DEFM14A 1 ny20021341x14_defm14a.htm DEFM14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, For Use of the Commission Only (As Permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12
Diamondback Energy, Inc.
(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):

No fee required

Fee paid previously with preliminary materials

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

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500 West Texas Ave, Suite 100
Midland, Texas 79701
Dear Diamondback Energy, Inc. Stockholders:
On February 11, 2024, Diamondback Energy, Inc., a Delaware corporation (“Diamondback,” “we,” “us” or “our”) entered into an Agreement and Plan of Merger, which was amended on March 18, 2024 (as so amended, and as it may be further amended from time to time, the “Merger Agreement”), with Eclipse Merger Sub I, LLC, a Delaware limited liability company and a wholly owned subsidiary of Diamondback (“Merger Sub I”), Eclipse Merger Sub II, LLC, a Delaware limited liability company and a wholly owned subsidiary of Diamondback (“Merger Sub II” and together with Merger Sub I, the “Merger Subs”), Endeavor Manager, LLC, a Texas limited liability company (the “Company Representative”) (solely for purposes of certain sections set forth therein), and Endeavor Parent, LLC, a Texas limited liability company (“Endeavor”).
The Merger Agreement provides that, subject to the terms and conditions set forth therein, Merger Sub I will merge with and into Endeavor (the “First Merger”), with Endeavor surviving the First Merger and becoming a wholly owned subsidiary of Diamondback (the “First Surviving Company”). Immediately following the First Merger, the First Surviving Company will merge with and into Merger Sub II (the “Second Merger”, and together with the First Merger, the “Merger”), with Merger Sub II surviving the Second Merger and continuing (immediately following the Second Merger) as a wholly owned subsidiary of Diamondback (the “Surviving Company”). As a result of the Merger, Diamondback will acquire 100% of the equity interests in Endeavor (the “Endeavor Interests”).
If the Merger is completed, pursuant to and subject to the terms and conditions of the Merger Agreement, the Endeavor Interests will be converted into the right to receive, in the aggregate, (i) cash consideration of $8.0 billion, subject to adjustments according to the terms of the Merger Agreement (the “Cash Consideration”), and (ii) 117,267,069 shares of common stock, par value $0.01 per share of Diamondback (the “common stock” and such consideration, the “Common Stock Consideration” and together with the Cash Consideration, the “Merger Consideration”).
Immediately following the closing of the Merger and based on the estimated number of shares of common stock outstanding immediately prior to the execution of the Merger Agreement, we estimate that the existing Diamondback stockholders will own approximately 60.5% of the combined company, and holders of the Endeavor Interests will own approximately 39.5% of the combined company.
In connection with the Merger, you are cordially invited to a special meeting of stockholders of Diamondback (the “special meeting”), which will be held in person. At the special meeting, Diamondback stockholders will be asked to consider and vote upon (i) a proposal to approve the issuance of 117,267,069 shares of common stock in connection with the Merger (the “Stock Issuance” and such proposal, the “Stock Issuance Proposal”), (ii) a proposal to adopt an amendment to the Second Amended and Restated Certificate of Incorporation of Diamondback (the “Charter”) to increase the total number of authorized shares of common stock under the terms of the Charter from 400 million shares to 800 million shares of common stock (the “Charter Amendment” and such proposal, the “Charter Amendment Proposal”) and (iii) a proposal to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the Stock Issuance Proposal (the “Adjournment Proposal”).
For more information concerning the special meeting, the Merger Agreement and the transactions contemplated thereby, including the Merger, the Stock Issuance and the Charter Amendment, please review the accompanying proxy statement, the copy of the Merger Agreement attached as Annex A-1 to the proxy statement and the copy of the Letter Agreement, amending the Merger Agreement (the “Letter Agreement”), attached as Annex A-2 to this proxy statement.

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The Board of Directors of Diamondback (the “Board”), after considering the factors more fully described in the enclosed proxy statement, unanimously: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock.
The Board unanimously recommends a vote “FOR” the Stock Issuance Proposal, “FOR” the Charter Amendment Proposal and “FOR” the Adjournment Proposal.
Your vote is important. We cannot complete the Merger unless the Stock Issuance Proposal is approved by the holders of Diamondback common stock. Whether or not you plan to attend the special meeting and regardless of the number of shares of Diamondback common stock you own, your careful consideration and vote on the proposals to be presented at the special meeting is important, and we encourage you to vote promptly. The failure to vote will have the same effect as a vote AGAINSTthe Charter Amendment Proposal, but, assuming a quorum is present, will have no effect on the approval of the Stock Issuance Proposal or the Adjournment Proposal.
After reading the accompanying proxy statement, please make sure to vote your shares of common stock promptly (1) by completing, signing and dating the accompanying proxy card and returning it in the enclosed prepaid envelope, (2) by telephone or (3) through the internet by following the instructions on the accompanying proxy card. Instructions regarding all three methods of voting are provided on the proxy card. If you hold shares of common stock through an account with a bank, broker, trust or other nominee, please follow the instructions you receive from your bank, broker, trust or other nominee to vote your shares.
Your support of and interest in Diamondback is sincerely appreciated. We look forward to the successful combination of Diamondback and Endeavor.
 

 
 
 
Travis D. Stice
 
Chairman of the Board and Chief Executive Officer
Neither the United States Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the transactions described herein, or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is dated March 29, 2024 and is first being mailed to Diamondback stockholders on or about March 29, 2024.

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Diamondback Energy, Inc.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on April 26, 2024
Dear Diamondback Energy, Inc. Stockholders:
A special meeting of stockholders (the “special meeting”) of Diamondback Energy, Inc., a Delaware corporation (“Diamondback,” “we,” “us” or “our”), will be held in person on April 26, 2024, at 11:30 a.m. Central Time at Petroleum Club of Midland, 501 West Wall Street, Midland, TX 79701.
At the special meeting, you will be asked to consider and vote on the following proposals:
1.
Stock Issuance Proposal: To approve, for the purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of an aggregate of 117,267,069 shares of common stock, par value $0.01 per share of Diamondback (“common stock” and such proposal, the “Stock Issuance Proposal”);
2.
Charter Amendment Proposal: To adopt an amendment to the Second Amended and Restated Certificate of Incorporation of Diamondback (the “Charter”) to increase the total number of authorized shares of common stock under the terms of the Charter from 400 million shares to 800 million shares of common stock (the “Charter Amendment” and such proposal, the “Charter Amendment Proposal”); and
3.
Adjournment Proposal: To adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the Stock Issuance Proposal (the “Adjournment Proposal”).
Stockholders of record at the close of business on March 22, 2024 (the “record date”) are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof.
The Stock Issuance Proposal and the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by Diamondback stockholders at the special meeting, assuming a quorum is present. The Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock.
For more information concerning the special meeting, the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment, please review the accompanying proxy statement, the copy of the Merger Agreement attached as Annex A-1 to the proxy statement and the copy of the Letter Agreement, amending the Merger Agreement, attached as Annex A-2 to this proxy statement.
The Board carefully reviewed and considered the terms and conditions of the Merger Agreement, and the transactions contemplated thereby, including the Stock Issuance and the Charter Amendment. By a unanimous vote, the Board: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock.
The Board unanimously recommends that you vote “FOR” the Stock Issuance Proposal, “FOR” the Charter Amendment Proposal and “FOR” the Adjournment Proposal.

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To assure that your shares of common stock are represented at the special meeting, regardless of whether you plan to attend the special meeting, please fill in your vote, sign and mail the enclosed proxy card as soon as possible.
Alternatively, you may vote by telephone or through the internet. Instructions regarding each of the methods of voting are provided on the enclosed proxy card. Your proxy is being solicited by the board of directors of Diamondback.
If you have any questions about the Merger, the special meeting or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card, please write to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 100, Midland, TX 79701.
If you fail to return your proxy, vote by telephone or through the internet or attend the special meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the Charter Amendment Proposal, but, assuming a quorum is present, will have no effect on the approval of the Stock Issuance Proposal or the Adjournment Proposal.
 
By Order of the Board of Directors,
 
 
 

 
 
 
Matt Zmigrosky
Executive Vice President, Chief Legal and Administrative
Officer and Secretary
March 29, 2024
Midland, Texas
Please Vote—Your Vote is Important

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SUMMARY
This summary highlights certain information in this proxy statement but may not contain all of the information that may be important to you. You should carefully read the entire proxy statement and the attached Annexes and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about Diamondback Energy, Inc. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions in the section entitled “Where You Can Find More Information.”
The Parties (see page 31)
Diamondback Energy, Inc.
Diamondback Energy, Inc. is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Its activities are primarily focused on horizontal development of the Spraberry and Wolfcamp formations of the Midland Basin and the Wolfcamp and Bone Spring formations of the Delaware Basin, both of which are part of the larger Permian Basin in West Texas and New Mexico.
Diamondback’s principal executive offices are located at 500 West Texas Ave, Suite 100, Midland, TX 79701 and its telephone number is (432) 221-7400. Diamondback’s common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbol “FANG.”
For additional information about Diamondback and its subsidiaries, see the documents incorporated by reference in this proxy statement in the section entitled “Where You Can Find More Information.”
Eclipse Merger Sub I, LLC
Eclipse Merger Sub I, LLC, a Delaware limited liability company, is a direct, wholly owned subsidiary of Diamondback and was formed solely for the purpose of effecting the First Merger. It has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement. Its principal executive offices are located at c/o Diamondback Energy, Inc. 500 West Texas Ave, Suite 100, Midland, TX 79701 and its telephone number is (432) 221-7400.
Eclipse Merger Sub II, LLC
Eclipse Merger Sub II, LLC, a Delaware limited liability company, is a direct, wholly owned subsidiary of Diamondback and was formed solely for the purpose of effecting the Second Merger. It has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement. Its principal executive offices are located at c/o Diamondback Energy, Inc. 500 West Texas Ave, Suite 100, Midland, TX 79701 and its telephone number is (432) 221-7400.
Endeavor Parent, LLC
Endeavor Parent, LLC, a Texas limited liability company, is a privately held oil and natural gas company engaged in oil and liquids-rich natural gas acquisition, development, exploitation and exploration in the Permian Basin of West Texas. Endeavor’s core properties are located in the Midland Basin, a sub-basin of the Permian Basin, where it holds approximately 453,000 gross (345,000 net) acres, located almost entirely on state and private lands, as of December 31, 2023. The majority of Endeavor’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin, across primarily Midland, Martin, Howard, Glasscock, Upton and Reagan Counties, Texas.
Endeavor’s principal executive offices are located at 110 N. Marienfeld Street, Midland, TX 79701 and its telephone number is (432) 687-1575.
For more information about Endeavor, please see the section entitled “Description of Endeavor’s Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Endeavor.”
Endeavor Manager, LLC
Endeavor Manager, LLC, a Texas limited liability company, is the managing member of Endeavor Parent, LLC. Its principal executive offices are located at 110 N. Marienfeld Street, Midland, TX 79701 and its telephone number is (432) 687-1575.
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The Merger (see page 40 and Annex A-1 and Annex A-2)
The Merger will be effectuated in two steps. Subject to the terms and conditions set forth in the Merger Agreement, Merger Sub I will merge with and into Endeavor, with Endeavor surviving the First Merger and becoming a wholly owned subsidiary of Diamondback. Immediately following the First Merger, the First Surviving Company will merge with and into Merger Sub II, with Merger Sub II surviving the Second Merger and continuing (immediately following the Second Merger) as a wholly owned subsidiary of Diamondback. As a result of the Merger, Diamondback will acquire 100% of the Endeavor Interests.
If the Merger is completed, the aggregate consideration in exchange for the Endeavor Interests will be (i) $8.0 billion in cash, subject to adjustments in accordance with the terms of the Merger Agreement, and (ii) 117,267,069 shares of common stock. For additional information regarding the Merger Consideration, including information about the adjustments to the cash component, see the section entitled “The Merger Agreement—Merger Consideration.” For a copy of the Merger Agreement and the Letter Agreement, amending the Merger Agreement see Annex A-1 and Annex A-2, respectively.
Certain Effects of the Merger (see page 58)
The Merger will have the effects set forth in the Merger Agreement, the certificates of merger filed in connection with the closing of the Merger and in the relevant provisions of Texas and Delaware law. At the effective time of the First Merger (the “First Merger Effective Time”), all the property, rights, privileges, powers and franchises of each of Merger Sub I and Endeavor will vest in the First Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Merger Sub I and Endeavor will become the debts, liabilities, obligations, restrictions, disabilities and duties of the First Surviving Company. At the effective time of the Second Merger (“Merger Effective Time”), all the property, rights, privileges, powers and franchises of each of Merger Sub II and the First Surviving Company will vest in the Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Merger Sub II and the First Surviving Company will become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Company.
Consequences if the Merger is Not Completed (see page 59)
If approval of the Stock Issuance Proposal by Diamondback stockholders (the “Diamondback Stockholder Approval”) is not received, or if the Merger is not completed for any other reason, then the Merger Agreement may be terminated. In the event of a termination, the Merger Agreement will be void and have no effect, and there will not be any liability or obligation on the part of any party, except that:
no termination will relieve any party from liability for a material breach that is the consequence of an act or omission taken or omitted to be taken that the breaching party intentionally takes (or intentionally fails to take) with the knowledge that such act or omission would cause a material breach of an agreement or covenant (a “Willful and Material Breach”) or fraud;
no termination will affect the obligations of Diamondback and Endeavor contained in the confidentiality agreement between them; and
certain other provisions of the Merger Agreement, including provisions with respect to the allocation of fees and expenses, including, if applicable, the termination fee or expense reimbursement described in the summary under the heading “Termination Fees; Expenses” below, will survive such termination.
For additional information, see the section entitled “The Merger—Consequences if the Merger is Not Completed.”
The Special Meeting (see page 33)
The special meeting will be held in person on April 26, 2024, at 11:30 a.m. Central Time at Petroleum Club of Midland, 501 West Wall Street, Midland, TX 79701. At the special meeting, you will be asked to consider and vote upon the Stock Issuance Proposal, the Charter Amendment Proposal and the Adjournment Proposal.
Only holders of record of common stock as of the close of business on March 22, 2024, the record date for the special meeting, are entitled to notice of and to vote at the special meeting. You will be entitled to one vote on each of the proposals presented in this proxy statement for each share of common stock that you held as of the close of business on the record date.
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The presence at the special meeting, by attendance in person or by proxy, of the holders of shares of the outstanding common stock representing a majority of the voting power of all outstanding shares of common stock to vote at the special meeting constitutes a quorum. As of the record date, there were 178,339,978 shares of common stock outstanding.
The approval of the Stock Issuance Proposal by Diamondback stockholders is a condition to the completion of the Merger.
The Stock Issuance Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Stock Issuance Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Stock Issuance Proposal.
The Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock (meaning that of the outstanding shares of common stock, a majority of them must be voted “for” the proposal for it to be approved). Abstentions and failure to vote will have the same effect as a vote “AGAINST” the Charter Amendment Proposal.
The Adjournment Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Adjournment Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Adjournment Proposal.
For additional information, see the section entitled “The Special Meeting.”
How to Vote (see page 35)
Stockholders of record have a choice of voting by:
following the internet voting instructions described in the proxy card;
following the telephone voting instructions described in the proxy card;
completing, dating, signing and returning a proxy card in the accompanying postage-prepaid return envelope; or
attending, and casting their vote in person at the special meeting.
The telephone and internet voting facilities for stockholders of record will close at 11:59 p.m. Eastern Time (i.e. 10:59 p.m. Central Time) on the day immediately preceding the date of the special meeting. If you hold your shares beneficially through a bank or broker, you must provide a legal proxy from your bank or broker during registration and you will be assigned a virtual control number in order to vote your shares during the special meeting. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the special meeting (but will not be able to vote your shares) so long as you demonstrate proof of stock ownership.
You will need proof of ownership of the common stock as of the record date to attend the special meeting in person. If your shares of Diamondback common stock are in the name of your broker or bank or other nominee, you will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All Diamondback stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF DIAMONDBACK COMMON STOCK AS OF THE RECORD DATE, YOU MAY NOT BE ADMITTED INTO THE SPECIAL MEETING.
For additional information regarding the procedure for voting, see the sections entitled “The Special Meeting—How to Vote.”
Reasons for the Merger; Recommendations of the Board of Directors (see page 43)
The Board carefully reviewed and considered the terms and conditions of the Merger Agreement, and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment. By a unanimous vote, the Board: (i) determined that the Merger Agreement and the transactions contemplated thereby, including
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the Stock Issuance, and the Charter Amendment, are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock.
The Board unanimously recommends that you vote “FOR” the Stock Issuance Proposal, “FOR” the Charter Amendment Proposal and “FOR” the Adjournment Proposal.
For a discussion of the material factors considered by the Board in reaching its conclusions, see the section entitled “The Merger— Reasons for the Merger; Recommendations of the Board of Directors.”
Opinion of Diamondback’s Financial Advisor (see page 50 and Annex C)
The Board has received a written opinion of Jefferies LLC (“Jefferies”), dated February 11, 2024, to the effect that, as of such date, based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies as set forth in its opinion, the Merger Consideration to be paid by Diamondback pursuant to the Merger Agreement is fair, from a financial point of view, to Diamondback. A copy of such opinion has been provided to Endeavor and is attached as Annex C to this proxy statement.
The opinion rendered to the Board by Jefferies was based on economic, monetary, regulatory, market and other conditions then in effect, and certain financial forecasts and other information made available by or on behalf of Diamondback or that was publicly available to Jefferies, as of the date of the opinion. As a result, the opinion does not reflect changes in events or circumstances after the date of such opinion. Diamondback has not obtained, and does not expect to obtain, an updated fairness opinion from Jefferies reflecting changes in circumstances that may have occurred since the signing of the Merger Agreement.
For additional information, see the section entitled “The Merger—Opinion of Diamondback’s Financial Advisor.” See Annex C to this proxy statement for a copy of the written fairness opinion of Jefferies LLC.
Regulatory Approvals (see page 61)
The expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) relating to the transactions is a condition to the closing of the First Merger (the “Closing”). Diamondback and Endeavor each submitted the required notification and report forms under the HSR Act on February 26, 2024. Diamondback voluntarily withdrew its HSR Act notification and report form on March 27, 2024 and refiled it on March 28, 2024. Accordingly, the statutory waiting period under the HSR Act will be scheduled to expire at 11:59 p.m. Eastern Time on April 29, 2024. At any time before or after the date on which the First Merger closes (the “Closing Date”), the Antitrust Division of the Department of Justice (the “Antitrust Division”), the Federal Trade Commission (the “FTC”) or others could take action under the antitrust laws as deemed necessary or desirable in the public interest, including without limitation seeking to enjoin the completion of the Merger or to permit its completion only subject to regulatory concessions or conditions.
For additional information, see the sections entitled “The Merger—Regulatory Approvals” and “The Merger Agreement—Covenants and Agreements—Efforts to Complete the Merger.”
Conditions to the Merger (see page 67)
The obligations of each of Diamondback, the Merger Subs and Endeavor to complete the First Merger are subject to satisfaction of various conditions, including (i) approval of the Stock Issuance Proposal by Diamondback stockholders, (ii) the Diamondback common stock to be issued as Merger Consideration having been authorized for listing on Nasdaq, (iii) the expiration or termination of the waiting period under the HSR Act, (iv) the absence of any injunction, order, decree or law preventing, prohibiting or making illegal the consummation of the First Merger, (v) with respect to each party, (A) the accuracy of the other party’s representations and warranties, subject to specified materiality qualifications, (B) compliance by the other party
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with its covenants in the Merger Agreement in all material respects and (C) the absence of a “Material Adverse Effect” (as defined in the Merger Agreement) with respect to the other party since the date of the Merger Agreement that is continuing and (vi) in the case of Endeavor, the receipt of an opinion of tax counsel that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”).
For additional information, see the section entitled “The Merger Agreement—Conditions to the Merger.”
Financing (see page 60)
Diamondback anticipates that the total amount of funds necessary to satisfy its obligations under the Merger Agreement, including the payment of the Cash Consideration, fees and expenses, and for any repayment or refinancing of Endeavor’s indebtedness contemplated by the Merger Agreement (the “Obligations”) will be approximately $8.2 billion. Diamondback expects that these amounts will be funded through some or all of (i) the takeout facility (defined below), (ii) cash on hand and/or (iii) the proceeds that Diamondback intends to obtain from other financings or offerings of debt securities in lieu of borrowing under the bridge facility (as defined below).
To provide the debt financing to be used by Diamondback to consummate the Merger, Diamondback entered into:
a commitment letter dated February 11, 2024 (as amended from time to time, the “Bridge Commitment Letter”), under which Citigroup Global Markets Inc. (“Citi”) committed to provide $8,000,000,000 in aggregate principal amount of senior unsecured term bridge loans, the availability of which was and is subject to reduction upon the consummation of the Permanent Financing (as defined below) pursuant to the terms set forth in the Bridge Commitment Letter (the “bridge facility”). On February 29, 2024, Diamondback entered into the takeout facility and pursuant to the terms of the Bridge Commitment Letter, the commitments with respect to the bridge facility were reduced to $6,500,000,000 and certain other financing institutions joined thereto pursuant to the terms thereof. A portion of the debt financing previously committed to under bridge facility is instead committed to be provided under the takeout facility; and
a term loan credit agreement dated February 29, 2024, the loans and commitments to be provided thereunder (collectively, the “takeout facility”) and the related underlying documentation in respect thereof (the “New Credit Agreement”), with Citibank, N.A., as agent, and the other lenders party thereto, pursuant to which Diamondback has received commitments for the extension of a senior unsecured term loan in an aggregate principal amount not to exceed $1.5 billion, consisting of a 1 year, $1,000,000,000 tranche (“Tranche A”) and a 2 year, $500,000,000 tranche (“Tranche B”). The commitments under the takeout facility are subject to customary closing conditions. The borrower under the takeout facility is Diamondback E&P LLC, a subsidiary of Diamondback and Diamondback guarantees the takeout facility.
Diamondback intends to obtain additional financing or issue debt securities in lieu of utilizing the remaining portion of the bridge facility; however, there is no assurance that such alternative arrangements will be available on acceptable terms or at all. If the bridge facility is utilized, there can be no assurance that any replacement or supplemental financing in lieu of or to refinance the bridge facility will be available to Diamondback on acceptable terms or at all. Diamondback’s ability to obtain additional debt financing, including financing to refinance, replace or supplement the bridge facility, will be subject to various factors, including market conditions and operating performance.
The funding under either the Bridge Commitment Letter or the takeout facility, as applicable, is subject to customary closing conditions, including conditions that do not relate directly to the conditions to Closing in the Merger Agreement. The debt financing contemplated by the Bridge Commitment Letter is referred to in this proxy statement as the “Financing.”
Until the closing or the termination of the Merger Agreement, Diamondback has agreed to use its reasonable best efforts to take, or cause to be taken, all actions necessary, proper and advisable to obtain funds sufficient (when combined with other funds available to Diamondback) to satisfy the Obligations (any debt securities and/or other long-term debt financing incurred pursuant to such efforts, are referred to in this proxy statement as the “Permanent Financing”).
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For more information, see the section entitled “The Merger—Financing.”
No Solicitation (see page 76)
As more fully described in this proxy statement and in the Merger Agreement, each of Diamondback and Endeavor have mutually agreed to:
immediately cease and cause to be terminated all existing discussions and negotiations with any person conducted prior to entry into the Merger Agreement with respect to any acquisition proposal or potential acquisition proposal and immediately terminate all physical and electronic data room access or any other access to the properties, facilities, books and records of such party previously granted to any such person and such person’s representatives;
within two business days of entry into the Merger Agreement, request the prompt return or destruction of all confidential information furnished with respect to any possible acquisition proposal, during the twelve-month period prior to the date of the Merger Agreement, to the extent such return or destruction had not previously been requested, using its reasonable best efforts to ensure that such requests are complied with in accordance with the terms of such rights; and
not terminate, waive, amend, release or modify any provision of any confidentiality or standstill agreement to which it or any of its affiliates or representatives is a party with respect to any acquisition proposal or any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to any acquisition proposal, and to enforce the provisions of any such agreement, which includes, to the extent such party has knowledge of any breach of such agreement, the seeking of any injunctive relief available to enforce such agreement.
Each of Diamondback and Endeavor has also agreed that it will not, and will cause each of its subsidiaries and other respective representatives not to, directly or indirectly:
solicit, initiate, endorse or knowingly encourage or knowingly facilitate any inquiry, proposal or offer that constitutes or could reasonably lead to an acquisition proposal;
enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information or data with respect to, or otherwise cooperate in any way with, any acquisition proposal or any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to any acquisition proposal;
take any action to exempt any person from the restrictions on “business combinations” contained in Section 203 the General Corporation Law of the State of Delaware or any other applicable state takeover statute or otherwise cause such restrictions not to apply;
cause or permit itself or any of its subsidiaries to enter into, or publicly declare advisable or publicly propose to enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract, in each case constituting or related to any acquisition proposal (each, an “alternative acquisition agreement”); or
approve, authorize or publicly announce any intention to do any of the foregoing.
In addition, Diamondback has agreed to provide prompt notice to, and keep Endeavor apprised of, any acquisition proposals it receives prior to the receipt of the Diamondback Stockholder Approval.
An “acquisition proposal” means, with respect to Diamondback or Endeavor, as applicable, any proposal or offer from third party involving any direct or indirect acquisition or purchase or license, in one transaction or a series of transactions, and whether through any merger, reorganization, consolidation, tender offer, self-tender, exchange offer, stock acquisition, asset acquisition, binding share exchange, business combination, recapitalization, liquidation, dissolution, joint venture, licensing or similar transaction, or otherwise (except any transaction contemplated by the Merger Agreement) of:
20% or more of the consolidated assets of such party (based on the fair market value thereof);
the assets of such party and its subsidiaries accounting for 20% or more of its consolidated EBITDA (as defined in the Merger Agreement) during the prior 12 months; or
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20% or more of the capital stock or voting power of such party or any of its subsidiaries (except, in each case, for sales and dispositions of hydrocarbons made in the ordinary course of business consistent with past practice).
For additional information, see the section entitled “The Merger Agreement—Covenants and Agreements—No Solicitation.”
Change of Recommendation (see page 77)
Subject to the exceptions described below, the Board has agreed to recommend that Diamondback stockholders vote “FOR” the Stock Issuance Proposal.
Prior to obtaining the Diamondback Stockholder Approval, the Board may only change its recommendation that the Diamondback stockholders approve the Stock Issuance (an “adverse recommendation change”) (i) in connection with an acquisition proposal that constitutes a “superior proposal” or (ii) in response to an “intervening event.”
For additional information, see the section entitled “The Merger Agreement —Covenants and Agreements —Change of Recommendation.”
Change of Recommendation for a Superior Proposal
If, prior to the receipt of the Diamondback Stockholder Approval, Diamondback receives a bona fide written acquisition proposal that was not obtained in violation of its non-solicitation obligations and is expressly conditioned upon the non-consummation of the transactions contemplated by the Merger Agreement, and the Board determines in good faith (after consultation with its advisors) that such acquisition proposal constitutes a “superior proposal” and a failure to change its recommendation to stockholders would be a breach of its fiduciary duties, then the Board may make an adverse recommendation change, so long as Diamondback has first complied with certain terms of the Merger Agreement, including notifying Endeavor of its intent to make an adverse recommendation change and the reasons therefor, including the terms and conditions of, and the identity of the person making such superior proposal, and contemporaneously furnishing a copy (if any) of the proposed alternative acquisition agreement and any other relevant transaction documents to Endeavor, and negotiating with Endeavor in good faith regarding adjustments proposed by Endeavor to the terms of the Merger Agreement for a period of five business days.
A “superior proposal” means, any bona fide written acquisition proposal that did not result from a breach of Diamondback’s non-solicitation obligations under the Merger Agreement that the Board determines in good faith (after consultation with its advisors), taking into account all legal, financial, regulatory and other aspects of the proposal, including the terms of any financing or financing contingencies and the likely timing of closing, and the person making the proposal, is more favorable to Diamondback stockholders (solely in their capacity as such) from a financial point of view than the transactions contemplated by the Merger Agreement (including any binding adjustment to the terms and conditions proposed by Endeavor in writing in response to such proposal); provided, that, for purposes of the definition of “superior proposal,” references in the term “acquisition proposal” to “20% or more” are deemed to be references to “50% or more.”
Change of Recommendation for an Intervening Event
The Board may make an adverse recommendation change if, prior to the receipt of the Diamondback Stockholder Approval, the Board determines that an intervening event has occurred, so long as Diamondback has first complied with certain terms of the Merger Agreement, including notifying Endeavor of its intent and negotiating with Endeavor in good faith regarding adjustments proposed by Endeavor to the terms of the Merger Agreement for a period of five business days.
An “intervening event” means, a material event, fact, circumstance, development or circumstance that was not known or reasonably foreseeable to the Board prior to the execution of the Merger Agreement (or if known, the consequences of which were not known or reasonably foreseeable), which event, fact, circumstance, development or circumstance, or any material consequence thereof, becomes known to the Board, prior to the receipt of the Diamondback Stockholder Approval that does not relate to (i) an acquisition proposal, (ii) changes in the price of the common stock or debt securities issued by Endeavor, (iii) failure to meet internal or published
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financial or operating projections, estimates or expectations or (iv) any event, change, circumstance, development, condition, occurrence or effect with respect to Endeavor that does not amount to an Endeavor Material Adverse Effect.
In any case, if Diamondback provides a notice of a superior proposal or an intervening event to Endeavor on a date that is less than ten business days before the special meeting, Diamondback has agreed to either proceed with or postpone the special meeting as directed by Endeavor (acting reasonably) to a date determined by Endeavor that is not more than ten business days after the originally scheduled date of the special meeting. However, the special meeting may not be postponed to a date which would prevent the Merger Effective Time from occurring on or prior to the Outside Date (as defined in this proxy statement).
For additional information, see the section entitled “The Merger Agreement—Covenants and Agreements—Change of Recommendation.”
Employee Benefits Matters (see page 82)
Under the Merger Agreement, each of Diamondback and Endeavor have agreed to take certain actions with respect to the employee benefit matters.
Diamondback has agreed to, among other things:
for a period of at least one year following the First Merger Effective Time, each individual who is employed by Endeavor immediately prior to the First Merger Effective Time and continues employment with the Surviving Company or its subsidiaries as of the Closing Date (each an “Endeavor employee”), provide base salary and wages no less favorable than those in effect prior to the Merger and health, paid time off, retirement benefits and incentive compensation opportunities comparable to similarly situated Diamondback employees;
take into account prior years of service of Endeavor employees for purposes of determining their eligibility and entitlements under Diamondback’s benefit plans;
waive conditions under Diamondback’s benefit plans for Endeavor employees to the extent such waivers were granted under a comparable Endeavor benefit plan prior to the Merger;
give full credit to certain payments and deductibles under Diamondback’s benefit plans to the extent they were satisfied in the plan year in which the Merger takes place;
facilitate 401(k) plan rollover distributions for Endeavor employees; and
cause all preexisting employment, severance, change in control and other agreements (if any) with employees of Endeavor to continue and all obligations thereunder to be honored.
Endeavor has agreed to, among other things:
terminate its existing 401(k) plan, subject to Diamondback’s review of the documents facilitating such termination; and
take certain actions in connection with Section 280G of the Code, subject to Diamondback’s review of the documents related to those actions.
For additional information, see the section entitled “The Merger Agreement—Covenants and Agreements—Employee Benefits Matters.”
Termination of the Merger Agreement (see page 68)
The Merger Agreement may be terminated at any time prior to the First Merger Effective Time (with any termination by Diamondback also being an effective termination by the Merger Subs):
by mutual written consent of Diamondback and Endeavor;
by either Diamondback or Endeavor:
if the First Merger is not consummated on or before February 11, 2025 (the “Outside Date”), subject to two 3-month extensions if all conditions to the consummation of the Merger have been satisfied except the receipt of antitrust approvals;
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if any governmental entity having competent jurisdiction has issued an order restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the Merger Agreement, and such order has become final and nonappealable;
if the other party has breached or failed to perform any of its representations, warranties, covenants or agreements set forth in the Merger Agreement (other than with respect to a breach of Diamondback’s non-solicitation covenants), with such beach resulting in the failure of a condition to the completion of the Merger that cannot be or has not been cured by earlier of the Outside Date or 30 days after the giving of written notice to the breaching party of such failure or breach; or
if the Diamondback Stockholder Approval is not obtained at the special meeting or at any adjournment or postponement thereof.
By Endeavor, if at any time prior to the receipt of the Diamondback Stockholder Approval:
the Board has made an adverse recommendation change; or
Diamondback has materially breached its non-solicitation obligations under the Merger Agreement (other than in the case where such breach is a result of an isolated action by a person that is a representative of Diamondback who was not acting at the direction or request of Diamondback).
For additional information, see the section entitled “The Merger Agreement—Termination of the Merger Agreement.”
Termination Fees; Expenses (see page 70)
Diamondback is required to pay Endeavor a termination fee of $1,400,000,000 if the Merger Agreement is terminated by (i) Endeavor because the Board has made an adverse recommendation change or (ii) if either party terminates the Merger Agreement because of the failure to receive the Diamondback Stockholder Approval and, immediately prior to the failed vote, Endeavor would have been entitled to terminate the Merger Agreement because the Board had made an adverse recommendation change. If the Merger Agreement is terminated under certain specified circumstances and, within 12 months following such termination, Diamondback consummates or enters into an alternative transaction, Diamondback is required to pay the termination fee to Endeavor. Additionally, if the Merger Agreement is terminated because the of the failure to receive the Diamondback Stockholder Approval and the termination fee is not payable in connection with such termination, Diamondback will be required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260,000,000. The payment of this reimbursement expense will be credited against any termination fee that is subsequently payable by Diamondback.
These payments are Endeavor’s sole and exclusive remedy, except in the case of a Willful and Material Breach or fraud, for any claims arising out of the Merger Agreement, together with any costs and expenses incurred by Endeavor in enforcing payment of such payments. In no event will Diamondback be required to pay to Endeavor more than one termination fee. For additional information, see the section entitled “The Merger Agreement—Termination Fees.”
Stockholders Agreement (see page 87 and Annex B)
In connection with, and as a condition to, the Closing, Diamondback will enter into a Stockholders Agreement (the “Stockholders Agreement”) with the holders of the Endeavor Interests who will be receiving the Common Stock Consideration (the “Endeavor Stockholders”). The Stockholders Agreement will provide the Endeavor Stockholders with the right to propose for nomination four directors for election to the Board if they beneficially own at least 25% of the outstanding shares of our common stock, two directors if they beneficially own at least 20% but less than 25% of the outstanding shares of our common stock and one director if they beneficially own at least 10% but less than 20% of the outstanding shares of our common stock, in each case subject to certain qualification requirements for such directors.
The Endeavor Stockholders will also be subject to certain standstill, voting and transfer restrictions under the Stockholders Agreement, and Diamondback will be restricted from taking certain limited actions without the consent of the holders of a majority of the shares of its common stock held by the Endeavor Stockholders. The Stockholders Agreement will also provide the Endeavor Stockholders with certain shelf, demand and piggyback registration rights, including that, if not previously filed, Diamondback will file a shelf registration statement to cover the resale of the shares of common stock issued to the Endeavor Stockholders as Common Stock Consideration.
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For additional information, see the section entitled “The Stockholders Agreement.” For a copy of the form of the Stockholders Agreement, see Annex B. Descriptions in this proxy statement of the Stockholders Agreement refer to the form of Stockholders Agreement as amended and restated pursuant to the terms of the Letter Agreement, amending the Merger Agreement, dated March 18, 2024, by and among the parties to the Merger Agreement.
Board of Directors Following the Merger (see page 59)
Prior to the Closing Date, Diamondback is required to take all necessary actions to cause four individuals mutually agreed by Diamondback and Endeavor in writing prior to the Closing (with any replacement thereto similarly mutually agreed) to be appointed to the Board immediately following the Merger Effective Time. As of the date of this proxy statement, Charles Meloy and Lance Robertson are expected to be designated as two of the new directors and the parties have not determined the identity of the other two directors.
The Stockholders Agreement will provide the Endeavor Stockholders with the right to propose for nomination four directors for election to the Board if they beneficially own at least 25% of the outstanding shares of our common stock, two directors if they beneficially own at least 20% but less than 25% of the outstanding shares of our common stock, and one director if they beneficially own at least 10% but less than 20% of the outstanding shares of our common Stock, in each case subject to certain qualification requirements for such directors.
For additional information, see the sections entitled “The Merger—Board of Directors Following the Merger” and “The Stockholders Agreement.”
Risk Factors (see page 22)
You should consider carefully all the risk factors together with all of the other information included in this proxy statement before deciding your vote on the proposals. Some of these risks include, but are not limited to, those described in the section entitled “Risk Factors.” Please carefully read this proxy statement, the documents incorporated by reference herein and any documents to which you are referred.
For additional information, see the sections entitled “Risk Factors” and “Where You Can Find More Information.”
Legal Proceedings (see page 62)
On February 28, 2024, Plymouth County Retirement Association and Kenneth Webb, purported stockholders of Diamondback, filed a purported class action complaint in the Court of Chancery of the State of Delaware, captioned Plymouth County Retirement Association and Kenneth Webb v. Travis Stice et al., Docket No. 2024-0183 (the “Webb Action”), against Diamondback and the Board. The Webb Action alleged, among other things, that the Board breached its fiduciary duties to Diamondback stockholders by approving the Stockholders Agreement. As a result of the amendment to the Merger Agreement entered into on March 18, 2024, which amends and restates the form of Stockholders Agreement, the plaintiffs agreed to dismiss the Webb Action. The Webb Action was dismissed as moot on March 25, 2024.
On March 28, 2024, a purported Diamondback stockholder sent a demand letter alleging deficiencies and/or omissions in the preliminary proxy statement Diamondback filed on March 19, 2024. The demand letter seeks additional disclosures to remedy these purported deficiencies. Diamondback believes that the allegations in the letter are without merit.
As of March 28, 2024, Diamondback was not aware of the filing of other lawsuits challenging the Merger Agreement, the Stockholders Agreement, the transactions contemplated thereby or the proxy statement; however, Diamondback may become subject to other lawsuits in the future relating to such matters. See the section entitled “Risk Factors” for additional information and risks regarding any such potential litigation.
Additional Information (see page 36)
You can find more information about Diamondback in the periodic reports and other information Diamondback files with the U.S. Securities and Exchange Commission (the “SEC”). The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov. For additional information, see the section entitled “Where You Can Find More Information.”
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
The following questions and answers are intended to briefly address some commonly asked questions regarding the special meeting and the matters that are the subject of the special meeting. These questions and answers do not address all questions that may be important to you as a Diamondback stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the Annexes to this proxy statement and the documents referred to in this proxy statement.
Q:
Why am I receiving this proxy statement?
A:
Diamondback is holding the special meeting so that Diamondback stockholders may consider and vote upon the Stock Issuance Proposal, which is needed to complete the Merger in accordance with the terms of the Merger Agreement, and certain other related proposals. Information about the special meeting, the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance and the Charter Amendment is contained in this proxy statement.
Q:
What is the Merger?
A:
On February 11, 2024, Diamondback entered into the Merger Agreement, which was amended on March 18, 2024, with the Merger Subs, the Company Representative (solely for purposes of certain sections set forth therein) and Endeavor. Subject to the terms and conditions set forth in the Merger Agreement, Diamondback will acquire 100% of the Endeavor Interests by (i) the merger of Merger Sub I with and into Endeavor, with Endeavor surviving the First Merger and becoming a wholly owned subsidiary of Diamondback, and (ii), immediately following the First Merger, the merger of the First Surviving Company with and into Merger Sub II, with Merger Sub II surviving the Second Merger and continuing (immediately following the Second Merger) as a wholly owned subsidiary of Diamondback.
The Merger Agreement and the Letter Agreement, amending the Merger Agreement, are attached to this proxy statement as Annex A-1 and Annex A-2, respectively. For a more complete discussion of the Merger, its effects and the other transactions contemplated by the Merger Agreement, see the sections entitled “The Merger” and “The Merger Agreement.”
Q:
What consideration will Diamondback be required to provide in the Merger?
A:
If the Merger is completed, the aggregate consideration in exchange for the Endeavor Interests will be (i) $8.0 billion in cash, subject to adjustments in accordance with the terms of the Merger Agreement, and (ii) 117,267,069 shares of common stock.
Q:
How will Diamondback pay the Cash Consideration?
A:
Diamondback’s obligation to complete the Merger is not conditioned upon obtaining financing. The Cash Consideration will be funded through a combination of cash on hand, borrowings under Diamondback’s existing credit facility and/or proceeds from term loans and senior notes offerings. For further information, see the section entitled “The Merger—Financing.”
Q:
What equity stake will the holders of the Endeavor Interests have in Diamondback immediately following the Merger?
A:
Based upon the estimated number of shares of Diamondback common stock outstanding immediately prior to the execution of the Merger Agreement, we estimate that the holders of the Endeavor Interests will own approximately 39.5% of the outstanding shares of common stock following the Merger.
Q:
When and where will the special meeting be held?
A:
The special meeting will be held in person on April 26, 2024, at 11:30 a.m. Central Time at Petroleum Club of Midland, 501 West Wall Street, Midland, TX 79701.
Q:
Who is entitled to vote at the special meeting?
A:
Only holders of record of our common stock as of the close of business on the record date for the special meeting are entitled to notice of and to vote at the special meeting. You will be entitled to one vote on each of the proposals presented in this proxy statement for each share of common stock that you held as of the close of business on the record date. The record date for the special meeting is March 22, 2024.
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Q:
What proposals will be considered at the special meeting?
A:
At the special meeting, you will be asked to consider and vote on:
a proposal to approve the Stock Issuance, authorizing Diamondback to issue 117,267,069 shares of common stock in connection with the Merger;
a proposal to adopt the Charter Amendment, authorizing Diamondback to file an amendment to the Charter to increase the total number of authorized shares of common stock from 400 million shares to 800 million shares of common stock;
a proposal to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the Stock Issuance Proposal.
Q:
Why is Diamondback seeking stockholder approval for the Stock Issuance?
A:
Because our common stock is listed on Nasdaq, we are subject to Nasdaq rules.
Rule 5635(a) of the Nasdaq rules requires stockholder approval with respect to issuances of common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of common stock before the issuance. Rule 5635(b) of the Nasdaq rules also requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock or voting power of an issuer could constitute a change of control.
Diamondback expects to issue 117,267,069 shares of common stock in the Stock Issuance, which will represent greater than 20% of its outstanding shares of common stock and outstanding voting power.
Accordingly, Diamondback is seeking stockholder approval for the Stock Issuance for the purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635.
The approval by Diamondback stockholders of the Stock Issuance is a condition to the completion of the Merger. If the Stock Issuance is not approved, either Diamondback or Endeavor may terminate the Merger Agreement and the Merger cannot be completed, which may have an adverse effect on our business and financial condition. Under certain circumstances, if the Merger is not completed, we may be obligated to pay a termination fee of $1,400,000,000. If the Merger Agreement is terminated because Diamondback’s stockholders fail to approve the Stock Issuance and the termination fee is not payable in connection with such termination, Diamondback will be required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260,000,000.
Q:
Are there any risks I should consider when deciding on my vote for the Stock Issuance Proposal?
A:
Yes, there are a number of risks associated with the Stock Issuance. Since the Stock Issuance will be made in connection with the Merger, you should consider the risks associated with the Merger and each of Diamondback and Endeavor. For a detailed description of the risks you should consider, please see the section entitled “Risk Factors.” In addition, please see the section entitled “Where You Can Find More Information” to find additional Diamondback filings which are incorporated by reference into this proxy statement and may contain additional risk factors for your consideration.
Q:
Why is Diamondback seeking stockholder approval for the Charter Amendment?
A:
Given that the Stock Issuance would result in the issuance of a significant number of shares of common stock, the Board believes that the increased number of authorized shares of common stock contemplated by the Charter Amendment is important to the combined company in order for additional shares to be available for issuance from time to time if needed for such corporate purposes as may be determined by the Board, without further action or authorization by Diamondback stockholders (except as required by applicable law or Nasdaq rules). The additional 400 million shares of common stock authorized would be a part of the existing class of common stock and, if issued, would have the same rights and privileges as the shares of common stock presently issued and outstanding.
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Q:
What vote is required to approve each of the proposals?
A:
The Stock Issuance Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Stock Issuance Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Stock Issuance Proposal.
The Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock (meaning that of the outstanding shares of common stock, a majority of them must be voted “for” the proposal for it to be approved). Abstentions and failure to vote will have the same effect as a vote “AGAINST” the Charter Amendment Proposal.
The Adjournment Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Adjournment Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Adjournment Proposal.
Q:
How does the Board recommend that I vote on the proposals?
A:
The Board carefully reviewed and considered the terms and conditions of the Merger Agreement, and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment. By a unanimous vote, the Board: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock.
The Board unanimously recommends that you vote “FOR” the Stock Issuance Proposal, “FOR” the Charter Amendment Proposal and “FOR” the Adjournment Proposal.
For a discussion of the material factors considered by the Board in reaching its conclusions, see the section entitled “The Merger— Diamondback’s Reasons for the Merger; Recommendations of the Diamondback Board of Directors.”
Q:
How important is my vote?
A:
Your vote is very important. The approval by Diamondback’s stockholders of the Stock Issuance is a condition to the completion of the Merger. If the Stock Issuance is not approved, either Diamondback or Endeavor may terminate the Merger Agreement and the Merger cannot be completed, which may have an adverse effect on our business and financial condition. Under certain circumstances, if the Merger is not completed, we may be obligated to pay a termination fee of $1,400,000,000. If the Merger Agreement is terminated because Diamondback’s stockholders fail to approve the Stock Issuance and the termination fee is not payable in connection with such termination, Diamondback will still be required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260,000,000.
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Q:
Do I need to attend the special meeting?
A:
No. It is not necessary for you to attend the special meeting in person in order to vote your shares of common stock. If you are a stockholder of record as of the record date, you may vote by mail, by telephone or through the internet, as described in more detail below. If you are a “street name” holder of shares, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee for your shares to be voted at the special meeting, as described in more detail below.
EVEN IF YOU INTEND TO ATTEND THE SPECIAL MEETING IN PERSON, THE BOARD STRONGLY ENCOURAGES YOU TO VOTE IN ADVANCE BY MAIL, TELEPHONE OR THROUGH THE INTERNET TO ENSURE YOUR SHARES OF COMMON STOCK ARE REPRESENTED AT THE SPECIAL MEETING.
Q:
How many shares of common stock need to be represented at the special meeting?
A:
The presence at the special meeting, by attendance in person or by proxy, of the holders of shares of the outstanding common stock representing a majority of the voting power of all outstanding shares of common stock to vote at the special meeting constitutes a quorum. As of the record date, there were 178,339,978 shares of common stock outstanding.
If you are a Diamondback stockholder as of the close of business on the record date and you vote by mail, by telephone, through the internet or in person at the special meeting, you will be considered part of the quorum. If you are a “street name” holder of shares of common stock and you provide your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares of common stock and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted in determining the presence of a quorum.
All shares of common stock held by stockholders that attend the special meeting in person, or are represented by proxy, and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders have indicated on their proxy that they are abstaining from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.
Q:
What do I need to do now?
A:
After carefully reading and considering the information contained in this proxy statement and the Annexes attached to this proxy statement, as well as any documents incorporated by reference into this proxy statement, please vote your shares of common stock in one of the ways described below as soon as possible. You will be entitled to one vote for each share of common stock that you owned on the record date.
Q:
How do I vote if I am a stockholder of record?
A:
You may vote by:
following the internet voting instructions described in the proxy card;
following the telephone voting instructions described in the proxy card;
completing, dating, signing and returning a proxy card in the accompanying postage-prepaid return envelope; or
attending, and casting your vote in person at the special meeting.
If you are submitting your proxy by telephone or through the internet, your voting instructions must be received by 11:59 p.m. Eastern Time (i.e 10:59 p.m. Central Time) on the day immediately preceding the date of the special meeting.
Submitting your proxy by mail, by telephone or through the internet will not prevent you from attending the special meeting in person. You are encouraged to submit a proxy by mail, by telephone or through the internet even if you plan to attend the special meeting in person to ensure that your shares of common stock are represented at the special meeting.
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Q:
Are there any requirements if I plan on attending the special meeting in person?
A:
You will need proof of ownership of the common stock as of the record date to attend the special meeting in person. If your shares of Diamondback common stock are in the name of your broker or bank or other nominee, you will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All Diamondback stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF DIAMONDBACK COMMON STOCK AS OF THE RECORD DATE, YOU MAY NOT BE ADMITTED INTO THE SPECIAL MEETING.
Q:
What happens if I submit my proxy but I don’t indicate my vote on the proposals?
A:
If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Stock Issuance Proposal, “FOR” the Charter Amendment Proposal and “FOR” the Adjournment Proposal.
Q:
How many of my shares will be voted if I submit a proxy?
A:
If you a submit a proxy, all of the shares of common stock you own as of the record date in the registered account represented by that proxy will be voted per your instructions.
Q:
What does it mean if I receive more than one proxy card?
A:
If you receive more than one proxy card, it means that you hold shares of common stock that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares of common stock are voted, you will need to submit your proxies by mailing in each proxy card you receive or by telephone or through the internet by using the different voter control number(s) on each proxy card.
Q:
Who will solicit and pay the cost of soliciting proxies in connection with the special meeting?
A:
Diamondback is paying the cost of printing and mailing proxy materials. In addition to the solicitation of proxies by mail, solicitation may be made by our directors, officers and other associates by personal interview, telephone, facsimile or electronic mail. No additional compensation will be paid to these persons for solicitation. At this time we have not engaged a proxy solicitor. If we do engage a proxy solicitor, we will pay the customary costs associated with such engagement. We will reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation materials to beneficial owners of our common stock.
Q:
If my shares are held for me by a bank, broker, trust or other nominee, will my bank, broker, trust or other nominee vote those shares for me with respect to the proposals?
A:
Your bank, broker, trust or other nominee will NOT have the power to vote your shares of common stock at the special meeting unless you provide instructions to your bank, broker, trust or other nominee on how to vote. You should instruct your bank, broker, trust or other nominee on how to vote your shares with respect to the proposals, using the instructions provided by your bank, broker, trust or other nominee. You may be able to vote by telephone or through the internet if your bank, broker, trust or other nominee offers these options.
Q:
What if I fail to instruct my bank, broker, trust or other nominee how to vote?
A:
Brokers who hold shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters determined to be “non-routine” without specific instructions from the beneficial owner. As a result, there will not be any broker non-votes at the special meeting.
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Q:
May I change my vote after I have mailed my proxy card or after I have submitted my proxy by telephone or through the internet?
A:
Yes. You may revoke your proxy or change your vote at any time before it is voted at the special meeting. You may revoke your proxy by delivering a signed written notice of revocation stating that the proxy is revoked and bearing a date later than the date of the proxy delivered to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 100, Midland, TX 79701. You may also revoke your proxy or change your vote by submitting another proxy by telephone or through the internet in accordance with the instructions on the enclosed proxy card. You may also submit a later-dated proxy card relating to the same shares of common stock. If you voted by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy or change your vote by telephone or through the internet. Alternatively, your proxy may be revoked or changed by attending the special meeting in person and voting at the special meeting. However, simply attending the special meeting without voting will not revoke or change your proxy.
“Street name” holders of shares of common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies. If you have instructed a bank, broker, trust or other nominee to vote your shares of common stock, you must follow the instructions received from your bank, broker, trust or other nominee to change your vote.
All properly submitted proxies received by us before the special meeting that are not revoked or changed prior to being exercised at the special meeting will be voted at the special meeting in accordance with the instructions indicated on the proxies or, if no instructions were provided, “FOR” each of the proposals.
Q:
Where can I find the results of voting at the special meeting?
A:
Following the special meeting, Diamondback intends to promptly file a Current Report on Form 8-K with the SEC disclosing the voting results of the special meeting no later than four business days after the date of the special meeting. When filed, this 8-K will be available at www.sec.gov and on Diamondback’s website at www.diamondbackenergy.com/investors.
Q:
What is householding and how does it affect me?
A:
The SEC permits companies to send a single set of certain disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the special meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. If your family has multiple accounts holding shares of common stock, you may have already received a householding notification. For additional information, see the section entitled “Householding of Proxy Material.”
Q:
What happens if I sell my shares of common stock before the special meeting?
A:
The record date for the special meeting is earlier than the expected date of completion of the Merger. If you own shares of common stock as of the close of business on the record date but transfer your shares prior to the special meeting, you will retain your right to vote at the special meeting.
Q:
Who will own Diamondback immediately following the Merger?
A:
Based upon the estimated number of shares of common stock outstanding immediately prior to the execution of the Merger Agreement, the current Diamondback stockholders are expected to own approximately 60.5% of Diamondback following the Merger, whereas the holders of the Endeavor Interests are expect to own approximately 39.5% of Diamondback following the Merger.
Q:
What do the Merger Agreement and Stockholders Agreement provide with respect to the composition of the board of directors of Diamondback following completion of the Merger?
A:
Prior to the Closing Date, Diamondback is required to take all necessary actions to cause four individuals mutually agreed by Diamondback and Endeavor in writing prior to the Closing (with any replacement
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thereto similarly mutually agreed) to be appointed to the Board immediately following the Merger Effective Time. As of the date of this proxy statement, Charles Meloy and Lance Robertson are expected to be designated as two of the new directors and the parties have not determined the identity of the other two directors.
The Stockholders Agreement will provide the Endeavor Stockholders with the right to propose for nomination four directors for election to the Board if they beneficially own at least 25% of the outstanding shares of our common stock, two directors if they beneficially own at least 20% but less than 25% of the outstanding shares of our common stock, and one director if they beneficially own at least 10% but less than 20% of the outstanding shares of our common Stock, in each case subject to certain qualification requirements for such directors.
Q:
What will happen to my shares of common stock in connection with the Merger?
A:
The Merger will have no direct effect on your ownership of your shares of common stock. If you hold your shares of common stock through the Merger, you will continue to hold the same number of shares with the same rights and privileges as your shares presently issued and outstanding.
Q:
When is the Merger expected to be completed?
A:
We are working toward completing the Merger as quickly as possible. We currently anticipate that the Merger will be completed in the fourth quarter of 2024, but we cannot be certain when or if the conditions to the Merger will be satisfied or, to the extent permitted, waived. The Merger cannot be completed until the conditions set forth in the Merger Agreement are satisfied (or, to the extent permitted, waived).
Q:
What are the conditions to completion of the Merger?
A:
The obligations of each of Diamondback, the Merger Subs and Endeavor to complete the Merger are subject to satisfaction of various conditions, including (i) the receipt of the Diamondback Stockholder Approval, (ii) the Diamondback common stock to be issued as Merger Consideration having been authorized for listing on Nasdaq, (iii) the expiration or termination of the waiting period under the HSR Act, (iv) the absence of any injunction, order, decree or law preventing, prohibiting or making illegal the consummation of the First Merger, (v) with respect to each party, (A) the accuracy of the other party’s representations and warranties, subject to specified materiality qualifications, (B) compliance by the other party with its covenants in the Merger Agreement in all material respects and (C) the absence of a “Material Adverse Effect” (as defined in the Merger Agreement) with respect to the other party since the date of the Merger Agreement that is continuing and (vi) in the case of Endeavor, the receipt of an opinion of tax counsel that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
Q:
What happens if the Merger is not completed?
A:
If the Merger is not completed, the Merger Agreement may be terminated, in which case it will be void and have no effect, and there will not be any liability or obligation on the part of any party, except that:
no termination will relieve any party from liability for a Willful and Material Breach or fraud;
no termination will affect the obligations of Diamondback and Endeavor contained in the confidentiality agreement between them; and
certain other provisions of the Merger Agreement, including provisions with respect to the allocation of fees and expenses, including, if applicable, the termination fee or expense reimbursement, will survive such termination.
We expect that our management will operate our business in a manner similar to that in which it is being operated today and that holders of shares of common stock will continue to be subject to the same risks and opportunities to which they are currently subject with respect to their ownership of common stock, in addition to any described in the section entitled “Risk Factors.”
Q:
Do Diamondback stockholders have appraisal rights or dissenters’ rights in connection with the Merger or Stock Issuance?
A:
No. Diamondback stockholders are not entitled to any appraisal or dissenters’ rights in connection with the Merger or the Stock Issuance under Delaware law.
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Q:
Where can I find more information about Diamondback?
A:
Diamondback files periodic reports, proxy statements and other information with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov. For a more detailed description of the information available, see the section entitled “Where You Can Find More Information.”
Q:
Where can I find more information about Endeavor?
A:
Endeavor is the parent entity of, and conducts its operation through, Endeavor Energy Resources, L.P. (“Endeavor LP”). You can find more information about Endeavor LP on its website at www.endeavorenergylp.com. The information on such website is not incorporated by reference into this proxy statement.
Q:
Who can help answer my questions?
A:
For additional questions about the special meeting, assistance in submitting proxies or voting shares of common stock, or additional copies of this proxy statement or the enclosed proxy card, please write to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 100, Midland, TX 79701.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this proxy statement constitutes “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”), which involve risks, uncertainties, and assumptions. All statements, other than statements of historical fact, including statements regarding our: future performance; business strategy; future operations (including drilling plans and capital plans); estimates and projections of revenues, losses, costs, expenses, returns, cash flow, and financial position; reserve estimates and our ability to replace or increase reserves; anticipated timing, objectives and benefits of the Merger and other strategic transactions (including acquisitions and divestitures); and plans and objectives of management (including plans for future cash flow from operations and for executing environmental strategies) are forward-looking statements. When used in this report, the words “aim,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “model,” “outlook,” “plan,” “positioned,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” and similar expressions (including the negative of such terms) as they relate to Diamondback are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Although we believe that the expectations and assumptions reflected in our forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond our control. Accordingly, forward-looking statements are not guarantees of future performance and our actual outcomes could differ materially from what we have expressed in our forward-looking statements. Factors that could cause our actual results to differ materially from these forward-looking statements may include, without limitation:
the risk that the Merger is not completed on anticipated terms and timing or at all (including because of the risks associated with obtaining the Diamondback Stockholder Approval, regulatory approval and satisfying other conditions to the completion of the Merger);
uncertainties as to whether the Merger, if consummated, will achieve its anticipated benefits and projected synergies within the expected time period or at all;
Diamondback’s ability to integrate Endeavor’s operations in a successful manner and in the expected time period;
the occurrence of any event, change, or other circumstance that could give rise to the termination of the Merger Agreement;
risks that the anticipated tax treatment of the Merger is not obtained;
unforeseen or unknown liabilities, future capital expenditures and potential litigation relating to the Merger;
the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
the effect of the announcement, pendency, or completion of the Merger on Diamondback’s or Endeavor’s business relationships and business generally;
risks that the Merger disrupts Diamondback’s current plans and operations of those of Diamondback’s management team;
potential difficulties in retaining employees as a result of the Merger;
risks related to Diamondback’s financing of the Merger;
potential negative effects of the announcement, pendency or completion of the Merger on the market price of the common stock and/or Diamondback’s operating results;
the potential dilution of the combined company’s earnings per share as a result of the Merger;
the dilution of Diamondback’s stockholders’ ownership percentage of the combined company as compared to their ownership percentage prior to the Merger;
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the possibility that the combined company’s results of operations, cash flows and financial position after the Merger may differ materially from the unaudited pro forma combined financial information or prospective financial information contained in this proxy statement;
the uncertainty surrounding the final value of the cash consideration to be paid by Diamondback in connection with the Merger;
risks associated with the influence of the Endeavor Stockholders over the management and board of Diamondback following the Merger;
changes in supply and demand levels for oil, natural gas, and natural gas liquids, and the resulting impact on the price for those commodities;
the impact of public health crises, including epidemic or pandemic diseases and any related company or government policies or actions;
actions taken by the members of OPEC and Russia affecting the production and pricing of oil, as well as other domestic and global political, economic or diplomatic developments;
changes in general economic, business or industry conditions, including changes in foreign currency exchange rates interest rates, and inflation rates, instability in the financial sector and concerns over a potential economic downturn or recession;
regional supply and demand factors, including delays, curtailment delays or interruptions of production, or governmental orders, rules or regulations that impose production limits;
federal and state legislative and regulatory initiatives relating to hydraulic fracturing, including the effect of existing and future laws and governmental regulations;
physical and transition risks relating to climate change;
restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the Texas Railroad Commission in an effort to control induced seismicity in the Permian Basin;
significant declines in prices for oil, natural gas, or natural gas liquids, which could (among other things) require recognition of significant impairment charges;
changes in U.S. energy, environmental, monetary and trade policies;
conditions in the capital, financial and credit markets, including the availability and pricing of capital for drilling and development operations and our environmental and social responsibility projects;
challenges with employee retention and an increasingly competitive labor market;
changes in availability or cost of rigs, equipment, raw materials, supplies and oilfield services;
changes in safety, health, environmental, tax and other regulations or requirements (including those addressing air emissions, water management or the impact of global climate change);
security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, or from breaches of information technology systems of third parties with whom we transact business;
lack of, or disruption in, access to adequate and reliable transportation, processing, storage and other facilities for our oil, natural gas and natural gas liquids;
failures or delays in achieving expected reserve or production levels from existing and future oil and natural gas developments, including due to operating hazards, drilling risks or the inherent uncertainties in predicting reserve and reservoir performance;
difficulty in obtaining necessary approvals and permits;
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severe weather conditions;
acts of war or terrorist acts and the governmental or military response thereto;
changes in the financial strength of counterparties to our credit agreement and hedging contracts;
changes in our credit rating; and
the other risk factors discussed in the section of this proxy statement entitled “Risk Factors.”
The foregoing list of factors should not be construed as exhaustive. Diamondback can give no assurance that the expectations expressed or implied in the forward-looking statements contained herein will be attained. The statements made in this proxy statement are current as of the date of this proxy statement only. Diamondback undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
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RISK FACTORS
In addition to the other information contained in or incorporated by reference herein, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” Diamondback stockholders should carefully consider the following risks relating to the Merger and combined company before deciding how to vote with respect to the Stock Issuance Proposal, the Charter Amendment Proposal and the Adjournment Proposal to be considered and voted on at the special meeting. You should also read and consider the risks associated with each of the businesses of Diamondback and Endeavor because these risks will also affect the combined company. The risks associated with the business of Diamondback can be found in Diamondback’s Annual Report on Form 10-K for the year ended December 31, 2023 under the heading “Risk Factors” and may be updated or supplemented in Diamondback’s subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K. Such risk factors are incorporated by reference into this proxy statement. Risks associated with the business of Endeavor can be found below in the section entitled “Risks Relating to Endeavor.” Diamondback stockholders are also urged to carefully consider all of the information included or incorporated by reference in this proxy statement, which are listed in the section entitled “Where You Can Find More Information.”
Risks Relating to the Merger
Diamondback’s ability to complete the Merger is subject to various closing conditions, including approval of the stock issuance by Diamondback stockholders and regulatory clearance, which may impose conditions that could adversely affect Diamondback or cause the Merger not to be completed.
The Merger is subject to a number of conditions to closing as specified in the Merger Agreement. These closing conditions include, among others, including (i) the receipt of the Diamondback Stockholder Approval, (ii) the Diamondback common stock to be issued as Merger Consideration having been authorized for listing on Nasdaq, (iii) the expiration or termination of the waiting period under the HSR Act, (iv) the absence of any injunction, order, decree or law preventing, prohibiting or making illegal the consummation of the First Merger and, (v) with respect to each party, (A) the accuracy of the other party’s representations and warranties, subject to specified materiality qualifications, (B) compliance by the other party with its covenants in the Merger Agreement in all material respects, and (C) the absence of a “Material Adverse Effect” (as defined in the Merger Agreement) with respect to the other party since the date of the Merger Agreement that is continuing, and (vi) in the case of Endeavor, the receipt of an opinion of tax counsel that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
No assurance can be given that the Diamondback Stockholder Approval and regulatory clearance will be obtained or that the other required conditions to Closing will be satisfied. Even if regulatory clearance is obtained, no assurance can be given as to the terms, conditions and timing of such clearance, including whether any required conditions will materially adversely affect the combined company following Closing. Any delay in completing the Merger could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that Diamondback and Endeavor expect to achieve if the Merger is successfully completed within its expected time frame. Diamondback can provide no assurance that these conditions will not result in the abandonment or delay of the Merger. The occurrence of any of these events individually or in combination could have a material adverse effect on Diamondback’s results of operations and the trading price of the common stock.
The termination of the Merger Agreement could negatively impact Diamondback’s business or result in Diamondback having to pay a termination fee.
If the Merger is not completed by the Outside Date, either Diamondback or Endeavor may choose not to proceed with the Merger by terminating the Merger Agreement, and the parties can mutually decide to terminate the Merger Agreement at any time, before or after the Diamondback Stockholder Approval is received. In addition, Diamondback and Endeavor may elect to terminate the Merger Agreement in certain other circumstances as further detailed in the section entitled “The Merger Agreement—Termination.
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If the Merger is not completed for any reason, including as a result of a failure to obtain the Diamondback Stockholder Approval, Diamondback’s ongoing business may be adversely affected and, without realizing any of the expected benefits of having completed the Merger, Diamondback would be subject to a number of risks, including the following:
Diamondback may experience negative reactions from the financial markets, including negative impacts on the common stock price;
Diamondback may experience negative reactions from its commercial and vendor partners and employees; and
Diamondback will be required to pay its costs relating to the Merger, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the Merger is completed.
Diamondback is also required to pay Endeavor a termination fee of $1,400,000,000 if the Merger Agreement is terminated by (i) Endeavor because the Board has made an adverse recommendation change or (ii) if either party terminates the Merger Agreement because of the failure to receive the Diamondback Stockholder Approval and, immediately prior to the failed vote, Endeavor would have been entitled to terminate the Merger Agreement because the Board had made an adverse recommendation change. If the Merger Agreement is terminated under certain specified circumstances and, within 12 months following such termination, Diamondback consummates or enters into an alternative transaction, Diamondback will be required to pay the termination fee to Endeavor. Additionally, if the Merger Agreement is terminated because the of the failure to receive the Diamondback Stockholder Approval and the termination fee is not payable in connection with such termination, Diamondback is required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260,000,000. The payment of this expense reimbursement will reduce any termination fee that is subsequently payable by Diamondback. For more information, see the section entitled “The Merger Agreement—Termination Fees.”
The announcement and pendency of the Merger may adversely affect Diamondback’s business, financial results and operations.
Whether or not the Merger is completed, the announcement and pendency of the Merger could cause disruptions to Diamondback’s business, including:
Diamondback’s and Endeavor’s current and prospective employees will experience uncertainty about their future roles with the combined company, which might adversely affect the two companies’ abilities to retain key managers and other employees;
uncertainty regarding the completion of the Merger may cause Diamondback’s and Endeavor’s commercial and vendor partners or others that deal with Diamondback or Endeavor to delay or defer certain business decisions or to decide to seek to terminate, change or renegotiate their relationships with Diamondback or Endeavor, which could negatively affect Diamondback’s or Endeavor’s respective revenues, earnings and cash flows;
the Merger Agreement restricts Diamondback from taking specified actions during the pendency of the Merger without Endeavor’s consent, which may prevent Diamondback from making appropriate changes to its business or organizational structure or prevent Diamondback from pursuing attractive business opportunities or strategic transactions that may arise prior to the completion of the Merger; and
the attention of Diamondback’s and Endeavor’s management may be directed toward the completion of the Merger as well as integration planning, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to their respective businesses or the combined company following the Merger.
Diamondback has and will continue to divert significant management resources in an effort to complete the Merger and is subject to restrictions contained in the Merger Agreement on the conduct of its business. If the Merger is not completed, Diamondback will have incurred significant costs, including the diversion of management resources, for which Diamondback will have received little or no benefit.
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Because the Cash Consideration is subject to certain adjustments, Diamondback does not have full certainty as to the final Cash Consideration amount that will be paid, and such amount may be materially higher than was anticipated upon Diamondback’s entry into the Merger Agreement.
Pursuant to the Merger Agreement, the Cash Consideration to be paid in connection with the Merger is subject to certain adjustments, as more fully described in the section entitled “The Merger Agreement—The Merger Consideration.”
Because certain of the individual items forming the adjustments to be made to the Cash Consideration are not knowable with full certainly by Diamondback prior to the Merger, the final Cash Consideration paid by Diamondback may be materially higher than the base cash consideration of $8.0 billion. If the Cash Consideration is materially higher than expected, the value of the Merger to Diamondback and its current stockholders may be materially less than was anticipated upon Diamondback’s entry into the Merger Agreement.
The Merger Agreement limits Diamondback’s ability to pursue alternatives to the Merger.
The Merger Agreement contains provisions that make it more difficult for Diamondback to enter into another transaction other than the one currently contemplated by the Merger Agreement. Specifically, Diamondback has agreed not to, among other restrictions, solicit, initiate, endorse or knowingly encourage or knowingly facilitate any inquiry, proposal or offer that constitutes or could reasonably lead to an acquisition proposal, enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information or data with respect to, or otherwise cooperate in any way with, any acquisition proposal or any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to any acquisition proposal, take any action to exempt any person from the restrictions on “business combinations” contained in any applicable state takeover statute or otherwise cause such restrictions not to apply, cause or permit itself or any of its subsidiaries to enter into, or publicly declare advisable or publicly propose to enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract, in each case constituting or related to any acquisition proposal or approve, authorize or publicly announce any intention to do any of the foregoing.
Diamondback is required to pay Endeavor a termination fee of $1,400,000,000 if the Merger Agreement is terminated by (i) Endeavor because the Board has made an adverse recommendation change or (ii) if either party terminates the Merger Agreement because of the failure to receive the Diamondback Stockholder Approval and, immediately prior to the failed vote, Endeavor would have been entitled to terminate the Merger Agreement because the Board had made an adverse recommendation change. If the Merger Agreement is terminated under certain specified circumstances and, within 12 months following such termination, Diamondback consummates or enters into an alternative transaction, Diamondback is required to pay the termination fee to Endeavor. Additionally, if the Merger Agreement is terminated because the of the failure to receive the Diamondback Stockholder Approval and the termination fee is not payable in connection with such termination, Diamondback will be required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260,000,000.
The foregoing may discourage a third party that might have an interest engaging in a transaction with Diamondback from considering or proposing a transaction, even if that party were prepared to propose a transaction that would present greater value to Diamondback and its stockholders than does the Merger.
The unaudited pro forma combined financial information and unaudited forecasted financial information included in this proxy statement is presented for illustrative purposes only and does not represent the actual financial position or results of operations of the combined company following the completion of the Merger. Future results of Diamondback and Endeavor may differ, possibly materially, from the unaudited pro forma combined financial information and unaudited forecasted financial information presented in this proxy statement.
The unaudited pro forma combined financial statements and unaudited forecasted financial information contained in this proxy statement is presented for illustrative purposes only, contains a variety of adjustments, assumptions and preliminary estimates and does not represent the actual financial position or results of operations of Diamondback or Endeavor prior to the Merger or that of the combined company following the Merger for several reasons. Specifically, the unaudited pro forma combined financial statements do not reflect the effect of any integration costs or any changes in Diamondback’s capital structure following the completion of the Merger.
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For additional information, see the section entitled “Unaudited Pro Forma Combined Financial Statements.” In addition, the Merger and post-merger integration process may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of transaction-related litigation or other claims. Unexpected delays in completing the Merger or in connection with the post-merger integration process may significantly increase the related costs and expenses incurred by Diamondback. The actual financial positions and results of operations of Diamondback and Endeavor prior to the Merger and that of the combined company following the Merger may be different, possibly materially, from the unaudited pro forma combined financial statements or forecasted financial information included in this proxy statement. In addition, the assumptions used in preparing the unaudited pro forma combined financial statements and forecasted financial information included in this proxy statement may not prove to be accurate and may be affected by other factors. Any significant changes in the market price of Diamondback common stock may cause a significant change in the purchase price used for Diamondback’s accounting purposes and the unaudited pro forma financial statements contained in this proxy statement.
The opinion of Diamondback’s financial advisor will not reflect changes in circumstances between the signing of the Merger Agreement and the Closing Date.
The Board received an opinion from Diamondback’s financial advisor in connection with the signing of the Merger Agreement. Please refer to the section entitled “The MergerOpinion of Diamondback’s Financial Advisor” for additional information. However, Diamondback has not obtained any updated opinion from its financial advisor as of the date of this proxy statement. Changes in the operations and prospects of Diamondback or Endeavor, general market and economic conditions and other factors that may be beyond the control of Diamondback, and on which the financial advisor’s opinion were based, may significantly alter the value of Diamondback or Endeavor or the value of their respective equity by the time the Merger is completed, and thus the fairness of the Merger Consideration, from a financial point of view, to Diamondback. The opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion.
Diamondback may be subject to litigation challenging the Merger, and an unfavorable judgment or ruling in any such lawsuits could prevent or delay the consummation of the Merger and/or result in substantial costs.
Securities class action lawsuits and derivative lawsuits are often brought against publicly listed companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Diamondback.
Lawsuits related to the Merger may be filed against Diamondback and its affiliates, directors and officers. If dismissals are not obtained or a settlement is not reached, these lawsuits could prevent or delay completion of Merger and/or result in substantial costs to Diamondback. These lawsuits could seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Merger. One of the conditions to the Merger is that there is no injunction, order, decree or law preventing, prohibiting or making illegal the consummation of the First Merger. For a detailed discussion of the terms and conditions of the Merger, see the section entitled “The Merger Agreement—Conditions to the Merger.” Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, which may adversely affect Diamondback’s business, financial position and results of operation. There can be no assurance that any of the defendants will be successful in the outcome of any pending or any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may adversely affect Diamondback’s ongoing business, financial condition, results of operations and cash flows.
Risks Relating to the Combined Company
Combining Diamondback’s business with Endeavor’s may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the Merger, which may adversely affect the combined company’s business results and negatively affect the value of the common stock.
The success of the Merger will depend on, among other things, the ability of the two companies to combine their businesses in a manner that facilitates growth opportunities and realizes expected cost savings. The combined company may encounter difficulties in integrating Diamondback’s and Endeavor’s businesses and
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realizing the anticipated benefits of the Merger. The combined company must achieve the anticipated improvement in free cash flow generation and returns and achieve the planned cost savings without adversely affecting current revenues and operations. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected.
The Merger involves the combination of two companies which currently operate, and until the completion of the Merger will continue to operate, as independent companies. There can be no assurances that the businesses can be integrated successfully. It is possible that the integration process could result in the loss of key employees from both companies; the loss of commercial and vendor partners; the disruption of Diamondback’s, Endeavor’s or both companies’ ongoing businesses; inconsistencies in standards, controls, procedures and policies; unexpected integration issues; higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. The combined company will be required to devote management attention and resources to integrating its business practices and operations, and prior to the Merger, management attention and resources will be required to plan for such integration. An inability to realize the full extent of the anticipated benefits of the Merger and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company. In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. There are a large number of processes, policies, procedures, operations and technologies and systems that must be integrated in connection with the Merger and the integration of Endeavor’s business. Although Diamondback expects that the elimination of duplicative costs, strategic benefits, and additional income, as well as the realization of other efficiencies related to the integration of the business, may offset incremental transaction and Merger-related costs over time, any net benefit may not be achieved in the near term or at all. If Diamondback and Endeavor are not able to adequately address integration challenges, Diamondback may be unable to successfully integrate operations or realize the anticipated benefits of the integration of the two companies.
Diamondback’s results may suffer if it does not effectively manage its expanded operations following the Merger.
Following completion of the Merger, Diamondback’s success will depend, in part, on its ability to manage its expansion, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Endeavor into its existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with industry contacts and business partners.
The combined company may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.
The Merger will be accounted for as an acquisition by Diamondback in accordance with accounting principles generally accepted in the United States (“GAAP”). Under the acquisition method of accounting, the assets and liabilities of Endeavor and its subsidiaries will be recorded, as of completion, at their respective fair values and added to those of Diamondback. The reported financial condition and results of operations of Diamondback for periods after completion of the Merger will reflect Endeavor balances and results after completion of the Merger but will not be restated retroactively to reflect the historical financial position or results of operations of Endeavor and its subsidiaries for periods prior to the Merger. For additional information, see the section entitled “Unaudited Pro Forma Combined Financial Statements.”
Under the acquisition method of accounting, the total purchase price will be allocated to Endeavor’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the Merger. The excess of the purchase price over those fair values will be recorded as goodwill. Diamondback expects that the Merger may result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent goodwill or intangibles are recorded and the values become impaired, the combined company may be required to recognize material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.
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The merger may not be accretive, and may be dilutive, to Diamondback’s earnings per share, which may negatively affect the market price of the common stock.
Because shares of common stock will be issued in the Merger, it is possible that, although Diamondback currently expects the Merger to be accretive to earnings per share, the Merger may be dilutive to Diamondback’s earnings per share, which could negatively affect the market price of the common stock.
Diamondback will issue 117,267,069 shares of common stock in the Merger. The issuance of these new shares of common stock could have the effect of depressing the market price of the common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Diamondback’s earnings per share could cause the price of shares of common stock to decline or to increase at a lower rate than anticipated.
The market value of the common stock could decline if large amounts of the common stock is sold following the Merger.
If the Merger is consummated, Diamondback will issue 117,267,069 shares of common stock to the holders of the Endeavor Interests. At Closing, Diamondback will enter into the Stockholders Agreement with the Endeavor Stockholders that will, among other things, provide the Endeavor Stockholders with certain shelf, demand and piggyback registration rights. While the Endeavor Stockholders will be subject to a lock-up with respect to 90% of the shares of common stock issued in the Merger for a period of six months following the Closing, the lock-up will apply to only 66.6% and 33.3% of the shares issued in the Merger following the six- and 12-month anniversaries, respectively, of the Closing and will terminate entirely following the 18-month anniversary of the Closing. The Endeavor Stockholders may decide not to hold their shares of common stock that they will receive in the Merger, and may instead decide to reduce their investment in Diamondback. Such sales of common stock or the perception that these sales may occur, could have the effect of depressing the market price for the common stock.
The ownership percentage of current Diamondback stockholders will be significantly diluted by the Stock Issuance.
The Stock Issuance will result in significant dilution of the ownership percentage of Diamondback of current Diamondback stockholders following the Merger. Based on the estimated number of shares of common stock outstanding immediately prior to the execution of the Merger Agreement, current Diamondback stockholders are expected to own approximately 60.5% of Diamondback following the Merger, whereas the former holders of the Endeavor Interests are expect to own approximately 39.5% of Diamondback following the Merger. Consequently, current Diamondback stockholders will, as a general matter, have less influence over the management and policies of Diamondback following the Merger as compared to their influence over Diamondback prior to the Merger.
Following the Closing, the Endeavor Stockholders will have the ability to significantly influence Diamondback’s business, and their interest in Diamondback’s business may be different from that of other stockholders.
In addition to the significant common stock ownership the Endeavor Stockholders will have following the completion of the Merger, the Stockholders Agreement will provide the Endeavor Stockholders with the right to propose for nomination four directors for election to the Board if they beneficially own at least 25% of the outstanding shares of our common stock, two directors if they beneficially own at least 20% but less than 25% of the outstanding shares of our common stock, and one director if they beneficially own at least 10% but less than 20% of the outstanding shares of our common stock, in each case subject to certain qualification requirements for such directors. Diamondback will not be permitted to take certain actions without the consent of the holders of a majority of the shares of common stock held by the Endeavor Stockholders. The Endeavor Stockholders’ level of ownership and influence may make some transactions (such as those involving mergers, material share issuances or changes in control) more difficult or impossible without the support of the Endeavor Stockholders, which in turn could adversely affect the market price of the shares of common stock or prevent Diamondback stockholders from realizing a premium over the market price for their shares of common stock. The interests of the Endeavor Stockholders may conflict with the interests of Diamondback’s other stockholders.
Diamondback and Endeavor will incur significant transaction-related costs in connection with the Merger, which may be in excess of those anticipated by Diamondback or Endeavor.
Each of Diamondback and Endeavor has incurred, and expects to continue to incur, a number of non-recurring costs associated with negotiating and completing the Merger, combining the operations of the
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two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the Merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, severance and benefit costs and filing fees.
Diamondback and Endeavor will also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Diamondback and Endeavor will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the merger and the integration of the two companies’ businesses. Although Diamondback and Endeavor each expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow the combined company to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of Diamondback following the completion of the Merger. Many of these costs will be borne by Diamondback even if the Merger is not completed.
If Diamondback stockholders do not approve the Charter Amendment Proposal, Diamondback will issue most of its available authorized shares of common stock in the Stock Issuance, and the combined company will be limited in its ability to raise or otherwise utilize equity by issuing additional shares of common stock unless its stockholders later approve an amendment to the Charter to increase the number of authorized shares of common stock.
If Diamondback stockholders do not approve the Charter Amendment Proposal, the combined company will continue to have 400 million authorized shares of common stock. As of the date of the Merger Agreement, there were approximately 178 million shares of common stock outstanding. Diamondback anticipates issuing or reserving for issuance 117,267,069 shares of common stock in connection with the Stock Issuance. If Diamondback stockholders do not approve the Charter Amendment Proposal, the combined company would have less than 105 million authorized shares of common stock available for issuance following the completion of the Merger and would be limited in its ability to, among other things, raise or otherwise utilize equity by issuing additional shares of common stock or utilize equity in other transactions such as business combinations unless it first obtains approval from its stockholders to amend the Charter to increase the number of authorized shares of common stock. No assurance can be given that the combined company’s stockholders will approve an increase in the number of authorized shares of common stock and, even if they approve such an increase, that the combined company will be able to raise or otherwise utilize equity by issuing additional shares of common stock. If the combined company is unable to raise or otherwise utilize equity by issuing additional shares of common stock, it could have a material adverse effect on the combined company’s ongoing business, results of operations, cash flows and financial position and ability to pursue transactions which the combined company may believe are in the best interests of its stockholders.
Diamondback expects to incur significant additional indebtedness in connection with the Merger, which indebtedness may limit the combined company’s operating or financial flexibility relative to Diamondback’s and Endeavor’s individual, respective current positions and make it difficult to satisfy the combined company’s obligations with respect to its other indebtedness.
Diamondback will incur debt to finance all or a portion of the Cash Consideration paid in connection with the Merger and to repay certain existing indebtedness of Endeavor and its subsidiaries. The increased level of debt in connection with this debt financing could have negative consequences on Diamondback and the combined company, including, among other things, (i) requiring Diamondback, and the combined company, to dedicate a larger portion of cash flow from operations to servicing and repayment of the debt, (ii) reducing funds available for strategic initiatives and opportunities, working capital and other general corporate needs, (iii) limiting Diamondback’s and the combined company’s ability to incur additional indebtedness, which could restrict flexibility to react to changes in the combined company’s business, its industry and economic condition following the Merger, and (iv) placing Diamondback, and the combined company, at a competitive disadvantage compared to competitors that have less debt.
Risks Relating to Diamondback
Diamondback’s business will continue to be subject to the risks described in the sections entitled “Risk Factors” in Diamondback’s Annual Report on Form 10-K for the year ended December 31, 2023, which may be updated
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or supplemented in Diamondback’s subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, and in other documents incorporated by reference into this proxy statement. See the section entitled “Where You Can Find More Information” for the location of information incorporated by reference into this proxy statement.
Risks Relating to Endeavor
Because Diamondback and Endeavor operate similar businesses in similar industries, many of the risks relating to Diamondback and its business disclosed in Diamondback’s filings with the SEC are applicable to Endeavor and its business as well. Accordingly, this section should be read in conjunction with the risks relating to Diamondback and its business disclosed in Diamondback’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, subsequent Quarterly Reports on Form 10-Q and other filings with the SEC.
Endeavor has engaged in commercial transactions with a number of companies that are wholly or partially owned and controlled by Mr. Stephens. The terms of such existing arrangements with these entities may not be on terms and conditions as favorable to Endeavor as in comparable transactions negotiated at arm’s-length with third parties.
Endeavor has engaged in, and expects to continue to engage, in related party transactions involving Mr. Stephens, Endeavor’s Chairman and the sole member of Endeavor Manager, and other companies that he controls. For example, in 2023 Endeavor paid approximately $325 million to companies controlled by Mr. Stephens for various goods and services provided to Endeavor, including well completion services, provided by Advanced Stimulation Technologies, Inc. and natural gas gathering and oilfield services provided by ACME Energy Services, Inc.; and Endeavor received approximately $729 million in revenue from Oasis Transportation and Marketing Corporation, a company that is majority owned by Mr. Stephens, in connection with the transportation and sale of Endeavor’s crude oil. Because Mr. Stephens controls these affiliated companies, Endeavor’s existing arrangements with these companies may not be on terms and conditions as favorable to Endeavor as in comparable transactions negotiated at arm’s-length with third parties.
Endeavor’s hedging transactions could expose Endeavor to counterparty credit risk.
Endeavor’s hedging transactions expose Endeavor to risk of financial loss if a counterparty fails to perform under a derivative contract. The majority of Endeavor’s counterparties are lenders under its revolving credit facility and have investment grade ratings. However, the risk of counterparty non-performance is of particular concern given the disruptions that have occurred in the financial markets and the significant decline in oil, natural gas and NGL prices and the increase in electricity costs, each of which could lead to sudden changes in a counterparty’s liquidity, and impair their ability to perform under the terms of the derivative contract. Endeavor is unable to predict sudden changes in a counterparty’s creditworthiness or ability to perform. Even if Endeavor does accurately predict sudden changes, its ability to negate the risk may be limited depending upon market conditions. Furthermore, the bankruptcy of one or more of its hedge providers or some other similar proceeding or liquidity constraint, might make it unlikely that Endeavor would be able to collect all or a significant portion of amounts owed to Endeavor by the distressed entity or entities. During periods of falling commodity prices, Endeavor’s hedge receivable positions increase, which increases its exposure. If the creditworthiness of its counterparties deteriorates and results in their non-performance, Endeavor could incur a significant loss.
Endeavor may encounter obstacles to marketing its oil, natural gas and NGL, which could adversely impact Endeavor’s revenues.
The marketability of Endeavor’s production depends in part upon the availability and capacity of oil and natural gas gathering and gas processing systems, pipelines and other transportation facilities owned by third parties. Transportation space on the gathering systems and pipelines Endeavor utilizes is occasionally limited or unavailable due to repairs or improvements to facilities or due to space being utilized by other companies that have priority transportation agreements. Lack of available capacity has historically resulted in larger regional price differentials. Additionally, new fields may require the construction of gathering systems and other transportation facilities. These facilities may require Endeavor to spend significant capital that would otherwise be spent on drilling. The availability of markets is beyond Endeavor’s control. If market factors dramatically change, the impact on Endeavor’s revenues could be substantial and could adversely affect Endeavor’s ability to produce and market oil, natural gas and NGL. Endeavor’s access to transportation options can also be affected by U.S. federal and state regulation of oil and natural gas production and transportation, general economic conditions and changes in supply and demand.
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Endeavor periodically evaluates its unproved oil and natural gas properties to determine recoverability of its costs and could be required to recognize noncash charges in the earnings of future periods.
As of December 31, 2023, Endeavor carried unproved oil and natural gas property costs of $176 million. GAAP requires periodic evaluation of these costs on a project-by-project basis. These evaluations are affected by the results of exploration activities, hydrocarbon price outlooks, planned future sales or expirations of all or a portion of these leases and the contracts and permits relevant to such projects. If the quantity of potential reserves determined by such evaluations is not sufficient to fully recover the costs invested in each project, Endeavor will recognize non-cash charges in future periods.
Endeavor has limited control over activities on properties it does not operate, which could reduce Endeavor’s production and revenues.
As of December 31, 2023, Endeavor maintained operational control of approximately 91% of the PV-10 of its proved reserves. Endeavor has limited control over properties which it does not operate or does not otherwise control operations. If Endeavor does not operate or otherwise control the properties in which it owns an interest, Endeavor does not have control over normal operating procedures, expenditures or future development of the underlying properties. The failure of an operator of Endeavor’s wells to adequately perform operations, an operator’s financial difficulties, including the result of price volatility or an operator’s breach of the applicable agreements could reduce Endeavor’s production and revenues. The success and timing of Endeavor’s drilling and development activities on properties operated by others, therefore, depends upon a number of factors outside of Endeavor’s control, including the operator’s timing and amount of capital expenditures, expertise and financial resources, inclusion of other participants in drilling wells and use of technology.
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PARTIES TO THE MERGER
Diamondback Energy, Inc.
Diamondback Energy, Inc. is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. This basin, which is one of the major producing basins in the United States, is characterized by an extensive production history, a favorable operating environment, mature infrastructure, long reserve life, multiple producing horizons, enhanced recovery potential and a large number of operators. Diamondback reports operations in one reportable segment, the upstream segment.
Diamondback’s activities are primarily focused on horizontal development of the Spraberry and Wolfcamp formations of the Midland Basin and the Wolfcamp and Bone Spring formations of the Delaware Basin, both of which are part of the larger Permian Basin in West Texas and New Mexico. These formations are characterized by a high concentration of oil and liquids rich natural gas, multiple vertical and horizontal target horizons, extensive production history, long-lived reserves and high drilling success rates.
As of December 31, 2023, Diamondback’s total acreage position in the Permian Basin was approximately 607,877 gross (493,769 net) acres, which consisted primarily of 428,324 gross (349,707 net) acres in the Midland Basin and 174,828 gross (143,742 net) acres in the Delaware Basin. In addition, Diamondback’s publicly traded subsidiary Viper Energy, Inc. (“Viper”), owns mineral interests primarily in the Permian Basin. Diamondback owns approximately 56% of Viper’s outstanding shares of common stock.
As of December 31, 2023, Diamondback’s estimated proved oil and natural gas reserves were 2,177,761 MBOE (which includes estimated reserves of 179,249 MBOE attributable to the mineral interests owned by Viper). As of December 31, 2023, approximately 69% are classified as proved developed producing. Proved undeveloped, or PUD, reserves included in this estimate are from 802 gross (719 net) horizontal well locations in which we have a working interest. As of December 31, 2023, Diamondback’s estimated proved reserves were approximately 53% oil, 23% natural gas and 24% natural gas liquids.
Diamondback’s principal executive offices are located at 500 West Texas Ave, Suite 100, Midland, TX 79701 and its telephone number is (432) 221-7400. Diamondback’s common stock is listed on Nasdaq under the trading symbol “FANG.”
For additional information about Diamondback and its subsidiaries, see the documents incorporated by reference in this proxy statement in the section entitled “Where You Can Find More Information.”
Eclipse Merger Sub I, LLC
Eclipse Merger Sub I, LLC, a Delaware limited liability company, is a direct, wholly owned subsidiary of Diamondback and was formed solely for the purpose of effecting the First Merger. It has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement. Its principal executive offices are located at c/o Diamondback Energy, Inc. 500 West Texas Ave, Suite 100, Midland, TX 79701 and its telephone number is (432) 221-7400.
Eclipse Merger Sub II, LLC
Eclipse Merger Sub II, LLC, a Delaware limited liability company, is a direct, wholly owned subsidiary of Diamondback and was formed solely for the purpose of effecting the Second Merger. It has not conducted any activities other than those incidental to its formation and the matters contemplated by the Merger Agreement. Its principal executive offices are located at c/o Diamondback Energy, Inc. 500 West Texas Ave, Suite 100, Midland, TX 79701 and its telephone number is (432) 221-7400.
Endeavor Parent, LLC
Endeavor Parent, LLC, a Texas limited liability company, is a privately held oil and natural gas company engaged in oil and liquids-rich natural gas acquisition, development, exploitation and exploration in the Permian Basin of West Texas. Endeavor’s core properties are located in the Midland Basin, a sub-basin of the Permian Basin, where it holds approximately 453,000 gross (345,000 net) acres, located almost entirely on state and private lands, as of December 31, 2023. The majority of Endeavor’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin, across primarily Midland, Martin, Howard, Glasscock, Upton and Reagan Counties, Texas.
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Endeavor’s principal executive offices are located at 110 N. Marienfeld Street, Midland, TX 79701 and its telephone number is (432) 687-1575.
For more information about Endeavor, please see the section entitled “Description of Endeavor’s Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Endeavor.”
Endeavor Manager, LLC
Endeavor Manager, LLC, a Texas limited liability company, is the managing member of Endeavor Parent, LLC. Its principal executive offices are located at 110 N. Marienfeld Street, Midland, TX 79701 and its telephone number is (432) 687-1575.
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THE SPECIAL MEETING
We are furnishing this proxy statement as part of the solicitation of proxies by the Board for use at the special meeting and at any properly convened meeting following an adjournment or postponement of the special meeting.
Date, Time and Place of the Special Meeting
The special meeting will be held in person on April 26, 2024, at 11:30 a.m. Central Time at Petroleum Club of Midland, 501 West Wall Street, Midland, TX 79701. If you plan to attend the special meeting in person, please arrive at least 15 minutes before the start time of the special meeting.
You will need proof of ownership of our common stock to attend the special meeting in person. If your shares of Diamondback common stock are in the name of your broker or bank or other nominee, you will need to bring evidence of your stock ownership, such as your most recent brokerage statement. All Diamondback stockholders will be required to present valid picture identification. IF YOU DO NOT HAVE VALID PICTURE IDENTIFICATION AND PROOF THAT YOU OWN SHARES OF DIAMONDBACK COMMON STOCK AS OF THE RECORD DATE, YOU MAY NOT BE ADMITTED INTO THE SPECIAL MEETING.
Purpose of the Special Meeting
At the special meeting, stockholders of record will be asked to consider and vote on the following proposals:
1.
Stock Issuance Proposal: To approve, for the purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of an aggregate of 117,267,069 shares of common stock of Diamondback;
2.
Charter Amendment Proposal: To adopt an amendment to the Charter increasing the total number of authorized shares of common stock from 400 million shares to 800 million shares of common stock; and
3.
Adjournment Proposal: To adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the Stock Issuance Proposal.
Recommendation of the Board
The Board carefully reviewed and considered the terms and conditions of the Merger Agreement, and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment. By a unanimous vote, the Board: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock.
The Board unanimously recommends that you vote “FOR” the Stock Issuance Proposal, “FOR” the Charter Amendment Proposal and “FOR” the Adjournment Proposal.
Record Date and Quorum
Each holder of record of shares of common stock as of the close of business on the record date is entitled to receive notice of, and to vote at, the special meeting. You will be entitled to one vote for each share of common stock that you owned on the record date. As of March 22, 2024, the record date, there were 178,339,978 shares of common stock issued and outstanding and entitled to vote at the special meeting. The presence at the special meeting, by attendance in person or by proxy, of the holders of shares of the outstanding common stock representing a majority of the voting power of all outstanding shares of common stock to vote at the special meeting constitutes a quorum for the special meeting.
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If you are a stockholder of record of and you vote by mail, by telephone or through the internet or at the special meeting via the virtual meeting website, then your shares of common stock will be counted as part of the quorum. If you are a “street name” holder of shares of common stock and you provide your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares of common stock and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted in determining the presence of a quorum.
All shares of common stock held by stockholders of record that are present at the special meeting in person or represented by proxy and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders abstain from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.
Vote Required for Approval
The Stock Issuance Proposal requires, assuming a quorum is present, the affirmative vote of a majority of shares of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Stock Issuance Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Stock Issuance Proposal.
The Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock (meaning that of the outstanding shares of common stock, a majority of them must be voted “for” the proposal for it to be approved). Abstentions and failure to vote will have the same effect as a vote “AGAINST” the Charter Amendment Proposal.
The Adjournment Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Adjournment Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Adjournment Proposal.
Effect of Abstentions; Broker Non-Votes
The Stock Issuance Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy. Therefore, abstentions will no effect on this proposal.
The Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock. Therefore, abstentions will have the same effect as a vote “AGAINST” the proposal.
The Adjournment Proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy. Therefore, abstentions from voting will no effect on this proposal.
A broker non-vote with respect to common stock occurs when (i) shares of common stock held by a broker or other nominee are represented, in person or by proxy, at a meeting of Diamondback stockholders, (ii) the bank, broker or other nominee has not received voting instructions from the beneficial owner on a particular proposal and (iii) the bank, broker or other nominee does not have the discretion to direct the voting of the shares of common stock on a particular proposal but has discretionary voting power on other proposals. A bank, broker, trust or other nominee may exercise discretion in voting on routine matters but may not exercise discretion and therefore will not vote on non-routine matters if instructions are not given.
Under applicable stock exchange rules, all of the proposals in this proxy statement are non-routine matters. As a result, there will not be any broker non-votes at the special meeting.
Accordingly, if your shares of common stock are held in “street name,” a bank, broker, trust or other nominee will NOT be able to vote your shares, and your shares will not be counted in determining the presence of a quorum unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Because the approval of the Charter Amendment Proposal requires the affirmative vote of a majority of the
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outstanding shares of common stock, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the Charter Amendment Proposal. Because the approval of each of (i) the Stock Issuance Proposal and (ii) the Adjournment Proposal requires the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy and because your bank, broker, trust or other nominee does not have discretionary authority to vote on such proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions will have no effect on approval of those proposals.
Voting by Diamondback’s Directors and Executive Officers
At the close of business on March 11, 2024, directors and executive officers of Diamondback were entitled to vote 879,703 shares of common stock, representing less than 1% of the shares of common stock issued and outstanding on that date. Directors and executive officers of Diamondback have informed Diamondback that they intend to vote their shares in favor of the Stock Issuance Proposal, the Charter Amendment Proposal and Adjournment Proposal, although none of the directors and executive officers are obligated to do so.
How to Vote
Stockholders have a choice of voting by proxy by completing a proxy card and mailing it in the prepaid envelope provided, by calling a toll-free telephone number or through the internet. Please refer to your proxy card or the information forwarded by your bank, broker, trust or other nominee to see which options are available to you. The telephone and internet voting facilities for stockholders of record will close at 11:59 p.m. Eastern Time (i.e. 10:59 p.m. Central Time) on the day immediately preceding the date of the special meeting.
If you submit your proxy by mail, by telephone or through the internet voting procedures, but do not include “FOR,” “AGAINST” or “ABSTAIN” on a proposal to be voted, your shares will be voted in favor of that proposal. If you indicate “ABSTAIN” on a proposal to be voted, it will have the same effect as a vote “AGAINST” the Charter Amendment Proposal but no effect on the Stock Issuance Proposal or the Adjournment Proposal.
If you wish to vote by proxy and your shares are held by a bank, broker, trust or other nominee, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee. Unless you give your bank, broker, trust or other nominee instructions on how to vote your shares of common stock, your bank, broker, trust or other nominee will not be able to vote your shares on the proposals.
If you wish to vote by attending the special meeting in person and your shares are held in the name of a bank, broker or other holder of record, you must obtain a legal proxy, executed in your favor, from the bank, broker or other holder of record authorizing you to vote at the special meeting. Obtaining a legal proxy may take several days.
If you do not submit a proxy or otherwise vote your shares of common stock in any of the ways described above, it will have the same effect as a vote “AGAINST” the Charter Amendment Proposal, but, assuming a quorum is present, will have no effect on the approval of the Stock Issuance Proposal or the Adjournment Proposal.
Revocation of Proxies
Any proxy given by a stockholder of may be revoked at any time before it is voted at the special meeting by doing any of the following:
by submitting another proxy by telephone or through the internet, in accordance with the instructions on the proxy card;
by delivering a signed written notice of revocation bearing a date later than the date of the proxy to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 100, Midland, TX 79701, stating that the proxy is revoked;
by submitting a later-dated proxy card relating to the same shares of common stock; or
by attending the special meeting in person and voting at the special meeting (your attendance at the special meeting will not, by itself, revoke your proxy; you must vote at the special meeting).
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“Street name” holders of shares of common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies.
Adjournments and Postponements
Although it is not currently expected, the special meeting may be adjourned or postponed one or more times to a later day or time if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the Stock Issuance Proposal. Your shares of common stock will be voted on any adjournment proposal in accordance with the instructions indicated in your proxy or, if no instructions were provided, “FOR” the proposal.
Approval of the adjournment proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved).
The adjourned meeting may take place without further notice other than by an announcement made at the special meeting unless the adjournment is for more than 30 days thereafter or, if, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the special meeting.
Additionally, our bylaws provide that the special meeting may be adjourned by the chairman of the special meeting, from time to time, whether or not there is a quorum, to reconvene at the same or some other place.
Solicitation of Proxies
At this time we have not engaged a proxy solicitor. If we do engage a proxy solicitor we will pay the customary costs associated with such engagement. We will reimburse brokerage firms and others for their reasonable expenses in forwarding solicitation materials to beneficial owners of our common stock. Diamondback is paying the cost of printing and mailing proxy materials. In addition to the solicitation of proxies by mail, solicitation may be made by our directors, officers and other associates by personal interview, telephone, facsimile or electronic mail. No additional compensation will be paid to these persons for solicitation.
Tabulation of Votes
Broadridge Financial Solutions, Inc. will tabulate the votes cast at the special meeting.
Accountants
Representatives of Grant Thornton LLP, our independent auditor, are expected to be present at the special meeting, will have the opportunity to make a statement (if they desire to do so) and are expected to be available to respond to appropriate questions raised at the special meeting.
Questions and Additional Information
For additional questions about the special meeting, assistance in submitting proxies or voting shares of common stock, or additional copies of this proxy statement or the enclosed proxy card, please write to Corporate Secretary, Diamondback Energy, Inc., 500 West Texas Ave, Suite 100, Midland, TX 79701.
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PROPOSAL 1: STOCK ISSUANCE PROPOSAL
Diamondback is asking its stockholders to approve, for the purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of an aggregate of 117,267,069 shares of common stock in connection with the Merger.
Rule 5635(a) requires stockholder approval with respect to issuances of common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of common stock before the issuance.
Rule 5635(b) requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock or voting power of an issuer could constitute a change of control.
The Board unanimously recommends that the stockholders vote “FOR” the Stock Issuance Proposal.
If you return a properly executed proxy card, but do not indicate instructions on your proxy card, then your shares of common stock represented by such proxy card will be voted “FOR” the Stock Issuance Proposal.
The approval of this proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Stock Issuance Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Stock Issuance Proposal.
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PROPOSAL 2: CHARTER AMENDMENT PROPOSAL
As discussed elsewhere in this proxy statement, Diamondback stockholders will consider and vote on a proposal to adopt an amendment to the Charter to increase the total number of authorized shares of common stock under the Charter from 400 million shares to 800 million shares of common stock.
If Diamondback stockholders approve the Charter Amendment Proposal, then Diamondback expects to file a Certificate of Amendment with the Secretary of State of the State of Delaware to increase the number of authorized shares under the terms of its Charter of its capital stock from 410,000,000 shares to 810,000,000 shares and common stock from 400,000,000 shares to 800,000,000 shares. Upon filing of the Certificate of Amendment with the Secretary of State of the State of Delaware, Section 4.1 of the Charter will be amended and restated in its entirety to read as follows:
Authorized Capital Stock. The total number of shares of capital stock that the Corporation is authorized to issue is 810,000,000 shares, divided into two classes consisting of 800,000,000 shares of common stock, par value $0.01 per share (“Common Stock”), and 10,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”).
The Board unanimously recommends that stockholders vote “FOR” the Charter Amendment Proposal.
If you return a properly executed proxy card, but do not indicate instructions on your proxy card, then your shares of common stock represented by such proxy card will be voted “FOR” this proposal.
The approval of this proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock (meaning that of the outstanding shares of common stock, a majority of them must be voted “for” the proposal for it to be approved). Abstentions and failure to vote will have the same effect as a vote “AGAINST” the Charter Amendment Proposal.
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PROPOSAL 3: ADJOURNMENT PROPOSAL
Diamondback’s stockholders may be asked to adjourn the special meeting to a later date or time if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes cast at the special meeting to approve the Stock Issuance Proposal.
The Board unanimously recommends that stockholders vote “FOR” the Adjournment Proposal.
If you return a properly executed proxy card, but do not indicate instructions on your proxy card, then your shares of common stock represented by such proxy card will be voted “FOR” this proposal.
The approval of this proposal requires, assuming a quorum is present, the affirmative vote of a majority of the votes cast at the special meeting, whether in person or represented by proxy (meaning that of the votes cast at the special meeting, a majority of them must be voted “for” the proposal for it to be approved). Abstentions will have no effect on the Adjournment Proposal. Assuming a quorum is present, a failure to vote or otherwise be present at the special meeting will have no effect on the Adjournment Proposal.
The adjourned meeting may take place without further notice other than by an announcement made at the special meeting unless the adjournment is for more than 30 days thereafter or, if, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the special meeting.
Additionally, our bylaws provide that the special meeting may be adjourned by the chairman of the special meeting, from time to time, whether or not there is a quorum, to reconvene at the same or some other place.
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THE MERGER
Overview
Diamondback entered into the Merger Agreement with Endeavor on February 11, 2024, which was amended on March 18, 2024. Under the terms of the Merger Agreement, subject to the satisfaction or waiver of specified closing conditions, Merger Sub I will merge with and into Endeavor, with Endeavor surviving the First Merger as the First Surviving Company. Immediately following the First Merger, the First Surviving Company will merge with and into Merger Sub II, with Merger Sub II surviving as a wholly owned subsidiary of Diamondback. The Board has determined that the Merger Agreement is fair to, and in the best interest of, Diamondback and its stockholders and has approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger and the Stock Issuance.
If the Merger is completed, the aggregate consideration in exchange for the Endeavor Interests will be (i) cash consideration of $8.0 billion, subject to adjustments in accordance with the terms of the Merger Agreement, and (ii) 117,267,069 shares of common stock. The common stock to be issued in connection with the Merger will not be registered under the Securities Act and will be issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Background of the Merger
The Board and Diamondback’s senior management regularly evaluate and pursue potential investments, purchases and sales of assets and businesses, joint ventures, strategic business combinations and other transactions with the potential to advance Diamondback’s strategic objectives and enhance stockholder value. In furtherance of these efforts, senior executives of Diamondback, including Mr. Travis D. Stice, Chairman of the Board and Chief Executive Officer of Diamondback, Mr. Kaes Van’t Hof, President and Chief Financial Officer of Diamondback, Mr. Jere W. Thompson III, Diamondback’s Executive Vice President of Strategy and Corporate Development and Mr. Matt Zmigrosky, Diamondback’s Executive Vice President, Chief Legal and Administrative Officer and Secretary, have from time to time engaged in discussions about potential strategic transaction opportunities with representatives of other companies and updated the Board regarding these interactions during regularly scheduled and special meetings.
In November 2023, as part of their ongoing evaluation of strategic transactions to enhance stockholder value, Diamondback’s senior management, with assistance from Jefferies LLC (“Jefferies”), Diamondback’s lead financial advisor, assessed the potential merits and risks of a business combination transaction between Diamondback and Endeavor based on publicly available information.
On December 8, 2023, Mr. Stice called Mr. Lance Robertson, the Chief Executive Officer and President of Endeavor, and expressed Diamondback’s interest in a potential business combination transaction between Diamondback and Endeavor. Later on December 8, 2023, following the conversation, Mr. Stice delivered a letter addressed to Mr. Autry Stephens, Endeavor’s founder and controlling equityholder, and Mr. Robertson, in which Diamondback requested the opportunity to work with Endeavor to explore a potential business combination transaction between the two companies and ascribed a value of at least $25 billion to Endeavor, based on preliminary analysis using publicly available information.
On December 18, 2023, Messrs. Stice and Robertson had a call to discuss potential next steps in exploring the proposed transaction, including due diligence information that Diamondback would need to refine its views on the valuation of Endeavor. Later on December 18, 2023, following the call, Mr. Stice sent Mr. Robertson a draft mutual confidentiality agreement, to facilitate discussions and the disclosure of information between Diamondback and Endeavor, and a due diligence request list.
Mr. Zmigrosky and Mr. Will Krueger, the General Counsel of Endeavor, subsequently negotiated, and on December 21, 2023, the parties executed, the mutual confidentiality agreement, which contained no “standstill” or similar provisions applicable to either party.
Later on December 21, 2023, Endeavor provided Diamondback with access to a virtual data room containing certain preliminary due diligence information. The Endeavor virtual data room was iteratively updated with additional due diligence information responsive to requests for additional information and documents throughout the ensuing transaction negotiations.
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Between December 21, 2023 and February 11, 2024, representatives of Diamondback conducted due diligence on Endeavor, including participating in a number of management meetings and due diligence discussions with representatives of Endeavor.
On December 22, 2023, Messrs. Stice and Van’t Hof had a call with Mr. Robertson in which they discussed certain matters relating to the proposed transaction, including the potential governance structure of the combined company and certain employee matters. Mr. Robertson advised Messrs. Stice and Van’t Hof that Endeavor would provide additional due diligence materials to enable Diamondback to refine its valuation analysis of Endeavor. Messrs. Stice and Van’t Hof indicated to Mr. Robertson that Diamondback could be in a position to provide a non-binding proposal letter for a transaction with Endeavor following a meeting of the Board scheduled to occur in mid-January 2024.
On January 12, 2024, the Board met, with members of Diamondback’s management and representatives of Jefferies and Citigroup Global Markets Inc. (“Citi”), Diamondback’s M&A and Capital Markets advisor, in attendance. At the meeting, members of Diamondback’s management provided the Board with an overview of the status of discussions with Endeavor, their due diligence to date and their current assessment of the potential benefits and risks of a potential transaction with Endeavor. Following discussion among the Board, Diamondback’s management and the representatives of Jefferies and Citi, the Board authorized management to deliver a non-binding proposal for a business combination transaction reflecting an enterprise value of $26 billion for Endeavor.
Later that day, Mr. Stice called Mr. Robertson to preview the terms of the non-binding proposal letter (the “January 12 Letter”) that Diamondback would send to Endeavor, and shortly thereafter, delivered the January 12 Letter to Mr. Robertson. The January 12 Letter proposed a business combination transaction between Endeavor and Diamondback for consideration to Endeavor’s equityholders consisting of $10 billion in cash and $16 billion in Diamondback common stock, certain governance rights for Endeavor’s equityholders in the combined company, including the right to nominate two directors for election to the Board, and certain rights, restrictions and obligations for Endeavor’s equityholders as stockholders of the combined company.
On January 16, 2024, Messrs. Stice and Thompson had a call with Mr. Robertson to further discuss the January 12 Letter and certain matters relating to the proposed transaction, including, among other things, the consideration mix between cash and Diamondback common stock, the structure of the proposed transaction and Diamondback’s contemplated financing of the proposed transaction.
On January 19, 2024, Messrs. Stice and Van’t Hof had a follow-up call with Mr. Robertson in which they discussed, among other things, post-closing governance arrangements and the potential for Diamondback to increase the equity portion of the transaction consideration.
On January 25, 2024, Messrs. Stice and Van’t Hof called Mr. Robertson to continue the ongoing discussion regarding the proposed transaction, including with respect to the consideration mix between Diamondback common stock and cash and mutual due diligence matters.
On January 27, 2024, Diamondback provided Endeavor with access to a virtual data room containing certain due diligence information concerning Diamondback. The virtual data room was iteratively updated with additional due diligence information responsive to requests for additional information and documents throughout the ensuing transaction negotiations. Between January 27, 2024 and February 11, 2024, representatives of Endeavor conducted due diligence on Diamondback, including participating in a number of management meetings and due diligence discussions with representatives of Diamondback.
On January 30, 2024, Mr. Robertson sent Mr. Stice a draft of the Merger Agreement and a term sheet setting forth Endeavor’s responses to Diamondback’s governance proposals set forth in the January 12 Letter (the “governance term sheet”). The draft Merger Agreement, among other things, provided Endeavor equityholders with the ability to elect to receive non-voting preferred stock of Diamondback in lieu of Diamondback common stock in excess of 19.99% of the outstanding Diamondback common stock (the “preferred stock election”), did not impose any restrictions on the ability of Endeavor to make distributions to its equityholders, proposed a termination fee of 3.5% of Endeavor’s transaction equity value that would be payable by Diamondback if the
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Merger Agreement were to be terminated in certain circumstances, and imposed reciprocal interim operating restrictions on Diamondback and Endeavor. Endeavor also proposed in the governance term sheet that its former equityholders would have the right, subject to the satisfaction of certain ownership thresholds, to nominate up to four directors for the board of the combined company.
On January 31, 2024, during a regularly scheduled meeting of the Board, members of Diamondback’s management discussed with the Board the ongoing negotiations with Endeavor, including the merits and risks of the proposed transaction with Endeavor and the potential post-closing governance structure of the combined company. Following the Board meeting on January 31, 2024, Mr. Van’t Hof sent a revised version of the governance term sheet back to Mr. Robertson indicating, among other things, that Diamondback was willing to accept Endeavor’s proposed number of director nominees, subject to agreement on other terms with respect to the rights and obligations of the Endeavor equityholders as stockholders of the combined company.
Later on January 31, 2024, Messrs. Stice and Van’t Hof had a call with Mr. Robertson and discussed the governance term sheet and certain terms in the draft Merger Agreement, including the preferred stock election provision and the ability of Endeavor to make distributions to its equityholders in the period between the signing and closing of the proposed transaction. Later that day, Mr. Stice sent a draft of the Stockholders Agreement to Mr. Robertson.
On February 1, 2024, Messrs. Stice and Van’t Hof had a call with Mr.  Robertson and discussed certain terms of the proposed transaction, including the consideration mix between Diamondback common stock and cash.
Also on February 1, 2024, representatives of Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”), counsel to Diamondback, sent a revised draft of the Merger Agreement to representatives of Paul, Weiss, Rifkind, Wharton & Garrison (“Paul Weiss”), counsel to Endeavor. The revised draft, among other things, removed the preferred stock election provision and certain interim operating covenant restrictions on Diamondback, imposed certain limitations on the amount Endeavor was permitted to distribute to its equityholders during the interim period and added certain exceptions to the non-solicitation obligations of Diamondback with respect to alternative transactions.
On February 3, 2024, Mr. Stice called Mr. Robertson to discuss the status of Endeavor’s review of the proposed transaction terms. Later on February 3, 2024, following the conversation, Mr. Stice sent an email to Mr. Robertson, in which, among other things, he emphasized that Diamondback needed confirmation that Diamondback’s proposals regarding the consideration mix and the framework for permitted distributions by Endeavor during the interim period were acceptable to Endeavor.
On February 4, 2024, Mr. Stice had a conversation with Mr. Chuck Meloy, the former Chief Executive Officer of Endeavor, about the proposed transaction, ahead of Mr. Meloy’s meetings with Mr. Stephens and senior management of Endeavor with respect to the proposed transaction.
On February 6, 2024, representatives of Paul Weiss delivered a revised draft of the Merger Agreement and Stockholders Agreement to representatives of Wachtell Lipton. The revised draft of the Merger Agreement, among other things, contained a modified preferred stock election provision, increased the ability of Endeavor to make distributions and certain other payments in the interim period, and imposed additional restrictions on Diamondback regarding soliciting alternative transactions.
On February 7, 2024, Messrs. Stice and Van’t Hof called Messrs. Meloy and Robertson to discuss the key remaining open points in the Merger Agreement, including the preferred stock election provision and scope of non-solicitation restrictions on Diamondback, and certain other matters relating to the proposed transaction. Also on February 7, 2024, at a virtual meeting, members of Endeavor’s management answered due diligence questions from members of Diamondback’s management and representatives of Wachtell Lipton.
On February 8, 2024, at a virtual meeting, members of Diamondback’s management answered due diligence questions from members of Endeavor’s management and representatives of Paul Weiss and J.P. Morgan Securities LLC, Endeavor’s M&A advisor.
Also on February 8, 2024, representatives of Wachtell Lipton sent revised drafts of the Merger Agreement and Stockholders Agreement to representatives of Paul Weiss. The revised Merger Agreement, among other
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things, removed the modified preferred stock election provision, reduced the amount Endeavor was permitted to distribute to its equityholders during the interim period and generally accepted the more restrictive non-solicitation provisions on Diamondback requested by Endeavor.
Following additional discussions among principals and their respective outside counsels on February 8 and 9, 2024, the parties reached agreement that there would not be any preferred stock election provision in the Merger Agreement and that Diamondback’s management would recommend to the Board a transaction in which Endeavor would be valued at $26 billion, with $8 billion of the consideration payable in cash (subject to agreed adjustments) and $18 billion payable in Diamondback common stock.
On February 9, 2024, after the close of market, Messrs. Stice and Van’t Hof discussed with Mr. Robertson the measurement price for valuing Diamondback common stock to be issued in the transaction and, after negotiation, agreed that the Diamondback common stock would be valued at its 30-day volume weighted average price as of February 9, 2024. Messrs. Stice, Van’t Hof and Robertson also discussed next steps and actions, with a view towards announcing the transaction on February 12, 2024, assuming the Board and Endeavor equityholders approved the transaction.
Representatives of Wachtell Lipton and Diamondback’s management continued to negotiate the terms of the Merger Agreement with representatives of Paul Weiss and Endeavor’s management from February 9 through February 11, 2024. The parties reached agreement during these negotiations on other transaction terms, including the scope of non-solicitation restrictions on Diamondback, the termination fee payable by Diamondback under certain circumstances and the parties’ respective interim operating covenants.
The Merger Agreement and Stockholders Agreement were in substantially final form by the morning of February 11, 2024, when the Board met to consider approval of the proposed transaction, with representatives of Wachtell Lipton and Jefferies in attendance. Representatives of Wachtell Lipton discussed the Board’s fiduciary duties in the context of the proposed transaction and reviewed with the Board the terms of the Merger Agreement and the Stockholders Agreement. Representatives of Jefferies reviewed, with the Board, Jefferies’s analysis of the financial terms of the proposed transaction. Following discussion, Jefferies rendered its oral opinion to the Board, which was subsequently confirmed by delivery of a written opinion, that, as of February 11, 2024 and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations set forth therein, the merger consideration to be paid by Diamondback pursuant to the Merger Agreement was fair, from a financial point of view, to Diamondback. See the section entitled “—Opinion of Diamondback’s Financial Advisor” for more information.
After considering the terms of the proposed transaction with Endeavor, and taking into consideration the matters discussed during that meeting and prior meetings of the Board, including the factors described under the section entitled “—Reasons for the Merger; Recommendations of the Board of Directors”, the Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment, are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock.
On February 11, 2024, following the Board meeting, Diamondback and Endeavor executed the Merger Agreement.
Prior to the opening of trading on February 12, 2024, Diamondback and Endeavor issued a joint press release announcing entry into the Merger Agreement.
On March 18, 2024, Diamondback and Endeavor executed a Letter Agreement, amending the Merger Agreement, to amend and restate the form of Stockholders Agreement.
Reasons for the Merger; Recommendations of the Board of Directors
The Board carefully reviewed and considered the terms and conditions of the Merger Agreement, and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment. By a unanimous
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vote, the Board: (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment are fair to and in the best interests of Diamondback and the holders of Diamondback common stock; (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; (iii) resolved to recommend that the holders of Diamondback common stock approve the Stock Issuance Proposal and the Charter Amendment Proposal; (iv) approved the execution, delivery and performance by Diamondback of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and the Charter Amendment; and (v) authorized and approved the submission of the Stock Issuance Proposal and the Charter Amendment Proposal for approval by the holders of Diamondback common stock. The Board unanimously recommends that Diamondback stockholders vote “FOR” the Stock Issuance Proposal and “FOR” the Charter Amendment Proposal.
In arriving at its decision to approve the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, and to recommend that Diamondback stockholders vote their shares of common stock in favor of the approval of the Stock Issuance Proposal, the Board consulted with Diamondback’s management team, outside legal counsel and Diamondback’s financial advisors, and considered a number of factors, including the following factors (not necessarily in order of relative importance) that the Board viewed as being generally positive or favorable in coming to its determination, approval and related recommendation:
Synergies. The Board believed that the Merger will result in tangible, near-term operational efficiencies (including strong and consistent well performance, ability for longer laterals and larger pads, mitigation of parent/child degradation and enhancement of resource recovery), overhead savings, increased cash flow, reduced financing expenses and improvement of capital efficiency and the realization of other synergies. Specifically, the Board believed that the Merger will provide annual synergies of approximately $550 million (representing over $3.0 billion in net present value (discounted at 10%) over the next decade), consisting of capital and operating cost synergies of approximately $325 million, capital allocation and land synergies of approximately $150 million, and financial and corporate cost synergies of approximately $75 million. The Board also believed that Diamondback and Endeavor’s similar development philosophy could enhance integration and the timeline for synergy realization.
Value Accrual. The Board believed that Diamondback’s established record of building a scalable, low-cost operating model will translate to the operation of the assets acquired from Endeavor in the Merger and, when taking into account the high quality of Endeavor’s assets, will lead to significant value accrual for the combined company following the Merger. The combined company would have a pro forma scale of approximately 838,000 net acres and 816 MBOE/d of net production and attractive inventory depth and quality with approximately 6,100 pro forma locations with break evens at <$40 WTI. With a larger combined Permian production base over which to spread fixed costs and Diamondback’s approach to operational efficiency, the Board believed key unit cost metrics for Endeavor’s assets will improve to be more in-line with Diamondback’s currently lower unit costs, thus resulting in ongoing cost savings and efficiency that will benefit the combined company and generate value for Diamondback stockholders. Additionally, the Board believed that Endeavor’s minerals portfolio will offer the combined company with significant upside value potential.
Credit Profile. The Board believed that, due to the mix of the Merger Consideration, the combined company will retain a strong balance sheet, have strong liquidity and have an investment grade credit profile, which are together expected to contribute towards a favorable cost of capital for the combined company following the Merger.
Financial Strength. The Board believed Diamondback’s increased size, scale and financial strength following the Merger will improve Diamondback’s ability to create sustained value for all stakeholders, including with respect to returning capital to Diamondback stockholders. In particular, the Board believed that the Merger will create a portfolio of assets with increased scale and scope such that combined company will have greater cash flow stability and lesser overall relative exposure to operational and commodity price risks.
Merger Consideration Mix. The Board believed that the form and mix of the Merger Consideration being offered in exchange for the Endeavor Interests in the Merger balances liquidity and cash flow risks, pro forma indebtedness of the combined company and current stockholder ownership percentage
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dilution such that Diamondback and its stockholders will be acquiring Endeavor’s assets on favorable financial terms, and that the value and mix of Merger Consideration will be accretive and lead to a stronger return on investment for Diamondback stockholders, with approximately 10% free cash flow per share accretion expected in 2025 (assuming the Merger closes in the fourth quarter of 2024). Additionally, the number of Diamondback shares to be issued to Endeavor equityholders is fixed and will not fluctuate in the event that the market price of Diamondback common stock decreases.
Alternative Transactions. The Board considered, with the assistance of Diamondback’s management team and legal and financial advisors, the potential for and benefits of alternative transactions and believed that it was unlikely that any reasonably available alternative transaction will result in more long-term value to Diamondback and its stockholders than the Merger.
Opinion of Diamondback’s Financial Advisor. The Board considered the financial presentation reviewed and discussed with representatives of Jefferies, as well as the oral opinion of Jefferies rendered to the Board on February 11, 2024, which was subsequently confirmed by delivery of Jefferies’s written opinion, dated February 11, 2024, delivered to the Board that, as of the date of such opinion and based on and subject to the assumptions, limitations, qualifications, conditions, and other matters set forth therein, the Merger Consideration to be paid by Diamondback pursuant to the Merger Agreement is fair, from a financial point of view, to Diamondback, as more fully described below under the heading “—Opinion of Diamondback’s Financial Advisor.
Terms of the Merger Agreement; Likelihood of Completion. The Board believed, from its review in consultation with Diamondback’s legal advisors, that the terms of the Merger Agreement, taken as a whole, including the parties’ representations, warranties, and covenants, the ability of the Board to change its recommendation in response to certain unsolicited superior acquisition proposals and intervening events and the limited circumstances under which the Merger Agreement may be terminated by Endeavor, and the conditions to the completion of the Merger, are reasonable and appropriate. The Board also believed that the parties will be able to satisfy the closing conditions (including termination or expiration of the waiting period under the HSR Act) and complete the Merger on a timely basis.
Diligence. The Board and Diamondback’s management are knowledgeable about Endeavor’s business operations, financial condition, earnings and prospects, and Diamondback’s management, together with its advisors, conducted customary due diligence of Endeavor.
Stockholder Vote. Diamondback stockholders will have the opportunity to vote on the Stock Issuance Proposal, which is a condition precedent to the Merger, and the terms of the Merger Agreement provide for the Board’s ability to change its recommendation to stockholders in response to certain unsolicited superior acquisition proposals and intervening events.
ESG. The Board believed that the Merger will advance Diamondback’s ESG profile by allowing Diamondback to apply its leadership in environmental focus to a significantly larger asset base over time.
Governance. The Board believed that the addition of the Endeavor-nominated directors to the Board in connection with the Merger, and the right of the Endeavor Stockholders to propose directors for nomination under the Stockholders Agreement, will add further valuable expertise and experience and in-depth familiarity with Endeavor to the Board.
Recommendation. Diamondback’s management team recommended the Merger to the Board.
The Board also considered and balanced against the potentially positive factors a number of uncertainties, risks, and factors it deemed generally negative or unfavorable in making its determination, approval, and related recommendation, including the following (not necessarily in order of relative importance):
Merger Consideration. The Board considered that, because a significant portion of the Merger Consideration consists of shares of common stock, the Merger will result in the dilution of the current ownership percentage of Diamondback’s stockholders. The Board also considered that the Cash Consideration is expected to be funded in whole or in part through debt and will increase the aggregate indebtedness of Diamondback.
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Interim Operating Covenants. The Board considered the restrictions on the conduct of Diamondback and its subsidiaries’ businesses during the period between the execution of the Merger Agreement and the completion of the Merger as set forth in the Merger Agreement, including that Diamondback must conduct its business only in the ordinary course, subject to specific exceptions, which could negatively impact Diamondback’s ability to pursue certain business opportunities or strategic transactions.
Timing and Pendency of the Merger. The Board considered the risks and contingencies relating to the announcement and pendency of the Merger and the amount of time that may be required to consummate the Merger, including the fact that completion of the Merger is subject to certain conditions, including expiration or termination of the waiting period under the HSR Act, and the risk that such conditions may not be satisfied on acceptable terms or at all.
Possible Failure to Achieve Synergies. The Board considered the potential challenges and difficulties in integrating the business, operations, and workforce of Endeavor into those of Diamondback and the risk that anticipated cost synergies and operational efficiencies between the two companies, or other anticipated benefits of the Merger, might not be realized or might take longer to realize than expected.
Competing Proposals; Termination Fees. The Board considered the terms of the Merger Agreement relating to the non-solicitation provisions and termination fees and the potential that such provisions might deter alternative bidders that might have been willing to submit a superior proposal to Diamondback. The Board also considered that, under specified circumstances, Diamondback may be required to pay a termination fee or reimburse Endeavor for its transaction related expenses in the event the Merger Agreement is terminated.
Merger Costs. The Board considered the substantial transaction costs associated with entering into the Merger Agreement and the completion of the Merger, as well as the possible diversion of management and employee time and energy, potential opportunity cost and disruption of Diamondback’s business operations.
Governance. The Board considered and reviewed the terms of the Stockholders Agreement that will be entered into in connection with the Closing, and the fact that following the Closing the Endeavor Stockholders will have certain governance rights and certain corporate actions will require the consent of the Endeavor Stockholders.
Litigation. The Board considered the potential for litigation relating to the Merger and the associated costs, burden, and inconvenience involved in defending those proceedings.
Other Risks. The Board considered risks of the type and nature described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”
The Board considered all of these factors as a whole, as well as others, and, on balance, concluded that the potential benefits of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, to Diamondback and Diamondback stockholders outweighed the associated risks, uncertainties, restrictions, and potentially negative factors. As a result, the Board recommends that that Diamondback stockholders approve the Stock Issuance Proposal.
The foregoing discussion of factors considered by the Board is not intended to be exhaustive but is meant to include material factors considered by the Board. The Board collectively reached the conclusion to approve the Stock Issuance and submit the Stock Issuance Proposal to Diamondback stockholders in light of the various factors described above and other factors that the members of the Board believed were appropriate. Given the variety of factors considered in connection with its evaluation of the Merger Agreement and the transactions contemplated thereby, including the Stock Issuance, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Board based its recommendation on the totality of the information available to it, including discussions with Diamondback’s management team and outside legal and financial advisors.
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It should be noted that this explanation of the reasoning of the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section entitled Cautionary Statement Regarding Forward-Looking Statements.”
Certain Diamondback Unaudited Forecasted Financial Information
Diamondback does not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, earnings or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with its evaluation of the Merger Agreement and the transactions contemplated thereby, including the Merger and Stock Issuance, Diamondback’s management prepared certain non-public unaudited internal financial forecasts with respect to Diamondback and Endeavor, which were provided to the Board in connection with its evaluation of the contemplated Merger and Stock Issuance (collectively, the “Diamondback forecasted financial information”). The Diamondback forecasted financial information was also provided to Jefferies for its use and reliance, as directed by Diamondback, in connection with the financial analyses that Jefferies performed in connection with its opinion described in ‘‘—Opinion of Diamondback’s Financial Advisor.” The inclusion of this information should not be regarded as an indication that any of Diamondback, Endeavor, their respective advisors, or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.
This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the Diamondback forecasted financial information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of Diamondback’s management, including, among others, Diamondback’s and Endeavor’s future results, difficulties in appropriately allocating capital and resources among strategic opportunities, the timing and extent of success in discovering, developing, producing and estimating reserves, market conditions and prices for oil, natural gas and NGLs, including regional basis differentials, capital availability, general economic and regulatory conditions, and other matters described in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” The Diamondback forecasted financial information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Diamondback and Endeavor can give no assurance that the Diamondback forecasted financial information and the underlying estimates and assumptions will be realized. In addition, since the Diamondback forecasted financial information is inherently forward looking and covers multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the Diamondback forecasted financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to Diamondback’s and Endeavor’s respective businesses, industry performance, the regulatory environment, general business and economic conditions, and other matters described in “Risk Factors.” Please also see “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information.”
The Diamondback forecasted financial information was not prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The Diamondback forecasted financial information included in this proxy statement has been prepared by, and is the responsibility of, the management of Diamondback. Neither Grant Thornton LLP, Diamondback’s independent registered public accounting firm, nor any other independent accountant, has audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying unaudited prospective financial information and, accordingly, they do not express an opinion or any other form of assurance with respect thereto.
Furthermore, the Diamondback forecasted financial information does not take into account any circumstances or events occurring after the date it was prepared. Diamondback can give no assurance that, had the Diamondback forecasted financial information been prepared either as of the date of this proxy statement or as of the date of the special meeting, similar estimates and assumptions would be used. Except as required by applicable securities laws, Diamondback does not intend to, and disclaims any obligation to, make publicly available any update or other revision to the Diamondback forecasted financial information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the
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event that any or all of the underlying assumptions are shown to be in error, including with respect to the accounting treatment of the Merger and Stock Issuance under GAAP, or to reflect changes in general economic or industry conditions.
The Diamondback forecasted financial information does not take into account all the possible financial and other effects on Diamondback or Endeavor of the Merger and Stock Issuance, the effect on Diamondback or Endeavor of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed, the effect of any business or strategic decisions or actions which would likely have been taken if the Merger Agreement had not been executed, but which were instead altered, accelerated, postponed, or not taken in anticipation of the Merger and Stock Issuance. Further, the Diamondback forecasted financial information does not take into account the effect on Diamondback or Endeavor of any possible failure of the Merger to occur. None of Diamondback or its affiliates, officers, directors, advisors, or other representatives has made, makes, or is authorized in the future to make any representation to any Diamondback stockholder or other person regarding Diamondback’s or Endeavor’s ultimate performance compared to the information contained in the Diamondback forecasted financial information or that the forecasted results will be achieved. The inclusion of the Diamondback forecasted financial information herein should not be deemed an admission or representation by Diamondback or its advisors or other representatives or any other person that the forecasts will be achieved, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the Diamondback forecasted financial information included below is not being included to influence Diamondback stockholders’ decision whether to vote in favor of the proposals to be considered at the special meeting, but is being provided solely because it was made available to the Board and Diamondback’s financial advisors in connection with the Merger and the Stock Issuance.
In light of the foregoing, and considering that the special meeting will be held several months after the Diamondback forecasted financial information was prepared, as well as the uncertainties inherent in any forecasted information, Diamondback stockholders are cautioned not to place undue reliance on such information, and Diamondback urges the Diamondback stockholders to review Diamondback’s most recent SEC filings for a description of Diamondback’s reported financial results. Please see “Where You Can Find More Information.”
Diamondback Projections for Diamondback
The following table sets forth certain summarized prospective financial information regarding Diamondback on a standalone basis for the years ending December 31, 2024 through 2028 (the “Diamondback projections for Diamondback”), which information was prepared by Diamondback’s management, provided to the Board and directed by Diamondback to be used and relied upon by Jefferies in connection with the financial analyses that it performed in connection with its opinion described in “ —Opinion of Diamondback’s Financial Advisor.” The Diamondback projections for Diamondback should not be regarded as an indication that Diamondback considered, or now considers, it to be necessarily predictive of actual future performance or events, or that such information should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared. In preparing the Diamondback projections for Diamondback, Diamondback's management team used, for the projection periods, two different scenarios regarding commodity prices. The summarized prospective financial information in the table immediately below reflect the first scenario, which assumes a flat price of $75.00/bbl with respect to oil and a flat price of $3.00/MMBtu with respect to natural gas
 
Year ending December 31,
 
2024E
2025E
2026E
2027E
2028E
EBITDA (consolidated) (in millions)(1)
$6,423
$6,537
$6,698
$6,824
$6,985
Operating Cash Flows (in millions)(2)
$5,554
$5,671
$5,800
$5,918
$6,058
Capital Expenditures (in millions)
$2,407
$2,604
$2,636
$2,636
$2,636
After-Tax Levered Free Cash Flow (in millions)(3)
$3,147
$3,067
$3,164
$3,283
$3,423
Unlevered Free Cash Flow (in millions)(4)
$3,236
$3,149
$3,252
$3,350
$3,473
(1)
EBITDA (consolidated) is defined as estimated earnings before interest, taxes, depreciation and amortization and certain other cash adjustments.
(2)
Operating Cash Flows is defined as EBITDA (consolidated) minus (i) interest expense and cash taxes and plus (ii) certain other cash adjustments.
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(3)
After-Tax Levered Free Cash Flow is defined as Operating Cash Flows minus Capital Expenditures.
(4)
Unlevered Free Cash Flow is defined as EBITDA (consolidated) minus Capital Expenditures and cash taxes.
The summarized prospective financial information in the table immediately below reflects the second scenario, which assumes First Call WTI Pricing for oil prices reflecting Wall Street research consensus estimates (as of February 9, 2024) for 2024 and 2025 (which were $75.61/bbl and $71.27/bbl for oil in 2024 and 2025, respectively, and $3.09/MMBtu and $3.79/MMBtu for natural gas in 2024 and 2025, respectively), remaining constant at 2025 levels thereafter.
 
Year ending December 31,
 
2024E
2025E
2026E
2027E
2028E
EBITDA (consolidated) (in millions)(1)
$6,744
$6,642
$6,795
$6,937
$7,100
Operating Cash Flows (in millions)(2)
$5,824
$5,751
$5,871
$6,000
$6,138
Capital Expenditures (in millions)
$2,407
$2,604
$2,636
$2,636
$2,636
After-Tax Levered Free Cash Flow (in millions)(3)
$3,417
$3,146
$3,235
$3,364
$3,503
(1)
EBITDA (consolidated) is defined as estimated earnings before interest, taxes, depreciation and amortization and certain other cash adjustments.
(2)
Operating Cash Flows is defined as EBITDA (consolidated) minus (i) interest expense and cash taxes and plus (ii) certain other cash adjustments.
(3)
After-Tax Levered Free Cash Flow is defined as Operating Cash Flows minus Capital Expenditures.
Diamondback Projections for Endeavor
The following tables set forth certain summarized prospective financial information regarding Endeavor on a standalone basis for the years ending December 31, 2024 through 2028 (the “Diamondback projections for Endeavor”), which information was prepared by Diamondback’s management, provided to the Board and directed by Diamondback to be used and relied upon by Jefferies in connection with the financial analyses that Jefferies performed in connection with its opinion described in “ —Opinion of Diamondback’s Financial Advisor.” The Diamondback projections for Endeavor should not be regarded as an indication that Diamondback considered, or now considers, it to be necessarily predictive of actual future performance or events, or that such information should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared.
In preparing the Diamondback projections for Endeavor, Diamondback’s management team used, for the projection periods, two different scenarios regarding commodity prices. The summarized prospective financial information in the table immediately below reflects the first scenario, which assumes a flat price of $75.00/bbl with respect to oil and a flat price of $3.00/MMBtu with respect to natural gas.
 
Year ending December 31,
 
2024E
2025E
2026E
2027E
2028E
EBITDA (consolidated) (in millions)(1)
$5,276
$5,441
$5,405
$5,427
$5,463
Operating Cash Flows (in millions)(2)
$4,364
$4,402
$4,358
$4,371
$4,381
Capital Expenditures (in millions)
$2,608
$1,696
$1,522
$1,503
$1,417
After-Tax Levered Free Cash Flow (in millions)(3)
$1,757
$2,706
$2,836
$2,867
$2,964
Unlevered Free Cash Flow (in millions)(4)
$2,090
$3,039
$3,169
$3,201
$3,297
(1)
EBITDA (consolidated) is defined as estimated earnings before interest, taxes, depreciation and amortization and certain other cash adjustments.
(2)
Operating Cash Flows is defined as EBITDA (consolidated) minus (i) interest expense and cash taxes and plus (ii) certain other cash adjustments.
(3)
After-Tax Levered Free Cash Flow is defined as Operating Cash Flows minus Capital Expenditures.
(4)
Unlevered Free Cash Flow is defined as EBITDA (consolidated) minus Capital Expenditures and cash taxes.
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The summarized prospective financial information in the table immediately below reflects the second scenario, which assumes First Call WTI Pricing for oil prices reflecting Wall Street research consensus estimates (as of February 9, 2024) for 2024 and 2025 (which were on average $75.61/bbl and $71.27/bbl for oil in 2024 and 2025, respectively, and $3.09/MMBtu and $3.79/MMBtu for natural gas in 2024 and 2025, respectively), remaining constant at 2025 levels thereafter.
 
Year ending December 31,
 
2024E
2025E
2026E
2027E
2028E
EBITDA (consolidated) (in millions)(1)
$5,336
$5,259
$5,207
$5,222
$5,251
Operating Cash Flows (in millions)(2)
$4,412
$4,258
$4,201
$4,208
$4,213
Capital Expenditures (in millions)
$2,608
$1,696
$1,522
$1,503
$1,417
After-Tax Levered Free Cash Flow (in millions)(3)
$1,804
$2,562
$2,679
$2,705
$2,796
(1)
EBITDA (consolidated) is defined as estimated earnings before interest, taxes, depreciation and amortization and certain other cash adjustments.
(2)
Operating Cash Flows is defined as EBITDA (consolidated) minus (i) interest expense and cash taxes and plus (ii) certain other cash adjustments.
(3)
After-Tax Levered Free Cash Flow is defined as Operating Cash Flows minus Capital Expenditures.
Diamondback Management Projections for Expected Synergies
Diamondback’s management estimated and provided to Jefferies for its use and reliance in connection with the financial analyses that Jefferies performed in connection with its opinion described in “ —Opinion of Diamondback’s Financial Advisor”, the following annual synergies in years 2025 and thereafter, which are included in the Diamondback projections for Endeavor (the “Diamondback expected synergies”):
Capital and operating cost synergies of approximately $325 million; and
Financial and corporate cost synergies of approximately $75 million.
The Diamondback expected synergies should not be regarded as an indication that Diamondback considered, or now considers, it to be necessarily predictive of actual future performance or events, or that such information should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared.
Opinion of Diamondback’s Financial Advisor
Pursuant to an engagement letter dated as of January 20, 2024, as amended on February 2, 2024, Diamondback retained Jefferies to act as its lead financial advisor in connection with a possible acquisition or series of related acquisitions by Diamondback of all or substantially all of the assets of Endeavor. At a meeting of the Board on February 11, 2024, Jefferies rendered an oral opinion, confirmed by delivery of a written opinion dated as of the same date, to the Board to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies as set forth in its opinion, the Merger Consideration to be paid by Diamondback pursuant to the Merger Agreement was fair, from a financial point of view, to Diamondback.
The full text of the written opinion of Jefferies, dated as of February 11, 2024, is attached hereto as Annex C. Jefferies’ opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Jefferies in rendering its opinion. Jefferies’ opinion was directed to the Board and addresses only the fairness, from a financial point of view, of the Merger Consideration to be paid by Diamondback pursuant to the Merger Agreement as of the date of the opinion to Diamondback. The summary of the opinion of Jefferies set forth below is qualified in its entirety by reference to the full text of the opinion, a copy of which is attached as Annex C to this proxy statement.
In arriving at its opinion, Jefferies, among other things:
reviewed a draft dated February 10, 2024 of the Merger Agreement;
reviewed certain publicly available financial and other information about Diamondback;
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reviewed certain information furnished to Jefferies by Diamondback management, relating to the business, operations and prospects of Diamondback, including financial projections and analyses under various business assumptions;
reviewed certain information furnished to Jefferies by Diamondback management, relating to the business, operations and prospects of Endeavor, including financial projections and analyses under various business assumptions, which information was approved for Jefferies’ use by the Board;
reviewed information relating to certain financial and operational benefits and operating synergies (including the amount and timing thereof) anticipated by Diamondback management to result from the Merger, and approved for Jefferies’ use by the Board;
considered the potential pro forma impact of the Merger;
reviewed certain estimates of tax benefits resulting from the Merger and Diamondback’s ability to utilize those tax benefits to achieve future tax savings that, in each case, were prepared by, or at the direction of Diamondback management, and approved for Jefferies’ use by the Board;
held discussions with members of senior management of Diamondback concerning the matters described in the second, third, fourth, fifth, sixth and seventh bullet points above;
reviewed the implied trading multiples of certain publicly traded companies that Jefferies deemed relevant in evaluating Diamondback and Endeavor;
compared the proposed financial terms of the Merger with the publicly available financial terms of certain other transactions that Jefferies deemed relevant;
conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.
In Jefferies’ review and analysis and in rendering its opinion, with the Board’s permission, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by or on behalf of Diamondback or that was publicly available to Jefferies (including, without limitation, the information described above) or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of Diamondback management that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, Diamondback or Endeavor, nor was Jefferies furnished with any such evaluations or appraisals, nor did Jefferies assume any responsibility to obtain any such evaluations or appraisals.
With respect to the financial forecasts provided to Jefferies and, at the Board’s direction, reviewed by Jefferies, Jefferies’ opinion noted that projecting the future results of any company is inherently subject to uncertainty. With respect to the projections for each of Diamondback and Endeavor, in each case, prepared by Diamondback management and provided to Jefferies by Diamondback, the Board informed Jefferies, and Jefferies assumed with the Board's consent, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgment of Diamondback management as to the future financial performance of Diamondback and Endeavor, as the case may be. Jefferies’ assumed with the Board’s consent, that the estimated tax benefits resulting from the Merger provided to Jefferies by Diamondback management were reasonably prepared by Diamondback management on bases reflecting the currently available estimates and judgments of Diamondback management as to the amount and timing of such estimated tax benefits. Diamondback management further advised Jefferies and, at the Board’s direction, Jefferies assumed, that the estimated tax benefits resulting from the Merger were reasonably achievable in the amounts and at the times projected. At the Board’s direction and with the Board’s consent, Jefferies assumed that the Diamondback expected synergies anticipated by Diamondback management to result from the Merger would be realized in the amounts and at the times projected. Jefferies expressed no opinion as to such financial forecasts or the assumptions on which they were made, including the Diamondback expected synergies and estimated tax benefits anticipated by Diamondback management to result from the Merger, nor did Jefferies express any opinion as to any potential pro forma effects of the transactions contemplated by the Merger Agreement, including the Merger.
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Jefferies’ opinion was based on economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of the date of its opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies becomes aware after the date of its opinion.
Jefferies made no independent investigation of, any legal or accounting or tax matters affecting Diamondback or Endeavor, and Jefferies assumed the correctness in all respects material to its analysis of all legal and accounting advice given to Diamondback and the Board, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the Merger Agreement to Diamondback. Jefferies assumed that the final form of the Merger Agreement would be substantially similar to the last draft reviewed by Jefferies in all respects material to Jefferies’ opinion. Jefferies also assumed that the Merger would be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any term, condition or agreement in any respect, material to the opinion. Jefferies assumed that in the course of obtaining the necessary regulatory or third-party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Diamondback or Endeavor or the contemplated benefits of the Merger, in any respect material to Jefferies’ opinion. Jefferies expressed no opinion as to the price shares of Diamondback common stock or any other securities of Diamondback would trade at any future time.
Jefferies’ opinion was for the use and benefit of the Board (in its capacity as such) in its consideration of the transactions contemplated by the Merger Agreement, and its opinion did not address the relative merits of the transactions contemplated by the Merger Agreement as compared to any alternative transaction or opportunity that might be available to Diamondback, nor did it address the underlying business decision by Diamondback to engage in the transactions contemplated by the Merger Agreement, including the Merger. Jefferies’ opinion did not constitute a recommendation as to how any holder of Diamondback common stock should vote or act with respect to any matter related to the Merger, including, without limitation, with respect to approval of the issuance of Diamondback common stock in the Merger or approval of the proposed amendment to Diamondback's certificate of incorporation.
In addition, Jefferies was not asked to address, and its opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Diamondback. Jefferies’ opinion was authorized by the fairness opinion committee of Jefferies.
In connection with rendering its opinion, Jefferies performed a variety of financial and comparative analyses. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or summary description. Jefferies believes that its analyses must be considered as a whole. Considering any portion of Jefferies’ analyses or the factors considered by Jefferies, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying the conclusion expressed in Jefferies’ opinion. In addition, Jefferies may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuations resulting from any particular analysis described below should not be taken to be Jefferies’ view of the actual value of Diamondback or Endeavor. Accordingly, the conclusions reached by Jefferies are based on all analyses and factors taken as a whole and also on the application of Jefferies’ own experience and judgment.
In performing its analyses, Jefferies made numerous assumptions with respect to industry performance, general business, economic, monetary, regulatory, market and other conditions and other matters, many of which are beyond the parties’ and Jefferies’ control. The analyses performed by Jefferies are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the per share value of Diamondback common stock do not purport to be appraisals or to reflect the prices at which Diamondback common stock may actually be sold or acquired. The analyses performed were prepared solely as part of Jefferies’ analysis of the fairness, from a financial point of view, of the Merger Consideration to be paid by Diamondback pursuant to the Merger Agreement, and were provided to the Board in connection with the delivery of Jefferies’ opinion.
The following is a summary of the material financial and comparative analyses performed by Jefferies in connection with Jefferies’ delivery of its opinion and that was presented to the Board on February 11, 2024. The
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financial analyses summarized below include information presented in tabular format. In order to understand fully Jefferies’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies’ financial analyses. The following summary does not purport to be a complete description of the financial analyses performed by Jefferies and factors considered in connection with Jefferies’ opinion. The following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February, 9, 2024, and is not necessarily indicative of current or future market conditions.
Endeavor’s Standalone Financial Analyses
Discounted Cash Flow Analysis
Using the Diamondback projections for Endeavor prepared by Diamondback management, Jefferies performed a discounted cash flow analysis of Endeavor on a stand-alone basis (taking into account the Diamondback expected synergies). For purposes of this analysis, Jefferies used oil and gas price estimates provided by Diamondback management, which were $75.00/Bbl for oil and $3.00/MMBtu for natural gas (“Diamondback Management Pricing Estimates”). Jefferies calculated the unlevered free cash flows of Endeavor for the period commencing on January 1, 2024 through December 31, 2028, which it calculated as estimated earnings before interest, tax, depreciation and amortization (“EBITDA”), less capital expenditures and cash taxes. Jefferies then calculated the terminal value of Endeavor by applying a range of multiples of EBITDA in the terminal year of 4.2x to 5.2x, which range was selected by Jefferies in its professional judgment, to estimated terminal year EBITDA in 2028 for Endeavor, based on the Diamondback projections for Endeavor. The present values as of January 1, 2024 of the unlevered free cash flows and the terminal value of Endeavor were then calculated using discount rates ranging from 7.9% to 8.9%, which rates were based on the estimated weighted average cost of capital for Endeavor. Jefferies determined ranges of implied enterprise values for Endeavor by adding the range of present values as of January 1, 2024 it derived above for Endeavor’s unlevered free cash flows and terminal values. This analysis indicated a range of implied enterprise values of $26,249 million to $30,880 million, compared to the enterprise value of $26,000 million represented by the Merger Consideration.
Net Asset Value Analysis
Jefferies performed a net asset value analysis of Endeavor. Jefferies calculated indications of the present value of the unlevered, asset-level free cash flows that Endeavor could be expected to generate from existing proved developed reserves, development plans for proved undeveloped reserves and development of additional undeveloped reserves using the Diamondback projections for Endeavor (which take into account the Diamondback expected synergies) and Diamondback Management Pricing Estimates. Jefferies calculated indications of net present values as of January 1, 2024 of the asset-level free cash flows for Endeavor using discount rates ranging from 7.9% to 8.9%, which rates were based on the estimated weighted average cost of capital of Endeavor. Jefferies then calculated a range of implied equity values for Endeavor by (i) subtracting the present value as of January 1, 2024 of non-drilling and completion capital expenses, general and administrative expenses and cash taxes payable by Endeavor, in each case using estimates provided by Diamondback management, from the indications of the present value of the asset-level free cash flows calculated by Jefferies, (ii) adjusting for the present value as of January 1, 2024 of mark-to-market commodity hedges, and (iii) applying discount rates ranging from 7.9% to 8.9%, which reflects an estimate of Endeavor's weighted average cost of capital. This analysis implied a range of implied enterprise values for Endeavor from $30,373 million to $32,793 million, compared to the enterprise value of $26,000 million represented by the Merger Consideration.
Jefferies also performed a net asset value analysis of Endeavor using a discount rate based on industry requisite return levels of 10% to 13% (PV-10 to PV-13). This analysis implied a range of implied enterprise values for Endeavor from $23,414 million to $28,349 million, compared to the enterprise value of $26,000 million represented by the Merger Consideration.
Comparable Public Company Analysis
With respect to Endeavor, Jefferies reviewed publicly available financial and stock market information of the following seven publicly traded natural gas and oil exploration and production companies that Jefferies in its
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professional judgment considered generally relevant to Endeavor for purposes of its financial analyses (which are referred to as the “Endeavor Selected Companies”), and compared such information with similar financial data of Endeavor prepared and provided by Diamondback management to Jefferies:
ConocoPhillips Company
Coterra Energy, Inc.
Devon Energy Corporation
EOG Resources, Inc.
Ovintiv Inc.
Occidental Petroleum Corporation
Permian Resources Corporation
In its analysis, Jefferies derived multiples for the Endeavor Selected Companies from the following metrics:
the estimated EBITDA for calendar year 2024 (“2024E EBITDA”),
the estimated levered free cash flow (calculated as EBITDA plus realized hedge gains (loss), less interest, cash taxes, and capital expenditures) for calendar year 2024 (“2024E LFCF”), and
the estimated EBITDA for calendar year 2025 (“2025E EBITDA”), and
the estimated levered free cash flow for calendar year 2024 (“2025E LFCF”).
Estimated EBITDA and levered free cash flow for the Endeavor Selected Companies was based on market data as of February 9, 2024 and utilizing First Call Pricing. For this analysis, Jefferies assumed First Call WTI Pricing for oil prices reflecting Wall Street research consensus estimates for 2024 and 2025 (which were $75.61 Bbl and $71.27 Bbl for oil in 2024 and 2025, respectively, and $3.09 MMBtu and $3.79 MMBtu for natural gas in 2024 and 2025, respectively), remaining constant at 2025 levels thereafter (“First Call Pricing”). This analysis indicated the following:
Endeavor Selected Companies
 
Selected Multiples
Benchmark
Low
Avg.
High
2024E EBITDA
4.2x
4.7x
5.2x
2024E LFCF
12.5%
10.0%
8.5%
2025E EBITDA
4.0x
4.4x
5.0x
2025E LFCF
12.5%
10.8%
9.5%
Using the reference ranges for the benchmarks set forth below, which ranges were selected based on the low, average, and high multiples of the Endeavor Selected Companies, and using metrics calculated by Jefferies based on the Diamondback projections for Endeavor utilizing First Call Pricing, Jefferies determined the ranges of implied total enterprise values set forth opposite the relevant benchmarks below and compared the results to the enterprise value of $26,000 million represented by the Merger Consideration.
 
 
(Dollar Amounts in Millions)
 
 
Implied TEV
Benchmark
Metric
Low
Avg.
High
2024E EBITDA
$5,336
$22,412
$25,080
$27,748
2024E LFCF
$1,804
$22,435
$26,044
$29,228
2025E EBITDA
$5,259
$21,036
$23,140
$26,295
2025E LFCF
$2,562
$28,496
$31,722
$34,968
Precedent Transaction Analysis
Using publicly available information, Jefferies reviewed financial data to the extent available relating to two selected transactions announced in 2023 involving upstream companies in the Midland Basin with a transaction
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value over $10 billion that Jefferies in its professional judgment considered generally relevant to Endeavor for purposes of its financial analyses, which are referred to as the “precedent transactions”.
The precedent transactions and the transaction dates, were as follows:
 
 
 
(Dollar Amounts in Millions)
Transaction Date
Buyer
Seller
Transaction Value
Transaction
Consideration
Mix
October 2023
ExxonMobil Corporation
Pioneer Natural Resources Company
$61,648
92% stock / 8% cash
December 2023
Occidental Petroleum
CrownRock Minerals LLC
$11,999
14% stock / 86% cash
In its analysis, Jefferies derived multiples for each of the Precedent Transactions based on the following metrics:
the estimated EBITDA for calendar year 2024;
the estimated asset level free cash flow (calculated as EBITDA less capital expenditures) for calendar year 2024 (“2024E Asset Level FCF”) and
the operated net locations (“OP Net Locations”).
This analysis indicated the following:
 
Selected Multiple
Benchmark
Low
Avg.
High
2024E EBITDA
5.2x
5.6x
5.9x
2024E Asset Level FCF
11.6%
10.6%
9.5%
OP Net Locations ($MM / Location)
$4.1
$4.4
$4.8
Using the reference ranges for the benchmarks set forth above, which ranges were selected by Jefferies in its professional judgment, and the Diamondback projections for Endeavor, Jefferies determined ranges of total implied enterprise values for Endeavor, utilizing First Call Pricing. At the direction of Diamondback management, Jefferies assumed a PV-10 value of $19.2 billion for proved developed reserves. This analysis indicated the ranges of implied enterprise values below.
 
 
(Dollar Amounts in Millions)
 
 
Implied TEV
Benchmark
Metric
Low
Avg.
High
2024E EBITDA
$5,276
$27,583
$29,301
$31,019
2024E Asset Level FCF
$2,668
$22,950
$25,240
$28,038
OP Net Locations ($MM / Location)
$2,339
$28,599
$29,521
$30,442
No precedent transaction is identical to the Merger, and none of the target companies in the precedent transactions is identical to Endeavor. In evaluating the precedent transactions, Jefferies made numerous judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond Endeavor’s, Diamondback’s, and Jefferies’ control. Mathematical analysis, such as determining the high, low and average is not in itself a meaningful method of using t he precedent transactions’ data.
Diamondback Standalone Financial Analyses
Discounted Cash Flow Analysis
Using the Diamondback projections for Diamondback based on Diamondback Management Pricing Estimates, Jefferies performed a discounted cash flow analysis of Diamondback on a stand-alone basis. Jefferies calculated the unlevered free cash flows of Diamondback for calendar years 2024 through 2028, which it calculated as estimated EBITDA, less capital expenditures, and cash taxes. Jefferies then calculated the terminal value of Diamondback by applying a range of multiples of EBITDA in the terminal year of 4.2x to 5.2x, which range was selected by Jefferies in its professional judgment, to estimated terminal year EBITDA in 2028 for
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Diamondback, based on the Diamondback projections for Diamondback. The present values of the unlevered free cash flows and the terminal value of Diamondback were then calculated using discount rates ranging from 8.3% to 9.3%, which rates were based on the estimated weighted average cost of capital for Diamondback. Jefferies determined ranges of implied enterprise values for Diamondback by adding the range of present values it derived above for Diamondback’s unlevered free cash flows and terminal values. Jefferies then subtracted from the range of illustrative enterprise values it derived for Diamondback the estimated total net debt of Diamondback as of December 31, 2023 (adjusted for $28 million in senior notes repurchased in January 2024), and non-controlling interest in the aggregate amount of $8,939 million, as estimated and provided for Jefferies’ use by Diamondback management. Based on Diamondback’s fully diluted share count of 179.5 million shares as provided to Jefferies by Diamondback management, this analysis indicated a range of implied enterprise values per share of $124.06 to $155.95, compared to $153.51, the 30-day volume weighted average price of Diamondback common stock as of February 9, 2024, the last trading day prior to the announcement of the Merger Agreement.
Net Asset Value Analysis
Jefferies performed a net asset value analysis of Diamondback. Jefferies calculated indications of the present value of the unlevered, asset-level free cash flows that Diamondback could be expected to generate from existing proved developed reserves, development plans for proved undeveloped reserves and development of additional undeveloped reserves using Diamondback projections for Diamondback and Diamondback Management Pricing Estimates. Jefferies calculated indications of net present values of the asset-level free cash flows for Diamondback using discount rates ranging from 8.3% to 9.3%, reflecting an estimate of Diamondback’s weighted average cost of capital. Jefferies then calculated a range of implied equity values for Diamondback by subtracting from the range of the present value of the asset-level free cash flows calculated by Jefferies (i) the present value of general and administrative expenses and cash taxes payable by Diamondback using estimates provided by Diamondback management, applying discount rates ranging from 8.3% to 9.3%, reflecting an estimate of Diamondback’s weighted average cost of capital (ii) the present value of mark-to-market commodity hedges, applying discount rates ranging from 8.3% to 9.3%, and (iii) Diamondback’s net debt of $5,140 million as of December 31, 2023 (exclusive of the net debt of Diamondback’s subsidiary Viper Energy, Inc.), and adjusting the result for Diamondback’s 51% equity ownership interest in Viper which Jefferies valued at $2,876 million based on Viper’s closing stock price on February 8, 2024 of $31.71 per share and Diamondback’s ownership of 90.7 million shares, as provided by Diamondback management. Based on Diamondback’s fully diluted share count of 179.5 million shares as provided to Jefferies by Diamondback management, this analysis indicated a range of implied equity values per share for Diamondback common stock of $176.54 to $189.69, compared to $153.51, the 30-day volume weighted average price of Diamondback common stock as of February 9, 2024, the last trading day prior to the announcement of the Merger Agreement.
Jefferies also performed a net asset value analysis of Diamondback using a discount rate based on industry requisite return levels of 10% to 13% (PV-10 to PV-13). This analysis indicated a range of implied equity values per share for Diamondback common stock of $139.79 to $168.48, compared to $153.51, the 30-day volume weighted average price of Diamondback common stock as of February 9, 2024, the last trading day prior to the announcement of the Merger Agreement.
Comparable Public Company Analysis
With respect to Diamondback, Jefferies reviewed publicly available financial and stock market information of the following seven publicly traded natural gas and oil exploration and production companies that Jefferies in its professional judgment considered generally relevant to Diamondback for purposes of its financial analyses (which are referred to as the “Diamondback Selected Companies”), and compared such information with similar financial data of Diamondback prepared and provided by Diamondback management to Jefferies:
ConocoPhillips Company
Coterra Energy, Inc.
Devon Energy Corporation
EOG Resources, Inc.
Ovintiv Inc.
Occidental Petroleum Corporation
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Permian Resources Corporation
In its analysis, Jefferies derived multiples for the Diamondback Selected Companies from the following metrics:
the estimated EBITDA for calendar year 2024,
the estimated 2024 levered free cash flow,
the estimated EBITDA for calendar year 2025, and
the estimated levered free cash flow for calendar year 2025.
Estimated EBITDA and levered free cash flow for the Diamondback Selected Companies was based on market data and Capital IQ consensus estimates as of February 9, 2024. For this analysis, Jefferies assumed First Call Pricing. This analysis indicated the following:
Diamondback Selected Companies
 
Selected Multiples
Benchmark
Low
Avg.
High
2024E EBITDA
4.2x
4.7x
5.2x
2024E LFCF
12.5%
10.0%
8.5%
2025E EBITDA
4.0x
4.4x
5.0x
2025E LFCF
12.5%
10.8%
9.5%
Using the reference ranges for the benchmarks set forth below, which ranges were selected based on the low, average, and high multiples of the Diamondback Selected Companies, and using metrics calculated by Jefferies based on the Diamondback projections for Diamondback utilizing First Call Pricing, Jefferies determined the ranges of implied total enterprise value for Diamondback set forth opposite the relevant benchmark below.
 
(Dollar Amounts in Million)
 
Implied TEV
Benchmark
Metric
Low
Avg.
High
2024E EBITDA
$6,744
$22,412
$25,080
$27,748
2024E LFCF
$3,417
$22,435
$26,044
$29,228
2025E EBITDA
$6,642
$21,036
$23,140
$26,295
2025E LFCF
$3,146
$28,496
$31,722
$34,968
Jefferies then calculated estimated equity value ranges for Diamondback by adjusting the ranges of implied total enterprise value for Diamondback by consolidated Diamondback net debt of $6,207 million (including net debt of Viper) and non-controlling interest of $2,732 million. Based on Diamondback’s fully diluted share count of 179.5 million shares as provided to Jefferies by Diamondback management, this analysis indicated the ranges of implied equity value and equity value per share set forth opposite the relevant benchmark below, compared to $153.51, the 30-day volume weighted average price of Diamondback Common Stock as of February 9, 2024, the last trading day prior to the announcement of the Merger Agreement:
 
(Dollar Amounts in Millions, except Per Share Amount)
 
Implied Equity Value
Implied Equity Value/Share
Benchmark
Low
Avg.
High
Low
Avg.
High
2024E EBITDA
$19,387
$22,759
$26,131
$108.03
$126.82
$145.61
2024E LFCF
$27,337
$34,171
$40,202
$152.33
$190.41
$224.01
2025E EBITDA
$17,628
$20,285
$24,270
$98.23
$113.03
$135.23
2025E LFCF
$25,171
$29,133
$33,119
$140.26
$162.33
$184.55
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General
Jefferies’ opinion was one of many factors taken into consideration by the Board in making its determination to approve the proposed transactions contemplated by the Merger Agreement and should not be considered determinative of the view of the Board with respect to the proposed transactions contemplated by the Merger Agreement.
Jefferies was selected by the Board based on Jefferies’ qualifications, expertise and reputation. Jefferies is an internationally recognized investment banking and advisory firm. Jefferies, as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, financial restructurings and other financial services.
Pursuant to the engagement letter dated as of January 20, 2024 and amended as of February 2, 2024, Jefferies was engaged by Diamondback to act as financial advisor to Diamondback in connection with a possible series of related acquisitions by Diamondback of all or substantially all of the assets of Endeavor. Pursuant to Jefferies’ engagement as financial advisor to Diamondback and as a result of Diamondback’s entry into the Merger Agreement and other transactions contemplated therein, Jefferies will receive a fee for its services. Diamondback has agreed to pay Jefferies a transaction fee of $30.0 million, of which $3.0 million was payable upon delivery of Jefferies' opinion, and the remainder of which is payable upon the closing of the Merger contemplated by the Merger Agreement. No portion of the opinion fee was contingent on the conclusion expressed in Jefferies’ opinion. Diamondback has agreed to reimburse Jefferies for certain out-of-pocket expenses (including fees and expenses of its counsel) and to indemnify Jefferies and its affiliates against certain liabilities arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement. In the past, Jefferies has provided financial advisory and financing services to Diamondback and may continue to do so, and has received, and may receive, fees for the rendering of such services. During the two years prior to the date of its opinion, Jefferies received fees in the aggregate amount of $6.5 million from Diamondback in connection with acting as sole financial advisor in Diamondback’s acquisition of certain premium leasehold of interests and related assets of Lario Oil & Gas Company in January 2023. In the ordinary course of its business, Jefferies and its affiliates may trade or hold securities of Diamondback or Endeavor and/or their respective affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold long or short positions in those securities. In addition, Jefferies may seek to, in the future, provide financial advisory and financing services to Diamondback, Endeavor or entities that are affiliated with Diamondback or Endeavor, for which Jefferies would expect to receive compensation. Jefferies’ opinion may not be used or referred to by Diamondback, or quoted or disclosed to any person in any manner, without Jefferies’ prior written consent.
Certain Effects of the Merger
Subject to the terms and conditions set forth in the Merger Agreement, Merger Sub I will merge with and into Endeavor, with Endeavor surviving the First Merger and becoming a wholly owned subsidiary of Diamondback. Immediately following the First Merger, the First Surviving Company will merge with and into Merger Sub II, with Merger Sub II surviving the Second Merger and continuing (immediately following the Second Merger) as a wholly owned subsidiary of Diamondback. As a result of the Merger, Diamondback will acquire 100% of the Endeavor Interests.
If the Merger is completed, the aggregate consideration in exchange for the Endeavor Interests will be (i) cash consideration of $8.0 billion, subject to adjustments in accordance with the terms of the Merger Agreement, and (ii) 117,267,069 shares of common stock. For additional information, see the section entitled “The Merger Agreement—Merger Consideration.”
The Merger will have the effects set forth in the Merger Agreement, the certificates of merger filed in connection with the Closing and in the relevant provisions of Texas and Delaware law. At the First Merger Effective Time, all the property, rights, privileges, powers and franchises of each of Merger Sub I and Endeavor will vest in the First Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Merger Sub I and Endeavor will become the debts, liabilities, obligations, restrictions, disabilities and duties of the First Surviving Company. At the Merger Effective Time, all the property, rights, privileges, powers
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and franchises of each of Merger Sub II and the First Surviving Company will vest in the Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Merger Sub II and the First Surviving Company will become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Company.
Expected Timing of the Merger
Diamondback currently anticipates that the Merger will be completed in the fourth quarter of 2024, but cannot be certain when or if the conditions to the Merger will be satisfied or, to the extent permitted, waived. The Merger cannot be completed until the conditions set forth in the Merger Agreement are satisfied (or, to the extent permitted, waived).
Board of Directors Following the Merger
Prior to the Closing Date, Diamondback is required to take all necessary actions to cause four individuals mutually agreed by Diamondback and Endeavor in writing prior to the Closing (with any replacement thereto similarly mutually agreed) to be appointed to the Board immediately following the Merger Effective Time. As of the date of this proxy statement, Charles Meloy and Lance Robertson are expected to be designated as two of the new directors and the parties have not determined the identity of the other two directors.
The Stockholders Agreement will provide the Endeavor Stockholders with the right to propose for nomination four directors for election to the Board if they beneficially own at least 25% of the outstanding shares of our common stock, two directors if they beneficially own at least 20% but less than 25% of the outstanding shares of our common stock, and one director if they beneficially own at least 10% but less than 20% of the outstanding shares of our common Stock, in each case subject to certain qualification requirements for such directors. For additional information, see the section entitled “The Stockholders Agreement.”
The Stockholders Agreement
The Stockholders Agreement to be entered into in connection with the Closing, in addition to entitling the Endeavor Stockholders to nominate for election directors to the Board, will grant the Endeavor Stockholders with certain shelf, demand and piggyback registration rights, including that, if not previously filed, Diamondback will file a shelf registration statement to cover the resale of the shares of common stock issued to the Endeavor Stockholders as Common Stock Consideration. Under the terms of the Stockholders Agreement, the Endeavor Stockholders will be subject to certain standstill, voting and transfer restrictions, and Diamondback will be restricted from taking certain limited actions without the consent of the holders of a majority of the shares of common stock held by the Endeavor Stockholders. For additional information, see the section entitled “The Stockholders Agreement.”
Consequences if the Merger is Not Completed
If the approval of the Diamondback Stockholder Approval is not received, or if the Merger is not completed for any other reason, then the Merger Agreement may be terminated. In the event of a termination, the Merger Agreement will be void and have no effect, and there will not be any liability or obligation on the part of any party, except that:
no termination will relieve any party from any liability or damages resulting from a Willful and Material Breach of any of its covenants or agreements set forth in the Merger Agreement or fraud;
no termination will affect the obligations of Diamondback and Endeavor contained in the confidentiality agreement between them; and
certain other provisions of the Merger Agreement, including provisions with respect to the allocation of fees and expenses, including, if applicable, the termination fee or expense reimbursement described below, will survive such termination.
If the Merger Agreement is terminated under specified circumstances, Diamondback may be required to pay Endeavor a termination fee of $1,400,000,000. In the event the Merger Agreement is terminated because of a failure to the receive the Diamondback Stockholder Approval, and the aforementioned $1,400,000,000 termination fee is not otherwise payable under the terms of the Merger Agreement, Diamondback is required to reimburse Endeavor for its transaction related expenses, subject to a cap of $260,000,000. The payment of this
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reimbursement expense will be credited against any termination fee that is subsequently payable by Diamondback. These payments are Endeavor’s sole and exclusive remedy, except in the case of a Willful and Material Breach or fraud, for any claims arising out of the Merger Agreement, together with any costs and expenses incurred by Endeavor in enforcing payment of such payments. In no event will Diamondback be required to pay to Endeavor more than one termination fee.
For additional information, see the section entitled “The Merger Agreement—Termination Fees.”
Financing
Diamondback anticipates that the total amount of funds necessary to satisfy the Obligations will be approximately $8.2 billion. Diamondback expects that these amounts will be funded through some or all of (i) the takeout facility, (ii) cash on hand and/or (iii) the proceeds that Diamondback intends to obtain from other financings or offerings of debt securities in lieu of borrowing under the bridge facility. Pursuant to the Bridge Commitment Letter for the bridge facility, Diamondback received commitments for an aggregate principal amount of $8.0 billion in aggregate principal amount of senior unsecured term bridge loans, the availability of which was and is subject to reduction upon the consummation of the Permanent Financing pursuant to the terms set forth in the Bridge Commitment Letter. On February 29, 2024, Diamondback entered into the $1.5 billion takeout facility and pursuant to the terms of the Bridge Commitment Letter, the commitments with respect to the bridge facility were reduced to $6.5 billion.
Pursuant to the takeout facility, Diamondback received commitments for the extension of a senior unsecured term loan in an aggregate principal amount not to exceed $1.5 billion, consisting of a 1 year, $1,000,000,000 Tranche A and a 2 year, $500,000,000 Tranche B. The commitments under the takeout facility are subject to customary closing conditions. The borrower under the takeout facility is Diamondback E&P LLC, a subsidiary of Diamondback and Diamond guarantees the takeout facility.
The commitments under the takeout facility terminate upon the earliest to occur of (i) the date that is five business days after the first anniversary of the Closing Date (subject, to two three-month extensions pursuant to the extensions of the Outside Date (as defined below)), (ii) the funding of the loans thereunder on the Closing Date, (iii) the occurrence of the Closing Date without the funding of the loans thereunder and (iv) the date that the Merger Agreement is terminated by Diamondback in accordance with the terms of the Merger Agreement.
Diamondback intends to obtain additional financing or issue debt securities in lieu of utilizing the remaining portion of the bridge facility; however, there is no assurance that such alternative arrangements will be available on acceptable terms or at all. If the bridge facility is utilized there can be no assurance that any replacement or supplemental financing in lieu of or to refinance the bridge facility will be available to Diamondback on acceptable terms or at all. Diamondback’s ability to obtain additional debt financing, including financing to refinance, replace or supplement the bridge facility, will be subject to various factors, including market conditions and operating performance.
The funding under either the Bridge Commitment Letter or the takeout facility, as applicable, is subject to customary closing conditions, including conditions that do not relate directly to the conditions to the closing of the Merger in the Merger Agreement.
Takeout Facility
The proceeds of the loans under the takeout facility will be used to provide a portion of the debt financing required to fund the cash consideration for the Merger, to refinance certain indebtedness of Endeavor, which is required to consummate the proposed transaction and/or for the payment of related fees and expenses.
Interest Rate
The interest rate per annum applicable to the loans under the takeout facility are, at Diamondbacks’ option, equal to either a base rate or a Term SOFR (or successor) rate plus an applicable margin, which may (in the case of Term SOFR loans) range, in the case of Tranche A loans, from 1.125% to 2.000%, and, in the case of Tranche B loans, from 1.250% to 2.125%, in each case based on Diamondback’s public debt rating. The applicable margin on base rate loans is 1.00% less than the corresponding margin on Term SOFR (or successor rate) based loans.
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Amortization and Prepayments
The maturity of the Tranche A will be one year after the Closing Date and the maturity of the Tranche B will be two years after the Closing date. Once advanced, the outstanding principal amount of the term loans will be due in full on the respective maturity dates. The takeout facility is not subject to mandatory prepayment. Diamondback may prepay all or any portion of the term loans under the takeout facility prior to maturity without premium or penalty, subject to reimbursement of any Term SOFR breakage costs of the lenders.
Conditions to Funding
The obligation of the lenders to fund the loans under the takeout facility on the Closing Date is subject, among other things, to:
consummation of the Merger substantially concurrently with the closing and funding of the takeout facility in all material respects in accordance with the Merger Agreement, without giving effect to any amendment or modification thereto which is materially adverse to the interests of the lenders under the takeout facilities, who are collectively referred to in this proxy statement as the takeout lenders, unless approved by the arranger under the takeout facility (such approval not to be unreasonably withheld, delayed or conditioned);
the accuracy of certain limited representations and warranties;
delivery of certain historical consolidated financial statements of Diamondback and Endeavor;
the repayment of certain indebtedness of Endeavor and its respective subsidiaries substantially concurrent with the funding of the takeout facility;
solvency of Diamondback and its subsidiaries, on a consolidated basis, after giving effect to the consummation of the transactions; and
since February 11, 2024, no material adverse effect on Endeavor.
For more information, see “The Merger Agreement—Financing.”
Certain Covenants and Events of Default
The takeout facility contains customary affirmative and negative covenants and events of default (including relating to a change of control) that are customary for similar facilities for similarly rated borrowers. Among other things, such negative covenants restrict, subject to certain exceptions, the ability of Diamondback and its subsidiaries, to create liens, incur indebtedness (solely with respect to any non-guarantor subsidiary of Diamondback), mergers or consolidations, or change the nature of their business. In addition, the takeout facility contains financial covenants which require that Diamondback’s consolidated total net debt to capitalization ratio may not exceed 65% on the last day of any of its fiscal quarters.
Regulatory Approvals
Diamondback and Endeavor are not currently aware of any other material governmental approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations or other confirmations that are required prior to the parties’ completion of the Merger other than those described below. If additional approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations and other confirmations are required to complete the transaction, Diamondback and Endeavor intend to seek such approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations and other confirmations.
Diamondback and Endeavor expect to complete the Merger in the fourth quarter of 2024. Although Diamondback and Endeavor believe that they will receive the required approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations and other confirmations to complete the transaction, neither can give any assurance as to the timing of these approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations and other confirmations as to Diamondback’s and Endeavor’ ultimate ability to obtain such approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations and other confirmations (or any additional approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations or other confirmations which may otherwise
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become necessary) or that such approvals, consents, registrations, permits, expirations or terminations of waiting periods, authorizations or other confirmations will be obtained on terms and subject to conditions satisfactory to Diamondback and Endeavor. The receipt of the regulatory approvals (as described herein) is a condition to the obligation of each of Diamondback and Endeavor to complete the Merger.
The Merger is subject to the requirements of the HSR Act and the related rules and regulations, which provide that certain transactions may not be completed until notification and report forms have been furnished to the DOJ and the FTC and until certain waiting periods have been terminated or have expired. The HSR Act requires Diamondback and Endeavor to observe a 30-calendar-day waiting period after the submission of their respective HSR notification and report forms before consummating their transactions. The waiting period may be shortened if the reviewing agency grants “early termination” of the waiting period (although the practice of granting early termination has been temporarily suspended by the FTC and DOJ), or lengthened if the acquiring person (here Diamondback) voluntarily withdraws and refiles to allow a second 30-calendar-day waiting period, or if the reviewing agency issues a request for additional information or documentary material (the “Second Request”) prior to the expiration of the initial waiting period. If a Second Request is issued, the parties must observe a second 30-calendar-day waiting period, which begins to run only after each of the parties has substantially complied with the Second Request. It is also possible that Diamondback and Endeavor could enter into a timing agreement with the FTC or DOJ that could affect the timing of the consummation of the Merger.
Diamondback and Endeavor each filed the required notification and report forms under the HSR Act on February 26, 2024. Diamondback voluntarily withdrew its HSR Act notification and report form on March 27, 2024 and refiled it on March 28, 2024. Accordingly, the statutory waiting period under the HSR Act will be scheduled to expire at 11:59 p.m. Eastern Time on April 29, 2024. The statutory waiting period may be extended if the FTC issues a request for additional information and documentary material.
For a further description of Diamondback’s and Endeavor’s respective obligations under the Merger Agreement with respect to regulatory approvals, see the section entitled “The Merger Agreement—Covenant and Agreements—Efforts to Complete the Merger.”
Stock Exchange Listing
Diamondback has agreed to use its reasonable best efforts to cause the shares of common stock to be issued as Common Stock Consideration to be approved for listing on Nasdaq, subject to official notice of issuance, prior to the First Merger Effective Time.
Legal Proceedings
On February 28, 2024, Plymouth County Retirement Association and Kenneth Webb, purported stockholders of Diamondback, filed a purported class action complaint in the Court of Chancery of the State of Delaware, captioned Plymouth County Retirement Association and Kenneth Webb v. Travis Stice et al., Docket No. 2024-0183 (the “Webb Action”), against Diamondback and the Board. The Webb Action alleged, among other things, that the Board breached its fiduciary duties to Diamondback stockholders by approving the Stockholders Agreement. As a result of the amendment to the Merger Agreement entered into on March 18, 2024, which amends and restates the form of Stockholders Agreement, the plaintiffs agreed to dismiss the Webb Action. The Webb Action was dismissed as moot on March 25, 2024.
On March 28, 2024, a purported Diamondback stockholder sent a demand letter alleging deficiencies and/or omissions in the preliminary proxy statement Diamondback filed on March 19, 2024. The demand letter seeks additional disclosures to remedy these purported deficiencies. Diamondback believes that the allegations in the letter are without merit.
As of March 28, 2024, Diamondback was not aware of the filing of other lawsuits challenging the Merger Agreement, the Stockholders Agreement, the transactions contemplated thereby or the proxy statement; however, Diamondback may become subject to other lawsuits in the future relating to such matters. See the section entitled “Risk Factors” for additional information and risks regarding any such potential litigation.
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THE MERGER AGREEMENT
The following summary describes certain material provisions of the Merger Agreement. This summary is not complete and is qualified in its entirety by the Merger Agreement and the Letter Agreement, amending the Merger Agreement, which are attached to this proxy statement as Annex A-1 and Annex A-2 respectively, and which constitute part of this proxy statement. We encourage you to read carefully the Merger Agreement in its entirety because this summary may not contain all of the information about the Merger Agreement that is important to you. The rights and obligations of the parties to the Merger Agreement are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.
The representations, warranties, covenants and agreements described below and included in the Merger Agreement were made only for purposes of the Merger Agreement as of specific dates, were solely for the benefit of the parties to the Merger Agreement (except as otherwise specified therein) and may be subject to important qualifications, limitations and supplemental information agreed to by the parties in connection with negotiating the terms of the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating contractual risk between the parties rather than to establish matters as facts and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Investors and security holders are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto, or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement. In addition, you should not rely on the covenants and agreements in the Merger Agreement as actual limitations on the respective businesses of the parties because the parties to the Merger Agreement may take certain actions that are either expressly permitted in the confidential disclosure schedule to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A-1 hereto (along with the Letter Agreement, amending the Merger Agreement, as Annex A-2), only to provide you with information regarding its terms and conditions and not to provide any other factual information regarding the parties, or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this document and in the filings that Diamondback has made or will make with the SEC. See the section entitled “Where You Can Find More Information.”
Structure of the Merger
Subject to the terms and conditions set forth in the Merger Agreement, Merger Sub I will merge with and into Endeavor, with Endeavor surviving the First Merger and becoming a wholly owned subsidiary of Diamondback. Immediately following the First Merger, the First Surviving Company will merge with and into Merger Sub II, with Merger Sub II surviving the Second Merger and continuing (immediately following the Second Merger) as a wholly owned subsidiary of Diamondback. As a result of the Merger, Diamondback will acquire 100% of the Endeavor Interests. As mentioned previously, the First Merger and the Second Merger are collectively referred to herein as the “Merger.”
It is intended that the First Merger and the Second Merger, taken together, will constitute an integrated transaction for U.S. federal income tax purposes that will qualify as a “reorganization” within the meaning of Section 368(a) of the Code (the “Reorganization Treatment”).
We collectively refer to Diamondback and the surviving entity, after giving effect to the Merger, together with their subsidiaries, as the “combined company.”
Effective Time
In order to effectuate the First Merger, a merger certificate will be filed in each of Texas and Delaware. The later of the date and time at which the Texas merger certificate or the Delaware merger certificate for the First Merger, as applicable, becomes effective, or such later date and time as may be agreed in writing by Diamondback and Endeavor and specified in the Texas merger certificate and the Delaware merger certificate for the First Merger, as applicable, will be the effective time of the First Merger, referred to in this proxy statement as the “First Merger Effective Time.”
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In order to effectuate the Second Merger, a merger certificate will be filed in each of Texas and Delaware. The later of the date and time at which the Texas merger certificate or the Delaware merger certificate for the Second Merger, as applicable, becomes effective, or such later date and time as may be agreed in writing by Diamondback and Endeavor and specified in Texas merger certificate and the Delaware merger certificate for the Second Merger, as applicable, will be the effective time of the Second Merger, referred to in this proxy statement as the “Merger Effective Time.”
Closing
The closing of the First Merger will take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York, 10019 on the third business day after the satisfaction (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of those conditions) of the closing conditions described below under “—Conditions to the Merger” unless another date, time or place is agreed to in writing by Diamondback and Endeavor or via the electronic transfer of documents and signature pages, should the parties choose to forego a physical Closing.
Effects of the Merger
The Merger will have the effects set forth in the Merger Agreement, the certificates of merger filed in connection with the Closing and in the relevant provisions of the Texas Business Organizations Code (the “TBOC”) and the Delaware Limited Liability Company Act (the “DLLCA”). At the First Merger Effective Time, all the property, rights, privileges, powers and franchises of each of Merger Sub I and Endeavor will vest in the First Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Merger Sub I and Endeavor will become the debts, liabilities, obligations, restrictions, disabilities and duties of the First Surviving Company. At the Merger Effective Time, all the property, rights, privileges, powers and franchises of each of Merger Sub II and the First Surviving Company will vest in the Surviving Company, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Merger Sub II and the First Surviving Company will become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Company.
At the First Merger Effective Time (i) the certificate of formation of Endeavor will continue unchanged as the certificate of formation of the First Surviving Company and (ii) the limited liability company agreement of Endeavor will be amended and restated in its entirety to read as the limited liability company agreement of Merger Sub I in effect immediately prior to the First Merger Effective Time (with all references to Merger Sub I and the TBOC therein revised to refer to the First Surviving Company and the DLLCA, respectively), in each case until thereafter amended as provided therein or by applicable law.
At the Merger Effective Time (i) the certificate of formation of Merger Sub II will continue unchanged as the certificate of formation of the Surviving Company and (ii) the limited liability company agreement of Merger Sub II in effect as of immediately prior to the Merger Effective Time will be amended and restated in its entirety to read as the limited liability company agreement of the Surviving Company in the form attached as Exhibit D to the Merger Agreement, in each case until thereafter amended as provided therein or by applicable law.
Directors and Officers
Diamondback Directors
Prior to the Closing Date, Diamondback must take all necessary actions to cause four individuals mutually agreed by Endeavor and Diamondback in writing prior to the Closing (with any replacement thereto similarly mutually agreed) to be appointed to the Board immediately following the Merger Effective Time. Such designees must meet the criteria for service on the Board under applicable law, Nasdaq rules and the Stockholders Agreement (as if the latter were in effect as of the time of such nomination). For additional information, see the section entitled “The Stockholders Agreement” and Annex B to this proxy statement.
Officers of the Surviving Company
The parties will take all actions necessary such that the officers of Merger Sub I immediately prior to the First Merger Effective will be the officers of the First Surviving Company following the completion of the First Merger, and that the officers of the First Surviving Company immediately prior to the Merger Effective
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Date will be the officers of the Surviving Company following the completion of the Second Merger, with each to hold office until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with applicable law and the applicable limited liability company agreement of the First Surviving Company and the limited liability company agreement of the Surviving Company, as applicable.
Merger Consideration
If the Merger is completed, pursuant to and subject to the terms and conditions of the Merger Agreement, the Endeavor Interests will be converted into the right to receive, in the aggregate, (i) cash consideration of $8.0 billion, subject to adjustments in accordance with the terms of the Merger Agreement (as described in more detail below), and (ii) 117,267,069 shares of common stock.
The Cash Consideration
The Cash Consideration to be paid in connection with the Merger is subject to certain adjustments. The Cash Consideration is equal to (i) $8.0 billion, plus (ii) the Permitted Distribution Amount, less (iii) the Make-Whole Amount, less (iv) Leakage, less (v) Specified Permitted Leakages and less (vi) the Net Debt Position.
Prior to the Closing, prongs (ii) through (vi) above (the “Closing Adjustment”) will be calculated in accordance with the terms of the Merger Agreement in a closing statement delivered by Endeavor to Diamondback prior to the Closing Date and the Cash Consideration paid at Closing will be based on such closing statement. Following the Closing, prongs (ii) through (vi) above (the “Post-Closing Adjustment”) will be calculated in accordance with the terms of the Merger Agreement in a post-closing statement delivered by Diamondback to the Company Representative. Each of the Closing Adjustment and the Post-Closing Adjustment are subject to certain review and agreement rights of both Diamondback and Endeavor (or the Company Representative with respect to the Post-Closing Adjustment). Further, the Post-Closing Adjustment is subject to the review of, and determination by, an independent, third-party accountant in the event that Diamondback and the Company Representative cannot reach an agreement to its value. If the Post-Closing Adjustment is greater than the Closing Adjustment, then Diamondback will pay such a difference to the holders of the Endeavor Interests in cash. If the Post-Closing Adjustment is less than the Closing Adjustment, then the Company Representative will pay such a difference to Diamondback in cash. If both the Closing Adjustment and the Post-Closing Adjustment are the same, then no adjustment payments will be made by either Diamondback or Endeavor.
For the purposes of the above calculations:
Permitted Distribution Amount” means the dollar amount that is equal to the product of (i) the total dividends per share declared by Diamondback per share of common stock following the date of the Merger Agreement and prior to the Closing Date and with a record date that is prior to the Closing Date (other than Diamondback’s regular quarterly dividend to be declared and paid between the date of the Merger Agreement and March 31, 2024 in an amount not to exceed $3.10 per share of common stock) and (ii) 117,267,069 (i.e. the number of shares of common stock forming the Common Stock Consideration).
Make-Whole Amount” means the prepayment premiums, penalties, breakage costs or other similar obligations required for (i) the termination of Endeavor’s existing credit agreement and (ii) the discharge of Endeavor’s existing senior notes in accordance with the terms of the Merger Agreement.
Leakage” means any of the following, but excluding Permitted Leakage: (i) any dividend or distribution (whether in cash or in kind) declared, paid or made by Endeavor or any of its subsidiaries to any person other than a wholly owned subsidiary of Endeavor; (ii) any redemption or purchase of equity interests by Endeavor or any of its subsidiaries other than to, or in respect of equity interests held solely by, Endeavor or a wholly owned subsidiary of Endeavor; (iii) any payments (including management, monitoring, advisory or other fees) made or other economic benefits given by Endeavor or any of its subsidiaries to any of Endeavor’s restricted affiliates (as defined below) (other than payments required to be made under the terms of certain specified contracts, as in effect on the date of the Merger Agreement); (iv) any assets transferred to any restricted affiliate of Endeavor by Endeavor or any of its subsidiaries (other than pursuant to certain specified transfers as in effect on the date of the Merger Agreement); (v) any
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liability of any restricted affiliate of Endeavor, which is assumed, incurred or indemnified by Endeavor or its subsidiaries (excluding any preexisting employment or director indemnification agreements or arrangements with any employee, officer or director); (vi) any lending or guaranteeing by Endeavor or any of its subsidiaries of any amount owed by any restricted affiliate of Endeavor, and any waiver or agreement to waive any amount owed to Endeavor or any of its subsidiaries by any restricted affiliate of Endeavor; and (vii) the agreement by Endeavor or any of its subsidiaries to do any of the matters or pay any amounts referred to in the foregoing clauses (i) through (vi). Endeavor’s “restricted affiliates” mean (a) the Endeavor Stockholders, (b) any affiliate of the Endeavor Stockholders and (c) any immediate family members of the Endeavor Stockholders or their controlling persons, including Mr. Stephens, his immediate family members or any of their respective affiliates, but excluding, in each case, Endeavor and its subsidiaries.
“Permitted Leakages” means (i) any payment made or agreed to be made by Endeavor or any of its subsidiaries at the express written request (or with the express prior written consent) of Diamondback; (ii) any payment made or agreed to be made in respect of salary, fees, bonuses or other monetary benefit paid to employees of Endeavor or its subsidiaries and, to the extent performing services in respect of the business of Endeavor or any of its subsidiaries, in each case, in the ordinary course of business and consistent with past practice; (iii) any payment made, or agreed to be made, by Endeavor or any of its subsidiaries in relation to the premiums for any preexisting insurance policies with respect to directors and officers liability; (iv) the distribution of up to $690,000,000; (v) the distribution of the Permitted Distribution Amount; (vi) any payments made in the ordinary course of business pursuant to certain permitted oil and gas arrangements (including payments made in respect of production burdens); and (vii) any taxes incurred by Endeavor or any of its subsidiaries in connection with any of the transactions or matters described in the foregoing clauses.
Specified Permitted Leakages” means (i) the distribution of up to $690,000,000 and (ii) the distribution of the Permitted Distribution Amount.
“Net Debt Position” means the dollar amount agreed between the parties that represents (i) the indebtedness of Endeavor and its subsidiaries, taken as a whole, as of December 31, 2023, minus (ii) the cash and cash equivalents of Endeavor and its subsidiaries, taken as a whole, as of December 31, 2023.
Effect on Equity Interests
At the First Merger Effective Time, the following will occur automatically by virtue of the First Merger:
Each unit of membership interest of Merger Sub I issued and outstanding immediately prior to the First Merger Effective Time will be converted into and become one membership interest of the First Surviving Company (constituting 100% of the outstanding equity of the First Surviving Company immediately following the First Merger Effective Time) and Diamondback will continue as the sole member of the First Surviving Company; and
All issued and outstanding Endeavor Interests will be converted into the right to receive, in the aggregate, the Merger Consideration, which will be allocated among the holders of the Endeavor Interests in accordance with a capitalization schedule delivered by Endeavor to Diamondback at least five business days prior to the Closing.
As of the First Merger Effective Time, the Endeavor Interests will be cancelled and holders of the Endeavor Interests will cease to have any associated rights, except the right to receive their portion of the Merger Consideration in accordance with the terms of the Merger Agreement.
At the Merger Effective Time, the following will occur automatically by virtue of the Second Merger:
Each unit of membership interest in Merger Sub II issued and outstanding immediately prior to the Merger Effective Time will remain outstanding as an identical membership interest in the Surviving Company (constituting 100% of the outstanding equity of the Surviving Company), and Diamondback will continue as the sole member of the Surviving Company.
Each unit of membership interest of the First Surviving Company issued and outstanding immediately prior to the Merger Effective Time will be automatically cancelled with no consideration given in exchange thereof.
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Conditions to the Merger
Conditions to the Obligations of the Parties to Complete the Merger
The obligations of each of Diamondback, the Merger Subs and Endeavor to complete the Merger are subject to the mutual satisfaction or waiver of various conditions at or prior to the First Merger Effective Time, including the following:
the approval of the Stock Issuance by Diamondback stockholders in accordance with applicable law and Diamondback’s organizational documents;
the expiration or termination of the waiting period under the HSR Act relating to the transactions contemplated by the Merger Agreement;
the absence of any temporary restraining order, preliminary or permanent injunction or other judgment, order or decree or other legal restraint or prohibition issued by any governmental entity having competent jurisdiction, restraining, enjoining or otherwise prohibiting the First Merger being in effect, and the absence of any law shall having been enacted, entered, promulgated, enforced or deemed applicable by any governmental entity that, in any such case, prohibits or makes illegal the consummation of the First Merger; and
the authorization for listing on the Nasdaq stock exchange, subject to official notice of issuance, of the shares of the common stock to be issued as Common Stock Consideration.
Conditions to the Obligations of Diamondback and the Merger Subs to Complete the Merger
In addition, the obligations of Diamondback and the Merger Subs to complete the Merger are subject to the satisfaction or waiver of various conditions at or prior to the First Merger Effective Time, including the following:
(i) certain fundamental representations and warranties of Endeavor (i.e., representations concerning existence and qualification, organizational power, authorization and enforceability, conflicts regarding its organizational documents, brokers and capitalization) must be true and correct (except for the capitalization representation related to Endeavor Interests, which must be true and correct in all but de minimis inaccuracies), (ii) the other representations and warranties of Endeavor concerning capitalization must be true and correct in all material respects and (iii) the remaining representations and warranties of Endeavor must be true and correct except, in the case of this clause (iii), where the failure of such remaining representations and warranties to be so true and correct (without regard to qualification or exceptions contained therein as to materiality, in all material respects or Endeavor Material Adverse Effect) would not reasonably be expected to have, individually or in the aggregate, an Endeavor Material Adverse Effect (defined below), in each case as of the date of the Merger Agreement and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date);
Endeavor must have performed, or complied with, in all material respects all covenants and obligations required to be performed or complied with by it under the Merger Agreement at or prior to First Merger Effective Time; provided that a breach of its convent to not make certain Leakage payments (other than Permitted Leakage) due to Leakage payments in cash by Endeavor or its subsidiaries will not be deemed material unless such Leakage causes the Cash Consideration to become a negative number;
since the date of the Merger Agreement, there must not have been any Endeavor Material Adverse Effect that is continuing;
Diamondback must have received a certificate dated as of the Closing Date and signed on behalf of Endeavor by an executive officer certifying the satisfaction of the above three conditions; and
Diamondback must have received a properly completed and duly executed IRS Form W-9 from each holder of the Endeavor Interests.
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Conditions to the Obligations of Endeavor
In addition, the obligation of Endeavor to complete the Merger are subject to satisfaction or waiver of various conditions at or prior to the First Merger Effective Time, including the following:
(i) certain fundamental representations and warranties of Diamondback and the Merger Subs (i.e., representations concerning existence and qualification, organizational power, authorization and enforceability, conflicts regarding its organizational documents, brokers and capitalization) must be true and correct (except for the capitalization representation related to the common stock, which must be true and correct in all but de minimis inaccuracies), (ii) the other representations and warranties of Diamondback and the Merger Subs concerning capitalization must be true and correct in all material respects and (iii) the remaining representations and warranties of Diamondback and the Merger Subs must be true and correct except, in the case of this clause (iii), where the failure of such remaining representations and warranties to be so true and correct (without regard to qualification or exceptions contained therein as to materiality, in all material respects or Diamondback Material Adverse Effect) would not reasonably be expected to have, individually or in the aggregate, a Diamondback Material Adverse Effect (defined below), in each case as of the date of the Merger Agreement and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date);
Diamondback and the Merger Subs must have performed, or complied with, in all material respects all covenants and obligations required to be performed or complied with by them under the Merger Agreement at or prior to First Merger Effective Time;
since the date of the Merger Agreement, there must not have been any Diamondback Material Adverse Effect that is continuing;
Endeavor must have received a certificate dated as of the Closing Date and signed on behalf of Diamondback by an executive officer certifying the satisfaction of the above three conditions; and
Endeavor must have received a written opinion from Paul, Weiss, Rifkind, Wharton & Garrison, LLP (or another nationally recognized tax counsel as Diamondback and Endeavor may mutually agree) dated as of the Closing Date, and in form and substance reasonably satisfactory to Endeavor, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, that the Merger will qualify for the Reorganization Treatment.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the First Merger Effective Time (with any termination by Diamondback also being an effective termination by the Merger Subs):
by the mutual written consent of Diamondback and Endeavor;
by either Diamondback or Endeavor:
if the First Merger is not consummated on or before February 11, 2025 (the “Outside Date”), provided that if (i) the Closing has not occurred by such date because the expiration or termination of the waiting period under the HSR Act has not occurred or there is any injunction, order, decree or law preventing, prohibiting or making illegal the consummation of the First Merger (if relating to the HSR Act or any other antitrust law) on or prior to the date that is three business days prior to the Outside Date, and (ii) all other conditions in the Merger Agreement have been satisfied (other than those conditions that by their terms are to be satisfied at the Closing) or (to the extent permitted by law) waived, the Outside Date will be automatically extended to May 11, 2025, and if such circumstances continue to exist on or prior to the date that is three business days prior to such extended Outside Date, to August 11, 2025. However, the right to terminate the Merger Agreement because of the lapse of the Outside Date will not be available to a party whose failure to fulfill in any material respect any of its obligations the Merger Agreement is the principal cause of, or principally resulted in, the failure of the transactions contemplated by the Merger Agreement to be consummated by the Outside Date;
if any governmental entity with competent jurisdiction has issued an order restraining, enjoining or otherwise prohibiting any of the transactions contemplated by the Merger Agreement, and such
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order has become final and nonappealable. However, the right to terminate the Merger Agreement because of the existence of such order is not available to any party whose failure to fulfill in any material respect any of its obligations under the Merger Agreement is the principal cause of, or principally resulted in, the issuance of such order;
if the other party has breached or failed to perform any of its representations, warranties, covenants or agreements set forth in the Merger Agreement (other than with respect to a breach by Diamondback of its non-solicitation covenants (which is described below)), or if any representation or warranty of the other party has become untrue, which breach or failure to perform or to be true, either individually or in the aggregate, (i) would result in the failure of any of the conditions set forth in the Merger Agreement and (ii) cannot be or has not been cured by the earlier of (A) the Outside Date and (B) 30 days after the giving of written notice to such other party of such breach or failure (a “Terminable Breach”). However, a party does not have the right to terminate the Merger Agreement because of the other party’s breach of any of its representations, warranties, covenants or agreements if such party is then in Terminable Breach of any of its own representations, warranties, covenants or agreements set forth in the Merger Agreement; or
if the Diamondback Stockholder Approval has not been obtained at the special meeting or at any adjournment or postponement thereof. However, a termination for failure to receive the Diamondback Stockholder Approval is not available to a party whose failure to fulfill in any material respect any of its obligations under the Merger Agreement is the principal cause of, or principally resulted in, the failure to obtain the Diamondback Stockholder Approval.
By Endeavor, if at any time prior to, but not after, the time the Diamondback Stockholder Approval is obtained:
the Board has made an adverse recommendation change; or
Diamondback has materially breached its non-solicitation obligations under the Merger Agreement (other than in the case where such breach is a result of an isolated action by a representative of Diamondback who was not acting at the direction or request of Diamondback).
Effect of Termination
If the Merger Agreement is terminated as described in “—Termination of the Merger Agreement” above, the Merger Agreement will be void and have no effect, and there will not be any liability or obligation on the part of any party, except that:
no termination will affect the obligations of Diamondback and Endeavor contained in the confidentiality agreement between them;
certain provisions of the Merger Agreement relating to Endeavor’s representations with respect to brokers, absence of other representations or warranties of Endeavor, Diamondback’s representations with respect to brokers, absence of other representations or warranties of Endeavor, public announcements, effect of termination, termination fee and expenses, notices, certain definitions, entirety of agreement, absence of third party beneficiaries, governing law, submission to jurisdiction, assignment and successors, specific performance, severability, absence of other parties to the Merger Agreement, waiver of jury trial and absence of presumption against drafting party will survive such termination; and
no termination will relieve any party from any liability or damages resulting from a Willful and Material Breach of any of its covenants or agreements set forth in the Merger Agreement or fraud, in which case any non-breaching party will be entitled to all rights and remedies available at law or in equity.
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Termination Fees
The Merger Agreement provides that Diamondback will pay Endeavor a termination fee of $1,400,000,000 in cash in connection with a termination of the Merger Agreement under the following circumstances:
if, prior to obtaining the Diamondback Stockholder Approval, Endeavor terminates the Merger Agreement in connection with the Board having made an adverse recommendation change as described under the section entitled “—Change of Recommendation”;
if either party terminates the Merger Agreement because of the failure to receive the Diamondback Stockholder Approval and, immediately prior to the failed approval, Endeavor would have been entitled to terminate the Merger Agreement because the Board had made an adverse recommendation change regarding the Stock Issuance; or
if (i) after the date of the Merger Agreement, an acquisition proposal for Diamondback (whether or not conditional) (1) is made directly to Diamondback stockholders or is otherwise publicly disclosed or otherwise becomes publicly known, or any person publicly announces an intention (whether or not conditional) to make, an acquisition proposal for Diamondback and, in each case, such acquisition proposal is not withdrawn prior to the termination of the Merger Agreement (or, in the case of termination of the Merger Agreement due to a failure to obtain Diamondback Stockholder Approval, such acquisition proposal is publicly announced and not withdrawn at least two business days prior to the date of the Diamondback special meeting) or (2) is otherwise communicated to senior management of Diamondback or the Board prior to the termination of the Merger Agreement and not withdrawn prior to such termination, (ii) the Merger Agreement is then terminated (A) by either party because the Closing has not occurred by the Outside Date (but only in the case of subclause (1) in the foregoing clause (i)) or because of the failure to receive the Diamondback Stockholder Approval or (B) by Endeavor due to Diamondback’s Terminable Breach of the Merger Agreement or material breach of its non-solicitation obligations and (iii) within 12 months after the termination of the Merger Agreement, Diamondback enters into an agreement in respect of any acquisition proposal or recommends or submits an acquisition proposal to its stockholders for adoption, or a transaction in respect of any acquisition proposal with respect to Diamondback is consummated, which, in each case, need not be the same acquisition proposal that was made, disclosed or communicated prior to termination of the Merger Agreement.
Additionally, if the Merger Agreement is terminated because of failure to receive the Diamondback Stockholder Approval and the termination fee is not payable pursuant to the above, then Diamondback is required to reimburse Endeavor for all reasonable out-of-pocket fees and expenses incurred or paid by Endeavor, the Company Representative or any of their affiliates in connection with the authorization, preparation, investigation, negotiation, execution and performance of the Merger Agreement and the transactions contemplated thereby, including all due diligence and financing costs, filing fees, printing fees and fees and expenses of law firms, commercial banks, investment banking firms, accountants, experts and consultants, subject to a cap of $260,000,000.
If Diamondback fails to promptly pay any amounts due pursuant to the termination fee and expense reimbursement provisions, and, in order to obtain such payment, Endeavor commences a suit that results in a judgment against Diamondback for such amounts or any portion thereof, Diamondback must pay Endeavor its reasonable and documented out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses) in connection with such suit, together with interest on the amounts due pursuant to the termination fee and expense reimbursement provisions from the date such payment was required to be made until the date of payment at the prime lending rate as published in The Wall Street Journal in effect on the date such payment was required to be made.
The payment of the expense reimbursement will be credited against any termination fee that may subsequently become payable by Diamondback. The termination fee and expense reimbursement are Endeavor’s sole and exclusive remedy, except in the case of a Willful and Material Breach or fraud, for any loss suffered, directly or indirectly, as a result of the failure of the Merger or the other transactions to be consummated, the termination of the Merger Agreement, any liabilities or obligations arising under the Merger Agreement, or any claims or actions arising out of or relating to any breach, termination or failure of or under the Merger Agreement. In no event will Diamondback be required to pay to Endeavor more than one termination fee.
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Covenants and Agreements
Conduct of the Business of Endeavor
Endeavor has agreed to certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and the Closing Date.
Endeavor has agreed that, except (i) for certain scheduled exceptions, (ii) as required in the event of an emergency to protect life or protect against an imminent and substantial threat to property or the environment, (iii) as required as required by law, (iv) as expressly required or expressly permitted by the Merger Agreement or (v) as otherwise consented to in writing by Diamondback (such consent not to be unreasonably withheld, delayed or conditioned), it will, and will cause its subsidiaries to:
use commercially reasonable efforts to conduct its business, preserve substantially intact its present business organization, keep available the services of its directors, officers and key employees on commercially reasonable terms (other than for terminations of employment services for cause) and preserve substantially intact its existing business relationships in accordance with its ordinary course of business consistent with past practice;
other than Permitted Leakages, not make, permit or enter into any Leakage transactions or Leakage payments;
not split, combine or reclassify any of its equity interests;
not make or commit to make any capital expenditures for the period prior to January 1, 2025 in excess of 115% of the aggregate amount in Endeavor’s 2024 capital expenditure budget, other than capital expenditures to repair damage resulting from insured casualty events or operational conditions of the wells or required on an emergency basis or for the safety of individuals, assets or the environment (provided that Endeavor must notify Diamondback of any such emergency expenditure as soon as reasonably practicable);
except as reasonably required in order to conduct certain operations or expenditures contemplated under its capital expenditures budget, not (i) affirmatively terminate or materially amend any oil and gas leases in a materially detrimental manner to Endeavor or any of its subsidiaries, (ii) terminate, materially amend, waive, modify, or extend any material contracts or enter into any new contract which would constitute a material contract if executed prior to the date of the Merger Agreement, other (A) than the execution or extension of a contract for the sale, exchange or marketing of hydrocarbons in the ordinary course of business consistent with past practice that is terminable by Endeavor or any of its subsidiaries without penalty or other payment (other than any ongoing obligation pursuant to such contract that is not caused by such termination) upon 90 days’ or less notice or (B) amendments, refinancings or replacements of its existing credit agreement permitted by the Merger Agreement or (iii) other than preferential rights arising under customary A.A.P.L. form joint operating agreements, unit agreements or participation agreements, grant or create any preferential right with respect to any of its assets or any consent (other than any consent that cannot, by its terms, be unreasonably withheld, conditioned or delayed by the holder thereof) with respect to its properties;
not transfer, sell, exchange, hypothecate, encumber or otherwise dispose of any portion of its assets; except for (i) sales and dispositions of hydrocarbons or equipment and materials that are surplus, obsolete or replaced made in the ordinary course of business consistent with past practices, (ii) the exchange or swap of its properties or other assets in the ordinary course of business consistent with past practice, (iii) pursuant to certain specified agreements, or (iv) other sales and dispositions of its assets in the ordinary course of business consistent with past practices, with value not exceeding $250,000,000 in the aggregate or (v) transactions solely between the Endeavor and its wholly owned subsidiaries, or solely between its wholly owned subsidiaries;
not enter into, commence, settle or compromise any litigation affecting Endeavor, its subsidiaries or their assets other than (i) the settlement of such litigation by Endeavor or any of its subsidiaries involving only the payment of money (not covered by insurance) of any amount not exceeding
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$20,000,000 individually or $50,000,000 in the aggregate and that does not involve any material non-monetary restriction on future activity or conduct or an admission of criminal wrongdoing by Endeavor or any of its subsidiaries, and (ii) such litigation in respect of taxes, which is governed by a provision summarized below;
not amend or otherwise change any of its or its subsidiaries’ organizational documents (other than ministerial changes);
not issue, sell, deliver, grant, pledge, transfer, dispose of or otherwise subject to any non-permitted encumbrance, any of its or its subsidiaries’ equity interests or any options, warrants, convertible securities or other rights of any kind to acquire any such shares, or any other of its equity interests, other than issuances by the a wholly owned subsidiary to Endeavor or any other wholly owned subsidiary;
not acquire or agree to acquire (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, licensing, or by any other manner) any corporation, partnership, limited liability company, other business organization or division thereof or any material amount of assets, or enter into (or agree to enter into) any joint venture, strategic alliance, exclusive dealing, noncompetition or similar contract or arrangement other than (i) transactions solely between the Endeavor and its wholly owned subsidiaries (or solely among wholly owned subsidiaries), (ii) acquisitions of fee minerals, non-participating royalty interests, overriding royalty interests, royalty interests, executive rights, leasehold royalty interests, production payments, net profits interests or carried interests in the ordinary course of business consistent with past practice where the aggregate amount of the consideration paid or transferred by Endeavor or any of its subsidiaries in connection with all such acquisitions would not exceed $250,000,000, (iii) acquisitions as to which the aggregate amount of the consideration paid or transferred by Endeavor or any of its subsidiaries in connection with all such acquisitions is $50,000,000 in the aggregate, (iv) acquisitions, leases, transfer, exchange or swap of inventory in the ordinary course of business consistent with past practice or (v) non-exclusive licenses of intellectual property rights in the ordinary course of business;
not adopt any plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization, other than such transactions among its wholly owned subsidiaries;
(i) not incur any indebtedness for borrowed money or assume, guarantee or endorse, or otherwise become responsible for, any such indebtedness of any person, or make any loans of borrowed money, except for (A) indebtedness under its existing credit agreement in the ordinary course of business consistent with past practice, (B) indebtedness incurred among wholly owned subsidiaries and/or Endeavor, (C) guarantees by Endeavor or any of its subsidiaries of the indebtedness of a wholly owned subsidiary, (D) advances for expenses required under customary joint operating agreements to operators of properties of Endeavor or any of its subsidiaries in the ordinary course of business consistent with past practice, or (E) advances for reimbursable employee expenses in the ordinary course of business consistent with past practice; or (ii) not make or assume any derivatives, including any derivative intended to benefit from or reduce or eliminate the risk of fluctuations in the price of hydrocarbons or other commodities, other than in the ordinary course of business in accordance with Endeavor’s current policies;
except as required by a benefit plan in accordance with its terms as in effect as of the date of the Merger Agreement and as set forth in a schedule to the Merger Agreement, not (i) accelerate or permit the acceleration of any vesting, payment or funding of, the compensation or benefits payable or to become payable or the benefits provided to any current or former employee, officer, director other individual service provider of Endeavor or any of its subsidiaries, (ii) increase the compensation or benefits payable to or to become payable to any current or former employee, officer, director or other individual service provider of Endeavor or any of its subsidiaries, including forgiving any indebtedness, (iii) grant or announce the grant of or commit to grant any cash or equity or equity-based incentive awards (including awards under Endeavor’s phantom equity plan or its long-term incentive plan), bonus, retention, change in control, transaction, severance or similar compensation or any increase in the salaries, bonuses or other compensation and benefits payable to any current or former employee,
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officer, director or other individual service provider of Endeavor or any of its subsidiaries, (iv) enter into any employment, severance, or retention agreement with any of its current or former directors, executive officers, employees or other service providers, (v) establish, adopt or agree to adopt, amend or terminate any benefit plan or compensation plan, policy, program, agreement or arrangement that would constitute a benefit plan if in effect on the date hereof, or (vi) provide any funding for any rabbi trust or similar arrangement;
not hire, or permit the hiring of, any additional employee or individual service provider providing services to Endeavor or any of its subsidiaries who would be a Vice President or above or whose annual target total direct compensation opportunity (i.e., the sum of annual base compensation, target short-term incentive compensation opportunity and target long-term incentive compensation opportunity) and would exceed $400,000 (each, a “Company Covered Individual”), and not promote any Company Covered Individual or an individual who would be a Company Covered Individual following such promotion;
not terminate, or permit the termination of, any Company Covered Individual, other than “for cause”, and not effectuate or provide notice of any plant closing, relocation of work or mass layoff that would require notice or incur any liability or obligation under the WARN Act;
not enter into any labor agreement or recognize or certify any labor union, labor organization, works council, employee representative or group of employees as the bargaining representative for any employees of Endeavor or any of its subsidiaries;
not waive or release any noncompetition, non-solicitation, nondisclosure or other restrictive covenant obligation of any current or former employee or independent contractor of Endeavor or any of its subsidiaries;
not make any material change in any method of accounting or accounting practice or policy, except as required by GAAP or applicable law;
not (i) make (other than with respect to any election made in the ordinary course of business and consistent with past practice), change or revoke any material tax election, (ii) change any annual tax accounting period, (iii) change any material method of accounting for tax purposes, (iv) settle, or compromise any material tax proceeding, (v) file any material amended tax return or file any material tax return in a manner materially inconsistent with past practice, (vi) enter into any closing agreement with respect to taxes or (v) voluntarily and affirmatively act to surrender any right to claim a material tax refund, in each case if such action is reasonably likely to result in an increase to a tax liability of Endeavor or its subsidiaries that is material to Endeavor or any of its subsidiaries, taken as a whole; or
not enter into an agreement or commitment that would violate any of the foregoing covenants.
Conduct of the Business of Diamondback
Diamondback has agreed to certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and the Closing Date.
Diamondback has agreed that, except (i) for certain scheduled exceptions, (ii) as required in the event of an emergency to protect life or protect against an imminent and substantial threat to property or the environment, (iii) as required as required by law, (iv) as expressly required or expressly permitted by the Merger Agreement or (v) as otherwise consented to in writing by Endeavor (such consent not to be unreasonably withheld, delayed or conditioned), it will, and will cause its subsidiaries to:
use commercially reasonable efforts to (i) conduct its business, (ii) preserve substantially intact its present business organization, (iii) keep available the services of its directors, officers and key employees on commercially reasonable terms (other than for terminations of employment services for cause) and (iv) preserve substantially intact its existing business relationships in accordance with its ordinary course of business consistent with past practice;
not make or commit to make any capital expenditures for the period prior to January 1, 2025 in excess of 115% of the aggregate amount in Diamondback’s capital expenditure budget, other than, in each case, (i) capital expenditures to repair damage resulting from insured casualty events or operational
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conditions of the wells or required on an emergency basis or for the safety of individuals, assets or the environment (provided that Diamondback will notify the Endeavor of any such emergency expenditure as soon as reasonably practicable) and (ii) operations proposed after the date of the Merger Agreement by third parties under joint operating agreements, joint development agreements and other similar agreements;
not transfer, sell, exchange, hypothecate, encumber or otherwise dispose of any portion of its assets or properties, except for (i) sales and dispositions of hydrocarbons or equipment and materials that are surplus, obsolete or replaced made in the ordinary course of business consistent with past practices, (ii) the exchange or swap of its properties or other assets in the ordinary course of business consistent with past practice, (iii) pursuant to an agreement in effect on the date of the Merger Agreement, (iv) other sales and dispositions of its assets for which consideration does not exceed $250,000,000 in the aggregate or (v) transactions solely between Diamondback and its subsidiaries or between its subsidiaries;
not enter into, commence, settle or compromise any litigation affecting Diamondback, its subsidiaries or their assets other than (i) the settlement of such litigation involving only the payment of money (not covered by insurance) by Diamondback or any of its subsidiaries of any amount not exceeding $20,000,000 individually or $50,000,000 in the aggregate and that does not involve any material non-monetary restriction on future activity or conduct or an admission of criminal wrongdoing, and (ii) such litigation in respect of taxes, which is governed by a provision summarized below;
not amend or otherwise change its or any of its subsidiaries’ organizational documents (other than ministerial changes or changes that would not be prohibited by the Stockholders Agreement if it were already in effect);
not issue, sell, pledge, transfer, dispose of or otherwise subject to any non-permitted encumbrance, any of its or its subsidiaries’ equity interests or any options, warrants, convertible securities or other rights of any kind to acquire any such shares, or any other equity interests, other than (i) issuances by Diamondback or any of its wholly owned subsidiaries to Diamondback or any other wholly owned subsidiary, (ii) issuances of common stock or the common stock of Viper upon the conversion, exercise, vesting or lapsing of any equity award granted under their respective benefit plans in accordance with the terms of such plan and the applicable award agreement or otherwise in the ordinary course of business, (iii) issuances of awards granted under the applicable benefit plans in the ordinary course of business and in accordance with the terms of such plans, as applicable, as in effect as of the date of the Merger Agreement or (iv) issuances as consideration or in order to finance any acquisition not prohibited by the provision summarized immediately below;
not acquire or agree to acquire (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, licensing, or by any other manner) any corporation, partnership, limited liability company, other business organization or division thereof or any material amount of assets, or enter into any joint venture, strategic alliance, exclusive dealing, noncompetition or similar contract or arrangement other than (i) transactions solely between Diamondback and a wholly owned subsidiary (or solely among wholly owned subsidiaries), (ii) acquisitions of fee minerals, non-participating royalty interests, overriding royalty interests, royalty interests, executive rights, leasehold royalty interests, production payments, net profits interests or carried interests where the aggregate amount of the consideration paid or transferred in connection with all such acquisitions would not exceed $500,000,000 in the aggregate, (iii) acquisitions as to which the aggregate amount of the consideration paid or transferred in connection with all such acquisitions is $500,000,000 in the aggregate, (iv) acquisitions, leases, transfer, exchange or swap of inventory or other assets (including its properties) in the ordinary course of business or pursuant to existing contract, or (v) non-exclusive licenses of intellectual property rights in the ordinary course of business;
not terminate either the chief executive officer or chief financial officer of Diamondback;
not adopt any plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization, other than such transactions among wholly owned subsidiaries;
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not make any material change in any method of accounting or accounting practice or policy, except as required by GAAP or applicable law; or
not enter into an agreement or commitment that would violate any of the foregoing covenants.
Diamondback Stockholders Meeting
As promptly as practicable after Diamondback obtains confirmation from the SEC or its staff, orally or in writing, that it does not have any further comments (or it does not intend to review) the proxy statement, but no later than in 30 days, Diamondback has agreed to duly call, give notice of, convene and hold a meeting of its stockholders for the purpose of seeking the approval of the Stock Issuance Proposal and the Charter Amendment Proposal (the “stockholders meeting”).
Diamondback may postpone or adjourn the stockholders meeting solely (i) with the prior written consent of Endeavor; (ii) (A) due to the absence of a quorum at the time the stockholder meeting is otherwise scheduled (provided, that Diamondback must use its reasonable best efforts to obtain such a quorum as promptly as practicable), (B) if Diamondback believes in good faith that such adjournment or postponement is reasonably necessary to allow reasonable additional time to solicit additional proxies necessary for the Diamondback Stockholder Approval, whether or not a quorum is present, (C) to allow reasonable additional time for the filing and mailing of any supplemental or amended disclosure that the Board has determined in good faith after consultation with outside legal counsel is necessary under applicable law and for such supplemental or amended disclosure to be disseminated and reviewed by Diamondback stockholders prior to the stockholders meeting, or (D) to the extent such postponement or adjournment of the stockholders meeting is required by an order issued by any court or other governmental entity of competent jurisdiction in connection with the Merger Agreement; provided, (x) that Diamondback may not postpone or adjourn the stockholders meeting pursuant to clause (ii)(A) and/or clause (ii)(B) for a period exceeding twenty business days without the prior written consent of Endeavor, and (y) if the stockholder meeting is postponed, Diamondback must reconvene the stockholder meeting at the earliest practicable date on which the Board reasonably expects to have sufficient affirmative votes to obtain the Diamondback Stockholder Approval. Diamondback must at the request of Endeavor, to the extent permitted by law, adjourn the stockholders meeting to a date specified by Endeavor for the absence of a quorum or if Diamondback has not received proxies representing a sufficient number of shares of Diamondback common stock for the Diamondback Stockholder Approval; provided, that Diamondback will not be required to adjourn the stockholders meeting more than one time pursuant to this sentence, and no such adjournment pursuant to this sentence shall be required to be for a period exceeding ten business days.
Unless the Board has made an adverse recommendation change as described under the section entitled “—Change of Recommendation,” the Board will recommend that its stockholders adopt the Stock Issuance Proposal and use its reasonable best efforts to solicit from its stockholders proxies in favor of the Stock Issuance Proposal and take all other action necessary or advisable to obtain the Diamondback Stockholder Approval.
Diamondback’s obligation to hold the stockholder meeting will be affected by the commencement, public proposal, public disclosure or communication to Diamondback or any other person of any acquisition proposal or the occurrence of any adverse recommendation change by the Board.
Stock Exchange Listing
Diamondback has agreed to use its reasonable best efforts to cause the shares of common stock to be issued as Common Stock Consideration to be approved for listing on Nasdaq, subject to official notice of issuance, prior to the First Merger Effective Time.
Registration Rights
If requested in writing by Endeavor, which such request may be made by Endeavor no later than ten Business Days prior to the Closing Date, Diamondback must cooperate with Endeavor and its advisors to file a registration statement in accordance with the Securities Act to register the Common Stock Consideration, which registration statement, if Diamondback is then eligible to do so, must be an automatic shelf registration statement on Form S-3 and filed by Diamondback with the SEC no later than five business days after the Closing Date. Diamondback may satisfy its obligations with respect to the filing of any shelf registration statement by filing with the SEC a prospectus supplement under a “universal” or other shelf registration statement of Diamondback that also registers sales of securities for the account of Diamondback or other holders.
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No Solicitation
The Merger Agreement sets forth restrictions on Diamondback’s and Endeavor’s ability to engage with third parties regarding acquisition proposals.
Each of Diamondback and Endeavor have mutually agreed to:
immediately cease and cause to be terminated all existing discussions and negotiations with any person conducted prior to entry into the Merger Agreement with respect to any acquisition proposal or potential acquisition proposal and immediately terminate all physical and electronic data room access or any other access to the properties, facilities, books and records of such party previously granted to any such person and such person’s representatives;
within two business days of the date of the Merger Agreement, request the prompt return or destruction of all confidential information furnished with respect to any possible acquisition proposal, during the twelve-month period prior to the date of the Merger Agreement, to the extent such return or destruction had not previously been requested, using its reasonable best efforts to ensure that such requests are complied with in accordance with the terms of such rights; and
not terminate, waive, amend, release or modify any provision of any confidentiality or standstill agreement to which it or any of its affiliates or representatives is a party with respect to any acquisition proposal or any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to any acquisition proposal, and to enforce the provisions of any such agreement, which includes, to the extent such party has knowledge of any breach of such agreement, the seeking of any injunctive relief available to enforce such agreement.
Each of Diamondback and Endeavor has also agreed that it will not, and will cause each of its subsidiaries and other respective representatives not to, directly or indirectly:
solicit, initiate, endorse or knowingly encourage or knowingly facilitate any inquiry, proposal or offer that constitutes or could reasonably lead to an acquisition proposal;
enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any non-public information or data with respect to, or otherwise cooperate in any way with, any acquisition proposal or any inquiry, proposal or offer that constitutes or could reasonably be expected to lead to any acquisition proposal;
take any action to exempt any person from the restrictions on “business combinations” contained in in Section 203 the General Corporation Law of the State of Delaware or any other applicable state takeover statute or otherwise cause such restrictions not to apply;
cause or permit itself or any of its subsidiaries to enter into, or publicly declare advisable or publicly propose to enter into, any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other contract, in each case constituting or related to any acquisition proposal; or
approve, authorize or publicly announce any intention to do any of the foregoing.
The Merger Agreement also places additional restrictions on Diamondback with respect to acquisition proposals that it may receive. Specifically, Diamondback has agreed to promptly (and in any event within 24 hours of receipt) advise Endeavor in writing or orally in the event it receives:
any credible indication by any person that it is considering making an acquisition proposal;
any inquiry or request for information, discussion or negotiation that could reasonably be expected to lead to an acquisition proposal; or
any proposal or offer that could reasonably be expected to lead to or that contemplates an acquisition proposal, in each case together with a description of the material terms and conditions of any such indication, inquiry, request, proposal or offer, the identity of the Person making any such indication, inquiry, request, proposal or offer, and a copy of any written proposal, offer or draft agreement provided by such person.
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Further, Diamondback has agreed to keep Endeavor reasonably informed on a timely basis of the status and details (including, within 24 hours after the occurrence of any material amendment, modification or development, discussion or negotiation) of any such acquisition proposal, request, inquiry, proposal or offer, including furnishing copies of any written correspondence or other materials provided to or Diamondback or its representatives, and copies of all draft documentation provided to or by Diamondback or its representatives.
An “acquisition proposal” means, with respect to Diamondback or Endeavor, as applicable, any proposal or offer from third party involving any direct or indirect acquisition or purchase or license, in one transaction or a series of transactions, and whether through any merger, reorganization, consolidation, tender offer, self-tender, exchange offer, stock acquisition, asset acquisition, binding share exchange, business combination, recapitalization, liquidation, dissolution, joint venture, licensing or similar transaction, or otherwise (except any transaction contemplated by the Merger Agreement) of:
20% or more of the consolidated assets of such party (based on the fair market value thereof);
the assets of such party and its subsidiaries accounting for 20% or more of its consolidated EBITDA (as defined in the Merger Agreement) during the prior 12 months; or
20% or more of the capital stock or voting power of such party or any of its subsidiaries (except, in each case, for sales and dispositions of hydrocarbons made in the ordinary course of business consistent with past practice).
Change of Recommendation
Subject to certain exceptions described below, the Board has agreed to recommend that Diamondback stockholders vote “FOR” the Stock Issuance Proposal.
Under the Merger Agreement, an “adverse recommendation change” is deemed to have occurred if the Board (i) withdraws, modifies or qualifies its recommendation that stockholders approve the Stock Issuance, (ii) authorizes, recommends, adopts, approves, or declares the advisability (or publicly proposes to do the same) of, or agrees to submit to a vote of Diamondback stockholders, any acquisition proposal, (iii) publicly makes any recommendation in connection with any acquisition proposal that is a tender offer or exchange offer by a third party other than (A) an unequivocal recommendation against such offer pursuant to Rule 14d-2 of the Exchange Act, (B) a temporary “stop, look and listen” communication or (C) a communication to comply with certain applicable rules of the Exchange Act and regulations promulgated thereunder, (iv) fails to include the Board’s recommendation in the proxy statement, (v) publicly proposes or states its intention to take any of the foregoing actions, (vi) fails to publicly reaffirm its recommendation within ten business days of Endeavor’s written request to do so (or, if earlier, at least two business days prior to the stockholders meeting) following the public announcement of any acquisition proposal (or any material amendment, including any change to the price or form of consideration), provided that Endeavor may not make such a written request more than once with respect a specific acquisition proposal and each material modification thereof or (vii) commits or agrees to do any of the foregoing.
Prior to obtaining the Diamondback Stockholder Approval, the Board may only make an adverse recommendation change (i) in connection with an acquisition proposal that constitutes a “superior proposal” or (ii) in response to an “intervening event.” Both of these circumstances under which an adverse recommendation change may be made are described below.
Change of Recommendation for a Superior Proposal
The Board may make an adverse recommendation change in connection with a superior proposal if, prior to the receipt of the Diamondback Stockholder Approval, Diamondback:
receives a bona fide written acquisition proposal;
such proposal was not solicited after the date of the Merger Agreement in violation its non-solicitation obligations under the Merger Agreement;
such acquisition proposal is expressly conditioned by the non-consummation of the transactions contemplated by the Merger Agreement (including the failure of any of the closing conditions set forth in the Merger Agreement to be satisfied); and
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the Board determines in good faith, after consultation with its advisors that (i) that such acquisition proposal constitutes a “superior proposal” and (ii) the failure to change its recommendation to Diamondback stockholders would be inconsistent with its fiduciary duties under applicable law.
Prior to the Board making an adverse recommendation change pursuant to the above:
Diamondback must notify Endeavor in writing (the “superior proposal notice”) at least five business days (the “matching period”) before making an adverse recommendation change of its intention to do so, and specify the reasons therefor, including the terms and conditions of, and the identity of the person making, the superior proposal, and contemporaneously furnish a copy (if any) of the proposed alternative acquisition agreement and any other relevant transaction documents (any amendment to the financial terms or any other amendment to any material term of such superior proposal requires Diamondback to deliver a new notice, thereby initiating a new matching period lasting two business days);
during the matching period prior, Diamondback must negotiate, and cause its financial and legal advisors to, negotiate with Endeavor in good faith (to the extent Endeavor seeks to negotiate) regarding any revisions to the terms of the transactions proposed by Endeavor; and
if Endeavor makes a binding written proposal during such matching period to adjust the terms and conditions of the Merger Agreement, the Board, after taking into consideration the adjusted terms and conditions of the Merger Agreement as proposed by Endeavor, must continue to determine in good faith (after consultation with outside counsel and its financial advisor) that such superior proposal continues to be a superior proposal and that the failure to make an adverse recommendation change would be inconsistent with its fiduciary duties to Diamondback stockholders under applicable law.
If the Board determines that any proposal would cease to be a superior proposal by virtue of the revisions proposed by Endeavor, Diamondback must promptly (and in any event within 24 hours of such determination) so advise Endeavor and Endeavor and Diamondback will amend the Merger Agreement to reflect such offer made by Endeavor, and take all such actions as are necessary to give effect to the foregoing.
The Board has agreed to promptly (and in any event within two business days) reaffirm its original recommendation without qualification by press release if it determines that any proposal regarding an acquisition that is publicly announced or publicly disclosed does not constitute and would not reasonably be expected to lead to a superior proposal or if the Board determines that a proposed amendment by Endeavor to the terms of the Merger Agreement pursuant to the above would result in such a proposal no longer being a superior proposal.
A “superior proposal” means, any bona fide written acquisition proposal that did not result from a breach of Diamondback’s non-solicitation obligations under the Merger Agreement that the Board determines in good faith (after consultation with its advisors), taking into account all legal, financial, regulatory and other aspects of the proposal, including the terms of any financing or financing contingencies and the likely timing of closing, and the person making the proposal, is more favorable to Diamondback stockholders (solely in their capacity as such) from a financial point of view than the transactions contemplated by the Merger Agreement (including any binding adjustment to the terms and conditions proposed by Endeavor in writing in response to such proposal); provided, that, for purposes of the definition of “superior proposal,” references in the term “acquisition proposal” to “20% or more” are deemed to be references to “50% or more.”
Change of Recommendation for an Intervening Event
The Board may make an adverse recommendation change if, prior to the receipt of the Diamondback Stockholder Approval, the Board determines that an intervening event has occurred.
Prior to the Board making an adverse recommendation change pursuant to the above, the Diamondback has agreed to take the following actions:
provide notice in writing to Endeavor that the Board intends to make an adverse recommendation change specifying its reasons and including reasonable detail describing the intervening event at least five business days prior to making such adverse recommendation change (the “intervening event matching period”) (any material change with respect to such intervening event requires a new notice, thereby initiating a new intervening event matching period lasting two business days);
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during the intervening event match period, negotiate, and cause its financial and legal advisors to, negotiate with Endeavor in good faith (to the extent Endeavor seeks to negotiate) regarding any revisions to the terms of the transactions proposed by Endeavor; and
if Endeavor makes a written proposal during the intervening event matching period to adjust the terms and conditions of the Merger Agreement, the Board, after taking into consideration the adjusted terms and conditions of the Merger Agreement as proposed by Endeavor, must continue to determine in good faith (after consultation with outside counsel) that the failure to make an adverse recommendation change would be inconsistent with its fiduciary obligations to Diamondback’s stockholders under applicable law.
An “intervening event” means, a material event, fact, circumstance, development or circumstance that was not known or reasonably foreseeable to the Board prior to the execution of the Merger Agreement (or if known, the consequences of which were not known or reasonably foreseeable), which event, fact, circumstance, development or circumstance, or any material consequence thereof, becomes known to the Board, prior to the receipt of the Diamondback Stockholder Approval that does not relate to (i) an acquisition proposal, (ii) changes in the price of the common stock or debt securities issued by Endeavor, (iii) failure to meet internal or published financial or operating projections, estimates or expectations or (iv) any event, change, circumstance, development, condition, occurrence or effect with respect to Endeavor that does not amount to an Endeavor Material Adverse Effect.
In any case, if Diamondback provides a notice of a superior proposal or an intervening event to Endeavor on a date that is less than ten business days before the stockholders meeting, Diamondback has agreed to either proceed with or postpone the stockholders meeting as directed by Endeavor (acting reasonably) to a date determined by Endeavor that is not more than ten business days after the originally scheduled date of the special meeting. However, the stockholders meeting may not be postponed to a date which would prevent the Merger Effective Time from occurring on or prior to the Outside Date.
Efforts to Complete the Merger
Diamondback and Endeavor each have agreed to use (and shall cause their respective subsidiaries to use) its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things that are necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Merger Agreement. These include using their respective reasonable best efforts to:
obtain all required consents, approvals or waivers from, or participation in other discussions or negotiations with, third parties;
obtain all necessary actions or nonactions, waivers, consents, approvals, orders and authorizations from governmental entities which are necessary, proper or advisable to consummate the transactions contemplated by the Merger Agreement;