PREM14A 1 d730769dprem14a.htm PREM14A PREM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

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

TPG Pace Energy Holdings Corp.

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

Not Applicable

  (2)  

Aggregate number of securities to which transaction applies:

 

Not Applicable

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it is determined):

 

Not Applicable

  (4)  

Proposed maximum aggregate value of transaction:

 

$2,424,250,000(1)

  (5)  

Total fee paid:

 

$301,819(2)

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

(1) Our estimate of the transaction value is based on the following estimated values: $2,424,250,000 in cash and other non-cash consideration.
(2) The amount is the product of $2,424,250,000 multiplied by the Securities and Exchange Commission’s filing fee of $124.50 per million.

 

 

 


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PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION, DATED MAY 10, 2018

TPG PACE ENERGY HOLDINGS CORP.

301 Commerce Street, Suite 3300

Fort Worth, Texas 76102

Dear Stockholders of TPG Pace Energy Holdings Corp.:

You are cordially invited to attend the special meeting (the “special meeting”) in lieu of the 2018 annual meeting of stockholders of TPG Pace Energy Holdings Corp. (“TPGE,” “the Company,” “we,” “our” or “us”), which will be held on                 , 2018, at                 , Central Time, at          . At the special meeting, our stockholders will be asked to consider and vote upon the following proposals:

 

    The Business Combination Proposal—To consider and vote upon a proposal to approve and adopt each of the following agreements and the transactions contemplated thereby (the “business combination” and such proposal, the “Business Combination Proposal”) (Proposal No. 1):

 

    a Contribution and Merger Agreement (as subsequently amended, the “Karnes County Contribution Agreement”), by and among the Company, TPG Pace Energy Parent LLC, a Delaware limited liability company and direct wholly owned subsidiary of the Company (“Pace LLC”), EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership (“EV XIV-A”), EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership (“EV XIV-WIC”), EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership (“EV XIV-2A”), EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership (“EV XIV-3A”), and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership (“EV XIV-C” and, together with EV XIV-A, EV XIV-WIC, EV XIV-2A and EV XIV-3A, the “Karnes County Contributors”), pursuant to which the Company, through Pace LLC, will acquire all of the Karnes County Contributors’ collective rights, title and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas (the “Karnes County Assets”);

 

    a Purchase and Sale Agreement (the “Giddings Purchase Agreement”) by and among Pace LLC, EnerVest Energy Institutional Fund XI-A, L.P., a Delaware limited partnership (“EV XI-A”), EnerVest Energy Institutional Fund XI-WI, L.P., a Delaware limited partnership (“EV XI-WI”), EnerVest Holding, L.P., a Texas limited partnership (“EV Holding”), and EnerVest Wachovia Co-Investment Partnership, L.P., a Delaware limited partnership (“EV Co-Invest” and, together with EV XI-A, EV XI-WI and EV Holding, the “Giddings Sellers”), pursuant to which the Company, through Pace LLC, will acquire all of the Giddings Sellers’ collective rights, title and interest in certain oil and natural gas assets located in the Giddings Field of the Austin Chalk (the “Giddings Assets”); and

 

    a Membership Interest Purchase Agreement (the “Ironwood MIPA” and, together with the Karnes County Contribution Agreement and the Giddings Purchase Agreement, the “Business Combination Agreements”) by and among Pace LLC, EV XIV-A, EV XIV-WIC and EV XIV-C (EV XIV-A, EV XIV-WIC and EV XIV-C, collectively, the “Ironwood Sellers” and, together with the Karnes County Contributors and the Giddings Sellers, the “Sellers”), pursuant to which the Company, through Pace LLC, will acquire all of the Ironwood Sellers’ approximate 35% membership interest (the “Ironwood Interests” and together with the Karnes County Assets and the Giddings Assets, the “Target Assets”) in Ironwood Eagle Ford Midstream, LLC, a Texas limited liability company, which owns an Eagle Ford gathering system.


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Transaction

 

Sellers

 

Consideration(1)

 

Earnout

Giddings Transaction   Giddings Sellers (certain entities associated with EnerVest Fund XI)   Approximately $308 million in cash   Until December 31, 2021, up to $47 million in cash based on certain net revenue thresholds
Karnes County Transaction   Karnes County Contributors (certain entities associated with EnerVest Fund XIV)  

Approximately $2.09 billion, consisting of an amount in cash determined by TPGE in its sole discretion (but no less than $610 million) and the remainder in stock(2)

 

TPGE will also reimburse the Karnes County Contributors for costs associated with the acquisition of certain assets acquired by the Karnes County Contributors on March 1, 2018, with an effective date of February 1, 2018, which will be included in the Karnes County Assets, which are expected to be approximately $146.6 million

  For five (5) years following the Closing (as defined below), up to 13,000,000 additional shares of our stock based on certain EBITDA and free cash flow or stock price thresholds(2)
Ironwood Transaction   Ironwood Sellers (certain entities associated with EnerVest Fund XIV)   $25 million in cash   None

 

(1) Assumes no adjustments to the consideration payable to the Sellers under the Business Combination Agreements, whether as a result of an effective date of January 1, 2018 or otherwise.
(2) The Karnes County Contributors may elect to receive shares of Class A Common Stock (as defined below) and/or Class B Common Stock (as defined below). In the event that the Karnes County Contributors elect to receive shares of Class B Common Stock, they will also receive an equal number of units representing membership interests in Pace LLC, which shall be redeemable for shares of Class A Common Stock following the Closing in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of Pace LLC, as the same may be amended or supplemented from time to time.

 

    The Charter Proposals—To consider and vote upon each of the following proposals to amend TPGE’s amended and restated certificate of incorporation (the “Charter”) (collectively, the “Charter Proposals”):

 

    The Class B Charter Proposal—To create a new class of capital stock designated as Class B Common Stock, par value $0.0001 per share (“Class B Common Stock” and such proposal, the “Class B Charter Proposal”) (Proposal No. 2);

 

   

The Authorized Share Charter Proposal—To increase the number of authorized shares of TPGE’s Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), from


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200,000,000 shares to 1,300,000,000 shares (the “Authorized Share Charter Proposal”) (Proposal No. 3);

 

    The Director Term Charter Proposal—To change the term of office of members of our board of directors (the “TPGE Board”) from a two (2) year term to a one (1) year term (the “Director Term Charter Proposal”) (Proposal No. 4);

 

    The Written Consent Charter Proposal—To provide for the ability of our stockholders to act by written consent if certain conditions are met (the “Written Consent Charter Proposal”) (Proposal No. 5);

 

    The Exclusive Forum Charter Proposal—To adopt Delaware as the exclusive forum for certain stockholder litigation (the “Exclusive Forum Charter Proposal”) (Proposal No. 6); and

 

    The Additional Charter Proposal—To eliminate provisions in the Charter relating to our initial business combination that will no longer be applicable to us following the closing of the business combination (the “Closing”), change the post-combination company’s name to “Magnolia Oil & Gas Corporation” and make certain other changes that the TPGE Board deems appropriate for a public operating company (the “Additional Charter Proposal”) (Proposal No. 7).

 

    The NYSE Proposal—To consider and vote upon a proposal to approve, for purposes of complying with applicable listing rules of the New York Stock Exchange (the “NYSE”), (a) the issuance of shares of Class A Common Stock and/or Class B Common Stock, if any, to the Karnes County Contributors pursuant to the Karnes County Contribution Agreement (including up to 13,000,000 shares of Class A Common Stock and/or Class B Common Stock as earnout consideration), (b) the issuance of a number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock issued to the Karnes County Contributors, if any, which shares of Class A Common Stock are issuable in the future in connection with the future redemption or exchange of units representing limited liability company interests in Pace LLC, in accordance with the Amended and Restated Limited Liability Company Agreement of Pace LLC, (c) the issuance and sale of 35,500,000 shares of Class A Common Stock in a private placement to certain qualified institutional buyers and accredited investors (including certain related persons of the Company), the proceeds of which will be used to fund a portion of the cash consideration for the business combination, (d) the issuance of up to 4,000,000 shares of Class A Common Stock to EnerVest, Ltd., an affiliate of the Sellers (“EV Ltd.”), as set forth in that certain Non-Competition Agreement between the Company and EV Ltd. (based on the achievement of certain stock price thresholds) and (e) the potential change of control of the Company in connection with the foregoing issuances of our common stock (the “NYSE Proposal”) (Proposal No. 8).

 

    The Director Election Proposal—Solely with respect to holders of our Class F Common Stock, par value $0.0001 per share (“Class F Common Stock”), to consider and vote upon a proposal to elect seven (7) directors to serve until the 2019 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to such directors’ earlier death, resignation, retirement, disqualification or removal (the “Director Election Proposal”) (Proposal No. 9).

 

    The LTIP Proposal—To consider and vote upon a proposal to approve and adopt the Magnolia Oil & Gas Corporation Long Term Incentive Plan (the “LTIP”) and material terms thereunder (the “LTIP Proposal”) (Proposal No. 10).

 

    The Adjournment Proposal—To consider and vote upon a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the Director Election Proposal or the LTIP Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposals, the Charter Proposals, the NYSE Proposal, the Director Election Proposal and the LTIP Proposal, the “Proposals”) (Proposal No. 11).


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The TPGE Board recommends that TPGE stockholders vote “FOR” each of the Proposals. When you consider the recommendation of the TPGE Board in favor of each of the Proposals, you should keep in mind that certain of TPGE’s directors and officers have interests in the business combination that may conflict with your interests as a stockholder. Please see the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Each of the Proposals is more fully described in the accompanying proxy statement, which each TPGE stockholder is encouraged to review carefully.

TPGE’s Class A Common Stock and warrants, which are exercisable for shares of Class A Common Stock under certain circumstances, are currently listed on the NYSE under the symbols “TPGE” and “TPGE.WS,” respectively. In addition, certain of our shares of Class A Common Stock and warrants currently trade as units consisting of one share of Class A Common Stock and one-third of one warrant, and are listed on the NYSE under the symbol “TPGE.U.” Our units will automatically separate into the component securities upon consummation of the business combination and, as a result, will no longer trade as a separate security. Upon the Closing, we intend to change our name from “TPG Pace Energy Holdings Corp.” to “Magnolia Oil & Gas Corporation,” and we have applied to continue the listing of our Class A Common Stock and warrants on the NYSE under the symbols “MGY” and “MGY.WS,” respectively.

Pursuant to our Charter, we are providing the holders of shares of Class A Common Stock originally sold as part of the units issued in our initial public offering, which closed on May 10, 2017 (the “IPO” and such holders, the “public stockholders”), with the opportunity to redeem all or a portion of their shares of Class A Common Stock upon the Closing at a per-share price, payable in cash, equal to the aggregate amount then on deposit (as of two (2) business days prior to the Closing) in the trust account (the “Trust Account”) that holds the proceeds from the IPO and a concurrent private placement of warrants to TPG Pace Energy Sponsor, LLC (our “Sponsor”) as of two (2) business days prior to the Closing, including interest earned on the funds held in the Trust Account and not previously released to us to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes, divided by the number of then-outstanding shares of Class A Common Stock that were sold to the public stockholders in the IPO. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of December 31, 2017 of approximately $652.8 million, the estimated per share redemption price, less amounts to be withdrawn, would have been approximately $10. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. Notwithstanding the foregoing redemption rights, a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Holders of TPGE’s outstanding warrants sold in the IPO, which are exercisable for shares of Class A Common Stock under certain circumstances, do not have redemption rights in connection with the business combination. Our Sponsor, officers and directors have agreed to waive their redemption rights in connection with the consummation of the business combination with respect to any shares of Class A Common Stock and Class F Common Stock they hold. Any shares of Class A Common Stock or Class F Common Stock held by our Sponsor, officers and directors will be excluded from the pro rata calculation used to determine the per share redemption price. Currently, our Sponsor and independent directors own all of our outstanding shares of Class F Common Stock and collectively own approximately 20% of our aggregate outstanding Class A Common Stock and Class F Common Stock.

TPGE is providing this proxy statement and accompanying proxy card to its stockholders in connection with the solicitation of proxies to be voted at the special meeting. Your vote is very important. Whether or not you plan to attend the special meeting in person, please submit your proxy card without delay.

We encourage you to read this proxy statement carefully. In particular, you should review the matters discussed under the caption “Risk Factors” beginning on page 45 of this proxy statement.

Approval of each of the Business Combination Proposal, the NYSE Proposal, the LTIP Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the holders of our Class A


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Common Stock and Class F Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon, voting as a single class. Approval of the Charter Proposals requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A Common Stock and Class F Common Stock entitled to vote thereon at the special meeting, voting as a single class. Approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes cast by the holders of our Class F Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the Proposals presented at the special meeting. If you fail to return your proxy card or fail to submit your proxy by telephone or over the Internet, or fail to instruct your bank, broker or other nominee how to vote, and do not attend the special meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have no effect on the Business Combination Proposal, the NYSE Proposal, the Director Election Proposal, the LTIP Proposal or the Adjournment Proposal, but will have the same effect as a vote “AGAINST” the Charter Proposals. If you are a stockholder of record and you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST ELECT TO HAVE TPGE REDEEM YOUR SHARES FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO TPGE’S TRANSFER AGENT AT LEAST TWO (2) BUSINESS DAYS PRIOR TO THE VOTE AT THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANKS OR BROKERS TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

Thank you for your consideration of these matters.

Sincerely,

 

/s/

Stephen Chazen

President, Chief Executive Officer and Chairman

TPG Pace Energy Holdings Corp.

Whether or not you plan to attend the special meeting, please submit your proxy by signing, dating and mailing the enclosed proxy card in the pre-addressed postage paid envelope or by using the telephone or Internet procedures provided to you by your broker or bank. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the special meeting and vote in person, you must obtain a proxy from your broker or bank.

Neither the Securities and Exchange Commission nor any state securities commission has passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated                     , 2018 and is first being mailed to TPGE stockholders on or about                     , 2018.


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TPG PACE ENERGY HOLDINGS CORP.

301 Commerce Street, Suite 3300

Fort Worth, Texas 76102

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

OF TPG PACE ENERGY HOLDINGS CORP.

To Be Held On                 , 2018

To the Stockholders of TPG Pace Energy Holdings Corp.:

NOTICE IS HEREBY GIVEN that the special meeting (the “special meeting”) in lieu of the 2018 annual meeting of stockholders of TPG Pace Energy Holdings Corp. (“TPGE,” “the Company,” “we,” “our” or “us”) will be held on                 , 2018, at                 , Central Time, at          . At the special meeting, our stockholders will be asked to consider and vote upon the following proposals:

 

    The Business Combination Proposal—To consider and vote upon a proposal to approve and adopt each of the following agreements and the transactions contemplated thereby (the “business combination” and such proposal, the “Business Combination Proposal”) (Proposal No. 1):

 

    a Contribution and Merger Agreement (as subsequently amended, the “Karnes County Contribution Agreement”), by and among the Company, TPG Pace Energy Parent LLC, a Delaware limited liability company and direct wholly owned subsidiary of the Company (“Pace LLC”), EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership (“EV XIV-A”), EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership (“EV XIV-WIC”), EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership (“EV XIV-2A”), EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership (“EV XIV-3A”), and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership (“EV XIV-C” and, together with EV XIV-A, EV XIV-WIC, EV XIV-2A and EV XIV-3A, the “Karnes County Contributors”), pursuant to which the Company, through Pace LLC, will acquire all of the Karnes County Contributors’ collective rights, title and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas (the “Karnes County Assets”);

 

    a Purchase and Sale Agreement (the “Giddings Purchase Agreement”) by and among Pace LLC, EnerVest Energy Institutional Fund XI-A, L.P., a Delaware limited partnership (“EV XI-A”), EnerVest Energy Institutional Fund XI-WI, L.P., a Delaware limited partnership (“EV XI-WI”), EnerVest Holding, L.P., a Texas limited partnership (“EV Holding”), and EnerVest Wachovia Co-Investment Partnership, L.P., a Delaware limited partnership (“EV Co-Invest” and, together with EV XI-A, EV XI-WI and EV Holding, the “Giddings Sellers”), pursuant to which the Company, through Pace LLC, will acquire all of the Giddings Sellers’ collective rights, title and interest in certain oil and natural gas assets located in the Giddings Field of the Austin Chalk (the “Giddings Assets”); and

 

    a Membership Interest Purchase Agreement (the “Ironwood MIPA” and, together with the Karnes County Contribution Agreement and the Giddings Purchase Agreement, the “Business Combination Agreements”) by and among Pace LLC, EV XIV-A, EV XIV-WIC and EV XIV-C (EV XIV-A, EV XIV-WIC and EV XIV-C, collectively, the “Ironwood Sellers” and, together with the Karnes County Contributors and the Giddings Sellers, the “Sellers”), pursuant to which the Company, through Pace LLC, will acquire all of the Ironwood Sellers’ approximate 35% membership interest (the “Ironwood Interests” and together with the Karnes County Assets and the Giddings Assets, the “Target Assets”) in Ironwood Eagle Ford Midstream, LLC, a Texas limited liability company, which owns an Eagle Ford gathering system.


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Transaction

 

Sellers

 

Consideration(1)

 

Earnout

Giddings Transaction   Giddings Sellers (certain entities associated with EnerVest Fund XI)   Approximately $308 million in cash   Until December 31, 2021, up to $47 million in cash based on certain net revenue thresholds
Karnes County Transaction   Karnes County Contributors (certain entities associated with EnerVest Fund XIV)  

Approximately $2.09 billion, consisting of an amount in cash determined by TPGE in its sole discretion (but no less than $610 million) and the remainder in stock(2)

 

TPGE will also reimburse the Karnes County Contributors for costs associated with the acquisition of certain assets acquired by the Karnes County Contributors on March 1, 2018, with an effective date of February 1, 2018, which will be included in the Karnes County Assets, which are expected to be approximately $146.6 million

  For five (5) years following the Closing (as defined below), up to 13,000,000 additional shares of our stock based on certain EBITDA and free cash flow or stock price thresholds(2)
Ironwood Transaction   Ironwood Sellers (certain entities associated with EnerVest Fund XIV)   $25 million in cash   None

 

(1) Assumes no adjustments to the consideration payable to the Sellers under the Business Combination Agreements, whether as a result of an effective date of January 1, 2018 or otherwise.
(2) The Karnes County Contributors may elect to receive shares of Class A Common Stock (as defined below) and/or Class B Common Stock (as defined below). In the event that the Karnes County Contributors elect to receive shares of Class B Common Stock, they will also receive an equal number of units representing membership interests in Pace LLC, which shall be redeemable for shares of Class A Common Stock following the Closing in accordance with the terms of the Amended and Restated Limited Liability Company Agreement of Pace LLC, as the same may be amended or supplemented from time to time.


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Copies of the Karnes County Contribution Agreement, the Giddings Purchase Agreement and the Ironwood MIPA are attached to the accompanying proxy statement as Annexes A, B and C, respectively.

 

    The Charter Proposals—To consider and vote upon each of the following proposals to amend TPGE’s amended and restated certificate of incorporation (the “Charter”) (collectively, the “Charter Proposals”):

 

    The Class B Charter Proposal—To create a new class of capital stock designated as Class B Common Stock, par value $0.0001 per share (“Class B Common Stock” and such proposal, the “Class B Charter Proposal”) (Proposal No. 2);

 

    The Authorized Share Charter Proposal—To increase the number of authorized shares of TPGE’s Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), from 200,000,000 shares to 1,300,000,000 shares (the “Authorized Share Charter Proposal” and, together with the Class B Charter Proposal, the “Share-Related Proposals”) (Proposal No. 3);

 

    The Director Term Charter Proposal—To change the term of office of members of our board of directors (the “TPGE Board”) from a two (2) year term to a one (1) year term (the “Director Term Charter Proposal”) (Proposal No. 4);

 

    The Written Consent Charter Proposal—To provide for the ability of our stockholders to act by written consent if certain conditions are met (the “Written Consent Charter Proposal”) (Proposal No. 5);

 

    The Exclusive Forum Charter Proposal—To adopt Delaware as the exclusive forum for certain stockholder litigation (the “Exclusive Forum Charter Proposal”) (Proposal No. 6); and

 

    The Additional Charter Proposal—To eliminate provisions in the Charter relating to our initial business combination that will no longer be applicable to us following the closing of the business combination (the “Closing”), change the post-combination company’s name to “Magnolia Oil & Gas Corporation” and make certain other changes that the TPGE Board deems appropriate for a public operating company (the “Additional Charter Proposal”) (Proposal No. 7).

The full text of our proposed second amended and restated certificate of incorporation reflecting each of the proposed amendments pursuant to the Charter Proposals is attached to the accompanying proxy statement as Annex D.

 

    The NYSE Proposal—To consider and vote upon a proposal to approve (a) the issuance of shares of Class A Common Stock and/or Class B Common Stock, if any, to the Karnes County Contributors pursuant to the Karnes County Contribution Agreement (including up to 13,000,000 shares of Class A Common Stock and/or Class B Common Stock as earnout consideration), (b) the issuance of a number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock issued to the Karnes County Contributors, if any, which shares of Class A Common Stock are issuable in the future in connection with the future redemption or exchange of units representing limited liability company interests in Pace LLC, in accordance with the Amended and Restated Limited Liability Company Agreement of Pace LLC, (c) the issuance and sale of 35,500,000 shares of Class A Common Stock in a private placement to certain qualified institutional buyers and accredited investors (including certain related persons of the Company), the proceeds of which will be used to fund a portion of the cash consideration for the business combination, (d) the issuance of up to 4,000,000 shares of Class A Common Stock to EnerVest, Ltd., an affiliate of the Sellers (“EV Ltd.”), as set forth in that certain Non-Competition Agreement between the Company and EV Ltd. (based on the achievement of certain stock price thresholds) and (e) the potential change of control of the Company in connection with the foregoing issuances of our common stock (the “NYSE Proposal”) (Proposal No. 8).

 

    The Director Election Proposal—Solely with respect to holders of our Class F Common Stock, par value $0.0001 per share (“Class F Common Stock”), to consider and vote upon a proposal to elect seven (7) directors to serve until the 2019 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to such directors’ earlier death, resignation, retirement, disqualification or removal (the “Director Election Proposal”) (Proposal No. 9).


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    The LTIP Proposal—To consider and vote upon a proposal to approve and adopt the Magnolia Oil & Gas Corporation Long Term Incentive Plan (the “LTIP”) and material terms thereunder (the “LTIP Proposal”) (Proposal No. 10). The form of the LTIP is attached to the accompanying proxy statement as Annex J.

 

    The Adjournment Proposal—To consider and vote upon a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the Director Election Proposal or the LTIP Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the Director Election Proposal and the LTIP Proposal, the “Proposals”) (Proposal No. 11).

Only holders of record of TPGE’s Class A Common Stock and Class F Common Stock at the close of business on                 , 2018, are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements thereof. A complete list of TPGE’s stockholders of record entitled to vote at the special meeting will be available for ten (10) days before the special meeting at TPGE’s principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.

Pursuant to our Charter, we are providing the holders of shares of Class A Common Stock originally sold as part of the units issued in our initial public offering, which closed on May 10, 2017 (the “IPO” and such holders, the “public stockholders”), with the opportunity to redeem all or a portion of their shares of Class A Common Stock upon the Closing at a per-share price, payable in cash, equal to the aggregate amount then on deposit (as of two (2) business days prior to the Closing) in the trust account (the “Trust Account”) that holds the proceeds from the IPO and a concurrent private placement of warrants to TPG Pace Energy Sponsor, LLC (our “Sponsor”) as of two (2) business days prior to the Closing, including interest earned on the funds held in the Trust Account and not previously released to us to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes, divided by the number of then-outstanding shares of Class A Common Stock that were sold to the public stockholders in the IPO. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of December 31, 2017 of approximately $652.8 million, the estimated per share redemption price, less amounts to be withdrawn, would have been approximately $10. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. Notwithstanding the foregoing redemption rights, a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Holders of TPGE’s outstanding warrants sold in the IPO, which are exercisable for shares of Class A Common Stock under certain circumstances, do not have redemption rights in connection with the business combination. Our Sponsor, officers and directors and the holders of our Class F Common Stock have agreed to waive their redemption rights in connection with the consummation of the business combination with respect to any shares of Class A Common Stock and Class F Common Stock they hold. Any shares of Class A Common Stock or Class F Common Stock held by our Sponsor, officers and directors will be excluded from the pro rata calculation used to determine the per share redemption price. Currently, our Sponsor and independent directors own all of our outstanding shares of Class F Common Stock and collectively own approximately 20% of our aggregate outstanding Class A Common Stock and Class F Common Stock.

We may not consummate the business combination unless the Business Combination Proposal, the Share-Related Proposals and the NYSE Proposal are approved at the special meeting. The Charter Proposals (other than the Share-Related Proposals) and the LTIP Proposal are conditioned on the approval of the Business Combination Proposal, the Share-Related Proposals and the NYSE Proposal. The Share-Related Proposals are conditioned on the approval of the Business Combination Proposal and the NYSE Proposal. The Adjournment Proposal and the Director Election Proposal are not conditioned on the approval of any other Proposal set forth in the accompanying proxy statement.


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If you have any questions or need assistance voting your shares, please call our proxy solicitor, Morrow Sodali LLC, toll free at (800) 662-5200. Banks and brokerage firms, please call collect at (203) 658-9400.

                    , 2018

By Order of the Board of Directors

/s/

Stephen Chazen

President, Chief Executive Officer and Chairman

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be held on                     , 2018: This notice of meeting and the related proxy statement will be available at          .


Table of Contents

TABLE OF CONTENTS

 

CERTAIN DEFINED TERMS

     iii  

SUMMARY TERM SHEET

     vii  

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR TPGE STOCKHOLDERS

     1  

SUMMARY OF THE PROXY STATEMENT

     16  

SELECTED HISTORICAL FINANCIAL INFORMATION OF TPGE

     40  

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE KARNES COUNTY BUSINESS

     41  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     44  

RISK FACTORS

     45  

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION OF TPGE

     81  

COMPARATIVE SHARE INFORMATION

     96  

CAPITALIZATION

     97  

SPECIAL MEETING IN LIEU OF 2018 ANNUAL MEETING OF TPGE STOCKHOLDERS

     98  

PROPOSAL NO. 1—THE BUSINESS COMBINATION PROPOSAL

     103  

PROPOSAL NO. 2—THE CLASS B CHARTER PROPOSAL

     157  

PROPOSAL NO. 3—THE AUTHORIZED SHARE CHARTER PROPOSAL

     159  

PROPOSAL NO. 4—THE DIRECTOR TERM CHARTER PROPOSAL

     160  

PROPOSAL NO. 5—THE WRITTEN CONSENT CHARTER PROPOSAL

     161  

PROPOSAL NO. 6—THE EXCLUSIVE FORUM CHARTER PROPOSAL

     162  

PROPOSAL NO. 7—THE ADDITIONAL CHARTER PROPOSAL

     164  

PROPOSAL NO. 8—THE NYSE PROPOSAL

     165  

PROPOSAL NO. 9—THE DIRECTOR ELECTION PROPOSAL

     167  

PROPOSAL NO. 10—THE LTIP PROPOSAL

     171  

PROPOSAL NO. 11—THE ADJOURNMENT PROPOSAL

     179  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TPGE

     180  

INFORMATION ABOUT TPGE

     184  

EXECUTIVE COMPENSATION

     200  

INFORMATION ABOUT THE TARGET ASSETS

     201  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE KARNES COUNTY BUSINESS

     229  

MANAGEMENT AFTER THE BUSINESS COMBINATION

     245  

DESCRIPTION OF SECURITIES

     247  

BENEFICIAL OWNERSHIP OF SECURITIES

     257  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     261  

PRICE RANGE OF SECURITIES AND DIVIDENDS

     265  

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     266  

HOUSEHOLDING INFORMATION

     266  

TRANSFER AGENT AND REGISTRAR

     266  

SUBMISSION OF STOCKHOLDER PROPOSALS

     266  

FUTURE STOCKHOLDER PROPOSALS

     267  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     268  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

ANNEX A: KARNES COUNTY CONTRIBUTION AGREEMENT

  

ANNEX B: GIDDINGS PURCHASE AGREEMENT

  

ANNEX C: IRONWOOD MIPA

  

ANNEX D: SECOND A&R CHARTER

  

ANNEX E: STOCKHOLDER AGREEMENT

  

ANNEX F: REGISTRATION RIGHTS AGREEMENT

  

 

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CERTAIN DEFINED TERMS

Unless the context otherwise requires, references in this proxy statement to:

 

    “AM Assets” are to certain of the Karnes County Assets acquired by the Karnes County Contributors from Alta Mesa Holdings, LP in September 2015, which is expected to be the predecessor of the Karnes County Business for financial reporting purposes (for more information, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business—Karnes County Business and the Predecessor of the Karnes County Business”);

 

    “business combination” are to the transactions contemplated by the Business Combination Agreements;

 

    “Business Combination Agreements” are to the Karnes County Contribution Agreement, the Giddings Purchase Agreement and the Ironwood MIPA, collectively;

 

    “Class A Common Stock” are to our Class A common Stock, par value $0.0001 per share;

 

    “Class B Common Stock” are to our Class B common Stock, par value $0.0001 per share;

 

    “Class F Common Stock” are to our Class F common Stock, par value $0.0001 per share;

 

    “Closing” are to the closing of the business combination;

 

    “Closing Date” are to the date on which the Closing occurs;

 

    “EnerVest” are to EV Ltd., either individually or together with its affiliates, as the context requires;

 

    “EV Ltd.” are to EnerVest, Ltd., an affiliate of the Sellers;

 

    “founder shares” are to shares of our Class F Common Stock initially purchased by our Sponsor in a private placement prior to our IPO;

 

    “Giddings Assets” are to the rights, title and interest in certain oil and natural gas assets located in the Giddings Field of the Austin Chalk to be acquired by the Company pursuant to the Giddings Purchase Agreement;

 

    “Giddings Purchase Agreement” are to the Purchase and Sale Agreement, dated as of March 20, 2018, by and among the Giddings Sellers, on the one part, and Pace LLC, on the other part, pursuant to which the Company, through Pace LLC, will acquire the Giddings Assets, as may be amended from time to time;

 

    “Giddings Sellers” are to EnerVest Energy Institutional Fund XI-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XI-WI, L.P., a Delaware limited partnership, EnerVest Holding, L.P., a Texas limited partnership, and EnerVest Wachovia Co-Investment Partnership, L.P., a Delaware limited partnership, collectively;

 

    “Giddings Transaction” are to the transactions contemplated by the Giddings Purchase Agreement;

 

    “Initial Business Combination” are to our initial merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses;

 

    “initial stockholders” are to holders of our founder shares prior to the IPO, including our Sponsor and our four independent directors;

 

    “IPO” are to our initial public offering of units, which closed on May 10, 2017;

 

    “Ironwood Interests” are to the Ironwood Sellers’ approximate 35% membership interest in Ironwood Eagle Ford Midstream, to be acquired by the Company, through Pace LLC, pursuant to the Ironwood MIPA;

 

    “Ironwood Eagle Ford Midstream” are to Ironwood Eagle Ford Midstream, LLC, a Texas limited liability company, which owns an Eagle Ford gathering system;

 

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    “Ironwood MIPA” are to the Membership Interest Purchase Agreement, dated as of March 20, 2018, by and among Pace LLC, on the one part, and the Ironwood Sellers, on the other part, pursuant to which the Company, through Pace LLC, will acquire the Ironwood Interests, as the same may be amended from time to time;

 

    “Ironwood Sellers” are to EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership, collectively;

 

    “Ironwood Transaction” are to the transactions contemplated by the Ironwood MIPA;

 

    “Karnes County Assets” are to the rights, title and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas to be acquired by the Company pursuant to the Karnes County Contribution Agreement;

 

    “Karnes County Business” are to the AM Assets, the Initial GulfTex Assets, the Initial BlackBrush Assets and the Subsequent BlackBrush Assets (each, as defined below), in each case for periods subsequent to their respective acquisitions by the Karnes County Contributors, which is expected to be TPGE’s “predecessor” for financial reporting purposes (for more information, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business—Karnes County Business and the Predecessor of the Karnes County Business”);

 

    “Karnes County Contribution Agreement” are to the Contribution and Merger Agreement, dated as of March 20, 2018, by and among the Karnes County Contributors, on the one part, and the Company and Pace LLC, on the other part, pursuant to which the Company, through Pace LLC, will acquire the Karnes County Assets, as the same has been amended and may be further amended from time to time;

 

    “Karnes County Contributors” are to EnerVest Energy Institutional Fund XIV-A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-WIC, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-2A, L.P., a Delaware limited partnership, EnerVest Energy Institutional Fund XIV-3A, L.P., a Delaware limited partnership, and EnerVest Energy Institutional Fund XIV-C, L.P., a Delaware limited partnership, collectively;

 

    “Karnes County Transaction” are to the transactions contemplated by the Karnes County Contribution Agreement;

 

    “management” or our “management team” are to our officers and directors;

 

    “Pace LLC” are to TPG Pace Energy Parent LLC, a Delaware limited liability company and a subsidiary of the Company;

 

    “Pace LLC Agreement” are to the Amended and Restated Limited Liability Company Agreement of Pace LLC, as the same may be amended or supplemented from time to time;

 

    “Pace LLC Units” are to units representing membership interests in Pace LLC, which shall be redeemable for shares of Class A Common Stock following the Closing in accordance with the terms of the Pace LLC Agreement;

 

    “Pace Operating LLC” are to TPG Pace Energy Operating LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of TPGE;

 

    “PIPE Investment” are to the issuance and sale of 35,500,000 shares of Class A Common Stock in a private placement to the PIPE Investors, the proceeds of which will be used to fund a portion of the cash consideration in the business combination;

 

    “PIPE Investors” are to the qualified institutional buyers and accredited investors (including certain related persons of the Company) that have committed to purchase Class A Common Stock pursuant to the PIPE Investment;

 

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    “private placement warrants” are to the warrants issued to the Sponsor in a private placement simultaneously with the closing of our IPO;

 

    “public shares” are to shares of our Class A Common Stock sold as part of the units in the IPO (whether they were purchased in the IPO or thereafter in the open market);

 

    “public stockholders” are to the holders of our public shares;

 

    “public warrants” are to the warrants sold as part of the units in the IPO (whether they were purchased in the IPO or thereafter in the open market);

 

    “RBL Facility” are to the senior secured reserve-based revolving credit facility in an aggregate principal amount of $1,000 million and with an initial borrowing base of $550 million, which the Company intends to enter into in connection with the Closing;

 

    “Sellers” are to the Karnes County Contributors, the Giddings Sellers and the Ironwood Sellers, collectively;

 

    “Senior Bridge Facility” are to the senior unsecured increasing rate bridge loan facility in an aggregate principal amount of up to $500 million (less any proceeds received from the issuance of the Senior Notes on or prior to the Closing Date);

 

    “Senior Notes” are the anticipated $300 million aggregate principal amount of senior unsecured notes or other debt securities, which the Company intends to issue and sell on or prior to the Closing Date;

 

    “special meeting” are to the special meeting in lieu of the 2018 annual meeting of stockholders of TPGE that is the subject of this proxy statement and any adjournments or postponements thereof;

 

    “Sponsor” are to TPG Pace Energy Sponsor, LLC, a Delaware limited liability company and an affiliate of TPG;

 

    “Subsequent GulfTex Assets” are to certain assets acquired by the Karnes County Contributors on March 1, 2018, with an effective date of February 1, 2018, which will be included in the Karnes County Assets;

 

    “Target Assets” are to the Karnes County Assets, the Giddings Assets and the Ironwood Interests, collectively;

 

    “TPG” are to TPG Global, LLC, a Delaware limited liability company and its affiliates;

 

    “TPGE,” “the Company,” “we,” “our” or “us” are to TPG Pace Energy Holdings Corp., a Delaware corporation, either individually or together with its consolidated subsidiaries, as the context requires;

 

    “TPG Holdings” are to TPG Holdings III, L.P., an affiliate of our Sponsor that has agreed to purchase an aggregate of 1,000,000 shares of Class A Common Stock in connection with the PIPE Investment;

 

    “TPG Holdings Assignees” are to certain TPG executives, which we expect will include two of our directors, David Bonderman and Michael MacDougall, and our Executive Vice President of Corporate Development and Secretary, Eduardo Tamraz, to whom TPG Holdings expects to assign its right to purchase an aggregate of 1,000,000 shares of Class A Common Stock in connection with the PIPE Investment;

 

    “Transfer Agent” are to Continental Stock Transfer & Trust Company;

 

    “units” are to our units sold in our IPO, each of which consists of one share of Class A Common Stock and one-third of one public warrant; and

 

    “voting common stock” are to our Class A Common Stock and Class F Common Stock prior to the consummation of the business combination, and to our Class A Common Stock and Class B Common Stock following the consummation of the business combination.

 

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For additional defined terms commonly used in the oil and natural gas industry and used in this proxy statement, please see “Glossary of Oil and Natural Gas Terms” set forth in Annex L.

Unless otherwise specified, the voting and economic interests of TPGE stockholders set forth in this proxy statement do not take into account the private placement warrants or public warrants that will remain outstanding following the business combination and may be exercised at a later date and assume the following:

 

  (i) at the Closing, the Karnes County Contributors elect to receive all shares of Class B Common Stock and an equivalent number of Pace LLC Units (instead of Class A Common Stock);

 

  (ii) at the Closing, the Company elects the cash consideration under the Karnes County Contribution Agreement to be $762,800,000;

 

  (iii) at the Closing, there are no adjustments to the consideration payable to the Sellers under the Business Combination Agreements;

 

  (iv) at the Closing, the PIPE Investors purchase 35,500,000 shares of Class A Common Stock for aggregate proceeds of $355,000,000 to the Company;

 

  (v) no public stockholders elect to have their public shares redeemed;

 

  (vi) none of TPGE’s existing stockholders or the Sellers purchase shares of Class A Common Stock in the open market; and

 

  (vii) there are no other issuances of equity interests of TPGE prior to or in connection with the Closing.

 

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SUMMARY TERM SHEET

This Summary Term Sheet, together with the sections entitled “Questions and Answers About the Proposals for TPGE Stockholders” and “Summary of the Proxy Statement,” summarizes certain information contained in this proxy statement but does not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the attached annexes, for a more complete understanding of the matters to be considered at the special meeting.

 

    TPGE is a blank check company formed for the purpose of effecting an Initial Business Combination.

 

    There are currently 81,250,000 shares of our Class A Common Stock and our Class F Common Stock issued and outstanding, consisting of 65,000,000 public shares and 16,250,000 founder shares. In addition, there are currently outstanding warrants to purchase 31,666,666 shares of our Class A Common Stock, consisting of public warrants to purchase 21,666,666, shares of our Class A Common Stock and private placement warrants to purchase 10,000,000 shares of our Class A Common Stock. Each whole warrant entitles the holder thereof to purchase one share of our Class A Common Stock at a price of $11.50 per share, subject to certain adjustments. Only whole warrants are exercisable. The warrants will become exercisable on the later of thirty (30) days after the completion of an Initial Business Combination and May 10, 2018 (twelve (12) months following the closing of our IPO), and will expire five (5) years after the completion of an Initial Business Combination or earlier upon redemption or liquidation. Once the warrants become exercisable, we may redeem the outstanding warrants, in whole and not in part, at a price of $0.01 per warrant, upon not less than thirty (30) days’ prior written notice of redemption to each warrant holder and if, and only if, the reported last sale price of the Class A Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any twenty (20) trading days within a thirty (30) trading day period ending on the third (3rd) trading day prior to the date we send the notice of redemption to the warrant holders. The private placement warrants, however, are non-redeemable so long as they are held by our Sponsor or its permitted transferees. For more information about TPGE, see the sections entitled “Information About TPGE” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of TPGE.”

 

    On March 20, 2018, we and Pace LLC, as applicable, entered into the following agreements:

 

    the Karnes County Contribution Agreement, pursuant to which we will acquire the Karnes County Assets;

 

    the Giddings Purchase Agreement, pursuant to which we will acquire the Giddings Assets; and

 

    the Ironwood MIPA, pursuant to which we will acquire the Ironwood Interests.

 

Transaction

 

Sellers

 

Consideration(1)

 

Earnout

Giddings
Transaction
  Giddings Sellers (certain entities associated with EnerVest Fund XI)   Approximately $308 million in cash   Until December 31, 2021, up to $47 million in cash based on certain net revenue thresholds
Karnes County Transaction   Karnes County Contributors (certain entities associated with EnerVest Fund XIV)  

Approximately $2.09 billion, consisting of an amount in cash determined by TPGE in its sole discretion (but no less than $610 million)(2) and the remainder in stock(3)

 

TPGE will also reimburse the Karnes County Contributors for costs associated with the acquisition of the Subsequent GulfTex Assets, which are expected to be approximately $146.6 million

  For five (5) years following the Closing, up to 13,000,000 additional shares of our stock based on certain EBITDA and free cash flow or stock price thresholds(2)
Ironwood Transaction   Ironwood Sellers (certain entities associated with EnerVest Fund XIV)   $25 million in cash  

None

 

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(1) Assumes no adjustments to the consideration payable to the Sellers under the Business Combination Agreements, whether as a result of an effective date of January 1, 2018 or otherwise.
(2) Unless otherwise specified, the voting and economic interests of TPGE stockholders set forth in this proxy statement assume the Company elects the cash consideration under the Karnes County Contribution Agreement to be $762.8 million.
(3) The Karnes County Contributors may elect to receive shares of Class A Common Stock and/or Class B Common Stock. In the event that the Karnes County Contributors elect to receive shares of Class B Common Stock, they will also receive an equal number of Pace LLC Units, which shall be redeemable for shares of Class A Common Stock following the Closing in accordance with the terms of the Pace LLC Agreement.

 

  For more information about the Business Combination Agreements, the consideration to be received by the Sellers and the business combination generally, see the section entitled “Proposal No. 1—The Business Combination Proposal” and for more information about the Class B Common Stock, see the section entitled “Proposal No. 2—The Class B Charter Proposal—Description of Class B Common Stock.”

 

  The assets TPGE, through Pace LLC, will acquire pursuant to the Business Combination Agreements consist of:

 

    all of the Karnes County Contributors’ collective rights, title and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas;

 

    an approximate 35% membership interest in Ironwood Eagle Ford Midstream, which owns an Eagle Ford gathering system; and

 

    all of the Giddings Sellers’ collective rights, title and interest in certain oil and natural gas assets located in the Giddings Field of the Austin Chalk.

 

  For more information about the post-combination company and the Target Assets, see the sections entitled “Summary of the Proxy Statement—Magnolia Oil & Gas Corporation,” “Summary of the Proxy Statement—Summary Historical and Pro Forma Financial and Operating Data of TPGE” and “Summary of the Proxy Statement—Summary Historical Reserve Data of the Target Assets.”

 

  Unless otherwise indicated, the financial and operating results presented in this proxy statement do not include the results of the Subsequent GulfTex Assets, as such assets were acquired by the Karnes County Contributors subsequent to the periods for which financial and operating data is presented in this proxy statement.

 

  As discussed further herein, TPGE anticipates that, upon consummation of the business combination, the Karnes County Business, which represents only a portion of the Target Assets, will be its “predecessor” for financial reporting purposes. For more information about the Karnes County Business, see the sections entitled “Summary of the Proxy Statement—Summary Historical Operating Data of the Karnes County Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business.”

 

 

Unless waived by the parties to the Business Combination Agreements, the Closing is subject to a number of conditions set forth in the Business Combination Agreements, including, among others, receipt of the requisite approval of TPGE’s stockholders and the Company having at least $610 million in Available Cash (as defined in the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement”). The obligations of the Company and Pace LLC (but not the Karnes County Contributors) to consummate the Karnes County Transaction are conditioned upon the closing of the Giddings Transaction. The obligations of Pace LLC (but not the Giddings Sellers) to consummate the Giddings Transaction are conditioned upon the closing of the Karnes County Transaction. The obligations of the parties to consummate the Ironwood Transaction are conditioned upon the closing of the Karnes County Transaction. For more information regarding the conditions to the Closing, see the

 

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sections entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement,” “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Giddings Purchase Agreement—Conditions to Closing of the Giddings Purchase Agreement” and “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Ironwood MIPA—Conditions to Closing of the Ironwood MIPA.”

 

  The Business Combination Agreements may be terminated at any time prior to the consummation of the business combination upon agreement of the parties thereto, or for other reasons in specified circumstances. The Company (but not the Karnes County Contributors) may terminate the Karnes County Contribution Agreement if the Giddings Purchase Agreement has been terminated in accordance with its terms. Pace LLC (but not the Giddings Sellers) may terminate the Giddings Purchase Agreement if the Karnes County Contribution Agreement has been terminated in accordance with its terms. Any party to the Ironwood MIPA may terminate such agreement if the Karnes County Contribution Agreement has been terminated in accordance with its terms. For more information about the termination rights under the Business Combination Agreements, see the section entitled “Proposal No. 1—The Business Combination Proposal—Termination.”

 

  The proposed business combination involves numerous risks. For more information about these risks, please see the section entitled “Risk Factors.”

 

  Under our Charter, in connection with the business combination, our public stockholders may elect to have their shares redeemed for cash at the applicable redemption price per share calculated in accordance with our Charter. As of December 31, 2017, this would have amounted to approximately $10 per share. If a holder exercises its redemption rights, then such holder will be exchanging its public shares for cash and will no longer own shares of TPGE following the completion of the business combination and will not participate in the future growth of TPGE, if any. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to our Transfer Agent at least two (2) business days prior to the special meeting. For more information regarding these procedures, see the section entitled “Special Meeting in Lieu of 2018 Annual Meeting of TPGE Stockholders—Redemption Rights.”

 

  Our Charter includes a conversion adjustment which provides that the founder shares will automatically convert at the time of the business combination into a number of shares of Class A Common Stock such that the holders of the founder shares will continue to own, in the aggregate, 20% of our issued and outstanding shares of common stock. However, this conversion adjustment has been waived, and, upon conversion of the founder shares at the Closing, the holders thereof will instead receive one share of Class A Common Stock for each founder share.

 

  It is anticipated that, upon the Closing, the ownership of TPGE will be as follows:

 

    the public stockholders will collectively own 65,000,000 shares of our Class A Common Stock, representing an approximate 26.0% economic interest and an approximate 26.0% voting interest;

 

    the holders of our founder shares, including our Sponsor and independent directors, will collectively own 16,250,000 shares of our Class A Common Stock, representing an approximate 6.5% economic interest and an approximate 6.5% voting interest;

 

    the Karnes County Contributors will collectively own 132,805,000 shares of our Class B Common Stock, representing a 0.0% economic interest and an approximate 53.2% voting interest, and 132,805,000 Pace LLC Units, representing an approximate 53.2% economic interest and a 0.0% voting interest; and

 

    the PIPE Investors will collectively own 35,500,000 shares of Class A Common Stock, an approximate 14.2% economic interest and an approximate 14.2% voting interest.

 

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In this scenario, our current affiliates, including our Sponsor, our directors and officers and the TPG Holdings Assignees, would collectively own 18,909,900 shares of our Class A Common Stock, representing an approximate 7.6% economic interest and an approximate 7.6% voting interest upon the Closing.

The number of shares and the economic and voting interests set forth above are based upon the assumptions set forth under “Certain Defined Terms.” If the actual facts are different than our assumptions, the economic and voting interests set forth above will differ. For example, if we assume all outstanding warrants to purchase an aggregate of 31,666,666 shares of our Class A common stock were exercisable and exercised following completion of the business combination, with proceeds to the Company of approximately $364 million, then the ownership of TPGE would be as follows:

 

    the public stockholders would collectively own 86,666,666 shares of our Class A Common Stock, representing an approximate 30.8% economic interest and an approximate 30.8% voting interest;

 

    the holders of our founder shares, including our Sponsor and independent directors, would collectively own 26,250,000 shares of our Class A Common Stock, representing an approximate 9.3% economic interest and an approximate 9.3% voting interest;

 

    the Karnes County Contributors would collectively own 132,805,000 shares of our Class B Common Stock, representing a 0.0% economic interest and an approximate 47.2% voting interest, and 132,805,000 Pace LLC Units, representing an approximate 47.2% economic interest and a 0.0% voting interest; and

 

    the PIPE Investors would collectively own 35,500,000 shares of our Class A Common Stock, representing an approximate 12.6% economic interest and an approximate 12.6% voting interest.

In this scenario, our current affiliates, including our Sponsor, our directors and officers and the TPG Holdings Assignees, would collectively own 28,952,533 shares of our Class A Common Stock, representing an approximate 10.3% economic interest and an approximate 10.3% voting interest upon the Closing.

The public warrants and private placement warrants will become exercisable on the later of thirty (30) days after the completion of an Initial Business Combination and May 10, 2018 (twelve (12) months following the closing of our IPO) and will expire five (5) years after the completion of an Initial Business Combination or earlier upon their redemption or liquidation.

Please see the section entitled “Summary of the Proxy Statement—Impact of the Business Combination on TPGE’s Public Float” and “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE” for further information.

 

    Our board of directors (the “TPGE Board”) considered various factors in determining whether to approve the Business Combination Agreements and the business combination. For more information about the board’s decision-making process, see the section entitled “Proposal No. 1—The Business Combination Proposal—The TPGE Board’s Reasons for the Approval of the Business Combination.”

 

    The Business Combination Agreements contemplate the execution by the parties of various agreements at the Closing, including, among others, a stockholder agreement, registration rights agreement, services agreement, non-competition agreement and waiver agreement, copies of which are attached to this proxy statement as Annexes E, F, G, H and I, respectively. For more information about these agreements, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements.”

 

    In addition to voting on the proposal to approve and adopt the Business Combination Agreements and the business combination (the “Business Combination Proposal”) at the special meeting, TPGE’s stockholders will also be asked to vote on:

 

    amendments to our Charter to create a new class of capital stock designated as Class B Common Stock (the “Class B Charter Proposal”);

 

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    an amendment to our Charter to increase the number of authorized shares of Class A Common Stock from 200,000,000 shares to 1,300,000,000 shares (the “Authorized Share Charter Proposal” and, together with the Class B Charter Proposal, the “Share-Related Proposals”);

 

    an amendment to our Charter to change the term of office of members of TPGE Board from a two (2) year term to a one (1) year term (the “Director Term Charter Proposal”);

 

    amendments to our Charter to provide for the ability of our stockholders to act by written consent if certain conditions are met (the “Written Consent Charter Proposal”);

 

    amendments to our Charter to adopt Delaware as the exclusive forum for certain stockholder litigation (the “Exclusive Forum Charter Proposal”);

 

    amendments to our Charter to eliminate provisions in the Charter relating to an Initial Business Combination that will no longer be applicable to us following the Closing, change the post-combination company’s name to “Magnolia Oil & Gas Corporation” and make certain other changes that the TPGE Board deems appropriate for a public operating company (the “Additional Charter Proposal” and, together with the Class B Charter Proposal, the Authorized Share Charter Proposal, the Director Term Charter Proposal, the Written Consent Charter Proposal and the Exclusive Forum Charter Proposal, the “Charter Proposals”);

 

    approval, for purposes of complying with applicable listing rules of the New York Stock Exchange (the “NYSE Proposal”), of:

 

    the issuance of shares of Class A Common Stock and/or Class B Common Stock, if any, to the Karnes County Contributors pursuant to the Karnes County Contribution Agreement (including up to 13,000,000 shares of voting common stock as earnout consideration);

 

    the issuance of a number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock issued to the Karnes County Contributors, if any, which shares of Class A Common Stock are issuable in the future in connection with the future redemption or exchange of Pace LLC Units, if any, in accordance with the Pace LLC Agreement;

 

    the issuance and sale of 35,500,000 shares of Class A Common Stock to the PIPE Investors in connection with the PIPE Investment;

 

    the issuance of up to 4,000,000 shares of Class A Common Stock to EV Ltd. under that certain Non-Competition Agreement (the “Non-Compete Agreement”) between the Company and EV Ltd. based on the achievement of certain stock price thresholds; and

 

    the potential change of control of the Company in connection with the foregoing issuances of our common stock;

 

    solely with respect to holders of our Class F Common Stock, the election of seven (7) directors to the TPGE Board to serve until the 2019 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to such directors’ earlier death, resignation, retirement, disqualification or removal (the “Director Election Proposal”);

 

    approval and adoption of the Magnolia Oil & Gas Corporation Long Term Incentive Plan the (“LTIP”) and material terms thereunder (the “LTIP Proposal”); and

 

    approval of the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the Director Election Proposal or the LTIP Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the Director Election Proposal and the LTIP Proposal, the “Proposals”).

 

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For more information, see the sections entitled “Proposal No. 2—The Class B Charter Proposal,” “Proposal No. 3—The Authorized Share Charter Proposal,” “Proposal No. 4—The Director Term Charter Proposal,” “Proposal No. 5—The Written Consent Charter Proposal,” “Proposal No. 6—The Exclusive Forum Charter Proposal,” “Proposal No. 7—The Additional Charter Proposal,” “Proposal No. 8—The NYSE Proposal,” “Proposal No. 9—The Director Election Proposal,” “Proposal No. 10—The LTIP Proposal” and “Proposal No. 11—The Adjournment Proposal.”

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

FOR TPGE STOCKHOLDERS

The following questions and answers briefly address some commonly asked questions about the Proposals to be presented at the special meeting of stockholders of TPGE, including the proposed business combination. The following questions and answers do not include all the information that is important to TPGE stockholders. We urge TPGE stockholders to read carefully this entire proxy statement, including the annexes and other documents referred to herein.

 

Q: Why am I receiving this proxy statement?

 

A: TPGE stockholders are being asked in connection with the special meeting in lieu of the 2018 annual meeting of stockholders to consider and vote upon, among other things, a proposal to approve and adopt the Business Combination Proposal, including:

 

    the Karnes County Contribution Agreement, pursuant to which the Company, through Pace LLC, will acquire all of the Karnes County Contributors’ collective rights, title and interest in the Karnes County Assets;

 

    the Giddings Purchase Agreement, pursuant to which the Company, through Pace LLC, will acquire all of the Giddings Sellers’ collective rights, title and interest in the Giddings Assets; and

 

    the Ironwood MIPA, pursuant to which the Company, through Pace LLC, will acquire all of the Ironwood Sellers’ Ironwood Interests.

Copies of the Karnes County Contribution Agreement, Giddings Purchase Agreement and Ironwood MIPA are attached to this proxy statement as Annexes A, B and C, respectively. This proxy statement and its annexes contain important information about the proposed business combination and the other matters to be acted upon at the special meeting. Holders of Class A Common Stock are entitled to vote on all matters in this proxy statement other than the Director Election Proposal. You should read this proxy statement and its annexes carefully and in their entirety.

Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its annexes.

 

Q: What will happen in the business combination?

 

A: Please see the following table, which summarizes certain terms with respect to the business combination:

 

Transaction

 

Sellers

 

Consideration(1)

 

Earnout

Giddings Transaction   Giddings Sellers (certain entities associated with EnerVest Fund XI)   Approximately $308 million in cash   Until December 31, 2021, up to $47 million in cash based on certain net revenue thresholds
Karnes County Transaction   Karnes County Contributors (certain entities associated with EnerVest Fund XIV)  

Approximately $2.09 billion, consisting of an amount in cash determined by TPGE in its sole discretion (but no less than $610 million)(2) and the remainder in stock(3)

 

TPGE will also reimburse the Karnes County Contributors for costs associated with the acquisition of the Subsequent GulfTex Assets, which are expected to be approximately $146.6 million

  For five (5) years following the Closing, up to 13,000,000 additional shares of our stock based on certain EBITDA and free cash flow or stock price thresholds(2)
Ironwood Transaction   Ironwood Sellers (certain entities associated with EnerVest Fund XIV)   $25 million in cash   None

 

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(1) Assumes no adjustments to the consideration payable to the Sellers under the Business Combination Agreements, whether as a result of an effective date of January 1, 2018 or otherwise.
(2) Unless otherwise specified, the voting and economic interests of TPGE stockholders set forth in this proxy statement assume the Company elects the cash consideration under the Karnes County Contribution Agreement to be $762.8 million.
(3) The Karnes County Contributors may elect to receive shares of Class A Common Stock and/or Class B Common Stock. In the event that the Karnes County Contributors elect to receive shares of Class B Common Stock, they will also receive an equal number of Pace LLC Units, which shall be redeemable for shares of Class A Common Stock following the Closing in accordance with the terms of the Pace LLC Agreement. For more information about the Class B Common Stock, see the section entitled “Proposal No. 2—The Class B Charter Proposal—Description of Class B Common Stock.”

For more information about the Business Combination Agreements, the consideration to be received by the Sellers and the business combination generally, see the section entitled “Proposal No. 1—The Business Combination Proposal.”

For more information about the post-combination company, see the section entitled “Summary of the Proxy Statement—Magnolia Oil & Gas Corporation.”

 

Q: When and where is the special meeting?

 

A: The special meeting will be held on                     , 2018, at                 , Central Time, at          .

 

Q: What is being voted on at the special meeting?

 

A: TPGE stockholders will vote on the following proposals at the special meeting:

 

    The Business Combination Proposal—To consider and vote upon a proposal to approve and adopt each of the Business Combination Agreements and the transactions contemplated thereby (Proposal No. 1).

 

    The Charter Proposals—To consider and vote upon each of the following proposals to amend TPGE’s amended and restated certificate of incorporation (the “Charter”):

 

    The Class B Charter Proposal—To create a new class of capital stock designated as Class B Common Stock (Proposal No. 2);

 

    The Authorized Share Charter Proposal—To increase the number of authorized shares of TPGE’s Class A Common Stock, par value $0.0001 per share, from 200,000,000 shares to 1,300,000,000 shares (Proposal No. 3);

 

    The Director Term Charter Proposal—To change the term of office of members of the TPGE Board from a two (2) year term to a one (1) year term (Proposal No. 4);

 

    The Written Consent Charter Proposal—To provide for the ability of our stockholders to act by written consent if certain conditions are met (Proposal No. 5);

 

    The Exclusive Forum Charter Proposal—To adopt Delaware as the exclusive forum for certain stockholder litigation (Proposal No. 6); and

 

    The Additional Charter Proposal—To eliminate provisions in the Charter relating to our Initial Business Combination that will no longer be applicable to us following the Closing, change the post-combination company’s name to “Magnolia Oil & Gas Corporation” and make certain other changes that the TPGE Board deems appropriate for a public operating company (Proposal No. 7).

 

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The full text of our proposed second amended and restated certificate of incorporation (the “Second A&R Charter”) reflecting each of the proposed amendments pursuant to the Charter Proposals is attached to this proxy statement as Annex D.

 

    The NYSE Proposal—To consider and vote upon a proposal to approve (a) the issuance of shares of Class A Common Stock and/or Class B Common Stock, if any, the Karnes County Contributors in connection with the business combination, (b) the issuance of a number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock issued to the Karnes County Contributors, if any, which shares of Class A Common Stock are issuable in the future in connection with the future redemption or exchange of Pace LLC Units, in accordance with the Pace LLC Agreement, (c) the issuance and sale of 35,500,000 shares of Class A Common Stock to the PIPE Investors in connection with the PIPE Investment, (d) the issuance of up to 4,000,000 shares of Class A Common Stock to EV Ltd., set forth in the Non-Compete Agreement (based on the achievement of certain stock price thresholds) and (e) the potential change of control of the Company in connection with the foregoing issuances of our common stock (Proposal No. 8).

 

    The Director Election Proposal—Solely with respect to holders of our Class F Common Stock, to consider and vote upon a proposal to elect seven (7) directors to serve until the 2019 annual meeting of stockholders and until their respective successors are duly elected and qualified, subject to such directors’ earlier death, resignation, retirement, disqualification or removal (Proposal No. 9).

 

    The LTIP Proposal—To consider and vote upon a proposal to approve and adopt the LTIP and material terms thereunder (Proposal No. 10). The form of the LTIP is attached to this proxy statement as Annex J.

 

    The Adjournment Proposal—To consider and vote upon a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the Director Election Proposal or the LTIP Proposal (Proposal No. 11).

 

Q: Are the Proposals conditioned on one another?

 

A: Yes. We may not consummate the business combination unless the Business Combination Proposal, the Share-Related Proposals and the NYSE Proposal are approved at the special meeting. The Charter Proposals (other than the Share-Related Proposals) and the LTIP Proposal are conditioned on the approval of the Business Combination Proposal, the Share-Related Proposals and the NYSE Proposal. The Share-Related Proposals are conditioned on the approval of the Business Combination Proposal and the NYSE Proposal. The Adjournment Proposal and the Director Election Proposal are not conditioned on the approval of any other proposal set forth in this proxy statement.

 

Q: Why is TPGE providing stockholders with the opportunity to vote on the business combination?

 

A: Under our Charter, we must provide all public stockholders with the opportunity to have their public shares redeemed upon the consummation of an Initial Business Combination either in conjunction with a tender offer or in conjunction with a stockholder vote. We have elected to provide our stockholders with the opportunity to have their public shares redeemed in connection with a stockholder vote rather than a tender offer. Therefore, we are seeking to obtain the approval of our stockholders of the Business Combination Proposal in order to allow our public stockholders to effectuate redemptions of their public shares in connection with the Closing combination. We may not consummate the business combination unless the Business Combination Proposal, the Share-Related Proposals and the NYSE Proposal are approved at the special meeting.

 

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Q: What conditions must be satisfied to complete the business combination?

 

A: There are a number of closing conditions in the Business Combination Agreements, including the approval by our stockholders of the Class B Charter Proposal and the NYSE Proposal and the Company having at least $610 million in Available Cash (as defined in the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement”). The obligations of the Company and Pace LLC (but not the Karnes County Contributors) to consummate the Karnes County Transaction are conditioned upon the closing of the Giddings Transaction. The obligations of Pace LLC (but not the Giddings Sellers) to consummate the Giddings Transaction are conditioned upon the closing of the Karnes County Transaction. The obligations of the parties to consummate the Ironwood Transaction are conditioned upon the closing of the Karnes County Transaction. For more information regarding the conditions to the closing of the business combination, see the sections entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement,” “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Giddings Purchase Agreement—Conditions to Closing of the Giddings Purchase Agreement” and “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Ironwood MIPA—Conditions to Closing of the Ironwood MIPA.”

 

Q: How will TPGE and Pace LLC be managed and governed following the business combination?

 

A: Following the consummation of the business combination, Stephen Chazen will remain our Chief Executive Officer and Christopher Stavros will become our Chief Financial Officer. For more information, see the section entitled “Management After the Business Combination.”

TPGE is, and after the Closing will continue to be, managed by the TPGE Board. Following the completion of the business combination, the size of the TPGE Board will remain at seven (7) directors. At the Closing, under the Stockholder Agreement, each of our Sponsor and the Karnes County Contributors (collectively) will be entitled to nominate two directors to the TPGE Board. The remainder of the TPGE Board will include Mr. Chazen and two independent directors mutually nominated by the Karnes County Contributors and our Sponsor. For more information, see the sections entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Stockholder Agreement” and “Management After the Business Combination.”

Concurrently with the Closing, we and Pace LLC will enter into a services agreement (the “Services Agreement”) with EnerVest Operating L.L.C. (“EVOC”) pursuant to which EVOC, under the direction of the Company’s management, will provide the Company services identical to the services historically provided by EVOC in operating the Target Assets, including administrative, back office, and day-to-day field level services reasonably necessary to operate the business of the Company and its assets, subject to certain exceptions. For more information about the Services Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Services Agreement.”

 

Q: Will TPGE obtain new financing in connection with the business combination?

 

A: In connection with entry into the Business Combination Agreements, TPGE entered into Subscription Agreements, dated as of March 20, 2018, with certain qualified institutional buyers and accredited investors, including TPG Holdings and Stephen Chazen, our President, Chief Executive Officer and Chairman, pursuant to which, among other things, TPGE agreed to issue and sell, in a private placement, an aggregate of 35,500,000 shares of Class A Common Stock to such investors for aggregate consideration of $355,000,000. Prior to the Closing, TPG Holdings expects to assign its right to purchase Class A Common Stock in connection with the PIPE Investment to the TPG Holdings Assignees. For more information, see “Proposal No. 1—The Business Combination Proposal—Related Agreements—Subscription Agreements.”

In addition, Pace Operating LLC has entered into a debt commitment letter pursuant to which the lenders and other financial institutions party thereto have committed to provide Pace Operating LLC with the RBL

 

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Facility and the Senior Bridge Facility. Further, on or prior to the Closing, Pace Operating LLC intends to issue and sell the Senior Notes.

Borrowings under the RBL Facility (if any), the proceeds from the issuance of the Senior Notes and/or the proceeds of the Senior Bridge Facility, the proceeds of the PIPE Investment and the cash in the Trust Account will be used to finance the cash portion of the consideration of the business combination, to fund redemptions of shares by public stockholders in connection with the business combination, to pay the costs, fees and expenses (including original issue discount and/or upfront fees and deferred underwriting expenses in respect of TPGE’s initial public offering and fees and expenses payable pursuant to the Business Combination Agreements) associated with the business combination and for working capital and general corporate purposes. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—The Commitment Letters.”

 

Q: What equity stake will current TPGE stockholders, the holders of the founder shares, the Karnes County Contributors and the PIPE Investors hold in TPGE following the consummation of the business combination?

 

A: It is anticipated that, upon completion of the business combination and based on the assumptions set forth in “Certain Defined Terms,” the ownership of TPGE will be as follows:

 

    the public stockholders will collectively own 65,000,000 shares of our Class A Common Stock, representing an approximate 26.0% economic interest and an approximate 26.0% voting interest;

 

    the holders of our founder shares, including our Sponsor and independent directors, will collectively own 16,250,000 shares of our Class A Common Stock, representing an approximate 6.5% economic interest and an approximate 6.5% voting interest;

 

    the Karnes County Contributors will collectively own 132,805,000 shares of our Class B Common Stock, representing a 0.0% economic interest and an approximate 53.2% voting interest, and 132,805,000 Pace LLC Units, representing an approximate 53.2% economic interest and a 0.0% voting interest; and

 

    the PIPE Investors will collectively own 35,500,000 shares of Class A Common Stock, an approximate 14.2% economic interest and an approximate 14.2% voting interest.

In this scenario, our current affiliates, including our Sponsor, our directors and officers and the TPG Holdings Assignees, would collectively own 18,909,900 shares of our Class A Common Stock, representing an approximate 7.6% economic interest and an approximate 7.6% voting interest upon the Closing.

The number of shares and the economic and voting interests set forth above are based upon the assumptions set forth under “Certain Defined Terms.” If the actual facts are different than our assumptions, the economic and voting interests set forth above will differ. For example, if we assume all outstanding 21,666,666 public warrants and 10,000,000 private placement warrants were exercisable and exercised following completion of the business combination, with proceeds to the Company of approximately $364 million, then the ownership of our Class A Common Stock and Class B Common Stock would be as follows:

 

    the public stockholders would collectively own 86,666,666 shares of our Class A Common Stock, representing an approximate 30.8% economic interest and an approximate 30.8% voting interest;

 

    the holders of our founder shares, including our Sponsor and independent directors, would collectively own 26,250,000 shares of our Class A Common Stock, representing an approximate 9.3% economic interest and an approximate 9.3% voting interest;

 

    the Karnes County Contributors would collectively own 132,805,000 shares of our Class B Common Stock, representing a 0.0% economic interest and an approximate 47.2% voting interest, and 132,805,000 Pace LLC Units, representing an approximate 47.2% economic interest and a 0.0% voting interest; and

 

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    the PIPE Investors would collectively own 35,500,000 shares of our Class A Common Stock, representing an approximate 12.6% economic interest and an approximate 12.6% voting interest.

In this scenario, our current affiliates, including our Sponsor, our directors and officers and the TPG Holdings Assignees, would collectively own 28,952,533 shares of our Class A Common Stock, representing an approximate 10.3% economic interest and an approximate 10.3% voting interest upon the Closing.

The public warrants and private placement warrants will become exercisable on the later of thirty (30) days after the completion of an Initial Business Combination and May 10, 2018 (twelve (12) months following the closing of our IPO) and will expire five (5) years after the completion of an Initial Business Combination or earlier upon their redemption or liquidation.

Please see the section entitled “Summary of the Proxy Statement—Impact of the Business Combination on TPGE’s Public Float” and “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE” for further information.

 

Q: Why is TPGE proposing the amendments to the Charter set forth in the Charter Proposals?

 

A: TPGE is proposing amendments to the Charter to approve certain items required to effectuate the business combination and other matters the TPGE Board believes are appropriate for the operation of the post-combination company, including providing for, among other things, (i) the creation of the Class B Common Stock that will be issued to the Karnes County Contributors at the Closing, (ii) an increase in the number of authorized shares of Class A Common Stock from 200,000,000 to 1,300,000,000 shares, (iii) the change of the term of office of members of the TPGE Board from a two (2) year term to a one (1) year term, (iv) the ability of our stockholders to act by written consent if certain conditions are met, (v) the adoption of Delaware as the exclusive forum for certain stockholder litigation and (vi) the elimination of certain provisions relating to an Initial Business Combination that will no longer be applicable to us following the Closing. Under our Charter and Delaware law, stockholder approval is required in order to effect the Charter Proposals. See the sections entitled “Proposal No. 2—The Class B Charter Proposal,” “Proposal No. 3—The Authorized Share Charter Proposal,” “Proposal No. 4—The Director Term Charter Proposal,” “Proposal No. 5—The Written Consent Charter Proposal,” “Proposal No. 6—The Exclusive Forum Charter Proposal” and “Proposal No. 7—The Additional Charter Proposal” for additional information.

 

Q: Why is TPGE proposing the NYSE Proposal?

 

A: TPGE is proposing the NYSE Proposal to comply with Rule 312.03 of the NYSE Listed Company Manual, which requires stockholder approval prior to the issuance of shares of common stock in certain circumstances, including (a) if such common stock has, or will have upon issuance, voting power equal to 20% or more of the voting power outstanding before the issuance of such stock and (b) if such issuance will result in a change of control of the issuer under the general interpretations of the NYSE. We will issue shares of our voting common stock in the business combination (including to the Karnes County Contributors and common stock to the PIPE Investors) that may exceed 20% of the voting power outstanding before such issuances and result in a change of control of TPGE. Because TPGE may issue 20% or more of its outstanding voting power and outstanding common stock in connection with the business combination and such issuance may result in a change of control of TPGE, it is required to obtain stockholder approval of such issuances pursuant to Rule 312.03 of the NYSE Listed Company Manual. Stockholder approval of the NYSE Proposal is also a condition to closing in the Business Combination Agreements. See the section entitled “Proposal No. 8—The NYSE Proposal” for additional information.

 

Q: Did the TPGE Board obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the business combination?

 

A:

No. The TPGE Board did not obtain a third-party valuation or fairness opinion in connection with its determination to approve the business combination. TPGE’s officers and directors have substantial

 

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  experience in evaluating the operating and financial merits of companies from a wide range of industries and concluded that their experience and backgrounds, together with the experience and sector expertise of TPGE’s advisors, enabled them to make the necessary analyses and determinations regarding the business combination. In addition, TPGE’s officers and directors and its advisors have substantial experience with mergers and acquisitions. Accordingly, investors will be relying solely on the judgment of the TPGE Board in valuing the Target Assets and assuming the risk that the TPGE Board may not have properly valued such assets.

 

Q: What happens if I sell my shares of Class A Common Stock before the special meeting?

 

A: The record date for the special meeting is earlier than the date that the business combination is expected to be completed. If you transfer your shares of Class A Common Stock after the record date, but before the special meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the special meeting. However, you will not be able to seek redemption of your shares of Class A Common Stock because you will no longer be able to deliver them for cancellation upon consummation of the business combination in accordance with the provisions described in this proxy statement. If you transfer your shares of Class A Common Stock prior to the record date, you will have no right to vote those shares at the special meeting or seek redemption of those shares.

 

Q: How has the announcement of the business combination affected the trading price of TPGE units, Class A Common Stock and warrants?

 

A: On March 19, 2018, the last trading date before the public announcement of the business combination, TPGE’s public units, Class A Common Stock and warrants closed at $10.28, $9.73 and $1.52, respectively. On                 , 2018, the trading date immediately prior to the date of this proxy statement, TPGE’s public units, Class A Common Stock and warrants closed at $        , $        and $        , respectively.

 

Q: Following the business combination, will Pace’s securities continue to trade on a stock exchange?

 

A: Yes. We anticipate that following the business combination our Class A Common Stock and warrants will continue trading on the NYSE under the new symbols “MGY” and “MGY.WS,” respectively. Our units will automatically separate into the component securities upon consummation of the business combination and, as a result, will no longer trade as a separate security following the business combination.

 

Q: What vote is required to approve the Proposals presented at the special meeting?

 

A: Approval of each of the Business Combination Proposal, the NYSE Proposal, the LTIP Proposal and the Adjournment Proposal requires the affirmative vote of a majority of the votes cast by the holders of our Class A Common Stock and Class F Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon. Approval of the Charter Proposals requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A Common Stock and Class F Common Stock entitled to vote thereon at the special meeting, voting as a single class.

Directors are elected by a plurality of votes cast by the holders of our Class F Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon. This means that the seven (7) director nominees will be elected if they receive more affirmative votes than any other nominee for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Assuming a valid quorum is established, abstentions will have no effect on the Director Election Proposal. Holders of our Class A Common Stock are not being asked to and are not entitled to vote on the Director Election Proposal.

 

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Q: May our Sponsor, directors, officers, advisors or their affiliates purchase shares in connection with the business combination?

 

A: In connection with the stockholder vote to approve the proposed business combination, our Sponsor, directors, officers, or advisors or their respective affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the Initial Business Combination, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that the seller, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are below or in excess of the selling stockholder’s per share pro rata portion of the Trust Account.

In addition, Mr. Chazen and TPG Holdings have agreed to purchase 1,500,000 and 1,000,000 shares of Class A Common Stock, respectively, in connection with the PIPE Investment, which is contingent on the closing of the Karnes County Transaction. Prior to the Closing, TPG Holdings expects to assign its right to purchase Class A Common Stock in connection with the PIPE Investment to the TPG Holdings Assignees.

 

Q: How many votes do I have at the special meeting?

 

A: TPGE’s stockholders are entitled to one vote at the special meeting for each share of Class A Common Stock or Class F Common Stock held of record as of                 , 2018, the record date for the special meeting, except that, only holders of our Class F Common Stock will be entitled to vote on the Director Election Proposal. As of the close of business on the record date, there were 65,000,000 outstanding shares of Class A Common Stock, which are held by our public stockholders, and 16,250,000 outstanding shares of Class F Common Stock, which are held by our Sponsor and our independent directors.

 

Q: What constitutes a quorum at the special meeting?

 

A: A quorum of TPGE stockholders is necessary to hold a valid meeting. For purposes of proposals other than the Director Election Proposal, holders representing a majority of the voting power of Class A Common Stock and Class F Common Stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitute a quorum. For purposes of the Director Election Proposal, holders representing a majority of the voting power of Class F Common Stock issued and outstanding and entitled to vote at the special meeting, present in person or by proxy, constitute a quorum. Abstentions will count as present for the purposes of establishing a quorum with respect to each proposal.

 

Q: Who is eligible to vote on the Director Election Proposal?

 

A: Pursuant to our Charter, prior to an Initial Business Combination, the holders of Class F Common Stock have the exclusive right to elect and remove any director, and the holders of Class A Common Stock have no right to vote on the election or removal of any director. Thus, only holders of Class F Common Stock are eligible to vote on the Director Election Proposal.

 

Q: How will TPGE’s Sponsor, directors and officers vote?

 

A: We expect that our Sponsor, officers and directors will vote any shares of Class A Common Stock and Class F Common Stock owned by them in favor of the Proposals. Currently, our Sponsor and independent directors own all of our outstanding shares of Class F Common Stock and collectively own approximately 20% of our aggregate outstanding Class A Common Stock and Class F Common Stock.

 

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Q: What interests do the current officers and directors have in the business combination?

 

A: In considering the recommendation of the TPGE Board to vote in favor of the business combination, stockholders should be aware that, aside from their interests as stockholders, our Sponsor and certain of our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination, and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include, among other things:

 

    the fact that our Sponsor, officers and directors will lose their entire investment in us and that the private placement warrants held by our Sponsor would expire worthless if an Initial Business Combination is not completed;

 

    the fact that our Sponsor, officers and directors have agreed not to redeem any of the shares of Class A Common Stock held by them in connection with a stockholder vote to approve the business combination;

 

    the fact that our Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $        based on the closing price of our Class A Common Stock on                 , 2018;

 

    if the Trust Account is liquidated, including in the event we are unable to complete an Initial Business Combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10 per public share, or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

    the continuation of Stephen Chazen as President, Chief Executive Officer and Chairman of TPGE following the business combination;

 

    the purchase by Mr. Chazen and the TPG Holdings Assignees of 1,500,000 and 1,000,000 shares of Class A Common Stock, respectively, in connection with the PIPE Investment, which is contingent on the Karnes County Transaction;

 

    the right of our Sponsor, pursuant to the Stockholder Agreement, to appoint two directors to the TPGE Board at the Closing;

 

    the fact that each of our independent directors owns 40,000 founder shares that were purchased from our Sponsor at $0.002 per share, which if unrestricted and freely tradeable would be valued at approximately $        based on the closing price of our Class A Common Stock on                 , 2018;

 

    the fact that Mr. Chazen may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an Initial Business Combination or fail to complete an Initial Business Combination by May 10, 2019;

 

    the fact that at the Closing, our Sponsor, officers and directors will be reimbursed for out-of-pocket expenses incurred in connection with activities on our behalf, such as identifying potential target businesses and performing due diligence on suitable business combinations; and

 

    the fact that we are a party to a registration rights agreement with our Sponsor and certain of our directors, which provides for registration rights to such parties, and will enter into a new registration rights agreement with our Sponsor, certain of our directors and the Karnes County Contributors in connection with the business combination.

 

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Q: What is the relationship between TPGE, TPG and its affiliates, including our Sponsor, and the PIPE Investors?

 

A: TPG holds a significant ownership interest in our Sponsor, which owns 16,090,000 shares of Class F Common Stock that are convertible on a one-for-one basis into shares of Class A Common Stock at the Closing. Our Sponsor also owns warrants to purchase 10,000,000 shares of our Class A Common Stock for $11.50 per share. Mr. Chazen and TPG Holdings have agreed to purchase 1,500,000 and 1,000,000 shares of Class A Common Stock, respectively, in connection with the PIPE Investment. Prior to the Closing, TPG Holdings expects to assign its right to purchase Class A Common Stock in connection with the PIPE Investment to the TPG Holdings Assignees. The other PIPE Investors consist of funds advised by investment companies that are not affiliated with TPGE or TPG. Please see the sections entitled “Summary of the Proxy Statement—Organizational Structure—Following the Business Combination” and “Beneficial Ownership of Securities.”

 

Q: What happens if I vote against the Business Combination Proposal?

 

A: If the Business Combination Proposal is not approved and we do not otherwise consummate an alternative business combination by May 10, 2019, under our Charter, we will be required to dissolve and liquidate the Trust Account by returning the then-remaining funds in such account to our public stockholders.

 

Q: Do I have redemption rights?

 

A: If you are a holder of public shares, you may elect to redeem all or a portion of your public shares upon the completion of our Initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit (as of two (2) business days prior to the consummation of the business combination) in the trust account as of two (2) business days prior to the consummation of our Initial Business Combination, including interest earned on the funds held in the trust account and not previously released to us to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes, divided by the number of then-outstanding public shares, subject to the limitations described herein. Our Charter provides that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Notwithstanding the foregoing redemption rights, a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Unlike some other blank check companies, other than the net tangible asset requirement and the 15% threshold described above, TPGE has no specified maximum redemption threshold and there is no other limit on the amount of public shares that you can redeem. Our Sponsor, directors and officers have agreed to waive their redemption rights with respect to any shares of TPGE’s capital stock they may hold in connection with the consummation of the business combination, and the founder shares will be excluded from the pro rata calculation used to determine the per share redemption price. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of December 31, 2017 of approximately $652.8 million, the estimated per share redemption price, less amounts to be withdrawn, would have been approximately $10. Additionally, shares properly tendered for redemption will only be redeemed if the business combination is consummated; otherwise holders of such shares will only be entitled to a pro rata portion of the Trust Account (including interest earned on the funds held in the Trust Account and not previously released to us to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes) in connection with the liquidation of the Trust Account or if we subsequently complete a different business combination on or prior to May 10, 2019.

 

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Q: Will how I vote affect my ability to exercise redemption rights?

 

A: No. You may exercise your redemption rights whether you vote your shares of Class A Common Stock for or against or abstain from voting on the Business Combination Proposal or any other proposal described in this proxy statement. As a result, the business combination can be approved by stockholders who will redeem their shares and no longer remain stockholders, leaving stockholders who choose not to redeem their shares holding shares in a company with a potentially less liquid trading market, fewer stockholders and potentially less cash.

 

Q: How do I exercise my redemption rights?

 

A: In order to exercise your redemption rights, you must (i) check the box on the enclosed proxy card to elect redemption, (ii) check the box on the enclosed proxy card marked “Stockholder Certification,” (iii) if you hold public units, separate the underlying public shares and public warrants and (iv) prior to 5:00 p.m., Eastern Time, on                 , 2018 (two (2) business days before the special meeting), tender your shares physically or electronically and submit a request in writing that TPGE redeem your public shares for cash to Continental Stock Transfer & Trust Company, the Transfer Agent, at the following address:

Continental Stock Transfer & Trust Company

1 State Street—30th Floor

New York, New York 10004

Attention: Mark Zimkind

Email: mzimkind@continentalstock.com

Please check the box on the enclosed proxy card marked “Stockholder Certification” if you are not acting in concert or as a “group” (as defined under Section 13 of the Exchange Act) with any other stockholder with respect to shares of Class A Common Stock. Notwithstanding the foregoing redemption rights, a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares in excess of the 15% threshold. Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash.

Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the Transfer Agent and time to effect delivery. It is TPGE’s understanding that stockholders should generally allot at least two (2) weeks to obtain physical certificates from the Transfer Agent. However, TPGE does not have any control over this process and it may take longer than two (2) weeks. Stockholders who hold their shares in street name will have to coordinate with their respective banks, brokers or other nominees to have the shares certificated or delivered electronically.

Stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name” are required to either tender their certificates to the Transfer Agent prior to the date set forth in this proxy statement, or up to two (2) business days prior to the vote on the proposal to approve the business combination at the special meeting, or to deliver their shares to the Transfer Agent electronically using the Depository Trust Company’s (the “DTC”) Deposit/Withdrawal At Custodian (DWAC) system, at such stockholder’s option. The requirement for physical or electronic delivery prior to the special meeting ensures that a redeeming stockholder’s election to redeem is irrevocable once the business combination is approved.

There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC system. The Transfer Agent will typically charge a tendering broker a fee, and it is in the broker’s discretion whether or not to pass this cost on to the redeeming stockholder. However, this fee would be incurred regardless of whether stockholders seeking to exercise redemption rights are required to tender their shares, as the need to deliver shares is a requirement to exercising redemption rights, regardless of the timing of when such delivery must be effectuated.

 

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Q: What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A: The U.S. federal income tax consequences of the redemption depend on a holder’s particular facts and circumstances. See the section entitled “Proposal No. 1—The Business Combination Proposal—Certain U.S. Federal Income Tax Considerations.” We urge you to consult your tax advisors regarding the tax consequences of exercising your redemption rights.

 

Q: Are there any other material U.S. federal income tax consequences to TPGE that are expected to result from the business combination?

 

A: If the business combination is effected, we expect that we will be treated as a U.S. real property holding corporation for U.S. federal income tax purposes. If you are a Non-U.S. holder (defined below in the section entitled “Proposal No. 1—The Business Combination Proposal—Certain U.S. Federal Income Tax Considerations”), we urge you to consult your tax advisors regarding the tax consequences of such treatment.

 

Q: If I am a warrant holder, can I exercise redemption rights with respect to my warrants?

 

A: No. The holders of our warrants have no redemption rights with respect to our warrants.

 

Q: Do I have appraisal rights if I object to the proposed business combination?

 

A: No. There are no appraisal rights available to holders of Class A Common Stock or Class F Common Stock in connection with the business combination.

 

Q: What happens to the funds deposited in the Trust Account after consummation of the business combination?

 

A: If the Business Combination Proposal is approved, TPGE intends to use a portion of the funds held in the Trust Account to pay (i) a portion of TPGE’s aggregate costs, fees and expenses in connection with the consummation of the business combination, (ii) tax obligations and deferred underwriting commissions from the IPO and (iii) for any redemptions of public shares. The remaining balance in the Trust Account will be paid to the Sellers in connection with the business combination. See the sections entitled “Proposal No. 1—The Business Combination Proposal” for additional information.

 

Q: What happens if the business combination is not consummated or is terminated?

 

A: There are certain circumstances under which the Business Combination Agreements may be terminated. See the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—Termination” for additional information regarding the parties’ specific termination rights. In accordance with our Charter, if an Initial Business Combination is not consummated by May 10, 2019, TPGE will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible but not more than ten (10) business days thereafter, redeem shares held by our public stockholders, at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds in the Trust Account and not previously released to us to fund its working capital requirements, and/or to pay our taxes (less up to $100,000 of interest to pay dissolution expenses) divided by the number of then-outstanding shares held by public stockholders, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the TPGE Board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

 

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TPGE expects that the amount of any distribution its public stockholders will be entitled to receive upon its dissolution will be approximately the same as the amount they would have received if they had redeemed their shares in connection with the business combination, subject in each case to TPGE’s obligations under Delaware law to provide for claims of creditors and other requirements of applicable law. The initial stockholders and our officers and directors have entered into a letter agreement with us, pursuant to which they have waived their rights to liquidating distributions from the Trust Account with respect to their founder shares if we fail to complete the business combination.

In the event of liquidation, there will be no distribution with respect to TPGE’s outstanding warrants. Accordingly, the warrants will expire worthless.

 

Q: When is the business combination expected to be consummated?

 

A: It is currently anticipated that the business combination will be consummated promptly following the special meeting to be held on                 , 2018, provided that all the requisite stockholder approvals are obtained and other conditions to the consummation of the business combination have been satisfied or waived, and the expiration of the marketing period, which is generally a fifteen (15) consecutive business day period that, subject to certain exceptions, will begin on the day that the requisite approval of TPGE’s stockholders is obtained, as set forth in the Karnes County Contribution Agreement. For information regarding the conditions to the closing of the business combination, see the sections entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement,” “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Giddings Purchase Agreement—Conditions to Closing of the Giddings Purchase Agreement” and “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Ironwood MIPA—Conditions to Closing of the Ironwood MIPA.”

 

Q: What do I need to do now?

 

A: You are urged to read carefully and consider the information contained in this proxy statement, including the section entitled “Risk Factors” and the annexes, and to consider how the business combination will affect you as a stockholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

Q: How do I vote?

 

A: If you were a holder of record of Class A Common Stock or Class F Common Stock on                 , 2018, the record date for the special meeting, you may vote with respect to the Proposals in person at the special meeting or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your banks, brokers or other nominees to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the special meeting and vote in person, obtain a proxy from your broker, bank or nominee.

 

Q: What will happen if I abstain from voting or fail to vote at the special meeting?

 

A:

At the special meeting, TPGE will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of

 

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  approval, failure to vote or an abstention will have no effect on the Business Combination Proposal, the NYSE Proposal, the Director Election Proposal, the LTIP Proposal or the Adjournment Proposal, but will have the same effect as a vote “AGAINST” each of the Charter Proposals.

 

Q: What will happen if I sign and submit my proxy card without indicating how I wish to vote?

 

A: Signed and dated proxies received by TPGE without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each proposal presented to the stockholders.

 

Q: If I am not going to attend the special meeting in person, should I submit my proxy card instead?

 

A: Yes. Whether you plan to attend the special meeting or not, please read the enclosed proxy statement carefully, and vote your shares by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

Q: If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A: No. Under the rules of various national and regional securities exchanges, your banks, brokers or other nominees cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee. TPGE believes the Proposals presented to the stockholders will be considered non-discretionary and therefore your broker, bank or nominee cannot vote your shares without your instruction. Your bank, broker or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.

 

Q: May I change my vote after I have submitted my executed proxy card?

 

A: Yes. You may change your vote by sending a later-dated, signed proxy card to TPGE’s secretary at the address listed below so that it is received by our secretary prior to the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to TPGE’s secretary, which must be received prior to the special meeting.

 

Q: What should I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

 

Q: Who can help answer my questions?

 

A: If you have questions about the Proposals or if you need additional copies of the proxy statement or the enclosed proxy card you should contact:

TPG Pace Energy Holdings Corp.

301 Commerce Street, Suite 3300

Fort Worth, Texas 76012

Attention: Secretary

 

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You may also contact our proxy solicitor at:

Morrow Sodali LLC

470 West Avenue

Stamford, Connecticut 06902

Telephone: (800) 662-5200

(banks and brokers call collect at: (203) 658-9400)

Email: TPGE.info@morrowsodali.com

To obtain timely delivery, our stockholders must request the materials no later than five (5) business days prior to the special meeting.

You may also obtain additional information about TPGE from documents filed with the United States Securities and Exchange Commission (the “SEC”) by following the instructions in the section entitled “Where You Can Find More Information.”

If you intend to seek redemption of your public shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to our Transfer Agent at least two (2) business days prior to the special meeting in accordance with the procedures detailed under the question “How do I exercise my redemption rights?” If you have questions regarding the certification of your position or delivery of your stock, please contact:

Continental Stock Transfer & Trust Company

1 State Street—30th Floor

New York, New York 10004

Attention: Mark Zimkind

Email: mzimkind@continentalstock.com

 

Q: Who will solicit and pay the cost of soliciting proxies?

 

A: TPGE will pay the cost of soliciting proxies for the special meeting. TPGE has engaged Morrow Sodali LLC (“Morrow Sodali”) to assist in the solicitation of proxies for the special meeting. TPGE has agreed to pay Morrow Sodali a fee of $30,000, plus disbursements. TPGE will reimburse Morrow Sodali for reasonable out-of-pocket expenses and will indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses. TPGE will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Class A Common Stock and Class F Common Stock for their expenses in forwarding soliciting materials to beneficial owners of Class A Common Stock and Class F Common Stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

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SUMMARY OF THE PROXY STATEMENT

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the business combination and the Proposals to be considered at the special meeting, you should read this entire proxy statement carefully, including the annexes. See also the section entitled “Where You Can Find More Information.”

This proxy statement includes certain terms commonly used in the oil and natural gas industry, which are defined elsewhere in this proxy statement in “Glossary of Oil and Natural Gas Terms” set forth in Annex L.

Magnolia Oil & Gas Corporation

As discussed further herein, TPGE expects to acquire the Target Assets from the Sellers pursuant to the business combination. Unless the context otherwise requires, references herein to “we,” “us” or “our” relate, prior to the business combination, to the Target Assets as owned and operated by the Sellers and, following the business combination, to the Target Assets as owned and operated by Magnolia Oil & Gas Corporation, to which TPGE expects, pending approval of the Additional Charter Proposal, to change its name in connection with the consummation of the business combination. Unless otherwise indicated, the financial and operating data included herein under this caption “Summary of the Proxy Statement—Magnolia Oil & Gas Corporation” gives effect to the Subsequent GulfTex Acquisition (as defined below), pursuant to which the Karnes Country Contributors acquired the Subsequent GulfTex Assets on March 1, 2018, as if it occurred on December 31, 2017.

Business Overview

We are an independent oil and natural gas company engaged in the acquisition, development and production of oil, natural gas and NGL reserves from the Eagle Ford Shale and Austin Chalk formations in South Texas. Our objective is to maximize returns by generating steady production growth, strong pre-tax margins and significant free cash flow. We intend to generate attractive full-cycle returns on capital. We will strive to maintain a conservative balance sheet and low leverage, with our initial leverage following the Closing, as measured as a percent of total capitalization, expected to be among the lowest in our industry.

The Eagle Ford Shale, which has been delineated by over 18,000 currently producing wells, is among the most prolific unconventional oil producing formations in North America, with a history of attractive well results. According to weekly rig count metrics published by Baker Hughes, the Eagle Ford Shale has consistently been one of the most active basins in the United States since 2011, with the third highest rig count of all major U.S. basins as of December 31, 2017. We believe we have substantial exposure to the core oil window of the Eagle Ford Shale in Karnes County and have stacked pay potential across the Upper and Lower Eagle Ford intervals. Industry reports from RS Energy Group state that the core areas of the play, such as Karnes County, compete with the best domestic basins, and estimate that the Karnes County Lower Eagle Ford formation breaks even at $32 per barrel due to exceptional well performance, representing industry-leading well economics ideally suited to generate high operating margins and substantial free cash flow.

We also have substantial exposure to the Austin Chalk formation in both the Karnes County Assets and the Giddings Assets. Originally developed using conventional methods, the Austin Chalk has recently experienced significant redevelopment activity in Karnes County and the Giddings Field through the use of modern, high-intensity hydraulic fracturing techniques, including cemented liner completions, decreased frac stage spacing and increased proppant usage. We have been among the leaders in extending this Austin Chalk redevelopment to the Giddings Field. Since the third quarter of 2017, we have completed four horizontal wells in the Giddings Field using the latest completion techniques that have delivered strong production with limited declines and attractive financial returns.



 

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We are led by our Chairman, President and Chief Executive Officer Stephen Chazen, an industry veteran with 22 years of experience in various roles at Occidental Petroleum Corporation (“Occidental”), including most recently as Chief Executive Officer from 2011 to 2016. Mr. Chazen has an established track record of implementing disciplined growth strategies and generating shareholder value in the public markets. Upon the Closing, Mr. Chazen will be joined by his former colleague Christopher Stavros, who will serve as our Chief Financial Officer. Most recently, Mr. Stavros served as Chief Financial Officer of Occidental from 2014 to 2017.

We will benefit from the corporate support, experience and local knowledge of EnerVest’s South Texas team following the Closing pursuant to a services agreement with EVOC, an affiliate of EnerVest that currently operates the Target Assets. Under the direction of our management team, EVOC will continue to operate a substantial majority of the Target Assets as a contract operator. Under the terms of the services agreement, EVOC will provide approximately 100 dedicated operating, technical and field-level employees and will maintain shared services for certain corporate functions. EnerVest is a leading private oil and gas company with five geographic operating divisions. With approximately 5,000,000 net leasehold acres, 37,000 producing wells and 1 Bcfe/d of production, including the Target Assets, EnerVest is the one of the largest private exploration and production companies in the United States. We also believe EnerVest is one of the most successful operators in the Eagle Ford Shale as it has delivered basin leading initial production rates for new wells and maintained a basin leading operating cost structure.

Overview of the Target Assets

We have decided to focus on South Texas because we believe in our ability to create significant value in the region. South Texas consists of proven plays with significant remaining oil, natural gas and NGL reserves, favorable pricing differentials, a positive regulatory environment and access to ample existing infrastructure and take-away capacity, primarily through the Gulf Coast markets. Due to incumbent operators focusing on other basins, we believe there are fewer companies seeking to acquire assets in South Texas than in other basins. Accordingly, we believe material consolidation opportunities exist in South Texas, with a significant amount of assets either privately held or contained within larger public company asset portfolios potentially available for sale in the near term.

Our acreage position is almost entirely held by production, and the production from the Target Assets is heavily weighted toward oil. Our average daily January 2018 production (not including the Subsequent GulfTex Assets) was approximately 40 MBoe/d with a commodity mix of 63% oil, 15% NGL and 22% natural gas, the liquids-rich nature of which enhances operating margins. Approximately 30 MBoe/d of production is attributable to the Karnes County Assets and approximately 10 MBoe/d is attributable to the Giddings Assets. As of December 31, 2017, there were a total of approximately 1,025 gross (435 net) drilling locations identified across the Karnes County Assets and a potential inventory of greater than 1,000 gross drilling locations identified across the Giddings Assets. For more information on our methodology for identifying drilling locations, see “Information About the Target Assets—Drilling Locations.”

The Karnes County Assets included approximately 28,886 gross (14,070 net) acres as of December 31, 2017, approximately 88% of which were held by production. We were designated as the operator on approximately 65% of this net acreage position, with an average operated working interest of approximately 86% and approximately 50% of our non-operated net locations in Karnes County operated by EOG Resources, Inc. The Karnes County Assets represent a well-known, low-risk acreage position targeting multiple benches with some of the best economics in North America. Our full-field development of the Karnes County Assets allows for operational efficiencies and improved performance. As of April 2018, we were running a one-rig program in the Karnes County Assets. We plan to operate an average of 1.7 drilling rigs in the Karnes County Assets in 2018.

The Giddings Assets included approximately 714,040 gross (344,384 net) acres as of December 31, 2017, approximately 99% of which were held by production. We were designated as the operator on approximately



 

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87% of this net acreage position. The held-by-production nature of the Giddings Assets allows for systematic delineation and optimization while generating positive free cash flow and provides flexibility to adjust rig cadence without concern for lease expirations. The recent application of modern high-intensity completion techniques has resulted in a significant recent improvement in well performance in the Giddings Assets. Our first four horizontal wells drilled in the Giddings Field, on which we applied the latest completion techniques, had an average initial 30-day production of 1,597 Boe/d and average initial 90-day production of 1,828 Boe/d. We believe the Giddings Assets include a potential inventory of greater than 1,000 gross locations. As of April 2018, we were running a one-rig program in the Giddings Assets, and we plan to operate an average of one drilling rig in the Giddings Assets in 2018.

We will seek to maintain industry leading full-cycle operating margins given the combination of attractive pricing dynamics for our products combined with low drilling and completion (“D&C”) costs, low operating costs and low corporate general and administrative (“G&A”) costs. Our realized prices benefit from selling our oil production under contracts that reference Louisiana Light Sweet (“LLS”) pricing rather than West Texas Intermediate (“WTI”) pricing, thus limiting our differential risk as compared to that present in other high-returning oil and natural gas basins.

Business Strategies

Our primary business objective is to maximize shareholder returns through the execution of the following strategies:

 

    Maintain high full-cycle operating margins. We will seek to maintain industry-leading full-cycle operating margins given the combination of attractive pricing dynamics for our products combined with low D&C costs, low operating costs and low corporate G&A costs. EnerVest is one of the lowest cost operators in South Texas, has a track record of excellent new well results and operational efficiency and will continue to operate a substantial majority of the Target Assets under the services agreement as a contract operator. We expect that the Target Assets will continue to benefit from favorable pricing differentials, including selling at LLS-based pricing as opposed to WTI-based pricing. As of April 30, 2018, LLS maintained a margin over WTI in excess of $3 per barrel. We further expect that the Target Assets will benefit from efficient access to Gulf Coast markets through existing infrastructure and take away capacity, which we believe will further enhance our full-cycle operating margins.

 

    Develop our high-return drilling inventory to achieve steady production growth and positive free cash flow. We believe our drilling inventory in Karnes County represents the potential for some of the highest single-well economic returns in North America and will allow us to grow production while maintaining positive free cash flow. Furthermore, we expect the Giddings Assets to realize favorable single-well returns based on the positive results from our first four horizontal wells drilled in the Giddings Field, on which we applied the latest completion techniques. We intend to maintain a modest drilling program that calls for an average of 1.7 drilling rigs in the Karnes County Assets and 1.0 drilling rigs in the Giddings assets for a total combined average of 2.7 rigs operating in the Target Assets in 2018 and an average of 4.0 rigs operating in 2019, which we believe will allow us to steadily grow production and generate positive free cash flow.

 

    Maintain conservatively capitalized balance sheet. At Closing, we expect to have approximately $550 million in liquidity, including a $1.0 billion RBL Facility with an initial borrowing base of $550 million. We expect to have total outstanding indebtedness of only $300 million at Closing and intend to utilize free cash flow to reduce our leverage in the future. We also expect to optimize our debt maturity profile through prudent corporate planning and maintain low-cost debt in line with our target of maintaining very low leverage.


 

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    Evaluate accretive acquisitions with disciplined framework. We intend to utilize our free cash flow for the benefit of our shareholders and evaluate potential acquisitions within that framework. Many companies with operations in South Texas view their assets as non-core, and we believe they do not allocate adequate capital to development in the region. In addition, several public companies with South Texas assets are actively marketing their positions, while many private-equity-backed companies face limited opportunities for monetization. We believe that our strong management, positive free cash flow and low leverage profile will position us to take advantage of these opportunities to pursue accretive acquisitions in the region.

Our Competitive Strengths

We believe that the following strengths will allow us to successfully execute our business strategies:

 

    Experienced senior management team. Our senior management team has extensive experience leading a premier oil and gas enterprise. Our Chairman, President and Chief Executive Officer Stephen Chazen is an industry veteran with 22 years of experience at Occidental, having served as Chief Executive Officer from 2011 to 2016. Prior to joining Occidental, Mr. Chazen was Managing Director in Corporate Finance and Mergers and Acquisitions at Merrill Lynch Pierce Fenner & Smith Inc. Mr. Chazen will be joined by former colleague Christopher Stavros, who served as Chief Financial Officer of Occidental from 2014 to 2017.

 

    Premier asset base in South Texas. The Target Assets are comprised of the Karnes County Assets, which included 14,070 net acres as of December 31, 2017, and the Giddings Assets, which included 344,384 net acres as of December 31, 2017. We believe the Karnes County Assets are located in the core of Karnes County, where, per RS Energy Group analysis, the Karnes County Lower Eagle Ford formation breaks even at $32 per barrel and the Austin Chalk formation breaks even at $28 per barrel, in each case due to exceptional well performance. The Karnes County Assets have been substantially de-risked from years of horizontal development, and include significant proved developed producing reserves that we expect to generate substantial operating cash flow. The Giddings Assets have demonstrated promising early well results with significant production and low decline rates and provide substantial upside potential. The held-by-production nature of the Giddings Assets allows for systematic delineation and optimization and the flexibility to adjust rig cadence as needed for optimal long-term economic development.

 

    Positive free cash flow and peer-leading operating margins. We believe our oil-weighted portfolio, which is characterized by low historical D&C costs and low historical lease operating expenses, will yield attractive full-cycle operating margins. The high level of held-by-production acreage and our designation as the operator on a substantial majority of the Target Assets allows us the flexibility to modify our development plan and drilling to maximize returns. We also believe that selling our products under contracts tied to LLS-based pricing as opposed to WTI-based pricing will allow us to further enhance our operating margins.

 

    Conservatively capitalized balance sheet and strong liquidity profile. We expect our debt outstanding at Closing to be $300 million, which, assuming no shares of Class A Common Stock are redeemed from our public stockholders and based on a $10 value per share, will be under 12% of our total capitalization. We expect our liquidity at Closing to be approximately $550 million. At current commodity prices, we expect to generate substantial free cash flow over the course of each of 2018 and 2019 while growing our rig count and our production. We intend to utilize our free cash flow to pay down debt and further improve our liquidity profile over time.


 

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Summary Historical and Pro Forma Financial and Operating Data of TPGE

The following table presents summary historical audited financial information of TPGE and summary unaudited pro forma financial information for TPGE after giving effect to the business combination, assuming two redemption scenarios as follows:

 

    No Redemptions: This scenario assumes that no shares of Class A Common Stock are redeemed from the public stockholders.

 

    Illustrative Redemption: This scenario assumes that 13,000,000 shares of Class A Common Stock are redeemed, resulting in an aggregate payment of approximately $130.0 million out of the Trust Account.

The unaudited pro forma condensed combined consolidated statement of operations data of TPGE for the year ended December 31, 2017 combines the historical statement of operations of TPGE for the period from February 14, 2017 (Inception) to December 31, 2017, the historical statement of operations of the Karnes County Business for the year ended December 31, 2017 and the historical statements of revenues and direct operating expenses of each of the Giddings Assets and the Subsequent GulfTex Assets for the year ended December 31, 2017, and the Subsequent BlackBrush Assets for the period from January 1, 2017 to January 31, 2017, giving effect to the Transactions (as defined in the section entitled “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE”) as if they had been consummated on January 1, 2017. The unaudited pro forma condensed combined consolidated balance sheet of TPGE as of December 31, 2017 presents the historical balance sheet of TPGE, after giving effect to the Transactions as if they had been consummated on December 31, 2017. For more information, please see the sections entitled “Selected Historical Financial Information of TPGE” and “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE.”

 

     TPGE     Pro Forma
Combined
(Assuming No
Redemptions)
    Pro Forma
Combined
(Assuming
Illustrative
Redemptions)
 
   (in thousands)  

Statement of Operations Data

      

Revenues:

      

Oil sales

   $ —       $ 454,562     $ 454,562  

Gas sales

     —         52,950       52,950  

NGL sales

     —         48,202       48,202  
  

 

 

   

 

 

   

 

 

 

Total revenues

     —         555,714       555,714  
  

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

      

Lease operating expenses

     —         59,770       59,770  

Gathering, transportation and processing

     —         16,267       16,267  

Production taxes

     —         24,863       24,863  

Exploration costs

     —         700       700  

Asset retirement obligations accretion expense

     —         1,755       1,755  

Depreciation, depletion and amortization

     —         309,502       309,502  

General and administrative expenses

     899       42,967       42,967  

Other

     153       153       153  
  

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     1,052       455,977       455,977  
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,052     99,737       99,737  
  

 

 

   

 

 

   

 

 

 

Other income (expense), net:

      

Interest income (expense), net

     3,646       (18,750     (18,750

Gain (loss) on derivatives, net

     —         (8,488     (8,488

Other income (expense), net

     —         265       265  
  

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     3,646       (26,973     (26,973
  

 

 

   

 

 

   

 

 

 


 

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     TPGE     Pro Forma
Combined
(Assuming No
Redemptions)
    Pro Forma
Combined
(Assuming
Illustrative
Redemptions)
 
   (in thousands)  

Income before income tax expense

     2,594       72,764       72,764  

Income tax expense

     (1,062     (12,086     (10,743
  

 

 

   

 

 

   

 

 

 

Net income

     1,532       60,678       62,021  
  

 

 

   

 

 

   

 

 

 

Less: Net income attributable to non-controlling interests

     —         (38,710     (42,494
  

 

 

   

 

 

   

 

 

 

Net income attributable to stockholders

   $ 1,532     $ 21,968     $ 19,527  
  

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding

      

Basic

     62,920,561       98,420,561       85,420,561  
  

 

 

   

 

 

   

 

 

 

Diluted

     62,920,561       231,225,561       231,225,561  
  

 

 

   

 

 

   

 

 

 

Net income per common share

      

Basic

   $ 0.02     $ 0.22     $ 0.23  
  

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.02     $ 0.20     $ 0.20  
  

 

 

   

 

 

   

 

 

 

Balance Sheet Data (at end of period)

      

Current assets

   $ 993     $ 1,002     $ 1,002  

Property, plant and equipment, net

     —         2,639,824       2,641,254  

Other assets

     652,944       48,905       48,905  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 653,937     $ 2,689,731     $ 2,691,161  
  

 

 

   

 

 

   

 

 

 

Current liabilities

   $ 1,805     $ 1,805     $ 1,805  

Long-term liabilities

     22,750       334,589       334,589  

Class A Common Stock subject to possible redemption

     624,382       —         —    

Stockholders’ equity

     5,000       1,101,362       980,418  

Non-controlling interests

     —         1,251,975       1,374,349  
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 653,937     $ 2,689,731     $ 2,691,161  
  

 

 

   

 

 

   

 

 

 

Other Financial Information

      

Adjusted EBITDAX(1)

   $ 2,594     $ 393,209     $ 393,209  

 

(1) Adjusted EBITDAX is a non-GAAP financial measure. For a definition of Adjusted EBITDAX and a reconciliation of Adjusted EBITDAX to net income, see “Non-GAAP Financial Measure” below.

Non-GAAP Financial Measure

Adjusted EBITDAX is a non-GAAP financial measure and should not be considered as a substitute for net income (loss), operating income (loss) or any other performance measure derived in accordance with United States generally accepted accounting principles (“GAAP”) or as an alternative to net cash provided by operating activities as a measure of the TPGE’s profitability or liquidity. TPGE believes Adjusted EBITDAX is useful because it allows external users of the consolidated financial statements of TPGE, such as industry analysts, investors, lenders and rating agencies, to effectively evaluate the operating performance of TPGE, compare the results of operations from period to period and against TPGE’s peers without regard to financing methods, hedging positions or capital structure and because it highlights trends that may not otherwise be apparent when relying solely on GAAP measures. Adjusted EBITDAX is an important supplemental measure of performance that is frequently used by others in evaluating companies in the oil and natural gas industry. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s



 

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financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. TPGE’s presentation of Adjusted EBITDAX should not be construed as an inference that TPGE’s results will be unaffected by unusual or non-recurring items. TPGE’s computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

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

 

     TPGE      Pro Forma
Combined
(Assuming No
Redemptions)
     Pro Forma
Combined
(Assuming
Illustrative
Redemptions)
 
   (in thousands)  

Adjusted EBITDAX reconciliation to net (loss) income:

        

Net income attributable to interests

   $ 1,532      $ 21,968      $ 19,527  

Net income attributable to non-controlling stockholders

     —          38,710        42,494  

Income tax expense

     1,062        12,086        10,743  

Depreciation, depletion and amortization

     —          309,502        309,502  

Asset retirement obligations accretion expense

     —          1,755        1,755  

Exploration costs

     —          700        700  

(Gain) loss on derivatives, net

     —          8,488        8,488  
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDAX

   $ 2,594      $ 393,209      $ 393,209  
  

 

 

    

 

 

    

 

 

 


 

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The following table presents summary pro forma operating data for TPGE for the year ended December 31, 2017 after giving effect to the business combination, as if the Transactions occurred on January 1, 2017. See the section entitled “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE” in evaluating the material presented below.

 

     Year Ended
December 31,
2017
 

Production volumes:

  

Natural gas (MMcf)

     18,028  

Oil (MBbls)

     9,109  

NGL (MBbls)

     2,208  

Total (MBoe)

     14,322  

Average sales price:

  

Natural gas (per Mcf)

   $ 2.94  

Oil (per Bbl)

   $ 49.90  

NGL (per Bbl)

   $ 21.83  

Total (per Boe)

   $ 38.80  

Average production volumes:

  

Natural gas (Mcf/d)

     49,392  

Oil (Bbls/d)

     24,956  

NGL (Bbls/d)

     6,050  

Average net production (Boe/d)

     39,239  

Average unit costs per Boe:

  

Lease and other operating expenses

   $ 4.31  

Gathering, transportation and processing

   $ 0.99  

Production taxes

   $ 1.74  

Exploration costs

   $ 0.05  

Depreciation, depletion and amortization

   $ 21.61  

General and administrative expenses

   $ 3.00  

Summary Historical Reserve Data of the Target Assets

The following tables present summary historical data with respect to the estimated net proved reserves for the Target Assets based on SEC pricing as of December 31, 2017. The reserve estimates provided below are “carve-out” reserves for the Target Assets. As such, the carve-out reserves represent the Sellers’ interest in the underlying oil and gas properties and are therefore a subset of the full reserve estimates generated at year-end of each respective year covered in this proxy statement. The following tables do not include the results of the Subsequent GulfTex Assets, as such assets were acquired by the Karnes County Contributors subsequent to the periods for which information in such tables is presented.



 

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The reserve estimates attributable to the Target Assets as of December 31, 2017 presented below are based on a reserve report (the “2017 Reserve Report”) prepared by Cawley, Gillespie & Associates, Inc. (“CGA”), a copy of which is attached to this proxy statement as Annex K. See the section entitled “Information About the Target Assets” in evaluating the material presented below.

 

As of December 31, 2017

(TPGE’s One (1) Year Development Plan)

 
     Oil
(MBbls)
     Natural Gas
(MMcf)
     NGL
(MBbls)
     Total
(MBoe)
 

Estimated Proved Reserves

           

Total Proved Developed

     33,056        121,564        13,603        66,920  

Total Proved Undeveloped

     5,713        9,592        1,318        8,630  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Proved Reserves

     38,769        131,156        14,921        75,550  
  

 

 

    

 

 

    

 

 

    

 

 

 

The estimated proved reserves of the Target Assets as of December 31, 2017 set forth above reflect a one (1) year PUD development plan. This development plan reflects TPGE’s intention to focus on near-term development of PUD reserves following consummation of the business combination.

For illustrative purposes only, if the estimated net proved reserves of the Target Assets as of December 31, 2017 were instead prepared to reflect the Sellers’ five (5) year development plan as of December 31, 2017, the estimated proved reserves of the Target Assets would have been as set forth in the following table, which includes estimates based on SEC pricing. For more information, see “Information About the Target Assets—Development of Proved Undeveloped Reserves.”

 

As of December 31, 2017

(Sellers’ Five (5) Year Development Plan)

 
     Oil
(MBbls)
     Natural Gas
(MMcf)
     NGL
(MBbls)
     Total
(MBoe)
 

Estimated Proved Reserves

           

Total Proved Developed

     33,007        117,541        13,529        66,126  

Total Proved Undeveloped

     65,140        106,384        15,602        98,473  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Proved Reserves

     98,147        223,925        29,131        164,599  
  

 

 

    

 

 

    

 

 

    

 

 

 

Parties to the Business Combination

TPG Pace Energy Holdings Corp.

We are a Delaware corporation formed on February 14, 2017, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

Our Class A Common Stock, warrants and units are traded on NYSE under the ticker symbols “TPGE,” “TPGE.WS” and “TPGE.U,” respectively. In connection with the anticipated change of our name to “Magnolia Oil & Gas Corporation” upon the Closing, we have applied to continue the listing of our Class A Common Stock and warrants on the NYSE under the symbols “MGY” and “MGY.WS,” respectively. Our units will automatically separate into the component securities upon consummation of the business combination and, as a result, will no longer trade as a separate security.

The mailing address of TPGE’s principal executive office is 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102. TPGE’s telephone number is (212) 405-8458.



 

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For more information about TPGE, see the sections entitled “Information About TPGE” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of TPGE.”

The Target Assets and the Karnes County Business

The assets TPGE, through Pace LLC, will acquire pursuant to the Karnes County Contribution Agreement and the Ironwood MIPA, respectively, consist of all of the Karnes County Contributors’ collective rights, title and interest in certain oil and natural gas assets located primarily in the Karnes County portion of the Eagle Ford Shale in South Texas, and an approximate 35% membership interest in Ironwood Eagle Ford Midstream, which owns an Eagle Ford gathering system. The assets TPGE, through Pace LLC, will acquire pursuant to the Giddings Purchase Agreement consist of all of the Giddings Sellers’ collective rights, title and interest in certain oil and natural gas assets located in the Giddings Field of the Austin Chalk. Each of the Sellers are investment funds associated with EV Ltd. The mailing address of EV Ltd.’s principal executive office is 1001 Fannin Street, Suite 800, Houston, TX 77002.

EV Ltd. formed the Karnes County Contributors beginning in April 2015 for the purpose of acquiring and developing interests in producing oil and natural gas properties located in North America. Beginning in 2015, the Karnes County Contributors acquired the Karnes County Assets through a series of acquisitions, including, among others, the following:

 

    On September 30, 2015, the Karnes County Contributors acquired the AM Assets from Alta Mesa Holdings, LP (the “Alta Mesa Acquisition”);

 

    On April 27, 2016, the Karnes County Contributors acquired certain of the Karnes County Assets (the “Initial GulfTex Assets”) from GulfTex Karnes EFS, LP (the “Initial GulfTex Acquisition”);

 

    On July 6, 2016, the Karnes County Contributors acquired certain of the Karnes County Assets (the “Initial BlackBrush Assets”) from BlackBrush Karnes Properties, LLC (the “Initial BlackBrush Acquisition”);

 

    On January 31, 2017, the Karnes County Contributors acquired certain of the Karnes County Assets (the “Subsequent BlackBrush Assets”) from BlackBrush Karnes Properties, LLC (the “Subsequent BlackBrush Acquisition”); and

 

    On March 1, 2018, the Karnes County Contributors acquired the Subsequent GulfTex Assets from GulfTex Energy III, L.P. and GulfTex Energy IV, L.P. (the “Subsequent GulfTex Acquisition”).

EV Ltd. formed the Giddings Sellers in 2006 for the purpose of acquiring and developing interests in producing oil and natural gas properties located in North America. The Giddings Sellers acquired substantially all of the Giddings Assets prior to January 1, 2015.

Unless otherwise indicated, financial and operating information in this proxy statement relating to (i) the Karnes County Assets consist of the combined historical results of the Karnes County Business, (ii) the Giddings Assets consist of the historical results of the Giddings Assets, as all of such assets were owned by the Giddings Sellers for all periods presented herein, and (iii) the Target Assets on a combined basis consist of the historical results of the Karnes County Business and the Giddings Assets, in each case, for periods subsequent to their respective acquisitions by the Sellers.

Upon completion of the business combination, TPGE expects that the Karnes County Business will be its “predecessor” for financial reporting purposes. For the period from January 1, 2015 to September 30, 2015 (the inception of the Karnes County Business), the financial results of the AM Assets will be presented as the predecessor of the Karnes County Business for financial reporting purposes. Accordingly, the results of operations of the Karnes County Business and its predecessor for the periods presented herein may not be comparable.



 

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As discussed above, the Karnes County Contributors completed the Subsequent GulfTex Acquisition on March 1, 2018. Unless otherwise indicated, the financial and operating results presented in this proxy statement do not include the results of the Subsequent GulfTex Assets, as such assets were acquired by the Karnes County Contributors subsequent to the periods for which financial and operating data is presented in this proxy statement. As of December 31, 2017, the Subsequent GulfTex Assets consisted of a total leasehold position of approximately 848 gross (683 net) acres in the Karnes County portion of the Eagle Ford Shale and included approximately 4,723 MBoe of proved reserves, 100% of which were developed and 83% of which were liquids. Further, as of December 31, 2017, the Subsequent GulfTex Assets included approximately 14.5 net producing wells with total production of 300 MBoe and daily production of 9,665 Boe/d in December 2017. As of December 31, 2017, there were a total of approximately 37 gross (23 net) drilling locations identified across the Subsequent GulfTex Assets. For the year ended December 31, 2017, approximately 77%, 12% and 11% of the 1,650 MBoe of production from the Subsequent GulfTex Assets was attributable to oil, natural gas and NGL, respectively.

For more information about the Target Assets, see the sections entitled “Information About the Target Assets” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business.”

The Business Combination

On March 20, 2018, TPGE and Pace LLC, as applicable, entered into each of the Business Combination Agreements to acquire the Target Assets from the Sellers.

The following table summarizes certain terms with respect to the business combination:

 

Transaction

 

Sellers

 

Consideration(1)

 

Earnout

Giddings Transaction   Giddings Sellers (certain entities associated with EnerVest Fund XI)   Approximately $308 million in cash   Until December 31, 2021, up to $47 million in cash based on certain net revenue thresholds
Karnes County Transaction   Karnes County Contributors (certain entities associated with EnerVest Fund XIV)  

Approximately $2.09 billion, consisting of an amount in cash determined by TPGE in its sole discretion (but no less than $610 million)(2) and the remainder in stock(3)

 

TPGE will also reimburse the Karnes County Contributors for costs associated with the acquisition of the Subsequent GulfTex Assets, which are expected to be approximately $146.6 million

  For five (5) years following the Closing, up to 13,000,000 additional shares of our stock based on certain EBITDA and free cash flow or stock price thresholds(2)
Ironwood Transaction   Ironwood Sellers (certain entities associated with EnerVest Fund XIV)   $25 million in cash   None

 

(1) Assumes no adjustments to the consideration payable to the Sellers under the Business Combination Agreements, whether as a result of an effective date of January 1, 2018 or otherwise.


 

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(2) Unless otherwise specified, the voting and economic interests of TPGE stockholders set forth in this proxy statement assume the Company elects the cash consideration under the Karnes County Contribution Agreement to be $762.8 million.
(3) The Karnes County Contributors may elect to receive shares of Class A Common Stock and/or Class B Common Stock. In the event that the Karnes County Contributors elect to receive shares of Class B Common Stock, they will also receive an equal number of Pace LLC Units, which shall be redeemable for shares of Class A Common Stock following the Closing in accordance with the terms of the Pace LLC Agreement. For more information about the Class B Common Stock, see the section entitled “Proposal No. 2—The Class B Charter Proposal—Description of Class B Common Stock.”

After the Closing, holders of Class B Common Stock, together with holders of Class A Common Stock, voting as a single class, will have the right to vote on all matters properly submitted to a vote of the stockholders, but holders of Class B Common Stock will not be entitled to any dividends or liquidating distributions from TPGE. After the Closing and in accordance with the notice procedures provided in the Pace LLC Agreement, the Karnes County Contributors will generally have the right to cause Pace LLC to redeem all or a portion of their Pace LLC Units, if any, in exchange for shares of our Class A Common Stock or, at Pace’s option, an equivalent amount of cash; provided that we may, at our option, effect a direct exchange of cash or Class A Common Stock for such Pace LLC Units in lieu of such a redemption by Pace LLC. There is no impact on the Karnes County Contributors, TPGE or the public stockholders if we elect to effect a direct exchange of cash or Class A Common Stock in lieu of a redemption by Pace LLC. Upon the future redemption or exchange of Pace LLC Units held by a Karnes County Contributor, a corresponding number of shares of Class B Common Stock will be cancelled. For more information about the Business Combination Agreements, the consideration to be received by the Sellers and the business combination generally, see the section entitled “Proposal No. 1—The Business Combination Proposal” and for more information about the Class B Common Stock, see the section entitled “Proposal No. 2—The Class B Charter Proposal—Description of Class B Common Stock.”

Conditions to the Closing

Under the Business Combination Agreements, the obligations of the applicable parties to consummate the business combination are subject to a number of customary conditions, including, among others, as applicable, the following: (i) the absence of specified adverse laws, injunctions or orders, (ii) the expiration of the waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iii) the representations and warranties of the other party being true and correct, subject to the materiality standards contained in the applicable Business Combination Agreement, (iv) material compliance by the other parties with their respective covenants, (v) the approval for listing on the NYSE of the shares of Class A Common Stock issuable to the Karnes County Contributors pursuant to the Karnes County Contribution Agreement, (vi) the requisite approval of the Company’s stockholders, (vii) the Company having at least $610 million of Available Cash (as defined in the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement”) and (viii) the aggregate value of adjustments to the purchase price attributable to title defects, environmental defects, un-obtained consents to assignment, exercise of preferential purchase rights, and casualty losses not exceeding an amount equal to 20% of the applicable purchase price. The obligations of the Company and Pace LLC (but not the Karnes County Contributors) to consummate the Karnes County Transaction are conditioned upon the closing of the Giddings Transaction. The obligations of Pace LLC (but not the Giddings Sellers) to consummate the Giddings Transaction are conditioned upon the closing of the Karnes County Transaction. The obligations of the parties to consummate the Ironwood Transaction are conditioned upon the closing of the Karnes County Transaction. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal.”



 

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Regulatory Matters

To complete the business combination, TPGE and the Sellers must obtain approvals or consents from, or make filings with, certain U.S. federal authorities. The business combination is subject to the requirements of the HSR Act, which prevents TPGE and the Sellers from completing the business combination until required information and materials are furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the Federal Trade Commission (the “FTC”) and specified waiting period requirements have been satisfied. TPGE expects to file a Premerger Notification and Report Form pursuant to the HSR Act with the DOJ and FTC in May 2018.

For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—Regulatory Matters.”

Termination Rights

Each of the Business Combination Agreements contains certain customary termination rights, including, among others, the following: (i) if the closing of the applicable transaction is not consummated by October 31, 2018 (as may be extended in accordance with the Business Combination Agreements, the “End Date”), subject to certain extensions; (ii) upon the applicable parties’ mutual written consent; (iii) if the consummation of the applicable transaction is prohibited by law; (iv) breach of a representation, warranty, covenant or other agreement by a party which has not been cured by the earlier of (A) five (5) business days prior to the End Date or (B) thirty (30) days following written notice from the other party of such breach; (v) in the case of the Karnes County Contribution Agreement, (x) by the Company (but not the Karnes County Contributors) if the Giddings Purchase Agreement has been terminated in accordance with its terms or (y) by the Karnes County Contributors if the TPGE Board has changed its recommendation for the Company’s stockholders to approve the business combination, (vi) in the case of the Giddings Purchase Agreement, by Pace LLC (but not the Giddings Sellers) if the Karnes County Contribution Agreement has been terminated in accordance with its terms or (vii) in the case of the Ironwood MIPA, by any party if the Karnes County Contribution Agreement has been terminated in accordance with its terms.

None of the parties to the Business Combination Agreements is required to pay a termination fee or reimburse any other party for its expenses as a result of a termination of the applicable Business Combination Agreement. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—Termination.”

Indemnification

Under the Karnes County Contribution Agreement and the Giddings Purchase Agreement, the Karnes County Contributors and the Giddings Sellers, as applicable, will indemnify the Company or Pace LLC, as applicable, for any losses relating to (i) a breach of any representation or warranty of the Karnes County Contributors or Giddings Sellers, as applicable, other than fundamental representations and warranties and representations and warranties relating to tax matters, for a period of twelve (12) months following Closing; (ii) breaches of fundamental representations and warranties of the Karnes County Contributors or Giddings Sellers, as applicable, for a period of three (3) years following Closing; (iii) breaches of representations and warranties of the Karnes County Contributors or Giddings Sellers, as applicable, related to tax matters for a period equal to the applicable statute of limitations plus sixty (60) days; (iv) breaches of any pre-Closing covenant of the Karnes County Contributors or Giddings Sellers, as applicable, for a period of twelve (12) months following Closing; (v) breaches of any post-Closing covenants of the Karnes County Contributors or Giddings Sellers, as applicable, until fully performed; (vi) Specified Obligations (as defined in the Karnes County Contribution Agreement or Giddings Purchase Agreement, as applicable) with respect to scheduled litigation and environmental matters until fully and finally resolved; (vii) Specified Obligations (as defined in the Karnes County Contribution Agreement



 

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or Giddings Purchase Agreement, as applicable) with respect to royalties for a period of two (2) years following Closing; (viii) all other Specified Obligations for a period of twelve (12) months following Closing and (ix) Retained Obligations (as defined in the Karnes County Contribution Agreement or Giddings Purchase Agreement, as applicable) for a period equal to the applicable statute of limitations plus sixty (60) days. Additionally, the Company and Pace LLC, as applicable, will indemnify the Karnes County Contributors or Giddings Sellers, as applicable, for any losses relating to a breach of any of its representations, warranties or covenants and Assumed Obligations (as defined in the Karnes County Contribution Agreement or Giddings Purchase Agreement, as applicable).

The indemnification obligations of the Karnes County Contributors set forth above with respect to a breach of any representation or warranty (other than tax-related and fundamental representations and warranties) are subject to a de minimis threshold of $100,000, an aggregate deductible equal to 1.5% of the consideration payable to the Karnes County Contributors and a cap equal to 15% of the consideration payable to the Karnes County Contributors. The indemnification obligations of the Giddings Sellers set forth above with respect to a breach of any representation or warranty (other than tax-related and fundamental representations and warranties) are subject to a de minimis threshold of $100,000, an aggregate deductible equal to 2% of the consideration payable to the Giddings Sellers and a cap equal to 15% of the consideration payable to the Giddings Sellers. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Indemnification” and “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Giddings Purchase Agreement—Indemnification.”

Under the Ironwood MIPA, the Ironwood Sellers will indemnify the Company for any losses relating to (i) a breach of any pre-Closing covenant or agreement of the Ironwood Sellers for a period of twelve (12) months following Closing; (ii) a breach of any representation or warranty of the Ironwood Sellers, other than fundamental representations and warranties and representations and warranties relating to tax matters, for a period of twelve (12) months following Closing; (iii) breaches of fundamental representations and warranties of the Ironwood Sellers for a period of three (3) years following Closing; (iv) breaches of representations and warranties relating to tax matters for a period equal to the applicable statute of limitations plus sixty (60) days; (iv) breaches of post-Closing covenants or agreements of the Ironwood Sellers indefinitely; (v) and Retained Taxes (as defined in the Ironwood MIPA) for which the Company is obligated to indemnify or make a contribution to Ironwood Eagle Ford Midstream for a period equal to the applicable statute of limitations plus sixty (60) days; (vi) certain litigation matters described in Schedule 3.7 to the Ironwood MIPA for a period of three (3) years following the Closing and (vii) any Indebtedness of Ironwood Eagle Ford Midstream existing at any time from and after the Effective Time until the Execution Date (as such terms are defined in the Ironwood MIPA) in an amount greater than that set forth on Schedule 3.22 to the Ironwood MIPA for a period of three (3) years following Closing, the amount for which the Ironwood Sellers will be responsible being equal to such excess indebtedness multiplied by 0.35. Furthermore, the Company will indemnify the Ironwood Sellers for any losses relating to (i) a breach of any pre-Closing covenant or agreement of the Company for a period of twelve (12) months following Closing; (ii) a breach of any representation or warranty of the Company, other than fundamental representations and warranties, for a period of twelve (12) months following Closing; (iii) breaches of fundamental representations and warranties of the Company for a period of three (3) years following Closing; and (iv) the Company’s ownership of the Units (as defined in the Ironwood MIPA), regardless of whether such Liabilities arose prior to, on or after the Effective Time, or Ironwood Eagle Ford Midstream’s ownership of the Midstream System, the Midstream System Interests or any other assets of the Midstream Business for Liabilities arising on or after Closing (as such terms are defined in the Ironwood MIPA).

The indemnification obligations of the Ironwood Sellers set forth above with respect to a breach of any representation or warranty (other than tax-related and fundamental representations and warranties) are subject to a de minimis threshold of $100,000, an aggregate deductible equal to 2% of the consideration payable to the



 

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Ironwood Sellers and a cap equal to 15% of the consideration payable to the Ironwood Sellers. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Ironwood MIPA—Indemnification.”

Other Agreements

Second A&R Charter. Pursuant to the terms of the Business Combination Agreements, upon the Closing, we will amend and restate our Charter to provide for, among other things, (i) the creation of the Class B Common Stock that will be issued to the Karnes County Contributors at the Closing, (ii) an increase in the number of authorized shares of Class A Common Stock from 200,000,000 to 1,300,000,000 shares, (iii) the change of the term of office of members of the TPGE Board from a two (2) year term to a one (1) year term, (iv) the ability of our stockholders to act by written consent if certain conditions are met, (v) the adoption of Delaware as the exclusive forum for certain stockholder litigation and (vi) the elimination of certain provisions relating to an Initial Business Combination that will no longer be applicable to us following the Closing. For more information about the amendments to our Charter, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Second A&R Charter.” The full text of the proposed Second A&R Charter is attached to this proxy statement as Annex D.

Stockholder Agreement. Concurrently with the Closing, the Company, Sponsor, and the Karnes County Contributors will enter into a Stockholder Agreement (the “Stockholder Agreement”) which will govern certain rights and obligations following the Closing. Under the Stockholder Agreement, the Karnes County Contributors will be entitled to nominate two (2) directors and the Sponsor will be entitled to nominate two (2) directors for appointment to the TPGE Board so long as the Karnes County Contributors and the Sponsor meet certain ownership criteria outlined in the Stockholder Agreement. For more information about the Stockholder Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Stockholder Agreement.” The full text of the proposed Stockholder Agreement is attached to this proxy statement as Annex E.

Registration Rights Agreement. In connection with the Closing, we will enter into a Registration Rights Agreement (the “Registration Rights Agreement”) with our Sponsor, the Karnes County Contributors and our four independent directors, Arcilia Acosta, Edward Djerejian, Chad Leat and Dan F. Smith, (such parties being collectively referred to in connection with the Registration Rights Agreement as the “Holders”), pursuant to which we will be required to, among other things and subject to certain conditions, register for resale under the Securities Act of 1933, as amended (the “Securities Act”), all or any portion of the shares of Class A Common Stock that the Holders hold as of the date of the Registration Rights Agreement, and may acquire thereafter. For more information about the Registration Rights Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Registration Rights Agreement.” The form of the Registration Rights Agreement is attached to this proxy statement as Annex F.

Pace LLC Agreement. Following completion of the business combination, TPGE will operate its business through Pace LLC and its subsidiaries. At the Closing, TPGE and certain of the Karnes County Contributors will enter into the Pace LLC Agreement, which will set forth, among other things, the rights and obligations of the holders of Pace LLC Units. For more information about the Pace LLC Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Pace LLC Agreement.”

Services Agreement. Concurrently with the Closing, the Company and EVOC will enter into the Services Agreement, pursuant to which EVOC, under the direction of the Company’s management, will provide the Company services identical to the services historically provided by EVOC in operating the Target Assets, including administrative, back office, and day-to-day field level services reasonably necessary to operate the business of the Company and its assets, subject to certain exceptions. The Services Agreement will not be



 

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terminable by the Company for two (2) years, subject to certain early termination rights. For more information about the Services Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Services Agreement.” The form of the Services Agreement is attached to this proxy statement as Annex G.

Non-Compete Agreement. Concurrently with the Closing, the Company and EV Ltd. will enter into the Non-Compete Agreement pursuant to which EV Ltd. and certain of its affiliates will be restricted from competing with the Company in certain counties comprising the Eagle Ford Shale (the “Market Area”) following the Closing until the later of the four (4) year anniversary of the Closing and the date the Services Agreement is terminated in accordance with its terms. EV Ltd. will have the right to receive up to 4,000,000 shares of Class A Common Stock based on the achievement of certain stock price thresholds. The Non-Compete Agreement also provides for (i) certain co-investment rights for EV Ltd. and certain of its affiliates with respect to future acquisitions by the Company in the Market Area, (ii) a right of first offer in favor of the Company on certain sales by EV Ltd. and its affiliates in the Market Area, (iii) a tag-along right for EV Ltd. and its affiliates on certain sales by the Company in the Market Area and (iv) the ability of the Company to drag-along EV Ltd. and its affiliates on certain sales by the Company in the Market Area. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Non-Compete Agreement.” The form of the Non-Compete Agreement is attached to this proxy statement as Annex H.

Class F Waiver Agreement. In connection with the business combination, on March 20, 2018, the Company entered into a Waiver Agreement (the “Class F Waiver Agreement”) with the Sponsor and the other holders of the Company’s Class F Common Stock, pursuant to which the Sponsor and such other holders agreed to waive their rights to receive additional shares of Class A Common Stock upon conversion of the shares of Class F Common Stock in connection with the business combination pursuant to certain adjustments provided for in the Company’s Charter. In addition, our Sponsor agreed to vote all of its shares of our voting common stock in favor of the Proposals. For more information about the Class F Waiver Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Class F Waiver Agreement.” A copy of the Class F Waiver Agreement is attached to this proxy statement as Annex I.

Interests of Certain Persons in the Business Combination

In considering the recommendation of the TPGE Board to vote in favor of the business combination, stockholders should be aware that, aside from their interests as stockholders, our Sponsor and certain of our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination, and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include, among other things:

 

    the fact that our Sponsor, officers and directors will lose their entire investment in us and that the private placement warrants held by our Sponsor would expire worthless if an Initial Business Combination is not completed;

 

    the fact that our Sponsor, officers and directors have agreed not to redeem any of the shares of Class A Common Stock held by them in connection with a stockholder vote to approve the business combination;

 

    the fact that our Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $        based on the closing price of our Class A Common Stock on                 , 2018;


 

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    if the Trust Account is liquidated, including in the event we are unable to complete an Initial Business Combination within the required time period, our Sponsor has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10 per public share, or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

    the continuation of Stephen Chazen as President, Chief Executive Officer and Chairman of TPGE following the business combination;

 

    the purchase by Mr. Chazen and the TPG Holdings Assignees of 1,500,000 and 1,000,000 shares of Class A Common Stock, respectively, in connection with the PIPE Investment, which is contingent on the Karnes County Transaction;

 

    the right of our Sponsor, pursuant to the Stockholder Agreement, to appoint two directors to the TPGE Board at the Closing;

 

    the fact that each of our independent directors owns 40,000 founder shares that were purchased from our Sponsor at $0.002 per share, which if unrestricted and freely tradeable would be valued at approximately $        based on the closing price of our Class A Common Stock on                 , 2018;

 

    the fact that Mr. Chazen may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an Initial Business Combination or fail to complete an Initial Business Combination by May 10, 2019;

 

    the fact that at the Closing, our Sponsor, officers and directors will be reimbursed for out-of-pocket expenses incurred in connection with activities on our behalf, such as identifying potential target businesses and performing due diligence on suitable business combinations; and

 

    the fact that we are a party to a registration rights agreement with our Sponsor and certain of our directors, which provides for registration rights to such parties, and will enter into a new registration rights agreement with our Sponsor, certain of our directors and the Karnes County Contributors in connection with the business combination.

Redemption Rights

We will provide our public stockholders with the opportunity to redeem all or a portion of their public shares upon the completion of our Initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account (as of two (2) business days prior to the consummation of our Initial Business Combination), including interest earned on the funds held in the trust account and not previously released to us to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes, divided by the number of then-outstanding public shares, subject to the limitations described herein. Our Charter provides that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of December 31, 2017 of approximately $652.8 million, the estimated per share redemption price, less amounts to be withdrawn, would have been approximately $10. Under our Charter, in connection with an Initial Business Combination, a public stockholder, together with any affiliate or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), is restricted from seeking redemption rights with respect to more than 15% of the public shares.

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growth of TPGE, if any. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to the Transfer Agent in accordance with the procedures described herein. See the section entitled “Special Meeting in Lieu of 2018 Annual Meeting of TPGE Stockholders—Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

Impact of the Business Combination on TPGE’s Public Float

It is anticipated that, upon the Closing and based upon the assumptions set forth under “Certain Defined Terms,” the ownership of TPGE will be as follows:

 

    the public stockholders will collectively own 65,000,000 shares of our Class A Common Stock, representing an approximate 26.0% economic interest and an approximate 26.0% voting interest;

 

    the holders of our founder shares, including our Sponsor and independent directors, will collectively own 16,250,000 shares of our Class A Common Stock, representing an approximate 6.5% economic interest and an approximate 6.5% voting interest;

 

    the Karnes County Contributors will collectively own 132,805,000 shares of our Class B Common Stock, representing a 0.0% economic interest and an approximate 53.2% voting interest, and 132,805,000 Pace LLC Units, representing an approximate 53.2% economic interest and a 0.0% voting interest; and

 

    the PIPE Investors will collectively own 35,500,000 shares of Class A Common Stock, an approximate 14.2% economic interest and an approximate 14.2% voting interest.

In this scenario, our current affiliates, including our Sponsor, our directors and officers and the TPG Holdings Assignees, would collectively own 18,909,900 shares of our Class A Common Stock, representing an approximate 7.6% economic interest and an approximate 7.6% voting interest upon the Closing.

The number of shares and the economic and voting interests set forth above are based upon the assumptions set forth under “Certain Defined Terms.” If the actual facts are different than our assumptions, the economic and voting interests set forth above will differ. For example, if we assume all outstanding 21,666,666 public warrants and 10,000,000 private placement warrants were exercisable and exercised following completion of the business combination, with proceeds to the Company of approximately $364 million, then the ownership of our Class A Common Stock and Class B Common Stock would be as follows:

 

    the public stockholders would collectively own 86,666,666 shares of our Class A Common Stock, representing an approximate 30.8% economic interest and an approximate 30.8% voting interest;

 

    the holders of our founder shares, including our Sponsor and independent directors, would collectively own 26,250,000 shares of our Class A Common Stock, representing an approximate 9.3% economic interest and an approximate 9.3% voting interest;

 

    the Karnes County Contributors would collectively own 132,805,000 shares of our Class B Common Stock, representing a 0.0% economic interest and an approximate 47.2% voting interest, and 132,805,000 Pace LLC Units, representing an approximate 47.2% economic interest and a 0.0% voting interest; and

 

    the PIPE Investors would collectively own 35,500,000 shares of our Class A Common Stock, representing an approximate 12.6% economic interest and an approximate 12.6% voting interest.

In this scenario, our current affiliates, including our Sponsor, our directors and officers and the TPG Holdings Assignees, would collectively own 28,952,533 shares of our Class A Common Stock, representing an approximate 10.3% economic interest and an approximate 10.3% voting interest upon the Closing.



 

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The public warrants and private placement warrants will become exercisable on the later of thirty (30) days after the completion of an Initial Business Combination and May 10, 2018 (twelve (12) months following the closing of our IPO) and will expire five (5) years after the completion of an Initial Business Combination or earlier upon their redemption or liquidation.

Please see the section entitled “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE” for further information.

Organizational Structure

Prior to the Business Combination

The following diagram illustrates the ownership structure of TPGE prior to the business combination.

 

LOGO

 

(1) 80.0% voting interest of public stockholders does not apply with respect to the Director Election Proposal. Pursuant to our Charter, only holders of our Class F Common Stock will be entitled to vote on the Director Election Proposal.
(2) Includes founder shares held by our Sponsor and independent directors.
(3) The economic and voting interests set forth above do not account for private placement warrants and public warrants that will remain outstanding following the business combination and may be exercised at a later date.

Following the Business Combination

The diagram below illustrates the ownership structure of TPGE immediately following the business combination. The voting and economic interests set forth in the diagram do not take into account the private placement warrants or public warrants that will remain outstanding following the business combination and may be exercised at a later date and assume the following:

 

  at the Closing, the Karnes County Contributors elect to receive all shares of Class B Common Stock and an equivalent number of Pace LLC Units (instead of Class A Common Stock);


 

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  at the Closing, the Company elects the cash consideration under the Karnes County Contribution Agreement to be $762,800,000;

 

  at the Closing, there are no adjustments to the consideration payable to the Sellers under the Business Combination Agreements;

 

  at the Closing, the PIPE Investors purchase 35,500,000 shares of Class A Common Stock for aggregate proceeds of $355,000,000 to the Company;

 

  no public stockholders elect to have their public shares redeemed;

 

  none of TPGE’s existing stockholders or the parties to the Karnes County Contribution Agreement that will become stockholders of TPGE at the Closing, purchase shares of Class A Common Stock in the open market; and

 

  there are no other issuances of equity interests of TPGE prior to or in connection with the Closing.

 

LOGO

 

(1) Includes shares of Class A Common Stock issued upon conversion of the founder shares held by our Sponsor and independent directors.
(2) Includes 1,500,000 and 1,000,000 shares of Class A Common Stock, respectively, to be issued to Mr. Chazen and the TPG Holdings Assignees in connection with the PIPE Investment.
(3) Pace LLC Units represent an economic interest only. Each Pace LLC Unit is exchangeable together with one share of Class B Common Stock for Class A Common Stock on a one-for-one basis pursuant to the terms of the Pace LLC Agreement.

TPGE Board Following the Business Combination

From and after the Closing, the Stockholder Agreement will entitle each of our Sponsor and the Karnes County Contributors (collectively) to nominate two directors to the TPGE Board. The remainder of the TPGE Board will include Mr. Chazen and two independent directors mutually nominated by the Karnes County Contributors and our Sponsor.



 

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If the Business Combination Proposal is approved, we anticipate that, in connection with the Closing,             ,              and              will resign as directors from the TPGE Board and be replaced by             ,              and             , respectively. We anticipate that the size of the TPGE Board will remain at seven (7) directors following the Closing. Assuming the Director Term Charter Proposal is approved by stockholders, each of our directors will serve until the first annual meeting of stockholders after their election.

After the Closing, our Sponsor and the Karnes County Contributors will collectively hold more than 50% of the voting power for the election of directors. While, as a result, we may be a “controlled company” within the meaning of the rules of the NYSE, we do not intend to utilize the exemptions from the NYSE corporate governance standards available to controlled companies.

Accounting Treatment

The business combination will be accounted for pursuant to the guidance in Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations (“ASC 805”), using the acquisition method of accounting with the Company as the acquirer. Under the acquisition method of accounting, the assets acquired and liabilities assumed will be measured at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of net assets acquired, if applicable, will be recorded as goodwill. The Company’s management has made significant estimates and assumptions in determining the preliminary acquisition date fair values of the assets acquired and liabilities assumed in the unaudited pro forma condensed combined consolidated financial statements. As the unaudited pro forma condensed combined consolidated financial statements have been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

Under ASC 805, non-recurring acquisition-related costs (such as advisory, legal, valuation and other professional fees) are expensed. The Company expects to incur approximately $65 million of non-recurring acquisition-related costs.

Appraisal Rights

Appraisal rights are not available to TPGE stockholders in connection with the business combination.

Other Proposals

In addition to the Business Combination Proposal, TPGE stockholders will be asked to vote on the Charter Proposals, the NYSE Proposal, the LTIP Proposal and the Adjournment Proposal. For more information about the Charter Proposals, the NYSE Proposal, the LTIP Proposal and the Adjournment Proposal see the sections entitled “Proposal No. 2—The Class B Charter Proposal,” “Proposal No. 3—The Authorized Share Charter Proposal,” “Proposal No. 4—The Director Term Charter Proposal,” “Proposal No. 5—The Written Consent Charter Proposal,” “Proposal No. 6—The Exclusive Forum Charter Proposal,” “Proposal No. 7—The Additional Charter Proposal,” “Proposal No. 8—The NYSE Proposal,” “Proposal No. 9—The Director Election Proposal,” “Proposal No. 10—The LTIP Proposal” and “Proposal No. 11—The Adjournment Proposal.”

Date, Time and Place of Special Meeting

The special meeting will be held on                 , 2018, at                 , Central Time, at                 , or at such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the Proposals.



 

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Voting Power; Record Date

You will be entitled to vote or direct votes to be cast at the special meeting if you owned shares of Class A Common Stock or Class F Common Stock at the close of business on                 , 2018, which is the record date for the special meeting. You are entitled to one vote for each share of Class A Common Stock or Class F Common Stock that you owned as of the close of business on the record date. Only holders of Class F Common Stock will be entitled to vote on the Director Election Proposal. If your shares are held in “street name” or are in a margin or similar account, you should contact your banks, brokers or other nominees to ensure that votes related to the shares you beneficially own are properly counted. As of                 , 2018, there were 81,250,000 shares of Class A Common Stock and Class F Common Stock outstanding in the aggregate, of which 65,000,000 are public shares and 16,250,000 are founder shares held by the Sponsor and our independent directors.

Proxy Solicitation

Proxies may be solicited by mail. TPGE has engaged Morrow Sodali to assist in the solicitation of proxies. If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the special meeting. A stockholder may also change its vote by submitting a later-dated proxy as described in the section entitled “Special Meeting in Lieu of 2018 Annual Meeting of TPGE’s Stockholders—Revoking Your Proxy.”

Quorum and Required Vote for Proposals for the Special Meeting

A quorum of TPGE stockholders is necessary to hold a valid meeting. For purposes of proposals other than the Director Election Proposal, holders representing a majority of the voting power of Class A Common Stock and Class F Common Stock issued and outstanding and entitled to vote at the special meeting, present in person or by proxy, constitute a quorum. For purposes of the Director Election Proposal, holders representing a majority of the voting power of Class F Common Stock issued and outstanding and entitled to vote at the special meeting, present in person or by proxy, constitute a quorum. Abstentions will count as present for the purposes of establishing a quorum with respect to each proposal.

The approvals of the Business Combination Proposal, the NYSE Proposal, the LTIP Proposal and the Adjournment Proposal require the affirmative vote of a majority of votes cast by the holders of the outstanding shares of Class A Common Stock and Class F Common Stock represented in person or by proxy and entitled to vote thereon and actually cast at the special meeting, voting as a single class. Approval of the Charter Proposals requires the affirmative vote of the holders of a majority of the outstanding shares of Class A Common Stock and Class F Common Stock represented in person or by proxy and entitled to vote thereon at the special meeting, voting as a single class. Accordingly, if a valid quorum is otherwise established, a stockholder’s failure to vote by proxy or to vote in person at the special meeting will have no effect on the outcome of any vote on the Business Combination Proposal, NYSE Proposal, the LTIP Proposal or the Adjournment Proposal, but will have the same effect as a vote “AGAINST” the Charter Proposals.

Directors are elected by a plurality of all of the votes cast by holders of shares of our Class F Common Stock represented in person or by proxy and entitled to vote thereon at the special meeting. This means that the seven (7) director nominees will be elected if they receive more affirmative votes than any other nominee for the same position. Stockholders may not cumulate their votes with respect to the election of directors. Assuming a valid quorum is established, abstentions will have no effect on the Director Election Proposal.

Recommendation to TPGE Stockholders

The TPGE Board believes that each of the Business Combination Proposal, the Charter Proposals, the NYSE Proposal, the LTIP Proposal and the Adjournment Proposal is in the best interests of TPGE and its stockholders and recommends that its stockholders vote “FOR” each of the Proposals to be presented at the special meeting.



 

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For a description of TPGE’s reasons for the approval of the business combination and the recommendation of the TPGE Board, see the section entitled “Proposal No. 1—The Business Combination Proposal—The TPGE Board’s Reasons for the Approval of the Business Combination.”

When you consider the recommendation of the TPGE Board in favor of approval of these Proposals, you should keep in mind that the Sponsor, members of the TPGE Board and officers have interests in the business combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. Please see the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Risk Factors

In evaluating the Proposals, you should carefully read this proxy statement, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.”



 

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Summary Historical Operating Data of the Karnes County Business

The following table presents, for the year ended December 31, 2017, summary unaudited information regarding production and sales of oil, natural gas and natural gas liquids for only the Karnes County Business, because, as discussed further in this proxy statement, TPGE expects that, following the completion of the business combination, the Karnes County Business will be its “predecessor” for financial reporting purposes.

See the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business” and “Information About the Target Assets” in evaluating the material presented below.

 

     Year Ended
December 31,
2017
 

Production volumes:

  

Natural gas (MMcf)

     8,579  

Oil (MBbls)

     7,154  

NGL (MBbls)

     1,287  

Total (MBoe)

     9,871  

Average sales price:

  

Natural gas (per Mcf)

   $ 3.02  

Natural gas net of hedging (per Mcf)

   $ 3.03  

Oil (per Bbl)

   $ 48.95  

Oil net of hedging (per Bbl)

   $ 48.84  

NGL (per Bbl)

   $ 21.04  

NGL net of hedging (per Bbl)

   $ 20.73  

Total (per Boe)

   $ 40.85  

Average production volumes:

  

Natural gas (Mcf/d)

     23,504  

Oil (Bbls/d)

     19,600  

NGL (Bbls/d)

     3,526  

Average net production (Boe/d)

     27,043  

Average unit costs per Boe:

  

Lease and other operating expenses

   $ 3.23  

Gathering, transportation and processing

   $ 1.44  

Production taxes

   $ 1.81  

Exploration costs

   $ 0.07  

Depreciation, depletion and amortization

   $ 13.14  

General and administrative expenses

   $ 1.88  


 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF TPGE

The following table shows selected historical financial information of TPGE for the periods and as of the dates indicated. The selected historical financial information of TPGE as of December 31, 2017 and for the period from February 14, 2017 (Inception) to December 31, 2017 was derived from the audited historical financial statements of TPGE included elsewhere in this proxy statement. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of TPGE” and our historical financial statements and the notes and schedules related thereto, included elsewhere in this proxy statement.

 

     Period from
February 14,
2017 (Inception)
to December 31,
2017
 

Statement of Operations Data:

  

Revenue

   $ —    

Professional fees and other expenses

     685,940  

Travel expenses

     213,152  

State franchise tax

     152,610  
  

 

 

 

Loss from operations

     (1,051,702

Interest income

     3,646,151  
  

 

 

 

Income from continuing operations

     2,594,449  

Income tax expense

     (1,062,254
  

 

 

 

Net income attributable to common stock

   $ 1,532,195  
  

 

 

 

Basic and diluted net income per common share

   $ 0.02  
  

 

 

 

Basic and diluted weighted average share of common stock outstanding

     62,920,561  
  

 

 

 

 

     As of
December 31,
2017
 

Balance Sheet Data:

  

Total assets

   $ 653,937,462  

Total liabilities

   $ 24,554,828  

Working capital

   $ 629,382,634  

Value of Class A Common Stock that may be redeemed in connection with an Initial Business Combination ($10.00 per share)

   $ 624,382,630  

Total Stockholders’ equity

   $ 5,000,004  

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF THE KARNES COUNTY BUSINESS

The following table shows selected historical financial information of only the Karnes County Business for the periods and as of the dates indicated because, as discussed further in this proxy statement, TPGE expects that, following the completion of the business combination, the Karnes County Business will be its “predecessor” for financial reporting purposes. The selected historical consolidated financial information of the Karnes County Business as of December 31, 2017 and 2016 and for the years ended December 31, 2017 and 2016 and the period from September 30, 2015 (the inception of the Karnes County Business) to December 31, 2015, was derived from the audited historical consolidated financial statements of the Karnes County Business included elsewhere in this proxy statement. The selected historical consolidated financial information for the period from January 1, 2015 to September 30, 2015 was derived from the audited historical consolidated financial statements of the AM Assets included elsewhere in this proxy statement.

Historical results are not necessarily indicative of future operating results. The selected consolidated and combined financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business,” as well as the historical and pro forma financial statements and accompanying notes included elsewhere in this proxy statement.

 

     Year Ended December 31,     For the Period From  
     2017     2016     September 30,
2015 to
December 31,
2015
    January 1,
2015 to
September 30,
2015
 
     (Karnes County Business)     (Karnes County
Business)
    (AM Assets)  
     (In thousands unless otherwise indicated)  

Statement of Operations Data:

        

Revenues:

        

Oil revenue

   $ 350,204     $ 97,125     $ 5,720     $ 18,191  

Natural gas revenue

     25,916       7,677       233       1,113  

NGL revenue

     27,074       6,124       234       873  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     403,194       110,926       6,187       20,177  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating costs and expenses:

        

Lease and other operating expenses

     31,925       13,457       1,132       3,634  

Gathering, transportation and processing

     14,210       5,484       36       213  

Production taxes

     17,837       4,629       301       1,367  

Exploration costs

     700       13,123       —         —    

Asset retirement obligations accretion expense

     232       94       1       8  

Depreciation, depletion and amortization

     129,711       33,123       3,325       12,213  

Impairment expense

     —         —         —         3,134  

General and administrative expenses

     18,568       12,157       637       2,462  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

     213,183       82,067       5,432       23,031  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     190,011       28,859       755       (2,854

Other income (expense):

        

Gain (loss) on derivatives-net

     (8,488     (6,717     1,558       —    

Other (expense) income

     92       2       —         (41
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (8,396     (6,715     1,558       (41
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     181,615       22,144       2,313       (2,895

Income tax expense

     (2,741     (673     (58     (32
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 178,874     $ 21,471     $ 2,255     $ (2,927
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flow Data:

        

Net cash provided by operating activities

   $ 257,371     $ 30,458     $ 5,314     $ 12,428  

Net cash used in investing activities

   $ (314,417   $ (1,249,421   $ (124,543   $ (12,058

Net cash provided by (used in) financing activities

   $ 57,046     $ 1,218,963     $ 119,229     $ (370

Other Supplementary Data:

        

Adjusted EBITDAX(1)

   $ 320,746     $ 75,201     $ 4,081     $ 12,460  

 

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(1) Adjusted EBITDAX is a non-GAAP financial measure. For a definition of Adjusted EBITDAX and a reconciliation of Adjusted EBITDAX to net income, see “Non-GAAP Financial Measure” below.

 

     As of December 31,  
     2017      2016  
     (Karnes County
Business)
     (Karnes County
Business)
 
     (In thousands unless otherwise
indicated)
 

Balance Sheet Data:

     

Current assets

   $ 114,536      $ 41,648  

Property, plant and equipment, net

     1,565,537        1,385,720  

Equity method investment

     8,901        —    
  

 

 

    

 

 

 

Total assets

   $ 1,688,974      $ 1,427,368  
  

 

 

    

 

 

 

Current liabilities

   $ 81,300      $ 62,054  

Long-term liabilities

     9,836        3,396  

Parents’ net investment

     1,597,838        1,361,918  
  

 

 

    

 

 

 

Total liabilities and parents’ net investment

   $ 1,688,974      $ 1,427,368  
  

 

 

    

 

 

 

Non-GAAP Financial Measure

Adjusted EBITDAX is a non-GAAP financial measure and should not be considered as a substitute for net income (loss), operating income (loss) or any other performance measure derived in accordance with United States generally accepted accounting principles (“GAAP”) or as an alternative to net cash provided by operating activities as a measure of the Karnes County Business’s profitability or liquidity. The Karnes County Contributors believe Adjusted EBITDAX is useful because it allows external users of the consolidated financial statements of the Karnes County Business, such as industry analysts, investors, lenders and rating agencies, to effectively evaluate the operating performance of the Karnes County Business, compare the results of operations from period to period and against the Karnes County Business’s peers without regard to financing methods, hedging positions or capital structure and because it highlights trends that may not otherwise be apparent when relying solely on GAAP measures. Adjusted EBITDAX is an important supplemental measure of performance that is frequently used by others in evaluating companies in the oil and natural gas industry. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. The Karnes County Contributors’ presentation of Adjusted EBITDAX should not be construed as an inference that the Karnes County Business’s results will be unaffected by unusual or non-recurring items. The Karnes County Contributors’ computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

 

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

 

     For the Year Ended
December 31,
     For the Period From  
        September 30,
2015 to
December 31,
2015
    January 1,
2015 to
September 30,
2015
 
     2017      2016       
     (Karnes
County
Business)
     (Karnes
County
Business)
     (Karnes
County
Business)
    (AM Assets)  
     (In thousands unless otherwise indicated)  

Adjusted EBITDAX reconciliation to net (loss) income:

          

Net income (loss)

   $ 178,874      $ 21,471      $ 2,255     $ (2,927

Income tax expense

     2,741        673        58       32  

Depreciation, depletion and amortization

     129,711        33,123        3,325       12,213  

Asset retirement obligations accretion expense

     232        94        1       8  

Exploration costs

     700        13,123        —         —    

Impairment of oil and gas properties

     —          —          —         3,134  

(Gain) loss on derivatives-net

     8,488        6,717        (1,558     —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Adjusted EBITDAX

   $ 320,746      $ 75,201      $ 4,081     $ 12,460  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information in this proxy statement includes “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements, other than statements of present or historical fact included in this proxy statement, regarding the proposed business combination, TPGE’s ability to consummate the business combination, the benefits of the transaction and TPGE’s and the post-business combination entity’s future financial performance following the business combination, as well as TPGE’s and the post-business combination entity’s strategy, future operations, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward looking statements. When used in this proxy statement, including any oral statements made in connection therewith, the words “could,” “should,” “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, TPGE disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this proxy statement. TPGE cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of TPGE, incident to the development, production, fathering and sale of oil, natural gas and natural gas liquids.

In addition, TPGE cautions you that the forward-looking statements regarding TPGE and the post-business combination entity, which are contained in this proxy statement, are subject to the following factors:

 

    the occurrence of any event, change or other circumstances that could delay the business combination or give rise to the termination of the Business Combination Agreements;

 

    the outcome of any legal proceedings that may be instituted against TPGE following announcement of the business combination;

 

    the inability to complete the business combination due to the failure to obtain approval of the stockholders of TPGE, or the other conditions to closing in the Business Combination Agreements;

 

    the risk that the proposed business combination disrupts current plans and operations of the Target Assets or TPGE as a result of the announcement and consummation of the business combination;

 

    TPGE’s ability to realize the anticipated benefits of the business combination, which may be affected by, among other things, competition and the ability of TPGE to grow and manage growth profitably following the business combination;

 

    costs related to the business combination;

 

    changes in applicable laws or regulations;

 

    changes in current or future commodity prices and interest rates;

 

    the possibility that TPGE may be adversely affected by other economic, business, and/or competitive factors; and

 

    the fact that reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of TPGE’s reserves.

Should one or more of the risks or uncertainties described in this proxy statement, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Additional information concerning these and other factors that may impact the operations and projections discussed herein can be found in the section entitled “Risk Factors” and in its periodic filings with the SEC, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The Company’s SEC Filings are available publicly on the SEC’s website at www.sec.gov.

 

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RISK FACTORS

The risk factors discussed herein are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition, prospects of the Target Assets and the business, financial condition and prospects of TPGE following the completion of the business combination. You should carefully consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” TPGE and the Target Assets may face additional risks and uncertainties that are not presently known, or that TPGE currently deems immaterial, which may also impair its business or financial condition. The following discussion should be read in conjunction with the financial statements and the notes to the financial statements included in this proxy statement.

Risks Related to the Target Assets

The risks discussed herein have been identified by TPGE’s management based on an evaluation of the historical risks faced by the Sellers with respect to the Target Assets and relate to TPGE management’s current expectations as to future risks that may result from TPGE’s anticipated ownership and operation of the Target Assets.

Oil, natural gas and NGL prices are volatile. A sustained decline in oil, natural gas and NGL prices could adversely affect TPGE’s business, financial condition and results of operations and its ability to meet its capital expenditure obligations and financial commitments.

Following the business combination, the prices TPGE will receive for its oil, natural gas and NGL production will heavily influence its revenue, profitability, access to capital, future rate of growth and the carrying value of its properties. Oil, natural gas and NGL are commodities, and their prices may fluctuate widely in response to market uncertainty and to relatively minor changes in the supply of and demand for oil, natural gas and NGL. Historically, oil, natural gas and NGL prices have been volatile. For example, commodity prices dropped significantly from 2014 highs of $107.95 per barrel of oil and $8.15 per MMBtu for natural gas down to lows of $26.19 per barrel of oil in February 2016 and $1.49 per MMBtu for natural gas in March 2016. Since 2016, prices have generally increased. On March 26, 2018, the WTI spot price for oil was $65.49 per barrel and the Henry Hub spot price for natural gas was $2.63 per MMBtu. Likewise, NGL, which are made up of ethane, propane, isobutane, normal butane and natural gasoline, each of which has different uses and different pricing characteristics, have suffered significant recent declines in realized prices. Following the business combination, the prices TPGE will receive for its production, and the levels of TPGE’s production, will depend on numerous factors beyond TPGE’s control, which include the following:

 

    worldwide and regional economic conditions impacting the global supply and demand for oil, natural gas and NGL;

 

    the price and quantity of foreign imports of oil, natural gas and NGL;

 

    political and economic conditions in or affecting other producing regions or countries, including the Middle East, Africa, South America and Russia;

 

    actions of the Organization of the Petroleum Exporting Countries, its members and other state- controlled oil companies relating to oil price and production controls;

 

    the level of global exploration, development and production;

 

    the level of global inventories;

 

    prevailing prices on local price indexes in the areas in which TPGE will operate;

 

    the proximity, capacity, cost and availability of gathering and transportation facilities;

 

    localized and global supply and demand fundamentals and transportation availability;

 

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    the cost of exploring for, developing, producing and transporting reserves;

 

    weather conditions and natural disasters;

 

    technological advances affecting energy consumption;

 

    the price and availability of alternative fuels;

 

    expectations about future commodity prices; and

 

    U.S. federal, state and local and non-U.S. governmental regulation and taxes.

Following the business combination, lower commodity prices may reduce TPGE’s cash flow and borrowing ability. If TPGE is unable to obtain needed capital or financing on satisfactory terms, its ability to develop future reserves could be adversely affected. Also, using lower prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits. In addition, sustained periods with lower oil and natural gas prices may adversely affect drilling economics and TPGE’s ability to raise capital, which may require it to re-evaluate and postpone or eliminate its development program, and result in the reduction of some proved undeveloped reserves and related standardized measure. Following the business combination, if TPGE is required to curtail its drilling program, TPGE may be unable to hold leases that are scheduled to expire, which may further reduce reserves. As a result, a substantial or extended decline in commodity prices may materially and adversely affect TPGE’s future business, financial condition, results of operations, liquidity and ability to finance planned capital expenditures.

TPGE’s development projects and acquisitions will require substantial capital expenditures. TPGE may be unable to obtain required capital or financing on satisfactory terms, which could lead to a decline in its ability to access or grow production and reserves.

The oil and natural gas industry is capital-intensive. TPGE expects to make substantial capital expenditures in 2018 and has a D&C capital budget for the year of $250 million to $275 million. TPGE expects to fund its 2018 capital budget with cash generated by operations and potentially through borrowings under the RBL Facility. However, TPGE’s financing needs may require it to alter or increase its capitalization substantially through the issuance of debt or equity securities or the sale of assets. The issuance of additional indebtedness would require that an additional portion of cash flow from operations be used for the payment of interest and principal on its indebtedness, thereby further reducing its ability to use cash flow from operations to fund working capital, capital expenditures and acquisitions. The issuance of additional equity securities would be dilutive to existing stockholders. The actual amount and timing of future capital expenditures may differ materially from estimates as a result of, among other things: commodity prices; actual drilling results; the availability of drilling rigs and other services and equipment; and regulatory, technological and competitive developments. A reduction in commodity prices from current levels may result in a decrease in actual capital expenditures, which would negatively impact TPGE’s ability to grow production.

Following the business combination, TPGE’s cash flow from operations and access to capital will be subject to a number of variables, including:

 

    the prices at which TPGE’s production is sold;

 

    proved reserves;

 

    the amount of hydrocarbons TPGE is able to produce from its wells;

 

    TPGE’s ability to acquire, locate and produce new reserves;

 

    the amount of TPGE’s operating expenses;

 

    cash settlements from TPGE’s derivative activities;

 

    TPGE’s ability to borrow under the RBL Facility;

 

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    restrictions in the instruments governing TPGE’s debt on TPGE’s ability to incur additional indebtedness; and

 

    TPGE’s ability to access the capital markets.

If TPGE’s revenues or the borrowing base under the RBL Facility decrease as a result of lower oil, natural gas and NGL prices, operational difficulties, declines in reserves or for any other reason, TPGE may have limited ability to obtain the capital necessary to sustain operations at the Sellers’ current levels. If additional capital is needed, TPGE may not be able to obtain debt or equity financing on terms acceptable to it, if at all. If cash flow generated by TPGE’s operations or available borrowings under the RBL Facility are insufficient to meet its capital requirements, the failure to obtain additional financing could result in a curtailment of the development of TPGE’s properties, which in turn could lead to a decline in reserves and production and could materially and adversely affect TPGE’s business, financial condition and results of operations. If TPGE seeks and obtains additional financing following the business combination, subject to the restrictions in the instruments governing its existing debt, the addition of new debt to existing debt levels could intensify the operational risks that TPGE will face. Further, adding new debt following the business combination could limit TPGE’s ability to service existing debt service obligations.

Part of TPGE’s business strategy will involve using some of the latest available horizontal drilling and completion techniques, which involve risks and uncertainties in their application.

TPGE’s operations will involve utilizing some of the latest D&C techniques as developed by TPGE and its service providers. The difficulties TPGE will face drilling horizontal wells include:

 

    landing its wellbore in the desired drilling zone;

 

    staying in the desired drilling zone while drilling horizontally through the formation;

 

    running its casing the entire length of the wellbore; and

 

    being able to run tools and other equipment consistently through the horizontal wellbore.

Difficulties that TPGE will face while completing its wells include the following:

 

    the ability to fracture stimulate the planned number of stages;

 

    the ability to run tools the entire length of the wellbore during completion operations; and

 

    the ability to successfully clean out the wellbore after completion of the final fracture stimulation stage.

Use of new technologies may not prove successful and could result in significant cost overruns or delays or reductions in production, and, in extreme cases, the abandonment of a well. In addition, certain of the new techniques TPGE adopts may cause irregularities or interruptions in production due to offset wells being shut in and the time required to drill and complete multiple wells before any such wells begin producing. Furthermore, the results of drilling in new or emerging formations are more uncertain initially than drilling results in areas that are more developed and have a longer history of established production. Newer and emerging formations and areas have limited or no production history and, consequently, TPGE will be more limited in assessing future drilling results in these areas. If its drilling results are less than anticipated, the return on investment for a particular project may not be as attractive as anticipated, and TPGE could incur material write-downs of unevaluated properties and the value of undeveloped acreage could decline in the future.

For example, potential complications associated with the new D&C techniques that TPGE intends to utilize on the Giddings Assets may cause TPGE to be unable to develop such assets in line with current expectations and projections. Further, recent well results in the Giddings Field of the Austin Chalk may not be indicative of TPGE’s future well results with respect to the Giddings Assets.

 

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Drilling for and producing oil and natural gas are high risk activities with many uncertainties that could adversely affect TPGE’s business, financial condition or results of operations.

TPGE’s future financial condition and results of operations will depend on the success of its development, production and acquisition activities, which are subject to numerous risks beyond its control, including the risk that drilling will not result in commercially viable oil and natural gas production.

TPGE’s decisions to develop or purchase prospects or properties will depend, in part, on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, which are often inconclusive or subject to varying interpretations. For a discussion of the uncertainty involved in these processes, see “—Reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.” In addition, the cost of drilling, completing and operating wells will often be uncertain.

Further, many factors may curtail, delay or cancel scheduled drilling projects, including:

 

    delays imposed by, or resulting from, compliance with regulatory requirements, including limitations on wastewater disposal, emission of greenhouse gases (“GHGs”) and hydraulic fracturing;

 

    pressure or irregularities in geological formations;

 

    shortages of or delays in obtaining equipment and qualified personnel or in obtaining water for hydraulic fracturing activities;

 

    equipment failures, accidents or other unexpected operational events;

 

    lack of available gathering facilities or delays in construction of gathering facilities;

 

    lack of available capacity on interconnecting transmission pipelines;

 

    adverse weather conditions;

 

    issues related to compliance with environmental regulations;

 

    environmental hazards, such as oil and natural gas leaks, oil spills, pipeline and tank ruptures and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment;

 

    declines in oil and natural gas prices;

 

    limited availability of financing on acceptable terms;

 

    title issues; and

 

    other market limitations in TPGE’s industry.

TPGE may not be able to generate sufficient cash to service all of its indebtedness and may be forced to take other actions to satisfy its debt obligations that may not be successful.

TPGE’s ability to make scheduled payments on or to refinance its indebtedness obligations, including the RBL Facility, the Senior Notes (if any) and the Senior Bridge Facility (if any), will depend on TPGE’s financial condition and operating performance, which are subject to prevailing economic and competitive conditions, industry cycles and certain financial, business and other factors affecting TPGE’s operations, many of which are beyond TPGE’s control. TPGE may not be able to maintain a level of cash flow from operating activities sufficient to permit TPGE to pay the principal, premium, if any, and interest on its indebtedness.

If TPGE’s cash flow and capital resources are insufficient to fund debt service obligations, TPGE may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital or restructure or refinance existing indebtedness. TPGE’s ability to restructure or refinance indebtedness will depend on the

 

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condition of the capital markets and its financial condition at such time. Any refinancing of indebtedness may be at higher interest rates and may require TPGE to comply with more onerous covenants, which could further restrict business operations. The terms of TPGE’s future debt instruments may restrict it from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis would likely result in a reduction of TPGE’s credit rating, which could harm its ability to incur additional indebtedness. In the absence of sufficient cash flows and capital resources, TPGE could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. The RBL Facility, the Senior Bridge Facility (if any) and the indenture governing the Senior Notes will limit TPGE’s ability to dispose of assets and use the proceeds from such dispositions. TPGE may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit TPGE to meet scheduled debt service obligations.

Restrictions in TPGE’s future debt agreements could limit TPGE’s growth and ability to engage in certain activities.

The terms and conditions governing TPGE’s indebtedness following the business combination will:

 

    require TPGE to dedicate a substantial portion of cash flow from operations to service its debt, thereby reducing the cash available to finance operations and other business activities and could limit its flexibility in planning for or reacting to changes in its business and the industry in which it operates;

 

    increase vulnerability to economic downturns and adverse developments in TPGE’s business;

 

    place restrictions on TPGE’s ability to engage in certain business activities, including without limitation, to raise capital, obtain additional financing (whether for working capital, capital expenditures or acquisitions) or to refinance indebtedness, grant or incur liens on assets, pay dividends or make distributions in respect of its capital stock, make investments, amend or repay subordinated indebtedness, sell or otherwise dispose of assets, business or operations and engage in business combinations or other fundamental changes;

 

    potentially place TPGE at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall size or less restrictive terms governing their indebtedness; and

 

    limit management’s discretion in operating TPGE’s business.

TPGE’s ability to meet its expenses and debt obligations and comply with the covenants and restrictions contained therein will depend on its future performance, which will be affected by financial, business, economic, industry, regulatory and other factors, many of which are beyond TPGE’s control. If market or other economic conditions deteriorate, TPGE’s ability to comply with these covenants may be impaired. TPGE cannot be certain that its cash flow will be sufficient to allow it to pay the principal and interest on its debt and meet its other obligations. If TPGE does not have enough money, TPGE may be required to refinance all or part of its debt, sell assets, borrow more money or raise equity. TPGE may not be able to refinance its debt, sell assets, borrow more money or raise equity on terms acceptable to it, or at all. For example, TPGE’s future debt agreements will require the satisfaction of certain conditions, including coverage and leverage ratios, to borrow money. TPGE’s future debt agreements will also restrict the payment of dividends and distributions by certain of its subsidiaries to it, which could affect its access to cash. In addition, TPGE’s ability to comply with the financial and other restrictive covenants in the agreements governing its indebtedness will be affected by the levels of cash flow from operations and future events and circumstances beyond TPGE’s control. Breach of these covenants or restrictions will result in a default under TPGE’s financing arrangements, which if not cured or waived, would permit the lenders to accelerate all indebtedness outstanding thereunder. Upon acceleration, the debt would become immediately due and payable, together with accrued and unpaid interest, and any lenders’ commitment to make further loans to TPGE may terminate. Even if new financing were then available, it may not be on terms that are acceptable to TPGE. Additionally, upon the occurrence of an event of default under TPGE’s financing

 

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agreements, the affected lenders may exercise remedies, including through foreclosure, on the collateral securing any such secured financing arrangements. Moreover, any subsequent replacement of TPGE’s financing arrangements may require it to comply with more restrictive covenants which could further restrict business operations.

Any significant reduction in TPGE’s borrowing base under the RBL Facility as a result of the periodic borrowing base redeterminations or otherwise may negatively impact TPGE’s ability to fund its operations.

The RBL Facility will limit the amounts TPGE can borrow up to a borrowing base amount, which the lenders will in good faith determine, in accordance with their respective usual and customary oil and gas lending criteria, based upon the loan value of the proved oil and gas reserves located within the geographic boundaries of the United States included in the most recent reserve report provided to the lenders.

The RBL Facility will require periodic borrowing base redeterminations based on reserve reports. Additionally, the borrowing base will be subject to unscheduled reductions due to certain issuances of new junior lien indebtedness, unsecured indebtedness or subordinated indebtedness, certain sales or acquisitions of borrowing base properties or early monetizations or terminations of certain hedge or swap positions. A reduced borrowing base could render TPGE unable to access adequate funding under the RBL Facility. Additionally, if the aggregate amount outstanding under the RBL Facility exceeds the borrowing base at any time, TPGE would be required to repay any indebtedness in excess of the borrowing base or to provide mortgages on additional borrowing base properties to eliminate such excess. As a result of a mandatory prepayment and/or reduced access to funds under the RBL Facility, TPGE may be unable to implement its drilling and development plan, make acquisitions or otherwise carry out business plans, which would have a material adverse effect on its financial condition and results of operations.

Reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.

The process of estimating oil and natural gas reserves is complex. It requires interpretations of available technical data and many assumptions, including assumptions relating to current and future economic conditions and commodity prices. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves. In order to prepare the reserve estimates included in this proxy statement, the Sellers have projected production rates and timing of development expenditures. They have also analyzed available geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.

Actual future production, oil, natural gas and NGL prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary from the estimates included in this proxy statement. For instance, initial production rates reported by TPGE, the Sellers or other operators may not be indicative of future or long-term production rates, and recovery efficiencies may be worse than expected and production declines may be greater than estimated and may be more rapid and irregular when compared to initial production rates. In addition, estimates of proved reserves may be adjusted to reflect additional production history, results of development activities, current commodity prices and other existing factors. Any significant variance could materially affect the estimated quantities and present value of reserves. Moreover, there can be no assurance that reserves will ultimately be produced or that proved undeveloped reserves will be developed within the periods anticipated.

You should not assume that the present value of future net revenues from the reserves presented in this proxy statement is the current market value of the estimated reserves of the Target Assets. Actual future prices and costs may differ materially from those used in the present value estimate. If spot prices are below such calculated

 

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amounts, using more recent prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits.

The standardized measure of estimated reserves may not be an accurate estimate of the current fair value of estimated oil and natural gas reserves.

Standardized measure is a reporting convention that provides a common basis for comparing oil and natural gas companies subject to the rules and regulations of the SEC. Standardized measure requires historical twelve-month pricing as required by the SEC as well as operating and development costs prevailing as of the date of computation. Consequently, it may not reflect the prices ordinarily received or that will be received for oil and natural gas production because of varying market conditions, nor may it reflect the actual costs that will be required to produce or develop the oil and natural gas properties. In addition, the Sellers were generally not subject to U.S. federal, state or local income taxes other than certain state franchise taxes. TPGE is subject to U.S. federal, state and local income taxes. As a result, estimates included in this proxy statement of future net cash flow may be materially different from the future net cash flows that are ultimately received. Therefore, the standardized measure of estimated reserves included in this proxy statement should not be construed as accurate estimates of the current fair value of such proved reserves.

Properties TPGE acquires, including the Target Assets, may not produce as projected, and TPGE may be unable to determine reserve potential, identify liabilities associated with such properties or obtain protection from sellers against such liabilities.

Acquiring oil and natural gas properties requires TPGE to assess reservoir and infrastructure characteristics, including recoverable reserves, future oil and gas prices and their applicable differentials, development and operating costs, and potential liabilities, including environmental liabilities. In connection with these assessments, TPGE performs a review of the subject properties that it believes to be generally consistent with industry practices. Such assessments are inexact and inherently uncertain. For these reasons, the properties TPGE will acquire in connection with the business combination or in the future may not produce as expected. In connection with the assessments, TPGE performs a review of the subject properties, but such a review may not reveal all existing or potential problems. In the course of due diligence, TPGE may not review every well, pipeline or associated facility. TPGE cannot necessarily observe structural and environmental problems, such as groundwater contamination, when a review is performed. TPGE may be unable to obtain contractual indemnities from the seller for liabilities created prior to TPGE’s purchase of the property. TPGE may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with its expectations. Additionally, the success of future acquisitions will depend on TPGE’s ability to integrate effectively the then-acquired business into its then-existing operations. The process of integrating acquired assets may involve unforeseen difficulties and may require a disproportionate amount of managerial and financial resources. TPGE’s failure to achieve consolidation savings, to incorporate the additionally acquired assets into its then-existing operations successfully, or to minimize any unforeseen operational difficulties, or the failure to acquire future assets at all, could have a material adverse effect on its financial condition and results of operations.

The Sellers are not, and TPGE will not be, the operator on all of its acreage or drilling locations, and, therefore, TPGE will not be able to control the timing of exploration or development efforts, associated costs, or the rate of production of any non-operated assets and could be liable for certain financial obligations of the operators or any of its contractors to the extent such operator or contractor is unable to satisfy such obligations.

As of December 31, 2017, the Sellers had identified approximately 1,020 gross drilling locations across the Karnes County Assets plus a potential inventory of greater than 1,000 gross drilling locations across the Giddings Assets. Please see “Information About the Target Assets—Drilling Locations” for an explanation of our methodology in calculating identified drilling locations. TPGE does not expect that it or EVOC will operate 515

 

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of such locations, and there is no assurance that it or EVOC will operate all of TPGE’s other future drilling locations. As a result, TPGE will have limited ability to exercise influence over the operations of the drilling locations operated by its partners, and there is the risk that TPGE’s partners may at any time have economic, business or legal interests or goals that are inconsistent with ours. Furthermore, the success and timing of development activities operated by its partners will depend on a number of factors that will be largely outside of TPGE’s control, including:

 

    the timing and amount of capital expenditures;

 

    the operator’s expertise and financial resources;

 

    the approval of other participants in drilling wells;

 

    the selection of technology; and

 

    the rate of production of reserves, if any.

This limited ability to exercise control over the operations and associated costs of some of TPGE’s drilling locations could prevent the realization of targeted returns on capital in drilling or acquisition activities. In addition, the Target Assets will be operated on a day-to-day basis by EVOC and its employees pursuant to the Services Agreement, and TPGE will not be involved in the day-to-day operations of the Target Assets.

Further, TPGE may be liable for certain financial obligations of the operator of a well in which it owns a working interest to the extent such operator becomes insolvent and cannot satisfy such obligations. Similarly, TPGE may be liable for certain obligations of contractors to the extent such contractor becomes insolvent and cannot satisfy their obligations. The satisfaction of such obligations could have a material adverse effect on TPGE’s financial condition. For more information about the Target Assets, see the sections entitled “Information about the Target Assets” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Karnes County Business.”

The identified drilling locations on the Target Assets are scheduled out over many years, making them susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. In addition, TPGE may not be able to raise the substantial amount of capital that would be necessary to drill such locations.

The Sellers and TPGE’s management and technical teams have specifically identified and scheduled certain drilling locations as an estimation of future multi-year drilling activities on the Target Assets. These drilling locations represent a significant part of TPGE’s growth strategy. TPGE’s ability to drill and develop these locations will depend on a number of uncertainties, including oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing and distribution systems, regulatory approvals, the cooperation of other working interest owners and other factors. Because of these uncertain factors, TPGE cannot be certain whether the numerous identified drilling locations will ever be drilled or if it will be able to produce natural gas or oil from these or any other drilling locations. In addition, unless production is established within the spacing units covering the undeveloped acres on which some of the drilling locations are obtained, the leases for such acreage will expire. As such, actual drilling activities may materially differ from those presently identified.

As of December 31, 2017, the Target Assets included approximately 1,020 gross drilling locations identified across the Karnes County Assets plus a potential inventory of greater than 1,000 gross drilling locations across the Giddings Assets. Please see “Information About the Target Assets—Drilling Locations” for an explanation of our methodology in calculating identified drilling locations. As a result of the limitations described in this proxy statement, TPGE may be unable to drill many of these identified locations. In addition, significant additional capital will be required over a prolonged period in order to pursue the development of these locations, and TPGE

 

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may not be able to raise or generate the capital required to do so. See “—TPGE’s development projects and acquisitions will require substantial capital expenditures. TPGE may be unable to obtain required capital or financing on satisfactory terms, which could lead to a decline in its ability to access or grow production and reserves.” Any drilling activities TPGE is able to conduct on these locations may not be successful, may not result in production or additions to estimated proved reserves and could result in a downward revision of estimated proved reserves, which could have a material adverse effect on the borrowing base under the RBL Facility or future business and results of operations. Additionally, if TPGE curtails its drilling program, it may lose a portion of its acreage through lease expirations and may be required to reduce estimated proved reserves, which could reduce the borrowing base under the RBL Facility.

Certain of the undeveloped leasehold acreage of the Target Assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed.

As of December 31, 2017, approximately 87% and 99% of the acreage within the Karnes County Assets and Giddings Assets was held by production, respectively. The leases for net acreage not held by production will expire at the end of their primary term unless production is established in paying quantities under the units containing these leases or the leases are renewed. If the leases associated with the Target Assets expire and TPGE is unable to renew the leases, TPGE will lose its right to develop the related properties. Although TPGE intends to extend substantially all of the net acreage within the Target Assets associated with identified drilling locations through a combination of development drilling, or the negotiation of lease extensions, it may not be successful in extending such leases. Additionally, any payments related to such extensions may be more than anticipated. Please see “Information About the Target Assets—Development of Proved Undeveloped Reserves—Undeveloped Acreage Expirations” for more information regarding acreage expiations and our plans for extending our acreage. TPGE’s ability to drill and develop its acreage and establish production to maintain its leases depends on a number of uncertainties, including oil, natural gas and NGL prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing and distribution systems, regulatory approvals and other factors.

Adverse weather conditions may negatively affect TPGE’s operating results and ability to conduct drilling activities.

Adverse weather conditions may cause, among other things, increases in the costs of, and delays in, drilling or completing new wells, power failures, temporary shut-in of production and difficulties in the transportation of oil, natural gas and NGL. Any decreases in production due to poor weather conditions will have an adverse effect on revenues, which will in turn negatively affect cash flow from operations.

TPGE’s operations will be substantially dependent on the availability of water. Restrictions on its ability to obtain water may have an adverse effect on its financial condition, results of operations and cash flows.

Water is an essential component of oil and natural gas production during both the drilling and hydraulic fracturing processes. Drought conditions have persisted in the areas where the Target Assets are located in past years. These drought conditions have led governmental authorities to restrict the use of water, subject to their jurisdiction, for hydraulic fracturing to protect local water supplies. If TPGE is unable to obtain water to use in operations, it may be unable to economically produce oil and natural gas, which could have a material and adverse effect on its financial condition, results of operations and cash flows.

The Target Assets are located in the Karnes County portion of the Eagle Ford Shale in South Texas and the Giddings Field of the Austin Chalk, making TPGE vulnerable to risks associated with operating in a limited geographic area.

Following the consummation of the business combination, all of TPGE’s producing properties will be geographically concentrated in the Karnes County portion of the Eagle Ford Shale in South Texas and the

 

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Giddings Field of the Austin Chalk. As a result, TPGE may be disproportionately exposed to various factors, including, among others: (i) the impact of regional supply and demand factors, (ii) delays or interruptions of production from wells in such areas caused by governmental regulation, (iii) processing or transportation capacity constraints, (iv) market limitations, (v) availability of equipment and personnel, (vi) water shortages or other drought related conditions or (vii) interruption of the processing or transportation of oil, natural gas or NGL. The concentration of the Target Assets in a limited geographic area also increases its exposure to changes in local laws and regulations, certain lease stipulations designed to protect wildlife and unexpected events that may occur in the regions such as natural disasters, seismic events, industrial accidents or labor difficulties. Any one of these factors has the potential to cause producing wells to be shut-in, delay operations, decrease cash flows, increase operating and capital costs and prevent development of lease inventory before expirations. Any of the risks described above could have a material adverse effect on TPGE’s business, financial condition, results of operations and cash flow.

The marketability of TPGE’s production will be dependent upon transportation and other facilities, certain of which it will not control. If these facilities are unavailable, TPGE’s operations could be interrupted and its revenues reduced.

The marketability of TPGE’s oil and natural gas production will depend in part upon the availability, proximity and capacity of transportation facilities owned by third parties. Oil production from the Target Assets is generally transported by gathering systems associated with the Target Assets, including, with respect to the Karnes County Assets, the gathering system owned by Ironwood Eagle Ford Midstream. The oil is generally then transported by the purchaser by truck. Natural gas production is generally transported by third-party gathering lines and, with respect to natural gas production from the Karnes County Assets, by the gathering system owned by Ironwood Eagle Ford Midstream. The Sellers do not control, and following the business combination TPGE will not control, all of the trucks and transportation facilities used to transport production from the Target Assets, and access to them may be limited or denied. Insufficient production from wells to support the construction of pipeline facilities by purchasers or a significant disruption in the availability of TPGE’s or third-party transportation facilities or other production facilities could adversely impact TPGE’s ability to deliver to market or produce oil and natural gas and thereby cause a significant interruption in TPGE’s operations. If, in the future, TPGE is unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounter production related difficulties, it may be required to shut in or curtail production. Any such shut-in or curtailment, or an inability to obtain favorable terms for delivery of the oil and natural gas produced from TPGE’s fields, would materially and adversely affect its financial condition and results of operations.

TPGE may incur losses as a result of title defects in the properties in which it invests.

The existence of a material title deficiency can render a lease worthless and adversely affect TPGE’s results of operations and financial condition. While the Sellers typically obtain, and TPGE intends to obtain, title opinions prior to commencing drilling operations on a lease or in a unit, the failure of title may not be discovered until after a well is drilled, in which case TPGE may lose the lease and the right to produce all or a portion of the minerals under the property. Additionally, if an examination of the title history of a property reveals that an oil or natural gas lease or other developed right has been purchased in error from a person who is not the owner of the mineral interest desired, TPGE’s interest would substantially decline in value. In such cases, the amount paid for such oil or natural gas lease or leases would be lost.

The development of estimated PUDs may take longer and may require higher levels of capital expenditures than anticipated. Therefore, estimated PUDs may not be ultimately developed or produced.

As of December 31, 2017, assuming TPGE’s one (1) year development plan, the Target Assets contained 8.6 MMBoe of proved undeveloped reserves, or PUDs, consisting of 5,713 MBbls of oil, 9,592 MMcf of natural gas and 1,318 MBbls of NGL. Development of these proved undeveloped reserves may take longer and require higher levels of capital expenditures than anticipated. Estimated future development costs relating to the

 

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development of such PUDs at December 31, 2017 are approximately $158 million over the next year. TPGE’s ability to fund these expenditures is subject to a number of risks. See “—TPGE’s development projects and acquisitions will require substantial capital expenditures. TPGE may be unable to obtain required capital or financing on satisfactory terms, which could lead to a decline in its ability to access or grow production and reserves.” Delays in the development of reserves, increases in costs to drill and develop such reserves or decreases in commodity prices will reduce the value of the estimated PUDs and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. In addition, delays in the development of reserves could cause TPGE to have to reclassify PUDs as unproved reserves. Furthermore, there is no certainty that TPGE will be able to convert PUDs to developed reserves or that undeveloped reserves will be economically viable or technically feasible to produce.

Further, SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five (5) years after the date of booking. This requirement may limit TPGE’s ability to book additional PUDs as it pursues its future drilling programs following the business combination. As a result, TPGE may be required to write down its PUDs if it does not drill those wells within the required timeframe. If actual reserves prove to be less than current reserve estimates, or if TPGE is required to write down some of its PUDs, such reductions could have a material adverse effect on TPGE’s financial condition, results of operations and future cash flows.

Certain factors could require TPGE to write-down the carrying values of its properties, including commodity prices decreasing to a level such that future undiscounted cash flows from its properties are less than their carrying value.

Accounting rules will require that TPGE periodically review the carrying value of its properties for possible impairment. Based on prevailing commodity prices and specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, TPGE may be required to write-down the carrying value of its properties. A write-down constitutes a non-cash impairment charge to earnings. Commodity prices dropped significantly from 2014 highs of $107.95 per barrel of oil and $8.15 per MMBtu for natural gas down to lows of $26.19 per barrel of oil in February 2016 and $1.49 per MMBtu in March 2016. Since 2016, prices have generally increased. On April 23, 2018, the WTI spot price for crude oil was $67.61 per barrel, and the Henry Hub spot price for natural gas was $2.78 per MMBtu.

Likewise, NGL have suffered significant recent declines in realized prices. Lower commodity prices in the future could result in impairments of TPGE’s properties, which could have a material adverse effect on results of operations for the periods in which such charges are taken. Following the business combination, TPGE could experience material write-downs as a result of lower commodity prices or other factors, including low production results or high lease operating expenses, capital expenditures or transportation fees.

Unless TPGE replaces its reserves with new reserves and develops those new reserves, its reserves and production will decline, which would adversely affect future cash flows and results of operations.

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Unless TPGE conducts successful ongoing exploration and development activities or continually acquires properties containing proved reserves, proved reserves will decline as those reserves are produced. TPGE’s future reserves and production, and therefore future cash flow and results of operations, are highly dependent on TPGE’s success in efficiently developing current reserves and economically finding or acquiring additional recoverable reserves. TPGE may not be able to develop, find or acquire sufficient additional reserves to replace future production. If TPGE is unable to replace such production, the value of its reserves will decrease, and its business, financial condition and results of operations would be materially and adversely affected.

 

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Conservation measures and technological advances could reduce or slow the demand for oil and natural gas.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil, natural gas and NGL, technological advances in fuel economy and developments in energy generation and storage devices could reduce or slow the demand for oil, natural gas and NGL. The impact of the changing demand for oil, natural gas and NGL may have a material adverse effect on its business, financial condition, results of operations and cash flows.

TPGE expects to depend upon a small number of significant purchasers for the sale of most of its oil, natural gas and NGL production. The loss of one or more of such purchasers could, among other factors, limit TPGE’s access to suitable markets for the oil, natural gas and NGL it produces.

TPGE expects to sell its production to a relatively small number of customers, as is customary in the oil and natural gas business. For the year ended December 31, 2017, there were seven purchasers who accounted for approximately an aggregate 70% of the total revenue attributable to the Target Assets. No other purchaser accounted for 10% or more of such revenues. The loss of any such greater than 10% purchaser could adversely affect TPGE’s revenues in the short term. See the section entitled “Information about the Target Assets—Operations—Marketing and Customers” for additional information. TPGE expects to depend upon these or other significant purchasers for the sale of most of its oil and natural gas production. TPGE cannot ensure that it will continue to have ready access to suitable markets for its future oil and natural gas production.

TPGE’s operations may be exposed to significant delays, costs and liabilities as a result of environmental and occupational health and safety requirements applicable to its business activities.

TPGE’s operations will be subject to stringent and complex federal, state and local laws and regulations governing the discharge of materials into the environment, the occupational health and safety aspects of its operations or otherwise relating to the protection of the environment and natural resources. These laws and regulations may impose numerous obligations applicable to TPGE’s operations, including the acquisition of a permit or other approval before conducting regulated activities; the restriction of types, quantities and concentration of materials that can be released into the environment; the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands, seismically active areas and other protected areas; the application of specific health and safety criteria addressing worker protection; and the imposition of substantial liabilities for pollution resulting from TPGE’s operations. Numerous governmental authorities, such as the U.S. Environmental Protection Agency (“EPA”) and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them. Such enforcement actions often involve difficult and costly compliance measures or corrective actions. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, natural resource damages, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of TPGE’s operations. In addition, TPGE may experience delays in obtaining, or be unable to obtain, required permits, which may delay or interrupt its operations and limit growth and revenue.

Certain environmental laws impose strict liability (i.e., no showing of “fault” is required) as well as joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. TPGE may be required to remediate contaminated properties owned or operated by it or facilities of third parties that received waste generated by operations regardless of whether such contamination resulted from the conduct of others or from consequences of its own actions that were in compliance with all applicable laws at the time those actions were taken. In connection with certain acquisitions, TPGE could acquire, or be required to provide indemnification against, environmental liabilities that could expose TPGE to material losses. In certain instances, citizen groups also have the ability to bring legal proceedings against TPGE if it is not in compliance with environmental laws, or to challenge its ability to receive environmental permits needed to operate. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of its operations. TPGE’s

 

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insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability.

For example, TPGE may incur significant costs and liabilities as a result of environmental requirements applicable to the operation of its wells, gathering systems and other facilities. These costs and liabilities could arise under a wide range of federal, state and local environmental laws and regulations, including the following federal laws and their state counterparts, as amended from time to time, among others:

 

    the federal Clean Air Act (“CAA”), which restricts the emission of air pollutants from many sources, imposes various pre-construction, monitoring and reporting requirements and is relied upon by the EPA as authority for adopting climate change regulatory initiatives relating to GHG emissions;

 

    the Federal Water Pollution Control Act, also known as the Clean Water Act (“CWA”), which regulates discharges of pollutants from facilities and sources to federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;

 

    the Oil Pollution Act (“OPA”), which imposes liabilities for removal costs and damages arising from an oil spill into waters of the United States;

 

    the Safe Drinking Water Act (“SDWA”), which ensures the quality of the nations’ public drinking water through adoption of drinking water standards and control over the subsurface injection of fluids into belowground formations;

 

    the Resource Conservation and Recovery Act (“RCRA”), which imposes requirements for the generation, treatment, storage, transport, disposal and cleanup of non-hazardous, hazardous and solid wastes;

 

    the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), which imposes liability on generators, transporters and those who arrange for transportation or disposal of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur, as well as imposes liability on present and certain past owners and operations of sites where hazardous substance releases have occurred or are threatening to occur;

 

    the Endangered Species Act (“ESA”), which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating limitations or restrictions or a temporary, seasonal or permanent ban on operations in affected areas; and

 

    The Occupational Safety and Health Act (“OSHA”), under which federal Occupational Safety and Health Administration and similar state agencies have promulgated regulations limiting exposures to hazardous substances in the workplace and imposing various worker safety requirements.

Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial and corrective actions, the incurrence of capital expenditures, the occurrence of delays in the permitting, development or expansion of projects and the issuance of orders enjoining some or all of TPGE’s future operations in a particular area. It is not uncommon for neighboring landowners, employees and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, wastes or other materials into the environment. The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment and more stringent laws and regulations may be adopted in the future.

To the extent TPGE’s operations are affected by national, regional, local and other laws, and to the extent such laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly

 

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operating, waste handling, disposal and cleanup requirements, TPGE’s business, prospects, financial condition or results of operations could be materially adversely affected.

TPGE may incur substantial losses and be subject to substantial liability claims as a result of operations. Additionally, TPGE may not be insured for, or insurance may be inadequate to protect TPGE against, these risks.

TPGE will not be insured against all risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect its business, financial condition or results of operations.

TPGE’s development activities will be subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

 

    environmental hazards, such as uncontrollable releases of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater, air and shoreline contamination, or the presence of endangered or threatened species;

 

    abnormally pressured formations;

 

    mechanical difficulties, such as stuck oilfield drilling and service tools and casing collapse;

 

    fires, explosions and ruptures of pipelines;

 

    personal injuries and death;

 

    natural disasters; and

 

    terrorist attacks targeting oil and natural gas related facilities and infrastructure.

Any of these events could adversely affect TPGE’s ability to conduct operations or result in substantial loss as a result of claims for:

 

    injury or loss of life;

 

    damage to and destruction of property, natural resources and equipment;

 

    pollution and other environmental damage;

 

    regulatory investigations and penalties; and

 

    repair and remediation costs.

TPGE may elect not to obtain insurance for any or all of these risks if it believes that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on business, financial condition and results of operations.

Properties that TPGE decides to drill may not yield oil or natural gas in commercially viable quantities.

Properties that TPGE decides to drill that do not yield oil or natural gas in commercially viable quantities will adversely affect its results of operations and financial condition. There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of micro-seismic data and other technologies and the study of producing fields in the same area will not enable TPGE to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. TPGE cannot assure you that the analogies drawn from available data from other wells, more fully explored

 

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prospects or producing fields will be applicable to its drilling prospects. Further, TPGE’s drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, including:

 

    unexpected drilling conditions;

 

    title issues;

 

    pressure or lost circulation in formations;

 

    equipment failures or accidents;

 

    adverse weather conditions;

 

    compliance with environmental and other governmental or contractual requirements; and

 

    increases in the cost of, and shortages or delays in the availability of, electricity, supplies, materials, drilling or workover rigs, equipment and services.

TPGE may be unable to make additional attractive acquisitions following the business combination or successfully integrate acquired businesses with the Target Assets, and any inability to do so may disrupt its business and hinder its ability to grow.

Following the business combination, there is no guarantee TPGE will be able to identify attractive acquisition opportunities that complement the Target Assets or expand its business. In the event it is able to identify attractive acquisition opportunities, TPGE may not be able to complete the acquisition or do so on commercially acceptable terms. Competition for acquisitions may also increase the cost of, or cause TPGE to refrain from, completing acquisitions.

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

In addition, the agreements that will govern TPGE’s indebtedness will impose certain limitations on its ability to enter into mergers or combination transactions and to incur certain indebtedness, which could indirectly limit its ability to acquire assets and businesses.

Certain of the properties within the Target Assets are subject to land use restrictions, which could limit the manner in which TPGE conducts business.

Certain of the properties within the Target Assets are subject to land use restrictions, including city ordinances, which could limit the manner in which TPGE conducts business. Such restrictions could affect, among other things, access to and the permissible uses of facilities as well as the manner in which TPGE produces oil and natural gas and may restrict or prohibit drilling in general. The costs incurred to comply with such restrictions may be significant in nature, and TPGE may experience delays or curtailment in the pursuit of development activities and perhaps even be precluded from the drilling of wells.

The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oilfield services could adversely affect TPGE’s ability to execute its development plans within its budget and on a timely basis.

The demand for drilling rigs, pipe and other equipment and supplies, as well as for qualified and experienced field personnel to drill wells and conduct field operations, geologists, geophysicists, engineers and other

 

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professionals in the oil and natural gas industry, can fluctuate significantly, often in correlation with oil, natural gas and NGL prices, causing periodic shortages of supplies and needed personnel. TPGE’s operations will be concentrated in areas in which oilfield activity levels have increased rapidly, and as a result, demand for such drilling rigs, equipment and personnel, as well as access to transportation, processing and refining facilities in these areas, had increased, as did the costs for those items. However, beginning in the second half of 2014, commodity prices began to decline and the demand for goods and services subsided due to reduced activity. To the extent that commodity prices improve in the future, the demand for and prices of these goods and services are likely to increase and TPGE could encounter delays in or an inability to secure the personnel, equipment, power, services, resources and facilities access necessary for it to resume or increase TPGE’s development activities, which could result in production volumes being below its forecasted volumes. In addition, any such negative effect on production volumes, or significant increases in costs, could have a material adverse effect on cash flow and profitability. Furthermore, if it is unable to secure a sufficient number of drilling rigs at reasonable costs, TPGE may not be able to drill all of its acreage before its leases expire.

TPGE could experience periods of higher costs if commodity prices rise. These increases could reduce profitability, cash flow and ability to complete development activities as planned.

Historically, capital and operating costs have risen during periods of increasing oil, natural gas and NGL prices. These cost increases have resulted from a variety of factors that TPGE will be unable to control, such as increases in the cost of electricity, steel and other raw materials; increased demand for labor, services and materials as drilling activity increases; and increased taxes. Decreased levels of drilling activity in the oil and natural gas industry in recent periods have led to declining costs of some drilling equipment, materials and supplies. However, such costs may rise faster than increases in TPGE’s revenue if commodity prices rise, thereby negatively impacting its profitability, cash flow and ability to complete development activities as scheduled and on budget. This impact may be magnified to the extent that TPGE’s ability to participate in the commodity price increases is limited by its derivative activities, if any.

A change in the jurisdictional characterization of some of TPGE’s assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of its assets, which may cause revenues to decline and operating expenses to increase.

Section 1(b) of the Natural Gas Act (the “NGA”) exempts natural gas gathering facilities from regulation by the Federal Energy Regulatory Commission (“FERC”), as a natural gas company under the NGA. TPGE believes that the natural gas pipelines in the gathering systems associated with the Target Assets meet the traditional tests FERC has used to establish a pipeline’s status as a gatherer not subject to regulation as a natural gas company. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services is the subject of ongoing litigation, so the classification and regulation of such gathering facilities are subject to change based on future determinations by FERC, the courts or Congress. If the FERC were to consider the status of an individual facility and determine that the facility and/or services provided by it are not exempt from FERC regulation, the rates for, and terms and conditions of services provided by such facility would be subject to regulation by the FERC. Such regulation could decrease revenues, increase operating costs, and depending upon the facility in question, could adversely affect its results of operations and cash flows. In addition, if any of TPGE’s facilities are found to have provided services or otherwise operated in violation of the NGA, this could result in the imposition of civil penalties as well as a requirement to disgorge charges collected for such service in excess of the cost-based rate established by the FERC.

State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements and complaint-based rate regulation. TPGE cannot predict what new or different regulations federal and state regulatory agencies may adopt, or what effect subsequent regulation may have on its activities. Such regulations may have a material adverse effect on its financial condition, result of operations and cash flows.

 

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TPGE may be involved in legal proceedings that could result in substantial liabilities.

Like many oil and gas companies, TPGE expects to be from time to time involved in various legal and other proceedings, such as title, royalty or contractual disputes, regulatory compliance matters and personal injury or property damage matters, in the ordinary course of its business. Such legal proceedings are inherently uncertain and their results cannot be predicted. Regardless of the outcome, such proceedings could have an adverse impact on TPGE because of legal costs, diversion of management and other personnel and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in its business practices, which could materially and adversely affect its business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient, and judgments and estimates to determine accruals or range of losses related to legal and other proceedings could change from one period to the next, and such changes could be material.

Climate change laws and regulations restricting emissions of GHGs could result in increased operating costs and reduced demand for the oil and natural gas produced by TPGE, while potential physical effects of climate change could disrupt production and cause it to incur significant costs in preparing for or responding to those effects.

The EPA has determined that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment and has adopted regulations pursuant to the CAA to reduce GHG emissions from various sources. For example, the EPA requires certain large stationary sources to obtain preconstruction and operating permits for pollutants regulated under the Prevention of Significant Deterioration and Title V programs of the CAA. Facilities required to obtain preconstruction permits for such pollutants are also required to meet “best available control technology” standards that are being established by the states. These regulatory requirements could adversely affect TPGE’s operations and restrict or delay its ability to obtain air permits for new or modified sources.

The EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore and offshore oil and natural gas production sources in the United States on an annual basis, which will include certain of TPGE’s operations. In June 2016, the EPA published performance standards that establish new controls for emissions of methane from new, modified or reconstructed sources in the oil and natural gas sector, including production, processing, transmission and storage activities. However, over the past year the EPA has taken several steps to delay implementation of its methane standards, and the agency proposed a rulemaking in June 2017 to stay the requirements for a period of two (2) years and revisit implementation of the methane rules in their entirety. The EPA has not yet published a final rule but, as a result of these developments, future implementation of the 2016 standards is uncertain at this time. Various industry and environmental groups have separately challenged both the methane requirements and EPA’s attempts to delay implementation of the rules.

Although there has been no federal legislation to reduce GHG emissions, a number of states have developed programs that are aimed at reducing GHG emissions by means of cap and trade programs, carbon taxes, or encouraging the use of renewable energy or alternative low-carbon fuels. Cap and trade programs typically require major sources of GHG emissions to acquire and surrender emission allowances in return for emitting those GHGs. In addition, efforts have been made and continue to be made in the international community toward the adoption of international treaties or protocols that would address global climate change issues. For example, in April 2016, the United States signed the Paris Agreement, which includes non-binding pledges to limit or reduce future emissions. However, in June 2017, the President stated that the United States would withdraw from the Paris Agreement, but may enter into a future international agreement related to GHGs. The Paris Agreement provides for a four-year exit process. The United States’ adherence to the exit process is uncertain and/or the terms on which the United States may reenter the Paris Agreement or a separately negotiated agreement are unclear at this time.

Although it is not possible at this time to predict how legislation or new regulations that may be adopted to address GHG emissions would impact TPGE’s business, any such future laws and regulations imposing reporting

 

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obligations on, or limiting emissions of GHGs from, TPGE’s equipment and operations could require TPGE to incur costs to reduce emissions of GHGs associated with its operations, as well as delay or restrict its ability to permit GHG emissions from new or modified sources. Substantial limitations on GHG emissions could adversely affect demand for the oil and natural gas produced by TPGE and lower the value of its reserves.

Recently, activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in oil, natural gas and NGL activities. Ultimately, this could make it more difficult to secure funding for exploration and production activities. Notwithstanding potential risks related to climate change, the International Energy Agency estimates that global energy demand will continue to rise and will not peak until after 2040 and that oil and gas will continue to represent a substantial percentage of global energy use over that time. Finally, increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have a material adverse effect on TPGE’s operations.

Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing as well as governmental reviews of such activities could result in increased costs and additional operating restrictions or delays in the completion of oil and natural gas wells and adversely affect TPGE’s production.

Hydraulic fracturing is an important and common practice that is used to stimulate production of oil and/or natural gas from dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, proppants and chemicals under pressure into targeted subsurface formations to fracture the surrounding rock and stimulate production. TPGE expects to regularly use hydraulic fracturing as part of TPGE’s operations. Hydraulic fracturing is typically regulated by state oil and natural gas commissions, but certain federal agencies have asserted regulatory authority over certain aspects of the process. For example, the EPA has asserted federal regulatory authority pursuant to the SDWA over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance in February 2014 addressing the performance of such activities using diesel fuels. The EPA has also issued final regulations under the CAA establishing performance standards, including standards for the capture of air emissions released during hydraulic fracturing, and also finalized rules in June 2016 that prohibit the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants. Congress has, from time to time, considered legislation to provide for federal regulation of hydraulic fracturing under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. It is unclear how any additional federal regulation of hydraulic fracturing activities may affect TPGE’s operations, but such additional federal regulation could have an adverse effect on its business, financial condition and results of operations.

In December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources. The EPA report concluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources “under some circumstances,” noting that the following hydraulic fracturing water cycle activities and local- or regional-scale factors are more likely than others to result in more frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availability; surface spills during the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate mechanical integrity; injection of fracturing fluids directly into groundwater resources; discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturing wastewater in unlined pits.

At the state level, several states have adopted or are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing activities. For example, in May 2013, the Railroad Commission issued a “well integrity rule,” which updates the requirements for drilling, putting pipe down and cementing wells. The rule also includes new testing and reporting requirements, such as (i) the requirement to submit cementing reports after well completion or after cessation of

 

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drilling, whichever is later, and (ii) the imposition of additional testing on wells less than 1,000 feet below usable groundwater. The well integrity rule took effect in January 2014.

Local governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where TPGE will operate, it could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of development activities, and perhaps even be precluded from drilling wells.

Legislation or regulatory initiatives intended to address seismic activity could restrict TPGE’s drilling and production activities, as well as TPGE’s ability to dispose of produced water gathered from such activities, which could have a material adverse effect on its future business.

State and federal regulatory agencies have recently focused on a possible connection between the hydraulic fracturing related activities, particularly the underground injection of wastewater into disposal wells, and the increased occurrence of seismic activity, and regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. For example, in 2015, the United States Geological Study identified eight states, including Texas, with areas of increased rates of induced seismicity that could be attributed to fluid injection or oil and gas extraction.

In addition, a number of lawsuits have been filed in other states, most recently in Oklahoma, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. In response to these concerns, regulators in some states are seeking to impose additional requirements, including requirements in the permitting of produced water disposal wells or otherwise to assess the relationship between seismicity and the use of such wells. For example, in October 2014, the Railroad Commission published a new rule governing permitting or re-permitting of disposal wells that would require, among other things, the submission of information on seismic events occurring within a specified radius of the disposal well location, as well as logs, geologic cross sections and structure maps relating to the disposal area in question. If the permittee or an applicant of a disposal well permit fails to demonstrate that the produced water or other fluids are confined to the disposal zone or if scientific data indicates such a disposal well is likely to be or determined to be contributing to seismic activity, then the agency may deny, modify, suspend or terminate the permit application or existing operating permit for that well. The Railroad Commission has used this authority to deny permits for waste disposal wells. In some instances, regulators may also order that disposal wells be shut in.

TPGE will likely dispose of large volumes of produced water gathered from its drilling and production operations by injecting it into wells pursuant to permits issued by governmental authorities overseeing such disposal activities. While these permits will be issued pursuant to existing laws and regulations, these legal requirements are subject to change, which could result in the imposition of more stringent operating constraints or new monitoring and reporting requirements, owing to, among other things, concerns of the public or governmental authorities regarding such gathering or disposal activities. The adoption and implementation of any new laws or regulations that restrict TPGE’s ability to use hydraulic fracturing or dispose of produced water gathered from its drilling and production activities by limiting volumes, disposal rates, disposal well locations or otherwise, or requiring TPGE to shut down disposal wells, could have a material adverse effect on its business, financial condition and results of operations.

Competition in the oil and natural gas industry is intense, which will make it more difficult for TPGE to acquire properties, market oil or natural gas and secure trained personnel.

TPGE’s ability to acquire additional prospects and to find and develop reserves in the future will depend on its ability to evaluate and select suitable properties for acquisitions and to consummate transactions in a highly

 

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competitive environment for acquiring properties, marketing oil and natural gas and securing trained personnel. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Many other oil and natural gas companies possess and employ greater financial, technical and personnel resources than TPGE. Those companies may be able to pay more for productive properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than TPGE’s financial or personnel resources permit. In addition, other companies may be able to offer better compensation packages to attract and retain qualified personnel than TPGE will able to offer. The cost to attract and retain qualified personnel has historically continually increased due to competition and may increase substantially in the future. TPGE may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital, which could have a material adverse effect on its business.

The loss of senior management or technical personnel could adversely affect operations.

TPGE will depend on the services of its senior management and technical personnel. TPGE does not plan to obtain any insurance against the loss of any of these individuals. The loss of the services of its senior management could have a material adverse effect on its business, financial condition and results of operations. TPGE will also be dependent, in part, upon EVOC’s technical personnel in connection with operating the Target Assets pursuant to the Services Agreement. A loss by EVOC of its technical personnel could seriously harm TPGE’s business and results of operations.

Increases in interest rates could adversely affect TPGE’s business.

TPGE will require continued access to capital and its business and operating results could be harmed by factors such as the availability, terms of and cost of capital, increases in interest rates or a reduction in credit rating. TPGE expects to use the RBL Facility to finance a portion of its future growth, and these changes could cause its cost of doing business to increase, limit its ability to pursue acquisition opportunities, reduce cash flow used for drilling and place TPGE at a competitive disadvantage. Recent and continuing disruptions and volatility in the global financial markets may lead to a contraction in credit availability impacting its ability to finance its operations. A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect its ability to achieve its planned growth and operating results.

TPGE’s anticipated use of seismic data is subject to interpretation and may not accurately identify the presence of oil and natural gas, which could adversely affect the results of its drilling operations.

Even when properly used and interpreted, seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. As a result, TPGE’s drilling activities may not be successful or economical. In addition, the use of advanced technologies, such as 3-D seismic data, requires greater pre-drilling expenditures than traditional drilling strategies, and it could incur losses as a result of such expenditures.

Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect TPGE’s ability to conduct drilling activities in areas where it operates.

Oil and natural gas operations in TPGE’s operating areas may be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Such restrictions may limit TPGE’s ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay TPGE’s operations or materially increase its operating and capital costs. Permanent restrictions imposed to protect threatened or endangered species or their habitat could prohibit drilling in certain areas or require the implementation of expensive mitigation measures. The designation of

 

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previously unprotected species in areas where TPGE operates as threatened or endangered could cause it to incur increased costs arising from species protection measures or could result in limitations on its activities that could have a material and adverse impact on its ability to develop and produce reserves.

TPGE may not be able to keep pace with technological developments in its industry.

The oil and natural gas industry is characterized by rapid and significant technological advancement and the introduction of new products and services using new technologies. As others use or develop new technologies, TPGE may be placed at a competitive disadvantage or may be forced by competitive pressures to implement those new technologies at substantial costs. In addition, other oil and natural gas companies may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and that may in the future allow them to implement new technologies before TPGE can. TPGE may not be able to respond to these competitive pressures or implement new technologies on a timely basis or at an acceptable cost. If one or more of the technologies it expects to use were to become obsolete, TPGE’s business, financial condition or results of operations could be materially and adversely affected.

There are inherent limitations in all control systems, and misstatements due to error or fraud that could seriously harm TPGE’s business may occur and not be detected.

TPGE’s management does not expect that TPGE’s internal and disclosure controls will prevent all possible error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, an evaluation of controls can only provide reasonable assurance that all material control issues and instances of fraud, if any, in TPGE have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by the individual acts of some persons or by collusion of two or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. TPGE will also be dependent, in part, upon EVOC’s internal and disclosure controls in connection with operating the Target Assets pursuant to the Services Agreement. A failure of TPGE’s or EVOC’s controls and procedures to detect error or fraud could seriously harm TPGE’s business and results of operations.

TPGE’s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.

TPGE will rely heavily on its information systems, and the availability and integrity of these systems will be essential to conducting TPGE’s business and operations. As a producer of natural gas and oil, TPGE will face various security threats, including cyber-security threats, to gain unauthorized access to its sensitive information or to render its information or systems unusable, and threats to the security of its facilities and infrastructure or third-party facilities and infrastructure, such as gathering and processing and other facilities, refineries and pipelines. The potential for such security threats subjects its operations to increased risks that could have a material adverse effect on its business, financial condition, results of operations and cash flows.

TPGE’s implementation of various procedures and controls to monitor and mitigate such security threats and to increase security for its information, systems, facilities and infrastructure may result in increased costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring. If any of these security breaches were to occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to its business and operations, as well as data corruption, communication interruptions or other disruptions to its operations, which, in turn, could have

 

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a material adverse effect on its business, financial position, results of operations and cash flows. TPGE will also be dependent, in part, upon EVOC’s information systems in connection with operating the Target Assets pursuant to the Services Agreement. A failure in the security of EVOC’s information systems could seriously harm TPGE’s business and results of operations.

Risks Related to TPGE and the Business Combination

Following the consummation of the business combination, our sole material asset will be our equity interest in Pace LLC and we will be accordingly dependent upon distributions from Pace LLC to pay taxes and cover our corporate and other overhead expenses.

We are a holding company and, subsequent to the completion of the business combination, will have no material assets other than our equity interest in Pace LLC and its subsidiaries. We will have no independent means of generating revenue. To the extent Pace LLC has available cash, we intend to cause Pace LLC to make (i) generally pro rata distributions to its unitholders, including us, in an amount at least sufficient to allow us to pay our taxes and (ii) non-pro rata payments to us to reimburse us for our corporate and other overhead expenses. To the extent that we need funds and Pace LLC or its subsidiaries are restricted from making such distributions or payments under applicable law or regulation or under the terms of its financing arrangements, or are otherwise unable to provide such funds, our liquidity and financial condition could be materially adversely affected.

Because TPGE has a limited operating history and has generated no revenues and operating cash flows, it may be difficult to evaluate its ability to successfully implement its business strategy.

Because of TPGE’s limited operating history, the operating performance of its future assets and business strategy are not yet proven. As a result, it may be difficult to evaluate TPGE’s business and results of operations to date and to assess its future prospects.

In addition, TPGE may encounter risks and difficulties experienced by companies whose performance is dependent upon newly acquired assets, such as failing to operate the Target Assets as expected, higher than expected operating costs, equipment breakdown or failures and operational errors. Further, the Target Assets will be operated on a day-to-day basis by the Sellers’ employees pursuant to the Services Agreement, and TPGE will not be involved in the day-to-day operations of the Target Assets. As a result of the foregoing, TPGE may be less successful in achieving a consistent operating level capable of generating cash flows from operations as compared to a company that has had a longer operating history. In addition, TPGE may be less equipped to identify and address operating risks and hazards in the conduct of its business than those companies that have had longer operating histories.

If the business combination’s benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.

If the benefits of the business combination do not meet the expectations of investors or securities analysts, the market price of our securities prior to the Closing may decline. The market values of our securities at the time of the business combination may vary significantly from their prices on the date the Business Combination Agreements were executed, the date of this proxy statement, or the date on which our stockholders vote on the business combination. Specifically, the Karnes County Contribution Agreement provides that the business combination may not be consummated until the expiration of the marketing period described therein, which is generally a fifteen (15) consecutive business day period that, subject to certain exceptions, will begin on the day that the requisite approval of TPGE’s stockholders is obtained. Any related delay in the consummation of the business combination during the pendency of the marketing period may expose stockholders to additional risk that the market values of our securities may decline.

In addition, following the business combination, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Prior to the business combination, trading in the shares of our Class A

 

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Common Stock has not been active. Accordingly, the valuation ascribed to our Class A Common Stock in the business combination may not be indicative of the price that will prevail in the trading market following the business combination. If an active market for our securities develops and continues, the trading price of our securities following the business combination could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

Factors affecting the trading price of our securities following the business combination may include:

 

    actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

    changes in the market’s expectations about our operating results;

 

    success of our competitors;

 

    our operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

    changes in financial estimates and recommendations by securities analysts concerning us or the market in general;

 

    operating and stock price performance of other companies that investors deem comparable to us;

 

    changes in laws and regulations affecting our business;

 

    commencement of, or involvement in, litigation involving us;

 

    changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

    the volume of shares of our Class A Common Stock available for public sale;

 

    any major change in the TPGE Board or management;

 

    sales of substantial amounts of Class A Common Stock by our directors, executive officers or significant stockholders, including to the Karnes County Contributors, or the perception that such sales could occur; and

 

    general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and the NYSE have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us following the business combination could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

We may be a “controlled company” within the meaning of the NYSE Listed Company Manual following the business combination and, as a result, may qualify for exemptions from certain corporate governance requirements. If we rely on such exemptions, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon completion of the business combination, the Karnes County Contributors and our Sponsor will collectively own a majority of our outstanding voting stock. Following the completion of the business combination, we may

 

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be a controlled company within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, company or group of persons acting together is a controlled company and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that:

 

    a majority of the board of directors consist of independent directors;

 

    the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

These requirements will not apply to us as long as we remain a controlled company. Following the business combination, we do not intend to utilize these exemptions; however, if in the future we decide to rely on such exemptions, we may elect not to comply with the foregoing NYSE corporate governance requirements. These requirements will not apply to us as long as we remain a controlled company.

Our Sponsor and the Karnes County Contributors will have significant influence over us after completion of the business combination.

Upon completion of the business combination, our Sponsor and the Karnes County Contributors will beneficially own common stock representing approximately 6.5% and 53.2% of our outstanding voting power, respectively (assuming no redemptions of public shares by our public stockholders). As long as our Sponsor and the Karnes County Contributors own or control a significant percentage of our outstanding voting power, subject to the terms of the Stockholder Agreement, they will have the ability to influence certain corporate actions requiring stockholder approval. In addition, under the Stockholder Agreement, the Karnes County Contributors will be entitled to nominate two (2) directors and our Sponsor will be entitled to nominate two (2) directors for appointment to the TPGE Board so long as the Karnes County Contributors and the Sponsor meet certain ownership criteria outlined in the Stockholder Agreement. For more information about the Stockholder Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Stockholder Agreement.”

Subsequent to the consummation of the business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

Although we have conducted due diligence on the Target Assets, we cannot assure you that this diligence revealed all material issues that may be present in the businesses of the Target Assets, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our control will not later arise. As a result, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us following the completion of the business combination or our securities. In addition, charges of this nature may cause us to be unable to obtain future financing on favorable terms or at all.

Our Sponsor, officers and directors have agreed to vote in favor of the Business Combination Proposal, regardless of how our public stockholders vote.

Our Sponsor, officers and directors have agreed to vote any shares of Class A Common Stock and Class F Common Stock owned by them in favor of the Business Combination Proposal. As of the date hereof, our

 

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Sponsor, officers and directors own shares equal to approximately 20% of our issued and outstanding shares of Class A Common Stock and Class F Common Stock in the aggregate. Accordingly, it is more likely that the necessary stockholder approval will be received for the Business Combination Proposal than would be the case if our Sponsor, officers and directors agreed to vote any shares of Class A Common Stock and Class F Common Stock owned by them in accordance with the majority of the votes cast by our public stockholders.

Our Sponsor, certain members of the TPGE Board and our officers have interests in the business combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other Proposals described in this proxy statement.

When considering the TPGE Board’s recommendation that our stockholders vote in favor of the approval of the Business Combination Proposal and the other Proposals, our stockholders should be aware that our Sponsor, certain members of the TPGE Board and our officers have interests in the business combination that may be different from, or in addition to, the interests of our stockholders. These different interests are described in the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Certain of the Giddings Sellers are party to a credit agreement under which certain events of default have occurred, and if the lenders party thereto elect to exercise their remedies in accordance with such agreement, we may be unable to consummate the business combination.

Certain of the Giddings Assets are held as collateral securing obligations under a credit agreement by and among certain of the Giddings Sellers and the lenders and agents party thereto under which certain events of default have occurred and are continuing to occur. The lenders under such credit agreement, subject to compliance therewith, may require the administrative agent under such credit agreement to foreclose upon such assets or refuse to release its lien on such assets, in which case the Company would be unable to consummate the acquisition of the Giddings Assets. In the event that the lenders exercise such rights and the administrative agent forecloses upon such assets or refuses to release the liens encumbering such assets, because the Company’s obligation to consummate the Karnes County Transaction is conditioned upon the closing of the Giddings Transaction, the Company would not be obligated to proceed with the business combination. However, the TPGE Board could determine that it is in the best interests of the Company to proceed with the Karnes County Transaction and elect to waive such a condition and close the acquisition of the Karnes County Assets.

We may be subject to business uncertainties and contractual restrictions while the business combination is pending.

Uncertainty about the effect of the business combination on employees and third parties may have an adverse effect on TPGE and the Target Assets. These uncertainties may impair the ability to retain and motivate key personnel and could cause third parties that deal with the Sellers to defer entering into contracts or making other decisions or seek to change existing business relationships.

We will incur significant transaction costs in connection with the business combination.

We have and expect to incur significant, non-recurring costs in connection with consummating the business combination. Our transaction expenses as a result of the business combination are currently estimated at approximately $65.0 million, including $22.75 million in deferred underwriting commissions to the underwriters of our IPO.

The unaudited pro forma condensed combined consolidated financial information included in this proxy statement may not be indicative of what our actual financial position or results of operations would have been.

The unaudited pro forma condensed combined consolidated financial information included in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial

 

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position or results of operations would have been had the business combination been completed on the date or dates indicated. See “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of TPGE.”

Financial projections with respect to the post-business combination company may not prove to be reflective of actual future results.

In connection with the business combination, the TPGE Board considered, among other things, internal financial forecasts for the post-business combination company. They speak only as of the date made and will not be updated. These financial projections are subject to significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all or within projected timeframes. In addition, the failure of businesses to achieve projected results could have a material adverse effect on TPGE’s share price and financial position following the business combination.

We may waive one or more of the conditions to the business combination.

We may agree to waive, in whole or in part, one or more of the conditions to our obligations to complete the business combination, to the extent permitted by our organizational documents and applicable laws. For example, our obligations to consummate the Karnes County Transaction are conditioned upon the closing of the Giddings Transaction. However, in the event that we are unable to consummate the acquisition of the Giddings Assets but the TPGE Board determines that it is in the best interests of the Company to proceed with the Karnes County Transaction, then the TPGE Board may elect to waive that condition and close the acquisition of the Karnes County Assets.

The Target Assets may be subject to certain title defects, environmental defects, consents to assignment, exercise of preferential rights, and casualty losses, and as a result, under the Business Combination Agreements, TPGE may be unable to acquire all of the Target Assets.

Under each of the Karnes County Contribution Agreement and the Giddings Purchase Agreement, the parties are not obligated to consummate the business combination if the aggregate value of adjustments to the purchase price attributable to title defects, environmental defects, un-obtained consents to assignment, exercise of preferential purchase rights, and casualty losses exceeds an amount equal to 20% of the applicable purchase price. However, unless the applicable threshold is met, TPGE will be required to consummate the business combination, notwithstanding any title defects, environmental defects, un-obtained consents to assignment, exercise of preferential purchase rights, and casualty losses. In such event, TPGE’s only remedy is to acquire the affected assets with a downward adjustment to the applicable purchase price; however, in respect of un-obtained “hard consents” and exercised or un-waived preferential purchase rights, the affected assets will be excluded from the transaction and in respect of casualty losses in excess of $1,000,000 and environmental defects for which the remediation amount exceeds the value allocated to the affected asset, the applicable Sellers may elect to exclude the affected assets from the transaction, in each case with the applicable purchase price to be reduced by the value allocated to the assets so excluded. As a result, TPGE may be unable to acquire all of the Target Assets described in this proxy statement.

If we are unable to complete an Initial Business Combination on or prior to May 10, 2019, our public stockholders may receive only approximately $10 per share on the liquidation of our Trust Account (or less than $10 per share in certain circumstances where a third party brings a claim against us that our Sponsor is unable to indemnify), the exercise period of our warrants will terminate and our warrants will expire worthless.

If we are unable to complete an Initial Business Combination on or prior to May 10, 2019, our public stockholders may receive only approximately $10 per share on the liquidation of our Trust Account (or less than $10 per share in certain circumstances where a third party brings a claim against us that our Sponsor is unable to indemnify (as described below)), the exercise period of our warrants will terminate and our warrants will expire worthless.

 

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If third parties bring claims against us, the proceeds held in the Trust Account could be reduced and the per-share redemption amount received by stockholders may be less than $10 per share.

Our placing of funds in the Trust Account may not protect those funds from third-party claims against us. Although we will seek to have all third parties, service providers (other than our independent auditors), prospective target businesses (including the Sellers) or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.

Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the Trust Account for any reason. Upon redemption of our public shares, if we are unable to complete the business combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with the business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the ten (10) years following redemption. Accordingly, the per-share redemption amount received by public stockholders could be less than the $10 per share initially held in the Trust Account, due to claims of such creditors.

Our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (i) $10 per public share or (ii) such lesser amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under our indemnity of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, our Sponsor will not be responsible to the extent of any liability for such third-party claims. We have not independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and believe that our Sponsor’s only assets are securities of our company. Our Sponsor may not have sufficient funds available to satisfy those obligations. We have not asked our Sponsor to reserve for such obligations and therefore, no funds are currently set aside to cover any such obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for our Initial Business Combination and redemptions could be reduced to less than $10 per public share. In such event, we may not be able to complete our Initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your public shares. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by third parties and prospective target businesses.

 

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Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public stockholders.

In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10 per public share or (ii) such lesser amount per share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes, and our Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations.

While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so in any particular instance. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public stockholders may be reduced below $10 per share. If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and the members of the TPGE Board may be viewed as having breached their fiduciary duties to our creditors, thereby exposing the members of the TPGE Board and us to claims of punitive damages.

If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, the TPGE Board may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the Trust Account prior to addressing the claims of creditors.

If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

Even if we consummate the business combination, there is no guarantee that the public warrants will be in the money at the time they become exercisable, and they may expire worthless.

The exercise price for our warrants is $11.50 per share of Class A Common Stock, subject to certain adjustments. There is no guarantee that the public warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless.

 

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We have not registered the shares of Class A Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis and potentially causing such warrants to expire worthless.

We have not registered the shares of Class A Common Stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us (the “warrant agreement”), we have agreed, as soon as practicable, but in no event later than fifteen (15) business days after the closing of our Initial Business Combination, to use our best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the Class A Common Stock issuable upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption is available. Notwithstanding the above, if our Class A Common Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any warrant, nor will we be required to issue securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the stock including the warrants under applicable state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Class A Common Stock included in the units. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of Class A Common Stock for sale under all applicable state securities laws.

We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 50% of the then-outstanding public warrants.

Our public warrants were issued in registered form under the warrant agreement. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then-outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 50% of the then-outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of our Class A Common Stock purchasable upon exercise of a warrant.

 

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We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.

We have the ability to redeem outstanding public warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our Class A Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any twenty (20) trading days within a thirty (30) trading day period ending on the third (3rd) trading day prior to the date we send the notice of such redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force warrant holders (i) to exercise their warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so, (ii) to sell their warrants at the then-current market price when they might otherwise wish to hold their warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of their warrants. None of the private placement warrants will be redeemable by us so long as they are held by our Sponsor or its permitted transferees.

Because each of our units contains one-third of one warrant and only a whole warrant may be exercised, the units may be worth less than units of other blank check companies.

Each unit contains one-third of one warrant. Because, pursuant to the warrant agreement, the warrants may only be exercised for a whole number of shares of Class A Common Stock, only a whole warrant may be exercised at any given time. This is different from other special acquisition companies similar to us whose units include one share of common stock and one warrant to purchase one whole share. We have established the components of the units in this way in order to reduce the dilutive effect of the warrants upon completion of an Initial Business Combination since the warrants will be exercisable in the aggregate for one-third of the number of shares compared to units that each contain a warrant to purchase one whole share. This unit structure may cause our units to be worth less than if they included a warrant to purchase one whole share. Our units will automatically separate into the component securities upon consummation of the business combination and, as a result, will no longer trade as a separate security.

Warrants will become exercisable for our Class A Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

We issued warrants to purchase 21,666,666 shares of Class A Common Stock as part of our IPO and prior to our IPO, we issued an aggregate of 10,000,000 private placement warrants to our Sponsor. Each warrant issued is exercisable to purchase one whole share at $11.50 per whole share, subject to certain adjustments. In addition, if our Sponsor makes any working capital loans, up to $1,500,000 of such loans may be converted into warrants, at the price of $1.50 per warrant at the option of the lender. Such warrants would be identical to the private placement warrants.

To the extent such warrants are exercised, additional shares of our Class A Common Stock will be issued, which will result in dilution to the then existing holders of our Class A Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Class A Common Stock.

The private placement warrants are identical to the warrants sold as part of the units in our IPO except that, so long as they are held by our Sponsor or its permitted transferees, (i) they will not be redeemable by us, (ii) they (including the Class A Common Stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by our Sponsor until thirty (30) days after the completion of our Initial Business Combination, (iii) they may be exercised by the holders on a cashless basis, (iv) they are subject to registration rights and (v) their terms may not be amended without the written consent of the parties of the private placement warrant agreement.

 

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A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.

Following the business combination, the price of our securities may fluctuate significantly due to the market’s reaction to the business combination and general market and economic conditions. An active trading market for our securities following the business combination may never develop or, if developed, it may not be sustained. In addition, the price of our securities after the business combination can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities are not listed on, or become delisted from, the NYSE for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on the NYSE or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A Common Stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of Class A Common Stock in the public market could occur at any time. Further, in connection with the PIPE Investment, we have agreed to issue 35,500,000 shares of Class A Common Stock to the PIPE Investors. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A Common Stock. After the business combination (and assuming no redemptions of public shares by our public stockholders), the holders of our founder shares, which include our Sponsor and independent directors, will own approximately 6.5% of our Class A Common Stock. Pursuant to the terms of a letter agreement entered into at the time of the IPO, the founder shares (which will be converted into shares of Class A Common Stock at the Closing) may not be transferred until the earlier to occur of (i) one (1) year after the Closing or (ii) the date on which we complete a liquidation, merger, stock exchange or other similar transaction that results in all of our public stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of our Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and other similar transactions) for any twenty (20) trading days within any thirty (30) trading day period commencing at least one hundred fifty (150) days after the Closing, the shares of Class A Common Stock into which the founder shares convert will be released from these transfer restrictions.

In connection with the Closing, we will enter into the Registration Rights Agreement with the Holders, which includes, among others, our Sponsor and the Karnes County Contributors, pursuant to which we will be obligated, subject to the terms thereof and in the manner contemplated thereby, to register for resale under the Securities Act all or any portion of the shares of Class A Common Stock that the Holders hold as of the date of such agreement and that they may acquire thereafter, including upon conversion, exchange or redemption of any other security therefor, which includes the stock consideration that the Karnes Country Contributors will receive in connection with the business combination. The PIPE Investors have similar registration rights under the Subscription Agreements.

Following the business combination, if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Class A Common Stock adversely, the price and trading volume of our Class A Common Stock could decline.

The trading market for our Class A Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us following the business combination change their recommendation regarding our stock adversely, or

 

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provide more favorable relative recommendations about our competitors, the price of our Class A Common Stock would likely decline. If any analyst who may cover us following the business combination were to cease their coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Our Sponsor, directors, officers, advisors and their affiliates may elect to purchase shares from public stockholders prior to the consummation of the business combination, which may influence the vote on the proposed business combination and reduce the public “float” of our Class A Common Stock.

Our Sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the business combination, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares, is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval of the business combination, or to satisfy a closing condition in an agreement related to the business combination that requires us to have a minimum net worth or a certain amount of cash at the closing of the business combination, where it appears that such requirement would otherwise not be met. This may result in the completion of the business combination that may not otherwise have been possible. Furthermore, purchases of shares by the persons described above would allow them to exert more influence over the approval of the Proposals and would likely increase the chances that such proposals have to be approved.

In addition, if such purchases are made, the public “float” of our Class A Common Stock and the number of beneficial holders of our securities may be reduced, possibly affecting the market price of our Class A Common Stock and making it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange. Furthermore, if the market does not view the business combination positively, purchases of public shares may have the effect of counteracting the market’s view, which would otherwise be reflected in a decline in the market price of our securities.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.

We are subject to laws, regulations and rules enacted by national, regional and local governments and the NYSE. In particular, we are required to comply with certain SEC, NYSE and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.

There can be no assurance that our Class A Common Stock that will be issued in connection with the business combination will be approved for listing on the NYSE following the Closing, or that we will be able to comply with the continued listing standards of the NYSE.

Our Class A Common Stock, public units and public warrants are currently listed on the NYSE. Our continued eligibility for listing, and the approval of the Class A Common Stock to be issued in connection with the business combination for listing, may depend on, among other things, the number of our shares that are redeemed. If, after the business combination, the NYSE delists our Class A Common Stock from trading on its exchange for failure

 

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to meet the listing standards, we and our stockholders could face significant material adverse consequences including:

 

    a limited availability of market quotations for our securities;

 

    reduced liquidity for our securities;

 

    a determination that our Class A Common Stock is a “penny stock,” which will require brokers trading in our Class A Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

    a limited amount of news and analyst coverage; and

 

    a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our Class A Common Stock, units and public warrants are listed on the NYSE, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the state of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on the NYSE, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our financial condition and results of operations.

We will be subject to taxes by U.S. federal, state, and local tax authorities. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

    changes in the valuation of our deferred tax assets and liabilities;

 

    expected timing and amount of the release of any tax valuation allowances;

 

    tax effects of stock-based compensation;

 

    costs related to intercompany restructurings; or

 

    changes in tax laws, regulations or interpretations thereof.

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, and local taxing authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our

 

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periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five (5) years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A Common Stock held by non-affiliates exceeds $700 million as of any June thirty (30) before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

Non-U.S. holders may be subject to U.S. income tax with respect to gain on disposition of their Class A Common Stock and warrants.

We believe that we will be a U.S. real property holding corporation (“USRPHC”) following our business combination. As a result, after the business combination is effected, Non-U.S. holders (defined below in the section entitled “Proposal No. 1—The Business Combination Proposal—Certain U.S. Federal Income Tax Considerations”) that own (or are treated as owning under constructive ownership rules) more than a specified amount of our Class A Common Stock or warrants during a specified time period may be subject to U.S. federal income tax on a sale, exchange, or other disposition of such Class A Common Stock or warrants and may be required to file a U.S. federal income tax return. If you are a Non-U.S. holder, we urge you to consult your tax advisors regarding the tax consequences of such treatment.

Risks Related to the Redemption

We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete an Initial Business Combination with which a substantial majority of our stockholders do not agree.

Our Charter does not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 (such that we are not subject to the SEC’s “penny stock” rules). The obligations of the parties to consummate the Karnes County Transaction are conditioned upon the Company having at least $610 million of Available Cash (as defined in the section entitled “Proposal No. 1—The Business Combination Proposal—The Business Combination Agreements—The Karnes County Contribution Agreement—Conditions to Closing of the Karnes County Contribution Agreement”). However, the Karnes County Contribution Agreement permits TPGE in its sole discretion to incur indebtedness to satisfy this Available Cash condition, which provides TPGE with the ability to consummate the business combination notwithstanding a significant number of redemptions.

 

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Furthermore, to the extent debt financing is available to it, the Company is required to incur indebtedness in an aggregate amount up to $500 million to the extent necessary to satisfy this Available Cash condition. As a result, we may be able to consummate the business combination even though a substantial number of our public stockholders have redeemed their shares.

If you or a “group” of stockholders are deemed to hold in excess of 15% of our Class A Common Stock, you will lose the ability to redeem all such shares in excess of 15% of our Class A Common Stock.

Our Charter provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in our IPO, which we refer to as the 15% threshold. However, we are not restricting our stockholders’ ability to vote all of their shares (including shares in excess of the 15% threshold) for or against the business combination. Your inability to redeem the shares in excess of the 15% threshold will reduce your influence over our ability to complete the business combination and you could suffer a material loss on your investment in us if you sell shares in excess of the 15% threshold in open market transactions. Additionally, you will not receive redemption distributions with respect to shares in excess of the 15% threshold if we complete the business combination. And as a result, you will continue to hold that number of shares exceeding the 15% threshold and, in order to dispose of such shares, would be required to sell your stock in open market transactions, potentially at a loss.

There is no guarantee that a stockholder’s decision whether to redeem their shares for a pro rata portion of the Trust Account will put the stockholder in a better future economic position.

We can give no assurance as to the price at which a stockholder may be able to sell its public shares in the future following the completion of the business combination or any alternative business combination. Certain events following the consummation of any Initial Business Combination, including the business combination, may cause an increase in our share price, and may result in a lower value realized now than a stockholder of TPGE might realize in the future had the stockholder redeemed their shares. Similarly, if a stockholder does not redeem their shares, the stockholder will bear the risk of ownership of the public shares after the consummation of any Initial Business Combination, including the business combination, and there can be no assurance that a stockholder can sell its shares in the future for a greater amount than the redemption price set forth in this proxy statement. A stockholder should consult the stockholder’s own tax and/or financial advisor for assistance on how this may affect his, her or its individual situation.

Stockholders of TPGE who wish to redeem their shares for a pro rata portion of the Trust Account must comply with specific requirements for redemption, which may make it difficult for them to exercise their redemption rights prior to the deadline. If stockholders fail to comply with the redemption requirements specified in this proxy statement, they will not be entitled to redeem their shares of Class A Common Stock for a pro rata portion of the funds held in the Trust Account.

Public stockholders who wish to redeem their shares for a pro rata portion of the Trust Account must, among other things (i) submit a request in writing and (ii) tender their certificates to the Transfer Agent or deliver their shares to the Transfer Agent electronically through the DWAC system at least two (2) business days prior to the special meeting. In order to obtain a physical stock certificate, a stockholder’s broker and/or clearing broker, DTC and our Transfer Agent will need to act to facilitate this request. Stockholders should generally allot at least two (2) weeks to obtain physical certificates from our Transfer Agent. However, because TPGE does not have any control over this process or over the brokers, which is referred to herein as “DTC,” it may take significantly longer than two (2) weeks to obtain a physical stock certificate. If it takes longer than anticipated to obtain a physical certificate, stockholders who wish to redeem their shares may be unable to obtain physical certificates by the deadline for exercising their redemption rights and thus will be unable to redeem their shares.

 

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Stockholders electing to redeem their shares will receive their pro rata portion of the Trust Account (including interest earned on the funds held in the Trust Account and not previously released to us to fund our working capital requirements, subject to an annual limit of $750,000, and/or to pay our taxes), calculated as of two (2) business days prior to the anticipated consummation of the business combination. See the section entitled “Special Meeting in Lieu of 2018 Annual Meeting of TPGE Stockholders—Redemption Rights” for additional information on how to exercise your redemption rights.

If a public stockholder fails to receive notice of TPGE’s offer to redeem its public shares in connection with the business combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.

TPGE will comply with the proxy rules when conducting redemptions in connection with the business combination. Despite TPGE’s compliance with these rules, if a public stockholder fails to receive TPGE’s proxy materials, as applicable, such stockholder may not become aware of the opportunity to redeem its shares. In addition, the proxy materials, as applicable, that TPGE will furnish to holders of its public shares in connection with the business combination will describe the various procedures that must be complied with in order to validly redeem public shares. In the event that a stockholder fails to comply with these procedures, its shares may not be redeemed.

If TPGE is unable to consummate the business combination or any other Initial Business Combination by May 10, 2019, the public stockholders may be forced to wait beyond such date before redemption from the Trust Account.

If TPGE is unable to consummate the business combination or any other Initial Business Combination by May 10, 2019, TPGE will distribute the aggregate amount then on deposit in the Trust Account (less up to $100,000 of the net interest earned thereon to pay dissolution expenses), pro rata to the public stockholders by way of redemption and cease all operations except for the purposes of winding up of TPGE’s affairs, as further described herein. Any redemption of public stockholders from the Trust Account shall be effected automatically by function of our Charter prior to any voluntary winding up. If we are required to wind up, liquidate the Trust Account and distribute such amount therein, pro rata, to our public stockholders, as part of any liquidation process, such winding up, liquidation and distribution must comply with the applicable provisions of the Delaware General Corporation Law (the “DGCL”). In that case, investors may be forced to wait beyond May 10, 2019 before the redemption proceeds of our Trust Account become available to them and they receive the return of their pro rata portion of the proceeds from our Trust Account. We have no obligation to return funds to investors prior to the date of our redemption or liquidation unless we consummate our Initial Business Combination prior thereto and only then in cases where investors have sought to redeem their common stock. Only upon our redemption or any liquidation will public stockholders be entitled to distributions if we are unable to complete our Initial Business Combination.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL

INFORMATION OF TPGE

The unaudited pro forma condensed combined consolidated statement of operations of TPGE for the year ended December 31, 2017 combines the historical statement of operations of TPGE for the period from February 14, 2017 (Inception) to December 31, 2017, the historical statement of operations of the Karnes County Business for the year ended December 31, 2017, the historical statements of revenues and direct operating expenses of each of the Giddings Assets and the Subsequent GulfTex Assets for the year ended December 31, 2017, and the Subsequent BlackBrush Assets for the period from January 1, 2017 to January 31, 2017, giving effect to the transactions listed below (for purposes of this section, collectively, the “Transactions”) as if they had been consummated on January 1, 2017. The unaudited pro forma condensed combined consolidated balance sheet of TPGE as of December 31, 2017 presents the historical balance sheet of TPGE, after giving effect to the Transactions as if they had been consummated on December 31, 2017. As discussed further in the notes to these unaudited pro forma condensed combined consolidated financial statements, the “Transactions” for purposes hereof include the following:

 

  a. the acquisition of the Target Assets pursuant to the Business Combination Agreements and the payment of the consideration therefor, including certain stock consideration to be issued to the Karnes County Business Contributors pursuant to the Karnes Country Contribution Agreement;

 

  b. the completion of the PIPE Investment;

 

  c. the issuance of the Senior Notes;

 

  d. the conversion of the Class F Common Stock to Class A Common Stock upon completion of the business combination; and

 

  e. the illustrative redemption of either no shares of Class A Common Stock or 13,000,000 shares of Class A Common Stock.

Specifically, TPGE’s historical financial statements have been adjusted in these unaudited pro forma condensed combined consolidated financial statements to give pro forma effect to events that are: (i) directly attributable to the Transactions; (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined consolidated statement of operations, expected to have a continuing impact on TPGE’s results following the completion of the Transactions.

The unaudited pro forma condensed combined consolidated financial statements have been developed from and should be read in conjunction with:

 

  a. the accompanying notes to the unaudited pro forma condensed combined consolidated financial statements;

 

  b. the historical audited financial statements of TPGE as of December 31, 2017 and for the period from February 14, 2017 (Inception) to December 31, 2017, included elsewhere in this proxy statement;

 

  c. the historical audited financial statements of the Karnes County Business for the year ended December 31, 2017, included elsewhere in this proxy statement;

 

  d. the historical audited statements of revenues and direct operating expenses of the Giddings Assets for the year ended December 31, 2017, the Subsequent GulfTex Assets for the year ended December 31, 2017, and the Subsequent BlackBrush Assets for the one (1) month period ended January 31, 2017, included elsewhere in this proxy statement; and

 

  e. other information relating to TPGE, the Karnes County Business, the Target Assets and the Transactions included in this proxy statement.

Under TPGE’s Charter, any holders of its Class A Common Stock may elect that such shares be redeemed at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account as of two

 

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(2) business days prior to the consummation of an Initial Business Combination, including interest earned on the funds held in the Trust Account and not previously released to TPGE to fund its working capital requirements, subject to an annual limit of $750,000, and/or to pay its taxes, divided by the number of then-outstanding public shares, subject to certain limitations. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of December 31, 2017 of approximately $652.8 million, the estimated per share redemption price, less amounts to be withdrawn, would have been approximately $10.

The unaudited pro forma condensed combined consolidated financial statements present two redemption scenarios as follows:

 

  a. No Redemption: This scenario, which we refer to as the “No Redemption Scenario,” assumes that no shares of Class A Common Stock are redeemed from the public stockholders.

 

  b. Illustrative Redemption: This scenario, which we refer to as the “Illustrative Redemption Scenario,” assumes that approximately 13,000,000 shares of Class A Common Stock are redeemed, resulting in an aggregate payment of approximately $130.0 million out of the Trust Account.

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined consolidated financial statements are described in the accompanying notes. The unaudited pro forma condensed combined consolidated financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined consolidated financial statements do not purport to project the future operating results or financial position of TPGE following the completion of the Transactions.

 

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TPG Pace Energy Holdings Corp.

Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations

Year Ended December 31, 2017

(in thousands, except share information)

 

    TPG Pace
Energy
Holdings, Inc.
    Karnes
County
Business
    Giddings
Assets
    Subsequent
GulfTex
Assets
    Subsequent
Blackbrush
Assets
    Pro Forma
Adjustments
    Pro Forma
Combined
(Assuming No
Redemption)
    Redemption
Adjustment
    Pro Forma
Combined
(Assuming
Illustrative
Redemption)
 
    (a)     (b)     (c)     (d)     (e)                          

REVENUES:

                 

Oil Sales

  $ —       $ 350,204     $ 31,725     $ 70,423     $ 2,210     $ —       $ 454,562     $ —       $ 454,562  

Gas Sales

    —         25,916       23,486       3,409       139       —         52,950       —         52,950  

NGL Sales

    —         27,074       16,909       4,142       77       —         48,202       —         48,202  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    —         403,194       72,120       77,974       2,426       —         555,714       —         555,714  

OPERATING COSTS AND EXPENSES:

                 

Lease operating expenses

    —         31,925       26,167       1,574       104       —         59,770       —         59,770  

Gathering, transportation and processing

    —         14,210       —         2,057       —         —         16,267       —         16,267  

Production taxes

    —         17,837       3,241       3,661       124       —         24,863       —         24,863  

Exploration costs

    —         700       —         —         —         —         700       —         700  

Asset retirement obligations accretion expense

    —         232       —         —         —         1,523 (f)      1,755       —         1,755  

Depreciation, depletion and amortization

    —         129,711       —         —         —         179,791 (f)      309,502       —         309,502  

General and administrative expenses

    899       18,568       —         —         —         23,500 (g)      42,967       —         42,967  

Other

    153       —         —         —         —         —         153       —         153  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating costs and expenses

    1,052       213,183       29,408       7,292       228       204,814       455,977       —         455,977  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

    (1,052     190,011       42,712       70,682       2,198       (204,814     99,737       —         99,737  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTHER INCOME (EXPENSE), NET

                 

Interest income (expense), net

    3,646       —         —         —         —        
(3,646
)(h) 
    (18,750     —         (18,750
              (18,750 )(i)       

Gain (loss) on derivatives, net

    —         (8,488     —         —         —         —         (8,488     —         (8,488

Other income (expense), net

    —         92       —         173       —         —         265       —         265  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

    3,646       (8,396     —         173       —         (22,396     (26,973     —         (26,973
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

    2,594       181,615       42,712       70,855       2,198       (227,210     72,764       —         72,764  

INCOME TAX EXPENSE

    (1,062     (2,741     —         —         —         (8,283 )(j)      (12,086 )      1,343 (m)      (10,743
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

    1,532       178,874       42,712       70,855       2,198       (235,493     60,678       1,343       62,021  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LESS: Net income attributable to non-controlling interests

    —         —         —         —         —         (38,710 )(k)      (38,710 )      (3,784 )(m)      (42,494
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO STOCKHOLDERS

  $ 1,532     $ 178,874     $ 42,712     $ 70,855     $ 2,198     $ (274,203   $ 21,968     $ (2,441   $ 19,527  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING(l)

                 

BASIC

    62,920,561                 98,420,561         85,420,561  
 

 

 

             

 

 

     

 

 

 

DILUTED

    62,920,561                 231,225,561         231,225,561  
 

 

 

             

 

 

     

 

 

 

NET INCOME PER COMMON SHARE(l)

                 

BASIC

  $ 0.02               $ 0.22       $ 0.23  
 

 

 

             

 

 

     

 

 

 

DILUTED

  $ 0.02               $ 0.20       $ 0.20  
 

 

 

             

 

 

     

 

 

 

 

The accompanying notes are an integral part of these unaudited

pro forma condensed combined consolidated financial statements.

 

83


Table of Contents

TPG Pace Energy Holdings Corp.

Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet

At December 31, 2017

(in thousands, except share information)

 

    TPG
Pace
Energy
Holdings,
Inc.
    Target
Assets
    Pipe
Investment
    Senior Notes     Pro Forma
Adjustments
    Pro Forma
Combined
(Assuming No
Redemption)
    Redemption
Adjustment
    Pro Forma
Combined
(Assuming
Illustrative
Redemption)
 
    (a)     (b)     (c)     (d)                 (m)        

ASSETS

               

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 851     $ (1,242,830   $ 355,000     $ 300,000     $ 652,839 (e)    $ 860     $ —       $ 860  
          (11,250     (22,750 )(f)       
            (31,000 )(g)       

Other current assets

    142       —         —         —         —         142       —         142  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    993       (1,242,830     355,000       288,750       599,089       1,002       —         1,002  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PROPERTY, PLANT AND EQUIPMENT:

               

Proved oil and natural gas properties

    —         1,749,639       —         —         —         1,749,639       —         1,749,639  

Unproved oil and natural gas properties

    —         890,185       —         —         —         890,185       1,430       891,615  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total property, plant and equipment, net

    —         2,639,824       —         —         —         2,639,824       1,430       2,641,254  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTHER ASSETS:

               

Investments held in Trust Account

    652,839       —         —         —         (652,839 )(e)      —         —         —    

Deferred tax asset

    105       —         —         —         —   (h)      105       —         105  

Intangible asset

            31,100 (i)      31,100         31,100  

Equity method investment

    —         17,700       —         —         —         17,700       —         17,700  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other assets

    652,944       17,700       —         —         (621,739     48,905       —         48,905  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL

  $ 653,937     $ 1,414,694     $ 355,000     $ 288,750     $ (22,650   $ 2,689,731     $ 1,430     $ 2,691,161  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND OWNERS’ EQUITY

               

CURRENT LIABILITIES:

               

Accounts payable and accrued liabilities:

  $ 1,445     $ —       $ —       $ —       $ —       $ 1,445     $ —       $ 1,445  

Federal income taxes payable

    360       —         —         —         —         360       —         360  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    1,805       —         —         —         —         1,805       —         1,805