UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
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: 001-36273
Rice Energy Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
46-3785773
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
400 Woodcliff Drive
Canonsburg, Pennsylvania
 
15317
(Address of principal executive offices)
 
(Zip code)
 
 
 
(724) 746-6720
(Registrant’s telephone number, including area code)
 
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. þ 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). þ Yes ¨ No
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
 
Accelerated filer ¨
Non-accelerated filer þ
 
Smaller reporting company ¨
(Do not check if a smaller reporting company)
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
 
 
 
Number of shares of the registrant’s common stock outstanding at August 8, 2014 : 128,766,038 shares




RICE ENERGY INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 


2


Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (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 income/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 our 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 the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K (the “2013 Annual Report”) for the year ended December 31, 2013, on file with the Securities and Exchange Commission, and in “Item 1A. Risk Factors” of this Quarterly Report.
Forward-looking statements may include statements about our:
•
business strategy;
•
reserves;
•
financial strategy, liquidity and capital required for our development program;
•
realized natural gas, natural gas liquid (“NGL”) and oil prices;
•
timing and amount of future production of natural gas, NGLs and oil;
•
hedging strategy and results;
•
future drilling plans;
•
competition and government regulations;
•
pending legal or environmental matters;
•
marketing of natural gas, NGLs and oil;
•
leasehold or business acquisitions;
•
costs of developing our properties and conducting our gathering and other midstream operations;
•
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 exploration for and development, production, gathering and sale of natural gas, NGLs and oil. 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 natural gas 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 the heading “Item 1A. Risk Factors” in our 2013 Annual Report and in “Item 1A. Risk Factors” of this Quarterly Report.
Reserve engineering is a process of estimating underground accumulations of natural gas, NGLs and oil 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 could change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of natural gas, and NGLs and oil that are ultimately recovered.
Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our 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.

3


Commonly Used Defined Terms
As used in the Quarterly Report, unless the context indicates or otherwise requires, the following terms have the following meanings:
•
“Rice Energy,” the “Company,” “we,” “our,” “us” or like terms refer collectively to Rice Energy Inc. and its consolidated subsidiaries, including Rice Drilling B LLC;
•
“Rice Drilling B” refers to Rice Drilling B LLC, our wholly-owned subsidiary;
•
“Rice Partners” refers to Rice Energy Family Holdings, LP (formerly known as Rice Energy Limited Partners), an entity affiliated with members of the Rice family;
•
“Rice Holdings” refers to Rice Energy Holdings LLC;
•
“Rice Appalachia” refers to Rice Energy Appalachia, LLC, the parent company of Rice Drilling B prior to our initial public offering;
•
“Alpha Holdings” refers to Foundation PA Coal Company, LLC, a wholly owned indirect subsidiary of Alpha Natural Resources, Inc.;
•
“Marcellus joint venture” refers collectively to Alpha Shale Resources, LP and its general partner, Alpha Shale Holdings, LLC;
•
“Natural Gas Partners” refers to a family of private equity investment funds organized to make direct equity investments in the energy industry, including the funds invested in us; and
•
“NGP Holdings” refers to NGP Rice Holdings, LLC.


4


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introduction to the Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements have been prepared on the basis that Rice Energy Inc. is a corporation under the Internal Revenue Code subject to federal income tax. The unaudited condensed consolidated financial statements should be read in conjunction with the notes accompanying such unaudited condensed consolidated financial statements as well as “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this Quarterly Report. Please see “—Notes to Condensed Consolidated Financial Statements (Unaudited)—5. Acquisitions” for further details on the purchase price allocations and resulting impact on the corresponding condensed consolidated balance sheet and for the related pro forma information.
The unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2014 reflect the following transactions:
Initial Public Offering
On January 29, 2014 , we completed our initial public offering (“IPO”) of 50,000,000 shares of our $0.01 par value common stock, which included 30,000,000 shares sold by us, 14,000,000 shares sold by NGP Holdings, the selling stockholder in our IPO and 6,000,000 shares sold subject to an option granted to the underwriters by the selling stockholder.
The net proceeds of our IPO, based on the public offering price of $21.00 per share, were approximately $993.5 million , which resulted in net proceeds to us of $593.6 million after deducting expenses and underwriting discounts and commissions of approximately $36.4 million and the net proceeds to the selling stockholder of approximately $399.0 million after deducting expenses and underwriting discounts of approximately $21.0 million . We did not receive any proceeds from the sale of the shares by the selling stockholder. A portion of the net proceeds from our IPO were used to repay all outstanding borrowings under the revolving credit facility of our Marcellus joint venture, to make a $100.0 million payment to Alpha Holdings in partial consideration for the Marcellus JV Buy-In (as defined below) and to repay all outstanding borrowings under our Senior Secured Revolving Credit Facility (as defined below). The remainder of the net proceeds from our IPO has been used to fund a portion of our capital expenditure plan.
Corporate Reorganization
A corporate reorganization occurred concurrently with the completion of our IPO on January 29, 2014 . As a part of this corporate reorganization, we acquired all of the outstanding membership interests in Rice Appalachia and Rice Drilling B (other than those already held by Rice Appalachia) in exchange for shares of our common stock. Our business continues to be conducted through Rice Drilling B, now a wholly owned subsidiary. This reorganization constituted a common control transaction and the accompanying consolidated financial statements are presented as though this reorganization had occurred for the earliest period presented.
As of January 29, 2014, upon (a) the completion of the IPO, (b) the issuance of (i) 43,452,550 shares of common stock to NGP Holdings, (ii) 20,300,923 shares of common stock to Rice Holdings, (iii) 2,356,844 shares of common stock to Daniel J. Rice III, (iv) 20,000,000 shares of common stock to Rice Partners, (v) 160,831 shares of common stock to the persons holding incentive units representing interests in Rice Appalachia and (vi) 1,728,852 shares of common stock to the members of Rice Drilling B (other than Rice Appalachia), each of which were issued by us in connection with the closing of the IPO, and (c) the issuance of 9,523,810 shares of common stock to Alpha Holdings in connection with the completion of the Marcellus JV Buy-In, we had 127,523,810 shares of common stock outstanding.
Compensation Charge in Connection with the Reorganization
Rice Appalachia, as the parent company of Rice Drilling B, historically granted incentive units to certain members of management and other employees. The incentive units provided the holder with a performance bonus for fair value accretion of Rice Appalachia equity.
In connection with the IPO and the related corporate reorganization, the holders of incentive units in Rice Appalachia contributed their Rice Appalachia incentive units (except for those incentive units related to the incentive burden attributable to Mr. Daniel J. Rice III, which we acquired from the holder of such incentive units in exchange for the issuance of 160,831 shares of our common stock as described above) to Rice Holdings and NGP Holdings in return for substantially similar incentive units in such entities. In the first quarter of 2014, certain incentive units granted by NGP Holdings to certain employees triggered the pre-determined payout criteria, resulting in a cash payment by NGP Holdings of $4.4 million . No payments were made in respect of incentive units prior to the completion of the IPO. The exchange of incentive units and cash payment collectively resulted in non-cash compensation expense of $7.8 million being recorded in the first quarter of 2014 by the Company.
As a result of the IPO, the payment likelihood related to the incentive units was deemed probable, requiring that we recognize expense. Accordingly, we recognized approximately $67.5 million of compensation expense through the second quarter of 2014 relative to these interests, and we expect to recognize approximately $86.6 million of additional compensation expense over the remaining expected service periods, related to the Rice Holdings interests. The NGP Holdings interests are considered a liability-based award and will be adjusted on a quarterly basis until all payments have been made. As of June 30, 2014 , the unrecognized compensation expense related to the NGP Holdings units is approximately $125.5 million , which will be recognized over the remaining expected service period. The compensation expense related to these interests is treated as additional paid in capital from Rice Holdings and NGP Holdings in our financial statements and is not deductible for federal or state income tax purposes. The compensation expense recognized is a non-cash charge, with the settlement obligation resting on NGP Holdings and Rice Holdings. Payments on the incentive units will be made by Rice Holdings and NGP Holdings and not Rice Energy Inc., and as such are not dilutive to Rice Energy Inc.
Marcellus JV Buy-In
On January 29, 2014 , in connection with the closing of the IPO and pursuant to the Transaction Agreement between us and Alpha Holdings dated as of December 6, 2013 , we completed our acquisition of Alpha Holdings’ 50% interest in our Marcellus joint venture in exchange for total consideration of $322.0 million , consisting of $100.0 million of cash and our issuance to Alpha Holdings of 9,523,810 shares of our common stock (the “Marcellus JV Buy-In”). This transaction resulted in a non-recurring gain of $203.6 million in the first quarter of 2014 due to the remeasurement of our previously recorded equity investment at fair value.
 

5


Rice Energy Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
June 30, 2014
 
December 31, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash
$
471,530

 
$
31,612

Restricted cash
—

 
8,268

Accounts receivable
78,670

 
31,765

Receivable from affiliate
39

 
2,244

Deposits
19,328

 
601

Prepaid expenses and other
2,765

 
262

Total current assets
572,332

 
74,752

 
 
 
 
Investments in joint ventures
—

 
49,814

Gas collateral account
3,995

 
3,700

Proved natural gas properties, net
714,570

 
270,523

Unproved natural gas properties
793,872

 
457,836

Property and equipment, net
10,018

 
5,972

Deferred financing costs, net
20,193

 
12,292

Goodwill
338,036

 
—

Intangible assets, net
48,607

 
—

Other non-current assets
373

 
—

Derivative assets
—

 
4,921

Total assets
$
2,501,996

 
$
879,810

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
1,324

 
$
20,120

Accounts payable
53,178

 
51,219

Royalties payable
30,984

 
9,393

Accrued interest
10,313

 
250

Accrued capital expenditures
64,086

 
16,753

Other accrued liabilities
18,671

 
8,283

Leasehold payable
11,194

 
18,606

Derivative liability
17,505

 
965

Payable to affiliate
344

 
6,148

Operated prepayment liability
3,755

 
1,201

Total current liabilities
211,354

 
132,938

 
 
 
 
Long-term liabilities:
 
 
 
Long-term debt
900,000

 
406,822

Leasehold payable
3,460

 
1,675

Deferred tax liabilities
187,220

 
—

Restricted units
—

 
36,306

Other long-term liabilities
8,510

 
3,422

Total liabilities
1,310,544

 
581,163

Stockholders' equity
1,191,452

 
298,647

Total liabilities and stockholders’ equity
$
2,501,996

 
$
879,810

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

Rice Energy Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share data)
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Operating revenues
$
91,940


$
23,877


$
182,417


$
37,110

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Lease operating
6,667

 
2,781

 
11,853

 
4,017

Gathering, compression and transportation
9,176

 
2,058

 
16,306

 
3,586

Production taxes and impact fees
871

 
338

 
1,510

 
507

Exploration
473

 
548

 
959

 
1,447

Incentive unit expense
1,474

 
—

 
75,276

 
—

Restricted unit expense
—

 
7,706

 
—

 
7,706

Stock compensation expense
1,125


—


1,216


—

General and administrative
14,845

 
4,040

 
26,275

 
5,782

Depreciation, depletion and amortization
32,552

 
8,362

 
58,059

 
13,493

Amortization of intangible assets
340

 
—

 
340

 
—

Total operating expenses
67,523

 
25,833

 
191,794

 
36,538

 
 
 
 
 
 
 
 
Operating income (loss)
24,417

 
(1,956
)
 
(9,377
)
 
572

Interest expense
(15,941
)
 
(5,176
)
 
(22,983
)
 
(7,090
)
Gain on purchase of Marcellus joint venture
—

 
—

 
203,579

 
—

Other income (loss)
(195
)
 
(693
)
 
396

 
(446
)
Gain (loss) on derivative instruments
(11,198
)
 
13,641

 
(31,578
)
 
8,648

Amortization of deferred financing costs
(532
)
 
(1,937
)
 
(1,021
)
 
(3,802
)
Loss on extinguishment of debt
(3,001
)
 
—

 
(3,144
)
 
—

Write-off of deferred financing costs
(6,060
)
 
—

 
(6,896
)
 
—

Equity in income (loss) of joint ventures
—

 
15,707

 
(2,656
)
 
14,929

Income (loss) before income taxes
(12,510
)
 
19,586

 
126,320

 
12,811

Income tax benefit (expense)
4,593

 
—

 
(4,782
)
 
—

 
 
 
 
 
 
 
 
Net income (loss)
$
(7,917
)

$
19,586


$
121,538


$
12,811

Earnings (loss) per share—basic
$
(0.06
)
 
$
0.24

 
$
1.00

 
$
0.18

Earnings (loss) per share—diluted
$
(0.06
)
 
$
0.23

 
$
0.99

 
$
0.17

 
 
 
 
 
 
 
 
Pro forma income tax benefit
 
 
 
 
$
5,560

 
 
Pro forma net income
 
 
 
 
$
127,097

 
 
Earnings per share—basic
 
 
 
 
$
1.04

 
 
Earnings per share—diluted
 
 
 
 
$
1.04

 
 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


7


Rice Energy Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
(in thousands)
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
121,538

 
$
12,811

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
58,059

 
13,493

Amortization of deferred financing costs
1,021

 
3,802

Amortization of intangibles
340

 
—

Incentive unit expense
75,276

 
—

Write-off of deferred financing costs
6,896

 
—

Loss on extinguishment of debt
3,144

 
—

Restricted unit expense
—

 
7,706

Stock compensation expense
1,216

 
—

Derivative instruments fair value loss
31,578

 
(8,648
)
Cash payments for settled derivatives
(20,953
)
 
(1,841
)
Income tax expense
4,782

 
—

Fair value gain on purchase of Marcellus joint venture
(203,579
)
 
—

Equity in (income) loss of joint ventures
2,656

 
(14,929
)
(Increase) decrease in:
 
 
 
Accounts receivable
(31,553
)
 
(7,743
)
Receivable from affiliate
2,216

 
9,169

Gas collateral account
—

 
(1,652
)
Prepaid expenses and other
(2,470
)
 
(348
)
Increase (decrease) in:
 
 
 
Accounts payable
(1,130
)
 
(125
)
Royalties payable
13,683

 
6,693

Other accrued expenses
22,153

 
324

Payable to affiliate
(9,644
)
 
688

Net cash provided by operating activities
75,229

 
19,400

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures for natural gas properties
(437,620
)
 
(232,253
)
Acquisition of Marcellus joint venture, net of cash acquired
(82,766
)
 
—

Acquisition of Momentum assets
(111,447
)
 
—

Capital expenditures for property and equipment
(4,030
)
 
(532
)
Proceeds from sale of interest in gas properties
11,542

 
—

Net cash used in investing activities
(624,321
)
 
(232,785
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from borrowings
900,000

 
321,003

Repayments of debt obligations
(498,865
)
 
(104,602
)
Restricted cash for convertible debt
8,268

 
(72,000
)
Debt issuance costs
(18,436
)
 
(7,993
)
Common stock issuance
—

 
197,990

Repurchase of common stock
—

 
(2,267
)
Costs relating to initial public offering
(1,405
)
 
—

Proceeds from conversion of warrants
948


—

Proceeds from issuance of common stock sold in initial public offering, net of underwriting fees
598,500

 
—

Net cash provided by financing activities
989,010

 
332,131

 
 
 
 
Net increase in cash
439,918

 
118,746

Cash at the beginning of the year
31,612

 
8,547

Cash at the end of the year
$
471,530

 
$
127,293

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

8

Rice Energy Inc.
Statements of Condensed Consolidated Equity
(Unaudited)
(in thousands)
Common Stock ($0.01 par)
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Total
Balance, January 1, 2013
$
622

 
$
166,901

 
$
(29,332
)
 
$
138,191

Capital contributions, net
258

 
197,732

 
—

 
197,990

Consolidated net income
—

 
—

 
12,811

 
12,811

Balance, June 30, 2013
$
880

 
$
364,633

 
$
(16,521
)
 
$
348,992

(in thousands)
Common Stock ($0.01 par)
 
Additional Paid-In Capital
 
Accumulated (Deficit) Earnings
 
Total
Balance, January 1, 2014
$
880

 
$
362,875

 
$
(65,108
)
 
$
298,647

Shares of common stock sold in initial public offering, net of offering costs
300

 
593,120

 
—

 
593,420

Shares of common stock issued in purchase of Marcellus joint venture
95

 
221,905

 
—

 
222,000

Conversion of restricted units into shares of common stock at IPO
—

 
36,306

 
—

 
36,306

Conversion of convertible debentures into shares of common stock after IPO
6

 
6,599

 
—

 
6,605

Conversion of warrants into shares of common stock after IPO
6

 
942

 
—

 
948

Incentive unit compensation
—

 
75,276

 
—

 
75,276

Stock compensation
—

 
1,216

 
—

 
1,216

Tax impact of initial public offering and corporate reorganization
—

 
(164,504
)
 
—

 
(164,504
)
Consolidated net income
—

 
—

 
121,538

 
121,538

Balance, June 30, 2014
$
1,287

 
$
1,133,735

 
$
56,430

 
$
1,191,452

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

9

Rice Energy Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Rice Energy Inc. (the “Company”) have been prepared by the Company’s management in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and applicable rules and regulations promulgated under the Exchange Act. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. The unaudited condensed consolidated financial statements included herein contain all adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of June 30, 2014 and its condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 and of cash flows for the six months ended June 30, 2014 and 2013 . The condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of the results to be expected for future periods. A corporate reorganization occurred concurrently with the completion of our IPO on January 29, 2014 . As a part of this corporate reorganization, we acquired all of the outstanding membership interests in Rice Appalachia and Rice Drilling B (other than those already held by Rice Appalachia) in exchange for shares of our common stock. Our business continues to be conducted through Rice Drilling B, now a wholly owned subsidiary. This reorganization constituted a common control transaction and the accompanying consolidated financial statements are presented as though this reorganization had occurred for the earliest period presented. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes therein for the year ended December 31, 2013 , as filed with the Securities and Exchange Commission by the Company in its 2013 Annual Report. Certain prior period financial statement amounts have been reclassified to conform to current period presentation.
2.
Long-Term Debt
Long-term debt consists of the following as of June 30, 2014 and December 31, 2013 :
(in thousands)
June 30, 2014
 
December 31, 2013
Long-term Debt
 
 
 
Senior Notes Due 2022 (a)
$
900,000

 
$
—

Second Lien Term Loan Facility (b)
—

 
293,821

Senior Secured Revolving Credit Facility (c)
—

 
115,000

Debentures (d)
—

 
6,890

NPI Note
—

 
8,028

Other
1,324

 
3,203

Total debt
$
901,324

 
$
426,942

Less current portion
1,324

 
20,120

Long-term debt
$
900,000

 
$
406,822

6.25% Senior Notes Due 2022 (a)
On April 25, 2014 , the Company issued $900.0 million (the “Senior Notes Offering”) in aggregate principal amount of 6.25% senior notes due 2022 (the “Notes”) in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds of $882.7 million , after deducting estimated expenses and the initial purchasers' discounts of approximately $17.3 million . The Company used $301.8 million of the net proceeds to repay and retire the Second Lien Term Loan Facility (defined below), with the remainder expected to be used to fund a portion of the Company’s 2014 capital expenditure program.
The Notes will mature on May 1, 2022 , and interest is payable on the Notes on each May 1 and November 1 , commencing on November 1, 2014 . At any time prior to May 1, 2017 , the Company may redeem up to 35% of the Notes at a redemption price of 106.25% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the Notes remains outstanding after such redemption. Prior to May 1, 2017 , the Company may redeem some or all of the notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. Upon the occurrence of a Change of Control (as defined in the indenture governing the notes (the "Indenture"), unless the Company has given notice to redeem the Notes, the holders of the Notes will have the right to require the Company to repurchase all or a portion of the Notes at a price equal to 101% of the aggregate principal amount of the Notes, plus any accrued and unpaid interest to the date of purchase. On or after May 1, 2017 , the

10

Company may redeem some or all of the Notes at redemption prices (expressed as percentages of principal amount) equal to 104.688% for the twelve-month period beginning on May 1, 2017, 103.125% for the twelve-month period beginning May 1, 2018, 101.563% for the twelve-month period beginning on May 1, 2019 and 100.000% beginning on May 1, 2020, plus accrued and unpaid interest to the redemption date.
The Notes are the Company’s senior unsecured obligations, rank equally in right of payment with all of the Company’s existing and future senior debt, and will rank senior in right of payment to all of the Company’s future subordinated debt. The Notes will be effectively subordinated to all of the Company’s existing and future secured debt to the extent of the value of the collateral securing such indebtedness.
The Indenture restricts the Company’s ability and the ability of certain of its subsidiaries to: (i) incur or guarantee additional debt or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire our capital stock or subordinated debt; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; (vii) transfer and sell assets; and (viii) create unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications. If at any time when the Notes are rated investment grade by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no default (as defined in the Indenture) has occurred and is continuing, many of such covenants will terminate and the Company and its subsidiaries will cease to be subject to such covenants.
The Indenture contains customary events of default, including:
•
default in any payment of interest on any Note when due, continued for 30 days;
•
default in the payment of principal of or premium, if any, on any Note when due;
•
failure by the Company to comply with its other obligations under the Indenture, in certain cases subject to notice and grace periods;
•
payment defaults and accelerations with respect to other indebtedness of the Company and its Restricted Subsidiaries (as defined in the Indenture) in the aggregate principal amount of $25.0 million or more;
•
certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (as defined in the Indenture) or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary;
•
failure by the Company or Restricted Subsidiary to pay certain final judgments aggregating in excess of $25.0 million within 60 days; and
•
any guarantee of the Notes by a Guarantor ceases to be in full force and effect, is declared null and void in a judicial proceeding or is denied or disaffirmed by its maker.
In connection with the issuance and sale of the Notes, the Company and certain of the Company's subsidiaries (the "Guarantors") entered into a registration rights agreement with the Initial Purchasers, dated April 25, 2014. Pursuant to the registration rights agreement, the Company and the Guarantors have agreed to file a registration statement with the Securities and Exchange Commission so that holders of the Notes can exchange the Notes for registered notes that have substantially identical terms as the Notes. In addition, the Company and the Guarantors have agreed to exchange the guarantee related to the Notes for a registered guarantee having substantially the same terms as the original guarantee. The Company and the Guarantors will use commercially reasonable efforts to cause the exchange to be completed within 365 days after the issuance of the Notes. The Company and the Guarantors are required to pay additional interest if they fail to comply with their obligations to register the Notes within the specified time periods.
Second Lien Term Loan Facility (b)
On April 25, 2013 , Rice Drilling B entered into a Second Lien Term Loan Facility (“Second Lien Term Loan Facility”) with Barclays Bank PLC, as administrative agent, and a syndicate of lenders in an aggregate principal amount of $300.0 million . Rice Drilling B estimated the discount on issuance of this instrument based upon an estimate of market rates at the inception of the instrument and recorded a discount of $4.5 million . The discount was being amortized over the life of the note using an effective interest rate of 0.284% . Approximately $7.4 million in fees were capitalized in connection with the Second Lien Term Loan Facility.
On April 25, 2014 , the Company used a portion of the net proceeds from the Senior Notes Offering to repay and retire the Second Lien Term Loan Facility in the amount of $301.8 million . The payment was comprised of repayment of the principal

11

balance of $297.0 million , a pre-payment penalty of $3.0 million and accrued but unpaid interest of $1.8 million . The pre-payment penalty is presented as loss on extinguishment of debt in the condensed consolidated statements of operations for the three months ended June 30, 2014 . The pre-payment also resulted in a debt extinguishment and subsequent write-off of the unamortized deferred finance costs of $6.1 million presented in the condensed consolidated statements of operations for the three months ended June 30, 2014 .
Senior Secured Revolving Credit Facility (c)
On April 25, 2013 , Rice Drilling B entered into a Senior Secured Revolving Credit Facility (“Senior Secured Revolving Credit Facility”) with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of lenders with a maximum credit amount of $500.0 million and a sublimit for letters of credit of $10.0 million . Concurrently with the closing of the IPO, on January 29, 2014 , Rice Drilling B amended its Senior Secured Revolving Credit Facility to, among other things, allow for the corporate reorganization that was completed simultaneously with the closing of the IPO, add the Company as a guarantor, increase the maximum commitment amount to $1.5 billion and lower the interest rate on amounts borrowed under the Senior Secured Revolving Credit Facility. The Company used a portion of the net proceeds of the IPO to repay $115.0 million of borrowings under the Senior Secured Revolving Credit Facility. After giving effect to the amendment, the borrowing base under the Senior Secured Revolving Credit Facility was increased to $350.0 million as a result of the Marcellus JV Buy-In.
In April 2014, concurrently with the Senior Notes Offering (defined below), the Company, as borrower, and Rice Drilling B, as predecessor borrower, amended and restated its Senior Secured Revolving Credit Facility (“Amended Credit Agreement”) to, among other things, assign all of the rights and obligations of Rice Drilling B as borrower under the Senior Secured Revolving Credit Facility to the Company. Furthermore, the Amended Credit Agreement (i) allowed for the issuance of the Notes described below and (ii) provided that the Company did not incur an immediate reduction in the borrowing base under the Senior Secured Revolving Credit Facility as a result of the issuance of the Notes. As such, the borrowing base under the Amended Credit Agreement immediately following the issuance of the Notes remained at $350.0 million . The Amended Credit Agreement also extended the maturity date of the Senior Secured Revolving Credit Facility from April 25, 2018 to January 29, 2019 . The amount available to be borrowed under the Amended Credit Agreement is subject to a semi-annual borrowing base redetermination that depends on, among other factors, the volumes of the Company’s proved oil and gas reserves. A redetermination occurred in May 2014 , which increased the borrowing base to $385.0 million . The next redetermination is scheduled to take effect in October 2014 based on the redetermination criteria as of July 1, 2014. As of June 30, 2014 , the borrowing base was $385.0 million and the sublimit for letters of credit was $100.0 million . The Company had zero borrowings outstanding and approximately $71.6 million in letters of credit outstanding under its Amended Credit Agreement as of June 30, 2014 , resulting in availability of $313.4 million .
Eurodollar loans under the Senior Secured Revolving Credit Facility bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 150 to 250 basis points, depending on the percentage of borrowing base utilized. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 50 to 150 basis points, depending on the percentage of borrowing base utilized.
The Amended Credit Agreement is secured by liens on at least 80% of the proved oil and gas reserves of the Company and its subsidiaries (other than any subsidiary that is designated as an unrestricted subsidiary), as well as significant unproved acreage and substantially all of the personal property of the Company and such restricted subsidiaries, and the Amended Credit Agreement is guaranteed by such restricted subsidiaries. The Amended Credit Agreement contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things:
•
incur additional indebtedness;
•
sell assets;
•
make loans to others;
•
make investments;
•
enter into mergers;
•
make or declare dividends;
•
hedge future production or interest rates;
•
incur liens; and

12

•
engage in certain other transactions without the prior consent of the lenders.
The Amended Credit Agreement also requires the Company to maintain certain financial ratios, which are measured at the end of each calendar quarter:
•
a current ratio, which is the ratio of consolidated current assets (including unused commitments under the Amended Credit Agreement and excluding non-cash derivative assets) to consolidated current liabilities (excluding current maturities under the Amended Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0 ; and
•
a minimum interest coverage ratio, which is the ratio of consolidated EBITDAX (as such term is defined in the Amended Credit Agreement) based on the trailing 12 month period to consolidated interest expense, of not less than 2.5 to 1.0 .
The Company was in compliance with such covenants and ratios effective as of June 30, 2014 .
Debentures (d)
In June of 2011 , Rice Drilling B sold $60.0 million of its 12% Senior Subordinated Convertible Debentures due 2014 (the “Debentures”) in a private placement to certain accredited investors as defined in Rule 501 of Regulation D. The Debentures accrued interest at 12%  per year payable monthly in arrears by the 15th day of the month and had a scheduled maturity date of July 31, 2014 (“Maturity Date”). The Debentures were Rice Drilling B’s unsecured senior obligations and ranked equally with all of Rice Drilling B’s then-current and future senior unsecured indebtedness.
From July 31, 2013 through August 20, 2013 (the “put redemption period”), any holder of Debentures had the right to cause Rice Drilling B to repurchase all or any portion of the Debentures owned by such holder at 100% of the portion of the principal amount of the Debentures as to which the right was being exercised, plus a premium of 20% . During the put redemption period, Rice Drilling B repurchased $53.1 million of outstanding Debentures and paid a put premium of $10.6 million in accordance with the terms of the agreements.
At any time after July 31, 2013 until the Maturity Date, Rice Drilling B had the right to redeem all, but not less than all, of the Debentures on 30 days prior written notice at a redemption price equal to 100% of the principal amount of the Debentures plus a premium of 50% . In connection with the IPO, the Debentures and warrants of Rice Drilling B were amended to become convertible or exercisable for shares of common stock of the Company. On February 28, 2014 , Rice Drilling B issued a redemption notice on the remaining Debentures, which set a redemption date of March 28, 2014. Prior to the redemption date, $6.6 million of the Debentures were converted into 570,945 shares of the Company's common stock. The remaining principal balance of $0.3 million that was not converted will be paid upon request from holders of the remaining Debentures. The premium of $0.1 million was recorded to expense in the six months ended June 30, 2014 . As of June 30, 2014 , the remaining principal balance was $0.2 million .
In connection with the convertible debt offering, Rice Drilling B granted warrants that were issued on August 15, 2011 , to certain of the broker-dealers involved in the private placement. These warrants are considered to be separate instruments issued solely in lieu of cash compensation for services provided by the broker-dealers. Two separate classes of warrants were issued with the sole difference being the exercise price. At June 30, 2014 , 266 warrants remain exercisable at a weighted average price of $11.57 per share of the Company's common stock. The 266 warrants are exercisable in exchange for up to 229,668 shares. During the first quarter of 2014, warrants were exercised in exchange for 54,032 shares of the Company's common stock and during the second quarter of 2014, warrants were exercised for 505,734 shares of the Company's common stock.
Expected Aggregate Maturities
Expected aggregate maturities of notes payable as of June 30, 2014 are as follows (in thousands) :
Remainder of Year Ending December 31, 2014
$
644

Year Ending December 31, 2015
680

Year Ending December 31, 2016
—

Year Ending December 31, 2017
—

Year Ending December 31, 2018 and Beyond
900,000

Total
$
901,324

Interest paid in cash was $1.8 million and $8.8 million for the three and six months ended June 30, 2014 , respectively, and $7.3 million and $10.7 million for the three and six months ended June 30, 2013 , respectively.

13

3.
Derivative Instruments
The Company uses derivative commodity instruments that are placed with major financial institutions whose creditworthiness is regularly monitored. Our derivative counterparties share in the Amended Credit Agreement collateral. The Company’s derivative commodity instruments have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in income currently. As of June 30, 2014 , the Company has entered into derivative instruments with Wells Fargo Bank, N.A., Bank of Montreal, Citibank, N.A. and Barclays Bank PLC, fixing the price it receives for a portion of its natural gas through December 1, 2017 , as summarized in the following table:
Swap Contract Expiration
MMBtu/day
 
Weighted
Average Price
2014
164,000

 
$
4.120

2015
92,000

 
$
4.160

2016
148,000

 
$
4.200

2017
60,000

 
$
4.240

 
Collar Contract Expiration
MMBtu/day
 
Floor/Ceiling
2014
10,000

 
$3.000/$5.800
2015
122,000

 
$3.960/$4.710

Basis Contract Expiration
MMBtu/day
 
Swap ($/MMBtu)
2014
55,000

 
$
(0.350
)
2015
62,000

 
$
(0.570
)
2016
38,000

 
$
(0.630
)

Put Contract Expiration
MMBtu/day
 
Swap ($/MMBtu)
2014
50,000

 
$
0.450

The following tables present the gross amounts of recognized derivative assets and liabilities, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets for the periods presented, all at fair value:
 
As of June 30, 2014
(in thousands)
Derivative instruments, recorded in the Condensed Consolidated Balance Sheet, gross

Derivative instruments subject to master netting arrangements

Derivative Instruments, net
Derivative assets
$
18,194

 
$
(18,194
)
 
$
—

Derivative liabilities
$
37,857

 
$
(18,194
)
 
$
19,663

 
 
 
 
 
 
 
As of December 31, 2013
(in thousands)
Derivative instruments, recorded in the Condensed Consolidated Balance Sheet, gross
 
Derivative instruments subject to master netting arrangements
 
Derivative Instruments, net
Derivative assets
$
13,000

 
$
(4,700
)
 
$
8,300

Derivative liabilities
$
256

 
$
(4,600
)
 
$
(4,344
)
The following table presents the realized and unrealized gains or losses presented as gain or loss on derivatives in the condensed consolidated statements of operations for the periods presented:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Realized loss
$
(9,795
)
 
$
(1,635
)
 
$
(20,953
)
 
$
(1,841
)
Unrealized gain (loss)
$
(1,403
)
 
$
15,276

 
$
(10,625
)
 
$
10,489


14

4.
Fair Value of Financial Instruments
The Company determines fair value on a recurring basis for its liability related to restricted units and recorded amounts for derivative instruments as these instruments are required to be recorded at fair value for each reporting amount. Certain amounts in the Company’s financial statements are measured at fair value on a nonrecurring basis including discounts associated with long-term debt. Fair value is based on quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use as inputs market-based parameters, including but not limited to forward curves, discount rates, broker quotes, volatilities, and nonperformance risk.
The Company has categorized its fair value measurements into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company’s fair value measurements relating to restricted units are included in Level 3. The Company’s fair value measurements relating to derivative instruments are included in Level 2. Since the adoption of fair value accounting, the Company has not made any changes to its classification of financial instruments in each category.
Items included in Level 3 are valued using internal models that use significant unobservable inputs. Items included in Level 2 are valued using management’s best estimate of fair value corroborated by third-party quotes.

15

The following assets and liabilities were measured at fair value on a recurring basis during the period (refer to Note 3 for details relating to derivative instruments):
 
As of June 30, 2014
(in thousands)
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
Carrying Value
 
Total Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total assets
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
19,663

 
$
19,663

 
$
—

 
$
19,663

 
$
—

Total liabilities
$
19,663

 
$
19,663

 
$
—

 
$
19,663

 
$
—

 
As of December 31, 2013
 
 
 
Fair Value Measurements at Reporting Date Using
(in thousands)
Carrying Value
 
Total Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
 
 
 
 
Derivative instruments, at fair value
$
4,921

 
$
4,921

 
$
—

 
$
4,921

 
$
—

Total assets
$
4,921

 
$
4,921

 
$
—

 
$
4,921

 
$
—

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Restricted units, at fair value
$
36,306

 
$
36,306

 
$
—

 
$
—

 
$
36,306

Derivative instruments, at fair value
965

 
965

 
—

 
965

 
—

Total liabilities
$
37,271

 
$
37,271

 
$
—

 
$
965

 
$
36,306

 
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)
2014
 
2013
Balance as of January 1,
$
36,306

 
$
5,667

Total gain or losses:
 
 
 
Included in earnings
—

 
—

Transfers in and/or out of Level 3
—

 
—

Repurchase of restricted units
—

 
(2,267
)
Converted to shares of common stock
(36,306
)
 
—

Balance as of June 30,
$
—

 
$
3,400

Gains and losses related to restricted units included in earnings for the period are reported in operating expenses in the statements of consolidated operations.
The carrying value of cash equivalents approximates fair value due to the short maturity of the instruments.

16

The estimated fair value and carrying amount of long-term debt as reported on the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013 is shown in the table below (refer to Note 2 for details relating to the borrowing arrangements). The fair value was estimated using Level 3 inputs based on rates reflective of the remaining maturity as well as the Company’s financial position.
 
As of June 30, 2014
 
As of December 31, 2013
Long-Term Debt (in thousands)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Senior Notes Offering
$
900,000

 
$
916,490

 
$
—

 
$
—

Second Lien Term Loan Facility
—

 
—

 
293,821

 
315,284

Senior Secured Revolving Credit Facility
—

 
—

 
115,000

 
115,000

Debentures
—

 
—

 
6,890

 
12,671

NPI Note
—

 
—

 
8,028

 
8,028

Other
1,324

 
1,324

 
3,203

 
3,203

Total
$
901,324

 
$
917,814

 
$
426,942

 
$
454,186

5.
Acquisitions
Marcellus JV Buy-In
Prior to the completion of the Marcellus JV Buy-In, the Company accounted for its 50% equity interest in the Marcellus joint venture under the equity method of accounting. Immediately prior to the completion of the Marcellus JV Buy-In, the fair value of the existing equity in the Marcellus joint venture was approximately $250.6 million . The acquisition date fair value of the existing equity investment was based on an income approach. The income approach, considered to be a Level 3 fair value method, calculated the present value of the future cash flows related to the natural gas properties as of the date of the transaction, utilizing a discount rate based upon market participant assumptions, natural gas strip prices as of the date of the transaction, and a decline curve consistent with our geographic peers. As a result of the Marcellus JV Buy-In, the Company was required to remeasure its equity investment at fair value, which resulted in a non-recurring gain of approximately $203.6 million during the six months ended June 30, 2014 . Based on valuations performed as of the acquisition date, the natural gas properties had a fair value of approximately $343.0 million . The acquisition consolidated the resources of the Company and the Marcellus joint venture, which enables management to optimize and prioritize the development of their combined natural gas properties. The management team of the Company historically served as the management team of the Marcellus joint venture, providing it with familiarity with its assets and operations. As a result of these factors, the excess purchase price over net assets and liabilities assumed of $338.0 million was allocated to goodwill.
The purchase price allocation and resulting impact on the corresponding condensed consolidated balance sheet relating to the Marcellus JV Buy-In is as follows:
(in thousands)
 
Financial assets
$
34,242

Proved natural gas properties, net
288,000

Unproved natural gas properties
55,000

Goodwill
338,036

Financial liabilities
(49,313
)
Long-term debt
(75,400
)
Deferred tax liability
(17,933
)
Total identifiable net assets
$
572,632

 
 
Cash paid for acquisitions
$
100,000

Fair value of equity issued
222,000

Fair value of pre-existing equity investment
250,632

Total consideration
$
572,632


17

Subsequent to the completion of the Marcellus JV Buy-In and excluding the related gain of $203.6 million recorded at January 29, 2014 , the 100% -owned Marcellus joint venture contributed the following to the Company’s consolidated operating results for the six months ended June 30, 2014 :
(in thousands)
Three Months Ended June 30, 2014
Six Months Ended June 30, 2014
Revenue
$
37,666

$
72,600

Net income
$
15,945

$
45,412

Pro Forma Information (Unaudited)
The following unaudited pro forma combined financial information presents the Company’s results as though the Marcellus JV Buy-In had been completed at January 1, 2014 and January 1, 2013 , respectively.
 
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands, except per share data)
2014
2013
2014
2013
Pro forma net revenues
$
91,940

$
50,545

$
194,353

$
80,717

Pro forma net income (loss)
$
(153
)
$
35,476

$
(76,934
)
$
27,714

Pro forma earnings (loss) per share (basic)
$
—

$
0.43

$
(0.60
)
$
0.38

Pro forma earnings (loss) per share (diluted)
$
—

$
0.43

$
(0.60
)
$
0.38

Momentum Acquisition
On February 12, 2014 , the Company, through its indirect wholly-owned subsidiary Rice Poseidon Midstream LLC, a Delaware limited liability company (“Rice Poseidon”), entered into a purchase and sale agreement with M3 Appalachia Gathering LLC, a Delaware limited liability company (“M3”), to acquire (the “Momentum Acquisition”) certain gas gathering assets in eastern Washington and Greene Counties, Pennsylvania. On April 17, 2014, the Company completed the Momentum Acquisition for aggregate consideration of approximately $111.4 million (the “Purchase Price”). The Company funded the Purchase Price with cash on hand.
As of June 30, 2014, $48.9 million of the purchase price was allocated to intangible assets related to customer contracts on the condensed consolidated balance sheets and the remaining balance was recorded to proved and unproved natural gas properties. The customer contracts are amortized using a straight line method and amortization expense recorded in the condensed consolidated statements of operations for the three and six months ended June 30, 2014 was $0.3 million . The estimated annual amortization expense over the next five years is as follows: remainder of 2014 - $0.8 million , 2015 - $1.6 million , 2016 - $1.6 million , 2017 - $1.6 million , 2018 - $1.6 million .
The properties acquired in the Momentum Acquisition consist of a 28 -mile, 6 ”- 16 ” gathering system in eastern Washington County, Pennsylvania, and permits and rights of way in Washington and Greene Counties, Pennsylvania, necessary to construct an 18 -mile, 30 ” gathering system connecting the northern system to the Texas Eastern pipeline. The northern system is supported by long-term contracts with acreage dedications covering approximately 20,000 acres from third parties. Once fully constructed, the acquired systems are expected to have an aggregate capacity of over 1 billion cubic feet of natural gas per day.
6.
Commitments and Contingencies
On October 14, 2013 , the Company entered into a Development Agreement and Area of Mutual Interest (“AMI”) Agreement with Gulfport Energy Corporation (“Gulfport”) covering approximately 50,000 aggregate net acres in the Utica Shale in Belmont County, Ohio. The Company refers to these agreements as “Utica Development Agreements.” Pursuant to the Utica Development Agreements, the Company had approximately 68.80% participating interest in acreage currently owned or to be acquired by the Company or Gulfport located within Goshen and Smith Townships (the “Northern Contract Area”) and an approximately 42.63% participating interest in acreage currently owned or to be acquired by the Company or Gulfport located within Wayne and Washington Townships (the “Southern Contract Area”), each within Belmont County, Ohio. The remaining participating interests are held by Gulfport. The participating interests of the Company and Gulfport in each of the Northern and Southern Contract Areas approximate the Company’s current relative acreage positions in each area.

18

Each quarter during the term of the Development Agreement, the Company and Gulfport will establish a work program and budget detailing the proposed exploration and development to be performed in the Northern and Southern Contract Areas, respectively, for the following year. The number of horizontal wells proposed to be drilled in each of the Northern Contract Area and Southern Contract Area is limited by the Development Agreement as follows: in 2013, no more than five wells; in 2014, between eight and 40 wells; in 2015, between eight and 50 wells; and thereafter, unlimited .
The Utica Development Agreements have terms of ten years and are terminable upon 90 days’ notice by either party; provided that, with respect to interests included within a drilling unit, such interests shall remain subject to the applicable joint operating agreement and the Company and Gulfport shall remain operators of drilling units located in the Northern and Southern Contract Areas, respectively, following such termination.
The Company has commitments for gathering and firm transportation under existing contracts with third parties. Future payments for these items as of June 30, 2014 totaled $2,384.5 million (remainder of 2014 - $19.5 million , 2015 - $94.8 million , 2016 - $113.6 million , 2017 - $113.4 million , 2018 - $112.0 million , 2019 - $107.6 million and thereafter - $1,823.6 million ).
As of June 30, 2014 , the Company had three horizontal drilling rigs under contract that expire in 2015 . Future payments for these items as of June 30, 2014 totaled $29.1 million (remainder of 2014 - $13.1 million and 2015 - $16.0 million ). Any other rig performing work for us is doing so on a well-by-well basis and therefore can be released without penalty at the conclusion of drilling on the current well. These types of drilling obligations have not been included in the amounts above. The values above represent the gross amounts that we are committed to pay without regard to our proportionate share based on our working interest.
The Company is involved in various litigation matters arising in the normal course of business. Management is not aware of any actions that are expected to have a material adverse effect on its financial position or results of operations.
7.
Stockholders’ Equity
On January 29, 2014 , pursuant to the Master Reorganization Agreement (the “Master Reorganization Agreement”) among the Company, Rice Drilling B, Rice Appalachia, Rice Holdings, Rice Partners, NGP Holdings, NGP RE Holdings, L.L.C., (“NGP RE Holdings”) NGP RE Holdings II, L.L.C. (“NGP RE II” and, together with NGP RE Holdings, “Natural Gas Partners”), Mr. Daniel J. Rice III, Rice Merger LLC (“Merger Sub”) and each of the persons holding incentive units representing interests in Rice Appalachia (collectively, the “Incentive Unitholders”) dated as of January 23, 2014 , (i) (a) Rice Partners contributed a portion of its interests in Rice Appalachia to Rice Holdings, (b) Natural Gas Partners contributed its interests in Rice Appalachia to NGP Holdings and (c) the Incentive Unitholders contributed a portion of their incentive units to Rice Holdings and NGP Holdings, in each case in return for substantially similar incentive units in such entities; (ii) NGP Holdings, Rice Holdings and Mr. Daniel J. Rice III contributed their respective interests in Rice Appalachia to the Company in exchange for 43,452,550 , 20,300,923 and 2,356,844 shares of common stock, respectively; (iii) Rice Partners contributed its remaining interest in Rice Appalachia to the Company in exchange for 20,000,000 shares of common stock; (iv) the Incentive Unitholders contributed their remaining interests in Rice Appalachia to the Company in exchange for 160,831 shares of common stock, each of which were issued by the company in connection with the closing of the IPO. In connection with the IPO, in the first quarter of 2014, we recognized a non-cash compensation expense of $3.4 million for these 160,831 shares.
In addition, on January 29, 2014 , pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) among the Company, Rice Drilling B and Merger Sub dated as of January 23, 2014 , the Company issued 1,728,852 shares of common stock to the members of Rice Drilling B (other than Rice Appalachia) in exchange for their units in Rice Drilling B.
The Company’s Board of Directors did not declare or pay a dividend for the three or six months ended June 30, 2014 or 2013 .
8.
Incentive Units
In connection with the IPO and the related corporate reorganization, the Rice Appalachia incentive unit holders contributed their Rice Appalachia incentive units to Rice Holdings and NGP Holdings in return for substantially similar incentive units in such entities (except for those incentive units related to the incentive burden attributable to Mr. Daniel J. Rice III, which we acquired from the holders of such incentive units in exchange for the issuance of 160,831 shares of our common stock). In the first quarter of 2014, certain incentive units granted by NGP Holdings to certain employees triggered the pre-determined payout criteria, resulting in a cash payment by NGP Holdings of $4.4 million . No payments were made in respect of incentive units prior to the completion of the Company’s IPO. These two transactions resulted in non-cash compensation expense of $7.8 million being recorded in the first quarter of 2014 by the Company.
As a result of the IPO, the payment likelihood related to the incentive units was deemed probable, requiring that we recognize expense. Accordingly, we recognized approximately $1.5 million and $67.5 million of compensation expense for the

19

three and six months ended June 30, 2014 , respectively, relative to these interests, and we expect to recognize approximately $86.6 million of additional compensation expense over the remaining expected service periods, related to the Rice Holdings interests. The NGP Holdings interests are considered a liability-based award and will be adjusted on a quarterly basis until all payments have been made. As of June 30, 2014 , the unrecognized compensation expense related to the NGP Holdings units is approximately $125.5 million which will be recognized over the remaining expected service period. The compensation expense related to these interests is treated as additional paid in capital from Rice Holdings and NGP Holdings in our financial statements and is not deductible for federal or state income tax purposes. The compensation expense recognized is a non-cash charge, with the settlement obligation resting on NGP Holdings and Rice Holdings. Payments on the incentive units will be made by Rice Holdings and NGP Holdings and not Rice Energy Inc., and as such are not dilutive to Rice Energy Inc.
Three tranches of the incentive units have a time vesting feature. A rollforward of those units from IPO to June 30, 2014 is included below.
Vested Units Balance, January 29, 2014
853,630

Vested During Period
447,407

Forfeited During Period
(214,869
)
Granted During Period
214,869

Cancelled During Period
—

Vested Units Balance, June 30, 2014
1,301,037

Four tranches of the incentive units do not have a time vesting feature, and their payouts are triggered upon a future payment condition.

20

The fair value of the incentive units was estimated using a Monte Carlo simulation valuation model with the following assumptions:
Rice Holdings
 
Valuation Date
1/29/2014

Dividend Yield
0.00
%
Expected Volatility
47.00
%
Risk-Free Rate
1.11
%
Expected Life (Years)
4.0

 
 
Rice Holdings
 
     Valuation Date
4/14/2014

     Dividend Yield
0.00
%
     Expected Volatility
45.19
%
     Risk-Free Rate
1.13
%
     Expected Life (Years)
3.80

 
 
Rice Holdings
 
     Valuation Date
4/16/2014

     Dividend Yield
0.00
%
     Expected Volatility
44.32
%
     Risk-Free Rate
1.18
%
     Expected Life (Years)
3.79

 
 
NGP Holdings
 
Valuation Date
6/30/2014

Dividend Yield
0.00
%
Expected Volatility
42.68
%
Risk-Free Rate
0.94
%
Expected Life (Years)
3.17

9.
Stock Compensation
During the six months ended June 30, 2014, the Company granted stock compensation awards to certain non-employee directors and employees. The awards consisted of restricted stock, which vest upon the passage of time, and performance units, which vest based upon attainment of specified market conditions. Stock compensation expense related to these awards was $1.1 million and $1.2 million , for the three and six months ended June 30, 2014, respectively. As of June 30, 2014 , the Company has unrecorded compensation expense related to the units of $19.0 million . The stock compensation unit grants made during the quarter ended June 30, 2014 reflect annual equity awards made to employees.
10.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share takes into account the dilutive effect of potential common stock that could be issued by the Company in conjunction with stock awards that have been granted to directors and employees. In accordance with FASB ASC Topic 260, awards of nonvested shares shall be considered to be outstanding as of the grant date for purposes of computing diluted EPS even though their issuance is contingent upon vesting. The following is a

21

calculation of the basic and diluted weighted-average number of shares of common stock outstanding and EPS for the three and six months ended June 30, 2014 and 2013 . As indicated in Note 1, our corporate reorganization was considered a transaction amongst entities under common control. Therefore, the weighted average shares used in our EPS calculation assume that the Rice Energy, Inc. corporate structure was in place for all periods presented.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share data)
2014
 
2013
 
2014
 
2013
Income (loss) (numerator):
 
 
 
 
 
 
 
Net income (loss)
$
(7,917
)
 
$
19,586

 
$
121,538

 
$
12,811

 
 
 
 
 
 
 
 
Weighted-average shares (denominator):
 
 
 
 
 
 
 
Weighted-average number of shares of common stock - basic
128,419,606

 
83,183,529

 
121,925,915

 
72,758,538

Weighted-average number of shares of common stock - diluted
128,419,606

 
84,855,329

 
122,255,908

 
74,430,338

 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.06
)
 
$
0.24

 
$
1.00

 
$
0.18

Diluted
$
(0.06
)
 
$
0.23

 
$
0.99

 
$
0.17

For the three months ended June 30, 2014 , 109,593 shares were not considered dilutive as we incurred a net loss for the period presented herein.
11.
Income Taxes
We are a corporation under the Internal Revenue Code subject to federal income tax at a statutory rate of 35% of pretax earnings and, as such, our future income taxes will be dependent upon our future taxable income. We did not report any income tax benefit or expense for periods prior to the consummation of our IPO because Rice Drilling B, our accounting predecessor, is a limited liability company that was not and currently is not subject to federal income tax. The reorganization of our business in connection with the closing of the IPO, such that it is now held by a corporation subject to federal income tax, required the recognition of a deferred tax asset or liability for the initial temporary differences at the time of the IPO. The resulting deferred tax liability of approximately $164.5 million was recorded in equity at the date of the completion of the IPO as it represents a transaction among shareholders. Additionally, we have presented pro forma EPS for the six month period ending June 30, 2014 assuming a statutory rate as disclosed in the accompanying condensed consolidated statements of operations.
Based on management’s analysis, the Company did not have any uncertain tax positions as of June 30, 2014 and December 31, 2013 .
12.
New Accounting Pronouncements
In May 2014, the FASB issued ASU, No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU No. 2014-09. The FASB created Topic 606 which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 will enhance comparability of revenue recognition practices across entities, industries and capital markets compared to existing guidance. Additionally, ASU 2014-09 will reduce the number of requirements to which an entity must consider in recognizing revenue as this update will replace multiple locations for guidance. The FASB and International Accounting Standards Board initiated this joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for both U.S. GAAP and International Financial Reporting Standards. ASU 2014-09 is effective for fiscal and interim periods beginning after December 15, 2016 and should be applied retrospectively. Early adoption of this standard is not permitted. The Company is currently evaluating the impact of the provisions of ASU 2014-09.
13.
Subsequent Events
Greene County Acquisition
On July 7, 2014, the Company entered into a definitive purchase and sale agreement to acquire approximately 22,000 net acres and 12 developed Marcellus wells in western Greene County, Pennsylvania from Chesapeake Appalachia, L.L.C. and its partners for approximately $329.5 million (the “Greene County Acquisition”). The Company funded the Greene County Acquisition through a combination of cash on hand and borrowings under the Amended Credit Agreement. As of June 30, 2014, the Company has deposits of $18.7 million on the condensed consolidated balance sheets in escrow for this purchase. The transaction closed on August 1, 2014 , with an effective date of February 1, 2014.

22


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2013 Annual Report, as well as the condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. Some of the key factors which could cause actual results to vary from our expectations include changes in natural gas prices, the timing of planned capital expenditures, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as our ability to access them, and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business, as well as those factors discussed below and elsewhere in this Quarterly Report, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. See “Cautionary Statement Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described under the heading “Risk Factors” included elsewhere in this Quarterly Report. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
We are an independent natural gas and oil company engaged in the acquisition, exploration and development of natural gas and oil properties in the Appalachian Basin. We are focused on creating shareholder value by identifying and assembling a portfolio of low-risk assets with attractive economic profiles and leveraging our technical and managerial expertise to deliver industry-leading results. We strive to be an early entrant into the core of a shale play by identifying what we believe to be the core of the play and aggressively executing our acquisition strategy to establish a largely contiguous acreage position.
As of June 30, 2014 , we held approximately 53,834 net acres in the southwestern core of the Marcellus Shale, primarily in Washington County, Pennsylvania. We established our Marcellus Shale acreage position through a combination of largely contiguous acreage acquisitions in 2009 and 2010 and through numerous bolt-on acreage acquisitions. In 2012, we acquired approximately 33,499 of our 50,772 net acres in the southeastern core of the Utica Shale, primarily in Belmont County, Ohio. We believe this area to be the core of the Utica Shale based on publicly available drilling results. We operate a substantial majority of our acreage in the Marcellus Shale and a majority of our acreage in the Utica Shale.
Since completing our first horizontal well in October 2010, our average net daily production has grown approximately 120 times to 241 million cubic feet per day (“MMcf/d”) for the second quarter of 2014 . We brought ten net horizontal Marcellus wells and one net Utica well online during the second quarter of 2014 . As of June 30, 2014 , we had 1,389 gross ( 814  net) identified drilling locations, consisting of 403 gross ( 374 net) in the Marcellus Shale, 775 gross ( 246 net) in the Utica Shale and 211 gross ( 194  net) in the Upper Devonian Shale.
Factors That Significantly Affect Our Financial Condition and Results of Operations
We derive substantially all of our revenues from the sale of natural gas that is produced from our interests in properties located in the Marcellus Shale. In the coming years, we expect to derive an increasing amount of our revenues from the sale of natural gas and, in a more limited amount, NGLs, that are produced from our interests in properties located in the Utica Shale. Our revenues, cash flow from operations and future growth depend substantially on factors beyond our control, such as economic, political and regulatory developments and competition from other sources of energy. Natural gas prices have historically been volatile and may fluctuate widely in the future due to a variety of factors, including but not limited to, prevailing economic conditions, supply and demand of hydrocarbons in the marketplace and geopolitical events such as wars or natural disasters. In the future, we will also be subject to fluctuations in oil and NGL prices. Sustained periods of low natural gas prices could materially and adversely affect our financial condition, our results of operations, the quantities of natural gas that we can economically produce and our ability to access capital.
We use commodity derivative instruments, such as swaps, puts and collars, to manage and reduce price volatility and other market risks associated with our natural gas production. These arrangements are structured to reduce our exposure to commodity price decreases, but they can also limit the benefit we might otherwise receive from commodity price increases. Our risk management activity is accomplished through over-the-counter commodity derivative contracts with large financial institutions. We use a combination of fixed price natural gas swaps; zero cost collars and deferred puts for which we receive a fixed price (via either swap price, floor of collar or put price) for future production in exchange for a payment of the variable market price received at the time future production is sold. The prices contained in these derivative contracts are based on NYMEX Henry Hub prices. The NYMEX Henry Hub price of natural gas is a widely used benchmark for the pricing of natural gas in the United

23


States. The actual prices realized from the sale of natural gas differ from the quoted NYMEX Henry Hub price as a result of location differentials. Location differentials to NYMEX Henry Hub prices, also known as basis differential, result from variances in regional natural gas prices compared to NYMEX Henry Hub prices as a result of regional supply and demand factors. During the fourth quarter of 2013 we began hedging basis differentials associated with our natural gas production. We elected not to designate our current portfolio of commodity derivative contracts as hedges for accounting purposes. Therefore, changes in fair value of these derivative instruments are recognized in earnings. Please read “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for additional discussion of our commodity derivative contracts.
Like other businesses engaged in the exploration and production of oil and natural gas, we face the challenge of natural production declines. As initial reservoir pressures are depleted, oil and natural gas production from a given well naturally decreases. Thus, a natural gas exploration and production company depletes part of its asset base with each unit of natural gas it produces. We attempt to overcome this natural decline by drilling to find additional reserves and acquiring more reserves than we produce. Our future growth will depend on our ability to enhance production levels from our existing reserves and to continue to add reserves in excess of production in a cost effective manner. Our ability to make capital expenditures to increase production from our existing reserves and to add reserves through drilling is dependent on our capital resources and can be limited by many factors, including our ability to access capital in a cost effective manner and to timely obtain drilling permits and regulatory approvals.
Our financial condition and results of operations, including the growth of production, cash flows and reserves, are driven by several factors, including:
•
success in drilling new wells;
•
natural gas prices;
•
our access to, and the cost of accessing end markets for our production;
•
the availability of attractive acquisition opportunities and our ability to execute them;
•
the amount of capital we invest in the leasing and development of our properties;
•
facility or equipment availability and unexpected downtime;
•
delays imposed by or resulting from compliance with regulatory requirements; and
•
the rate at which production volumes on our wells naturally decline.
Factors That Significantly Affect Comparability of Our Financial Condition and Results of Operations
Our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward, for the following reasons:
Public Company Expenses . As a result of our IPO, we will incur direct, incremental general and administrative (“G&A”) expenses as a result of being a publicly traded company, including, but not limited to, costs associated with annual and quarterly reports to stockholders, tax return preparation, independent auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation.
Corporate Reorganization and Marcellus JV Buy-In. Information presented in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the period from January 1, 2014 through January 29, 2014, as contained within the three and six months ended June 30, 2014 , and for the three and six months ended June 30, 2013 , pertain to the historical financial statements and results of operations of Rice Energy, Inc., which reflects the 50% equity investment in our Marcellus joint venture owned by Rice Drilling B prior to January 29, 2014. The reorganization constituted a common control transaction and the discussion in MD&A is contemplated as though this reorganization had occurred for the earliest period presented herein. As a result, the historical financial data may not give you an accurate indication of what our actual results would have been had the IPO Transactions been completed at the beginning of the periods presented or of what our future results of operations are likely to be. For example, concurrently with the closing of our IPO, we acquired Alpha Holdings’ 50% interest in our Marcellus joint venture and, as a result, for periods following January 29, 2014, the complete results of operations of our Marcellus joint venture are consolidated into our results of operations, as opposed to periods prior to January 29, 2014, for which the results of operations of our Marcellus joint venture are not consolidated but rather reflected as equity in income (loss) from our 50% equity investment therein.

24


Income Taxe s. We are a corporation under the Internal Revenue Code subject to federal income tax at a statutory rate of 35% of pretax earnings, and, as such, our future income taxes will be dependent upon our future taxable income. We did not report any income tax benefit or expense for periods prior to the consummation of our IPO because Rice Drilling B, our accounting predecessor, is a limited liability company that was not and currently is not subject to federal income tax. The reorganization of our business in connection with the closing of the IPO, such that it is now held by a corporation subject to federal income tax, required the recognition of a deferred tax asset or liability for the initial temporary differences at the time of the IPO. The resulting deferred tax liability of approximately $164.5 million was recorded in equity at the date of IPO. Because we anticipate that our deductions primarily related to intangible drilling costs (“IDCs”) will exceed 2014 earnings, we expect to generate significant net operating loss assets and deferred tax liabilities. No current tax expense was recorded as of the date of the IPO. For periods following completion of the IPO, we began recording a federal and state income tax liability associated with our status as a corporation. Please see “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—11. Income Taxes.”
Increased Drilling Activity . We brought ten net horizontal Marcellus wells and one net horizontal Utica wells online during the second quarter of 2014 and expect to bring 22 net horizontal Marcellus wells and four net horizontal Utica wells online during the remainder of 2014. From 2010 through June 2013, we ran a one-horizontal rig drilling program. In June 2013, we began operating a two-horizontal rig drilling program on our Marcellus Shale properties. In the first quarter of 2014, we began operating a three-horizontal rig program, with one rig operating in the Utica Shale. In the second quarter of 2014, we averaged three-horizontal rigs, with an average of one operating in the Utica Shale and two in the Marcellus Shale. We expect to continue this program through the remainder of 2014. We expect our future drilling activity will become increasingly weighted towards the development of our Utica Shale acreage. The costs and production associated with the wells we expect to drill in the Utica Shale may differ substantially from those we have historically drilled in the Marcellus Shale.
Financing Arrangements . On April 25, 2014 , we issued $900.0 million (our “Senior Notes Offering”) of 6.25% senior notes due 2022 (the “Notes”) in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds to us of $882.7 million after deducting estimated expenses and initial purchasers' discounts of approximately $17.3 million . We used $301.8 million of the net proceeds to repay and retire the Second Lien Term Loan Facility (defined below), with the remainder expected to be used to fund a portion of our capital expenditures program.
During the second quarter of 2014 , our capital expenditures were financed with proceeds from our IPO and Senior Notes Offering and net cash provided by operating activities. In the future, we may incur additional indebtedness and issue additional equity to fund our acquisition and development activities. Please read “Capital Resources and Liquidity—Debt Agreements” below for additional discussion of our financing arrangements.
In April 2013, we entered into our $300.0 million Second Lien Term Loan Facility agreement (“Second Lien Term Loan Facility”). Net proceeds of our Second Lien Term Loan Facility of $288.3 million after offering fees and expenses were used to repay existing debt of $176.1 million and to partially fund the acquisition of approximately 33,499 net acres in the Utica Shale in Belmont County, Ohio. On April 25, 2014 , the Company used a portion of the net proceeds from the Senior Notes Offering to repay and retire the Second Lien Term Loan Facility in the amount of $301.8 million .
In April 2013, we entered into our $500.0 million Senior Secured Revolving Credit Facility (“Senior Secured Revolving Credit Facility”). Concurrently with the closing of our IPO, on January 29, 2014, the Senior Secured Revolving Credit Facility was amended to, among other things, allow for the corporate reorganization that was completed simultaneously with the closing of the IPO, add us as a guarantor, increase the maximum commitment amount to $1.5 billion , increase the borrowing base to $350.0 million as a result of the Marcellus JV Buy-In and lower the interest rate owed on amounts borrowed under the Senior Secured Revolving Credit Facility. We used a portion of the net proceeds of the IPO to repay $115.0 million of borrowings under our Senior Secured Revolving Credit Facility and $75.4 million of borrowings outstanding under the revolving credit facility of our Marcellus joint venture. Concurrently with the Senior Notes Offering (described below), we, as borrower, and Rice Drilling B, as predecessor borrower, amended the Senior Secured Revolving Credit Facility (“Amended Credit Agreement”) to, among other things, assign all of Rice Drilling B’s rights and obligations under the Senior Secured Revolving Credit Facility to us, and we assumed all such rights and obligations as borrower under the Amended Credit Agreement. As of June 30, 2014 , the borrowing base under our Senior Secured Revolving Credit Facility was $385.0 million with zero borrowings outstanding and $71.6 million of letters of credit outstanding. Availability under the Amended Credit Agreement was $313.4 million as of June 30, 2014 .

Sources of Revenues
The substantial majority of our revenues are derived from the sale of natural gas and do not include the effects of derivatives. Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices. The following table provides detail of our operating revenues from the condensed consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 .
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2014
 
2013
 
2014
 
2013
Natural gas sales
$
90,605

 
$
23,645

 
$
181,071

 
$
36,693

Oil and natural gas liquids (NGL) sales
32

 
—

 
32

 
—

Gathering fees
1,303

 
—

 
1,314

 
—

Other revenue
—

 
232

 
—

 
417

Operating revenues
$
91,940

 
$
23,877

 
$
182,417

 
$
37,110

NYMEX Henry Hub prompt month contract prices are widely-used benchmarks in the pricing of natural gas. The following table provides the high and low prices for NYMEX Henry Hub prompt month contract prices and our differential to the average of those benchmark prices for the periods indicated.  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
NYMEX Henry Hub High ($/MMBtu)
$
4.84

 
$
4.38

 
$
7.94

 
$
4.38

NYMEX Henry Hub Low ($/MMBtu)
$
4.35

 
$
3.57

 
$
3.96

 
$
3.08

 
 
 
 
 
 
 
 
NYMEX Henry Hub Price ($/MMBtu)
$
4.58

 
$
4.02

 
$
4.86

 
$
3.76

Less: Average Basis Impact ($/MMBtu)
(0.74
)
 
(0.03
)
 
(0.42
)
 
0.08

Plus: Btu Uplift (MMBtu/Mcf)
0.19

 
0.20

 
0.22

 
0.19

Plus: Other Revenue ($/Mcf)
0.09

 
—

 
0.06

 
—

Pre-Hedge Realized Price ($/Mcf)
$
4.12

 
$
4.19

 
$
4.72

 
$
4.03

(1)
Differential is calculated by comparing the average NYMEX Henry Hub price to our volume weighted average realized price per MMBtu before hedges, including 50% of the volumes sold by our Marcellus joint venture for the period from January 1, 2014 through January 28, 2014, contained within the three and six months ended June 30, 2014 and for the three and six months ended June 30, 2013 . The remainder of the three and six months ended June 30, 2014 reflect (i) the completion of the corporate reorganization in connection with our initial public offering and (ii) the consummation of the Marcellus JV Buy-In, each on January 29, 2014 and as described under “Item 1. Financial Statements—Introduction to the Condensed Consolidated Financial Statements.”
We sell a substantial majority of our production to a single natural gas marketer, Sequent Energy Management, LP (“Sequent”). For the three and six months ended June 30, 2014 , sales to Sequent represented 84% and 89% of our total sales, respectively. If our natural gas marketers decided to stop purchasing natural gas from us, our revenues could decline and our operating results and financial condition could be harmed. Although a substantial portion of production is purchased by this customer, we do not believe the loss of this customer would have a material adverse effect on our business, as other customers or markets would be accessible to us.
Results of Operations
Below are some highlights of our financial and operating results for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013 :
•
Our natural gas sales were $90.6 million and $23.6 million in the three months ended June 30, 2014 and 2013 , respectively and $181.1 million and $36.7 million in the six months ended June 30, 2014 and 2013 , respectively.

25


•
Our natural gas production volumes were 21,966 MMcf and 5,656 MMcf in the three months ended June 30, 2014 and 2013 , respectively and 38,356 MMcf and 9,110 MMcf in the six months ended June 30, 2014 and 2013 , respectively.
•
Our per unit cash production costs were $0.76 per Mcf and $0.91 per Mcf in the three months ended June 30, 2014 and 2013 , respectively and $0.78 per Mcf and $0.89 per Mcf in the six months ended June 30, 2014 and 2013 , respectively.
•
Our G&A expenses were $14.8 million and $4.0 million in the three months ended June 30, 2014 and 2013 , respectively and $26.3 million and $5.8 million in the six months ended June 30, 2014 and 2013 , respectively.

The following tables set forth selected operating and financial data for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013 :
 
Rice Energy Inc.
 
 
 
Rice Energy Inc.
 
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
 
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Natural gas sales (in thousands):
$
90,605

 
$
23,645

 
66,960

 
$
181,071

 
$
36,693

 
144,378

Oil and natural gas liquid (NGL) sales (in thousands):
32

 
—

 
32

 
32

 
—

 
32

 
 
 
 
 
 
 
 
 
 
 
 
Natural gas production (MMcf):
21,966

 
5,656

 
16,310

 
38,356

 
9,110

 
29,246

Oil and NGL production (Bbls):
550

 
—

 
550

 
550

 
—

 
550

 
 
 
 
 
 
 
 
 
 
 
 
Average natural gas prices before effects of hedges per Mcf:
$
4.12

 
$
4.18

 
(0.06
)
 
$
4.72

 
$
4.03

 
0.69

Average realized natural gas prices after effects of hedges per Mcf (1) :
3.68

 
3.89

 
(0.21
)
 
4.17

 
3.83

 
0.34

Average oil and NGL prices per Bbl:
57.57

 
—

 
57.57

 
57.57

 
—

 
57.57

 
 
 
 
 
 
 
 
 
 
 
 
Average costs per Mcf:
 
 
 
 
 
 
 
 
 
 
 
Lease operating
$
0.30


$
0.49

 
(0.19
)
 
$
0.31


$
0.44

 
(0.13
)
Gathering, compression and transportation
0.42


0.36

 
0.06

 
0.43


0.39

 
0.04

Production taxes and impact fees
0.04


0.06

 
(0.02
)
 
0.04


0.06

 
(0.02
)
General and administrative
0.68


0.71

 
(0.03
)
 
0.69


0.63

 
0.06

Depreciation, depletion and amortization
1.48


1.48

 
—

 
1.51


1.48

 
0.03

(1) The effect of hedges includes realized gains and losses on commodity derivative transactions.

26


 
Rice Energy Inc.
 
 
 
Rice Energy Inc.
 
 
 
Three Months Ended June 30,
 
 
 
Six Months Ended June 30,
 
Change
(in thousands)
2014
 
2013
 
Change
 
2014
 
2013
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
91,940


$
23,877

 
$
68,063

 
$
182,417


$
37,110

 
145,307

 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Lease operating
6,667

 
2,781

 
3,886

 
11,853

 
4,017

 
7,836

Gathering, compression and transportation
9,176

 
2,058

 
7,118

 
16,306

 
3,586

 
12,720

Production taxes and impact fees
871

 
338

 
533

 
1,510

 
507

 
1,003

Exploration
473

 
548

 
(75
)
 
959

 
1,447

 
(488
)
Incentive unit expense
1,474

 
—

 
1,474

 
75,276

 
—

 
75,276

Restricted unit expense
—

 
7,706

 
(7,706
)
 
—

 
7,706

 
(7,706
)
Stock compensation expense
1,125

 
—

 
1,125

 
1,216


—

 
1,216

General and administrative
14,845

 
4,040

 
10,805

 
26,275

 
5,782

 
20,493

Depreciation, depletion and amortization
32,552

 
8,362

 
24,190

 
58,059

 
13,493

 
44,566

Amortization of intangible assets
340

 
—

 
340

 
340


—

 
340

Total operating expenses
67,523

 
25,833

 
41,690

 
191,794

 
36,538

 
155,256

 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
24,417

 
(1,956
)
 
26,373

 
(9,377
)
 
572

 
(9,949
)
Interest expense
(15,941
)
 
(5,176
)
 
(10,765
)
 
(22,983
)
 
(7,090
)
 
(15,893
)
Gain on purchase of Marcellus joint venture
—

 
—

 
—

 
203,579

 
—

 
203,579

Other income (loss)
(195
)
 
(693
)
 
498

 
396

 
(446
)
 
842

Gain (loss) on derivative instruments
(11,198
)
 
13,641

 
(24,839
)
 
(31,578
)
 
8,648

 
(40,226
)
Amortization of deferred financing costs
(532
)
 
(1,937
)
 
1,405

 
(1,021
)
 
(3,802
)
 
2,781

Loss on extinguishment of debt
(3,001
)
 
—

 
(3,001
)
 
(3,144
)
 
—

 
(3,144
)
Write-off of deferred financing costs
(6,060
)
 
—

 
(6,060
)
 
(6,896
)
 
—

 
(6,896
)
Equity in income (loss) of joint ventures
—

 
15,707

 
(15,707
)
 
(2,656
)
 
14,929

 
(17,585
)
Income (loss) before income taxes
(12,510
)
 
19,586

 
(32,096
)
 
126,320

 
12,811

 
113,509

Income tax benefit (expense)
4,593

 
—

 
4,593

 
(4,782
)
 
—

 
(4,782
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(7,917
)
 
$
19,586

 
$
(27,503
)
 
$
121,538

 
$
12,811

 
108,727

Earnings per share—basic
$
(0.06
)
 
$
0.24

 
$
(0.30
)
 
$
1.00

 
$
0.18

 
$
0.82

Earnings per share—diluted
$
(0.06
)
 
$
0.23

 
$
(0.29
)
 
$
0.99

 
$
0.17

 
$
0.82

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
Operating revenues . The $68.1 million increase in operating revenues was mainly a result of an increase in production in the second quarter of 2014 compared to the second quarter of 2013. The increase in production was a result of increased drilling and completion activity, mainly in Washington County, Pennsylvania. The increased volumes were partially offset by a decrease in realized prices in 2014 compared to 2013.
Lease operating expenses . The $3.9 million increase in lease operating expenses is attributable to higher production during 2014. However, lease operating expenses per unit of production decreased due to improved efficiencies, primarily more producing wells per pad and lower fixed costs per well.
Gathering, compression and transportation . The $7.1 million increase in gathering, compression and transportation expenses is primarily attributable to increased firm transportation contracts in the second quarter of 2014 compared to the second quarter of 2013.
Incentive unit expense. The $1.5 million increase in incentive unit expense was due to the non-cash compensation expense recognized in relation to the incentive unit awards based on fair market value assumptions as of June 30, 2014.
G&A . The $10.8 million increase was primarily attributable to the additions of personnel to support our growth activities, stock compensation expense, and transaction costs associated with the Momentum and Greene County Acquisitions.
DD&A . The $24.2 million increase was a result of an increase in production and higher capitalized costs in the second quarter of 2014 compared to 2013. The increase in capitalized costs is consistent with our expanded drilling program and increased production during the period.

27


Interest expense . The $10.8 million increase was a result of higher levels of average borrowings outstanding during the second quarter of 2014 in order to fund our capital programs.
Loss on derivative instruments . The $11.2 million loss on derivative contracts in the second quarter of 2014 was due to an increase in underlying commodity prices, comprised of $1.4 million in unrealized losses and $9.8 million of cash payments on settlement of maturing contracts. In the second quarter of 2013, the $13.6 million gain was comprised of $15.3 million in unrealized gains and $1.6 million of cash payments made on settlement of maturing contracts. The loss in the second quarter of 2014 as compared to the gain in 2013 was attributable to an increase in market prices accompanied by a greater hedged volume of our natural gas production.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Operating revenues . The $145.3 million increase in natural gas sales was a result of an increase in production in 2014 compared to 2013. The increase in production was a result of increased drilling and completion activity primarily in Washington County, Pennsylvania. In addition, average prices before the effect of hedges increased in 2014 compared to 2013.
Lease operating expenses . The $7.8 million increase in lease operating expenses is attributable to higher production during 2014. However, lease operating expenses per unit of production decreased due to improved efficiencies, primarily more producing wells per pad and lower fixed costs per well.
Gathering, compression and transportation . The $12.7 million increase in gathering, compression and transportation expenses is primarily attributable to increased firm transportation contracts in 2014 compared to 2013.
Incentive unit expense. The $75.3 million increase in incentive unit expense was due to approximately $67.5 million of non-cash compensation expense related to incentive units still outstanding which related to the service period from date of grant through June 30, 2014. In addition, the increase was due to payment by NGP Holdings of approximately $4.4 million related to payments made at IPO due to the New Tier I payout multiple being achieved and to the payment by Daniel J. Rice III of approximately $3.4 million related to his incentive unit burden.
G&A . The $20.5 million increase was primarily attributable to the additions of personnel to support our growth activities, stock compensation expense, and transaction costs associated with the Momentum and Greene County Acquisitions.
DD&A . The $44.6 million increase was a result of an increase in production and higher capitalized costs in 2014 compared to 2013. The increase in capitalized costs is consistent with our expanded drilling program and increased production during the period.
Interest expense . The $15.9 million increase was a result of higher levels of average borrowings outstanding during 2014 in order to fund our capital programs.
Gain on purchase of Marcellus joint venture . The $203.6 million gain on acquisition in the first quarter of 2014 was attributable to the Marcellus JV Buy-In transaction. As a result of our acquiring the remaining ownership in our Marcellus joint venture, we are required to remeasure our equity investment at fair value, which resulted in a non-recurring gain of approximately $203.6 million during the six months ended June 30, 2014 .
Loss on derivative instruments . The $31.6 million loss on derivative contracts in 2014 was due to an increase in underlying commodity prices, comprised of $10.6 million in unrealized losses and $21.0 million of cash payments on settlement of maturing contracts. In 2013, the $8.6 million gain was comprised of $10.5 million in unrealized gains and $1.8 million of cash payments made on settlement of maturing contracts. The increased loss in 2014 as compared to the gain in 2013 was attributable to an increase in market prices accompanied by a greater hedged volume of our natural gas production.
Capital Resources and Liquidity
Our primary sources of liquidity have been the proceeds from our IPO, Senior Notes Offering, equity contributions from our sponsors, our Amended Credit Agreement and net proceeds from the sale of Rice Drilling B’s convertible debentures. Our primary use of capital has been the acquisition and development of natural gas properties. As we pursue reserve and production growth, we 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. We also expect to fund a portion of these requirements with cash flow from operations as we continue to bring additional production online.
Our future success in growing proved reserves and production will be highly dependent on the capital resources available to us. In 2014, excluding $100.0 million paid with respect to the Marcellus JV Buy-In and approximately $111.4 million paid with respect to the Momentum Acquisition, we plan to invest $1,230.0 million in our operations, including $430.0 million for drilling

28


and completion in the Marcellus Shale, $150.0 million for drilling and completion in the Utica Shale, $385.0 million for leasehold acquisitions and $265.0 million for midstream infrastructure development. Our capital budget excludes acquisitions, other than $385.0 million for leasehold acquisitions. This represents a 96% increase over our $629.0 million pro forma 2013 capital expenditures. Without giving pro forma effect to the Marcellus JV Buy-In, our 2013 capital budget was $578.0 million . We expect to fund our 2014 capital expenditures with cash generated by operations, a portion of the net proceeds of our Senior Notes Offering, the net proceeds of our IPO and borrowings under our Senior Secured Revolving Credit Facility. A portion of our 2014 capital budget is projected to be financed with cash flows from operations derived from wells drilled on drilling locations not associated with proved reserves in our December 31, 2013 reserve report. The failure to achieve projected production and cash flows from operations from such wells could result in a reduction to our 2014 capital budget. Our 2014 capital budget may be further adjusted as business conditions warrant. The amount, timing and allocation of capital expenditures is largely discretionary and within our control. If natural gas prices decline to levels below our acceptable levels, or costs increase to levels above our acceptable levels, we could choose to defer a significant portion of our budgeted capital expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe will have the highest expected rates of return and potential to generate near-term cash flow. We routinely monitor and adjust our capital expenditures in response to changes in commodity prices, availability of financing, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs, success or lack of success in drilling activities, contractual obligations, internally generated cash flow and other factors both within and outside our control.
We believe that operating cash flows, available borrowings under our revolving Senior Secured Revolving Credit Facility, the proceeds from our Senior Notes Offering and the proceeds from our IPO should be sufficient to meet our current cash requirements, including normal operating needs, debt service obligations, capital expenditures, and commitments and contingencies. However, to the extent that we consider market conditions favorable, we may access the capital markets to raise capital from time to time to fund acquisitions, pay down our revolving Senior Secured Revolving Credit Facility and for general working capital purposes.
See “—Debt Agreements” below for additional details on our outstanding borrowings and available liquidity under our various financing arrangements.
Cash Flow Provided by Operating Activities
Net cash provided by operating activities was $75.2 million for the six months ended June 30, 2014 , compared to $19.4 million of net cash used in operating activities for the six months ended June 30, 2013 . The change in operating cash flow was primarily the result of higher production in 2014 at a higher realized gas price, along with net decreases in per unit production costs.
Cash Flow Used In Investing Activities
During the six months ended June 30, 2014 cash flows used in investing activities increased to $624.3 million from $232.8 million for the six months ended June 30, 2013. This was primarily related to increased capital expenditures for drilling, development and acquisition costs. The acquisitions of our Marcellus Shale joint venture and Momentum resulted in a net cash outflow of $194.2 million.
Cash Flow Provided By Financing Activities
Net cash provided by financing activities of $989.0 million during the six months ended June 30, 2014 was primarily the result of the proceeds from our Senior Notes Offering and initial public offering (net of offering costs) which was offset by repayments of debt.  Net cash provided by financing activities of $332.1 million during the six months ended June 30, 2013 was primarily related to borrowings under our Second Lien Term Loan facility.
Debt Agreements

6.25% Senior Notes Due 2022

On April 25, 2014 , we offered $900.0 million in aggregate principal amounts of the Notes due 2022 in a private placement to eligible purchasers under Rule 144A and Regulation S of the Securities Act, which resulted in net proceeds to us of $882.7 million after deducting estimated expenses and underwriting discounts and commissions of approximately $17.3 million . We used $301.8 million of the net proceeds to repay and retire the Second Lien Term Loan Facility and expect to use the remainder to fund our capital expenditure plan.
The Notes will mature on May 1, 2022 , and interest is payable on the Notes on each May 1 and November 1 , commencing

29


on November 1, 2014 . At any time prior to May 1, 2017 , we may redeem up to 35% of the Notes at a redemption price of 106.25% of the principal amount, plus accrued and unpaid interest to the redemption date, with the proceeds of certain equity offerings so long as the redemption occurs within 180 days of completing such equity offering and at least 65% of the aggregate principal amount of the Notes remains outstanding after such redemption. Prior to May 1, 2017 , we may redeem some or all of the notes for cash at a redemption price equal to 100% of their principal amount plus an applicable make-whole premium and accrued and unpaid interest to the redemption date. Upon the occurrence of a Change of Control (as defined in the Indenture), unless we have exercised our optional redemption right in respect of the Notes, the holders of the Notes will have the right to require us to repurchase all or a portion of the Notes at a price equal to 101% of the aggregate principal amount of the Notes, plus any accrued and unpaid interest to the date of purchase. On and after May 1, 2017 , we may redeem some or all of the Notes at redemption prices (expressed as percentages of principal amount) equal to 104.688% for the twelve-month period beginning on May 1, 2017, 103.125% for the twelve-month period beginning May 1, 2018, 101.563% for the twelve-month period beginning on May 1, 2019 and 100.000% beginning on May 1, 2020, plus accrued and unpaid interest to the redemption date.
The Notes are our senior unsecured obligations, rank equally in right of payment with all of our existing and future senior debt, and will rank senior in right of payment to all of our future subordinated debt. The Notes will be effectively subordinated to all of our existing and future secured debt to the extent of the value of the collateral securing such indebtedness.
The Indenture restricts our ability and the ability of certain of its subsidiaries to: (i) incur or guarantee additional debt or issue certain types of preferred stock; (ii) pay dividends capital stock or redeem, repurchase or retire our capital stock or subordinated debt; (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; (vii) transfer and sell assets; and (viii) create unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications. If at any time when the Notes are rated investment grade by both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services and no Default (as defined in the Indenture) has occurred and is continuing, many of such covenants will terminate and we and our subsidiaries will cease to be subject to such covenants.
The Indenture contains customary events of default, including:
•
default in any payment of interest on any Note when due, continued for 30 days;
•
default in the payment of principal of or premium, if any, on any Note when due;
•
failure by us to comply with its other obligations under the Indenture, in certain cases subject to notice and grace periods;
•
payment defaults and accelerations with respect to other indebtedness of us and our Restricted Subsidiaries (as defined in the Indenture) in the aggregate principal amount of $25.0 million or more;
•
certain events of bankruptcy, insolvency or reorganization of us or a Significant Subsidiary (as defined in the Indenture) or group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary;
•
failure by us or a Restricted Subsidiary to pay certain final judgments aggregating in excess of $25.0 million within 60 days; and
•
any guarantee of the Notes by a Guarantor ceases to be in full force and effect, is declared null and void in a judicial proceeding or is denied or disaffirmed by its maker;
In connection with the issuance and sale of the Notes, we and the Guarantors entered into a registration rights agreement with the Initial Purchasers, dated April 25, 2014. Pursuant to the registration rights agreement, we and the Guarantors have agreed to file a registration statement with the Securities and Exchange Commission so that holders of the Notes can exchange the Notes for registered notes that have substantially identical terms as the Notes. In addition, we and the Guarantors have agreed to exchange the guarantee related to the Notes for a registered guarantee having substantially the same terms as the original guarantee. We and the Guarantors will use commercially reasonable efforts to cause the exchange to be completed within 365 days after the issuance of the Notes. We and the Guarantors are required to pay additional interest if they fail to comply with their obligations to register the Notes within the specified time periods.
Senior Secured Revolving Credit Facility
Concurrently with our Senior Notes Offering, we, as borrower, and Rice Drilling B, as predecessor borrower, entered into the Amended Credit Agreement to, among other things, assign all of the rights and obligations of Rice Drilling B as borrower under its Senior Secured Revolving Credit Facility to us. Furthermore, the Amended Credit Agreement (i) allowed for the Senior Notes Offering and (ii) provided that we did not incur an immediate reduction in the borrowing base under the Senior Secured

30


Revolving Credit Facility as a result of the Senior Notes Offering. The Amended Credit Agreement also extended the maturity date of the Senior Secured Revolving Credit Facility from April 25, 2018 to January 29, 2019 .
The Amended Credit Agreement is secured by liens on at least 80% of the proved oil and gas reserves of us and our subsidiaries (other than any subsidiary that is designated as an unrestricted subsidiary), as well as significant unproved acreage and substantially all of the personal property of us and such restricted subsidiaries, and the Amended Credit Agreement is guaranteed by such restricted subsidiaries. The Amended Credit Agreement contains restrictive covenants that limit the ability of us and our restricted subsidiaries to, among other things:
•
incur additional indebtedness;
•
sell assets;
•
make loans to others;
•
make investments;
•
enter into mergers;
•
make or declare dividends;
•
hedge future production or interest rates;
•
incur liens; and
•
engage in certain other transactions without the prior consent of the lenders.
The Amended Credit Agreement also requires us to maintain certain financial ratios, which are measured at the end of each calendar quarter:
•
a current ratio, which is the ratio of consolidated current assets (including unused commitments under the Amended Credit Agreement and excluding non-cash derivative assets) to consolidated current liabilities (excluding current maturities under the Amended Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0; and
•
a minimum interest coverage ratio, which is the ratio of consolidated EBITDAX (as such term is defined in the Amended Credit Agreement) based on the trailing twelve month period to consolidated interest expense, of not less than 2.5 to 1.0.
We were in compliance with such covenants and ratios as of June 30, 2014 .
Second Lien Term Loan Facility
On April 25, 2013 , Rice Drilling B entered into a Second Lien Term Loan Facility with Barclays Bank PLC, as administrative agent, and a syndicate of lenders in an aggregate principal amount of $300.0 million . Rice Drilling B estimated the discount on issuance of this instrument based upon an estimate of market rates at the inception of the instrument and recorded a discount of $4.5 million . The discount was being amortized over the life of the note using an effective interest rate of 0.284% using the effective yield method. On April 25, 2014 , we used a portion of the net proceeds from our Senior Notes Offering to repay and retire the Second Lien Term Loan Facility, in the amount of $301.8 million . The $301.8 million included the outstanding principal balance of $297.0 million , a prepayment premium in the amount of approximately $3.0 million, and accrued but unpaid interest of $1.8 million.
Convertible Debentures 
In June of 2011 , Rice Drilling B sold $60.0 million of its 12% Senior Subordinated Convertible Debentures due 2014 (the “Debentures”) in a private placement to certain accredited investors as defined in Rule 501 of Regulation D. The Debentures accrued interest at 12%  per year payable monthly in arrears by the 15th day of the month and had a scheduled maturity date of July 31, 2014 (“Maturity Date”). The Debentures were Rice Drilling B’s unsecured senior obligations and ranked equally with all of Rice Drilling B’s then-current and future senior unsecured indebtedness.
In connection with the IPO, the Debentures and warrants of Rice Drilling B were amended to become convertible or exercisable for shares of our common stock. On February 28, 2014 , Rice Drilling B issued a redemption notice on the remaining Debentures, which set a redemption date of March 28, 2014. Prior to the redemption date, $6.6 million of the Debentures were converted into 570,945 shares of Rice Energy Inc. common stock. The remaining principal balance of $0.3 million that was not converted will be paid upon request from holders of the remaining Debentures. The premium of $0.1 million was recorded to expense in the six months ended June 30, 2014 . As of June 30, 2014 , the remaining principal balance was $0.2 million .

31


Commodity Hedging Activities
Our primary market risk exposure is in the prices we receive for our natural gas production. Realized pricing is primarily driven by the spot regional market prices applicable to our U.S. natural gas production. Pricing for natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable index price.
To mitigate the potential negative impact on our cash flow caused by changes in oil and natural gas prices, we have entered into financial commodity derivative contracts in the form of swaps, zero cost collars, calls, puts and basis swaps to ensure that we receive minimum prices for a portion of our future oil and natural gas production when management believes that favorable future prices can be secured. We typically hedge the NYMEX Henry Hub price for natural gas. The Amended Credit Agreement adjusted our hedging limitation. In the prior Senior Secured Revolving Credit Facility agreement, we were permitted to hedge volumes based on a percentage of expected production from proved reserve volumes. We are now permitted to hedge the greater of (i) the percentage of internally forecasted production (Column A) and (ii) the percentage of proved reserve volumes (Column B) according to the table below.
Months next succeeding the time as of which compliance is measured
 
Column A
 
Column B
Months 1 though 12
 
75
%
 
85
%
Months 13 through 24
 
50
%
 
85
%
Months 25 through 36
 
40
%
 
85
%
Months 37 through 48
 
25
%
 
65
%
Months 49 through 60
 
15
%
 
65
%
Our hedging activities are intended to support natural gas prices at targeted levels and to manage our exposure to natural gas price fluctuations. The counterparty is required to make a payment to us for the difference between the floor price specified in the contract and the settlement price, which is based on market prices on the settlement date, if the settlement price is below the floor price. We are required to make a payment to the counterparty for the difference between the ceiling price and the settlement price if the ceiling price is below the settlement price. These contracts may include price swaps whereby we will receive a fixed price for our production and pay a variable market price to the contract counterparty and zero cost collars that set a floor and ceiling price for the hedged production. For a description of our commodity derivative contracts, please see “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—3. Derivative Instruments and 4. Fair Value of Financial Instruments” included elsewhere in this Quarterly Report.
By using derivative instruments to hedge exposures to changes in commodity prices, we expose ourselves to the credit risk of our counterparties. Credit risk is the potential failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty is expected to owe us, which creates credit risk. To minimize the credit risk in derivative instruments, it is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. The creditworthiness of our counterparties is subject to periodic review. We have derivative instruments in place with three different counterparties. As of June 30, 2014 , our contracts with Wells Fargo Bank N.A. accounted for 67% of the net fair market value of our derivative assets. We believe Wells Fargo Bank N.A. is an acceptable credit risk. We are not required to provide credit support or collateral to Wells Fargo Bank N.A. under current contracts, nor are they required to provide credit support or collateral to us. As of June 30, 2014 and December 31, 2013 , we did not have any past due receivables from counterparties.
Critical Accounting Policies and Estimates
Our critical accounting policies are described in the notes to our Consolidated Financial Statements for the year ended December 31, 2013 contained in our 2013 Annual Report.  Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to our Consolidated Financial Statements contained in this Quarterly Report.  The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates.
Incentive units. We recognize non-cash compensation expense for incentive units awarded to certain of our employees by NGP Holdings and Rice Holdings. In connection with our IPO and related corporate reorganization, the holders of incentive units in Rice Appalachia contributed their incentive units to Rice Holdings and NGP Holdings in return for substantially similar incentive units in such entities. This resulted in the incentive units being deemed to have been modified, and the performance conditions were considered to be probable of occurring. Therefore, their fair values were measured and compensation expense from the date of initial grant through June 30, 2014 has been recognized in the six months ended June 30, 2014 .
It is currently expected that the NGP Holdings incentive units will be satisfied in cash and the Rice Holdings incentive units will be satisfied in shares of our common stock held by Rice Holdings. As a result of these different manners of payment satisfaction, the incentive units are accounted for differently, with the NGP Holdings incentive units being accounted for liability awards and the Rice Holdings incentive units being accounted for as equity awards. For the NGP Holdings incentive units, for

32


the six months ended June 30, 2014 , the fair value was measured as of June 30, 2014 . For future reporting periods, the fair value used to determine the applicable compensation expense will be re-measured at each reporting period. For the Rice Holdings incentive units, the fair value of the incentive units was measured as of January 29, 2014, the date of modification. This fair value will underlie compensation expense charges for future reporting periods.
Determination of the fair value of the awards requires judgments and estimates regarding, among other things, the appropriate methodologies to follow in valuing the incentive units and the related inputs required by those valuation methodologies. The fair values underlying the compensation expense for both types of incentive units were estimated using a Monte Carlo simulation. The Monte Carlo simulation projected the share price for our common stock using the expected volatility, the risk free rate and other variables. The service period, which began on the date of grant and continues through final distribution, has been estimated primarily based upon our assumptions regarding the timing and size of secondary offerings of shares of our common stock by NGP Holdings and/or other liquidity events.
Future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company’s assumptions. Any change in inputs or number of inputs to this calculation could impact the valuation and thus the non-cash compensation expense recognized. See “Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements— 8. Incentive Units” for additional information. Non-cash compensation expenses related to the incentive units is included in incentive unit expense within the Consolidated Statement of Operations.
Income taxes. At the date of IPO, we indirectly owned 100% of Rice Drilling B and its subsidiaries. Rice Drilling B was a limited liability company not subject to federal income taxes before IPO. However, in connection with the closing of the IPO, as a result of our corporate reorganization, we became a corporation subject to federal income tax and, as such, our future income taxes will be dependent upon our future taxable income. The change in tax status requires the recognition of a deferred tax asset or liability for the initial temporary differences at the time of the change in status. The resulting deferred tax liability of approximately $164.5 million was recorded in equity at the date of the completion of the IPO as it represents a transaction among shareholders.
Income taxes are accounted for under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to be recovered or settled pursuant to the provisions of ASC 740-Income Taxes. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We will record a valuation allowance if it is deemed more likely than not that all or a portion of its deferred income tax assets will not be realized. In addition, income tax rules and regulations are subject to interpretation and the application of those rules and regulations require judgment by us and may be challenged by the taxation authorities. We follow ASC 740-10-25, which requires the use of a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. Only tax positions that meet the more likely than not recognition threshold are recognized.
Business Combinations. For acquisitions of working interests that are accounted for as business combinations, the results of operations are included in the Consolidated Statement of Operations from the date of acquisition. Purchase prices are allocated to assets acquired based on their estimated fair values at the time of acquisition. Fair value is the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the assumptions of market participants and not those of the reporting entity. Therefore, entity-specific intentions do not impact the measurement of fair value. The fair value of natural gas properties is determined using a risk-adjusted after-tax discounted cash flow analysis based upon significant inputs including: 1) gas prices, 2) projections of estimated quantities of natural gas reserves, including those classified as proved, probable and possible, 3) projections of future rates of production, 4) timing and amount of future development and operating costs, 5) projected reserve recovery factors, and 6) weighted average cost of capital.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements.


33


Item 3. Quantitative and Qualitative Disclosures about Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk sensitive instruments were entered into for hedging purposes, rather than for speculative trading.
Commodity price risk and hedges
For a discussion of how we use financial commodity derivative contracts to mitigate some of the potential negative impact on our cash flow caused by changes in natural gas prices, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Commodity Hedging Activities.”
Interest rate risks
As of June 30, 2014 , we had zero borrowings and approximately $71.6 million in letters of credit outstanding under our Senior Secured Revolving Credit Facility. Concurrently with the closing of our IPO, we amended our Senior Secured Revolving Credit Facility to, among other things, increase the maximum commitment amount to $1.5 billion and lower the interest rate owed on amounts borrowed under the Senior Secured Revolving Credit Facility. After giving effect to the amendment, the borrowing base under our Senior Secured Revolving Credit Facility was increased to $350.0 million as a result of the Marcellus JV Buy-In. As of June 30, 2014 , we had availability under our Senior Secured Revolving Credit Facility of approximately $313.4 million and the borrowing base was increased to $385.0 million . We have a choice of borrowing in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to LIBOR plus an applicable margin ranging from 150 to 250 basis points following the closing of our IPO, depending on the percentage of our borrowing base utilized. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 100 basis points, plus an applicable margin ranging from 50 to 150 basis points following the closing of our IPO as a result of the Marcellus JV Buy-In, depending on the percentage of our borrowing base utilized. The interest rate did not change under the Amended Credit Agreement.
As of June 30, 2014 , we did not have any derivatives in place to mitigate the effects of interest rate risk. We may implement an interest rate hedging strategy in the future.
Counterparty and customer credit risk
Our principal exposures to credit risk are through joint interest receivables ( $32.2 million as of June 30, 2014 ) and the sale of our natural gas production ( $44.0 million in receivables as of June 30, 2014 ), which we market to one natural gas marketing company. Joint interest receivables arise from billing entities who own partial interest in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we wish to drill. We can do very little to choose who participates in our wells. We are also subject to credit risk due to concentration of our natural gas receivables with one natural gas marketing company. We do not require our customers to post collateral. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results.

34


Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our 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) under the Exchange Act) as of June 30, 2014 . In light of the previously identified material weakness as described in “Item 9A. Controls and Procedures—Material Weakness in Internal Control over Financial Reporting” of our 2013 Annual Report, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2014. Notwithstanding the existence of the material weakness, management concluded that the financial statements and other financial information included in this Quarterly Report presents fairly, in all material respects, the financial condition, results of operations and cash flows for all periods presented.
Changes in Internal Control over Financial Reporting
As described in “Item 9A. Controls and Procedures—Material Weakness in Internal Control over Financial Reporting” of our 2013 Annual Report, management continues to evaluate the design and effectiveness of these control changes in connection with its ongoing evaluation, documentation, review, formalization and testing of our internal control environment over the remainder of 2014. As such, there were changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three and six months ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35


PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See “Part I—Item 1. Financial Statements—Notes to Condensed Consolidated Financial Statements—6. Commitments and Contingencies” which is incorporated in this item by reference.
Item 1A. Risk Factors
Our business faces many risks. Any of the risks discussed elsewhere in this Quarterly Report and our other SEC filings could have a material impact on our business, financial position or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.
For a discussion of our potential risks and uncertainties, see the information in “Item 1A. Risk Factors” in our 2013 Annual Report. Except for the risk factors set forth below, there have been no material changes in our risk factors from those described in our 2013 Annual Report.

We may not be able to consummate our pending Greene County Acquisition, which could adversely affect our results of operations and cash flows.

The purchase agreement related to the pending Greene County Acquisition contains customary closing conditions. It is possible that one or more closing conditions may not be satisfied or, if not satisfied, that such condition may not be waived by the other party. If we are unable to consummate the pending Greene County Acquisition, we would not realize the expected benefits of the proposed acquisition.

There can be no assurance that the Greene County Acquisition will be completed within the anticipated time frame, or at all, or that the anticipated benefits of the Greene County Acquisition will be realized. In addition, the closing of the Greene County Acquisition is not conditioned on the closing of this offering, and this offering is not conditioned on the closing of the Greene County Acquisition.

We may be unable to make attractive acquisitions or successfully integrate acquired businesses, including the Greene County Acquisition, and any inability to do so may disrupt our business and hinder our ability to grow.

In the future we may make acquisitions of businesses that complement or expand our current business. However, we may not be able to identify attractive acquisition opportunities. Even if we do identify attractive acquisition opportunities, we may not be able to complete the acquisition or do so on commercially acceptable terms.

The success of any completed acquisition, including the Greene County Acquisition, will depend on our ability to integrate effectively the acquired business into our existing operations. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our managerial and financial resources. In addition, possible future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that we will be able to identify additional suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. Our failure to achieve consolidation savings, to integrate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on our financial condition and results of operations.

In addition, our revolving credit facility and the indenture governing our Notes impose certain limitations on our ability to enter into mergers or combination transactions. Our revolving credit facility and the indenture governing our Notes also limit our ability to incur certain indebtedness, which could indirectly limit our ability to engage in acquisitions of businesses.

We may be subject to risks in connection with acquisitions of properties, such as the Greene County Acquisition.

The successful acquisition of producing and undeveloped properties, such as those acquired in connection with the Greene County Acquisition, requires an assessment of several factors, including:

• recoverable reserves;
• future natural gas, NGL or oil prices and their applicable differentials;
• operating costs; and
• potential environmental and other liabilities.


36


The accuracy of these assessments is inherently uncertain. For example, the acreage to be acquired in the Greene County Acquisition will be dedicated to Access Midstream Partners, and the fees for gas gathering services with respect to such acreage are subject to renegotiation. If we are unable to negotiate service fees in line with historical rates, we may not realize all of the expected benefits of the pending acquisition. In connection with these assessments, we perform a review of the subject properties that we believe to be generally consistent with industry practices. Our review may neither reveal all existing or potential problems that permit us to fully assess environmental and other liabilities of the properties. Inspections may not always be performed on every well or pipeline, and environmental problems, such as groundwater contamination and pipe corrosion, are not necessarily observable during an inspection. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of the liabilities created prior to our purchase of the property. Moreover, we often acquire properties on an "as is" basis and, thus, are not entitled to contractual indemnification for environmental liabilities or pipeline.

Properties we acquire may not produce as projected, and we may be unable to determine reserve potential.

Acquiring oil and natural gas properties requires us to assess reservoir and infrastructure characteristics, including recoverable reserves and development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain. In connection with the assessments, we perform a review of the subject properties, but such a review will not reveal all existing or potential problems. In the course of our due diligence, we may not inspect every well or pipeline. We cannot necessarily observe structural and environmental problems, such as pipe corrosion, when an inspection is made. We may not be able to obtain contractual indemnities from the seller for liabilities created prior to our purchase of the property and we may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with our expectations.

Item 5. Other Information
On August 8, 2014, we entered into an indemnification agreement with Alpha Natural Resources, Inc. (“Alpha”) and Kevin S. Crutchfield, a member of our board of directors and the Chairman and Chief Executive Officer of Alpha. Pursuant to the indemnification agreement, we agreed to indemnify Mr. Crutchfield (or any substitute director designated by Alpha), Alpha or any of their respective affiliates, agents, stockholders, members, partners, directors, officers, employees or subsidiaries, as applicable (the “Indemnitees”) from and after May 9, 2014 against any claim that an Indemnitee is liable to us or our stockholders for breach of any fiduciary duty, by reason of the fact that such person (a) participates in, pursues or acquires certain business opportunities, (b) directs any such business opportunity to another person or (c) fails to present any business opportunity, or information regarding any such business opportunity, to us or our subsidiaries (in the case of Mr. Crutchfield (or any substitute designee), unless the business opportunity is expressly offered to Mr. Crutchfield (or such substitute designee) in writing solely in his capacity as a director of Rice Energy Inc.).
As of August 8, 2014, a subsidiary of Alpha owned 9,523,810 shares of our common stock, representing an approximately 7.4% interest in us. For a description of the material relationships between us, Alpha and Mr. Crutchfield, please see “Item 13. Certain Relationships and Related Transactions, and Director Independence Procedures for Review, Approval and Ratification of Related Person Transactions” in our 2013 Annual Report.

On August 8, 2014, we entered into a First Amendment to the Stockholders’ Agreement (the “Amendment”) with Rice Holdings, Rice Partners, NGP Holdings and Alpha. Pursuant to the Amendment, the stockholders’ agreement will terminate on the earlier of the date on which (i) none of our principal stockholders beneficially own at least 2.5% of our outstanding common stock and (ii) we receive written notice from each principal stockholder requesting the termination of the stockholders’ agreement. The stockholders’ agreement terminates with respect to a particular principal stockholder party thereto when such principal stockholder beneficially owns less than 2.5% of our outstanding common stock.

37


Item 6. Exhibits
Exhibit Number

Exhibit
2.1

Purchase and Sale Agreement, dated July 11, 2014, by and among Rice Drilling B LLC, Chesapeake Appalachia, L.L.C. and Statoil USA Onshore Properties Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on August 7, 2014).
3.1

Amended and Restated Certificate of Incorporation of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 4, 2014).
3.2

Amended and Restated Bylaws of Rice Energy Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 4, 2014).
4.1

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 (File No. 133-192894) filed with the Commission on January 13, 2014).
4.2

Indenture, dated as of April 25, 2014, by and among Rice Energy Inc., the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 29, 2014).
4.3

Form of Senior Note due 2022 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 29, 2014).
4.4

Registration Rights Agreement, dated as of April 25, 2014, by and among Rice Energy Inc., the several guarantors named therein and Barclays Capital Inc. as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 29, 2014).
4.5*

First Amendment to Stockholders’ Agreement, dated as of August 8, 2014 , by and among Rice Energy Inc., Rice Energy Holdings LLC, Rice Energy Family Holdings, LP, NGP Rice Holdings LLC and Alpha Natural Resources, Inc.
10.1

Third Amended and Restated Credit Agreement, dated as of April 10, 2014, among Rice Energy Inc., as borrower, Wells Fargo Bank, N.A., as administrative agent and the lenders and other parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 11, 2014).
10.2

Purchase Agreement, dated as of April 16, 2014 among the Company, the Guarantors and Barclays Capital Inc., as representative of the several initial purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 21, 2014).
10.3†*

Amended and Restated Rice Energy Inc. 2014 Long-Term Incentive Plan
10.4†

Form of Performance Stock Unit (PSU) Agreement (incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-1 (File No. 333-197266) filed with the Commission on July 7, 2014).
10.5†*

Indemnification Agreement, dated as of August 8, 2014, by and among the Company, Alpha Natural Resources, Inc. and Kevin S. Crutchfield.
31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS***

XBRL Instance Document.
101.SCH***

XBRL Schema Document.
101.CAL***
 
XBRL Calculation Linkbase Document.
101.DEF***
 
XBRL Definition Linkbase Document.
101.LAB***
 
XBRL Labels Linkbase Document.
101.PRE***
 
XBRL Presentation Linkbase Document.
    
*
Filed herewith.
**
Filed herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference.
*** The documents formatted in XBRL (Extensible Business Reporting Language) and attached as Exhibit 101 to this report are deemed not filed as part of a registration statement or Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections.
†
Management contract or compensatory plan or agreement

38


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
RICE ENERGY INC.
 
 
 
Date: August 11, 2014
By:
/s/ Daniel J. Rice IV
 
 
Daniel J. Rice IV
 
 
Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date: August 11, 2014
By:
/s/ Grayson T. Lisenby
 
 
Grayson T. Lisenby
 
 
Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)


39


EXHIBIT INDEX
Exhibit Number

Exhibit
2.1

Purchase and Sale Agreement, dated July 11, 2014, by and among Rice Drilling B LLC, Chesapeake Appalachia, L.L.C. and Statoil USA Onshore Properties Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on August 7, 2014).
3.1

Amended and Restated Certificate of Incorporation of Rice Energy Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 4, 2014).
3.2

Amended and Restated Bylaws of Rice Energy Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on February 4, 2014).
4.1

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 (File No. 133-192894) filed with the Commission on January 13, 2014).
4.2

Indenture, dated as of April 25, 2014, by and among Rice Energy Inc., the several guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 29, 2014).
4.3

Form of Senior Note due 2022 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 29, 2014).
4.4

Registration Rights Agreement, dated as of April 25, 2014, by and among Rice Energy Inc., the several guarantors named therein and Barclays Capital Inc. as representative of the initial purchasers named therein (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 29, 2014).
4.5*

First Amendment to Stockholders’ Agreement, dated as of August 8, 2014, by and among Rice Energy Inc., Rice Energy Holdings LLC, Rice Energy Family Holdings, LP, NGP Rice Holdings LLC and Alpha Natural Resources, Inc.
10.1

Third Amended and Restated Credit Agreement, dated as of April 10, 2014, among Rice Energy Inc., as borrower, Wells Fargo Bank, N.A., as administrative agent and the lenders and other parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 11, 2014).
10.2

Purchase Agreement, dated as of April 16, 2014 among the Company, the Guarantors and Barclays Capital Inc., as representative of the several initial purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36273) filed with the Commission on April 21, 2014).
10.3†*

Amended and Restated Rice Energy Inc. 2014 Long-Term Incentive Plan
10.4†

Form of Performance Stock Unit (PSU) Agreement (incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-1 (File No. 333-197266) filed with the Commission on July 7, 2014).
10.5†*

Indemnification Agreement, dated as of August 8, 2014, by and among the Company, Alpha Natural Resources, Inc. and Kevin S. Crutchfield.
31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS***

XBRL Instance Document.
101.SCH***

XBRL Schema Document.
*
Filed herewith.
**
Filed herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference.
*** The documents formatted in XBRL (Extensible Business Reporting Language) and attached as Exhibit 101 to this report are deemed not filed as part of a registration statement or Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under these sections.
†
Management contract or compensatory plan or agreement


40

FIRST AMENDMENT TO THE STOCKHOLDERS’ AGREEMENT
Reference is made to the Stockholders Agreement (the “ Stockholders’ Agreement ”), dated as of January 29, 2014, by and among Rice Energy, Inc., Rice Energy Holdings, LLC, NGP Rice Holdings, LLC and Alpha Natural Resources, Inc. Capitalized terms used and not defined herein shall have the meanings set forth in the Stockholders’ Agreement.
This first amendment to the Stockholders’ Agreement (the “ Amendment ”), dated as of August 8, 2014, is entered into by and among the Company and the Principal Stockholders.
The Company and each of the Principal Stockholders, hereby agree that Section 3.2 shall be amended and restated in its entirety as follows:
“ Section 3.2 Termination . This Agreement shall terminate: (a) with respect to the Company and all Principal Stockholders upon the earlier to occur of (i) such time as none of the Principal Stockholders Beneficially Owns at least 2.5% of the outstanding shares of Common Stock and (ii) the delivery of written notice to the Company by all of the Principal Stockholders, requesting the termination of this Agreement; and (b) with respect to a particular Principal Stockholder when such Principal Stockholder first Beneficially Owns less than 2.5% of the outstanding shares of Common Stock. ”
Except as expressly provided in this Amendment, the Stockholders’ Agreement shall remain in full force in effect in accordance with its terms. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

[ Signature Pages Follow ]


SIGNATURE PAGE TO THE FIRST AMENDMENT TO THE STOCKHOLDERS’ AGREEMENT


IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above.
RICE ENERGY INC.



/s/ Daniel J. Rice IV    
Name: Daniel J. Rice IV
Title: Chief Executive Officer

RICE ENERGY HOLDINGS LLC



/s/ Daniel J. Rice IV    
Name: Daniel J. Rice IV
Title: Chief Executive Officer

NGP RICE HOLDINGS, LLC


/s/ Scott A. Gieselman    
Name: Scott A. Gieselman
Title: Manager

ALPHA NATURAL RESOURCES, INC.


/s/ Philip J. Cavatoni    
Name: Philip J. Cavatoni
Title: EVP, Chief Strategy Officer and Treasurer

SIGNATURE PAGE TO THE FIRST AMENDMENT TO THE STOCKHOLDERS’ AGREEMENT



IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above.
RICE ENERGY FAMILY HOLDINGS, LP

By: Rice Energy Management LLC, its sole member


/s/ Daniel J. Rice III    
Name: Daniel J. Rice III
Title: Manager



SIGNATURE PAGE TO THE FIRST AMENDMENT TO THE STOCKHOLDERS’ AGREEMENT



RICE ENERGY INC.

2014 LONG-TERM INCENTIVE PLAN
(As Amended and Restated Effective as of May 9, 2014)







TABLE OF CONTENTS
 
 
 
Page
1.
Purpose
1
2.
Definitions
1
3.
Administration
5
 
 
(a) Authority of the Committee

5
 
 
(b) Manner of Exercise of Committee Authority

6
 
 
(c) Limitation of Liability

6
4.
Stock Subject to Plan
7
 
 
(a) Overall Number of Shares Available for Delivery

7
 
 
(b) Application of Limitation to Grants of Awards

7
 
 
(c) Availability of Shares Not Issued under Awards

7
 
 
(d) Stock Offered

7
5.
Eligibility; Per Person Award Limitations
7
6.
Specific Terms of Awards
8
 
 
(a) General

8
 
 
(b) Options

8
 
 
(c) Stock Appreciation Rights

9
 
 
(d) Restricted Stock

10
 
 
(e) Restricted Stock Units

11
 
 
(f) Bonus Stock and Awards in Lieu of Obligations

12
 
 
(g) Dividend Equivalents

12
 
 
(h) Other Awards

12
7.
Certain Provisions Applicable to Awards
13
 
 
(a) Termination of Employment

13
 
 
(b) Stand-Alone, Additional, Tandem, and Substitute Awards

13
 
 
(c) Term of Awards

13
 
 
(d) Form and Timing of Payment under Awards; Deferrals

13
 
 
(e) Exemptions from Section 16(b) Liability

14
 
 
(f) Non-Competition Agreement

14
8.
Performance and Annual Incentive Awards
14
 
 
(a) Performance Conditions

14
 
 
(b) Status of Section 8(c) and Section 8(d) Awards under Section 162(m) of the Code

14
 
 
(c) Performance Awards Granted to Designated Covered Employees

15
 
 
(d) Annual Incentive Awards Granted to Designated Covered Employees

17
 
 
(e) Written Determinations

18
9.
Subdivision or Consolidation; Recapitalization; Change in Control; Reorganization
18
 
 
(a) Existence of Plans and Awards

18
 
 
(b) Subdivision or Consolidation of Shares

19
 
 
(c) Corporate Recapitalization

20
 
 
(d) Additional Issuances

20
 
 
(e) Change in Control

20

i


 
 
(f) Change in Control Price

21
 
 
(g) Impact of Corporate Events on Awards Generally

21
10.
General Provisions
21
 
 
(a) Transferability

21
 
 
(b) Taxes

23
 
 
(c) Changes to this Plan and Awards

23
 
 
(d) Limitation on Rights Conferred under Plan

23
 
 
(e) Unfunded Status of Awards

24
 
 
(f) Nonexclusivity of this Plan

24
 
 
(g) Fractional Shares

24
 
 
(h) Severability

24
 
 
(i) Governing Law

24
 
 
(j) Conditions to Delivery of Stock

24
 
 
(k) Section 409A of the Code

25
 
 
(l) Clawback

25
 
 
(m) Plan Establishment and Term

25




ii


RICE ENERGY INC.
2014 Long-Term Incentive Plan
1. Purpose . The purpose of the Rice Energy Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) is (a) to provide a means through which Rice Energy Inc., a Delaware corporation (the “ Company ”), and its Subsidiaries may attract and retain able persons as employees, directors, and consultants of the Company and its Subsidiaries, and (b) to provide a means whereby those persons upon whom the responsibilities for the successful administration and management of the Company and its Subsidiaries rest, and whose present and potential contributions to the welfare of the Company and its Subsidiaries are of importance, can acquire and maintain stock ownership, or awards the value of which is tied to the performance of the Company, thereby strengthening such persons’ concern for the welfare of the Company and its Subsidiaries and their desire to remain employed. A further purpose of this Plan is to provide such employees, directors, and consultants with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. Accordingly, this Plan primarily provides for the granting of Incentive Stock Options, options which do not constitute Incentive Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Dividend Equivalents, Bonus Stock, Other Stock-Based Awards, Annual Incentive Awards, Performance Awards, or any combination of the foregoing, as is best suited to the circumstances of the particular individual as provided herein.
2.      Definitions . For purposes of this Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof:
(a)      “ Annual Incentive Award ” means a conditional right granted to an Eligible Person under Section 8(d) hereof to receive a cash payment, Stock, or other Award, unless otherwise determined by the Committee, after the end of a specified year.
(b)      “ Award ” means any Option, SAR, Restricted Stock, Restricted Stock Unit, Bonus Stock, Dividend Equivalent, Other Stock-Based Award, Performance Award, or Annual Incentive Award, together with any other right or interest granted to a Participant under this Plan.
(c)      “ Beneficiary ” means one or more persons, trusts, or other entities which have been designated by a Participant, in his or her most recent written beneficiary designation filed with the Committee, to receive the benefits specified under this Plan upon such Participant’s death or to which Awards or other rights are transferred if and to the extent permitted under Section 10(a) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term “Beneficiary” means the persons, trusts, or other entities entitled by will or the laws of descent and distribution to receive such benefits.
(d)      “ Board ” means the Company’s Board of Directors.

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(e)      “ Bonus Stock ” means Stock granted as a bonus pursuant to Section 6(f).
(f)      “ Change in Control ” means, except as otherwise provided in an Award Agreement, the occurrence of any of the following events:
(i)      The consummation of an agreement to acquire, or a tender offer for beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) by any Person of, 50% or more of either (x) the then outstanding shares of Stock (the “ Outstanding Stock ”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Company Voting Securities ”); provided , however , that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (D) any acquisition by any entity pursuant to a transaction that complies with clauses (A), (B), and (C) of paragraph (iii) below;
(ii)      Individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Board;
(iii)      Consummation of a reorganization, merger, or consolidation or sale or other disposition of all or substantially all of the assets of the Company, or an acquisition of assets of another entity (a “ Business Combination ”), in each case, unless, following such Business Combination, (A) the Outstanding Stock and Outstanding Company Voting Securities immediately prior to such Business Combination represent or are converted into or exchanged for securities which represent or are convertible into more than 50% of, respectively, the then outstanding shares of common stock or common equity interests and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other governing body, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company, or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (B) no Person (excluding any employee benefit plan (or related trust) of the Company or the entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock or common equity interests of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other governing body of such entity except to the extent that such ownership results solely from ownership of the Company that existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors or similar governing body of the entity resulting from such Business Combination were

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members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv)      Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, for purposes of any Award that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules, to the extent the impact of a Change in Control on such an Award would subject a Participant to additional taxes under the Nonqualified Deferred Compensation Rules, a Change in Control for purposes of such Award will mean a Change in Control that is also a “change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation” within the meaning of the Nonqualified Deferred Compensation Rules.
(g)      “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.
(h)      “ Committee ” means a committee of two or more directors of the Board designated by the Board to administer this Plan; provided , however , that, unless otherwise determined by the Board, the Committee shall consist solely of two or more directors, each of whom shall be a Qualified Member (except to the extent administration of this Plan by “outside directors” is not then required in order to qualify for tax deductibility under section 162(m) of the Code, but only applying this exception for purposes of an Award’s compliance with section 162(m) of the Code).
(i)      “ Covered Employee ” means an Eligible Person who is a Covered Employee as specified in Section 8(b) of this Plan.
(j)      “ Dividend Equivalent ” means a right, granted to an Eligible Person under Section 6(g), to receive cash, Stock, other Awards, or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments.
(k)      “ Effective Date ” means, notwithstanding the Plan’s establishment date described in Section 10(m), the first date upon which Awards may be granted pursuant to the Plan, which date shall be immediately prior to the closing of the initial public offering of the Company.
(l)      “ Eligible Person ” means all officers and employees of the Company or of any of its Subsidiaries, and other persons who provide services to the Company or any of its Subsidiaries, including directors of the Company. An employee on a leave of absence may be considered as still in the employ of the Company or any of its Subsidiaries for purposes of eligibility for participation in this Plan.

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(m)      “ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.
(n)      “ Fair Market Value ” means, as of any specified date, (i) if the Stock is listed on a national securities exchange, the closing sales price of the Stock, as reported on the stock exchange composite tape on the immediately preceding date (or if no sales occur on that date, on the last preceding date on which such sales of the Stock are so reported); (ii) if the Stock is not traded on a national securities exchange but is traded over the counter at the time a determination of its fair market value is required to be made under the Plan, the average between the reported high and low bid and asked prices of Stock on the most recently preceding date on which Stock was publicly traded; (iii) in the event Stock is not publicly traded at the time a determination of its value is required to be made under the Plan, the amount determined by the Committee in its discretion in such manner as it deems appropriate, taking into account all factors the Committee deems appropriate, including, without limitation, the Nonqualified Deferred Compensation Rules; or (iv) on the date of a Qualifying Public Offering of Stock, the offering price under such Qualifying Public Offering.
(o)      “ Incentive Stock Option ” or “ ISO ” means any Option intended to be and designated as an incentive stock option within the meaning of section 422 of the Code or any successor provision thereto.
(p)      “ Incumbent Board ” means the portion of the Board constituted of the individuals who are members of the Board as of the Effective Date and any other individual who becomes a director of the Company after the Effective Date and whose election or appointment by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board.
(q)      “ Nonqualified Deferred Compensation Rules ” means the limitations or requirements of section 409A of the Code and the guidance and regulations promulgated thereunder.
(r)      “ Option ” means a right, granted to an Eligible Person under Section 6(b) hereof, to purchase Stock or other Awards at a specified price during specified time periods.
(s)      “ Other Stock-Based Awards ” means Awards granted to an Eligible Person under Section 6(h) hereof.

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(t)      “ Participant ” means a person who has been granted an Award under this Plan which remains outstanding, including a person who is no longer an Eligible Person.
(u)      “ Performance Award ” means a right, granted to an Eligible Person under Section 8 hereof, to receive Awards based upon performance criteria specified by the Committee.
(v)      “ Performance Based Compensation ” means compensation that is intended by the Committee to constitute “performance-based compensation” within the meaning of section 162(m) of the Code and regulations thereunder.
(w)      “ Person ” means any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a limited liability company, a trust, or other entity; a Person, together with that Person’s Affiliates and Associates (as those terms are defined in Rule 12b-2 under the Exchange Act, provided that “registrant” as used in Rule 12b-2 shall mean the Company), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate, or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting, or disposing of securities of the Company with such Person, shall be deemed a single “Person.”
(x)      “ Qualifying Public Offering ” means a firm commitment underwritten public offering of Stock for cash, where the shares of Stock registered under the Securities Act are listed on a national securities exchange.
(y)      “ Qualified Member ” means a member of the Committee who is a “nonemployee director” within the meaning of Rule 16b-3(b)(3) and an “outside director” within the meaning of Treasury Regulation 1.162-27 under section 162(m) of the Code.
(z)      “ Restricted Stock ” means Stock granted to an Eligible Person under Section 6(d) hereof, that is subject to certain restrictions and to a risk of forfeiture.
(aa)      “ Restricted Stock Unit ” means a right, granted to an Eligible Person under Section 6(e) hereof, to receive Stock, cash, or a combination thereof at the end of a specified deferral period.
(bb)      “ Rule 16b-3 ” means Rule 16b-3, promulgated by the Securities and Exchange Commission under section 16 of the Exchange Act, as from time to time in effect and applicable to this Plan and Participants.
(cc)      “ Securities Act ” means the Securities Act of 1933 and the rules and regulations promulgated thereunder, or any successor law, as it may be amended from time to time.

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(dd)      “ Stock ” means the Company’s Common Stock, par value $0.01 per share, and such other securities as may be substituted (or resubstituted) for Stock pursuant to Section 9.
(ee)      “ Stock Appreciation Right ” or “ SAR ” means a right granted to an Eligible Person under Section 6(c) hereof.
(ff)      “ Subsidiary ” means with respect to the Company, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by the Company.
3.      Administration .
(a)      Authority of the Committee . This Plan shall be administered by the Committee except to the extent the Board elects to administer this Plan, in which case references herein to the “Committee” shall be deemed to include references to the “Board.” Subject to the express provisions of the Plan and Rule 16b-3, the Committee shall have the authority, in its sole and absolute discretion, to (i) adopt, amend, and rescind administrative and interpretive rules and regulations relating to the Plan; (ii) determine the Eligible Persons to whom, and the time or times at which, Awards shall be granted; (iii) determine the amount of cash and/or the number of shares of Stock, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock, Dividend Equivalents, Bonus Stock, Other Stock-Based Awards, Annual Incentive Awards, Performance Awards, as applicable, or any combination thereof, that shall be the subject of each Award; (iv) determine the terms and provisions of each Award agreement (which need not be identical), including provisions defining or otherwise relating to (A) the term and the period or periods and extent of exercisability of any Options, (B) the extent to which the transferability of shares of Stock issued or transferred pursuant to any Award is restricted, (C) except as otherwise provided herein, the effect on the Award of a Participant’s termination of employment or service relationship with the Company, and (D) the effect of approved leaves of absence (consistent with any applicable regulations of the Internal Revenue Service); (v) accelerate the time of vesting or exercisability of any Award that has been granted; (vi) construe the respective Award agreements and the Plan; (vii) make determinations of the Fair Market Value of the Stock pursuant to the Plan; (viii) delegate its duties under the Plan (including, but not limited to, the authority to grant Awards) to such agents as it may appoint from time to time, provided that the Committee may not delegate its duties where such delegation would violate any applicable state corporate law, or with respect to making Awards to, or otherwise with respect to Awards granted to, Eligible Persons who are subject to section 16(b) of the Exchange Act or who are Covered Employees receiving Awards that are intended to constitute Performance Based Compensation; (ix) subject to Section 10(c), terminate, modify, or amend the Plan; and (x) make all other determinations, perform all other acts, and exercise all other powers and authority necessary or advisable for administering the Plan, including the delegation of those ministerial acts and responsibilities as the Committee deems appropriate. Subject to Rule

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16b-3 and section 162(m) of the Code, the Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan, in any Award, or in any Award agreement in the manner and to the extent it deems necessary or desirable to carry the Plan into effect, and the Committee shall be the sole and final judge of that necessity or desirability. The determinations of the Committee on the matters referred to in this Section 3(a) shall be final and conclusive.
(b)      Manner of Exercise of Committee Authority . At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Award (i) granted or to be granted to an Eligible Person who is then subject to section 16 of the Exchange Act in respect of the Company or (ii) relating to an Award intended by the Committee to qualify as Performance Based Compensation, may be taken either (a) by the full Board but only for purposes of actions relating to Awards described in clause (i) of this Section 3(b) but not relating to Awards described in clause (ii), (b) by a subcommittee, designated by the Committee, composed solely of two or more Qualified Members, or (c) by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action; provided , however , that, upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee, by the full Board, or by the Committee upon the abstention or recusal of such non-Qualified Member(s), as applicable, shall be the action of the Committee for purposes of this Plan. Any action of the Committee shall be final, conclusive, and binding on all Persons, including the Company, its Subsidiaries, stockholders, Participants, Beneficiaries, and transferees under Section 10(a) hereof or other persons claiming rights from or through a Participant. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any of its Subsidiaries, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the Committee may determine, to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to section 16 of the Exchange Act in respect of the Company and will not cause Awards intended to qualify as Performance Based Compensation to fail to so qualify. The Committee may appoint agents to assist it in administering the Plan.
(c)      Limitation of Liability . The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or employee of the Company or any of its Subsidiaries, the Company’s legal counsel, independent auditors, consultants, or any other agents assisting in the administration of this Plan. Members of the Committee and any officer or employee of the Company or any of its Subsidiaries acting at the direction of or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to this Plan and shall, to the fullest extent

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permitted by law, be indemnified and held harmless by the Company with respect to any such action or determination.
4.      Stock Subject to Plan .
(a)      Overall Number of Shares Available for Delivery . Subject to adjustment in a manner consistent with any adjustment made pursuant to Section 9, the total number of shares of Stock reserved and available for issuance in connection with Awards under this Plan shall not exceed 17,500,000 shares, and such total will be available for the issuance of Incentive Stock Options.
(b)      Application of Limitation to Grants of Awards . No Award may be granted if the number of shares of Stock to be delivered in connection with such Award exceeds the number of shares of Stock remaining available under this Plan, minus the number of shares of Stock issuable in settlement of or relating to then-outstanding Awards. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double-counting (as, for example, in the case of tandem or substitute awards), and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award.
(c)      Availability of Shares Not Issued under Awards . Shares of Stock subject to an Award under this Plan that expire or are canceled, forfeited, exchanged, settled in cash, or otherwise terminated, including (i) shares forfeited with respect to Restricted Stock, (ii) the number of shares withheld in payment of any exercise or purchase price of an Award or taxes relating to Awards, and (iii) the number of shares surrendered in payment of any exercise or purchase price of an Award or taxes relating to any Award, will again be available for Awards under this Plan, except that if any such shares could not again be available for Awards to a particular Participant under any applicable law or regulation, such shares shall be available exclusively for Awards to Participants who are not subject to such limitation.
(d)      Stock Offered . The shares to be delivered under the Plan shall be made available from (i) authorized but unissued shares of Stock, (ii) Stock held in the treasury of the Company, or (iii) previously issued shares of Stock reacquired by the Company, including shares purchased on the open market.
5.      Eligibility; Per Person Award Limitations . Awards may be granted under this Plan only to Persons who are Eligible Persons at the time of grant thereof. In each calendar year, during any part of which this Plan is in effect, a Covered Employee may not be granted, to the extent the Awards will be subject to the limitations under section 162(m) of the Code that apply to compensation paid following the reliance period described in Treas. Reg. § 1.162-27(f), (a) Awards (other than Awards designated to be paid only in cash or the settlement of which is not based on a number of shares of Stock) relating to more than 2,500,000 shares of Stock, subject to adjustment in a manner consistent with any adjustment made pursuant to Section 9, and (b) Awards designated

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to be paid only in cash, or the settlement of which is not based on a number of shares of Stock, having a value determined on the date of grant in excess of $50,000,000.
6.      Specific Terms of Awards .
(a)      General . Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 10(c)), such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of employment by the Participant, or termination of the Participant’s service relationship with the Company, and terms permitting a Participant to make elections relating to his or her Award. The Committee shall retain full power and discretion to accelerate, waive, or modify, at any time, any term or condition of an Award that is not mandatory under this Plan; provided , however , that the Committee shall not have any discretion (i) to accelerate, waive, or modify any term or condition of an Award that is intended to qualify as Performance Based Compensation if such discretion would cause the Award to not so qualify or (ii) to accelerate the terms of payment of any Award that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules if such acceleration would subject a Participant to additional taxes under the Nonqualified Deferred Compensation Rules, in each case, unless the Committee makes an informed decision based on consultation with legal counsel to take such action and disqualify the Award from meeting such requirements of either section 162(m) of the Code or the Nonqualified Deferred Compensation Rules due to other considerations.
(b)      Options . The Committee is authorized to grant Options to Eligible Persons on the following terms and conditions:
(i)      Exercise Price . Each Option agreement shall state the exercise price per share of Stock (the “ Exercise Price ”); provided , however , that the Exercise Price per share of Stock subject to an Option shall not be less than the greater of (A) the par value per share of the Stock or (B) 100% of the Fair Market Value per share of the Stock as of the date of grant of the Option (or in the case of an ISO granted to an individual who owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or its parent or any subsidiary, 110% of the Fair Market Value per share of the Stock on the date of grant).
(ii)      Time and Method of Exercise . The Committee shall determine the time or times at which, or the circumstances under which, an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the methods by which such Exercise Price may be paid or deemed to be paid, the form of such payment, including without limitation cash, Stock, other Awards or awards granted under other plans of the Company or any Subsidiary, or other property (including notes or other contractual

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obligations of Participants to make payment on a deferred basis), and the methods by, or forms in which, Stock will be delivered or deemed to be delivered to Participants, including, but not limited to, the delivery of Restricted Stock subject to Section 6(d). In the case of an exercise whereby the Exercise Price is paid with Stock, such Stock shall be valued as of the date of exercise.
(iii)      ISOs . The terms of any ISO granted under this Plan shall comply in all respects with the provisions of section 422 of the Code. Except as otherwise provided in Section 9, no provision of this Plan relating to ISOs (including any SAR in tandem therewith) shall be interpreted, amended or altered, nor shall any discretion or authority granted under this Plan be exercised, so as to disqualify either this Plan or any ISO under section 422 of the Code, unless the Participant has first requested the change that will result in such disqualification. ISOs shall not be granted more than ten years after the earlier of the adoption of this Plan or the approval of this Plan by the Company’s stockholders. Notwithstanding the foregoing, the Fair Market Value of shares of Stock subject to an ISO and the aggregate Fair Market Value of shares of stock of any parent or subsidiary corporation (within the meaning of sections 424(e) and (f) of the Code) subject to any other ISO (within the meaning of section 422 of the Code) of the Company or a parent or subsidiary corporation (within the meaning of sections 424(e) and (f) of the Code) that first becomes purchasable by a Participant in any calendar year may not (with respect to that Participant) exceed $100,000, or such other amount as may be prescribed under section 422 of the Code or applicable regulations or rulings from time to time. As used in the previous sentence, Fair Market Value shall be determined as of the date the ISOs are granted. Failure to comply with this provision shall not impair the enforceability or exercisability of any Option, but shall cause the excess amount of shares to be reclassified in accordance with the Code.
(c)      Stock Appreciation Rights . The Committee is authorized to grant SARs to Eligible Persons on the following terms and conditions:
(i)      Right to Payment . An SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Committee.
(ii)      Rights Related to Options . An SAR granted pursuant to an Option shall entitle a Participant, upon exercise, to surrender that Option or any portion thereof, to the extent unexercised, and to receive payment of an amount computed pursuant to Section 6(c)(ii)(B). That Option shall then cease to be exercisable to the extent surrendered. SARs granted in connection with an Option shall be subject to the terms of the Award agreement governing the Option, which shall comply with the following provisions in addition to those applicable to Options:

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(A)      An SAR granted in connection with an Option shall be exercisable only at such time or times and only to the extent that the related Option is exercisable and shall not be transferable except to the extent that the related Option is transferable.
(B)      Upon the exercise of an SAR related to an Option, a Participant shall be entitled to receive payment from the Company of an amount determined by multiplying:
(1)      the difference obtained by subtracting the Exercise Price with respect to a share of Stock specified in the related Option from the Fair Market Value of a share of Stock on the date of exercise of the SAR, by
(2)      the number of shares as to which that SAR has been exercised.
(iii)      Right Without Option . An SAR granted independent of an Option shall be exercisable as determined by the Committee and set forth in the Award agreement governing the SAR, which Award agreement shall comply with the following provisions:
(A)      Each Award agreement shall state the total number of shares of Stock to which the SAR relates.
(B)      Each Award agreement shall state the time or periods in which the right to exercise the SAR or a portion thereof shall vest and the number of shares of Stock for which the right to exercise the SAR shall vest at each such time or period.
(C)      Each Award agreement shall state the date at which the SARs shall expire if not previously exercised.
(D)      Each SAR shall entitle a Participant, upon exercise thereof, to receive payment of an amount determined by multiplying:
(1)      the difference obtained by subtracting the Fair Market Value of a share of Stock on the date of grant of the SAR from the Fair Market Value of a share of Stock on the date of exercise of that SAR, by
(2)      the number of shares as to which the SAR has been exercised.
(iv)      Terms . Except as otherwise provided herein, the Committee shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which an SAR may be exercised in whole or in part (including based on achievement of performance

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goals and/or future service requirements), the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Participants, whether or not an SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR. SARs may be either freestanding or in tandem with other Awards.
(d)      Restricted Stock . The Committee is authorized to grant Restricted Stock to Eligible Persons on the following terms and conditions:
(i)      Grant and Restrictions . Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture, and other restrictions, if any, as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments, or otherwise, as the Committee may determine at the date of grant or thereafter. During the restricted period applicable to the Restricted Stock, the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined, or otherwise encumbered by the Participant.
(ii)      Certificates for Stock . Restricted Stock granted under this Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.
(iii)      Dividends and Splits . As a condition to the grant of an Award of Restricted Stock, the Committee may require or permit a Participant to elect that any cash dividends paid on a share of Restricted Stock be automatically reinvested in additional shares of Restricted Stock, applied to the purchase of additional Awards under this Plan, or deferred without interest to the date of vesting of the associated Award of Restricted Stock; provided , that, to the extent applicable, any such election shall comply with the Nonqualified Deferred Compensation Rules. Unless otherwise determined by the Committee, Stock distributed in connection with a Stock split or Stock dividend, and other property (other than cash) distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed.
(e)      Restricted Stock Units . The Committee is authorized to grant Restricted Stock Units, which are rights to receive Stock or cash (or a combination thereof) at the end of a

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specified deferral period (which may or may not be coterminous with the vesting schedule of the Award), to Eligible Persons, subject to the following terms and conditions:
(i)      Award and Restrictions . Settlement of an Award of Restricted Stock Units shall occur upon expiration of the deferral period specified for such Restricted Stock Unit by the Committee (or, if permitted by the Committee, as elected by the Participant). In addition, Restricted Stock Units shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee may impose, if any, which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, as the Committee may determine. Restricted Stock Units shall be satisfied by the delivery of cash or Stock in the amount equal to the Fair Market Value of the specified number of shares of Stock covered by the Restricted Stock Units, or a combination thereof, as determined by the Committee at the date of grant or thereafter.
(ii)      Dividend Equivalents . Unless otherwise determined by the Committee at date of grant, Dividend Equivalents on the specified number of shares of Stock covered by an Award of Restricted Stock Units shall be either (A) paid with respect to such Restricted Stock Units on the dividend payment date in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or (B) deferred with respect to such Restricted Stock Units, and the amount or value thereof automatically deemed reinvested in additional Restricted Stock Units (or in other Awards or other investment vehicles, as the Committee shall determine or permit the Participant to elect, but only to the extent compliant with the Nonqualified Deferred Compensation Rules).
(f)      Bonus Stock and Awards in Lieu of Obligations . The Committee is authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu of obligations to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements, provided that, in the case of Participants subject to section 16 of the Exchange Act, the amount of such grants remains within the discretion of the Committee to the extent necessary to ensure that acquisitions of Stock or other Awards are exempt from liability under section 16(b) of the Exchange Act. Stock or Awards granted hereunder shall be subject to such other terms as shall be determined by the Committee. In the case of any grant of Stock to an officer of the Company or any of its Subsidiaries in lieu of salary or other cash compensation, the number of shares granted in place of such compensation shall be reasonable, as determined by the Committee.
(g)      Dividend Equivalents . The Committee is authorized to grant Dividend Equivalents to a Participant, entitling the Participant to receive cash, Stock, other Awards, or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in

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connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture, as the Committee may specify.
(h)      Other Awards . The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the Committee to be consistent with the purposes of this Plan, including without limitation convertible or exchangeable debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment contingent upon performance of the Company or any other factors designated by the Committee, and Awards valued by reference to the book value of Stock or the value of securities of or the performance of specified Subsidiaries of the Company. The Committee shall determine the terms and conditions of such Other Stock-Based Awards. Stock delivered pursuant to an Award in the nature of a purchase right granted under this Section 6(h) shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including, without limitation, cash, Stock, other Awards, or other property, as the Committee shall determine. Cash awards, as an element of or supplement to any other Award under this Plan, may also be granted pursuant to this Section 6(h).

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7.      Certain Provisions Applicable to Awards .
(a)      Termination of Employment . Except as provided herein, the treatment of an Award upon a termination of employment or any other service relationship by and between a Participant and the Company or any Subsidiary shall be specified in the agreement controlling such Award.
(b)      Stand-Alone, Additional, Tandem, and Substitute Awards . Awards granted under this Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award; any award granted under another plan of the Company, or any of its Subsidiaries, or of any business entity to be acquired by the Company or any of its Subsidiaries; or any other right of an Eligible Person to receive payment from the Company or any of its Subsidiaries. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Committee shall require the surrender of such other Award in consideration for the grant of the new Award. Awards under this Plan may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any of its Subsidiaries, in which the value of Stock subject to the Award is equivalent in value to the cash compensation, or in which the exercise price, grant price, or purchase price of the Award in the nature of a right that may be exercised is equal to the Fair Market Value of the underlying Stock minus the value of the cash compensation surrendered, but only to the extent such substitution does not cause the Award to violate the requirements of Section 6(b)(i) hereof. Awards granted pursuant to the preceding sentence shall be designed, awarded and settled in a manner that does not result in additional taxes under the Nonqualified Deferred Compensation Rules.
(c)      Term of Awards . Except as specified herein, the term of each Award shall be for such period as may be determined by the Committee; provided , that in no event shall the term of any Option or SAR exceed a period of ten years (or such shorter term as may be required in respect of an ISO under section 422 of the Code).
(d)      Form and Timing of Payment under Awards; Deferrals . Subject to the terms of this Plan and any applicable Award agreement, payments to be made by the Company or any of its Subsidiaries upon the exercise of an Option or other Award or upon the settlement of an Award may be made in such forms as the Committee shall determine, including, without limitation, cash, Stock, other Awards, or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis; provided , however , that any such deferred payment will be set forth in the agreement evidencing such Award and/or otherwise made in a manner that will not result in additional taxes under the Nonqualified Deferred Compensation Rules. Except as otherwise provided herein, the settlement of any Award may be accelerated, and cash paid in lieu of Stock in connection with such settlement, in the discretion of the Committee or upon the occurrence of one

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or more specified events (in addition to a Change in Control). Installment or deferred payments may be required by the Committee (subject to Section 10(c) of this Plan, including the consent provisions thereof in the case of any deferral of an outstanding Award not provided for in the original Award agreement) or permitted at the election of the Participant on terms and conditions established by the Committee and in compliance with the Nonqualified Deferred Compensation Rules. Payments may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock. Any deferral shall only be allowed as is provided in a separate deferred compensation plan adopted by the Company (to the extent such separate plan is required for compliance with the Nonqualified Deferred Compensation Rules) and shall further be made pursuant to the Nonqualified Deferred Compensation Rules. This Plan shall not constitute an “employee benefit plan” for purposes of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
(e)      Exemptions from Section 16(b) Liability . It is the intent of the Company that the grant of any Awards to or other transaction by a Participant who is subject to section 16 of the Exchange Act shall be exempt from such section pursuant to an applicable exemption (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Award agreement does not comply with the requirements of Rule 16b-3 as then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Participant shall avoid liability under section 16(b) of the Exchange Act.
(f)      Non-Competition Agreement . Each Participant to whom an Award is granted under this Plan may be required to agree in writing as a condition to the granting of such Award not to engage in conduct in competition with the Company or any of its Subsidiaries for a period after the termination of such Participant’s employment with the Company and its Subsidiaries as determined by the Committee (a “ Non-Competition Agreement ”); provided, however, to the extent a legally binding right to an Award within the meaning of the Nonqualified Deferred Compensation Rules is created with respect to a Participant, the Non-Competition Agreement must be entered into by such Participant within 30 days following the creation of the legally binding right.
8.      Performance and Annual Incentive Awards .
(a)      Performance Conditions . The right of an Eligible Person to receive a grant, and the right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts payable under any Award subject to performance conditions, except as

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limited under Sections 8(c) and 8(d) hereof in the case of a Performance Award or Annual Incentive Award intended to qualify as Performance-Based Compensation under section 162(m) of the Code.
(b)      Status of Section 8(c) and Section 8(d) Awards under Section 162(m) of the Code . It is the intent of the Company that Performance Awards and Annual Incentive Awards under Sections 8(c) and 8(d) hereof granted to Persons who are designated by the Committee as likely to be “ Covered Employees ” within the meaning of section 162(m) of the Code and the regulations thereunder (including Treasury Regulation §1.162-27 and successor regulations thereto) shall, if so designated by the Committee, constitute Performance Based Compensation. Accordingly, the terms of this Section 8(b) and Sections 8(c), (d), and (e), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with section 162(m) of the Code and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Eligible Person will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term “Covered Employee” as used herein shall mean only a Person designated by the Committee, at the time of grant of a Performance Award or an Annual Incentive Award, who is likely to be a Covered Employee with respect to that fiscal year. If any provision of this Plan as in effect on the date of adoption of any agreements relating to Performance Awards or Annual Incentive Awards that are designated as intended to comply with the requirements of section 162(m) of the Code and regulations thereunder for Performance Based Compensation does not so comply or is inconsistent with such requirements, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements. Notwithstanding anything to the contrary in this Section 8(b) or elsewhere in this Plan, the Company intends to rely on the transition relief set forth in Treasury Regulation §1.162-27(f), and hence the deduction limitation imposed by section 162(m) of the Code will not be applicable to the Company until the earliest to occur of (i) the material modification of the Plan within the meaning of Treasury Regulation §1.162-27(h)(1)(iii); (ii) the issuance of the number of shares of Stock set forth in Section 4(a); or (iii) the first meeting of shareholders of the Company at which directors are to be elected that occurs after December 31, 2017 (the “ Transition Period ”), and during the Transition Period, Awards to Covered Employees shall only be required to comply with the limitations in Section 5 and the transition relief described in this Section 8(b).
(c)      Performance Awards Granted to Designated Covered Employees . If the Committee determines that a Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as Performance Based Compensation, the grant, exercise, and/or settlement of such Performance Award may be contingent upon achievement of preestablished performance goals and other terms set forth in this Section 8(c).
(iii)      Performance Goals Generally . The performance goals for such Performance Awards shall consist of one or more business criteria or individual performance criteria

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and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 8(c). Performance goals shall be objective and shall otherwise meet the requirements of section 162(m) of the Code and regulations thereunder (including Treasury Regulation §1.162-27 and successor regulations thereto), including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain” at the time the Committee actually establishes the performance goal or goals. The Committee may determine that such Performance Awards shall be granted, exercised, and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise, and/or settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants.
(iv)      Business and Individual Performance Criteria
(A)      Business Criteria . One or more of the following business criteria that may apply to a Participant and may include business criteria for the Company, on a consolidated basis, and/or for specified Subsidiaries or business or geographical units of the Company (except with respect to the total stockholder return, change in the Fair Market Value of the Stock, and earnings per share criteria), shall be used by the Committee in establishing performance goals for such Performance Awards: (1) earnings per share; (2) increase in revenues; (3) increase in cash flow; (4) increase in cash flow from operations; (5) increase in cash flow return; (6) return on net assets; (7) return on assets; (8) return on investment; (9) return on capital; (10) return on equity; (11) economic value added; (12) operating margin; (13) contribution margin; (14) net income; (15) net income per share; (16) pretax earnings; (17) pretax earnings before interest, depreciation and amortization; (18) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (19) total stockholder return; (20) debt reduction; (21) market share; (22) change in the Fair Market Value of the Stock; (23) operating income; (24) amount of oil and natural gas reserves; (25) oil and natural gas reserve additions; (26) cost of finding oil and natural gas reserves; (27) oil and natural gas reserve replacement ratios; (28) oil and natural gas production amounts; (29) oil and natural gas production sales amounts; (30) safety targets; (31) regulatory compliance; and (32) any of the above goals determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee, including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparable companies. One or more of the foregoing business criteria shall also be exclusively used in establishing performance goals for Annual Incentive Awards granted to a Covered Employee under Section 8(d) hereof that are intended to qualify as Performance Based Compensation. The Committee may provide for adjustment of performance goals for certain accounting charges as it determines is appropriate; provided, however, that any such adjustment not described in the immediately following sentence shall have been provided for by the Committee in the performance goals that are established at the time such performance goals are established in accordance with

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Section 8(c)(iii). The Committee may also exclude the impact of any of the following events or occurrences which the Committee determines should appropriately be excluded, but only to the extent such exclusions will not cause Awards intended to qualify as Performance Based Compensation to fail to so qualify: (a) asset write-downs; (b) litigation, claims, judgments, or settlements; (c) the effect of changes in tax law or other such laws or regulations affecting reported results; (d) accruals for reorganization and restructuring programs; (e) any extraordinary, unusual, or nonrecurring items as described in the Accounting Standards Codification Topic 225, as the same may be amended or superseded from time to time; (f) any change in accounting principles as defined in the Accounting Standards Codification Topic 250, as the same may be amended or superseded from time to time; (g) any loss from a discontinued operation as described in the Accounting Standards Codification Topic 360, as the same may be amended or superseded from time to time; (h) goodwill impairment charges; (i) operating results for any business acquired during the calendar year; (j) third party expenses associated with any acquisition by us or any subsidiary; and (k) any other extraordinary events or occurrences identified by the Committee, to the extent set forth with reasonable particularity in connection with the establishment of performance goals.
(B)      Individual Performance Criteria . The grant, exercise, and/or settlement of Performance Awards may also be contingent upon individual performance goals established by the Committee. If required for compliance with section 162(m) of the Code for Performance Based Compensation, such criteria shall be approved by the stockholders of the Company.
(v)      Performance Period; Timing for Establishing Performance Goals . Achievement of performance goals in respect of such Performance Awards shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for Performance Based Compensation.
(vi)      Performance Award Pool . The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Company in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the criteria set forth in Section 8(c)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 8(c)(iii) hereof. The Committee may specify the amount of the Performance Award pool as a percentage of any of such criteria, a percentage thereof in excess of a threshold amount, or as another amount, which need not bear a strictly mathematical relationship to such criteria.

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(vii)      Settlement of Performance Awards; Other Terms . After the end of each performance period, the Committee shall determine the amount, if any, of (A) the Performance Award pool and the maximum amount of the potential Performance Award payable to each Participant in the Performance Award pool, or (B) the amount of the potential Performance Award otherwise payable to each Participant. Settlement of such Performance Awards shall be in cash, Stock, other Awards, or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable to a Covered Employee in respect of a Performance Award subject to this Section 8(c). The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards.
(d)      Annual Incentive Awards Granted to Designated Covered Employees . If the Committee determines that an Annual Incentive Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as Performance Based Compensation, the grant, exercise, and/or settlement of such Annual Incentive Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 8(d).
(i)      Potential Annual Incentive Awards . Not later than the end of the 90th day of each applicable performance year, or at such other date as may be required or permitted in the case of Awards intended to be Performance Based Compensation, the Committee shall determine the Eligible Persons who will potentially receive Annual Incentive Awards, and the amounts potentially payable thereunder, for that fiscal year, either out of an Annual Incentive Award pool established by such date under Section 8(d)(i) hereof or as individual Annual Incentive Awards. The amount potentially payable, with respect to Annual Incentive Awards, shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 8(c)(ii) hereof in the given performance year, as specified by the Committee, in accordance with Section 8(c)(iii) hereof.
(ii)      Annual Incentive Award Pool . The Committee may establish an Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Company in connection with Annual Incentive Awards. The amount of such Annual Incentive Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 8(c)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 8(c)(iii) hereof. The Committee may specify the amount of the Annual Incentive Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria.

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(iii)      Payout of Annual Incentive Awards . After the end of each applicable performance year, the Committee shall determine the amount, if any, of (A) the Annual Incentive Award pool, and the maximum amount of the potential Annual Incentive Award payable to each Participant in the Annual Incentive Award pool, or (A) the amount of the potential Annual Incentive Award otherwise payable to each Participant. The Committee may, in its discretion, determine that the amount payable to any Participant as a final Annual Incentive Award shall be reduced from the amount of his or her potential Annual Incentive Award, including a determination to make no final Award whatsoever, but may not exercise discretion to increase any such amount in the case of an Annual Incentive Award intended to qualify as Performance Based Compensation. The Committee shall specify the circumstances in which an Annual Incentive Award shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of the applicable year or settlement of such Annual Incentive Award.
(e)      Written Determinations . All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards, the achievement of performance goals relating to and final settlement of Performance Awards under Section 8(c), the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards, and the achievement of performance goals relating to and final settlement of Annual Incentive Awards under Section 8(d) shall be made in writing in the case of any Award intended to qualify as Performance Based Compensation. The Committee may not delegate any responsibility relating to the establishment or administration of performance goals, or to the certification of the attainment of such performance goals, with respect to any such Performance Awards or Annual Incentive Awards that are intended to be qualified performance based compensation under Section 162(m) of the Code, or to the extent the applicable delegation is otherwise prohibited under the terms of the Plan or applicable law.
9.      Subdivision or Consolidation; Recapitalization; Change in Control; Reorganization .
(a)      Existence of Plans and Awards . The existence of this Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization, or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange, or other disposition of all or any part of its assets or business, or any other corporate act or proceeding. In no event will any action taken by the Committee pursuant to this Section 9 result in the creation of deferred compensation within the meaning of section 409A of the Code and the regulations and other guidance promulgated thereunder.

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(b)      Subdivision or Consolidation of Shares . The terms of an Award and the number of shares of Stock authorized pursuant to Section 4 for issuance under the Plan shall be subject to adjustment from time to time, in accordance with the following provisions:
(viii)      If at any time, or from time to time, the Company shall subdivide as a whole (by reclassification, by a Stock split, by the issuance of a distribution on Stock payable in Stock, or otherwise) the number of shares of Stock then outstanding into a greater number of shares of Stock, then, as appropriate: (A)%8. the maximum number of shares of Stock available for the Plan or in connection with Awards as provided in Sections 4 and 5 shall be increased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (B)%8. the number of shares of Stock (or other kind of shares or securities) that may be acquired under any then outstanding Award shall be increased proportionately, and %8.(C) the price (including the exercise price) for each share of Stock (or other kind of shares or securities) subject to then outstanding Awards shall be reduced proportionately, all without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions.
(ix)      If at any time, or from time to time, the Company shall consolidate as a whole (by reclassification, by reverse Stock split, or otherwise) the number of shares of Stock then outstanding into a lesser number of shares of Stock, (A)%8. the maximum number of shares of Stock for the Plan or available in connection with Awards as provided in Sections 4 and 5 shall be decreased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (B)%8. the number of shares of Stock (or other kind of shares or securities) that may be acquired under any then outstanding Award shall be decreased proportionately, and (C)%8. the price (including the exercise price) for each share of Stock (or other kind of shares or securities) subject to then outstanding Awards shall be increased proportionately, all without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions.
(x)      Whenever the number of shares of Stock subject to outstanding Awards and the price for each share of Stock subject to outstanding Awards are required to be adjusted as provided in this Section 9(b), the Committee shall promptly prepare a notice setting forth, in reasonable detail, the event requiring adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the change in price and the number of shares of Stock, other securities, cash, or property purchasable subject to each Award after giving effect to the adjustments. The Committee shall promptly provide each affected Participant with such notice.
(xi)      Adjustments under Sections 9(b)(i) and (ii) shall be made by the Committee, and its determination as to what adjustments shall be made and the extent thereof shall be final, binding, and conclusive. No fractional interest shall be issued under the Plan on account of any such adjustments.

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(c)      Corporate Recapitalization . If the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure (a “ Recapitalization ”) without the occurrence of a Change in Control, the number and class of shares of Stock covered by an Option or an SAR theretofore granted shall be adjusted so that such Option or SAR shall thereafter cover the number and class of shares of stock and securities to which the holder would have been entitled pursuant to the terms of the Recapitalization if, immediately prior to the Recapitalization, the holder had been the holder of record of the number of shares of Stock then covered by such Option or SAR and the share limitations provided in Sections 4 and 5 shall be adjusted in a manner consistent with the Recapitalization.
(d)      Additional Issuances . Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class for cash, property, labor, or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Awards theretofore granted or the purchase price per share, if applicable.
(e)      Change in Control . Upon a Change in Control the Committee, acting in its sole discretion without the consent or approval of any holder, shall affect one or more of the following alternatives, which may vary among individual holders and which may vary among Options or SARs (collectively “ Grants ”) held by any individual holder: (i) accelerate the time at which Grants then outstanding may be exercised so that such Grants may be exercised in full for a limited period of time on or before a specified date (before or after such Change in Control) fixed by the Committee, after which specified date all unexercised Grants and all rights of holders thereunder shall terminate, (ii) require the mandatory surrender to the Company by selected holders of some or all of the outstanding Grants held by such holders (irrespective of whether such Grants are then exercisable under the provisions of this Plan) as of a date, before or after such Change in Control, specified by the Committee, in which event the Committee shall thereupon cancel such Grants and pay to each holder an amount of cash (or other consideration including securities or other property) per share equal to the excess, if any, of the amount calculated in Section 9(f) (the “Change in Control Price”) of the shares subject to such Grants over the Exercise Price(s) under such Grants for such shares (except that to the extent the Exercise Price under any such Grant is equal to or exceeds the Change in Control Price, in which case no amount shall be payable with respect to such Grant), or (iii) make such adjustments to Grants then outstanding as the Committee deems appropriate to reflect such Change in Control; provided , however , that the Committee may determine in its sole discretion that no adjustment is necessary to Grants then outstanding; provided , further, however, that the right to make such adjustments shall include, but not require or be limited to, the modification of Grants such that the holder of the Grant shall be entitled to purchase or receive (in lieu of the total number of shares of Stock as to which an Option or SAR is exercisable (the “ Total Shares ”) or other

23


consideration that the holder would otherwise be entitled to purchase or receive under the Grant (the “ Total Consideration ”)), the number of shares of stock or other securities or the amount of cash or property to which the Total Consideration relates that the holder would have been entitled to purchase or receive in connection with the Change in Control (A) (in the case of Options), at an aggregate exercise price equal to the exercise price that would have been payable if the Total Shares had been purchased upon the exercise of the Grant immediately before the consummation of the Change in Control and (B) in the case of SARs, calculated as if the SARs had been exercised immediately before the occurrence of the Change in Control.
(f)      Change in Control Price . The “Change in Control Price” shall equal the amount determined in the following clause (i), (ii), (iii), (iv) or (v), whichever is applicable, as follows: (i) the price per share offered to holders of Stock in any merger or consolidation, (ii) the per share Fair Market Value of the Stock immediately before the Change in Control without regard to assets sold in the Change in Control and assuming the Company has received the consideration paid for the assets in the case of a sale of the assets, (iii) the amount distributed per share of Stock in a dissolution transaction, (iv) the price per share offered to holders of Stock in any tender offer or exchange offer whereby a Change in Control takes place, or (v) if such Change in Control occurs other than pursuant to a transaction described in clauses (i), (ii), (iii), or (iv) of this Section 9(f), the Fair Market Value per share of the Stock that may otherwise be obtained with respect to such Grants or to which such Grants track, as determined by the Committee as of the date determined by the Committee to be the date of cancellation and surrender of such Grants. In the event that the consideration offered to stockholders of the Company in any transaction described in this Section 9(f) or in Section 9(e) consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash and such determination shall be binding on all affected Participants to the extent applicable to Awards held by such Participants.
(g)      Impact of Corporate Events on Awards Generally . In the event of a Change in Control or changes in the outstanding Stock by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange, or other relevant change in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Section 9, any outstanding Awards and any Award agreements evidencing such Awards shall be subject to adjustment by the Committee at its discretion, which adjustment may, in the Committee’s discretion, be described in the Award agreement and may include, but not be limited to, adjustments as to the number and price of shares of Stock or other consideration subject to such Awards, accelerated vesting (in full or in part) of such Awards, conversion of such Awards into awards denominated in the securities or other interests of any successor Person, the cash settlement of such Awards in exchange for the cancellation thereof, or the cancellation of Awards (whether vested or unvested) with or without consideration. In the event of any such change in the outstanding Stock, the aggregate number of shares of Stock

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available under this Plan may be appropriately adjusted by the Committee, whose determination shall be conclusive.
10.      General Provisions .
(a)      Transferability .
(xii)      Permitted Transferees . The Committee may, in its discretion, permit a Participant to transfer all or any portion of an Option or SAR, or authorize all or a portion of an Option or SAR to be granted to an Eligible Person to be on terms which permit transfer by such Participant; provided that, in either case the transferee or transferees must be any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, in each case with respect to the Participant, an individual sharing the Participant’s household (other than a tenant or employee of the Company), a trust in which any of the foregoing individuals have more than fifty percent of the beneficial interest, a foundation in which any of the foregoing individuals (or the Participant) control the management of assets, and any other entity in which any of the foregoing individuals (or the Participant) owns more than fifty percent of the voting interests (collectively, “ Permitted Transferees ”); provided further that, (A) there may be no consideration for any such transfer and (B) subsequent transfers of Options or SARs transferred as provided above shall be prohibited except subsequent transfers back to the original holder of the Option or SAR and transfers to other Permitted Transferees of the original holder. Agreements evidencing Options or SARs with respect to which such transferability is authorized at the time of grant must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section 10(a)(i).
(xiii)      Qualified Domestic Relations Orders . An Option, Stock Appreciation Right, Restricted Stock Unit, Restricted Stock, or other Award may be transferred to a Permitted Transferee, pursuant to a domestic relations order entered or approved by a court of competent jurisdiction upon delivery to the Company of written notice of such transfer and a certified copy of such order.
(xiv)      Other Transfers . Except as expressly permitted by Sections 10(a)(i) and 10(a)(ii), Awards shall not be transferable other than by will or the laws of descent and distribution. Notwithstanding anything to the contrary in this Section 10, an Incentive Stock Option shall not be transferable other than by will or the laws of descent and distribution.
(xv)      Effect of Transfer . Following the transfer of any Award as contemplated by Sections 10(a)(i), 10(a)(ii) and 10(a)(iii), (A) such Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that the term “Participant” shall be deemed to refer to the Permitted Transferee, the recipient under

25


a qualified domestic relations order, or the estate or heirs of a deceased Participant or other transferee, as applicable, to the extent appropriate to enable the Participant to exercise the transferred Award in accordance with the terms of this Plan and applicable law and (B) the provisions of the Award relating to exercisability shall continue to be applied with respect to the original Participant and, following the occurrence of any applicable events described therein, the Awards shall be exercisable by the Permitted Transferee, the recipient under a qualified domestic relations order, or the estate or heirs of a deceased Participant, as applicable, only to the extent and for the periods that would have been applicable in the absence of the transfer.
(xvi)      Procedures and Restrictions . Any Participant desiring to transfer an Award as permitted under Sections 10(a)(i), 10(a)(ii) or 10(a)(iii) shall make application therefor in the manner and time specified by the Committee and shall comply with such other requirements as the Committee may require to assure compliance with all applicable securities laws. The Committee shall not give permission for such a transfer if (A) it would give rise to short swing liability under section 16(b) of the Exchange Act or (B) it may not be made in compliance with all applicable federal, state, and foreign securities laws.
(xvii)      Registration . To the extent the issuance to any Permitted Transferee of any shares of Stock issuable pursuant to Awards transferred as permitted in this Section 10(a) is not registered pursuant to the effective registration statement of the Company generally covering the shares to be issued pursuant to this Plan to initial holders of Awards, the Company shall not have any obligation to register the issuance of any such shares of Stock to any such transferee.
(b)      Taxes . The Company and any of its Subsidiaries are authorized to withhold from any Award granted, or any payment relating to an Award under this Plan, including from a distribution of Stock, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either on a mandatory or elective basis, in the discretion of the Committee.
(c)      Changes to this Plan and Awards . The Board may amend, alter, suspend, discontinue or terminate this Plan or the Committee’s authority to grant Awards under this Plan without the consent of stockholders or Participants, except that any amendment or alteration to this Plan, including any increase in any share limitation, shall be subject to the approval of the Company’s stockholders not later than the annual meeting next following such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may

26


otherwise, in its discretion, determine to submit other such changes to this Plan to stockholders for approval; provided , that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in this Plan; provided , however , that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Award. For purposes of clarity, any adjustments made to Awards pursuant to Section 9 will be deemed not to materially and adversely affect the rights of any Participant under any previously granted and outstanding Award and therefore may be made without the consent of affected Participants.
(d)      Limitation on Rights Conferred under Plan . Neither this Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Company or any of its Subsidiaries, (ii) interfering in any way with the right of the Company or any of its Subsidiaries to terminate any Eligible Person’s or Participant’s employment or service relationship at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under this Plan or to be treated uniformly with other Participants and/or employees and/or other service providers, or (iv) conferring on a Participant any of the rights of a stockholder of the Company unless and until the Participant is duly issued or transferred shares of Stock in accordance with the terms of an Award.
(e)      Unfunded Status of Awards . This Plan is intended to constitute an “unfunded” plan for certain incentive awards.
(f)      Nonexclusivity of this Plan . Neither the adoption of this Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable, including incentive arrangements and awards which do not qualify as Performance Based Compensation under section 162(m) of the Code. Nothing contained in this Plan shall be construed to prevent the Company or any of its Subsidiaries from taking any corporate action which is deemed by the Company or such Subsidiary to be appropriate or in its best interest, whether or not such action would have an adverse effect on this Plan or any Award made under this Plan. No employee, beneficiary or other person shall have any claim against the Company or any of its Subsidiaries as a result of any such action.
(g)      Fractional Shares . No fractional shares of Stock shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, other Awards,

27


or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(h)      Severability . If any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable, and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein. If any of the terms or provisions of this Plan or any Award agreement conflict with the requirements of Rule 16b-3 (as those terms or provisions are applied to Eligible Persons who are subject to section 16(b) of the Exchange Act) or section 422 of the Code (with respect to Incentive Stock Options), then those conflicting terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 (unless the Board or the Committee, as appropriate, has expressly determined that the Plan or such Award should not comply with Rule 16b-3) or section 422 of the Code. With respect to Incentive Stock Options, if this Plan does not contain any provision required to be included herein under section 422 of the Code, that provision shall be deemed to be incorporated herein with the same force and effect as if that provision had been set out at length herein; provided , further, that, to the extent any Option that is intended to qualify as an Incentive Stock Option cannot so qualify, that Option (to that extent) shall be deemed an Option not subject to section 422 of the Code for all purposes of the Plan.
(i)      Governing Law . All questions arising with respect to the provisions of the Plan and Awards shall be determined by application of the laws of the State of Delaware, without giving effect to any conflict of law provisions thereof, except to the extent Delaware law is preempted by federal law. The obligation of the Company to sell and deliver Stock hereunder is subject to applicable federal and state laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock.  
(j)      Conditions to Delivery of Stock . Nothing herein or in any Award granted hereunder or any Award agreement shall require the Company to issue any shares with respect to any Award if that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect. At the time of any exercise of an Option or Stock Appreciation Right, or at the time of any grant of Restricted Stock, a Restricted Stock Unit, or other Award the Company may, as a condition precedent to the exercise of such Option or Stock Appreciation Right or settlement of any Restricted Stock, Restricted Stock Unit or other Award, require from the Participant (or in the event of his or her death, his or her legal representatives, heirs, legatees, or distributees) such written representations, if any, concerning the holder’s intentions with regard to the retention or disposition of the shares of Stock being acquired pursuant to the Award and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the

28


Company, may be necessary to ensure that any disposition by that holder (or in the event of the holder’s death, his or her legal representatives, heirs, legatees, or distributees) will not involve a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable state or federal statute or regulation, or any rule of any applicable securities exchange or securities association, as then in effect. No Option or Stock Appreciation Right shall be exercisable and no settlement of any Restricted Stock or Restricted Stock Unit shall occur with respect to a Participant unless and until the holder thereof shall have paid cash or property to, or performed services for, the Company or any of its Subsidiaries that the Committee believes is equal to or greater in value than the par value of the Stock subject to such Award.
(k)      Section 409A of the Code . In the event that any Award granted pursuant to this Plan provides for a deferral of compensation within the meaning of the Nonqualified Deferred Compensation Rules, it is the general intention, but not the obligation, of the Company to design such Award to comply with the Nonqualified Deferred Compensation Rules and such Award should be interpreted accordingly.
(l)      Clawback . To the extent required by (i) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, any Securities Exchange Commission rule or any applicable securities exchange listing standards and/or (ii) any policy that may be adopted by the Board, Awards and amounts paid or payable pursuant to or with respect to Awards shall be subject to clawback to the extent necessary to comply with such law(s) and/or policy, which clawback may include forfeiture, repurchase and/or recoupment of Awards and amounts paid or payable pursuant to or with respect to Awards.
(m)      Plan Establishment and Term . This Plan was adopted and established by the Board and approved by the Company’s stockholders on January 23, 2014. Awards may be granted under this Plan no earlier than the date specified in Section 2(k), which is the Effective Date, and no Awards may be granted under this Plan on or after the tenth anniversary of the Effective Date.



29


INDEMNIFICATION AGREEMENT

This Indemnification Agreement (the “ Agreement ”) is entered into as of August 8, 2014 by and among Rice Energy Inc., a Delaware corporation (the “ Company ”), Alpha Natural Resources, Inc., a Delaware corporation (“ Alpha ”), and Kevin S. Crutchfield (“ Mr. Crutchfield ”).

RECITALS

WHEREAS, absent a specific waiver, under Delaware law, a corporation’s directors and officers may not take certain business opportunities from such corporation that are presented to such directors or officers without first presenting such opportunities to such corporation;

WHEREAS, Section 122(17) of the Delaware General Corporation Law (the “ DGCL ”) allows a corporation to renounce by action of its board of directors any interest or expectancy of the corporation in, or in being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or one or more of its officers, directors or stockholders;

WHEREAS, pursuant to the Stockholders’ Agreement among the Company, Alpha, and certain of the Company’s other stockholders, dated as of January 29, 2014, Alpha has the right to designate its Chief Executive Officer or another member of Alpha’s senior management, with the title of Senior Vice President or greater (the “ Alpha-Appointed Rice Director ”), as its representative on the Company’s board of directors (the “ Board ”) and pursuant to such right designated Mr. Crutchfield, Alpha’s Chairman and Chief Executive Officer, as the Alpha-Appointed Rice Director;

WHEREAS, the Board adopted at its meeting of May 9, 2014 (the “ Effective Date ”) the resolutions set forth below (collectively, the “ Resolutions ”):

“ NOW, THEREFORE, BE IT RESOLVED , that the Board hereby approves the waiver of Mr. Crutchfield’s (or any substitute Alpha-Appointed Rice Director’s (a “ Substitute Designee ”) obligation, to the extent it exists, to present business opportunities to the Company; and

FURTHER RESOLVED , that the Board, on behalf of the Company and its subsidiaries, renounces any interest or expectancy of the Company and its subsidiaries in, or in being offered an opportunity to participate in, any business opportunities that are from time to time presented or were presented prior to the date hereof to Mr. Crutchfield (or any Substitute Designee), Alpha or any of their respective affiliates, agents, stockholders, members, partners, directors, officers, employees or subsidiaries, as applicable, even if the business opportunity is one that the Company or its subsidiaries might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and no such person shall have any duty to communicate or offer any such business opportunity to the Company or be liable to the Company or any of its subsidiaries or any stockholder, including for breach of any fiduciary or other duty, as a director or officer or controlling stockholder or otherwise, and the Company shall indemnify such person against any claim that such person is liable to the Company or its stockholders for breach of any fiduciary duty, by reason of the fact that such person (i) participates in, pursues or acquires any such business opportunity, (ii) directs any such business opportunity to another person or (iii) fails to present any such business opportunity, or information regarding any such business opportunity, to the Company or its subsidiaries (in the case of Mr. Crutchfield (or any Substitute Designee), unless such business opportunity is expressly offered to Mr. Crutchfield (or such Substitute Designee) in writing solely in his capacity as a director of the Company); it being understood (a) that neither the adoption of any provision of the Company's Amended and Restated Certificate of Incorporation, dated as of January 29, 2014 (the “ A&R Certificate of Incorporation ”), or the bylaws of the Company, nor the approval of any Board resolution (including any resolution amending or repealing this Board resolution), nor, to the fullest extent permitted by Delaware law, any modification of law, shall eliminate, reduce or otherwise adversely affect any right or protection of any person granted pursuant hereto existing at, or arising out of or related to any event, act or omission that occurred prior to, the time of such amendment, repeal, approval, adoption or modification (regardless of when any proceeding (or part thereof) relating to such event, act or omission arises or is first threatened, commenced or completed) and (b) that the foregoing shall not limit any protections or defenses available to, or indemnification or advancement rights of, any such person under the A&R Certificate of Incorporation, the bylaws of the Company or applicable law; and

FURTHER RESOLVED, that the Company shall enter into an agreement with Alpha and Mr. Crutchfield providing Alpha and Mr. Crutchfield the same rights that would have been granted to them if the foregoing resolutions had been reflected in the A&R Certificate of Incorporation;” and

WHEREAS, in compliance with the final Resolution set forth above, the Company, Alpha and Mr. Crutchfield are entering into this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company, Alpha and Mr. Crutchfield do hereby covenant and agree as follows:

Section 1. Indemnity . From and after the Effective Date the Company shall indemnify Mr. Crutchfield (or any Substitute Designee), Alpha or any of their respective affiliates, agents, stockholders, members, partners, directors, officers, employees or subsidiaries, as applicable (the “ Indemnitees ”) against any claim that an Indemnitee is liable to the Company or its stockholders for breach of any fiduciary duty, by reason of the fact that such person (a) participates in, pursues or acquires any business opportunity described in the Resolutions, (b) directs any such business opportunity to another person or (c) fails to present any business opportunity, or information regarding any such business opportunity, to the Company or its subsidiaries (in the case of Mr. Crutchfield (or any Substitute Designee), unless the business opportunity is expressly offered to Mr. Crutchfield (or such Substitute Designee) in writing solely in his capacity as a director of the Company).

Section 2. Modification and Amendment; Non-Exclusivity . The Company agrees that (a) neither the adoption of any provision of the Company’s Amended and Restated Certificate of Incorporation, dated as of January 29, 2014 (the “ A&R Certificate of Incorporation ”), or the bylaws of the Company, nor the approval of any Board resolution (including any resolution amending or repealing the Resolutions), nor, to the fullest extent permitted by Delaware law, any modification of law, shall eliminate, reduce or otherwise adversely affect any right or protection of any person granted pursuant hereto existing at, or arising out of or related to any event, act or omission that occurred prior to, the time of such amendment, repeal, approval, adoption or modification (regardless of when any proceeding (or part thereof) relating to such event, act or omission arises or is first threatened, commenced or completed); and (b) nothing in this Agreement shall limit any protections or defenses available to, or indemnification or advancement rights of, any Indemnitee under the A&R Certificate of Incorporation, the bylaws of the Company or applicable law.

Section 3. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever, (a) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Agreement (including, without limitation, each portion of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each such portion of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Company to protect the Indemnitees from personal liability in respect of their good faith service to or for the benefit of the Company to the fullest extent permitted by applicable law.

Section 4. Comparable Rights . The parties hereto acknowledge and agree that it is their intent that this Agreement provides the Indemnitees with the same rights that would have been granted to them if the Resolutions had been reflected in the A&R Certificate of Incorporation.

Section 5. Applicable Law . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.



By: /s/ Kevin S. Crutchfield    
Name: Kevin S. Crutchfield
                                                                  


ALPHA NATURAL RESOURCES, INC.


By: /s/ Philip J. Cavatoni    
Name: Philip J. Cavatoni
Title: EVP, Chief Strategy Officer and Treasurer

RICE ENERGY INC.


By: /s/ Daniel J. Rice IV    
Name: Daniel J. Rice IV
Title: Chief Executive Officer





EXHIBIT 31.1
 
CERTIFICATION
 
I, Daniel J. Rice IV, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Rice Energy Inc. (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 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.
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

c.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of 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.


 
/s/ Daniel J. Rice IV
Daniel J. Rice IV
Director, Chief Executive Officer
(Principal Executive Officer)
 

Date: August 11, 2014


EXHIBIT 31.2
 
CERTIFICATION
 
I, Grayson T. Lisenby, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Rice Energy Inc. (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 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.
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

c.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of 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.


 
/s/ Grayson T. Lisenby
Grayson T. Lisenby
Vice President and Chief Financial Officer
(Principal Financial Officer)
 

Date: August 11, 2014


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 of Rice Energy Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel J. Rice IV, Director and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my 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.

/s/ Daniel J. Rice IV
Daniel J. Rice IV
Director, Chief Executive Officer
(Principal Executive Officer)
 


Date: August 11, 2014


EXHIBIT 32.2
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 of Rice Energy Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Grayson T. Lisenby, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my 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.

/s/ Grayson T. Lisenby
Grayson T. Lisenby
Vice President and Chief Financial Officer
(Principal Financial Officer)
 


Date: August 11, 2014