to either Party with respect to any matter.

(i) Each Party shall each bear its own legal fees and other costs of preparing and presenting its case.  The costs of the Environmental Expert shall be borne (i) by Sellers in a ratio equal to a fraction, the numerator of which is the aggregate Remediation Amounts awarded by the Environmental Expert in Purchaser’s favor, and the denominator of which is the aggregate amount of the associated Remediation Amounts submitted for determination to the Environmental Expert, and (ii) the remainder by Purchaser.

(j) After the Environmental Expert’s determination is delivered as set forth in Section 5.2(g) , Sellers shall promptly elect whether (i) if the Remediation Amount exceeds $500,000.00, to retain the entirety of the Environmental Defect Property that is subject to such Disputed Environmental Matter , together with all associated Assets, and reduce the Unadjusted Purchase Price by the Allocated Value of such Environmental Defect Property and associated Assets (in which case such Environmental Defect Property and such associated Assets shall be deemed to be Excluded Assets hereunder) or (ii) to reduce the Unadjusted Purchase Price as set forth in the immediately following sentence, in which case, Sellers shall convey the affected Environmental Defect Property (and its directly associated Assets) to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) .  Subject to the Defect Threshold and the Aggregate Defect Deductible, any amounts determined to be owed by either Party shall be accounted for in the final determination of the Adjusted Purchase Price pursuant to Section 10.4 , and Sellers and Purchaser shall deliver documentation to the Escrow Agent required to release the amounts determined by the Environmental Expert to be owed to either Party .  Any alleged Adverse Environmental Conditions determined not to be Adverse Environmental Conditions under the decision of the Environmental Expert shall be final and binding as not being Adverse Environmental Conditions.

(k) Any dispute over the interpretation or application of this Section 5.2 shall be decided by the Environmental Expert with reference to the Laws of the State of Texas.  The Parties intend that the procedures set forth in this Section 5.2 shall not constitute or be handled as arbitration proceedings under the Federal Arbitration Act or any applicable state arbitration act, and that the provisions of this Section 5.2 shall be specifically enforceable.

Section 5.3 Limitations on Applicability

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(a) This Article 5 shall comprise, subject to Purchaser’s rights under this Agreement with respect to the representations and warranties set forth in Section 6.21 (and Section 12.2(b)(iv) for breaches thereof) and the limitations set forth in this Agreement, the

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exclusive rights and remedies of Purchaser with respec t to Adverse Environmental Conditions or any other environmental matter with respect to any Asset.

(b) Notwithstanding anything to the contrary in this Agreement, in no event shall there be any adjustments to the Unadjusted Purchase Price or other remedies ava ilable in respect of Adverse Environmental Conditions under this Article 5 unless the sum of (i) all such Remediation Amounts that exceed the Defect Threshold and (ii) all such Title Defect Amounts that exceed the Defect Threshold exceeds the Aggregate Defect Deductible, after which point Purchaser shall be entitled to adjustments to the Unadjusted Purchase Price or other remedies elected by Sellers in accordance with this Article 5 only to the extent that the sum of such Remediation Amounts and such Title Defect Amounts exceeds the Aggregate Defect Deductible.

(c) In the event (i) Purchaser is entitled to a remedy pursuant to clause (b) above and such remedy is that a Property is removed from this transaction or not transferred to Purchaser or (ii) a Property is removed from this transaction or not transferred to Purchaser pursuant to Section 4.6(b) , Section 4.6(c) or Section 8.1(a) , the Allocated Value of any such removed Property shall not be included in the Aggregate Defect Deductible .

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLERS

Subject to the disclaimers and waivers contained in, and the other terms and conditions of, this Agreement, each Seller, severally and not jointly, represents and warrants to Purchaser as follows as of the Execution Date:

Section 6.1 Organization and Power

.  Each Seller (a) is validly existing and in good standing under the Laws of its jurisdiction of organization and is duly qualified to do business in, and is in good standing in, the State of Texas, to the extent such qualification is required by applicable Law and (b) has all requisite power and authority to own, lease, operate and use the assets and properties currently owned, leased, operated and owned by it, including the Assets.

Section 6.2 Authorization and Enforceability

.  Each Seller has the requisite power and authority to execute and deliver this Agreement and the other instruments and agreements to be executed and delivered by it as contemplated hereby and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and all documents required to be executed and delivered by Sellers at the Closing, and the performance of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate, partnership or limited liability action on the part of Sellers.  This Agreement has been duly executed and delivered by Sellers (and all documents required hereunder to be executed and delivered by Sellers at the Closing will be duly executed and delivered by Sellers) and this Agreement constitutes, and at the Closing such documents will constitute, assuming the due execution and delivery of all other parties thereto, the valid and binding obligations of Sellers, enforceable in accordance with their terms, subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

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Section 6.3 Liability for Brokers’ Fees

.  Purchaser shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Sellers or any of their Affiliates entered into in connection with this Agreement, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.

Section 6.4 No Conflicts .

Except for (i) Customary Post-Closing Consents, (ii) Required Consents, (iii) Preferential Rights to Purchase, (iv) Soft Consents and any other consents required to be scheduled on Schedule 6.10 , and (v) the filings required under, and compliance with the requirements of, the HSR Act, except as set forth on Schedule 6.4 , the execution, delivery and performance of this Agreement by Sellers, and the transactions contemplated by this Agreement, will not (a) violate any provision of the organizational documents of Sellers or require any consent or approval from any Person thereunder, (b) result in a material default (with or without due notice or lapse of time or both) under, or require any material consent under, any note, bond, mortgage, indenture or Material Contract to which any Seller is a party or by which any Seller or the Assets are bound, (c) violate any Law applicable to any Seller or any of the Assets in any material respect or (d) require any Seller to obtain any material consent or approval of any Governmental Body that has not been made or obtained.

Section 6.5 Litigation.

Except as disclosed on Schedule 6.5 , and excluding all threatened claims relating to the payment or nonpayment of royalties or other burdens on production with regard to the Assets with respect to which (x) no actual suits or proceedings before any Governmental Body have been initiated against any Seller and/or (y) no written demand letter has been received that remains unresolved, (X) there are no actions, suits or proceedings that are pending, and, to Sellers’ knowledge, there are no material actions, suits, proceedings or investigations by any Governmental Authority threatened in writing, before or by any Governmental Body or arbitrator (a) against the Seller Operated Assets, or to Seller’s knowledge, the Assets operated by Third Parties, (b) against any Seller with respect to the Assets or (c) against, or that have been brought by, any Seller that would be reasonably likely to materially impair such Seller’s ability to perform its obligations under this Agreement and (Y) there exist no material unsatisfied judgments of any Governmental Body or arbitrator against any Seller that could reasonably be expected to result in the impairment or loss of such Seller’s interest in any part of the Assets.  Notwithstanding the foregoing, Sellers make no representation or warranty, express or implied, under this Section 6.5 relating to any Environmental Liabilities or Environmental Law.

Section 6.6 Taxes and A ssessments

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(a) With respect to all Taxes related to the Assets and any Taxes of the Tax Partnership, (i) all Tax Returns required to be filed by any Seller or by the Tax Partnership with respect to such Taxes have been timely filed with the appropriate Governmental Body in all jurisdictions in which such Tax Returns are required to be filed, (ii) such Tax Returns are true and correct in all material respects and (iii) all Taxes reported on such Tax Returns have been paid.

(b) With respect to all Taxes related to the Assets and any Taxes of the Tax Partnership, except as set forth on Schedule 6.6(b) , (i) except with respect to Income Taxes, there

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is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any such Tax, (ii) there are no administrative proceedings or lawsuits pending against the Assets by any taxing authority, (iii) the re are no administrative proceedings or lawsuits pending against any Seller (except for Income Taxes) relating to the Assets or against the Tax Partnership by any taxing authority, (iv) there are no Tax liens on any of the Assets other th an Permitted Encum brances, (v) no Seller nor the Tax Partnership has received written notice of any pending claim against it (which remains outstanding) from any applicable Governmental Body for assessment of material Taxes with respect to the Assets , and no such claim has been threatened in writing (vi) none of the Assets are deemed by agreement or applicable Law to be held by a partnership for federal income tax purposes for which an election under Treasury Regulation § 1.761-2 to be excluded from the provisions of subchap ter K of chapter 1 of the Code is not in effect and such election is valid, (vii) no Seller nor any Affiliate thereof is presently contesting a Tax liability with respect to the ownership of the Assets before any Governmental Body , (viii) as of the Closing Date, neither any Seller nor the Tax Partnership will be a party to or will be bound by any Tax allocation, Tax sharing or indemnification agreement; and (ix) no claim has ever been made by an authority in a jurisdiction where the Tax Partnership does not file Tax Returns that it is or may be subject to taxation in that jurisdiction.

(c) The Tax Partnership is classified as a partnership and the owner of the Assets for U.S. federal income Tax purposes.

(d) Notwithstanding anything to the contrary contained herein, none of the representations or warranties contained elsewhere in Article 6 shall relate to Tax matters, which are instead the subject of this Section 6.6 exclusively.

Section 6.7 Capital Commitments

.  Except as disclosed on Schedule 6.7 , as of the Execution Date there are no outstanding AFEs or other capital commitments to Third Parties (a) that are binding on the Assets, (b) that are in excess of $50,000.00 net to Sellers’ interest and (c) for which all activities have not been completed by the Execution Date.

Section 6.8 Compliance with Laws

.  Except as disclosed on Schedule 6.8 , during the four years prior to the Closing Date, the Seller Operated Assets have been operated in compliance in all material respects with all applicable Laws.  To Sellers’ knowledge, during the four years prior to the Closing Date, any Assets operated by Third Parties have been operated in all material respects in compliance with all applicable Laws.  Sellers have not received any written notice of a material violation of or material default by any Seller from any Governmental Body with respect to any Law applicable to the Assets that remains unresolved as of the Execution Date.  

Section 6.9 Contracts

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(a) Schedule  6.9(a) sets forth a list of the following Contracts (such scheduled Cont racts, the “ Material Contracts ”):

(i) Any Contract that can be reasonably expected to result in aggregate payments or receipts of revenue by Sellers of more than $50,000.00 during the current or any subsequent year;

(ii) Any gathering, transportation, treatment, handling, storage, processing, marketing or similar Contract, Hydrocarbon sales Contract or any Contract that includes an acreage dedication, minimum volume commitment, throughput requirement, or demand, take or pay or similar charges, in each case, that is not terminable without penalty on sixty (60) or fewer days’ notice;

(iii) Any mortgage, deed of trust, security interest or other Debt Contract of Sellers or their Affiliates encumbering any Asset that will not be terminated at or prior to the Closing;

(iv) Excluding the Leases, any Contract that is a lease under which Sellers are the lessor or the lessee of real or personal property which lease (A) cannot be terminated by Sellers without penalty upon sixty (60) days or fewer notice or (B) involves an annual base rental of more than $50,000.00;

(v) Any Contracts with Affiliates of any Seller (or between any two Sellers) that will be binding on the Assets after the Closing;

(vi) Any Contract that constitutes an area of mutual interest agreement or any other agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, any Seller conducts business within or adjacent to the Properties that will be binding on the Assets after the Closing;

(vii) Any Contract that constitutes a joint venture, joint operating, joint development, participation or joint exploration agreement, unit agreement, unit operating agreement, production sharing agreement, term assignment or farmin or farmout agreement; and

(viii) Any Contract pursuant to which any Seller has an unperformed obligation to sell, exchange, transfer, or dispose of any of such Seller’s interests in the Properties (other than this Agreement).

(b) Except as disclosed on Schedule  6.9(b) , each Material Contract is a legal, valid and binding obligation against the Sellers that are party thereto and, to the knowledge of Sellers, each party thereto (other than Purchaser or its Affiliates), is enforceable in accordance with its terms against such Seller and, to the knowledge of Sellers, each party thereto (other than Purchaser or its Affiliates) and is in full force and effect, subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).  No Seller nor, to the knowledge of Sellers, any party thereto (other than Purchaser or its Affiliates), is in default under any Material Contract and no event, occurrence, condition or act has occurred that, with the

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giving of notice, the lapse of time or the happening of any other event or conditi on, would become a default or event of default by any Seller or, to the knowledge of Sellers, any party thereto (other than Purchaser or its Affiliates) , that in each case would reasonably be expected, individually or in the aggregate, to be material to Se llers or the Assets, individually or taken as a whole . Sellers have provided Purchaser true and complete copies of each Material Contract and all amendments thereto that are currently in effect.

(c) There are no Hedging Contracts or Debt Contracts that will be binding on the Assets after the Closing.

Section 6.10 Consents and Preferential Purchase Rights

.  Except for (i) Customary Post‑Closing Consents and (ii) the Required Consents, Soft Consents and Preferential Rights to Purchase set forth on Schedule 6.10 (including the filings required under and compliance with the requirements of, the HSR Act), none of the Assets, or any portion thereof, is subject to any Preferential Rights to Purchase, Required Consents, Soft Consents or other Third Party restriction on assignment that will be applicable to, or triggered by, the transactions contemplated by this Agreement.

Section 6.11 Leases

.  Except as set forth on Schedule 6.11 , with respect to the Seller Operated Assets and, to the knowledge of Sellers, with respect to those Properties that are operated by Third Parties, there are no actions, suits or proceedings with respect to any Lease pending or, to Seller’s knowledge, threatened within the last twelve months before any Governmental Body in which the lessor thereunder is seeking to terminate, cancel, rescind or procure judicial reformation of any such Lease, in whole or in part.  Since the Effective Time, no Seller has granted, conveyed and/or reserved an overriding royalty interest in and to the Properties, for or on behalf of any Affiliate of any Seller.

Section 6.12 Advance Payments

.  Except for any Imbalances described on Schedule 6.14 , no Seller is obligated by virtue of any take-or-pay payment, advance payment or any other arrangement (other than Burdens) to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Assets at some future time without receiving full payment therefor at or promptly after the time of delivery.

Section 6.13 Surface Agreements

.  Except as set forth on Schedule 6.13 , to Sellers’ knowledge (a) each of the Surface Agreements set forth on Exhibit A-6 is legal, valid, binding, enforceable and in full force and effect; (b) no Seller, nor, to Sellers’ knowledge, any party thereto (other than Purchaser or its Affiliates), is in material breach of or material default under any such Surface Agreement; and (c) no event has occurred or circumstance exists that, with the delivery of notice, the passage of time or both, would constitute such a material breach or default of such Surface Agreement by such Seller or, to Sellers’ knowledge, any party thereto (other than Purchaser or its Affiliates).  No Hydrocarbons produced from the Properties are being transported by Sellers (excluding any transportation by Third Parties on behalf of Sellers) over the Lands without appropriate rights permitted such transportation.

Section 6.14 Imbalances

.  All Imbalances associated with the Seller Operated Assets, and to Sellers’ knowledge, all Imbalances associated with the Assets operated by Third Parties, are set forth on Schedule 6.14 , in each case, as of the date set forth on the schedule.

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Section 6.15 Suspense Funds

.   Schedule 6.15 sets forth the aggregate amount, as of the date set forth on Schedule 6.15 , of all Suspense Funds held by AEPO, excluding minimum suspense.

Section 6.16 Bankruptcy

.  There are no bankruptcy, insolvency, reorganization or receivership proceedings pending against, being contemplated by, or to Sellers’ knowledge, threatened against, any Seller.

Section 6.17 Condemnation

.  There is no actual or, to Sellers’ knowledge, threatened taking (whether permanent, temporary, whole or partial) of any part of the Assets by reason of condemnation or the threat of condemnation.

Section 6.18 Permits

.  Except as set forth on Schedule 6.18 (a) Sellers have obtained all material Permits presently required for the ownership and operation of the Seller Operated Assets as currently owned and operated, (b) to Sellers’ knowledge, those Third Party operators who operate those Assets that are not Seller Operated Assets maintain all material Permits presently required for the ownership and operation of such Assets as currently owned and operated and (c) no Seller has received any written notice of violation of any such material Permit that remains unresolved and that might reasonably be expected to result in any modification, revocation, termination or suspension of any such material Permit.  Notwithstanding the foregoing, Sellers make no representation or warranty, express or implied, under this Section 6.18 relating to any Environmental Liabilities or Environmental Law.

Section 6.19 Plugging and Abandonment

.   Except as set forth on Schedule 6.19 , there are no oil, gas or disposal Wells operated by Sellers (a) in respect of which any Seller has received a written order from any Governmental Body requiring that such Wells be plugged and abandoned or (b) that are currently required by applicable Law or Contract to be plugged and abandoned.  To Sellers’ knowledge, there are no Wells that are operated by Third Parties (i) for which such Third Party operator has received a written order from any Governmental Body currently requiring that such Well be plugged and abandoned or (ii) that are currently required to be plugged and abandoned in accordance with applicable Law or Contract.

Section 6.20 Labor, Employment and Benefits

.  

(a) AEPO has provided Purchaser with a list of the name, job title, date of hire, work location, exempt or non-exempt status, active or leave status, hourly rate or annual salary, as applicable, and target bonus, if any, of the Available Employees.  None of the Available Employees of the Seller is a party to any written employment contract, termination or severance agreement or similar contract, except that all Available Employees participate in the Anadarko Petroleum Corporation severance plan.  The employment of the Available Employees is terminable at will.

(b) None of the Sellers or their Affiliates who employ Available Employees (collectively, the “ Employers ”) are, nor have they been, a party to, or bound by, any collective bargaining agreement or other agreement, contract or understanding with any labor union or labor organization relating to the Available Employees, nor are any of the Available Employees represented by a labor union.  No labor union, labor organization or group of Available

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Employees has in the past ten years made any demand of any Employer, nor are there any pending petitions, for recognition or certification of a labor union or association as the exclusive bargaining agent with respect to the Available Employees.  There are no union organizing activities or proceedings currently underway that involve a labor union or other association as the exclusive bargaining agent for the Available Employees, or where the purpose is to organize the Available Employees.  With respect to the Available Employees, no labor strike, work stoppage, slowdown, concerted refusal to work overtime, walkout, lockout or similar labor disturbance is currently pending or, to Sellers’ knowledge, threatened against any Employer.  No Employer has engaged in any unfair labor practice with respect to the Available Employees, nor are there any unfair labor practice complaints or grievances currently pending or, to the knowledge of Sellers, threatened against any Employer with respect to the Available Employees.

(c) AEPO has made available to Purchaser a benefits booklet describing employee benefits commonly provided to the Available Employees.  Each Employee Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Code and from which any Available Employee could receive an “eligible rollover distribution” has received a favorable determination letter as to its qualification, or is the subject of an opinion letter, from the Internal Revenue Service, and to the knowledge of Sellers, nothing has occurred that would reasonably be expected to cause the loss of such favorable determination.

(d) The Employers have complied, and are currently in compliance in all material respects with all applicable Laws pertaining to labor or employment matters, including, but not limited to Laws governing or regarding hours of work, the payment of wages (including overtime) or other compensation, employee benefits, employment discrimination and harassment, occupational safety and health, and any and all other Laws governing or pertaining to the terms, conditions, and privileges of employment.  No proceedings, claims or charges alleging any failure to comply with such Laws pertaining to employment-related matters are currently pending or, to the knowledge of Sellers, threatened, against any Employer with respect to the Available Employees (and, to the knowledge of Sellers, there is no basis therefor), and no such proceeding, claim or charge has previously been filed or commenced against any Employer with respect to the Available Employees.

(e) Except as set forth on Schedule 6.20 , Sellers do not contribute to, and do not have any liability with respect to, any Employee Benefit Plan that is an “employee pension benefit plan” (as such term is defined under Section 3(2) of ERISA) that is subject to Title IV or Section 302 of ERISA or Section 412 of the Code.  Sellers do not contribute to, and do not have any liability with respect to, any Employee Benefit Plan that is a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA).  Purchaser’s acquisition of the Assets will not cause Purchaser or any of its Affiliates to incur any liability under Title IV or Section 302 of ERISA or Section 412 of the Code.

Section 6.21 Environmental Matters

.  Except as set forth on Schedule 5.1 , to the knowledge of Sellers, (a) no Seller has received any written notice from a Governmental Body or other Person alleging or involving any material noncompliance with or potential material liability under any Environmental Law with respect to the Assets or operations conducted thereon that remains unresolved as of the Execution Date and (b) there are no claims, demands, suits, investigations or proceedings of a material nature pending before a Governmental Body under

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Environmental Laws against any Seller with respect to the Assets or any Sellers’ ownership or operation thereof.

Section 6.22 Payout Balances

.  With respect to those Wells operated by AEPO, Schedule 6.22 sets forth, and with respect to any Well operated by a Third Party, to Sellers’ knowledge, Schedule 6.22 sets forth, the payout balances as of the date set forth on Schedule 6.22 for each Well subject to reversion or other adjustment at payout (or some other event, other than a termination of a Lease in accordance with its terms).

Section 6.23 Certain Disclaimers

.

(a) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS ARTICLE 6 , THE CERTIFICATE OF SELLERS DELIVERED PURSUANT TO Section 10.2(c) , AND THE CONVEYANCES, NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT (i) SELLERS MAKE NO, AND EXPRESSLY DISCLAIM ANY AND ALL, REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (ii) SELLERS EXPRESSLY DISCLAIM ALL LIABILITY AND RESPONSIBILITY FOR ANY STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING ANY OPINION, INFORMATION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER BY ANY PERSON OF THE SELLER GROUP).

(b) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS ARTICLE 6 , THE CERTIFICATE OF SELLERS DELIVERED PURSUANT TO Section 10.2(c) , AND THE CONVEYANCES, AND WITHOUT LIMITING THE GENERALITY OF Section 6.23( a) , NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, SELLERS MAKE NO, AND EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, ORAL OR WRITTEN, AS TO (i) TITLE TO ANY OF THE ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT OR ANY GEOLOGICAL OR SEISMIC DATA, MAP OR INTERPRETATION RELATING TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (v) THE PRODUCTION OF HYDROCARBON SUBSTANCES FROM THE ASSETS OR WHETHER PRODUCTION HAS BEEN CONTINUOUS OR IN PAYING QUANTITIES, (vi) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (vii) THE CONTENT, CHARACTER, COMPLETENESS, ACCURACY OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES, MANAGEMENT PRESENTATION, DATA ROOM, CHARTS OR STATEMENTS (INCLUDING FINANCIAL STATEMENTS) PREPARED BY SELLERS, THEIR AFFILIATES OR THIRD PARTIES WITH RESPECT TO THE ASSETS, (viii) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO THE PURCHASER GROUP OR

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PURCHASER’S REPRESENTATIVES IN CONNECTION WITH THE TRANSACTIONS CONTEMPL ATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO (INCLUDING ANY ITEMS PROVIDED IN CONNECTION WITH SECTION 8.1 ) OR (ix) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, AND SELLERS FURTHER DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES , IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT PURCHASER SHALL BE DEEMED TO BE OBTAINING THE EQUIPMENT AND OTHER TANGIBLE PROPERTY TRANSFERRED HEREUNDER IN ITS PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “ WHERE IS ” WITH ALL F AULTS, AND THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE.

(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, AND EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN SECTION 6.21 , SELLERS HAVE NOT AND WILL NOT MAKE, AND EXPRESSLY DISCLAIM, ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS (INCLUDING PERMITS REQUIRED UNDER ENVIRONMENTAL LAWS), ENVIRONMENTAL LIABILITIES, THE RELEASE OF HAZARDOUS SUBSTANCES, HYDROCARBONS OR NORM INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE ASSETS, AND, EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN SECTION 6.21 , NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND, SUBJECT TO PURCHASER’S RIGHTS UNDER ARTICLE 5 AND SELLERS’ INDEMNITY OBLIGATIONS PURSUANT TO SECTION 12.2(B)(IV) WITH RESPECT TO SECTION 6.21 , PURCHASER SHALL BE DEEMED TO BE TAKING THE ASSETS “AS IS” AND “ WHERE IS ” FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION.

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Subject to the disclaimers and waivers contained in, and the other terms and conditions of, this Agreement, Purchaser hereby represents and warrants to Sellers as follows as of the Execution Date:

Section 7.1 Organization

.  Purchaser is a limited liability company, validly existing and in good standing under the Laws of the State of Texas and is duly qualified to do business in, and is in good standing in, the State of Texas.

Section 7.2 Authorization and Enforceability

.  Purchaser has the requisite power, authority and capacity to execute and deliver this Agreement and the other instruments and agreements to be executed and delivered by it as contemplated hereby and to consummate the

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transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and all document s required to be executed and delivered by Purchaser at the Closing, and the performance of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary action on the part of Purchaser.  This Agreement has been d uly executed and delivered by Purchaser (and all documents required hereunder to be executed and delivered by Purchaser at the Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Purchaser, enforceable in accordance with their terms, subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter in effect, relating to or limitin g creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

Section 7.3 Liability for Brokers’ Fees

.  No Seller shall, directly or indirectly, have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.

Section 7.4 No Conflicts

.  Except for the filings required under, and compliance with the requirements of, the HSR Act, the execution, delivery and performance of this Agreement by Purchaser, and the transactions contemplated by this Agreement, will not (a) violate any provision of the organizational documents of Purchaser, (b) result in a material default (with or without due notice or lapse of time or both) under or require any material consent under any note, bond, mortgage, indenture or agreement to which Purchaser is a party, (c) violate any Law in any material respect applicable to Purchaser or (d) require Purchaser to obtain any material consent or approval of any Governmental Body that has not been made or obtained.

Section 7.5 Litigation

.  There are no actions, suits or proceedings or (to Purchaser’s knowledge, investigations by any Governmental Body), that are pending or, to Purchaser’s knowledge, threatened in writing, before any Governmental Body or arbitrator that would be reasonably likely to impair materially Purchaser’s ability to perform its obligations under this Agreement.  As used in this Article 7 , “Purchaser’s knowledge” is limited to information actually known by the individuals listed in Schedule 7.5 .

Section 7.6 Financing

.  At Closing, Purchaser will have sufficient funds (in dollars) to pay the cash portion of the Closing Payment to AEPO.

Section 7.7 Securities Law Compliance

.  Purchaser is acquiring the Assets for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling such Assets within the meaning of the Securities Act of 1933, as amended, and applicable state securities Laws.

Section 7.8 Independent Evaluation

.

(a) Purchaser is knowledgeable of the oil and gas business (including the exploration and production and gathering segments thereof) and of the usual and customary practices of Persons involved in such business, including those in the areas where the Assets are located.

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(b) Purchaser is capable of making such investigation, inspection, review and evaluation of the Assets as a p rudent purchaser would deem appropriate under the circumstances including with respect to all matters relating to the Assets, their value, operation and suitability for investment.

(c) Purchaser has conducted (or will conduct prior to the Closing) its own investigation, inspection, review and evaluation of the Assets.

(d) In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Purchaser acknowledges that it (i) has not relied and will not rely upon any statements, representations (whether oral or written), or any information provided by Sellers, their Affiliates and their respective Representatives (except for those representations set forth in Article 6 of this Agreement and the certificate delivered by Sellers pursuant to Section 10.2(c) ) and (ii) has relied and will rely solely on the basis of its own independent due diligence investigation of the Assets, the terms and conditions of this Agreement and the representations, warranties and covenants of Sellers set forth in Article 6 , the certificates delivered by Sellers pursuant to Section 10.2(c) and the special warranty of title set forth in the Conveyances, subject in all cases to the disclaimers set forth in this Agreement.

Section 7.9 Consents, Approvals or Waivers

.  Except for Customary Post-Closing Consents and as set forth on Schedule 7.9 (including the filings required under, and compliance with the requirements of, the HSR Act), Purchaser’s execution, delivery and performance of this Agreement (and any document required to be executed and delivered by Purchaser at the Closing) is not and will not be subject to any consent, approval, or waiver from any Governmental Body or other Third Party.

Section 7.10 Bankruptcy

.  There are no bankruptcy, insolvency, reorganization or receivership proceedings pending against, being contemplated by, or, to Purchaser’s knowledge, threatened against Purchaser.

Section 7.11 Qualification

.  Purchaser is, or as of the Closing Date will be, qualified under applicable Law to own the Assets and has, or as of the transfer of operatorship of the Properties will have, complied with all necessary bonding requirements of Governmental Bodies required for Purchaser’s ownership or operation of the Assets.

Section 7.12 Tax

.  For federal Income Tax purposes, (i) the separate existence of Purchaser is disregarded under Treasury Regulation § 301.7701-3(b)(ii), and (ii) Purchaser Parent is treated as the owner of Purchaser under Treasury Regulation § 301.7701-2(a).

Section 7.13 Limitation

.  Without limitation of Sellers’ representations under Section 6.21 of this Agreement or Purchaser’s remedies pursuant to Article 12 , Purchaser acknowledges the following:   THE ASSETS HAVE BEEN USED FOR EXPLORATION, DEVELOPMENT AND PRODUCTION OF HYDROCARBONS AND THERE MAY BE PETROLEUM, PRODUCED WATER, WASTE, OR HAZARDOUS SUBSTANCES OR MATERIALS LOCATED IN, ON OR UNDER THE PROPERTIES OR ASSOCIATED WITH THE ASSETS.  EQUIPMENT AND SITES INCLUDED IN THE ASSETS MAY CONTAIN ASBESTOS, NORM OR OTHER HAZARDOUS SUBSTANCES.  NORM

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MAY AFFIX OR ATTACH ITSELF TO THE INSIDE OF WELLS, MATERIALS AND EQ UIPMENT AS SCALE OR IN OTHER FORMS.  THE WELLS, MATERIALS AND EQUIPMENT LOCATED ON THE PROPERTIES OR INCLUDED IN THE ASSETS MAY CONTAIN ASBESTOS, NORM AND OTHER WASTES OR HAZARDOUS SUBSTANCES.  NORM CONTAINING MATERIAL AND/OR OTHER WASTES OR HAZARDOUS SUBS TANCES MAY HAVE COME IN CONTACT WITH VARIOUS ENVIRONMENTAL MEDIA, INCLUDING WATER, SOILS OR SEDIMENT.  SPECIAL PROCEDURES MAY BE REQUIRED FOR THE ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION OR DISPOSAL OF ENVIRONMENTAL MEDIA, WASTES, ASBESTOS, NORM AN D OTHER HAZARDOUS SUBSTANCES FROM THE ASSETS.

ARTICLE 8
COVENANTS OF THE PARTIES

Section 8.1 Access

.

(a) Between the Execution Date and the Defect Claim Date, Sellers will give Purchaser and its Representatives access to the Assets (and to designated employees of Sellers responsible for the Assets, at such times as Purchaser may reasonably request) and access to and the right to copy, at Purchaser’s sole cost, risk and expense, the Records (or originals thereof) in Sellers’ possession or control, for the purpose of conducting a reasonable due diligence review of the Assets, but only to the extent that Sellers have the authority to grant such access without breaching applicable Law or any Contract or other restriction binding on any Seller, including with respect to any Properties not operated by Sellers ( provided , that Sellers shall use commercially reasonable efforts to obtain any such consents or waivers to allow Purchaser access to the Assets).  Purchaser shall be entitled to conduct, at Purchaser’s expense, a Phase I Environmental Site Assessment of the Properties and may conduct visual inspections and record reviews relating to the Assets, including their condition and compliance with Environmental Laws, all of which shall be completed prior to the Defect Claim Date; provided , however , that if Purchaser does conduct a Phase I Environmental Site Assessment on any of the Properties, it will provide Sellers with a copy of any final non-privileged reports or findings generated in connection therewith.  Neither Purchaser nor its Representatives may operate any equipment or conduct any testing or sampling of soil, groundwater or other materials (including any testing or sampling for Hazardous Substances, Hydrocarbons or NORM) on or with respect to the Assets (the “ Invasive Activity ”) prior to the Closing without the prior written consent of Sellers (which consent may be withheld in Sellers’ sole discretion), and all such activities shall be deemed outside of the scope of a Phase I Environmental Site Assessment.  If, following Purchaser’s Phase I Environmental Site Assessment, Purchaser reasonably concludes based on the results thereof that it is necessary to conduct Invasive Activity on a Property prior to the Closing in order for Purchaser to ascertain the existence or extent of an Adverse Environmental Condition or any Remediation Amount for an Adverse Environmental Condition, and Purchaser requests (in writing) authorization from Sellers to perform such Invasive Activity on or prior to June 5, 2017 (which notice includes the corresponding portions of the Phase I Environmental Site Assessment on which Purchaser has based its reasonable conclusions), and Sellers reject or fail to consent to Purchaser’s request within two days’ of their receipt thereof, Purchaser shall have the right, in its sole discretion, to exclude such Property and its directly associated Assets from

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the Properties conveyed by Sellers to Purchaser at Closing, in which case the Unadjusted Purchase Price shall be reduced by the Allocated Value of such excluded Ass ets and such Assets shall be deemed Excluded Assets.  If Sellers consent to the requested Invasive Activity, all Invasive Activities performed by Purchaser or Purchaser’s Representatives shall be subject to the Phase II Guidelines .

(b) Purchaser shall abide by Sellers’, and any Third Party operator’s reasonable safety rules, regulations, and operating policies while conducting its due diligence evaluation of the Assets.  Any conclusions made from any examination done by Purchaser shall result from Purchaser’s own independent review and judgment.

(c) The access granted to Purchaser under this Section 8.1 shall be limited to Sellers’ or the applicable Third Party operator’s normal business hours, and Purchaser’s investigation shall be conducted in a manner that minimizes unreasonable interference with the operation of the Assets and shall be at Purchaser’s sole cost, risk and expense.  Purchaser shall coordinate its access rights to the Assets with Sellers to reasonably minimize any inconvenience to or interruption of the conduct of business by Sellers or applicable Third Party operators.  For any Property not operated by any Seller, Sellers will reasonably cooperate with Purchaser in contacting the Third Party operators of any such non-operated Property directly to arrange for access for purposes of Purchaser’s Phase I Environmental Site Assessment; provided , however , that Purchaser acknowledges and agrees that Sellers cannot and do not covenant or warrant that Purchaser will be granted access to any Properties operated by Third Parties for purposes of conducting diligence of any kind under this Agreement.  Purchaser shall provide Sellers with at least two Business Days’ written notice before the Assets are proposed to be accessed pursuant to this Section 8.1 , which notice will include a general description of the activities Purchaser intends to undertake.  Purchaser shall repair any damage to the Properties caused by its investigation and shall cause each Property to be restored to substantially the same conditions that existed prior to the investigation.  

(d) Purchaser acknowledges that, pursuant to its right of access to the Assets, Purchaser will become privy to confidential and other information of Sellers or an applicable Third Party operator and that such confidential information (which includes Purchaser’s conclusions with respect to its evaluations) shall be held confidential by Purchaser in accordance with the terms of the Confidentiality Agreement and any applicable privacy Laws regarding personal information.  For the avoidance of doubt, the existence and contents of any Phase I Environmental Site Assessment conducted by or on behalf of Purchaser on the Assets shall be deemed to be “confidential information” for the purposes of this Agreement and the Confidentiality Agreement.

(e) In connection with the rights of access, examination and inspection granted to Purchaser under this Section 8.1 , (i)   PURCHASER WAIVES AND RELEASES ALL CLAIMS AGAINST THE SELLER GROUP AND ITS REPRESENTATIVES AND ANY THIRD PARTY OPERATORS ARISING IN ANY WAY THEREFROM OR IN ANY WAY CONNECTED THEREWITH AND (ii) PURCHASER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS EACH OF THE SELLER GROUP, SELLERS’ REPRESENTATIVES AND THIRD PARTY OPERATORS FROM AND AGAINST ANY AND ALL DAMAGES ATTRIBUTABLE TO PERSONAL INJURY,

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DEATH OR PHYSICAL PROPERTY DAMAGE, OR VIOLATION OF THE SELLER GROUP’S OR ANY THIRD PARTY OPERATOR’S RULES, REGULATIONS, OR OPERATING POLICIES, ARISING OUT OF, RESULTING FROM OR RELATING TO ANY FIELD VISIT OR OTHER DU E DILIGENCE ACTIVITY CONDUCTED BY PURCHASER OR ITS REPRESENTATIVES WITH RESPECT TO THE ASSETS, REGARDLESS OF FAULT, EXCEPT, IN EACH CASE, TO THE EXTENT ARISING OUT OF, RESULTING FROM OR RELATING TO THE WILLFUL MISCONDUCT OF ANY MEMBER OF SELLER GROUP AND P ROVIDED FURTHER THAT PURCHASER’S WAIVER AND RELEASE SET FORTH IN THIS SECTION 8.1(e) SHALL NOT LIMIT PURCHASER’S REMEDIES UNDER THIS AGREEMENT WITH RESPECT TO CONDITIONS AFFECTING THE ASSETS .    Notwithstanding the foregoing, Purchaser shall have no indemnity obligations under this Section 8.1(e) for any pre-existing condition or Damage that existed prior to the Purchaser and its Representatives accessing the Assets but i s merely discovered or revealed by Purchaser or its Representatives during its access to the Assets and for which the condition is not exacerbated or the Damages are not increased as a result of Purchaser’s or its Representative’s access (in which case the indemnity obligation under this Section 8.1(e) shall apply only to the extent of any such exacerbation or increase in Damages).

Section 8.2 Government Reviews

.  In a timely manner, Sellers and Purchaser shall (a) make all required filings, prepare all required applications and conduct negotiations with each Governmental Body as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby, including with respect to the transfer or re-issuance of all required Permits and (b) provide such information and assistance as each may reasonably request to make such filings, prepare such applications and conduct such negotiations.  Each Party shall reasonably cooperate with and use all commercially reasonable efforts to assist the other with respect to such filings, applications, and negotiations.   Without limiting the foregoing, within five Business Days following the execution by Purchaser and Sellers of this Agreement, Purchaser and Sellers will prepare and simultaneously file with the DOJ and the FTC the notification and report form required by the HSR Act for the transactions contemplated by this Agreement and request early termination of the waiting period thereunder.  Purchaser and Sellers agree to respond promptly to any inquiries from the DOJ or the FTC concerning such filings and to comply in all material respects with the filing requirements of the HSR Act.  Purchaser and Sellers shall cooperate with each other and shall promptly furnish all information to the other Party that is necessary in connection with Purchaser’s and Sellers’ compliance with the HSR Act.  Purchaser and Sellers shall keep each other fully advised with respect to, and furnish copies of, any requests from or communications with the DOJ or the FTC concerning such filings and shall consult with each other with respect to all responses thereto.  Sellers and Purchaser shall use their respective reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to consummate the transactions consummated hereby.  All filing fees incurred in connection with the HSR Act filings made pursuant to this Section 8.2 shall be borne one-half by Purchaser and one-half by Sellers.

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Section 8.3 Public Announcements; Confidentiality

.

(a) Neither Party shall make or issue any press release or other announcements to the general public concerning the transactions contemplated by this Agreement without the prior consent of the other Party, which consent shall not be unreasonably withheld.  If either Party desires to make an announcement to the general public, it shall first give the other Party forty-eight hours written notification of its desire to make such a public announcement.  The written notification shall include (i) a request for consent to make the announcement, and (ii) a written draft of the text of such public announcement.  Nothing in this Section 8.3(a) shall prohibit any Party from issuing or making a public announcement or statement if such Party deems it necessary to do so in order to comply with any applicable Law or the rules of any stock exchange upon which the Party’s or a Party’s Affiliate’s capital stock is traded; provided, however , that to the extent possible, prior written notification shall be given to the other Parties prior to any such announcement or statement.

(b) The Parties shall keep all information and data relating to this Agreement and the transactions contemplated hereby strictly confidential in accordance with the terms of the Confidentiality Agreement.  Notwithstanding anything to the contrary contained therein, i f the Closing should occur, the confidentiality obligations with respect to Purchaser and its representatives in the Confidentiality Agreement shall continue with respect to the Excluded Assets and the information referenced in Section 8.1(d) but not otherwise and shall be deemed terminated for all purposes with respect to the Assets.

(c) From and after the Closing Date until the date that is one year after the Closing Date, Sellers shall (and shall direct their respective Affiliates and each of their Representatives to) keep confidential and not disclose any of the Records of which Sellers retained copies (the “ Restricted Information ”), except as and to the extent permitted by the terms of this Agreement or the instruments delivered or entered into at Closing.  The obligation shall not apply to any information that is (i) in the public domain as of the Closing Date, (ii) published or otherwise becomes part of the public domain through no fault of Sellers, their Affiliates or their Representatives in violation of this Section 8.3(c) after the Closing Date or (iii) becomes available to Sellers or any of their Affiliates from a source that, to such Seller’s or such Affiliate’s knowledge, did not acquire such information (directly or indirectly) on a confidential basis.  Notwithstanding the foregoing, each Seller may make disclosures (i) to its Affiliates and each of its and their owners, directors, officers, employees, agents, representatives, financial and other advisors, contractors, attorneys and accountants (in each case, to the extent bound by confidentiality obligations and to the extent such disclosure is reasonably necessary) and (ii) as required by Law, Governmental Body and/or in connection with disputes hereunder or as otherwise required under any Seller’s debt instruments; provided , however , that with respect to clause (ii) above, Sellers, to the extent practicable, shall provide Purchaser with prompt notice thereof so that Purchaser, at its sole cost and expense, may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Section 8.3(c) .  In the event that such protective order or other remedy is not obtained or Purchaser waives compliance with the provisions of this Section 8.3(c) , Sellers shall or shall cause the Person required to disclose such Restricted Information to furnish only that portion of the information that such Person is legally required.

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Section 8.4 Operation of Business

.  

(a) Except as to (a) the matters set forth on Schedule 8.4 , (b) requirements from a Governmental Body, (c) situations wherein emergency action is taken in the face of a risk to life, property, or the environment, or (d) any other matters consented to by Purchaser in writing (which consent will not be unreasonably withheld, conditioned or delayed), from the Execution Date until the Closing Date, Sellers:

(i) will conduct their business related to the Seller Operated Assets and cause the Assets to be operated and maintained in the ordinary course consistent with Sellers’ recent practices, as a reasonably prudent operator and in accordance with applicable Laws, including the payment of Property Costs;

(ii) maintain, or cause to be maintained, the books of account and Records relating to the Assets in the usual, regular and ordinary manner and in accordance with the usual accounting practices of Sellers;

(iii) will not make any capital expenditures with respect to the Assets in excess of $50,000.00, net to Sellers’ interest, as set forth in any AFE;

(iv) will not terminate (voluntarily), amend or extend any Material Contract, Surface Agreement or Lease or enter into any Contract that would constitute a Material Contract if in existence on the Execution Date;

(v) will use commercially reasonable efforts to maintain all material Permits and will maintain bonds and guaranties affecting the Assets and make all filings that Sellers are required to make under applicable Law with respect to the Assets;

(vi) will not incur any costs to secure any Lease renewals or extensions;

(vii) will not acquire any assets or properties that would constitute “Assets” if in existence on the Execution Date, or transfer, sell, swap, hypothecate, encumber, mortgage, farmout or otherwise dispose of any Properties or material equipment, machinery, tools, fixtures or other tangible personal property and improvements, except for (A) sales and dispositions of Hydrocarbons made in the ordinary course of business and (B) the disposition of obsolete, worn out or damaged equipment consistent with past practices if such equipment is replaced with similar equipment of a like or better quality;

(viii) will maintain insurance coverage on the Assets presently furnished by Third Parties in the amounts and coverages and of the types presently in force;

(ix) will use commercially reasonable efforts to maintain in full force and effect all Leases that are presently held by production unless Sellers are prevented from doing so because Purchaser fails to consent to an action under this Section 8.4 ;

(x) will use commercially reasonable efforts to keep Purchaser reasonably informed, upon Sellers obtaining knowledge thereof, of any Lease termination or of any operation or activities with respect to the Assets proposed by a Third Party;

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(xi) will not waive, compromise or settle any material right or claim or proceeding with respect to any of the Properties other than with regards to items that are Retained Seller Obligations or waivers, compro mises or settlements requiring payment of monetary damages not in excess of $50,000.00 individually with no grant of injunctive or other relief;

(xii) will use commercially reasonable efforts to oppose any Third Party’s application for an exception to Texas Railroad Commission Rule 37 insofar as affecting any Property (the costs of which opposition shall be considered Property Costs for all purposes of this Agreement);

(xiii) will not make any election (or fail to make an election, the result of which is) to go non-consent with respect to any of the Properties;

(xiv) will not take, nor direct any of its Affiliates (or authorize and direct any investment banker, financial advisor, attorney, accountant or other Person retained by, acting for or on behalf of any Seller or any such Affiliate) to take any intentional, purposeful action to solicit or negotiate any offer from any Person concerning the acquisition of the Assets by any Person other than Purchaser or its Affiliates.  For the avoidance of doubt, nothing in this sub-clause (xiv) shall prohibit any such action relating to acquisition, through merger, asset purchase or other form of business combination, involving Anadarko Petroleum Corporation or AEPO or all or substantially all of the assets of Anadarko Petroleum Corporation or AEPO; and

(xv) will not enter into any agreement or commitment with respect to any of the foregoing.

(b) Requests for approval of any action restricted by this Section 8.4 shall be delivered to the following individual, who shall have full authority to grant or deny such requests for approval on behalf of Purchaser:

William B. Coffey
Email: Brad.Coffey@wildhorserd.com

Purchaser’s approval of any action restricted by this Section 8.4 shall be considered granted within ten days (unless a shorter time is reasonably required by the circumstances or is required by the terms of the Contract with respect to which such approval is being requested and, in each case, such shorter time is specified in Sellers’ notice) after Sellers’ notice to Purchaser requesting such consent unless Purchaser notifies Sellers to the contrary during that period.  In the event of an emergency, Sellers may take such action as a prudent operator would take and shall notify Purchaser of such action promptly thereafter.  Purchaser acknowledges that Sellers own undivided interests in certain of the Properties where no Seller is the operator, and Purchaser agrees that the acts or omissions of the other working interest owners (including the operators) who are not a Seller shall not constitute a breach of the provisions of this Section 8.4 , nor shall any action required by a vote of working interest owners constitute such a breach so long as Sellers have not proposed an action that would be in violation of this Section 8.4 and have voted their interest in a manner that complies with the provisions of this Section 8.4 .

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(c) In the event that, between the Execution Date and the Closing Date, (i) Purchaser and its Affiliates deliver to Sellers any AFE for a new well, any proposal for a new unit or any other similar capital proposal, (i) Sellers will elect to participate in any such proposal and (ii) Purchaser will carry Sellers for 100% of their interest in the operations subject to such proposal, such that Sellers shall not be obligated to expend any capital associated with such operations.  If this Agreemen t is terminated for any reason, Sellers shall be deemed to have relinquished their interests in the applicable asset subject to such operations to Purchaser until such time as Purchaser has recouped 100% of its out-of-pocket costs associated with conductin g the operations subject to such proposal, at which time Sellers’ interest shall immediately revert back to Sellers.

Section 8.5 Operatorship

.  While Purchaser acknowledges that it desires to succeed Sellers as operator of those Assets or portions thereof that any Seller may presently operate, Purchaser acknowledges and agrees that Sellers cannot and do not covenant or warrant that Purchaser will become successor operator of the same since the Assets or portions thereof may be subject to operating or other agreements that control the appointment of a successor operator.  Within five Business Days after the Closing, Sellers will send notices to co-owners of those Properties that any Seller currently operates indicating that such Seller is resigning as operator and recommending that Purchaser, or, if Purchaser so elects, Purchaser’s designee, be elected as successor operator and Sellers shall use such other commercially reasonable efforts to support Purchaser’s efforts to become successor operator.  Sellers make no representations or warranties to Purchaser as to the transferability of operatorship of any Properties that Sellers currently operate.

Section 8.6 Change of Name

.  Within 90 days after the Closing, Purchaser shall eliminate the name “Anadarko” or “Admiral” and any variants thereof from the Assets and shall have no right to use any logos, trademarks or trade names belonging to Sellers or any of their Affiliates.

Section 8.7 Replacement of Bonds, Letters of Credit and Guaranties

.  The Parties understand that none of the bonds, letters of credit or guaranties, if any, posted by any Seller with Governmental Bodies, co-owners or any other Person and relating to the Assets will be transferred to Purchaser.  Prior to the Closing or within 90 days thereafter, Purchaser will obtain, or cause to be obtained in the name of Purchaser or one of its Affiliates, as applicable, replacements for the bonds, letters of credit and guaranties identified on Schedule 8.7 , to the extent such replacements are necessary to permit the cancellation of the bonds, letters of credit and guaranties posted by Sellers.  If Purchaser or one of its Affiliates, as applicable, fails to obtain any replacement bond, letter of credit, guaranty or other credit support obligation by the time required under this Section 8.7 , then, until such time as Purchaser or its Affiliates, as applicable, obtains a replacement, (a) Purchaser agrees to reimburse Seller Group upon request for any amounts paid or suffered under any credit support of Sellers with respect to the Assets after the Closing Date and (b) Purchaser will secure such obligation by providing to Sellers back-to-back credit support reasonably acceptable to Sellers for the benefit of Sellers with respect to each credit support obligation of Sellers covering the Assets that remains in place at such time.

Section 8.8 Amendment to Schedules

.  Prior to the Closing, Sellers shall have the right to supplement their Schedules relating to the representations and warranties set forth in

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Article 6 with respect to any matters arising or occurring subsequent to the Execution Date; provided , however , that all such supplements shall be disregarded for purposes of determining whether the condition to Purchaser’s obligation to close the transaction pursuant to Section 9.2(a) has been satisfied and shall not prejudice Purchaser’s rights pursuant to Article 12 with respect to such matters, it being the intent of the Parties that, subject to the other terms and conditions of Article 12 , Purchaser shall be entitled to indemnification for any breaches of representations and warranties associated with any matters added to such supplement ed Schedules pursuant to this Section 8.8 .

Section 8.9 Further Assurances

.  After the Closing, Sellers and Purchaser agree to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other Party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.  

Section 8.10 Employee Matters

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(a) From and after the date of this Agreement, and notwithstanding the Confidentiality Agreement, Purchaser shall be permitted to meet with and interview Available Employees in connection with prospective employment with Purchaser or its Affiliates and offer employment to any such Available Employee on terms determined by Purchaser in its sole discretion.  Purchaser is responsible for scheduling any meetings or interviews and Seller shall reasonably assist Purchaser with respect to such scheduling. Any meetings or interviews between Purchaser and Available Employees shall be scheduled at times and places that are not unreasonably inconvenient or disruptive to AEPO or its Affiliates and during normal business hours, with reasonable advance notice being provided to AEPO or its Affiliates.  It is understood that Purchaser shall have no obligation to interview or make an offer of employment to any of the Available Employees.  Any offer of employment extended by Purchaser to Available Employees shall be made at least ten (10) days prior to the Closing, in writing (or an electronic document) with an identification of such Available Employee’s salary or hourly rate, bonus opportunity, incentive compensation and benefits.  Within three (3) days after the date the Purchaser makes any such offer of employment, Purchaser shall send to AEPO a schedule identifying each Available Employee who received an offer of employment from Purchaser, and whether such offer of employment was for compensation greater than, less than or equal to the compensation currently being paid to such Available Employee.  All offers of employment contemplated by this Section 8.10(a) shall expire at least five (5) days prior to the Closing, and after the Closing shall be void.  Purchaser shall promptly, but in any event at least four (4) days prior to the Closing, notify AEPO of whether such offers of employment have been accepted or rejected by the applicable Available Employees (and, if the agreed upon compensation differs from the initial offer of employment, Purchaser shall notify AEPO of the revised compensation arrangement (i.e., as greater than, less than, or equal to current compensation)).  Purchaser hereby agrees that it will comply with all applicable Laws in making any employment decisions and taking any actions pursuant to this Section 8.10(a) .  Purchaser also agrees that it will provide copies of any offer letters and/or acceptance letters to AEPO at its reasonable request.  All Available Employees who accept an offer of employment from Purchaser shall be referred to herein as “ Transferred Employees. ”

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(b) AEPO shall terminate the employment of any Transferred Employee as of the Closing Date unless otherwise agreed to by the Parties.  Sellers shall be responsible for all obligations owed to Rejected Available Employees and Transferred Emp loyees, if any, up to and including the last date of their employment with Employer, including, salary, bonus (including any “retention bonus” or “stay bonus”), accrued paid time off, severance, retirement benefits and amounts owed under any Employee Benef it Plan.

(c) For a period of one (1) year following the Closing, Purchaser may not, directly or indirectly (including through its Affiliates or any staffing or search firm or other vendor), solicit, hire or retain, in employment or any other capacity, any Available Employee that (i) is not offered employment by Purchaser pursuant to Section 8.10(a) or (ii) declines any offer of employment made by Purchaser pursuant to Section 8.10(a) (collectively, “ Rejected Available Employees ”).  For the avoidance of doubt, nothing in this Section 8.10(c) shall prohibit AEPO or its Affiliates from retaining any Rejected Available Employee or attempting to induce any such Rejected Available Employee to continue their employment with AEPO or its Affiliates, as applicable.

(d) Purchaser shall be solely responsible for complying with the WARN Act and any and all obligations under other applicable Laws requiring notice of plant closings, relocations, mass layoffs, reductions in force or similar actions (and for any failures to so comply), in any case, applicable to the Transferred Employees, which result from any action by Purchaser and its Affiliates after the Closing Date.  Purchaser shall indemnify and hold harmless AEPO and its Affiliates against any and all liabilities arising in connection with any failure to comply with the requirements of this Section 8.10(d) .

(e) AEPO shall be solely responsible for complying with the WARN Act and any and all obligations under other applicable Laws requiring notice of plant closings, relocations, mass layoffs, reductions in force or similar actions (and for any failures to so comply), in any case, applicable to the Available Employees, which result from any action by AEPO and/or its Affiliates on or before the Closing Date.  AEPO shall indemnify and hold harmless Purchaser and its Affiliates against any and all liabilities arising in connection with any failure to comply with the requirements of this Section 8.10(e) .

(f) The provisions of this Section 8.10 are solely for the benefit of the respective Parties to this Agreement and nothing in this Section 8.10 , express or implied, shall confer upon any employee (or any dependent or beneficiary thereof), any rights or remedies, including any right to continuance of employment or any other service relationship with the Purchaser, AEPO or any of their respective Affiliates, or any right to compensation or benefits of any nature or kind whatsoever under this Agreement. For the avoidance of doubt, nothing in this Agreement will be construed as an amendment to any Employee Benefit Plan or any other compensation and benefit plans maintained for or provided to directors, officers or employees of AEPO or its Affiliates prior to or following the Closing.

Section 8.11 Suspense Funds

.  Purchaser acknowledges that Suspense Funds may exist as of the Closing Date.  If Closing occurs, Purchaser accepts sole responsibility for and agrees to pay all costs and expenses associated with the Suspense Funds as an Assumed Purchaser Obligation.  Purchaser shall receive a credit for the amount of Suspense Funds held by Sellers as

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of the date of the preparation of the final settlement statement pursua nt to Section 10.4(b) , which credit shall be accounted for as a downward adjustment in such final settlement statement (but such credit will not, in any event, be considered an adjustment to the Unadjusted Purchas e Price).  Notwithstanding the foregoing, AEPO shall pay out all “minimum suspense” in September in accordance with AEPO’s regular practices.  To the extent any such payment is returned to AEPO, AEPO will forward the relevant details to Purchaser, and Purc haser shall assume responsibility for the payment of such funds.  On or about December 29, 2017, AEPO shall pay to Purchaser the total amount of all returned payments received by AEPO prior to such date.

Section 8.12 Access to Financial Information

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(a) Following the Execution Date and until the date that is two years following the Closing Date, Sellers agree to make available to Purchaser, during normal business hours, any and all existing information and documents in the possession of Sellers relating to the Assets that Purchaser may reasonably require (i) to comply with tax and financial reporting requirements and audits that may be required by the Securities and Exchange Commission under the Securities Act of 1933 and/or the Securities Exchange Act of 1934 (including the filing by WildHorse Resource Development Corporation with the Securities and Exchange Commission of one or more registration statements to register any securities of WildHorse Resource Development Corporation under the Securities Act of 1933 or any information statement on Schedule 14C required in connection with the transactions contemplated by the Stock Issuance Agreement) and (ii) make any filings with any Governmental Body; and

(b) Following the Execution Date and until the second anniversary of the Closing Date, Sellers will use commercially reasonable efforts to cooperate with the independent auditors retained by Purchaser (“ Purchaser’s Auditor ”) in connection with their audit or review of any revenue and expense statements and reserve information of the Assets that Purchaser or WildHorse Resource Development Corporation requires to comply with their tax and financial reporting requirements and audits that may be required by the Securities and Exchange Commission under the Securities Act of 1933 and/or the Securities Exchange Act of 1934, which cooperation will include (i) reasonable access during normal business hours to Sellers’ employees, representatives and agents who were responsible for preparing the revenue and expense statements, including Standardized Measure of Oil and Gas, (“ SMOG ”) and work papers and other supporting documents used in the preparation of financial statements, as may be reasonably required by Purchaser’s Auditor to perform an audit in accordance with GAAP and (ii) the delivery of one or more customary representation letters from Sellers to Purchaser’s Auditor that are reasonably requested by Purchaser or its Affiliates to allow Purchaser’s Auditor to complete an audit (or review of any financial statements) and to issue an opinion with respect to an audit or review of those financial records required pursuant to this Section 8.12(b) ;

provided that (i) Purchaser will reimburse Sellers, within twenty (20) Business Days after demand therefor, for any reasonable out-of-pocket costs incurred by Sellers in complying with the provisions of this Section 8.12 , (ii) such requested cooperation does not unreasonably interfere with the ongoing operations of Sellers or any Seller’s Affiliates or the ongoing job responsibilities of Sellers’ personnel, (iii) no Seller nor any of its Affiliates, officers, directors, employees, agents, consultants or representatives shall have any liability for any statement, materials or information by Sellers or any such Person in connection with this Section 8.12 , and

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Purchaser hereby agrees to indemnify Sellers from and against any liabilities incurred in connection with this Section 8.12 , (iv) Selle rs’ failure to perform any of its obligations under this Section 8.12 shall not delay the Closing hereunder and Purchaser may not assert that its c onditions to Closing under Section 9.2 have not been satisfied due to any failure by Seller to comply with its obligations under this Section 8.12 and (v) Purchaser acknowledges and agrees that any financial information provided to Purchaser pursuant to this Section 8.12 shall be unaudited at the time it is provided, and each Seller and such Seller’s Affiliates shall have no obligation to provide audited financial information pursuant to this Section 8.12 ; provided, further, that without limiting the generality of this Section 8.12 , for a period of three (3) years following the Closing Date, Sellers shall, and shall cause their respective Affiliates to, retain all books, records, information and documents existing at th e Closing and otherwise in their or their Affiliates’ possession that are necessary to prepare and audit financial statements with respect to the Assets, except to the extent originals or copies thereof are transferred to Purchaser in connection with Closi ng).

ARTICLE 9
CONDITIONS TO CLOSING

Section 9.1 Sellers’ Conditions to Closing

.  The obligations of Sellers to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Sellers) on or prior to the Closing of each of the following conditions precedent:

(a) Representations .  (i) The representations and warranties of Purchaser set forth in Sections  7.4 (b), (c) and (d) through 7.13 of this Agreement shall be true and correct in all material respects (without regard to any materiality qualifiers set forth in such representations and warranties) as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) and (ii) the representations and warranties of Purchaser set forth in Section 7.1 through 7.4(a) of this Agreement shall be true and correct as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) ;

(b) Performance .  Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

(c) No Action .  On the Closing Date, no Order restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall have been issued and remain in force, and no suit, action or other proceeding by any Governmental Body seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement, or seeking substantial Damages in connection therewith, shall be pending before any Governmental Body;

(d) Parent Guaranty . The Parent Guaranty shall be in full force and effect and enforceable;

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(e) Gover nmental Body Approvals .   All material consents and approvals of any Governmental Body required for the transfer of the Assets from Sellers to Purchaser as contemplated under this Agreement (other than Customary Post-Closing Consents), including those consents required by the HSR Act, shall have been granted , or the necessary waiting period shall have expired, or such waiting period shall have been terminated, as applicable;

(f) Deliveries .  Purchaser shall have delivered (or be ready, willing and able to deliver) to Sellers the documents and certificates to be delivered by Purchaser under Section  10.3 ;

(g) Title; Environmental; Casualty Losses; Consents .  The sum (without duplication) of (i) except as set forth in clause (iii) hereof, all Title Defect Amounts determined pursuant to Section 4.2 with respect to Title Defects that have not been cured by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Title Defect Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.1(g) ), (ii) except as set forth in clause (iii) hereof, all Remediation Amounts for Adverse Environmental Conditions determined pursuant to Section 5.1 that have not been Remediated by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Remediation Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.1(g) ), (iii) if Sellers retain any Assets (or portion thereof) pursuant to Section 4.2(b)(iii) , Section 5.1(b)(iii) , Section 5.1(d) or Section 8.1(a) all Allocated Values (or portions thereof) of such Assets so retained by Sellers, (iv) all Casualty Losses pursuant to Section 4.7 , that have not been repaired by Sellers on or prior to the Closing, and (v) all Allocated Values (or portions thereof) of Assets excluded from the Closing pursuant to Section 4.6(b) , shall be less than 15% of the Unadjusted Purchase Price;

(h) Northstars Purchase and Sale Agreement .  The conditions to closing in the Northstars Purchase and Sale Agreement shall have been satisfied or waived in accordance with their terms, and the parties to such agreement shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby; and

(i) Stock Issuance Agreement .  The conditions to closing set forth in Sections 1.3(a)(i) and 1.3(b) of the Stock Issuance Agreement shall have been satisfied or waived in accordance with their terms, and WildHorse Resource Development Corporation shall have indicated that it is ready, willing and able to consummate the transactions contemplated thereby.

Section 9.2 Purchaser’s Conditions to Closing

.  The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Purchaser) on or prior to the Closing of each of the following conditions precedent:

(a) Representations .  (i) The representations and warranties of Sellers set forth in Sections 6.4(b) , (c) and (d) through Section 6.22 of this Agreement shall be true and correct in all material respects (without regard to any materiality qualifiers set forth in such representations and warranties) as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) and (ii) the representations and warranties of Sellers set forth in

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Section 6.1 through Section 6.4 (a) of this Agreement shall be true and correct as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, whi ch need only be true and correct on and as of such specified date);

(b) Performance .  Sellers shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by Sellers under this Agreement prior to or on the Closing Date;

(c) No Action .  On the Closing Date, no Order restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall have been issued and remain in force, and no suit, action or other proceeding by any Governmental Body seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement, or seeking substantial Damages in connection therewith, shall be pending before any Governmental Body;

(d) Governmental Body Approvals .   All material consents and approvals of any Governmental Body required for the transfer of the Assets from Sellers to Purchaser as contemplated under this Agreement (other than Customary Post-Closing Consents), including those consents required by the HSR Act, shall have been granted, or the necessary waiting period shall have expired, or such waiting period shall have terminated, as applicable;

(e) Deliveries .  Sellers shall have delivered (or be ready, willing and able to deliver) to Purchaser the documents and certificates to be delivered by Sellers under Section 10.2 ;

(f) Title; Environmental; Casualty Losses; Consents; Preferential Rights . The sum (without duplication) of (i) except as set forth in clause (iii) hereof, all Title Defect Amounts determined pursuant to Section 4.2 with respect to Title Defects that have not been cured by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Title Defect Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.2(f) ), (ii) except as set forth in clause (iii) hereof, all Remediation Amounts for Adverse Environmental Conditions determined pursuant to Section 5.1 that have not been Remediated by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Remediation Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.2(f) ), (iii) if Sellers retain any Assets (or portion thereof) pursuant to Section 4.2(b)(iii) , Section 5.1(b)(iii) , Section 5.1(d) , or Section 8.1(a) all Allocated Values (or portions thereof) of such Assets so retained by Sellers, (iv) all Casualty Losses pursuant to Section 4.7 , that have not been repaired by Sellers on or prior to the Closing, and (v) all Allocated Values (or portions thereof) of Assets excluded from the Closing pursuant to Section 4.6(b) or Section 4.6(c) , shall be less than 15% of the Unadjusted Purchase Price;

(g) Northstars Purchase and Sale Agreement .  The conditions to closing in the Northstars Purchase and Sale Agreement shall have been satisfied or waived in accordance with their terms, and the parties to such agreement shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby; and

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(h) Stock Issuance Agreement .  The conditions to closing set forth in Sections 1.3(a)(i) and 1.3(c) of the Stock Issuance Agreement shall have been satisfied or waived in accordance with their terms, and the Admiral Sellers shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby.

ARTICLE 10
CLOSING

Section 10.1 Time and Place of Closing

.  Consummation of the purchase and sale transaction as contemplated by this Agreement (the “ Closing ”) shall, unless otherwise agreed to in writing by the Parties, take place at the offices of Sidley Austin LLP, counsel to AEPO, located at 1000 Louisiana, Suite 6000, Houston, Texas 77002, at 10:00 a.m., Central Time, on June 30, 2017, or, if all conditions in Article 9 to be satisfied prior to the Closing have not yet been satisfied or waived by such date, within five Business Days of such conditions having been satisfied or waived (in each case, excluding any conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of such conditions), subject to the Parties’ rights to terminate this Agreement under Article 11 .  The date on which the Closing occurs is herein referred to as the “ Closing Date .”

Section 10.2 Obligations of Sellers at Closing

.  At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Purchaser of its obligations pursuant to Section 10.3 , Sellers shall deliver or cause to be delivered to Purchaser the following:

(a) Counterparts of the Conveyances of the Assets, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by Sellers and acknowledged before a notary public;

(b) Assignments in form required by any Governmental Body for the assignment of any Assets controlled by such Governmental Body (excluding Customary Post-Closing Consents), duly executed by Sellers, in sufficient duplicate originals to allow recording and filing in all appropriate offices;

(c) A certificate from each Seller, duly executed by an authorized officer of such Seller, dated as of the Closing Date, certifying on behalf of such Seller that the conditions set forth in Section 9.2(a) and Section 9.2(b) have been fulfilled;

(d) An executed statement described in Treasury Regulation § 1.1445-2(b)(2) certifying that each Seller is not a foreign person within the meaning of the Code, substantially in the form of Exhibit D attached hereto;

(e) Counterparts of the change of operator forms required by the applicable regulatory authority, duly executed by the applicable Seller;

(f) Counterparts of the escrow agreement with the Escrow Agent, in form and substance reasonably acceptable to Sellers and Purchaser, to the extent necessary under the terms of this Agreement duly executed by the Sellers party thereto;

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(g) All necessary letters in lieu of transfer orders, substantially in the form set forth on Exhibit E , directing all purchasers of production to pay Purc haser the proceeds attributable to production from each Property from and after the Effective Time;

(h) Counterparts of the Preliminary Settlement Statement, duly executed by Sellers;

(i) A recordable release of any deed of trust, mortgages, financing statements, fixture filings or security agreements imposed by any Debt Contract to which any Seller or any Affiliate of Sellers is a party burdening the Properties in form and substance reasonably acceptable to Purchaser;

(j) Counterparts of the Core Access Agreement, duly executed by the applicable Sellers; and

(k) All other instruments, documents and other items reasonably necessary to effectuate the terms of this Agreement as may be reasonably requested by Purchaser.

Section 10.3 Obligations of Purchaser at Closing

.  At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Sellers of their obligations pursuant to Section 10.2 , Purchaser shall deliver or cause to be delivered to Sellers the following:

(a) A wire transfer in immediately available funds of the Cash Purchase Price, as adjusted pursuant to the Preliminary Settlement Statement, to the account(s) designated by AEPO, which designation shall be furnished to Purchaser no later than two days prior to the Closing Date;

(b) A distribution of shares of Purchaser Common Stock with an aggregate value (as calculated pursuant to the Stock Issuance Agreement) equal to the Stock Purchase Price, as adjusted pursuant to the Preliminary Settlement Statement, to each of the Admiral Sellers, in such proportions as are designated by the Admiral Sellers, which designation shall be furnished to Purchaser no later than five (5) Business Days prior to the Closing Date and, notwithstanding anything to the contrary contained in this Agreement, may be conclusively relied upon by Purchaser in fulfilling its obligation to deliver the Purchaser Common Stock pursuant to this Section 10.3(b) ;

(c) Counterparts of the Conveyances of Assets, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by Purchaser and acknowledged before a notary public;

(d) Assignments in form required by any Governmental Body for the assignment of any Assets controlled by such Governmental Body (excluding any Customary Post-Closing Consents), duly executed by Purchaser, in sufficient duplicate originals to allow recording and filing in all appropriate offices;

(e) A certificate duly executed by an authorized officer of Purchaser, dated as of the Closing Date, certifying on behalf of Purchaser that the conditions set forth in Section 9.1(a) and Section 9.1(b) have been fulfilled;

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(f) Evidence of replacement bonds, guaranties and letters of credit required pursuant to Sectio n 8.7 ;

(g) Counterparts of the change of operator forms required by the applicable regulatory authority, duly executed by Purchaser or its designee;

(h) Counterparts of the Preliminary Settlement Statement, duly executed by Purchaser;

(i) Counterparts of the escrow agreement with the Escrow Agent, in form and substance reasonably acceptable to Sellers and Purchaser, to the extent necessary under the terms of this Agreement, duly executed by Purchaser;

(j) Counterparts of the Core Access Agreement, duly executed by Purchaser; and

(k) All other instruments, documents and other items reasonably necessary to effectuate the terms of this Agreement as may be reasonably requested by Sellers.

Section 10.4 Closing Payment and Post-Closing Unadjusted Purchase Price Adjustments

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(a) Not later than seven Business Days prior to Closing, or such other date agreed to by the Parties, Sellers shall prepare and deliver to Purchaser, using the best information available to Sellers, a preliminary settlement statement (the “ Preliminary Settlement Statement ”) estimating the initial Adjusted Purchase Price after giving effect to all adjustments set forth in Section 3.4 , including the adjusted Cash Purchase Price and Stock Purchase Price resulting from such adjustments.   Purchaser will have two Business Days after receipt of the Preliminary Settlement Statement to review such statement and to provide written notice to Sellers of objections to any item on the statement.  The Parties shall attempt to agree on the amounts in the Preliminary Settlement Statement no later than one Business Day before Closing.  The amount agreed to in accordance with this Section 10.4(a) (or if the Parties are unable to agree, the amount or amounts set forth in Sellers’ estimate delivered in accordance with this Section 10.4(a) ) less the Deposit and any amount deposited to the Escrow Agent pursuant to Section 4.4 and Section 5.2 shall constitute the dollar amount of consideration to be paid by Purchaser to Sellers in cash or Purchaser Common Stock, as applicable, at the Closing (the “ Closing Payment ”).  For the avoidance of doubt, the entire Deposit shall be netted against the Cash Purchase Price in the Preliminary Settlement Statement in accordance with Section 3.2 .

(b) As soon as reasonably practicable after the Closing but not later than the later of (x) the last day of the fourth month following the Closing Date and (y) the date on which the Parties finally determine or the Title Expert or Environmental Expert, as applicable, finally determines, all Disputed Title Matters under Section 4.4 and all Disputed Environmental Matters under Section 5.2 , Sellers shall prepare and deliver to Purchaser a statement setting forth (i) the final calculation of the Adjusted Purchase Price, (ii) the amount of Unreimbursed Third Party Property Costs as described in Section 2.4(c) and (iii) the amount of any Suspense Funds held by Sellers as of the date such statement is prepared, and showing the calculation of each such adjustment or item, based, to the extent possible, on actual credits, charges, receipts and other items before and after the Effective Time.  Sellers shall, at Purchaser’s request, supply available

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do cumentation in reasonable detail to support any credit, charge, receipt or other item.  As soon as reasonably practicable but not later than the 30th day following receipt of Sellers’ statement hereunder, Purchaser shall deliver to Sellers a written report containing any changes that Purchaser proposes be made to such statement.  Sellers may deliver a written report to Purchaser during this same period reflecting any changes that Sellers propose to be made to such statement as a result of additional informa tion received after the statement was prepared .

(c) The Parties shall undertake to agree on the final settlement statement.  In the event that the Parties cannot reach agreement within a reasonable period of time, either Party may refer the remaining matters in dispute to the Houston, Texas office of Grant Thornton LLP (the “ Independent Accountant ”) for review and final determination.  In the event that Grant Thornton LLP refuses or is otherwise unable to act as the Independent Accountant, the Parties shall cooperate in good faith to appoint an independent certified public accounting firm qualified and of national recognition in the United States that is mutually agreeable to the Parties, in which event “Independent Accountant” shall mean such firm.  Within 15 days after either Party’s referral of the remaining matters in dispute to the Independent Accountant, Purchaser (on the one hand) and Sellers (on the other hand) shall submit separate written statements setting forth their respective positions with respect to all matters that remain in dispute relating to the final settlement statement.  Within 30 days after the submission of such matters to the Independent Accountant, or as soon as practicable thereafter, the Independent Accountant, acting as an expert and not as an arbitrator, will make a final determination, binding on Sellers and Purchaser (absent fraud or manifest error), and enforceable by either Party in any court of competent jurisdiction.  There shall be no ex parte communications between any of Sellers or Purchaser, on the one hand, and the Independent Accountant, on the other hand, relating to those matters in dispute, other than the initial written submission by Sellers and Purchaser of their respective positions on the matters in dispute and written answers by Sellers and Purchaser to written questions from the Independent Accountant.  The Independent Accountant shall be authorized to select only the position as to any adjustment set forth in the final settlement statement as presented by either Sellers (on the one hand) or Purchaser (on the other hand).  The Independent Accountant shall act as an independent neutral expert for the limited purpose of determining the specific disputed matters submitted by the Parties and may not award Damages, interest or penalties to the Parties with respect to any matter.  The Independent Accountant shall have no power to reach any other result and shall select the adjustment or line item set forth in the final settlement statement that, in its judgment, is the closest to being in conformity with this Agreement.  For the avoidance of doubt, the Independent Accountant shall not make any determination with respect to any matter other than those matters affecting the calculations of the final settlement statement that remain in dispute.  Sellers and Purchaser shall each bear its own legal fees and other costs of presenting its written submissions to the Independent Accountant.  The costs of the Independent Accountant shall be borne by Sellers, on the one hand, and Purchaser, on the other hand, based on the proportion the amount awarded in such Parties’ favor bears to the aggregate amount submitted to the Independent Accountant for determination.

(d) Within ten days after the earliest of (i) the expiration of Purchaser’s 30-day review period without delivery of any written report by Purchaser as contemplated in Section 10.4(b) , (ii) the date on which the Parties finally determine the matters required to be set forth in the final settlement statement and (iii) the date on which the Independent Accountant finally determines the disputed matters submitted to it, as applicable, (A) Purchaser shall pay to

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Sellers the amount by which (i) the final Adjusted Purchase Price, less the Deposit amount, plus the amount of the Unreimbursed Third Party Property Costs, less the Suspense Funds, exceeds (2) the Closing Payment or (B) Sellers shall pay to Purchaser the amount by which the Closing Payment exceeds the final Adjusted Purchase Price, less the Deposit amount, plus the amount of the Unreimbursed Third Party Property Costs, less the Suspense Funds, as applicable.  Any such payment, whether to o r from the Sellers, shall be made in cash in accordance with the Consideration Ratio.

(e) Purchaser shall assist Sellers in the preparation of the final statement of the Adjusted Purchase Price under Section 10.4(d) by furnishing invoices, receipts, reasonable access to personnel, and such other assistance as may be reasonably requested by Sellers to facilitate such process post-Closing.

(f) All cash payments made or to be made under this Agreement shall be made by electronic transfer of immediately available funds to the account designated by the appropriate Party in writing (with email being sufficient).

ARTICLE 11
TERMINATION

Section 11.1 Termination

.  This Agreement may be terminated at any time prior to the Closing:

(a) by the mutual written consent of Sellers and Purchaser;

(b) by either Purchaser or Sellers if the Closing has not occurred on or before July 31, 2017, or such later date as shall be mutually agreed to in writing by Purchaser and Sellers;

(c) by Sellers if (i) the conditions set forth in Section 9.2 have been satisfied or waived in writing (other than those conditions that by their nature are to be satisfied at the Closing); (ii) Sellers have confirmed in writing that Sellers are ready, willing and able to consummate the Closing; and (iii) Purchaser shall have failed for any reason to consummate the Closing by the date the Closing should have occurre d pursuant to Section 10.1 ;

(d) by Purchaser if (i) the conditions set forth in Section 9.1 have been satisfied or waived in writing (other than those conditions that by their nature are to be satisfied at the Closing); (ii) Purchaser has confirmed in writing that Purchaser is ready, willing and able to consummate the Closing; and (iii) Sellers shall have failed for any reason to consummate the Closing by the date the Closing should have occurred pursuant to Section 10.1 ;

(e) by either Party if any Governmental Body shall have commenced or threatened to commence any proceeding to delay or enjoin the transactions contemplated by this Agreement;

(f) by Sellers if the Parent Guaranty ceases to be in full force and effect and enforceable; or

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(g) by AEPO (on behalf of Sellers), upon written notice to Purchaser, if Purchaser has not paid the Deposit to Sellers in accordance with Section  3.2 within one Business Day after the Execution Date, provided the termination right described in this Section 11.1(g) must be exercised, if ever, prior to Sellers’ receipt of the Deposit ;

provided , however , that no Party shall be entitled to terminate this Agreement under Section 11.1(b) , 11.1(c) or 11.1(d) if the Closing has failed to occur because such Party negligently or willfully failed to perform or observe in any material respect its covenants or agreements hereunder.

Section 11.2 Effect of Termination

.  If this Agreement is terminated pursuant to Section 11.1 , this Agreement shall become void and of no further force or effect, except for the Confidentiality Agreement and the provisions of Section 8.1(d) ,  Section 8.1(e) , Section 8.3 , Section 8.4(c) , Section 8.10(f) , Article 11 , Section 14.1 through Section 14.11 , Section 14.13 , Section 14.18 , Section 14.19 and Appendix A , which shall continue in full force and effect, and Sellers shall be free immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any Person without any restriction under this Agreement.  

Section 11.3 Remedies for Breach; Distribution of Deposit Upon Termination

.

(a) If Sellers could terminate this Agreement (i) under Section 11.1(b) , and Purchaser’s breach or failure to perform its representations, warranties, covenants or agreements hereunder, individually or in the aggregate, with all other breaches and failures to perform by Purchaser that have not been waived in writing by Sellers, are preventing or have prevented the satisfaction of the conditions set forth in Section 9.1 , (ii) pursuant to Section 11.1(c) or (iii) pursuant to Section 11.1(f) , then, in each case, Sellers, at their option, may, as their sole and exclusive remedy, either (1) terminate this Agreement and retain the Deposit together with any interest or income thereon, as liquidated damages, free of any claims by Purchaser or any other Person with respect thereto or (2) seek an injunction, order of specific performance or other equitable relief to enforce specifically the terms and provisions of this Agreement and deduct the costs of pursuing such relief from the Deposit.  If Sellers elect to retain the Deposit but are, for any reason, prohibited from retaining the Deposit as liquidated damages, Sellers may then pursue whatever legal or equitable rights and remedies may be available to Sellers, provided any such damages recovered from Purchaser may not exceed an amount equal to the Deposit.  If Sellers elect to pursue an injunction, order of specific performance or other equitable relief to enforce specifically the terms and provisions of this Agreement and are unable to obtain such specific performance, then Sellers shall be entitled to terminate this Agreement and retain the Deposit together with any interest or income thereon, as liquidated damages, free of any claims by Purchaser or any other Person with respect thereto.  In the event Sellers elect to terminate this Agreement and retain the Deposit, Sellers shall be free to enjoy immediately all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any party without any restriction under this Agreement.   It is expressly stipulated by the Parties that the actual amount of damages resulting from any such termination would be difficult, if not impossible, to determine accurately because of the unique nature of this Agreement, the unique nature of the Assets, the uncertainties of applicable commodity markets and

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differences of opinion with respect to such matters, and that the liquidated damages provided for herein are a reasonable estimate by the Parties of such damages .

(b) If Purchaser could terminate this Agreement pursuant to (i) Section 11.1(b) , and Sellers’ breach or failure to perform their representations, warranties, covenants or agreements hereunder, individually or in the aggregate, with all other breaches and failures to perform that have not been waived in writing, are preventing or have prevented the satisfaction of the conditions set forth in Section 9.2 or (ii) Section 11.1(d) , then, Purchaser , at its option, may either (i) terminate this Agreement, receive back the entirety of the Deposit (which Sellers shall promptly return to Purchaser upon Purchaser’s proper termination of this Agreement pursuant to this Section 11.3(b) without any interest accrued thereon, free of any claims by any Seller or any other Person with respect thereto ) and seek to recover damages from Sellers up to but not exceeding the amount of the Deposit or (ii) in lieu of terminating this Agreement, seek an injunction and order of specific performance or other equitable relief to enforce specifically the terms and provisions of this Agreement, in either case, as its sole and exclusive remedy, all other remedies being expressly waived by Purchaser .

(c) If this Agreement is terminated under Section 11.1 for any reason other than the reasons set forth in Section 11.3(a) or Section 11.3(b) , Sellers shall refund to Purchaser the Deposit, without any interest accrued thereon, free of any claims by any Seller or any other Person with respect thereto, and the Parties will have no further obligation or liability to one another hereunder other than as set forth in this Section 11.3 , Section 11.2 and the Confidentiality Agreement.  Notwithstanding anything to the contrary in this Agreement, Purchaser shall not be entitled to receive interest on the Deposit, whether the Deposit is applied against the Unadjusted Purchase Price or returned to Purchaser pursuant to this Section 11.3(c) .

(d) Upon termination of this Agreement, Purchaser shall destroy or return to Sellers all title, engineering, geological and geophysical data, environmental assessments and reports, maps, documents and other information furnished by Sellers to Purchaser or prepared by or on behalf of Purchaser in connection with its due diligence of the Assets, and an officer of Purchaser shall confirm the same to Sellers in writing.

ARTICLE 12
ASSUMPTION; INDEMNIFICATION

Section 12.1 Assumption by Purchaser

.

Without limiting Purchaser’s rights to indemnity under Section 12.2 , Purchaser’s remedies for Title Defects in Article 4 and Adverse Environmental Conditions in Article 5 and Purchaser remedies for breaches of the special warranty of title contained in the Conveyances, on the Closing Date, Purchaser shall assume and hereby agrees to fulfill, perform, pay and discharge (or cause to be timely fulfilled, performed, paid or discharged) all of the Assumed Purchaser Obligations.

Section 12.2 Indemnification

.

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(a) Upon the Closing, Purchaser shall indemnify, defend and hold harmless the Seller Group from and against all Damages incurred, suffered by or asserted against such Persons:

(i) caused by or arising out of or resulting from the Assumed Purchaser Obligations, REGARDLESS OF FAULT ;

(ii) caused by or arising out of or resulting from any breach of or failure to perform any of Purchaser’s covenants or agreements in this Agreement;

(iii) caused by or arising out of or resulting from any breach of any of WildHorse Resource Development Corporation’s covenants or agreements in the Stock Issuance Agreement;

(iv) caused by or arising out of or resulting from any breach of any representation or warranty made by Purchaser in Article  7 or in the certificate delivered pursuant to Section 10.3(e) ; or

(v) caused by or arising out of or resulting from any breach of any representation or warranty made by WildHorse Resource Development Corporation in Section 2.1 of the Stock Issuance Agreement.

(b) Upon the Closing, each Seller, severally and not jointly , shall indemnify, defend and hold harmless the Purchaser Group from and against all Damages incurred, suffered by or asserted against such Persons:

(i) caused by or arising out of or resulting from the Retained Seller Obligations, REGARDLESS OF FAULT ;

(ii) caused by or arising out of or resulting from any breach of or failure to perform any of Sellers’ covenants or agreements in this Agreement;

(iii) caused by or arising out of or resulting from any breach of any of Admiral Sellers’ covenants or agreements in the Stock Issuance Agreement;

(iv) caused by or arising out of or resulting from any breach of any representation or warranty made by Sellers in Article  6 or in the certificate delivered pursuant to Section 10.2(c) ; or

(v) caused by or arising out of or resulting from any breach of any representation or warranty made by the Admiral Sellers in Section 2.2 of the Stock Issuance Agreement.

(c) Notwithstanding anything to the contrary contained in this Agreement, if Closing occurs, this Section 12.2 contains the Parties’ and their Affiliates exclusive remedies against each other with respect to breaches of the representations and warranties of the Parties in Article  6 and Article  7, breaches of the representations and warranties of the Parties and their Affiliates in Section 2.1 and Section 2.2 of the Stock Issuance Agreement, the covenants and agreements of the Parties in this Agreement, the covenants and agreements of the Parties and

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their Affiliates in the Stock Issuance Agreement, the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each Party at the Closing pursuant to Section  10.3(e) , with respect to Purchaser, or Section  10.2(c) , with respect to Sellers, and the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each Party or their Affiliates at the Closing pursuant to Section 1. 3(b)(iii) of the Stock Issuance Agreement, with respect to WildHorse Resource Development Corporation, or Section 1.3(c)(iii) of the Stock Issuance Agreement, with respect to the Admiral Sellers, except for actions of specific performance or other equitabl e relief expressly permitted to be sought pursuant to this Agreement or the Stock Issuance Agreement.  Except for the remedies contained in the Conveyances or in this Section  12.2 , Section  8.1(e) , Section  11.2 , Section  11.3 and Section  14.17 , if the Closing occurs, SELLERS AND PURCHASER EACH RELEASE, REMISE AND FOREVER DISCHARGE THE OTHER PARTY (OR PARTIES, AS APPLICABLE) AND THEIR AFFILIATES FROM ANY AND ALL SUITS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES , LOSSES, COSTS, LIABILITIES, INTEREST, OR CAUSES OF ACTION WHATSOEVER, IN LAW OR IN EQUITY, KNOWN OR UNKNOWN, WHICH SUCH PARTIES MIGHT NOW OR SUBSEQUENTLY MAY HAVE, BASED ON, RELATING TO OR ARISING OUT OF (i) THIS AGREEMENT, (ii) THE STOCK ISSUANCE AGREEM ENT (iii) SELLERS’ OWNERSHIP, USE OR OPERATION OF THE ASSETS, (iv) THE CONDITION, QUALITY, STATUS OR NATURE OF THE ASSETS, INCLUDING RIGHTS TO CONTRIBUTION UNDER CERCLA OR ANY OTHER ENVIRONMENTAL LAW, (v) BREACHES OF STATUTORY OR IMPLIED WARRANTIES, (vi) N UISANCE OR OTHER TORT ACTIONS, (vii) RIGHTS TO PUNITIVE DAMAGES AND COMMON LAW RIGHTS OF CONTRIBUTION AND (viii) SUBJECT TO SECTION  4.7 , RIGHTS U NDER INSURANCE MAINTAINED BY SELLERS OR ANY PERSON WHO IS AN AFFILIATE OF ANY SELLER, REGARDLESS OF FAULT.

(d) Claims for Property Costs and proceeds from Hydrocarbon production shall be exclusively handled pursuant to Section 2.4 , the Unadjusted Purchase Price adjustments in Section 3.4 , and pursuant to Section 10.4 , and shall not be subject to indemnification under this Section 12.2 .  Claims for Title Defects (and Title Benefits) shall be exclusively handled pursuant to Article 4 , or under the special warranty of title in the Conveyances, and Adverse Environmental Conditions shall be exclusively handled pursuant to Article 4 and Article 5 , as applicable, and shall not be subject to indemnification under this Section 12.2 , except as an Assumed Purchaser Obligation or as a Retained Seller Obligation or for breaches of the Specified Representations or the representations and warranties of Sellers in Section 6.21 , as determined pursuant to Article 4 and Article 5 .  Claims relating to the final settlement statement (other than any claim relating to an adjustment for Property Taxes) shall be exclusively handled pursuant to the dispute resolution provisions of Section 10.4 .  Notwithstanding the foregoing, a breach or failure to perform with respect to any covenant or agreement described in the foregoing sections of this Section 12.2(d) are (and shall be) subject to claims for indemnification pursuant to Section 12.2(a)(ii) and Section 12.2(b)(ii) , as applicable.

(e) The indemnity of each Party provided in this Section 12.2 shall be for the benefit of and extend to each Person included in the Seller Group and the Purchaser Group, as applicable; provided , however , that any claim for indemnity under this Section 12.2 by any such

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Person must be brought and administered by a Party to this Agreement.  No indemnified Person other than Sellers and Purchaser shall have any rights against Sellers or Purchaser under the terms of this Section 12.2 except as may be exercised on its behalf by Purchaser or Sellers, as applicable, pursuant to this Section 12.2(e) .  Each of Sellers and Purchaser may elect to exercise or not exercise indemnification rights under this Section 12.2 on behalf of the other indemnified Persons which are members of the Seller Group or Purchaser Group, as applicable, in its sole discretion and shall have no liability to any such other indemnified Persons for any action or inaction under this Section 12.2 .

Section 12.3 Indemnification Actions

.  Each Party claiming it is entitled to indemnification hereunder shall promptly notify the Party or Parties from which it is seeking indemnification of any matter of which it becomes aware and for which it is entitled to indemnification under this Agreement.  The indemnifying Party shall be obligated to defend, at the indemnifying Party’s sole expense, any litigation or other administrative or adversarial proceeding against the indemnified Party relating to any matter for which the indemnifying Party has agreed to indemnify and hold the indemnified Party harmless under this Agreement.  However, the indemnified Party shall have the right to participate with the indemnifying Party in the defense of any such matter at its own expense.  The indemnifying Party shall have the right to select counsel for any matters it is defending, provided that the indemnified Party shall have the right to require the indemnifying Party to select alternative counsel if such counsel is, at such time, adverse to the indemnified Party in any legal proceeding, whether or not such proceeding is related to this Agreement.  The indemnifying party shall not, without the written consent of the indemnified party, (i) settle any claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the indemnified party from all liability and Damages in respect of such third party claim or (ii) settle any claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the indemnified party (other than as a result of money damages covered by the indemnity). With respect to any claim subject to indemnification pursuant to this Article 12 or otherwise pursuant to this Agreement, the indemnified party shall use commercially reasonable efforts to cooperate (at the indemnifying party’s sole cost and expense) with the indemnifying party in asserting any defense that may be available to the indemnified party with respect to any such claim.  In the case of a  claim for indemnification not based upon a Third Party claim, the indemnifying party shall have thirty (30) days from its receipt of a notice of such claim to (i) cure the Damages complained of, (ii) admit its obligation to provide indemnification with respect to such Damages or (iii) dispute the claim for such indemnification.  If the indemnifying party does not notify the indemnified party within such thirty (30) day period that it has cured the Damages or that it disputes the claim for such indemnification, the indemnifying party shall be conclusively deemed obligated to provide such indemnification hereunder.

Section 12.4 Limitation on Actions

.

(a) The representations and warranties of the Parties in Article 6 and Article 7 and the corresponding representations and warranties given in the certificates delivered at the Closing pursuant to Section 10.3(e) and Section 10.2(c) , as applicable, and the covenants and agreements of the Parties set forth in Article 8 of this Agreement (except for those set forth in clause (iii) hereof), shall survive the Closing for a period of twelve months , except that (i) the representations and warranties in Section 6.1 , Section 6.2 , Section 6.3 , Section 6.4(a) , Section

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6.6 , Section 7.1 , Sec tion 7.2 and Section 7.4 (a) shall survive indefinitely and (iii) the covenants a nd agreements, as applicable, in Section 8.1(e) , Section 8.3 , Section 8.6 , Section 8.7 , Section 8.9 , Section 8.11 and Section 8.12 shall survive indefinitely, and any covenants or agreements that by their terms are applicable beyond the twelve-month anniversary of the Closing shall survive in accordance with their terms.  The re mainder of this Agreement (including the disclaimers in Section 6.23 ) shall survive the Closing without time limit except for the provisions of Article 13 , which shall survive the Closing until the expiration of the applicable statute of limitations.  Representations, warranties, covenants and agreeme nts shall be of no further force and effect after the date of their expiration; provided , however , that there shall be no termination of any bona fide claim for indemnification that has been delivered to the indemnifying Person in accordance with the terms of this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration date and such representation, warranty, covenant or agreement shall survive until such claim is fully and finally resolved. The representation s, warranties, covenants and agreement contained in the Stock Issuance Agreement, shall survive and terminate as set forth in the Stock Issuance Agreement.

(b) The indemnities in Section 12.2(a)(ii) , Section 12.2(a)(iii) , Section 12.2(a)(iv) , Section 12.2(a)(v) , Section 12.2(b)(ii) , Section 12.2(b)(iii) , Section 12.2(b)(iv) and Section 12.2(b)(v) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification thereunder, except in each case as to matters for which a bona fide claim for indemnity has been delivered in good faith to the indemnifying Person on or before such termination date, in which event such indemnities shall not terminate until such claim is fully and finally resolved.  The indemnities in Section 12.2(b)(i) shall terminate as of the expiration of the applicable Retained Seller Obligation (as provided in the definition thereof) ( provided , however , that there shall be no termination of any bona fide claim for indemnity that has been delivered to the indemnifying Person in accordance with the terms of this Agreement with respect to such Section 12.2(b)(i) prior to its expiration date, in which event such indemnities shall not terminate until such claim is fully and finally resolved), and the indemnities in Section 12.2(a)(i) shall survive indefinitely.  

(c) Sellers shall not have any liability for any indemnification under Section 12.2(b)(iv) until and unless (i) with respect to any individual claim for Damages, the amount of such Damages exceeds $100,000.00 (the “ Indemnity Threshold ”) and (ii) the aggregate amount of the liability for all Damages claimed by Purchaser and that exceed the Indemnity Threshold exceeds 3% of the Unadjusted Purchase Price, and then only to the extent that such Damages exceed 3% of the Unadjusted Purchase Price; provided , however , that the foregoing shall not be applicable to breaches of those representations and warranties in Section  6.1 , Section 6.2 , Section 6.3 , Section 6.4(a) , or Section 6.6 .

(d) Notwithstanding anything to the contrary contained elsewhere in this Agreement, Sellers shall not be required to indemnify the Purchaser Group under Section 12.2(b)(iv) for aggregate Damages in excess of 10% of the Unadjusted Purchase Price; provided , however , that the foregoing shall not be applicable to breaches of those representations and warranties in Section 6.1 , Section 6.2 , Section 6.3 , Section 6.4(a) , or Section 6.6 .

(e) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) Sellers shall not be required to indemnify the Purchaser Group under this Article 12 for

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aggregate Damages in excess of the Unadjusted Purchase Price and (ii) the aggregate liability for AEPO, on the one hand, and the Admiral Sellers, on the other hand, for Damages shall not exceed the Cash Purchase Price (in the case of AEPO) or the Stock Purchase Price (in the case of the Admiral Sellers).

(f) AEPO will have no indemnification obligation or otherwise be liable with respect to any breach of a representation or warranty in Article 6 or the certificate delivered pursuant to Section 10.2(c) by any Admiral Seller or breach of or failure to perform any covenant by any Admiral Seller, and no Admiral Seller will have any indemnification obligation with respect to or otherwise be liable with respect to any breach of a representation or warranty in Article 6 or the certificate delivered pursuant to Section 10.2(c) by AEPO or breach of any covenant by AEPO.

(g) The amount of any Damages for which an Indemnified Person is entitled to indemnity under this Article 12 shall be reduced by the amount of insurance proceeds, if any, realized by the Indemnified Person or its Affiliates with respect to such Damages, net of any collection costs and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Person or its Affiliates.

(h) Purchaser shall not be entitled to indemnification or any other remedy under this Agreement with respect to any Damages or other liability, loss, cost, expense, claim, award or judgment to the extent caused by Purchaser or any of its Affiliates as owner or operator of any of the Properties.

(i) For purposes of determining the amount of any recovery under this Article 12 (other than under Section 12.2(a)(v) ), the words “Material Adverse Effect,” “material adverse effect,” “material,” “materiality,” and words of similar import in the applicable representations, warranties, covenants or agreements shall be disregarded.   Notwithstanding anything herein to the contrary, in no event will the Seller Group or the Purchaser Group be entitled to duplicate recovery under this Article 12 with respect to (i) any Damage, even though the facts or series of related facts giving rise to such Damage may constitute a breach of more than one representation, warranty, covenant or agreement set forth herein, in the Conveyances or in any document delivered in connection with the Closing or (ii) any adjustments to the Unadjusted Purchase Price pursuant to Section 3.4 .

(j) Notwithstanding anything to the contrary herein, AEPO have shall have no responsibility for or in any way be liable with respect to Section 12.2(b)(iii) and/or Section 12.2(b)(v) or any matter in or otherwise pertaining to the Stock Issuance Agreement.  Further, the Parties agree that, after the Closing, in no event will the Stock Issuance Agreement, or the Stock Issuance Agreement indemnification obligations set forth in this Article 12 , in any way alter or limit Purchaser’s obligations to AEPO under this Agreement.

ARTICLE 13
TAX MATTERS

Section 13.1 Responsibility for Tax Filings and Payment

.  After the Closing Date, (a) Sellers shall be responsible for paying any and all Property Taxes due with respect to the

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ownership and operation of the Assets or the production of Hydrocarbons therefrom for all Tax periods ending before the Effective Time and shall file with the appropriate Governmental Body any and all Tax Returns required to be filed with respect to such Property Taxes , and (b) except as set forth in clause (a) hereof, Purchaser shall be responsible for paying any and all Property Taxes due with respect to the ownership and operation of the Assets or the production of Hydrocarbons therefrom and shall file with the appro priate Governmental Body any and all Tax Returns required to be filed with respect to such Property Taxes.  To the extent a Tax Return for which Purchaser is responsible hereunder relates to a Tax period that includes the Effective Time, Purchaser shall pr epare such Tax Return in a manner consistent with Sellers’ past practices except as otherwise required by applicable Laws, and shall submit such Tax Return to Sellers for their review and comment no fewer than 30 days prior to the due date therefor.  Purch aser shall timely file any such Tax Return, incorporating any reasonable comments received from Sellers prior to the due date therefor.

Section 13.2 Apportionment of Property Taxes

.  For purposes of this Agreement, Property Taxes due with respect to the ownership and operation of the Assets or the production of Hydrocarbons therefrom, but excluding Property Taxes that are based on the quantity or value of production of Hydrocarbons, shall be apportioned between Sellers and Purchaser as of the Effective Time with (a) Sellers being responsible for all such Property Taxes for Tax periods ending prior to the Effective Time and a proportionate share of the actual amount of such Taxes for a Tax period in which the Effective Time occurs (a “ Current Tax Period ”) determined by multiplying such actual Taxes by a fraction, the numerator of which is the number of days in the Current Tax Period prior to the day that includes the Effective Time and the denominator of which is the total number of days in the Current Tax Period and (b) Purchaser being responsible for all such Property Taxes for Tax periods beginning on or after the day that includes the Effective Time and a proportionate share of the actual amount of such Taxes for a Current Tax Period determined by multiplying such actual Taxes by a fraction, the numerator of which is the number of days in the Current Tax Period on and after the day that includes the Effective Time and the denominator of which is the total number of days in the Current Tax Period.  Property Taxes that are based on the quantity of or the value of production of Hydrocarbons shall be apportioned between Sellers and Purchaser based on the number of units or value of production actually produced, as applicable, before and at, with regard to Sellers, or after, with regard to Purchaser, the Effective Time.

Section 13.3 Cooperation.

(a) From and after the Closing Date, each Seller shall grant to Purchaser (or its designees) reasonable access at all reasonable times to the information, books and records relating to the Assets within the possession of Sellers (including work papers and correspondence with taxing authorities, but excluding work product of and attorney-client communications with any of Sellers’ legal counsel and personnel files), and shall afford Purchaser (or its designees) the right (at Purchaser’s expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to permit Purchaser (or its designees) to prepare Tax Returns for which Purchaser is responsible hereunder, to conduct negotiations with Tax authorities, and to implement the provisions of, or to investigate or defend any claims between the Parties arising under, this Agreement.

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(b) From and after the Closing Date, Purchaser shall grant to each Seller (or Sellers’ designees) reason able access at all reasonable times to the information, books and records relating to the Assets within the possession of Purchaser (including work papers and correspondence with taxing authorities, but excluding work product of and attorney-client communi cations with any of Purchaser’s legal counsel and personnel files), and shall afford Sellers (or Sellers’ designees) the right (at Sellers’ expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to permit Sellers (or Sellers’ designees) to prepare Tax Returns for which Sellers are responsible hereunder, to conduct negotiations with Tax authorities, and to implement the provisions of, or to investigate or defend any claims between the Parties arising under, this Ag reement.

(c) Except with respect to Income Taxes, each of the Parties hereto will preserve and retain all schedules, work papers and other documents within such Party’s possession relating to any Tax Returns of or with respect to Taxes relating to the Assets or to any claims, audits or other proceedings with respect thereto until the latest of (i) the expiration of the statute of limitations (including extensions) applicable to the taxable period to which such documents relate, (ii) the final determination of any controversy with respect to such taxable period, (iii) the final determination of any payments that may be required with respect to such taxable period under this Agreement, and (iv) seven (7) years after the Closing Date.

(d) At either Purchaser’s or Sellers’ request, the other Party shall provide reasonable access to Purchaser’s or Sellers’, as the case may be, and their respective Affiliates’ personnel who have knowledge of the information described in this Section 13.3 .

Section 13.4 Like-Kind Exchange

.  Notwithstanding anything else in this Agreement, Purchaser shall have the right to structure the transactions contemplated under the terms of this Agreement as a Like-Kind Exchange.  Notwithstanding any other provisions of this Agreement, in connection with effectuating a Like-Kind Exchange, each Party shall have the right, at or prior to the Closing Date or any subsequent Closing, to assign all or a portion of its rights under this Agreement (the “ Assigned Rights ”) to a “qualified intermediary” (as that term is defined in Treasury Regulation § 1.1031(k)-1(g)(4)) or to a “qualified exchange accommodation titleholder” (as that term is defined in U.S. Revenue Procedure 2000-37).  In the event a Party (in its capacity as an exchanging party, referred to in this Section 13.4 as an “ Exchanging Party ”) assigns the Assigned Rights to a “qualified intermediary” pursuant to this Section 13.4 , then such Exchanging Party agrees to notify Sellers in writing of such assignment reasonably in advance of the Closing Date.  In addition, should a Party choose to effectuate a Like-Kind Exchange, the Parties agree to use commercially reasonable efforts to cooperate with one another in the completion of such an exchange, including the execution of all documents reasonably necessary to effectuate such a Like-Kind Exchange; provided , however , that (a) the Closing Date shall not be delayed or affected by reason of the Like-Kind Exchange, (b) the Exchanging Party shall effect its Like-Kind Exchange through an assignment of the Assigned Rights to a “qualified intermediary” or to a “qualified exchange accommodation titleholder,” but such assignment shall not release such Exchanging Party from any of its liabilities or obligations under this Agreement and (c) the non-Exchanging Party shall incur no additional costs, expenses, fees or Damages as a result of or in connection with the exchange requested by the Exchanging Party.  Each Party hereby acknowledges and agrees that any assignment of this Agreement pursuant to this Section 13.4 shall not release a Party from, or modify, any of its respective liabilities and

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obligations (including indem nity obligations to the other Party) under this Agreement.  Neither Party, by its consent to a Like-Kind Exchange by the other Party, shall be responsible in any way for the Exchanging Party’s compliance with the rules applicable to such other Party’s Like -Kind Exchange.

Section 13.5 Refunds

.  Purchaser agrees to pay to Sellers the amount of any refund, credit against Tax or other Tax benefit (including any refunds, credits or rebates) together with any interest thereon received from a Governmental Body after the Closing by Purchaser or its Affiliates in respect of any Property Taxes due with respect to the ownership and operation of the Assets or the production of Hydrocarbons therefrom (including, for the avoidance of doubt, any Tax benefit or amount attributable to a reduction in severance Taxes that may be realized after the Effective Time but that results from payments or production for periods prior to or at the Effective Time), prior to or at the Effective Time (determined in the manner described in Section 13.2 ) to the extent not otherwise taken into account under Section 2.4 or as an adjustment to the Unadjusted Purchase Price under Section 3.4 , within five days after such refund, credit or other benefit is actually received or realized by Purchaser or its Affiliates.

Section 13.6 Audits

.  From and after the Closing, each of Purchaser, on the one hand, and Sellers, on the other hand (the “ Tax Indemnified Person ”), shall notify the other Party in writing within 15 days of receipt by the Tax Indemnified Person of written notice of any pending or threatened audits, adjustments, claims, examinations, assessments or other proceedings with respect to any Taxes that are likely to affect the liability of such other Party under this Agreement (a “ Tax Audit ”).  If the Tax Indemnified Person fails to give such timely notice to the other Party, it shall not be entitled to indemnification or reimbursement for any Taxes arising in connection with such Tax Audit to the extent such failure to give notice actually and materially adversely affects the other Party.  If such Tax Audit relates to a Tax period that ends before the Effective Time or a Current Tax Period for which only Sellers would be liable to indemnify Purchaser under this Agreement, Sellers shall, at their expense, conduct and control the defense and settlement of such Tax Audit.  If such Tax Audit relates solely to a Tax period beginning after the Effective Time or a Current Tax Period for which only Purchaser would be liable to indemnify Sellers under this Agreement, Purchaser shall, at its expense, conduct and control the defense and settlement of such Tax Audit.  If such Tax Audit relates to a Current Tax Period for which both Sellers and Purchaser could be liable under this Agreement, Purchaser shall be entitled to conduct and control the defense and settlement of such Tax Audit, but (a) Sellers shall be entitled to participate in any such Tax Audit relating to Taxes for which it may be responsible hereunder at their own expense and (b) Purchasers shall not settle, compromise or concede any portion of any Tax Audit that is reasonably likely to affect the Tax liability of Sellers without the consent of Sellers, which consent shall not be unreasonably withheld, delayed or conditioned.

Section 13.7 Characterization of Certain Payments

.  The Parties agree that any payments made pursuant to this Article 13 , Article 12 or Section 10.4 shall be treated for all Tax purposes as an adjustment to the Adjusted Purchase Price unless otherwise required by applicable Laws.

Section 13.8 Transfer Taxes, Recording Fees & Transaction Fees

.  Purchaser shall bear any sales, use, excise, real property transfer or gain, gross receipts, goods and services, registration, recording fees, capital, documentary, stamp or similar Taxes (including any

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penalties, interest or additional amounts which may be imposed with respect thereto but not including any income or franchise taxes) (collectively, “ Transfer Taxes ”) imposed upon, or with respect to, the tra nsfer of the Assets or other transactions contemplated hereby, including any fees or payments to lessors under the Leases (if any).  Purchaser and Sellers shall cooperate in good faith to minimize the incurrence of any such Transfer Taxes, fees or payments , including the filing or submission of an appropriate certificate or other evidence of exemption by Purchaser.  Except as otherwise provided herein, all costs and expenses (including legal and financial advisory fees and expenses) incurred in connection w ith, or in anticipation of, this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses.

Section 13.9 Tax Characterization

.  For United States federal and applicable state income Tax purposes (“ Tax Purposes ”), the Parties acknowledge that the Assets are considered to be held by the Tax Partnership and the Closing will be treated as the purchase and sale of all of the interests in the Tax Partnership.  For Tax Purposes, each Party agrees that the deemed purchase and sale of all of the interests in the Tax Partnership pursuant to the Closing shall be treated in accordance with Situation 2 of Revenue Ruling 99-6, 1991-1 C.B. 432.  Accordingly, (i) the Tax Partnership shall terminate under Code Section 708(b)(1)(A); (ii) Sellers shall report gain or loss, if any, resulting from the sale of their interests in the Tax Partnership in accordance with Code Section 741; (iii) for purposes of classifying the acquisition by Purchaser hereunder, the Tax Partnership shall be deemed to have made a liquidating distribution of its assets to Sellers; and (iv) immediately following the deemed distribution, Purchaser shall be deemed to have acquired, by purchase, all of the former Tax Partnership’s assets.  Purchaser and Sellers and their Affiliates shall report, act, and file Tax Returns in all respects and for all purposes consistent with such treatment, and neither Purchaser nor Sellers shall take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such treatment unless required to do so by applicable Law.

ARTICLE 14
MISCELLANEOUS

Section 14.1 Counterparts

.  This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.  Either Party’s delivery of an executed counterpart signature page by facsimile or email is as effective as executing and delivering this Agreement in the presence of the other Party.  No Party shall be bound until such time as all of the Parties have executed counterparts of this Agreement.

Section 14.2 Notices

.  All notices and other communications that are required or may be given pursuant to this Agreement must be given in writing, in English and delivered personally, by courier, by facsimile or by registered or certified mail, postage prepaid, as follows:

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If to Sellers:

c/o Anadarko Petroleum Corporation
9950 Woodloch Forest Drive
The Woodlands, Texas 77380
Attn:  Vice President, Corporate Development
Facsimile:  (832) 636-9888

With a copy to:

Anadarko Petroleum Corporation
9950 Woodloch Forest Drive
The Woodlands, Texas 77380
Attn:  Associate General Counsel, Oil, Gas and Minerals
Facsimile:  (832) 636-8203

and

Sidley Austin LLP

1000 Louisiana, Suite 6000

Houston, Texas 77002

 

Attn:

James L. Rice III; Katy L. Lukaszewski

Facsimile: (713) 495-7799

and

Admiral A Holding L.P.

TE Admiral A Holding L.P.

Aurora C-I Holding L.P.

600 Travis Street, Suite 7200

Houston, Texas 77002

Attention:  Dash Lane

Facsimile:  (713) 583-9430

 

and

 

Kirkland & Ellis LLP

600 Travis Street, Suite 3300

Houston, Texas 77002

Attention:  Anthony Speier, P.C.; John D. Pitts, P.C.

Facsimile:  (713) 835-3601

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If to Purchaser:

c/o WildHorse Resource Development Corporation

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attn:  William B. Coffey
Facsimile: (713) 568-4911


With a copy to :

Locke Lord LLP

600 Travis, Suite 2800

Houston, Texas  77002
Attn:  Terry L. Radney; Hunter Summerford
Facsimile: (713) 223-3717

 

Either Party may change its address for notice by providing notice to the other Party in the manner set forth above.  All notices shall be deemed to have been duly given and the receiving Party charged with notice (a) if personally delivered, when received, (b) if sent by facsimile during normal business hours of the recipient, upon confirmation of transmission, or if sent by facsimile after normal business hours of the recipient, on the next Business Day, (c) if mailed, two Business Days after the date of mailing to the address below or (d) if sent by overnight courier, one day after sending.  Notwithstanding the foregoing, any notices or other communications delivered pursuant to this Agreement prior to or at the Closing may be given via email, return receipt requested, during normal business hours of the recipient.  Such email notices can be sent to Sellers at julie.gremillion@anadarko.com and randle.jones@anadarko.com, copying jrice@sidley.com, klukaszewski@sidley.com, anthony.speier@kirkland.com and dash.lane@kkr.com and to Purchaser at Brad.Coffey@wildhorseresources.com and KRoane@wildhorserd.com, copying tradney@lockelord.com and hsummerford@lockelord.com.  Any written notice regarding indemnification sent to Sellers pursuant to Section 12.3 should also be sent pursuant to the delivery procedures set forth in this Section 14.2 to AEPO’s registered agent, CT Corporation, at 1999 Bryan Street, Suite 900, Dallas, Texas 75201.  Any written notice regarding indemnification sent to Purchaser pursuant to Section 12.3 should also be sent pursuant to the delivery procedures set forth in this Section 14.2 to Purchaser’s registered agent, National Corporate Research, Ltd., 1601 Elm St. Suite 4360, Dallas, TX 75201.

Section 14.3 Governing Law; Jurisdiction

.

(a) THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW WHICH WOULD PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

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(b) THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE CIVIL DISTRICT COURTS OF THE STATE OF TEXAS LOCATED IN HARRIS COUNTY, TEXAS AND APPROPRIATE APPEL LATE COURTS THEREFROM, AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF any dispute, controversy or claim arising out of or relating to this agreement (OTHER than with RESPECT to DISPUTED title matters, which are governed by Section 4.4 , disputed ENVIRONMENTAL matters, which are governed by Section 5.2 and disputes with respect to the final settlement STATEMENT, which are GOVERNED by Section 10.4( c) ) or any document delivered in connection herewith MAY BE HEARD AND DETERMINED IN SUCH COURTS.  THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF A NY SUCH DISPUTE, CONTROVERSY OR CLAIM BROUGHT IN ANY SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE, CONTROVERSY OR CLAIM.  EACH PARTY AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY APPLICABLE LAW.

(c) EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT DELIVERED IN CONNECTION HEREWITH.  EACH PARTY ACKNOWLEDGES THAT IT HAS HAD AN OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL AND THAT IT HAS KNOWINGLY AND VOLUNTARILY AGREED TO THIS WAIVER OF ITS RIGHT TO TRIAL BY JURY .

Section 14.4 Knowledge Qualifications; Schedules

.

(a) Any representation or warranty qualified to the “knowledge of Sellers” or “to Sellers’ knowledge” or with any similar knowledge qualification is limited to matters within the Actual Knowledge of the individuals listed in Schedules  14.4(a) and (b) .  Any representation or warranty qualified to the “knowledge of the Admiral Sellers” or “to the Admiral Sellers’ knowledge” or with any similar knowledge qualification is limited to matters within the Actual Knowledge of the individuals listed in Schedule 14.4(b) .    As used herein, the term “Actual Knowledge” means information personally known by such individual.

(b) To the extent that any Admiral Seller makes any representation or warranty in Article 6 regarding any matter relating to the Seller Operated Assets, each such representation or warranty shall be deemed to be qualified by the phrase “to the Admiral Sellers’ knowledge.”

(c) Inclusion of a matter on a Schedule in relation to a representation or warranty which addresses matters having a Material Adverse Effect or being material shall not be deemed an indication that such matter does, or may, have a Material Adverse Effect or is, or may be,

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material.  Likewise, the inclusion of a matter on a Schedule to this Agreement in relation to a representation or warranty shall not be deemed an indication that such matter necessarily would , or may, breach such representation or warranty absent its inclusion on such Schedule.  Disclosing a matter on any Schedule shall be deemed to be a disclosure for all purposes of this Agreement to the extent that the relevance of such matter to any other Schedule is reasonably apparent on the face of such disclosure (provided, for the avoidance of doubt, no matter set forth in any Exhibit shall be deemed a disclosure for purposes of the Schedules unless expressly cross-referenced on such Schedule).  Matter s may be disclosed on a Schedule for information purposes only .  

Section 14.5 Waivers

.  Any failure by any Party to comply with any of its obligations, agreements or conditions herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by such Party and expressly identified as a waiver, but not in any other manner.  No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

Section 14.6 Assignment

.  No Party shall assign all or any part of this Agreement, nor shall any Party assign or delegate any of its rights or duties hereunder, without the prior written consent of the other Party, which consent may be withheld for any reason, and any assignment or delegation made without such consent shall be void; provided , however , that Purchaser may, without the prior written approval of Sellers, assign this Agreement to an Affiliate of Purchaser prior to the Closing; provided that (i) Purchaser provides Sellers with prompt notice of such assignment, (ii) Purchaser (for the avoidance of doubt, Purchaser as of the Execution Date) shall remain responsible and liable for all of its obligations and liabilities under this Agreement and the Parent Guaranty shall remain in full force and effect and (iii) any consents obtained by Sellers in the name of WHR Eagle Ford LLC prior to Sellers’ receipt of written notice of such assignment shall be deemed in compliance with this Agreement with respect to the identity of the assignee thereof ( i.e. , Sellers shall not be required to obtain a new consent in the name of assignee, or assign the interest subject to such consent (if such consent is a Required Consent) to the assignee).  Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

Section 14.7 Entire Agreement

.  This Agreement (including, for purposes of certainty, the Appendices, Exhibits and Schedules attached hereto), the documents to be executed hereunder, the Stock Issuance Agreement (as to the Admiral Sellers, Purchaser and the other parties thereto only), the Conveyances, the Parent Guaranty and the Confidentiality Agreement constitute the entire agreement among the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.

Section 14.8 Amendment

.  This Agreement may be amended or modified only by an agreement in writing executed by all Parties and expressly identified as an amendment or modification.

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Section 14.9 No Third Party Beneficiaries

.  Nothing in this Agreement shall entitle any Person other than Purchaser and Sellers to any claim, cause of action, remedy or right of any kind, except the rights expressly provided in Section 8.1(e) and 12.2 to the Persons described therein.

Section 14.10 Construction

.  The Parties acknowledge that (a) Sellers and Purchaser have had the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby, (b) this Agreement is the result of arms-length negotiations from equal bargaining positions and (c) Sellers and Purchaser and their respective counsel participated in the preparation and negotiation of this Agreement.  Any rule of construction that a contract be construed against the drafter shall not apply to the interpretation or construction of this Agreement.

Section 14.11 Limitation on Damages

.   NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXCEPT IN CONNECTION WITH ANY DAMAGES INCURRED BY THIRD PARTIES FOR WHICH INDEMNIFICATION IS SOUGHT UNDER THE TERMS OF THIS AGREEMENT, NONE OF PURCHASER, SELLERS NOR ANY OF THEIR RESPECTIVE AFFILIATES SHALL BE ENTITLED TO CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES OR DAMAGES FOR LOST PROFITS OR DIMINUTION IN VALUE IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES WERE REASONABLY FORESEEABLE AND REGARDLESS OF WHETHER ANY SPECIAL CIRCUMSTANCES GIVING RISE TO SUCH DAMAGES WERE DISCLOSED TO THE OTHER PARTY IN ADVANCE, AND, EXCEPT AS OTHERWISE PROVIDED IN THIS SENTENCE, PURCHASER AND EACH SELLER, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES, RESPECTIVELY, HEREBY EXPRESSLY WAIVES ANY RIGHT TO SUCH DAMAGES IN CONNECTION WITH OR WITH RESPECT TO THIS AGREEMENT, REGARDLESS OF FAULT.

Section 14.12 Recording

.  As soon as practicable after the Closing, Purchaser shall record the Conveyances and other assignments, if any, delivered at the Closing in the appropriate counties as well as with any appropriate Governmental Bodies and provide Sellers with copies of all recorded or approved instruments.

Section 14.13 Conspicuousness

.  SELLERS AND PURCHASER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE PROVISIONS IN THIS AGREEMENT IN BOLD-TYPE ALL CAPS FONT ARE “CONSPICUOUS” FOR THE PURPOSE OF ANY APPLICABLE LAW.

Section 14.14 Time of Essence

.  This Agreement contains a number of dates and times by which performance or the exercise of rights is due, and the Parties intend that each and every such date and time be the firm and final date and time, as agreed.  For this reason, each Party hereby waives and relinquishes any right it might otherwise have to challenge its failure to meet any performance or rights election date applicable to it on the basis that its late action constitutes substantial performance, to require the other Party to show prejudice, or on any equitable grounds.  Without limiting the foregoing, time is of the essence in this Agreement.  If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if

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the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day that is a Business Day.

Section 14.15 Delivery of Records

.  Sellers, at Sellers’ cost and expense, shall deliver the Records in electronic form to Purchaser within ten Business Days following the Closing and shall make the Records in physical form, if any, available to Purchaser for pickup within 30 days following the Closing.  For the avoidance of doubt, Sellers may keep a copy of all Records for their files.

Section 14.16 Severability

.  The invalidity or unenforceability of any term or provision of this Agreement in any situation or jurisdiction shall not affect the validity or enforceability of the other terms or provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction, and the remaining terms and provisions shall remain in full force and effect unless doing so would result in an interpretation of this Agreement that is manifestly unjust.

Section 14.17 Specific Performance

.  The Parties agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms, irreparable damage would occur, no adequate remedy at Law would exist and damages would be difficult to determine, and the Parties shall be entitled to specific performance of the terms hereof and immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy available at Law or in equity.

Section 14.18 Seller Representative

.  Each Seller, by executing this Agreement, irrevocably constitutes and appoints AEPO and its successors, acting as hereinafter provided, as such appointing Party's attorney-in-fact to act on behalf of such Person in connection with the authority granted to AEPO pursuant to this Section 14.18 , and acknowledges that such appointment is coupled with an interest.  Each Seller, by such appointment, (i) authorizes AEPO subsequent to the date hereof to act on such appointing Party's behalf with respect to any and all matters contemplated by this Agreement and (ii) agrees to be bound by all agreements and determinations made by and documents executed and delivered by AEPO pursuant to such  authority granted to AEPO hereunder; provided, however, that the Admiral Sellers reserve the right to determine, and in no event shall AEPO have the right or authority to determine on behalf of the Admiral Sellers, if the condition precedent set forth in Section 9.1(i) has been met.  Each Seller, by the execution of this Agreement, expressly acknowledges and agrees that Purchaser, each member of the Purchaser Group and any other Person shall be entitled to solely interact with, and rely on any and all actions taken by, AEPO acting pursuant to its authority granted under this Section 14.18 without any liability to, or obligation to inquire of, such appointing Party.

Section 14.19 Sellers’ Liability

.  Notwithstanding anything to the contrary in this Agreement, the Parties agree that each Seller shall be, severally and not jointly, liable for Sellers’ obligations and liabilities under this Agreement, in proportion to the percentage of the Unadjusted Purchase Price payable to such Seller ( i.e. , with respect to any loss for which multiple Sellers are liable, such as a loss arising from a breach by multiple Sellers of a

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representation hereunder, each such Seller shall b e severally liable for a percentage of such loss equal to the proportionate share of the Unadjusted Purchase Price payable to such Seller as compared to the total portion of the Unadjusted Purchase Price payable all such liable Sellers).  

[ Signature Page Follows ]

 

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IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties on the Execution Date.

SELLERS :

ANADARKO E&P ONSHORE LLC

 

 

 

 

 

 

By:

 

/s/ Brian T. Kuck

 

 

Brian T. Kuck

 

 

Vice President

 

[Signature Page – Purchase and Sale Agreement]

 

IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties on the Execution Date.

SELLERS :

ADMIRAL A HOLDING L.P.

 

 

 

 

 

 

By:

 

Admiral A Holding GP LLC,

 

 

its general partner

 

 

 

 

 

 

By:

 

/s/ Dash Lane

 

 

Dash Lane

 

 

Vice President

 

TE ADMIRAL A HOLDING L.P.

 

 

 

 

 

 

By:

 

TE Admiral A Holding GP LLC,

 

 

its general partner

 

 

 

 

 

 

By:

 

/s/ Dash Lane

 

 

Dash Lane

 

 

Vice President

 

AURORA C-I HOLDING L.P.

 

 

 

 

 

 

By:

 

Aurora Holding GP LLC,

 

 

its general partner

 

 

 

 

 

 

By:

 

/s/ Dash Lane

 

 

Dash Lane

 

 

Vice President

 

 

 

 

[Signature Page – Purchase and Sale Agreement]

 

IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties on the Execution Date.

 

PURCHASER :

WHR EAGLE FORD LLC

 

 

 

 

 

 

By:

 

WildHorse Resource Development

 

 

Corporation, its sole member

 

 

 

 

 

 

By:

 

/s/ Jay C. Graham

 

 

Jay C. Graham

 

 

Chief Executive Officer

 

 

 

 

[Signature Page – Purchase and Sale Agreement]

 

APPENDIX A

ATTACHED TO AND MADE A PART OF THAT
CERTAIN PURCHASE AND SALE AGREEMENT BY AND AMONG SELLERS AND PURCHASER

DEFINITIONS

“ Actual Knowledge ” has the meaning set forth in Section 14.4(a) .

“ Adjusted Purchase Price ” has the meaning set forth in Section 3.4 .

“ Admiral A ” has the meaning set forth in the Preamble of this Agreement.

“ Admiral Sellers ” has the meaning set forth in the Preamble of this Agreement.

“ Adverse Environmental Condition ” means any violation of or liability under Environmental Laws or Permits issued thereunder, or any contamination or condition exceeding regulatory limits applicable to the applicable Property as currently operated and not otherwise authorized by Law, resulting from any discharge, release, production, storage, treatment, seepage, escape, leakage, emission, emptying, handling, use, management or leaching of Hazardous Substances or from any other acts or omissions on, in or from any Property, or from the migration or transportation from other lands to any Property, of any Hazardous Substances that require Remediation pursuant to any current federal, state or local Laws, including Environmental Laws; provided, however , that an Adverse Environmental Condition shall not include Decommissioning, the Disclosed Environmental Conditions, Asbestos and Related Liabilities or NORM, except to the extent the use, existence or alleged existence of asbestos, polychlorinated biphenyls, chromium, lead-based paint or NORM is a violation of or liability under Environmental Laws.

“ AEPO ” has the meaning set forth in the Preamble of this Agreement.

“ AFEs ” means authorization for expenditures issued pursuant to a Contract.

“ Affiliate ” means, with respect to any Person, any Person that directly or indirectly Controls, is Controlled by or is under common Control with such Person.

“ Aggregate Defect Deductible ” means an amount equal to 3% of the Unadjusted Purchase Price.

“ Agreement ” has the meaning set forth in the Preamble of this Agreement.

“ Allocated Leasehold ” means a portion of the leased premises under the Leases relating to any Well, insofar and only insofar as such leasehold rights entitle the owner thereof to Hydrocarbons produced from such Well and to any pooling rights associated therewith, comprising (a) the acreage included in the Unit (or allocable portion thereof if such Unit contains multiple Wells) on which such Well is located or (b) if the Well is not located within a Unit, then the acreage included within the proration unit plat for the Well as filed by the operator of such

Appendix A-1

 

Well with the applicable Governmental Body or, if no such plat has been filed, the acreage prescribed by the applicable field rules or orders.

“ Allocated Value ” has the meaning set forth in Section 3.3 .

“ Asbestos and Related Liabilities ” means any and all Damages, obligations and responsibilities relating to or arising from, directly or indirectly, the existence or alleged existence of any one or more of asbestos, NORM, polychlorinated biphenyls, chromium and/or lead-based paint at, on or within the Properties, including any contamination resulting therefrom.

“ Assets ” has the meaning set forth in Section 2.2 .

“ Assigned Rights ” has the meaning set forth in Section 13.4 .

“ Assumed Purchaser Obligations ” means, except to the extent of the Retained Seller Obligations and without limitation of Purchaser’s rights (x) of indemnification under Article 12 , including for Retained Seller Obligations under Section 12.2(b)(i) and breach of Sellers’ representations and warranties under Section 12.2(b)(iii) , and (y) with respect to downward adjustments to the Unadjusted Purchase Price prior to the Cut-Off Date pursuant to the terms of Section 3.4(b) and Section 10.4 , (a) all obligations and liabilities of Sellers (including Environmental Liabilities), known or unknown, with respect to or arising from the Assets regardless of whether such obligations or liabilities arose prior to, on or after the Effective Time, including obligations and liabilities relating in any manner to the use, ownership or operation of the Assets, including (i) obligations to furnish makeup gas and/or settle Imbalance charges attributable to the Assets according to the terms of applicable gas sales, processing, gathering or transportation Contracts, (ii) Decommissioning and Asbestos and Related Liabilities, (iii) any obligations to abandon, clean up, restore and/or remediate the premises covered by or related to the Assets in accordance with applicable Contracts, Leases and Laws, (iv) claims arising under Environmental Laws with respect to the Assets, all Environmental Liabilities, the release of materials into the environment or protection of human health, safety, natural resources or the environment, or any other environmental condition of the Assets, (v) all obligations applicable to or imposed on the lessee, owner, or operator under the Leases, Surface Agreements and Contracts, or as required by any applicable Law, including the payment of all Taxes for which Purchaser is responsible hereunder; and (vi) all liabilities, claims, and costs arising from or relating to the employment by Purchaser of any Available Employees hired pursuant to Section 8.10 after the termination of their employment relationships by Sellers or their Affiliates; (b) all obligations under the Leases, Contracts and Surface Agreements; (c) obligations to pay working interests, royalties, overriding royalties and other interest owners’ revenues or proceeds attributable to sales of Hydrocarbons produced from the Assets and any Suspense Fund liabilities, and (d) Purchaser’s obligations under Article 13 .

“ Aurora ” has the meaning set forth in the Preamble of this Agreement.

“ Available Employees ” means those employees of Sellers or their Affiliates whose jobs relate to the Assets and who are available for hire by Purchaser, as designated by Sellers on schedule provided to Purchaser prior to signing.

“ Back-to-Back Arrangements ” has the meaning set forth in Section 4.6(b) .

Appendix A-2

 

“ Burdens ” has th e meaning set forth in the definition of Net Revenue Interest.

“ Business Day ” means each calendar day except Saturdays, Sundays, and United States federal holidays.  

“ Cash Purchase Price ” has the meaning set forth in Section 3.1 .

“ Casualty Loss ” means any Damage or reduction in value of the Assets that occurs during the period between the Execution Date and the Closing as a result of acts of God, fire, explosion, earthquake, windstorm, flood, vandalism or other casualty, but excluding any loss, damage or reduction in value as a result of depreciation, mechanical failure or gradual structural deterioration of materials, equipment and infrastructure, a Well being shut-in temporarily, downhole failure (including (i) failures arising or occurring during drilling or completing operations, (ii) junked or lost holes or (iii) sidetracking or deviating a well) or reservoir changes or depletion (including the watering-out of any well, collapsed casing or sand infiltration of any well ) , except, in each case, to the extent any such exclusions are covered by any Third Party insurance policy of AEPO or its Affiliates (in which event the same shall be Casualty Losses, to the extent any damages related to such matter are actually recoverable thereunder).

“ Central Time ” means the central standard time zone of the United States.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.

“ Closing ” has the meaning set forth in Section 10.1 .

“ Closing Date ” has the meaning set forth in Section 10.1 .

“ Closing Payment ” has the meaning set forth in Section 10.4(a) .

“ Code ” means the U.S. Internal Revenue Code of 1986.

“ Confidentiality Agreement ” means that certain Confidentiality Agreement dated March 15, 2017 between Purchaser and AEPO and that certain Confidentiality Agreement dated January 6, 2017 between Purchaser and Kohlberg Kravis Roberts & Co. L.P.

“ Consideration Ratio ” has the meaning set forth in Section 3.4 .

“ Contracts ” has the meaning set forth in Section 2.2(e) .

“ Control ” means the ability to direct the management and policies of a Person through ownership of voting shares or other equity rights, pursuant to a written agreement, or otherwise.  The terms “Controls” and “Controlled by” and other derivatives shall be construed accordingly.

“ Conveyance ” means the Conveyance substantially in the form attached hereto as Exhibit B , with respect to AEPO, and Exhibit C , with respect to the Admiral Sellers.

“ COPAS ” has the meaning set forth in Section 2.5(a) .

Appendix A-3

 

“ Core Access Agreement ” means that certain Core Access Agreement, in form and substance that is reasonably acceptable to AEPO and Purchaser, t o be entered into in connection with the Closing.

“ Current Tax Period ” has the meaning set forth in Section 13.2 .

“ Customary Post-Closing Consents ” means the consents and approvals from Governmental Bodies for the assignment of the Assets to Purchaser that are customarily obtained after the assignment of properties similar to the Assets.

“ Cut-off Date ” has the meaning set forth in Section 3.4 .

“ Damages ” means the amount of any liability, fine, expense, debt, diminution in value, penalties, obligation, loss, cost, expense, claim, award, settlement or judgment incurred or suffered by any Person under any theory of tort, contract, breach of contract or otherwise, including contractual indemnity claims (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.

“ Debt Contract ” means any indenture, mortgage, loan, credit or similar agreement entered into by Sellers or their Affiliates creating indebtedness on the part of Sellers or their Affiliates for borrowed money or the deferred purchase price of property acquired by, or for services rendered to, Sellers or their Affiliates.

“ Decommissioning ” means all decommissioning, dismantlement and removal activities and obligations with respect to the Properties as are required by Laws, Contracts or Surface Agreements associated with the Properties and further including all well plugging, replugging and abandonment, dismantlement and removal of buildings, facilities, pipelines and flowlines and all other assets of any kind related to or associated with operations or activities conducted on the Properties and associated site clearance, site restoration and site remediation on the Properties, but not including Remediation.

“ Defect Claim Date ” means June 19, 2017.

“ Defect Threshold ” means $75,000.00.

“ Defensible Title ” means title of Sellers that:

(a) with respect to each Well set forth on Exhibit A-2 , entitles Sellers to (i) not less than the Net Revenue Interest shown in Exhibit A‑2 for such Well through the producing life of such Well, except:  (A) decreases in connection with those operations conducted in accordance with the terms of this Agreement (including Purchaser’s consent rights pursuant to Section 8.4(a) ) in which any Seller may be a nonconsenting co-owner, (B) decreases resulting from the reversion of interests to co-owners with operations in which such co-owners elected not to consent after the Execution Date, (C) decreases resulting from the establishment of pools or units or amendment of any Unit after the Execution Date; provided , however , that the establishment or

Appendix A-4

 

amendment of such pools or units after the Execution Date is made in accordance with the terms of this Agreement (including Purchaser’s cons ent rights pursuant to Section 8.4(a) ), and (D) decreases required to allow other working interest owners to make up past underproduction or pipeli nes to make up past under-deliveries, and (ii) obligates Sellers to bear not more than the Working Interest shown in Exhibit A ‑2 for such Well through the plugging and abandonment of such Well, except:  (1) as the Working Interest may be changed from time to time due to the exercise after the Execution Date of non-consent rights under applicable operating agreements and similar agreements or the establishment or amendment of pools or units, in each case, in accordance with the terms of this Agreement (inclu ding Purchaser’s consent rights pursuant to Section  8.4(a) ) and (2) increases that are accompanied by at least a proportionate increase in Net R evenue Interest for such Well, as applicable;  

(b) with respect to each Undeveloped Lease set forth on Exhibit A-3 , entitles Sellers to a Net Revenue Interest for such Undeveloped Lease not less than the Net Revenue Interest Floor or not less than the Net Revenue Interest specified on Exhibit A-3 to the extent a different Net Revenue Interest is specified for such Undeveloped Lease on Exhibit A-3 ;

(c) with respect to each Undeveloped Lease set forth on Exhibit A-3 , entitles Sellers to the aggregate number of Net Acres shown on Exhibit A-3 for such Undeveloped Lease, except for decreases resulting from the establishment or amendment of pools or units after the Execution Date; provided , however , that the establishment or amendment of such pools or units after the Execution Date is made in accordance with the terms of this Agreement (including Purchaser’s consent rights pursuant to Section 8.4(a) );

(d) with respect to each Unit set forth on Exhibit A-8 , entitles Sellers to the aggregate number of Net Acres shown on Exhibit A-8 for such Unit;

(e) with respect to each Lease set forth on Exhibit A-1 that is still in its primary term, the primary term of such Lease will not expire prior to the date set forth on Exhibit A-1 for such Lease;

(f) with respect to each Well, Units and Undeveloped Lease, is free and clear of all liens, security interests, pledges, charges, encumbrances or other defects, except for and subject to Permitted Encumbrances; and

(g) with respect to any Asset, is free and clear of all liens and/or charges securing liquidated amounts, security interests, deeds of trust, mortgages, pledges, charges or similar financial liens, except for and subject to Permitted Encumbrances.

Notwithstanding any other provision in this Agreement, if Sellers have been receiving revenue payments from Third Parties attributable to an overriding royalty interest which contributes to Sellers’ Net Revenue Interest shown in Exhibit A-2 for a Well or the Net Revenue Interest Floor (or Net Revenue Interest set forth on Exhibit A-3 , as the case may be) for an Undeveloped Lease for the ten calendar years immediately preceding the Effective Time, Purchaser may not assert that Sellers do not have Defensible Title to the Well or Undeveloped Lease, as applicable, based on any defect or discrepancy in or inability to obtain documentation related to such overriding royalty interest; provided that, notwithstanding the foregoing, if Sellers have been receiving any

Appendix A-5

 

such payments from WildHorse Resource Development Corporation or any of its Affiliates or their respective predecessors in interest for any period of time prior to the Effective Time, Purchaser may not assert that Sellers do not have Defens ible Title to the Well or Undeveloped Lease, as applicable, based on any defect or discrepancy in or inability to obtain documentation related to such overriding royalty interest.

“ Deposit ” has the meaning set forth in Section 3.2 .

“ Disclosed Environmental Conditions ” means all matters set forth on Schedule 5.1 .

“ Disputed Environmental Matters ” has the meaning set forth in Section 5.2(a) .

“ Disputed Title Matters ” has the meaning set forth in Section 4.4(a) .

“ DOJ ” means the U.S. Department of Justice.

“ Eaglebine Formation ” means that certain geologic zone(s) and formation(s) occurring at the stratigraphic equivalent of the interval from (a) the base of the Austin Chalk formation (being the stratigraphic equivalent of 6,903 feet measured depth) to (b) the top of the Buda formation (being the stratigraphic equivalent of 7,284 feet measured depth), subsurface, each as found in the Induction log of the Republic Mineral Corporation Newberry Milton S/D/8 Well (API No. 42-041-31345) located in the Francisco Ruiz Survey, A-48, Brazos County, Texas.

“ Effective Time ” has the meaning set forth in Section 2.4(a) .

“ Employee Benefit Plans ” means any an “employee benefit plan” (as defined in Section 3(3) of ERISA) and any other material employee benefit plan, program or policy, including any pension, retirement, profit-sharing, bonus, incentive, stock option or other equity or equity-based compensation, deferred compensation, stock purchase, severance pay, change of control, disability, hospitalization, health or medical insurance, life insurance, fringe benefit, welfare benefit, flexible spending account program or policy, in each case, sponsored or maintained by Sellers or one of more of their Affiliates, or with respect to which the Sellers or any of their ERISA Affiliates has any liability, and covering at least one Available Employee.

“ Employers ” has the meaning set forth in Section 6.20(b) .

“ Environmental Condition Notice ” has the meaning set forth in Section 5.1(a) .

“ Environmental Defect Property ” has the meaning set forth in Section 5.1(a) .

“ Environmental Expert ” has the meaning set forth in Section 5.2(d) .

“ Environmental Laws ” means, as the same may have been amended, superseded or replaced as of the Execution Date or Closing Date, as applicable, CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency

Appendix A-6

 

Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Federal Insecticide, Fungicide and Rodenticide A ct, 7 U.S.C. § 136 et seq.; the Atomic Energy Act, 42 U.S.C. § 2011 et seq . and all other Orders or Laws as of the Execution Date of any Governmental Body having jurisdiction over the Property in question addressing (i) the control of any potential polluta nt or protection of the environment, (ii) the generation, handling, treatment, storage, disposal or transportation of Hazardous Substances, or (iii) pollution or protection of the environment and all regulations as the same may have been amended, supersede d or replaced as of the Execution Date or Closing Date, as applicable, implementing the foregoing that are applicable to the operation and maintenance of the Assets.

“ Environmental Liabilities ” means any and all environmental response costs (including costs of Remediation), damages, natural resource damages, settlements, consulting fees, expenses, penalties, fines, orphan share, prejudgment and post judgment interest, court costs, attorneys’ fees and other liabilities incurred or imposed (a) pursuant to any Order, notice of responsibility, directive (including requirements embodied in Environmental Laws) or similar act (including settlements) by any Governmental Body to the extent arising out of any violation of, or Remediation obligation under, any Environmental Laws that are attributable to the ownership or operation of the Assets or (b) pursuant to any claim or cause of action by a Governmental Body or other Person for personal injury, property damage, damage to natural resources, remediation or response costs to the extent arising out of any violation of, or any remediation obligation under, any Environmental Laws, in each case, that is attributable to the ownership or operation of the Assets.

“ Equipment ” has the meaning set forth in Section 2.2(g) .

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ Escrow Agent ” means Citibank, N.A.

“ Exchanging Party ” has the meaning set forth in Section 13.4 .

“ Excluded Assets ” means (a) the amounts to which Sellers are entitled pursuant to Section 2.4(b) , (b) the Excluded Records, (c) all seismic, geological, geochemical or geophysical data (including seismic data), geological data, engineering data, maps, cores, interpretive data, technical evaluations, confidential logs, technical outputs, reserve estimates and other technical data relating to the Properties, (d) all claims and causes of action of Sellers arising under or with respect to any Lease or Contract that are related to Retained Seller Obligations or to the extent related to costs or expenses for which Sellers are liable pursuant to Section 2.4 , (e) subject to Section 4.7 , all rights and interests of any Seller or its Affiliates (i) under any policy or agreement of insurance or indemnity agreement, (ii) under any bond and (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of property prior to the Closing Date, (f) any Tax benefits (including any refunds, credits, rebates, and net operating loss carry-forwards) attributable to ownership and operation of the Assets or the production of Hydrocarbons therefrom prior to and at the Effective Time or to Sellers’ businesses generally, including, for the avoidance of doubt, any reduction in severance Taxes (including any refund, credit or rebate) that may be realized after the Effective

Appendix A-7

 

Time but that results from payments or production for periods prior to the Effective Time, (g) all personal property of Sellers not included within the definition of Assets, (h) Sellers’ area-wi de bonds, permits and licenses or other permits, licenses or authorizations used in the conduct of Sellers’ business generally, (i) all trade credits, account receivables, receivables, take-or-pay amounts receivable, and other receivables attributable to t he Assets to the extent related to proceeds to which Sellers are entitled pursuant to Section 2.4 , (j) all of Sellers’ and any Affiliate of any Seller’s proprietar y computer software, software licenses, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property, (k) all data and Contracts that cannot be disclosed to Purchaser as a result of confidentiality arrangements under agreeme nts with Third Parties, any Governmental Body or by applicable Law; provided , however , that Sellers have used their commercially reasonable efforts to obtain a waiver of any such confidentiality restriction, (l) all Hedging Contracts and Debt Contracts, (m ) all mineral fee interests of Sellers and their Affiliates, including those associated with the Properties, including any mineral fee interests in which any Seller is a lessor, (n) any of the Assets excluded from the transactions contemplated hereunder pu rsuant to Section 4.2(b)(iii) , Section 4.6(b) , Section 4.6(c) , Section 5.1(b)(iii) , Section 5.1(d) , or Section 8.1(a) , (o) the Caldwell fie ld office lease, (p) any other items set forth on Exhibit A-4 ; (q) the Leased Assets and (r) any asset owned by Seller that is located outside of the Properties and the premises of the Caldwell and Bryan field offices.

“ Excluded Records ” means (a) all corporate, financial, income and franchise Tax and legal records of Sellers that relate to Sellers’ business generally, whether or not also relating to the Assets, (b) any Records to the extent disclosure or transfer is restricted by any Third Party license agreement, other Third Party agreement or applicable Law (which Sellers shall use commercially reasonably efforts to obtain the waiver of), (c) licensed computer software, (d)  all legal records and legal files of Sellers which are subject to the attorney-client privilege and for which attorney-client privilege has not been waived and all work product of and attorney-client communications with any of Sellers’ legal counsel, other than (i) copies of title opinions and (ii) the Leases, Surface Agreements and Contracts, (e) personnel records for employees hired by Purchaser, (f) records relating to Sellers’ sale process for the Assets, including bids received from and records of negotiations with Third Parties and information or analyses (including financial analyses) related to such bids or offers, (g) records relating to engineering forecasts, evaluations and reserve estimates, studies and evaluations and (h) any records to the extent pertaining to the Excluded Assets.

“ Execution Date ” has the meaning set forth in the Preamble of this Agreement.

“ Final Allocation Schedule ” has the meaning set forth in Section 3.3(b) .

“ FTC ” means the U.S. Federal Trade Commission.

“ GAAP ” means U.S. generally accepted accounting principles.

“ Gas ” means any mixture of hydrocarbons and non-combustible gases in a gaseous state consisting primarily of methane.

Appendix A-8

 

“ Governmental Body ” means any instrumentality, subdivision, court, a dministrative agency, commission, official or other governmental authority of the United States or any other country or any state, municipality, locality, tribe or other government or political subdivision thereof, or any quasi-governmental or private body exercising any administrative, executive, judicial, legislative, police, regulatory, taxing, importing or other governmental or quasi-governmental body.

“ Hazardous Substances ” means any pollutants, contaminants, toxic, hazardous or other  substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or may form the basis of liability under any Environmental Laws, including asbestos-containing materials.

“ Hedging Contract ” means any contract to which Sellers or any of their Affiliates is a party with respect to any swap, forward, future, put, call, floor, cap, collar option or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities (including Hydrocarbons), equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“ Hydrocarbons ” means oil, gas, condensate and other gaseous and liquid hydrocarbons or any combination thereof.

“ Imbalances ” means (a) any Wellhead Imbalance, (b) any imbalance between the  Hydrocarbons nominated by or scheduled for delivery and the Hydrocarbons actually delivered, (c) any imbalance assessed by a carrier against a Person as a result of a Person’s failure to satisfy the carrier’s requirements including any balancing, nomination or scheduling requirements or a violation of any volumetric conditions or orders imposed by a carrier, or (d) any imbalance attributed to or assessed on a Party under the terms of a Contract or (e) any imbalance attributable a take or pay or similar volumetric minimum obligation on a pipeline or transportation system.

“ Income Taxes ” means all federal, state, local and foreign income, profits, franchise, and similar Taxes.

“ Indemnity Threshold ” has the meaning set forth in Section 12.4(c) .

“ Independent Accountant ” has the meaning set forth in Section 10.4(c) .

“ Invasive Activity ” has the meaning set forth in Section 8.1(a) .

“ Lands ” has the meaning set forth in Section 2.2(a) .

“ Laws ” means all Permits, statutes, rules, regulations, ordinances, Orders, codes of Governmental Bodies and common law.

Appendix A-9

 

“ Leased Assets ” means all equipment, machinery, tools, fixtures, inve ntory, vehicles, office leases, furniture, office equipment and related peripheral equipment, computers, field equipment and related personal property that are related primarily to the Assets and are currently leased by Sellers.

“ Leases ” has the meaning set forth in Section 2.2(a) .

“ Like-Kind Exchange ” means a simultaneous or deferred (forward or reverse) exchange allowed pursuant to Section 1031 of the Code and the Treasury Regulations promulgated thereunder or any applicable state or local Tax Laws.

“ Material Contracts ” has the meaning set forth in Section 6.9(a) .

“ Net Acres ” means, as computed separately with respect to each Undeveloped Lease and Unit, (a) the number of gross acres in the Eaglebine Formation covered by such Undeveloped Lease or the Leases covered by such Unit, multiplied by (b) the undivided mineral interest owned by lessors in the Eaglebine Formation in such gross acres with respect to such Undeveloped Lease or the Leases covered by such Unit, multiplied by (c) Sellers’ Working Interest in such Undeveloped Lease or Leases covered by such Unit.

“ Net Revenue Interest ” with respect to any Well or Undeveloped Lease, the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well or Undeveloped Lease, in each case, relating to the Eaglebine Formation only, and after giving effect to all royalties, overriding royalties, reversionary interests, convertible interests, non-participating royalty interests, production payments, net profits interests and other similar burdens upon, measured by or payable out of production therefrom (“ Burdens ”).

“ Net Revenue Interest Floor ” means, with respect to each Undeveloped Lease, a 75% Net Revenue Interest, calculated on an 8/8ths basis.

“ NORM ” means naturally occurring radioactive material.

“ Northstars Purchase and Sale Agreement ” means that Purchase and Sale Agreement, dated as of the date hereof, by and between Purchaser, AEPO and Anadarko Energy Services Company.

“ Order ” means any judgment, order, consent order, injunction, decree or writ of any Governmental Body.

“ Parent Guaranty ” means a parent guaranty provided in support of and on behalf of Purchaser in form and substance reasonably acceptable to Sellers.

“ Party ” and “ Parties ” have the meanings set forth in the Preamble of this Agreement.

“ Permits ” has the meaning set forth in Section 2.2(j) .

Appendix A-10

 

“ Permitted Encumbrances ” means any or all of the following:

(a) royalties and any overriding royalties, net profits interests, free gas arrangements, production payments, reversionary interests and other similar burdens on production to the extent that the net cumulative effect of such burdens does not (i) reduce Sellers’ Net Revenue Interest below (A) that shown in Exhibit A-2 for a Well or (B) the Net Revenue Interest Floor for each Undeveloped Lease on Exhibit A-3 (or, if another Net Revenue Interest is set forth on Exhibit A‑3 for such Undeveloped Lease, such scheduled Net Revenue Interest) , (ii) increase Sellers’ Working Interest above that shown in Exhibit A-2 for a Well without a proportionate increase in the Net Revenue Interest of Sellers in such Well or (iii) decrease the Net Acres of Sellers below those set forth on Exhibit A-8 or Exhibit A‑3 for any Unit or Undeveloped Lease, as applicable;

(b) all Leases and Contracts (including the Material Contracts), to the extent that the net cumulative effect of such instruments does not individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Wells, Units or Undeveloped Leases subject thereto or affected thereby, as currently owned and operated, which would be accepted by a reasonable prudent operator engaged in the business of owning and operating oil and gas properties similar to the Properties (as they are currently owned and operated), and which do not (i) reduce Sellers’ Net Revenue Interest below (A) that shown in Exhibit A-2 for a Well or (B) the Net Revenue Interest Floor for each Undeveloped Lease on Exhibit A-3 (or, if another Net Revenue Interest is set forth on Exhibit A‑3 for such Undeveloped Lease, such scheduled Net Revenue Interest) , (ii) increase Sellers’ Working Interest above that shown in Exhibit A-2 for a Well without a proportionate increase in the Net Revenue Interest of Sellers in such Well or (iii) decrease the Net Acres of Sellers below those set forth on Exhibit A-8 or Exhibit A‑3 for any Unit or Undeveloped Lease, as applicable.

(c) Preferential Rights to Purchase and required Third Party consents to assignment and similar transfer restrictions, including Customary Post-Closing Consents;

(d) liens for Taxes or assessments not yet delinquent or being contested in good faith by appropriate actions and described on Schedule 1.1(a) ;

(e) excepting circumstances where such rights have already been triggered, rights of reassignment arising upon final intention to abandon or release all or any of a Lease;

(f) materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by Law), or if delinquent, being contested in good faith by appropriate actions and described on Schedule 1.1(a) ;

(g) all rights to consent by, required notices to, filings with, or other actions by Governmental Bodies in connection with the sale or conveyance of the Assets or interests therein if they are not required or customarily obtained in the region where the Assets are located prior to the sale or conveyance, including Customary Post-Closing Consents;

(h) defects affecting any depths or formations other than the Eaglebine Formation;

Appendix A-11

 

(i) easements, rights-of-way, covenants, servitudes, Permits, surface leases and other rights in respect of surface operations that do not prevent or adversely affect operations as currently conducted on the Properties covered by the Assets or materially detract from the value of the affected Assets;

(j) Imbalances;

(k) all rights reserved to or vested in any Governmental Bodies to control or regulate any of the Assets in any manner or to assess Tax with respect to the Assets, the ownership, use or operation thereof, or revenue, income or capital gains with respect thereto, and all obligations and duties under all applicable Laws;

(l) all other liens, charges, encumbrances, defects or irregularities that do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Wells or Undeveloped Leases subject thereto or affected thereby (as currently used or operated), which would be accepted by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties similar to the Properties, and which do not (i) reduce Sellers’ Net Revenue Interest below (A) that shown in Exhibit A-2 for a Well or (B) the Net Revenue Interest Floor for each Undeveloped Lease on Exhibit A-3 (or, if another Net Revenue Interest is set forth on Exhibit A‑3 for such Undeveloped Lease, such scheduled Net Revenue Interest) , (ii) increase Sellers’ Working Interest above that shown in Exhibit A-2 for a Well without a proportionate increase in the Net Revenue Interest of Sellers in such Well or (iii) decrease the Net Acres of Sellers below those set forth on Exhibit A-8 or Exhibit A‑3 for any Unit or Undeveloped Lease, as applicable;

(m) any lien, charge or other encumbrance on or affecting the Assets that is discharged by Sellers at or prior to the Closing; and

(n) any lien or encumbrance created by a lessor of a Lease that (i) post-dates the perfection of the applicable Lease (in accordance with applicable Law) or (ii) pre-dates the perfection of the applicable Lease (in accordance with applicable Law) and has been subordinated to the applicable Lease.

“ Person ” means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Body or any other entity.

“ Phase I Environmental Site Assessment ” means an environmental site assessment performed pursuant to the American Society for Testing and Materials (“ASTM”) Standard E 1527-13, or any similar environmental assessment.

“ Phase II Guidelines ” means the following rules and regulations: (a) all Invasive Activities shall be performed by environmental consultants mutually agreeable to the Parties, (b) Purchaser shall use commercially reasonable efforts to complete Invasive Activities prior to the Defect Claim Date, (c) prior to conducting any sampling, boring, drilling or other invasive investigative activity with respect to the Assets, Purchaser shall furnish for Sellers’ review a proposed scope of such Invasive Activity including a description of the activities to be conducted and a description of the approximate locations of such activities and, if any of the proposed

Appendix A-12

 

activities are likely to unreasonably interfere with normal operation of the Assets, Sellers may request an appropriate modification of the proposed Invasive Activity, (d) Purchaser shall maintain and shall cause its offices, employees, representatives, consultants and advisors to maintain all information obtained by Purchaser pursuant to any Invasive Activity as strictly confidential until the Closing occurs unless disclosure of any facts discovered through such assessment is required under any Laws, (e) after completing any Invasive Activity Purchaser shall at its sole cost and expense restore the Assets as close as practicable to their condition prior to the commencement of such Invasive Activity unless Sel lers request otherwise and Purchaser shall promptly dispose of all drill cuttings, corings or other investigative-derived wastes generated in the course of such Invasive Activity, (f) Sellers shall have the right to be present during any Invasive Activitie s and shall have the right at its option and expense to split samples with Purchaser, (g) Purchaser shall provide Sellers with a copy of the final draft of all environmental reports prepared by or on behalf of Purchaser with respect to any Invasive Activit y conducted on the Assets, and (h) in the event that any necessary disclosures under applicable Laws are required with respect to matters discovered by any Invasive Activity, Purchaser agrees that Sellers shall be the responsible party for disclosing such matters to the appropriate Governmental Bodies provided that if Sellers fail to promptly make such disclosure and Purchaser or any of its Affiliates is legally obligated to make such disclosure such Person shall have the right to fully comply with such leg al obligation.

“ Pooled Acreage ” has the meaning set forth in Section 2.2(b) .

“ Post-Closing Cure Period ” has the meaning set forth in Section 4.2(b)(i) .

“ Preferential Right to Purchase ” means any Third Party’s preferential right to purchase any of the Assets (or portion thereof), including a right of first refusal, right of first offer or other similar right.

“ Preliminary Allocation Schedule ” has the meaning set forth in Section 3.3(a) .

“ Preliminary Settlement Statement ” has the meaning set forth in Section 10.4(a) .

“ Properties ” has the meaning set forth in Section 2.2(c) .

“ Property Costs ” means all operating and production expenses, including costs of insurance, rentals, shut-in payments and royalty payments or other Burdens, gathering, processing and transportation costs, and costs of title examinations and curative actions; Property Taxes (but not income or franchise Taxes); capital expenditures, including bonuses, broker fees, acquisition costs, and other lease or other royalty acquisition, extension or renewal costs, costs of drilling and completing wells and costs of acquiring equipment; and Third Party overhead charges, in each case, attributable to the ownership or operation of the Assets or the production of Hydrocarbons therefrom but only to the extent chargeable to the joint account pursuant to an operating agreement applicable to the Assets (but if there is no applicable operating agreement, then pursuant to the 2005 COPAS form of accounting procedure) and in the ordinary course of business, in each case, solely to the extent attributable to Sellers’ interest in the Assets; provided , however , the following shall not be considered Property Costs: (i) any such costs incurred by Sellers to cure Title Defects asserted hereunder; (ii) any costs incurred by Sellers to Remediate

Appendix A-13

 

Adverse Environmental Conditions asserted hereunder and (iii) insurance premiums or d eductibles payable to any Affiliates of Sellers to the extent pertaining to coverages for events which, if occurring, would not constitute Casualty Losses.

“ Property Taxes ” means all real property, personal property, ad valorem, severance, production and similar Taxes (which for the avoidance of doubt, does not include Income Taxes or Transfer Taxes) based upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom or the receipt of proceeds therefrom.

“ Purchaser ” has the meaning set forth in the Preamble of this Agreement.

“ Purchaser’s Auditor ” has the meaning set forth in Section 8.12(b) .

“ Purchaser Common Stock ” means shares of WildHorse Resource Development Corporation common stock having the rights, privileges and restrictions set forth in the Stock Issuance Agreement.

“ Purchaser Group ” means Purchaser and Purchaser’s Affiliates, each of their respective officers, directors and employees and Purchaser’s successors and permitted assigns.

“ Purchaser Parent ” has the meaning set forth in the Recitals of this Agreement.

“ Records ” means electronic digital copies (or originals to the extent located on the Properties or the lands covered by the Surface Agreements) of any files, records, information and data, whether written or electronically stored, in each case to the extent relating primarily to the Assets, including:  (a) land and title records (including abstracts of title, title opinions and title curative documents); (b) contract files; (c) correspondence; (d) operations, environmental, production and accounting records; and (e) production, facility and well records and data; provided , however , that the term “Records” shall not include any Excluded Records and any information that cannot, without unreasonable effort or expense that Purchaser does not agree to undertake or pay, as applicable, be separated from any files, records, information and data related to the Excluded Assets.

“ REGARDLESS OF FAULT ” MEANS WITHOUT REGARD TO THE CAUSE OR CAUSES OF ANY CLAIM, INCLUDING, EVEN THOUGH A CLAIM IS CAUSED IN WHOLE OR IN PART BY:

THE NEGLIGENCE (WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE, PASSIVE, GROSS OR OTHERWISE), WILLFUL MISCONDUCT, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF THE PURCHASER GROUP, THE SELLER GROUP, INVITEES AND/OR THIRD PARTIES; AND/OR

A PRE-EXISTING DEFECT, WHETHER PATENT OR LATENT, OF THE PREMISES OF PURCHASER’S PROPERTY OR SELLERS’ PROPERTY (INCLUDING THE ASSETS), INVITEES AND/OR THIRD PARTIES.

“ Rejected Available Employees ” has the meaning set forth in Section 8.10(c) .

Appendix A-14

 

“ Remediation ” means, with respect to an Adverse Environmental Condition or Disclosed Environmental Condition, removal, abatement, response, investigative, cleanup and/or monitoring activitie s, including any investigation, study, assessment, testing, monitoring, containment, removal, disposal, closure, corrective action, passive remediation, natural attenuation or bioremediation, or the installation and operation of remediation systems require d under Environmental Laws to correct, address, or remove an Adverse Environmental Condition.  To the extent that releases of Hazardous Substances require cleanup or corrective action, remediation may be conducted so as to achieve applicable risk-based sta ndards for soil or groundwater intended to achieve the most cost-effective response that addresses remediation obligations under Environmental Laws, considering the long term or residual liabilities or effects upon use or operations of any of the Assets in the same manner as currently used and operated by Sellers associated with such risk based remediation approaches.

“ Remediation Amount ” means, with respect to an Adverse Environmental Condition, the reasonable cost including customary fines and penalties (net to Sellers’ interest) of the Remediation of or other Environmental Liabilities associated with such Adverse Environmental Condition on or at the relevant Asset for continued operation in the manner it is operated as of the Closing Date, taking into account the continuing long-term need to operate the Asset, customary industry practices in the State of Texas and the requirements of Environmental Laws.

“ Remedy Period ” has the meaning set forth in Section 4.2(b) .

“ Representatives ” means (a) partners, employees, officers, directors, members, equity owners and counsel of a Party or any of its Affiliates or any prospective purchaser of an interest in a Party; (b) any consultant, advisor or agent retained by a Party or the parties listed in clause (a) above; and (c) any bank, other financial institution or entity funding, or proposing to fund, such Party’s operations in connection with the Assets, including any consultant retained by such bank, other financial institution or entity.

“ Required Consent ” means any consent or approval affecting an Asset that is required to be obtained for the assignment of such Asset in connection with the transactions contemplated by this Agreement if the applicable agreement, contract or other instrument (a) does not provide that such consent cannot be unreasonably withheld and/or (b) provides that any purported assignment of such agreement, contract or other instrument is void or voidable or the underlying Asset is terminated without such consent being obtained.  

“ Retained Seller Obligations ” means all obligations and liabilities of Sellers, known or unknown, with respect to or arising from (a) the Excluded Assets, (b) until three years after the Closing Date, Third Party claims (and claims made by pre-Closing Affiliates of Sellers) validly asserted prior to the end of such three-year period related to (1) any personal injury (including death) or (2) property damages (other than Adverse Environmental Conditions) that, individually, exceed $25,000 in value, in each case, to the extent related to the ownership or operation of the Assets by Sellers or their Affiliates and arising from events occurring prior to the Closing Date; (c) until three years after the Closing Date, Third Party claims (and claims made by pre-Closing Affiliates of Sellers) validly asserted prior to the end of such three-year period related to any disposal offsite of the Assets by Sellers or their Affiliates prior to the Closing Date of Hazardous Substances or NORM arising from the operation or use of the Assets;

Appendix A-15

 

(d)  Sellers’ obligations under Sections  2.4 and 3.4 and Article 13 ; (e) solely with respect to AEPO, all liabilities, claims a nd costs arising from or relating to the employment by AEPO or its Affiliates of any Available Employees on or prior to the termination of their employment relationships by or with AEPO or its Affiliates; (f) until three years after the Closing Date, any c ivil or administrative fines or similar monetary penalties or criminal sanctions imposed on any Seller or its Affiliates as a result of any pre-Closing Date violation of Law (including Environmental Law) by any Seller or its Affiliates and relating to the ownership or operation of the Assets by Sellers or their Affiliates, but excluding, for all purposes, any remedial obligation to abandon, cleanup, restore, and/or remediate any premises covered by or related to the Assets; (g) until three years after the C losing Date, Third Party claims (and claims made by pre-Closing Affiliates of Sellers) related to the failure to pay or the incorrect payment to any royalty owner, overriding royalty owner, working interest owner or other Burden holder under the Leases and Lands and escheat obligations, in each case, insofar as the same are attributable to Sellers’ ownership of the Assets prior to the Effective Time; (h) until three years after the Closing Date, except for any amounts credited against the Unadjusted Purchas e Price hereunder as part of the Suspense Funds, statutory penalties and interest, if any, owing to any interest owner attributable to the Suspense Funds accruing prior to the Effective Time, payable to any state under existing escheat or unclaimed propert y statutes; (i) the actions, suit, proceeding and other matters, if any, set forth on Schedule 6.5 and any matters that should have been listed on Schedule 6.5 as of the Closing Date; (j) Third Party claims (and claims made by pre-Closing Affiliates of Sellers) related to the Disclosed Environmental Conditions and/or any post-closing Remediation by Sellers; and (k) any claims among or by any Seller or its Affili ates against one or more Sellers or their Affiliates with respect to the ownership or operation of the Assets (provided, for purposes of this clause (k), Affiliates of Admiral Sellers shall not include Purchaser or its Affiliates).

“ Reversionary Net Revenue Interest ” means any future Net Revenue Interest that reverts to any party after the necessary payout or other triggering event in the applicable farm-out agreement, other agreement or instrument.

“ SCADA ” means supervisory control and data acquisition industrial control system.

“ Seller Group ” means, each Seller and such Seller’s Affiliates, each of their respective officers, directors and employees and each Seller’s successors and permitted assigns.

“ Seller Operated Assets ” means those Assets operated by Sellers or their Affiliates.

“ Sellers ” has the meaning set forth in the Preamble of this Agreement.

“ SMOG ” has the meaning set forth in Section 8.12(b) .

“ Soft Consents ” means any consent or approval affecting an Asset that is required to be obtained for the assignment of the Assets in connection with the transactions contemplated by this Agreement that is not a Required Consent or a Customary Post-Closing Consent.

“ Specified Representations ” has the meaning set forth in Section 4.1 .

“ Stock Issuance Agreement ” has the meaning set forth in the Recitals of this Agreement.

Appendix A-16

 

“ Stock Purchase Price ” has the meaning set forth in Section 3.1 .

“ Stored Hydrocarbons ” has the meaning set forth in Section 3.4(a)(iv) .

“ Suspense Funds ” means proceeds of production and associated penalties and interest in respect of any of the Seller Operated Assets that are payable to Third Parties and are being held in suspense by Sellers as the operator of such Properties.

“ Surface Agreements ” has the meaning set forth in Section 2.2(f) .

“ Tax Audit ” has the meaning set forth in Section 13.6 .

“ Tax Indemnified Person ” has the meaning set forth in Section 13.6 .

“ Tax Partnership ” shall mean the tax partnership known as the Eaglebine JV Tax Partnership created under that certain Participation Agreement executed September 11, 2014 by and among Sellers.

“ Tax Purposes ” has the meaning set forth in Section 13.9 .

“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, election, claim for refund or other document (including any attachments thereto and amendments thereof) filed with or submitted to, or required to be filed with or submitted to, any Governmental Body with respect to any Tax.

“ Taxes ” means all federal, state, local and foreign income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, gross receipts, goods and services, registration, capital, transfer, employment, estimated or withholding taxes or other assessments, duties, fees (including impact fees) or charges imposed by any Governmental Body, including any interest, penalties or additional amounts that may be imposed with respect thereto.

“ TE Admiral ” has the meaning set forth in the Preamble of this Agreement.

“ Third Party ” means any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement.  For the avoidance of doubt, WildHorse Resource Development Corporation and all Affiliates thereof shall not be considered “Third Parties” of Sellers or their Affiliates under this Agreement.

“ Title Benefit ” means, (a) with respect to the Wells set forth on Exhibit A-2 , any right, circumstance or condition that operates to increase the Net Revenue Interest of Sellers as of the Closing Date in any of such Wells above that shown on Exhibit A-2 for such Well (without a corresponding proportionate or greater increase in Working Interest for such Well) and (b) with respect to the Units on Exhibit A-8 or Undeveloped Leases on Exhibit A-3 , any right, circumstance or condition that operates to increase the Net Acres of Sellers as of the Closing Date in such Unit or Undeveloped Leases above that shown on Exhibit A-8 or Exhibit A-3 for such Units or Undeveloped Leases, as applicable.

“ Title Benefit Amount ” has the meaning set forth in Section 4.3(b) .

Appendix A-17

 

“ Title Benefit Notice ” has the meaning set forth in Section 4.3(a) .

“ Title Benefit Property ” has the meaning set forth in Section 4.3(a) .

“ Title Defect ” means any lien, security interest, pledge, charge, defect, encumbrance or other matter that, if not cured, causes Sellers not to have Defensible Title; provided , however , that none of the following shall be considered a Title Defect for any purpose:

(a) defects in the chain of title consisting of the failure to recite marital status in a document or omissions of successions of heirship or estate proceedings, unless Purchaser provides affirmative evidence that such failure or omission could reasonably be expected to result in another Person’s superior claim of title to the relevant Asset;

(b) defects arising out of lack of survey, unless a survey is expressly required by applicable Laws or the applicable Lease to be effective;

(c) defects based on a gap in Sellers’ chain of title in the state’s records as to state Leases, in the federal government’s records as to federal Leases, or in the county records as to other Leases, unless Purchaser provides affirmative evidence that such gap exists in such records by an abstract of title, run sheet or a title opinion, which documents shall be included in the applicable Title Defect Notice;

(d) defects as a consequence of cessation of production, insufficient, or failure to conduct operations that occurred more than two years prior to the Execution Date on any of the Properties held by production, or lands pooled, communitized or unitized therewith, except to the extent the applicable lessor has provided written notice to Sellers that it is exercising its right to terminate the lease in question or that Sellers have forfeited or have an obligation to release leasehold acreage as a result of such cessation of production, insufficient production or failure to conduct operations, which notice shall be included in the Title Defect Notice;

(e) defects based on references to lack of information, including lack of information in Seller’s files, the lack of Third Party records, and/or the unavailability of information from Governmental Bodies, if such information is otherwise in Purchaser’s possession or is a matter of public record;

(f) defects based solely on references in recorded instruments to a document because such document is not in Sellers’ files;

(g) defects based on Tax assessment, Tax payment or similar records (or the absence of such activities or records), unless Purchaser provides affirmative evidence that the material contained in such records (or the lack of such records) could reasonably be expected to result in another Person’s superior claim of title to the relevant Asset;

(h) defects that have been cured by the passage of time, the doctrine of adverse possession, applicable laws of limitation or prescription or such other matter that would render such defect invalid according to applicable Law;

Appendix A-18

 

(i) any unsubordinated mortgage on the fee estate or mineral fee estate from which title to the relevant Property is derived which pre-dates the creation o f the Property and which is not currently subject to foreclosure or other enforcement proceedings by the holder of the mortgage and which is subordinated to the rights of lessee under any Lease burdened thereby; or

(j) defects arising out of lack of evidence of corporate or other entity authorization, unless Purchaser provides affirmative evidence that such lack of authorization results in another Person’s actual and superior claim of title to the relevant property.

“ Title Defect Amount ” has the meaning set forth in Section 4.2(c) .

“ Title Defect Notice ” has the meaning set forth in Section 4.2(a) .

“ Title Defect Property ” has the meaning set forth in Section 4.2(a) .

“ Title Expert ” has the meaning set forth in Section 4.4(d) .

“ Transferred Employees ” has the meaning set forth in Section 8.10(a) .

“ Transfer Taxes ” has the meaning set forth in Section 13.8 .

“ U.S. ” and “ United States ” mean the United States of America.

“ Unadjusted Purchase Price ” has the meaning set forth in Section 3.1 .

“ Undeveloped Lease ” means the Leases or portions thereof set forth on Exhibit A-3 to the extent and only to the extent falling outside of the Units.

“ Units ” means each of the geographic areas pertaining to each the drilling units described on Exhibit A-8 , as more particularly described in each unitization agreement or other similar agreement associated with each such drilling unit.

“ Unobtained Contract Consents ” has the meaning set forth in Section 4.6(b)(i) .

“ Unobtained Lease Consents ” has the meaning set forth in Section 4.6(b)(ii) .

“ Unreimbursed Third Party Property Costs ” has the meaning set forth in Section 2.4(c) .

“ WARN Act ” means the federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq., and all applicable similar state and local laws.

“ Wellhead Imbalances ” means any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocated to the interest of any Seller therein and the shares of production from the relevant Well to which such Seller was entitled.

“ Wells ” has the meaning set forth in Section 2.2(c) .

“ Working Interest ” with respect to any Well or Lease, the interest in and to such Well or Lease, as applicable, that is burdened with the obligation to bear and pay costs and expenses of

Appendix A-19

 

maintenance, development and operations on or in connection with such Well or Lease, in each case, relating to the Eaglebine Formation only, and without regard to the effect of any Burdens.

 

Appendix A-20

Exhibit 2.3

 

PURCHASE AND SALE AGREEMENT

BY AND AMONG

ANADARKO E&P ONSHORE LLC,

AND

ANADARKO ENERGY SERVICES COMPANY,

AS SELLERS

AND

WHR EAGLE FORD LLC,

AS PURCHASER

__________________________________________

EXECUTION DATE:  May 10, 2017

EFFECTIVE TIME:  12:01 AM, January 1, 2017
__________________________________________

 

 

 

Table of Contents

Page

ARTICLE 1 DEFINITIONS AND INTERPRETATION 1

 

Section 1.1

Defined Terms1

 

 

Section 1.2

References and Rules of Construction1

 

ARTICLE 2 PURCHASE AND SALE 2

 

Section 2.1

Purchase and Sale2

 

 

Section 2.2

Assets2

 

 

Section 2.3

Excluded Assets4

 

 

Section 2.4

Effective Time; Proration of Costs and Revenues4

 

 

Section 2.5

Procedures5

 

ARTICLE 3 PURCHASE PRICE 6

 

Section 3.1

Unadjusted Purchase Price6

 

 

Section 3.2

Deposit6

 

 

Section 3.3

Allocation of Unadjusted Purchase Price6

 

 

Section 3.4

Adjustments to Unadjusted Purchase Price7

 

 

Section 3.5

Parent Guaranty.9

 

ARTICLE 4 TITLE MATTERS; CONSENTS 9

 

Section 4.1

Sellers’ Title9

 

 

Section 4.2

Title Defects9

 

 

Section 4.3

Title Benefits12

 

 

Section 4.4

Title Disputes13

 

 

Section 4.5

Limitations on Applicability16

 

 

Section 4.6

Consents to Assignment and Preferential Rights to Purchase16

 

 

Section 4.7

Casualty Loss or Condemnation20

 

ARTICLE 5 ENVIRONMENTAL MATTERS 21

 

Section 5.1

Adverse Environmental Conditions21

 

 

Section 5.2

Adverse Environmental Condition Disputes24

 

 

Section 5.3

Limitations on Applicability27

 

ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SELLERS 27

 

Section 6.1

Organization and Power27

 

 

Section 6.2

Authorization and Enforceability27

 

 

Section 6.3

Liability for Brokers’ Fees28

 

 

Sectio n 6.4

No Conflicts.28

 

 

Section 6.5

Litigation.28

 

 

Section 6.6

Taxes and Assessments28

 

 

Section 6.7

Capital Commitments29

 

 

Section 6.8

Compliance with Laws29

 

 

Section 6.9

Contracts29

 

 

Section 6.10

Consents and Preferential Purchase Rights31

 

- i -

 

 

Section 6.11

Le ases 31

 

 

Section 6.12

Advance Payments31

 

 

Section 6.13

Surface Agreements31

 

 

Section 6.14

Imbalances31

 

 

Section 6.15

Suspense Funds32

 

 

Section 6.16

Bankruptcy32

 

 

Section 6.17

Condemnation32

 

 

Section 6.18

Permits32

 

 

Section 6.19

Plugging and Abandonment32

 

 

Section 6.20

Labor, Employment and Benefits32

 

 

Section 6.21

Environmental Matters33

 

 

Section 6.22

Payout Balances34

 

 

Section 6.23

Certain Disclaimers34

 

ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF PURCHASER 35

 

Section 7.1

Organization35

 

 

Section 7.2

Authorization and Enforceability36

 

 

Section 7.3

Liability for Brokers’ Fees36

 

 

Section 7.4

No Conflicts36

 

 

Section 7.5

Litigation36

 

 

Section 7.6

Financing36

 

 

Section 7.7

Securities Law Compliance36

 

 

Section 7.8

Independent Evaluation36

 

 

Section 7.9

Consents, Approvals or Waivers37

 

 

Section 7.10

Bankruptcy37

 

 

Section 7.11

Qualification37

 

 

Section 7.12

Tax37

 

 

Section 7.13

Limitation37

 

ARTICLE 8 COVENANTS OF THE PARTIES 38

 

Section 8.1

Access38

 

 

Section 8.2

Government Reviews40

 

 

Section 8.3

Public Announcements; Confidentiality41

 

 

Section 8.4

Operation of Business42

 

 

Section 8.5

Operatorship44

 

 

Section 8.6

Change of Name44

 

 

Section 8.7

Replacement of Bonds, Letters of Credit and Guaranties44

 

 

Section 8.8

Amendment to Schedules44

 

 

Section 8.9

Further Assurances45

 

 

Section 8.10

Employee Matters45

 

 

Section 8.11

Suspense Funds46

 

 

Section 8.12

Access to Financial Information47

 

 

Section 8.13

Unleased Fee Minerals48

 

 

Section 8.14

Leased Vehicles48

 

 

- ii -

 

ARTICLE 9 CONDITIONS TO CLOSING 49

 

Section 9.1

Sellers’ Conditions to Closing49

 

 

Section 9.2

Purchaser’s Conditions to Closing50

 

ARTICLE 10 CLOSING 51

 

Section 10.1

Time and Place of Closing51

 

 

Section 10.2

Obligations of Sellers at Closing51

 

 

Section 10.3

Obligations of Purchaser at Closing53

 

 

Section 10.4

Closing Payment and Post-Closing Unadjusted Purchase Price Adjustments54

 

ARTICLE 11 TERMINATION 56

 

Section 11.1

Termination56

 

 

Section 11.2

Effect of Termination57

 

 

Section 11.3

Remedies for Breach; Distribution of Deposit Upon Termination57

 

ARTICLE 12 ASSUMPTION; INDEMNIFICATION 58

 

Section 12.1

Assumption by Purchaser58

 

 

Section 12.2

Indemnification58

 

 

Section 12.3

Indemnification Actions60

 

 

Section 12.4

Limitation on Actions61

 

ARTICLE 13 TAX MATTERS 62

 

Section 13.1

Responsibility for Tax Filings and Payment62

 

 

Section 13.2

Apportionment of Property Taxes63

 

 

Section 13.3

Cooperation.63

 

 

Section 13.4

Like-Kind Exchange64

 

 

Section 13.5

Refunds65

 

 

Section 13.6

Audits65

 

 

Section 13.7

Characterization of Certain Payments65

 

 

Section 13.8

Transfer Taxes, Recording Fees & Transaction Fees65

 

ARTICLE 14 MISCELLANEOUS 66

 

Section 14.1

Counterparts66

 

 

Section 14.2

Notices66

 

 

Section 14.3

Governing Law; Jurisdiction67

 

 

Section 14.4

Knowledge Qualifications; Schedules68

 

 

Section 14.5

Waivers69

 

 

Section 14.6

Assignment69

 

 

Section 14.7

Entire Agreement69

 

 

Section 14.8

Amendment69

 

 

Section 14.9

No Third Party Beneficiaries69

 

 

Section 14.10

Construction69

 

 

Section 14.11

Limitation on Damages70

 

 

Section 14.12

Recording70

 

 

Section 14.13

Conspicuousness70

 

 

Section 14.14

Time of Essence70

 

- iii -

 

 

Section 14.15

Delivery of Records 70

 

 

Section 14.16

Severability70

 

 

Section 14.17

Specific Performance71

 

 

Section 14.18

AESC Obligations71

 

 

 

 

 

- iv -

 

APPENDICES :

Appendix A - Definitions

EXHIBITS:

Exhibit A‑1 - Leases

Exhibit A‑2 - Wells

Exhibit A-3 - Undeveloped Leases

Exhibit A-4 - Excluded Assets

Exhibit A-5 - Contracts

Exhibit A-6 - Surface Agreements

Exhibit A-7 - Permits

Exhibit A-8 - Leased Vehicles
Exhibit B - Form of Conveyance

Exhibit C - Form of Certificate of Non-Foreign Status

Exhibit D - Form of Letter-in-Lieu

Exhibit E - Form of Surface Deed

Exhibit F - Form of Term Royalty Deed

SCHEDULES:  

Schedule 1.1(a) - Contested Liens

Schedule 1.1(b) - AESC Contracts

Schedule 3.4 - Imbalance Procedures

Schedule 5.1 - Disclosed E nvironmental Conditions
Schedule 6.4 - Conflicts
Schedule 6.5 - Litigation
Schedule 6.6(b) - Taxes and Assessments
Schedule 6.7 - Capital Commitments
Schedule 6.8 - Compliance with Laws
Schedule 6.9(a) - Material Contracts
Schedule 6.9(b) - Exceptions to M aterial Contracts

Schedule 6.10 - Seller Consents and Preferential Rights to Purchase
Schedule 6.11 - Exceptions to Leases

Schedule 6.13 - Surface Agreements

Schedule 6.14 - Imbalances

Schedule 6.15 - Suspense Funds

Schedule 6.18 - Permits

Schedule 6.19 - Plugging and Abandonment

Schedule 6.20 - Employee Pension Benefit Plans

Schedule 6.22 - Payout Balances

Schedule 7.5 - Purchaser Knowledge Individuals
Schedule 7.9 - Purchaser Consents
Schedule 8.4 - Operations
Schedule 8.7 - Replacement Bonds

Schedule 14.4 - Seller Knowledge Individuals

- i -

 

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement (this “ Agreement ”) is dated as of May 10, 2017 (the “ Execution Date ”), by and among Anadarko Energy Services Company, a Delaware corporation (“ AESC ”), Anadarko E&P Onshore LLC, a Delaware limited liability company (“ AEPO ” and together with AESC (subject to Section 14.18 ) “ Sellers ” and each individually a “ Seller ”) and WHR Eagle Ford LLC, a Delaware limited liability company (“ Purchaser ”).  Sellers and Purchaser are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS:

A.

Sellers own certain interests in oil and gas properties, rights and related assets that are defined and described herein as the “ Assets .”

B.

Sellers desire to sell to Purchaser and Purchaser desires to purchase from Sellers the Assets in the manner and upon the terms and conditions hereafter set forth.

NOW , THEREFORE , in consideration of the premises and mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound by the terms hereof, agree as follows:

ARTICLE 1
DEFINITIONS AND INTERPRETATION

Section 1.1 Defined Terms

.  In addition to the terms defined in the introductory paragraph and the Recitals of this Agreement, for purposes hereof, capitalized terms used herein and not otherwise defined shall have the meanings set forth in Appendix A .

Section 1.2 References and Rules of Construction

.  All references in this Agreement to Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses and other subdivisions refer to the corresponding Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses and other subdivisions of or to this Agreement unless expressly provided otherwise.  Titles appearing at the beginning of any Exhibits, Schedules, Appendices, Articles, Sections, subsections, clauses and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement and shall be disregarded in construing the language hereof.  The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection, clause or other subdivision unless expressly so limited.  The words “this Article,” “this Section,” “this subsection,” “this clause” and words of similar import refer only to the Article, Section, subsection and clause hereof in which such words occur.  The word “including” (in its various forms) means including without limitation.  The words “shall” and “will” are used interchangeably and have the same meaning.  All references to “$” or “dollars” shall be deemed references to United States dollars.  Each accounting term not defined herein will have the meaning given to it under GAAP as interpreted as of the date of this Agreement.  Unless (i) expressly provided to the contrary herein or (ii) used to set forth a list of elections available to a Party pursuant hereto, the word “or” is not exclusive.  Pronouns in masculine,

 

feminine or neuter genders shall be construed to state and include any other gen der, and words, terms and titles (including terms defined herein) in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.  Appendices, Exhibits and Schedules referred to herein are attached to an d by this reference incorporated herein for all purposes.  Reference herein to any federal, state, local or foreign Law shall be deemed to also refer to all rules and regulations promulgated thereunder, unless the context requires otherwise, and reference herein to any agreement, instrument or Law means such agreement, instrument or Law as from time to time amended, modified or supplemented, including, in the case of agreements or instruments, by waiver or consent and, in the case of Laws, by succession of comparable successor Laws.  References to a Person are also to its permitted successors and permitted assigns. Any requirement that a Party use “commercially reasonable efforts” hereunder shall not be construed to include any requirement of such Party or a ny of its Affiliates to expend money, commence or participate in any litigation or offer or grant any accommodation (financial or otherwise) to any Third Party.   

ARTICLE 2
PURCHASE AND SALE

Section 2.1 Purchase and Sale

.  At the Closing, upon the terms and subject to the conditions of this Agreement, Sellers shall sell, convey, assign, transfer and deliver the Assets to Purchaser and Purchaser shall purchase, acquire, accept and pay for the Assets and shall assume the Assumed Purchaser Obligations.

Section 2.2 Assets

.  As used herein, the term “ Assets ” means, subject to the terms and conditions of this Agreement, all of Sellers’ right, title and interest, whether real or personal, recorded or unrecorded, tangible or intangible, vested, contingent or reversionary, in and to the following (but excepting and excluding, in all such instances, the Excluded Assets):

(a) The oil, gas and mineral leases, subleases and other leaseholds that are identified on Exhibit A‑1 (collectively, the “ Leases ”), subject to the depth limitations and other restrictions that may be set forth in the Leases or in any conveyances in the chain of title, together with (i) all rights, privileges, benefits and powers conferred upon the holder of the Leases with respect to the use and occupation of the lands covered thereby, (ii) all rights, options, titles and interests of Sellers with respect to the Leases, including rights to obtain or otherwise earn any interest in the Leases or within the lands covered by or described in the Leases or any acreage pooled, communitized or unitized therewith (the “ Lands ”) and (iii) all royalties, overriding royalties, net profits interests, carried interests, reversionary interests, leasehold interests and other rights in and to the Lands;

(b) All pooled, communitized or unitized acreage which includes all or a part of any Lease or the Lands (the “ Pooled Acreage ”), and all tenements, hereditaments and appurtenances belonging to the Leases and Pooled Acreage;

(c) All oil, gas, water, carbon dioxide, water disposal or injection wells, whether producing, shut-in or abandoned, located on the Leases or Lands together with the Allocated Leasehold for such well, including the interests in the wells identified on Exhibit A‑2 (the “ Wells ” and collectively with the Leases, the Lands and the Pooled Acreage, the “ Properties ”);

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(d) All flowlines, pipelines, gathering systems and appurtenances thereto located on the Properties or used, or held for use, in connection with the Properties;   

(e) All contracts, agreements and instruments to the extent, but only to the extent, applicable to the Properties, the production of Hydrocarbons from the Properties or the other Assets, including operating agreements, unitization, pooling and communitization agreements, production sharing agreements, declarations and orders, area of mutual interest agreements, joint venture agreements, farmin and farmout agreements, participation agreements, exchange agreements, joint development agreements, storage agreements, crossing agreements, agreements for the sale and purchase of Hydrocarbons and gathering, processing and transportation agreements, including those contracts, agreements and instruments described on Exhibit A-5 and the AESC Contracts, but excluding (i) any contracts, agreements and instruments to the extent transfer is restricted by Third Party agreement, a Governmental Body or applicable Law (unless and until the necessary consents or approvals to transfer have been obtained pursuant to Section 4.6 or unless as otherwise set forth in this Agreement) and (ii) the Leases and Surface Agreements (subject to such exclusions, the “ Contracts ”);

(f) All (i) surface fee interests appurtenant to and used or held for use, in connection with the Properties, and all structures located thereon, except to the extent they are used in connection with the operation of the Excluded Assets (the “ Surface Fee Lands ”) and (ii) easements, licenses, servitudes, rights‑of‑way, surface leases and other surface rights appurtenant to and used or held for use, in connection with the Properties, in each case, including those described on Exhibit A-6 ; but excluding, in all instances, any such interest or right to the extent transfer is restricted by Third Party agreement, a Governmental Body or applicable Law (unless and until the necessary consents or approvals to transfer have been obtained pursuant to Section  4.6 or unless as otherwise set forth in this Agreement) (subject to such exclusion, the “ Surface Agreements ”);

(g) All equipment, machinery, tools, fixtures and owned rolling stock, including (i) trailers, rolling test equipment, rolling machinery and other portable wheeled equipment, and other tangible personal property and improvements and (ii) manifolds, well equipment, casing, tubing, pumps, motors, fixtures, machinery, compression equipment, flow lines, processing and separation facilities, pads, materials, SCADA equipment and transmitters, telecommunications equipment, field radio telemetry and associated frequencies, pressure transmitters and central processing equipment, in each case, that is owned by any Seller and that is used or held for use in connection with the ownership or operation of the Properties (the “ Equipment ”);

(h) All Hydrocarbons (or proceeds from the sale of Hydrocarbons) produced from or attributable to the Properties after the Effective Time and the S tored Hydrocarbons, together with Imbalances associated with the Properties, which would otherwise accrue for the Sellers’ benefit;

(i) The Records;

(j) The Leased Assets set forth on Exhibit A-8 (the “ Leased Vehicles ”);

(k) To the extent assignable or re-issuable into Purchaser’s name (which reissuance will be at Purchaser’s sole cost and expense), all permits, approvals, allowances, emission or

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pollution credits, or authorizations by, or filings with, any Governmental Body a nd all water rights relating to the construction, ownership or operation of the Assets , including those described on Exhibit A-7 (the “ Permits ”) ;

(l) All trade credits, account receivables, receivables, take-or-pay amounts receivable, and other receivables to the extent attributable to the Assets and attributable to periods after the Effective Time, excluding any items (i) related to the Retained Seller Obligations or (ii) to which Sellers are otherwise entitled pursuant to Section 2.4 ; and

(m) All rights, claims and causes of action of Sellers against Third Parties arising under or with respect to any Asset, excluding items related to the Retained Seller Obligations.

Section 2.3 Excluded Assets

.  Notwithstanding anything to the contrary, the Assets shall not include, and there is excepted, reserved and excluded from this transaction, the Excluded Assets.  In the event Purchaser comes into possession of any Excluded Assets, it shall deliver such Excluded Assets, as promptly as possible, to or as directed by Sellers.  Notwithstanding any term of this Agreement to the contrary, to the extent any Asset is excluded hereunder pursuant to Sections 4.2(b)(iii) , 4.6(b) , 4.6(c) , 5.1(b)(iii) , 5.1(d) or 8.1(a) , Sellers shall retain any Assets directly associated therewith.  To the extent Purchaser reasonably requires use of any such Asset for the continued operation of the Assets (in the manner operated by Sellers prior to Closing), Sellers shall grant Purchaser such use upon reasonable request.

Section 2.4 Effective Time; Proration of Costs and Revenues

.

(a) If Closing occurs, Purchaser shall be entitled to (without duplication of any amounts paid pursuant to Section 3.4 or otherwise) (i) all production of Hydrocarbons from or attributable to the Properties after 12:01 a.m., Central Time, on January 1, 2017 (the “ Effective Time ”) and all products and proceeds attributable thereto and (ii) all other income, proceeds, receipts and credits earned with respect to the Assets after the Effective Time, and Purchaser shall be responsible for, and entitled to any refunds with respect to, all Property Costs incurred after the Effective Time.

(b) Sellers shall be entitled to (without duplication of any amounts paid pursuant to Section 3.4 or otherwise) (i) all production of Hydrocarbons from or attributable to the Properties prior to and at the Effective Time and all products and proceeds attributable thereto and (ii) all other income, proceeds, receipts and credits earned with respect to the Assets prior to and at the Effective Time, and such Sellers shall be responsible for, and entitled to any refunds with respect to (including, for the avoidance of doubt, any Tax benefit attributable to any reduction in severance (or impact) Taxes that may be realized after the Effective Time but that results from payments or production for periods prior to or at the Effective Time), all Property Costs and other costs attributable to the ownership and operation of the Assets or the production of Hydrocarbons therefrom incurred prior to or at the Effective Time.

(c) With respect to Property Costs paid by Sellers on behalf of Third Parties, regardless of whether such Property Costs were paid before, at or after the Effective Time, Sellers shall be entitled to retain all proceeds of cash calls, billings and other funds received as reimbursement in respect of such Property Costs.  With respect to Property Costs paid by Sellers

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prior to the Closing on behalf of Third Parties and attributable to periods after the Effective Time that remain unreimbursed (the “ Unreimbursed Third Party Property Costs ” ) as of the date the final settlement statement is prepared pursuant to Section 10.4 , regardless of whether such Property Costs were paid before, at or after the Effective Time, Purchaser shall pay to Sellers an amount equal to the amount of all such Unrei mbursed Third Party Property Costs and Purchaser shall be entitled to all receivables with respect thereto and all proceeds of cash calls, billings and other funds received as reimbursement in respect thereof.  As part of the final settlement statement, Se llers shall provide reasonable supporting documentation in respect of such unreimbursed Property Costs and include the payment to be made by Purchaser pursuant to this Section 2.4(c) in the calculation of the final settlement statement.

(d) Should any Party receive any proceeds or other income after the Closing to which another Party is entitled under this Section 2.4 , such receiving Party shall fully disclose, account for and promptly remit same.  Similarly, should Purchaser pay any Property Costs after the Closing for which Sellers are responsible under this Section 2.4 , Sellers shall reimburse the Purchaser promptly after receipt of an invoice, accompanied by proof of payment, with respect to such Property Costs.  If Sellers receive any invoice for Property Costs after the Closing for which Purchaser is responsible under this Section 2.4 , Sellers shall promptly forward such invoice to Purchaser.   Each Party agrees that this Section 2.4(d) shall not be interpreted to require a Party to remit or reimburse, as the case may be, any such amounts more frequently than once per calendar month, unless the amounts owed exceed $100,000.00.

(e) Notwithstanding anything to the contrary contained in this Section 2.4 , following the third anniversary of the Closing Date, Sellers shall have no further entitlement to amounts earned from the sale of Hydrocarbons produced from or attributable to the Assets and other income earned with respect to the Assets and no further responsibility for Property Costs (other than Property Taxes specifically allocated to Sellers as provided in Article 13 ) incurred with respect to the Assets.

Section 2.5 Procedures

.

(a) For purposes of allocating production and accounts receivable with respect thereto under Section 2.4 , gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Properties when they pass through the delivery point sales meter closest to the well.  Sellers shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings or gauging and strapping data is not available.  Sellers shall provide to Purchaser evidence of all meter readings and all gauging and strapping procedures conducted on or about the Effective Time in connection with the Assets, together with all data necessary to support any estimated allocation, for purposes of establishing the adjustment to the Unadjusted Purchase Price pursuant to Section 3.4 .  The terms “earned” and “incurred” shall be interpreted in accordance with GAAP and Council of Petroleum Accountants Society (“ COPAS ”) standards, and expenditures which are incurred pursuant to an operating agreement, unit agreement or similar agreement shall be deemed incurred based on when services are rendered, when the goods are delivered or when the work is performed .

(b) Purchaser shall handle all joint interest audits and other audits of Property Costs covering the period for which Purchaser is in whole or in part responsible under Section 2.4 ;

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provided , however , that Purchaser shall not agree to any adjustments to previously assessed costs for which any Seller is liable, or any compromise of any audit claims to which any Seller would be entitled, without the prior written consent of Sellers, which consent shall not be unreasonably wi thheld, conditioned or delayed.  Each Party shall provide the other Party with a copy of all applicable audit reports and written audit agreements received by such Party or its Affiliates and relating to periods for which any such Party is partially respon sible.

(c) Notwithstanding anything to the contrary herein contained, right-of-way fees and other Property Costs (other than delay rentals, lease extension payments, lease bonus payments and/or insurance premiums due prior to the Effective Time which shall be the sole responsibility of Sellers and Property Taxes) that are paid periodically shall be prorated based on the number of days in the applicable period falling before and the number of days in the applicable period falling on or after the day of the Effective Time.  Property Taxes shall be prorated as set forth in Section 13.2 .

ARTICLE 3
PURCHASE PRICE

Section 3.1 Unadjusted Purchase Price

.  The purchase price for the Assets shall be an aggregate amount equal to $120,000,000.00 (the “ Unadjusted Purchase Price ”), which shall be adjusted as provided in Section 3.4 .

Section 3.2 Deposit

.  Within one Business Day after the Execution Date, Purchaser shall pay to Sellers, in immediately available funds by wire transfer into an account designated by Sellers prior to the date hereof, an amount equal to 10% of the Unadjusted Purchase Price (the “ Deposit ”).  The Deposit shall be applied against the Unadjusted Purchase Price at the Closing or be distributed in accordance with the terms of Section 11.3 , as applicable.

Section 3.3 Allocation of Unadjusted Purchase Price

.   

(a) Within sixty days after the Closing Date, Purchaser shall prepare and deliver to Sellers, using and based upon the best information available to Purchaser, a schedule along with reasonably detailed supporting documentation, setting forth an allocation of the Unadjusted Purchase Price and any other items properly treated as consideration for U.S. federal income Tax purposes among the classes of assets provided for in Treasury Regulation § 1.338-6, in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder (and any similar provisions of state, local or foreign Law, as appropriate) and, to the extent allowed by applicable Law, in a manner consistent with the Allocated Values (the “ Preliminary Allocation Schedule ”).  Notwithstanding anything to the contrary in this Agreement, the “Allocated Value” for (i) any Well equals the portion of the Unadjusted Purchase Price allocated to such Well on Exhibit A-2 and (ii) any Undeveloped Lease equals the portion of the Unadjusted Purchase Price allocated to such Undeveloped Lease on Exhibit A-3 .  Notwithstanding anything to the contrary in this Agreement, Sellers have accepted such Allocated Values for purposes of this Agreement and the transactions contemplated hereby but make no representation or warranty as to the accuracy of such values.

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(b) As soon as reasonably practicable, but not later than forty-five (45) days following receipt of the Preliminary Allocation Schedule, Sellers shall deliver to Purchaser a written report conta ining any changes that Sellers proposes to be made in such schedule (and specifying the reasons therefore in reasonable detail).  The Parties shall undertake to agree on a final schedule no later than fifteen (15) Business Days subsequent to the receipt by Purchaser of Seller’s proposed changes (such schedule, if any, the “ Final Allocation Schedule ”).

(c) If Sellers and Purchaser reach an agreement with respect to the Final Allocation Schedule in accordance with Section 3.3(b) , (i) Purchaser and Sellers shall use commercially reasonable efforts to update the Final Allocation Schedule in accordance with Section 1060 of the Code following any adjustments to the Unadjusted Purchase Price pursuant to this Agreement, and (ii) Purchaser and Sellers shall, and shall cause their Affiliates to, report consistently with the Final Allocation Schedule in all Tax Returns; provided, however , that no Party shall be unreasonably impeded in its ability and discretion to negotiate, compromise and/or settle any Tax audit, claim or similar proceedings in connection with such allocation.

Section 3.4 Adjustments to Unadjusted Purchase Price

.  All adjustments to the Unadjusted Purchase Price shall be made (x) without duplication (in this Agreement or otherwise), (y) in accordance with the terms of this Agreement and, to the extent not inconsistent with this Agreement, in accordance with GAAP and COPAS as consistently applied in the oil and gas industry in Texas and (z) only with respect to matters, (A) in the case of Section 3.4(b)(iii) , for which valid notice is given on or before the Defect Claim Date and (B) in all of the other cases set forth in Section 3.4(a) or Section 3.4(b) , identified on or before the last day of the three year anniversary of the Closing Date (the “ Cut-off Date ”). Without limiting the foregoing, the Unadjusted Purchase Price shall be adjusted as follows, resulting in the “ Adjusted Purchase Price ”:

(a) The Unadjusted Purchase Price shall be adjusted upward by the following amounts:

(i) an amount equal to all Property Costs that are (A) incurred after the Effective Time but paid by any Seller and (B) incurred prior to the Effective Time but allocable to post-Effective Time periods pursuant to Section 2.5(c) and paid by Sellers, but excluding, in each case, any amounts previously reimbursed to Sellers by Purchaser pursuant to Section 2.4(d) ;

(ii) an amount equal to all proceeds and other income to which Sellers are entitled pursuant to Section 2.4( b) to the extent that such amounts have been received by Purchaser and not remitted or paid to any Seller;

(iii) an amount equal to any Tax benefit as of the Cut-off Date that can reasonably be determined by Sellers as attributable to any reduction in severance Taxes that may be realized after the Effective Time but that results from payments or production for periods prior to or at the Effective Time;

(iv) an operating fee of $75,000.00 per month for each month between the Effective Time and the Closing;

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(v) to the extent that proceeds for the associated production prior to and at the Effective Time have not been received by or remitted to any Seller, an amount equal to the aggregate volumes of Hydrocarbons s tored in stock tanks or other storage as of the Effective Time (the “ Stored Hydrocarbons ”), in each case, from or attributable to the ownership and operation of the Assets or the production of Hydrocarbons therefrom multiplied by $48.08 for oil;

(vi) any amount equal to any upward adjustment for Imbalances as determined  in accordance with the procedures set forth on Schedule 3.4 ; and

(vii) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by the Parties as an upward adjustment to the Unadjusted Purchase Price.

(b) The Unadjusted Purchase Price shall be adjusted downward by the following amounts:

(i) an amount equal to all Property Costs and other costs attributable to the ownership and operation of the Assets or the production of Hydrocarbons therefrom that are incurred prior to the Effective Time but paid by Purchaser, but excluding any amounts previously reimbursed to Purchaser by Sellers pursuant to Section 2.4( d) ;

(ii) an amount equal to all proceeds and other income to which Purchaser is entitled pursuant to Section 2.4(a) , to the extent that such amounts have been received by Sellers and not remitted or paid to Purchaser;

(iii) any undisputed (as agreed upon by the Parties or determined by the Title Expert) Title Defect Amounts for Title Defects determined pursuant to Section 4.2 (as offset by undisputed Title Benefit Amounts for Title Benefits determined pursuant to Section 4.3 ) or the undisputed (as agreed upon by the Parties or determined by the Environmental Expert) Remediation Amounts for any Adverse Environmental Conditions determined pursuant to Section 5.1 ;

(iv) the amount of (A) any reduction in value of the Assets caused by Casualty Losses, as set forth in Section 4.7( a) , or (B) the Allocated Value for any portion of the Assets taken in condemnation or under right of eminent domain, as set forth in Section 4.7( b) ;

(v) an amount equal to the Allocated Value, if any, of any Assets excluded from this transaction pursuant to Section 4.2(b)( iii) , Section 4.6(b) , Section 4.6(c) , Section 5.1(b)(iii) , Section 5.1(d) or Section 8.1(a) ;

(vi) any amount equal to any downward adjustment for Imbalances as determined in accordance with the procedures set forth on Schedule 3.4 ; and

(vii) any other amount provided for elsewhere in this Agreement or otherwise agreed upon in writing by the Parties as a downward adjustment to the Unadjusted Purchase Price.

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Section 3.5 Parent Guaranty .

(a) Simultaneously with the execution of this Agreement, Purchaser shall cause WildHorse Resource Development Corporation, a Delaware corporation (“ Purchaser Parent ”) to deliver to Sellers the Parent Guaranty.

ARTICLE 4
TITLE MATTERS; CONSENTS

Section 4.1 Sellers’ Title

.  Except for the special warranty of title set forth in the Conveyances and the Deeds and the representations and warranties set forth in Sections 6.5 , 6.6 , 6.10 , 6.11 , 6.13 and 6.14 (the “ Specified Representations ”), Sellers make no, and expressly disclaim any, warranty or representation, express, implied, statutory or otherwise, with respect to Sellers’ title to any of the Assets and Purchaser hereby acknowledges and agrees that, subject to Section 4.5 , Purchaser’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Assets, (a) on or before the Defect Claim Date, shall be as set forth in Section 4.2 and (b) from and after the Defect Claim Date (without duplication), shall be pursuant to the special warranty of title set forth in the Conveyances and  the Deeds and/or Section 12.2(b)(iii) for breaches of the Specified Representations of Sellers; provided , however , that Purchaser further acknowledges and agrees that Purchaser shall not be entitled to protection under the special warranty of title provided in the Conveyances or the Deeds for any Title Defect reported under this Article 4 .  The special warranty of title contained in the Conveyances and the Deeds shall be subject to the terms and provisions of this Section 4.1 ( mutatis mutandis ).  If, after the Closing, Purchaser provides written notice of a breach of the special warranty of title in the Conveyances or the Deeds to any breaching Seller, such Seller shall have a reasonable opportunity to cure such breach (not to exceed ninety days following notice of such breach).  In any event, the recovery on a breach of Sellers’ special warranty of title contained in the Conveyances or the Deeds shall not exceed, in the aggregate, the Allocated Value of the affected Asset.  Disputes regarding the existence of a breach of the special warranty of title contained in the Conveyances or the Deeds, the amount by which the affected Asset is adversely affected by such breach or the cure of such breach shall be resolved in accordance with Section 14.3 of this Agreement.

Section 4.2 Title Defects

.

(a) To assert a claim of a Title Defect, Purchaser must deliver a claim notice to Sellers (each, a “ Title Defect Notice ”) at or prior to 5:00 p.m. Central Time on the Defect Claim Date.  Each Title Defect Notice shall be in writing and shall include (i) a description of, and a reasonable explanation of Purchaser’s basis for, the alleged Title Defect, (ii) identification of each Well or Undeveloped Lease (each, a “ Title Defect Property ”), in each case, that is adversely affected by the Title Defect, (iii) the Allocated Value of each Title Defect Property, (iv) all documents in Purchaser’s possession or control (or references thereto if such documents are also in Seller’s possession or in the applicable county records) upon which Purchaser relies for its assertion of a Title Defect, including, at a minimum, supporting documents available to Purchaser (or Purchaser may include references thereto if any such documents are also in  any Seller’s possession or in the applicable county records), to the extent reasonably necessary for Sellers to verify the existence of the alleged Title Defect, (v) the identity of the Seller(s) affected by such Title Defect (based on the reasonable belief of Purchaser); and (vi) the amount by which Purchaser reasonably believes the Allocated Value of each Title Defect Property is reduced by

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the alleged Title Defect calculated in accordance with Section 4.2(c) , and the computations therefor.  To be valid, each Title Defect Notice must be substantially in compliance with each of the requirements of the foregoing sentenc e.  Notwithstanding any other provision of this Agreement to the contrary and subject to Purchaser’s rights under the special warranties of title contained in the Conveyances and the Deeds, and Section 12.2(b)(iii) for breaches of the Specified Representat ions, Purchaser shall be deemed to have waived its right to assert any Title Defects for which a Title Defect Notice in substantial compliance with each of the requirements set forth in Section 4.2(a)(i) – (vi) above has not been delivered on or before the Defect Claim Date.

(b) Remedies .  To the extent Purchaser delivers any valid Title Defect Notices prior to the Defect Claim Date, then, subject to the Defect Threshold and Aggregate Defect Deductible, Sellers may, on or before 5:00 p.m. Central Time five Business Days following the Defect Claim Date (the “ Remedy Period ”):

(i) elect to cure such Title Defect, which curative work may extend up to 90 days from and after the Closing (the “ Post-Closing Cure Period ”);

(ii) notify Purchaser that Sellers do not intend to cure such Title Defect, in which case the Unadjusted Purchase Price shall be reduced by the Title Defect Amount, as agreed upon by the Parties attributable to such Title Defect; or

(iii) elect to retain the entirety of any Well or Undeveloped Lease that is adversely affected by such Title Defect (including the directly associated Assets reasonably necessary to own, use or operate such Well or Undeveloped Lease, as the case may be) in the event that the Title Defect Amount with respect to such Title Defect exceeds ninety percent (90%) of the Allocated Value of the affected Well or Undeveloped Lease, in which case the affected Well or Undeveloped Lease and directly associated Assets will be become Excluded Assets, and the Unadjusted Purchase Price will be reduced by an amount equal to the Allocated Value of such Well or Undeveloped Lease, in each case, including the Allocated Value of any other directly associated Assets so excluded;

provided , however , that if Sellers fail to elect a remedy prior to the end of the Remedy Period, Sellers shall be deemed to have elected the remedy described in Section 4.2(b)(i) ; provided further that, in the case of Sellers’ election (or deemed election) of the remedies described in Section 4.2(b)(i) or Section 4.2(b)(ii) , the Title Defect Properties shall be conveyed to Purchaser at the Closing in accordance with the terms of this Agreement.  For any Title Defect with respect to which Sellers and Purchaser agree on the validity of the asserted Title Defect and the Title Defect Amount and for which (1) Sellers have elected the remedy described in Section 4.2(b)(ii) or (2) Sellers have elected the remedy described in Section 4.2(b)(i) and such Title Defect is not waived by Purchaser or cured by Sellers prior to the expiration of the Post-Closing Cure Period, then, in each case, subject to the Defect Threshold and the Aggregate Defect Deductible, the Unadjusted Purchase Price will be reduced by the Title Defect Amount of such Title Defect; provided , however , that any downward adjustments made pursuant to clause (2) of this sentence shall be made and accounted for at the time of the final calculation of the Adjusted Purchase Price pursuant to Section 10.4 .  An election by Sellers to attempt to cure a Title Defect shall be without prejudice to their rights under Section 4.4 and shall not constitute an admission against

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interest or a waiver of Sellers’ rights to dispute the existence, nature or value of, or cost to cure, the alleged Title Defect or the adequacy of any Title Defect Notice or any c urative action.  No reduction shall be made to the Unadjusted Purchase Price to the extent Sellers have cured any asserted Title Defect .  To the extent Sellers partially cure any asserted Title Defect, any reduction to the Unadjusted Purchase Price shall e qual the portion of the Title Defect Amount relating to the uncured portion of the subject Title Defect.

(c) The “ Title Defect Amount ” resulting from a Title Defect shall be the amount by which the Allocated Values of the adversely affected Title Defect Properties are reduced as a result of the existence of such Title Defect and shall be determined in accordance with the following methodology, terms and conditions:

(i) if Purchaser and Sellers agree on the Title Defect Amount, that amount shall be the Title Defect Amount;

(ii) if the Title Defect is a lien, encumbrance or other charge that is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from Sellers’ interest in the affected Title Defect Property;

(iii) with respect to any Well, if the Title Defect reflects a discrepancy between (A) Sellers’ actual Net Revenue Interest for the affected Well and (B) the Net Revenue Interest stated in Exhibit A-2 for such Well, and there is a corresponding proportionate decrease in the Working Interest for such Well below that stated in Exhibit A-2 for such Well, then the Title Defect Amount shall be an amount equal to the product of the Allocated Value of such Well multiplied by a fraction, the numerator of which is the amount of the Net Revenue Interest decrease and the denominator of which is the Net Revenue Interest stated in Exhibit A-2 for such Well; provided , however , that with respect to any discrepancy in a Reversionary Net Revenue Interest, the Title Defect Amount shall be appropriately adjusted to reflect the likely economic effect of the asserted Title Defect over the life of the affected Well;

(iv) with respect to any Undeveloped Lease, if the Title Defect represents a discrepancy between (A) Sellers’ actual Net Acres for the affected Undeveloped Lease and (B) the Net Acres stated on Exhibit A-3 for such Undeveloped Lease, then the Title Defect Amount shall be an amount equal to the product of the Allocated Value of such Undeveloped Lease multiplied by a fraction, the numerator of which is the amount of such Net Acre decrease and the denominator of which is the Net Acres stated in Exhibit A-3 for such Undeveloped Lease;

(v) with respect to any Undeveloped Lease, if the Title Defect is based on Sellers’ having an actual Net Revenue Interest in such Undeveloped Lease less than the Net Revenue Interest Floor (or the Net Revenue Interest set forth on Exhibit A-3 for such Lease, as the case may be) , then the Title Defect Amount shall be an amount equal to the product of Allocated Value of such Undeveloped Lease multiplied by a fraction, the numerator of which is the amount by which the Net Revenue Interest Floor ( or the Net Revenue Interest set forth on Exhibit A-3 for such Lease, as the case may be) exceeds such actual Net Revenue Interest and the denominator of which is the Net Revenue Interest Floor (or the Net Revenue Interest set forth on Exhibit A-3 for such Lease, as the case may be);  

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(vi) if the Title Defect represents an obligation, encumbrance, burden or charge upon or other defect in title to the Title Defect Property of a type not described in clauses   (i) , (ii) , (iii) , (iv) or (v)  above, the Title Defect Amount shall be determined by ta king into account the Allocated Value of the Title Defect Property, the portion of the Title Defect Property adversely affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of th e Title Defect Property, the likelihood and timing of potential capital expenditures over the life of the Title Defect Property, the values placed upon the asserted Title Defect by Purchaser and Sellers and such other factors as are necessary to make a pro per evaluation ;

(vii) the Title Defect Amount with respect to a Title Defect shall be determined without duplication of any costs or losses included in any other Title Defect Amount hereunder or of any amounts for which Purchaser otherwise receives credit in the calculation of the Adjusted Purchase Price and shall be calculated in a manner that is net to Sellers’ interest in the applicable Title Defect Property; and

(viii) notwithstanding anything to the contrary in this Article 4 or any instrument or undertaking delivered pursuant hereto (except in the case of Title Defect Amount(s) under Section 4.2(c)(ii) attributable to Title Defects arising from clause (f) of the definition of Defensible Title), the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any Title Defect Property shall not exceed the Allocated Value of such Title Defect Property.

(d) If Sellers and Purchaser cannot reach an agreement on alleged Title Defects and Title Defect Amounts by (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date curative work, the end of the Post-Closing Cure Period, the provisions of Section 4.4 shall apply.

(e) The Parties acknowledge that the Leases set forth on Exhibit A-1 and Exhibit A-3 are divided into tracts.   Exhibit A-3 sets forth a separate Allocated Value for each subdivision of each Undeveloped Lease.  Reference to the term “Lease” throughout this Agreement will be interpreted to refer to each subdivision of a Lease reflected as a separate line item on Exhibit A-1 and Exhibit A-3 , regardless of whether any particular line item represents an entire Lease or only a particular tract of such Lease.  By way of example only, if an Undeveloped Lease is subdivided into four tracts, then Exhibit A-1 and Exhibit A-3 will identify all the subdivisions of such Undeveloped Lease using four separate line items.  If such Undeveloped Lease is affected by a Title Defect, the “Title Defect Property” will be the specific tracts affected, not necessarily the entire Undeveloped Lease.

Section 4.3 Title Benefits

.

(a) Sellers have the right, but not the obligation, to deliver to Purchaser prior to the Closing Date a notice (a “ Title Benefit Notice ”) in writing that includes (i) a description of, and a reasonable explanation of Sellers’ basis for, the alleged Title Benefit, (ii) identification of each Well or Undeveloped Lease affected by such Title Benefit (each a “ Title Benefit Property ”), (iii) the Allocated Value of each Title Benefit Property, (iv) all documents in Sellers’ possession or control upon which Sellers rely for their assertion of a Title Benefit or references to such

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documents to the extent the documents are in Purchaser’s possession, including, at a minimum, supporting documents available to Sellers to the ext ent reasonably necessary for Purchaser to verify the existence of the alleged Title Benefit and (v) the amount by which Sellers reasonably believe the Allocated Value of each Title Benefit Property is increased by such Title Benefit and the computation s th erefor.  To be valid, each Title Benefit Notice must be substantially in compliance with each of the requirements of the foregoing sentence.

(b) With respect to each Title Benefit Property affected by Title Benefits reported under Section 4.3( a) , any reduction to the Unadjusted Purchase Price pursuant to Section 4.2 or Section 4.4 for a Title Defect will be offset by an amount (the “ Title Benefit Amount ”) equal to the increase in the Allocated Value for the Title Benefit Properties affected by such Title Defect, as determined pursuant to Section 4.3(c) .  Any such offset shall be made and accounted for in the final calculation of the Adjusted Purchase Price pursuant to Section 10.4 .   For the avoidance of doubt, the Unadjusted Purchase Price may be adjusted for any Title Benefits only as an offset to any Unadjusted Purchase Price adjustments for Title Defects.

(c) The Title Benefit Amount for any Title Benefit shall be calculated using methodology substantially similar to the methodology used to calculate Title Defect Amounts pursuant to Section 4.2(c) ( mutatis mutandis ), with such adjustments as are necessary to permit the Parties to use such calculations and methodologies to determine the amount by which the Allocated Value of the affected Title Benefit Property is increased as a result of the existence of such Title Benefit.

(d) If Sellers and Purchaser cannot reach an agreement on alleged Title Benefits and Title Benefit Amounts by the Closing, the provisions of Section 4.4 shall apply.

Section 4.4 Title Disputes

.

(a) Sellers and Purchaser shall attempt to agree on all asserted Title Defects/Title Benefits and Title Defect Amounts/Title Benefit Amounts (including, in each case, the adequacy of notices thereof or any curative actions with respect thereto) prior to the Closing Date. If, by (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date curative work, the end of the Post-Closing Cure Period, Sellers and Purchaser are unable to agree on an alleged Title Defect/Title Benefit or Title Defect Amount/Title Benefit Amount, including the adequacy of any notice thereof or any curative actions with respect thereto (the “ Disputed Title Matters ”) such disputes, and only such disputes, shall be exclusively and finally resolved in accordance with the following provisions of this Section 4.4 .  Any Asset subject to a Disputed Title Matter shall be conveyed to Purchaser at the Closing, and an amount equal to the alleged Title Defect Amounts/Title Benefit Amounts shall be placed in escrow with the Escrow Agent, and any adjustments to the Unadjusted Purchase Price resulting from the expert determination shall be reflected in the final calculation of the Adjusted Purchase Price pursuant to Section 10.4 .  Any initiation of an expert determination of any Disputed Title Matter shall be in accordance only with the following subsections (b) through (k) .

(b) No later than ten Business Days following the (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date curative work, the end of the Post-Closing Cure Period, either Party may submit any Disputed Title Matter to expert

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determination pursuant to this Section 4.4 by written notice to the other Party, together with all reasonably supporting docume ntation in its possession or control regarding such Disputed Title Matter.  If a Party does not submit a notice of expert determination to the other Party in accordance with this Section 4.4(b) , such Party shall be deemed to have waived all such Disputed T itle Matters, which shall be deemed conclusively resolved in accordance with the Title Defect Notice or Title Benefit Notice or subsequent correspondence between the Parties.

(c) By not later than ten Business Days after a Party’s receipt of a written description of any Disputed Title Matters, such Party shall provide to the initiating Party a written response setting forth its position with respect to such Disputed Title Matters, together with all reasonably supporting documentation in its possession or control.

(d) There shall be a single title expert (the “ Title Expert ”), who shall be an attorney with at least 15 years of experience examining oil and gas titles in the region of Texas in which the Assets are located.  Within two Business Days following the initiating Party’s receipt of the other Party’s response as described in Section 4.4(c) , Sellers and Purchaser shall each exchange lists of three acceptable, qualified title experts, and shall certify that each potential title expert set forth on its list has not, and such title expert’s firm has not, represented the certifying Party or any of its Affiliates within the previous two years.  Within two Business Days following the exchange of lists of acceptable title experts, Sellers and Purchaser shall select by mutual agreement the Title Expert from their original lists of three acceptable title experts.  If no such agreement is reached, the Houston office of the American Arbitration Association shall select a title expert from the original lists provided by Sellers and Purchaser to serve as the Title Expert.

(e) Within two Business Days following the selection and engagement of the Title Expert, the Parties shall submit to the Title Expert one copy of (i) this Agreement, with specific reference to this Section 4.4 , the other applicable provisions of this Article 4 and any defined terms in Appendix A relevant to this Article 4 , (ii) the initiating Party’s written description of the Disputed Title Matters provided pursuant to Section 4.4(b) , together with the supporting documents that were provided to the other Party and (iii) the other Party’s written response to the initiating Party’s written description of the Disputed Title Matters provided pursuant to Section 4.4(c) , together with the supporting documents that were provided to the initiating Party.   The Title Expert shall resolve the Disputed Title Matters based only on the foregoing submissions.  Neither Purchaser nor Sellers shall have the right to submit additional documentation to the Title Expert or to demand discovery on the other Party.  

(f) The Title Expert, once appointed, shall have no ex parte communications with any Party concerning the determination required hereunder.  All communications between any Party and the Title Expert shall be conducted in writing, with copies sent simultaneously to the other Parties in the same manner, or at a meeting in Houston, Texas, to which the representatives of all Parties have been invited and of which such Parties have been provided at least five days’ written notice.

(g) The Parties will instruct the Title Expert to make his determination by written decision within 15 Business Days following submission of the Disputed Title Matters to the Title Expert pursuant to Section 4.4(e) , which shall be final and binding upon the Parties, without right of appeal.  In making the determination, the Title Expert shall be bound by the rules set forth in

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this Article 4 .  The Title Expert may consult with and engage disinterested Third Parties to advise the Title Expert but shall disclose to the Parties the identities of any such consultants.  Any such consultant shall not have worked as an employee of or consultant for either Party or its Affiliates during the two-year period preceding the expert determination and shall not have any financial interest in the dispute.  The written finding of the Title Expert will set forth the Ti tle Expert’s finding, if applicable, as to (A) whether the subject Title Defect exists or has been cured and, subject to the following sentence, the resulting Title Defect Amount, (B) the existence of the asserted Title Benefit and, subject to the followin g sentence, corresponding Title Benefit Amount, (C) the deficiencies in any notice of the foregoing and the specific supplemental information that, if provided, would cause such notice to be in compliance with the terms of Section 4.2(a) , and/or (D) the ad equacy of any title curative action, including any such additional curative actions necessary to cure properly any asserted Title Defect, as applicable, in each case, including the Title Expert’s rationale for the determination.  With respect to a Title De fect Amount or Title Benefit Amount, the Title Expert shall be limited to awarding only the final amount proposed by either Party in its submissions provided pursuant to Section 4.4(e) .  The Title Expert shall make a separate and independent determination with respect to each Disputed Title Matter submitted and shall provide a detailed written finding supporting such determination.   For the avoidance of doubt, the submission of a Disputed Title Matter for interim determination ( e.g. , a determination about t he adequacy of a Title Defect Notice) shall not prohibit any Party from subsequently disputing the existence of an asserted Title Defect or Title Benefit, the corresponding Title Defect Amount or Title Benefit Amount or the adequacy of any curative actions taken with respect to an asserted Title Defect, unless the Title Expert has already made a determination with respect to such matters.

(h) The Title Expert shall act as an expert for the limited purpose of determining the specific disputed Title Defects or Title Benefits and shall not be empowered to award Damages, interest or penalties to either Party with respect to any matter.

(i) Each Party shall bear its own legal fees and other costs of preparing and presenting its case. The costs of the Title Expert shall be borne (i) by Sellers in a ratio equal to a fraction, the numerator of which is the aggregate amount awarded by the Title Expert in favor of Purchaser, and the denominator of which is the aggregate amount of the Title Defects Amounts submitted for determination to the Title Expert, and (ii) the remainder by Purchaser.

(j) Subject to the Defect Threshold and the Aggregate Defect Deductible, any amounts determined to be owed by either Party shall be accounted for in the final determination of the Adjusted Purchase Price pursuant to Section 10.4 and Sellers and Purchaser shall deliver documentation to the Escrow Agent required to release the amounts determined by the Title Expert to be owed to either Party .  Any alleged Title Defects/Title Benefits determined not to be Title Defects/Title Benefits under the decision of the Title Expert shall be final and binding as not being Title Defects/Title Benefits, and any such decision of the Title Expert shall be enforceable by either Party in any court of competent jurisdiction.

(k) Any dispute over the interpretation or application of this Section 4.4 shall be decided by the Title Expert with reference to the Laws of the State of Texas.  The Parties intend that the procedures set forth in this Section 4.4 shall not constitute or be handled as arbitration

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proceedings under the Federal Arbitration Act or any applicable state arbitration act and that the provisions of this Section 4.4 shall be specifically enforceable.

Section 4.5 Limitations on Applicability

.

(a) This Article 4 , the special warranty of title provided in the Conveyances and the Deeds and Section 12.2(b)(iii) for breaches by Sellers of the Specified Representations shall comprise, subject to the limitations set forth in this Agreement, the exclusive rights an d remedies of Purchaser with respect to Title Defects.

(b) Notwithstanding anything to the contrary in this Agreement, in no event shall there be any adjustments to the Unadjusted Purchase Price or other remedies available in respect of Title Defects under thi s Article 4 unless the sum of (i) all such Title Defect Amounts that exceed the Defect Threshold and (ii)  all Remediation Amounts for Adverse Environmental Conditions that exceed the Defect Threshold exceeds the Aggregate Defect Deductible, beyond which point, Purchaser shall be entitled to adjustments to the Unadjusted Purchase Price or other remedies elected by Sellers in accordance with this Article 4 only to the extent that the sum of such Title Defect Amounts and such Remediation Amounts exceeds the Aggregate Defect Deductible.  

(c) In the event (i) Purchaser is entitled to a remedy pursuant to clause (b) above and such remedy is that a Property is removed from this transaction or not transferred to Purchaser or (ii) a Property is removed from this transaction or not transferred to Purchaser pursuant to Section 4.6(b) , Section 4.6(c) or Section 8.1(a) , the Allocated Value of any such removed Property shall not be included in the Aggregate Defect Deductible .

(d) The Parties acknowledge and agree that a Title Defect may affect multiple Properties and in such event the Parties acknowledge and agree, for the avoidance of doubt, that if the Title Defect Amount associated therewith (which shall be the aggregate reduction in Allocated Value of all affected Properties) exceeds the Defect Threshold then, subject to the Aggregate Defect Deductible, Purchaser shall be entitled to the remedies provided in this Article  4 .

(e) Notwithstanding anything to the contrary herein or the JV Assets Purchase and Sale Agreement, in the event a Title Defect hereunder additionally constitutes a Title Defect under the JV Assets Purchase and Sale Agreement, then, for such Title Defect, the “Defect Threshold” referenced in Section 4.5(b) of this Agreement shall be equal to $15,000.00 and the “Defect Threshold” in Section 4.5(b) of the JV Assets Purchase and Sale Agreement shall be equal to $60,000.00.

Section 4.6 Consents to Assignment and Preferential Rights to Purchase

.

(a) As soon as reasonably practicable following the Execution Date but in any event no later than ten Business Days following the Execution Date, Sellers shall send (i) notice to the holder of any consent to assignment or similar approval necessary for the Parties to complete the transactions as contemplated hereby that will be triggered by the consummation of the transactions contemplated by this Agreement (including any Required Consents but excluding the Customary Post-Closing Consents), requesting consents to the Conveyances and (ii) notice to

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any Third Party holder of any Preferential Right to Purchase that is triggered by the transactions contemplated by this Agreement (each notice to be in form and substance reasonably acceptable to Purchaser) , requesting waiver of such Preferential Right to Purchase, in each case, in accordance with the co ntractual requirements pertaining to each consent to assignment, approval right and Preferential Right to Purchase.  Any such Preferential Right to Purchase must be exercised subject to all terms and conditions set forth in this Agreement, including the su ccessful Closing pursuant to Article 10 as to those Assets for which such Preferential Right to Purchase has not been exercised.  The consideration payable under this Agreement for any particular Asset for purposes of Preferential Right to Purchase notices shall be the Allocated Value for such Asset, subject to adjustment as described in Section 3.4 .  Sellers shall use commercially reasonable efforts to obtain such consents and approvals and waivers of such Preferential Rights to Purchase (or the exercise t hereof) prior to the Closing ; provided , however , that Sellers shall not be required to (i) make payments or (ii) remain liable for (post-closing) or undertake obligations to or for the benefit of the holders of such rights in order to obtain any such conse nt, approval or waiver.  Purchaser shall reasonably cooperate with Sellers in seeking to obtain such consents and approvals and waivers of Preferential Rights to Purchase, which cooperation will include providing evidence of creditworthiness.  Subject to c lauses (b) and (c) below, if Sellers are unable to obtain such consents, approvals or waivers by the Closing Date, Sellers shall have no further obligation to seek to obtain such consents, approvals or waivers after the Closing.

(b) Required Consents .

(i) If any Contract or Surface Agreement is subject to a Required Consent and such Required Consent has not been obtained prior to the Closing or is subject to a Soft Consent and such Soft Consent is denied in writing (and the holder gives a reason for such denial in writing) prior to the Closing (such Required Consents and Soft Consents, the “ Unobtained Contract Consents ”), (A) such Contract or Surface Agreement, as applicable will be excluded from the Assets conveyed at the Closing and will be treated as an Excluded Asset, and (B) except in the case of any AESC Contract, Purchaser may request that Sellers execute and deliver such instruments and take such other actions as Purchaser may reasonably request to carry out the intent of this Agreement and the transfer of any Property and its related Assets related to such Contract or Surface Agreement, as applicable, including, to the extent reasonably practicable, the execution of back-to-back agreements to effect the transfer to Purchaser of the benefits to and burdens on Sellers under the Contract or Surface Agreement subject to such Unobtained Contract Consent; provided , however , that entering into such back-to-back agreements does not: (x) expressly result in a breach of the Contract or Surface Agreement subject to such Unobtained Contract Consent, (y) result in a violation of Law by Sellers or (z) impose a burden on Sellers that is materially disproportionate to the benefit received by Purchaser under the Contract or Surface Agreement subject to such Unobtained Contract Consent (such arrangements, the “ Back-to-Back Arrangements ”). Sellers’ obligation to perform Back-to-Back Arrangements with respect to any Contract or Surface Agreement pursuant to this Section 4.6(b)(i) will terminate upon the earlier of (x) the Cut-off Date, (y) the date that the Unobtained Contract Consent with respect to such Contract or Surface Agreement is obtained and (z) the date Purchaser notifies Sellers that it has made alternative arrangements that vitiate the need for such Contract or Surface Agreement, which notice shall be provided by Purchaser as soon as practicable after such alternative arrangements are made ( provided that such Contract or Surface Agreement does not prohibit such alternative arrangement).  If Purchaser is assigned the Property or Properties to

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which such Contract or Surface Agreement relates, but such Contract or Surface Agreement is not transferred to Purchaser pursuant to the terms of this Section 4.6(b)(i) , Sellers shall continue after the Closing to use commercially rea sonable efforts to obtain any Unobtained Contract Consents that have not been affirmatively denied so that such Contract or Surface Agreement can be transferred to Purchaser; provided , however , that if Sellers are unable to obtain such Unobtained Contract Consent by the Cut-off Date, Sellers shall have no further obligation to seek to obtain such Unobtained Contract Consent and, at Purchaser’s election, unless the affected Contract is an AESC Contract or another midstream or marketing Contract, the affected Contract or Surface Agreement shall be assigned to Purchaser by Sellers.  For the avoidance of doubt, any Damages arising from or relating to any such assignment shall be Assumed Purchaser Obligations and not Retained Seller Obligations.    If Purchaser doe s not so elect (or if such Contract is an AESC Contract or another midstream or marketing Contract), the affected Contract or Surface Agreement shall be deemed an Excluded Asset under this Agreement for all purposes .  Notwithstanding the foregoing, any con sents to assign and related liability releases under the AESC Contracts will be considered “Required Consents” for all purposes hereunder.

(ii) If any Lease is subject to a Required Consent and such Required Consent has not been obtained prior to the Closing or is subject to a Soft Consent and such Soft Consent is denied in writing (and the holder gives a reason for such denial in writing) prior to the Closing (such Required Consents and Soft Consents, the “ Unobtained Lease Consents ”), then, in each case, (i) the affected Lease and the Assets directly associated with the Lease shall be excluded from the Assets conveyed at the Closing and shall be deemed to be Excluded Assets and (ii) the Unadjusted Purchase Price shall be reduced by the Allocated Value of such excluded Lease and directly associated Assets, if any.  If such Unobtained Lease Consent is subsequently obtained prior to the Cut-off Date, then Sellers shall notify Purchaser and an additional Closing shall be held within five Business Days following receipt of such consent at which (A) Sellers shall sell, assign and convey the affected Lease and related Assets that were excluded at Closing to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) and (B) Purchaser shall pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis ) in accordance with Section 3.4 .  In the event of such assignment, the term “Closing Date” with respect to any such Assets shall mean the date of assignment of such Assets from Sellers to Purchaser.  If such Unobtained Lease Consent is not obtained by the Cut-off Date, Sellers shall have no further obligation to seek to obtain such Unobtained Lease Consent and, at Purchaser’s election, an additional Closing shall be held within five Business Days following such election at which (A) Sellers shall sell, assign and convey the affected Lease and its directly associated Assets that were excluded at the Closing to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) and (B) Purchaser shall pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis ) in accordance with Section 3.4 .  For the avoidance of doubt, any Damages arising from or relating to any such assignment shall be Assumed Purchaser Obligations and not Retained Seller Obligations.  If Purchaser does not so elect, the affected Lease and its directly associated Assets shall be deemed an Excluded Asset under this Agreement for all purposes.

(iii) For purposes of this Section 4.6(b) , a Required Consent shall be deemed obtained if the Person holding the Required Consent grants consent or is deemed to have consented pursuant to the terms of the document in which the Required Consent is contained.  For the avoidance of doubt, if Sellers do not obtain consent from the holder of any Soft Consent,

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then, except for those Soft Consents constituting Unobtained Contract Consents or Unobtained Lease Consents, the underlying Asset shall be conveyed to Purchaser at Closing and S ellers shall not be liable for failure to obtain such Soft Consent.

(c) Preferential Rights to Purchase .

(i) If, prior to the Closing, the holder of a Preferential Right to Purchase that will be triggered by the consummation of the transactions contemplated by this Agreement (A) notifies Sellers that it intends to exercise its Preferential Right to Purchase or (B) has failed to exercise or waive its Preferential Right to Purchase, and the time for such exercise or waiver has not yet expired, (i) the Unadjusted Purchase Price shall be decreased by the Allocated Value for such Asset and (ii) the affected Asset shall be excluded from the Assets conveyed at the Closing and shall be deemed an Excluded Asset under this Agreement for all purposes.  In such case, Sellers shall retain the consideration paid by the holder of such Preferential Right to Purchase and shall have no further obligation with respect to the affected Asset under this Agreement.

(ii) If, on the Closing Date, any holder of a Preferential Right to Purchase triggered by the consummation of the transactions contemplated by this Agreement has failed to exercise or waive its Preferential Right to Purchase as to any portion of the Assets and the time for such exercise or waiver has expired, the affected Assets shall be transferred to Purchaser at the Closing.

(iii) If, following the Closing but prior to the date that is 90 days following the Closing , the holder of a Preferential Right to Purchase triggered by the consummation of the transactions contemplated by this Agreement (A) who exercised such right fails to consummate the purchase in accordance with the applicable agreement or (B) fails to exercise or waive such right and the time for such exercise or waiver has expired, in each case, Sellers shall notify Purchaser and an additional Closing shall be held within five Business Days following such failure at which (A) Sellers shall sell, assign and convey the affected Assets to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) and (B) Purchaser shall pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis) in accordance with Section 3.4 .  In the event of such assignment, the term “Closing Date” with respect to any such Assets shall mean the date of assignment of such Assets from Sellers to Purchaser.   Following the date that is 90 days following the Closing, Sellers shall have no further obligation to sell and convey any Assets subject to a Preferential Right to Purchase triggered by the transactions contemplated by this Agreement which have not yet been conveyed to Purchaser pursuant to this Section 4.6(c) , and Purchaser shall have no further obligation to accept and pay for such Assets, and such Assets shall be deemed Excluded Assets under this Agreement for all purposes.

(iv) If the Parties inadvertently close on any Asset burdened by a Preferential Right to Purchase that is triggered by the consummation of the transactions contemplated by this Agreement, either (A) without having provided the required notification to the holder of such Preferential Right to Purchase or (B) without such holder having waived such Preferential Right to Purchase or the time period for the exercise of such Preferential Right to Purchase having expired, and, after the Closing, the holder of such Preferential Right to Purchase successfully

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exercises such Preferential Right to Purchase, then Purchaser shall convey such Asset directly to the holder of such Preferential Right to Purchase and shall be entitled to retain all proceeds pa id for the affected Asset by the holder of the Preferential Right to Purchase.

(d) Customary Post-Closing Consents .  Purchaser, within 30 days after the Closing, shall file for approval with the applicable Governmental Bodies all assignment documents and other state transfer documents required to effectuate the transfer of the Assets.  Purchaser further agrees promptly after the Closing to take all other actions reasonably required of it by Governmental Bodies having jurisdiction to obtain all requisite regulatory approvals with respect to this transaction, and to use its reasonable commercial efforts to obtain the approval by such Governmental Bodies, as applicable, of Sellers’ assignment documents requiring approval from such Governmental Body in order for Purchaser to be recognized by such Governmental Body as the owner of the Assets.  Sellers shall provide Purchaser with the resignation and designation of operator instruments, and Purchaser shall provide Sellers with approved copies of the assignment documents and other state transfer documents within ten Business Days of the receipt of such items by Purchaser.

Section 4.7 Casualty Loss or Condemnation

.

(a) If, after the Execution Date but prior to the Closing Date, any portion of the Assets is affected by Casualty Losses and the Damages as a result of such Casualty Losses exceed, in the aggregate, $1,500,000.00, Purchaser shall nevertheless be required to close, subject to Section 9.2(f) , and the Sellers whose Assets are affected by such Casualty Losses shall elect by written notice to Purchaser prior to the Closing to (i) cause the Assets adversely affected by such Casualty Losses to be repaired or restored to at least their condition prior to such Casualty Losses, at the affected Sellers’ (or Seller’s) sole cost and expense, as promptly as reasonably practicable, (ii) indemnify Purchaser against any costs or expenses that Purchaser reasonably incurs to repair or restore the Assets subject to any such Casualty Losses to the condition such Assets were in prior to such Casualty Losses, provided that Purchaser has consented to accept such indemnity or (iii) make an appropriate monetary adjustment to the Unadjusted Purchase Price reflecting the cost to repair or restore the Assets adversely effected by such Casualty Losses to at least their condition prior to such Casualty Losses, or if such Casualty Losses are not capable of being repaired or restored, then the “reduction in value” caused by such Casualty Losses; provided , however , that such “reduction in value” shall not exceed any amount mutually agreed upon by the Parties as the reasonable cost of repair; provided further , that in no event will any calculation of Damages, cost of repair or reduction in value hereunder take into account any loss of production or changes in production as a result of such Casualty Loss, through an emergency shut-in or otherwise.  Notwithstanding the foregoing, Purchaser shall only be entitled to a remedy in respect of Casualty Losses pursuant to the foregoing sentence to the extent, and only to the extent, such Casualty Losses exceed $1,500,000.00 ; provided , however , that with respect to any portion of such Casualty Losses that does not exceed $1,500,000.00, Purchaser shall be entitled to all sums paid to Sellers by Third Parties by reason of such Casualty Losses and all of Sellers’ right, title and interest (if any) in unpaid awards, condemnation payments, rights to insurance and other rights and claims against Third Parties (other than Persons within the Seller Group) arising out of such Casualty Losses.

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(b) If, after the Execution Date but prior to the Closing Date, any portion of the Assets is t aken in condemnation or under right of eminent domain by any Governmental Body, (i) the affected Asset shall be excluded from the Assets conveyed at the Closing and shall be deemed an Excluded Asset and (ii) the Unadjusted Purchase Price shall be decreased by the Allocated Value for such Asset.  If any action for condemnation or taking under right of eminent domain is pending or threatened with respect to any portion of the Assets after the Execution Date, but no taking of such Asset occurs prior to the Clo sing Date, Sellers shall, at the Closing, sell, assign and convey to Purchaser, or subrogate Purchaser to Sellers’ right, title and interest (if any) in such taking, including any insurance claims, unpaid awards and other rights against Third Parties (othe r than claims against Persons within the Seller Group) arising out of the taking, insofar as they are attributable to the Assets (or portions thereof) threatened to be taken.

ARTICLE 5
ENVIRONMENTAL MATTERS

Section 5.1 Adverse Environmental Conditions

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(a) To assert a claim of an Adverse Environmental Condition, Purchaser must deliver a claim notice to Sellers (each, an “ Environmental Condition Notice ”) at or prior to 5:00 p.m. Central Time on the Defect Claim Date.  To be valid, each Environmental Condition Notice shall be in writing and shall include (i) a description of, and a reasonable explanation of Purchaser’s basis for, the alleged Adverse Environmental Condition, including a description of any standards that Purchaser asserts must be met to comply with Environmental Laws, (ii) identification of each Asset adversely affected by the Adverse Environmental Condition (each, an “ Environmental Defect Property ”), (iii) the Allocated Value of each Environmental Defect Property, (iv) all documents in Purchaser’s possession or control upon which Purchaser relies for its assertion of an Adverse Environmental Condition, including, at a minimum, supporting documents available to Purchaser to the extent reasonably necessary for Sellers to verify the existence of the alleged Adverse Environmental Condition, and (v) the Remediation Amount that Purchaser asserts is attributable to such alleged Adverse Environmental Condition and the computations therefor.  To be valid, each Environmental Condition Notice must be substantially in compliance with each of the requirements of the foregoing sentence .  For the avoidance of doubt, Purchaser may not assert any Adverse Environmental Condition to the extent constituting a Disclosed Environmental Condition, which are set forth on Schedule 5.1 .  Notwithstanding any other provision of this Agreement to the contrary, but without limitation of Purchaser’s rights and remedies pursuant to Section 12.2(b)(iii) for breaches of the representations and warranties of Sellers in Section 6.21 , Purchaser will be deemed to have waived its right to assert any Adverse Environmental Conditions for which an Environmental Condition Notice in substantial compliance with each of the requirements set forth in Section 5.1(a)(i) – (v) above has not been delivered on or before the Defect Claim Date.

(b) Remedies .  To the extent Purchaser delivers any valid Environmental Condition Notice in accordance with Section 5.1(a) prior to the Defect Claim Date, then, subject to the Defect Threshold and Aggregate Defect Deductible, Sellers may, on or before the end of the Remedy Period, elect any of the following remedies:

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(i) Notify Purchaser that they intend to Remediate such Adverse Environmental Condition and undertake such Remediation, which Remediation work may extend to the end of the Post-Clos ing Cure Period under a mutually agreeable form of access agreement containing reciprocal forms of the applicable terms binding upon Purchaser in Section 8.1 , in which case Sellers shall retain such Environmental Defect Property (including any directly ass ociated Assets) at the Closing, and the Unadjusted Purchase Price will be reduced by the Allocated Value (if any) of such Environmental Defect Property and any other directly associated Assets so retained;

(ii) Notify Purchaser that they do not intend to Remediate such Adverse Environmental Condition, in which case the Unadjusted Purchase Price shall be reduced by the Remediation Amount, as agreed upon by the Parties or determined by the Environmental Expert, attributable to such Environmental Defect; or

(iii) To the extent the alleged Remediation Amount exceeds $500,000.00, retain such Environmental Defect Property (including any directly associated Assets) or the portion thereof subject to the Adverse Environmental Condition (at which point such Environmental Defect Property (including any directly associated Assets) or portion so retained will become an Excluded Asset), and reduce the Unadjusted Purchase Price by an amount equal to the Allocated Value, if any, of such Environmental Defect Property, or portion thereof, and any other directly associated Assets so retained;

provided , however , that if Sellers fail to elect a remedy prior to the end of the Remedy Period, Sellers shall be deemed to have elected the remedy described in Section 5.1(b)(i) ; provided further that in the case of Seller’s election of the remedy described in Section 5.1(b)(ii) , the applicable Environmental Defect Properties shall be conveyed to Purchaser at the Closing in accordance with the terms of this Agreement and, subject to the Defect Threshold and the Aggregate Defect Deductible, the Unadjusted Purchase Price shall be reduced by the Remediation Amount of such Adverse Environmental Condition.  In the event that Sellers have elected the remedy in Section 5.1(b)(i) and (i) such Adverse Environmental Condition is Remediated at or prior to the expiration of the Post-Closing Cure Period, within five Business days after such completion, Sellers shall convey the affected Environmental Defect Property (and its directly associated Assets) to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance) and Purchaser will pay to Sellers an amount equal to the Allocated Value of such Assets, adjusted ( mutatis mutandis ) in accordance with Section 3.4 or (ii) such Adverse Environmental Condition is not fully Remediated prior to the expiration of the Post-Closing Cure Period, then within five Business days after such expiration, Sellers shall elect to either (A) convey the Environmental Defect Property to Purchaser (in accordance with the provisions of clause (i) of this sentence, except that Purchaser shall pay Sellers an amount for such Assets equal to their Allocated Value less the remaining Remediation Amount or, if the remaining Remediation Amount is greater than the adjusted Allocated Value of such Assets, Sellers shall pay Purchaser the amount of such excess) or (B) to the extent the remaining Remediation Amount asserted by Purchaser is greater than $500,000.00, retain such Environmental Defect Property and its directly associated Assets permanently.  An election by Sellers to attempt to Remediate an Adverse Environmental Condition shall be without prejudice to their rights under Section 5.2 and shall not constitute an admission against interest or a waiver of Sellers’ right to dispute the existence, nature or value of, or cost to Remediate, the alleged

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Adverse Environmental Condition or the adequacy of any Environmental Condition Notice or any curative action.

(c) If Sellers select the remedy in Section 5.1(b)(i) or  Section 5.1(b)(ii) and Purchaser waives such Adverse Environmental Condition or Sellers fail to Remediate and the Unadjusted Purchase Price is adjusted for such Adverse Environmental Condition, then in each case Purchaser shall be deemed to have assumed responsibility for Remediation of such Adverse Environmental Condition and such Adverse Environmental Condition and all liabilities with respect thereto shall be deemed to constitute Assumed Purchaser Obligations.  With respect to any provision of this Article 5 that refers to any Remediation completed by Sellers, Sellers will be deemed to have adequately completed the Remediation upon mutual agreement of the Parties that the Remediation has been implemented to the extent necessary to comply with Environmental Laws applicable; provided , however , that if the Parties cannot reach an agreement, the issue of whether the Remediation is completed may be resolved by the dispute resolution procedures set forth in Section 5.2 .  Without limitation of Purchaser’s rights and remedies pursuant to Section 12.2(b)(iii) for breaches of the representations and warranties of Sellers in Section 6.21 , following the completion of any Remediation in accordance with this Section 5.1(c) , Purchaser shall have no further remedies against Sellers with respect to the Remediation of the applicable Adverse Environmental Condition or the corresponding Remediation Amount.

(d) Notwithstanding anything to the contrary herein, including this Article 5 , in the event the Remediation Amount for an alleged Environmental Conditions exceeds $500,000.00, then Purchaser shall have the right to elect ((X) prior to Closing, if (i) the Parties have agreed on the Remediation Amount prior to Closing or (ii) Purchaser believes in good faith the Remediation Amount exceeds $500,000.00, or (Y) promptly following the Environmental Expert’s decision, if there is a related Disputed Environmental Matter) to exclude such Environmental Defect Property and its directly associated Assets from the transactions contemplated hereby; in which case Sellers shall retain such Environmental Defect Property (including any directly associated Assets) at the Closing, and the Unadjusted Purchase Price will be reduced by the Allocated Value (if any, and as adjusted hereunder) of such Environmental Defect Property and any other directly associated Assets so retained.  For the avoidance of doubt, Purchaser’s remedies under this Section 5.1(d) shall be subject to the Defect Threshold and the Aggregate Defect Deductible.

(e) With respect to the Adverse Environmental Conditions affecting the Current Remediation Matter, from and after the  Closing Date, at no cost or expense to the Purchaser Group, the Sellers shall diligently and timely undertake all necessary activities to implement and complete the Remediation thereof in compliance with applicable Environmental Laws.  The Parties, at Closing, shall sign the Site Access Agreement to permit the continuing conduct of such Remediation after the Closing Date.  Such Remediation will be deemed complete in accordance with the standard set forth in Section 5.1(c) , and if a dispute arises regarding whether the Remediation is complete, such dispute may be resolved by the dispute resolution procedures set forth in Section 5.2 ( mutatis mutandis ), as if the disputed Remediation were a Disputed Environmental Matter, except that (i) the Assets that are the subject of the Current Remediation Matter will not be retained by Seller, (ii) the deadline for submission to the Environmental Expert by any Party will be the date that is twenty Business Days after Sellers have notified the

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Purchaser in writing that the Remediation is complete and that Sellers demand that Purchaser exercise dispute resolution if Purchaser disagrees, (iii) the Environmental Expert’s sole findings shall be regarding w hether such Remediation is complete, and if not, the manner in which Sellers’ Remediation is deficient, in which case, as the Parties’ only remedy therefor, Seller shall be obligated to complete such Remediation in accordance with the Environmental Expert’ s findings, and (iv) if the Environmental Expert agrees that Remediation of the Adverse Environmental Conditions affecting the Current Remediation Matter is not complete, Sellers will bear all of the costs of the Environmental Expert resolving the subject dispute whereas if the Environmental Expert agrees that Remediation of the Adverse Environmental Conditions affecting the Current Remediation Matter is complete, then Purchaser shall bear all of the costs of the Environmental Expert resolving the subject d ispute.

Section 5.2 Adverse Environmental Condition Disputes

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(a) Sellers and Purchaser shall attempt to agree on all asserted Adverse Environmental Conditions and Remediation Amounts prior to the Closing Date.  If, by (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date Remediation work, the end of the Post-Closing Cure Period, Sellers and Purchaser are unable to agree on an alleged Adverse Environmental Condition, on the completion of Remediation or on an alleged Remediation Amount (including, in each case, the adequacy of notices thereof or any Remediation actions with respect thereto) (the “ Disputed Environmental Matters ”) such disputes, and only such disputes, shall be exclusively and finally resolved in accordance with the following provisions of this Section 5.2 .  Any Asset subject to a Disputed Environmental Matter at the Closing shall be retained by Sellers at Closing and an amount equal to the Allocated Value of such Asset shall be placed in escrow with the Escrow Agent.  Any initiation of an expert determination of any Disputed Environmental Matter shall only be in accordance with the following provisions.

(b) No later than twenty Business Days following the (i) the Closing Date or (ii) solely with respect to any disputes over the adequacy of Sellers’ post-Closing Date Remediation work, the end of the Post-Closing Cure Period, either Party may submit any Disputed Environmental Matter to expert determination pursuant to this Section 5.2 by written notice to the other Party, together with all reasonably supporting documentation of such Disputed Environmental Matter.  If a Party does not submit a notice of expert determination to the other Party in accordance with this Section 5.2(b) , such Party shall be deemed to have waived all such Disputed Environmental Matters, which shall be deemed conclusively resolved in accordance with the other Party’s written position in the Environmental Condition Notice or subsequent correspondence between the Parties.

(c) By not later than twenty Business Days after a Party’s receipt of a written description of any Disputed Environmental Matters, such Party shall provide to the initiating Party a written response setting forth its position with respect to such Disputed Environmental Matters, together with all reasonably supporting documentation.

(d) There shall be a single environmental expert (the “ Environmental Expert ”), who shall be an environmental consultant with at least ten years’ experience examining environmental matters involving oil and gas producing properties in the region in Texas in which the Assets are

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located.  Within two Business Days following the initiating Party’s receipt of the other Party’s response as described in Section 5.2(c) , Sellers and Purchaser shall each exchange lists of three acceptable, qualified environmental experts, and shall certify that each potential environmental expert set forth on its list has not, and such environmental expert’s firm has not, represented the certifying Party or any of its Affiliates w ithin the previous two years.  Within two Business Days following the exchange of lists of environmental experts, Sellers and Purchaser shall select by mutual agreement the Environmental Expert from their original lists of three acceptable environmental ex perts.  If no such agreement is reached, the Houston office of the American Arbitration Association shall select an environmental expert from the original lists provided by Sellers and Purchaser to serve as the Environmental Expert.

(e) Within two Business Days following the selection and engagement of the Environmental Expert, the Parties shall submit to the Environmental Expert one copy of (i) this Agreement, with specific reference to this Section 5.2 , the other applicable provisions of this Article 5 and any defined terms in Appendix A relevant to this Article 5 , (ii) the initiating Party’s written description of the Disputed Environmental Matters provided pursuant to Section 5.2(b) , together with the supporting documents that were provided to the other Party and (iii) the other Party’s written response to the initiating party’s written description of the Disputed Environmental Matters, together with the supporting documents that were provided to the initiating Party.  The Environmental Expert shall resolve the Disputed Environmental Matters based only on the foregoing submissions.  Neither Purchaser nor Sellers shall have the right to submit additional documentation to the Environmental Expert or to demand discovery on the other Party.

(f) The Environmental Expert, once appointed and engaged, shall have no ex parte communications with any Party concerning the determination required hereunder.  All communications between any Party and the Environmental Expert shall be conducted in writing, with copies sent simultaneously to the other Parties in the same manner, or at a meeting in Houston, Texas, to which the representatives of all Parties have been invited and of which such Parties have been provided at least five days’ written notice.

(g) The Parties will instruct the Environmental Expert to make his determination by written decision within 15 Business Days following submission of the Disputed Environmental Matters to the Environmental Expert, which shall be final and binding upon the Parties, without right of appeal and shall be enforceable by either Party in any court of competent jurisdiction.  In making the determination, the Environmental Expert shall be bound by the rules set forth in this Article 5 .  The Environmental Expert may consult with and engage disinterested Third Parties to advise the Environmental Expert but shall disclose to the Parties the identities of such consultants.  Any such consultant shall not have worked as an employee of or consultant for either Party or its Affiliates during the two-year period preceding the expert determination and shall not have any financial interest in the dispute.  The written finding of the Environmental Expert will set forth the Environmental Expert’s finding, if applicable, as to (A) whether the subject Adverse Environmental Condition exists or has been Remediated and, subject to the following sentence, the resulting Remediation Amount, (B) the deficiencies in any notice of the foregoing and the specific supplemental information that, if provided, would cause such notice to be in compliance with the terms of Section 5.1(a) and/or (C) the adequacy of any Remediation action, including any such additional Remediation actions necessary to Remediate properly any

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asserted Adverse Environmental Condition, as applicable, in eac h case, including the Environmental Expert’s rationale for the determination.  With respect to a Remediation Amount, the Environmental Expert shall be limited to awarding only the final amount proposed by either Party in its submissions provided pursuant t o Section 5.2(e) .  The Environmental Expert shall make a separate and independent determination with respect to each Disputed Environmental Matter submitted and shall provide a detailed written finding supporting such determination. For the avoidance of d oubt, the submission of a Disputed Environmental Matter for interim determination ( e.g. , a determination about the adequacy of an Environmental Condition Notice) shall not prohibit any Party from subsequently disputing the existence of an asserted Adverse Environmental Condition, the Remediation Amount or the adequacy of any Remediation actions taken with respect to an asserted Adverse Environmental Condition unless the Environmental Expert has already made a determination with respect to such matters.

(h) The Environmental Expert shall act as an expert for the limited purpose of determining the specific disputed Adverse Environmental Conditions and shall not be empowered to award Damages, interest or penalties to either Party with respect to any matter.

(i) Each Party shall each bear its own legal fees and other costs of preparing and presenting its case.  The costs of the Environmental Expert shall be borne (i) by Sellers in a ratio equal to a fraction, the numerator of which is the aggregate Remediation Amounts awarded by the Environmental Expert in Purchaser’s favor, and the denominator of which is the aggregate amount of the associated Remediation Amounts submitted for determination to the Environmental Expert, and (ii) the remainder by Purchaser.

(j) After the Environmental Expert’s determination is delivered as set forth in Section 5.2(g) , Sellers shall promptly elect whether (i) if the Remediation Amount exceeds $500,000.00, to retain the entirety of the Environmental Defect Property that is subject to such Disputed Environmental Matter , together with all associated Assets, and reduce the Unadjusted Purchase Price by the Allocated Value of such Environmental Defect Property and associated Assets (in which case such Environmental Defect Property and such associated Assets shall be deemed to be Excluded Assets hereunder) or (ii) to reduce the Unadjusted Purchase Price as set forth in the immediately following sentence, in which case, Sellers shall convey the affected Environmental Defect Property (and its directly associated Assets) to Purchaser pursuant to the terms of this Agreement (using the form of Conveyance).  Subject to the Defect Threshold and the Aggregate Defect Deductible, any amounts determined to be owed by either Party shall be accounted for in the final determination of the Adjusted Purchase Price pursuant to Section 10.4 , and Sellers and Purchaser shall deliver documentation to the Escrow Agent required to release the amounts determined by the Environmental Expert to be owed to either Party .  Any alleged Adverse Environmental Conditions determined not to be Adverse Environmental Conditions under the decision of the Environmental Expert shall be final and binding as not being Adverse Environmental Conditions.

(k) Any dispute over the interpretation or application of this Section 5.2 shall be decided by the Environmental Expert with reference to the Laws of the State of Texas.  The Parties intend that the procedures set forth in this Section 5.2 shall not constitute or be handled as arbitration proceedings under the Federal Arbitration Act or any applicable state arbitration act, and that the provisions of this Section 5.2 shall be specifically enforceable.

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Section 5.3 Limitations on Applicability

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(a) This Article 5 shall comprise, subject to Purchaser’s rights under this Agreement with respect to the representations and warranties set forth in Section 6.21 (and Section 12.2(b)(iii) for breaches thereof), and the Retained Seller Obligations, and the limitations set forth in this Agreement, the exclusive rights and remedies of Purchaser with respect to Adverse Environmental Conditions or any other environmental matter with respect to any Asset.

(b) Notwithstanding anything to the contrary in this Agreement, in no event shall there be any adjustments to the Unadjusted Purchase Price or other remedies (except with respect to the Current Remediation Matter) available in respect of Adverse Environmental Conditions under this Article 5 unless the sum of (i) all such Remediation Amounts that exceed the Defect Threshold and (ii) all such Title Defect Amounts that exceed the Defect Threshold exceeds the Aggregate Defect Deductible, after which point Purchaser shall be entitled to adjustments to the Unadjusted Purchase Price or other remedies elected by Sellers in accordance with this Article 5 only to the extent that the sum of such Remediation Amounts and such Title Defect Amounts exceeds the Aggregate Defect Deductible.

(c) In the event (i) Purchaser is entitled to a remedy pursuant to clause (b) above and such remedy is that a Property is removed from this transaction or not transferred to Purchaser or (ii) a Property is removed from this transaction or not transferred to Purchaser pursuant to Section 4.6(b) , Section 4.6(c) or Section 8.1(a) , the Allocated Value of any such removed Property shall not be included in the Aggregate Defect Deductible .

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SELLERS

Subject to the disclaimers and waivers contained in, and the other terms and conditions of, this Agreement, Sellers represent and warrant to Purchaser as follows as of the Execution Date:

Section 6.1 Organization and Power

.  Each Seller (a) is validly existing and in good standing under the Laws of its jurisdiction of organization and is duly qualified to do business in, and is in good standing in, the State of Texas, to the extent such qualification is required by applicable Law and (b) has all requisite power and authority to own, lease, operate and use the assets and properties currently owned, leased, operated and owned by it, including the Assets.

Section 6.2 Authorization and Enforceability

.  Each Seller has the requisite power and authority to execute and deliver this Agreement and the other instruments and agreements to be executed and delivered by it as contemplated hereby and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and all documents required to be executed and delivered by Sellers at the Closing, and the performance of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate, partnership or limited liability action on the part of Sellers.  This Agreement has been duly executed and delivered by Sellers (and all documents required hereunder to be executed and delivered by Sellers at the Closing will be duly executed and delivered by Sellers) and this Agreement constitutes, and at the Closing such documents will

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constitute, assuming the due execution and delivery of all other parties thereto, the valid and binding obligations o f Sellers, enforceable in accordance with their terms, subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and to general prin ciples of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

Section 6.3 Liability for Brokers’ Fees

.  Purchaser shall not directly or indirectly have any responsibility, liability or expense, as a result of undertakings or agreements of Sellers or any of their Affiliates entered into in connection with this Agreement, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.

Section 6.4 No Conflicts .

Except for (i) Customary Post-Closing Consents, (ii) Required Consents, (iii) Preferential Rights to Purchase, (iv) Soft Consents and any other consents required to be scheduled on Schedule 6.10 , and (v) the filings required under, and compliance with the requirements of, the HSR Act, except as set forth on Schedule 6.4 , the execution, delivery and performance of this Agreement by Sellers, and the transactions contemplated by this Agreement, will not (a) violate any provision of the organizational documents of Sellers or require any consent or approval from any Person thereunder, (b) result in a material default (with or without due notice or lapse of time or both) under, or require any material consent under, any note, bond, mortgage, indenture or Material Contract to which any Seller is a party or by which any Seller or the Assets are bound, (c) violate any Law applicable to any Seller or any of the Assets in any material respect or (d) require any Seller to obtain any material consent or approval of any Governmental Body that has not been made or obtained.

Section 6.5 Litigation.

Except as disclosed on Schedule 6.5 , and excluding all threatened claims relating to the payment or nonpayment of royalties or other burdens on production with regard to the Assets with respect to which (x) no actual suits or proceedings before any Governmental Body have been initiated against any Seller and/or (y) no written demand letter has been received that remains unresolved, (X) there are no actions, suits or proceedings that are pending, and, to Sellers’ knowledge, there are no material actions, suits, proceedings or investigations by any Governmental Authority threatened in writing, before or by any Governmental Body or arbitrator (a) against the Seller Operated Assets, or to Seller’s knowledge, the Assets operated by Third Parties, (b) against any Seller with respect to the Assets or (c) against, or that have been brought by, any Seller that would be reasonably likely to materially impair such Seller’s ability to perform its obligations under this Agreement and (Y) there exist no material unsatisfied judgments of any Governmental Body or arbitrator against any Seller that could reasonably be expected to result in the impairment or loss of such Seller’s interest in any part of the Assets.  Notwithstanding the foregoing, Sellers make no representation or warranty, express or implied, under this Section 6.5 relating to any Environmental Liabilities or Environmental Law.

Section 6.6 Taxes and Assessme nts

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(a) With respect to all Taxes related to the Assets, (i) all Tax Returns required to be filed by any Seller with respect to such Taxes have been timely filed with the appropriate

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Governmental Body in all jurisdictions in which such Tax Returns are requir ed to be filed, (ii) such Tax Returns are true and correct in all material respects and (iii) all Taxes reported on such Tax Returns have been paid.

(b) With respect to all Taxes related to the Assets, except as set forth on Schedule 6.6(b) , (i) except with respect to Income Taxes, there is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any such Tax, (ii) there are no administrative proceedings or lawsuits pending again st the Assets by any taxing authority, (iii) there are no administrative proceedings or lawsuits pending against any Seller (except for Income Taxes) relating to the Assets, (iv) there are no Tax liens on any of the Assets other than Permitted Encumbrances, (v) no Seller has received written notice of any pending claim against it (which remains outstanding) from any applicable Governmental Body for assessment of material Taxes with respect to the Assets, and no such claim has been threatened in writing (vi) none of the Assets are deemed by agreement or applicable Law to be held by a partnership for federal income tax purposes for which an election under Treasury Regulation § 1.761-2 to be excluded from the provisions of subchapter K of chapter 1 of the Code is not in effect and such election is valid, (vii) no Seller nor any Affiliate thereof is presently contesting a Tax liability with respect to the ownership of the Assets before any Governmental Body, (viii) as of the Closing Date, no Seller will be a party to or will be bound by any Tax allocation, Tax sharing or indemnification agreement; and (ix) no claim has ever been made by an authority in a jurisdiction where any Seller does not file Tax Returns that it is or may be subject to taxation in that jurisdiction .

(c) Notwithstanding anything to the contrary contained herein, none of the representations or warranties contained elsewhere in Article 6 shall relate to Tax matters, which are instead the subject of this Section 6.6 exclusively.

Section 6.7 Capital Commitments

. Except as disclosed on Schedule 6.7 , as of the Execution Date there are no outstanding AFEs or other capital commitments to Third Parties (a) that are binding on the Assets, (b) that are in excess of $50,000.00 net to Sellers’ interest and (c) for which all activities have not been completed by the Execution Date.

Section 6.8 Compliance with Laws

.  Except as disclosed on Schedule 6.8 , during the four years prior to the Closing Date, the Seller Operated Assets have been operated in compliance in all material respects with all applicable Laws.  To Sellers’ knowledge, during the four years prior to the Closing Date, any Assets operated by Third Parties have been operated in all material respects in compliance with all applicable Laws.  Sellers have not received any written notice of a material violation of or material default by any Seller from any Governmental Body with respect to any Law applicable to the Assets that remains unresolved as of the Execution Date.  

Section 6.9 Contracts

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(a) Schedule  6.9(a) sets forth a list of the following Contracts (such scheduled Contracts, the “ Material Contracts ”):

(i) Any Contract that can be reasonably expected to result in aggregate payments or receipts of revenue by Sellers of more than $50,000.00 during the current or any subsequent year;

(ii) Any gathering, transportation, treatment, handling, storage, processing, marketing or similar Contract, Hydrocarbon sales Contract or any Contract that includes an acreage dedication, minimum volume commitment, throughput requirement, or demand, take or pay or similar charges, in each case, that is not terminable without penalty on sixty (60) or fewer days’ notice;

(iii) Any mortgage, deed of trust, security interest or other Debt Contract of Sellers or their Affiliates encumbering any Asset that will not be terminated at or prior to the Closing;

(iv) Excluding the Leases, any Contract that is a lease under which Sellers are the lessor or the lessee of real or personal property which lease (A) cannot be terminated by Sellers without penalty upon sixty (60) days or fewer notice or (B) involves an annual base rental of more than $50,000.00;

(v) Any Contracts with Affiliates of any Seller (or between any two Sellers) that will be binding on the Assets after the Closing;

(vi) Any Contract that constitutes an area of mutual interest agreement or any other agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, any Seller conducts business within or adjacent to the Properties that will be binding on the Assets after the Closing;

(vii) Any Contract that constitutes a joint venture, joint operating, joint development, participation or joint exploration agreement, unit agreement, unit operating agreement, production sharing agreement, term assignment or farmin or farmout agreement; and

(viii) Any Contract pursuant to which any Seller has an unperformed obligation to sell, exchange, transfer, or dispose of any of such Seller’s interests in the Properties (other than this Agreement).

(b) Except as disclosed on Schedule  6.9(b) , each Material Contract is a legal, valid and binding obligation against the Sellers that are party thereto and, to the knowledge of Sellers, each party thereto (other than Purchaser or its Affiliates), is enforceable in accordance with its terms against such Seller and, to the knowledge of Sellers, each party thereto (other than Purchaser or its Affiliates) and is in full force and effect, subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).  No Seller nor, to the knowledge of Sellers, any party thereto (other than Purchaser or its Affiliates), is in default under any Material Contract and no event, occurrence, condition or act has occurred that, with the

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giving of notice, the lapse of time or the happening of any other event or condition, would become a default or event of default by any Seller or, to the knowledge of Sellers, any party thereto (other than Purchase r or its Affiliates), that in each case would reasonably be expected, individually or in the aggregate, to be material to Sellers or the Assets, individually or taken as a whole . Sellers have provided Purchaser true and complete copies of each Material Con tract and all amendments thereto that are currently in effect.

(c) There are no Hedging Contracts or Debt Contracts that will be binding on the Assets after the Closing.

Section 6.10 Consents and Preferential Purchase Rights

.  Except for (i) Customary Post‑Closing Consents and (ii) the Required Consents, Soft Consents and Preferential Rights to Purchase set forth on Schedule 6.10 (including the filings required under and compliance with the requirements of, the HSR Act), none of the Assets, or any portion thereof, is subject to any Preferential Rights to Purchase, Required Consents, Soft Consents or other Third Party restriction on assignment that will be applicable to, or triggered by, the transactions contemplated by this Agreement.

Section 6.11 Leases

.  Except as set forth on Schedule 6.11 , with respect to the Seller Operated Assets and, to the knowledge of Sellers, with respect to those Properties that are operated by Third Parties, there are no actions, suits or proceedings with respect to any Lease pending or, to Seller’s knowledge, threatened within the last twelve months before any Governmental Body in which the lessor thereunder is seeking to terminate, cancel, rescind or procure judicial reformation of any such Lease, in whole or in part.  Since the Effective Time, no Seller has granted, conveyed and/or reserved an overriding royalty interest in and to the Properties, for or on behalf of any Affiliate of any Seller.

Section 6.12 Advance Payments

.  Except for any Imbalances described on Schedule 6.14 , no Seller is obligated by virtue of any take-or-pay payment, advance payment or any other arrangement (other than Burdens) to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Assets at some future time without receiving full payment therefor at or promptly after the time of delivery.

Section 6.13 Surface Agreements

.  Except as set forth on Schedule 6.13 , to Sellers’ knowledge (a) each of the Surface Agreements set forth on Exhibit A-6 is legal, valid, binding, enforceable and in full force and effect; (b) no Seller, nor, to Sellers’ knowledge, any party thereto (other than Purchaser or its Affiliates), is in material breach of or material default under any such Surface Agreement; and (c) no event has occurred or circumstance exists that, with the delivery of notice, the passage of time or both, would constitute such a material breach or default of such Surface Agreement by such Seller or, to Sellers’ knowledge, any party thereto (other than Purchaser or its Affiliates).  No Hydrocarbons produced from the Properties are being transported by Sellers (excluding any transportation by Third Parties on behalf of Sellers) over the Lands without appropriate rights permitted such transportation.

Section 6.14 Imbalances

.  All Imbalances associated with the Seller Operated Assets, and to Sellers’ knowledge, all Imbalances associated with the Assets operated by Third Parties, are set forth on Schedule 6.14 , in each case, as of the date set forth on the schedule.

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Section 6.15 Suspense Funds

.   Schedule 6.15 sets forth the aggregate amount, as of the date set forth on Schedule 6.15 , of all Suspense Funds held by AEPO, excluding minimum suspense.

Section 6.16 Bankruptcy

.  There are no bankruptcy, insolvency, reorganization or receivership proceedings pending against, being contemplated by, or to Sellers’ knowledge, threatened against, any Seller.

Section 6.17 Condemnation

.  There is no actual or, to Sellers’ knowledge, threatened taking (whether permanent, temporary, whole or partial) of any part of the Assets by reason of condemnation or the threat of condemnation.

Section 6.18 Permits

.  Except as set forth on Schedule 6.18 (a) Sellers have obtained all material Permits presently required for the ownership and operation of the Seller Operated Assets as currently owned and operated, (b) to Sellers’ knowledge, those Third Party operators who operate those Assets that are not Seller Operated Assets maintain all material Permits presently required for the ownership and operation of such Assets as currently owned and operated and (c) no Seller has received any written notice of violation of any such material Permit that remains unresolved and that might reasonably be expected to result in any modification, revocation, termination or suspension of any such material Permit.  Notwithstanding the foregoing, Sellers make no representation or warranty, express or implied, under this Section 6.18 relating to any Environmental Liabilities or Environmental Law.

Section 6.19 Plugging and Abandonment

.   Except as set forth on Schedule 6.19 , there are no oil, gas or disposal Wells operated by Sellers (a) in respect of which any Seller has received a written order from any Governmental Body requiring that such Wells be plugged and abandoned or (b) that are currently required by applicable Law or Contract to be plugged and abandoned.  To Sellers’ knowledge, there are no Wells that are operated by Third Parties (i) for which such Third Party operator has received a written order from any Governmental Body currently requiring that such Well be plugged and abandoned or (ii) that are currently required to be plugged and abandoned in accordance with applicable Law or Contract.

Section 6.20 Labor, Employment and Benefits

.  

(a) AEPO has provided Purchaser with a list of the name, job title, date of hire, work location, exempt or non-exempt status, active or leave status, hourly rate or annual salary, as applicable, and target bonus, if any, of the Available Employees.  None of the Available Employees of the Seller is a party to any written employment contract, termination or severance agreement or similar contract, except that all Available Employees participate in the Anadarko Petroleum Corporation severance plan.  The employment of the Available Employees is terminable at will.

(b) None of the Sellers or their Affiliates who employ Available Employees (collectively, the “ Employers ”) are, nor have they been, a party to, or bound by, any collective bargaining agreement or other agreement, contract or understanding with any labor union or labor organization relating to the Available Employees, nor are any of the Available Employees represented by a labor union.  No labor union, labor organization or group of Available

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Employees has in the past ten years made any demand of any Employer, nor are there any pending petitions, for recognition or certification of a labor union or association as the exclusive b argaining agent with respect to the Available Employees.  There are no union organizing activities or proceedings currently underway that involve a labor union or other association as the exclusive bargaining agent for the Available Employees, or where the purpose is to organize the Available Employees.  With respect to the Available Employees, no labor strike, work stoppage, slowdown, concerted refusal to work overtime, walkout, lockout or similar labor disturbance is currently pending or, to Sellers’ know ledge, threatened against any Employer.  No Employer has engaged in any unfair labor practice with respect to the Available Employees, nor are there any unfair labor practice complaints or grievances currently pending or, to the knowledge of Sellers, threa tened against any Employer with respect to the Available Employees.

(c) AEPO has made available to Purchaser a benefits booklet describing employee benefits commonly provided to the Available Employees.  Each Employee Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Code and from which any Available Employee could receive an “eligible rollover distribution” has received a favorable determination letter as to its qualification, or is the subject of an opinion letter, from the Internal Revenue Service, and to the knowledge of Sellers, nothing has occurred that would reasonably be expected to cause the loss of such favorable determination.

(d) The Employers have complied, and are currently in compliance in all material respects with all applicable Laws pertaining to labor or employment matters, including, but not limited to Laws governing or regarding hours of work, the payment of wages (including overtime) or other compensation, employee benefits, employment discrimination and harassment, occupational safety and health, and any and all other Laws governing or pertaining to the terms, conditions, and privileges of employment.  No proceedings, claims or charges alleging any failure to comply with such Laws pertaining to employment-related matters are currently pending or, to the knowledge of Sellers, threatened, against any Employer with respect to the Available Employees (and, to the knowledge of Sellers, there is no basis therefor), and no such proceeding, claim or charge has previously been filed or commenced against any Employer with respect to the Available Employees.

(e) Except as set forth on Schedule 6.20 , Sellers do not contribute to, and do not have any liability with respect to, any Employee Benefit Plan that is an “employee pension benefit plan” (as such term is defined under Section 3(2) of ERISA) that is subject to Title IV or Section 302 of ERISA or Section 412 of the Code.  Sellers do not contribute to, and do not have any liability with respect to, any Employee Benefit Plan that is a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA).  Purchaser’s acquisition of the Assets will not cause Purchaser or any of its Affiliates to incur any liability under Title IV or Section 302 of ERISA or Section 412 of the Code.

Section 6.21 Environmental Matters

.  Except as set forth on Schedule 5.1 , to the knowledge of Sellers, (a) no Seller has received any written notice from a Governmental Body or other Person alleging or involving any material noncompliance with or potential material liability under any Environmental Law with respect to the Assets or operations conducted thereon that remains unresolved as of the Execution Date and (b) there are no claims, demands, suits, investigations or proceedings of a material nature pending before a Governmental Body under

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Environmental Laws against any Seller with respect to the Assets or any Sellers’ ownership or operation thereof.

Section 6.22 Payout Balances

.  With respect to those Wells operated by AEPO, Schedule 6.22 sets forth, and with respect to any Well operated by a Third Party, to Sellers’ knowledge, Schedule 6.22 sets forth, the payout balances as of the date set forth on Schedule 6.22 for each Well subject to reversion or other adjustment at payout (or some other event, other than a termination of a Lease in accordance with its terms).

Section 6.23 Certain Disclaimers

.

(a) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS ARTICLE 6 , THE CERTIFICATE OF SELLERS DELIVERED PURSUANT TO Section 10.2(c) , THE CONVEYANCES, AND THE DEEDS, NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT (i) SELLERS MAKE NO, AND EXPRESSLY DISCLAIM ANY AND ALL, REPRESENTATIONS OR WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, AND (ii) SELLERS EXPRESSLY DISCLAIM ALL LIABILITY AND RESPONSIBILITY FOR ANY STATEMENT OR INFORMATION MADE OR COMMUNICATED (ORALLY OR IN WRITING) TO PURCHASER OR ANY OF ITS AFFILIATES, EMPLOYEES, AGENTS, CONSULTANTS OR REPRESENTATIVES (INCLUDING ANY OPINION, INFORMATION OR ADVICE THAT MAY HAVE BEEN PROVIDED TO PURCHASER BY ANY PERSON OF THE SELLER GROUP).

(b) EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS ARTICLE 6 , THE CERTIFICATE OF SELLERS DELIVERED PURSUANT TO Section 10.2(c) , THE CONVEYANCES, AND THE DEEDS, AND WITHOUT LIMITING THE GENERALITY OF Section 6.23( a) , NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, SELLERS MAKE NO, AND EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR IMPLIED, ORAL OR WRITTEN, AS TO (i) TITLE TO ANY OF THE ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT OR ANY GEOLOGICAL OR SEISMIC DATA, MAP OR INTERPRETATION RELATING TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR RECOVERABILITY OF HYDROCARBONS IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (v) THE PRODUCTION OF HYDROCARBON SUBSTANCES FROM THE ASSETS OR WHETHER PRODUCTION HAS BEEN CONTINUOUS OR IN PAYING QUANTITIES, (vi) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, (vii) THE CONTENT, CHARACTER, COMPLETENESS, ACCURACY OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES, MANAGEMENT PRESENTATION, DATA ROOM, CHARTS OR STATEMENTS (INCLUDING FINANCIAL STATEMENTS) PREPARED BY SELLERS, THEIR AFFILIATES OR THIRD PARTIES WITH RESPECT TO THE ASSETS, (viii) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE

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AVAILABLE OR COMMUNICATED TO THE PURCHASER GROUP OR PURCHASER’S REPRESENTATIVES IN CONNECTION WITH THE TRANSACTIONS CO NTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO (INCLUDING ANY ITEMS PROVIDED IN CONNECTION WITH SECTION 8.1 ) OR (ix) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, AND SELLERS FURTHER DISC LAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES THAT PURCHASER SHALL BE DEEMED TO BE OBTAINING THE EQU IPMENT AND OTHER TANGIBLE PROPERTY TRANSFERRED HEREUNDER IN ITS PRESENT STATUS, CONDITION AND STATE OF REPAIR, “AS IS” AND “ WHERE IS ” WITH ALL FAULTS, AND THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE.

(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, AND EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN SECTION 6.21 , SELLERS HAVE NOT AND WILL NOT MAKE, AND EXPRESSLY DISCLAIM, ANY REPRESENTATION OR WARRANTY REGARDING ANY MATTER OR CIRCUMSTANCE RELATING TO ENVIRONMENTAL LAWS (INCLUDING PERMITS REQUIRED UNDER ENVIRONMENTAL LAWS), ENVIRONMENTAL LIABILITIES, THE RELEASE OF HAZARDOUS SUBSTANCES, HYDROCARBONS OR NORM INTO THE ENVIRONMENT OR THE PROTECTION OF HUMAN HEALTH, SAFETY, NATURAL RESOURCES OR THE ENVIRONMENT, OR ANY OTHER ENVIRONMENTAL CONDITION OF THE ASSETS, AND, EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN SECTION 6.21 , NOTHING IN THIS AGREEMENT OR OTHERWISE SHALL BE CONSTRUED AS SUCH A REPRESENTATION OR WARRANTY, AND, SUBJECT TO PURCHASER’S RIGHTS UNDER ARTICLE 5 AND THE SITE ACCESS AGREEMENT AND SELLERS’ INDEMNITY OBLIGATIONS PURSUANT TO Section 12.2(b)(iii) WITH RESPECT TO SECTION 6.21 , AND THE RETAINED SELLER OBLIGATIONS, PURCHASER SHALL BE DEEMED TO BE TAKING THE ASSETS “AS IS” AND “ WHERE IS ” FOR PURPOSES OF THEIR ENVIRONMENTAL CONDITION.

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Subject to the disclaimers and waivers contained in, and the other terms and conditions of, this Agreement, Purchaser hereby represents and warrants to Sellers as follows as of the Execution Date:

Section 7.1 Organization

.  Purchaser is a limited liability company, validly existing and in good standing under the Laws of the State of Texas and is duly qualified to do business in, and is in good standing in, the State of Texas.

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Section 7.2 Authorization and Enforceability

.  Purchaser has the requisite power, authority and capacity to execute and deliver this Agreement and the other instruments and agreements to be executed and delivered by it as contemplated hereby and to consummate the transactions contemplated hereby and thereby.  The execution, delivery and performance of this Agreement and all documents required to be executed and delivered by Purchaser at the Closing, and the performance of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary action on the part of Purchaser.  This Agreement has been duly executed and delivered by Purchaser (and all documents required hereunder to be executed and delivered by Purchaser at the Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Purchaser, enforceable in accordance with their terms, subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter in effect, relating to or limiting creditors’ rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).

Section 7.3 Liability for Brokers’ Fees

.  No Seller shall, directly or indirectly, have any responsibility, liability or expense, as a result of undertakings or agreements of Purchaser, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation in connection with this Agreement or any agreement or transaction contemplated hereby.

Section 7.4 No Conflicts

.  Except for the filings required under, and compliance with the requirements of, the HSR Act, the execution, delivery and performance of this Agreement by Purchaser, and the transactions contemplated by this Agreement, will not (a) violate any provision of the organizational documents of Purchaser, (b) result in a material default (with or without due notice or lapse of time or both) under or require any material consent under any note, bond, mortgage, indenture or agreement to which Purchaser is a party, (c) violate any Law in any material respect applicable to Purchaser or (d) require Purchaser to obtain any material consent or approval of any Governmental Body that has not been made or obtained.

Section 7.5 Litigation

.  There are no actions, suits or proceedings or (to Purchaser’s knowledge, investigations by any Governmental Body), that are pending or, to Purchaser’s knowledge, threatened in writing, before any Governmental Body or arbitrator that would be reasonably likely to impair materially Purchaser’s ability to perform its obligations under this Agreement.  As used in this Article 7 , “Purchaser’s knowledge” is limited to information actually known by the individuals listed in Schedule 7.5 .

Section 7.6 Financing

.  At Closing, Purchaser will have sufficient funds (in dollars) to pay the Closing Payment to Sellers.

Section 7.7 Securities Law Compliance

.  Purchaser is acquiring the Assets for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling such Assets within the meaning of the Securities Act of 1933, as amended, and applicable state securities Laws.

Section 7.8 Independent Evaluation

.

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(a) Purchaser is knowledgeable of the oil and gas business (including the exploration and production and gathering segments thereof) and of the usual and customary practices of Persons involved in such business, including those in the areas where the Assets are located.

(b) Purchaser is capable of making such investigation, inspection, review and evaluation of the Assets as a prudent purchaser would deem appropriate under the circumstances including with respect to all matters relating to the Assets, their value, operation and suitability for investment.

(c) Purchaser has conducted (or will conduct prior to the Closing) its own investigation, inspection, review and evaluation of the Assets.

(d) In making the decision to enter into this Agreement and to consummate the transactions contemplated hereby, Purchaser acknowledges that it (i) has not relied and will not rely upon any statements, representations (whether oral or written), or any information provided by Sellers, their Affiliates and their respective Representatives (except for those representations set forth in Article 6 of this Agreement and the certificate delivered by Sellers pursuant to Section 10.2(c) ) and (ii) has relied and will rely solely on the basis of its own independent due diligence investigation of the Assets, the terms and conditions of this Agreement and the representations, warranties and covenants of Sellers set forth in Article 6 , the certificates delivered by Sellers pursuant to Section 10.2(c) and the special warranty of title set forth in the Conveyances and the Deeds, subject in all cases to the disclaimers set forth in this Agreement.

Section 7.9 Consents, Approvals or Waivers

.  Except for Customary Post-Closing Consents and as set forth on Schedule 7.9 (including the filings required under, and compliance with the requirements of, the HSR Act), Purchaser’s execution, delivery and performance of this Agreement (and any document required to be executed and delivered by Purchaser at the Closing) is not and will not be subject to any consent, approval, or waiver from any Governmental Body or other Third Party.

Section 7.10 Bankruptcy

.  There are no bankruptcy, insolvency, reorganization or receivership proceedings pending against, being contemplated by, or, to Purchaser’s knowledge, threatened against Purchaser.

Section 7.11 Qualification

.  Purchaser is, or as of the Closing Date will be, qualified under applicable Law to own the Assets and has, or as of the transfer of operatorship of the Properties will have, complied with all necessary bonding requirements of Governmental Bodies required for Purchaser’s ownership or operation of the Assets.

Section 7.12 Tax

.  For federal Income Tax purposes, (i) the separate existence of Purchaser is disregarded under Treasury Regulation § 301.7701-3(b)(ii), and (ii) Purchaser Parent is treated as the owner of Purchaser under Treasury Regulation § 301.7701-2(a).

Section 7.13 Limitation

.  Without limitation of Sellers’ representations under Section 6.21 of this Agreement or Purchaser’s remedies pursuant to Article 12 and the Site Access Agreement, Purchaser acknowledges the following:   THE ASSETS HAVE BEEN USED FOR EXPLORATION, DEVELOPMENT AND PRODUCTION OF HYDROCARBONS AND THERE MAY BE PETROLEUM, PRODUCED WATER, WASTE, OR HAZARDOUS

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SUBSTANCES OR MATERIALS LOCATED IN, ON OR UNDER THE PROPERTIES OR ASSOCIATED WITH THE ASSETS.  EQUIPMENT AND SITES INCLUDED IN THE ASSETS MAY CONTAIN ASBESTOS, NORM OR OTHER HAZARDOUS SUBSTANCES.  NORM MAY AFFIX OR ATTACH ITSELF TO THE INSIDE OF WELLS, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER FORMS.   THE WELLS, MATERIALS AND EQUIPMENT LOCATED ON THE PROPERTIES OR INCLUDED IN THE ASSETS MAY CONTAIN ASBESTOS, NORM AND OTHER WASTES OR HAZARDOUS SUBSTANCES.  NORM CONTAINING MATERIAL AND/OR OTHER WASTES OR HAZARDOUS SUBSTANCES MAY HAVE COME IN CONTACT WIT H VARIOUS ENVIRONMENTAL MEDIA, INCLUDING WATER, SOILS OR SEDIMENT.  SPECIAL PROCEDURES MAY BE REQUIRED FOR THE ASSESSMENT, REMEDIATION, REMOVAL, TRANSPORTATION OR DISPOSAL OF ENVIRONMENTAL MEDIA, WASTES, ASBESTOS, NORM AND OTHER HAZARDOUS SUBSTANCES FROM T HE ASSETS.

ARTICLE 8
COVENANTS OF THE PARTIES

Section 8.1 Access

.

(a) Between the Execution Date and the Defect Claim Date, Sellers will give Purchaser and its Representatives access to the Assets (and to designated employees of Sellers responsible for the Assets, at such times as Purchaser may reasonably request) and access to and the right to copy, at Purchaser’s sole cost, risk and expense, the Records (or originals thereof) in Sellers’ possession or control, for the purpose of conducting a reasonable due diligence review of the Assets, but only to the extent that Sellers have the authority to grant such access without breaching applicable Law or any Contract or other restriction binding on any Seller, including with respect to any Properties not operated by Sellers ( provided , that Sellers shall use commercially reasonable efforts to obtain any such consents or waivers to allow Purchaser access to the Assets).  Purchaser shall be entitled to conduct, at Purchaser’s expense, a Phase I Environmental Site Assessment of the Properties and may conduct visual inspections and record reviews relating to the Assets, including their condition and compliance with Environmental Laws, all of which shall be completed prior to the Defect Claim Date; provided , however , that if Purchaser does conduct a Phase I Environmental Site Assessment on any of the Properties, it will provide Sellers with a copy of any final non-privileged reports or findings generated in connection therewith.  Neither Purchaser nor its Representatives may operate any equipment or conduct any testing or sampling of soil, groundwater or other materials (including any testing or sampling for Hazardous Substances, Hydrocarbons or NORM) on or with respect to the Assets (the “ Invasive Activity ”) prior to the Closing without the prior written consent of Sellers (which consent may be withheld in Sellers’ sole discretion), and all such activities shall be deemed outside of the scope of a Phase I Environmental Site Assessment.  If, following Purchaser’s Phase I Environmental Site Assessment, Purchaser reasonably concludes based on the results thereof that it is necessary to conduct Invasive Activity on a Property prior to the Closing in order for Purchaser to ascertain the existence or extent of an Adverse Environmental Condition or any Remediation Amount for an Adverse Environmental Condition, and Purchaser requests (in writing) authorization from Sellers to perform such Invasive Activity on or prior to June 5, 2017 (which notice includes the corresponding portions of the Phase I Environmental Site

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Assessment on which Purchaser has based its reasonable conclusions), and Sellers reject or fail to consent to Purchaser’s request within two days’ of their receipt thereof, Purchaser shall have the right, in its sole discretion, to exclude such Property and its directly associated Assets from the Properties conveyed by Sellers to Purchaser at Closing, in which case the Unadjusted Purchase Price shall be reduced by the Allocated Value of such excluded Assets and such Assets shall be deemed Exclud ed Assets.  If Sellers consent to the requested Invasive Activity, all Invasive Activities performed by Purchaser or Purchaser’s Representatives shall be subject to the Phase II Guidelines .

(b) Purchaser shall abide by Sellers’, and any Third Party operator’s reasonable safety rules, regulations, and operating policies while conducting its due diligence evaluation of the Assets.  Any conclusions made from any examination done by Purchaser shall result from Purchaser’s own independent review and judgment.

(c) The access granted to Purchaser under this Section 8.1 shall be limited to Sellers’ or the applicable Third Party operator’s normal business hours, and Purchaser’s investigation shall be conducted in a manner that minimizes unreasonable interference with the operation of the Assets and shall be at Purchaser’s sole cost, risk and expense.  Purchaser shall coordinate its access rights to the Assets with Sellers to reasonably minimize any inconvenience to or interruption of the conduct of business by Sellers or applicable Third Party operators.  For any Property not operated by any Seller, Sellers will reasonably cooperate with Purchaser in contacting the Third Party operators of any such non-operated Property directly to arrange for access for purposes of Purchaser’s Phase I Environmental Site Assessment; provided , however , that Purchaser acknowledges and agrees that Sellers cannot and do not covenant or warrant that Purchaser will be granted access to any Properties operated by Third Parties for purposes of conducting diligence of any kind under this Agreement.  Purchaser shall provide Sellers with at least two Business Days’ written notice before the Assets are proposed to be accessed pursuant to this Section 8.1 , which notice will include a general description of the activities Purchaser intends to undertake.  Purchaser shall repair any damage to the Properties caused by its investigation and shall cause each Property to be restored to substantially the same conditions that existed prior to the investigation.  

(d) Purchaser acknowledges that, pursuant to its right of access to the Assets, Purchaser will become privy to confidential and other information of Sellers or an applicable Third Party operator and that such confidential information (which includes Purchaser’s conclusions with respect to its evaluations) shall be held confidential by Purchaser in accordance with the terms of the Confidentiality Agreement and any applicable privacy Laws regarding personal information.  For the avoidance of doubt, the existence and contents of any Phase I Environmental Site Assessment conducted by or on behalf of Purchaser on the Assets shall be deemed to be “confidential information” for the purposes of this Agreement and the Confidentiality Agreement.

(e) In connection with the rights of access, examination and inspection granted to Purchaser under this Section 8.1 , (i)   PURCHASER WAIVES AND RELEASES ALL CLAIMS AGAINST THE SELLER GROUP AND ITS REPRESENTATIVES AND ANY THIRD PARTY OPERATORS ARISING IN ANY WAY THEREFROM OR IN ANY WAY CONNECTED THEREWITH AND (ii) PURCHASER HEREBY AGREES TO

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INDEMNIFY, DEFEND AND HOLD HARMLESS EACH OF THE SELLER GROUP, SELLERS’ REPRESENTATIVES AND THIRD PARTY OPERATORS FROM AND AGAINST ANY AND ALL DAMAGES ATTRIBUTABLE TO PERSONAL INJURY, DEATH OR PHYSICAL PRO PERTY DAMAGE, OR VIOLATION OF THE SELLER GROUP’S OR ANY THIRD PARTY OPERATOR’S RULES, REGULATIONS, OR OPERATING POLICIES, ARISING OUT OF, RESULTING FROM OR RELATING TO ANY FIELD VISIT OR OTHER DUE DILIGENCE ACTIVITY CONDUCTED BY PURCHASER OR ITS REPRESENTA TIVES WITH RESPECT TO THE ASSETS, REGARDLESS OF FAULT, EXCEPT, IN EACH CASE, TO THE EXTENT ARISING OUT OF, RESULTING FROM OR RELATING TO THE WILLFUL MISCONDUCT OF ANY MEMBER OF SELLER GROUP, AND PROVIDED FURTHER THAT PURCHASER’S WAIVER AND RELEASE SET FORT H IN THIS SECTION 8.1(e) SHALL NOT LIMIT PURCHASER’S REMEDIES UNDER THIS AGREEMENT OR THE SITE ACCESS AGREEMENT WITH RESPECT TO CONDITIONS AFFECTING THE ASSETS .    Notwithstanding the foregoing, Purchaser shall have no indemnity obligations under this Sectio n 8.1(e) for any pre-existing condition or Damage that existed prior to the Purchaser and its Representatives accessing the Assets but is merely discovered or revealed by Purchaser or its Representatives during its access to the Assets and for which the co ndition is not exacerbated or the Damages are not increased as a result of Purchaser’s or its Representative’s access (in which case the indemnity obligation under this Section 8.1(e) shall apply only to the extent of any such exacerbation or increase in D amages).

Section 8.2 Government Reviews

.  In a timely manner, Sellers and Purchaser shall (a) make all required filings, prepare all required applications and conduct negotiations with each Governmental Body as to which such filings, applications or negotiations are necessary or appropriate in the consummation of the transactions contemplated hereby, including with respect to the transfer or re-issuance of all required Permits and (b) provide such information and assistance as each may reasonably request to make such filings, prepare such applications and conduct such negotiations.  Each Party shall reasonably cooperate with and use all commercially reasonable efforts to assist the other with respect to such filings, applications, and negotiations.   Without limiting the foregoing, within five Business Days following the execution by Purchaser and Sellers of this Agreement, Purchaser and Sellers will prepare and simultaneously file with the DOJ and the FTC the notification and report form required by the HSR Act for the transactions contemplated by this Agreement and request early termination of the waiting period thereunder.  Purchaser and Sellers agree to respond promptly to any inquiries from the DOJ or the FTC concerning such filings and to comply in all material respects with the filing requirements of the HSR Act.  Purchaser and Sellers shall cooperate with each other and shall promptly furnish all information to the other Party that is necessary in connection with Purchaser’s and Sellers’ compliance with the HSR Act.  Purchaser and Sellers shall keep each other fully advised with respect to, and furnish copies of, any requests from or communications with the DOJ or the FTC concerning such filings and shall consult with each other with respect to all responses thereto.  Sellers and Purchaser shall use their respective reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act filing to consummate the transactions consummated hereby.  All filing fees incurred in connection with the HSR Act filings made pursuant to this Section 8.2 shall be borne one-half by Purchaser and one-half by Sellers.

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Section 8.3 Public Announcements; Confidentiality

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(a) Neither Party shall make or issue any press release or other announcements to the general public concerning the transactions contemplated by this Agreement without the prior consent of the other Party, which consent shall not be unreasonably withheld.  If either Party desires to make an announcement to the general public, it shall first give the other Party forty-eight hours written notification of its desire to make such a public announcement.  The written notification shall include (i) a request for consent to make the announcement, and (ii) a written draft of the text of such public announcement .  Nothing in this Section 8.3(a) shall prohibit any Party from issuing or making a public announcement or statement if such Party deems it necessary to do so in order to comply with any applicable Law or the rules of any stock exchange upon which the Party’s or a Party’s Affiliate’s capital stock is traded; provided, however , that to the extent possible, prior written notification shall be given to the other Parties prior to any such announcement or statement.

(b) The Parties shall keep all information and data relating to this Agreement and the transactions contemplated hereby strictly confidential in accordance with the terms of the Confidentiality Agreement.  Notwithstanding anything to the contrary contained therein, i f the Closing should occur, the confidentiality obligations with respect to Purchaser and its representatives in the Confidentiality Agreement shall continue with respect to the Excluded Assets and the information referenced in Section 8.1(d) but not otherwise and shall be deemed terminated for all purposes with respect to the Assets.

(c) From and after the Closing Date until the date that is one year after the Closing Date, Sellers shall (and shall direct their respective Affiliates and each of their Representatives to) keep confidential and not disclose any of the Records of which Sellers retained copies (the “ Restricted Information ”), except as and to the extent permitted by the terms of this Agreement or the instruments delivered or entered into at Closing.  The obligation shall not apply to any information that is (i) in the public domain as of the Closing Date, (ii) published or otherwise becomes part of the public domain through no fault of Sellers, their Affiliates or their Representatives in violation of this Section 8.3(c) after the Closing Date or (iii) becomes available to Sellers or any of their Affiliates from a source that, to such Seller’s or such Affiliate’s knowledge, did not acquire such information (directly or indirectly) on a confidential basis.  Notwithstanding the foregoing, each Seller may make disclosures (i) to its Affiliates and each of its and their owners, directors, officers, employees, agents, representatives, financial and other advisors, contractors, attorneys and accountants (in each case, to the extent bound by confidentiality obligations and to the extent such disclosure is reasonably necessary) and (ii) as required by Law, Governmental Body and/or in connection with disputes hereunder or as otherwise required under any Seller’s debt instruments; provided , however , that with respect to clause (ii) above, Sellers, to the extent practicable, shall provide Purchaser with prompt notice thereof so that Purchaser, at its sole cost and expense, may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Section 8.3(c) .  In the event that such protective order or other remedy is not obtained or Purchaser waives compliance with the provisions of this Section 8.3(c) , Sellers shall or shall cause the Person required to disclose such Restricted Information to furnish only that portion of the information that such Person is legally required.

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Section 8.4 Operation of Business

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(a) Except as to (a) the matters set forth on Schedule 8.4 , (b) requirements from a Governmental Body, (c) situations wherein emergency action is taken in the face of a risk to life, property, or the environment, or (d) any other matters consented to by Purchaser in writing (which consent will not be unreasonably withheld, conditioned or delayed), from the Execution Date until the Closing Date, Sellers:

(i) will conduct their business related to the Seller Operated Assets and cause the Assets to be operated and maintained in the ordinary course consistent with Sellers’ recent practices, as a reasonably prudent operator and in accordance with applicable Laws, including the payment of Property Costs;

(ii) maintain, or cause to be maintained, the books of account and Records relating to the Assets in the usual, regular and ordinary manner and in accordance with the usual accounting practices of Sellers;

(iii) will not make any capital expenditures with respect to the Assets in excess of $50,000.00, net to Sellers’ interest, as set forth in any AFE;

(iv) will not terminate (voluntarily), amend or extend any Material Contract, Surface Agreement or Lease or enter into any Contract that would constitute a Material Contract if in existence on the Execution Date;

(v) will use commercially reasonable efforts to maintain all material Permits and will maintain bonds and guaranties affecting the Assets and make all filings that Sellers are required to make under applicable Law with respect to the Assets;

(vi) will not incur any costs to secure any Lease renewals or extensions;

(vii) will not acquire any assets or properties that would constitute “Assets” if in existence on the Execution Date, or transfer, sell, swap, hypothecate, encumber, mortgage, farmout or otherwise dispose of any Properties or material equipment, machinery, tools, fixtures or other tangible personal property and improvements, except for (A) sales and dispositions of Hydrocarbons made in the ordinary course of business and (B) the disposition of obsolete, worn out or damaged equipment consistent with past practices if such equipment is replaced with similar equipment of a like or better quality;

(viii) will maintain insurance coverage on the Assets presently furnished by Third Parties in the amounts and coverages and of the types presently in force;

(ix) will use commercially reasonable efforts to maintain in full force and effect all Leases that are presently held by production unless Sellers are prevented from doing so because Purchaser fails to consent to an action under this Section 8.4 ;

(x) will use commercially reasonable efforts to keep Purchaser reasonably informed, upon Sellers obtaining knowledge thereof, of any Lease termination or of any operation or activities with respect to the Assets proposed by a Third Party;

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(xi) will not waive, compromise or settle any material right or claim or proceeding with respect to any of the Properties other than with regards to items that are Retained Seller Obligations or waivers, compromises or settlements requiring payment of monetary damages not in excess of $50,000.00 individually with no grant of injunctive or other relief;

(xii) will use commercially reasonable efforts to oppose any Third Party’s application for an exception to Texas Railroad Commission Rule 37 insofar as affecting any Property (the costs of which opposition shall be considered Property Costs for all purposes of this Agreement);

(xiii) will not make any election (or fail to make an election, the result of which is) to go non-consent with respect to any of the Properties;

(xiv) will not take, nor direct any of its Affiliates (or authorize and direct any investment banker, financial advisor, attorney, accountant or other Person retained by, acting for or on behalf of any Seller or any such Affiliate) to take any intentional, purposeful action to solicit or negotiate any offer from any Person concerning the acquisition of the Assets by any Person other than Purchaser or its Affiliates.  For the avoidance of doubt, nothing in this sub-clause (xiv) shall prohibit any such action relating to acquisition, through merger, asset purchase or other form of business combination, involving Anadarko Petroleum Corporation or AEPO or all or substantially all of the assets of Anadarko Petroleum Corporation or AEPO; and

(xv) will not enter into any agreement or commitment with respect to any of the foregoing.

(b) Requests for approval of any action restricted by this Section 8.4 shall be delivered to the following individual, who shall have full authority to grant or deny such requests for approval on behalf of Purchaser:

William B. Coffey
Email: Brad.Coffey@wildhorserd.com

Purchaser’s approval of any action restricted by this Section 8.4 shall be considered granted within ten days (unless a shorter time is reasonably required by the circumstances or is required by the terms of the Contract with respect to which such approval is being requested and, in each case, such shorter time is specified in Sellers’ notice) after Sellers’ notice to Purchaser requesting such consent unless Purchaser notifies Sellers to the contrary during that period.  In the event of an emergency, Sellers may take such action as a prudent operator would take and shall notify Purchaser of such action promptly thereafter.  Purchaser acknowledges that Sellers own undivided interests in certain of the Properties where no Seller is the operator, and Purchaser agrees that the acts or omissions of the other working interest owners (including the operators) who are not a Seller shall not constitute a breach of the provisions of this Section 8.4 , nor shall any action required by a vote of working interest owners constitute such a breach so long as Sellers have not proposed an action that would be in violation of this Section 8.4 and have voted their interest in a manner that complies with the provisions of this Section 8.4 .

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(c) In the event that, between the Execution Date and the Closing Date, (i) Purchaser and its Affil iates deliver to Sellers any AFE for a new well, any proposal for a new unit or any other similar capital proposal, (i) Sellers will elect to participate in any such proposal and (ii) Purchaser will carry Sellers for 100% of their interest in the operation s subject to such proposal, such that Sellers shall not be obligated to expend any capital associated with such operations.  If this Agreement is terminated for any reason, Sellers shall be deemed to have relinquished their interests in the applicable asse t subject to such operations to Purchaser until such time as Purchaser has recouped 100% of its out-of-pocket costs associated with conducting the operations subject to such proposal, at which time Sellers’ interest shall immediately revert back to Sellers .

Section 8.5 Operatorship

.  While Purchaser acknowledges that it desires to succeed Sellers as operator of those Assets or portions thereof that any Seller may presently operate, Purchaser acknowledges and agrees that Sellers cannot and do not covenant or warrant that Purchaser will become successor operator of the same since the Assets or portions thereof may be subject to operating or other agreements that control the appointment of a successor operator.  Within five Business Days after the Closing, Sellers will send notices to co-owners of those Properties that any Seller currently operates indicating that such Seller is resigning as operator and recommending that Purchaser, or, if Purchaser so elects, Purchaser’s designee, be elected as successor operator and Sellers shall use such other commercially reasonable efforts to support Purchaser’s efforts to become successor operator.  Sellers make no representations or warranties to Purchaser as to the transferability of operatorship of any Properties that Sellers currently operate.

Section 8.6 Change of Name

.  Within 90 days after the Closing, Purchaser shall eliminate the name “Anadarko” and any variants thereof from the Assets and shall have no right to use any logos, trademarks or trade names belonging to Sellers or any of their Affiliates.

Section 8.7 Replacement of Bonds, Letters of Credit and Guaranties

.  The Parties understand that none of the bonds, letters of credit or guaranties, if any, posted by any Seller with Governmental Bodies, co-owners or any other Person and relating to the Assets will be transferred to Purchaser.  Prior to the Closing or within 90 days thereafter, Purchaser will obtain, or cause to be obtained in the name of Purchaser or one of its Affiliates, as applicable, replacements for the bonds, letters of credit and guaranties identified on Schedule 8.7 , to the extent such replacements are necessary to permit the cancellation of the bonds, letters of credit and guaranties posted by Sellers.  If Purchaser or one of its Affiliates, as applicable, fails to obtain any replacement bond, letter of credit, guaranty or other credit support obligation by the time required under this Section 8.7 , then, until such time as Purchaser or its Affiliates, as applicable, obtains a replacement, (a) Purchaser agrees to reimburse Seller Group upon request for any amounts paid or suffered under any credit support of Sellers with respect to the Assets after the Closing Date and (b) Purchaser will secure such obligation by providing to Sellers back-to-back credit support reasonably acceptable to Sellers for the benefit of Sellers with respect to each credit support obligation of Sellers covering the Assets that remains in place at such time.

Section 8.8 Amendment to Schedules

.  Prior to the Closing, Sellers shall have the right to supplement their Schedules relating to the representations and warranties set forth in Article 6 with respect to any matters arising or occurring subsequent to the Execution Date;

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provided , however , t hat all such supplements shall be disregarded for purposes of determining whether the condition to Purchaser’s obligation to close the transaction pursuant to Section 9.2(a) has been satisfied and shall not prejudice Purchaser’s rights pursuant to Article 12 with respect to such matters, it being the intent of the Parties that, subject to the other terms and conditions of Article 12 , Purchaser shall be entitled to indemnification for any breaches of representations and warranties associated with any matters added to such supplemented Schedules pursuant to this Section 8.8 .

Section 8.9 Further Assurances

.  Prior to the Closing, Purchaser agrees to use commercially reasonable efforts to assist and support Sellers in obtaining any consents to assign set forth in the AESC Contracts that are triggered by the transactions contemplated hereby.  After the Closing, Sellers and Purchaser agree to take such further actions and to execute, acknowledge and deliver all such further documents as are reasonably requested by the other Party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement.  

Section 8.10 Employee Matters

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(a) From and after the date of this Agreement, and notwithstanding the Confidentiality Agreement, Purchaser shall be permitted to meet with and interview Available Employees in connection with prospective employment with Purchaser or its Affiliates and offer employment to any such Available Employee on terms determined by Purchaser in its sole discretion.  Purchaser is responsible for scheduling any meetings or interviews and Seller shall reasonably assist Purchaser with respect to such scheduling. Any meetings or interviews between Purchaser and Available Employees shall be scheduled at times and places that are not unreasonably inconvenient or disruptive to AEPO or its Affiliates and during normal business hours, with reasonable advance notice being provided to AEPO or its Affiliates.  It is understood that Purchaser shall have no obligation to interview or make an offer of employment to any of the Available Employees.  Any offer of employment extended by Purchaser to Available Employees shall be made at least ten (10) days prior to the Closing, in writing (or an electronic document) with an identification of such Available Employee’s salary or hourly rate, bonus opportunity, incentive compensation and benefits.  Within three (3) days after the date the Purchaser makes any such offer of employment, Purchaser shall send to AEPO a schedule identifying each Available Employee who received an offer of employment from Purchaser, and whether such offer of employment was for compensation greater than, less than or equal to the compensation currently being paid to such Available Employee.  All offers of employment contemplated by this Section 8.10(a) shall expire at least five (5) days prior to the Closing, and after the Closing shall be void.  Purchaser shall promptly, but in any event at least four (4) days prior to the Closing, notify AEPO of whether such offers of employment have been accepted or rejected by the applicable Available Employees (and, if the agreed upon compensation differs from the initial offer of employment, Purchaser shall notify AEPO of the revised compensation arrangement (i.e., as greater than, less than, or equal to current compensation)).  Purchaser hereby agrees that it will comply with all applicable Laws in making any employment decisions and taking any actions pursuant to this Section 8.10(a) .  Purchaser also agrees that it will provide copies of any offer letters and/or acceptance letters to AEPO at its reasonable request.  All Available Employees who accept an offer of employment from Purchaser shall be referred to herein as “ Transferred Employees. ”

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(b) AEPO shall terminate the employment of any Transferred Employee as of the Closing Date unless otherwise agreed to by the Parties.  Sellers shall be responsible for all obligations owed to Rejected Available Employees and Transferred Employees, if any, up to and including the last date of their employment with Employer , including, salary, bonus (including any “retention bonus” or “stay bonus”), accrued paid time off, severance, retirement benefits and amounts owed under any Employee Benefit Plan.

(c) For a period of one (1) year following the Closing, Purchaser may not, directly or indirectly (including through its Affiliates or any staffing or search firm or other vendor), solicit, hire or retain, in employment or any other capacity, any Available Employee that (i) is not offered employment by Purchaser pursuant to Section 8.10(a) or (ii) declines any offer of employment made by Purchaser pursuant to Section 8.10(a) (collectively, “ Rejected Available Employees ”).  For the avoidance of doubt, nothing in this Section 8.10(b) shall prohibit AEPO or its Affiliates from retaining any Rejected Available Employee or attempting to induce any such Rejected Available Employee to continue their employment with AEPO or its Affiliates, as applicable.

(d) Purchaser shall be solely responsible for complying with the WARN Act and any and all obligations under other applicable Laws requiring notice of plant closings, relocations, mass layoffs, reductions in force or similar actions (and for any failures to so comply), in any case, applicable to the Transferred Employees, which result from any action by Purchaser and its Affiliates after the Closing Date.  Purchaser shall indemnify and hold harmless AEPO and its Affiliates against any and all liabilities arising in connection with any failure to comply with the requirements of this Section 8.10(d) .

(e) AEPO shall be solely responsible for complying with the WARN Act and any and all obligations under other applicable Laws requiring notice of plant closings, relocations, mass layoffs, reductions in force or similar actions (and for any failures to so comply), in any case, applicable to the Available Employees, which result from any action by AEPO and/or its Affiliates on or before the Closing Date.  AEPO shall indemnify and hold harmless Purchaser and its Affiliates against any and all liabilities arising in connection with any failure to comply with the requirements of this Section 8.10(e) .

(f) The provisions of this Section 8.10 are solely for the benefit of the respective Parties to this Agreement and nothing in this Section 8.10 , express or implied, shall confer upon any employee (or any dependent or beneficiary thereof), any rights or remedies, including any right to continuance of employment or any other service relationship with the Purchaser, AEPO or any of their respective Affiliates, or any right to compensation or benefits of any nature or kind whatsoever under this Agreement. For the avoidance of doubt, nothing in this Agreement will be construed as an amendment to any Employee Benefit Plan or any other compensation and benefit plans maintained for or provided to directors, officers or employees of AEPO or its Affiliates prior to or following the Closing.

Section 8.11 Suspense Funds

.  Purchaser acknowledges that Suspense Funds may exist as of the Closing Date.  If Closing occurs, Purchaser accepts sole responsibility for and agrees to pay all costs and expenses associated with the Suspense Funds as an Assumed Purchaser Obligation.  Purchaser shall receive a credit for the amount of Suspense Funds held by Sellers as

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of the date of the preparation of the final settl ement statement pursuant to Section 10.4(b) , which credit shall be accounted for as a downward adjustment in such final settlement statement (but such credit will not, in any event, be considered an adjustment to the Unadjusted Purchase Price).  Notwithsta nding the foregoing, AEPO shall pay out all “minimum suspense” in September in accordance with AEPO’s regular practices.  To the extent any such payment is returned to AEPO, AEPO will forward the relevant details to Purchaser, and Purchaser shall assume re sponsibility for the payment of such funds.  On or about December 29, 2017, AEPO shall pay to Purchaser the total amount of all returned payments received by AEPO prior to such date.

Section 8.12 Access to Financial Information

.

(a) Following the Execution Date and until the date that is two years following the Closing Date, Sellers agree to make available to Purchaser, during normal business hours, any and all existing information and documents in the possession of Sellers relating to the Assets that Purchaser may reasonably require (i) to comply with tax and financial reporting requirements and audits that may be required by the Securities and Exchange Commission under the Securities Act of 1933 and/or the Securities Exchange Act of 1934 (including the filing by WildHorse Resource Development Corporation with the Securities and Exchange Commission of one or more registration statements to register any securities of WildHorse Resource Development Corporation under the Securities Act of 1933) or any information statement on Schedule 14C required in connection with the transactions contemplated by this Agreement and (ii) make any filings with any Governmental Body; and

(b) Following the Execution Date and until the second anniversary of the Closing Date, Sellers will use commercially reasonable efforts to cooperate with the independent auditors retained by Purchaser (“ Purchaser’s Auditor ”) in connection with their audit or review of any revenue and expense statements and reserve information of the Assets that Purchaser or WildHorse Resource Development Corporation requires to comply with their tax and financial reporting requirements and audits that may be required by the Securities and Exchange Commission under the Securities Act of 1933 and/or the Securities Exchange Act of 1934, which cooperation will include (i) reasonable access during normal business hours to Sellers’ employees, representatives and agents who were responsible for preparing the revenue and expense statements, including Standardized Measure of Oil and Gas, (“ SMOG ”) and work papers and other supporting documents used in the preparation of financial statements, as may be reasonably required by Purchaser’s Auditor to perform an audit in accordance with GAAP and (ii) use commercially reasonable efforts to deliver one or more customary representation letters from Sellers to Purchaser’s Auditor that are reasonably requested by Purchaser or its Affiliates to allow Purchaser’s Auditor to complete an audit (or review of any financial statements) and to issue an opinion with respect to an audit or review of those financial records required pursuant to this Section 8.12(b) ;

provided that (i) Purchaser will reimburse Sellers, within twenty (20) Business Days after demand therefor, for any reasonable out-of-pocket costs incurred by Sellers in complying with the provisions of this Section 8.12 , (ii) such requested cooperation does not unreasonably interfere with the ongoing operations of Sellers or any Seller’s Affiliates or the ongoing job responsibilities of Sellers’ personnel, (iii) no Seller nor any of its Affiliates, officers, directors, employees, agents, consultants or representatives shall have any liability for any statement,

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materials or information by Sellers or any such Person in connection with this Section 8.12 , and Purchaser hereby agrees to indemnify Sellers from and against any liabilities incurred in connection with this Section 8.12 , (iv) Sellers’ failure to perform any of its obligations under this Section 8.12 shall not delay the Closing hereunder and Pur chaser may not assert that its conditions to Closing under Section 9.2 have not been satisfied due to any failure by Seller to comply with its obligations under this Section 8.12 and (v) Purchaser acknowledges and agrees that any financial information prov ided to Purchaser pursuant to this Section 8.12 shall be unaudited at the time it is provided, and each Seller and such Seller’s Affiliates shall have no obligation to provide audited financial information pursuant to this Section 8.12 ; provided, further, that without limiting the generality of this Section 8.12 , for a period of three (3) years following the Closing Date, Sellers shall, and shall cause their respective Affiliates to, retain all books, records, information and documents existing at the Closi ng and otherwise in their or their Affiliates’ possession that are necessary to prepare and audit financial statements with respect to the Assets, except to the extent originals or copies thereof are transferred to Purchaser in connection with Closing).

Section 8.13 Unleased Fee Minerals

.  From the Closing Date until December 31, 2017, if AEPO or any of its Affiliates desires to grant a lease of any unleased (as of the Closing Date) fee mineral interests owned by AEPO or such Affiliate in Brazos, Burleson, Freestone, Lee, Robertson, or Washington Counties, Texas, AEPO will use commercially reasonable efforts to first offer the right to lease such fee mineral interests to Purchaser prior to leasing to any Person other than Purchaser or its Affiliates, which offer will be in writing (with email being sufficient) and will set forth the material terms and conditions on which AEPO or such Affiliate is willing to lease such interests.  If, within thirty days of Purchaser’s receipt of such offer, Purchaser fails to accept such offer in writing to AEPO or its Affiliates, then AEPO and its Affiliates will have no further obligation under this Section 8.13 with respect to such lease and may grant such lease to any other Person.  If Purchaser accepts such offer, Purchaser and AEPO or such Affiliate will use commercially reasonable efforts to complete the lease of such fee mineral interests within ninety days of such acceptance, on the terms and conditions set forth in such offer, and if they do not complete the lease within such ninety day deadline, AEPO and its Affiliates will have no further obligation under this Section 8.13 with respect to such lease and may grant such lease to any other Person

Section 8.14 Leased Vehicles

.  With respect to the Leased Vehicles, AEPO will purchase such Leased Vehicles and have title conveyed directly from the applicable leasing company to Purchaser by executing and delivering the applicable vehicle transfer documentation with respect thereto.  Purchaser will be responsible for the cost of such acquisition and all sales and Transfer Taxes associated with the transfer of title of such Leased Vehicles to Purchaser.  AEPO will inform Purchaser of the acquisition costs per vehicle no later than June 5, 2017. Notwithstanding the foregoing, Purchaser may elect not to purchase one or more of the Leased Vehicles by providing notice to AEPO no later than June 15, 2017, in which event such Leased Vehicles not purchased by Purchaser will be Excluded Assets for all purposes of this Agreement.

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ARTICLE 9
CONDITIONS TO CLOSING

Section 9.1 Sellers’ Conditions to Closing

.  The obligations of Sellers to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Sellers) on or prior to the Closing of each of the following conditions precedent:

(a) Representations .  (i) The representations and warranties of Purchaser set forth in Sections 7.4(b) , (c) and (d) through 7.13 of this Agreement shall be true and correct in all material respects (without regard to any materiality qualifiers set forth in such representations and warranties) as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) and (ii) the representations and warranties of Purchaser set forth in Section 7.1 through 7.4(a) of this Agreement shall be true and correct as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) ;

(b) Performance .  Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;

(c) No Action .  On the Closing Date, no Order restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall have been issued and remain in force, and no suit, action or other proceeding by any Governmental Body seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement, or seeking substantial Damages in connection therewith, shall be pending before any Governmental Body;

(d) Parent Guaranty . The Parent Guaranty shall be in full force and effect and enforceable;

(e) Governmental Body Approvals .   All material consents and approvals of any Governmental Body required for the transfer of the Assets from Sellers to Purchaser as contemplated under this Agreement (other than Customary Post-Closing Consents), including those consents required by the HSR Act, shall have been granted, or the necessary waiting period shall have expired, or such waiting period shall have been terminated, as applicable;

(f) Deliveries .  Purchaser shall have delivered (or be ready, willing and able to deliver) to Sellers the documents and certificates to be delivered by Purchaser under Section  10.3 ;

(g) Title; Environmental; Casualty Losses; Consents .  The sum (without duplication) of (i) except as set forth in clause (iii) hereof, all Title Defect Amounts determined pursuant to Section 4.2 with respect to Title Defects that have not been cured by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Title Defect Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.1(g) ), (ii) except as set forth in clause (iii) hereof, all Remediation Amounts for Adverse Environmental Conditions determined pursuant to

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Section 5.1 that have not been Remediated by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if t he Parties have not agreed as to the applicable Remediation Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.1(g) ), (iii) if Sellers retain any Assets (or portion thereof) pursuant to Section 4.2(b)(iii) , Section 5.1(b)( iii) , Section 5.1(d) or Section 8.1(a) all Allocated Values (or portions thereof) of such Assets so retained by Sellers, (iv) all Casualty Losses pursuant to Section 4.7 , that have not been repaired by Sellers on or prior to the Closing , and (v) all Alloca ted Values (or portions thereof) of Assets excluded from the Closing pursuant to Section 4.6(b) , shall be less than 15% of the Unadjusted Purchase Price; and

(h) JV Assets Purchase and Sale Agreement .  The conditions to closing in the JV Assets Purchase and Sale Agreement shall have been satisfied or waived in accordance with their terms, and the parties to such agreement shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby.

Section 9.2 Purchaser’s Conditions to Closing

.  The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction (or waiver by Purchaser) on or prior to the Closing of each of the following conditions precedent:

(a) Representations .  (i) The representations and warranties of Sellers set forth in Sections 6.4(b) , (c) and (d) through 6.22 of this Agreement shall be true and correct in all material respects (without regard to any materiality qualifiers set forth in such representations and warranties) as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date) and (ii) the representations and warranties of Sellers set forth in Section 6.1 through Section 6.4(a) of this Agreement shall be true and correct as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date);

(b) Performance .  Sellers shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by Sellers under this Agreement prior to or on the Closing Date;

(c) No Action .  On the Closing Date, no Order restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement shall have been issued and remain in force, and no suit, action or other proceeding by any Governmental Body seeking to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement, or seeking substantial Damages in connection therewith, shall be pending before any Governmental Body;

(d) Governmental Body Approvals .   All material consents and approvals of any Governmental Body required for the transfer of the Assets from Sellers to Purchaser as contemplated under this Agreement (other than Customary Post-Closing Consents), including those consents required by the HSR Act, shall have been granted, or the necessary waiting period shall have expired, or such waiting period shall have terminated, as applicable;

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(e) Deliveries .  Sellers shall have delivered (or be ready, willing and able to deliver) to Pu rchaser the documents and certificates to be delivered by Sellers under Section 10.2 ;

(f) Title; Environmental; Casualty Losses; Consents; Preferential Rights . The sum (without duplication) of (i) except as set forth in clause (iii) hereof, all Title Defect Amounts determined pursuant to Section 4.2 with respect to Title Defects that have not been cured by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Title Defect Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.2(f) ), (ii) except as set forth in clause (iii) hereof, all Remediation Amounts for Adverse Environmental Conditions determined pursuant to Section 5.1 that have not been Remediated by Sellers on or prior to the Closing, subject to the Defect Threshold and the Aggregate Defect Deductible (provided if the Parties have not agreed as to the applicable Remediation Amount, Purchaser’s good faith estimate shall be used for purposes of this Section 9.2(f) ), (iii) if Sellers retain any Assets (or portion thereof) pursuant to Section 4.2(b)(iii) , Section 5.1(b)(iii) , Section 5.1(d) , or Section 8.1(a) all Allocated Values (or portions thereof) of such Assets so retained by Sellers, (iv) all Casualty Losses pursuant to Section 4.7 , that have not been repaired by Sellers on or prior to the Closing, and (v) all Allocated Values (or portions thereof) of Assets excluded from the Closing pursuant to Section 4.6(b) or Section 4.6(c) , shall be less than 15% of the Unadjusted Purchase Price; and

(g) JV Assets Purchase and Sale Agreement .  The conditions to closing in the JV Assets Purchase and Sale Agreement shall have been satisfied or waived in accordance with their terms, and the parties to such agreement shall have indicated that they are ready, willing and able to consummate the transactions contemplated thereby.

ARTICLE 10
CLOSING

Section 10.1 Time and Place of Closing

.  Consummation of the purchase and sale transaction as contemplated by this Agreement (the “ Closing ”) shall, unless otherwise agreed to in writing by the Parties, take place at the offices of Sidley Austin LLP, counsel to Sellers, located at 1000 Louisiana, Suite 6000, Houston, Texas 77002, at 10:00 a.m., Central Time, on June 30, 2017, or, if all conditions in Article 9 to be satisfied prior to the Closing have not yet been satisfied or waived by such date, within five Business Days of such conditions having been satisfied or waived (in each case, excluding any conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of such conditions), subject to the Parties’ rights to terminate this Agreement under Article 11 .  The date on which the Closing occurs is herein referred to as the “ Closing Date .”

Section 10.2 Obligations of Sellers at Closing

.  At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Purchaser of its obligations pursuant to Section 10.3 , Sellers shall deliver or cause to be delivered to Purchaser the following:

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(a) Counterparts of the Conveyances of the Assets, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and of fices, duly executed by Sellers and acknowledged before a notary public;

(b) Assignments in form required by any Governmental Body for the assignment of any Assets controlled by such Governmental Body (excluding Customary Post-Closing Consents), duly executed by Sellers, in sufficient duplicate originals to allow recording and filing in all appropriate offices;

(c) A certificate from each Seller, duly executed by an authorized officer of such Seller, dated as of the Closing Date, certifying on behalf of such Seller that the conditions set forth in Section 9.2(a) and Section 9.2(b) have been fulfilled;

(d) Counterparts of the Surface Deed, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by AEPO and acknowledged before a notary public;

(e) Counterparts of the Term Royalty Deed, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by AEPO or its applicable Affiliate and acknowledged before a notary public;

(f) If the applicable consents to assign and releases of liability have been received by Sellers prior to the Closing, counterparts of the assignment of the AESC Contracts, in form and substance reasonably acceptable to Sellers and Purchaser, duly executed by Purchaser;

(g) If Remediation of the Current Remediation Matter has not been completed prior to the Closing, counterparts of the Site Access Agreement, in form and substance reasonably acceptable to Sellers and Purchaser, duly executed by AEPO;

(h) An executed statement described in Treasury Regulation § 1.1445-2(b)(2) certifying that each Seller is not a foreign person within the meaning of the Code, substantially in the form of Exhibit D attached hereto;

(i) Counterparts of the change of operator forms required by the applicable regulatory authority, duly executed by the applicable Seller;

(j) Counterparts of the escrow agreement with the Escrow Agent, in form and substance reasonably acceptable to Sellers and Purchaser, to the extent necessary under the terms of this Agreement duly executed by the Sellers party thereto;

(k) All necessary letters in lieu of transfer orders, substantially in the form set forth on Exhibit E , directing all purchasers of production to pay Purchaser the proceeds attributable to production from each Property from and after the Effective Time;

(l) Counterparts of the Preliminary Settlement Statement, duly executed by Sellers;

(m) A recordable release of any deed of trust, mortgages, financing statements, fixture filings or security agreements imposed by any Debt Contract to which any Seller or any Affiliate

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of Sellers is a party burdening the Properties in form and substance reasonably acceptable to Purchaser; and

(n) All other instruments, documents and other items reasonably necessary to effectuate the terms of this Agreement as may be reasonably requested by Purchaser.

Section 10.3 Obligations of Purchaser at Closing

.  At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Sellers of their obligations pursuant to Section 10.2 , Purchaser shall deliver or cause to be delivered to Sellers the following:

(a) A wire transfer in immediately available funds of the Closing Payment, as adjusted pursuant to the Preliminary Settlement Statement, to the account(s) designated by Sellers, which designation shall be furnished to Purchaser no later than two days prior to the Closing Date;

(b) Counterparts of the Conveyances of Assets, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by Purchaser and acknowledged before a notary public;

(c) Assignments in form required by any Governmental Body for the assignment of any Assets controlled by such Governmental Body (excluding any Customary Post-Closing Consents), duly executed by Purchaser, in sufficient duplicate originals to allow recording and filing in all appropriate offices;

(d) A certificate duly executed by an authorized officer of Purchaser, dated as of the Closing Date, certifying on behalf of Purchaser that the conditions set forth in Section 9.1(a) and Section 9.1(b) have been fulfilled;

(e) Counterparts of the Surface Deed, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by Purchaser and acknowledged before a notary public;

(f) Counterparts of the Term Royalty Deed, in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, duly executed by Purchaser and acknowledged before a notary public;

(g) If the applicable consents to assign and releases of liability have been received by Sellers prior to the Closing, counterparts of the assignments of the AESC Contracts, in form and substance reasonably acceptable to Sellers and Purchaser, duly executed by Purchaser;

(h) If Remediation of the Current Remediation Matter has not been completed prior to the Closing, counterparts of the Site Access Agreement, in form and substance reasonably acceptable to Sellers and Purchaser, duly executed by Purchaser;

(i) Evidence of replacement bonds, guaranties and letters of credit required pursuant to Section 8.7 ;

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(j) Counterparts of the change of operator forms required by the applicable regulatory authority, duly executed by Purchaser or its designee;

(k) Counterparts of the Preliminary Settlement Statement, duly executed by Purchaser;

(l) Counterparts of the escrow agreement with the Escrow Agent, in form and substance reasonably acceptable to Sellers and Purchaser, to the extent necessary under the terms of this Agreement, duly executed by Purchaser; and

(m) All other instruments, documents and other items reasonably necessary to effectuate the terms of this Agreement as may be reasonably requested by Sellers.

Section 10.4 Closing Payment and Post-Closing Unadjusted Purchase Price Adjustments

.

(a) Not later than seven Business Days prior to Closing, or such other date agreed to by the Parties, Sellers shall prepare and deliver to Purchaser, using the best information available to Sellers, a preliminary settlement statement (the “ Preliminary Settlement Statement ”) estimating the initial Adjusted Purchase Price after giving effect to all adjustments set forth in Section 3.4 .   Purchaser will have two Business Days after receipt of the Preliminary Settlement Statement to review such statement and to provide written notice to Sellers of objections to any item on the statement.  The Parties shall attempt to agree on the amounts in the Preliminary Settlement Statement no later than one Business Day before Closing.  The amount agreed to in accordance with this Section 10.4(a) (or if the Parties are unable to agree, the amount or amounts set forth in Sellers’ estimate delivered in accordance with this Section 10.4(a) ) less the Deposit and any amount deposited to the Escrow Agent pursuant to Section 4.4 and Section 5.2 shall constitute the dollar amount of consideration to be paid by Purchaser to Sellers at the Closing (the “ Closing Payment ”).  For the avoidance of doubt, the entire Deposit shall be netted against the Unadjusted Purchase Price in the Preliminary Settlement Statement in accordance with Section 3.2 .  

(b) As soon as reasonably practicable after the Closing but not later than the later of (x) the last day of the fourth month following the Closing Date and (y) the date on which the Parties finally determine or the Title Expert or Environmental Expert, as applicable, finally determines, all Disputed Title Matters under Section 4.4 and all Disputed Environmental Matters under Section 5.2 , Sellers shall prepare and deliver to Purchaser a statement setting forth (i) the final calculation of the Adjusted Purchase Price, (ii) the amount of Unreimbursed Third Party Property Costs as described in Section 2.4(c) and (iii) the amount of any Suspense Funds held by Sellers as of the date such statement is prepared, and showing the calculation of each such adjustment or item, based, to the extent possible, on actual credits, charges, receipts and other items before and after the Effective Time.  Sellers shall, at Purchaser’s request, supply available documentation in reasonable detail to support any credit, charge, receipt or other item.  As soon as reasonably practicable but not later than the 30th day following receipt of Sellers’ statement hereunder, Purchaser shall deliver to Sellers a written report containing any changes that Purchaser proposes be made to such statement.  Sellers may deliver a written report to Purchaser

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during this same period refle cting any changes that Sellers propose to be made to such statement as a result of additional information received after the statement was prepared .

(c) The Parties shall undertake to agree on the final settlement statement.  In the event that the Parties cannot reach agreement within a reasonable period of time, either Party may refer the remaining matters in dispute to the Houston, Texas office of Grant Thornton LLP (the “ Independent Accountant ”) for review and final determination.  In the event that Grant Thornton LLP refuses or is otherwise unable to act as the Independent Accountant, the Parties shall cooperate in good faith to appoint an independent certified public accounting firm qualified and of national recognition in the United States that is mutually agreeable to the Parties, in which event “Independent Accountant” shall mean such firm.  Within 15 days after either Party’s referral of the remaining matters in dispute to the Independent Accountant, Purchaser (on the one hand) and Sellers (on the other hand) shall submit separate written statements setting forth their respective positions with respect to all matters that remain in dispute relating to the final settlement statement.  Within 30 days after the submission of such matters to the Independent Accountant, or as soon as practicable thereafter, the Independent Accountant, acting as an expert and not as an arbitrator, will make a final determination, binding on Sellers and Purchaser (absent fraud or manifest error), and enforceable by either Party in any court of competent jurisdiction.  There shall be no ex parte communications between any of Sellers or Purchaser, on the one hand, and the Independent Accountant, on the other hand, relating to those matters in dispute, other than the initial written submission by Sellers and Purchaser of their respective positions on the matters in dispute and written answers by Sellers and Purchaser to written questions from the Independent Accountant.  The Independent Accountant shall be authorized to select only the position as to any adjustment set forth in the final settlement statement as presented by either Sellers (on the one hand) or Purchaser (on the other hand).  The Independent Accountant shall act as an independent neutral expert for the limited purpose of determining the specific disputed matters submitted by the Parties and may not award Damages, interest or penalties to the Parties with respect to any matter.  The Independent Accountant shall have no power to reach any other result and shall select the adjustment or line item set forth in the final settlement statement that, in its judgment, is the closest to being in conformity with this Agreement.  For the avoidance of doubt, the Independent Accountant shall not make any determination with respect to any matter other than those matters affecting the calculations of the final settlement statement that remain in dispute.  Sellers and Purchaser shall each bear its own legal fees and other costs of presenting its written submissions to the Independent Accountant.  The costs of the Independent Accountant shall be borne by Sellers, on the one hand, and Purchaser, on the other hand, based on the proportion the amount awarded in such Parties’ favor bears to the aggregate amount submitted to the Independent Accountant for determination.

(d) Within ten days after the earliest of (i) the expiration of Purchaser’s 30-day review period without delivery of any written report by Purchaser as contemplated in Section 10.4(b) , (ii) the date on which the Parties finally determine the matters required to be set forth in the final settlement statement and (iii) the date on which the Independent Accountant finally determines the disputed matters submitted to it, as applicable, (A) Purchaser shall pay to Sellers the amount by which (i) the final Adjusted Purchase Price, less the Deposit amount, plus the amount of the Unreimbursed Third Party Property Costs, less the Suspense Funds, exceeds (2) the Closing Payment or (B) Sellers shall pay to Purchaser the amount by which the Closing

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Payment exceeds the final Adjusted Purchase Price, less the Deposit amount, plus the amount of the Unreimbursed Third Party Property Costs, less the Suspense Funds, as applicable.

(e) Purchaser shall assist Sellers in the preparation of the final statement of the Adjusted Purchase Price under Section 10.4(d) by furnishing invoices, receipts, reasonable access to personnel, and such other assistance as may be reasonably requested by Sellers to facilitate such process post-Closing.

(f) All cash payments made or to be made under this Agreement shall be made by electronic transfer of immediately available funds to the account designated by the appropriate Party in writing (with email being sufficient).

ARTICLE 11
TERMINATION

Section 11.1 Termination

.  This Agreement may be terminated at any time prior to the Closing:

(a) by the mutual written consent of Sellers and Purchaser;

(b) by either Purchaser or Sellers if the Closing has not occurred on or before July 31, 2017, or such later date as shall be mutually agreed to in writing by Purchaser and Sellers;

(c) by Sellers if (i) the conditions set forth in Section 9.2 have been satisfied or waived in writing (other than those conditions that by their nature are to be satisfied at the Closing); (ii) Sellers have confirmed in writing that Sellers are ready, w illing and able to consummate the Closing; and (iii) Purchaser shall have failed for any reason to consummate the Closing by the date the Closing should have occurred pursuant to Section 10.1 ;

(d) by Purchaser if (i) the conditions set forth in Section 9.1 have been satisfied or waived in writing (other than those conditions that by their nature are to be satisfied at the Closing); (ii) Purchaser has confirmed in writing that Purchaser is ready, willing and able to consummate the Closing; and (iii) Sellers shall have failed for any reason to consummate the Closing by the date the Closing should have occurred pursuant to Section 10.1 ;

(e) by either Party if any Governmental Body shall have commenced or threatened to commence any proceeding to delay or enjoin the tra nsactions contemplated by this Agreement;

(f) by Sellers if the Parent Guaranty ceases to be in full force and effect and enforceable; or

(g) by AEPO (on behalf of Sellers), upon written notice to Purchaser, if Purchaser has not paid the Deposit to Sellers in accordance with Section 3.2 within one Business Day after the Execution Date, provided the termination right described in this Section 11.1(g) must be exercised, if ever, prior to Sellers’ receipt of the Deposit;

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provided , however , that no Party shall be enti tled to terminate this Agreement under Section 11.1(b) , 11.1(c) or 11.1(d) if the Closing has failed to occur because such Party negligently or willfully failed to perform or observe in any material respect its covenants or agreements hereunder.

Section 11.2 Effect of Termination

.  If this Agreement is terminated pursuant to Section 11.1 , this Agreement shall become void and of no further force or effect, except for the Confidentiality Agreement and the provisions of Section 8.1(d) ,  Section 8.1(e) , Section 8.3 , Section 8.4(c) , Section 8.10(f) , Article 11 , Section 14.1 through Section 14.11 , Section 14.13 , Section 14.18 and Appendix A , which shall continue in full force and effect, and Sellers shall be free immediately to enjoy all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any Person without any restriction under this Agreement.  

Section 11.3 Remedies for Breach; Distribution of Deposit Upon Termination

.

(a) If Sellers could terminate this Agreement (i) under Section 11.1(b) , and Purchaser’s breach or failure to perform its representations, warranties, covenants or agreements hereunder, individually or in the aggregate, with all other breaches and failures to perform by Purchaser that have not been waived in writing by Sellers, are preventing or have prevented the satisfaction of the conditions set forth in Section 9.1 , (ii) pursuant to Section 11.1(c) or (iii) pursuant to Section 11.1(f) , then, in each case, Sellers, at their option, may, as their sole and exclusive remedy, either (1) terminate this Agreement and retain the Deposit together with any interest or income thereon, as liquidated damages, free of any claims by Purchaser or any other Person with respect thereto or (2) seek an injunction, order of specific performance or other equitable relief to enforce specifically the terms and provisions of this Agreement and deduct the costs of pursuing such relief from the Deposit.  If Sellers elect to retain the Deposit but are, for any reason, prohibited from retaining the Deposit as liquidated damages, Sellers may then pursue whatever legal or equitable rights and remedies may be available to Sellers, provided any such damages recovered from Purchaser may not exceed an amount equal to the Deposit.  If Sellers elect to pursue an injunction, order of specific performance or other equitable relief to enforce specifically the terms and provisions of this Agreement and are unable to obtain such specific performance, then Sellers shall be entitled to terminate this Agreement and retain the Deposit together with any interest or income thereon, as liquidated damages, free of any claims by Purchaser or any other Person with respect thereto.  In the event Sellers elect to terminate this Agreement and retain the Deposit, Sellers shall be free to enjoy immediately all rights of ownership of the Assets and to sell, transfer, encumber or otherwise dispose of the Assets to any party without any restriction under this Agreement.   It is expressly stipulated by the Parties that the actual amount of damages resulting from any such termination would be difficult, if not impossible, to determine accurately because of the unique nature of this Agreement, the unique nature of the Assets, the uncertainties of applicable commodity markets and differences of opinion with respect to such matters, and that the liquidated damages provided for herein are a reasonable estimate by the Parties of such damages .

(b) If Purchaser could terminate this Agreement pursuant to (i) Section 11.1(b) , and Sellers’ breach or failure to perform their representations, warranties, covenants or agreements hereunder, individually or in the aggregate, with all other breaches and failures to perform that have not been waived in writing, are preventing or have prevented the satisfaction of the

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conditions set forth in Section 9.2 or (ii) Section 11.1(d) , then, Purchaser , at its option, may either (i) terminate this Agreement, receive back the entirety of the Deposit (which Sellers shall promptly return to Purchaser upon Purchaser’s proper ter mination of this Agreement pursuant to this Section 11.3(b) without any interest accrued thereon, free of any claims by any Seller or any other Person with respect thereto ) and seek to recover damages from Sellers up to but not exceeding the amount of the Deposit or (ii) in lieu of terminating this Agreement, seek an injunction and order of specific performance or other equitable relief to enforce specifically the terms and provisions of this Agreement, in either case, as its sole and exclusive remedy, all other remedies being expressly waived by Purchaser .

(c) If this Agreement is terminated under Section 11.1 for any reason other than the reasons set forth in Section 11.3(a) or Section 11.3(b) , Sellers shall refund to Purchaser the Deposit, without any interest accrued thereon, free of any claims by any Seller or any other Person with respect thereto, and the Parties will have no further obligation or liability to one another hereunder other than as set forth in this Section 11.3 , Section 11.2 and the Confidentiality Agreement.  Notwithstanding anything to the contrary in this Agreement, Purchaser shall not be entitled to receive interest on the Deposit, whether the Deposit is applied against the Unadjusted Purchase Price or returned to Purchaser pursuant to this Section 11.3(c) .

(d) Upon termination of this Agreement, Purchaser shall destroy or return to Sellers all title, engineering, geological and geophysical data, environmental assessments and reports, maps, documents and other information furnished by Sellers to Purchaser or prepared by or on behalf of Purchaser in connection with its due diligence of the Assets, and an officer of Purchaser shall confirm the same to Sellers in writing.

ARTICLE 12
ASSUMPTION; INDEMNIFICATION

Section 12.1 Assumption by Purchaser

.

Without limiting Purchaser’s rights to indemnity under Section 12.2 , Purchaser’s remedies for Title Defects in Article 4 and Adverse Environmental Conditions in Article 5 and Purchaser remedies for breaches of the special warranty of title contained in the Conveyances and the Deeds, on the Closing Date, Purchaser shall assume and hereby agrees to fulfill, perform, pay and discharge (or cause to be timely fulfilled, performed, paid or discharged) all of the Assumed Purchaser Obligations.

Section 12.2 Indemnification

.

(a) Upon the Closing, Purchaser shall indemnify, defend and hold harmless the Seller Group from and against all Damages incurred, suffered by or asserted against such Persons:

(i) caused by or arising out of or resulting from the Assumed Purchaser Obligations, REGARDLESS OF FAULT ;

(ii) caused by or arising out of or resulting from any breach of or failure to perform any of Purchaser’s covenants or agreements in this Agreement; or

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(iii) caused by or arising out of or resulting from a ny breach of any representation or warranty made by Purchaser in Article 7 or in the certificate delivered pursuant to Section 10.3(d) .

(b) Upon the Closing, Sellers shall indemnify, defend and hold harmless the Purchaser Group from and against all Damages incurred, suffered by or asserted against such Persons:

(i) caused by or arising out of or resulting from the Retained Seller Obligations, REGARDLESS OF FAULT ;

(ii) caused by or arising out of or resulting from any breach of or failure to perform any of Sellers’ covenants or agreements in this Agreement; or

(iii) caused by or arising out of or resulting from any breach of any representation or warranty made by Sellers in Article 6 or in the certificate delivered pursuant to Section 10.2(c) .

(c) Notwithstanding anything to the contrary contained in this Agreement, if the Closing occurs, this Section 12.2 contains the Parties’ and their Affiliates exclusive remedies against each other with respect to breaches of the representations and warranties of the Parties in Article 6 and Article 7 , the covenants and agreements of the Parties in this Agreement, the affirmations of such representations, warranties, covenants and agreements contained in the certificate delivered by each Party at the Closing pursuant to Section 10.3(d) , with respect to Purchaser, or Section 10.2(c) , with respect to Sellers, except for actions of specific performance or other equitable relief expressly permitted to be sought pursuant to this Agreement.  Except for the remedies contained in the Conveyances and the Deeds or in this Section 12.2 , Section 8.1(e) , Section 11.2 , Section 11.3 and Section 14.17 , and under the Site Access Agreement, if the Closing occurs, SELLERS AND PURCHASER EACH RELEASE, REMISE AND FOREVER DISCHARGE THE OTHER PARTY (OR PARTIES, AS APPLICABLE) AND THEIR AFFILIATES FROM ANY AND ALL SUITS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES, LOSSES, COSTS, LIABILITIES, INTEREST, OR CAUSES OF ACTION WHATSOEVER, IN LAW OR IN EQUITY, KNOWN OR UNKNOWN, WHICH SUCH PARTIES MIGHT NOW OR SUBSEQUENTLY MAY HAVE, BASED ON, RELATING TO OR ARISING OUT OF (i) THIS AGREEMENT, (ii) SELLERS’ OWNERSHIP, USE OR OPERATION OF THE ASSETS, (iii) THE CONDITION, QUALITY, STATUS OR NATURE OF THE ASSETS, INCLUDING RIGHTS TO CONTRIBUTION UNDER CERCLA OR ANY OTHER ENVIRONMENTAL LAW, (iv) BREACHES OF STATUTORY OR IMPLIED WARRANTIES, (v) NUISANCE OR OTHER TORT ACTIONS, (vi) RIGHTS TO PUNITIVE DAMAGES AND COMMON LAW RIGHTS OF CONTRIBUTION AND (vii) SUBJECT TO SECTION 4.7 , RIGHTS UNDER INSURANCE MAINTAINED BY SELLERS OR ANY PERSON WHO IS AN AFFILIATE OF ANY SELLER, REGARDLESS OF FAULT.

(d) Claims for Property Costs and proceeds from Hydrocarbon production shall be exclusively handled pursuant to Section 2.4 , the Unadjusted Purchase Price adjustments in

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Section 3.4 , and pursuant to Section 10.4 , and shall not be subject to indemnification under this Section 12.2 .  Claims for Title Defects (and Title Benefits) shall be exc lusively handled pursuant to Article 4 , or under the special warranty of title in the Conveyances and the Deeds, and Adverse Environmental Conditions shall be exclusively handled pursuant to Article 4 and Article  5 , as applicable, and shall not be subject to indemnification under this Section 12.2 , except as an Assumed Purchaser Obligation or as a Retained Seller Obligation or for breaches of the Specified Representations or the representations and warranties of Sellers in Section 6.21 , as determined pursua nt to Article 4 and Article 5 .  Claims relating to the final settlement statement (other than any claim relating to an adjustment for Property Taxes) shall be exclusively handled pursuant to the dispute resolution provisions of Section 10.4 .   Notwithstandi ng the foregoing, a breach or failure to perform with respect to any covenant or agreement described in the foregoing sections of this Section 12.2(d) are (and shall be) subject to claims for indemnification pursuant to Section 12.2(a)(ii) and Section 12.2 (b)(ii) , as applicable.

(e) The indemnity of each Party provided in this Section 12.2 shall be for the benefit of and extend to each Person included in the Seller Group and the Purchaser Group, as applicable; provided , however , that any claim for indemnity under this Section 12.2 by any such Person must be brought and administered by a Party to this Agreement.  No indemnified Person other than Sellers and Purchaser shall have any rights against Sellers or Purchaser under the terms of this Section 12.2 except as may be exercised on its behalf by Purchaser or Sellers, as applicable, pursuant to this Section 12.2(e) .  Each of Sellers and Purchaser may elect to exercise or not exercise indemnification rights under this Section 12.2 on behalf of the other indemnified Persons which are members of the Seller Group or Purchaser Group, as applicable, in its sole discretion and shall have no liability to any such other indemnified Persons for any action or inaction under this Section 12.2 .

Section 12.3 Indemnification Actions

.  Each Party claiming it is entitled to indemnification hereunder shall promptly notify the Party or Parties from which it is seeking indemnification of any matter of which it becomes aware and for which it is entitled to indemnification under this Agreement.  The indemnifying Party shall be obligated to defend, at the indemnifying Party’s sole expense, any litigation or other administrative or adversarial proceeding against the indemnified Party relating to any matter for which the indemnifying Party has agreed to indemnify and hold the indemnified Party harmless under this Agreement.  However, the indemnified Party shall have the right to participate with the indemnifying Party in the defense of any such matter at its own expense.  The indemnifying Party shall have the right to select counsel for any matters it is defending, provided that the indemnified Party shall have the right to require the indemnifying Party to select alternative counsel if such counsel is, at such time, adverse to the indemnified Party in any legal proceeding, whether or not such proceeding is related to this Agreement.  The indemnifying party shall not, without the written consent of the indemnified party, (i) settle any claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the indemnified party from all liability and Damages in  respect of such third party claim or (ii) settle any claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the indemnified party (other than as a result of money damages covered by the indemnity). With respect to any claim subject to indemnification pursuant to this Article 12 or otherwise pursuant to this Agreement, the indemnified party shall use commercially reasonable efforts to cooperate (at the indemnifying party’s sole cost and expense) with the indemnifying party in

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asserting any defense that may be available to the indemnified party with respect to any such claim.  In the case of a  claim for indemnification not based upon a Third Party claim, the indemnifying party shall have thirty (30) days from its receipt of a notice of such claim to (i) cure the Damages complained of, (ii) admit its obligation to provide indemnificati on with respect to such Damages or (iii) dispute the claim for such indemnification.  If the indemnifying party does not notify the indemnified party within such thirty (30) day period that it has cured the Damages or that it disputes the claim for such in demnification, the indemnifying party shall be conclusively deemed obligated to provide such indemnification hereunder.

Section 12.4 Limitation on Actions

.

(a) The representations and warranties of the Parties in Article 6 and Article 7 and the corresponding representations and warranties given in the certificates delivered at the Closing pursuant to Section 10.3(d) and Section 10.2(c) , as applicable, and the covenants and agreements of the Parties set forth in Article 8 of this Agreement (except for those set forth in clause (iii) hereof), shall survive the Closing for a period of twelve months , except that (i) the representations and warranties in Section 6.1 , Section 6.2 , Section 6.3 , Section 6.4(a) , Section 6.6 , Section 7.1 , Section 7.2 and Section 7.4(a) shall survive indefinitely and (iii) the covenants and agreements, as applicable, in Section 8.1(e) , Section 8.3 , Section 8.6 , Section 8.7 , Section 8.9 , Section 8.11 and Section 8.12 shall survive indefinitely, and any covenants or agreements that by their terms are applicable beyond the twelve-month anniversary of the Closing shall survive in accordance with their terms.  The remainder of this Agreement (including the disclaimers in Section 6.23 ) shall survive the Closing without time limit except for the provisions of Article 13 , which shall survive the Closing until the expiration of the applicable statute of limitations.  Representations, warranties, covenants and agreements shall be of no further force and effect after the date of their expiration; provided , however , that there shall be no termination of any bona fide claim for indemnification that has been delivered to the indemnifying Person in accordance with the terms of this Agreement with respect to such a representation, warranty, covenant or agreement prior to its expiration date and such representation, warranty, covenant or agreement shall survive until such claim is fully and finally resolved.

(b) The indemnities in Section 12.2(a)(ii) , Section 12.2(a)(iii) , Section 12.2(b)(ii) and Section 12.2(b)(iii) shall terminate as of the termination date of each respective representation, warranty, covenant or agreement that is subject to indemnification thereunder, except in each case as to matters for which a bona fide claim for indemnity has been delivered in good faith to the indemnifying Person on or before such termination date, in which event such indemnities shall not terminate until such claim is fully and finally resolved.  The indemnities in Section 12.2(b)(i) shall terminate as of the expiration of the applicable Retained Seller Obligation (as provided in the definition thereof) ( provided , however , that there shall be no termination of any bona fide claim for indemnity that has been delivered to the indemnifying Person in accordance with the terms of this Agreement with respect to such Section 12.2(b)(i) prior to its expiration date, in which event such indemnities shall not terminate until such claim is fully and finally resolved), and the indemnities in Section 12.2(a)(i) shall survive indefinitely.

(c) Sellers shall not have any liability for any indemnification under Section 12.2(b)(iii) until and unless (i) with respect to any individual claim for Damages, the amount of such Damages exceeds $100,000.00 (the “ Indemnity Threshold ”) and (ii) the

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aggregate amount of the liability for all Damages claimed by Purchaser and that exceed the Indemnity Threshold exceeds 3% of the Unadjusted Purchase Price, and then only to the extent that such Damages exceed 3% of the Unadjusted Purchase Price; provided , however , that the foregoing shall not be applicable to breaches of those representations and warranties in Section  6.1 , Section 6.2 , Section 6.3 , Section 6.4(a) , or   Section 6.6 .

(d) Notwithstanding anything to the contrary contained elsewhere in this Agreement, Sellers shall not be required to indemnify the Purchaser Group under Section 12.2(b)(iii) for aggregate Damages in excess of 10% of the Unadjusted Purchase Price; provided , however , that the foregoing shall not be applicable to breaches of those representations and warranties in Section 6.1 , Section 6.2 , Section 6.3 , Section 6.4(a) , or Section 6.6 .

(e) Notwithstanding anything to the contrary contained elsewhere in this Agreement, Sellers shall not be required to indemnify the Purchaser Group under this Article 12 for aggregate Damages in excess of the Unadjusted Purchase Price.

(f) The amount of any Damages for which an Indemnified Person is entitled to indemnity under this Article 12 shall be reduced by the amount of insurance proceeds, if any, realized by the Indemnified Person or its Affiliates with respect to such Damages, net of any collection costs and excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Person or its Affiliates.

(g) Purchaser shall not be entitled to indemnification or any other remedy under this Agreement with respect to any Damages or other liability, loss, cost, expense, claim, award or judgment to the extent caused by Purchaser or any of its Affiliates as owner or operator of any of the Properties.

(h) For purposes of determining the amount of any recovery under this Article 12 , the words “Material Adverse Effect,” “material adverse effect,” “material,” “materiality,” and words of similar import in the applicable representations, warranties, covenants or agreements shall be disregarded.   Notwithstanding anything herein to the contrary, in no event will the Seller Group or the Purchaser Group be entitled to duplicate recovery under this Article 12 with respect to (i) any Damage, even though the facts or series of related facts giving rise to such Damage may constitute a breach of more than one representation, warranty, covenant or agreement set forth herein, in the Conveyances, the Deeds, or in any document delivered in connection with the Closing or (ii) any adjustments to the Unadjusted Purchase Price pursuant to Section 3.4 .

ARTICLE 13
TAX MATTERS

Section 13.1 Responsibility for Tax Filings and Payment

.  After the Closing Date, (a) Sellers shall be responsible for paying any and all Property Taxes due with respect to the ownership and operation of the Assets or the production of Hydrocarbons therefrom for all Tax periods ending before the Effective Time and shall file with the appropriate Governmental Body any and all Tax Returns required to be filed with respect to such Property Taxes, and (b) except as set forth in clause (a) hereof, Purchaser shall be responsible for paying any and all Property Taxes due with respect to the ownership and operation of the Assets or the production of

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Hydrocarbons therefrom and shall file with the appropriat e Governmental Body any and all Tax Returns required to be filed with respect to such Property Taxes.  To the extent a Tax Return for which Purchaser is responsible hereunder relates to a Tax period that includes the Effective Time, Purchaser shall prepare such Tax Return in a manner consistent with Sellers’ past practices except as otherwise required by applicable Laws, and shall submit such Tax Return to Sellers for their review and comment no fewer than 30 days prior to the due date therefor.  Purchaser shall timely file any such Tax Return, incorporating any reasonable comments received from Sellers prior to the due date therefor.

Section 13.2 Apportionment of Property Taxes

.  For purposes of this Agreement, Property Taxes due with respect to the ownership and operation of the Assets or the production of Hydrocarbons therefrom, but excluding Property Taxes that are based on the quantity or value of production of Hydrocarbons, shall be apportioned between Sellers and Purchaser as of the Effective Time with (a) Sellers being responsible for all such Property Taxes for Tax periods ending prior to the Effective Time and a proportionate share of the actual amount of such Taxes for a Tax period in which the Effective Time occurs (a “ Current Tax Period ”) determined by multiplying such actual Taxes by a fraction, the numerator of which is the number of days in the Current Tax Period prior to the day that includes the Effective Time and the denominator of which is the total number of days in the Current Tax Period and (b) Purchaser being responsible for all such Property Taxes for Tax periods beginning on or after the day that includes the Effective Time and a proportionate share of the actual amount of such Taxes for a Current Tax Period determined by multiplying such actual Taxes by a fraction, the numerator of which is the number of days in the Current Tax Period on and after the day that includes the Effective Time and the denominator of which is the total number of days in the Current Tax Period.  Property Taxes that are based on the quantity of or the value of production of Hydrocarbons shall be apportioned between Sellers and Purchaser based on the number of units or value of production actually produced, as applicable, before and at, with regard to Sellers, or after, with regard to Purchaser, the Effective Time.

Section 13.3 Cooperation.

(a) From and after the Closing Date, each Seller shall grant to Purchaser (or its designees) reasonable access at all reasonable times to the information, books and records relating to the Assets within the possession of Sellers (including work papers and correspondence with taxing authorities, but excluding work product of and attorney-client communications with any of Sellers’ legal counsel and personnel files), and shall afford Purchaser (or its designees) the right (at Purchaser’s expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to permit Purchaser (or its designees) to prepare Tax Returns for which Purchaser is responsible hereunder, to conduct negotiations with Tax authorities, and to implement the provisions of, or to investigate or defend any claims between the Parties arising under, this Agreement.

(b) From and after the Closing Date, Purchaser shall grant to each Seller (or Sellers’ designees) reasonable access at all reasonable times to the information, books and records relating to the Assets within the possession of Purchaser (including work papers and correspondence with taxing authorities, but excluding work product of and attorney-client communications with any of Purchaser’s legal counsel and personnel files), and shall afford

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Sellers (or Sellers’ designees) the right (at Sellers’ expense) to take extracts therefrom and to make copies thereof, to the extent reasonably necessary to permit Sellers (or Sellers’ designees) to prepare Tax Returns for which Sellers are responsible hereunder, to conduct negotiations with Tax authorities, and to implement the provisions of, or to investigate or defend any claims between the Parties arising under, this Agreeme nt.

(c) Except with respect to Income Taxes, each of the Parties hereto will preserve and retain all schedules, work papers and other documents within such Party’s possession relating to any Tax Returns of or with respect to Taxes relating to the Assets or to any claims, audits or other proceedings with respect thereto until the latest of (i) the expiration of the statute of limitations (including extensions) applicable to the taxable period to which such documents relate, (ii) the final determination of any controversy with respect to such taxable period, (iii) the final determination of any payments that may be required with respect to such taxable period under this Agreement, and (iv) seven (7) years after the Closing Date.

(d) At either Purchaser’s or Sellers’ request, the other Party shall provide reasonable access to Purchaser’s or Sellers’, as the case may be, and their respective Affiliates’ personnel who have knowledge of the information described in this Section 13.3 .

Section 13.4 Like-Kind Exchange

.  Notwithstanding anything else in this Agreement, Purchaser shall have the right to structure the transactions contemplated under the terms of this Agreement as a Like-Kind Exchange.  Notwithstanding any other provisions of this Agreement, in connection with effectuating a Like-Kind Exchange, each Party shall have the right, at or prior to the Closing Date or any subsequent Closing, to assign all or a portion of its rights under this Agreement (the “ Assigned Rights ”) to a “qualified intermediary” (as that term is defined in Treasury Regulation § 1.1031(k)-1(g)(4)) or to a “qualified exchange accommodation titleholder” (as that term is defined in U.S. Revenue Procedure 2000-37).  In the event a Party (in its capacity as an exchanging party, referred to in this Section 13.4 as an “ Exchanging Party ”) assigns the Assigned Rights to a “qualified intermediary” pursuant to this Section 13.4 , then such Exchanging Party agrees to notify Sellers in writing of such assignment reasonably in advance of the Closing Date.  In addition, should a Party choose to effectuate a Like-Kind Exchange, the Parties agree to use commercially reasonable efforts to cooperate with one another in the completion of such an exchange, including the execution of all documents reasonably necessary to effectuate such a Like-Kind Exchange; provided , however , that (a) the Closing Date shall not be delayed or affected by reason of the Like-Kind Exchange, (b) the Exchanging Party shall effect its Like-Kind Exchange through an assignment of the Assigned Rights to a “qualified intermediary” or to a “qualified exchange accommodation titleholder,” but such assignment shall not release such Exchanging Party from any of its liabilities or obligations under this Agreement and (c) the non-Exchanging Party shall incur no additional costs, expenses, fees or Damages as a result of or in connection with the exchange requested by the Exchanging Party.  Each Party hereby acknowledges and agrees that any assignment of this Agreement pursuant to this Section 13.4 shall not release a Party from, or modify, any of its respective liabilities and obligations (including indemnity obligations to the other Party) under this Agreement.  Neither Party, by its consent to a Like-Kind Exchange by the other Party, shall be responsible in any way for the Exchanging Party’s compliance with the rules applicable to such other Party’s Like-Kind Exchange.

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Section 13.5 Refunds

.  Purchaser agrees to pay to Sellers the amount of any refund, credit against Tax or other Tax benefit (including any refunds, credits or rebates) together with any interest thereon received from a Governmental Body after the Closing by Purchaser or its Affiliates in respect of any Property Taxes due with respect to the ownership and operation of the Assets or the production of Hydrocarbons therefrom (including, for the avoidance of doubt, any Tax benefit or amount attributable to a reduction in severance Taxes that may be realized after the Effective Time but that results from payments or production for periods prior to or at the Effective Time), prior to or at the Effective Time (determined in the manner described in Section 13.2 ) to the extent not otherwise taken into account under Section 2.4 or as an adjustment to the Unadjusted Purchase Price under Section 3.4 , within five days after such refund, credit or other benefit is actually received or realized by Purchaser or its Affiliates.

Section 13.6 Audits

.  From and after the Closing, each of Purchaser, on the one hand, and Sellers, on the other hand (the “ Tax Indemnified Person ”), shall notify the other Party in writing within 15 days of receipt by the Tax Indemnified Person of written notice of any pending or threatened audits, adjustments, claims, examinations, assessments or other proceedings with respect to any Taxes that are likely to affect the liability of such other Party under this Agreement (a “ Tax Audit ”).  If the Tax Indemnified Person fails to give such timely notice to the other Party, it shall not be entitled to indemnification or reimbursement for any Taxes arising in connection with such Tax Audit to the extent such failure to give notice actually and materially adversely affects the other Party.  If such Tax Audit relates to a Tax period that ends before the Effective Time or a Current Tax Period for which only Sellers would be liable to indemnify Purchaser under this Agreement, Sellers shall, at their expense, conduct and control the defense and settlement of such Tax Audit.  If such Tax Audit relates solely to a Tax period beginning after the Effective Time or a Current Tax Period for which only Purchaser would be liable to indemnify Sellers under this Agreement, Purchaser shall, at its expense, conduct and control the defense and settlement of such Tax Audit.  If such Tax Audit relates to a Current Tax Period for which both Sellers and Purchaser could be liable under this Agreement, Purchaser shall be entitled to conduct and control the defense and settlement of such Tax Audit, but (a) Sellers shall be entitled to participate in any such Tax Audit relating to Taxes for which it may be responsible hereunder at their own expense and (b) Purchasers shall not settle, compromise or concede any portion of any Tax Audit that is reasonably likely to affect the Tax liability of Sellers without the consent of Sellers, which consent shall not be unreasonably withheld, delayed or conditioned.

Section 13.7 Characterization of Certain Payments

.  The Parties agree that any payments made pursuant to this Article 13 , Article 12 or Section 10.4 shall be treated for all Tax purposes as an adjustment to the Adjusted Purchase Price unless otherwise required by applicable Laws.

Section 13.8 Transfer Taxes, Recording Fees & Transaction Fees

.  Purchaser shall bear any sales, use, excise, real property transfer or gain, gross receipts, goods and services, registration, recording fees, capital, documentary, stamp or similar Taxes (including any penalties, interest or additional amounts which may be imposed with respect thereto but not including any income or franchise taxes) (collectively, “ Transfer Taxes ”) imposed upon, or with respect to, the transfer of the Assets or other transactions contemplated hereby, including any fees or payments to lessors under the Leases (if any).  Purchaser and Sellers shall cooperate in good faith to minimize the incurrence of any such Transfer Taxes, fees or payments, including

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the filing or submission of an appropriate certificate or other evidence of exemption by Purchaser.  Except as otherwise provided herein, all costs and expenses (including legal and financial advisory fees and expenses) incurred in connection with, or in anticipation of, this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such expenses.

ARTICLE 14
MISCELLANEOUS

Section 14.1 Counterparts

.  This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement.  Either Party’s delivery of an executed counterpart signature page by facsimile or email is as effective as executing and delivering this Agreement in the presence of the other Party.  No Party shall be bound until such time as all of the Parties have executed counterparts of this Agreement.

Section 14.2 Notices

.  All notices and other communications that are required or may be given pursuant to this Agreement must be given in writing, in English and delivered personally, by courier, by facsimile or by registered or certified mail, postage prepaid, as follows:

If to Sellers:

c/o Anadarko Petroleum Corporation
9950 Woodloch Forest Drive
The Woodlands, Texas 77380
Attn:  Vice President, Corporate Development
Facsimile:  (832) 636-9888

With a copy to:

Anadarko Petroleum Corporation
9950 Woodloch Forest Drive
The Woodlands, Texas 77380
Attn:  Associate General Counsel, Oil, Gas and Minerals
Facsimile:  (832) 636-8203

and

Sidley Austin LLP

1000 Louisiana, Suite 6000

Houston, Texas 77002

 

Attn:

James L. Rice III; Katy L. Lukaszewski

Facsimile: (713) 495-7799

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If to Purchaser:

c/o WildHorse Resource Development Corporation

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attn:  William B. Coffey
Facsimile: (713) 568-4911


With a copy to :

Locke Lord LLP

600 Travis, Suite 2800

Houston, Texas  77002
Attn:  Terry L. Radney; Hunter Summerford
Facsimile: (713) 223-3717

 

Either Party may change its address for notice by providing notice to the other Party in the manner set forth above.  All notices shall be deemed to have been duly given and the receiving Party charged with notice (a) if personally delivered, when received, (b) if sent by facsimile during normal business hours of the recipient, upon confirmation of transmission, or if sent by facsimile after normal business hours of the recipient, on the next Business Day, (c) if mailed, two Business Days after the date of mailing to the address below or (d) if sent by overnight courier, one day after sending.  Notwithstanding the foregoing, any notices or other communications delivered pursuant to this Agreement prior to or at the Closing may be given via email, return receipt requested, during normal business hours of the recipient.  Such email notices can be sent to Sellers at julie.gremillion@anadarko.com and randle.jones@anadarko.com, copying jrice@sidley.com, and klukaszewski@sidley.com and to Purchaser at Brad.Coffey@wildhorseresources.com and KRoane@wildhorserd.com, copying tradney@lockelord.com and hsummerford@lockelord.com.  Any written notice regarding indemnification sent to Sellers pursuant to Section 12.3 should also be sent pursuant to the delivery procedures set forth in this Section 14.2 to Sellers’ registered agent, CT Corporation, at 1999 Bryan Street, Suite 900, Dallas, Texas 75201.  Any written notice regarding indemnification sent to Purchaser pursuant to Section 12.3 should also be sent pursuant to the delivery procedures set forth in this Section 14.2 to Purchaser’s registered agent, National Corporate Research, Ltd., 1601 Elm St. Suite 4360, Dallas, TX 75201.

Section 14.3 Governing Law; Jurisdiction

.

(a) THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW WHICH WOULD PERMIT OR REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

(b) THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL COURTS OF THE UNITED

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STATES OF AME RICA OR THE CIVIL DISTRICT COURTS OF THE STATE OF TEXAS LOCATED IN HARRIS COUNTY, TEXAS AND APPROPRIATE APPELLATE COURTS THEREFROM, AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF any dispute, controversy or claim arising out of or r elating to this agreement (OTHER than with RESPECT to DISPUTED title matters, which are governed by Section 4.4 , disputed ENVIRONMENTAL matters, which are governed by Section 5.2 and disputes with respect to the final settlement STATEMENT, which are GOVERN ED by Section 10.4( c) ) or any document delivered in connection herewith MAY BE HEARD AND DETERMINED IN SUCH COURTS.  THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAWS, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAV E TO THE LAYING OF VENUE OF ANY SUCH DISPUTE, CONTROVERSY OR CLAIM BROUGHT IN ANY SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH DISPUTE, CONTROVERSY OR CLAIM.  EACH PARTY AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFOR CED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY APPLICABLE LAW.

(c) EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT DELIVERED IN CONNECTION HEREWITH.  EACH PARTY ACKNOWLEDGES THAT IT HAS HAD AN OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL AND THAT IT HAS KNOWINGLY AND VOLUNTARILY AGREED TO THIS WAIVER OF ITS RIGHT TO TRIAL BY JURY .

Section 14.4 Knowledge Qualifications; Schedules

.

(a) Any representation or warranty qualified to the “knowledge of Sellers” or “to Sellers’ knowledge” or with any similar knowledge qualification is limited to matters within the Actual Knowledge of the individuals listed in Schedule 14.4 .  As used herein, the term “Actual Knowledge” means information personally known by such individual.

(b) Inclusion of a matter on a Schedule in relation to a representation or warranty which addresses matters having a Material Adverse Effect or being material shall not be deemed an indication that such matter does, or may, have a Material Adverse Effect or is, or may be, material.  Likewise, the inclusion of a matter on a Schedule to this Agreement in relation to a representation or warranty shall not be deemed an indication that such matter necessarily would, or may, breach such representation or warranty absent its inclusion on such Schedule.  Disclosing a matter on any Schedule shall be deemed to be a disclosure for all purposes of this Agreement to the extent that the relevance of such matter to any other Schedule is reasonably apparent on the face of such disclosure (provided, for the avoidance of doubt, no matter set forth in any Exhibit shall be deemed a disclosure for purposes of the Schedules unless expressly cross-referenced on such Schedule).  Matters may be disclosed on a Schedule for information purposes only.  

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Section 14.5 Waivers

.  Any failure by any Party to comply with any of its obligations, agreements or conditions herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by such Party and expressly identified as a waiver, but not in any other manner.  No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

Section 14.6 Assignment

.  No Party shall assign all or any part of this Agreement, nor shall any Party assign or delegate any of its rights or duties hereunder, without the prior written consent of the other Party, which consent may be withheld for any reason, and any assignment or delegation made without such consent shall be void; provided , however , that Purchaser may, without the prior written approval of Sellers, assign this Agreement to an Affiliate of Purchaser prior to the Closing; provided that (i) Purchaser provides Sellers with prompt notice of such assignment, (ii) Purchaser (for the avoidance of doubt, Purchaser as of the Execution Date) shall remain responsible and liable for all of its obligations and liabilities under this Agreement and the Parent Guaranty shall remain in full force and effect and (iii) any consents obtained by Sellers in the name of WHR Eagle Ford LLC prior to Sellers’ receipt of written notice of such assignment shall be deemed in compliance with this Agreement with respect to the identity of the assignee thereof ( i.e. , Sellers shall not be required to obtain a new consent in the name of assignee, or assign the interest subject to such consent (if such consent is a Required Consent) to the assignee).  Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

Section 14.7 Entire Agreement

.  This Agreement (including, for purposes of certainty, the Appendices, Exhibits and Schedules attached hereto), the documents to be executed hereunder, the Conveyances, the Deeds, the Site Access Agreement, the Parent Guaranty and the Confidentiality Agreement constitute the entire agreement among the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.

Section 14.8 Amendment

.  This Agreement may be amended or modified only by an agreement in writing executed by all Parties and expressly identified as an amendment or modification.

Section 14.9 No Third Party Beneficiaries

.  Nothing in this Agreement shall entitle any Person other than Purchaser and Sellers to any claim, cause of action, remedy or right of any kind, except the rights expressly provided in Section 8.1(e) and 12.2 to the Persons described therein.

Section 14.10 Construction

.  The Parties acknowledge that (a) Sellers and Purchaser have had the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby, (b) this Agreement is the result of arms-length negotiations from equal bargaining positions and (c) Sellers and Purchaser and their respective counsel participated in the preparation and negotiation of this Agreement.  Any rule of construction that a contract be construed against the drafter shall not apply to the interpretation or construction of this Agreement.

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Section 14.11 Limitation on Damages

.   NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXCEPT IN CONNECTION WITH ANY DAMAGES INCURRED BY THIRD PARTIES FOR WHICH INDEMNIFICATION IS SOUGHT UNDER THE TERMS OF THIS AGREEMENT, NONE OF PURCHASER, SELLERS NOR ANY OF THEIR RESPECTIVE AFFILIATES SHALL BE ENTITLED TO CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES OR DAMAGES FOR LOST PROFITS OR DIMINUTION IN VALUE IN CONNECTION WITH THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES WERE REASONABLY FORESEEABLE AND REGARDLESS OF WHETHER ANY SPECIAL CIRCUMSTANCES GIVING RISE TO SUCH DAMAGES WERE DISCLOSED TO THE OTHER PARTY IN ADVANCE, AND, EXCEPT AS OTHERWISE PROVIDED IN THIS SENTENCE, PURCHASER AND EACH SELLER, FOR ITSELF AND ON BEHALF OF ITS AFFILIATES, RESPECTIVELY, HEREBY EXPRESSLY WAIVES ANY RIGHT TO SUCH DAMAGES IN CONNECTION WITH OR WITH RESPECT TO THIS AGREEMENT, REGARDLESS OF FAULT.

Section 14.12 Recording

.  As soon as practicable after the Closing, Purchaser shall record the Deeds, the Conveyances and other assignments, if any, delivered at the Closing in the appropriate counties as well as with any appropriate Governmental Bodies and provide Sellers with copies of all recorded or approved instruments.

Section 14.13 Conspicuousness

.  SELLERS AND PURCHASER AGREE THAT, TO THE EXTENT REQUIRED BY APPLICABLE LAW TO BE EFFECTIVE, THE PROVISIONS IN THIS AGREEMENT IN BOLD-TYPE ALL CAPS FONT ARE “CONSPICUOUS” FOR THE PURPOSE OF ANY APPLICABLE LAW.

Section 14.14 Time of Essence

.  This Agreement contains a number of dates and times by which performance or the exercise of rights is due, and the Parties intend that each and every such date and time be the firm and final date and time, as agreed.  For this reason, each Party hereby waives and relinquishes any right it might otherwise have to challenge its failure to meet any performance or rights election date applicable to it on the basis that its late action constitutes substantial performance, to require the other Party to show prejudice, or on any equitable grounds.  Without limiting the foregoing, time is of the essence in this Agreement.  If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day that is a Business Day.

Section 14.15 Delivery of Records

.  Sellers, at Sellers’ cost and expense, shall deliver the Records in electronic form to Purchaser within ten Business Days following the Closing and shall make the Records in physical form, if any, available to Purchaser for pickup within 30 days following the Closing.  For the avoidance of doubt, Sellers may keep a copy of all Records for their files.

Section 14.16 Severability

.  The invalidity or unenforceability of any term or provision of this Agreement in any situation or jurisdiction shall not affect the validity or enforceability of

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the other terms or provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction, and the remaining terms and provisions shall remain in full force and effect unless doing so would result in an interpretation of this Agreement that is manifestly unjust.

Section 14.17 Specific Performance

.  The Parties agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms, irreparable damage would occur, no adequate remedy at Law would exist and damages would be difficult to determine, and the Parties shall be entitled to specific performance of the terms hereof and immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy available at Law or in equity.

Section 14.18 AESC Obligations

.  Notwithstanding anything to the contrary contained in this Agreement, the Parties hereby acknowledge and agree that AESC is a “Seller” under this Agreement only with regard to the assignment and transfer of its interests in the AESC Contracts, and is making representations and warranties only with respect to, and is responsible only for its covenants and obligations (including obligations to obtain consents to assignment, indemnification obligations pursuant to Article 12 and the Retained Seller Obligations), in each case, solely to the extent directly related to or directly arising from the AESC Contracts (such obligations, the “ AESC Obligations ”).  AESC will be solely liable for the AESC Obligations, and no other Seller hereunder shall have any liability whatsoever therefor, nor will any other Seller hereunder be deemed to have made any representation or warranty hereunder with respect thereto.  Other than the AESC Obligations, AESC will have no liability hereunder with respect to the Assets, whether under Article 12 or otherwise.  As a result, if the applicable consents to assign and liability release are received pursuant to Section 4.6(b) , AESC shall assign and transfer its rights and obligations under the AESC Contracts at the Closing, pursuant to a seperate assignment in form and substance reasonably acceptable to both Sellers and Purchaser, and AESC will not be party to the Conveyance, nor will any of the AESC Contracts be transferred in connection therewith.

[ Signature Page Follows ]

 

-71-

IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties on the Execution Date.

SELLERS :

ANADARKO E&P ONSHORE LLC

 

 

 

 

 

 

By:

 

/s/ Brian T. Kuck

 

 

Brian T. Kuck

 

 

Vice President

 

ANADARKO ENERGY SERVICES COMPANY

 

 

 

 

 

 

By:

 

/s/ Brian T. Kuck

 

 

Brian T. Kuck

 

 

Vice President

 

 

 

 

 

[Signature Page – Purchase and Sale Agreement]

IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties on the Execution Date.

 

PURCHASER :

WHR Eagle Ford LLC

 

 

 

 

 

 

By:

 

WildHorse Resource Development

 

 

Corporation, its sole member

 

 

 

 

 

 

By:

 

/s/ Jay C. Graham

 

 

Jay C. Graham

 

 

Chief Executive Officer

 

 

 

[Signature Page – Purchase and Sale Agreement]

 

APPENDIX A

ATTACHED TO AND MADE A PART OF THAT
CERTAIN PURCHASE AND SALE AGREEMENT BY AND AMONG SELLERS AND PURCHASER

DEFINITIONS

“ Actual Knowledge ” has the meaning set forth in Section 14.4(a) .

“ Adjusted Purchase Price ” has the meaning set forth in Section 3.4 .

“ Adverse Environmental Condition ” means any violation of or liability under Environmental Laws or Permits issued thereunder, or any contamination or condition exceeding regulatory limits applicable to the applicable Property as currently operated and not otherwise authorized by Law, resulting from any discharge, release, production, storage, treatment, seepage, escape, leakage, emission, emptying, handling, use, management or leaching of Hazardous Substances or from any other acts or omissions on, in or from any Property, or from the migration or transportation from other lands to any Property, of any Hazardous Substances that require Remediation pursuant to any current federal, state or local Laws, including Environmental Laws; provided, however , that an Adverse Environmental Condition shall not include Decommissioning, the Disclosed Environmental Conditions, Asbestos and Related Liabilities or NORM, except to the extent the use, existence or alleged existence of asbestos, polychlorinated biphenyls, chromium, lead-based paint or NORM is a violation of or liability under Environmental Laws.

“ AEPO ” has the meaning set forth in the Preamble of this Agreement.

“ AESC ” has the meaning set forth in the Preamble of this Agreement.

“ AESC Contracts ” means those Contracts set forth on Schedule 1.1(b) .

“ AESC Obligations ” has the meaning set forth in Section 14.18 .

“ AFEs ” means authorization for expenditures issued pursuant to a Contract.

“ Affiliate ” means, with respect to any Person, any Person that directly or indirectly Controls, is Controlled by or is under common Control with such Person.

“ Aggregate Defect Deductible ” means an amount equal to 3% of the Unadjusted Purchase Price.

“ Agreement ” has the meaning set forth in the Preamble of this Agreement.

“ Allocated Leasehold ” means a portion of the leased premises under the Leases relating to any Well, insofar and only insofar as such leasehold rights entitle the owner thereof to Hydrocarbons produced from such Well and to any pooling rights associated therewith, comprising (a) the acreage included in the Pooled Acreage (or allocable portion thereof if such

Appendix A-1

 

Pooled Acreage contains multiple Wells) on which such Well is located or (b) if the Well is not located within Pooled Acreage, then the acreage included within the proratio n unit plat for the Well as filed by the operator of such Well with the applicable Governmental Body or, if no such plat has been filed, the acreage prescribed by the applicable field rules or orders.

“ Allocated Value ” has the meaning set forth in Section 3.3 .

“ Asbestos and Related Liabilities ” means any and all Damages, obligations and responsibilities relating to or arising from, directly or indirectly, the existence or alleged existence of any one or more of asbestos, NORM, polychlorinated biphenyls, chromium and/or lead-based paint at, on or within the Properties, including any contamination resulting therefrom.

“ Assets ” has the meaning set forth in Section 2.2 .

“ Assigned Rights ” has the meaning set forth in Section 13.4 .

“ Assumed Purchaser Obligations ” means, except to the extent of the Retained Seller Obligations and without limitation of Purchaser’s rights (x) of indemnification under Article 12 , including for Retained Seller Obligations under Section 12.2(b)(i) and breach of Sellers’ representations and warranties under Section 12.2(b)(iii) , and (y) with respect to downward adjustments to the Unadjusted Purchase Price prior to the Cut-Off Date pursuant to the terms of Section 3.4(b) and Section 10.4 , (a) all obligations and liabilities of Sellers (including Environmental Liabilities), known or unknown, with respect to or arising from the Assets regardless of whether such obligations or liabilities arose prior to, on or after the Effective Time, including obligations and liabilities relating in any manner to the use, ownership or operation of the Assets, including (i) obligations to furnish makeup gas and/or settle Imbalance charges attributable to the Assets according to the terms of applicable gas sales, processing, gathering or transportation Contracts, (ii) Decommissioning and Asbestos and Related Liabilities, (iii) any obligations to abandon, clean up, restore and/or remediate the premises covered by or related to the Assets in accordance with applicable Contracts, Leases and Laws, (iv) claims arising under Environmental Laws with respect to the Assets, all Environmental Liabilities, the release of materials into the environment or protection of human health, safety, natural resources or the environment, or any other environmental condition of the Assets, (v) all obligations applicable to or imposed on the lessee, owner, or operator under the Leases, Surface Agreements and Contracts, or as required by any applicable Law, including the payment of all Taxes for which Purchaser is responsible hereunder, and (vi) all liabilities, claims, and costs arising from or relating to the employment by Purchaser of any Available Employees hired pursuant to Section 8.10 after the termination of their employment relationships by Sellers or their Affiliates; (b) all obligations under the Leases, Contracts and Surface Agreements; (c) obligations to pay working interests, royalties, overriding royalties and other interest owners’ revenues or proceeds attributable to sales of Hydrocarbons produced from the Assets and any Suspense Fund liabilities, and (d) Purchaser’s obligations under Article 13 .

“ Available Employees ” means those employees of Sellers or their Affiliates whose jobs relate to the Assets and who are available for hire by Purchaser, as designated by Sellers on a schedule provided to Purchaser prior to signing.

Appendix A-2

 

“ Back-to-Back Arrangements ” has the meaning set forth in Section 4.6(b) .

“ Burdens ” has the meaning set forth in the definition of Net Revenue Interest.

“ Business Day ” means each calendar day except Saturdays, Sundays, and United States federal holidays.  

“ Casualty Loss ” means any Damage or reduction in value of the Assets that occurs during the period between the Execution Date and the Closing as a result of acts of God, fire, explosion, earthquake, windstorm, flood, vandalism or other casualty, but excluding any loss, damage or reduction in value as a result of depreciation, mechanical failure or gradual structural deterioration of materials, equipment and infrastructure, a Well being shut-in temporarily, downhole failure (including (i) failures arising or occurring during drilling or completing operations, (ii) junked or lost holes or (iii) sidetracking or deviating a well) or reservoir changes or depletion (including the watering-out of any well, collapsed casing or sand infiltration of any well ) , except, in each case, to the extent any such exclusions are covered by any Third Party insurance policy of AEPO or its Affiliates (in which event the same shall be Casualty Losses, to the extent any damages related to such matter are actually recoverable thereunder).

“ Central Time ” means the central standard time zone of the United States.

“ CERCLA ” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.

“ Closing ” has the meaning set forth in Section 10.1 .

“ Closing Date ” has the meaning set forth in Section 10.1 .

“ Closing Payment ” has the meaning set forth in Section 10.4(a) .

“ Code ” means the U.S. Internal Revenue Code of 1986.

“ Confidentiality Agreement ” means that certain Confidentiality Agreement dated March 15, 2017 between Purchaser and AEPO.

“ Contracts ” has the meaning set forth in Section 2.2(e) .

“ Control ” means the ability to direct the management and policies of a Person through ownership of voting shares or other equity rights, pursuant to a written agreement, or otherwise.  The terms “Controls” and “Controlled by” and other derivatives shall be construed accordingly.

“ Conveyance ” means the Conveyance substantially in the form attached hereto as Exhibit B .

“ COPAS ” has the meaning set forth in Section 2.5(a) .

“ Current Remediation Matter ” has the meaning set forth in Schedule 5.1 .

“ Current Tax Period ” has the meaning set forth in Section 13.2 .

Appendix A-3

 

“ Customary Post-Closing Consents ” means the consents and approva ls from Governmental Bodies for the assignment of the Assets to Purchaser that are customarily obtained after the assignment of properties similar to the Assets.

“ Cut-off Date ” has the meaning set forth in Section 3.4 .

“ Damages ” means the amount of any liability, fine, expense, debt, diminution in value, penalties, obligation, loss, cost, expense, claim, award, settlement or judgment incurred or suffered by any Person under any theory of tort, contract, breach of contract or otherwise, including contractual indemnity claims (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), including reasonable fees and expenses of attorneys, consultants, accountants or other agents and experts reasonably incident to matters indemnified against, and the costs of investigation and/or monitoring of such matters, and the costs of enforcement of the indemnity.

“ Debt Contract ” means any indenture, mortgage, loan, credit or similar agreement entered into by Sellers or their Affiliates creating indebtedness on the part of Sellers or their Affiliates for borrowed money or the deferred purchase price of property acquired by, or for services rendered to, Sellers or their Affiliates.

“ Decommissioning ” means all decommissioning, dismantlement and removal activities and obligations with respect to the Properties as are required by Laws, Contracts or Surface Agreements associated with the Properties and further including all well plugging, replugging and abandonment, dismantlement and removal of buildings, facilities, pipelines and flowlines and all other assets of any kind related to or associated with operations or activities conducted on the Properties and associated site clearance, site restoration and site remediation on the Properties, but not including Remediation.

“ Deeds ” means the Surface Deed and the Term Royalty Deed.

“ Defect Claim Date ” means June 19, 2017.

“ Defect Threshold ” means $75,000.00.

“ Defensible Title ” means title of Sellers that:

(a) with respect to each Well set forth on Exhibit A-2 , entitles Sellers to (i) not less than the Net Revenue Interest shown in Exhibit A‑2 for such Well through the producing life of such Well, except:  (A) decreases in connection with those operations conducted in accordance with the terms of this Agreement (including Purchaser’s consent rights pursuant to Section 8.4(a) ) in which any Seller may be a nonconsenting co-owner, (B) decreases resulting from the reversion of interests to co-owners with operations in which such co-owners elected not to consent after the Execution Date, (C) decreases resulting from the establishment of pools or units or amendment of any unit after the Execution Date; provided , however , that the establishment or amendment of such pools or units after the Execution Date is made in accordance with the terms of this Agreement (including Purchaser’s consent rights pursuant to Section 8.4(a) ), and (D) decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under-deliveries, and (ii) obligates Sellers to bear not more than the

Appendix A-4

 

Working Interest shown in Exhibit A ‑2 for such Well through the plugging and abandonment of such Well, exc ept:  (1) as the Working Interest may be changed from time to time due to the exercise after the Execution Date of non-consent rights under applicable operating agreements and similar agreements or the establishment or amendment of pools or units, in each case, in accordance with the terms of this Agreement (including Purchaser’s consent rights pursuant to Section 8.4(a) ) and (2) increases that are accompanied by at least a proportionate increase in Net Revenue Interest for such Well, as applicable;  

(b) with respect to each Undeveloped Lease set forth on Exhibit A-3 , entitles Sellers to a Net Revenue Interest for such Undeveloped Lease not less than the Net Revenue Interest Floor or not less than the Net Revenue Interest specified on Exhibit A-3 to the extent a different Net Revenue Interest is specified for such Undeveloped Lease on Exhibit A-3 ;

(c) with respect to each Undeveloped Lease set forth on Exhibit A-3 , entitles Sellers to the aggregate number of Net Acres shown on Exhibit A-3 for such Undeveloped Lease, except for decreases resulting from the establishment or amendment of pools or units after the Execution Date; provided , however , that the establishment or amendment of such pools or units after the Execution Date is made in accordance with the terms of this Agreement (including Purchaser’s consent rights pursuant to Section 8.4(a) );

(d) with respect to each Lease set forth on Exhibit A-1 that is still in its primary term, the primary term of such Lease will not expire prior to the date set forth on Exhibit A-1 for such Lease;

(e) with respect to each Well and Undeveloped Lease, is free and clear of all liens, security interests, pledges, charges, encumbrances or other defects, except for and subject to Permitted Encumbrances; and

(f) with respect to any Asset, is free and clear of all liens and/or charges securing liquidated amounts, security interests, deeds of trust, mortgages, pledges, charges or similar financial liens, except for and subject to Permitted Encumbrances.

Notwithstanding any other provision in this Agreement, if Sellers have been receiving revenue payments from Third Parties attributable to an overriding royalty interest which contributes to Sellers’ Net Revenue Interest shown in Exhibit A-2 for a Well or the Net Revenue Interest Floor (or Net Revenue Interest set forth on Exhibit A-3 , as the case may be) for an Undeveloped Lease for the ten calendar years immediately preceding the Effective Time, Purchaser may not assert that Sellers do not have Defensible Title to the Well or Undeveloped Lease, as applicable, based on any defect or discrepancy in or inability to obtain documentation related to such overriding royalty interest; provided that, notwithstanding the foregoing, if Sellers have been receiving any such payments from WildHorse Resource Development Corporation or any of its Affiliates or their respective predecessors in interest for any period of time prior to the Effective Time, Purchaser may not assert that Sellers do not have Defensible Title to the Well or Undeveloped Lease, as applicable, based on any defect or discrepancy in or inability to obtain documentation related to such overriding royalty interest.

“ Deposit ” has the meaning set forth in Section 3.2 .

Appendix A-5

 

“ Disclosed Environmental Conditions ” means all matters set forth on Schedule 5.1 .

“ Disputed Environmental Matters ” has the meaning set forth in Section 5.2(a) .

“ Disputed Title Matters ” has the meaning set forth in Section 4.4(a) .

“ DOJ ” means the U.S. Department of Justice.

“ Eaglebine Formation ” means that certain geologic zone(s) and formation(s) occurring at the stratigraphic equivalent of the interval from (a) the base of the Austin Chalk formation (being the stratigraphic equivalent of 6,903 feet measured depth) to (b) the top of the Buda formation (being the stratigraphic equivalent of 7,284 feet measured depth), subsurface, each as found in the Induction log of the Republic Mineral Corporation Newberry Milton S/D/8 Well (API No. 42-041-31345) located in the Francisco Ruiz Survey, A-48, Brazos County, Texas.

“ Effective Time ” has the meaning set forth in Section 2.4(a) .

“ Employee Benefit Plans ” means any an “employee benefit plan” (as defined in Section 3(3) of ERISA) and any other material employee benefit plan, program or policy, including any pension, retirement, profit-sharing, bonus, incentive, stock option or other equity or equity-based compensation, deferred compensation, stock purchase, severance pay, change of control, disability, hospitalization, health or medical insurance, life insurance, fringe benefit, welfare benefit, flexible spending account program or policy, in each case, sponsored or maintained by Sellers or one of more of their Affiliates, or with respect to which the Sellers or any of their ERISA Affiliates has any liability, and covering at least one Available Employee.

“ Employers ” has the meaning set forth in Section 6.20(a) .

“ Environmental Condition Notice ” has the meaning set forth in Section 5.1(a) .

“ Environmental Defect Property ” has the meaning set forth in Section 5.1(a) .

“ Environmental Expert ” has the meaning set forth in Section 5.2(d) .

“ Environmental Laws ” means, as the same may have been amended, superseded or replaced as of the Execution Date or Closing Date, as applicable, CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act, 33 U.S.C. § 2701 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.; the Atomic Energy Act, 42 U.S.C. § 2011 et seq . and all other Orders or Laws as of the Execution Date of any Governmental Body having jurisdiction over the Property in question addressing (i) the control of any potential pollutant or protection of the environment, (ii) the generation, handling, treatment, storage, disposal or transportation of Hazardous Substances, or (iii) pollution or protection of the environment and all regulations as the same may have been amended, superseded or replaced as of the Execution Date or Closing

Appendix A-6

 

Date, as applicable, implementing the foregoing that are applicable to the operation and maintenance of the Assets.

“ Environmental Liabilities ” means any and all environmental response costs (including costs of Remediation), damages, natural resource damages, settlements, consulting fees, expenses, penalties, fines, orphan share, prejudgment and post judgment interest, court costs, attorneys’ fees and other liabilities incurred or imposed (a) pursuant to any Order, notice of responsibility, directive (including requirements embodied in Environmental Laws) or similar act (including settlements) by any Governmental Body to the extent arising out of any violation of, or Remediation obligation under, any Environmental Laws that are attributable to the ownership or operation of the Assets or (b) pursuant to any claim or cause of action by a Governmental Body or other Person for personal injury, property damage, damage to natural resources, remediation or response costs to the extent arising out of any violation of, or any remediation obligation under, any Environmental Laws, in each case, that is attributable to the ownership or operation of the Assets.

“ Equipment ” has the meaning set forth in Section 2.2(g) .

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ Escrow Agent ” means Citibank, N.A.

“ Exchanging Party ” has the meaning set forth in Section 13.4 .

“ Excluded Assets ” means (a) the amounts to which Sellers are entitled pursuant to Section 2.4(b) , (b) the Excluded Records, (c) all seismic, geological, geochemical or geophysical data (including seismic data), geological data, engineering data, maps, cores, interpretive data, technical evaluations, confidential logs, technical outputs, reserve estimates and other technical data relating to the Properties, (d) all claims and causes of action of Sellers arising under or with respect to any Lease or Contract that are related to Retained Seller Obligations or to the extent related to costs or expenses for which Sellers are liable pursuant to Section 2.4 , (e) subject to Section 4.7 , all rights and interests of any Seller or its Affiliates (i) under any policy or agreement of insurance or indemnity agreement, (ii) under any bond and (iii) to any insurance or condemnation proceeds or awards arising, in each case, from acts, omissions or events, or damage to or destruction of property prior to the Closing Date, (f) any Tax benefits (including any refunds, credits, rebates, and net operating loss carry-forwards) attributable to ownership and operation of the Assets or the production of Hydrocarbons therefrom prior to and at the Effective Time or to Sellers’ businesses generally, including, for the avoidance of doubt, any reduction in severance Taxes (including any refund, credit or rebate) that may be realized after the Effective Time but that results from payments or production for periods prior to the Effective Time, (g) all personal property of Sellers not included within the definition of Assets, (h) Sellers’ area-wide bonds, permits and licenses or other permits, licenses or authorizations used in the conduct of Sellers’ business generally, (i) all trade credits, account receivables, receivables, take-or-pay amounts receivable, and other receivables attributable to the Assets to the extent related to proceeds to which Sellers are entitled pursuant to Section 2.4 , (j) all of Sellers’ and any Affiliate of any Seller’s proprietary computer software, software licenses, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property, (k) all data and Contracts

Appendix A-7

 

that cannot be disclosed to Purchaser as a result of confidentiality arrangements under agreements with Third Parties, any Governmental Body or by applicable Law; provided , however , that Sellers have used their commercially reasonable efforts to obtain a waiver of any such confidentiality restriction, (l) all Hedging Contracts and Debt Contracts, (m) all mineral fee interests of Sellers and their Affiliates, including those associated with the Properti es, including any mineral fee interests in which any Seller is a lessor, (n) any of the Assets excluded from the transactions contemplated hereunder pursuant to Section 4.2(b)(iii) , Section 4.6(b) , Section 4.6(c) , Section 5.1(b)(iii) , Section 5.1(d) , or Section 8.1(a) , (o) the Caldwell field office lease, (p) any other items set forth on Exhibit A-4 ; (q) the Leased Assets, and (r) any asset owned by Seller that is located outside of the Properties and the premises of the Caldwell and Bryan field offices.

“ Excluded Records ” means (a) all corporate, financial, income and franchise Tax and legal records of Sellers that relate to Sellers’ business generally, whether or not also relating to the Assets, (b) any Records to the extent disclosure or transfer is restricted by any Third Party license agreement, other Third Party agreement or applicable Law (which Sellers shall use commercially reasonably efforts to obtain the waiver of), (c) licensed computer software, (d) all legal records and legal files of Sellers which are subject to the attorney-client privilege and for which attorney-client privilege has not been waived and all work product of and attorney-client communications with any of Sellers’ legal counsel, other than (i) copies of title opinions and (ii) the Leases, Surface Agreements and Contracts, (e) personnel records for employees hired by Purchaser, (f) records relating to Sellers’ sale process for the Assets, including bids received from and records of negotiations with Third Parties and information or analyses (including financial analyses) related to such bids or offers, (g) records relating to engineering forecasts, evaluations and reserve estimates, studies and evaluations and (h) any records to the extent pertaining to the Excluded Assets.

“ Execution Date ” has the meaning set forth in the Preamble of this Agreement.

“ Final Allocation Schedule ” has the meaning set forth in Section 3.3(b) .

“ FTC ” means the U.S. Federal Trade Commission.

“ GAAP ” means U.S. generally accepted accounting principles.

“ Gas ” means any mixture of hydrocarbons and non-combustible gases in a gaseous state consisting primarily of methane.

“ Governmental Body ” means any instrumentality, subdivision, court, administrative agency, commission, official or other governmental authority of the United States or any other country or any state, municipality, locality, tribe or other government or political subdivision thereof, or any quasi-governmental or private body exercising any administrative, executive, judicial, legislative, police, regulatory, taxing, importing or other governmental or quasi-governmental body.

“ Hazardous Substances ” means any pollutants, contaminants, toxic, hazardous or other  substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or

Appendix A-8

 

may form the basis of liability under any Environmental Laws, including asbestos-containing materials.

“ Hedging Contract ” means any contract to which Sellers or any of their Affiliates is a party with respect to any swap, forward, future, put, call, floor, cap, collar option or derivative transaction or option or similar agreement, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities (including Hydrocarbons), equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

“ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

“ Hydrocarbons ” means oil, gas, condensate and other gaseous and liquid hydrocarbons or any combination thereof.

“ Imbalances ” means (a) any Wellhead Imbalance, (b) any imbalance between the  Hydrocarbons nominated by or scheduled for delivery and the Hydrocarbons actually delivered, (c) any imbalance assessed by a carrier against a Person as a result of a Person’s failure to satisfy the carrier’s requirements including any balancing, nomination or scheduling requirements or a violation of any volumetric conditions or orders imposed by a carrier, or (d) any imbalance attributed to or assessed on a Party under the terms of a Contract or (e) any imbalance attributable a take or pay or similar volumetric minimum obligation on a pipeline or transportation system.

“ Income Taxes ” means all federal, state, local and foreign income, profits, franchise, and similar Taxes.

“ Indemnity Threshold ” has the meaning set forth in Section 12.4(c) .

“ Independent Accountant ” has the meaning set forth in Section 10.4(c) .

“ Invasive Activity ” has the meaning set forth in Section 8.1(a) .

“ JV Assets Purchase and Sale Agreement ” means that Purchase and Sale Agreement, dated as of the date hereof, by and among Purchaser, AEPO, Admiral A Holding L.P., TE Admiral A Holding L.P. and Aurora C-I Holding L.P.

“ Lands ” has the meaning set forth in Section 2.2(a) .

“ Laws ” means all Permits, statutes, rules, regulations, ordinances, Orders, codes of Governmental Bodies and common law.

“ Leased Assets ” means all equipment, machinery, tools, fixtures, inventory, vehicles, office leases, furniture, office equipment and related peripheral equipment, computers, field equipment and related personal property that are related primarily to the Assets and are currently leased by Sellers.

Appendix A-9

 

“ Leased Vehicles ” has the meaning set forth in Section 2.2(j) .

“ Leases ” has the meaning set forth in Section 2.2(a) .

“ Like-Kind Exchange ” means a simultaneous or deferred (forward or reverse) exchange allowed pursuant to Section 1031 of the Code and the Treasury Regulations promulgated thereunder or any applicable state or local Tax Laws.

“ Material Contracts ” has the meaning set forth in Section 6.9(a) .

“ Net Acres ” means, as computed separately with respect to each Undeveloped Lease, (a) the number of gross acres in the Eaglebine Formation covered by such Undeveloped Lease, multiplied by (b) the undivided mineral interest owned by lessors in the Eaglebine Formation in such gross acres with respect to such Undeveloped Lease, multiplied by (c) Sellers’ Working Interest in such Undeveloped Lease.

“ Net Revenue Interest ” with respect to any Well or Undeveloped Lease, the interest in and to all Hydrocarbons produced, saved and sold from or allocated to (i) such Well, from those formations in which such Well is producing or if not currently producing, completed to, as of the Effective Time, or (ii) such Undeveloped Lease, with respect to the Eaglebine Formation, in each case, after giving effect to all royalties, overriding royalties, reversionary interests, convertible interests, non-participating royalty interests, production payments, net profits interests and other similar burdens upon, measured by or payable out of production therefrom (“ Burdens ”).

“ Net Revenue Interest Floor ” means, with respect to each Undeveloped Lease, a 75% Net Revenue Interest (calculated on an 8/8ths basis).

“ NORM ” means naturally occurring radioactive material.

“ Order ” means any judgment, order, consent order, injunction, decree or writ of any Governmental Body.

“ Parent Guaranty ” means a parent guaranty provided in support of and on behalf of Purchaser in form and substance reasonably acceptable to Sellers.

“ Party ” and “ Parties ” have the meanings set forth in the Preamble of this Agreement.

“ Permits ” has the meaning set forth in Section 2.2(k) .

“ Permitted Encumbrances ” means any or all of the following:

(a) royalties and any overriding royalties, net profits interests, free gas arrangements, production payments, reversionary interests and other similar burdens on production to the extent that the net cumulative effect of such burdens does not (i) reduce Sellers’ Net Revenue Interest below (A) that shown in Exhibit A-2 for a Well or (B) the Net Revenue Interest Floor for each Undeveloped Lease on Exhibit A-3 (or, if another Net Revenue Interest is set forth on Exhibit A‑3 for such Undeveloped Lease, such scheduled Net Revenue Interest) , (ii) increase Sellers’ Working Interest above that shown in Exhibit A-2 for a Well without a proportionate

Appendix A-10

 

increase in the N et Revenue Interest of Sellers in such Well or (iii) decrease the Net Acres of Sellers below those set forth on Exhibit A ‑3 for any Undeveloped Lease;

(b) all Leases and Contracts (including the Material Contracts), to the extent that the net cumulative effect of such instruments does not individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Wells or Undeveloped Leases subject thereto or affected thereby, as currently owned and operated, which would be accepted by a reasonable prudent operator engaged in the business of owning and operating oil and gas properties similar to the Properties (as they are currently owned and operated), and which do not (i) reduce Sellers’ Net Revenue Interest below (A) that shown in Exhibit A-2 for a Well or (B) the Net Revenue Interest Floor for each Undeveloped Lease on Exhibit A-3 (or, if another Net Revenue Interest is set forth on Exhibit A‑3 for such Undeveloped Lease, such scheduled Net Revenue Interest) , (ii) increase Sellers’ Working Interest above that shown in Exhibit A-2 for a Well without a proportionate increase in the Net Revenue Interest of Sellers in such Well or (iii) decrease the Net Acres of Sellers below those set forth on Exhibit A‑3 for any Undeveloped Lease;

(c) Preferential Rights to Purchase and required Third Party consents to assignment and similar transfer restrictions, including Customary Post-Closing Consents;

(d) liens for Taxes or assessments not yet delinquent or being contested in good faith by appropriate actions and described on Schedule 1.1(a) ;

(e) excepting circumstances where such rights have already been triggered, rights of reassignment arising upon final intention to abandon or release all or any of a Lease;

(f) materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by Law), or if delinquent, being contested in good faith by appropriate actions and described on Schedule 1.1(a) ;

(g) all rights to consent by, required notices to, filings with, or other actions by Governmental Bodies in connection with the sale or conveyance of the Assets or interests therein if they are not required or customarily obtained in the region where the Assets are located prior to the sale or conveyance, including Customary Post-Closing Consents;

(h) defects affecting any depths or formations other than (x) in the case of a Well, the depths or formations from which the applicable Well is producing or if not currently producing, then completed to as of the Effective Time and (y) in the case of a Lease, the Eaglebine Formation;

(i) easements, rights-of-way, covenants, servitudes, Permits, surface leases and other rights in respect of surface operations that do not prevent or adversely affect operations as currently conducted on the Properties covered by the Assets or materially detract from the value of the affected Assets;

(j) Imbalances;

Appendix A-11

 

(k) all rights reserved to or vested in any Governmental Bodies to control or regulate any of the Assets in any manner or to assess Tax with respect to the Assets, the ownership, use or operation thereof, o r revenue, income or capital gains with respect thereto, and all obligations and duties under all applicable Laws;

(l) all other liens, charges, encumbrances, defects or irregularities that do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Wells or Undeveloped Leases subject thereto or affected thereby (as currently used or operated), which would be accepted by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties similar to the Properties, and which do not (i) reduce Sellers’ Net Revenue Interest below (A) that shown in Exhibit A-2 for a Well or (B) the Net Revenue Interest Floor for each Undeveloped Lease on Exhibit A-3 (or, if another Net Revenue Interest is set forth on Exhibit A‑3 for such Undeveloped Lease, such scheduled Net Revenue Interest) , (ii) increase Sellers’ Working Interest above that shown in Exhibit A-2 for a Well without a proportionate increase in the Net Revenue Interest of Sellers in such Well or (iii) decrease the Net Acres of Sellers below those set forth on Exhibit A-3 for any Undeveloped Lease;

(m) any lien, charge or other encumbrance on or affecting the Assets that is discharged by Sellers at or prior to the Closing; and

(n) any lien or encumbrance created by a lessor of a Lease that (i) post-dates the perfection of the applicable Lease (in accordance with applicable Law) or (ii) pre-dates the perfection of the applicable Lease (in accordance with applicable Law) and has been subordinated to the applicable Lease.

“ Person ” means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Body or any other entity.

“ Phase I Environmental Site Assessment ” means an environmental site assessment performed pursuant to the American Society for Testing and Materials (“ASTM”) Standard E 1527-13, or any similar environmental assessment.

“ Phase II Guidelines ” means the following rules and regulations: (a) all Invasive Activities shall be performed by environmental consultants mutually agreeable to the Parties, (b) Purchaser shall use commercially reasonable efforts to complete Invasive Activities prior to the Defect Claim Date, (c) prior to conducting any sampling, boring, drilling or other invasive investigative activity with respect to the Assets, Purchaser shall furnish for Sellers’ review a proposed scope of such Invasive Activity including a description of the activities to be conducted and a description of the approximate locations of such activities and, if any of the proposed activities are likely to unreasonably interfere with normal operation of the Assets, Sellers may request an appropriate modification of the proposed Invasive Activity, (d) Purchaser shall maintain and shall cause its offices, employees, representatives, consultants and advisors to maintain all information obtained by Purchaser pursuant to any Invasive Activity as strictly confidential until the Closing occurs unless disclosure of any facts discovered through such assessment is required under any Laws, (e) after completing any Invasive Activity Purchaser

Appendix A-12

 

shall at its sole cost and expense restore the Assets as close as practicable to their condition prior to the c ommencement of such Invasive Activity unless Sellers request otherwise and Purchaser shall promptly dispose of all drill cuttings, corings or other investigative-derived wastes generated in the course of such Invasive Activity, (f) Sellers shall have the r ight to be present during any Invasive Activities and shall have the right at its option and expense to split samples with Purchaser, (g) Purchaser shall provide Sellers with a copy of the final draft of all environmental reports prepared by or on behalf o f Purchaser with respect to any Invasive Activity conducted on the Assets, and (h) in the event that any necessary disclosures under applicable Laws are required with respect to matters discovered by any Invasive Activity, Purchaser agrees that Sellers sha ll be the responsible party for disclosing such matters to the appropriate Governmental Bodies provided that if Sellers fail to promptly make such disclosure and Purchaser or any of its Affiliates is legally obligated to make such disclosure such Person sh all have the right to fully comply with such legal obligation.

“ Pooled Acreage ” has the meaning set forth in Section 2.2(b) .

“ Post-Closing Cure Period ” has the meaning set forth in Section 4.2(b)(i) .

“ Preferential Right to Purchase ” means any Third Party’s preferential right to purchase any of the Assets (or portion thereof), including a right of first refusal, right of first offer or other similar right.

“ Preliminary Allocation Schedule ” has the meaning set forth in Section 3.3(a) .

“ Preliminary Settlement Statement ” has the meaning set forth in Section 10.4(a) .

“ Properties ” has the meaning set forth in Section 2.2(c) .

“ Property Costs ” means all operating and production expenses, including costs of insurance, rentals, shut-in payments and royalty payments or other Burdens, gathering, processing and transportation costs, and costs of title examinations and curative actions; Property Taxes (but not income or franchise Taxes); capital expenditures, including bonuses, broker fees, acquisition costs, and other lease or other royalty acquisition, extension or renewal costs, costs of drilling and completing wells and costs of acquiring equipment; and Third Party overhead charges, in each case, attributable to the ownership or operation of the Assets or the production of Hydrocarbons therefrom but only to the extent chargeable to the joint account pursuant to an operating agreement applicable to the Assets (but if there is no applicable operating agreement, then pursuant to the 2005 COPAS form of accounting procedure) and in the ordinary course of business, in each case, solely to the extent attributable to Sellers’ interest in the Assets; provided , however , the following shall not be considered Property Costs: (i) any such costs incurred by Sellers to cure Title Defects asserted hereunder; (ii) any costs incurred by Sellers to Remediate Adverse Environmental Conditions asserted hereunder and (iii) insurance premiums or deductibles payable to any Affiliates of Sellers to the extent pertaining to coverages for events which, if occurring, would not constitute Casualty Losses.

“ Property Taxes ” means all real property, personal property, ad valorem, severance, production and similar Taxes (which for the avoidance of doubt, does not include Income Taxes

Appendix A-13

 

or Transfer Taxes) base d upon or measured by the ownership or operation of the Assets or the production of Hydrocarbons therefrom or the receipt of proceeds therefrom.

“ Purchaser ” has the meaning set forth in the Preamble of this Agreement.

“ Purchaser’s Auditor ” has the meaning set forth in Section 8.12(b) .

“ Purchaser Group ” means Purchaser and Purchaser’s Affiliates, each of their respective officers, directors and employees and Purchaser’s successors and permitted assigns.

“ Purchaser Parent ” has the meaning set forth in Section 3.5 .

“ Records ” means electronic digital copies (or originals to the extent located on the Properties or the lands covered by the Surface Agreements) of any files, records, information and data, whether written or electronically stored, in each case to the extent relating primarily to the Assets, including:  (a) land and title records (including abstracts of title, title opinions and title curative documents); (b) contract files; (c) correspondence; (d) operations, environmental, production and accounting records; and (e) production, facility and well records and data; provided , however , that the term “Records” shall not include any Excluded Records and any information that cannot, without unreasonable effort or expense that Purchaser does not agree to undertake or pay, as applicable, be separated from any files, records, information and data related to the Excluded Assets.

“ REGARDLESS OF FAULT ” MEANS WITHOUT REGARD TO THE CAUSE OR CAUSES OF ANY CLAIM, INCLUDING, EVEN THOUGH A CLAIM IS CAUSED IN WHOLE OR IN PART BY:

THE NEGLIGENCE (WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE, PASSIVE, GROSS OR OTHERWISE), WILLFUL MISCONDUCT, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF THE PURCHASER GROUP, THE SELLER GROUP, INVITEES AND/OR THIRD PARTIES; AND/OR

A PRE-EXISTING DEFECT, WHETHER PATENT OR LATENT, OF THE PREMISES OF PURCHASER’S PROPERTY OR SELLERS’ PROPERTY (INCLUDING THE ASSETS), INVITEES AND/OR THIRD PARTIES.

“ Rejected Available Employees ” has the meaning set forth in Section 8.10(c) .

“ Remediation ” means, with respect to an Adverse Environmental Condition or Disclosed Environmental Condition, removal, abatement, response, investigative, cleanup and/or monitoring activities, including any investigation, study, assessment, testing, monitoring, containment, removal, disposal, closure, corrective action, passive remediation, natural attenuation or bioremediation, or the installation and operation of remediation systems required under Environmental Laws to correct, address, or remove an Adverse Environmental Condition.  To the extent that releases of Hazardous Substances require cleanup or corrective action, remediation may be conducted so as to achieve applicable risk-based standards for soil or groundwater intended to achieve the most cost-effective response that addresses remediation

Appendix A-14

 

obligations under Environmental Laws, considering the long term or residual liabilities or effects upon use or operations of any of the Assets in the same manner as currently used and operated by Sellers associated with suc h risk based remediation approaches.

“ Remediation Amount ” means, with respect to an Adverse Environmental Condition, the reasonable cost including customary fines and penalties (net to Sellers’ interest) of the Remediation of or other Environmental Liabilities associated with such Adverse Environmental Condition on or at the relevant Asset for continued operation in the manner it is operated as of the Closing Date, taking into account the continuing long-term need to operate the Asset, customary industry practices in the State of Texas and the requirements of Environmental Laws.

“ Remedy Period ” has the meaning set forth in Section 4.2(b) .

“ Representatives ” means (a) partners, employees, officers, directors, members, equity owners and counsel of a Party or any of its Affiliates or any prospective purchaser of an interest in a Party; (b) any consultant, advisor or agent retained by a Party or the parties listed in clause (a) above; and (c) any bank, other financial institution or entity funding, or proposing to fund, such Party’s operations in connection with the Assets, including any consultant retained by such bank, other financial institution or entity.

“ Required Consent ” means any consent or approval affecting an Asset that is required to be obtained for the assignment of such Asset in connection with the transactions contemplated by this Agreement if the applicable agreement, contract or other instrument (a) does not provide that such consent cannot be unreasonably withheld and/or (b) provides that any purported assignment of such agreement, contract or other instrument is void or voidable or the underlying Asset is terminated without such consent being obtained.  

“ Retained Seller Obligations ” means all obligations and liabilities of Sellers, known or unknown, with respect to or arising from (a) the Excluded Assets, (b) until three years after the Closing Date, Third Party claims (and claims made by pre-Closing Affiliates of Sellers) validly asserted prior to the end of such three-year period related to (1) any personal injury (including death) or (2) property damages (other than Adverse Environmental Conditions) that, individually, exceed $25,000 in value, in each case, to the extent related to the ownership or operation of the Assets by Sellers or their Affiliates and arising from events occurring prior to the Closing Date; (c) until three years after the Closing Date, Third Party claims (and claims made by pre-Closing Affiliates of Sellers) validly asserted prior to the end of such three-year period related to any disposal offsite of the Assets by Sellers or their Affiliates prior to the Closing Date of Hazardous Substances or NORM arising from the operation or use of the Assets; (d) Sellers’ obligations under Sections 2.4 and 3.4 and Article 13 ; (e) solely with respect to AEPO, all liabilities, claims and costs arising from or relating to the employment by AEPO or its Affiliates of any Available Employees on or prior to the termination of their employment relationships by or with AEPO or its Affiliates; (f) until three years after the Closing Date, any civil or administrative fines or similar monetary penalties or criminal sanctions imposed on any Seller or its Affiliates as a result of any pre-Closing Date violation of Law (including Environmental Law) by any Seller or its Affiliates and relating to the ownership or operation of the Assets by Sellers or their Affiliates, but excluding, for all purposes, any remedial obligation to abandon, cleanup, restore, and/or remediate any premises covered by or related to the Assets;

Appendix A-15

 

(g) until three years after the Closing Date, Third Party claims (and claims made by pre-Closing Affiliates of Sellers) related to the failure to pay or the incorrect payment to any royalty owner, overriding royalty owner, working interest ow ner or other Burden holder under the Leases and Lands and escheat obligations, in each case, insofar as the same are attributable to Sellers’ ownership of the Assets prior to the Effective Time; (h) until three years after the Closing Date, except for any amounts credited against the Unadjusted Purchase Price hereunder as part of the Suspense Funds, statutory penalties and interest, if any, owing to any interest owner attributable to the Suspense Funds accruing prior to the Effective Time, payable to any st ate under existing escheat or unclaimed property statutes; (i) the actions, suit, proceeding and other matters, if any, set forth on Schedule 6.5 and any matters that should have been listed on Schedule 6.5 as of the Closing Date; and (j) Third Party claim s (and claims made by pre-Closing Affiliates of Sellers) related to the Disclosed Environmental Conditions and/or any post-closing Remediation by Sellers.

“ Reversionary Net Revenue Interest ” means any future Net Revenue Interest that reverts to any party after the necessary payout or other triggering event in the applicable farm-out agreement, other agreement or instrument.

“ SCADA ” means supervisory control and data acquisition industrial control system.

“ Seller Group ” means, each Seller and such Seller’s Affiliates, each of their respective officers, directors and employees and each Seller’s successors and permitted assigns.

“ Seller Operated Assets ” means those Assets operated by Sellers or their Affiliates.

“ Sellers ” has the meaning set forth in the Preamble of this Agreement.

“ Site Access Agreement ” means a site access agreement, in a form to be negotiated by the Parties prior to the Closing, pursuant to which Purchaser will grant AEPO and its Affiliates the right of reasonable access to the properties related to the Current Remediation Matter.

“ SMOG ” has the meaning set forth in Section 8.12(b) .

“ Soft Consents ” means any consent or approval affecting an Asset that is required to be obtained for the assignment of the Assets in connection with the transactions contemplated by this Agreement that is not a Required Consent or a Customary Post-Closing Consent.

“ Specified Representations ” has the meaning set forth in Section 4.1 .

“ Stored Hydrocarbons ” has the meaning set forth in Section 3.4(a)(v) .

“ Suspense Funds ” means proceeds of production and associated penalties and interest in respect of any of the Seller Operated Assets that are payable to Third Parties and are being held in suspense by Sellers as the operator of such Properties.

“ Surface Agreements ” has the meaning set forth in Section 2.2(f) .

Appendix A-16

 

“ Surface Deed ” means a special warranty deed to be delivered at the Closing, in substantially the form of Exhibit E hereto, pursuant to which the applicable Sellers will convey each of the parcels of Surface Fee Lands to Purchaser.

“ Surface Fee Lands ” has the meaning set forth in Section 2.2(f) .

“ Tax Audit ” has the meaning set forth in Section 13.6 .

“ Tax Indemnified Person ” has the meaning set forth in Section 13.6 .

“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, election, claim for refund or other document (including any attachments thereto and amendments thereof) filed with or submitted to, or required to be filed with or submitted to, any Governmental Body with respect to any Tax.

“ Taxes ” means all federal, state, local and foreign income, profits, franchise, sales, use, ad valorem, property, severance, production, excise, stamp, documentary, gross receipts, goods and services, registration, capital, transfer, employment, estimated or withholding taxes or other assessments, duties, fees (including impact fees) or charges imposed by any Governmental Body, including any interest, penalties or additional amounts that may be imposed with respect thereto.

“ Term Royalty Deed ” means a term royalty deed to be delivered at the Closing, in the substantially the form of Exhibit F hereto, pursuant to which Sellers will cause to be conveyed a term royalty to Purchaser, subject to the terms and conditions set forth in such term royalty deed, in respect of the lands identified therein.

“ Third Party ” means any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement.  For the avoidance of doubt, WildHorse Resource Development Corporation and all Affiliates thereof shall not be considered “Third Parties” of Sellers or their Affiliates under this Agreement.

“ Title Benefit ” means, (a) with respect to the Wells set forth on Exhibit A-2 , any right, circumstance or condition that operates to increase the Net Revenue Interest of Sellers as of the Closing Date in any of such Wells above that shown on Exhibit A-2 for such Well (without a corresponding proportionate or greater increase in Working Interest for such Well) and (b) with Undeveloped Leases on Exhibit A-3 , any right, circumstance or condition that operates to increase the Net Acres of Sellers as of the Closing Date in such Undeveloped Leases above that shown on Exhibit A-3 for such Undeveloped Leases.

“ Title Benefit Amount ” has the meaning set forth in Section 4.3(c) .

“ Title Benefit Notice ” has the meaning set forth in Section 4.3(a) .

“ Title Benefit Property ” has the meaning set forth in Section 4.3(a) .

Appendix A-17

 

“ Title Defect ” means any lien, security interest, pledge, charge, defect, encumbrance or other matter that, if not cured, causes Sellers not to have Defensible Title; provided , however , that none of the foll owing shall be considered a Title Defect for any purpose:

(a) defects in the chain of title consisting of the failure to recite marital status in a document or omissions of successions of heirship or estate proceedings, unless Purchaser provides affirmative evidence that such failure or omission could reasonably be expected to result in another Person’s superior claim of title to the relevant Asset;

(b) defects arising out of lack of survey, unless a survey is expressly required by applicable Laws or the applicable Lease to be effective;

(c) defects based on a gap in Sellers’ chain of title in the state’s records as to state Leases, in the federal government’s records as to federal Leases, or in the county records as to other Leases, unless Purchaser provides affirmative evidence that such gap exists in such records by an abstract of title, run sheet or a title opinion, which documents shall be included in the applicable Title Defect Notice;

(d) defects as a consequence of cessation of production, insufficient, or failure to conduct operations that occurred more than two years prior to the Execution Date on any of the Properties held by production, or lands pooled, communitized or unitized therewith, except to the extent the applicable lessor has provided written notice to Sellers that it is exercising its right to terminate the lease in question or that Sellers have forfeited or have an obligation to release leasehold acreage as a result of such cessation of production, insufficient production or failure to conduct operations, which notice shall be included in the Title Defect Notice;

(e) defects based on references to lack of information, including lack of information in Seller’s files, the lack of Third Party records, and/or the unavailability of information from Governmental Bodies, if such information is otherwise in Purchaser’s possession or is a matter of public record;

(f) defects based solely on references in recorded instruments to a document because such document is not in Sellers’ files;

(g) defects based on Tax assessment, Tax payment or similar records (or the absence of such activities or records), unless Purchaser provides affirmative evidence that the material contained in such records (or the lack of such records) could reasonably be expected to result in another Person’s superior claim of title to the relevant Asset;

(h) defects that have been cured by the passage of time, the doctrine of adverse possession, applicable laws of limitation or prescription or such other matter that would render such defect invalid according to applicable Law;

(i) any unsubordinated mortgage on the fee estate or mineral fee estate from which title to the relevant Property is derived which pre-dates the creation of the Property and which is not currently subject to foreclosure or other enforcement proceedings by the holder of the mortgage and which is subordinated to the rights of lessee under any Lease burdened thereby; or

Appendix A-18

 

(j) defects arising out of lack of evidence of corporate or other entity authorization, unless Purchaser provides affirmative evidence t hat such lack of authorization results in another Person’s actual and superior claim of title to the relevant property.

“ Title Defect Amount ” has the meaning set forth in Section 4.2(c) .

“ Title Defect Notice ” has the meaning set forth in Section 4.2(a) .

“ Title Defect Property ” has the meaning set forth in Section 4.2(a) .

“ Title Expert ” has the meaning set forth in Section 4.4(d) .

“ Transferred Employees ” has the meaning set forth in Section 8.10(a) .

“ Transfer Taxes ” has the meaning set forth in Section 13.8 .

“ U.S. ” and “ United States ” mean the United States of America.

“ Unadjusted Purchase Price ” has the meaning set forth in Section 3.1 .

“ Undeveloped Lease ” means the Leases or portions thereof set forth on Exhibit A-3 .

“ Unobtained Contract Consents ” has the meaning set forth in Section 4.6(b)(i) .

“ Unobtained Lease Consents ” has the meaning set forth in Section 4.6(b)(ii) .

“ Unreimbursed Third Party Property Costs ” has the meaning set forth in Section 2.4(c) .

“ WARN Act ” means the federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq., and all applicable similar state and local laws.

“ Wellhead Imbalances ” means any imbalance at the wellhead between the amount of Hydrocarbons produced from a Well and allocated to the interest of any Seller therein and the shares of production from the relevant Well to which such Seller was entitled.

“ Wells ” has the meaning set forth in Section 2.2(c) .

“ Working Interest ” with respect to any Well or Lease, the interest in and to such Well or Lease, as applicable, that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Well or Lease relating to those formations in which such Well is producing or if not currently producing, completed to, as of the Effective Time, in the case of each Well, or the Eaglebine Formation, in the case of each Lease, and without regard to the effect of any Burdens.

Appendix A-19

Exhibit 4.4

PREFERRED STOCK PURCHASE AGREEMENT

dated as of May 10 , 2017

by and among

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

and

THE PARTY LISTED ON THE SIGNATURE PAGE HERETO

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

Page

Article I
PURCHASE; CLOSING

Section 1.1

Purchase2

 

Section 1.2

Closing.2

 

Section 1.3

Closing Conditions.2

 

Article II
REPRESENTATIONS AND WARRANTIES

Section 2.1

Representations and Warranties of the Company5

 

Section 2.2

Representations and Warranties of the Purchaser15

 

Article III
COVENANTS

Section 3.1

Filings; Other Actions.17

 

Section 3.2

Negative Covenants18

 

Section 3.3

Corporate Actions.19

 

Section 3.4

Information Statement20

 

Section 3.5

Confidentiality20

 

Section 3.6

NYSE Listing of Shares21

 

Section 3.7

State Securities Laws21

 

Section 3.8

Acquisition Agreement21

 

 

Article IV
ADDITIONAL AGREEMENTS

Section 4.1

Standstill21

 

Section 4.2

Transfer Restrictions.22

 

Section 4.3

Legend.23

 

Section 4.4

Tax Matters.24

 

Article V
MISCELLANEOUS

Section 5.1

Survival; Limitations on Liability27

 

Section 5.2

Expenses27

 

Section 5.3

Amendment; Waiver27

 

Section 5.4

Counterparts28

 

Section 5.5

Governing Law28

 

Section 5.6

Waiver of Jury Trial28

 

Section 5.7

Notices28

 

Section 5.8

Entire Agreement29

 

Section 5.9

Assignment30

 

i

 

 

 

 

Section 5.10

Interpretation; Other Definitions 30

 

Section 5.11

Captions34

 

Section 5.12

Severability34

 

Section 5.13

No Third Party Beneficiaries34

 

Section 5.14

Public Announcements34

 

Section 5.15

Specific Performance34

 

Section 5.16

Termination35

 

Section 5.17

Effects of Termination35

 

Section 5.18

Non-Recourse36

 

 

Exhibit A:

Form of Series A Perpetual Convertible Preferred Stock Certificate of Designations

Exhibit B:

Form of Amended and Restated Registration Rights Agreement


ii

 

 

 

 

INDEX OF DEFINED TERMS

Term

Location of Definition

10% Entity

5.10(f)

Acquisition

Recitals

Acquisition Agreement

Recitals

Affiliate

5.10(g)

Agreement

Preamble

“as-converted basis”

5.10(h)

Beneficial Ownership/Beneficially Own

5.10(i)

Board of Directors

2.1(c)(i)

business day

5.10(d)

Bylaws

2.1(c)(ii)

Capitalization Date

2.1(b)(i)

Certificate

Recitals

Certificate of Incorporation

2.1(c)(ii)

Closing

1.2(a)

Closing Date

1.2(a)

Code

2.1(r)

Committee

5.10(j)

Common Stock

Recitals

Common Stock Issuance

Recitals

Common Stock Issuance Agreement

Recitals

Company

Preamble

Company Competitor

5.10(k)

Company Material Adverse Effect

5.10(l)

Company Preferred Stock

2.1(b)(i)

Company Stock Awards

2.1(b)(i)

Company Subsidiary

2.1(a)(ii)

control/controlled by/under common control with

5.10(g)

Credit Agreement

5.10(o)

Effect

5.10(p)

Equity Securities

5.10(p)

iii

 

 

 

 

Term

Location of Definition

ERISA

2.1 (r)

ERISA Subject Plan

2.1(r)

Exchange Act

2.10

Excluded Stock

4.4(a)

Existing Registration Rights Holders

5.10(q)

FCPA

2.1(t)

GAAP

2.1(f)(iv)

Governmental Entity

2.1(c)(iii)

Hedge

4.2(a)

HSR Act

3.1(a)

Information

3.5

Knowledge of the Company

5.10(t)

Law

5.10(r)

Lien

5.10(s)

Money Laundering Laws

2.1(u)

Multiemployer Plan

2.1(r)

NGP

5.10(w)

Non-Recourse Party

5.18

NYSE

Recitals

NYSE Listing Approval

5.10(x)

OFAC

2.10((v)

person

5.10(e)

Per Share Purchase Price

1.1

Permits

2.1(k)

Permitted Transferee

4.2(b)(i)

Plan

2.1(b)(i)

Preferred Stock

Recitals

Preferred Voting and Conversion Features

3.1(b)

Proposed Securities

4.4(b)(i)

Purchase

1.1

Purchased Stock

1.1

iv

 

 

 

 

Term

Location of Definition

Purchaser Parties

5.10(y)

Purchaser

Preamble

Qualifying Issuance

4.4(b)

Registration Rights Agreement

1.2(b)(i)

Representatives

5.10(z)

Sanctions

2.1(v)

Schedule 14C Action

5.10(aa)

SEC

2.1(f)

SEC Documents

2.1(f)

Securities Act

2.1

Subsidiary

2.1(a)(ii)

Transaction Documents

5.10(u)

Transfer

5.10(cc)

Upstream Competitor

5.10(m)

Voting Debt

2.1(b)(ii)

 

 

v

 

 

 

 

PREFERRED STOCK PURCHASE AGREEMENT , dated as of May 10, 2017 (this “ Agreement ”), by and among WildHorse Resource Development Corporation, a Delaware corporation (the “ Company ”), and the purchaser identified on the signature page hereto (the “ Purchaser ”).

RECITALS:

WHEREAS, the Company has entered into a Purchase and Sale Agreement (as it may be amended or supplemented from time to time, the “ Acquisition Agreement ” and, the transactions contemplated thereby, the “ Acquisition ”), by and among Esquisto Resources II, LLC, a Texas limited liability company and wholly owned subsidiary of the Company, Anadarko E&P Onshore LLC, a Delaware limited liability company, Admiral A Holding L.P., a Delaware limited partnership, TE Admiral A Holding L.P., a Delaware limited partnership and Aurora C-I Holding L.P., a Delaware limited partnership;  

WHEREAS, the Company has entered into a Common Stock Issuance Agreement (as it may be amended or supplemented from time to time, the “ Common Stock Issuance Agreement ” and, the transactions contemplated thereby, the “ Common Stock Issuance ”), by and among the Company, Admiral A Holding L.P., a Delaware limited partnership, TE Admiral A Holding L.P., a Delaware limited partnership and Aurora C-I Holding L.P., a Delaware limited partnership;

WHEREAS, the Company proposes to issue and sell to the Purchaser shares of its preferred stock, par value $0.01 per share, designated as “Series A Cumulative Perpetual Convertible Preferred Stock” (the “ Preferred Stock ”), having the terms set forth in the Certificate of Designations (the “ Certificate ”) in the form attached to this Agreement as Exhibit A , subject to the terms and conditions set forth in this Agreement;

WHEREAS, contemporaneously with the execution and delivery of this Agreement by the parties hereto, each of WHR Holdings, LLC, a Delaware limited liability company, Esquisto Holdings, LLC, a Delaware limited liability company, WHE AcqCo Holdings, LLC, a Delaware limited liability company and NGP XI US Holdings, L.P., a Delaware limited partnership, which collectively hold more than a majority of the outstanding Common Stock of the Company as of the date of this Agreement, has executed a stockholders’ consent in lieu of a stockholder meeting in compliance with Delaware law for the purpose of providing all necessary approvals under Delaware law and the applicable rules and listing standards of the New York Stock Exchange (the “ NYSE ”) to consummate the transactions contemplated by this Agreement, including without limitation the issuance of Common Stock in connection with any conversion of the Preferred Stock;

WHEREAS, subject to the conditions contained in the Certificate, the Preferred Stock will be convertible into shares of common stock, par value $0.01 per share of the Company (the “ Common Stock ”);  and

WHEREAS, capitalized terms used in this Agreement have the meanings set forth in Section 5.10 or such other Section indicated in the preceding Index of Defined Terms.

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NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, the parties agree as follows:

ARTICLE I

PURCHASE; CLOSING

 

Section 1.1 Purchase . On the terms and subject to the conditions herein, on the Closing Date, the Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the Company, an aggregate number of 435,000 shares of Preferred Stock, and the Company shall issue and sell to the Purchaser such shares of Preferred Stock (the “ Purchased Stock ”), at a purchase price of $1,000 per share of Preferred Stock (the “ Per Share Purchase Price ”). The purchase and sale of the Purchased Stock pursuant to this Section 1.1 is referred to as the “ Purchase .”

Section 1.2 Closing .

(a) Subject to the terms and conditions hereof, the closing of the Purchase (the “ Closing ”) shall be held at the offices of Vinson & Elkins L.L.P., 1001 Fannin Street, Suite 2500, Houston, Texas 77002, at 8:00 a.m. Houston time on the date of the closing of the Acquisition, or at such other time and place as the Company and the Purchaser agree (the “ Closing Date ”).

(b) In addition and subject to the satisfaction or waiver on the Closing Date of the conditions to the Closing in Section 1.3 , at the Closing:

(i) the Company will (i) cause the number of shares of Purchased Stock set forth in Section 1.1 to be registered with the transfer agent of the Company in the name of the Purchaser in book-entry form, (ii) deliver to the Purchaser the Amended and Restated Registration Rights Agreement in the form of Exhibit B hereto with such changes thereto as may be agreed to by the Purchaser and approved by the Committee (the “ Registration Rights Agreement ”), duly executed by the Company and the Existing Registration Rights Holders, and (iii) deliver to the Purchaser all other documents, instruments and writings required to be delivered by the Company to the Purchaser pursuant to this Agreement or otherwise required in connection herewith; and

(ii) the Purchaser will deliver or cause to be delivered (i) to a bank account designated by the Company in writing at least two (2) business days prior to the Closing Date, an amount in cash, by wire transfer of immediately available funds, equal to the number of shares of Purchased Stock set forth in Section 1.1 multiplied by the Per Share Purchase Price, (ii) the Registration Rights Agreement, duly executed by the Purchaser, and (iii) all other documents, instruments and writings required to be delivered by the Purchaser to the Company pursuant to this Agreement or otherwise required in connection herewith.

Section 1.3 Closing Conditions .

(a) The obligations of the Purchaser, on the one hand, and the Company, on the other hand, to effect the Closing is subject to the satisfaction or, to the extent permitted by

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applicable Law, waiver by the Purchaser and the Company (acting at the direction of t he Committee) at or prior to the Closing of the following conditions:

(i) no temporary restraining order, preliminary or permanent injunction or other judgment or order issued by any Governmental Entity and no Law shall be in effect restraining, enjoining, making illegal or otherwise prohibiting the consummation of the transactions contemplated by this Agreement;

(ii) the Company shall have delivered a certification in writing that (x) all conditions to closing the Acquisition set forth in Article 9 of the Acquisition Agreement have been satisfied or shall be satisfied substantially simultaneously with the Closing on the terms and conditions contemplated by the Acquisition Agreement (s ubject to any amendments, supplements, waivers or other modifications permitted by Section 3.8 or otherwise consented to by the Purchaser ) and (y) the closing of the Acquisition shall occur substantially simultaneously with the Closing;

(iii) the Company shall have adopted and filed the Certificate with the Secretary of State of the State of Delaware, and the Certificate shall be in full force and effect; and

(iv) the Credit Agreement shall have been amended, prior to or contemporaneously with the Closing, in a manner such that the Preferred Stock will not constitute Disqualified Capital Stock (as defined in the Credit Agreement, as so amended).  

(b) The obligations of the Purchaser to effect the Closing are also subject to the satisfaction or, to the extent permitted by applicable Law, waiver by the Purchaser at or prior to the Closing of the following conditions:

(i) (i) the representations and warranties of the Company set forth in Section 2.1 hereof (other than Sections 2.1(a), 2.1(b), 2.1(c)(i) and 2.1(e)) shall be true and correct (disregarding all qualifications or limitations as to materiality or Company Material Adverse Effect) as of the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks to an earlier date, in which case each of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Company Material Adverse Effect, (ii) the representations and warranties of the Company set forth in Section 2.1(b) shall be true in all but de minimis respects as of the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks to an earlier date, in which case as of such earlier date) and (iii) the representations and warranties of the Company set forth in Sections 2.1(a), 2.1(c)(i) and 2.1(e) shall be true in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of such date;

(ii) the Company shall have performed in all material respects its obligations required to be performed by it pursuant to this Agreement at or prior to the Closing;

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(iii) the Company shall have delivered to the Purchaser the Registration Rights Agreement, duly executed by the Company and the Existing Registration Rights Holders;

(iv) the shares of Common Stock to be issued upon conversion of the Preferred Stock (assuming increases in the Accreted Value (as defined in the Certificate) of such Preferred Stock pursuant to Section 3(b) of the Certificate through the fifth anniversary of the Closing Date and no other increase to the Accreted Value (as defined in the Certificate)) shall have been reserved and approved for listing on the NYSE, subject to official notice of issuance and the expiration of the Schedule 14C Waiting Period; and

(v) the Board of Directors shall have taken all actions necessary and appropriate to cause to be appointed as observers to the Board of Directors, effective immediately upon the Closing, such two individuals designated by CP VI Eagle Holdings, L.P., in writing no later than ten days prior to the Closing Date, and promptly upon the expiration or termination of any applicable waiting period, under the HSR Act, (and in any event prior to the next meeting of the Board of Directors thereafter) to elect such individuals to the Board of Directors, provided that such individuals so designated shall meet the requirements set forth in Section 5(b) of the Certificate ; and

(vi) the Purchaser shall have received a certificate signed on behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in Section 1.3(b)(i) and (ii)  have been satisfied;

(c) The obligation of the Company to effect the Closing is also subject to the satisfaction or, to the extent permitted by applicable Law, waiver by the Company (acting at the direction of the Committee) at or prior to the Closing of the following conditions:

(i) (i) the representations and warranties of the Purchaser set forth in Section 2.2 hereof (other than Sections 2.2(a) and 2.2(b)(i) ) shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent that such representation or warranty speaks of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such date), except where the failure of such representation and warranties to be so true and correct would not, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by this Agreement or the ability of the Purchaser to fully perform its covenants and obligations under this Agreement and (ii) the representations and warranties of the Purchaser set forth in Sections 2.2(a) and 2.2(b)(i)  shall be true in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of such date;

(ii) the Purchaser shall have performed in all material respects its obligations required to be performed by it pursuant to this Agreement at or prior to the Closing; and

(iii) the Company shall have received a certificate signed on behalf of the Purchaser by a senior executive officer certifying to the effect that the conditions set forth in Section 1.3(c)(i) and (ii)  have been satisfied.

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ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Section 2.1 Representations and Warranties of the Company . Except as set forth (x) in the SEC Documents filed by the Company with the SEC, and publicly available before the date of this Agreement, excluding any disclosures set forth in risk factors or any “forward looking statements” within the meaning of the Securities Act of 1933 (the “ Securities Act ”) or the Securities Exchange Act of 1934, as amended, (the “ Exchange Act ”) or (y) in a correspondingly identified schedule attached hereto (provided, that any item disclosed in any particular schedule attached hereto shall be deemed to be disclosed with respect to any other schedule to the extent it is reasonably apparent on the face of such disclosure that it applies to such other schedule), the Company represents and warrants to the Purchaser that (provided, that, other than as provided in Section 2.1(b), the Company makes no representations or warranties whatsoever in this Agreement regarding assets, operations or business to be acquired by the Company pursuant to the Acquisition Agreement):

(a) Organization and Authority .

(i) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware, has all requisite power and authority to own its properties and conduct its business as presently conducted, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. True and accurate copies of the Certificate of Incorporation and Bylaws, each as in effect as of the date of this Agreement, have been made available to the Purchaser prior to the date hereof.

(ii) Each material Company Subsidiary is duly organized and validly existing under the laws of its jurisdiction of organization, has all requisite power and authority to own its properties and conduct its business as presently conducted, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. As used herein, “ Subsidiary ” means, with respect to any person, any corporation, partnership, joint venture, limited liability company or other entity (x)  of which such person or a subsidiary of such person is a general partner or (y) of which a majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such entity, is directly or indirectly owned by such person and/or one or more subsidiaries thereof; and “ Company Subsidiary ” means any Subsidiary of the Company.

(b) Capitalization .

(i) The authorized capital stock of the Company consists of 500,000,000 shares of Common Stock and 50,000,000 shares of preferred stock, par value $0.01 per share (the “ Company Preferred Stock ”). As of the close of business on April 30, 2017 (the

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“ Capitalization Date ”), there were 93,987,541 shares of Common Stock outstanding and zero shares of Company Preferred Stock outstanding or designated as a series. As of the close of business on the Capitalization Date, (i) 9,512,500 shares o f Common Stock were reserved for issuance under the WildHorse Resource Development Corporation 2016 Long Term Incentive Plan (the “ Plan ”), of which 363,334 shares of Common Stock have been issued subject to restricted stock awards granted pursuant to the P lan (collectively, the “ Company Stock Awards ”) and (ii) no shares of Common Stock were held by the Company in its treasury.  Upon the consummation of the transactions contemplated by the Acquisition Agreement, 6,260,899 shares of Common Stock, subject to a djustment (which the Purchaser acknowledges may be an increase or decrease in the number of shares of New Common Stock) in accordance with the Common Stock Issuance Agreement (the “ New Common Stock ”) will be issued pursuant to the Common Stock Issuance Agr eement. All of the issued and outstanding shares of Common Stock have been, and all of the shares of the New Common Stock will, upon issuance, be duly authorized and validly issued in accordance with applicable securities laws and are, or, in the case of t he New Common Stock, will be, fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. From the Capitalization Date through and as of the date of this Agreement, no other shares of Common Stock or Company Preferred Stock have been issued other than shares of Common Stock issued in respect of Company Stock Awards in the ordinary course of business or pursuant to the Common Stock Issuance Agreement. The Company does not have outstanding shareholde r purchase rights or “poison pill” or any similar arrangement in effect.

(ii) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which the stockholders of the Company may vote (“ Voting Debt ”) are issued and outstanding. As of the date of this Agreement, except (i)  pursuant to the surrender of shares to the Company or the withholding of shares by the Company to cover tax withholding obligations under Company Stock Awards, and (ii) as set forth in Section 2.1(b)(i) , the Company does not have and is not bound by any outstanding options, preemptive rights, rights of first offer, warrants, calls, commitments or other rights or agreements calling for the purchase or issuance of, or securities or rights convertible into, or exchangeable for, any shares of Common Stock or any other equity securities of the Company or Voting Debt or any securities representing the right to purchase or otherwise receive any shares of capital stock of the Company (including any rights plan or agreement).

(c) Authorization .

(i) The Company has the corporate power and authority to enter into this Agreement and the other Transaction Documents and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation of the transactions contemplated hereby and thereby have been duly authorized by the board of directors of the Company (the “ Board of Directors ”). This Agreement has been, and (as of the Closing) the other Transaction Documents will be, duly and validly executed and delivered by the Company and, assuming due authorization, execution and delivery by the Purchaser, is, and (as of the Closing) each of the other Transaction Documents will be, a valid and binding obligation of the Company enforceable against the Company in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar

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laws of general applicability relating to or affecting creditors’ rights or by general equity principles). Other than Schedule 14C Action and the filing of the Certificate with the Secretary of State of the State of Delaware, no other corporate proceedings are necessary for the execution and delivery by the Company of this Agreement or the other Transaction Documents, the performance by it of its obligations hereunder or thereunder or the consummation by it of the transactions contemplated hereby or thereby. The Company is not governed by or subject to the provisions of Section 203 of the DGCL.

(ii) Neither the execution and delivery by the Company of this Agreement or the other Transaction Documents, nor the consummation of the transactions contemplated hereby or thereby, nor compliance by the Company with any of the provisions hereof or thereof (including the conversion or exercise provisions of the Preferred Stoc k), will, subject only to the Schedule 14C Action, the filing of the Certificate with the Secretary of State of the State of Delaware and receipt of NYSE Listing Approval, (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the cre ation of any Lien upon any of the material properties or assets of the Company or any Company Subsidiary under any of the terms, conditions or provisions of (i) the certificate of incorporation of the Company (the “ Certificate of Incorporation ”) or bylaws of the Company (the “ Bylaws ”) or the certificate of incorporation, charter, bylaws or other governing instrument of any Company Subsidiary or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligati on to which the Company or any Company Subsidiary is a party or by which it may be bound, or to which the Company or any Company Subsidiary or any of the properties or assets of the Company or any Company Subsidiary may be subject, or (B) violate any law, statute, ordinance, rule, regulation, permit, franchise or any judgment, ruling, order, writ, injunction or decree applicable to the Company or any Company Subsidiary or any of their respective properties or assets, except in the case of clauses (A)(ii) an d (B) for such violations, conflicts and breaches as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(iii) Other than the securities or blue sky laws of the various states, approval or expiration of applicable waiting periods under the HSR Act (which, for the avoidance of doubt, is required solely with respect to the Preferred Voting and Conversion Features and not the Purchase at the Closing), Schedule 14C Action (which, for the avoidance of doubt, is required solely with respect to the Preferred Voting and Conversion Features and not the Purchase at the Closing), the filing of the Certificate with the Secretary of State of the State of Delaware and receipt of NYSE Listing Approval, no notice to, registration, declaration or filing with, exemption or review by, or authorization, order, consent or approval of, any court, administrative agency or commission or other governmental or arbitral body or authority or instrumentality, whether federal, state, local or foreign, and any applicable industry self-regulatory organization (each, a “ Governmental Entity ”), nor expiration or termination of any statutory waiting period, is necessary for the consummation by the Company of the transactions contemplated by this Agreement or the other Transaction Documents.

(d) Sale of Securities . Assuming the accuracy of the Purchaser’s  representations in Section 2.2 , the Purchase is exempt from the registration and prospectus

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delivery requirements of the Securities Act and the rules and regulations promulgated thereunder. Without limiting the foregoing, neither the Company nor to the Knowledge of the Company any other P erson authorized by the Company to act on its behalf, has engaged in a general solicitation or general advertising (within the meaning of Regulation D of the Securities Act) of investors with respect to offer or sales of the Purchased Stock and neither the Company nor, to the Knowledge of the Company, any person acting on its behalf has made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the offering or issuance of Purchased Stock under this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act that would result in none of Regulation D or any other applicable exemption from registration under the Securities Act to be available, nor will the Comp any take any action or steps that would cause the offering or issuance of the Purchased Stock under this Agreement to be integrated with other offerings.

(e) Status of Securities . The shares of Preferred Stock to be issued pursuant to this Agreement, and, subject only to Schedule 14C Action, the shares of Common Stock to be issued upon conversion of such Preferred Stock, have been duly authorized by all necessary corporate action. When issued and sold against receipt of the consideration therefor as provided in this Agreement, such securities will be validly issued, fully paid and nonassessable, will not subject the holders thereof to personal liability, will not be subject to preemptive rights of any other stockholder of the Company, and will effectively vest in the Purchaser good and marketable title to all such securities, be free and clear of all Liens, except restrictions imposed by the Securities Act, Section 4.2 , the Certificate and any applicable state or foreign securities laws. Upon any conversion of any shares of Preferred Stock into Common Stock pursuant to the Certificate, the shares of Common Stock issued upon such conversion will be validly issued, fully paid and nonassessable, will not subject the holder thereof to personal liability and will not be subject to preemptive rights of any other stockholder of the Company, and will effectively vest in the Purchaser good and marketable title to all such securities, be free and clear of all Liens, except restrictions imposed by the Securities Act, Section 4.2 , the Certificate and any applicable state or foreign securities laws. The respective rights, preferences, privileges and restrictions of the Preferred Stock and the Common Stock are as stated in the Certificate of Incorporation (including the Certificate) or as otherwise provided by the mandatory provisions of the Delaware General Corporate Law. The shares of Common Stock to be issued upon any conversion of shares of Preferred Stock into Common Stock (assuming increases in the Accreted Value (as defined in the Certificate) of such Preferred Stock pursuant to Section 3(b) of the Certificate through the fifth anniversary of the Closing Date and no other increase to the Accreted Value (as defined in the Certificate)), at the Closing, shall have been duly reserved for such issuance and approved for listing on the NYSE, subject to notice of official listing and the expiration of the Schedule 14C Waiting Period.

(f) SEC Documents; Financial Statements .

(i) The Company has filed all required reports, proxy statements, forms, and other documents with the U.S. Securities and Exchange Commission (the “ SEC ”) since December 13, 2016 (collectively, the “ SEC Documents ”). Each of the SEC Documents, as of its respective date complied as to form in all material respects with the requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and, except to the extent that

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information contained in any SEC Document has been revised or superseded by a later file d SEC Document filed and publicly available prior to the date of this Agreement, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(ii) The Company (i) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are reasonably designed to ensure that material information relating to the Company, including its consolidated Subsidiaries, is made known to the individuals responsible for the preparation of the Company’s filings with the SEC and (ii) has disclosed, based on its most recen t evaluation prior to the date of this Agreement, to the Company’s outside auditors and the audit committee of the Board of Directors (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial re porting (as defined in Rule 13a-15(f) under the Exchange Act) that are reasonably likely to adversely affect the Company’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 Company’s internal controls over financial reporting.  As of the date of this Agreement, to the Knowledge of the Company, there is no reason that its outside auditors and its chief executive offi cer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due.

(iii) There is no transaction, arrangement or other relationship between the Company and/or any of its Subsidiaries and an unconsolidated or other off-balance sheet entity that is required to be disclosed by the Company in its SEC Documents and is not so disclosed.

(iv) The fin ancial statements of the Company and its consolidated Subsidiaries included in the SEC Documents (a) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect theret o, in each case as of the date such SEC Document was filed, and (b) have been prepared in accordance with generally accepted accounting principles (“ GAAP ”) applied on a consistent basis during the periods involved (except as may be indicated in such financial statements or the notes thereto or as permitted by Regulation S-X) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows of the Company and its consolidated subsidiaries for the periods then ended (subject, in the case of unaudited statements, to normal recurring audit adjustments).

(g) Undisclosed Liabilities . Except for (i) those liabilit ies that are reflected or reserved for in the consolidated financial statements of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2016, (ii) liabilities incurred since December 31, 2016 in the ordinary course of business (including incremental borrowings under the Company’s revolving credit facility), (iii) liabilities that would not, individually and in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (iv) the $350,000,000 in aggregate principal amount of 6.875% Senior Notes due 2025 issued by the

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Company on February 1, 2017 and obligations to make payment of interest with respect thereto and (v) liabilities incurred pursuant to the transactions contemplated by this Agreement, the Acqui sition Agreement and the Common Stock Issuance Agreement, the Company and its Subsidiaries do not have any liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent or otherwise) that are required to be reflected in the Com pany’s financial statements in accordance with GAAP.   

(h) Brokers and Finders . Except for Evercore Group L.L.C. and Barclays Capital Inc., the fees and expenses of which will be paid by the Company, neither the Company nor its Subsidiaries or any of their respective officers, directors, employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Company in connection with this Agreement or the transactions contemplated hereby.

(i) Litigation . There is no action, suit, proceeding or investigation pending or, to the Knowledge of the Company, threatened against, nor any outstanding judgment, order or decree against, the Company or any of its Subsidiaries before or by any Governmental Entity which in the aggregate have, or if adversely determined, would reasonably be expected to have, a Company Material Adverse Effect.

(j) Taxes .

(i) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, each of the Company and its Subsidiaries has filed all tax returns and reports including information returns required to have been filed, such returns and reports are true, accurate and complete in all respects and have been completed in accordance with applicable Law, and all taxes and other assessments (whether or not shown to be due and payable on any Tax Return) have been paid, except for those which are being contested in good faith and by appropriate proceedings and in respect of which adequate reserves with respect thereto are maintained in accordance with GAAP.

(ii) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) neither the Company nor any of its Subsidiaries have had any tax deficiency proposed or assessed against it that has not been fully resolved and satisfied, (ii) neither the Company nor any of its Subsidiaries have executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge that remains outstanding, and (iii) there is no pending audit, suit, proceeding, claim, examination or other administrative or judicial proceedings ongoing, pending, or, to the Knowledge of the Company, threatened or proposed with respect to any taxes of the Company or any of its Subsidiaries.

(iii) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, each of the Company and its Subsidiaries have withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or

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collected therefrom, and have paid the same to the proper tax receiving officers or authorized depositories.

(iv) Since its formation, the Company has not (i) declared or paid any dividend or other distribution on its capital stock or (ii) redeemed, repurchased, recapitalized or acquired shares of its capital stock in a transaction that would be treated, in whole or in part, as a dividend for United States federal income tax purposes.

(k) Permits and Licenses . The Company and its Subsidiaries possess all certificates, authorizations and permits (“ Permits ”) issued by each Governmental Entity necessary to conduct their respective businesses, except where the failure to possess such permits would not, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect. The Company and its Subsidiaries have fulfilled and performed all of their respective obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received notice of any revocation or modification of any such Permits or has any reason to believe that any such Permits will not be renewed in the ordinary course, except where the revocation or modification of any such Permit or the failure to renew any such Permit would not, individually or in the aggregate, have or reasonably be expected to result in a Company Material Adverse Effect.

(l) Compliance with Laws . Neither the Company nor any of its Subsidiaries is in material violation of any applicable Law, except where such violation would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. To the Knowledge of the Company as of the date of this Agreement, neither the Company nor any of its Subsidiaries is being investigated with respect to any applicable Law, except for such of the foregoing as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(m) Absence of Changes . Since December 31, 2016, there has not been any action or omission of the Company or any of its Subsidiaries that, if such action or omission occurred between the date of this Agreement and the Closing Date, would violate Section 3.2 .

(n) Compliance with Sarbanes-Oxley . There is and has been no failure on the part of the Company and any of the Company’s directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated in connection therewith applicable to the Company.

(o) Title to Interests . The Company and its Subsidiaries have (i) generally satisfactory title to all of their interests in their producing oil and gas properties and to all of their material interests in non-producing oil and gas properties, title investigations having been carried out by the Company and its Subsidiaries, as applicable, in accordance with the general practice in the oil and gas industry, (ii) good and indefeasible title to all other real property owned by them that is material to the Company and its Subsidiaries, taken as a whole, and (iii) good and valid title to all personal property owned by them that is material to the Company and its

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Su bsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects, except such liens, encumbrances and defects as (i) do not materially interfere with the use made and proposed to be made of such property by the Company or it s Subsidiaries or (ii) would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(p) Intellectual Property . The Company and its Subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, know-how, software, systems and technology (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary to conduct their businesses, except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

(q) Insurance . Except as would not reasonably be expected to have a Company Material Adverse Effect, each of the Company and its Subsidiaries carry, or are covered by, insurance from insurers of recognized financial responsibility in such amounts and covering such risks as is reasonably adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. Except as would not reasonably be expected to have a Company Material Adverse Effect: all policies of insurance of the Company and its Subsidiaries are in full force and effect; the Company and its Subsidiaries are in compliance with the terms of such policies in all material respects; there are no material claims by the Company or any of its Subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; and none of the Company or any of its Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business.

(r) ERISA Compliance . Except, in each case, for any such matter as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect (i) each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) for which the Company or any of its Subsidiaries would have any liability (each an “ ERISA-Subject Plan ”) has been maintained in material compliance with its terms and with the requirements of all applicable statutes, rules and regulations including ERISA and the Internal Revenue Code of 1986, as amended (the “ Code ”); (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any ERISA-Subject Plan excluding transactions effected pursuant to a statutory or administrative exemption; (iii) with respect to each ERISA-Subject Plan subject to Title IV of ERISA (A) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur, (B) no ERISA-Subject Plan is or is reasonably expected to be “at risk” status (within the meaning of Section 430 of the Code or Section 303 of ERISA) (C) there has been no filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any ERISA-Subject Plan or the receipt by the Company or any of its Subsidiaries from the PBGC or the plan administrator of any notice relating to the intention to terminate any ERISA-Subject Plan or ERISA-Subject Plans or to

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appoint a trustee to administer any ERISA-Subject Plan, (D) no conditions contained in Section 303(k)(1)(A) of ERISA for imposition of a lien shall have been met with respect to any ERISA-Subject Plan and (E) neither the Company nor any of its Su bsidiaries has incurred, or reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the ERISA-Subject Plan or premiums to the Pension Benefit Guaranty Corporation in the ordinary course and without default) in respec t of an ERISA-Subject Plan (including a “multiemployer plan,” within the meaning of Section 4001(c)(3) of ERISA) (“ Multiemployer Plan ”); (iv) no Multiemployer Plan is, or is expected to be, “insolvent” (within the meaning of Section 4245 of ERISA), in “reo rganization” (within the meaning of Section 4241 of ERISA), or in “endangered” or “critical” status (within the meaning of Section 432 of the Code or Section 304 of ERISA); and (v) each ERISA-Subject Plan that is intended to be qualified under Section 401( a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

(s) No Foreign Business . The Company does not have operations or conduct any business outside of the United States.

(t) Illegal Payments . None of the Company or any of its Subsidiaries, nor, to the Knowledge of the Company, any director, officer, agent, employee or other person acting on behalf of the Company or any of its Subsidiaries, has in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries: (i) used any corporate funds for any unlawful contribution, gift, or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any “foreign official” (as defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (collectively, the “ FCPA ”)) or domestic government official; or (iii) violated, or is in violation of, any provision of the FCPA, or any other applicable anti-bribery statute or regulation. The Company and its Subsidiaries have conducted their respective businesses in compliance with the FCPA, and all other applicable anti-bribery statutes and regulations.

(u) Anti-Money Laundering . The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or its Subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, that have been issued, administered or enforced by any Governmental Entity (collectively, the “ Money Laundering Laws ”) and no action, suit or proceeding by or before any court or Governmental Entity, authority or body or any arbitrator involving the Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

(v) Sanctions . None of the Company or any of its Subsidiaries nor, to the Knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its Subsidiaries is currently subject to or the target of any sanctions administered or enforced by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”), the U.S. Department of State or other relevant sanctions authority (collectively, “ Sanctions ”); and the Company and its Subsidiaries are not located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Cuba, Iran, North Korea,

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Sudan, Syria and Crimea); and the Company will not directly or indirectly use the proceeds of the Purchase, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person, or in any country or territory, that currently is the subject or target of Sanctions or in any other manner that will result in a violation by any person (including any person participating in the Purchase whether as an advisor, investor or otherwise) of Sanctions. The Company and its Subsidiaries have not k nowingly engaged in for the past five years, and are not now knowingly engaged in, any dealings or transactions with any individual or entity, or in any country or territory, that at the time of the dealing or transaction, is or was the subject or target o f Sanctions.

(w) Listing and Maintenance Requirements . The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to the Knowledge of the Company is reasonably likely to, have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received as of the date of this Agreement any notification that the SEC is contemplating terminating such registration.

(x) No Additional Representations . Except for the representations and warranties made by the Company in this Section 2.1 , neither the Company nor any other Person makes (AND THE PURCHASER HEREBY ACKNOWLEDGEs AND AGREEs ON BEHALF OF itself AND its AFFILIATES AND REPRESENTATIVES THAT it has NOT RELIED UPON) any express or implied representation or warranty with respect to THE PURCHASED STOCK, the common stock or the Company or any of its Subsidiaries or their respective businesses, operations, assets, liabilities, condition or prospects, and the Company hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither the Company nor any other Person makes or has made any representation or warranty to the Purchaser, or any of its Affiliates or represent atives with respect to (i) any financial projection, forecast, estimate, budget or prospect information relating to the Company or any of its Subsidiaries or their respective business, or (ii) except for the representations and warranties made by the Company in this Section 2.1 , any oral or written information presented to the Purchaser or any of its Affiliates or representatives in the course of thei r due diligence investigation of the Company, the negotiation of this Agreement or in the course of the transactions contemplated hereby. Notwithstanding anything to the contrary herein, nothing in this Agreement shall limit the right of the Purchaser to rely on the representations, warranties, covenants and agreements expressly set forth in this Agreement or in any certificate delivered hereunder, nor will anything in this Agreement operate to limit any claim by the Purchaser for fraud.

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Section 2.2 Representations and Warranties of the Purchaser . The Purchaser hereby represents and warrants to the Company, that:

(a) Organization and Authority . The Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, is duly qualified to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would be reasonably expected to materially and adversely affect the Purchaser’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis, and the Purchaser has the corporate or other power and authority and governmental authorizations to own its properties and assets and to carry on its business as it is now being conducted.

(b) Authorization .

(i) The Purchaser has the corporate or other power and authority to enter into this Agreement and the other Transaction Documents and to carry out its obligations hereunder and thereunder. The execution, delivery and performance of this Agreement and the other Transaction Documents by the Purchaser and the consummation of the transactions contemplated hereby have been duly authorized by all requisite action on the part of the Purchaser, and no further approval or authorization by any of its stockholders, partners, members or other equity owners, as the case may be, is required. This Agreement and the other Transaction Documents have been duly and validly executed and delivered by the Purchaser and assuming due authorization, execution and delivery by the Company, is a valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

(ii) Neither the execution, delivery and performance by the Purchaser of this Agreement or the other Transaction Documents, nor the consummation of the transactions contemplated hereby and thereby, nor compliance by the Purchaser with any of the provisions hereof or thereof, will (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or resu lt in a right of termination or acceleration of, or result in the creation of any Lien upon any of the properties or assets of the Purchaser under any of the terms, conditions or provisions of (i) its governing instruments or (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which the Purchaser is a party or by which it may be bound, or to which the Purchaser or any of the properties or assets of the Purchaser may be subject, or (B) subject to compliance with the statutes and regulations referred to in the next paragraph, violate any law, statute, ordinance, rule or regulation, permit, concession, grant, franchise or any judgment, ruling, order, writ, injunction or decree applicable to the Purchaser or its properties or assets except in the case of clauses (A)(ii) and (B) for such violations, conflicts and breaches as would not reasonably be expected to materially and adversely affect the Purchaser’s ability to perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.

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(iii) Other than the securities or blue sky laws of the various states and approval or expiration of applicable waiting periods under the HSR Act (which, for the avoidance of doubt, is required solely with respect to the Preferred Voting and Conversion Features and not the Purchase at the Closing), no notice to, registration, declaration or filing with, exemption or review by, or authorization, order, consent or approval of, an y Governmental Entity, nor expiration or termination of any statutory waiting period, is necessary for the consummation by the Purchaser of the transactions contemplated by this Agreement or the other Transaction Documents.

(c) Purchase for Investment . The Pu rchaser acknowledges that the Preferred Stock has not been registered under the Securities Act or under any state securities laws. The Purchaser (1) acknowledges that it is acquiring the Preferred Stock pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute any of the Preferred Stock to any person in violation of applicable securities laws, (2) will not sell or otherwise dispose of any of the Preferred Stock, except in compliance wit h the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (3) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Preferred Stock and of making an informed investment decision, (4)  is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act) and (5) (A) has been furnished with or has had full ac cess to all the information that it considers necessary or appropriate to make an informed investment decision with respect to the Preferred Stock, (B) has had an opportunity to discuss with management of the Company the intended business and financial aff airs of the Company and to obtain information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to it or to which it had access and (C) can bear t he economic risk of (x)  an investment in the Preferred Stock indefinitely and (y) a total loss in respect of such investment. The Purchaser has such knowledge and experience in business and financial matters so as to enable it to understand and evaluate the risks of and form an investment decision with respect to its investment in the Preferred Stock and to protect its own interest in connection with such investment.

(d) Financial Capability . The Purchaser currently has capital commitments sufficient to, and at Closing will have, available funds necessary to consummate the Closing on the terms and conditions contemplated by this Agreement. The Purchaser is not aware of any reason why the funds sufficient to fulfill its obligations under Article I will not be available on the Closing Date upon request of its limited partners or members, as applicable.

(e) Brokers and Finders . Other than Morgan Stanley & Co. LLC, the fees of which will be paid by the Purchaser, neither the Purchaser nor any of its Affiliates or any of their respective officers, directors, employees or agents have employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Purchaser, in connection with this Agreement or the transactions contemplated hereby.

(f) Ownership . As of the date of this Agreement, neither the Purchaser nor any of its Affiliates (other than any portfolio company with respect to which the Purchaser is not

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the party exercising control over investment decisions) are the owners of record of shares of Common Stock or securities convertible into or exchangeable for Common Stock.

(g) No Public Market . The Purchaser understands that no public market now exists for the Purchased Stock, and that the Company has made no assurances that a public market will ever exist for the Preferred Stock.

(h) Non-Reliance . Except for the representations and warranties made by the Company in Section 2.1 , THE purchaser hereby acknowledgeS AND AGREES ON behalf of itself and its affiliates and representatives that IT HAS not relied upon any express or implied representation or warranty with respect to the Purchased stock, the common stock or the Company or any of its Subsidiaries or their respective businesses, operations, assets, liabilities, condition or prospects, INCLUDING, without limitATION, WITH RESPECT TO respect to (i) any financial projection, forecast, estimate, budget or prospect information relating to the Company or any of its Subsidiaries or their respective business, or (ii) any oral or written information presented to the Purchaser or any of ITS Affiliates or representatives in the course of ITS due diligence investigation of the Company, the negotiation of this Agreement or in the course of the transactions contemplated hereby. Notwithstanding anything to the contrary herein, nothing in this Agreement shall limit the right of the Purchaser to rely on the representations, warranties, covenants and agreements expressly set forth in this Agreement or in any certificate delivered hereunder, nor will anything in this Agreement operate to limit any claim by the Purchaser for fraud.

 

ARTICLE III

COVENANTS

 

Section 3.1 Filings; Other Actions .

(a) From the date hereof until the Closing, the Purchaser, on the one hand, and the Company, on the other hand, will cooperate and consult with the other and use commercially reasonable efforts to prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and to obtain all necessary permits, consents, orders, approvals and authorizations of, or any exemption by, all third parties and Governmental Entities, and the expiration or termination of any applicable waiting period, necessary or advisable to consummate the transactions contemplated by this Agreement, including as promptly as reasonably practicable and in any event no later than twelve (12) business days after the date of this Agreement, filing, or causing to be filed (and not withdrawing), a Notification and Report Form under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice in connection with the

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Preferred Voting and Conversion Features (as defined below).  Each party shall execute and deliver both before and after the C losing such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement such transactions or to evidence such events or matters.  The Company and the Purchaser hereby acknowledge and agree that no approvals or authorizations of, filings or registrations with, or notifications to, or expiration or termination of any applicable waiting period, under the HSR Act is required prior to Closing to consummate the Purchase.  

(b) From and after the Closing, the Purchaser and the Company shall use commercially reasonable efforts to obtain or submit, as the case may be, as promptly as practicable following the Closing Date, the approvals and authorizations of, filings and registrations with, and notifications to, or expiration or termination of any applicable waiting period, under the HSR Act, in each case, with respect to the rights of the Preferred Stock to (i) vote on an as-converted basis with the Common Stock as a single class, as contemplated by the Certificate, (ii) convert into shares of Common Stock, as contemplated by the Certificate and (iii) elect up to two directors to the Board of Directors, as contemplated by the Certificate (the “ Preferred Voting and Conversion Features ”).  Without limiting the foregoing, to the extent required, the Purchaser and the Company shall prepare and file a Notification and Report Form pursuant to the HSR Act in connection with the Preferred Voting and Conversion Features.

(c) The Purchaser and the Company will have the right to review in advance, and to the extent practicable each will consult with the other, in each case subject to applicable Law relating to the exchange of information, all the information relating to such other party, and any of their respective Affiliates, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto agrees to act reasonably and as promptly as practicable. Each party hereto agrees to keep the other party apprised of the status of matters referred to in this Section 3.1 . The Purchaser shall promptly furnish the Company, and the Company shall promptly furnish the Purchaser, to the extent permitted by applicable Law, with copies of written communications received by it or its Subsidiaries from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated by this Agreement.

(d) Notwithstanding anything to the contrary in this Agreement, nothing in this Section 3.1 shall require the Purchaser, the Company or any of their respective Affiliates to (i) hold separate or divest or refrain from acquiring, investing in or otherwise dealing in any property, assets, facilities, business, or equity or (ii) commit on behalf of itself any of its Affiliates to any conduct remedies or any amendment, modification or termination of any existing, or entering into any new, contracts with any third parties.  In the event that any Governmental Entity conditions its approval of the transaction on any of the foregoing actions, and such party is unwilling, in its sole discretion, to take such action, notwithstanding any other provision contained herein or in the Certificate, the Purchaser shall be permitted to sell the Purchased Shares held by it to one or more third party purchasers reasonably acceptable to the Company, and to convey to such third party purchasers all of the rights, preferences and privileges that would have been held by the Purchaser upon approval by such Governmental Entity ((x) including the Preferred Voting and Conversion Features, but subject to receipt of any approval of any Governmental Entity required in connection with the acquisition of the Preferred

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Voting and Conversion Features by such third party purchaser but (y) excluding any Board of Directors election rights (or voting power with respect to such Board of Directors election rights but not, f or the avoidance of doubt the right to vote for directors on an “as-converted” basis, ) set forth in the Certificate).  The Company shall reasonably cooperate with the Purchaser in such sale process including allowing the potential third party purchasers t o conduct due diligence and meet with management, subject to any such third party purchaser executing a confidentiality agreement in a form reasonably acceptable to the Company.

Section 3.2 Negative Covenants . From the date of this Agreement through the Closing, the Company and its Subsidiaries shall not, without the prior written consent of the Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed):

(a) declare, or make payment in respect of, any dividend or other distribution upon any shares of capital stock of the Company;

(b) amend the Certificate of Incorporation or Bylaws in a manner that would adversely affect the powers, preferences and specials rights of the Preferred Stock; or

(c) authorize, issue or reclassify any capital stock, or debt securities convertible into capital stock, of the Company other than the authorization and issuance of (i) the Purchased Stock, (ii) the issuance of Common Stock issued as consideration for the Acquisition, and (iii) the issuance of Common Stock in respect of the exercise of Company Stock Awards outstanding as of the date of this Agreement or the issuance or grant of Common Stock or other securities in the ordinary course pursuant to the Plan.  

Section 3.3 Corporate Actions .

(a) Authorized Common Stock . At any time that any Preferred Stock is outstanding, the Company shall from time to time take all lawful action within its control to cause the authorized capital stock of the Corporation to include a sufficient number of authorized but unissued shares of Common Stock to satisfy the conversion requirements of all shares of Preferred Stock then outstanding (assuming increases in the Accreted Value (as defined in the Certificate) of such Preferred Stock pursuant to Section 3(b) of the Certificate through the fifth anniversary of the Closing Date and no other increase to the Accreted Value (as defined in the Certificate)). All shares of Common Stock delivered upon conversion of the Preferred Stock shall be newly issued shares or shares held in treasury by the Company, shall have been duly authorized and validly issued and shall be fully paid and nonassessable, and free of any Lien, except restrictions imposed by the Securities Act, the Certificate, Section 4.2 and any applicable state or foreign securities laws.

(b) Certificate . Prior to the Closing, the Company shall file in the office of the Secretary of State of the State of Delaware the Certificate in the form attached to this Agreement as Exhibit A , with such changes thereto as may be agreed to by the Purchaser and approved by the Committee.

(c) Certain Adjustments . If any occurrence since the date hereof until the Closing would have resulted in an adjustment to the Conversion Rate (as defined in the

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Certificate) pursuant to Section  8 of the Certificate if the Preferred Stock had been issued and outstanding since the date hereof, the Company shall adjust the Conversion Rate, effective as of the Closing, in the same manner as would have been requi red by Section  8 of the Certificate if the Preferred Stock had been issued and outstanding since the date hereof.

Section 3.4 Information Statement . As promptly as reasonably practicable following the date hereof , the Company shall file with the SEC in preliminary form an Information Statement on Schedule 14C.  The Company shall use commercially reasonable efforts to promptly provide responses to the SEC with respect to all comments received on such Information Statement from the SEC, and the Company shall cause the definitive Schedule 14C Information Statement to be mailed promptly after the date the SEC staff advises that it has no further comments thereon or that the Company may commence mailing the Information Statement.  

Section 3.5 Confidentiality . Each party to this Agreement will hold, and will cause its respective Affiliates and its and their Representatives to hold, in strict confidence, all non-public records, books, contracts, instruments, computer data and other data and information (collectively, “ Information ”) concerning the other party hereto and its respective Subsidiaries and Affiliates furnished to it by the other party or its Representatives pursuant to this Agreement, that certain Letter Agreement, dated March 30, 2017 between the Company and Carlyle Investment Management L.L.C  (except to the extent that such information was (1) previously known by such party from other sources, provided that such source was not known by such party to be bound by a contractual, legal or fiduciary obligation of confidentiality t o the other party, (2) in the public domain through no violation of this Section 3.5 by such party or (3) later lawfully acquired from other sources by the party to which it was furnished), and neither party hereto shall release or disclose such Information to any other person, except its Representatives and financing sources who need to know such Information, who are aware of the confidential nature of such Information and who have agreed to keep such Information strictly confidential. Notwithstanding the foregoing, each party to this Agreement may disclose Information to the extent that (1) disclosure to a regulatory authority is necessary or appropriate in connection with any necessary regulatory approval required to be obtained in connection with this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby or (2) disclosure is required by judicial or administrative process or by other requirement of law or the applicable requirements of any regulatory agency or relevant stock exchange.  The Purchaser (and any Affiliate or associate of the Purchaser to whom Preferred Stock or Common Stock is Transferred pursuant to Section 4.2 ) agrees to use any Information concerning the Company and the Company’s Subsidiaries solely for purposes of monitoring the Purchaser’s investment in the Company.  

Section 3.6 NYSE Listing of Shares . The Company shall file prior to the Closing Date a supplemental listing application with the NYSE to list the Common Stock issuable upon conversion of the Purchased Stock (assuming increases in the Accreted Value (as defined in the Certificate) of such Preferred Stock pursuant to Section 3(b) of the Certificate through the fifth anniversary of the Closing Date and no other increase to the Accreted Value (as defined in the Certificate)), which listing shall be subject to the expiration of the Schedule 14C Waiting Period.

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Section 3.7 State Securitie s Laws . Prior to the Closing, the Company shall use commercially reasonable efforts to (i) obtain all necessary permits and qualifications, if any, or secure an exemption therefrom, required by any state or country prior to the offer and sale of the  Prefe rred Stock and (ii) cause such authorization, approval, permit or qualification to be effective as of the Closing and as of any conversion of Preferred Stock.

Section 3.8 Acquisition Agreement .  At or prior to the Closing, without the prior written consent of the Purchaser (which shall not be unreasonably withheld, conditioned or delayed), the Company shall not make or agree to make any amendments, supplements, waivers or other modifications to any provision of the Acquisition Agreement in a manner that would be materially adverse to the Company.  For the avoidance of doubt, except as otherwise expressly provided herein, any reference to the transactions contemplated by this Agreement shall not include the Acquisition.

ARTICLE IV

ADDITIONAL AGREEMENTS

 

Section 4.1 Standstill . Until the date that is 180 days after the date on which the holders of Preferred Stock cease to have the right to elect a director to the Board of Directors pursuant to the Certificate, each Purchaser Party shall not, without the prior approval of the Board of Directors, directly or indirectly, through its Subsidiaries or any other Persons, or in concert with any Person, or as a “group” (as defined in Section 13 of the Exchange Act) with any Person:

(a) purchase, offer to purchase, or agree to purchase or otherwise acquire “beneficial ownership” (as defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of any Common Stock, or any securities convertible or exchangeable into Common Stock, excluding any shares of Common Stock or other securities acquired pursuant to a conversion of the Preferred Stock, or otherwise acquired pursuant to the Transaction Documents;

(b) make, or in any way participate in, any solicitation of proxies to vote, or seek to advise or influence any person with respect to the voting of, any voting securities of the Company or any of its Subsidiaries, or seek or propose to influence, advise, change or control the Board of Directors, management, policies, affairs or strategy of the Company by way of any public communication or other communications to security holders intended for such purpose;

(c) make a proposal for, or offer of (with or without conditions) any acquisition of or extraordinary transaction involving the Company or any of the Company’s Subsidiaries or any of their respective securities or assets;

(d) effect or seek to effect (including, without limitation, by entering into discussions, negotiations, agreements or understandings with any third person), offer or propose (whether publicly or otherwise) to effect, or cause or participate in, or in any way assist or facilitate any other person to effect or seek, offer or propose (whether public or otherwise) to effect or participate (except as a holder of Common Stock or Preferred Stock) in a merger, consolidation, division, acquisition or exchange of substantially all assets or equity, change of

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control transaction, recapitalization, restructuring, liquidation or similar transaction involving the Company or any of its Subsidiaries; or

(e) enter into any discussions, negotiations, arrangements or understandin gs with or form a group with, any third party in connection with such third party’s taking, planning to take, or seeking to take any of the actions prohibited by clauses (a) through (d) of this Section 4.1 or otherwise act, alone or in concert with others, to seek to control or influence the Board of Directors or the management or policies of the Company, including its Subsidiaries;

(f) provided , however , that nothing in this Section 4.1 will limit  (i) any Purchaser Party’s ability to vote or Transfer (subject to Section 4.2 ) its Common Stock or Preferred Stock or otherwise exercise rights under its Preferred Stock; (ii) the ability of any director elected by the holders of Preferred Stock pursuant to the Certificate to vote or otherwise exercise its fiduciary duties as a member of the Board of Directors; (iii) the ability of any director elected by the holders of Preferred Stock pursuant to the Certificate to seek to participate fully as a director on the Board of Directors, (iv) the ability of the Purchaser or the holders of Preferred Stock to exercise their rights to elect directors pursuant to the Certificate; or (v) the ability of the Purchaser to exercise its participation rights pursuant to Section 4.4 .

(g) provided, further , that, with respect to the Purchaser, the Purchaser shall not be deemed to have taken any of the actions described in this Section 4.1 solely due to the taking of any such action by NGP or any of NGP’s Affiliates (provided, for the avoidance of doubt, that NGP is not an Affiliate of the Purchaser).  

Section 4.2 Transfer Restrictions .

(a) Except as otherwise permitted in this Agreement, including Section 4.2(b) , until the 12-month anniversary of the Closing Date, the Purchaser Parties will not (i) Transfer any Preferred Stock or (ii) make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a short sale of or the purpose of which is to offset the loss which results from a decline in the market price of, any shares of Preferred Stock or Common Stock, or otherwise establish or increase, directly or indirectly, a put equivalent position, as defined in Rule 16a-1(h) under the Exchange Act, with respect to any of the Preferred Stock, the Common Stock or any other capital stock of the Company (any such action, a “ Hedge ”).

(b) Notwithstanding Section 4.2(a) , the Purchaser Parties shall be permitted to Transfer any portion or all of their Preferred Stock or Common Stock at any time under the following circumstances:

(i) Transfers to any Affiliate of such Purchaser Party (the recipient of the shares so Transferred, a “ Permitted Transferee ”), but only if the transferee agrees in writing prior to such Transfer for the express benefit of the Company (in form and substance reasonably satisfactory to the Company and with a copy thereof to be furnished to the Company) to be bound by the terms of this Agreement and if the transferee and the transferor agree for the express benefit of the Company that the transferee shall Transfer the Preferred Stock (or any

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Equity Securities iss ued in respect thereof) so Transferred back to the transferor at or before such time as the transferee ceases to be a Permitted Transferee of the transferor);

(ii) Transfers in connection with a Change of Control (as defined in the Certificate) which has been approved by the Board of Directors, has not  been initiated by such Purchaser Party (or its Affiliates) and pursuant to which the Preferred Stock is converted into cash or equity securities; and

(c) Notwithstanding Sections 4.2(a) and (b) , the Purchaser Parties will not at any time, directly or knowingly indirectly (without the prior written consent of the Board of Directors which, in the case of any 10% Entity, shall not be unreasonably withheld) Transfer any Preferred Stock or Common Stock issued upon conversion of the Preferred Stock to a Company Competitor or a 10% Entity.

(d) Notwithstanding Sections 4.2(a) , (b) or (c) , (i) nothing therein shall prohibit any Purchaser Party from Transferring all or any portion of its Preferred Stock or Common Stock issued upon conversion thereof (A) to NGP or any of its Subsidiaries or (B) as approved in writing by the Board of Directors, (ii) nothing in Sections 4.2(c) shall restrict any Transfer of Common Stock into the public market pursuant to an Underwritten Offering (as defined in the Registration Rights Agreement) or otherwise in an open market transaction and (iii) nothing in Sections 4.2(a)(i) or (c) shall restrict any Transfer of Common Stock in connection with, and to the extent of, the exercise of such Purchaser Party’s rights to participate in any Underwritten Offering that it is then eligible to participate in pursuant to the Registration Rights Agreement or to exercise their rights to demand registration not involving a sale pursuant to the Registration Rights Agreement.  

Section 4.3 Legend .

(a) The Purchaser agrees that all certificates or other instruments representing the Preferred Stock or Common Stock subject to this Agreement will bear a legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OWNERSHIP SET FORTH IN A PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 10, 2017, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER AND WILL BE PROVIDED, WITHOUT COST, UPON WRITTEN REQUEST TO THE SECRETARY.

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(b) Upon request of the Purchaser, upon receipt by the Company of an opinion of counsel rea sonably satisfactory to the Company to the effect that such legend is no longer required under the Securities Act and applicable state laws, the Company shall promptly cause the first paragraph of the legend to be removed from any certificate for any Prefe rred Stock or Common Stock to be transferred in accordance with the terms of this Agreement and the second paragraph legend shall be removed upon the expiration of such transfer and other restrictions set forth in this Agreement (and, for the avoidance of doubt, immediately prior to any termination of this Agreement). The Purchaser acknowledges that the Preferred Stock and Common Stock issuable upon conversion of the Preferred Stock have not been registered under the Securities Act or under any state securi ties laws and agrees that it will not sell or otherwise dispose of any of the Preferred Stock or Common Stock issuable upon conversion of the Preferred Stock, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws.

(c) In the event that the Preferred Stock or the Common Stock are uncertificated, the Company shall give notice of such legend in accordance with applicable Law.

Section 4.4 Participation .  

(a) For the purposes of this Section 4.4, “ Excluded Stock ” shall mean (i) equity securities issued by the Company as a stock dividend, or upon any subdivision or split-up of the outstanding shares of capital stock, (ii) the issuance of equity securities (including upon exercise of options) to directors, employees or consultants of the Company pursuant to a stock option plan, restricted stock plan or other similar plan approved by the Board of Directors, (iii) the issuance of equity securities in connection with bona fide acquisitions of securities (other than securities of the Company or any non-wholly-owned Company Subsidiary), or any assets of another Person or business of another Person (other than solely for cash), (iv) securities issued in a bona fide public offering pursuant to a registration under the Securities Act, or (v) securities issued pursuant to the conversion, exercise or exchange of the Preferred Stock. For the avoidance of doubt, any securities issued or issuable by the Company in connection with the transactions contemplated by the Acquisition Agreement or the Common Stock Issuance Agreement shall be “Excluded Stock.”

(b) If after the Closing, and for so long as the holders of Preferred Stock are entitled to elect a member of the Board of Directors under the Certificate, the Company proposes to issue equity securities of any kind to NGP (the term “equity securities” shall include for these purposes any warrants, options or other rights to acquire Common Stock or any other class of capital stock of the Company), other than Excluded Stock (a “ Qualifying Issuance ”), then, the Company shall:

(1) give written notice to the Purchaser (no less than twenty (20) business days prior to the closing of such Qualifying Issuance or if the Company reasonably expects such Qualifying Issuance to be completed in less than twenty (20) business days, such shorter period, which shall be as long as commercially practicable (and in any event no less than ten (10) business days), required for the Purchaser and (subject to Section 4.2 ) its Affiliates to participate in such issuance) setting forth in reasonable detail (A) the designation and all of the terms and provisions of the securities proposed to be issued (the

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“ Proposed Securities ”), including, where applicable, the voting powers, preferences and relat ive participating, optional or other special rights, and the qualification, limitations or restrictions thereof; (B) the price and other terms of the proposed sale of such securities; (C) the amount of such securities proposed to be issued; and (D) such ot her information as the Purchaser may reasonably request in order to evaluate the proposed issuance; and

(2) offer to issue and sell to the Purchaser, on such terms as the Proposed Securities are issued and upon full payment by the Purchaser, the percentage of the Proposed Securities determined by dividing (A) the number of shares of Common Stock the Purchaser Beneficially Owns by (B) the total number of shares of Common Stock then outstanding (each, as determined assuming conversion in full of all shares of Preferred Stock then convertible into shares of Common Stock and taking into account the Common Stock held by the Purchaser), times one-hundred (100).

(c) The Purchaser must exercise its purchase rights hereunder within fifteen (15) business days after receipt of such notice from the Company, or if the Company reasonably expects such issuance to be completed in less than twenty (20) business days, such shorter period, which shall be as long as practicable (and in any event no less than ten (10) business days after receipt of notice from the Company), required for the Purchaser and its Affiliates to participate in such Qualifying Issuance. To the extent that the Company offers two or more securities in units to the other participants in the Qualifying Issuance, the Purchaser must purchase such units as a whole and will not be given the opportunity to purchase only one of the securities making up such unit. The closing of the exercise of such subscription right shall take place simultaneously with the closing of the sale of the Proposed Securities giving rise to such subscription right. The obligation of the Company to provide the notice described in Section 4.4(b) shall be subject to the Purchaser’s written agreement to confidentiality and restrictions on trading terms reasonably acceptable to the Company. The failure of the Purchaser to agree to such terms within ten (10) days after the date of receipt of the Company’s notice as described in Section 4.4(b) shall constitute a waiver of the Purchaser’s rights under this Section 4.4 in respect of any such Qualifying Issuance.

(d) Upon the expiration of the offering period described above, the Company will be free to sell such Proposed Securities that the Purchaser has not elected to purchase to NGP during the forty-five (45) days following such expiration on economic terms no more favorable to, and on such other non-economic terms and conditions no more favorable in the aggregate to, the purchasers thereof than those offered to the Purchaser in the notice delivered in accordance with Section 4.4(b) . Any Proposed Securities offered or sold by the Company to NGP after such 45-day period must be reoffered to the Purchaser pursuant to this Section 4.4 .

(e) The election by the Purchaser not to exercise its subscription rights under this Section 4.4 in any one instance shall not affect its rights with respect to any other instance or its right as to any subsequent proposed Qualifying Issuance. Any sale of such securities by the Company to NGP without first giving the Purchaser the rights described in this Section 4.4 shall be void and of no force and effect.

Section 4.5 Tax Matters .

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(a) The Company and its paying agent shall be entitled to withhold taxes on all payments or deemed payments and constructive distributions, on the Preferred Stock or Common Stock or other securities issued upon conversion of the Preferred Stock to the extent required by law. The Company and its paying agent shall be entitled to satisfy any required withholding tax on non-cash payments (including deemed payments) through a sal e of all or a portion of the shares the Purchaser receives as a dividend, from cash dividends subsequently paid or credited to the Purchaser or through a sale of all or a portion of the Common Stock or other securities the Purchaser receives upon a convers ion of the Preferred Stock or otherwise owns.  On or prior to the Closing, the Purchaser (or any transferee) shall deliver to the Company or its paying agent a duly executed, valid, accurate and properly completed Internal Revenue Service Form W-9 certifyi ng as to a complete exemption from backup withholding.

(b) Absent a change in law (including Internal Revenue Service  published administrative practice) or a contrary determination (as defined in Section 1313(a) of the Code), the Purchaser and the Company agree not to treat the Preferred Stock (based on the terms as set forth in the Certificate) as “preferred stock” within the meaning of Section 305 of the Code, and U.S. Treasury Regulations Section 1.305-5 for United States federal income tax and withholding tax purposes and shall not take any position inconsistent with such treatment.

(c) During any taxable year in which any shares of the Preferred Stock are or have been outstanding: (i) the Company shall not declare or pay any dividends or other distributions in cash or property with respect to its capital stock (other than dividends or other distributions of cash or property paid on the Common Stock or the Preferred Stock); (ii) the Company shall not authorize, issue or reclassify any shares of any class or series of stock (other than authorizations and issuances of any additional shares of Common Stock or additional shares of Preferred Stock); (iii) neither the Company nor any of its Subsidiaries shall issue any stock or debt instrument that is convertible or exchangeable into shares of its capital stock (or that is accompanied by options or warrants to purchase such stock); and (iv) the Company shall not redeem, repurchase, recapitalize or acquire shares of its capital stock in a transaction that would be treated, in whole or in part, as a dividend for United States federal income tax purposes (unless such redemption, repurchase, recapitalization or acquisition, based on the Company’s reasonable determination, is an isolated transaction within the meaning of U.S. Treasury Regulations Section 1.305-3(b)(3)); provided that, notwithstanding anything herein to the contrary, the foregoing covenants and restrictions in Section 4.5(b) and Section 4.5(c) shall not apply:  (i) with respect to any transactions undertaken in connection with a Change in Control (as defined in the Certificate), (ii) after such Change in Control shall have occurred, or (iii) if the Purchaser ceases to Beneficially Own less than two shares of Preferred Stock.

(d) The Company shall pay any and all do cumentary, stamp or similar issue or transfer tax due on (x)  the issue of the Preferred Stock and (y) the issue of shares of Common Stock or Preferred Stock, as applicable, upon conversion of the Preferred Stock. However, in the case of conversion of Preferred Stock, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or Preferred Stock in a name other than that of the holder of the shares to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

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(e) The Company shall provi de any information reasonably requested by the Purchaser necessary to enable the Purchaser to comply with its United States federal income tax reporting obligations, including but not limited to a determination of the amount of the Company’s current and ac cumulated earnings and profits in any taxable year where such determination is relevant to determining the amount (if any) of any distribution or deemed distribution received by the Purchaser from the Company that is properly treated as a dividend within t he meaning of Section 316 of the Code.

ARTICLE V

MISCELLANEOUS

 

Section 5.1 Survival; Limitations on Liability . The representations and warranties of the parties contained in this Agreement shall survive until the first anniversary of the Closing, except (i) the representations and warranties contained in Sections 2.1(a) , 2.1(b) , 2.1(c)(i) and 2.1(e) , which will survive indefinitely and (ii) the representations and warranties contained in Sections 2.2(a) and 2.2(b)(i) , which will survive indefinitely. All of the covenants or other agreements of the parties contained in this Agreement shall survive until fully performed or fulfilled, unless and to the extent that non-compliance with such covenants or agreements is waived in writing by the party entitled to such performance.  The Company shall not be liable hereunder to the Purchaser or any other Person for any punitive, exemplary, treble, special, indirect, incidental or consequential damages (including any loss of earnings or profits).

Section 5.2 Expenses . Each of the parties to this Agreement will bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated pursuant to this Agreement; provided, however , that, except as set forth in Section 4.7 that the Company shall, upon the Closing, reimburse the Purchaser for its reasonable out-of-pocket expenses incurred in connection with due diligence, the negotiation and preparation of the Transaction Documents and undertaking of the transactions contemplated pursuant to the Transaction Documents (including fees and expenses of attorneys and accounting and financial advisers in connection with the transactions contemplated pursuant to this Agreement), up to a maximum amount of $150,000.

Section 5.3 Amendment; Waiver . No amendment or waiver of any provision of this Agreement will be effective with respect to any party unless made in writing and signed by an officer of a duly authorized representative of such party. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The conditions to each party’s obligation to consummate the Closing are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. No waiver of any party to this Agreement, as the case may be, will be effective unless it is in a writing signed by a duly authorized officer of the waiving party that makes express reference to the provision or provisions subject to such waiver. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

Section 5.4 Counterparts . For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to

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be an original instrument, and all such counterparts will together constit ute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile or other means of electronic transmission and such facsimiles or other means of electronic transmission will be deemed as sufficient as if actual signature pag es had been delivered.

Section 5.5 Governing Law; Submission to Jurisdiction . This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether in the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the Court of Chancery located in the State of Delaware, or in the event (but only in the event) that such court shall not have subject matter jurisdiction, any federal court of the United States or other state court located in the State of Delaware, for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby. Each party to this Agreement hereby irrevocably waives any defense in any such action, suit or proceeding that it is not personally subject to the jurisdiction of the abovenamed courts and to the fullest extent permitted by applicable law, that the action, suit or proceeding in any such court is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  

Section 5.6 WAIVER OF JURY TRIAL . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 5.7 Notices . Any notice, request, instruct ion or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally or by telecopy, electronic mail or facsimile, upon confirmation of recei pt (it being understood that the parties agree to provide confirmation of receipt immediately upon the receipt of any notice by telecopy, electronic mail or facsimile), (b) on the first business day following the date of dispatch if delivered by a recogniz ed next-day courier service, or (c) on the third business day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. The Purchaser agrees that any notice required or permitted by this Agreement or under the Certificate of Incorporation (including the Certificate), the Bylaws, the General Corporation Law of the State of Delaware or other applicable law may be given to the Purchaser at the address or by means of electronic transmission set forth below.  The Purchaser further agrees to notify the Company of any change to the Purchaser’s electronic mail address, and further agrees that the provision of such notice to the Company shall constitute the consent of the Purchaser to receive notice at such electronic mail address.  In the event that the Company is unable to deliver notice to the Purchaser at the electronic mail address so provided by the Purchaser, the Purchaser shall, within two (2) business days after a request by the Company, provide the Company with a valid electronic mail address to which the Purchaser consents to receive notice at such electronic mail address. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

(a) If to the Purchaser:

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The Carlyle Group

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

Attn:  Martin Sumner and Gregory Nikodem

Fax: (202) 347-1818

with a copy to (which copy alone shall not constitute notice):

Latham & Watkins LLP

555 Eleventh Street, N.W.

Suite 1000

Washington, D.C. 20004

Attn:  David Dantzic and Brandon Bortner

 

(b) If to the Company:

WildHorse Resource Development Corporation
9805 Katy Freeway, Suite 400
Houston, Texas 77024
Attn: Kyle N. R oane
Fax: (713) 568-4910

with a copy to (which copy alone shall not constitute notice):

Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
Attn: Douglas E. McWilliams
Fax: (713) 758-2222

Section 5.8 Entire Agreement . This Agreement (including the Exhibits hereto) constitute the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, among the parties, with respect to the subject matter hereof.

Section 5.9 Assignment . Neither this Agreement, nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties, provided , however , that (a) the Purchaser may assign its rights, interests and obligations under this Agreement, in whole or in part, to one or more Affiliates that are “United States persons” within the meaning of Section 7701(a)(30) of the Code in accordance with this Agreement, including Section 4.2(b), and (b) in order for such assignment to be effective, the assignee shall agree in writing to be bound by the provisions of this Agreement; provided , that no such assignment will relieve the Purchaser of its obligations hereunder prior to the Closing.

Section 5.10 Interpretation; Other Definitions . Wherever required by the context of this Agreement, the singular shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement,

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document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified from time to time. All ar ticle, section, paragraph or clause references not attributed to a particular document shall be references to such parts of this Agreement, and all exhibit, annex and schedule references not attributed to a particular document shall be references to such e xhibits, annexes and schedules to this Agreement. In addition, the following terms are ascribed the following meanings:

(a) the word “ or ” is not exclusive;

(b) the words “ including ,” “ includes ,” “ included ” and “ include ” are deemed to be followed by the words “without limitation”;

(c) the terms “ herein ,” “ hereof ” and “ hereunder ” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision;

(d) the term “ business day ” means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other governmental action to close; and

(e) the term “ person ” has the meaning given to it in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

(f) “ 10% Entity ” means any person that, together with its Affiliates, after giving effect to a proposed Transfer, would own greater than 10% of the then outstanding Common Stock (determined on a fully diluted, as converted basis).

(g) “ Affiliate ” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person; provided , however , that (a) portfolio companies in which the Purchaser or its Affiliates have an investment (unless any such portfolio company has received Information from any Purchaser Party) or (b) the Company, any of its Subsidiaries, or any of the Company’s other controlled Affiliates, in each case, will not be deemed to be Affiliates of the Purchaser for purposes of this Agreement. For purposes of this agreement, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management or policies of such person, whether through the ownership of voting securities, by contract or otherwise.

(h) “ as-converted basis ” means, with respect to the outstanding shares of Common Stock, all outstanding shares of Common Stock calculated on a basis in which all shares of Common Stock issuable upon conversion of the Preferred Stock that is then outstanding whether or not the Preferred Stock is then convertible, exchangeable or exercisable by the holder, are assumed to be then outstanding.

(i) “ Beneficial Ownership ” or “ Beneficially Own ” shall have the meaning given such term in Rule 13d-3 under the Exchange Act and a person’s Beneficial Ownership of securities shall be calculated in accordance with the provisions of such Rule; provided , however ,

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that for purposes of determining any person’s Beneficial Ownership, such person shall be deemed to be the Beneficial Owner of any Equity Securities which may be acquired by such person, whether within sixty (60) days or thereafter, upon the conversion, exchange, redemption or exercise of any warrants, options, rights or other securities issued by the Company or any Company Subsidiary.

(j) “ Committee ” means a duly authorized committee of the Board of Directors consisting of independent directors.

(k) “ Company Competitor ” shall mean (i) any Upstream Competitor identified in writing to the Purchaser by the Company prior to the Closing Date, and (ii) on and after the Closing Date, any Upstream Competitor identified in writing to the Purchaser at the direction of the Board of Directors acting in good faith. “ Upstream Competitor ” shall mean (i) any Person whose primary business is oil and gas exploration and production activities and who owns or operates upstream oil and gas properties that are located within 100 miles of any oil and gas properties owned or operated by the Company and (ii) any private equity fund that controls any Upstream Competitor.

(l) “ Company Material Adverse Effect ” shall mean, with respect to the Company, any Effect that, individually or taken together with all other Effects that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, is or is reasonably likely to be materially adverse to the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole; provided , however , that in no event shall any of the following occurring after the date hereof, alon e or in combination, be deemed to constitute, or be taken into account in determining whether a Company Material Adverse Effect has occurred: (A)  any change in the Company’s stock price or trading volume, (B) any failure by the Company to meet revenue or e arnings projections, (C) any Effect that results from changes affecting the oil and gas industry generally, or the United States economy generally, or any Effect that results from changes affecting general worldwide economic or capital market conditions, i n each case except to the extent such changes disproportionately affect the Company and its Subsidiaries, taken as a whole, relative to other oil and gas exploration and production  companies operating in the United States, (D) any Effect caused by the announcement or pendency of the Acquisition, or the identity of the Company or any of its Affiliates as the acquirer in connection with the Acquisition (including any litigation arising from the Acquisition Agreement or the transactions contemplated by the Ac quisition Agreement), (E) any Effect caused by the announcement or pendency of the transactions contemplated by this Agreement, or the identity of the Purchaser or any of its Affiliates as the purchasers in connection with the transactions contemplated by this Agreement (including any litigation arising from this Agreement or the transactions contemplated by this Agreement), (F)  acts of war or terrorism or natural disasters, (G) the performance of this Agreement, the Acquisition Agreement and the transactio ns contemplated hereby and thereby, including compliance with the covenants set forth herein and therein, or any action taken or omitted to be taken by the Company at the request or with the prior consent of the Purchaser, (H) in and of itself, the commencement of any suit, action or proceeding ( provided that such exclusion shall not apply to any underlying fact, event or circumstance that may have caused or contributed to such action, suit or proceeding), or any liability, sanction or penalty arising from any governmental proceeding or investigation that was commenced prior to the date of this

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Agreement and disclosed by the Company in this Agreement or in a correspondingly identified schedule attached hereto, (I)  changes in GAAP or other accounting standard s (or any interpretation thereof) or (J)  changes in any Laws or other binding directives issued by any Governmental Entity or interpretations or enforcement thereof; provided , however , that (x)  the exceptions in clause (A) and (B)  shall not prevent or othe rwise affect a determination that any Effect underlying such change or failure has resulted in, or contributed to, a Company Material Adverse Effect, (y)  without limiting clause (C), with respect to clauses (F), (I) and (J) , such Effects, alone or in combi nation, may be deemed to constitute, or be taken into account in determining whether a Company Material Adverse Effect has occurred, but only to the extent such Effects disproportionately affect the Company and its Subsidiaries, taken as a whole, relative to other oil and gas exploration and production companies operating in the United States.

(m) “ Credit Agreement ” means that certain Credit Agreement, dated as of December 19, 2016, among the Company as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto.  

(n) “ Effect ” shall mean any change, event, effect or circumstance.

(o) “ Existing Registration Rights Holders ” means, collectively, WHR Holdings, LLC, a Delaware limited liability company, Esquisto Holdings, LLC, a Delaware limited liability company, WHE AcqCo Holdings, LLC, a Delaware limited liability company, and NGP XI US Holdings, L.P., a Delaware limited partnership.  

(p) “ Equity Securities ” means the equity securities of the Company, including shares of Common Stock and Company Preferred Stock.  

(q) “ Knowledge of the Company ” means the actual knowledge of one or more of Jay Graham, Andrew J. Cozby and Kyle Roane.

(r) “ Law ” means any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, order, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity, including without limitation, any international, foreign, national, state, provincial, regional, or local authority, relating to pollution, the protection of occupational health and workplace safety, the environment, or natural resources, or to use, handling, storage, manufacturing, transportation, treatment, discharge, disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants applicable to such entity, which compliance includes, without limitation, obtaining, maintaining and complying with all permits and authorizations and approvals required by such to conduct its business.

(s) “ Lien ” means any mortgage, pledge, security interest, encumbrance, lien, charge or other restriction of any kind, whether based on common law, statute or contract.

(t) “ NGP ” means NGP Energy Capital Management, L.L.C. and any funds managed by NGP Energy Capital Management, L.L.C and any of their respective Subsidiaries.

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(u) “ NYSE Listing Approval ” means approval of the shares of Common Stock issuable upon conversion of the Preferred Stock for listing on the NYSE.  

(v) “ Purchaser Parties ” means the Purchaser and each Permitted Transferee of the Purchaser to whom shares of Preferred Stock or Common Stock are transferred pursuant to Section 4.2(b)(i) .

(w) “ Representatives ” means, with respect to any person, such person’s directors, officers, employees, agents, consultants and advisors.

(x) “ Schedule 14C Action ” means, collectively, (i) the filing of an Information Statement on Schedule 14C relating to the transaction contemplated hereby with the SEC and the receipt from the SEC of notice that it has no comments thereon, (ii) the mailing of such Information Statement to the Company’s shareholders and (iii) the expiration of the 20 calendar day waiting period under Rule 14c-2(b) (such period, the “ Schedule 14C Waiting Period ”).  

(y) “ Transaction Documents ” means this Agreement and the Registration Rights Agreement.

(z) “ Transfer ” means by any person means directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Equity Securities Beneficially Owned by such person or of any interest (including any voting interest) in any Equity Securities Beneficially Owned by such person. For the avoidance of doubt, a transfer of control of the direct or indirect Beneficial Owner of Equity Securities is a Transfer of such Equity Securities for purposes of this Agreement; provided , however , that, notwithstanding anything to the contrary in this A greement, a Transfer shall not include (i) the conversion of one or more shares of Preferred Stock into Common Stock pursuant to the terms of the Certificate, (ii) the redemption or other acquisition of Common Stock or Preferred Stock by the Company or (iii) the transfer (other than by the Purchaser or an Affiliate of the Purchaser) of any limited partnership interests or other equity interests in the Purchaser (or any direct or indirect parent entity of the Purchaser), in each case, unless the transferor or transferee were formed for the purpose of holding any Equity Securities; provided , that if any transferor or transferee referred to in this clause (iii) ceases to be controlled by the Person controlling such Person immediately prior to such transfer, such event shall be deemed to constitute a “ Transfer ”.

Section 5.11 Captions . The article, section, paragraph and clause captions herein are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof.

Section 5.12 Severability . If any provision of this Agreement or the application thereof to any person (including the officers and directors the parties hereto) or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances

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other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and shall in no way be a ffected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith i n an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.

Section 5.13 No Third Party Beneficiaries . Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person other than the parties hereto (and their permitted assigns), any benefit right or remedies.

Section 5.14 Public Announcements . Subject to each party’s disclosure obligations imposed by law or regulation or the rules of any stock exchange upon which its securities are listed, each of the parties hereto will cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement and the other Transaction Documents and any of the transactions contemplated by this Agreement and the other Transaction Documents, and neither the Company nor the Purchaser will make any such news release without first consulting with the other, and, in each case, also receiving the other’s consent (which shall not be unreasonably withheld, conditioned or delayed) and each party shall coordinate with the party whose consent is required with respect to any such news release or public disclosure.

Section 5.15 Specific Performance . The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement and the transactions contemplated hereby were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that, without the necessity of posting bond or other undertaking, the parties shall be entitled to specific performance of the terms hereof, this being in addition to any other remedies to which they are entitled at law or equity, and in the event that any action or suit is brought in equity to enforce the provisions of this Agreement, no party will allege, and each party hereby waives the defense or counterclaim, that there is an adequate remedy at law.

Section 5.16 Termination . Subject to Section 5.1 , this Agreement will survive the Closing so long as the Purchaser is entitled to designate at least one director pursuant to the Certificate and, in any event, shall survive so long as any shares of Preferred Stock are outstanding.  Prior to the Closing, this Agreement may only be terminated:

(a) by mutual written agreement of the Company and the Purchaser;

(b) by the Company or the Purchaser with respect to itself, upon written notice to the other party in the event that the Closing shall not have occurred on or before September 30, 2017; provided , however that the right to terminate this Agreement pursuant to this Section 5.16(b)  shall not be available to any party whose failure to fulfill any obligations under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date;

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(c) by either the Company or the Purchaser as to itself if a United States court of competent jurisdiction shall permanently enjoi n the consummation of the Purchase and such injunction shall be final and non-appealable;

(d) without any action by any party, if the Acquisition Agreement is terminated in accordance with its terms at any time prior to the Closing;

(e) by notice given by the Company to the Purchaser if there have been one or more inaccuracies in or breaches of one or more representations, warranties, covenants or agreements made by the Purchaser in this Agreement such that the conditions in Section 1.3(c)(i) or Section 1.3(c)(ii) would not be satisfied and which have not been cured by the Purchaser thirty (30) days after receipt by the Purchaser of written notice from the Company requesting such inaccuracies or breaches to be cured; or

(f) by notice given by the Purchaser to the Company, if there have been one or more inaccuracies in or breaches of one or more representations, warranties, covenants or agreements made by the Company in this Agreement such that the conditions in Section 1.3(b)(i) or 1.3(b)(ii) would not be satisfied and which have not been cured by the Company within thirty (30) days after receipt by the Company of written notice from the Purchaser requesting such inaccuracies or breaches to be cured.

Section 5.17 Effects of Termination . In the event of any termination of this Agreement in accordance with Section 5.16 , no party (or any of its Affiliates) shall have any liability or obligation to the other party (or any of its Affiliates) under or in respect of this Agreement, except to the extent of (A) any liability arising from any breach by such party of its obligations of this Agreement arising prior to such termination and (B) any fraud or intentional or willful breach of this Agreement. In the event of a ny such termination, this Agreement shall become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, in each case, except (x)  as set forth in the preceding sentence and (y) that the provisions of Section 3.5 , Sections 5.2 through 5.15 and Section 5.18 shall survive the termination of this Agreement.

Section 5.18 Non-Recourse . This Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto, including entities that become parties hereto after the date hereof or that agree in writing for the benefit of the Company to be bound by the terms of this Agreement applicable to the Purchaser, and no former, current or future equityholders, controlling persons, directors, officers, employees, agents or Affiliates of any party hereto or any former, current or future equityholder, controlling person, director, officer, employee, general or limited partner, member, manager, agent or Affiliate of any of the foregoing (each, a “ Non-Recourse Party ”) shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, the transactions contemplated hereby or in respect of any representations made or alleged to be made in connection herewith. Without limiting the rights of any party against the other parties hereto, in no event shall any party or any of its Affiliates seek to enforce this

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Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from, any Non-Recourse Party.

 

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first herein above written.

 

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

 

By:

/s/ Jay C. Graham

Name:

Jay C. Graham

Title:

Chief Executive Officer

 

 

PURCHASER:

 

CP VI EAGLE HOLDINGS, L.P.

 

By:  TC Group VI S1, L.P., its general partner

 

 

By:

/s/ Martin W. Sumner

Name:

Martin W. Sumner

Title:

Managing Director

 

 

 

 

[Signature Page to Preferred Stock Purchase Agreement]

 

 

EXHIBIT A

Form of Series A PERPETUAL Convertible
Preferred Stock Certificate of Designations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A-1

 

WILDHORSE RESOURCE DEVELOPMENT CORPORATION
_______________________

CERTIFICATE OF DESIGNATIONS

Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
_______________________

6.00% SERIES A PERPETUAL CONVERTIBLE PREFERRED STOCK

(Par Value $0.01 Per Share)

WildHorse Resource Development Corporation (the “ Corporation ”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ DGCL ”), hereby certifies that, pursuant to the authority expressly granted to and vested in the Board by the Amended and Restated Certificate of Incorporation of the Corporation (as so amended and as further amended from time to time in accordance with its terms and the DGCL, the “ Certificate of Incorporation ”), which authorizes the Board, by resolution, to set forth the designation, powers, preferences and relative, participating, optional and other special rights, if any, and the qualifications, limitations and restrictions thereof, in one or more series of up to 50,000,000 shares of preferred stock, par value $0.01 per share (the “ Preferred Stock ”), and in accordance with the provisions of Section 151 of the DGCL, the Board duly adopted on [●], 2017 the following resolution, which resolution remains in full force and effect on the date hereof:

RESOLVED , that pursuant to the authority granted to and vested in it, the Board hereby creates a new series consisting of 500,000 shares of Preferred Stock, designated 6.00% Series A Perpetual Convertible Preferred Stock, and hereby fixes the powers, preferences and relative, participating, optional and other special rights, if any, and the qualifications, limitations and restrictions thereof, of such series of Preferred Stock as set forth in this certificate of designations (this “ Certificate of Designations ”):

1. General .

(a) There shall be created from the 50,000,000 shares of Preferred Stock of the Corporation authorized to be issued pursuant to the Certificate of Incorporation, a series of Preferred Stock designated as “6.00% Series A Perpetual Convertible Preferred Stock” par value $0.01 per share (the “ Series A Preferred Stock ”), and the authorized number of shares of Series A Preferred Stock shall be 500,000. Shares of Series A Preferred Stock that are purchased or otherwise acquired by the Corporation, or that are converted into shares of Common Stock, shall be cancelled and shall revert to authorized but unissued shares of Series A Preferred Stock.

(b) The Series A Preferred Stock, with respect to dividend rights and rights upon the liquidation, winding-up or dissolution of the Corporation, ranks: (i) senior to all Junior Stock; (ii) on a parity with all Parity Stock; (iii) junior to all Senior Stock; and (iv) junior to existing and future indebtedness and liabilities of the Corporation.

 

 

(c) The Series A Preferred Stock has no maturity date and (except as provided in Section 4 in connection with a Change of Control) is not mandatorily redeemable (pursuant to a sinking fund obligation or otherwise) or redeemable at the option of the Holders.

2. Definitions .   As used herein, the following terms shall have the following meanings:

(a) “ 10% Entity ” means any Person that, together with its Affiliates, after giving effect to a proposed Transfer, would own greater than 10% of the then outstanding Common Stock, on an as-converted basis.

(b) “ 14C Expiration Date ” shall mean the date immediately following the expiration of the 20 calendar day period commencing on the stated date of distribution to the Corporation’s stockholders in accordance with Rule 14c-2 of Regulation 14C promulgated under the Exchange Act of a definitive Information Statement on Schedule 14C filed by the Corporation with the SEC relating to the issuance of the Series A Preferred Stock .

(c) “Accreted Value” shall mean, with respect to each share of Series A Preferred Stock, the Initial Liquidation Value as the same may be increased pursuant to Section 3 .

(d) “ Affiliate ” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with, such other Person; provided , however , that the Corporation, any of its Subsidiaries, or any of the Corporation’s other controlled Affiliates, will not be deemed to be Affiliates of any Holder for purposes of this Certificate of Designations. For purposes of this Certificate of Designations, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management or policies of such person, whether through the ownership of voting securities, by contract or otherwise. For the avoidance of doubt, none of NGP, the Corporation or any of their respective Affiliates shall be deemed Affiliates of Carlyle or any of its Affiliates.

(e) “ as-converted basis ” means, with respect to the outstanding shares of Common Stock, all outstanding shares of Common Stock calculated on a basis in which all shares of Common Stock issuable at the time of determination upon conversion of the Series A Preferred Stock that is then outstanding, whether or not the Series A Preferred Stock is then convertible, exchangeable or exercisable by the holder thereof, are assumed to be then outstanding.  

(f) “ Beneficial Ownership ” or “ Beneficially Own ” shall have the meaning given such term in Rule 13d-3 under the Exchange Act and a Person’s Beneficial Ownership of securities shall be calculated in accordance with the provisions of such Rule; provided , however , that for purposes of determining any Person’s Beneficial Ownership, such Person shall be deemed to be the Beneficial Owner of any Equity Securities that may be acquired by such Person, whether within sixty (60) days or thereafter, upon the conversion, exchange, redemption or exercise of any warrants, options, rights or other securities issued by the Corporation or any of its Subsidiaries.

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(g) “ Board ” shall mean the Board of Directors of the Corporation or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action.

(h) “ Business Day ” shall mean any day other than Saturday, Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.

(i) “ Capital Stock ” shall mean, for any entity, any and all shares, equity interests, rights to purchase, warrants, options, equity participations or other equity equivalents of or equity interests in (however designated) capital stock issued by that entity; provided that , “Capital Stock” of the Corporation shall not include any convertible or exchangeable debt securities that, prior to conversion or exchange, will rank senior in right of payment to the Series A Preferred Stock.

(j) “ Carlyle ” means CP VI Eagle Holdings, L.P.

(k) “ Certificate of Designations ” shall have the meaning specified in the recitals.

(l) “ Certificate of Incorporation ” shall have the meaning specified in the recitals.

(m) A “ Change of Control ” shall be deemed to have occurred at any time after the Series A Preferred Stock is originally issued if any of the following occurs:

(i) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Corporation and its Subsidiaries taken as a whole to any Person (including any “person” (as that term is used in Section 13(d)(3) of the Exchange Act)) other than any Permitted Holder;

(ii) the adoption of a plan relating to the liquidation or dissolution of the Corporation; or

(iii) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as defined above), other than any Permitted Holder, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the voting stock of the Corporation, measured by voting power rather than number of shares, units or the like; provided that a transaction in which the Corporation becomes a Subsidiary of another Person shall not constitute a Change of Control if, immediately following such transaction, the “persons” (as defined above) who were Beneficial Owners of the voting stock of the Corporation immediately prior to such transaction Beneficially Own, directly or indirectly through one or more intermediaries, 50% or more of the total voting power of the voting stock of such other Person of whom the Corporation has become a Subsidiary.

(n) “ Change of Control Call ” shall have the meaning specified in Section 4(b) .

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(o) “ Change of Control Cash Price ” shall mean, as of the date of any redemption in connection with a  Change of Control Put or Change of Control Call, an amount per share of Series A Preferred Stock equal to (x) the Accreted Value of such share of Series A Pref erred Stock as of such date plus (y)  if the applicable redemption date is prior to [●], 2019 [insert date that is the 30-month anniversary of the Initial Issue Date] , the amount equal to the net present value (computed using a discount rate of the Treasur y Rate plus fifty (50) basis points) of the sum of all dividends that would otherwise be payable on such share of Series A Preferred Stock on each of the Dividend Payment Dates occurring during the period on and after the applicable redemption date to and including [●], 2019 (which date for purposes of this calculation, shall be assumed to be an additional Dividend Payment Date) and assuming the Corporation elected to pay such dividends in cash pursuant to Section 3(a) ; provided, however , that in the event of a Change of Control described in subsection (i) or (ii) of the definition thereof that is in connection with a liquidation, winding up or dissolution of the Corporation, the Change of Control Cash Price shall mean the greater of (a) the amount described above and (b) the amount that would be distributed in the liquidation, winding up or dissolution of the Corporation with respect to such share if such share of Series A Preferred Stock was converted into Common Stock (at the Conversion Rate then in effect ) immediately prior to such liquidation, winding up or dissolution of the Corporation (regardless of whether the Series A Preferred Stock is then convertible pursuant to the terms hereof) .

(p) “ Change of Control Effective Date ” shall have the meaning specified in Section 4(c) .

(q) “ Change of Control Purchase Date ” shall mean, with respect to each share of Series A Preferred Stock, the date on which the Corporation makes the payment in full in cash of the Change of Control Cash Price for such share to the Holder thereof.

(r) “ Change of Control Put ” shall have the meaning specified in Section 4(a) .

(s) “ Change of Control Put Deadline ” shall have the meaning specified in Section 4(c)(i) .

(t) “ Close of Business ” shall mean 5:00 p.m., New York City time.

(u) “ Closing Sale Price ” of the Common Stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported in composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock is traded or, if the Common Stock is not listed for trading on a U.S. national or regional securities exchange on the relevant date, the last quoted bid price for the Common Stock in the over-the-counter market on the relevant date, as reported by OTC Markets Group Inc. or a similar organization, or, if that bid price is not available, the fair market price of the Common Stock (or other relevant capital stock or equity interest) on that date as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose with the prior cons ent of holders of a majority of the outstanding Series A Preferred Stock.  The Closing Sale Price of any other

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security shall be determined in the same manner as set forth in this Section 2(u) for the determination of the Closing Sale Price of the Common S tock.

(v) “ Code ” shall mean Internal Revenue Code of 1986, as amended.

(w) “ Common Stock ” shall mean the Common Stock, par value $0.01 per share, of the Corporation, subject to Section 8(e) .

(x) “ Conversion Agent ” shall mean the Transfer Agent acting in its capacity as conversion agent for the Series A Preferred Stock, and its successors and assigns.

(y) “ Conversion Date ” shall have the meaning specified in Section 7(a)(iii) .

(z) “ Conversion Price ” shall initially be $13.90 per share of Common Stock and shall be subject to adjustment pursuant to Section 8 hereof.

(aa) “ Conversion Rate ” shall mean, with respect to each share of Series A Preferred Stock subject to conversion, a number of shares of Common Stock equal to its Accreted Value divided by the then applicable Conversion Price.

(bb) “ Corporation ” shall have the meaning specified in the recitals.

(cc) “ Corporation Competitor ” shall mean (i) any Upstream Competitor identified in writing to the Holders by the Corporation prior to the Initial Issue Date, and (ii) on and after the Initial Issue Date, any Upstream Competitor identified in writing to the Holders at the direction of the Board of Directors acting in good faith. “ Upstream Competitor ” shall mean (i) any Person whose primary business is oil and gas exploration and production activities and who owns or operates upstream oil and gas properties that are located within 100 miles of any oil and gas properties owned or operated by the Corporation and (ii) any private equity fund that controls any Upstream Competitor.

(dd) “ DGCL ” shall have the meaning specified in the recitals.

(ee) “ Dividend Payment Date ” shall mean January 31, April 30, July 31 and October 31 of each year, commencing on [ ● ], 2017.

(ff) “ Dividend Rate ” shall mean the rate per quarterly dividend period of 1.50% (6.00% per annum) per share of Series A Preferred Stock.

(gg) “ Dividend Record Date ” shall mean, with respect to any Dividend Payment Date, the January 15, April 15, July 15 and October 15, as the case may be, immediately preceding such Dividend Payment Date.

(hh) “ Equity Securities ” means the equity securities of the Corporation, including shares of Common Stock and Series A Preferred Stock.  

(ii) “ Event ” shall have the meaning specified in Section 5(a)(ii)(B) .

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(jj) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(kk) “ Ex-Date ,” when used with respect to any issuance, dividend or distribution of Common Stock, shall mean the first date on which the Common Stock trades on the applicable exchange or in the applicable market, regular way, without the right to receive such issuance, dividend or distribution from the Corporation or, if applicable, from the seller of the Common Stock on such exchange or market (in the form of due bills or otherwise), as determined by such exchange or market.

(ll) “ Expiration Date ” shall have the meaning specified in Section 8(a)(iv) .

(mm) “ Final Accrual Period ” shall have the meaning specified in Section 3(d) .

(nn) “ Hedge ” shall have the meaning specified in Section 10(a)(i) .

(oo) “ Holder ” shall mean a holder of shares of Series A Preferred Stock.

(pp) “ HSR Expiration Date ” shall mean the date on which all applicable approvals and waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976 that are required with respect to the conversion and voting rights of the Series A Preferred Stock set forth in this Certificate of Designations shall have been obtained or expired, as applicable, in each case as the shares of Series A Preferred Stock are held as of the Initial Issue Date.

(qq) “ Indebtedness ” means (a) all obligations of the Corporation or any of its Subsidiaries for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of the Corporation or any of its Subsidiaries evidenced by bonds, debentures, notes or similar instruments, (c) all letters of credit and letters of guaranty in respect of which the Corporation or any of its Subsidiaries is an account party, (d) all securitization or similar facilities of the Corporation or any of its Subsidiaries and (e) all guarantees by the Corporation or any of its Subsidiaries of any of the foregoing.

(rr) “ Indebtedness Agreement ” means any agreement, document or instrument governing or evidencing any Indebtedness of the Corporation or its Subsidiaries (including (A) that certain Indenture, dated February 1, 2017 among the Corporation, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (as the same may be amended and/or restated from time to time) or (B) that certain credit agreement, dated December 19, 2016, among the Corporation, the lenders and financial institutions party thereto and Wells Fargo Bank, National Association (as the same may be amended and/or restated from time to time).

(ss) “ Initial Issue Date ” shall mean the first date of original issuance of shares of the Series A Preferred Stock.

(tt) “ Initial Liquidation Value ” shall mean, with respect to each share of Series A Preferred Stock, $1,000.00.

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(uu) “ Junior Stock ” shall mean (i)  the Common Stock and (ii)  each other class or series of the Corporation’s Capital Stock e stablished after the Initial Issue Date, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the Series A Preferred Stock as to dividend rights or distribution rights upon the liquidation, winding-up or dissolution of the Corporation.

(vv) “ Mandatory Conversion Date ” shall have the meaning specified in Section 7(b)(ii) .

(ww) “ NGP ” means collectively, WHR Holdings, LLC, a Delaware limited liability company, Esquisto Holdings, LLC, a Delaware limited liability company, WHE AcqCo Holdings, LLC, a Delaware limited liability company, and NGP XI US Holdings, L.P., a Delaware limited partnership, and any of their respective Affiliates that own Capital Stock of the Company.  

(xx) “ Officer ” shall mean the Chief Executive Officer, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Corporation.

(yy) “ Open of Business ” shall mean 9:00 a.m., New York City time.

(zz) “ Ownership Notice ” shall mean the notice of ownership of Capital Stock of the Corporation containing the information required to be set forth or stated on certificates pursuant to the DGCL and, in the case of an issuance of Capital Stock by the Corporation (including the Series A Preferred Stock), in substantially the form attached hereto as Exhibit A .

(aaa) “ Parity Stock ” shall mean any class or series of the Corporation’s Capital Stock established after the Initial Issue Date, the terms of which expressly provide that such class or series will rank on parity with the Series A Preferred Stock as to dividend rights or distribution rights upon the liquidation, winding up or dissolution of the Corporation.

(bbb) “ Permitted Holder ” shall mean (i) any Person that is a “Permitted Holder” under (A) that certain Indenture, dated February 1, 2017 among the Corporation, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (as the same may be amended and/or restated from time to time) or (B) that certain credit agreement, dated December 19, 2016, among the Corporation, the lenders and financial institutions party thereto and Wells Fargo Bank, National Association (as the same may be amended and/or restated from time to time), (ii) Carlyle and its Affiliates and (iii) any Person who, together with its Affiliates, holds more than 50% of the outstanding shares of Series A Preferred Stock.

(ccc) “ Permitted Transferee ” shall have the meaning specified in Section 10(a)(ii)(A) .

(ddd) “ Person ” shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.

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(eee) “ Preferred Purchase Agreement ” shall mean that certain Preferred Stock Purchase Agreement dated as of May 10, 2017 by and among the Holders as of the Initial Issue Date and the Corporation.

(fff) “ Preferred Stock ” shall have the meaning specified in the recitals.

(ggg) “ Record Date ” shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock (or other applicable security) have the right to receive any cash, securities or other property or in which Common Stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of the holders of Common Stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by the Board, statute, contract or otherwise).

(hhh) “ Reference Property ” shall have the meaning specified in Section 8(e) .

(iii) “ Registrable Securities ” shall have the meaning set forth in the Registration Rights Agreement.

(jjj) “ Registration Rights Agreement ” means that certain Amended and Restated Registration Rights Agreement dated as of the Initial Issue Date by and among the Corporation and the others party thereto.

(kkk) “ Reorganization Event ” shall have the meaning specified in Section 8(e) .

(lll) “ Required Number of Shares ” shall have the meaning specified in Section 4(g) .

(mmm) “ Requisite Approvals Notice Date ” shall have the meaning specified in Section 11(e) .

(nnn) “ Satisfaction of the Indebtedness Obligations ” means, in connection with any Change of Control, (i) the payment in full in cash of all principal, interest, fees and all other amounts due or payable in respect of any Indebtedness of the Corporation or any of its Subsidiaries (including in respect of any penalty or premium) that is required to be prepaid, repaid, redeemed, repurchased or otherwise retired as a result of or in connection with such Change of Control or in order for the Series A Preferred Stock not to constitute or be deemed as “indebtedness”, “disqualified stock”, “disqualified capital stock”, “disqualified equity interests”, or similar instruments, however denominated, under the terms of any Indebtedness Agreement, (ii) the cancellation or termination, or if permitted by the terms of such Indebtedness, cash collateralization, of any letters of credit or letters of guaranty that are required to be cancelled or terminated or cash collateralized as a result of or in connection with such Change of Control or in order for the Series A Preferred Stock not to constitute or be deemed as “indebtedness”, “disqualified stock”, “disqualified capital stock”, “disqualified equity interests”, or similar instruments, however denominated, under the terms of any Indebtedness Agreement, (iii) compliance with any requirement to effect an offer to purchase any bonds, debentures, notes or other instruments of Indebtedness as a result of or in connection with such Change of Control

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or in order for the Series A Preferred Stock not to constitute or be deemed as “indebtedness”, “disqualified stock”, “disqualified capit al stock”, “disqualified equity interests”, or similar instruments, however denominated, under the terms of any Indebtedness Agreement, and the purchase of any such instruments tendered in such offer and the payment in full of any other amounts due or paya ble in connection with such purchase and (iv) the termination of any lending commitments required to be terminated as a result of or in connection with such Change of Control or in order for the Series A Preferred Stock not to constitute or be deemed as “i ndebtedness”, “disqualified stock”, “disqualified capital stock”, “disqualified equity interests”, or similar instruments, however denominated, under the terms of any Indebtedness Agreement .

(ooo) “ SEC ” shall mean the Securities and Exchange Commission.

(ppp) “ Securities Act ” shall mean the Securities Act of 1933, as amended.

(qqq) “ Senior Stock ” shall mean any class or series of the Corporation’s Capital Stock established after the Initial Issue Date, the terms of which expressly provide that such class or series will rank senior to the Series A Preferred Stock as to dividend rights or distribution rights upon the liquidation, winding up or dissolution of the Corporation.

(rrr) “ Series A Preferred Stock ” shall have the meaning specified in Section 1(a) .

(sss) “ Specified Contract Terms ” means the covenants, terms and provisions of any indenture, credit agreement or any other Indebtedness Agreement governing the rights of the holders of or otherwise relating to any Indebtedness of the Corporation or any of its Subsidiaries.

(ttt) “ Spin-Off ” shall have the meaning specified in Section 8(a)(iii) .

(uuu) “ Subsidiary ” shall mean, with respect to any Person, any corporation, association, partnership, limited liability company or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership or limited liability company interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.

(vvv) “ Trading Day ” shall mean a day during which trading in the Common Stock generally occurs on the New York Stock Exchange or, if the Common Stock is not listed on the New York Stock Exchange, on the principal other U.S. national or regional securities exchanges on which the Common Stock is then listed or, if the Common Stock is not listed on a U.S. national or regional securities exchange, on the principal other market on which the Common Stock is then listed or admitted for trading. If the Common Stock is not so listed or admitted for trading, Trading Day means a Business Day.

(www) “ Transfer ” by any person means directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or similarly dispose of, either voluntarily or involuntarily, for value or without value, or to enter into any written or oral contract, option or other arrangement

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or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of, any Equity Securities Beneficially Owned by such person or of any interest (including any voting intere st) in any Equity Securities Beneficially Owned by such person. For the avoidance of doubt, a transfer of control of the direct or indirect Beneficial Owner of Equity Securities is a Transfer of such Equity Securities for purposes of this Certificate of De signations; provided , however , that, notwithstanding anything to the contrary in this Certificate of Designations, a Transfer shall not include (i) the conversion of one or more shares of Series A Preferred Stock into Common Stock pursuant to the terms of this Certificate of Designations, (ii) the redemption or other acquisition of Common Stock or Preferred Stock by the Corporation or (iii) the transfer (other than by a  Holder or an Affiliate of a Holder) of any limited partnership or limited liability com pany  interests or other equity interests in a Holder (or any direct or indirect parent entity of a Holder), in each case, unless the transferor or transferee were formed for the purpose of holding any Equity Securities; provided that , if any transferor or transferee referred to in this clause (iii) ceases to be controlled by the Person controlling such Person immediately prior to such transfer, such event shall be deemed to constitute a “Transfer”.

(xxx) “ Transfer Agent ” shall mean Wells Fargo Shareowner Services , acting as the Corporation’s duly appointed transfer agent, registrar, redemption, conversion and dividend disbursing agent for the Series A Preferred Stock and the Common Stock. The Corporation may, in its sole discretion, remove the Transfer Agent with 10 days’ prior notice to the Transfer Agent and Holders; provided that the Corporation shall appoint a successor Transfer Agent who shall accept such appointment prior to the effectiveness of such removal.

(yyy) “ Treasury Rate ” shall mean the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least five Business Days prior to the date fixed for redemption (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the Average Assumed Dividend Period; provided , however , that if such Average Assumed Dividend Period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Corporation shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the Average Assumed Dividend Period is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used; and, provided further , that the Treasury Rate shall not in any event be less than zero. For purposes of this definition, “Average Assumed Dividend Period” shall mean the average number of months (weighted based on the amount of the assumed dividends) from the applicable redemption date to the applicable Dividend Payment Date for each dividend assumed to be paid for purposes of the calculation.

(zzz) “ Underwritten Offering ” shall have the meaning set forth in the Registration Rights Agreement.

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3. Dividends.

(a) Subject to Section3(c) , from and after the Initial Issue Date, dividends shall, with respect to each outstanding share of Series A Preferred Stock, accrue on the Accreted Value at the Dividend Rate for each Dividend Period (as defined below) to and including the next Dividend Payment Date. Dividends on the Series A Preferred Stock shall be non-cumulative and shall accrue on a daily basis, whether or not declared. Such dividends shall be payable only when, as and if declared by the Board, and when so declared and paid, such dividends shall be paid in cash out of funds legally available therefor and shall be payable on the next Dividend Payment Date following such declaration by the Board to the Holders as they appear on the Corporation’s stock register at the Close of Business on the relevant Dividend Record Date. If any Dividend Payment Date falls on a day that is not a Business Day, payment of dividends declared under this Section 3(a) with respect to such Dividend Payment Date will be made on the next succeeding Business Day and no interest or dividends on such payment will accrue or accumulate, as the case may be, in respect of the delay. The period from the Initial Issue Date to and including July 31, 2017 and each period from but excluding a Dividend Payment Date to and including the following Dividend Payment Date is herein referred to as a “ Dividend Period .”

(b) If a cash dividend is not declared and paid in accordance with Section 3(a) on a Dividend Payment Date, then in full discharge of any accrual of dividends for such Dividend Period, the Accreted Value of each outstanding share of Series A Preferred Stock, regardless of its date of issue, shall automatically increase on such Dividend Payment Date by an amount equal to the Dividend Rate multiplied by the Accreted Value in effect immediately after the immediately prior Dividend Payment Date (or the Initial Issue Date in respect of the first Dividend Period).

(c) Dividends payable under Section 3(a) (or future dividends calculated in determining Change of Control Cash Price) and any increase in Accreted Value under Section 3(b) (or deemed increase in Accreted Value under Section 3(e) ) for any period less than a full quarterly dividend or accretion period (based upon the number of days elapsed during the period) shall be computed on the basis of a 360-day year consisting of twelve 30-day months.

(d) Notwithstanding anything to the contrary in this Certificate of Designations, if at any time on or after [●], 2019 [insert date that is the 30-months after the Initial Issue Date] , the Closing Sale Price of the Common Stock equals or exceeds 130% of the Conversion Price then in effect for at least 25 consecutive Trading Days, all shares of Series A Preferred Stock will permanently cease to be entitled to any dividends pursuant to Section 3(a) or any further accretion of Accreted Value pursuant to Section 3(b) (the “ Dividend Termination Date ”); provided, however , that with respect to the period commencing on the day following the last Dividend Payment Date prior to the Dividend Termination Date and ending on, and including, the Dividend Termination Date (the “ Final Accrual Period ”), a cash dividend may be declared and paid in such amount accrued with respect to the Final Accrual Period payable on the next Dividend Payment Date following the Final Accrual Period as determined and paid otherwise in accordance with Section 3(a) , or if not declared and paid in accordance with the foregoing, the Accreted Value shall accrete in an amount accrued with respect to the Final Accrual Period on

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the next Dividend Payment Date following the Final Accrual Period as determined and accreted otherwi se in accordance with Section 3(b) .

(e) Under this Certificate of Designations, in calculating either the (A) number of shares of Common Stock issued upon conversion of a share of Series A Preferred Stock or (B) redemption price per share of Series A Preferred Stock, the Accreted Value of each share of Series A Preferred Stock shall be increased by the amount of accrued and unpaid dividends during the then-current Dividend Period regardless of whether, at the time of such conversion or redemption, a dividend payable on the immediately succeeding Dividend Payment Date has been declared pursuant to Section 3(a) . Holders of shares of Series A Preferred Stock subject to conversion or redemption shall not be entitled to receive any payment of dividends declared pursuant to Section 3(a) in respect of the Dividend Period in which the conversion or redemption occurs notwithstanding that a Dividend Record Date may have been fixed for the payment of such dividends prior to such conversion or redemption.

(f) T he Series A Preferred Stock shall fully participate, on an as-converted basis, in any dividend declared and paid or distribution on the Common Stock (other than any dividend paid or distribution on the Common Stock in connection with the liquidation, winding up or dissolution of the Corporation ) as if the Preferred Stock were converted into shares of Common Stock on the Record Date for such dividend or distribution, at the Conversion Rate in effect on such Record Date.

(g) Holders of shares of Series A Preferred Stock shall not be entitled to any dividend other than as set forth in this Section 3 .

4. Special Rights Upon a Change of Control .

(a) Repurchase at the Option of the Holder . Subject to the application of Section 4(b) , upon the occurrence of a Change of Control, each Holder of outstanding shares of Series A Preferred Stock shall have the option to require the Corporation to purchase (a “ Change of Control Put ”) any or all of its shares of Series A Preferred Stock for cash at a purchase price per share of Series A Preferred Stock equal to the Change of Control Cash Price; provided that the Corporation shall only be required to pay the Change of Control Cash Price (i) after the Satisfaction of the Indebtedness Obligations, (ii) to the extent permitted by the Specified Contract Terms and (iii) to the extent such purchase can be made under applicable law and out of funds legally available therefor.

(b) Initial Change of Control Notice . On or before the twentieth (20th) Business Day prior to the date on which the Corporation anticipates consummating a Change of Control (or, if later, promptly after the Corporation discovers that a Change of Control may occur or has occurred), a written notice shall be sent by or on behalf of the Corporation to the Holders as they appear in the records of the Corporation, which notice shall contain the date on which the Change of Control is anticipated to be effected (or, if applicable, (x) the date on which a Schedule TO or other schedule, form or report disclosing a Change of Control was filed or (y) the dat e on which the Change of Control occurred).  In connection with the delivery of such notice, the Corporation may elect to redeem (the “ Change of Control Call ”), contingent upon

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and contemporaneously with the consummation of the Change of Control, but subje ct to the right of the Holders to convert the Series A Preferred Stock pursuant to Section 7(a) prior to any such redemption, any or all of the shares of Series A Preferred Stock for cash at a redemption price per share equal to Change of Control Cash Pric e.

(c)   Final Change of Control Notice.   To the extent the Change of Control Call has not been previously exercised by the Corporation, within two days following the effective date of the Change of Control (the “ Change of Control Effective Date ”) (or if the Corporation discovers later than such date that a Change of Control has occurred, promptly following the date of such discovery), a final written notice shall be sent by or on behalf of the Corporation to the Holders as they appear in the records of the Corporation, which notice shall contain:

(i) the date by which the Holder must elect to exercise a Change of Control Put (which shall be no less than 20 days after the Change of Control Effective Date) (the “ Change of Control Put Deadline ”);

(ii) the amount of cash payable per share of Series A Preferred Stock, if such Holder elects to exercise a Change of Control Put;

(iii) a description of the payments and other actions required to be made or taken in order to effect the Satisfaction of the Indebtedness Obligations;

(iv) the consideration, if any, received in respect of each share of Common Stock in the Change of Control;

(v) the purchase date for such shares (which shall be no later than three Trading Days after the Satisfaction of the Indebtedness Obligations has occurred); and

(vi) the instructions a Holder must follow to exercise a Change of Control Put in connection with such Change of Control.

(d) Change of Control Put Procedure . To exercise a Change of Control Put, a Holder must, no later than 5:00 p.m., New York City time, on the Change of Control Put Deadline, surrender to the Conversion Agent the certificates, if any, representing the shares of Series A Preferred Stock to be repurchased by the Corporation (or if such certificate or certificates have been lost, stolen, or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation and the Conversion Agent) or otherwise instruct the Conversion Agent to surrender such Holder’s uncertificated book-entry shares .

(e) Delivery upon Change of Control Put . Upon a Change of Control Put, after the Satisfaction of the Indebtedness Obligations and subject to Section 4(g) below, the Corporation (or its successor) shall deliver or cause to be delivered to the Holder by wire transfer the Change of Control Cash Price in consideration for the amount of such Holder’s shares of Series A Preferred Stock redeemed.

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(f) Redemption by the Corporation.   In the case of a Change of Control, any shares of Series A Preferred Stock as to which a Change of Control Put or Change of Control Call was not exercised and that are otherwise outstanding following such Change of Control may be redeemed, at the option of the Corporation, upon not less than thirty (30) nor more than sixty (60) days’ notice, which notice must be recei ved by the affected Holders within thirty (30) days of the Change of Control Put Deadline, at a redemption price per share equal to the Change of Control Cash Price .

(g) If the Corporation (A) shall not have sufficient funds legally available under applicable law to purchase all shares of Series A Preferred Stock that Holders have requested to be purchased under  Section 4(a)  (the “ Required Number of Shares ”) after the Satisfaction of the Indebtedness Obligations or (B) will be in violation of Specified Contract Terms if it purchases the Required Number of Shares, the Corporation shall (I) purchase, pro rata among the Holders that have requested their shares be purchased pursuant to  Section 4(a) , a number of shares of Series A Preferred Stock with an aggregate Change of Control Cash Price equal to the lesser of (1) the amount legally available for the purchase of shares of Series A Preferred Stock under applicable law and (2) the largest amount that can be used for such purchase not prohibited by Specified Contract Terms and (II) purchase any shares of Series A Preferred Stock not purchased because of the foregoing limitations at the applicable Change of Control Cash Price as soon as practicable after the Corporation is able to make such purchase out of assets legally available for the purchase of such share of Series A Preferred Stock and without violation of Specified Contract Terms. The inability of the Corporation to make a purchase payment for any reason shall not relieve the Corporation from its obligation to effect any required purchase when, as and if permitted by applicable law and Specified Contract Terms.

(h) Upon full payment for any shares of Series A Preferred Stock subject to a Change of Control Put or Change of Control Call, such shares will cease to be entitled to any dividends that may thereafter be payable on the Series A Preferred Stock; such shares of Series A Preferred Stock will no longer be deemed to be outstanding for any purpose; and all rights (except the right to receive the Change of Control Cash Price) of the Holder of such shares of Series A Preferred Stock shall cease and terminate with respect to such shares.

5. Voting; Directors.   

(a) Voting . The shares of Series A Preferred Stock shall not have voting rights other than those set forth below or as otherwise required by Delaware law or the Certificate of Incorporation:

(i) From and after the Requisite Approvals Notice Date, Holders of shares of Series A Preferred Stock shall be entitled to vote as a single class with the holders of the Common Stock and the holders of any other class or series of Capital Stock of the Corporation then entitled to vote with the Common Stock on all matters submitted to a vote of the holders of Common Stock. Each Holder shall be entitled to the number of votes equal to the largest number of whole shares of Common Stock into which all shares of Series A Preferred Stock held of record by such Holder could then be converted pursuant to  Section 7  (ignoring for purposes of such determination the limitation on

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conversion prior to the one year anniversary of the Initial Issue Date) at the record date for the determination of stockholders entitled to vote or consent on such matters. The Holders shall be entitled to notice of any meeting of holders of Common Stock in accordance with the bylaws of the Corporation.

(ii) So long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the Holders of at least a majority in voting power of the shares of Series A Preferred Stock outstanding at the time, voting together as a single class, given in person or by proxy, either in writing or at a meeting:

(A) authorize or create, or increase the authorized amount of, or issue any class or series of Senior Stock or Parity Stock or reclassify any of the authorized capital stock of the Corporation into shares of Senior Stock or Parity Stock, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase any shares of Senior Stock or Parity Stock; or

(B) amend, alter or repeal the provisions of the Certificate of Incorporation or this Certificate of Designations, whether by merger, consolidation or otherwise (an “ Event ”) so as to adversely affect any right, preference, privilege or power of the shares of Series A Preferred Stock.

provided, however , with respect to the occurrence of any Event set forth in (B) above, so long as the Series A Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent with the same rights and preferences in all material respects as the Series A Preferred Stock (other than with respect to board election rights set forth in Section 5(b) ), the occurrence of any such Event shall not be deemed to adversely affect such rights, preferences, privileges or power of the Series A Preferred Stock; provided, further , that any increase in the amount of the authorized Junior Stock, or the creation or issuance of any additional shares of Junior Stock, shall not be deemed to adversely affect such rights, preferences, privileges or powers.

(iii) Whether a plurality, majority or other portion of the Series A Preferred Stock or any other series of voting Preferred Stock have been voted in favor of any matter shall be determined by reference to the respective aggregate liquidation preferences of the Series A Preferred Stock or such other series of voting Preferred Stock, as applicable.

(b) Directors .

(i) From and after the Requisite Approvals Notice Date, (i) at any time that Carlyle or its Affiliates hold both (A) any shares of Series A Preferred Stock and (B) shares of Common Stock and Series A Preferred Stock representing, on an as-converted basis, at least 10% of the total number of issued and outstanding shares of Common Stock (assuming, only for the purposes of determining such threshold amount of shares,

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all shares of Se ries A Preferred Stock were converted at the Conversion Rate in effect on such date), the Holders of a majority of the then outstanding shares of Series A Preferred Stock shall have the exclusive right, voting separately as a class, to appoint and elect tw o directors to the Board (any director elected by the Holders pursuant to this Certificate of Designations, herein referred to as a “ Series A Director ”) and (ii) at any time that Carlyle or its Affiliates holds both (A) any shares of Series A Preferred Sto ck and (B) shares of Common Stock and Series A Preferred Stock representing, on an as-converted basis, more than 5% but less than 10% of the total number of issued and outstanding shares of Common Stock (assuming, only for the purposes of determining such threshold amount of shares, all shares of Series A Preferred Stock were converted at the Conversion Rate in effect on such date), the Holders of a majority of the then outstanding shares of Series A Preferred Stock shall have the exclusive right, voting se parately as a class, to appoint and elect one Series A Director, in each case subject to any Series A Director satisfying all requirements regarding service as a director of the Corporation under applicable law or stock exchange rule regarding service as a director of the Corporation and such other reasonable criteria and qualifications required to be satisfied for service as a director applicable to all directors of the Corporation.

(ii) Each Series A Director so elected shall serve until his or her successor is elected and qualified or his or her earlier death, resignation, retirement, disqualification or removal; any vacancy or newly created directorship in the position of a Series A Director may be filled only by the Holders of a majority of the then outstanding shares of Series A Preferred Stock; and each Series A Director may, during his or her term of office, be removed at any time, with or without cause, by and only by the Holders of a majority of the then outstanding shares of Series A Preferred Stock. Notwithstanding the foregoing, at such time as the Holders of a majority of the then outstanding shares of Series A Preferred Stock cease to be entitled to appoint and elect any Series A Director pursuant to Section 5(b) (as a result of Carlyle or its Affiliates either ceasing to hold (i) any shares of Series A Preferred Stock or (ii) at least 10% or 5%, as applicable, of the total number of issued and outstanding shares of Common Stock, assuming, only for the purposes of determining such threshold amount of shares, all shares of Series A Preferred Stock were converted at the Conversion Rate in effect on such date ), (x) the right of the Holders of Series A Preferred Stock to appoint and elect one or two directors to the Board, as applicable, shall permanently terminate and (y) from and after such time, one or both of the Series A Directors, as applicable, shall cease to be qualified to serve as a director and such directorship shall terminate, and the size of the Board shall automatically be reduced .

(iii) Notwithstanding anything to the contrary in this Certificate of Designations, solely for purposes of voting with respect to Series A Directors pursuant to this Section 5(b) , the issued and outstanding shares of Series A Preferred Stock held by Carlyle and its Affiliates at any time shall be entitled to a number of votes equal to 50.1% of all votes entitled to be cast by the holders of the then outstanding shares of Series A Preferred Stock .

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6. Liquidation Preference.

(a) In the event of any liquidation, winding up or dissolution of the Corporation, whether voluntary or involuntary, each Holder shall be entitled to receive in respect of its shares of Series A Preferred Stock and to be paid out of the assets of the Corporation legally available for distribution to its stockholders, after satisfaction of liabilities to the Corporation’s creditors and holders of shares of Senior Stock and before any payment or distribution is made to holders of Junior Stock (including the Common Stock), an amount equal to the greater of (x) the Accreted Value per share of Series A Preferred Stock plus an amount equal to all accrued and unpaid dividends on such share of Series A Preferred Stock for the then-current Dividend Period to, and including, the date fixed for liquidation, winding up or dissolution assuming the Corporation elected to pay such dividends in cash pursuant to Section 3(a) but only to the extent such dividends otherwise would have been payable under Section 3(d) and (y) the amount that such Holder would have been entitled to receive if all of such Holder’s shares of Series A Preferred Stock were converted into Common Stock (at the Conversion Rate then in effect) immediately prior to such liquidation, winding up or dissolution of the Corporation (regardless of whether the Series A Preferred Stock is then convertible pursuant to the terms hereof) .

(b) Neither the sale, conveyance, exchange or transfer of all or substantially all the assets or business of the Corporation (other than in connection with the liquidation, winding up or dissolution of the Corporation), nor the merger or consolidation of the Corporation into or with any other Person, nor any share exchange or division involving the Corporation pursuant to applicable statutes providing for the consolidation, merger, share exchange or division, shall be deemed to be a liquidation, winding up or dissolution, whether voluntary or involuntary, for the purposes of this Section 6 , notwithstanding that, for other purposes, such as for tax purposes, such an event may constitute a liquidation, dissolution or winding up.

(c) After the payment to the Holders of the shares of Series A Preferred Stock of full preferential amounts provided for in this Section 6 , the Holders of Series A Preferred Stock as such shall have no right or claim to any of the remaining assets of the Corporation.

(d) In the event the assets of the Corporation available for distribution to the Holders and holders of shares of Parity Stock upon any liquidation, winding up or dissolution of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to this Section 6 , such Holders and such holders of shares of Parity Stock shall share, equally and ratably in proportion to the respective full amounts to which such holders are entitled pursuant to this Section 6 , in any distribution of the assets of the Corporation.

7. Conversion; Redemption.

(a) Holder Conversion .

(i) Each Holder shall have the right, at any time following [●], 2018 [insert the first anniversary of the Initial Issue Date] to convert each share of such Holder’s Series A Preferred Stock into (i) that number of whole shares of Common Stock equal to

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the quotient of (A) the Accreted Value divided by (B) the Conversion Pric e as of the applicable Conversion Date plus (ii) cash in lieu of fractional shares as set out in Section 9 . The foregoing right of conversion may be exercised as to all or any portion of such Holder’s Series A Preferred Stock from time to time; provided th at, in each case, no right of conversion may be exercised by a Holder in respect of fewer than 1,000 shares of Series A Preferred Stock (unless such conversion relates to all shares of Series A Preferred Stock held by such Holder).

(ii) Notwithstanding anything to the contrary in Section 7(a)(i) , a Holder shall have the right to convert, prior to [●] , 2018 [insert the first anniversary of the Initial Issue Date] , (i) all or any portion  of such Holder’s Series A Preferred Stock following the delivery by the Corporation of the notice contemplated by Section 4(b) and prior to the consummation of the applicable Change of Control and (ii) in connection with an Underwritten Offering that the Holder then has a right to participate in under the Registration Rights Agreement, such number of shares of Series A Preferred Stock that will, upon conversion, result in the issuance to the Holder of the maximum number of shares of Common Stock the Holder is permitted to include for sale in such Underwritten Offering.

(iii) In order to convert shares of Series A Preferred Stock into shares of Common Stock pursuant to this Section 7(a) , the Holder must (i) deliver a notice of conversion to the Corporation in the form attached hereto as Exhibit B and (ii) surrender the certificates, if any, representing such shares of Series A Preferred Stock (or, if such certificate or certificates have been lost, stolen, or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation), accompanied by transfer instruments reasonably satisfactory to the Corporation (including instructions to the Transfer Agent in the case of uncertificated book-entry shares) , at the principal office of the Corporation (or such other place mutually acceptable to the Holder and the Corporation), together with written notice that such Holder elects to convert all or such lesser number of shares represented by such certificates as specified therein. With respect to a conversion pursuant to this Section 7(a) , the date of receipt of such certificates, if any, together with such notice, by the Corporation or (in accordance with the immediately preceding sentence) its authorized agent will be the “ Conversion Date ”.

(iv) Notwithstanding anything herein to the contrary, the Series A Preferred Stock shall not be convertible into Common Stock under Sections 7(a) or 7(b) until the Requisite Approvals Notice Date .

(b) Mandatory Conversion .

(i) At any time on or after [●], 2021 [insert the fourth anniversary of the Initial Issue Date] , the Corporation shall have the right, at its option, to elect to cause all or any portion of the outstanding shares of Series A Preferred Stock to be automatically converted into (i) that number of shares of Common Stock for each share of Series A Preferred Stock equal to the quotient of (A) the the Accreted Value divided by (B) the

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Conversion Price as of the applicable Mandatory Conversion Date plus (ii) cash in lieu of fractional shares as set out in Section 9 , subject to the satisfaction of the following con ditions with respect to each such mandatory conversion: (I) the Closing Sale Price of the Common Stock equals or exceeds 140% of the Conversion Price then in effect for at least 20 consecutive Trading Days ending on the date immediately prior to the date t he notice described in Section 7(b)(ii) is delivered by the Corporation; (II) the number of shares of Common Stock into which such shares of Series A Preferred Stock will convert shall not exceed 25 times the average daily trading volume of the Common Stoc k on the New York Stock Exchange (or other principal stock exchange on which the Common Stock is then traded) during the 20 consecutive Trading Day period set forth in clause (I); (III) with respect to any Holder, if the shares of Common Stock issuable upo n conversion of the Holder’s Series A Preferred Stock are Registrable Securities and the Holder thereof previously requested that all or any portion of such Registrable Securities be registered for resale by the Holder, such Registrable Securities have bee n so registered for resale pursuant to a resale registration statement and the Corporation is not then in breach of any its obligations under the Registration Rights Agreement with respect to such registration or requirements to maintain the effectiveness of such registration statement registering the resale of such Registrable Securities; and (IV) the Corporation shall only be entitled to deliver one notice to the Holders pursuant to this Section 7(b)(ii) in any one hundred and eighty day period.

(ii) To exercise the mandatory conversion right described in Section 7(b)(i) , the Corporation must deliver to the Holders a notice setting forth: (i) the date on which the mandatory conversion will occur (the “ Mandatory Conversion Date ”), which shall be no earlier than the date that is three (3) Trading days after the notice described in this Section 7(a)(iii) is delivered ; (ii) calculations supporting the satisfaction of the condition in clause (II) in the preceding section 7(b)(i) and (iii)   with respect to each Holder, the number of shares of Preferred Stock to be converted.  Effective as of such Mandatory Conversion Date, all such Holder’s shares of Series A Preferred Stock shall automatically convert into shares of Common Stock as set forth in Section 7(a)(i) .

(iii) If the Corporation elects to cause less than all the shares of the Series A Preferred Stock to be converted, the Corporation shall select the Series A Preferred Stock to be converted from each Holder on a pro rata basis .

(iv) Notwithstanding the foregoing, the Corporation shall not be entitled to convert the last share of Series A Preferred Stock held by Carlyle into Common Stock pursuant to this Section 7(b) at any time that such share on an as-converted basis, together with any shares of Common Stock held or to be held by Carlyle immediately following such conversion, would represent more than 5% of the total number of issued and outstanding shares of Common Stock as of such date.

(c) Redemption .  

(i) At any time on or after [●], 2022 [insert the fifth anniversary of the Initial Issue Date] , the Corporation shall have the right, at its option, to elect to cause all or any

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portion of the outstanding shares of Series A Preferred Stock to be redeemed for cash at a redemption price per share equal to (i) if the Redemption Date is on or prior to [●], 2023 [insert the sixth anniversary of the Initial Issue Date] , the Accreted Value multiplied by 112%, (ii) if the Redempt ion Date is after [●], 2023 and on or prior to [●], 2024 [insert the seventh anniversary of the Initial Issue Date] , the Accreted Value multiplied by 109% and (iii) if the Redemption Date is after [●], 2024, the Accreted Value multiplied by 106%.

(ii) To exercise the redemption right described in Section 7(c) , the Corporation must deliver to the Holders a notice setting forth: (i) the date on which the redemption will occur (the “ Redemption Date ”), which shall be no earlier than ten (10) business days after the date such notice is given ; and (ii)  with respect to each Holder, the number of shares of Preferred Stock subject to redemption and the price to be paid to such Holder in respect thereof.

(d) Conversion and Redemption Procedures .

(i) In connection with any mandatory conversion pursuant to Section 7(b) or redemption in accordance with Section 7(c) , the Holder must surrender the certificates, if any, representing such shares of Series A Preferred Stock (or, if such certificate or certificates have been lost, stolen, or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation), and deliver transfer instruments reasonably satisfactory to the Corporation (including instructions to the Transfer Agent in the case of uncertificated book-entry shares) , at the principal office of the Corporation (or such other place mutually acceptable to the Holder and the Corporation).

(ii) On the Conversion Date, Redemption Date or the Mandatory Conversion Date, as applicable, with respect to any share of Series A Preferred Stock, certificates or uncertificated book-entry shares representing the number of shares of Common Stock into which the applicable shares of Series A Preferred Stock are converted shall be promptly issued and delivered to the Holder thereof or such Holder’s designee (or cash shall be paid to an account designated by such Person) upon presentation and surrender of the certificate, if any, evidencing the Series A Preferred Stock (or, if such certificate or certificates have been lost, stolen, or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation) or the instructions to the Transfer Agent in the case of uncertificated book-entry shares, to the Corporation and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes, if any, allocable to the Holder .  For the avoidance of doubt, (i) a Holder of Series A Preferred Stock shall have the right to affect a conversion pursuant to Section 7(a) up to and including the date of a redemption and (ii) the satisfaction of the obligations set forth in Section 7(d)(i) shall be conditions to the issuance of share of Common Stock or the payment of the cash redemption price, as applicable, but shall not impact the conversion or redemption of the Series A Preferred Stock, as applicable.  

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(iii) From and after the Conversion Date, the Redemption Date or the Mandatory Conversion Date, as applicable, the shares of Ser ies A Preferred Stock to be converted on such Conversion Date or the Mandatory Conversion Date, as applicable, or redeemed on such Redemption Date will cease to be entitled to any dividends that may thereafter accrue on the Series A Preferred Stock; such s hares of Series A Preferred Stock will no longer be deemed to be outstanding for any purpose; and all rights (except (i) in the case of conversion, the right to receive from the Corporation the Common Stock and cash payable in lieu of fractional shares in respect of such shares of Series A Preferred Stock, or (ii) in the case of redemption, the right to receive from the Corporation the cash payable in respect of such shares of Series A Preferred Stock ) of the Holder of such shares of Series A Preferred Sto ck to be converted or redeemed shall cease and terminate with respect to such shares.

(iv) The Person or Persons entitled to receive the Common Stock and/or other securities issuable upon conversion of Series A Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or securities as of the Close of Business on the Conversion Date or the Mandatory Conversion Date, as applicable, with respect thereto. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock and/or securities to be issued or upon conversion of shares of Series A Preferred Stock should be registered, the Corporation shall be entitled to register and deliver such shares in the name of the Holder .

8. Conversion Price Adjustments; Reorganization Event .

(a) The Conversion Price shall be adjusted, without duplication, upon the occurrence of any of the following events:

(i) If the Corporation issues shares of Common Stock as a dividend or distribution on all shares of Common Stock, or if the Corporation effects a share subdivision or share combination, then the Conversion Price in effect immediately following the Record Date for such dividend, distribution, share subdivision or share combination shall be divided by the following fraction:

OS 1 / OS 0

where,

 

OS 0

=the number of shares of Common Stock outstanding immediately prior to the Close of Business on the Record Date for such dividend or distribution, or immediately prior to the Open of Business on the effective date of such share subdivision or share combination, as the case may be; and

 

OS 1

=the number of shares of Common Stock outstanding immediately after, and solely as a result of, giving effect to such dividend or distribution, or such share subdivision or share combination, as the case may be.

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Any adjustment made under this Section  8(a)(i)  shall become effective immediately after the Close of Business on the Record Date for such dividend or distribution, or immediately after the Open of Business on the effective date for such share subdivision or share combination, as the case may be. If an y dividend, distribution, share subdivision or share combination of the type described in this Section  8(a)(i)  is declared but not so paid or made, the Conversion Price shall be immediately readjusted, effective as of the earlier of (A)  the date the Board determines not to pay or make such dividend, distribution, subdivision or combination and (B)  the date the dividend or d istribution was to be paid or the date the subdivision or combination was to have been effective, to the Conversion Price that would then be in effect if such dividend, distribution, subdivision or combination had not been declared.

The Corporation shall not pay any dividend or make any distribution on shares of Common Stock held in treasury.

(ii) If the Corporation distributes to all holders of its Common Stock any rights, options or warrants entitling them to purchase or subscribe for shares of Common Stock at a price per share that is less than the average of the Closing Sale Prices of Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Date of such distribution, the Conversion Price in effect immediately following the close of business on the Record Date for such distribution shall be divided by the following fraction:

OS 0 + X

OS 0 + Y

where,

 

OS 0

=the number of shares of Common Stock outstanding immediately prior to the Close of Business on the Record Date for such distribution;

 

X

=the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and

 

Y

=the number of shares of Common Stock equal to the quotient of (A) the aggregate price payable to exercise such rights, options or warrants and (B)   the average of the Closing Sale Prices of the Common Stock over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Date of such distribution.

Any decrease to the Conversion Rate made under this Section  8(a)(ii) shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the Close of Business on the Record Date for such distribution. To the extent that shares of Common Stock are not issued prior to the expiration or termination of such rights, options or warrants, the Conversion Price shall be increased, effective as of the date of such expiration, to the Conversion Price that would then be in effect had the increase with respect to the distribution of such rights, options or warrants been made on the basis of delivery

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of only the number of shares of Common Stock actually delivered. If such rights, options or warrants are not so distributed, the Conversion Price shall be increased, effective as of the earlier of (A) the date the Board determines not to make such distribution and (B) the date such rights, options or warrants were to have been issued, to be the Conversion Price that would then be in effect if such Record Date for such distribution had not occurred. If such rights, options or warrants ar e only exercisable upon the occurrence of certain triggering events, then the Conversion Price shall not be adjusted until the triggering events occur.

For purposes of this Section  8(a)(ii) , in determining the aggregate price payable to exercise any such rights, options or warrants there shall be taken into account any consideration received by the Corporation for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board.

(iii) If the Corporation distributes shares of its Capital Stock, evidences of its indebtedness or other assets, securities or property of the Corporation or rights, options or warrants to acquire its Capital Stock or other securities, to all holders of Common Stock, excluding (A) dividends, distributions, rights, options, warrants or other issuances as to which an adjustment was effected pursuant to Section 8(a)(i) or Section 8(a)(ii) , (B) rights issued to all holders of Common Stock pursuant to a rights plan, where such rights are not presently exercisable, trade with Common Stock and the plan provides that Holders will receive such rights along with any Common Stock received upon conversion of the Series A Preferred Stock, (C) dividends or distributions paid exclusively in cash as to which the Holders participated in accordance with Section 3(g) , (D) any dividends and distributions in connection with any recapitalization, reclassification, change, consolidation, merger or other combination, share exchange, or sale, lease or other transfer or disposition resulting in the change in the conversion consideration as described in Section 8(e) and (E) Spin-Offs as to which the provisions set forth below in the last two paragraphs of this Section 8(a)(iii) shall apply, then the Conversion Price in effect immediately following the close of business on the Record Date for such distribution shall be divided by the following fraction:

SP 0

SP 0 – FMV

where,

 

SP 0

=Closing Sale Price per share of the Common Stock on the Trading Day immediately preceding the Ex-Date for such distribution; and

 

FMV

=the fair market value as of the Record Date for such distribution (as determined in good faith by the Board) of the shares of the Corporation’s Capital Stock (other than Common Stock), evidences of indebtedness, assets, securities, property, rights, options or warrants distributed with respect to each outstanding share of Common Stock.

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Any decrease to t he Conversion Price made under the portion of this Section  8(a)(iii)  above shall become effective immediately after the Close of Business on the Rec ord Date for such distribution. If such distribution is not so paid or made, the Conversion Price shall be increased, effective as of the earlier of (A)  the date the Board determines not to pay the distribution and (B)  the date such dividend or distribution was to have been paid, to be the Conversion Price that would then be in effect if such distribution had not been declared.

Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP 0 ” (as defined above), or if the difference is less than $1.00, in lieu of the foregoing increase, each Holder shall receive, for each share of Series A Preferred Stock held by it, at the same time and upon the same terms as holders of the Common Stock, the amount and kind of the Corporation’s Capital Stock (other than Common Stock), evidences of indebtedness, or other assets, securities or property of the Corporation, or rights, options or warrants to acquire the Corporation’s Capital Stock or other securities that such Holder would have received if such Holder converted all of its shares of Series A Preferred Stock at the Conversion Rate in effect immediately prior to the Close of Business on the Record Date for the distribution.

With respect to an adjustment pursuant to this Section  8(a)(iii)  where there has been a payment of a dividend or other distribution on the Common Stock consisting solely of shares of Capital Stock of any class or series, or similar equity interests, of or relating to a Subsidiary or other business unit of the Corporation where such Capital Stock or similar equity interest is, or will be when issued, listed or admitted for trading on a U.S. national securities exchange (a “ Spin-Off ”), the Conversion Price shall be adjusted immediately after the Close of Business on the 10th Trading Day immediately following, and including, the Ex-Date for the Spin-off by dividing the Conversion Price in effect immediately prior to the Close of Business on such 10th Trading Day by the following fraction:

FMV + MP 0

MP 0

where,

 

FMV

=the average of the Closing Sale Prices of the Capital Stock or similar equity interest distributed to holders of the Common Stock applicable to one share of Common Stock over the 10 consecutive Trading Day period immediately following, and including, the Ex-Date for the Spin-Off; and

 

MP 0

= the average of the Closing Sale Prices of the Common Stock over the 10 consecutive Trading Day period immediately following, and including, the Ex-Date for the Spin-Off.

The adjustment to the Conversion Price under the preceding paragraph shall become effective at the Close of Business on the 10th Trading Day immediately following, and including, the Ex-Date for the Spin-Off; provided that, for purposes of determining the Conversion Price in respect of any conversion during the 10 Trading Days following, and including, the Ex-Date of any Spin-Off, references to “10 consecutive Trading Days” within the

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portion of this Section  8(a)(iii) related to Spin-Offs shall be deemed to be replaced with such lesser number of consecut ive Trading Days as have elapsed between the Ex-Date of such Spin-Off and the relevant Conversion Date.

(iv) If the Corporation or any of its Subsidiaries make a payment in respect of a tender or exchange offer for Common Stock to the extent that the cash and v alue of any other consideration included in the payment per share of Common Stock exceeds the average of the Closing Sale Prices of the Common Stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “ Expiration Date ”), the Conversion Price shall be adjusted immediately after the Close of Business on the last Trading Day of the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the Expiration Date by dividing the Conversion Price in effect immediately prior to the Close of Business on such last Trading Day of the 10 consecutive Trading Day period by the following fraction:

AC +  (SP 1 x OS 1 )

SP 1 x OS 0

where,

 

AC

=the aggregate value of all cash and any other consideration (as determined in good faith by the Board) paid or payable for shares of Common Stock purchased in such tender or exchange offer;

 

OS 0

=the number of shares of Common Stock outstanding immediately prior to the Expiration Date (prior to giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer);

 

OS 1

=the number of shares of Common Stock outstanding immediately after the Expiration Date (after giving effect to the purchase of all shares of Common Stock accepted for purchase or exchange in such tender or exchange offer); and

 

SP 1

=the average of the Closing Sale Prices of the C ommon Stock over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the Expiration Date.

Any decrease to the Conversion Price made under this Section  8(a)(iv) shall become effective at the Close of Business on the 10th Trading Day immediately following, and including, the Trading Day next succeeding the Expiration Date; provided that, for purposes of determining the Conversion Price in respect of any conversion during the 10 Trading Days immediately following, and including, the Trading Day next succeeding the Expiration Date, references to “10 consecutive Trading Days” within this Section  8(a)(iv) shall be deemed to be replaced with such lesser number of consecutive Trading Days as have elapsed between the Expiration Date for such tender or exchange offer and the relevant Conversion Date.

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In the event that the Corporation or one of its Subsidiaries is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation or such Subsidiary is permanen tly prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall be readjusted to be such Conversion Price that would then be in effect if such tender offer or exchange offer had not be en made.

(v) All calculations and other determinations under this Section 8(a) shall be made by the Corporation and shall be made to the nearest one-ten thousandth (1/10,000th) of a share. Notwithstanding anything herein to the contrary, no adjustment under this Section 8(a) shall be made to the Conversion Price unless such adjustment would result in a change of at least 1% in the Conversion Price then in effect. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, if any, which, together with any adjustment or adjustments so carried forward, shall amount to a change of at least 1% in such Conversion Price; provided , however , that the Corporation shall make all such carried-forward adjustments, regardless of whether the aggregate adjustment is less than 1%, (A) on December 31 of each calendar year, (B) on the Conversion Date for any conversions of Series A Preferred Stock, (C) upon the occurrence of a Change of Control and (D) in the event that the Corporation exercises its mandatory conversion right pursuant to Section 7(b) . No adjustment to the Conversion Price shall be made if it results in a Conversion Price that is less than the par value (if any) of the Common Stock. The Corporation shall not take any action that would result in the Conversion Price being less than the par value (if any) of the Common Stock pursuant to this Certificate of Designations and without giving effect to the previous sentence.

(vi) In addition to those adjustments required by clauses (i) , (ii) , (iii) and (iv) of this Section 8(a) , and to the extent permitted by applicable law and subject to the applicable rules of the New York Stock Exchange, the Corporation, from time to time, may decrease the Conversion Price by any amount for a period of at least twenty (20) Business Days or any longer period permitted or required by law, so long as the decrease is irrevocable during that period and the Board determines that such decrease would be in the Corporation’s best interest. Whenever the Conversion Price is decreased pursuant to the preceding sentence, the Corporation shall send to each Holder at its last address appearing on the stock register of the Corporation a notice of the decrease at least 15 calendar days prior to the date the decreased Conversion Price takes effect, and such notice shall state the decreased Conversion Price and the period during which it will be in effect.

(vii) Notwithstanding the foregoing in this Section 8(a) and for the avoidance of doubt, the Conversion Price shall not be adjusted for: (A) the issuance of Common Stock pursuant to any present or future plan broadly available to holders of its Common Stock providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under any plan; (B) the issuance of Common Stock, options, restricted stock,

26

 

 

 

 

restricted stock units, performance units or rights to purchase those shares or similar equity instruments as compensation pursuant to any present or future emp loyee, director or consultant benefit plan, employee agreement or arrangement or program of the Corporation or any of its Subsidiaries, in each case approved by the Corporation’s stockholders; (C)  the issuance of Common Stock pursuant to any option, warrant, right or excisable, exchangeable or convertible security outstanding as of the Initial Issue Date; (D)  a change in the par value of Common Stock; (E)  a sale of Common Stock, or securities convertible or exerc isable for Common Stock, for cash, other than in a transaction described in Section  8(a)(i) through Section  8(a)(iv) ; (F)  ordinary course of business stock repurchases that are not tender offers referred to in Section  8(a)(iv) , including structured or derivative transactions or pursuant to a stock repurchase program approved by the Board; (G)  a third-party tender or exchange offer, other than a tende r or exchange offer by one of the Corporation’s Subsidiaries as described in Section  8(a)(iv) ; (H)  accrued and unpaid dividends or d istributions, except as provided in Section 4 , Section 7 , and Section 8 and (I) any dividends, distributions or other transactions in which the holders of Series A Preferred Stock participate pursuant to Section 3(f) .

(b) Notwithstanding Section 8(a)(ii) and Section 8(a)(iii) , if the Corporation has a rights plan (including the distribution of rights pursuant thereto to all holders of Common Stock) in effect while any shares of Series A Preferred Stock remain outstanding, Holders will receive, upon conversion of shares of Series A Preferred Stock, in addition to shares of Common Stock to which each such Holder is entitled, a corresponding number of rights in accordance with such rights plan. If, prior to any conversion of shares of Series A Preferred Stock, such rights have separated from the shares of Common Stock in accordance with the provisions of the applicable rights plan, the Conversion Price will be adjusted at the time of separation as if the Corporation had distributed to all or substantially all holders of Common Stock, shares of Capital Stock, evidences of indebtedness, assets, securities, property, rights, options or warrants as described in Section 8(a)(iii) above, subject to readjustment in the event of the expiration, termination or redemption of such rights. Any distribution of rights, options or warrants pursuant to a rights plan that would allow a Holder to receive, upon conversion of shares of Series A Preferred Stock, in addition to any shares of Common Stock to which such Holder is entitled, the rights described therein (unless such rights, options or warrants have separated from the Common Stock (in which case the Conversion Price will be adjusted at the time of separation as if the Corporation made a distribution to all holders of Common Stock as described in Section 8(a)(iii) , subject to readjustment in the event of the expiration, termination or redemption of such rights)) shall not constitute a distribution of rights, options or warrants that would entitle such Holder to an adjustment to the Conversion Rate.

(c) The Corporation may also (but is not required to) decrease each Conversion Price to avoid or diminish any income tax to holders of Common Stock or rights to purchase shares of Common Stock in connection with a dividend or distribution of shares (or rights to acquire shares) or similar event. However, in either case, the Corporation may only make such a discretionary adjustment if it makes the same proportionate adjustment to each Conversion Price.

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(d) Upon any decrease in the Conversion Price, the Corporation promptly shall deliver to each Holder a certifi cate signed by an Officer of the Corporation, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated, and specifying the increased Conversion Price then in effect following such adjustme nt.

(e) In the case of:

(i) any recapitalization, reclassification or change in Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or changes resulting from a subdivision or combination),

(ii) any consolidation, merger or other combination involving the Corporation,

(iii) any sale, lease or other transfer or disposition to a third party of the consolidated assets of the Corporation and the Corporation’s Subsidiaries substantially as an entirety, or

(iv) any statutory share exchange of the Corporation’s securities with another person (other than in connection with a merger or acquisition),

in each case, as a result of which Common Stock (but not the Series A Preferred Stock) would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof) (any such transaction or event, a “ Reorganization Event ”), then, at and after the effective time of such Reorganization Event, the right to convert each share of Series A Preferred Stock into shares of Common Stock shall be changed into a right to convert such share of Series A Preferred Stock into the kind and amount of shares of stock, other securities or other property or assets (including cash or any combination thereof) that the Holder would have received if it had converted all of its shares of Series A Preferred Stock at the Conversion Rate immediately prior to such Reorganization Event would have been entitled to receive upon such Reorganization Event (such stock, securities or other property or assets, the “ Reference Property ”). In the event that, in connection with any such Reorganization Event, the holders of Common Stock have the opportunity to elect the form of all or any portion of the consideration to be received by such holders in such Reorganization Event, the Reference Property into which shares of Series A Preferred Stock will be convertible shall be deemed to be the weighted average of the types and amounts of consideration received by the holders of Common Stock that affirmatively make such election (or of all holders of Common Stock if no holders of Common Stock make such election). Notwithstanding Section  8(a) , no adjustment to the Conversion Price shall be made for any Reorganization Event to the extent stock, securities or other property or assets become the Reference Property receivable upon conversion of Series A Preferred Stock.

The provisions of this Section  8(e)  shall apply to successive Reorganization Events.

None of the foregoing provisions of this Section  8(e) shall affect the right of a Holder to convert its Series A Preferred Stock into shares of Common Stock as set forth in Section 7(a)

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prior to the effective time of such Reorganization Event. The Corporation shall not become party to a Reorganization Event unless its terms are consistent with this Section 8(e) .

In this Certificate of Designations, if Common Stock has been replaced by Reference Property as a result of any such Reorganization Event, references to “ Common Stock ” are intended to refer to such Reference Property.

(f) A converting Holder is not required to pay any transfer or similar taxes due upon conversion of such Holder’s shares of Series A Preferred Stock, except that such Holder shall pay such transfer or similar taxes payable relating to any transfer involved in the issuance or delivery of shares of Common Stock, if any, due upon conversion of such shares of Series A Preferred Stock in a name other than that of the converting Holder. The Corporation may require that such converting Holder establish to the reasonable satisfaction of the Corporation, that such converting Holder has paid in full all applicable transfer or similar taxes, if any, payable by such converting Holder prior to issuing and delivered the shares of Common Stock due upon conversion of such converting Holder’s shares of Series A Preferred Stock.

9. No Fractional Shares .  No fractional shares of Common Stock will be delivered to the Holders upon conversion. In lieu of fractional shares otherwise issuable, the Holders will be entitled to receive an amount in cash equal to the fraction of a share of Common Stock multiplied by the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the applicable Conversion Date or Mandatory Conversion Date, as applicable.  In order to determine whether the number of shares of Common Stock to be delivered to a Holder upon the conversion of such Holder’s shares of Series A Preferred Stock will include a fractional share, such determination shall be based on the aggregate number of shares of Series A Preferred Stock of such Holder that are being converted on any single Conversion Date or Mandatory Conversion Date, as applicable.

10. Transf er Restrictions; Certificates.

(a) Transfer Restrictions.   

(i) Except as otherwise permitted in this Certificate of Designations, including Section 10(a)(ii) , until [●], 2018 [insert the 12-month anniversary of the Initial Issue Date] , the Holders will not (i) Transfer any Series A Preferred Stock or (ii) make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a short sale of or the purpose of which is to offset the loss which results from a decline in the market price of, any shares of Series A Preferred Stock or Common Stock, or otherwise establish or increase, directly or indirectly, a put equivalent position, as defined in Rule 16a-1(h) under the Exchange Act, with respect to any of the Series A Preferred Stock, the Common Stock or any other Capital Stock of the Corporation (any such action, a “ Hedge ”).

(ii) Notwithstanding Section 10(a)(i) , the Holders shall be permitted to Transfer any portion or all of their Series A Preferred Stock or Common Stock at any time under the following circumstances:

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(A) Transfers to any Affiliate of such Holder (the recipient of the shares so Transferred, a “ Permitted Transferee ”), but only if the transferee agrees in writing prior to such Transfer for t he express benefit of the Corporation (in form and substance reasonably satisfactory to the Corporation and with a copy thereof to be furnished to the Corporation) to be bound by the terms of this Certificate of Designations and if the transferee and the t ransferor agree for the express benefit of the Corporation that the transferee shall Transfer the Series A Preferred Stock (or any Equity Securities issued in respect thereof) so Transferred back to the transferor at or before such time as the transferee c eases to be a Permitted Transferee of the transferor); and

(B) Transfers pursuant to a Change of Control which has been approved by the Board, has not been initiated by such Holder (or its Affiliates) and pursuant to which the Series A Preferred Stock is converted into cash or equity securities; and

(iii) Notwithstanding Sections 10(a)(i) and 10(a)(ii) , the Holders will not at any time, directly or knowingly indirectly (without the prior written consent of the Board which, in the case of any 10% Entity, shall not be unreasonably withheld) Transfer any Series A Preferred Stock or Common Stock issued upon conversion of the Series A Preferred Stock to a Corporation Competitor or a 10% Entity.

(iv) Notwithstanding Sections 10(a)(i) , 10(a)(ii) or 10(a)(iii) , (i) nothing therein shall prohibit any Holder from Transferring all or any portion of its Series A Preferred Stock or Common Stock issued upon conversion thereof (A) to NGP or any of its Subsidiaries or (B) as approved in writing by the Board, (ii) nothing in Sections 10(a)(ii) or 10(a)(iii) shall restrict any Transfer of Common Stock into the public market pursuant to an Underwritten Offering or otherwise in an open market transaction  and (iii) nothing in Sections 10(a)(i) or 10(a)(iii) shall restrict any Transfer of Common Stock in connection with, and to the extent of, the exercise of such Holder’s rights to participate in any Underwritten Offering that it is then eligible to participate in pursuant to the Registration Rights Agreement or to exercise their rights to demand registration not involving a sale pursuant to the Registration Rights Agreement.

(v) Notwithstanding anything to the contrary in this Section 10(a) , no Holder shall Transfer all or any portion of its Series A Preferred stock (i) to any Person that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code or (ii) prior to the HSR Expiration Date .

(vi) In the event that a Holder Transfers shares of Series A Preferred Stock, other than in connection with a Transfer permitted by and in accordance with this Certificate of Designations, such Transfer shall be null and void and of no force or effect, and the Corporation shall not recognize or be bound by any such purported Transfer.

(b) Uncertificated Shares .

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(i) Form . The shares of Series A Preferred Stock shall be in uncertificated, book entry form as permitted by the bylaws of the Corporation and the DGCL. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall, or shall cause the Transfer Ag ent to, send to the registered owner thereof an Ownership Notice.

(ii) Transfer . Transfers of Series A Preferred Stock held in uncertificated, book-entry form shall be made only upon the transfer books of the Corporation kept at an office of the Transfer Agent upon receipt of proper transfer instructions from the registered owner of such uncertificated shares, or from a duly authorized attorney or from an individual presenting proper evidence of succession, assignment or authority to transfer the stock. The Corporation may refuse any requested Transfer until furnished evidence reasonably satisfactory to it that such Transfer is made in accordance with the terms of this Certificate of Designation.

11. Other Provisions.

(a) At any time that any Series A Preferred Stock is outstanding, the Corporation shall from time to time take all lawful action within its control to cause the authorized capital stock of the Corporation to include (i) through the fifth anniversary of the Initial Issue Date, a sufficient number of authorized but unissued shares of Common Stock to satisfy the conversion requirements of all shares of Series A Preferred Stock then outstanding (assuming increases in the Accreted Value of the Series A Preferred Stock pursuant to this Certificate of Designations through the fifth anniversary of the Initial Issue Date and no other increase to the Accreted Value) and (ii) following the fifth anniversary of the Issue Date, a sufficient number of authorized but unissued shares of Common Stock to satisfy the conversion requirements of all shares of Series A Preferred Stock then outstanding (assuming increases in the Accreted Value of the Series A Preferred Stock pursuant to this Certificate of Designations through the next anniversary of the Initial Issue Date and no other increase to the Accreted Value).

(b) With respect to any notice to a Holder required to be provided hereunder, neither failure to send such notice, nor any defect therein or in the sending thereof, to any particular Holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other Holders or affect the legality or validity of any distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up, or the vote upon any such action . Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives the notice.

(c) All notice periods referred to herein shall commence: (i) when made, if made by hand delivery, and upon confirmation of receipt, if made by facsimile; (ii) one Business Day after being deposited with a nationally recognized next-day courier, postage prepaid; or (iii) three Business Days after being by first-class mail, postage prepaid. Notice to any Holder shall be given to the registered address set forth in the Corporation’s records for such Holder. Any payment required to be made hereunder on any day that is not a Business Day shall be made on

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the next succeeding Business Day and no interest or dividends on such payment will accrue or accumulate, as the case may be, in respect of such delay.

(d) Holders of shares of Series A Preferred Stock shall not be entitled to any preemptive rights to acquire additional Capital Stock of the Corporation, except as set forth in the Preferred Purchase Agreement.

(e) As promptly as practicable following the occurrence of both the 14C Expiration Date and the HSR Expiration Date, the Corporation shall give written notice thereof to the Holders (the date of delivery of such notice, the “ Requisite Approvals Notice Date ”) .

[The Remainder of this Page Intentionally Left Blank]

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IN WITNESS WHEREOF , the undersigned has caused this Certificate of Designations to be duly executed this [●] day of [ ● ], 20[●].

WILDHORSE RESOURCE DEVELOPMENT CORPORATION

 

 

By:

Name:

 

Title:

 

 

[ Signature Page to Certificate of Designations of WildHorse Resource Development Corporation ]

 

 

Exhibit A

Ownership notice

THE SECURITIES IDENTIFIED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.

THE FOREGOING LEGEND WILL BE REMOVED AND A NEW OWNERSHIP NOTICE PROVIDED WITH RESPECT TO THE SECURITIES IDENTIFIED HEREIN UPON THE REQUEST OF THE HOLDER AFTER THE EXPIRATION OF THE APPLICABLE HOLDING PERIOD WITH RESPECT TO RESTRICTED SECURITIES SET FORTH IN RULE 144 UNDER THE SECURITIES ACT.

SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE CERTIFICATE OF INCORPORATION OF WILDHORSE RESOURCE DEVELOPMENT CORPORATION (THE “ CORPORATION ”), INCLUDING ANY CERTIFICATES OF DESIGNATIONS (AS FURTHER AMENDED AND/OR RESTATED FROM TIME TO TIME, THE “ CHARTER ”), THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK OR MORE THAN ONE SERIES OF ANY CLASS AND THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. THE SHARES EVIDENCED BY THIS NOTICE ARE SUBJECT TO THE OBLIGATIONS AND RESTRICTIONS STATED IN, AND ARE TRANSFERABLE ONLY IN ACCORDANCE WITH, THE PROVISIONS OF THE CHARTER AND THAT CERTAIN PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 10, 2017 (THE “ PPA ”), COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE CORPORATION AND WILL BE PROVIDED, WITHOUT COST, UPON WRITTEN REQUEST TO THE SECRETARY. THE TERMS OF THE CHARTER AND THE PPA ARE HEREBY INCORPORATED INTO THIS NOTICE BY REFERENCE.

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

This letter confirms and acknowledges that you are the registered owner of the number and the class or series of shares of capital stock of the Corporation listed on Schedule A to this letter.

Exhibit A-1

 

 

In addition, please be advised that the Corporation will furnish without charge to each stockholder of the Corporation who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock, or series thereof , of the Corporation and the qualifications, limitations or restrictions of such preferences and/or rights, which are fixed by the Charter. Any such request should be directed to the Secretary of the Corporation.

The shares of capital stock of the Corporation have been not been registered under the Securities Act and, accordingly, may not be offered, sold, pledged or otherwise transferred within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an effective registration statement under the Act or an exemption from the registration requirements of the Act.

Dated: ____________________

[●], as Transfer Agent,

 

 

By:

Authorized Signatory

Exhibit A-2

 

 

Exhibit B

FORM OF NOTICE OF CONVERSION

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Series A Preferred Stock)

The undersigned hereby irrevocably elects to convert (the “ Conversion ”) shares of 6.00% Series A Perpetual Convertible Preferred Stock (the “ Series A Preferred Stock ”) of WildHorse Resource Development Corporation (the “ Corporation ”), into shares of common stock, par value $0.01 per share, of the Corporation (“ Common Stock ”) according to the conditions of the Certificate of Designations of the Series A Preferred Stock (the “ Certificate of Designations ”). The Corporation will pay any documentary, stamp or similar issue or tax on the issuance of shares of Common Stock upon conversion of the Series A Preferred Stock, unless the tax is due because the undersigned requests such shares of Common Stock to be issued in a name other than the undersigned’s name, in which case the undersigned will pay the tax.

Capitalized terms used but not defined herein shall have the meaning given to them in the Certificate of Designations.

Number of shares of Series A Preferred Stock to be converted:

Name(s) (with address(es)) in which the certificate(s), if any, for any shares of Common Stock are to be registered: 1

Signature:

 

Name of registered Holder:

 

Fax No.:

 

Telephone No.:

 

 

1    

The Corporation is not required to issue shares of Common Stock until you satisfy the remainder of the conditions set forth in the Certificate of Designations.

Exhibit B-1

 

 

 

 

EXHIBIT B

Form of Registration Rights Agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

B-1

 

 

 

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

 

This Amended and Restated Registration Rights Agreement (this “ Agreement ”), dated as of [•], 2017, is entered into by and among WildHorse Resource Development Corporation, a Delaware corporation (the “ Company ”), and each of the other parties listed on the signature pages hereto (the “ Initial Holders ” and, together with the Company, the “ Parties ”).

WHEREAS, in connection with the Company’s initial public offering, the Company entered into that certain Registration Rights Agreement, dated as of December 19, 2016, by and among the Company and the IPO Holders (as defined below) (the “ Initial RRA ”);

WHEREAS, the Company and Carlyle are parties to that certain Preferred Stock Purchase Agreement, dated as of May 10, 2017, pursuant to which the Company has issued and sold certain shares of Convertible Preferred Stock (as defined below) to Carlyle (the “ Preferred Purchase Agreement ”);

WHEREAS, the Company and the KKR Holders are parties to that certain Stock Issuance Agreement, dated as of May 10, 2017, pursuant to which the Company has issued and sold certain shares of Common Stock (as defined below) to the KKR Holders (the “ Stock Issuance Agreement ”).

WHEREAS, as a condition to the closing of the transactions contemplated by the Preferred Purchase Agreement, the Company and Carlyle agreed to execute and deliver this Agreement in order for the Company to grant certain registration and other rights to Carlyle by amending the Initial RRA on the terms and subject to the conditions set forth in this Agreement.

WHEREAS, as a condition to the closing of the transactions contemplated by the Stock Issuance Agreement, the Company and the KKR Holders agreed to execute and deliver this Agreement in order for the Company to grant certain registration and other rights to the KKR Holders by amending the Initial RRA on the terms and subject to the conditions set forth in this Agreement.

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, the Parties hereby agree as follows:

1. Definitions.   As used in this Agreement, the following terms have the meanings indicated:

“ Acquisition Co. Holdings ” means WHE AcqCo Holdings, LLC, a Delaware limited liability company.

“ Affiliate ” means, with respect to any specified Person, a Person that directly or indirectly Controls or is Controlled by, or is under common Control with, such specified Person; provided, however, that (i) the Company shall not be considered an Affiliate of any Holder for

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purposes of this Agreement and (ii) the Preferred Holders and the Sponsoring Holders shall not be considered Affiliates of each other for purposes of this Agreement.  

“ Automatic Shelf Registration Statement ” means an “automatic shelf registration statement” as defined under Rule 405.

“ Board ” means the board of directors of the Company.

“ Business Day ” means any day other than a Saturday, Sunday, any federal holiday or any other day on which banking institutions in the State of Texas or the State of New York are authorized or required to be closed by law or governmental action.

“ Carlyle ” means CP VI Eagle Holdings, L.P.

“ Certificate ” means the Certificate of Designations establishing the terms of the Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on [●], 2017.  

“ Commission ” means the Securities and Exchange Commission or any other federal agency then administering the Securities Act or Exchange Act.

“ Common Stock ” means the common stock, par value $0.01 per share, of the Company.

“ Company Securities ” means any equity interest of any class or series in the Company.

“ Control ” (including the terms “ Controls ,” “ Controlled by ” and “ under common Control with ”) means the possession, direct or indirect, of the power to (a) direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise or (b) vote 10% or more of the securities having ordinary voting power for the election of directors of a Person.

“ Convertible Preferred Stock ” means the shares of Series A Perpetual Convertible Preferred Stock of the Company issued to Carlyle pursuant to the Preferred Purchase Agreement.

“ Effective Date ” means the time and date that a Registration Statement is first declared effective by the Commission or otherwise becomes effective.

“ Esquisto Holdings ” means Esquisto Holdings, LLC, a Delaware limited liability company.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

“ Holder ” means (a) WildHorse Holdings unless and until WildHorse Holdings ceases to hold any Registrable Securities; (b) Esquisto Holdings unless and until Esquisto Holdings ceases to hold any Registrable Securities; (c) Acquisition Co. Holdings unless and until Acquisition Co. Holdings ceases to hold any Registrable Securities, (d) Jay Graham unless and until Jay Graham ceases to hold any Registrable Securities, (e) Anthony Bahr unless and until Anthony Bahr ceases to hold any Registrable Securities, (f) NGP unless and until NGP ceases to hold any Registrable Securities, (g) each

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Preferred Holder unle ss and until such Preferred Holder ceases to hold any Registrable Securities; (h) each KKR Holder unless and until such KKR Holder ceases to hold any Registrable Securities; and (i) any holder of Registrable Securities to whom registration rights conferred by this Agreement have been transferred in compliance with Section 8(e) hereof; provided that any Person referenced in clause (i) shall be a Holder only if such Person agrees in writing to be bound by and subject to the terms set forth in this Agreement.

“ Initiating Holder ” means the Sponsoring Holder or Preferred Holder delivering the Demand Notice or the Underwritten Offering Notice, as applicable.

“ IPO Holders ” means WildHorse Holdings, Esquisto Holdings, Acquisition Co. Holdings, Jay Graham, Anthony Bahr and NGP.

“ KKR Holders ” means Admiral A Holding L.P., a Delaware limited partnership, TE Admiral A Holding L.P., a Delaware limited partnership, and Aurora C-I Holding L.P., a Delaware limited partnership.  

“ Lock-Up Period ” (i) with respect to the Preferred Holders, means the first anniversary of the date of this Agreement and (ii) with respect to all other Holders, has the meaning set forth in the underwriting agreement entered into by the Company in connection with the initial underwritten public offering of shares of Common Stock.

“ Material Adverse Change ” means (a) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market in the United States; (b) the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States; (c) a material outbreak or escalation of armed hostilities or other international or national calamity involving the United States or the declaration by the United States of a national emergency or war or a change in national or international financial, political or economic conditions; or (d) any event, change, circumstance or effect that is or is reasonably likely to be materially adverse to the business, properties, assets, liabilities, condition (financial or otherwise), operations, results of operations or prospects of the Company and its subsidiaries taken as a whole.

“ NGP ” means NGP XI US Holdings, L.P., a Delaware limited partnership.

“ Person ” means an individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, estate, trust, government (or an agency or subdivision thereof) or other entity of any kind.

“ Preferred Holder ” means (a) Carlyle unless and until Carlyle ceases to hold any Convertible Preferred Stock or Registrable Securities and (b) any holder of Convertible Preferred Stock or Registrable Securities to whom registration rights of a “Preferred Holder” conferred by this Agreement have been transferred in compliance with Section 8(e) hereof; provided that any Person referenced in clause (b) shall be a Preferred Holder only if such Person agrees in writing to be bound by and subject to the terms set forth in this Agreement.

“ Preferred No-Blocking Period ” is defined in Section 3(o) .  

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“ Proceeding ” means any action, claim, suit, proceeding or investigation ( including a preliminary investigation or partial proceeding, such as a deposition) pending or, to the knowledge of the Company, to be threatened.

“ Prospectus ” means the prospectus included in a Registration Statement (including a prospectus that includes any information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A, Rule 430B or Rule 430C promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.  

“ Registrable Securities ” means the Shares; provided, however, that Registrable Securities shall not include: (a) any Shares that have been registered under the Securities Act and disposed of pursuant to an effective Registration Statement or otherwise transferred to a Person who is not entitled to the registration and other rights hereunder; (b) any Shares that have been sold or transferred by the Holder thereof pursuant to Rule 144 (or any similar provision then in force under the Securities Act) and the transferee thereof does not receive “restricted securities” as defined in Rule 144; and (c) any Shares that cease to be outstanding (whether as a result of repurchase and cancellation, conversion or otherwise); provided, however , that any Registrable Security shall cease to be a Registrable Security at such time that (a) the holder thereof (together with its Affiliates) ceases to hold at least 2.5% of the outstanding Common Stock (on an as-converted basis with respect to any Convertible Preferred Stock outstanding); (b) such Registrable Security may be sold pursuant to any section of Rule 144 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect) without any volume or manner of sale restrictions or information requirements thereunder; and (c) at least two years have elapsed since the date of this Agreement.

“ Registration Statement ” means a registration statement of the Company in the form required to register under the Securities Act and other applicable law for the resale of the Registrable Securities in accordance with the intended plan of distribution of each Holder included therein, and including any Prospectus, amendments and supplements to each such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“ Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act.

“ Rule 405 ” means Rule 405 promulgated by the Commission pursuant to the Securities Act.

“ Rule 415 ” means Rule 415 promulgated by the Commission pursuant to the Securities Act.

“ Rule 424 ” means Rule 424 promulgated by the Commission pursuant to the Securities Act.

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“ Securities Act ” means th e Securities Act of 1933, as amended.

“ Selling Expenses ” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder.  

“ Shares ” means (i) with respect to the Preferred Holders, any shares of Common Stock issued or issuable upon conversion of the Convertible Preferred Stock, (ii) with respect to all other Holders, the shares of Common Stock held by the IPO Holders as of the date hereof and (iii) any other equity interests of the Company or equity interests in any successor of the Company issued in respect of such shares referenced in clauses (i) and (ii) by reason of or in connection with any stock dividend, stock split, combination, reorganization recapitalization, conversion to another type of entity or similar event involving a change in the capital structure of the Company.  

“ Shelf Registration Statement ” means a Registration Statement of the Company filed with the Commission on Form S-3 (or any successor form or other appropriate form under the Securities Act) for an offering to be made on a continuous or delayed basis pursuant to Rule 415 (or any similar rule that may be adopted by the Commission) covering the Registrable Securities, as applicable.

“ Sponsoring Holder ” means (a) WildHorse Holdings unless and until WildHorse Holdings ceases to hold any Registrable Securities; (b) Esquisto Holdings unless and until Esquisto Holdings ceases to hold any Registrable Securities; (c) Acquisition Co. Holdings unless and until Acquisition Co. Holdings ceases to hold any Registrable Securities; and (d) any holder of Registrable Securities to whom registration rights of a “Sponsoring Holder” conferred by this Agreement have been transferred in compliance with Section 8(e) hereof; provided that any Person referenced in clause (d) shall be a Sponsoring Holder only if such Person agrees in writing to be bound by and subject to the terms set forth in this Agreement.

“ Stockholders Agreement ” means that certain Stockholders Agreement, dated as of December 19, 2016, by and among the Company, Wildhorse Holdings, Esquisto Holdings and Acquisition Co. Holdings.

“ Trading Market ” means the principal national securities exchange on which Registrable Securities are listed.

“ Underwritten Offering ” means an underwritten offering of Common Stock for cash (whether a Requested Underwritten Offering or in connection with a public offering of Common Stock by the Company, stockholders or both), excluding an offering relating solely to an employee benefit plan, or an offering relating to a transaction on Form S-4 or S-8.

“ VWAP ”  means, as of a specified date and in respect of Registrable Securities, the volume weighted average price for such security on the Trading Market for the five trading days immediately preceding, but excluding, such date.

“ WildHorse Holdings ” means WHR Holdings LLC, a Delaware limited liability company.

“ WKSI ” means a “well known seasoned issuer” as defined under Rule 405.

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Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms; (b) references to Sections refer to sections of this Agreement; (c) the terms “include,” “includes,” “including” and words of like impor t shall be deemed to be followed by the words “without limitation”; (d) the terms “hereof,” “hereto,” “herein” or “hereunder” refer to this Agreement as a whole and not to any particular provision of this Agreement; (e) unless the context otherwise require s, the term “or” is not exclusive and shall have the inclusive meaning of “and/or”; (f) defined terms herein will apply equally to both the singular and plural forms and derivative forms of defined terms will have correlative meanings; (g) references to an y law or statute shall include all rules and regulations promulgated thereunder, and references to any law or statute shall be construed as including any legal and statutory provisions consolidating, amending, succeeding or replacing the applicable law or statute; (h) references to any Person include such Person’s successors and permitted assigns; and (i) references to “days” are to calendar days unless otherwise indicated.

2. Registration.

(a) Demand Registration .

(i) At any time after the expiration of the applicable Lock-Up Period, any Preferred Holder and Sponsoring Holder shall severally have the option and right, exercisable by delivering a written notice to the Company (a “ Demand Notice ”), to require the Company to, pursuant to the terms of and subject to the limitations contained in this Agreement, prepare and file with the Commission a Registration Statement registering the offering and sale of the number and type of Registrable Securities on the terms and conditions specified in the Demand Notice, which may include sales on a delayed or continuous basis pursuant to Rule 415 pursuant to a Shelf Registration Statement (a “ Demand Registration ”).  The Demand Notice must set forth the number of Registrable Securities that the Initiating Holder intends to include in such Demand Registration and the intended methods of disposition thereof.  Notwithstanding anything to the contrary herein, in no event shall the Company be required to effectuate a Demand Registration unless the Registrable Securities of the Holders to be included therein after compliance with Section 2(a)(ii) have an aggregate value of at least $75 million based on the VWAP (the “ Minimum Amount ”) as of the date of the Demand Notice; provided, however, that the Minimum Amount shall not apply in the event that, as the result of Cutback Shares being removed from such Registration Statement pursuant to this Section 2(a)(i) , the Registrable Securities of the Holders to be included therein after compliance with Section 2(a)(ii) have an aggregate value of less than $75 million.  If at any time the Commission takes the position that some or all of the Registrable Securities proposed to be included in a Registration Statement filed pursuant to a Demand Registration must be removed from such Registration Statement (such portion of the Registrable Securities, the “ Cut Back Shares ”) in order for all of the Registrable Securities in such Registration Statement filed pursuant to a Demand Registration to be eligible to be made on a delayed or continuous basis under the provisions of Rule 415 or for the Initiating Holder to  not be named as an “underwriter” in such Registration Statement, then if the Initiating Holder so elects, the Company shall remove the Cutback Shares from such Registration

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Statement.  Any Cut Back Shares so removed pursuant to this Section 2(a)(i) shall be allocated among the Holders including Registrable Securities for resale on such Registration Statement on a pro rata basis.   Further, a Dem and Registration shall not constitute a Demand Registration of the Initiating Holder for purposes of Section 2(a)(iii) if, as a result of the cutback provisions in this Section 2(a)(i) or Registrable Securities of Holders other than the Initiating Holder i ncluded in such Demand Registration pursuant to Section 2(a)(ii) , there is included in the Demand Registration less than the lesser of (x) Registrable Securities of the Initiating Holder having a VWAP measured on the effective date of the related Registrat ion Statement of $75 million and (y) two-thirds of the number of Registrable Securities the Initiating Holder set forth in the applicable Demand Notice.

(ii) Within five Business Days (or if the Registration Statement will be a Shelf Registration Statement, within two Business Days) after the receipt of the Demand Notice, the Company shall give written notice of such Demand Notice to all Holders and, within 30 days after receipt of the Demand Notice (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case, within 90 days thereof), shall, subject to the limitations of this Section 2(a) , file a Registration Statement in accordance with the terms and conditions of the Demand Notice, which Registration Statement shall cover all of the Registrable Securities that the Holders shall in writing request to be included in the Demand Registration (such request to be given to the Company within three Business Days (or if the Registration Statement will be a Shelf Registration Statement, within one Business Day) after receipt of notice of the Demand Notice given by the Company pursuant to this Section 2(a)(ii) ).  The Company shall use reasonable best efforts to cause such Registration Statement to become and remain effective (including using reasonable best efforts to file a Registration Statement including Registrable Securities included on any previous Registration Statement that ceases to be effective, which, for the avoidance of doubt shall not be considered an additional Demand Registration for any Holder pursuant to Section 2(a)(iii) ) under the Securities Act until all such securities registered for resale thereunder cease to be Registrable Securities (the “ Effectiveness Period ”).

(iii) Subject to the other limitations contained in this Agreement, the Company is not obligated hereunder to effect (A) a Demand Registration within 90 days after the closing of any Underwritten Offering (or such shorter time as the Company may notify the Holders in writing) (any such time period, a “ No Demand Period ”), unless any Preferred No-Blocking Period exists during such No Demand Period, in which case the Company shall nevertheless be required to effect a Demand Registration initiated by any Preferred Holder that is then otherwise entitled to initiate a Demand Registration during such Preferred No-Blocking Period, (B) more than a total of four Demand Registrations for which WildHorse Holdings (or any transferee thereof in accordance with Section 8(e) ) is the Initiating Holder, (C) more than a total of four Demand Registrations for which Esquisto Holdings (or any transferee thereof in accordance with Section 8(e) ) is the Initiating Holder, (D) more than a total of four Demand Registrations for which Acquisition Co. Holdings (or any transferee thereof in accordance with Section 8(e) ) is the Initiating Holder, (E) more than a total of six Demand Registrations for which any Preferred Holder is the Initiating Holder; and (F) a subsequent Demand Registration pursuant to a Demand Notice if a Registration Statement covering all of the Registrable

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Securities held by the Initiating Holder shall have become and remains effective under the Securities Act and is sufficient to permit offers and sales of the number and type of Registrable Securities on the terms and conditions specified in the Demand Notice in accordance with the intended timing and method or methods of distribution thereof specified in the Demand Notice.   No Demand Registration shall be deemed to have occurred for purposes of this Section 2(a)(iii) if the Registration Statement relating thereto does not become effective or is not maintained effective for its entire Effectiveness Period, in which case the Initiating Hol der shall be entitled to an additional Demand Registration in lieu thereof.      

(iv) A Holder may withdraw all or any portion of its Registrable Securities included in a Demand Registration from such Demand Registration at any time prior to the effectiveness of the applicable Registration Statement.  Upon receipt of a notice from the Initiating Holder that the Initiating Holder is withdrawing all of its Registrable Securities from the Demand Registration or a notice from a Holder to the effect that the Holder is withdrawing an amount of its Registrable Securities such that the remaining amount of Registrable Securities to be included in the Demand Registration is below the Minimum Amount, the Company may cease all efforts to secure effectiveness of the applicable Registration Statement, unless one or more Holders other than the withdrawing Holder(s) shall promptly request the Company in writing to include additional Registrable Securities in the Demand Registration such that amount of Registrable Shares to be included in the Demand Registration satisfies the Minimum Amount (a “ Requisite Holder Substitution ”).  In the absence of a Requisite Holder Substitution, such registration nonetheless shall be deemed a Demand Registration with respect to the Initiating Holder for purposes of Section 2(a)(iii) unless (A) the Initiating Holder shall have paid or reimbursed the Company for its pro rata share of all reasonable and documented out-of-pocket fees and expenses incurred by the Company in connection with the withdrawn registration of such Registrable Securities (based on the number of securities the Initiating Holder sought to register, as compared to the total number of securities included in such Demand Registration) or (B) the withdrawal is made following the occurrence of a Material Adverse Change or pursuant to the Company’s request for suspension pursuant to Section 3(o) .

(v) The Company may include in any such Demand Registration other Company Securities for sale for its own account or for the account of any other Person, subject to Section 2(c)(iii) .  

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(vi) Subject to the limitations contained in this Agreement, the Company shall effect any Demand Registration on such appropriate registration form of the Commission (A) as shall be selected by the Company and (B) subject to applicable law and the requirements of the Commission, as shall permit the disposition of the Registrable Securities in accordance with the intended method or methods of dispositi on specified in the Demand Notice; provided that, subject to Section 3(o) , (X) if the Registration Statement is on Form S-1, the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Stateme nt on Form S-3 covering the Registrable Securities has been declared effective by the Commission (provided that Form S-1 is then available for sales on a delayed or continuous basis under the provisions of Rule 415 in respect of such Demand Registration), and (Y) if the Company becomes, and is at the time of its receipt of a Demand Notice eligible to use Form S-3, the Demand Registration for any offering and selling of Registrable Securities shall be registered on Form S-3 (or any equivalent or successor fo rm under the Securities Act (if available to the Company) and (Z) if at the time of its receipt of a Demand Notice, the Company is a WKSI, the Demand Registration for any offering and selling of Registrable Securities shall be registered on an Automatic Sh elf Registration Statement on Form S-3 or any equivalent or successor form under the Securities Act (if available to the Company).  If at any time a Registration Statement on Form S-3 is effective and a Holder provides written notice to the Company that it intends to effect an offering of all or part of the Registrable Securities included on such Registration Statement, the Company will amend or supplement such Registration Statement as may be necessary in order to enable such offering to take place.  

(vii) Without limiting Section 3 , in connection with any Demand Registration pursuant to and in accordance with this Section 2(a) , the Company shall (A) promptly prepare and file or cause to be prepared and filed (1) such additional forms, amendments, supplements, prospectuses, certificates, letters, opinions and other documents, as may be necessary or advisable to register or qualify the securities subject to such Demand Registration, including under the securities laws of such jurisdictions as the Holders shall reasonably request; provided, however, that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would become subject to general service of process or to taxation or qualification to do business in such jurisdiction solely as a result of registration and (2) such forms, amendments, supplements, prospectuses, certificates, letters, opinions and other documents as may be necessary to apply for listing or to list the Registrable Securities subject to such Demand Registration on the Trading Market and (B) do any and all other acts and things that may be reasonably necessary or appropriate or reasonably requested by the Holders to enable the Holders to consummate a public sale of such Registrable Securities in accordance with the intended timing and method or methods of distribution thereof.  

(viii) In the event a Holder transfers Registrable Securities included on a Registration Statement and such Registrable Securities remain Registrable Securities following such transfer, at the request of such Holder, the Company shall amend or supplement such Registration Statement as may be necessary in order to enable such transferee to offer and sell such Registrable Securities pursuant to such Registration Statement; provided that in no event shall the Company be required to file a post-

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effective amendment to the Registration Statement unless (A) such Registration Statement includes on ly Registrable Securities held by the Holder, Affiliates of the Holder or transferees of the Holder or (B) the Company has received written consent therefor from a Person for whom Registrable Securities have been registered on (but not yet sold under) such Registration Statement, other than the Holder, Affiliates of the Holder or transferees of the Holder.

(ix) Notwithstanding the foregoing restrictions of this Section 2(a) , but subject to any applicable No Demand Periods, the Preferred Holders shall be permitted to deliver a Demand Notice for a Demand Registration during the Lock-Up Period so long as (A) the Company is then-eligible to use Form S-3 to register the resale of Registrable Securities and (B) the Preferred Holders do not dispose of any Registrable Securities pursuant to the applicable Registration Statement for the duration of the Lock-Up Period. Further, and for the avoidance of doubt, nothing in this Agreement shall prohibit a Preferred Holder from exercising its rights as a Holder during the Lock-Up Period, including, but not limited to, a Preferred Holder’s participation in a Demand Registration, Underwritten Offering and/or Underwritten Piggyback Offering, other than with respect to (Y) except as provided in the immediately preceding sentence, delivering a Demand Notice as an Initiating Holder during its Lock-Up Period pursuant to Section 2(a)(i) and (Z) exercising its right to receive a Piggyback Notice or to participate in any Piggyback Registration during its Lock-Up Period with respect to the filing of a registration statement for the sale of securities solely for the account of the Company, which registration statement, for the avoidance of doubt, does not include Registrable Securities of any Holder.    

(b) Requested Underwritten Offering .  Any Holder then able to effectuate a Demand Registration pursuant to the terms of Section 2(a) (or who has previously effectuated a Demand Registration pursuant to Section 2(a) but has not engaged in an Underwritten Offering in respect of such Demand Registration) shall have the option and right, exercisable by delivering written notice to the Company of its intention to distribute Registrable Securities by means of an Underwritten Offering (an “ Underwritten Offering Notice ”), to require the Company, pursuant to the terms of and subject to the limitations of this Agreement, to effectuate a distribution of any or all of its Registrable Securities by means of an Underwritten Offering pursuant to a new Demand Registration or pursuant to an effective Registration Statement covering such Registrable Securities (a “ Requested Underwritten Offering ”); provided, that the Registrable Securities of such Initiating Holder requested to be included in such Requested Underwritten Offering have an aggregate value of at least equal to the Minimum Amount as of the date of such Underwritten Offering Notice.  The Underwritten Offering Notice must set forth the number of Registrable Securities that the Initiating Holder intends to include in such Requested Underwritten Offering.  The managing underwriter or managing underwriters of a Requested Underwritten Offering shall be designated by the Company; provided, however, that such designated managing underwriter or managing underwriters shall be reasonably acceptable to the Initiating Holder; provided, further, however that no later than 9:00 A.M., New York Time, on the day of a proposed block trade or bought deal pursuant to an Initiating Holder’s Requested Underwritten Offering (an “ Initiating Holder Block ”), the Initiating Holder thereof may deliver to the Company in writing a list of one or more proposed managing underwriters of the Initiating Holder Block (each a “ Bidding Bank ” and collectively, the “ Bidding Banks ”) and,

10

 

unless the Company reasonably objects to any Bidding Bank in writing to the Initiating Holder by Noon, N ew York Time on the same day, any one or more of such Bidding Banks to which the Company does not so timely reasonably object (the “ Approved Bidding Banks ”), shall be deemed to be designated by the Company as a managing underwriter for the purposes of this Section 2(b) , and the Initiating Holder of the Initiating Holder Block may select, without any additional prior consent by or approval from the Company, one or more Approved Bidding Bank as a managing underwriter or the managing underwriters for such Init iating Holder Block as if it as if it had assumed the Company’s the right of designation pursuant to this Section 2(b) .  In connection with any Initiating Holder Block, the Initiating Holder thereof shall take commercially reasonable efforts to advise the Company with respect to its obligations thereunder and related schedule thereto. Notwithstanding the foregoing, the Company is not obligated to effect a Requested Underwritten Offering within 90 days after the closing of an Underwritten Offering (or such s horter time as the Company may notify the Holders in writing) (any such time period, a “ No Requested Underwritten Offering Period ”), unless any Preferred No-Blocking Period exists during such No Requested Underwritten Offering Period, in which case the Com pany shall nevertheless be required to effect a Requested Underwritten Offering initiated by any Preferred Holder that is then otherwise entitled to initiate a Requested Underwritten Offering during such Preferred No-Blocking Period. Any Requested Underwri tten Offering (other than the first Requested Underwritten Offering made in respect of a prior Demand Registration) shall constitute a Demand Registration of the Initiating Holder for purposes of Section 2(a)(iii) (it being understood that if requested concurrently with a  Demand Registration then, together, such Demand Registration and Requested Underwritten Offering shall count as one Demand Regist ration); provided, however, that a Requested Underwritten Offering shall not constitute a Demand Registration of the Initiating Holder for purposes of Section 2(a)(iii) if, as a result of Section 2(c)(iii) (A) , the Requested Underwritten Offering includes less than the lesser of (i) Registrable Securities of the Initiating Holder having a VWAP measured on date of the applicable Underwritten Offering Notice  of $75 million and (ii) two-thirds of the number of Registrable Securities the Initiating Holder set forth in the applicable Underwritten Off ering Notice.  

(c) Piggyback Registration and Piggyback Underwritten Offering .

(i) If the Company shall at any time propose to file a registration statement under the Securities Act with respect to an offering of Common Stock (other than a registration statement on Form S-4, Form S-8 or any successor forms thereto or filed solely in connection with an exchange offer or any employee benefit or dividend reinvestment plan and other than a Demand Registration), whether or not for its own account, then the Company shall promptly notify all Holders of such proposal reasonably in advance of (and in any event at least five Business Days, except if the registration statement will be a Shelf Registration Statement, at least two Business Days, before) the anticipated filing date (the “ Piggyback Registration Notice ”).  The Piggyback Registration Notice shall offer Holders the opportunity to include for registration in such registration statement the number of Registrable Securities as they may request in writing (a “ Piggyback Registration ”).  The Company shall use commercially reasonable efforts to include in each such Piggyback Registration such Registrable Securities for which the Company has received written requests for inclusion therein (“ Piggyback Registration Request ”) within three Business Days or, if the Piggyback Registration will be on a Shelf

11

 

Registration Statement, within one Business Day, after sending the Piggyback Registration Notice.  Each Holder shall be permitted to withdraw all or part of such Holder’s Registr able Securities from a Piggyback Registration by giving written notice to the Company of its request to withdraw; provided that (A) such request must be made in writing prior to the effectiveness of such registration statement and (B) such withdrawal shall be irrevocable and, after making such withdrawal, a Holder shall no longer have any right to include Registrable Securities in the Piggyback Registration as to which such withdrawal was made.  Any withdrawing Holder shall continue to have the right to inc lude any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of Common Stock, all upon the terms and conditions set forth herein.  Notwithstanding anything to t he contrary in this Section 2(c)(i) , the Preferred Holders shall not have the right to receive any Piggyback Notice or to participate in any Piggyback Registration, in each case with respect to the filing of a registration statement for the sale of securit ies solely for the account of the Company, which registration statement, for the avoidance of doubt, does not include Registrable Securities of any Holder, until the expiration of the Lock-Up Period applicable to the Preferred Holders.  

(ii) If the Company shall at any time propose to conduct an Underwritten Offering (including a Requested Underwritten Offering), whether or not for its own account, then the Company shall promptly notify all Holders of such proposal reasonably in advance of (and in any event at least five Business Days, except if the Underwritten Offering will be made pursuant to a Shelf Registration Statement, at least two Business Days, before) the commencement of the offering, which notice shall set forth the principal terms and conditions of the issuance, including the proposed offering price or range of offering prices (if known), the anticipated filing date of the related registration statement (if applicable) and the number of shares of Common Stock that are proposed to be registered (the “ Underwritten Offering Piggyback Notice ”).  The Underwritten Offering Piggyback Notice shall offer Holders the opportunity to include in such Underwritten Offering (and any related registration, if applicable) the number of Registrable Securities as they may request in writing (an “ Underwritten Piggyback Offering ”); provided, however, that in the event that the Company proposes to effectuate the subject Underwritten Offering pursuant to an effective Shelf Registration Statement other than an Automatic Shelf Registration Statement, only Registrable Securities of Holders which are subject to an effective Shelf Registration Statement may be included in such Underwritten Piggyback Offering.  The Company shall use commercially reasonable efforts to include in each such Underwritten Piggyback Offering such Registrable Securities for which the Company has received written requests for inclusion therein (“ Underwritten Offering Piggyback Request ”) within three Business Days or, if such Underwritten Piggyback Offering will be made pursuant to a Shelf Registration Statement, within one Business Day after sending the Underwritten Offering Piggyback Notice.  Each Holder shall be permitted to withdraw all or part of such Holder’s Registrable Securities from an Underwritten Piggyback Offering at any time prior to the effectiveness of the applicable registration statement, and such Holder shall continue to have the right to include any Registrable Securities in any subsequent Underwritten Offerings, all upon the terms and conditions set forth herein.  Notwithstanding anything to the contrary in this Section 2(c)(ii) , the Preferred Holders shall not have the right to

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receive any Underwritten Offering Piggyback Notice or to participate in any Underwritten Piggyback Offering, in ea ch case with respect to an Underwritten Offering  of securities solely for account of the Company (and not including Registrable Securities of any other Holder), until the expiration of the Lock-Up Period applicable to the Preferred Holders.

(iii) If the managing underwriter or managing underwriters of an Underwritten Offering advise the Company and the Holders that in their reasonable opinion that the inclusion of all of the Holders’ Registrable Securities requested for inclusion in the subject Underwritten Offering (and any related registration, if applicable) (and any other Common Stock proposed to be included in such offering) exceeds the number that can be included without being likely to have a significant adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, the Company shall include in such Underwritten Offering (and any related registration, if applicable) only that number of shares of Common Stock proposed to be included in such Underwritten Offering (and any related registration, if applicable) that, in the reasonable opinion of the managing underwriter or managing underwriters, will not have such adverse effect, with such number to be allocated as follows:  (A) in the case of a Requested Underwritten Offering, (1) first, pro-rata among all Holders (including the Initiating Holder) that have requested to include Registrable Securities in such Underwritten Offering based on the relative number of Registrable Securities then held by each such Holder, (2) second, if there remains availability for additional shares of Common Stock to be included in such Underwritten Offering, the Company, and (3) third, if there remains availability for additional shares of Common Stock to be included in such Underwritten Offering, any other holders entitled to participate in such Underwritten Offering, if applicable, based on the relative number of shares of Common Stock then held by each such holder; and (B) in the case of any other Underwritten Offerings, (x) first, to the Company, (y) second, if there remains availability for additional shares of Common Stock to be included in such Underwritten Offering, pro-rata among all Holders desiring to include Registrable Securities in such Underwritten Offering based on the relative number of Registrable Securities then held by each such Holder, and (z) third, if there remains availability for additional shares of Common Stock to be included in such registration, pro-rata among any other holders entitled to participate in such Underwritten Offering, if applicable, based on the relative number of Common Stock then held by each such holder.  If any Holder disapproves of the terms of any such Underwritten Offering, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter(s) delivered on or prior to the time of the commencement of such offering.  Any Registrable Securities withdrawn from such underwriting shall be excluded and withdrawn from the registration.  In making any determination of the relative number of Registrable Securities then held by each Holder for purposes of Section 2(a)(iv) and this Section 2(c)(iii) , each Holder of Convertible Preferred Stock shall be deemed for purposes of such determination to hold a number of shares of Common Stock equal to the number of shares of Common Stock issuable in respect of such Holder’s Convertible Preferred Stock in the event such Holder converted all of its shares of Convertible Preferred Stock into shares of Common Stock as of such time of determination.  

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(iv) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2(c) at any time in its sole discretion whether or not any Holder has elected to include Registrable Securities in such Registration Statement.  The registration expenses of such withdrawn registration shall be borne by the Company in accordance with Section 4 hereof.

(v) Each Holder agrees that, following receipt of any Piggyback Registration Notice, Underwritten Offering Piggyback Notice or any notice pursuant to Section 2(a)(ii) , such Holder will keep confidential and will not disclose, divulge, or use for any purpose (other than as necessary to exercise its rights pursuant to this Agreement, including, but not limited to, disclosure to its advisors and Aff iliates) the fact that such Piggyback Registration Notice, Underwritten Offering Piggyback Notice or any notice pursuant to Section 2(a)(ii) exists or was received by such Holder or the contents of any such Piggyback Registration Notice, Underwritten Offering Piggyback Notice or any notice pursuant to Section 2(a)(ii) , until the earlier of (a) the date that is 30 days following receipt of such notice, (b) such time as the registration or Underwritten Offering that is the subject of such notice is known or b ecomes known to the public in general (other than as a result of a breach of this Section 2(c)(v) ) and (c) the date the Company notifies the Holder that the proposed Underwritten Piggyback offering has been abandoned.  

3. Registration and Underwritten Offering Procedures.   The procedures to be followed by the Company and each Holder electing to sell Registrable Securities in a Registration Statement pursuant to this Agreement, and the respective rights and obligations of the Company and such Holders, with respect to the preparation, filing and effectiveness of such Registration Statement and the effectuation of any Underwritten Offering, are as follows:

(a) In connection with a Demand Registration, the Company will, at least three Business Days prior to the anticipated filing of the Registration Statement and any related Prospectus or any amendment or supplement thereto (other than, after effectiveness of the Registration Statement, any filing made under the Exchange Act that is incorporated by reference into the Registration Statement), (i) furnish to such Holders copies of all such documents prior to filing and (ii) use commercially reasonable efforts to address in each such document when so filed with the Commission such comments as such Holders reasonably shall propose prior to the filing thereof.

(b) In connection with a Piggyback Registration, Underwritten Piggyback Offering or a Requested Underwritten Offering, the Company will, at least three Business Days (or in the case of a Shelf Registration Statement or an offering that will be made pursuant to a Shelf Registration Statement, at least one Business Day) prior to the anticipated filing of any initial Registration Statement that identifies the Holders and any related Prospectus or any amendment or supplement thereto (other than amendments and supplements that do not materially alter the previous disclosure or do nothing more than name Holders and provide information with respect thereto), as applicable, furnish to such Holders copies of any such Registration Statement or related Prospectus or amendment or supplement thereto that identify

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the Holders and any related Prospectus or any amendment or supplement thereto (other than amendments and supplements that do not materially alter the previous disclosure or do not hing more than name Holders and provide information with respect thereto).  The Company will also  use commercially reasonable efforts to address in each such document when so filed with the Commission such comments as such Holders reasonably shall propose prior to the filing thereof.

(c) The Company will use commercially reasonable efforts to as promptly as reasonably practicable (i) prepare and file with the Commission such amendments, including post-effective amendments, and supplements to each Registration Statement and the Prospectus used in connection therewith as may be necessary under applicable law to keep such Registration Statement continuously effective with respect to the disposition of all Registrable Securities covered thereby for its Effectiveness Period and, subject to the limitations contained in this Agreement, applicable law and the requirements of the Commission, prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities held by the Holders; (ii) cause the related Prospectus to be amended or supplemented by any required prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; and (iii) respond to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably practicable provide such Holders true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to such Holders as selling stockholders but not any comments that would result in the disclosure to such Holders of material and non-public information concerning the Company.

(d) The Company will comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration Statements and the disposition of all Registrable Securities covered by each Registration Statement.

(e) The Company will notify such Holders who are included in a Registration Statement as promptly as reasonably practicable: (i)(A) when a Prospectus or any prospectus supplement or post-effective amendment to a Registration Statement in which such Holder is included has been filed; (B) when the Commission notifies the Company whether there will be a “review” of the applicable Registration Statement and whenever the Commission comments in writing on such Registration Statement (in which case the Company shall provide true and complete copies thereof and all written responses thereto to each of such Holders that pertain to such Holders as selling stockholders); and (C) with respect to each applicable Registration Statement or any post-effective amendment thereto, when the same has been declared effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information that pertains to such Holders as sellers of Registrable Securities; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions

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to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact r equired to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided , however, that no notice by the Company shall be required pursuant to this clause (v) in the ev ent that the Company either promptly files a prospectus supplement to update the Prospectus or a Form 8-K or other appropriate Exchange Act report that is incorporated by reference into the Registration Statement, which in either case, contains the requisi te information that results in such Registration Statement no longer containing any untrue statement of material fact or omitting to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were mad e, not misleading).

(f) The Company will use commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as promptly as reasonably practicable, or if any such order or suspension is made effective during any Blackout Period or Suspension Period, as promptly as reasonably practicable after such Blackout Period or Suspension Period is over.

(g) During the Effectiveness Period, the Company will furnish to each such Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Holder (including those incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company will not have any obligation to provide any document pursuant to this clause that is available on the Commission’s EDGAR system.

(h) The Company will promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) authorized by the Company for use and each amendment or supplement thereto as such Holder may reasonably request during the Effectiveness Period.  Subject to the terms of this Agreement, including Section 8(b) , the Company consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(i) The Company will cooperate with such Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free of all restrictive legends indicating that the Registrable Securities are unregistered or unqualified for resale under the Securities Act, Exchange Act or other applicable securities laws, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request in writing.  In connection therewith, if required by the Company’s transfer agent, the Company will promptly, after the Effective Date of the Registration Statement, cause an opinion of counsel as to the effectiveness of the Registration Statement to be delivered to and maintained with its transfer agent, together with any other authorizations, certificates and

16

 

directions require d by the transfer agent which authorize and direct the transfer agent to issue such Registrable Securities without any such legend upon sale by the Holder of such Registrable Securities under the Registration Statement.

(j) Upon the occurrence of any event contemplated by Section 3(e)(v) , as promptly as reasonably practicable, the Company will prepare a supplement or amendment, including a post-effective amendment, if required by applicable law, to the affected Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(k) With respect to Underwritten Offerings, (i) the right of any Holder to include such Holder’s Registrable Securities in an Underwritten Offering shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein, (ii) each Holder participating in such Underwritten Offering agrees to enter into an underwriting agreement in customary form and sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled to select the managing underwriter or managing underwriters hereunder and (iii) each Holder participating in such Underwritten Offering agrees to complete and execute all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents customarily and reasonably required under the terms of such underwriting arrangements.  The Company hereby agrees with each Holder that, in connection with any Underwritten Offering in accordance with the terms hereof, it will negotiate in good faith and execute all indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, including using all commercially reasonable efforts to procure customary legal opinions, auditor “comfort” letters and reports of the independent petroleum engineers of the Company relating to the oil and gas reserves of the Company included in the Registration Statement if the Company has had its reserves prepared, audited or reviewed by an independent petroleum engineer.  

(l) For a reasonable period prior to the filing of any Registration Statement and throughout the Effectiveness Period, the Company will make available, upon reasonable notice at the Company’s principal place of business or such other reasonable place, for inspection during normal business hours by a representative or representatives of the selling Holders, the managing underwriter or managing underwriters and any attorneys or accountants retained by such selling Holders or underwriters, all such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary (and in the case of counsel, not violate an attorney-client privilege in such counsel’s reasonable belief) to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that any information that is not generally publicly available at the time of delivery of such information shall be kept confidential by such Persons unless disclosure of such information is required by court or administrative order or, in the opinion of counsel to such Person, law, in which case, such Person shall be required to give the Company

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written notice of the proposed disclosure prior to such disclosu re and, if requested by the Company, assist the Company in seeking to prevent or limit the proposed disclosure.  

(m) In connection with any Requested Underwritten Offering, the Company will use commercially reasonable efforts to cause appropriate officers and employees to be available, on a customary basis and upon reasonable notice, to meet with prospective investors in presentations, meetings and road shows.

(n) Each Holder agrees to furnish to the Company any other information regarding the Holder and the distribution of such securities as the Company reasonably determines is required to be included in any Registration Statement or any Prospectus or prospectus supplement relating to an Underwritten Offering.

(o) Notwithstanding any other provision of this Agreement, the Company shall not be required to file a Registration Statement (or any amendment thereto) or effect a Requested Underwritten Offering (or, if the Company has filed a Shelf Registration Statement and has included Registrable Securities therein, the Company shall be entitled to suspend the offer and sale of Registrable Securities pursuant to such Registration Statement) for a period of up to 60 days if (i) the Board determines that a postponement is in the best interest of the Company and its stockholders generally due to a pending transaction involving the Company (including a pending securities offering by the Company), (ii) the Board determines such registration would render the Company unable to comply with applicable securities laws or (iii) the Board determines such registration would require disclosure of material information that the Company has a bona fide business purpose for preserving as confidential (any such period, a “ Blackout Period ”); provided , however, that in no event shall any Blackout Period together with any Suspension Period, any No Demand Period (but only if such No Demand Period relates to a an Underwritten Offering other than a Requested Underwritten Offering in which the Preferred Holders participated) and any No Requested Underwritten Offering Period (but only if such No Demand Period relates to a an Underwritten Offering other than a Requested Underwritten Offering in which the Preferred Holders participated) collectively exceed an aggregate of 120 days in any 12-month period; provided, further, that nothing in this Section 3(o) shall (i) relieve the Company of any obligation it may otherwise have pursuant to this Agreement to file a Registration Statement (or any amendment thereto) or effect a Requested Underwritten Offering or (ii) permit the Company to suspend the offer and sale of Registrable Securities pursuant to a Shelf Registration Statement that has been previously filed pursuant to this Agreement, in each case at the request of or with respect to a Preferred Holder or with respect to Registrable Securities of any such Preferred Holder, within any 45-day period following the date upon which any Convertible Preferred Stock of such Preferred Holder is converted into shares of Common Stock pursuant to Section 7(b) of the Certificate (any such 45-day period, a “ Preferred No-Blocking Period ”).

(p) In connection with an Underwritten Offering, the Company shall use all commercially reasonable efforts to provide to each Holder named as a selling securityholder in any Registration Statement a copy of any auditor “comfort” letters, customary legal opinions or reports of the independent petroleum engineers of the Company relating to the oil and gas reserves of the Company, in each case that have been provided to the managing underwriter or

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managing underwriters in connection with the Underwritten Offering, not later than the Business Day prior to the effective date of such Registration Statement.

(q) In connection with any Underwritten Offering (including any Requested Underwritten Offerin g), any Holder that (i) together with its Affiliates owns five percent (5%) or more of the outstanding Common Stock (assuming all Convertible Preferred Stock held by any Holder has been converted to Common Stock) or (ii) is entitled (or any of its Affiliates is entitled) to designate a director to the Company’s board of directors pursuant to the Stockholders Agreement or to elect a director to the Company’s board of directors pursuant to the Certificate, shall execute a customary “lock-up” agreement with the underwriters of such Underwritten Offering containing a lock-up period equal to the shorter of (A) the shortest number of days that a director of the Company, “executive officer” (as defined under Section 16 of the Exchange Act) of the Company or any stockholder of the Company (other than a Holder or director or employee of, or consultant to, the Company) who owns five percent (5%) or more of the outstanding Common Stock contractually agrees to with the underwriters of such Underwritten Offering not to sell any securities of the Company following such Underwritten Offering and (B) 45 days from the date of the execution of the underwriting agreement with respect to such Underwritten Offering.  

(r) In connection with any Requested Underwritten Offering, the Company will, and will use its commercially reasonable efforts to cause the members of the Board of Directors of the Company and the officers of the Company that are “executive officers” as defined under Section 16 of the Exchange Act to, execute a customary “lock-up” agreement with the underwriters of such Requested Underwritten Offering containing a lock-up period equal to the shorter of (A) the number of days that the Initiating Holder in such Requested Underwritten Offering contractually agrees with the underwriters of such Requested Underwritten Offering not to sell securities of the Company following such Requested Underwritten Offering and (B) 45 days from the date of the execution of the underwriting agreement with respect to such Requested Underwritten Offering.

4. No Inconsistent Agreements; Additional Rights.   The Company shall not hereafter enter into, and is not currently a party to, any agreement with respect to its securities that is inconsistent in any material respect with the rights granted to the Holders by this Agreement.   

5. Registration Expenses.   All Registration Expenses incident to the Parties’ performance of or compliance with their respective obligations under this Agreement or otherwise in connection with any Demand Registration, Requested Underwritten Offering, Piggyback Registration or Underwritten Piggyback Offering (in each case, excluding any Selling Expenses) shall be borne by the Company, whether or not any Registrable Securities are sold pursuant to a Registration Statement. “ Registration Expenses ” shall include, without limitation, (i) all registration and filing fees (including fees and expenses (A) with respect to filings required to be made with the Trading Market, (B) in compliance with applicable state securities or “Blue Sky” laws and (C) FINRA fees and expenses associated with any Registration Statement and the FINRA filing

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obligations of any underwriter related thereto), (ii) printing expenses (including expenses of printing certificates for Company Securities and of printing Prospectuses if the printing of Prospectuses is reasonably requested by a Holder of Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel, auditors, accountants and independent petroleum engineers for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of t he transactions contemplated by this Agreement, and (vii) all expenses relating to marketing the sale of the Registrable Securities, including expenses related to conducting a “road show.”  In addition, the Company shall be responsible for all of its expen ses incurred in connection with the consummation of the transactions contemplated by this Agreement (including expenses payable to third parties and including all salaries and expenses of their officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on the Trading Market.   

6. Indemnification.

(a) The Company shall indemnify and hold harmless each Holder, its Affiliates and each of their respective officers and directors and any agent thereof (collectively, “ Holder Indemnified Persons ”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, joint or several, costs (including reasonable costs of preparation and reasonable attorneys’ fees) and expenses, judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Holder Indemnified Person may be involved, or is threatened to be involved, as a party or otherwise, under the Securities Act or otherwise (collectively, “ Losses ”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which any Registrable Securities were registered, in any preliminary prospectus (if the Company authorized the use of such preliminary prospectus prior to the Effective Date), or in any summary or final prospectus or free writing prospectus (if such free writing prospectus was authorized for use by the Company) or in any amendment or supplement thereto (if used during the period the Company is required to keep the Registration Statement current), or arising out of, based upon or resulting from the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances in which they were made, not misleading; provided , however, that the Company shall not be liable to any Holder Indemnified Person to the extent that any such claim arises out of, is based upon or results from an untrue or alleged untrue statement or omission or alleged omission made in such Registration Statement, such preliminary, summary or final prospectus or free writing prospectus or such amendment or

20

 

supplement, in reliance upon and in conformity with written information furnished to the Compan y by or on behalf of such Holder Indemnified Person or any underwriter specifically for use therein, it being understood and agreed that the only such information so furnished by any Holder to the Company consists of (A) the legal name and address of the H older set forth in its footnote that appears under the caption “Principal and Selling Stockholders” of any such Registration Statement, such preliminary, summary or final prospectus and (B) the number of shares of Common Stock or Convertible Preferred Stoc k, as applicable, owned by the Holder before and after the offering (excluding percentages) that appears in the table (and corresponding footnotes) under the caption “Principal and Selling Stockholders” of any such Registration Statement, such preliminary, summary or final prospectus (the “ Selling Stockholder Information ”).  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.   This indemnity shall be in addition to any liability the Company may otherwise have and shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder Indemnified Person or any indemnified party and shall survive the transfer of such securities by such Holder.  Notwithstanding anything to the contrary herein, this Section 6 shall survive any termination or expiration of this Agreement indefinitely.

(b) In connection with any Registration Statement in which a Holder participates, such Holder shall, severally and not jointly, indemnify and hold harmless the Company, its Affiliates and each of their respective officers, directors and any agent thereof, to the fullest extent permitted by applicable law, from and against any and all Losses as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any such Registration Statement, in any preliminary prospectus (if used prior to the Effective Date of such Registration Statement), or in any summary or final prospectus or free writing prospectus or in any amendment or supplement thereto (if used during the period the Company is required to keep the Registration Statement current), or arising out of, based upon or resulting from the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances in which they were made, not misleading, but only to the extent that any such claim arises out of, is based upon or results from an untrue or alleged untrue statement or omission or alleged omission made in such Registration Statement, such preliminary, summary or final prospectus or free writing prospectus or such amendment or supplement, in reliance upon and in conformity with such Holder’s Selling Stockholder Information.  This indemnity shall be in addition to any liability such Holder may otherwise have and shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any indemnified party. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the proceeds received by such Holder from the sale of the Registrable Securities giving rise to such indemnification obligation.

(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim or there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party, permit such indemnifying party to

21

 

assume the defense of such claim with counsel reasonably s atisfactory to the indemnified party.  If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld).  An i ndemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel (in addition to any local counsel) for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party there may be one or more legal or equitable defenses available to such indemnified party that are in addition to or may conflict with those available to another indemni fied party with respect to such claim.  Failure to give prompt written notice shall not release the indemnifying party from its obligations hereunder.

(d) If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any Losses referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the untrue or alleged untrue statement of a material fact or the omission to state a material fact that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder.

7. Facilitation of Sales Pursuant to Rule 144.   To the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144), and shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable the Holders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144.  Upon the request of any Holder in connection with that Holder’s sale pursuant to Rule 144, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements.

8. Miscellaneous.

(a) Remedies .  In the event of actual or potential breach by the Company of any of its obligations under this Agreement, each Holder, in addition to being entitled to exercise

22

 

all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the def ense that a remedy at law would be adequate.

(b) Discontinued Disposition .  Each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in clauses (ii) through (v) of Section 3(e) , such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder’s receipt of the copies of the supplemental Prospectus or amended Registration Statement as contemplated by Section 3(j) or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement (a “ Suspension Period ”).  The Company may provide appropriate stop orders to enforce the provisions of this Section 8(b) .

(c) Amendments and Waivers .  No provision of this Agreement may be waived or amended except in a written instrument signed by the Company and Holders that hold a majority of the Registrable Securities (counting Convertible Preferred Stock held by any Preferred Holder as Registrable Securities on an as-converted basis to Common Stock as provided in the Certificate) as of the date of such waiver or amendment; provided, that any waiver or amendment that would have a disproportionate adverse effect on a Holder relative to the other Holders shall require the consent of such Holder.  The Company shall provide prior notice to all Holders of any proposed waiver or amendment.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.

(d) Notices .  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile or electronic mail as specified in this Section 8(d) prior to 5:00 p.m. in the time zone of the receiving party on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile or electronic mail as specified in this Agreement later than 5:00 p.m. in the time zone of the receiving party on any date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) upon actual receipt by the Party to whom such notice is required to be given.  The address for such notices and communications shall be as follows:

23

 

 

If to the Company:

 

WildHorse Resource Development Corporation

 

 

 

Attention:  General Counsel

9805 Katy Freeway, Suite 400

Houston, TX 77024

E-mail: KRoane@wildhorserd.com

 

 

 

 

 

 

 

With copy to:

 

Vinson & Elkins L.L.P.

Attention:  Douglas E. McWilliams

1001 Fannin Street, Suite 2500

Houston, Texas  77002

E-mail: dmcwilliams@velaw.com

 

 

If to any Person who is then the registered Holder:

 

To the address of such Holder as indicated on the signature page of this Agreement or, if different, as it appears in the applicable register for the Registrable Securities or as may be designated in writing by such Holder in accordance with this Section 8(d) .

 

(e) Successors and Assigns .  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, executors, administrators, successors, legal representatives and permitted assigns.  Except as provided in this Section 8(e) , this Agreement, and any rights or obligations hereunder, may not be assigned or directly or indirectly transferred without the prior written consent of the Company and the Holders. Notwithstanding anything in the foregoing to the contrary, the rights of a Holder pursuant to this Agreement with respect to all or any portion of its Registrable Securities may be assigned or transferred without such consent (but only with all related obligations) with respect to such Registrable Securities (and any Registrable Securities issued as a dividend or other distribution with respect to, in exchange for or in replacement of such Registrable Securities) by such Holder in connection with an assignment or transfer of (i) Registrable Securities to an Affiliate of such Holder, (ii) Registrable Securities with an aggregate VWAP (assuming any Convertible Preferred Stock that is the subject of such transfer has been converted to Common Stock pursuant to the Certificate and the Registrable Securities being transferred consist of such Common Stock) of at least $75 million, or (iii) in the case of the KKR Holders, in connection with the transfer of all of the Registrable Securities held by the KKR Holders and all other Holders that are Affiliates of the KKR Holders, provided such transfer consists of at least two-thirds of the Registrable Securities held by the KKR Holders as of the date of this Agreement, in each case provided that (A) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the Registrable Securities with respect to which such registration rights are being assigned and (B) such transferee or assignee agrees in writing to be bound by and subject to the terms set forth

24

 

in this Agreement.  The Company may not assign its rights or obligations hereunder without the prior written consent of the Holders.

(f) No Third Party Beneficiaries .  Nothing in this Agreement, whether express or implied, shall be construed to give any Person, other than the parties hereto or their respective successors and permitted assigns, any legal or equitable right, remedy, claim or benefit under or in respect of this Agreement.

(g) Execution and Counterparts .  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement.  In the event that any signature is delivered by facsimile or electronic mail transmission, such signature shall create a valid binding obligation of the Party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such signature delivered by facsimile or electronic mail transmission were the original thereof.

(h) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial .  This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York.  Each of the Parties irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in in the Borough of Manhattan in the City of New York and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each Party anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.  Each of the Parties irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.   EACH OF THE PARTIES HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

(i) Cumulative Remedies .  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(j) Severability .  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be the intention of the Parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(k) Entire Agreement .  This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior contracts or

25

 

agreements with respect to the subject matter hereof and the matters addressed or gover ned hereby, whether oral or written.  

(l) Transfers of Common Stock by Sponsoring Holders and NGP .  From the date hereof until the date that both (i) the Schedule 14C Waiting Period (as defined in the Preferred Purchase Agreement) has expired and (ii) the earlier of (A) 60 days following the date of this Agreement and (B) the date on which all approvals and authorizations of, filings and registrations with, and notifications to, or expiration or termination of any applicable waiting period, under the HSR Act (as defined in the Preferred Purchase Agreement) required with respect to the Preferred Voting and Conversion Features (as defined in the Preferred Purchase Agreement) of the Convertible Preferred Stock held by Carlyle have been obtained, made, expired or terminated, as applicable, the Sponsoring Holders and NGP shall not, without the prior written consent of Carlyle, (A) sell, transfer, assign, or otherwise dispose of, directly or indirectly (collectively, a “ Transfer ”), any shares of the Company’s capital stock held or beneficially owned by such Sponsoring Holder or NGP, as applicable, except that any Sponsoring Holder or NGP may Transfer any shares of Common Stock held by it to an Affiliate, provided such Affiliate agrees in writing to be bound by and subject to the terms set forth in this Agreement or (B) make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a short sale of or the purpose of which is to offset the loss which results from a decline in the market price of, any shares of the Company’s capital stock, or otherwise establish or increase, directly or indirectly, a put equivalent position, as defined in Rule 16a-1(h) under the Exchange Act, with respect to any of the Company’s capital stock.  

(m) Termination .  Except for Section 6 and Section 8(m) , t his Agreement shall terminate as to any Holder, when all Registrable Securities held by such Holder no longer constitute Registrable Securities.  

 

[Signature page follows.]

26

 

IN WITNESS WHEREOF, the Partie s have executed this Agreement as of the date first written above.

COMPANY:

 

WildHorse Resource Development Corporation

 

 

 

By:
Name:
Title:

 

 

HOLDERS:

 

WHR Holdings, LLC

 

 

 

By:
Name:
Title:

 

Address for notice:

 

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attention: General Counsel

Signature Page to Registration Rights Agreement

 

 

 

 

E-mail: KRoane@wildhorserd.com

 

With a copy to:

Natural Gas Partners

5221 N. O’Connor Boulevard, Suite 1100

Irving, Texas 75039

Fax: (972) 432-1441

Attention: General Counsel

E-mail: jzlotky@ngptrs.com

 

 

Esquisto Holdings, LLC

 

 

By:
Name:
Title:

 

Address for notice:

 

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attention: General Counsel

E-mail: KRoane@wildhorserd.com

 

With a copy to:

Natural Gas Partners

5221 N. O’Connor Boulevard, Suite 1100

Irving, Texas 75039

Fax: (972) 432-1441

Attention: General Counsel

E-mail: jzlotky@ngptrs.com

WHE AcqCo Holdings, LLC

Signature Page to Registration Rights Agreement

 

 

 

 

 

 

By:
Name:
Title:

 

Address for notice:

 

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attention: General Counsel

E-mail: KRoane@wildhorserd.com

 

With a copy to:

Natural Gas Partners

5221 N. O’Connor Boulevard, Suite 1100

Irving, Texas 75039

Fax: (972) 432-1441

Attention: General Counsel

E-mail: jzlotky@ngptrs.com

NGP XI US Holdings, L.P.

 

By: NGP XI Holdings GP, L.L.C., general partner

 

 

By:
Name:
Title:

 

Address for notice:

 

Signature Page to Registration Rights Agreement

 

 

 

 

Natural Gas Partners

5221 N. O’Connor Boulevard, Suite 1100

Irving, Texas 75039

Fax: (972) 432-1441

Attention: General Counsel

E-mail: jzlotky@ngptrs.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jay C. Graham

Signature Page to Registration Rights Agreement

 

 

 

 

 


 

Address for notice:

 

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attention: General Counsel

E-mail: jay.graham@wildhorseresources.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anthony Bahr

Signature Page to Registration Rights Agreement

 

 

 

 

 


 

Address for notice:

 

9805 Katy Freeway, Suite 400

Houston, Texas 77024

Attention: General Counsel

E-mail: anthony.bahr@wildhorseresources.com

 


Signature Page to Registration Rights Agreement

 

 

 

 

CP VI EAGLE HOLDINGS, L.P.

 

By:  TC Group VI S1, L.P., its general partner

 

 

By:
Name:
Title:

 

Address for notice:

 

[•]


Signature Page to Registration Rights Agreement

 

 

 

 

Admiral Holding L.P.

 

 

By: _________________

Name:

Title:

 

 

Address for notice:

 

[•]

 

TE Admiral A Holding L.P.

 

 

 

By: _________________

Name:

Title:

 

 

Address for notice:

 

[•]

 

Signature Page to Registration Rights Agreement

 

 

 

 

Aurora C-1 Holding L.P.

 

 

By: _________________

Name:

Title:

 

Address for notice:

 

[•]

 

 

Signature Page to Registration Rights Agreement

 

 

 

Exhibit 10.1

 

Execution Version

US 4941736v.10

 

First Amendment to Credit Agreement

This First Amendment to Credit Agreement ( this “ First Amendment ”), dated as of April 4, 2017 (the “ First Amendment Effective Date ”), is among WildHorse Resource Development Corporation, a Delaware corporation (the “ Borrower ”); each of the Guarantors party hereto (the “ Guarantors ” and collectively with the Borrower, the “ Credit Parties ”); each of the Lenders party hereto; and Wells Fargo Bank, National Association, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the “ Administrative Agent ”).

R E C I T A L S :

A.

The Borrower, the Administrative Agent and the Lenders are parties to that certain Credit Agreement dated as of December 19, 2016 (as amended or otherwise modified from time to time pursuant to the terms thereof, the “ Credit Agreement ”), pursuant to which the Lenders have, subject to the terms and conditions set forth therein, made certain credit available to and on behalf of the Borrower.

B.

The Borrower has requested, among other things, to amend certain terms of the Credit Agreement as set forth herein, to be effective as of the First Amendment Effective Date.

C.

The Lenders have agreed to redetermine and increase the Borrowing Base to $450,000,000 effective as of the First Amendment Effective Date.

D.

The Borrower has requested that Fifth Third Bank, Associated Bank, N.A., Compass Bank and Canadian Imperial Bank of Commerce, New York Branch (each, a “ New Lender ” and, collectively, the “ New Lenders ”), become Lenders under the Credit Agreement with a Maximum Credit Amount and an Elected Commitment in the amount as shown on Annex I to the Credit Agreement (as amended hereby).

E.

Subject to and upon the terms and conditions set forth herein, the undersigned Lenders have agreed to enter into this First Amendment to amend certain provisions of the Credit Agreement as more specifically provided for herein .

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1. Defined Terms .  Each capitalized term which is defined in the Credit Agreement, but which is not defined in this First Amendment, shall have the meaning ascribed to such term in the Credit Agreement, as amended hereby.  Unless otherwise indicated, all section references in this First Amendment refer to the Credit Agreement, as amended hereby.

Section 2. Amendments to Credit Agreement .  In reliance on the representations, warranties, covenants and agreements contained in this First Amendment, and subject to the satisfaction of the conditions precedent set forth in Section 6 hereof, the Credit Agreement shall

 

 

 

be amended effective as of the First Amendment Effective Date in the manner provided in this Section 2 .

2.1 Amendments to Section 1.02 .

(a) The following definitions are hereby amended and restated as follows:

“ Agreement ” means this Credit Agreement, as amended by the First Amendment and as the same may be further amended, modified, supplemented or restated from time to time.

(b) The following definitions are hereby added where alphabetically appropriate to read as follows:

“ First Amendment ” means that certain First Amendment to Credit Agreement, dated as of April 4, 2017, among the Borrower, the Guarantors, the Administrative Agent and the Lenders party thereto.

“ Net Debt ” means, at any time, (a) all Debt of the Borrower and the Consolidated Restricted Subsidiaries (other than any Debt comprised of contingent obligations in respect of undrawn Letters of Credit), minus (b) the aggregate amount of cash and Cash Equivalents (other than Excluded Cash, except to the extent such Excluded Cash consists of cash collateral held by the Administrative Agent pursuant to this Agreement or any other Loan Document or is in an account subject to an Account Control Agreement, in each case, excluding any cash and Cash Equivalents being held to cash collateralize or otherwise backstop a Letter of Credit) of the Borrower and the Consolidated Restricted Subsidiaries.  

2.2 Amendment to Section 9.01(a) .  Section 9.01(a) is hereby amended to read in its entirely as follows:

“(a) Leverage Ratio .  The Borrower will not, as of the last day of any fiscal quarter commencing with the fiscal quarter ending March 31, 2017, permit the Borrower’s ratio of (i) (A) if there are no Loans outstanding on such date, Net Debt, or (B) if there are Loans outstanding on such date, Total Debt to (ii) Consolidated EBITDAX for the Rolling Period ending on such date (the “ Leverage Ratio ”) to be greater than 4.00 to 1.00.”

2.3 Replacement of Annex I .  

(a) Annex I to the Credit Agreement is hereby replaced in its entirety with Annex I attached hereto and Annex I attached hereto shall be deemed to be attached as Annex I to the Credit Agreement.  After giving effect to this First Amendment and any Borrowings made on the First Amendment Effective Date, (i) each Lender (including each New Lender) who holds Loans in an aggregate amount less than its Applicable Percentage (after giving effect to this First Amendment) of all Loans shall advance new Loans which shall be disbursed to the Administrative Agent and used to repay Loans outstanding to each Lender who holds Loans in

 

Page 2

 

 

an aggregate amount greater than its Applicable Percentage of all Loans, (ii)  each Lender’s participation in each Letter of Credit, if any, shall be automatically adjusted to equal its Applicable Percentage (after giving effect to this First Amendment) and (iii)  such other adjustments shall be made as the Administrative Agent shall specify so that the Revolving Credit Exposure applicable to each Lender equals its Applicable Percentage (after giving effect to this First Amendment) of the aggregate Revolving Credit Exposure of all Lenders.

(b) The Administrative Agent, the Issuing Banks and the Borrower hereby consent to the reallocations and assignments pursuant to this Section 2.3 and waive the delivery of an Assignment and Assumption and any other condition (other than the delivery by each New Lender of an Administrative Questionnaire) to the effectiveness of the foregoing reallocations and assignments.  The Administrative Agent hereby consents to a one-time waiver of the $3,500 processing and recordation fee that would otherwise be payable pursuant to Section 12.04(b)(ii)(C) as a result of the assignment provided for herein.  Each existing Lender waives any break-funding payments otherwise payable under Section 5.02 in connection with the repayment of any Loans in accordance with this Section 2.3 .  

Section 3. Aggregate Elected Commitment Amounts .  Pursuant to Section 2.06(c), the Aggregate Elected Commitment Amounts shall be increased to $450,000,000, effective as of the First Amendment Effective Date, and the Borrower and the Lenders agree and acknowledge that the Elected Commitment of each Lender shall be as more particularly set forth on Annex I attached hereto and that each New Lender shall be deemed to have executed and delivered Exhibit H attached to the Credit Agreement pursuant to the terms thereof.  

Section 4. Borrowing Base Redetermination .  Pursuant to Section 2.07, the Administrative Agent and the Lenders agree that for the period from and including the First Amendment Effective Date to but excluding the next Redetermination Date, the amount of the Borrowing Base shall be equal to $450,000,000.  Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 2.07(e), Section 2.07(f) or Section 8.12(c).  For the avoidance of doubt, the redetermination herein shall constitute the April 1, 2017 Scheduled Redetermination and the next Scheduled Redetermination shall be the October 1, 2017 Scheduled Redetermination.

Section 5. New Lenders .  Each New Lender hereby joins in, becomes a party to, and agrees to comply with and be bound by the terms and conditions of the Credit Agreement as amended hereby as a Lender thereunder and under each and every other Loan Document to which any Lender is required to be bound by the Credit Agreement as amended hereby, to the same extent as if such New Lender were an original signatory thereto.  Each New Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as amended hereby as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto.  Each New Lender represents and warrants that (a) it has full power and authority, and has taken all action necessary, to execute and deliver this First Amendment, to consummate the transactions contemplated hereby and to become a party to, and a Lender under, the Credit Agreement as amended hereby, (b) it has received a copy of the Credit Agreement and copies of the most recent financial statements delivered pursuant to Section 8.01, and such other documents and information as it has deemed appropriate to make its own

 

Page 3

 

 

credit analysis and decision to enter into this First Amendment and to become a Lender on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (c)  from and after the First Amendment Effective Date, it shall be a party to and be bound by the provisions of the Credit Agreement as amended hereby and the other Loan Documents and have the rights and obligations of a Lender thereunder.

Section 6. Conditions Precedent .  The effectiveness of this First Amendment is subject to the following:

6.1 The Administrative Agent shall have received counterparts (in such number as may be requested by the Administrative Agent) of this First Amendment from the Borrower, each Guarantor and each Lender.

6.2 The Administrative Agent shall have received an Administrative Questionnaire from each New Lender.

6.3 The Administrative Agent shall have received from the Borrower a duly executed and notarized mortgages and/or mortgage supplements in form and substance reasonably satisfactory to the Administrative Agent so that, after giving effect to the recording of such mortgages and/or mortgage supplements, the Administrative Agent shall be reasonably satisfied that it has first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition) on at least 85% of the total value (as determined by the Administrative Agent based on the present value of the Proved Reserves attributable thereto using a 9% discount rate) of the Oil and Gas Properties evaluated in the Reserve Report most recently delivered pursuant to Section 8.12(a).

6.4 The Administrative Agent shall have received from the Borrower title information setting forth the status of title to at least 85% of the total value (as determined by the Administrative Agent based on the present value of the Proved Reserves attributable thereto using a 9% discount rate) of the Oil and Gas Properties evaluated in the Reserve Report most recently delivered pursuant to Section 8.12(a).

6.5 No Default or Borrowing Base Deficiency shall have occurred and be continuing as of the date hereof after giving effect to the terms of this First Amendment.

6.6 The Administrative Agent shall have received all fees and other amounts due and payable to the Administrative Agent or any Lenders in connection with this First Amendment.    

6.7 The Administrative Agent shall have received such other documents as the Administrative Agent or its special counsel may reasonably require.

The Administrative Agent is hereby authorized and directed to declare this First Amendment to be effective when it has received documents confirming or certifying, to the satisfaction of the Administrative Agent, compliance with the conditions set forth in this Section 6 or the waiver of such conditions as permitted hereby.  Such declaration shall be final, conclusive and binding upon all parties to the Credit Agreement for all purposes.

 

Page 4

 

 

Section 7. Miscellaneous .

7.1 Confirmation and Effect .  The provisions of the Credit Agreement (as amended by this First Amendment) shall remain in full force and effect in accordance with its terms following the First Amendment Effective Date, and this First Amendment shall not constitute a waiver of any provision of the Credit Agreement or any other Loan Document, except as expressly provided for herein.  Each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof’, “herein”, or words of like import shall mean and be a reference to the Credit Agreement as amended hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as amended hereby.

7.2 No Waiver . Neither the execution by the Administrative Agent or the Lenders of this First Amendment, nor any other act or omission by the Administrative Agent or the Lenders or their officers in connection herewith, shall be deemed a waiver by the Administrative Agent or the Lenders of any Defaults or Events of Default which may exist, which may have occurred prior to the date of the effectiveness of this First Amendment or which may occur in the future under the Credit Agreement and/or the other Loan Documents.  Similarly, nothing contained in this First Amendment shall directly or indirectly in any way whatsoever either: (a) impair, prejudice or otherwise adversely affect the Administrative Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Loan Documents with respect to any Default or Event of Default, (b) except as expressly provided herein, amend or alter any provision of the Credit Agreement, the other Loan Documents, or any other contract or instrument, or (c) constitute any course of dealing or other basis for altering any obligation of the Borrower or any right, privilege or remedy of the Administrative Agent or the Lenders under the Credit Agreement, the other Loan Documents, or any other contract or instrument.  

7.3 Ratification and Affirmation of Credit Parties .  Each Credit Party hereby expressly (i) acknowledges the terms of this First Amendment, (ii) ratifies and affirms its obligations under the Guaranty Agreement, the Security Agreement and the other Loan Documents to which it is a party, (iii) acknowledges, renews and extends its continued liability under the Guaranty Agreement, the Security Agreement and the other Loan Documents to which it is a party, (iv) agrees that its guarantee under the Guaranty Agreement and its pledge of collateral under the Security Agreement and any of its obligations under the other Loan Documents to which it is a party remain in full force and effect with respect to the Indebtedness as amended hereby, (v) represents and warrants to the Lenders and the Administrative Agent that each representation and warranty of such Person contained in the Credit Agreement (as amended by this First Amendment) and the other Loan Documents to which it is a party is true and correct in all material respects as of the date hereof and after giving effect to this First Amendment except (A) to the extent any such representations and warranties are expressly limited to an earlier date, in which case such representations and warranties shall continue to be true and correct as of such specified earlier date, and (B) to the extent that any such representation and warranty is expressly qualified by reference to materiality, a Material Adverse Effect or similar qualification, in which case such representations and warranties shall be true and correct in all respects, (vi) represents and warrants to the Lenders and the Administrative Agent that the execution, delivery and performance by such Person of this First Amendment are within such

 

Page 5

 

 

Person’s corporate, limited partnership or limited liability company powers (as applicable), have been duly authorized by all necessary action and that this First Amendment constitutes the valid and binding obligation of such Person enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law, and (vii)  represents and warrants to the Lenders and the Administrative Agent that, after giving effect to this First Amendment, no Default or Event of Default exists.

7.4 Counterparts .  This First Amendment may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  Delivery of an executed counterpart of a signature page of this First Amendment by facsimile or other electronic transmission (e.g., .pdf) shall be effective as delivery of a manually executed counterpart of this First Amendment.

7.5 No Oral Agreement .   This written First Amendment, the Credit Agreement and the other Loan Documents executed in connection herewith and therewith represent the final agreement between the parties hereto and thereto and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties.  There are no unwritten oral agreements between the parties.

7.6 Governing Law .   This First Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

7.7 Payment of Expenses .  The Borrower agrees to pay or reimburse the Administrative Agent for all of its reasonable and documented out-of-pocket costs and expenses incurred in connection with this First Amendment in accordance with Section 12.03.

7.8 Severability .  Any provision of this First Amendment or any other Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

7.9 Successors and Assigns .  This First Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (in each case, as permitted by Section 12.04).

7.10 Loan Document .  This First Amendment shall constitute a “Loan Document” under and as defined in Section 1.02.

[Signature Pages Follow]

 

 

Page 6

 

 

The parties hereto have caused this First Amendment to be duly executed as of the day and year first above written.

BORROWER:

WILDHORSE RESOURCE DEVELOPMENT CORPORATION , a Delaware corporation

 

By:

/s/ Andrew J. Cozby

Name:

Andrew J. Cozby

Title:

Executive Vice President and Chief Financial Officer

 

 


Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

GUARANTORS:

 

WILDHORSE RESOURCES II, LLC , a Delaware limited liability company

By: WildHorse Resource Development Corporation, its sole member

 

ESQUISTO RESOURCES II, LLC , a Texas limited liability company

By: WildHorse Resource Development Corporation, its sole member

 

WHE ACQCO., LLC , a Delaware limited liability company

By: WildHorse Resource Development Corporation, its sole member

 

By:

/s/ Andrew J. Cozby

Name:

Andrew J. Cozby

Title:

Executive Vice President and Chief Financial Officer

 

 

WILDHORSE RESOURCES MANAGEMENT COMPANY, LLC , a Delaware limited liability company

By: WildHorse Resources II, LLC, its sole member,

By: WildHorse Resource Development Corporation, its sole member

 

OAKFIELD ENERGY LLC , a Delaware limited liability company

By: WildHorse Resources II, LLC, its sole member,

By: WildHorse Resource Development Corporation, its sole member

 

 

By:

/s/ Andrew J. Cozby

Name:

Andrew J. Cozby

Title:

Executive Vice President and Chief Financial Officer

 

 

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

 

PETROMAX E&P BURLESON, LLC , a Texas limited liability company

By: Esquisto Resources II, LLC, its sole member,

By: WildHorse Resource Development Corporation, its sole member

 

 

By:

/s/ Andrew J. Cozby

Name:

Andrew J. Cozby

Title:

Executive Vice President and Chief Financial Officer

 

 

 

BURLESON WATER RESOURCES, LLC , a Texas limited liability company

By: Esquisto Resources II, LLC, its sole member,

By: WildHorse Resource Development Corporation, its sole member

 

By:

/s/ Andrew J. Cozby

Name:

Andrew J. Cozby

Title:

Executive Vice President and Chief Financial Officer

 

 


Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

ADMINISTRATIVE AGENT AND LENDERS:

        

WELLS FARGO BANK, NATIONAL ASSOCIATION , as Administrative Agent and a Lender

By:

/s/ Melina Mackey

Name:

Melina Mackey

Title:

Vice President

 


Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

BMO Harris BANK N.A. , as Syndication Agent and a Lender

 

 

By:

/s/ Gumaro Tijerina

Name:

Gumaro Tijerina

Title:

Managing Director

 

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

BANK OF AMERICA, N.A. , as a Lender

 

 

By:

/s/ Raza Jafferi

Name:

Raza Jafferi

Title:

Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

BARCLAYS BANK PLC , as a Lender

 

 

By:

/s/ May Huang

Name:

May Huang

Title:

Assistant Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

CITIBANK, N.A. , as a Lender

 

 

By:

/s/ Cliff Vaz

Name:

Cliff Vaz

Title:

Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

COMERICA BANK , as a Lender

 

 

By:

/s/ William B. Robinson

Name:

William B. Robinson

Title:

Senior Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

ING Capital LLC , as a Lender

 

 

By:

/s/ Josh Strong

Name:

Josh Strong

Title:

Director

 

By:

/s/ Charles Hall

Name:

Charles Hall

Title:

Managing Director

 

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

BOKF, N.A. DBA BANK OF TEXAS , as a Lender

 

 

By:

/s/ Martin W. Wilson

Name:

Martin W. Wilson

Title:

Senior Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

CAPITAL ONE, NATIONAL ASSOCIATION , as a Lender

 

 

By:

/s/ Michael Higgins

Name:

Michael Higgins

Title:

Senior Director

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

JPMORGAN CHASE BANK, N.A. , as a Lender

 

 

By:

/s/ Jo Linda Papadakis

Name:

Jo Linda Papadakis

Title:

Authorized Officer

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

RAYMOND JAMES BANK, N.A. , as a Lender

 

 

By:

/s/ Scott G. Axelrod

Name:

Scott G. Axelrod

Title:

Senior Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

ASSOCIATED BANK, N.A. , as a Lender

 

 

By:

/s/ Kyle Lewis

Name:

Kyle Lewis

Title:

Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

COMPASS BANK , as a Lender

 

 

By:

/s/ Kari McDaniel

Name:

Kari McDaniel

Title:

Vice President

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

CANADIAN IMPERIAL BANK OF COMMERCE, NEW YORK BRANCH , as a Lender

 

 

By:

/s/ Richard Antl

Name:

Richard Antl

Title:

Authorized Signatory

 

By:

/s/ Daria Mahoney

Name:

Daria Mahoney

Title:

Authorized Signatory

 

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

FIFTH THIRD BANK , as a Lender

 

 

By:

/s/ Justin Bellamy

Name:

Justin Bellamy

Title:

Director

 

 

 

 

 

Signature Page to First Amendment to Credit Agreement

WildHorse Resource Development Corporation

 

ANNEX I

LIST OF MAXIMUM CREDIT AMOUNTS AND ELECTED COMMITMENTS

Name of Lender

Applicable Percentage

Maximum Credit Amount

Elected Commitment

Wells Fargo Bank, National Association

10.555555555555600%

$105,555,555.55

$47,500,000.00

BMO Harris Bank N.A.

 

10.555555555555600%

$105,555,555.55

$47,500,000.00

Bank of America, N.A.

 

8.777777777777780%

$87,777,777.78

$39,500,000.00

Barclays Bank PLC

 

8.777777777777780%

$87,777,777.78

$39,500,000.00

Citibank, N.A.

 

8.777777777777780%

$87,777,777.78

$39,500,000.00

Comerica Bank

 

8.777777777777780%

$87,777,777.78

$39,500,000.00

ING Capital LLC

 

8.777777777777780%

$87,777,777.78

$39,500,000.00

BOKF, N. A. DBA Bank of Texas

7.777777777777780%

$77,777,777.78

$35,000,000.00

Capital One National Association

7.777777777777780%

$77,777,777.78

$35,000,000.00

JPMorgan Chase Bank, N.A.

7.777777777777780%

$77,777,777.78

$35,000,000.00

Raymond James Bank, N.A.

2.777777777777780%

$27,777,777.78

$12,500,000.00

Associated Bank, N.A.

 

2.222222222222220%

$22,222,222.22

$10,000,000.00

Compass Bank

 

2.222222222222220%

$22,222,222.22

$10,000,000.00

Canadian Imperial Bank of Commerce, New York Branch

2.222222222222220%

$22,222,222.22

$10,000,000.00

Fifth Third Bank

 

2.222222222222220%

$22,222,222.22

$10,000,000.00

TOTAL

 

100.00000000%

$1,000,000,000.00

$450,000,000.00

 

 

Annex I

 

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Jay C. Graham, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of WildHorse Resource Development Corporation (the “registrant”);

 

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(s) 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)) 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.

[Omitted];

 

 

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(s) 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 the 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:  May 15, 2017

 

/s/ Jay C. Graham

 

 

Jay C. Graham

 

 

Chief Executive Officer

 

 

WildHorse Resource Development Corporation

 

Exhibit 31.2

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Andrew J. Cozby, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of WildHorse Resource Development Corporation (the “registrant”);

 

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(s) 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)) 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.

[Omitted];

 

 

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(s) 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 the 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:  May 15, 2017

 

/s/ Andrew J. Cozby

 

 

Andrew J. Cozby

 

 

Executive Vice President & Chief Financial Officer

 

 

WildHorse Resource Development Corporation

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of WildHorse Resource Development Corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jay C. Graham, Chief Executive Officer of WildHorse Resource Development Corporation and Andrew J. Cozby, Executive Vice President & Chief Financial Officer of WildHorse Resource Development Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge:

 

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

 

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

Date:  May 15, 2017

/s/ Jay C. Graham

 

Jay C. Graham

 

Chief Executive Officer

 

WildHorse Resource Development Corporation

 

 

Date:  May 15, 2017

/s/ Andrew J. Cozby

 

Andrew J. Cozby

 

Executive Vice President & Chief Financial Officer

 

WildHorse Resource Development Corporation

 

The foregoing certifications are being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, are not being filed as part of the Report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.