|SECURITIES AND EXCHANGE COMMISSION|
|Washington, D.C. 20549|
|Under the Securities Exchange Act of 1934|
|(Amendment No. 1)*|
|(Name of Issuer)|
|(Title of Class of Securities)|
|Kimmeridge Energy Management Company, LLC|
|412 West 15th Street - 11th Floor|
|New York, NY 10011|
|Eleazer Klein, Esq.|
|Schulte Roth & Zabel LLP|
|919 Third Avenue|
|New York, NY 10022|
|(Name, Address and Telephone Number of Person|
|Authorized to Receive Notices and Communications)|
|(Date of Event Which Requires Filing of This Statement)|
If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), Rule 13d-1(f) or Rule 13d-1(g), check the following box. [ ]
(Page 1 of 5 Pages)
* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).
|CUSIP No. 69327R101||SCHEDULE 13D/A||Page 2 of 5 Pages|
NAME OF REPORTING PERSON
Kimmeridge Energy Management Company, LLC
|2||CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP||
|3||SEC USE ONLY|
SOURCE OF FUNDS
|5||CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)||¨|
CITIZENSHIP OR PLACE OF ORGANIZATION
SOLE VOTING POWER
SHARED VOTING POWER
SOLE DISPOSITIVE POWER
SHARED DISPOSITIVE POWER
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
|12||CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES||¨|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
TYPE OF REPORTING PERSON
|CUSIP No. 69327R101||SCHEDULE 13D/A||Page 3 of 5 Pages|
The following constitutes Amendment No. 1 to the Schedule 13D filed by the undersigned (the "Amendment No. 1"). This Amendment No. 1 amends the Schedule 13D as specifically set forth herein.
|Item 4.||PURPOSE OF TRANSACTION|
|Item 4 of the Schedule 13D is hereby amended and supplemented by the addition of the following:|
|On March 7, 2019, the Kimmeridge Funds submitted to the Issuer a notice of their intention to nominate three individuals—James F. Adelson, Benjamin Dell and Alice E. Gould (collectively, the "Nominees")—for election to the Board at the 2019 annual meeting of stockholders of the Issuer.|
|Additionally, the Reporting Person issued a press release (the "Press Release"), announcing, among other things, its nomination of the Nominees. This description of the Press Release is qualified in its entirety by reference to the full text of the Press Release, which is attached hereto as Exhibit B and is incorporated by reference herein. The Reporting Person has also made available a public presentation to stockholders (the "Nomination Presentation"), stating, among other things, the Reporting Person's belief that the Board should be refreshed and that the Issuer should (i) develop a plan to return ROACE above the WACC at $50/bbl and $3/mcf, (ii) cut SG&A from approximately 20% of cashflow to industry leading levels, (iii) return cash to stockholders and implement a sustainable dividend, (iv) execute on the capital program without cost overruns and (v) evaluate strategic opportunities to build scale. The foregoing summary of the Nomination Presentation is qualified in its entirety by reference to the full text of the Nomination Presentation, which is attached hereto as Exhibit C and is incorporated by reference herein.|
|Item 6.||CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER|
|Item 6 of the Schedule 13D is hereby amended and supplemented by the addition of the following:|
|CUSIP No. 69327R101||SCHEDULE 13D/A||Page 4 of 5 Pages|
|The Reporting Person entered into an agreement with each of the Nominees (except Benjamin Dell) (the "Nominee Agreement") whereby, among other things, each Nominee agreed to become a member of a slate of nominees and stand for election as a director of the Issuer in connection with a proxy solicitation which may be conducted by the Kimmeridge Funds in respect of the 2019 annual meeting of stockholders of the Issuer. Each Nominee also agreed to consult with the Reporting Person regarding any purchase of securities of the Issuer and such Nominee agreed not to dispose of any such securities prior to the termination of the Nominee Agreement without the prior consent of the Reporting Person. This description of the Nominee Agreement is qualified in its entirety by reference to the full text of the Nominee Agreement, the form of which is attached hereto as Exhibit D and is incorporated by reference herein..|
|Item 7.||MATERIAL TO BE FILED AS EXHIBITS|
|Item 7 of the Schedule 13D is hereby amended and supplemented by the addition of the following:|
|Exhibit B:||Press Release, dated March 7, 2019|
|Exhibit C:||Nomination Presentation, dated March 7, 2019|
|Exhibit D:||Form of Nominee Agreement|
|CUSIP No. 69327R101||SCHEDULE 13D/A||Page 5 of 5 Pages|
After reasonable inquiry and to the best of his or its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.
Date: March 7, 2019
|KIMMERIDGE ENERGY MANAGEMENT COMPANY, LLC|
|By:||/s/ Benjamin Dell|
Kimmeridge Energy Nominates Three Highly Qualified Directors for the Board of PDC Energy, Inc.
Kimmeridge compelled to make nominations given PDC Energy’s steep discount to intrinsic value and management’s apparent unwillingness to adopt numerous operational and strategic initiatives to maximize shareholder value
Over the past 3, 5, and 10 years,1 PDC Energy’s return on average capital employed is materially lower than its weighted average cost of capital
Ben Dell, Alice Gould, and James Adelson would bring strong, relevant backgrounds, financial operational expertise to PDC Energy’s Board
New York, NY and Denver, CO – March 7, 2019 – Kimmeridge Energy Management Company, LLC ("Kimmeridge"), beneficial owners of 5.1% of the common shares of PDC Energy, Inc. (“PDC” or the “Company”) (NYSE: PDCE), today announced that it is nominating three highly qualified candidates for election to PDC’s Board of Directors at the Company's 2019 Annual Meeting of Stockholders. In addition, Kimmeridge has released an investor presentation discussing its reasons for making the nominations and detailing how it believes the Company should create value for stockholders. The presentation can be accessed here: www.kimmeridge.com/pdc/.
Ben Dell, Founder and Managing Partner of Kimmeridge, said, “Despite holding enviable assets, we believe PDC has consistently delivered poor financial and operational performance across a host of critical metrics. In addition, management has repeatedly appeared to be unwilling to meaningfully address the Company’s failings, which has, in our view resulted in a steep discount to PDC’s intrinsic value. The election of three new directors will instill much needed accountability and a fresh perspective at the Company. It’s certainly time for change.
“Those who are familiar with PDC, and the public U.S. E&P space, fully understand that the sector is becoming increasingly ‘uninvestable’ due, in large part, to excessive SG&A, a misguided focus on production growth, and misalignment of executive compensation. Under the watch of PDC’s current Board, the Company continues to resoundingly check each of these value destructive boxes while claiming a ‘commitment to capital efficiency.’
“The Board nominees that we have put forth are solely committed to doing what is in the best interests of the Company and all of its stockholders over the near and long term. Each nominee possesses extensive E&P expertise – both operational and financial – and we believe the election of Dell, Gould, and Adelson would send a strong signal from the investment community that they want the Company to seriously consider taking required steps towards improving performance, maximizing shareholder value and, in turn, becoming an attractive investment opportunity.”
1 Source: publicly available information on PDC.
Schulte Roth & Zabel LLP is providing legal counsel to Kimmeridge Energy.
About Kimmeridge Energy
Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge Energy is an energy private equity firm focused on making direct investments in unconventional oil and gas assets in the U.S. Rather than partner with separate management teams, Kimmeridge identifies, owns and operates each of its assets directly, maintaining an in-house geology and operating team with experience across all major E&P functions.
Scott Winter / Jonathan Salzberger
Innisfree M&A Incorporated
Daniel Yunger / Cathryn Vaulman
Kimmeridge and Benjamin Dell, Alice E. Gould, and James F. Adelson (collectively, the “Nominees,” together with Kimmeridge, the “Participants”) intend to file with the SEC a definitive proxy statement and accompanying form of proxy to be used in connection with the solicitation of proxies from the stockholders of PDC. All stockholders of PDC are advised to read the definitive proxy statement and other documents related to the solicitation of proxies by the Participants when they become available, as they will contain important information, including additional information related to the Participants. The definitive proxy statement and an accompanying proxy card will be furnished to some or all of the Company’s stockholders and will be, along with other relevant documents, available at no charge on the SEC website at http://www.sec.gov/.
Information about the Participants and a description of its direct or indirect interests by security holdings is contained in the Schedule 14A filed by Kimmeridge with the SEC on March 7, 2019. This document is available free of charge from the sources indicated above.
March 7, 2019 A Path To Profitability
2 • Kimmeridge believes PDC Energy owns and operates premier oil and gas assets. • Despite the underlying asset quality, PDC has consistently failed to generate a return on average capital employed (ROACE) that exceeds its weighted average cost of capital (WACC). • Over the past 5 and 10 years, PDC’s ROACE has averaged 4.1% and 3.8% respectively, materially below its WACC of 10.5%. • Underperformance has been driven by a pursuit of growth over profitability. Over the past 3 years PDC’s share price is down 25%, yet production has doubled. • The Company has a bloated corporate cost structure that has further diminished returns, while its sub - scale positions in the Delaware and DJ Basins has meant limited opportunities to reap the benefits of size and efficiency. • PDC’s announced plan for 2019 and 2020 is a continuation of this approach. The company has proposed no significant cuts to corporate overhead, no commitments to return cash to shareholders, and no plan to generate a return above its cost of capital. • Kimmeridge believes that it is time for a change on the Board. Management needs to begin to act in the best interests of shareholders and put PDC on a path to profitability. PDC Energy: Quality Assets Trapped in a Failing Structure ROACE/Return on Average Capital Employed is calculated excluding unusual one - time items and write - offs. Including unusual items and write - offs, ROACE was <1% over the past 3 - , 5 - and 10 years. The announced plan for 2019 - 2020 can be found in PDC’s Q4’18 earnings presentation.
3 • PDC’s ROACE over the past ten years has averaged 4% and has never been above 6%. This is materially lower than its WACC of 10.5%. • Elementary finance theory explains that investments should only be made if their expected return exceeds the cost of capital. PDC’s investments over the past 10 years have not met this basic threshold. Consistently Poor ROACE vs Peers and vs the WACC -10% -5% 0% 5% 10% 15% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 10 - Year ROACE PDCE Average of E&P Peer Group PDCE Cost of Capital See disclosures for list of 75 companies included in our calculation of average peer group ROACE.
4 • The main driver of
4 • The main driver of PDC’s bloated cost structure is overhead / SG&A. The company is near the top of the peer group on a per unit of production basis. • A telling metric is overhead per active rig running. PDC’s overhead in 2018 was 65% above the peer group average. Shareholder Returns are Depressed Due to Excessive G&A Data based on company 10 - K’s and other public filings. See disclosures for peer group information. SG&A per rig is not calculate d for companies with significant offshore operations. $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 Peer 1 PDCE Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 Peer 14 Peer 15 SG&A Per BOE FY 2018 $0 $10 $20 $30 $40 $50 Peer 1 PDCE Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 Peer 14 SG&A Per Rig FY 2018 ($M)
PDC’s bloated cost structure is overhead / SG&A. The company is near the top of the peer group on a per unit of production basis. • A telling metric is overhead per active rig running. PDC’s overhead in 2018 was 65% above the peer group average. Shareholder Returns are Depressed Due to Excessive G&A Data based on company 10 - K’s and other public filings. See disclosures for peer group information. SG&A per rig is not calculate d for companies with significant offshore operations. $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 Peer 1 PDCE Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 Peer 14 Peer 15 SG&A Per BOE FY 2018 $0 $10 $20 $30 $40 $50 Peer 1 PDCE Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9 Peer 10 Peer 11 Peer 12 Peer 13 Peer 14 SG&A Per Rig FY 2018 ($M)
5 • Larger basin operators are able to achieve capital efficiency and cost savings through rig optimization, longer laterals, and lower service costs. PDC is not a major operator in either of its two basins, further diminishing returns on capital. Size and Scale - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 APC NBL XOG PDCE COP WLL EOG SRCI HPR BCEI DJ Basin Net Acres - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 CXO EOG DVN APC FANG MTDR WPX NBL MRO CDEV JAG PDCE CRZO CPE PE OAS HK LLEX ROSE AXAS Delaware Net Acres Based on public company filings.
6 • At the start of 2018, PDCE forecasted an outspend of less than $90 million for 2018. The actual result was nearly twice as high, with an outspend of $176 million despite materially higher commodity prices. A History of Failing to Execute 2018 Actuals vs. February 2018 Oil pricing +$7.50/ bbl Gas pricing +$0.09/mcf Capex Actual +$100M FCF Actual - $86M February 2018 presentation February 2019 presentation Source(s): PDC Energy public presentations.
6 • At the start of 2018, PDCE forecasted an outspend of less than $90 million for 2018. The actual result was twice as high, with an outspend of $176 million despite materially higher commodity prices. A History of Failing to Execute 2018 Actuals vs. February 2018 Oil pricing +$7.50/ bbl Gas pricing +$0.09/mcf Capex Actual +$100M FCF Actual - $86M February 2018 presentation February 2019 presentation Source(s): PDC Energy public presentations.
7 • Under Kimmeridge’s proposed plan, PDC would: – Develop a plan to return ROACE above the WACC at $50/ bbl and $3/ mcf . – Cut SG&A from ~20% of cashflow to industry leading levels. – Return cash to shareholders and implement a sustainable dividend. – Execute on the capital program without cost overruns. – Evaluate strategic opportunities to build scale. • Kimmeridge believes these changes would deliver a clear path to profitability for shareholders underwritten by the return of cash. PDC Energy: A Better Path
8 • PDC guidance for 2020 implies a ROACE below the cost of capital, further degrading equity value. • A better path for PDC is to implement aggressive controls on costs and spending. The company can and should return cash to shareholders, lower its capital employed, improve margins and improve ROACE. The Kimmeridge Better Path 2020 Forecasts PDC's Current Plan Kimmeridge's Better Path Kimmeridge v PDC ROACE 5% 8% 3% Dividend 0% 4% 4% FCF Yield % 5% 9% 4% SG&A ($M) $159 $75 ($84) LOE, T&P $/ boe $3.65 $3.65 $0.00 EBITDA ($M) $995 $1,079 $84 Capex ($M) $875 $850 ($25) Free Cash Flow ($M) $120 $229 $109 Use of Sales Proceeds (2019) No commitment Stock buyback $300 - 400M Production 54 54 0.0 EBITDA is calculated using $50/ bbl WTI and $3/mcf HH gas prices In the Kimmeridge Better Path, average capital employed is reduced by the amount of the stock buyback, expected to be ~$350 million.
9 • PDC needs to build a path to meeting its WACC (10.5%) at $50/ bbl oil and $3/ mcf gas prices by lowering SG&A, improving operating performance, and delivering additional drilling efficiencies. • Over time, better capital allocation, lower capital costs and better operating performance can drive ROACE to 10%+. Delivering ROACE above the WACC 0% 2% 4% 6% 8% 10% 5 year average PDC Guidance SG&A reduction CE reduction from sale Kimmeridge ROACE ROACE % Capital Employed Reduction from Sale
10 • Kimmeridge is nominating three directors to stand for election at the Company’s 2019 annual meeting of shareholders. • Kimmeridge’s candidates have extensive experience as investors and asset owners. • Kimmeridge currently owns 5.1% of PDC. Kimmeridge has no hedges, uses no options, and is fully aligned with owners. • According to the Company’s 2018 proxy statement, the entire management team and board combined owned just 1% of the outstanding shares. • By refreshing the Board with directors focused on creating value for all shareholders and aligning management compensation with absolute performance, Kimmeridge believes it can work with PDC to deliver this path to profitability. A New Board for a New Business Model
11 Kimmeridge’s Director Nominees Ben Dell Ben Dell is the founder of Kimmeridge where he leads the firm’s investment activities, including overseeing the screening and diligence of new geological opportunities as well as the negotiation and execution of investment strategies. In 2016, Mr. Dell led the sale of Kimmeridge’s Delaware Basin assets to PDC. Prior to founding Kimmeridge , Mr. Dell served as Co - Head of Energy Investments at AllianceBernstein and prior to that he was a Senior Equity Research Analyst for Oil and Gas E&P at Sanford Bernstein. Mr. Dell was also a member of British Petroleum’s M&A and finance group. He has an undergraduate degree in Earth Sciences from St. Peter’s College, Oxford. Alice Gould Alice Gould is a member of the Board of Directors of CorePoint Lodging, Inc. (NYSE: CPLG), serving on its Compensation and Nominating and Corporate Governance Committees. Alice previously led the Private Investments team at DUMAC, Inc., an investment office that manages over $18 billion for Duke University’s endowment and other assets. Her responsibilities included the evaluation, selection, and monitoring of venture capital, leveraged buyout, credit, real estate, energy, and natural resources investments. She has also served on the advisory boards of over 20 private equity and real assets partnerships in the U.S. and abroad. Prior to joining DUMAC, Alice was a management consultant and worked for ten years at IBM in various management roles. Alice received a B.S. in Engineering from Duke University (magna cum laude) and an MBA from The Fuqua School of Business at Duke University (Fuqua Scholar). James Adelson James Adelson serves as the President and CEO of Nadel and Gussman , LLC, a fourth - generation family oil and gas business. He also serves as manager or managing partner of Nadel and Gussman’s various energy affiliates, as well as Ellbar Partners, LLC, the family office entity that focuses on non - energy related opportunities. Jim is an experienced industry executive with over 30 years in oil and gas, including management, operational strategy, exploration and development, together with significant financial expertise in corporate finance, strategic planning and risk management. Jim received his B.A. in Economics from Cornell University.
12 The views expressed in this presentation represent the opinions of Kimmeridge Energy Management Company, LLC and its principals and affiliates ( Kimmeridge ) including certain privately offered investment funds sponsored or advised by Kimmeridge that own shares of common stock of PDC Energy, Inc. (PDC). All of the information and data included in this presentation is based on publicly available information relating to PDC such as financi al statements and other publicly available information. Kimmeridge principals and employees have performed the analysis and reviews of the PDC data and information independently. However, it is possible that others, including PDC, could disagree and conduct analysis that leads to different results. We reserve the right to chan ge any of the opinions and views set out in this presentation as we deem appropriate and without any obligation to make market updates or notifications either through pu bli c filings or on its website. Certain data and analysis presented here is based on or derived from filings made by PDC with the US Securities and Exchange Com mission (SEC) or other regulatory agencies or from third party reports or analysis and Kimmeridge is not responsible or liable for any information obtained from SEC filings or third parties. The information set out in this presentation has not been prepared or calculated in accordance with US generally accepted accounting principles (GAAP) and has not been audited by an independent registered public accounting firm. There can be no assurance that any of the recommendations propos ed by Kimmeridge will actually yield the planned results if implemented either in whole or in part. This presentation and the information set out herein is not in ten ded to predict any particular financial result, trading price or market value of the equity securities of any company including PDC. The ideas and analysis in this presentat ion are for informational purposes only and are designed to be suggestions in how PDC can improve results and increase shareholder value. They are in no way a guarantee tha t any particular financial result or performance will be obtained and this information should not be relied upon to indicate as such. This presentation contains i dea s, analysis and proposals that are the result of reasonable assumptions used by Kimmeridge as of the date of this presentation. PDC’s performance, including financial results and share price performance may, differ materially from the estimates and analysis set out in this presentation. The information contained herein reflects projections, market outlooks, assumptions, opinions and estimates made by Kimmeridge as of the date hereof and therefore such information may be deemed to constitute forward - looking statements which are subject to change without notice at any time. Such forward - looking statements may be based on certain assumptions and may involve certain risks and uncertainties, including risks and changes affecting in dus tries generally and PDC specifically. Given the inherent uncertainty of projections and forward - looking statements, investors should be aware that actual results may differ materially from the projections and other forward - looking statements contained herein due to reasons that may or may not be foreseeable. While the information p resented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any data presented, the information or views conta ine d herein, nor concerning any forward - looking statements. Disclosures
13 Custom peer group data presented in the chart on slide 3 was prepared by Kimmeridge using publicly available information for 75 publicly listed E&P companies chosen by Kimmeridge and is meant to be representative of the performance of the overall E&P industry (Broad Peer Group). Results could differ if th e constituents of the peer group were changed. See below for list of peer group constituents. Peer group data presented in the charts on slide 4 was prepared by Kimmeridge using publicly available information for a customized set of E&P companies chosen by Kimmeridge and determined to be substantially similar to PDC in structure, operations, basin focus and certain other characteristics (Cu st om Peer Group). Results could differ if the constituents of this customized peer group were changed. Constituents of Custom Peer Group: CDEV, CRZO, CXO , EOG, FANG, JAG, NBL, OAS, PE, PXD, SM, SRCI, WLL, WPX, XOG. NBL was excluded from the chart showing SG&A per rig due to its significant offshore operat ion s. Peer group data presented in the charts on slide 5 was prepared by Kimmeridge using publicly available information for a customized set of E&P companies chosen by Kimmeridge with significant operations in each of the basins in which PDC operates. The charts are meant to illustrate that PDC struggle s to achieve efficiencies realized by larger operators. Results could differ if the constituents of these customized peer groups were changed. Nothing herein should be considered a recommendation, offer or solicitation to purchase or sell any particular security or in ves tment and does not represent investment, legal, tax, or financial advice and should not be relied upon as such. Certain private funds sponsored or advised by Kimmeridge beneficially own shares of PDC and these funds may continue to purchase and sell PDC shares in the ordinary course of business. Kimmeridge has disclosed its intent with respect to effect changes in PDC management and operations in public filings with the SEC. Broad Peer Group Constituents: APA APC AR AREX AXAS, BCEI, CDEV, CHAP, CHK, CLR, CNX, COG, COP, CPE, CRC, CRK, CRZO, CXO, D NR, DVN, ECR, EGN, EOG, EPE, EQT, FANG GDP, GPOR, GST, HES, HK, HPR, HVST, JAG, JONE, LLEX, LPI, MCF, MPO, MRO, MTDR, MUR, NBL, NFX, NOG, O AS, OXY, PE, PQ, PDCE, PVAC, PXD, QEP, REI, REN, REXX, ROSE, RRC, RSPP, SBOW, SD, SGY, SM, SN, SRCI, SWN, UNT, UPL, USEG, WLL, WPX, WRD, W TI, XEC, XOG. This presentation may not be reproduced without prior written permission from Kimmeridge . LEGEND Kimmeridge and Benjamin Dell, Alice E. Gould, and James Adelson (collectively, the “Nominees,” together with Kimmeridge , the “Participants”) intend to file with the SEC a definitive proxy statement and accompanying form of proxy to be used in connection with the solicitation of proxies fro m t he stockholders of PDC. All stockholders of PDC are advised to read the definitive proxy statement and other documents related to the solicitation of pro xie s by the Participants when they become available, as they will contain important information, including additional information related to the Participants. The defi nit ive proxy statement and an accompanying proxy card will be furnished to some or all of the Company’s stockholders and will be, along with other relevant documents, a vai lable at no charge on the SEC website at http://www.sec.gov/. Information about the Participants and a description of its direct or indirect interests by security hol dings is contained in the Schedule 14A filed by Kimmeridge with the SEC on or about March 7, 2019. Disclosures Continued
Form of Nominee Agreement
1. This Nomination Agreement (the "Agreement") is by and between Kimmeridge Energy Management Company, LLC ("Kimmeridge," "we" or "us") and ______________ ("you").
2. You agree that you are willing, should we so elect, to become a member of a slate of nominees (the "Slate") of Kimmeridge or one of its affiliates (the "Nominating Party"), which nominees shall stand for election or appointment as directors of PDC Energy, Inc., a Delaware corporation (the "Corporation") in connection with a campaign (the "Campaign") or a proxy solicitation (the "Proxy Solicitation") that we may conduct in respect of the Corporation, whether in connection with the 2019 annual meeting of stockholders of the Corporation (including any adjournment or postponement thereof or any special meeting held in lieu thereof, the "Annual Meeting") or otherwise. You further agree to serve as a director of the Corporation if so elected or appointed. We agree to pay the costs of the Proxy Solicitation and agree to reimburse you for any documented and reasonable out-of-pocket expenses you incur in connection with the Campaign or the Proxy Solicitation that are approved in writing in advance by us, including reasonable expenses for travel requested by us in connection therewith. If we elect to commence a Proxy Solicitation and include you as a member of the Slate, we agree to pay you: (i) a one-time fee of $50,000 promptly following the date that we submit a letter to the Secretary of the Corporation nominating you to stand for election as a director of the Corporation at the Annual Meeting; and (ii) an additional one-time fee of $50,000 (together, the "Fees") upon the filing of a preliminary proxy statement with the Securities and Exchange Commission (the "SEC") in connection with the Proxy Solicitation naming you as a member of the Slate; provided that you agree that an amount equal to the estimated after-tax proceeds of the Fees (assuming a combined federal, state and city tax rate of 45%, rounded to the nearest whole dollar) will be invested in the common stock of the Corporation within five (5) calendar days of receipt of any such Fee (or such longer period as may be required to comply with any legal or regulatory requirements).
3. Kimmeridge agrees on behalf of the Nominating Party that, so long as you agree to inclusion on the Slate and comply with reasonable requests from Kimmeridge in such capacity, Kimmeridge will defend, indemnify and hold you harmless from and against any and all losses, claims, damages, penalties, judgments, awards, settlements, liabilities, costs, expenses and disbursements (including, without limitation, reasonable attorneys' fees, costs, expenses and disbursements) incurred by you in the event that you become a party, to any civil, criminal, administrative or arbitrative action, suit or proceeding, (i) relating to your role as a nominee for director of the Corporation on the Slate, or (ii) otherwise arising from or in connection with or relating to the Campaign or the Proxy Solicitation. Anything to the contrary herein notwithstanding, Kimmeridge is not indemnifying you for any action taken by you or on your behalf that occurs prior to the date hereof or subsequent to the conclusion of the Proxy Solicitation or such earlier time as you are no longer a nominee on the Slate or for any claims made against you in your capacity as a director of the Corporation or actions taken by you as a director of the Corporation, if you are elected or appointed. Nothing herein shall be construed to provide you with indemnification (i) if you violate any provision of state or federal law or commit any criminal
actions; (ii) if you acted in a manner that constitutes fraud, gross negligence or willful misconduct; (iii) if you provided false or misleading information, or omitted material information, in the Questionnaires (as defined in paragraph 4 below), any Nominee Information (as defined in paragraph 4 below) or otherwise in connection with the Campaign or the Proxy Solicitation; or (iv) you breach the terms of this Agreement. You shall promptly notify Kimmeridge in writing in the event of any third-party claims actually made against you or known by you to be threatened if you intend to seek indemnification hereunder in respect of such claims. In addition, upon your delivery of notice with respect to any such claim, Kimmeridge shall promptly assume control of the defense of such claim with counsel chosen by Kimmeridge. Kimmeridge shall not be responsible for any settlement of any claim against you covered by this indemnity without its prior written consent. However, Kimmeridge may not enter into any settlement of any such claim without your consent unless such settlement includes (i) no admission of liability or guilt by you, and (ii) an unconditional release of you from any and all liability or obligation in respect of such claim.
4. You understand that it may be difficult, if not impossible, to replace a nominee who, such as yourself, has agreed to be included on the Slate and, if elected or appointed, to serve as a director of the Corporation if such nominee later changes his or her mind and determines not to be included on the Slate or, if elected or appointed, to serve as a director of the Corporation. Accordingly, Kimmeridge is relying upon your agreement to serve on the Slate and, if elected or appointed, as a director of the Corporation. In that regard, you will be supplied with a questionnaire, the form of which has been provided by the Corporation, along with a supplemental addendum to the Corporation's form of Questionnaire (collectively, the "Questionnaire Forms") and/or a written representation and agreement prepared by the Corporation relating to your compliance, if elected as a director, with certain of the Corporation's policies and guidelines and other rules, regulation and listing standards applicable to directors of the Corporation (the "Company Representation"), in which you will provide Kimmeridge with information necessary for the Nominating Party to make appropriate disclosure to the Corporation and to use in creating the proxy solicitation materials to be sent to stockholders of the Corporation and filed with the SEC in connection with the Campaign and Proxy Solicitation (collectively, the "Nominee Information").
5. You agree that (i) upon request you will promptly complete, sign and return the Questionnaire Forms, Company Representation and any other Nominee Information, (ii) your Nominee Information will be true, complete and correct in all respects, and (iii) you will provide any additional information related to the Campaign and Proxy Solicitation as may be reasonably requested by Kimmeridge. In addition, you agree that you will execute and return a separate instrument confirming that you consent to being nominated for election as a director of the Corporation and, if elected or appointed, consent to serving as a director of the Corporation and that you are not, and will not become, a party to any agreement, arrangement or understanding with any person or entity other than the Corporation in connection with service or action as a director that has not been disclosed to the Corporation. Upon being notified that you have been chosen, Kimmeridge and the Nominating Party may forward your consent and completed Questionnaire Forms and Company Representation (or summaries thereof) and any other Nominee Information, to the Corporation. Kimmeridge and the Nominating Party may at any time, in our and their discretion, disclose the information contained therein, as well as the existence and contents of this
Agreement. Furthermore, you understand that Kimmeridge may elect, at its expense, to conduct a background and reference check on you and you agree to complete and execute any necessary authorization forms or other documents required in connection therewith. You also agree to reasonably consult with us prior to taking any actions that are likely to interfere with your obligations hereunder or result in an adverse recommendation from Institutional Shareholder Services, Inc. or Glass, Lewis & Co.
6. You further agree that (i) you will treat confidentially and not disclose to any party any information relating to the Campaign, the Proxy Solicitation, or Kimmeridge or its affiliates; (ii) from the date hereof until the Annual Meeting, neither you nor your immediate family will purchase or sell shares in the Corporation without the written permission of Kimmeridge and that you will comply with certain compliance policies and procedures of Kimmeridge as communicated to you from time to time; (iii) you will not issue, publish or otherwise make any public statement or any other form of public communication relating to the Corporation, the Campaign or the Proxy Solicitation without the prior written approval of Kimmeridge; and (iv) you will not agree to serve, or agree to be nominated to stand for election, by the Corporation or any other stockholder of the Corporation (other than Kimmeridge and its affiliates), as a director of the Corporation without the prior written approval of Kimmeridge.
7. With the exception of the requirement to invest the after-tax proceeds of the Fees set out in paragraph 2 above, you may only invest in securities of the Corporation with the approval of Kimmeridge. With respect to any purchases by you or your immediate family of securities of the Corporation approved by Kimmeridge, (i) you agree to consult with Kimmeridge regarding such purchases and provide necessary information following such purchases so that we may comply with any applicable disclosure or other obligations which may result from such investment and (ii) Kimmeridge or its affiliates shall prepare and complete any required disclosures including all regulatory filings related thereto at no cost to you. With respect to any purchases made pursuant to this paragraph you agree not to dispose of any such securities prior to the termination of this Agreement.
8. Each of us recognizes that should you be elected or appointed to the Board of Directors of the Corporation (the "Board") all of your activities and decisions as a director will be governed by applicable law and subject to your fiduciary duties, as applicable, to the Corporation and to the stockholders of the Corporation and, as a result, that there is, and can be, no agreement between you and Kimmeridge that governs the decisions which you will make as a director of the Corporation.
9. This Agreement shall automatically terminate on the earliest to occur of (i) the conclusion of the Annual Meeting, (ii) your election or appointment to the Board, (iii) the termination of the Campaign and the Proxy Solicitation or (iv) our election to not include you as part of the Slate, provided, however, that the applicable expense provisions in the second paragraph, the indemnification provisions in the third paragraph, the confidentiality obligations in the sixth paragraph, and the eighth through twelfth paragraphs of this Agreement shall survive such termination.
10. This Agreement sets forth the entire agreement between Kimmeridge and you as to the subject matter contained herein, and cannot be amended, modified or terminated except by a writing executed by Kimmeridge and you.
11. This Agreement shall be governed by the laws of the State of New York, without regard to the principles of the conflicts of laws thereof. The parties agree to the exclusive jurisdiction of the state and federal courts of New York, New York, and waive, and agree not to plead or to make, any claim that any action or proceeding brought in the state and federal courts of New York, New York has been brought in an improper or inconvenient forum.
12. This Agreement may be executed in two or more counterparts, which together shall constitute a single agreement.
[Signature Page Follows]
Agreed to as of the date both parties have signed:
|KIMMERIDGE ENERGY MANAGEMENT COMPANY, LLC|