424B3
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Filed pursuant to Rule 424(b)(3)
Registration Number 333-252338

 

LOGO

LETTER TO STOCKHOLDERS OF QEP RESOURCES, INC.

Dear Stockholders of QEP Resources, Inc.:

On December 20, 2020, QEP Resources, Inc. (“QEP”), Diamondback Energy, Inc. (“Diamondback”) and Bohemia Merger Sub, Inc., a direct, wholly owned subsidiary of Diamondback (“Merger Sub”), entered into an Agreement and Plan of Merger (as it may be amended from time to time, the “merger agreement”), under which, upon the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into QEP (the “merger”), with QEP surviving as a direct, wholly owned subsidiary of Diamondback. If the merger is completed, QEP stockholders will receive, in exchange for each share of common stock, par value $0.01 per share, of QEP (“QEP common stock”) held immediately prior to the merger, 0.050 of a share of common stock, par value $0.01 per share, of Diamondback (“Diamondback common stock”). The board of directors of QEP (the “QEP board”) has unanimously approved the merger agreement and recommends that QEP stockholders vote in favor of adopting the merger agreement.

Based on Diamondback’s closing stock price on February 5, 2021, the most recent practicable date for which such information was available, the merger consideration represented approximately $3.22 in value per share of QEP common stock, which represents a premium of approximately 39.4% over QEP’s closing stock price on December 18, 2020, the last trading day before the public announcement of the execution of the merger agreement with Diamondback. The value of the merger consideration to be received in exchange for each share of Diamondback common stock will fluctuate with the market value of Diamondback common stock until the transaction is complete. Diamondback common stock is quoted on the Nasdaq Global Select Market under the symbol “FANG,” and QEP common stock is quoted on the New York Stock Exchange under the symbol “QEP.” Following the completion of the merger, it is anticipated that persons who were stockholders of Diamondback and QEP immediately prior to the merger will own approximately 93% and 7% of the combined company following the merger, respectively.

The merger cannot be completed without approval of the proposal to adopt the merger agreement by the affirmative vote of holders of a majority of the outstanding shares of QEP common stock entitled to vote thereon. Because of this, QEP is holding a special meeting of its stockholders on March 16, 2021 to vote on the proposal necessary to complete the merger. At the special meeting, QEP stockholders will also be asked to approve the non-binding compensation advisory proposal and the adjournment proposal, both of which are not a condition to the consummation of the merger. Information about the special meeting, the merger, the merger agreement, and the other business to be considered by stockholders at the special meeting is contained in this proxy statement/prospectus. The QEP board has fixed the close of business on February 5, 2021 as the record date for the determination of QEP stockholders entitled to notice of, and to vote at, the special meeting. Any stockholder entitled to attend and vote at the special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of QEP common stock. We urge you to read this proxy statement/prospectus and the annexes and documents incorporated by reference carefully. You should also carefully consider the risks that are described in the “Risk Factors” section beginning on page 35.

The QEP board has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to, and in the best interests of, the QEP stockholders, approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger, and directed that the merger agreement be submitted to QEP stockholders for adoption at a meeting of such stockholders, and unanimously recommends that QEP stockholders vote “FOR” the proposal to adopt the merger agreement and the transactions contemplated thereby, including the merger.


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Your vote is very important regardless of the number of shares of QEP common stock that you own.

Whether or not you plan to attend the special meeting, please submit your proxy as soon as possible by following the instructions on the accompanying proxy card to make sure that your shares are represented at the meeting. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction form furnished by the broker, bank or other nominee. You must provide voting instructions by filling out the voting instruction form in order for your shares to be voted.

In light of public health concerns regarding the ongoing COVID-19 pandemic and in consideration of medical and governmental recommendations and orders limiting the number of persons that may gather at public events, the special meeting will be held in a virtual meeting format only. You will not be able to attend the special meeting physically in person. Thank you for your continued support, interest and investment in QEP.

 

Sincerely,
LOGO

Timothy J. Cutt

President & Chief Executive Officer

QEP Resources, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying proxy statement/prospectus or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The proxy statement/prospectus is dated February 10, 2021 and is first being mailed to stockholders of QEP on or about February 10, 2021.


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LOGO

NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD VIRTUALLY VIA THE INTERNET ON MARCH 16 , 2021

To the Stockholders of QEP Resources, Inc.:

On behalf of QEP Resources, Inc. (“QEP”) and the Board of Directors of QEP (the “QEP board”), I am pleased to invite you to a special meeting of stockholders of QEP (the “QEP special meeting”), which will be held virtually via the Internet on March 16, 2021, at 8:00 a.m., Mountain Time, to consider and vote on the following proposals:

 

   

to adopt the Agreement and Plan of Merger, dated December 20, 2020 (as it may be amended from time to time, the “merger agreement”), by and among Diamondback Energy, Inc. (“Diamondback”), Bohemia Merger Sub Inc., a wholly owned subsidiary of Diamondback (the “Merger Sub”), and QEP (the “merger proposal”);

 

   

to approve, by a non-binding advisory vote, certain compensation that may be paid or become payable to QEP’s named executive officers that is based on or otherwise relates to the merger contemplated by the merger agreement (the “non-binding compensation advisory proposal”); and

 

   

to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement (the “adjournment proposal”).

In light of public health concerns regarding the ongoing COVID-19 pandemic, the QEP special meeting will be held in a virtual meeting format only, via live webcast, and there will not be a physical meeting location. You will be able to attend the QEP special meeting online and vote your shares electronically at the meeting by visiting www.virtualshareholdermeeting.com/QEP2021SM (the “QEP special meeting website”).

QEP stockholder approval of the merger proposal is required to complete the merger between Merger Sub and QEP, as contemplated by the merger agreement. QEP stockholders will also be asked to approve the non-binding compensation advisory proposal and the adjournment proposal, both of which are not conditions to the consummation of the merger. QEP does not intend to transact any other business at the QEP special meeting or any adjournment or postponement thereof. The record date for the QEP special meeting has been set as February 5, 2021. Only QEP stockholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the QEP special meeting or any adjournments and postponements of the QEP special meeting. For additional information regarding the QEP special meeting, see the section entitled “Special Meeting of QEP Stockholders” beginning on page 52 of the proxy statement/prospectus accompanying this notice.

The QEP board unanimously recommends that holders of QEP common stock vote “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal and “FOR” the adjournment proposal.

The QEP stockholder proposals are described in more detail in the accompanying proxy statement/prospectus, which you should read carefully and in its entirety before you vote. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement/prospectus.

PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE QEP SPECIAL MEETING VIA THE QEP SPECIAL MEETING WEBSITE. IF YOU LATER DESIRE TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

 

Your vote is very important. Approval of the merger proposal by the QEP stockholders is a condition to the consummation of the merger and requires the affirmative vote of a majority of the outstanding shares of QEP common stock entitled to vote on the proposal. Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal. Approval of the adjournment proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the special meeting and entitled to vote on the proposal. QEP stockholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes by phone or the Internet. Simply follow the instructions provided on the enclosed proxy card. Abstentions or failure to submit a proxy or vote via the QEP special meeting website will have the same effect as a vote “AGAINST” the merger proposal, the non-binding compensation advisory proposal and the adjournment proposal. Broker non-votes will have the same effect as a vote “AGAINST” the merger proposal and will have no effect on the non-binding compensation advisory proposal and the adjournment proposal.

 

QEP Resources, Inc.
LOGO
Mary Shafer-Malicki, Chair of the Board

Denver, Colorado

February 10, 2021


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about Diamondback Energy, Inc. (“Diamondback”) and QEP Resources, Inc. (“QEP”) from other documents that are not included in or delivered with this proxy statement/prospectus, including documents that Diamondback and QEP have filed with the U.S. Securities and Exchange Commission (the “SEC”). For a listing of documents incorporated by reference herein, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” on page 180.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning Diamondback or QEP, without charge, upon written or oral request to the applicable company’s principal executive offices. The respective addresses and phone numbers of such principal offices are listed below.

 

For Diamondback Stockholders:    For QEP Stockholders:

Diamondback Energy, Inc.

500 West Texas Avenue, Suite 1200

Midland, Texas 79701
Attention: Corporate Secretary
Telephone: (432) 221-7400

  

QEP Resources, Inc.

1050 17th Street, Suite 800

Denver, Colorado 80265

Attention: Corporate Secretary

Telephone: (303) 672-6900

To obtain timely delivery of these documents before the special meeting of stockholders of QEP (the “QEP special meeting”), QEP stockholders must request the information no later than March 9, 2021, which is five business days before the date of the QEP special meeting.

You may also obtain any of the documents incorporated by reference into this proxy statement/prospectus free of charge through the SEC’s website at www.sec.gov. In addition, you may obtain copies of many of these documents, free of charge, from Diamondback by accessing Diamondback’s website at http://www.diamondbackenergy.com under the “Investors” link and then under the heading “Financial Reports” or from QEP by accessing QEP’s website at http://www.qepres.com under the “Investors” link and then under the heading “Financial Information” and “SEC Filings.”

In addition, if you have questions about the merger or this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, contact Georgeson LLC, the proxy solicitor for QEP, toll-free at (800) 903-2897. You will not be charged for any of these documents that you request.


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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the SEC by Diamondback (File No. 333-252338 ), constitutes a prospectus of Diamondback under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”) with respect to the shares of common stock of Diamondback, par value $0.01 per share (“Diamondback common stock”), to be issued to the holders (the “QEP stockholders”) of shares of common stock, par value $0.01 per share, of QEP (“QEP common stock”) pursuant to the Agreement and Plan of Merger, dated December 20, 2020 (as amended from time to time, the “merger agreement”), by and among Diamondback, Bohemia Merger Sub Inc. (“Merger Sub”) and QEP.

This document also constitutes a notice of meeting and proxy statement of QEP under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Diamondback has supplied all information contained or incorporated by reference herein relating to Diamondback, and QEP has supplied all information contained or incorporated by reference herein relating to QEP. Diamondback and QEP have both contributed to the information relating to the merger and the merger agreement contained in this proxy statement/prospectus.

You should rely only on the information contained in or incorporated by reference herein in connection with any vote, the giving or withholding of any proxy or any investment decision in connection with the merger agreement. Diamondback and QEP have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference herein. This proxy statement/prospectus is dated February 10, 2021, and you should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than such date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to stockholders of QEP, nor the issuance by Diamondback of shares of Diamondback common stock pursuant to the merger agreement, will create any implication to the contrary.

All currency amounts referenced in this proxy statement/prospectus are in U.S. dollars.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE QEP SPECIAL MEETING

     1  

SUMMARY

     12  

Information About the Companies

     12  

The Merger and the Merger Agreement

     13  

Merger Consideration

     13  

Risk Factors

     13  

Treatment of QEP Equity Awards

     14  

Recommendation of the QEP Board of Directors and QEP’s Reasons for the Merger

     15  

Opinion of QEP’s Financial Advisor

     15  

Special Meeting of QEP Stockholders

     16  

Board of Directors and Management of Diamondback Following Completion of the Merger

     18  

Interests of QEP’s Directors and Executive Officers in the Merger

     18  

Conditions to the Completion of the Merger

     19  

No Solicitation

     20  

Change of Recommendation

     21  

Termination

     23  

Expenses and Termination Fee

     24  

No Appraisal Rights

     25  

Material U.S. Federal Income Tax Consequences of the Merger

     25  

Comparison of Rights of Stockholders of Diamondback and Stockholders of QEP

     25  

Listing of Diamondback Common Stock; Delisting and Deregistration of QEP Shares

     26  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DIAMONDBACK

     27  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF QEP

     29  

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     31  

SUMMARY UNAUDITED PRO FORMA AND PRODUCTION DATA

     32  

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

     33  

COMPARISON OF PER SHARE MARKET PRICE

     34  

RISK FACTORS

     35  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     49  

INFORMATION ABOUT THE COMPANIES

     51  

SPECIAL MEETING OF QEP STOCKHOLDERS

     52  

Date, Time and Place

     52  

Purpose of the QEP Special Meeting

     52  

Recommendation of the QEP Board of Directors

     52  

Record Date and Outstanding Shares of QEP Common Stock

     52  

Quorum; Abstentions and Broker Non-Votes

     53  

Required Votes

     53  

Methods of Voting

     54  

Revocability of Proxies

     54  

Proxy Solicitation Costs

     55  

Adjournment

     55  

No Appraisal Rights in the Merger

     56  

Other Information

     56  

Assistance

     56  

Vote of QEP’s Directors and Executive Officers

     56  

Attending the QEP Special Meeting Virtually on the QEP Special Meeting Website

     57  

Results of the QEP Special Meeting

     57  

QEP STOCKHOLDER PROPOSALS

     58  

Merger Proposal

     58  

Non-Binding Compensation Advisory Proposal

     58  

The Adjournment Proposal

     59  


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THE MERGER

     60  

Transaction Structure

     60  

Consideration to QEP Stockholders

     60  

Background of the Merger

     60  

Diamondback’s Rationale for the Merger

     76  

Recommendation of the QEP Board and Reasons for the Merger

     77  

Opinion of QEP’s Financial Advisor

     82  

Certain QEP Unaudited Forecasted Financial Information

     93  

Regulatory Approvals

     101  

Board of Directors and Management of Diamondback Following Completion of the Merger

     101  

Interests of QEP’s Directors and Executive Officers in the Merger

     102  

Equity Compensation Awards

     102  

Executive Severance Compensation Plan—CIC

     104  

Non-Competition Agreement Payments

     105  

Deferred Compensation

     105  

Quantification of Potential Payments to QEP’s Named Executive Officers in Connection with the Merger

     106  

Listing of Diamondback Shares; Delisting and Deregistration of QEP Shares

     107  

Accounting Treatment of the Merger

     107  

Treatment of Indebtedness

     108  

No Appraisal Rights in the Merger

     108  

Litigation Relating to the Merger

     109  

THE MERGER AGREEMENT

     111  

Explanatory Note Regarding the Merger Agreement

     111  

The Merger

     111  

Closing

     111  

Organizational Documents; Directors and Officers

     112  

Effect of the Merger on Capital Stock; Merger Consideration

     112  

Treatment of QEP Equity Awards in the Merger

     113  

Payment for Securities; Exchange

     114  

Certificates

     114  

Non-DTC Book-Entry Shares

     115  

DTC Book-Entry Shares

     115  

No Interest

     115  

Termination of Rights

     115  

No Liability

     115  

Lost, Stolen, or Destroyed Certificates

     115  

No Fractional Shares of Diamondback Common Stock

     116  

Withholding Taxes

     116  

No Appraisal Rights

     116  

Representations and Warranties

     116  

Interim Operations of QEP and Diamondback Pending the Merger

     120  

No Solicitation; Change of Recommendation

     125  

Preparation of Proxy Statement/Prospectus and Registration Statement

     130  

QEP Special Meeting

     131  

Access to Information

     132  

Confidentiality Agreement

     133  

HSR and Other Regulatory Approvals

     133  

Employee Matters

     135  

Indemnification; Directors’ and Officers’ Insurance

     135  

Transaction Litigation

     136  

Public Announcements

     136  

Advice of Certain Matters

     137  

Reasonable Best Efforts; Notification

     137  


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Section 16 Matters

     137  

Stock Exchange Listing and Delistings

     137  

Certain Indebtedness

     138  

Tax Matters

     138  

Takeover Laws

     139  

Obligations of Merger Sub

     139  

Asset Dispositions

     139  

Conditions to the Completion of the Merger

     139  

Termination

     141  

No Third-Party Beneficiaries

     143  

Amendment

     144  

Governing Law

     144  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     145  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     148  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     154  

COMPARISON OF RIGHTS OF STOCKHOLDERS OF DIAMONDBACK AND STOCKHOLDERS OF QEP

     163  

SHARE OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS OF QEP

     172  

VALIDITY OF COMMON STOCK

     174  

TAX OPINIONS

     175  

EXPERTS

     176  

HOUSEHOLDING OF PROXY MATERIALS

     177  

FUTURE STOCKHOLDER PROPOSALS

     178  

WHERE YOU CAN FIND MORE INFORMATION

     180  

INFORMATION INCORPORATED BY REFERENCE

     180  

Annex A— Agreement and Plan of Merger

  

Annex B— Opinion of Evercore Group L.L.C.

  


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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE QEP SPECIAL MEETING

The following are answers to certain questions that you may have regarding the QEP special meeting. This section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this document.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A.

You are receiving this proxy statement/prospectus because Diamondback, QEP and Merger Sub have entered into the merger agreement, pursuant to which, on the terms and subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions included in the merger agreement, Diamondback has agreed to acquire QEP by means of a merger of Merger Sub with and into QEP, with QEP surviving the merger as a wholly owned subsidiary of Diamondback (the “merger”) and your vote is required in connection with the merger. The closing date of the merger is referred to herein as the “closing date.” The merger agreement, which governs the terms of the merger, is attached to this proxy statement/prospectus as Annex A.

The merger agreement must be adopted by the QEP stockholders in accordance with the General Corporation Law of the State of Delaware (the “DGCL”) and its charter and bylaws (the “QEP organizational documents”) in order for the merger to be consummated. QEP is holding a special meeting of its stockholders (the “QEP special meeting”) to obtain that approval. QEP stockholders will also be asked to vote on a non-binding advisory proposal to approve certain compensation that may be paid or become payable to QEP’s named executive officers that is based on or otherwise relates to the merger. Your vote is very important. We encourage you to submit a proxy to have your shares of QEP common stock voted as soon as possible.

 

Q:

When and where will the QEP special meeting take place?

 

A:

The QEP special meeting will be held virtually via the Internet on March 16, 2021 at 8:00 a.m., Mountain Time.

In light of the public health concerns regarding the ongoing COVID-19 pandemic, the QEP special meeting will be held in a virtual meeting format only, via live webcast, and there will not be a physical meeting location. You will be able to attend the QEP special meeting online and vote your shares electronically at the meeting by visiting www.virtualshareholdermeeting.com/QEP2021SM (the “QEP special meeting website”). To attend the meeting on the QEP special meeting website, please follow the instructions provided on the enclosed proxy card and the QEP special meeting website.

 

Q:

What matters will be considered at the special meeting?

 

A:

The QEP stockholders are being asked to consider and vote on:

 

   

a proposal to adopt the merger agreement (the “merger proposal”);

 

   

a proposal to approve, by a non-binding advisory vote, certain compensation that may be paid or become payable to QEP’s named executive officers that is based on or otherwise relates to the merger (the “non-binding compensation advisory proposal”); and

 

   

a proposal to approve the adjournment of the QEP special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement (the “adjournment proposal”).

 

Q:

Is my vote important?

 

A:

Yes. Your vote is very important. The merger cannot be completed unless the merger proposal is approved by the affirmative vote of a majority of the outstanding shares of QEP common stock entitled to vote on the

 

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  merger proposal. You will also be asked to approve the non-binding compensation advisory proposal and the adjournment proposal, both of which are not a condition to the consummation of the merger. Only QEP stockholders as of the close of business on the QEP record date (as herein defined) are entitled to vote at the QEP special meeting. The board of directors of QEP (the “QEP board” or the “QEP board of directors”) unanimously recommends that the QEP stockholders vote “FOR” the approval of the merger proposal and “FOR” the approval of the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal.

 

Q:

If my shares of QEP common stock are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee automatically vote those shares for me?

 

A:

If your shares are held through a broker, bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” The “record holder” of such shares is your broker, bank or other nominee, and not you. If this is the case, this proxy statement/prospectus has been forwarded to you by your broker, bank or other nominee. If you hold your shares in “street name,” you must provide your broker, bank or other nominee with instructions on how to vote your shares. Otherwise, your broker, bank or other nominee cannot vote your shares on any of the proposals to be considered at the QEP special meeting. A so called “broker non-vote” will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter.

Under the current New York Stock Exchange (the “NYSE”) rules, brokers, banks or other nominees do not have discretionary authority to vote on any of the proposals at the QEP special meeting. Because the only proposals for consideration at the QEP special meeting are nondiscretionary proposals, it is not expected that there will be any broker non-votes at the QEP special meeting. However, if there are any broker non-votes, they will have (i) the same effect as a vote “AGAINST” the merger proposal, (ii) no effect on the non-binding compensation advisory proposal and (iii) no effect on the adjournment proposal.

 

Q:

What QEP stockholder vote is required for the approval of the merger proposal and non-binding compensation advisory proposal?

 

A:

The merger proposal. Approval of the merger proposal requires the affirmative vote of a majority of the outstanding shares of QEP common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal. Failure to vote on the merger proposal will have the same effect as a vote “AGAINST” the merger proposal.

The non-binding compensation advisory proposal. Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote. As an advisory vote, this proposal is not binding upon QEP, the QEP board, Diamondback or the board of directors of Diamondback (the “Diamondback board” or the “Diamondback board of directors”), and approval of this proposal is not a condition to completion of the merger.

The adjournment proposal. Approval of the adjournment proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. If QEP stockholders approve the adjournment proposal, subject to the terms of the merger agreement, QEP could adjourn the QEP special meeting and use the additional time to solicit additional proxies, including soliciting proxies from QEP stockholders who have previously voted. QEP does not intend to call a vote on the adjournment proposal if the merger proposal is approved at the QEP special meeting.

Virtual attendance at the QEP special meeting constitutes present in person for purposes of the quorum requirement under the Amended and Restated Bylaws of QEP (“QEP’s bylaws”).

 

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Q:

Who will count the votes?

 

A:

The votes at the QEP special meeting will be counted by American Election Services, LLC, which will serve as an independent inspector of elections.

 

Q:

What will QEP stockholders receive if the merger is completed?

 

A:

As a result of the merger, each eligible share of QEP common stock (other than (i) shares held in treasury by QEP, (ii) shares owned by Diamondback or Merger Sub and, in each case, not held on behalf of third parties and (iii) certain shares of QEP common stock subject to stock-based awards that will be treated in the manner described in the section entitled “The Merger Agreement—Treatment of QEP Equity Awards in the Merger” beginning on page 113) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.050 of a share of Diamondback common stock (the “exchange ratio”), with cash being paid in lieu of any fractional shares (the “merger consideration”).

QEP stockholders will not be entitled to receive any fractional shares of Diamondback common stock in the merger, and no QEP stockholders will be entitled to receive dividends, voting rights or any other rights in respect of any fractional shares of Diamondback common stock. Each holder of shares of QEP common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a fraction of a share of Diamondback common stock (after taking into account all certificates and book-entry shares delivered by such holder) will receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Diamondback common stock multiplied by (ii) the volume weighted average price of Diamondback common stock for the five consecutive trading days ending on the date that is two trading days prior to the closing date as reported by Bloomberg, L.P. For additional information regarding the merger consideration, see the sections entitled “The Merger—Consideration to QEP Stockholders” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on pages 60 and 112, respectively.

 

Q:

What will holders of QEP equity awards receive in the merger?

 

A:

QEP Restricted Stock Awards

At the effective time of the merger, each unvested award of restricted shares of QEP common stock that is outstanding immediately prior to the effective time of the merger will be converted into a number of time-based restricted shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. Following the effective time, the restricted shares will be subject to the same terms and conditions (including time-based and termination related vesting conditions) that were applicable to such restricted shares under the applicable QEP stock plan and award agreement immediately prior to the effective time of the merger.

QEP PSU Awards

At the effective time of the merger, each unvested award of performance share units denominated in shares of QEP common stock that is outstanding immediately prior to the effective time of the merger will be converted into time-based restricted stock units in respect of that number of shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger that would have been earned under the applicable terms of such award based upon the higher of (A) 100% of the target level of performance and (B) actual performance through the closing date (as determined by QEP’s compensation committee) multiplied by (ii) the exchange ratio. The performance share unit awards will be converted on the same terms and conditions (including time-based and termination related vesting conditions) applicable to such awards under the applicable QEP stock plan and award agreement immediately prior to the effective time of the merger (other than any performance-based vesting conditions).

 

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QEP Notional Stock Awards

At the effective time of the merger, each QEP notional stock award under any QEP deferred compensation plan (other than deferred shares granted to any QEP employee) will become fully vested and converted into and deemed notionally invested in a number of shares of Diamondback common stock equal to the product of (i) the total number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. Such deferred compensation will be paid in cash promptly following the effective date of the merger (but not later than the time in which payment is required under the QEP deferred compensation plan).

QEP Employee Deferred Shares

At the effective time of the merger, any QEP employee deferred shares that are outstanding immediately prior to the effective time of the merger will be converted at the effective time of the merger into a number of time-based restricted shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. Such awards will be subject to the same time-based and termination related vesting conditions as applied to the corresponding award of QEP employee deferred shares immediately prior to the effective time of the merger.

QEP Options

At the effective time of the merger, each option to purchase shares of QEP common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will be automatically cancelled without any payment or other consideration required to be made in respect thereof.

For additional information regarding the treatment of QEP equity awards, see the section entitled “The Merger Agreement—Treatment of QEP Equity Awards in the Merger” beginning on page 113.

 

Q:

What equity stake will QEP stockholders hold in Diamondback immediately following the merger?

 

A:

Based on the number of issued and outstanding shares of Diamondback and QEP common stock as of January 15, 2021, and the exchange ratio of 0.050 of a share of Diamondback common stock for each share of QEP common stock, holders of shares of QEP common stock as of immediately prior to the effective time of the merger would hold, in the aggregate, approximately 7% of the issued and outstanding shares of Diamondback common stock immediately following the effective time of the merger (without giving effect to (i) any shares of Diamondback common stock held by QEP stockholders prior to the merger, or (ii) up to 10.63 million shares of Diamondback common stock to be issued in a previously announced pending acquisition by Diamondback of approximately 32,500 net acres in the Northern Midland Basin and certain related oil and gas assets pursuant to a definitive purchase and sale agreement with Guidon Operating LLC (“Guidon”) and certain of Guidon’s affiliates). The exact equity stake of QEP stockholders in Diamondback immediately following the effective time of the merger will depend on the number of shares of Diamondback common stock and QEP common stock issued and outstanding immediately prior to the effective time of the merger (including as a result of the Diamondback common stock issued in connection with the transaction with Guidon), as provided in the section entitled “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on page 112.

 

Q:

How does the QEP board recommend that I vote?

 

A:

The QEP board unanimously recommends that QEP stockholders vote “FOR” the approval of the merger proposal, “FOR” the approval of the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal. For additional information regarding how the QEP board recommends that QEP stockholders vote, see the section entitled “The Merger—Recommendation of the QEP Board of Directors and QEP’s Reasons for the Merger” beginning on page 77.

 

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Q:

Why are QEP stockholders being asked to vote on executive officer compensation?

 

A:

The SEC has adopted rules that require QEP to seek a non-binding advisory vote on certain compensation that may be paid or become payable to QEP’s named executive officers that is based on or otherwise relates to the merger. For additional information regarding the non-binding compensation advisory proposal, see the section entitled “QEP Stockholder Proposal—Non-Binding Compensation Advisory Proposal” beginning on page 58. QEP urges its stockholders to read the section entitled “The Merger—Interests of QEP’s Directors and Executive Officers in the Merger” beginning on page 102.

 

Q:

Who is entitled to vote at the QEP special meeting?

 

A:

The QEP board has fixed February 5, 2021 (the “QEP record date”) as the record date for the QEP special meeting. All holders of record of shares of QEP common stock as of the close of business on the QEP record date are entitled to receive notice of, and to vote at, the QEP special meeting, provided that those shares remain outstanding on the date of the QEP special meeting. As of the QEP record date, there were 242,565,821.875 shares of QEP common stock issued and outstanding. Attendance at the QEP special meeting, which will be held virtually and hosted on the QEP special meeting website, is not required to vote. Instructions on how to vote your shares by proxy without virtually attending the QEP special meeting are provided in this section below.

 

Q:

How many votes do I have?

 

A:

Each QEP stockholder of record is entitled to one vote for each share of QEP common stock held of record by him or her as of the close of business on the QEP record date.

 

Q:

What constitutes a quorum for the QEP special meeting?

 

A:

A quorum is the minimum number of stockholders necessary to hold a valid meeting. The presence at the QEP special meeting, in person or by proxy, of the holders of a majority of the outstanding shares of QEP common stock entitled to vote generally in the election of directors constitutes a quorum. Virtual attendance at the QEP special meeting constitutes presence in person for purposes of the quorum requirement under QEP’s bylaws. If you submit a properly executed proxy card, even if you do not vote for one or both proposals or vote to “ABSTAIN” in respect of one or both proposals, your shares of QEP common stock will be counted for purposes of calculating whether a quorum is present for the transaction of business at the QEP special meeting. Broker non-votes will not be treated as present for purposes of determining the presence of a quorum at the QEP special meeting.

Whether or not a quorum is present, the holders of a majority of the outstanding shares of QEP common stock who are present in person or by proxy and entitled to vote at the special meeting may adjourn the meeting from time to time, without notice other than by announcement at the meeting, to another date, place, if any, and time until a quorum is present. If the adjournment is for more than 30 days or if after the adjournment, a new record date is fixed for the adjourned meeting, QEP will provide a notice of the adjourned meeting to each stockholder of record entitled to vote at the meeting.

QEP’s bylaws also provide that the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered.

 

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Q:

What will happen to QEP as a result of the merger?

 

A:

If the merger is completed, Merger Sub will merge with and into QEP. As a result of the merger, the separate corporate existence of Merger Sub will cease, and QEP will continue as the surviving corporation in the merger and as a wholly owned subsidiary of Diamondback. Furthermore, shares of QEP common stock will no longer be publicly traded and will be delisted from the NYSE.

 

Q:

I own shares of QEP common stock. What will happen to those shares as a result of the merger?

 

A:

If the merger is completed, your shares of QEP common stock will be converted into the right to receive the merger consideration. All such shares of QEP common stock, when so converted, will cease to be outstanding and will automatically be cancelled. Each holder of a share of QEP common stock that was outstanding immediately prior to the effective time of the merger will cease to have any rights with respect to shares of QEP common stock except the right to receive the merger consideration (including any cash to be paid in lieu of any fractional shares of Diamondback common stock); and any dividends or distributions made with respect to shares of Diamondback common stock with a record date after the effective time of the merger, in each case to be issued or paid upon the exchange of any certificates or book-entry shares of QEP common stock for merger consideration. For additional information, see the sections entitled “The Merger—Consideration to QEP Stockholders” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on pages 60 and 112, respectively.

 

Q:

Where will the Diamondback common stock that QEP stockholders receive in the merger be publicly traded?

 

A:

Assuming the merger is completed, the shares of Diamondback common stock that QEP stockholders receive in the merger will be listed and traded on the Nasdaq Global Select Market, or such other Nasdaq market on which shares of Diamondback common stock are then listed.

 

Q:

What happens if the merger is not completed?

 

A:

If the merger proposal is not approved by QEP stockholders or if the merger is not completed for any other reason, QEP stockholders will not receive any merger consideration in connection with the merger, and their shares of QEP common stock will remain outstanding. QEP will remain an independent public company and QEP common stock will continue to be listed and traded on the NYSE. Additionally, if the merger proposal is not approved by QEP stockholders or if the merger is not completed for any other reason, Diamondback will not issue shares of Diamondback common stock to QEP stockholders. If the merger agreement is terminated under specified circumstances, QEP may be required to pay Diamondback a termination fee or reimburse Diamondback for certain expenses, as applicable. For a more detailed discussion of the termination fee and related provisions, see “The Merger Agreement—Termination” beginning on page 141.

 

Q:

What happens if the non-binding compensation advisory proposal is not approved by QEP stockholders?

 

A:

This vote is advisory and non-binding, and the merger is not conditioned or dependent upon the approval of the non-binding compensation advisory proposal by QEP stockholders. However, QEP and Diamondback value the opinions of QEP stockholders and Diamondback expects to consider the outcome of the vote, along with other relevant factors, when considering future executive compensation, assuming the merger is completed. Because the executive compensation to be paid in connection with the merger is based on the terms of the merger agreement as well as the contractual arrangements between QEP and its named executive officers, subject to the contractual conditions applicable thereto, such compensation will be payable, regardless of the outcome of this advisory vote if the merger proposal is approved. However, QEP seeks the support of its stockholders and believes that stockholder support is appropriate because QEP has a comprehensive executive compensation program designed to link the compensation of its named executive officers with QEP’s performance and the interests of QEP stockholders.

 

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Q:

What is a proxy and how can I vote my shares by attending the QEP special meeting virtually?

 

A:

A proxy is a legal designation of another person to vote the stock you own. Shares of QEP common stock held directly in your name as the stockholder of record as of the close of business on February 5, 2021, the QEP record date, may be voted at the QEP special meeting to be held virtually on the QEP special meeting website. If you choose to attend the QEP special meeting via the QEP special meeting website, you will need to provide valid, government-issued photo identification. If you are a beneficial owner of QEP common stock but not the stockholder of record of such shares of QEP common stock, you will also need proof of stock ownership to be admitted to the QEP special meeting to be held virtually on the QEP special meeting website. A recent brokerage statement or a letter from a broker, bank or other nominee are examples of proof of ownership. Please note that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the QEP special meeting via the QEP special meeting website, you will not be permitted to vote at the special meeting unless you first obtain a legal proxy issued in your name from the record owner and present it to the inspector of election with your ballot at the QEP special meeting. To request a legal proxy, contact your broker, bank or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to the QEP special meeting.

Failure to provide the appropriate documentation may delay your admission to or prevent you from attending the QEP special meeting virtually on the QEP special meeting website. The QEP special meeting will commence promptly at the scheduled time and QEP stockholders may not be admitted to the virtual meeting following the start of the QEP special meeting.

 

Q:

How can I vote my shares without attending the QEP special meeting virtually?

 

A:

If you are a stockholder of record of QEP common stock as of the close of business on February 5, 2021, the QEP record date, you can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card. Please note that if you are a beneficial owner, you must vote by submitting voting instructions to your broker, bank or other nominee, or otherwise by following instructions provided by your broker, bank or other nominee. Phone and Internet voting may be available to beneficial owners. Please refer to the vote instruction form provided by your broker, bank or other nominee.

 

Q:

What is the difference between holding shares as a holder of record and as a beneficial owner?

 

A:

If your shares of QEP common stock are registered directly in your name with QEP’s transfer agent, Equiniti Trust Company, you are considered the stockholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held in a stock brokerage account or by a broker, bank or other nominee, then you are considered the beneficial owner of those shares, which are considered to be held in “street name.” Access to proxy materials is being provided to you by your broker, bank or other nominee who is considered the stockholder of record with respect to those shares.

 

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 relating to the QEP special meeting if you hold shares of QEP common stock in “street name” and also directly in your name as a holder of record or otherwise or if you hold shares of QEP common stock in more than one brokerage account.

Direct holders (holders of record). For shares of QEP common stock held directly, complete, sign, date and return the proxy card (or cast your vote by phone or the Internet as provided on the proxy card) or otherwise follow the voting instructions provided in this proxy statement/prospectus in order to ensure that all of your shares of QEP common stock are voted.

Shares in street name.” For shares of QEP common stock held in “street name” through a broker, bank or other nominee, follow the instructions provided by your broker, bank or other nominee to vote your shares.

 

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Q:

If a holder of shares gives a proxy, how will the shares of QEP common stock covered by the proxy be voted?

 

A:

If you provide a proxy, regardless of whether you provide that proxy by phone, the Internet or completing and returning the applicable enclosed proxy card, the individuals named on the enclosed proxy card will vote your shares of QEP common stock in the way that you indicate when providing your proxy in respect of the shares of QEP common stock held by you. When completing the phone or Internet processes or the proxy card, you may specify whether your shares of QEP common stock should be voted “FOR” or “AGAINST,” or “ABSTAIN” from voting on, all, some or none of the specific items of business to come before the QEP special meeting.

 

Q:

How will my shares of common stock be voted if I return a blank proxy?

 

A:

If you sign, date and return your proxy and do not indicate how you want your shares of QEP common stock to be voted, then your shares of QEP common stock will be voted “FOR” the approval of the merger proposal, “FOR” the approval of the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal, in accordance with the recommendation of the QEP board.

 

Q:

Can I change my vote after I have submitted my proxy?

 

A:

Yes. If you are a stockholder of record of QEP common stock as of the close of business on the QEP record date, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the QEP special meeting to be held virtually on the QEP special meeting website in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again by phone or the Internet at a later time;

 

   

give written notice of your revocation to QEP’s corporate secretary at 1050 17th Street, Suite 800, Denver, Colorado 80265 stating that you are revoking your proxy; or

 

   

vote at the QEP special meeting virtually on the QEP special meeting website. Please note that your virtual attendance at the QEP special meeting will not alone serve to revoke your proxy. Instead, you must vote your shares via the QEP special meeting website.

If you are a beneficial owner of QEP common stock as of the close of business on the QEP record date, you must follow the instructions of your broker, bank or other nominee to revoke or change your voting instructions.

 

Q:

Where can I find the voting results of the special meeting?

 

A:

Within four business days following certification of the final voting results, QEP intends to file the final voting results of its special meeting with the SEC in a Current Report on Form 8-K.

 

Q:

If I do not favor the merger as a QEP stockholder, what are my rights?

 

A:

Under Delaware law, QEP stockholders are not entitled to appraisal rights in connection with the merger. For more information, see “The Merger—No Appraisal Rights in the Merger.”

 

Q:

Are there any risks that I should consider as a QEP stockholder in deciding how to vote?

 

A:

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 35. You also should read and carefully consider the risk factors of Diamondback and QEP contained in the documents that are incorporated by reference in this proxy statement/prospectus.

 

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Q:

What happens if I sell my shares before the special meeting?

 

A:

The record date for QEP stockholders entitled to vote at the QEP special meeting is earlier than the date of the QEP special meeting. If you transfer your shares of QEP common stock after the QEP record date but before the QEP special meeting, you will, unless special arrangements are made, retain your right to vote at the QEP special meeting but will have transferred the right to receive the merger consideration to the person to whom you transferred your shares of QEP common stock.

 

Q:

What are the material U.S. federal income tax consequences of the merger to QEP stockholders?

 

A:

Diamondback and QEP intend for the merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal income tax purposes. However, it is not a condition to Diamondback’s obligation or QEP’s obligation to complete the transactions that the merger qualifies as a “reorganization.” Moreover, neither Diamondback nor QEP intends to request any ruling from the Internal Revenue Service (the “IRS”) regarding any matters relating to the merger, and, consequently, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position to the contrary to any of the positions set forth below. If the IRS were to challenge the “reorganization” status of the merger successfully or the form or structure of the merger was changed in a manner such that it did not qualify as a “reorganization,” the tax consequences would differ from those set forth in this proxy statement/prospectus and holders of QEP common stock could be subject to U.S. federal income tax upon the receipt of Diamondback common stock in the merger.

If the merger qualifies as a reorganization, then U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 145) of shares of QEP common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of Diamondback common stock in exchange for QEP common stock in the merger (other than gain or loss, if any, with respect to any cash received in lieu of a fractional share of Diamondback common stock). The material U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 145. The discussion of the material U.S. federal income tax consequences contained in this proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, it does not address the effects of any foreign, state or local tax laws or any U.S. federal tax laws other than U.S. federal income tax laws.

TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.

 

Q:

When is the merger expected to be completed?

 

A:

Diamondback and QEP are working to complete the merger as quickly as possible. Subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 139, including the approval of the merger proposal by QEP stockholders at the QEP special meeting, the transaction is expected to be completed late in the first quarter of 2021 or early in the second quarter of 2021. However, neither Diamondback nor QEP can predict the actual date on which the merger will be completed, nor can the parties assure that the merger will be completed, because completion is subject to conditions beyond either company’s control.

 

Q:

If I am a QEP stockholder, how will I receive the merger consideration to which I am entitled?

 

A:

If you are a holder of certificates that represent eligible shares of QEP common stock (the “QEP common stock certificates”), a notice advising you of the effectiveness of the merger and a letter of transmittal and

 

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  instructions for the surrender of your QEP common stock certificates will be mailed to you as soon as practicable after the effective time of the merger. After receiving proper documentation from you, the exchange agent will send to you (i) a statement reflecting the aggregate whole number of shares of Diamondback common stock (which will be in uncertificated book-entry form) that you have a right to receive pursuant to the merger agreement and (ii) a check in the amount equal to the cash payable in lieu of any fractional shares of Diamondback common stock and dividends and other distributions on the shares of Diamondback common stock issuable to you as merger consideration.

If you are a holder of book-entry shares representing eligible shares of QEP common stock (the “QEP book-entry shares”) which are held through the Depository Trust Company (“DTC”), the exchange agent will transmit to DTC or its nominees as soon as reasonably practicable on or after the closing date, the merger consideration, cash in lieu of any fractional shares of Diamondback common stock and any dividends and other distributions on the shares of Diamondback common stock issuable as merger consideration, in each case, that DTC has the right to receive.

If you are a holder of record of QEP book-entry shares which are not held through DTC, the exchange agent will deliver to you, as soon as practicable after the effective time of the merger, (i) a notice advising you of the effectiveness of the merger, (ii) a statement reflecting the aggregate whole number of shares of Diamondback common stock (which will be in uncertificated book-entry form) that you have a right to receive pursuant to the merger agreement and (iii) a check in the amount equal to the cash payable in lieu of any fractional shares of Diamondback common stock and dividends and other distributions on the shares of Diamondback common stock issuable to you as merger consideration.

No interest will be paid or accrued on any amount payable for shares of QEP common stock eligible to receive the merger consideration pursuant to the merger agreement.

For additional information on the exchange of QEP common stock for the merger consideration, see the section entitled “The Merger Agreement—Payment for Securities; Exchange” beginning on page 114.

 

Q:

If I am a holder of QEP common stock certificates, do I need to send in my stock certificates at this time to receive the merger consideration?

 

A:

No. Please DO NOT send your QEP common stock certificates with your proxy card. You should carefully review and follow the instructions set forth in the letter of transmittal, which will be mailed to you, regarding the surrender of your stock certificates.

 

Q:

If I am an QEP stockholder, will the shares of Diamondback common stock issued in the merger receive a dividend?

 

A:

After the completion of the merger, the shares of Diamondback common stock issued in connection with the merger will carry with them the right to receive the same dividends on shares of Diamondback common stock as the shares of Diamondback common stock held by all other holders of such shares, for any dividend the record date for which occurs after the merger is completed.

Beginning with the first quarter of 2018, Diamondback has paid a dividend on the shares of Diamondback common stock. Prior to 2018, Diamondback did not pay dividends on its common stock. Any future Diamondback dividends will remain subject to approval by the Diamondback board and other considerations.

 

Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

QEP has retained Georgeson LLC to assist in the solicitation process. QEP estimates it will pay Georgeson LLC a base fee of approximately $15,000, in addition to the reimbursement of certain costs and expenses, for these services. QEP also has agreed to indemnify Georgeson LLC against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

 

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Q:

What is “householding”?

 

A:

To reduce the expense of delivering duplicate proxy materials to stockholders who may have more than one account holding a corporation’s common stock but who share the same address, a corporation may adopt a procedure approved by the SEC called “householding.” Under this procedure, certain holders of record who have the same address and last name will receive only one copy of proxy materials until such time as one or more of these stockholders notifies such corporation that they want to receive separate copies. QEP has not elected to institute householding in connection with the QEP special meeting.

 

Q:

What should I do now?

 

A:

You should read this proxy statement/prospectus carefully and in its entirety, including the annexes, and return your completed, signed and dated proxy card by mail in the enclosed postage-paid envelope or submit your voting instructions by phone or the Internet as soon as possible so that your shares of QEP common stock will be voted in accordance with your instructions.

 

Q:

Who can answer my questions about the QEP special meeting or the transactions contemplated by the merger agreement?

 

A:

If you have questions about the QEP special meeting or the information contained in this proxy statement/prospectus, or desire additional copies of this proxy statement/prospectus or additional proxies, contact QEP’s proxy solicitor:

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

Stockholders, Banks and Brokers May Call Toll-Free (North America):

(800) 903-2897

 

Q:

Where can I find more information about Diamondback, QEP and the merger?

 

A:

You can find out more information about Diamondback, QEP and the merger by reading this proxy statement/prospectus and, with respect to Diamondback and QEP, from various sources described in the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” beginning on page 180.

 

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SUMMARY

This summary highlights selected information included in this proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this proxy statement/prospectus and its annexes carefully and in their entirety and the other documents to which Diamondback and QEP refer before you decide how to vote with respect to the proposals to be considered and voted on at the QEP special meeting. In addition, Diamondback and QEP incorporate by reference important business and financial information about Diamondback and QEP into this proxy statement/prospectus, as further described in the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” beginning on page 180. You may obtain the information incorporated by reference into this proxy statement/prospectus without charge by following the instructions in the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” beginning on page 180. Each item in this summary includes a page reference directing you to a more complete description of that item in this proxy statement/prospectus.

Information About the Companies (page 51)

Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Diamondback Energy, Inc. is an independent oil and gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Diamondback was incorporated in Delaware on December 30, 2011. Diamondback operates in two business segments: (i) the upstream segment, which is engaged in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas and (ii) through its publicly-traded subsidiary, Rattler Midstream LP (“Rattler”), the midstream operations segment, which is focused on ownership, operation, development and acquisition of the midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Diamondback’s corporate headquarters are located in Midland, Texas and Diamondback common stock trade on the Nasdaq Global Select Market under the ticker symbol “FANG.”

QEP Resources, Inc.

1050 17th Street, Suite 800

Denver, Colorado 80265

Phone: (303) 672-6900

QEP Resources, Inc. is an independent crude oil and natural gas exploration and production company with operations in two regions of the United States: the Southern Region (primarily in Texas) and the Northern Region (primarily in North Dakota). QEP’s corporate headquarters are located in Denver, Colorado and QEP common stock trades on the NYSE under the ticker symbol “QEP.”



 

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Bohemia Merger Sub Inc.

c/o Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Bohemia Merger Sub Inc. (“Merger Sub”) is a direct, wholly owned subsidiary of Diamondback. Upon the completion of the merger, Merger Sub will cease to exist. Merger Sub was incorporated in Delaware on December 18, 2020, for the sole purpose of effecting the merger.

The Merger and the Merger Agreement (pages 60 and 111)

The terms and conditions of the merger are contained in the merger agreement, which is attached to this document as Annex A and is incorporated by reference herein in its entirety. Diamondback and QEP encourage you to read the merger agreement carefully and in its entirety, as it is the legal document that governs the merger.

The Diamondback board of directors and the QEP board of directors each has unanimously approved and adopted the merger agreement and the transactions contemplated by the merger agreement. Pursuant to the terms and subject to the satisfaction, or to the extent permitted by applicable law, waiver of the conditions included in the merger agreement, Diamondback has agreed to acquire QEP by means of a merger of Merger Sub with and into QEP, with QEP surviving the merger as a wholly owned subsidiary of Diamondback.

Merger Consideration (page 112)

As a result of the merger, each eligible share of QEP common stock (other than (i) shares held in treasury by QEP, (ii) shares owned by Diamondback or Merger Sub and, in each case, not held on behalf of third parties and (iii) certain shares of QEP common stock subject to stock-based awards that will be treated in the manner described in the section entitled “The Merger Agreement—Treatment of QEP Equity Awards in the Merger” beginning on page 113) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.050 of a share of Diamondback common stock (the “exchange ratio”), with cash being paid in lieu of any fractional shares (the “merger consideration”).

QEP stockholders will not be entitled to receive any fractional shares of Diamondback common stock in the merger, and no QEP stockholders will be entitled to receive dividends, voting rights or any other rights in respect of any fractional shares of Diamondback common stock. Each holder of shares of QEP common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a fraction of a share of Diamondback common stock (after taking into account all certificates and book-entry shares delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Diamondback common stock multiplied by (ii) the volume weighted average price of Diamondback common stock for the five consecutive trading days ending on the date that is two trading days prior to the closing date as reported by Bloomberg, L.P.

Risk Factors (page 35)

The merger and an investment in Diamondback common stock involve risks, some of which are related to the transactions contemplated by the merger agreement. You should carefully consider the information about these risks set forth under the section entitled “Risk Factors” beginning on page 35, together with the other information included or incorporated by reference in this proxy statement/prospectus, particularly the risk factors



 

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contained in Diamondback’s and QEP’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings they make with the SEC. QEP stockholders should carefully consider the risks set out in that section before deciding how to vote with respect to the merger proposal, the non-binding compensation advisory proposal and the adjournment proposal to be considered and voted on at the QEP special meeting. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” each beginning on page 180.

Treatment of QEP Equity Awards (page 113)

QEP Restricted Stock Awards

At the effective time of the merger, each unvested award of restricted shares of QEP common stock that is outstanding immediately prior to the effective time of the merger shall be converted into a number of time-based restricted shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. Following the effective time, the restricted shares will be subject to the same terms and conditions (including time-based and termination related vesting conditions) that were applicable to such restricted shares under the applicable QEP stock plan and award agreement immediately prior to the effective time of the merger.

QEP PSU Awards

At the effective time of the merger, each unvested award of performance share units denominated in shares of QEP common stock that is outstanding immediately prior to the effective time of the merger shall be converted into time-based restricted stock units in respect of that number of shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger that would have been earned under the applicable terms of such award based upon the higher of (A) 100% of the target level of performance and (B) actual performance through the closing date (as determined by QEP’s compensation committee) multiplied by (ii) the exchange ratio. The performance share unit awards will be converted on the same terms and conditions (including time-based and termination related vesting conditions) applicable to such awards under the applicable QEP stock plan and award agreement immediately prior to the effective time of the merger (other than any performance-based vesting conditions).

QEP Notional Stock Awards

At the effective time of the merger, each QEP notional stock award under any QEP deferred compensation plan (other than deferred shares granted to any QEP employee) shall become fully vested and converted into and deemed notionally invested in a number of shares of Diamondback common stock equal to the product of (i) the total number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (ii) the exchange ratio. Such deferred compensation will be paid in cash promptly following the effective time of the merger (but not later than the time in which payment is required under the QEP deferred compensation plan).

QEP Employee Deferred Shares

At the effective time of the merger, any QEP employee deferred shares that are outstanding immediately prior to the effective time of the merger shall be converted at the effective time of the merger into a number of time-based restricted shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (i) the total number of shares of QEP common stock subject to such award immediately prior to the



 

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effective time of the merger multiplied by (ii) the exchange ratio. Such awards will be subject to the same time-based and termination related vesting conditions as applied to the corresponding award of QEP employee deferred shares immediately prior to the effective time of the merger.

QEP Options

At the effective time of the merger, each option to purchase shares of QEP common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, shall be automatically cancelled without any payment or other consideration required to be made in respect thereof.

Recommendation of the QEP Board of Directors and QEP’s Reasons for the Merger (page 77)

The QEP board unanimously recommends that you vote “FOR” the merger proposal, “FOR” the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal. For the factors considered by the QEP board in reaching this decision and additional information on the recommendation of the QEP board, see the section entitled “The Merger—Recommendation of the QEP Board of Directors and QEP’s Reasons for the Merger” beginning on page 77.

Opinion of QEP’s Financial Advisor (page 82)

Evercore Group L.L.C.

Pursuant to an engagement letter dated as of October 20, 2020, QEP engaged Evercore Group L.L.C. (“Evercore”) to act as its financial advisor in connection with a possible sale of QEP. As part of this engagement, QEP requested that Evercore evaluate the fairness of the merger consideration to be received by the holders of the QEP common stock in the Merger, from a financial point of view, to such holders.

At a meeting of the QEP board held on December 20, 2020, Evercore rendered to the QEP board its oral opinion, subsequently confirmed in writing, that as of December 20, 2020 and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s written opinion, the merger consideration to be received by the holders of the QEP common stock in the Merger was fair, from a financial point of view, to such holders.

The full text of the written opinion of Evercore, dated as of December 20, 2020, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex B to this proxy statement/prospectus and is incorporated by reference in its entirety into this proxy statement/prospectus. You are urged to read this opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the QEP board in connection with their evaluation of the proposed merger. The opinion does not constitute a recommendation to the QEP board or to any other persons in respect of the proposed merger, including as to how any holder of shares of QEP common stock should vote or act in respect of the proposed merger. Evercore’s opinion does not address the relative merits of the proposed merger as compared to other business or financial strategies that might be available to QEP, nor does it address the underlying business decision of QEP to engage in the proposed merger. Evercore expressed no opinion as to the price at which shares of QEP common stock or Diamondback common stock will trade at any time.

For further information, see the section of this proxy statement/prospectus entitled “The MergerOpinion of QEP’s Financial Advisor” beginning on page 82 and the full text of the written opinion of Evercore attached as Annex B to this proxy statement/prospectus.



 

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Special Meeting of QEP Stockholders (page 52)

Date, Time, Place and Purpose of the QEP Special Meeting

The QEP special meeting will be held virtually via the Internet on March 16, 2021, at 8:00 a.m., Mountain Time. The purpose of the QEP special meeting is to consider and vote on the merger proposal, the non-binding compensation advisory proposal and the adjournment proposal. Approval of the merger proposal is a condition to the obligation of QEP and Diamondback to complete the merger. Approval of the non-binding compensation advisory proposal and the adjournment proposal are not a condition to the obligation of either QEP or Diamondback to complete the merger.

In light of the public health concerns regarding the ongoing COVID-19 pandemic, the QEP special meeting will be held in a virtual meeting format only, via live webcast, and there will not be a physical meeting location. The eligible QEP stockholders will be able to attend the QEP special meeting online and vote their shares electronically at the meeting by visiting www.virtualshareholdermeeting.com/QEP2021SM (the “QEP special meeting website”).

Record Date and Outstanding Shares of QEP Common Stock

Only holders of record of issued and outstanding shares of QEP common stock as of the close of business on February 5, 2021 (the “QEP record date”) are entitled to notice of, and to vote at, the QEP special meeting or any adjournment or postponement of the QEP special meeting.

As of the close of business on the QEP record date, there were 242,565,821.875 shares of QEP common stock issued and outstanding and entitled to vote at the QEP special meeting. You may cast one vote for each share of QEP common stock that you held as of the close of business on the QEP record date.

A complete list of QEP stockholders entitled to vote at the QEP special meeting will be available for inspection at QEP’s principal office at 1050 17th Street, Suite 800, Denver, Colorado 80265 during regular business hours beginning with the tenth day prior to the QEP special meeting and continuing through the QEP special meeting and during the QEP special meeting. A complete list of the QEP stockholders entitled to vote at the QEP special meeting will also be posted on the QEP special meeting website during the same period.

Quorum; Abstentions and Broker Non-Votes

A quorum of QEP stockholders is necessary for QEP to hold a valid meeting. The presence at the special meeting of the holders of a majority of the outstanding shares of QEP common stock entitled to vote generally in the election of directors, present in person or represented by proxy, constitutes a quorum. Virtual attendance at the QEP special meeting constitutes presence in person for purposes of the quorum requirements under QEP’s bylaws.

If you submit a properly executed proxy card, even if you do not vote for the proposal or vote to “ABSTAIN” in respect of the proposal, your shares of QEP common stock will be counted for purposes of calculating whether a quorum is present for the transaction of business at the QEP special meeting. QEP common stock held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee, and QEP common stock with respect to which the beneficial owner otherwise fails to vote, will not be considered present and entitled to vote at the QEP special meeting for the purpose of determining the presence of a quorum. A broker non-vote will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. It is not expected that there will be any broker non-votes at the QEP special meeting. However, if there are any broker non-votes, the shares will not be considered present and entitled to vote at the QEP special meeting for the purpose of determining the presence of a quorum.



 

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Executed but unvoted proxies will be voted in accordance with the recommendations of the QEP board.

Required Vote to Approve the Merger Proposal

Approval of the merger proposal requires the affirmative vote of a majority of the outstanding shares of QEP common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal. Failure to vote on the merger proposal will also have the same effect as a vote “AGAINST” the merger proposal.

The merger proposal is described in the section entitled “QEP Stockholder Proposals” beginning on page 58.

Required Vote to Approve the Non-Binding Compensation Advisory Proposal

Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The non-binding compensation advisory proposal is described in the section entitled “QEP Stockholder Proposals” beginning on page 58.

Required Vote to Approve the Adjournment Proposal

Approval of the adjournment proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The adjournment proposal is described in the section entitled “QEP Stockholder Proposals” beginning on page 58.

Voting by Directors and Executive Officers

As of the close of business on January 15, 2021, the latest practicable date prior to the date of this proxy statement/prospectus, QEP directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 2,348,050 shares of QEP common stock, or approximately 0.97% of the total outstanding shares of QEP common stock outstanding on that date. For more information regarding the security ownership of QEP directors and executive officers, please see “Share Ownership of Directors, Executive Officers and Certain Beneficial Owners of QEP—QEP’s Directors and Executive Officers” beginning on page 172.

QEP currently expects that all of its directors and executive officers will vote their shares “FOR” the merger proposal, “FOR” the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal.

Adjournment

If a quorum is not present or if there are not sufficient votes for the approval of the merger proposal, QEP expects that the QEP special meeting will be adjourned by the person presiding over the QEP special meeting, as permitted by QEP’s bylaws, to solicit additional proxies in accordance with the merger agreement. At any



 

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subsequent reconvening of the QEP special meeting, all proxies will be voted in the same manner as the manner in which such proxies would have been voted at the original convening of the QEP special meeting, except for any proxies that have been validly revoked or withdrawn prior to the subsequent reconvening of the QEP special meeting.

Board of Directors and Management of Diamondback Following Completion of the Merger (page 101)

Upon closing of the merger, Diamondback’s board and executive management will remain unchanged. Additionally, Diamondback will continue to be headquartered in Midland, Texas.

Interests of QEP’s Directors and Executive Officers in the Merger (page 102)

In considering the recommendation of the QEP board of directors, QEP stockholders should be aware that the directors and executive officers of QEP have certain interests in the merger that may be different from, or in addition to, the interests of QEP stockholders generally. The QEP board of directors was aware of these interests and considered them, among other matters, in making its recommendation that QEP stockholders vote to approve the merger proposal.

These interests include the following:

 

   

the executive officers of QEP have arrangements with QEP that provide for certain severance payments or benefits, accelerated vesting of certain equity-based awards and other rights and other payments or benefits upon completion of the merger and/or if their employment or service is terminated under certain circumstances following the completion of the merger; and

 

   

executive officers and directors of QEP have rights to indemnification, advancement of expenses and directors’ and officers’ liability insurance that will survive the completion of the merger.

The QEP board was aware of these additional interests by their directors and executive officers and considered these potential interests, among other matters, in evaluating and negotiating the merger agreement and the merger, in approving the merger agreement and in recommending the merger proposal, the non-binding compensation advisory proposal and the adjournment proposal. For a further discussion of the interests of QEP directors and executive officers in the merger, see “The Merger—Interests of QEP’s Directors and Executive Officers in the Merger” beginning on page 102.

Litigation Relating to the Merger (page 109)

As of February 8, 2021, seven individual lawsuits have been filed by purported QEP stockholders in United States District Courts in connection with the proposed merger. All seven lawsuits name QEP and the members of the QEP board as defendants, and two of the seven lawsuits name Diamondback and Merger Sub as defendants. The complaints allege, among other things, that the registration statements relating to the merger on Form S-4 filed by Diamondback on January 22, 2021, and as amended on Form S-4/A filed on February 3, 2021, fail to provide certain allegedly material information concerning the proposed merger in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Among other remedies, the plaintiffs seek to enjoin the completion of the proposed merger, a recission of the completed merger or rescissory damages, an accounting of damages suffered by the plaintiff, an award of plaintiff’s expenses and attorney’s fees, and other relief.

Each of Diamondback and QEP believes that the allegations in the complaints are without merit. Additional lawsuits arising out of the merger may also be filed in the future.



 

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For additional information, see the section entitled “The Merger—Litigation Related to the Merger” beginning on page 109.

Conditions to the Completion of the Merger (page 139)

Each party’s obligation to complete the merger is subject to the satisfaction, to the extent permitted by applicable law, or waiver of the following mutual conditions:

 

   

QEP Stockholder Approval. The QEP merger proposal must have been approved by the affirmative vote of a majority of the outstanding shares QEP common stock entitled to vote on the merger proposal, in accordance with the QEP organizational documents;

 

   

Regulatory Approval. Any waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) applicable to the merger and the other transactions contemplated by the merger agreement must have expired or been terminated;

 

   

No Injunctions or Restraints. Any governmental entity of the United States or any state thereof having jurisdiction over Diamondback, QEP or Merger Sub must not have issued any order, decree, ruling, injunction or other action that is in effect (whether temporary, preliminary or permanent) restraining, enjoining or otherwise prohibiting the consummation of the merger and any law that makes the consummation of the merger illegal or otherwise prohibited must not have been adopted;

 

   

Effectiveness of the Registration Statement. The registration statement, of which this proxy statement/prospectus forms a part, must have been declared effective by the SEC under the Securities Act and must not be the subject of any stop order, proceedings seeking a stop order or threat of any such proceeding by the SEC; and

 

   

Nasdaq Listing. The shares of Diamondback common stock issuable to QEP stockholders pursuant to the merger agreement must have been authorized for listing on the Nasdaq Global Select Market, or such other Nasdaq market on which shares of Diamondback common stock are then listed, subject to official notice of issuance.

The obligations of Diamondback and Merger Sub to complete the merger are subject to the satisfaction or, to the extent permitted by applicable law, waiver of further conditions, including:

 

   

the accuracy of the representations and warranties of QEP contained in the merger agreement as of December 20, 2020 and as of the closing date (other than representations that by their terms speak specifically as of another date or period of time), subject to the materiality standards provided in the merger agreement;

 

   

QEP having performed and complied with in all material respects all of its obligations under the merger agreement required to be performed or complied with at or prior to the effective time of the merger; and

 

   

Diamondback having received a certificate of QEP signed by an executive officer of QEP, dated as of the closing date, confirming that the conditions set forth in the two bullets directly above have been satisfied.

The obligation of QEP to complete the merger is subject to the satisfaction or, to the extent permitted by applicable law, waiver of the following additional conditions:

 

   

the accuracy of the representations and warranties of Diamondback contained in the merger agreement as of December 20, 2020 and as of the closing date (other than representations that by their terms speak specifically as of another date or period of time), subject to the materiality standards provided in the merger agreement;



 

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Diamondback and Merger Sub having performed and complied with in all material respects all of their respective obligations under the merger agreement required to be performed or complied with by them at or prior to the effective time of the merger; and

 

   

QEP having received a certificate of Diamondback signed by an executive officer of Diamondback, dated as of the closing date, confirming that the conditions in the two bullets directly above have been satisfied.

No Solicitation (page 125)

No Solicitation by QEP

QEP has agreed that, from and after December 20, 2020, QEP and its officers and directors will and will cause QEP’s subsidiaries and their respective officers and directors to, and will use reasonable best efforts to cause the other representatives of QEP and its subsidiaries to, immediately cease, and cause to be terminated, any discussion or negotiations ongoing with any third party with respect to any inquiry, proposal or offer that constitutes, or would reasonably be expected to lead to, a “competing proposal” (as such term is defined in the section entitled “The Merger Agreement—No Solicitation; Change of Recommendation—Definition of Competing Proposal” beginning on page 129).

QEP has also agreed that, from and after December 20, 2020, QEP and its officers and directors will not, will cause QEP’s subsidiaries and their respective officers and directors not to, and will use their reasonable best efforts to cause the other representatives of QEP and its subsidiaries not to, directly or indirectly:

 

   

initiate, solicit, propose, endorse, knowingly encourage, or knowingly facilitate any expression of interest, inquiry, proposal or offer (or the making of any of them) that constitutes, or would reasonably be expected to result in, a competing proposal;

 

   

engage in, continue or otherwise participate in any discussions or negotiations with any person with respect to a competing proposal or any inquiry, proposal or offer that would reasonably be expected to lead to a competing proposal;

 

   

furnish any information regarding QEP or its subsidiaries, or afford access to the properties, assets, books and records or employees of QEP or its subsidiaries, to any person in connection with or in response to any competing proposal or any inquiry, proposal or offer that would reasonably be expected to lead to a competing proposal;

 

   

enter into any contract, letter of intent or agreement in principle, or other undertaking or commitment in respect of any proposal or offer that constitutes a competing proposal (other than certain confidentiality agreements entered into as permitted by the merger agreement);

 

   

submit any competing proposal to the vote of QEP stockholders; or

 

   

resolve, agree or publicly propose to, or permit QEP or any of its subsidiaries or any of their representatives to agree or publicly propose to take any of the actions described above.

Prior to, but not after, the time the merger proposal has been approved by QEP stockholders, QEP and its representatives may engage in the second and third bullets directly above with any person if such competing proposal did not arise from a breach of the obligations described in “The Merger Agreement—No Solicitation; Change of Recommendation—No Solicitation by QEP”; provided, however, that:

 

   

no information that is prohibited from being furnished pursuant to the “no solicitation” obligations described in the section entitled “The Merger Agreement—No Solicitation; Change of Recommendation—No Solicitation by QEP” may be furnished and no discussions or negotiations regarding a competing proposal may occur until QEP receives an executed confidentiality agreement, subject to certain conditions;



 

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any non-public information furnished to such person will have previously been or will be made available to Diamondback;

 

   

prior to taking any such actions, the QEP board determines in good faith, after consultation with its financial advisors and outside legal counsel, that such competing proposal is, or would reasonably be expected to lead to, a superior proposal; and

 

   

prior to taking any such actions, the QEP board determines in good faith after consultation with its outside legal counsel that failure to take such action would be inconsistent with the fiduciary duties owed by the QEP board to the stockholders of QEP under applicable law.

Change of Recommendation (page 125)

Restrictions on Change of Recommendation

Subject to certain exceptions described below, the QEP board, including any committee of the QEP board, may not:

 

   

withhold, withdraw, qualify or modify, in a manner adverse to Diamondback or Merger Sub, its recommendation that QEP stockholders approve the merger proposal (or publicly propose or announce any intention to do so);

 

   

fail to include its recommendation that QEP stockholders approve the merger proposal in this proxy statement/prospectus;

 

   

approve, adopt, endorse or recommend, any competing proposal (as such term is defined in the section entitled “The Merger Agreement—No Solicitation; Change of Recommendation—Definition of Competing Proposal” beginning on page 129) (or publicly propose or announce any intention to do so);

 

   

publicly declare advisable or publicly propose to enter into, any letter of intent, memorandum of understanding, agreement in principle, contact (including any acquisition agreement, merger agreement, option agreement, joint venture agreement or partnership agreement) or other agreement (other than certain confidentiality agreements) relating to a competing proposal;

 

   

in the case of a competing proposal that is structured as a tender offer or exchange offer pursuant to Rule 14d-2 under the Exchange Act for outstanding shares of QEP common stock (other than by Diamondback or an affiliate of Diamondback), fail to recommend, in a Solicitation/Recommendation Statement on Schedule 14D-9, against acceptance of such tender offer or exchange offer by its stockholders on or prior to the earlier of (i) three business days prior to the date of the QEP special meeting or (ii) 10 business days (as such term is used in Rule 14d-9 of the Exchange Act) after commencement of such tender offer or exchange offer;

 

   

if a competing proposal will have been publicly announced or disclosed (other than pursuant to the bullet directly above), fail to publicly reaffirm its recommendation that QEP stockholders approve the merger proposal on or prior to the earlier of (i) five business days after Diamondback so requests in writing or (ii) three business days prior to the date of the QEP special meeting except that Diamondback may not make any such request on more than two occasions with respect to each competing proposal (including any revision, amendment update or supplement thereof); or

 

   

cause or permit QEP to enter into a letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement (other than certain confidentiality agreements) relating to a competing proposal.

Any of the actions described in the seven bullets directly above is referred to herein as a “recommendation change.”



 

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Permitted Recommendation Change in Connection with a Superior Proposal

Prior to, but not after, the merger proposal has been approved by QEP stockholders, in response to a bona fide written competing proposal that did not arise from a breach of the obligations described above and in the section entitled “The Merger Agreement—No Solicitation; Change of Recommendation—No Solicitation by QEP,” if the QEP board so chooses, the QEP board may effect a recommendation change (but may not terminate the merger agreement) if:

 

   

the QEP board determines in good faith after consultation with its financial advisors and outside legal counsel that such competing proposal is a superior proposal;

 

   

the QEP board determines in good faith, after consultation with its outside legal counsel, that failure to effect a recommendation change in response to such superior proposal would be inconsistent with the fiduciary duties owed by the QEP board to the stockholders of QEP under applicable law;

 

   

QEP provides Diamondback written notice of such proposed action four business days in advance including the basis of such proposed action and the reasons therefor (including the financial analyses conducted by or on behalf of the QEP board);

 

   

after giving such notice and prior to effecting such recommendation change, QEP negotiates in good faith with Diamondback (to the extent Diamondback wishes to negotiate) to make such adjustments or revisions to the terms of the merger agreement as would permit the QEP board not to effect a recommendation change; and

 

   

at the end of the four-business-day period, the QEP board takes into account any adjustments or revisions to the terms of the merger agreement proposed by Diamondback in writing, and determines in good faith after consultation with its financial advisors and outside legal counsel, that the competing proposal remains a superior proposal and that the failure to effect a recommendation change in response to such superior proposal would be inconsistent with the fiduciary duties owed by the QEP board to the stockholders of QEP under applicable law.

In the event of any material amendment or modification to any superior proposal, QEP will be required to deliver a new written notice to Diamondback and to comply with the foregoing requirements with respect to such new written notice, except that the advance written notice obligation will be reduced to two business days. Any amendment or modification to the economic terms of any such superior proposal will be deemed material for the purposes of the foregoing sentence.

Permitted Recommendation Change in Connection with Intervening Events

Prior to, but not after, the time the merger proposal has been approved by QEP stockholders, in response to an intervening event (as defined in the section entitled “The Merger Agreement—No Solicitation; Change of Recommendation—Permitted Recommendation Change in Connection with Intervening Events” beginning on page 128) that occurs or arises after December 20, 2020 and that did not arise from or in connection with a breach of the merger agreement by QEP, QEP may, if the QEP board so chooses, effect a recommendation change (but may not terminate the merger agreement) if:

 

   

the QEP board determines in good faith after consultation with its financial advisors and outside legal counsel that an intervening event has occurred;

 

   

the QEP board determines in good faith, after consultation with its outside legal counsel, that failure to effect a recommendation change in response to such intervening event would be inconsistent with the fiduciary duties owed by the QEP board to the stockholders of QEP under applicable law;

 

   

QEP provides Diamondback written notice of such proposed action four business days in advance, including the basis of such proposed action and includes a reasonably detailed description of the facts and circumstances of the intervening event;



 

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after giving such notice and prior to effecting such recommendation change, QEP negotiates in good faith with Diamondback (to the extent Diamondback wishes to negotiate) to make such adjustments or revisions to the terms of the merger agreement as would permit the QEP board not to effect a recommendation change in response thereto; and

 

   

at the end of the four-business-day period, the QEP board takes into account any adjustments or revisions to the terms of the agreement proposed by Diamondback in writing, and determines in good faith after consultation with its financial advisors and outside legal counsel, that the failure to effect a recommendation change in response to such intervening event would be inconsistent with the fiduciary duties owed by the QEP board to the stockholders of QEP under applicable law.

In the event of any material changes regarding any intervening event, QEP will be required to deliver a new written notice to Diamondback and to comply with the foregoing requirements with respect to such new written notice, except that the advance written notice obligation will be reduced to two business days.

Termination (page 141)

Termination Rights

Diamondback and QEP may terminate the merger agreement and abandon the merger and the other transactions prior to the effective time of the merger by mutual written consent of Diamondback and QEP.

The merger agreement may also be terminated by either Diamondback or QEP prior to the effective time of the merger in any of the following situations:

 

   

if any governmental entity having jurisdiction over Diamondback, QEP or Merger Sub has issued any order, decree, ruling or injunction or taken any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the merger and such order, decree, ruling or injunction or other action has become final and non-appealable, or if any law has been adopted that permanently makes the consummation of the merger illegal or otherwise permanently prohibited, so long as the terminating party has not violated or breached any covenant or agreement under the merger agreement that has caused, materially contributed to or resulted in such order, decree, ruling or injunction or other action;

 

   

if the merger has not been consummated on or before June 30, 2021 (except that, if at such time, certain conditions to closing have not been satisfied due to an antitrust law but all other conditions to closing are satisfied or waived, such date shall be automatically extended to September 30, 2021) (as it may be extended, the “end date”), so long as the terminating party has not breached any covenant or agreement under the merger agreement where such breach caused, materially contributed to or resulted in the failure of the merger to occur on or before such date (the “end date termination event”);

 

   

in the event of a violation or breach by the other party of any representation, warranty, covenant or other agreement contained in the merger agreement, which would give rise to the failure of an applicable closing condition (and such violation or breach, is not curable prior to the end date, or if curable prior to the end date, has not been cured by the earlier of (i) 30 days after the giving of written notice to the breaching party of such breach and (ii) two business days prior to the end date) (in the case of a breach by QEP, a “QEP breach termination event” and, in the case of a breach by Diamondback, a “Diamondback breach termination event”), so long as the terminating party has not then made any such violation or breach; or

 

   

if the QEP stockholders do not approve the merger proposal upon a vote held at a duly held QEP special meeting, or at any adjournment or postponement of the QEP special meeting (a “QEP stockholder approval termination event”).



 

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In addition, the merger agreement may be terminated by Diamondback if prior to, but not after, the approval of the merger proposal by QEP stockholders:

 

   

the QEP board or a committee of the QEP board has effected a recommendation change; or

 

   

QEP, its subsidiaries or any of QEP’s representatives has willfully or materially breached QEP’s “no solicitation” obligations under the merger agreement as described in the section entitled “The Merger Agreement—No Solicitation; Recommendation Change” (a “no solicitation breach termination event”).

Expenses and Termination Fee (page 142)

Termination Fee Payable by QEP

The merger agreement requires QEP to pay Diamondback a termination fee of $17 million if:

 

   

Diamondback terminates the merger agreement due to a recommendation change or a no solicitation breach termination event; or

 

   

(i) (A) Diamondback or QEP terminates the merger agreement due to a QEP stockholder approval termination event and on or before the date of any such termination a competing proposal was publicly announced or publicly disclosed and not publicly withdrawn without qualification at least seven business days prior to the QEP special meeting or (B) QEP or Diamondback terminates the merger agreement due to an end date termination event or Diamondback terminates the merger agreement due to a QEP breach termination event and following December 20, 2020 and on or before the date of any such termination a competing proposal has been announced, disclosed or otherwise communicated to the QEP board and not withdrawn without qualification at least seven business days prior to the date of such termination and (ii) within 12 months after the date of such termination, QEP enters into a definitive agreement with respect to a competing proposal (or publicly approves or recommends to the QEP stockholders or otherwise does not oppose, in the case of a tender or exchange offer, a competing proposal) or consummates a competing proposal. For purposes of this paragraph, any reference in the definition of competing proposal to “10%” will be deemed to be a reference to “50%.”

Diamondback Expenses Payable by QEP

The merger agreement requires QEP to pay Diamondback an expense reimbursement fee equal to any reasonable, documented, out-of-pocket fees, costs and expenses paid or incurred by Diamondback in connection with the proposed transactions, up to a cap of $7.5 million (the “expense reimbursement fee”) if either QEP or Diamondback terminates the merger agreement due to a QEP stockholder approval termination event. However, if QEP terminates the merger due to a QEP stockholder approval termination event at a time when Diamondback was entitled to terminate due to a recommendation change or a no solicitation breach termination event, then Diamondback shall be entitled to receive, in lieu of the expense reimbursement fee, the termination fee described in the section entitled “The Merger Agreement—Termination—Termination Fee Payable by QEP.”

Certain Limitations and Other Agreements related to Termination Fee and Expenses Payable

In connection with the provisions of the merger agreement regarding the expense reimbursement fee and the termination fee payable by QEP, QEP and Diamondback agreed that (i) in no event will Diamondback be entitled to receive more than one payment of the termination fee or more than one payment of the expense reimbursement fee, (ii) if Diamondback receives the termination fee, then Diamondback will not be entitled to also receive the expense reimbursement fee, (iii) any previously paid expense reimbursement fee will be credited against the amount of the termination fee owed, and (iv) Diamondback may simultaneously pursue a grant of specific performance, rights and remedies at law, in equity, in contract, in tort or otherwise and payment of the



 

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termination fee, but if termination fee becomes payable, then upon the payment of such fee, QEP shall have no further liability to Diamondback in respect of the merger agreement or the transactions contemplated by it, except liability for fraud, or a willful or material breach of the merger agreement.

Expenses

Except as otherwise provided in the merger agreement, whether or not the merger is completed, all costs and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring the expense.

No Appraisal Rights (page 108)

Under Delaware law, QEP stockholders are not entitled to appraisal rights in connection with the merger. For more information, see “The Merger—No Appraisal Rights in the Merger.”

Material U.S. Federal Income Tax Consequences of the Merger (page 145)

Diamondback and QEP intend for the merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. However, it is not a condition to Diamondback’s obligation or QEP’s obligation to complete the transactions that the merger qualifies as a “reorganization.” Moreover, neither Diamondback nor QEP intends to request any ruling from the IRS regarding any matters relating to the merger, and, consequently, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position to the contrary to any of the positions set forth below. If the IRS were to challenge the “reorganization” status of the merger successfully or the form or structure of the merger was changed in a manner such that it did not qualify as a “reorganization,” the tax consequences would differ from those set forth in this proxy statement/prospectus and holders of QEP common stock could be subject to U.S. federal income tax upon the receipt of Diamondback common stock in the merger.

If the merger qualifies as a reorganization, then U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 145) of shares of QEP common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of Diamondback common stock in exchange for QEP common stock in the merger (other than gain or loss, if any, with respect to any cash received in lieu of a fractional share of Diamondback common stock). The material U.S. federal income tax consequences of the merger are discussed in more detail in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 145. The discussion of the material U.S. federal income tax consequences contained in this proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the merger that may vary with, or are dependent on, individual circumstances. In addition, it does not address the effects of any foreign, state or local tax laws or any U.S. federal tax laws other than U.S. federal income tax laws.

TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES AS A RESULT OF THE MERGER TO YOU IN YOUR PARTICULAR CIRCUMSTANCES.

Comparison of Rights of Stockholders of Diamondback and Stockholders of QEP (page 163)

The rights of QEP stockholders who receive shares of Diamondback common stock in the merger will be governed by the Amended and Restated Certificate of Incorporation of Diamondback, as amended (“Diamondback’s charter”), and the Second Amended and Restated Bylaws of Diamondback (“Diamondback’s



 

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bylaws”), which are governed by Delaware law, rather than by the Amended and Restated Certificate of Incorporation of QEP, and QEP’s bylaws, which are also governed by Delaware law. Although both Diamondback and QEP are Delaware corporations, QEP stockholders will have different rights once they become Diamondback stockholders due to the differences in the organizational documents of QEP and Diamondback. The key differences are described in the section entitled “Comparison of Rights of Stockholders of Diamondback and Stockholders of QEP” beginning on page 163.

Listing of Diamondback Common Stock; Delisting and Deregistration of QEP Shares (page 107)

If the merger is completed, the shares of Diamondback common stock to be issued in the merger will be listed for trading on the Nasdaq Global Select Market, or such other Nasdaq market on which shares of Diamondback common stock are then listed, shares of QEP common stock will be delisted from the NYSE and deregistered under the Exchange Act, and QEP will no longer be required to file periodic reports with the SEC pursuant to the Exchange Act.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF DIAMONDBACK

The following table presents selected historical consolidated financial data for the periods indicated. The selected historical consolidated financial data as of and for the years ended December 31, 2019, and 2018 and for the year ended December 31, 2017, is derived from Diamondback’s audited consolidated financial statements and related notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which is incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data for the nine months ended September 30, 2020 and 2019, and as of September 30, 2020, is derived from Diamondback’s unaudited interim condensed consolidated financial statements and related notes thereto contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which is incorporated by reference into this proxy statement/prospectus.

The selected historical consolidated financial data as of December 31, 2017, 2016 and 2015, and for the years ended December 31, 2016 and 2015, is derived from Diamondback’s audited consolidated financial statements and related notes thereto for such years, which have not been included or incorporated by reference into this proxy statement/prospectus. The selected historical consolidated financial data as of September 30, 2019, is derived from Diamondback’s unaudited interim condensed consolidated financial statements and related notes thereto contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which has not been included or incorporated by reference into this proxy statement/prospectus.

In presenting the selected historical consolidated financial data in conformity with generally accepted accounting principles in the United States (GAAP), Diamondback is required to make estimates and assumptions that affect the amounts reported. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which are incorporated by reference into this proxy statement/prospectus, for a detailed discussion of the accounting policies that Diamondback believes require subjective and complex judgments that could potentially affect reported results. The unaudited financial statements as of and for the periods described above have been prepared on the same basis as the audited consolidated financial statements incorporated by reference in this proxy statement/prospectus and include all normal and recurring adjustments necessary for a fair statement of the information for the periods presented.

The selected historical consolidated financial data is only a summary and is not necessarily indicative of the future performance of Diamondback, nor does it include the effects of the merger discussed in this proxy statement/prospectus. Factors that impact the comparability of the selected historical consolidated financial data is also noted in the following table. This summary should be read together with other information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes of Diamondback included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which are incorporated by reference into this proxy statement/prospectus. For additional information, see the section entitled “Where You Can Find More Information,” beginning on page 180.



 

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     Nine Months Ended
September 30,
     Year Ended December 31,  

(In millions, except per share amounts,
shares in thousands)

   2020     2019      2019      2018 (1)      2017      2016     2015  

Statements of Operations Data:

             

Total revenues

   $ 2,044     $ 2,860      $ 3,964      $ 2,176      $ 1,205      $ 527     $ 447  

Total costs and expenses

     6,774       1,781        3,269        1,165        600        596       1,187  

Income (loss) from operations

     (4,730     1,079        695        1,011        605        (69     (740

Net income (loss)

     (3,916     787        315        945        517        (165     (548

Net income (loss) attributable to Diamondback Energy, Inc.

   $ (3,778   $ 727      $ 240      $ 846      $ 482      $ (165   $ (551

Earnings per common share

                  

Basic

   $ (23.91   $ 4.44      $ 1.47      $ 8.09      $ 4.95      $ (2.20   $ (8.74

Diluted

   $ (23.91   $ 4.42      $ 1.47      $ 8.06      $ 4.94      $ (2.20   $ (8.74

Weighted average common shares outstanding

                  

Basic

     157,984       164,070        163,493        104,622        97,458        75,077       63,019  

Diluted

     157,984       164,466        163,843        104,929        97,688        75,077       63,019  

Cash dividends declared per common share

   $ 1.1250     $ 0.5625      $ 0.9375      $ 0.5000      $ —        $ —       $ —    

 

(1)

Our results of operations for 2018 include those of Energen Corporation and its subsidiaries acquired by us in the merger from the period of November 29, 2018, the closing date of the Energen Corporation merger, through December 31, 2018.

 

     As of September 30,      As of December 31,  

(In millions)

   2020      2019      2019      2018      2017      2016      2015  

Balance Sheet Data:

 

              

Cash and cash equivalents

   $ 92      $ 100      $ 123      $ 215      $ 112      $ 1,666      $ 20  

Net property and equipment

     17,435        22,043        21,835        20,372        7,344        3,391        2,598  

Total assets

     18,760        23,553        23,531        21,596        7,771        5,350        2,751  

Current liabilities

     1,229        1,181        1,263        1,019        577        209        141  

Long-term debt

     5,656        4,761        5,371        4,464        1,477        1,106        488  

Total stockholders’/ members’ equity(1)

     9,552        14,050        13,249        13,700        5,255        3,697        1,876  

Total equity

   $ 10,669      $ 15,489      $ 14,906      $ 14,167      $ 5,582      $ 4,018      $ 2,109  

 

(1)

For the years ended December 31, 2019, 2018, 2017, 2016 and 2015, total stockholders’ equity excludes $738 million, $467 million, $327 million, $321 million and $233 million, respectively, of non-controlling interest related to Viper Energy Partners L.P. For the year ended December 31, 2019, total stockholders’ equity excludes $919 million of non-controlling interest related to Rattler Midstream L.P.

 

     Nine Months Ended
September 30,
    Year Ended December 31,  

(In millions)

   2020     2019     2019     2018     2017     2016     2015  

Other Financial Data:

              

Net cash provided by operating activities

   $ 1,715     $ 1,852     $ 2,734     $ 1,565     $ 889     $ 332     $ 417  

Net cash used in investing activities

   $ (1,855   $ (2,744   $ (3,888   $ (3,503   $ (3,132   $ (1,310   $ (895

Net cash provided by financing activities

   $ 111     $ 777     $ 1,062     $ 2,041     $ 689     $ 2,625     $ 468  


 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF QEP

The following table sets forth QEP’s selected consolidated historical financial information that has been derived from QEP’s audited consolidated financial statements (i) as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 and unaudited consolidated financial statements (ii) as of and for the nine months ended September 30, 2020 and September 30, 2019. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of QEP nor does it include the effects of the merger. You should read this financial information together with QEP’s consolidated financial statements, the related notes and the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 26, 2020, which is incorporated into this proxy statement/prospectus by reference. The selected statement of operations data and cash flow data for the years ended December 31, 2016 and 2015, and selected balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from QEP’s audited consolidated financial statements for such years, which have not been included or incorporated into this proxy statement/prospectus by reference. The selected historical consolidated financial data for the nine months ended September 30, 2020 and 2019 and as of September 30, 2020 have been derived from QEP’s unaudited consolidated financial data included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which is incorporated into this proxy statement/prospectus by reference. The selected balance sheet data as of September 30, 2019 has been derived from QEP’s unaudited consolidated financial statements as of September 30, 2019, which have not been included or incorporated by reference herein. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” each beginning on page 180.

Selected Financial and Common Stock Data

 

     As of and for the
Nine Months
Ended
September 30,
     As of and for the
Year Ended December 31,
 
     2020      2019      2019(1)     2018(1)     2017(1)      2016(1)     2015  
Statement of Operations Data    (in millions, except per share amounts)  

Revenues(2)(3)

   $ 524.2      $ 884.3      $ 1,206.2     $ 1,932.6     $ 1,622.9      $ 1,377.1     $ 2,018.6  

Net income (loss)(4)(5)

   $ 133.8      $ 13.1      $ (97.3   $ (1,011.6   $ 269.3      $ (1,245.0   $ (149.4

Earnings (loss) per common share:

                 

Basic

     0.55        0.06        (0.41     (4.25     1.12        (5.62     (0.85

Diluted

     0.55        0.06        (0.41     (4.25     1.12        (5.62     (0.85

Weighted-average common shares outstanding

                 

Used in basic calculation

     241.2        237.7        237.7       237.9       240.6        221.7       176.6  

Used in diluted calculation

     241.2        237.7        237.7       237.9       240.6        221.7       176.6  

Cash dividends declared per common share

   $ 0.02      $ 0.02      $ 0.04     $ —       $ —        $ —       $ 0.08  


 

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     As of and for the Nine
Months Ended
September 30,
    As of and for the
Year Ended December 31,
 
     2020     2019     2019(1)     2018(1)     2017(1)     2016(1)     2015  
Statement of Operations Data    (in millions, except per share amounts)  

Balance Sheet Data

              

Total Assets(6)

   $ 5,236.7     $ 5,570.6     $ 5,477.8     $ 6,117.8     $ 7,394.8     $ 7,245.4     $ 8,398.2  

Capitalization:

              

Long-term debt

   $ 1,590.4     $ 2,029.4     $ 2,015.6     $ 2,507.1     $ 2,160.8     $ 2,020.9     $ 2,191.5  

Total equity

     2,798.6       2,770.0       2,660.6       2,750.9       3,797.9       3,502.7       3,947.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Capitalization

   $ 4,389.0     $ 4,799.4     $ 4,676.2     $ 5,258.0     $ 5,958.7     $ 5,523.6     $ 6,139.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Statement of Cash Flows Data

              

Net cash provided by (used in) operating activities

   $ 554.0     $ 342.0     $ 566.9     $ 816.2     $ 600.2     $ 667.2     $ 498.5  

Cash capital expenditures

   $ (288.6   $ (468.8   $ (566.2   $ (1,299.7   $ (1,974.8   $ (1,208.1   $ (1,239.4

 

(1)

The results are impacted by various acquisitions and divestitures. Refer to Note 3 – Acquisitions and Divestitures in Item 8 of Part II of QEP’s Annual Report on Form 10-K for the year ended December 31, 2019 for more information on these transactions.

(2)

Effective January 1, 2016, QEP terminated its contracts for resale and marketing transactions between its wholly owned subsidiaries, QEP Marketing and QEP Energy. In addition, substantially all of QEP Marketing’s third-party purchase and sale agreements and gathering, processing and transportation contracts were assigned to QEP Energy, except those contracts related to natural gas storage activities and Haynesville Gathering. As a result, QEP has substantially reduced its marketing activities, and subsequently, is reporting lower resale revenue and expenses than it had in prior periods.

(3)

In the first quarter of 2018, QEP adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective approach. During the years ended December 31, 2019 and 2018, the revenues are impacted by the adoption of this ASU. Refer to Note 2 – Revenue in Item 8 of Part II of QEP’s Annual Report on Form 10-K for the year ended December 31, 2019 for more information.

(4)

Net income for the nine months ended September 30, 2020 was positively impacted by a $68.8 million tax benefit, from the remeasurement of deferred taxes due to net operating loss carrybacks under the CARES Act to a year with a higher federal tax rate.

(5)

Net income for 2017 was positively impacted by a $307.9 million tax benefit, primarily due to a revaluation of our net deferred tax liability to reflect the federal rate change resulting from 35% to 21% under the Tax Cuts and Jobs Act.

(6)

On January 1, 2019, QEP adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective approach. During the year ended December 31, 2019, total assets are impacted by the adoption of this ASU. Refer to Note 8 – Leases in Item 8 of Part II of QEP’s Annual Report on Form 10-K for the year ended December 31, 2019 for more information.



 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following summary unaudited pro forma condensed combined statements of operations data for the nine months ended September 30, 2020, and for the year ended December 31, 2019, are presented as if the merger had occurred on January 1, 2019. The summary unaudited pro forma condensed combined balance sheet data is presented as if the merger had occurred on September 30, 2020. The following summary unaudited pro forma condensed combined financial data has been prepared for illustrative purposes only, reflects transaction-related pro forma adjustments, based on available information and certain assumptions that Diamondback believes are reasonable, and is not necessarily indicative of what the combined company’s financial condition or results of operations would have been had the merger occurred as of the dates indicated. In addition, the unaudited pro forma condensed combined financial data does not purport to project the future financial condition or results of operations of the combined company.

Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 35. The following summary unaudited pro forma condensed combined financial data should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 148 and the related notes thereto included in this proxy statement/prospectus.

 

(In millions, except per share amounts)

   Nine Months Ended
September 30, 2020
     Year Ended
December 31,
2019
 

Pro Forma Condensed Combined Statement of Operations Data:

     

Total revenues

   $ 2,568      $ 5,170  

Net income (loss)

     (3,606      305  

Net income (loss) attributable to Diamondback Energy, Inc.

   $ (3,468    $ 230  

Earnings (loss) per common share:

     

Basic

   $ (20.40    $ 1.31  

Diluted

   $ (20.40    $ 1.31  

 

(In millions)

   As of
September 30, 2020
 

Pro Forma Condensed Combined Balance Sheet Data:

  

Cash and cash equivalents

   $ 99  

Total assets

     21,551  

Long-term debt

     7,361  

Total equity

   $ 11,231  


 

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SUMMARY UNAUDITED PRO FORMA AND PRODUCTION DATA

The following tables present the estimated pro forma combined proved reserves as of December 31, 2019, giving effect to the merger as if it had been completed on December 31, 2019. The pro forma production data set forth below gives effect to the merger as if it had been completed on January 1, 2019.

The following summary pro forma combined proved reserves and production data has been prepared for illustrative purposes only and is not intended to be a projection of future results of the combined company. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 35 of this proxy statement/prospectus. The summary pro forma combined proved reserves data should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 148 and the related notes thereto included in this proxy statement/prospectus.

 

     As of December 31, 2019  
     Diamondback
Historical
     QEP
Historical
     Diamondback
Pro Forma
Combined
 

Estimated proved developed reserves:

        

Oil (MBbls)

     457,083        117,540        574,623  

Natural gas (MMcf)

     824,760        216,995        1,041,755  

Natural gas liquids (MBbls)

     165,173        36,675        201,848  

Total (MBOE)

     759,716        190,381        950,097  

Estimated proved undeveloped reserves:

        

Oil (MBbls)

     253,820        137,353        391,173  

Natural gas (MMcf)

     294,051        156,321        450,372  

Natural gas liquids (MBbls)

     65,030        28,548        93,578  

Total (MBOE)

     367,859        191,955        559,814  

Estimated net proved reserves:

        

Oil (MBbls)

     710,903        254,893        965,796  

Natural gas (MMcf)

     1,118,811        373,316        1,492,127  

Natural gas liquids (MBbls)

     230,203        65,223        295,426  

Total (MBOE)

     1,127,575        382,335        1,509,910  

 

     Nine Months Ended September 30, 2020  
     Diamondback
Historical
     QEP
Historical
     Diamondback
Pro Forma
Combined
 

Production:

        

Oil (MBbls)

     50,009        15,125        65,134  

Natural gas (MMcf)

     96,482        24,091        120,573  

Natural gas liquids (MBbls)

     16,326        3,821        20,147  

Total (MBOE)

     82,415        22,961        105,376  

 

     Year Ended December 31, 2019  
     Diamondback
Historical
     QEP
Historical
     Diamondback
Pro Forma
Combined
 

Production:

        

Oil (MBbls)

     68,518        21,558        90,076  

Natural gas (MMcf)

     97,613        33,078        130,691  

Natural gas liquids (MBbls)

     18,498        5,139        23,637  

Total (MBOE)

     103,285        32,210        135,495  


 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

The following table presents Diamondback’s and QEP’s historical and pro forma per share data as of and for the year ended December 31, 2019, and as of and for the nine months ended September 30, 2020, and is presented as if the merger had been completed on January 1, 2019. The information provided in the table below is unaudited.

Historical per share data of Diamondback as of and for the year ended December 31, 2019, and as of and for the nine months ended September 30, 2020, was derived from Diamondback’s historical financial statements for the respective periods. Historical per share data of QEP as of and for the year ended December 31, 2019, and as of and for the nine months ended September 30, 2020, was derived from QEP’s historical financial statements for the respective periods. This information should be read in conjunction with the historical consolidated financial statements and related notes of Diamondback and QEP filed by each with the SEC and incorporated by reference into this proxy statement/prospectus, and with the unaudited pro forma condensed combined financial statements included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 148 of this proxy statement/prospectus.

The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the results of operations or the financial condition that would have occurred if the merger had been completed as of the beginning of the period.

 

     As of
and for the
Nine Months
Ended
September 30,
2020
     As of
and for the
Year Ended
December 31,
2019
 

Diamondback Historical

     

Basic earnings (loss) per common share

   $ (23.91    $ 1.47  

Diluted earnings (loss) per common share

   $ (23.91    $ 1.47  

Net book value per common share

   $ 60.51      $ 83.33  

Cash dividends declared per common share

   $ 1.13      $ 0.94  

QEP Historical

     

Basic earnings (loss) per common share

   $ 0.55      $ (0.41

Diluted earnings (loss) per common share

   $ 0.55      $ (0.41

Net book value per common share

   $ 11.56      $ 11.19  

Cash dividends declared per common share

   $ 0.02      $ 0.04  

Pro Forma Combined (Unaudited)

     

Basic earnings (loss) per common share

   $ (20.40    $ 1.31  

Diluted earnings (loss) per common share

   $ (20.40    $ 1.31  

Net book value per common share(1)

   $ 59.55     

Cash dividends declared per common share

   $ 1.13      $ 0.94  

Pro Forma Equivalent (Unaudited)(2)

     

Basic net income (loss) per common share

   $ (1.02    $ 0.07  

Diluted net income (loss) per common share

   $ (1.02    $ 0.07  

Net book value per common share(1)

   $ 2.98     

Cash dividends declared per common share

   $ 0.06      $ 0.05  

 

(1)

Pro forma combined net book value per common share and pro forma equivalent net book value per common share as of December 31, 2019, are not meaningful as the estimated pro forma adjustments were calculated as of September 30, 2020.

(2)

Pro forma equivalent per common share amounts were determined using the pro forma combined per common share data multiplied by 0.050 (the exchange ratio).



 

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COMPARISON OF PER SHARE MARKET PRICE

The following table sets forth the closing sale price per share of Diamondback common stock and QEP common stock as reported on the Nasdaq Global Select Market and the NYSE, respectively, on December 18, 2020, the last trading day prior to the public announcement of the merger, and on February 5, 2021, the last practicable trading day prior to the mailing of this proxy statement/prospectus. The table also shows the estimated implied value of the merger consideration proposed for each share of QEP common stock as of the same two dates. This implied value was calculated by multiplying the closing price of a share of Diamondback common stock on the relevant date by the exchange ratio of 0.050 of a share of Diamondback common stock for each share of QEP common stock.

 

     Diamondback
Common Stock
     QEP Common
Stock
     Implied Per Share
Value of Merger
Consideration
 

December 18, 2020

   $ 45.84      $ 2.31      $ 2.29 (1) 

February 5, 2021

   $ 64.45      $ 3.18      $ 3.22  

 

  (1)

Represents a premium of 13.6% to the 20 day volume weighted average price of the shares of QEP common stock for the 20 trading days prior and up to December 18, 2020 and a premium of 45% to the closing price of the shares of QEP common stock on December 1, 2020, the last trading day that QEP’s stock price was “unaffected” by market rumors that QEP was a takeover target.

Holders of Diamondback and QEP common stock are encouraged to obtain current market quotations for Diamondback common stock and QEP common stock and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference herein. No assurance can be given concerning the market price of Diamondback common stock before or after the effective date of the merger. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference,” each beginning on page 180.



 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 49, QEP stockholders should carefully consider the following risks before deciding how to vote with respect to the merger proposal, the non-binding compensation advisory proposal and the adjournment proposal to be considered and voted on at the QEP special meeting. In addition, QEP stockholders should also read and consider the risks associated with each of the businesses of Diamondback and QEP because these risks will also affect the combined company. These risks can be found in Diamondback’s and QEP’s Annual Reports on Form 10-K for the year ended December 31, 2019, their subsequent reports on Form 10-Q and other documents they file with the SEC, in each case incorporated by reference into this proxy statement/prospectus. QEP stockholders should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference into this proxy statement/prospectus. For additional information, see the sections entitled “Where You Can Find More Information” and “Information Incorporated by Reference” each beginning on page 180.

Risk Factors Relating to the Merger

Because the exchange ratio is fixed and because the market price of Diamondback common stock will fluctuate, QEP stockholders cannot be certain of the precise value of the merger consideration they will receive in the merger.

If the merger is completed, at the effective time of the merger, each issued and outstanding eligible share of QEP common stock will be converted into the right to receive the merger consideration. The exchange ratio for the merger consideration is fixed at 0.050 of a share of Diamondback common stock for each share of QEP common stock (with certain exceptions described in this proxy statement/prospectus), and there will be no adjustment to the merger consideration for changes in the market price of Diamondback common stock or QEP common stock prior to the completion of the merger.

If the merger is completed, there will be a time lapse between each of the date of this proxy statement/prospectus, the date on which QEP stockholders vote to approve the QEP merger proposal and the date on which QEP stockholders entitled to receive the merger consideration actually receive the merger consideration. The market value of shares of Diamondback common stock will fluctuate, possibly materially, during and after these periods as a result of a variety of factors, including general market and economic conditions, changes in Diamondback’s businesses, operations and prospects and regulatory considerations and any impact of the ongoing COVID-19 pandemic. Such factors are difficult to predict and in many cases may be beyond the control of Diamondback and QEP. The actual value of any merger consideration received by QEP stockholders at the completion of the merger will depend on the market value of the shares of Diamondback common stock at that time. Consequently, at the time QEP stockholders decide whether to approve the merger proposal, they will not know the actual market value of any merger consideration they will receive when the merger is completed. For additional information about the merger consideration, see the sections entitled “The Merger—Consideration to QEP Stockholders” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” beginning on page 60 and 112, respectively.

The merger may not be completed and the merger agreement may be terminated in accordance with its terms. Failure to complete the merger could negatively impact the price of shares of Diamondback common stock and the price of shares of QEP common stock, as well as Diamondback’s and QEP’s respective future businesses and financial results.

The merger is subject to a number of conditions that must be satisfied, including the approval by QEP stockholders of the merger agreement proposal, or, to the extent permitted by applicable law, waived, in each

 

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case prior to the completion of the merger. These conditions are described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 139. These conditions to the completion of the merger, some of which are beyond the control of Diamondback and QEP, may not be satisfied or waived in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed.

In addition, if the merger is not completed by June 30, 2021, or, in certain instances, on or before September 30, 2021, either Diamondback or QEP may choose not to proceed with the merger by terminating the merger agreement, and the parties can mutually decide to terminate the merger agreement at any time, before or after stockholder approval. Further, either Diamondback or QEP may elect to terminate the merger agreement in certain other circumstances as further detailed in the section entitled “The Merger Agreement—Termination.”

If the transactions contemplated by the merger agreement are not completed for any reason, Diamondback’s and QEP’s respective ongoing businesses, financial condition and financial results may be adversely affected. Without realizing any of the benefits of having completed the transactions, Diamondback and QEP will be subject to a number of risks, including the following:

 

   

Diamondback and QEP may be required to pay their respective costs relating to the transactions, which are substantial, such as legal, accounting, financial advisory and printing fees, whether or not the transactions are completed;

 

   

QEP may owe a termination fee of $17 million to Diamondback, as further described below;

 

   

time and resources committed by Diamondback’s and QEP’s management to matters relating to the transactions could otherwise have been devoted to pursuing other beneficial opportunities;

 

   

Diamondback and QEP may experience negative reactions from financial markets, including negative impacts on the prices of their common stock, including to the extent that the current market price reflects a market assumption that the transactions will be completed;

 

   

Diamondback and QEP may experience negative reactions from employees, customers or vendors; and

 

   

since the merger agreement restricts the conduct of QEP’s and Diamondback’s businesses prior to completion of the merger, QEP or Diamondback may not have been able to take certain actions during the pendency of the merger that would have benefitted it as an independent company and the opportunity to take such actions may no longer be available. For a description of the restrictive covenants to which Diamondback and QEP are subject, see the section entitled “The Merger Agreement—Interim Operations of QEP and Diamondback Pending the Merger” beginning on page 120.

If the merger agreement is terminated and the QEP board seeks another merger or business combination, QEP may not be able to find a party willing to offer equivalent or more attractive consideration than the consideration Diamondback has agreed to provide in the merger, or that such other merger or business combination is completed. If the merger agreement is terminated under specified circumstances, QEP may be required to pay Diamondback a termination fee of $17 million. If the merger agreement is terminated because of a failure of QEP’s stockholders to approve the proposals required to complete the merger, QEP may be required to reimburse Diamondback for any reasonable, documented, out-of-pocket expenses paid or incurred by Diamondback in connection with the proposed transactions, in an amount not to exceed $7.5 million. For a description of these circumstances, see the section entitled “The Merger Agreement—Termination” beginning on page 140. In addition, any delay in completing the merger may significantly reduce the synergies and other benefits that Diamondback expects that the combined company may achieve if the merger is completed within the expected timeframe.

 

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QEP stockholders will have a reduced ownership and voting interest in the combined company after the merger compared to their current ownership in QEP and will exercise less influence over the combined company’s management.

Currently, QEP stockholders have the right to vote in the election of the QEP board and the power to approve or reject any matters requiring stockholder approval under Delaware law and the QEP organizational documents. Upon completion of the merger, each QEP stockholder who receives shares of Diamondback common stock in the merger will become a stockholder of Diamondback with a percentage ownership of Diamondback that is smaller than such QEP stockholder’s current percentage ownership of QEP. Based on the number of issued and outstanding shares of Diamondback common stock and QEP common stock as of January 15, 2021 and the exchange ratio of 0.050, after the merger QEP stockholders are expected to become owners of approximately 7% of the outstanding shares of Diamondback common stock, on a fully-diluted basis, without giving effect to (i) any shares of Diamondback common stock held by QEP stockholders prior to the completion of the merger or (ii) up to 10.63 million shares of Diamondback common stock to be issued in a previously announced pending acquisition by Diamondback of approximately 32,500 net acres in the Northern Midland Basin and certain related oil and gas assets pursuant to a definitive purchase and sale agreement with Guidon Operating LLC (“Guidon”) and certain of Guidon’s affiliates (the “Pending Guidon Acquisition”). Even if all former QEP stockholders voted together on all matters presented to Diamondback stockholders from time to time, the former QEP stockholders would exercise significantly less influence over on the management and policies of Diamondback post-merger than they now have on the management and policies of QEP.

Diamondback and QEP are subject to risks related to health epidemics and pandemics, including the ongoing COVID-19 pandemic, and it is difficult to predict what effect, if any, this might have on the merger.

Diamondback and QEP each face various risks related to public health issues, including epidemics, pandemics and other outbreaks, including the ongoing COVID-19 pandemic. The effects and potential effects of COVID-19 include, but are not limited to, its impact on general economic conditions, trade and financing markets, changes in customer behavior and continuity in business operations, all of which creates significant uncertainty. In addition, the pandemic has resulted in government authorities implementing significant and varied measures to contain the spread of COVID-19, including travel bans and restrictions, quarantines, shelter-in-place and stay-at-home orders, and business shutdowns. Government authorities may enact additional restrictions, or tighten existing measures, if COVID-19 continues to spread. These measures, as well as the COVID-19 pandemic broadly, may have a negative effect on the businesses of Diamondback or QEP prior to the consummation of the merger, and it is difficult to predict what effect the COVID-19 pandemic may have on the merger.

Required regulatory approvals may not be received, may take longer than expected to be received or may impose conditions that are not presently anticipated or cannot be met.

Completion of the merger is conditioned upon expiration or termination of any waiting period applicable to the merger under the HSR Act. Although each party has agreed to use its reasonable best efforts to ensure the prompt expiration or termination of any applicable waiting period under the HSR Act and to respond to and comply with any request for information from any government entity charged with enforcing, applying, administering or investigating the HSR Act or any other antitrust laws, there can be no assurance that the HSR approval will be obtained and that the other conditions to completing the merger will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the merger or require changes to the terms of the merger agreement or other agreements to be entered into in connection with the merger agreement. Under the terms of the merger agreement, Diamondback has agreed to take any and all action necessary to obtain these governmental approvals; however Diamondback does not have to agree to any action that would reasonably be expected to have a material adverse effect on the post-closing business, financial condition or operations of Diamondback and its subsidiaries (including QEP and its subsidiaries), taken as a whole (with materiality calculated as if Diamondback and its subsidiaries were the

 

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same size as QEP and its subsidiaries) or that require Diamondback to take action (other than de minimis actions) other than with respect to QEP and its subsidiaries. The actions that Diamondback may be required to take include, among others, disposing of assets; terminating existing relationships, contractual rights or obligations; terminating any venture or other arrangement; creating new relationships, contractual rights or obligations; and making other changes or restructurings. These actions may adversely affect the business of Diamondback and its subsidiaries, including, post-merger, QEP. Diamondback and QEP cannot provide any assurance that these approvals will be obtained or that there will not be any adverse consequences to Diamondback’s or QEP’s business resulting from the failure to obtain these governmental approvals or from conditions that could be imposed in connection with obtaining these governmental approvals, including divestitures or other operating restrictions upon Diamondback, QEP, or their respective subsidiaries.

Completion of the merger is also conditioned upon the authorization for listing of Diamondback common stock to be issued in connection with the merger on the Nasdaq Global Select Market, or such other Nasdaq market on which shares of Diamondback common stock are then listed. Although Diamondback has agreed use its reasonable best efforts to take all action reasonably necessary to obtain the requisite stock exchange approval, there can be no assurance that such approval will be obtained and that the other conditions to completing the merger will be satisfied.

Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the merger or of imposing additional costs or limitations on Diamondback or QEP following completion of the merger, any of which might have an adverse effect on Diamondback or QEP following completion of the merger and may diminish the anticipated benefits of the merger. For additional information about the regulatory approvals process, see “The Merger—Regulatory Approvals” and “The Merger Agreement—HSR and Other Regulatory Approvals.”

If the merger does not qualify as a “reorganization” under Section 368(a) of the Code, the QEP stockholders may be subject to U.S. federal income tax upon the receipt of Diamondback common stock in the merger.

Diamondback and QEP intend for the merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. However, it is not a condition to Diamondback’s obligation or QEP’s obligation to complete the transactions that the merger qualifies as a “reorganization.” Moreover, neither Diamondback nor QEP intends to request any ruling from the IRS regarding any matters relating to the merger, and, consequently, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position to the contrary to any of the positions set forth in this proxy statement/prospectus. If the IRS were to challenge the “reorganization” status of the merger successfully or the form or structure of the merger was changed in a manner such that it did not qualify as a “reorganization,” the tax consequences would differ from those set forth in this proxy statement/prospectus in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 145 and holders of QEP common stock could be subject to U.S. federal income tax upon the receipt of Diamondback common stock in the merger.

Diamondback and QEP will be subject to business uncertainties while the merger is pending, which could adversely affect their respective businesses.

Uncertainty about the effect of the merger on employees, industry contacts and business partners may have an adverse effect on Diamondback or QEP. These uncertainties may impair Diamondback’s or QEP’s ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter and could cause industry contacts, business partners and others that deal with Diamondback or QEP to seek to change their existing business relationships with Diamondback or QEP, respectively. Employee retention at QEP may be particularly challenging during the pendency of the merger, as employees may experience uncertainty about their roles with Diamondback following the merger. In addition, the merger agreement restricts Diamondback and QEP from entering into certain corporate transactions and taking other specified actions without the consent of

 

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the other party. These restrictions may prevent Diamondback and QEP from pursuing attractive business opportunities that may arise prior to the completion of the merger. For a description of the restrictive covenants to which Diamondback and QEP are subject, see the section entitled “The Merger Agreement—Interim Operations of QEP and Diamondback Pending the Merger.”

The merger agreement limits QEP’s ability to pursue alternatives to the merger, which may discourage certain other companies from making favorable alternative transaction proposals and, in specified circumstances, could require QEP to pay Diamondback a termination fee.

The merger agreement contains provisions that may discourage a third party from submitting a competing proposal to QEP that might result in greater value to QEP stockholders than the merger or, in the event that a third party competing proposal is made, a third party may propose to pay a lower per share price to acquire QEP than it might otherwise have proposed to pay. These provisions include a general prohibition on QEP soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the QEP board, entering into discussions with any third party regarding any competing proposal. Further, even if the QEP board withholds, withdraws, qualifies or modifies its recommendation with respect to the QEP merger proposal, unless the merger agreement has been terminated in accordance with its terms, QEP will still have an obligation to submit the merger proposal to a vote by its stockholders. The merger agreement further provides that under specified circumstances, including after a change of recommendation by the QEP board and a subsequent termination of the merger agreement by Diamondback in accordance with its terms, QEP may be required to pay Diamondback a cash termination fee in the amount of $17 million. For additional information, see the sections entitled “The Merger Agreement—No Solicitation; Change of Recommendation” and “The Merger Agreement—Termination.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company.

Diamondback and QEP are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. Each company’s success until the merger and the combined company’s success after the merger will depend in part upon the ability of Diamondback and QEP to retain key management personnel and other key employees. Current and prospective employees of Diamondback and QEP may experience uncertainty about their roles within the combined company following the merger, which may have an adverse effect on the ability of each of Diamondback and QEP to attract or retain key management and other key personnel. Accordingly, no assurance can be given that the combined company will achieve the same success attracting or retaining key management personnel and other key employees as each of Diamondback and QEP have independently achieved prior to the merger.

Directors and executive officers of QEP may have interests in the merger that are different from, or in addition to, the interests of QEP stockholders.

Directors and executive officers of QEP may have interests in the merger that are different from, or in addition to, the interests of QEP stockholders generally. These interests include, among others, the treatment of outstanding equity and equity-based awards pursuant to the merger agreement, potential severance and other benefits upon a qualifying termination in connection with the merger, and rights to ongoing indemnification and insurance coverage. These interests are described in more detail in the section entitled “The Merger—Interests of QEP’s Directors and Executive Officers in the Merger.” The QEP board was aware of and carefully considered these interests of its directors and officers, among other matters, during its deliberations on the merits, terms, and structure of the merger, overseeing the negotiation of the merger, approving the merger agreement and the transactions contemplated thereby, including the merger, and in making its recommendation that QEP stockholders vote “FOR” approval of the merger proposal, “FOR” approval of the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal.

 

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Diamondback and QEP will incur significant transaction and merger-related costs in connection with the merger, which may be in excess of those anticipated by Diamondback or QEP.

Each of Diamondback and QEP has incurred and expects to continue to incur a number of non-recurring costs associated with negotiating and completing the merger, combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, severance and benefit costs, and filing fees.

Diamondback and QEP will also incur transaction fees and costs related to the integration of the companies, which may be substantial. Moreover, each company may incur additional unanticipated expenses in connection with the merger and the integration, including costs associated with any stockholder litigation related to the merger. Although Diamondback and QEP each expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow Diamondback and QEP to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. For additional information, see the risk factor entitled “The integration of QEP and Diamondback may not be as successful as anticipated, and Diamondback may not achieve the intended benefits or do so within the intended timeframe”below.

The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of the combined company following the completion of the merger.

Completion of the merger may trigger change in control or other provisions in certain agreements to which QEP or its subsidiaries is a party.

The completion of the merger may trigger change in control or other provisions in certain agreements to which QEP or its subsidiaries is a party. If Diamondback and QEP are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under such agreements, potentially terminating the agreement or seeking monetary damages. Additionally, even if Diamondback and QEP are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to the combined company.

Diamondback and its subsidiaries will have substantial indebtedness after giving effect to the merger, which may limit Diamondback’s financial flexibility and adversely affect its financial results.

Under the merger agreement, QEP’s outstanding debt (other than its existing credit facility) will remain outstanding, which debt, as of September 30, 2020 was approximately $1.6 billion and consisted of amounts outstanding under QEP’s senior notes. As of September 30, 2020, Diamondback had total long-term debt of approximately $5.8 billion, consisting primarily of the amounts outstanding under its revolving credit facility, its senior unsecured notes, the notes issued by its subsidiary Energen Corporation, the senior notes issued by Diamondback’s publicly traded subsidiaries, Viper and Rattler, and the amounts outstanding under Viper’s and Rattler’s revolving credit facilities.

Diamondback’s pro forma indebtedness as of September 30, 2020, assuming consummation of the merger had occurred on such date and QEP’s senior notes remain outstanding, would have been approximately $7.4 billion, representing an increase in comparison to Diamondback’s indebtedness on a recent historical basis. Diamondback believes that post-merger it will retain its investment grade credit ratings and retire the combined company’s pro forma debt at a faster rate than either company would have been able to do absent the merger. However, any increase in Diamondback’s indebtedness could have adverse effects on its financial condition and results of operations, including:

 

   

increasing the difficulty of Diamondback to satisfy its obligations with respect to its debt obligations, including any repurchase obligations that may arise thereunder;

 

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diverting a significant portion Diamondback’s cash flows to service its indebtedness, which could reduce the funds available to it for operations and other purposes;

 

   

increasing Diamondback’s vulnerability to general adverse economic and industry conditions;

 

   

placing Diamondback at a competitive disadvantage compared to its competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that Diamondback would be unable to pursue due to its indebtedness;

 

   

limiting Diamondback’s ability to access the capital markets to raise capital on favorable terms;

 

   

impairing Diamondback’s ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes; and

 

   

increasing Diamondback’s vulnerability to interest rate increases, as its borrowings under its revolving credit facility are at variable interest rates.

Diamondback believes that the combined company will have flexibility to repay, refinance, repurchase, redeem, exchange or otherwise terminate large portions of its outstanding debt obligations. However, there can be no guarantee that Diamondback would be able to execute such refinancings on favorable terms or at all, and a high level of indebtedness increases the risk that Diamondback may default on its debt obligations, including from the debt obligations of QEP. Diamondback’s ability to meet its debt obligations and to reduce its level of indebtedness depends on its future performance. Diamondback’s future performance depends on many factors independent of the merger, some of which are beyond its control, such as general economic conditions and oil and natural gas prices. Diamondback may not be able to generate sufficient cash flows to pay the interest on its debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt.

The opinion of QEP’s financial advisor will not reflect changes in circumstances between the signing of the merger agreement and the completion of the merger.

QEP has received an opinion from Evercore, its financial advisor, in connection with the signing of the merger agreement, but has not obtained an updated opinion from such financial advisor as of the date of this proxy statement/prospectus. Changes in the operations and prospects of QEP, general market and economic conditions and other factors that may be beyond the control of Diamondback or QEP, and on which QEP’s financial advisor’s opinion was based, may significantly alter the value of Diamondback or QEP or the prices of the shares of Diamondback common stock or of the shares of QEP common stock by the time the merger is completed. The opinion does not speak as of the time the merger will be completed or as of any date other than the date of such opinion. The QEP board’s recommendation that QEP stockholders vote “FOR” approval of the merger proposal, the non-binding compensation advisory proposal and the adjournment proposal, however, is made as of the date of this proxy statement/prospectus. Because QEP does not currently anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness of the merger consideration or the exchange ratio, as applicable, from a financial point of view at the time the merger is completed or at the time of the QEP board’s recommendation.

For a description of the opinion that QEP received from its financial advisor, see the section entitled “The Merger—Opinion of QEP’s Financial Advisor.” A copy of the opinion of Evercore is attached as Annex B to this proxy statement/prospectus and is incorporated by reference herein in its entirety.

 

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Lawsuits have been filed against QEP, Diamondback, Merger Sub and the members of the QEP board in connection with the merger and additional lawsuits may be filed in the future. An adverse ruling in any such lawsuit could result in an injunction preventing the completion of the merger and/or substantial costs to Diamondback and QEP.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements like the merger agreement. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Diamondback’s and QEP’s respective liquidity and financial condition.

As of February 8, 2021, seven individual lawsuits have been filed by purported QEP stockholders in United States District Courts in connection with the proposed merger. All seven lawsuits name QEP and the members of the QEP board as defendants, and two of the seven lawsuits name Diamondback and Merger Sub as defendants. The complaints allege, among other things, that the registration statements relating to the merger on Form S-4 filed by Diamondback on January 22, 2021, and as amended on Form S-4/A filed on February 3, 2021, fail to provide certain allegedly material information concerning the proposed merger in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Among other remedies, the plaintiffs seek to enjoin the completion of the proposed merger, a recission of the completed merger or rescissory damages, an accounting of damages suffered by the plaintiff, an award of plaintiff’s expenses and attorney’s fees, and other relief.

Each of Diamondback and QEP believes that the allegations in the complaints are without merit. Additional lawsuits arising out of the merger may also be filed in the future. See the section entitled “The Merger—Litigation Relating to the Merger” for more information about litigation related to the merger that has been commenced prior to the date of this proxy statement/prospectus.

One of the conditions to the closing of the merger is that no injunction by any governmental entity having jurisdiction over Diamondback, QEP or Merger Sub has been entered and continues to be in effect and no law has been adopted, in either case that prohibits the closing of the merger. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the merger, that injunction may delay or prevent the merger from being completed within the expected timeframe or at all, which may adversely affect Diamondback’s and QEP’s respective business, financial position and results of operations.

Additionally, there can be no assurance that any of the defendants will be successful in the outcome of the lawsuits filed thus far or any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is completed may adversely affect Diamondback’s or QEP’s business, financial condition, results of operations and cash flows.

Shares of Diamondback common stock received by QEP stockholders as a result of the merger will have different rights from shares of QEP common stock.

Upon completion of the merger, QEP stockholders will no longer be stockholders of QEP, and QEP stockholders who receive the merger consideration will become Diamondback stockholders, and their rights as Diamondback stockholders will be governed by the terms of Diamondback’s charter and bylaws. There will be important differences between the current rights of QEP stockholders and the rights to which such stockholders will be entitled as Diamondback stockholders. For a discussion of the different rights associated with shares of Diamondback common stock as compared to QEP common stock, see the section entitled “Comparison of Rights of Stockholders of Diamondback and Stockholders of QEP.”

 

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The exclusive forum provision contained in Diamondback’s charter could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with Diamondback or its directors, officers or other employees.

Diamondback’s charter provides that, unless Diamondback consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Diamondback, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Diamondback to Diamondback or its stockholders, (iii) any action asserting a claim against Diamondback or any director or officer or other employee of Diamondback arising pursuant to any provision of the DGCL or Diamondback’s charter or bylaws or (iv) any action asserting a claim against Diamondback or any director or officer or other employee of Diamondback governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware.

To the fullest extent permitted by law, this exclusive forum provision applies to state and federal law claims, including claims under the federal securities laws, including the Securities Act and the Exchange Act, although Diamondback stockholders will not be deemed to have waived Diamondback’s compliance with the federal securities laws and the rules and regulations thereunder. The enforceability of similar choice of forum provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that, in connection with claims arising under federal securities laws or otherwise, a court could find the exclusive forum provision contained in Diamondback’s charter to be inapplicable or unenforceable.

This exclusive forum provision may limit the ability of a stockholder, including a former QEP stockholder who becomes a Diamondback stockholder after the merger is completed, to bring a claim in a judicial forum of its choosing for disputes with Diamondback or its directors, officers or other employees, which may discourage lawsuits against Diamondback and its directors, officers and other employees. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, Diamondback may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect Diamondback’s business, results of operations and financial condition. In addition, stockholders who do bring a claim in a state or federal court located within the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. In addition, Court of Chancery of the State of Delaware may reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to Diamondback than to its stockholders.

Diamondback or QEP may waive one or more of the closing conditions without re-soliciting stockholder approval.

Diamondback or QEP may determine to waive, in whole or part, one or more of the conditions to closing the merger prior to Diamondback or QEP, as the case may be, being obligated to consummate the merger. Each of Diamondback and QEP currently expects to evaluate the materiality of any waiver and its effect on its respective stockholders in light of the facts and circumstances at the time, to determine whether any amendment of this proxy statement/prospectus or any re-solicitation of proxies is required in light of such waiver. Any determination whether to waive any condition to the merger, re-solicit stockholder approval or amend or supplement this proxy statement/prospectus as a result of a waiver will be made by Diamondback or QEP at the time of such waiver based on the facts and circumstances as they exist at that time.

QEP stockholders are not entitled to appraisal rights in connection with the merger.

Appraisal rights are statutory rights that enable stockholders to dissent from certain extraordinary transactions, such as certain mergers, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the applicable transaction. Under the DGCL, holders of shares of QEP common stock will not have rights to an appraisal of the fair value of their shares in connection with the merger. See “The Merger—No Appraisal Rights in the Merger” beginning on page 108 for additional information.

 

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Risk Factors Relating to Diamondback Following the Merger

The integration of QEP into Diamondback may not be as successful as anticipated, and Diamondback may not achieve the intended benefits or do so within the intended timeframe.

The merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks, potential liabilities associated with the acquired businesses, and uncertainties related to design, operation and integration of QEP’s internal control over financial reporting. Difficulties in integrating QEP into Diamondback may result in QEP performing differently than expected, operational challenges, or the failure to realize anticipated expense-related efficiencies. Potential difficulties that may be encountered in the integration process include, among others:

 

   

the inability to successfully integrate the businesses of QEP into Diamondback in a manner that permits Diamondback to achieve the full revenue and cost savings anticipated from the merger;

 

   

complexities associated with managing the larger, more complex, integrated business;

 

   

not realizing anticipated operating synergies;

 

   

integrating personnel from the two companies and the loss of key employees;

 

   

potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the merger;

 

   

integrating relationships with industry contacts and business partners;

 

   

performance shortfalls as a result of the diversion of management’s attention caused by completing the merger and integrating QEP’s operations into Diamondback; and

 

   

the disruption of, or the loss of momentum in, ongoing business or inconsistencies in standards, controls, procedures and policies.

Additionally, the success of the merger will depend, in part, on Diamondback’s ability to realize the anticipated benefits and cost savings from combining Diamondback’s and QEP’s businesses, including operational and other synergies that Diamondback believes the combined company will achieve, discussed in more detail under the heading “The Merger—Diamondback’s Rationale for the Merger.” The anticipated benefits and cost savings of the merger may not be realized fully or at all, may take longer to realize than expected, or could have other adverse effects that Diamondback does not currently foresee.

Diamondback’s results may suffer if it does not effectively manage its expanded operations following the merger.

The success of the merger will depend, in part, on Diamondback’s ability to realize the anticipated benefits and cost savings from combining Diamondback’s and QEP’s businesses, including the need to integrate the operations and business of QEP into its existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors, industry contacts and business partners.

The anticipated benefits and cost savings of the merger may not be realized fully or at all, may take longer to realize than expected or could have other adverse effects that Diamondback does not currently foresee. Some of the assumptions that Diamondback has made, such as the achievement of operating synergies, may not be realized. There could also be unknown liabilities and unforeseen expenses associated with the merger that were not discovered in the due diligence review conducted by each company prior to entering into the merger agreement.

 

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The unaudited pro forma condensed combined financial information and QEP’s unaudited forecasted financial information included in this proxy statement/prospectus is presented for illustrative purposes only and does not represent the actual financial position or results of operations of the combined company following the completion of the merger. Future results of Diamondback or QEP may differ, possibly materially, from the unaudited pro forma condensed combined financial information and QEP’s unaudited forecasted financial information presented in this proxy statement/prospectus.

The unaudited pro forma condensed combined financial statements and QEP’s unaudited forecasted financial information contained in this proxy statement/prospectus is presented for illustrative purposes only, contains a variety of adjustments, assumptions and preliminary estimates and does not represent the actual financial position or results of operations of Diamondback and QEP prior to the merger or that of the combined company following the merger. Specifically, the unaudited pro forma condensed combined financial statements do not reflect the effect of any potential acquisitions (including the Pending Guidon Acquisition) or divestitures that may occur prior to or subsequent to the completion of the merger, integration costs or any changes in Diamondback’s debt to capitalization ratio following the completion of the merger. For additional information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements.”In addition, the merger and post-merger integration process may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of transaction-related litigation or other claims. Unexpected delays in completing the merger or in connection with the post-merger integration process may significantly increase the related costs and expenses incurred by Diamondback. The actual financial positions and results of operations of Diamondback and QEP prior to the merger and that of the combined company following the merger may be different, possibly materially, from the unaudited pro forma condensed combined financial statements or QEP’s unaudited forecasted financial information included in this proxy statement/prospectus. In addition, the assumptions used in preparing the unaudited pro forma condensed combined financial statements and QEP’s unaudited forecasted financial information included in this proxy statement/prospectus may not prove to be accurate and may be affected by other factors. Any significant changes in the market price of Diamondback common stock may cause a significant change in the purchase price used for Diamondback’s accounting purposes and the unaudited pro forma condensed combined financial statements contained in this proxy statement/prospectus.

The merger may not be accretive, and may be dilutive, to Diamondback’s earnings per share, which may negatively affect the market price of Diamondback common stock.

Because shares of Diamondback common stock will be issued in the merger, it is possible that, although Diamondback currently expects the merger to be accretive to earnings per share, the merger may be dilutive to Diamondback’s earnings per share, which could negatively affect the market price of Diamondback common stock.

In connection with the completion of the merger, based on the number of issued and outstanding shares of QEP common stock as of January 15, 2021 and the number of outstanding QEP equity awards currently estimated to be payable in Diamondback common stock following the merger, Diamondback will issue up to approximately shares of Diamondback common stock. The issuance of these new shares of Diamondback common stock could have the effect of depressing the market price of Diamondback common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Diamondback’s earnings per share could cause the price of shares of Diamondback common stock to decline or increase at a reduced rate.

Furthermore, former QEP stockholders and current Diamondback stockholders may not wish to continue to invest in the additional operations of the combined company, or for other reasons may wish to dispose of some or all of their interests in the combined company, and as a result may seek to sell their shares of Diamondback common stock following, or in anticipation of, completion of the merger. The merger agreement does not restrict the ability of former QEP stockholders to sell such shares of Diamondback common stock following completion

 

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of the merger. Therefore, these sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of Diamondback common stock, may affect the market for, and the market price of, Diamondback common stock in an adverse manner.

If the merger is completed and stockholders of Diamondback, including former QEP stockholders, sell substantial amounts of Diamondback common stock in the public market following the consummation of the merger, the market price of Diamondback common stock may decrease. These sales might also make it more difficult for Diamondback to raise capital by selling equity or equity-related securities at a time and price that it otherwise would deem appropriate.

The market price of Diamondback common stock will continue to fluctuate after the merger, and may decline if the benefits of the merger do not meet the expectations of financial analysts.

Upon completion of the merger, holders of QEP common stock who receive merger consideration will become holders of shares of Diamondback common stock. The market price of Diamondback common stock may fluctuate significantly following completion of the merger and holders of QEP common stock could lose some or all of the value of their investment in Diamondback common stock. In addition, the stock market has recently experienced significant price and volume fluctuations which could, if such fluctuations continue to occur, have a material adverse effect on the market for, or liquidity of, the Diamondback common stock, regardless of Diamondback’s actual operating performance.

The market price of Diamondback common stock may be affected by factors different from those that historically have affected QEP common stock or Diamondback common stock.

Upon completion of the merger, holders of QEP common stock who receive the merger consideration will become holders of Diamondback common stock. The businesses of Diamondback differ from those of QEP in certain respects, and, accordingly, the financial position or results of operations and/or cash flows of Diamondback after the merger, as well as the market price of Diamondback common stock, may be affected by factors different from those currently affecting the financial position or results of operations and/or cash flows of QEP and Diamondback as independent standalone companies. In particular, following the completion of the merger, QEP will be part of a larger company, which means that decisions affecting QEP may be made in respect of the larger combined business as a whole rather than the QEP businesses individually. For a discussion of the businesses of Diamondback and QEP and of some important factors to consider in connection with those businesses, see the section entitled “Information About the Companies” and the documents incorporated by reference in the section entitled “Where You Can Find More Information,” including, in particular, in the sections entitled “Risk Factors” in each of Diamondback’s and QEP’s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020.

Following the completion of the merger, Diamondback may incorporate QEP’s hedging activities into Diamondback’s business, and Diamondback may be exposed to additional commodity price risks arising from such hedges.

To mitigate its exposure to changes in commodity prices, QEP hedges oil and natural gas prices from time to time, primarily through the use of certain derivative instruments. If Diamondback assumes QEP’s existing derivative instruments or if QEP enters into additional derivative instruments prior to the completion of the merger, Diamondback will bear the economic impact of the contracts following the completion of the merger. Actual crude oil and natural gas prices may differ from the combined company’s expectations and, as a result, such derivative instruments may have a negative impact on Diamondback’s business.

 

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The combined company may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.

The merger will be accounted for as an acquisition by Diamondback in accordance with GAAP. Under the acquisition method of accounting, the assets and liabilities of QEP and its subsidiaries will be recorded, as of completion of the merger, at their respective fair values and added to those of Diamondback. The reported financial condition and results of operations of Diamondback for the periods after completion of the merger will reflect QEP balances and results after completion of the merger but will not be restated retroactively to reflect the historical financial position or results of operations of QEP and its subsidiaries for periods prior to the merger. For additional information, see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements.

Under the acquisition method of accounting, the total purchase price will be allocated to QEP’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the merger. The excess of the purchase price over those fair values will be recorded as goodwill. Diamondback and QEP expect that the merger may result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent goodwill or intangibles are recorded and the values become impaired, the combined company may be required to recognize material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and underlying trends in the business that triggered the impairment.

The combined company may not be able to retain customers or suppliers, and customers or suppliers may seek to modify contractual obligations with the combined company, either of which could have an adverse effect on the combined company’s business and operations. Third parties may terminate or alter existing contracts or relationships with Diamondback or QEP as a result of the merger.

As a result of the merger, the combined company may experience impacts on relationships with customers and suppliers that may harm the combined company’s business and results of operations. Certain customers or suppliers may seek to terminate or modify contractual obligations following the merger whether or not contractual rights are triggered as a result of the merger. There can be no guarantee that customers and suppliers will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms following the merger. If any customers or suppliers seek to terminate or modify contractual obligations or discontinue their relationships with the combined company, then the combined company’s business and results of operations may be harmed. If the combined company’s suppliers were to seek to terminate or modify an arrangement with the combined company, then the combined company may be unable to procure necessary supplies or services from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

QEP also has contracts with vendors, landlords, licensors and other business partners which may require QEP to obtain consent from these other parties in connection with the merger. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs and/or lose rights that may be material to the business of the combined company. In addition, third parties with whom Diamondback or QEP currently have relationships may terminate or otherwise reduce the scope of their relationship with either party in anticipation of the merger. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the merger. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the merger or by a termination of the merger agreement.

The financial forecasts relating to Diamondback and QEP prepared in connection with the merger may not be realized, which may adversely affect the market price of Diamondback common stock following the completion of the merger.

This proxy statement/prospectus includes certain financial forecasts considered by Diamondback and QEP in connection with their respective businesses. None of the financial forecasts prepared by QEP or Diamondback

 

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were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, Financial Accounting Standards Board or the American Institute of Certified Public Accountants. These forecasts are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them and, in the view of QEP’s and Diamondback’s management, were prepared on a reasonable basis, reflecting the best available estimates and judgments as of the date they were prepared. These forecasts are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of QEP and Diamondback. The financial forecasts are not fact and should not be relied upon as being necessarily indicative of future results and readers are cautioned not to place undue reliance on the information provided. Important factors that may affect the actual results of QEP or Diamondback and cause the internal financial forecasts to not be achieved include risks and uncertainties relating to QEP’s or Diamondback’s businesses, industry performance, the regulatory environment, general business and economic conditions and other factors described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement/prospectus.

In addition, the financial forecasts also reflect assumptions that are subject to change and do not reflect revised prospects for QEP’s and Diamondback’s businesses, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial forecasts were prepared. In addition, since such financial forecasts cover multiple years, the information by its nature becomes less predictive with each successive year. There can be no assurance that QEP’s and Diamondback’s financial condition or results of operations will be consistent with those set forth in such forecasts.

Declaration, payment and amounts of dividends, if any, distributed to stockholders of Diamondback will be uncertain.

Although Diamondback has paid cash dividends on Diamondback common stock in the past, the Diamondback board may determine not to declare dividends in the future or may reduce the amount of dividends paid in the future. Any payment of future dividends will be at the discretion of the Diamondback board and will depend on Diamondback’s results of operations, financial condition, cash requirements, future prospects and other considerations that the Diamondback board deems relevant.

Risks Relating to Diamondback’s Business.

You should read and consider risk factors specific to Diamondback’s businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of Diamondback’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in Part II, Item 1A of Diamondback’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this proxy statement/prospectus, see the section entitled “Where You Can Find More Information.

Risks Relating to QEP’s Business.

You should read and consider risk factors specific to QEP’s businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of QEP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in Part II, Item 1A of QEP’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020, and in other documents that are incorporated by reference herein. For the location of information incorporated by reference in this proxy statement/prospectus, see the section entitled “Where You Can Find More Information.”

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus, and the documents to which Diamondback and QEP refer you in this proxy statement/prospectus, as well as oral statements made or to be made by Diamondback and QEP, include certain “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 historical fact, included in this proxy statement/prospectus that address activities, events or developments that Diamondback or QEP expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “could,” “may,” “foresee,” “plan,” “will,” “guidance,” “look,” “outlook,” “goal,” “future,” “assume,” “forecast,” “build,” “focus,” “work,” “continue” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to, statements regarding the merger, pro forma descriptions of the combined company and its operations, including pro forma financial statements and related adjustments and pro forma reserves, integration and transition plans, synergies, opportunities and anticipated future performance. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this proxy statement/prospectus. These include:

 

   

the risk that the merger agreement may be terminated in accordance with its terms and that the merger may not be completed;

 

   

the possibility that QEP stockholders may not approve the merger proposal;

 

   

the risk that the parties may not be able to satisfy the conditions to the completion of the merger in a timely manner or at all;

 

   

any impact of the ongoing COVID-19 pandemic or any government restrictions or other responses thereto on the pending merger, including the QEP special meeting of stockholders to be held virtually on the QEP special meeting website;

 

   

the risk that the merger may not be accretive, and may be dilutive, to Diamondback’s earnings per share, which may negatively affect the market price of Diamondback shares;

 

   

the possibility that Diamondback and QEP will incur significant transaction and other costs in connection with the merger, which may be in excess of those anticipated by Diamondback or QEP;

 

   

the risk that the combined company may be unable to achieve operational or corporate synergies or that it may take longer than expected to achieve those synergies;

 

   

the risk that Diamondback may fail to realize other benefits expected from the merger;

 

   

the risk of any litigation relating to the merger;

 

   

the risk that any announcements relating to, or the completion of, the merger could have adverse effects on the market price of Diamondback common stock;

 

   

the risk related to disruption of management time from ongoing business operations due to the merger;

 

   

the risk that the merger and its announcement and/or completion could have an adverse effect on the ability of Diamondback and QEP to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers;

 

   

the risk that Diamondback may be unable to complete, or may experience a delay in completing, any other pending or future acquisitions, including the recently announced Pending Guidon Acquisition; and

 

   

the risks to their operating results and businesses generally.

 

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Such factors are difficult to predict and in many cases may be beyond the control of Diamondback and QEP. Diamondback’s and QEP’s forward-looking statements are based on assumptions that Diamondback and QEP, respectively, believe to be reasonable but that may not prove to be accurate. Consequently, all of the forward-looking statements Diamondback and QEP make in this proxy statement/prospectus are qualified by the information contained or incorporated by reference herein, including the information contained under this heading and the information detailed in Diamondback’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020, Current Reports on Form 8-K and other filings Diamondback makes with the SEC, which are incorporated herein by reference, and in QEP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020, Current Reports on Form 8-K and other filings QEP makes with the SEC, which are incorporated herein by reference. For additional information, see the sections entitled “Risk Factors,” “Where You Can Find More Information” and “Information Incorporated by Reference” beginning on pages 35 and 180, respectively.

Diamondback and QEP undertake no obligation to update any forward-looking statements or to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which they become aware of, except as required by applicable law or regulation. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

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INFORMATION ABOUT THE COMPANIES

Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Diamondback is an independent oil and gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. Diamondback was incorporated in Delaware on December 30, 2011. Diamondback operates in two business segments: (i) the upstream segment, which is engaged in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas and (ii) through its publicly-traded subsidiary, Rattler Midstream LP, the midstream operations segment, which is focused on ownership, operation, development and acquisition of the midstream infrastructure assets in the Midland and Delaware Basins of the Permian Basin. Diamondback’s corporate headquarters are located in Midland, Texas and Diamondback common stock trades on the Nasdaq Global Select Market under the ticker symbol “FANG.”

QEP Resources, Inc.

1050 17th Street, Suite 800

Denver, Colorado 80265

Phone: (303) 672-6900

QEP is an independent crude oil and natural gas exploration and production company with operations in two regions of the United States: the Southern Region (primarily in Texas) and the Northern Region (primarily in North Dakota). QEP’s corporate headquarters are located in Denver, Colorado and shares of QEP common stock trade on the NYSE under the ticker symbol “QEP.”

Bohemia Merger Sub Inc.

c/o Diamondback Energy, Inc.

500 West Texas

Suite 1200

Midland, Texas 79701

Phone: (432) 221-7400

Bohemia Merger Sub Inc., or Merger Sub, is a direct, wholly owned subsidiary of Diamondback. Upon the completion of the merger, Merger Sub will cease to exist. Merger Sub was incorporated in Delaware on December 18, 2020, for the sole purpose of effecting the merger.

 

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SPECIAL MEETING OF QEP STOCKHOLDERS

This proxy statement/prospectus is being provided to the QEP stockholders as part of a solicitation of proxies by the QEP board for use at the special meeting to be held at the time and place specified below and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement/prospectus provides QEP stockholders with information they need to know to be able to vote or instruct their vote to be cast at the special meeting.

Date, Time and Place

The QEP special meeting will be held virtually via the Internet on March 16, 2021, at 8:00 am, Mountain Time.

In light of the public health concerns regarding the ongoing COVID-19 pandemic, the QEP special meeting will be held in a virtual meeting format only, via live webcast, and there will not be a physical meeting location. You will be able to attend the QEP special meeting online and vote your shares electronically at the meeting by visiting www.virtualshareholdermeeting.com/QEP2021SM (the “QEP special meeting website”). To attend the meeting on the QEP special meeting website, please follow the instructions provided on the enclosed proxy card and the QEP special meeting website.

Purpose of the QEP Special Meeting

The purpose of the QEP special meeting is to consider and vote on:

 

   

the merger proposal;

 

   

the non-binding compensation advisory proposal; and

 

   

the approval of the adjournment proposal.

QEP will transact no other business at the QEP special meeting.

Recommendation of the QEP Board of Directors

The QEP board unanimously recommends that QEP stockholders vote:

 

   

FOR” the merger proposal;

 

   

FOR” the non-binding compensation advisory proposal; and

 

   

FOR” the approval of the adjournment proposal.

For additional information on the recommendation of the QEP board, see the section entitled “QEP Stockholder Proposals” and “The Merger—Recommendation of the QEP Board of Directors and QEP’s Reasons for the Merger” beginning on page 58 and 77, respectively.

Record Date and Outstanding Shares of QEP Common Stock

Only holders of record of issued and outstanding shares of QEP common stock as of the close of business on February 5, 2021, the record date for the QEP special meeting (the “QEP record date”), are entitled to notice of, and to vote at, the QEP special meeting or any adjournment or postponement of the QEP special meeting.

As of the close of business on the QEP record date, there were 242,565,821.875 shares of QEP common stock issued and outstanding and entitled to vote at the QEP special meeting. You may cast one vote for each share of QEP common stock that you held as of the close of business on the QEP record date.

 

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A complete list of QEP stockholders entitled to vote at the QEP special meeting will be available for inspection at QEP’s principal office at 1050 17th Street, Suite 800, Denver, Colorado 80265 during regular business hours beginning with the tenth day prior to the QEP special meeting and continuing through the QEP special meeting and during the QEP special meeting on March 16, 2021. A complete list of QEP stockholders entitled to vote at the QEP special meeting will also be posted on the QEP special meeting website during the same period.

Quorum; Abstentions and Broker Non-Votes

A quorum of QEP stockholders is necessary to hold a valid meeting. The presence at the special meeting of the holders of a majority of the outstanding shares of QEP common stock entitled to vote generally in the election of directors, present in person or represented by proxy, constitutes a quorum. Virtual attendance at the QEP special meeting constitutes presence in person for purposes of the quorum requirements under QEP’s bylaws. If you submit a properly executed proxy card, even if you do not vote for one or both of the proposals or vote to “ABSTAIN” in respect of one or both of the proposals, your shares of QEP common stock will be counted for purposes of determining whether a quorum is present for the transaction of business at the QEP special meeting.

QEP common stock held in “street name” with respect to which the beneficial owner fails to give voting instructions to the broker, bank or other nominee, and QEP common stock with respect to which the beneficial owner otherwise fails to vote, will not be considered present and entitled to vote at the QEP special meeting for the purpose of determining the presence of a quorum.

A broker non-vote will result if your broker, bank or other nominee returns a proxy but does not provide instruction as to how shares should be voted on a particular matter. Under the current rules of the NYSE, brokers, banks or other nominees do not have discretionary authority to vote on any of the proposals to be considered at the QEP special meeting. Because the only proposals for consideration at the QEP special meeting are nondiscretionary proposals, it is not expected that there will be any broker non-votes at the QEP special meeting. However, if there are any broker non-votes, the shares will not be considered present and entitled to vote at the QEP special meeting for the purpose of determining the presence of a quorum.

Executed but unvoted proxies will be voted in accordance with the recommendations of the QEP board.

Required Votes

Approval of the merger proposal requires the affirmative vote of a majority of the outstanding shares of QEP common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal. Failure to vote on the merger proposal will have the same effect as a vote “AGAINST” the merger proposal.

Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and failures to vote or broker non-votes will have no effect on the outcome of the vote.

Approval of the adjournment proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and failures to vote or broker non-votes will have no effect on the outcome of the vote.

The merger proposal, the non-binding compensation advisory proposal and the adjournment proposal are described in the section entitled “QEP Stockholder Proposals” beginning on page 58.

 

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Methods of Voting

QEP stockholders, whether holding shares directly as stockholders of record or beneficially in “street name,” may vote on the Internet by going to the web address provided on the enclosed proxy card and following the instructions for Internet voting, by phone using the toll-free phone number listed on the enclosed proxy card, or by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

QEP stockholders of record may vote their shares in person by ballot at the QEP special meeting or by submitting their proxies:

 

   

by phone until 11:59 p.m., Mountain Time, on March 15, 2021;

 

   

by the Internet until 11:59 p.m., Mountain Time, on March 15, 2021; or

 

   

by completing, signing and returning your proxy or voting instruction card via mail. If you vote by mail, your proxy card must be received by 11:59 p.m., Mountain Time, on March 15, 2021.

QEP stockholders who hold their shares in “street name” by a broker, bank or other nominee should refer to the proxy card, voting instruction form or other information forwarded by their broker, bank or other nominee for instructions on how to vote their shares.

Voting Virtually on the QEP Special Meeting Website

Shares held directly in your name as stockholder of record may be voted virtually on the QEP special meeting website at the QEP special meeting. If you choose to vote your shares at the QEP special meeting, you will need proof of identification. Even if you plan to attend the QEP special meeting, the QEP board recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the QEP special meeting.

If you are a beneficial holder, you will receive separate voting instructions from your broker, bank or other nominee explaining how to vote your shares. Please note that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the QEP special meeting to be held virtually on the QEP special meeting website, you will not be permitted to vote at the QEP special meeting unless you first obtain a legal proxy issued in your name from the record owner. You are encouraged to request a legal proxy from your broker, bank or other nominee promptly as the process can be lengthy.

Voting by Proxy

Whether you hold your shares of QEP common stock directly as the stockholder of record or beneficially in “street name,” you may direct your vote by proxy without attending the QEP special meeting. You can vote by proxy by phone, the Internet or mail by following the instructions provided in the enclosed proxy card.

Questions About Voting

If you have any questions about how to vote or direct a vote in respect of your shares of QEP common stock, you may contact Georgeson LLC, QEP’s proxy solicitor, at (800) 903-2897 (toll-free in North America).

Revocability of Proxies

If you are a stockholder of record of QEP, whether you vote by phone, the Internet or mail, you can change or revoke your proxy before it is voted at the meeting in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

vote again by phone or the Internet at a later time;

 

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give written notice before the meeting to QEP’s corporate secretary at 1050 17th Street, Suite 800, Denver, Colorado 80265 stating that you are revoking your proxy; or

 

   

attend the QEP special meeting and vote your shares virtually on the QEP special meeting website. Please note that your virtual attendance at the meeting on the QEP special meeting website alone will not serve to revoke your proxy.

Proxy Solicitation Costs

The enclosed proxy card is being solicited on behalf of the QEP board. In addition to solicitation by mail, QEP’s directors, officers and employees may solicit proxies in person, by phone or by electronic means. These persons will not be specifically compensated for conducting such solicitation.

QEP has retained Georgeson LLC to assist in the solicitation process. QEP estimates it will pay Georgeson LLC a base fee of approximately $15,000, in addition to the reimbursement of certain costs and expenses, for these services. QEP also has agreed to indemnify Georgeson LLC against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

QEP will ask brokers, banks and other nominees to forward the proxy solicitation materials to the beneficial owners of shares of QEP common stock held of record by such nominee holders. QEP will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

Adjournment

Whether or not a quorum is present, the holders of a majority of the outstanding shares of QEP common stock who are present in person or by proxy and entitled to vote at the special meeting may adjourn the meeting from time to time, without notice other than by announcement at the meeting, to another date, place, if any, and time until a quorum is present. Even if a quorum is present, the special meeting may also be adjourned in order to provide more time to solicit additional proxies in favor of adoption of the merger agreement if sufficient votes are cast in favor of the adjournment proposal. If the adjournment is for more than 30 days or if after the adjournment, a new record date is fixed for the adjourned meeting, QEP will provide a notice of the adjourned meeting to each stockholder of record entitled to vote at the meeting.

QEP’s bylaws also provide that the person presiding over any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, are appropriate for the proper conduct of the meeting. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered.

In addition, the merger agreement provides that QEP (i) will be required to adjourn or postpone the QEP special meeting to the extent necessary to ensure that any legally required supplement or amendment to this proxy statement/prospectus is provided to the QEP stockholders or if, as of the time the QEP special meeting is scheduled, there are insufficient shares of QEP common stock represented to constitute a quorum necessary to conduct business at the QEP special meeting, and (ii) may adjourn or postpone the QEP special meeting after consultation in good faith with Diamondback, if, as of the time for which the QEP special meeting is scheduled, QEP reasonably determines in good faith that there are insufficient shares of QEP common stock represented to obtain the approval of the merger proposal. However, unless Diamondback and QEP otherwise agree, the QEP special meeting will not be adjourned or postponed to a date that is more than ten business days after the date for

 

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which the QEP special meeting was previously scheduled (though the QEP special meeting may only be adjourned or postponed without Diamondback’s written consent once in the event that the circumstances described in (i) exist, and may be adjourned or postponed every time the circumstances described in (ii) exist) or to a date on or after two business days prior to the end date or if such adjournment or postponement would require the setting of a new QEP record date (as defined under “The Merger Agreement—Termination—Termination Rights”).

If a sufficient number of shares of QEP common stock is present in person or represented by proxy and vote in favor of the merger proposal at the special meeting such that the merger proposal is approved, QEP does not anticipate that it will adjourn or postpone the special meeting. Virtual attendance at the special meeting will constitute presence in person for the purpose of determining the presence of a quorum for the transaction of business at the special meeting.

No Appraisal Rights in the Merger

Under Delaware law, QEP stockholders are not entitled to appraisal rights in connection with the merger. For more information, see “The Merger—No Appraisal Rights in the Merger.”

Other Information

The matters to be considered at the QEP special meeting are of great importance to the QEP stockholders. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this proxy statement/prospectus and submit your proxy by phone or the Internet or complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy by phone or the Internet, you do not need to return the enclosed proxy card.

Assistance

If you need assistance in completing your proxy card or have questions regarding the QEP special meeting, contact:

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

Stockholders, Banks and Brokers may call Toll-Free (North America): (800) 903-2897.

Vote of QEP’s Directors and Executive Officers

As of the close of business on January 21, 2021, the latest practicable date prior to the date of this proxy statement/prospectus, QEP directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 2,348,050 shares of QEP common stock, or approximately 0.97% of the total outstanding shares of QEP common stock outstanding on that date. For more information regarding the security ownership of QEP directors and executive officers, please see “Share Ownership of Directors, Executive Officers and Certain Beneficial Owners of QEP—QEP’s Directors and Executive Officers” beginning on page 172.

QEP currently expects that all of its directors and executive officers will vote their shares “FOR” the merger proposal, “FOR” the non-binding compensation advisory proposal and “FOR” the approval of the adjournment proposal.

 

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Attending the QEP Special Meeting Virtually on the QEP Special Meeting Website

You are entitled to attend the QEP special meeting only if you were a stockholder of record of QEP at the close of business on the QEP record date or you held your shares of QEP beneficially in the name of a broker, bank or other nominee as of the QEP record date, or you hold a valid proxy for the QEP special meeting.

If you were a stockholder of record of QEP at the close of business on the QEP record date and wish to attend the QEP special meeting virtually on the QEP special meeting website, you should be prepared to present government-issued photo identification for admittance. If you do not provide photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the QEP special meeting.

If a broker, bank or other nominee is the record owner of your shares of QEP common stock, you will need to have proof that you are the beneficial owner as of the QEP record date to be admitted to the QEP special meeting. A recent statement or letter from your broker, bank or other nominee confirming your ownership as of the QEP record date, or presentation of a valid proxy from a broker, bank or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership.

Results of the QEP Special Meeting

Within four business days following the QEP special meeting, QEP intends to file the final voting results with the SEC on a Current Report on Form 8-K. If the final voting results have not been certified within that four business day period, QEP will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four days of the date that the final results are certified.

QEP STOCKHOLDERS SHOULD CAREFULLY READ THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE MERGER PROPOSAL, THE NON-BINDING COMPENSATION ADVISORY PROPOSAL AND THE ADJOURNMENT PROPOSAL.

 

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QEP STOCKHOLDER PROPOSALS

Merger Proposal

In the merger proposal, QEP is asking its stockholders to adopt the merger agreement.

It is a condition to completion of the merger that QEP stockholders approve the merger proposal. As a result of the merger, each eligible share of QEP common stock (other than (i) shares held in treasury by QEP, (ii) shares owned by Diamondback or Merger Sub and, in each case, not held on behalf of third parties (the shares referred to in clauses (i) and (ii) collectively, the “cancelled shares”) and (iii) certain shares of QEP common stock subject to stock-based awards that will be treated in the manner described in the section entitled “The Merger Agreement—Treatment of QEP Equity Awards in the Merger” beginning on page 113) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.050 of a share of Diamondback common stock, with cash being paid in lieu of any fractional shares (the “merger consideration”), subject to certain exceptions as further described in the sections entitled “The Merger—Consideration to QEP Stockholders,” “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration” and “The Merger—No Appraisal Rights in the Merger” beginning on pages 60, 112 and 108, respectively.

The approval by the QEP stockholders of this proposal is required by the DGCL and is a condition to the consummation of the merger.

Approval of the merger proposal requires the affirmative vote of a majority of the outstanding shares of QEP common stock entitled to vote on the proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal. Failure to vote on the merger proposal will have the same effect as a vote “AGAINST” the merger proposal.

The QEP board unanimously recommends a vote “FOR” the merger proposal.

Non-Binding Compensation Advisory Proposal

QEP is also asking its stockholders to approve the non-binding compensation advisory proposal.

As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, which were enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, QEP is required to provide its stockholders the opportunity to vote to approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to QEP’s named executive officers that is based on or otherwise relates to the merger, as described in the section entitled “The Merger—Interests of QEP’s Directors and Executive Officers in the Merger—Quantification of Potential Payments to QEP’s Named Executive Officers in Connection with the Merger” beginning on page 106. Accordingly, QEP stockholders are being provided the opportunity to cast an advisory vote on such payments.

As an advisory vote, this proposal is not binding upon QEP or the QEP board or Diamondback or the Diamondback board, and approval of this proposal is not a condition to completion of the merger and is a vote separate and apart from the merger proposal. Accordingly, you may vote to approve the merger proposal and vote not to approve the non-binding compensation advisory proposal and vice versa. Because the executive compensation to be paid in connection with the merger is based on the terms of the merger agreement as well as the contractual arrangements with QEP’s named executive officers, such compensation will be payable, regardless of the outcome of this advisory vote, only if the merger proposal is approved (subject only to the contractual conditions applicable thereto). However, QEP seeks the support of its stockholders and believes that stockholder support is appropriate because QEP has a comprehensive executive compensation program designed

 

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to link the compensation of its executives with QEP’s performance and the interests of QEP stockholders. Accordingly, holders of shares of QEP common stock are being asked to vote on the following resolution:

RESOLVED, that the stockholders of QEP Resources, Inc. approve, on an advisory, non-binding basis, certain compensation that may be paid or become payable to the named executive officers of QEP Resources, Inc. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The MergerInterests of QEP’s Directors and Executive Officers in the Merger—Quantification of Potential Payments to QEP’s Named Executive Officers in Connection with the Merger,” in the proxy statement/prospectus of QEP Resources, Inc. with respect to the special meeting of stockholders to be held on March 16, 2021.

Approval of the non-binding compensation advisory proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The QEP board unanimously recommends a vote “FOR” the non-binding compensation advisory proposal.

The Adjournment Proposal

In the adjournment proposal, QEP is asking its stockholders to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement.

If QEP stockholders approve the adjournment proposal, subject to the terms of the merger agreement, QEP could adjourn the special meeting and use the additional time to solicit additional proxies, including soliciting proxies from QEP stockholders who have previously voted. QEP does not intend to call a vote on the adjournment proposal if the merger proposal is approved at the special meeting.

Approval of the adjournment proposal requires the affirmative vote of a majority of the shares of QEP common stock present in person or represented by proxy at the QEP special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the proposal, and broker non-votes will have no effect on the outcome of the vote.

The QEP board unanimously recommends a vote “FOR” the adjournment proposal.

 

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THE MERGER

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement/prospectus as Annex A and incorporated by reference herein in its entirety. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

Transaction Structure

At the effective time of the merger, Merger Sub will merge with and into QEP. As a result of the merger, the separate corporate existence of Merger Sub will cease, and QEP will continue as the surviving corporation in the merger and as a wholly owned subsidiary of Diamondback.

Consideration to QEP Stockholders

As a result of the merger, each eligible share of QEP common stock (other than any cancelled shares) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive the merger consideration.

QEP stockholders will not be entitled to receive any fractional shares of Diamondback common stock in the merger, and no QEP stockholders will be entitled to receive dividends, voting rights or any other rights in respect of any fractional shares of Diamondback common stock. QEP stockholders that would have otherwise been entitled to receive a fractional share of Diamondback common stock will instead be entitled to receive, in lieu of fractional shares, an amount in cash, without interest, equal to the product of the volume weighted average price of Diamondback common stock for the five consecutive trading days ending on the date that is two trading days prior to the closing date, as reported by Bloomberg, L.P., multiplied by the fraction of a share of Diamondback common stock to which the holder would otherwise be entitled.

Background of the Merger

The QEP board and management, in the ordinary course continually evaluate QEP’s operations with a focus on creating long-term value by leveraging assets to create efficiencies, generating free cash flow and returning capital to stockholders. In connection with such evaluation, the QEP board and management also review and assess potential strategic alternatives available to QEP, including mergers and acquisition transactions and liability management. As part of such assessment, QEP management has contacts from time to time with financial and strategic parties, including other public and private exploration and production (“E&P”) companies.

The Diamondback board and Diamondback management periodically review opportunities to acquire assets or companies in the oil and gas industry that meet its strategic and financial objectives. As part of such reviews, Diamondback management has contacts from time to time with financial and strategic parties, including other public and private E&P companies.

In connection with its previously announced strategy to divest assets in order to become a pure play Permian company, QEP entered into agreements in the second half of 2018 to divest its Williston Basin assets, Louisiana natural gas assets and Uinta Basin assets.

On January 7, 2019, hedge fund Elliott Management Corp. (“Elliott”) made a conditional offer to buy QEP for $8.75 per share. In response to the public offer, QEP engaged Latham & Watkins LLP (“Latham”) and Evercore Group L.L.C. (“Evercore”) as its legal and financial advisors, respectively. The QEP board also engaged Wachtell Lipton Rosen & Katz (“Wachtell”) to advise the board with respect to Elliott and shareholder activism matters.

 

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On January 7, 2019, the QEP board held a telephonic meeting to discuss Elliott’s offer. Representatives of Latham provided the board with an overview of its fiduciary duties under Delaware law and risks associated with transactions similar to the one contemplated by Elliott’s offer. After discussing the offer, the QEP board instructed management to respond to Elliott that the QEP board was evaluating the offer. On the same day, QEP publicly announced that it had received the conditional offer from Elliott and that the QEP board was evaluating the offer.

On January 10, 2019, QEP announced that it closed the sale of its Louisiana natural gas assets to Aethon Energy for $735.0 million, subject to customary purchase price adjustments.

On January 17, 2019, the QEP board held a telephonic meeting to discuss, among other things, the status of the Williston and Louisiana divestitures and Elliott’s offer. The board was informed that the Louisiana asset divestiture had closed and that QEP management had been approached by Vantage Acquisition Operating Company LLC (“Vantage”), the proposed buyer of the Williston assets, to discuss the transaction and market conditions. Representatives of Evercore then provided the board with an overview of market conditions and a summary of unsolicited calls received from parties potentially interested in a strategic transaction with QEP. Representatives of Evercore informed the board that Evercore would be in a position to provide its preliminary financial analysis of the Elliott offer at the January 24, 2019 board meeting. The board then discussed whether initiating a sales process would be in the best interest of QEP and its stockholders, and the board determined to continue the discussion at the January 24, 2019 meeting. Representatives of Wachtell then reminded the board of its fiduciary duties in connection with a sales process.

On January 24, 2019, the QEP board held an in-person meeting to discuss Elliott’s offer and to discuss the potential market interest for and valuation of QEP. Representatives from Wachtell reminded the board of its fiduciary duties in response to Elliott’s offer. Representatives of Evercore provided the QEP board with Evercore’s preliminary financial analysis of Elliott’s offer. The QEP board determined that it was not going to engage in negotiations with Elliott at that time based on current data and the proposed offer price. The QEP board discussed whether to initiate a sales process and determined to continue the discussion at its regularly scheduled meetings on February 11, 2019 and February 12, 2019. In advance of those meetings, the QEP board instructed QEP management and Evercore to identify parties who might consider a strategic transaction with QEP and provide further information regarding QEP’s value in the market.

On January 30, 2019, the QEP board held a telephonic meeting to discuss materials prepared by Evercore regarding a potential sales process. Representatives of Evercore provided a general overview of the anticipated process. The QEP board determined to continue the discussion whether to initiate a sales process at its regularly scheduled meetings on February 11, 2019 and February 12, 2019.

On February 11, 2019, the QEP board held an in-person meeting to discuss, among other things, whether to initiate a comprehensive sales process. Representatives of Evercore provided the QEP board with an overview of the market and its preliminary financial analysis of the Elliott proposal. The QEP board discussed the merits of initiating a formal corporate-level sales process and noted that investors have increasingly favored companies with large market capitalizations that have the ability to maintain strong balance sheets across commodity price cycles, generate free cash flow and return capital to stockholders, either in the form of dividends or share repurchases. Representatives of Wachtell then reminded the board of its fiduciary duties in connection with a sales process. Upon concluding its discussion, the QEP board unanimously approved initiating a process to solicit third-party interest in a strategic transaction with QEP and instructed QEP management and Evercore accordingly.

On February 12, 2019, at the direction of the QEP board, representatives of Evercore began contacting representatives of potential acquirers and ultimately contacted representatives of 38 companies, including Diamondback.

 

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On February 20, 2019, QEP publicly announced that it had commenced a comprehensive review of strategic alternatives to maximize shareholder value, and disclosed that such process could result in the merger or sale of QEP. QEP announced that it intended to engage in discussions with a variety of parties that expressed interest in a potential transaction, including Elliott. QEP also announced that due to the deterioration in commodity prices and the unlikelihood that the conditions to closing would be satisfied, QEP and Vantage mutually agreed to terminate the agreement to sell QEP’s Williston Basin assets to Vantage.

From February 12, 2019 through April 10, 2019, QEP executed confidentiality agreements with 14 of the companies contacted by representatives of Evercore, including a confidentiality agreement with Diamondback executed on February 21, 2019. QEP and Evercore engaged in discussions with those parties that entered into confidentiality agreements and provided them with limited confidential information related to QEP’s assets and operations.

On April 10, 2019, QEP received three written proposals from Company A, Company B and Company C. Each proposal contemplated the acquisition of QEP via merger, with two proposals contemplating a stock-for-stock merger and a third proposal contemplating all cash consideration. The proposals ranged from a per share consideration amount of $7.55 per share to $8.75 share. Diamondback did not submit a proposal at that time.

On April 17, 2019, the QEP board held a meeting to discuss the three written proposals. Representatives of Evercore made a presentation to the QEP board, which included an overview of market conditions, a summary of the proposals and a summary of discussions with other potential counterparties that signed confidentiality agreements but elected to not submit proposals. At the end of the meeting, the QEP board authorized Evercore to invite Company A, Company B and Company C to participate in the next round of the process. The QEP board also instructed QEP management and Evercore to continue discussions regarding alternative structures, including asset sales, with a subset of the group of the 38 entities that had previously entered into confidentiality agreements.

Subsequent to the QEP board meeting on April 17, 2019, QEP and representatives of Evercore continued to discuss a potential transaction with each of Company A, Company B and Company C and shared additional information regarding QEP. QEP also conducted reverse due diligence with respect to Company A and Company C, the bidders that proposed stock-for-stock mergers.

On May 13, 2019, the QEP board held an in-person meeting. QEP management provided an overview of a standalone business plan and related analysis. Representatives of Evercore also gave an overview of market conditions, a preliminary financial analysis of QEP management’s standalone business plan and a preliminary financial analysis with respect to a potential combination with Company A and Company C.

On June 7, 2019, Company B submitted a bid to acquire QEP’s stock for consideration ranging from $6.50 to $7.00 per share. Company B’s proposal did not conform to the required second round bid parameters that representatives of Evercore communicated to bidders, because it did not include committed financing and indirectly conditioned the transaction on, among other things, the sale of QEP’s Williston Basin assets.

On June 11, 2019, the QEP board held an in-person meeting to discuss the results of the round two process, which consisted solely of a non-conforming bid from Company B. Company C indicated that it had continued interest in a combination, but was not willing to submit a proposal due to market conditions. Representatives of Evercore provided the board with a preliminary financial analysis of Company B’s proposal and an updated preliminary financial analysis of QEP management’s standalone business plan. QEP management also presented the QEP board with its analysis of moving forward as a standalone business. At the end of the meeting, the QEP board invited representatives from Company C to join the meeting and present the QEP board with an overview of Company C and the structure of a potential transaction. The QEP board instructed management and Evercore to continue discussions with Company B and Company C.

On July 7, 2019 and July 9, 2019, Company B and Company C submitted revised proposals with consideration of $6.75 per share and $5.18 per share, respectively. Company B’s proposal was non-conforming once again because it was not accompanied by binding commitment papers.

 

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On July 17, 2019, the QEP board held a telephonic meeting to evaluate and discuss the revised proposals. Representatives of Evercore provided the board with a market update and a preliminary financial analysis of Company B’s proposal. The board was also informed that due to recent developments at Company B, Company B would be submitting a revised proposal as soon as possible. The QEP board determined that Company C’s offer was not attractive relative to QEP’s proposed standalone business plan, and Evercore and QEP management were instructed to inform Company C that they were not interested in pursuing a transaction with Company C.

On July 25, 2019, Company B submitted a revised, non-conforming proposal and term sheet. The offer was conditioned on the sale of QEP’s Williston assets to Company B, the issuance and sale by QEP of $500 million of a preferred security to Company B and a cash tender offer by QEP at $7.00 per share with a cap of approximately $1.0 billion. Company B’s offer provided that QEP would fund the tender offer with the proceeds from the sale of the Williston assets and the preferred equity. Timothy J. Cutt, QEP’s President and Chief Executive Officer, and David Trice, then QEP’s Chairman, had a conversation with representatives of Company B to discuss the proposal.

On July 30, 2019, the QEP board met telephonically to discuss Company B’s revised proposal. Representatives of Evercore provided the QEP board with a preliminary financial analysis of Company B’s revised proposal. The QEP board discussed the proposal as well as QEP management’s proposed standalone case. After taking into account market conditions and the terms of Company B’s proposal, including closing conditions and risk of execution, the QEP board determined that it was in the best interests of QEP’s stockholders to continue as an independent company.

From July 30, 2019 through August 6, 2019, QEP and Elliott negotiated the terms of a cooperation agreement. On August 6, 2019, QEP and Elliott entered into the cooperation agreement, which provided, among other things, that QEP and Elliott would work together to identify and appoint two new independent directors to the QEP board. QEP also agreed to create a new five-person operations committee of the QEP board, which would include the new directors, and would focus on identifying best practices in the areas of QEP’s operations and on continuous improvement and excellence, with the objective to achieve leading levels of capital efficiency.

On August 7, 2019, QEP announced it had concluded its strategic review process and determined that the best path to create superior value for its stockholders was to move forward as an independent company. QEP also announced the entry into the cooperation agreement with Elliott.

From August 2019 onward, QEP management focused on executing its standalone business plan.

On December 12, 2019, representatives of Private Equity Sponsor A contacted QEP to discuss a potential transaction with Company D, a portfolio company of Private Equity Sponsor A. Private Equity Sponsor A provided information with respect to Company D to QEP without entering into a confidentiality agreement.

On December 22, 2019, QEP received an indication of interest from Company E, proposing a stock-for-stock merger and a concurrent equity infusion to the combined company from a third-party financing source. Representatives of Evercore provided a preliminary financial analysis of the proposed transaction to the QEP board on December 24, 2019.

On December 27, 2019, the QEP board reviewed Company E’s proposal as well as Evercore’s preliminary financial analysis of Company E’s proposal. The QEP board determined that it was not interested in pursuing a deal with Company E, primarily due to the lack of strategic overlap of the respective company’s assets, and instructed QEP management and representatives of Evercore to inform Company E.

On January 10, 2020, Company E’s chief executive officer had a telephone call with Mr. Cutt, and Mr. Cutt confirmed that QEP was not presently interested in pursuing a transaction with Company E.

 

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On January 17, 2020, William J. Buese, QEP’s Vice President, Chief Executive Officer and Treasurer, and representatives of Private Equity Sponsor B exchanged e-mail correspondence regarding a potential transaction involving QEP and one or more portfolio companies of Private Equity Sponsor B. The parties agreed to schedule a meeting to further discuss a proposed transaction.

On January 27, 2020, QEP management and representatives of Private Equity Sponsor B met to discuss a potential transaction involving Company F, a portfolio company of Private Equity Sponsor B.

On January 27, 2020, QEP management and representatives of Company F discussed entering into a confidentiality agreement to evaluate a potential transaction, and on February 5, 2020, the parties executed a confidentiality agreement.

In early 2020, Diamondback’s business development team began reviewing publicly available information regarding QEP in connection with again considering a potential transaction.

On February 14, 2020, the Diamondback board met telephonically and received an update from Diamondback’s management on their views regarding a potential transaction with QEP. After discussion, the Diamondback board authorized management to continue its investigation of a potential transaction with QEP and to contact QEP management. However, Diamondback management was unable to contact QEP prior to the onset of the coronavirus pandemic in the U.S., and so determined to put outreach to QEP on hold.

On February 19, 2020, the QEP board held a regularly scheduled in-person meeting to discuss, among other things, QEP’s 2020 business plan and potential strategic transactions, including (i) a sale or joint venture of QEP’s Permian water business, (ii) the disposition of QEP’s Williston Basin assets, (iii) a potential transaction with Private Equity Sponsor A and Company D and (iv) a potential transaction with Private Equity Sponsor B and Company F. Representatives of BMO Capital Markets (“BMO”), which had previously been engaged by QEP in connection with the proposed sale of QEP’s Williston assets to Vantage, provided an overview of the proposed terms for a transaction involving QEP’s Permian water business, an overview of the marketing process and a summary of proposals received from potential counterparties. Representatives of BMO then provided the board with an updated financial analysis of the Williston Basin assets and an analysis of precedent Williston Basin transactions. Representatives of Evercore then provided the board with a market overview and an updated preliminary financial analysis regarding a potential transaction with Company D or Company F and other strategic alternatives.

From February 19, 2020 through March 18, 2020, QEP management continued to exchange correspondence and have discussions with representatives of Private Equity Sponsor B regarding a potential transaction with Company F, and on February 20, 2020 QEP and Private Equity Sponsor B entered into a confidentiality agreement.

The QEP board noted investors’ focus on scale, strong balance sheets and the ability of issuers to return capital to stockholders was further accelerated and heightened in March 2020, when the global response to COVID-19. The QEP board believed that together with periods of increased production from foreign oil producers (most notably Saudi Arabia and Russia), this resulted in steep declines in the prices of oil and NGL and severe temporary storage shortages, negatively impacting oil and gas producers located in the United States, including QEP.

On March 12, 2020, in response to these events and an increased focus on risk management strategies, the QEP board held a telephonic meeting to discuss QEP management’s recommendations regarding a revised operating plan for the balance of 2020 and liability management options with respect to QEP’s balance sheet. The QEP board unanimously approved a number of operational adjustments recommended by management to enhance QEP’s ability to generate cash flow and avoid incurring additional leverage.

 

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On March 13, 2020, QEP issued a press release announcing, among other things, an approximate 30% reduction in its capital budget, a plan to suspend completion operations in the Permian Basin from May 2020 until at least the beginning of the fourth quarter 2020, the release of an intermediate drilling rig in the Permian Basin and a suspension of its quarterly dividend.

On March 25, 2020, Mr. Cutt had a telephone call with representatives of Private Equity Sponsor A regarding a potential transaction with Company D.

On March 30, 2020, the QEP board held a telephonic board meeting to discuss QEP’s response to market conditions and discuss QEP’s capital structure and options to strengthen its balance sheet through liability management transactions. In response to a continuing decline in commodity prices due to increased global production as well as heightened concerns over COVID-19 and its impact on the global demand for oil, QEP management recommended dropping an additional rig and continuing to drill with one rig, suspending fracking operations in the Permian through at least November 1, 2020 (pending commodity price improvement) and deferring drilling one salt water disposal well. These actions would be in addition to those previously announced on March 13, 2020. QEP management advised the board that these actions were designed to improve cash flow and preserve liquidity and would result in further reductions of QEP’s original 2020 capital expenditures budget. QEP management also provided the board with an overview of QEP’s capital structure and liquidity position and recommendations for addressing its upcoming revolver and bond maturities in 2022 and 2023 given the distressed commodity price environment. Mr. Buese then provided the board with an update on liability management and the status of QEP’s discussions with its bank group and various options QEP could pursue to secure additional liquidity, noting the restrictions on incurring secured debt in QEP’s existing indentures governing its senior notes. Mr. Buese also provided the board with an update on the trading activity of QEP’s outstanding senior notes. The board, QEP management and representatives of Evercore engaged in further discussions regarding QEP’s capital structure and available options to address liquidity and near-term maturities.

From March 31, 2020 through May 1, 2020, QEP management, representatives of Private Equity Sponsor A and representatives of Evercore continued to have discussions regarding a potential transaction with Company D, and the benefits to each party due to the complementary nature of each party’s assets.

On April 16, 2020, the QEP board held a telephonic board meeting to discuss with QEP management the ongoing pandemic and market disruptions, as well as QEP’s responsive actions to date, and QEP’s performance, strategy, financial position and opportunities in the current market environment, including the exploration of opportunities to combine with a potential merger partner to achieve benefits of scale and efficiency. In addition, the QEP board and QEP management discussed other options that could be available to refinance indebtedness through conventional and alternative financing transactions and raise additional capital through asset sales or other asset monetizations. As part of this discussion, the QEP board discussed its perspective on strategic objectives and key investment metrics that were likely to enhance investor interest in the industry in general and QEP in particular. Mr. Cutt then provided the board with a status update on discussions with Private Equity Sponsor A/Company D and Private Equity Sponsor B/Company F. Mr. Buese provided the board with an update on QEP’s negotiations with its lender group regarding a potential amendment to QEP’s existing credit facility.

The QEP board noted at its meeting on April 16, 2020 that QEP management’s actions in response to the oil price war and COVID-19 had positioned QEP to withstand an extended downturn and generate free cash flow despite challenging market conditions, but acknowledged that significant downside risk remained. The QEP board discussed with QEP management the potential benefits and drawbacks of pursuing a strategic combination, including the potential benefits to QEP’s stockholders if QEP were to combine in an all-stock transaction to form a company with a lower cost of capital, lower leverage and larger market capitalization than QEP on a standalone basis. The QEP board requested that QEP management continue to evaluate the possibility of a strategic combination and continue discussions with Private Equity Sponsor A and Private Equity Sponsor B. In addition, the QEP board requested that QEP management evaluate the potential benefits of alternative financing transactions, including liability management and the monetization of QEP’s water assets.

 

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On May 6, 2020, QEP, Private Equity Sponsor A and Company D entered into a confidentiality agreement with respect to a potential transaction involving QEP and Company D. From May 7, 2020 through July 13, 2020, QEP and Company D continued to exchange data and perform technical diligence on each party’s assets.

On June 4, 2020, QEP announced that it amended its credit facility, increasing its liquidity by more than $500 million and providing additional financial flexibility to help execute its ongoing business plan.

On June 5, 2020, Mr. Cutt and representatives of Private Equity Sponsor B exchanged correspondence to revisit a potential transaction involving Company F as well as Company G, a second portfolio company of Private Equity Sponsor B with assets located in the Permian Basin. The parties agreed to continue discussions involving a potential transaction, and Private Equity Sponsor B committed to provide QEP with additional materials regarding Company F and Company G.

On June 12, 2020, representatives of Company H contacted Mr. Cutt to discuss a potential business combination with QEP. Mr. Cutt expressed a willingness to discuss a proposed transaction, and Company H sent Mr. Cutt an indication of interest as well as a presentation for QEP’s review and consideration.

On June 23, 2020, representatives of Evercore provided QEP management with its preliminary financial analysis of a proposed transaction with Company H. QEP management reviewed the Evercore materials and concluded that pursuing a transaction with Company H was not in the best interest of QEP and its stockholders and forwarded the proposal to the QEP board with a recommendation that QEP not pursue a transaction with Company H. The QEP board agreed with management’s recommendation and instructed Mr. Cutt to inform Company H of its decision.

On June 24, 2020, Mr. Cutt informed representatives of Company H that QEP was not interested in pursuing a transaction with Company H.

On July 2, 2020, representatives from Company I sent an email to Mr. Cutt expressing an interest in a potential transaction and asked for Mr. Cutt’s willingness to schedule a call to discuss a potential transaction. Mr. Cutt responded and a call was scheduled for July 21, 2020.

On July 7, 2020, Private Equity Sponsor B submitted an indication of interest to QEP regarding its proposed transaction with Company F and Company G.

On July 10, 2020, QEP management discussed with representatives of Private Equity Sponsor A a potential transaction where QEP would acquire all or substantially all of the equity or assets of Company D in exchange for QEP stock. From July 10, 2020 through July 21, 2020, QEP management, representatives of Private Equity Sponsor A and representatives of Evercore continued to have discussions regarding the proposed transaction after which QEP and Private Equity Sponsor A suspended discussions with respect to a proposed transaction involving Company D.

On July 15, 2020, QEP received access to a data room populated by Private Equity Sponsor B with information regarding Company F and Company G.

On July 21, 2020, Mr. Cutt and representatives from Company I held an introductory telephone call regarding a potential transaction. Company I’s management expressed its interest in moving into the Permian Basin and that Company I would be interested in discussing a possible combination with QEP. Mr. Cutt expressed an interest in discussing such a transaction.

On July 22, 2020, Mr. Cutt received a call from management of Company J. The parties discussed areas of mutual interest and Company J’s recent interest in acquiring certain acreage in QEP’s Williston position. Mr. Cutt informed Company J that QEP was not interested in only selling selective portions of QEP’s Williston

 

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acreage. Company J then conveyed that it may be interested in a corporate transaction as part of a strategy to enter the Midland Basin within the Permian Basin. Mr. Cutt and representatives of Company J acknowledged that each company was approaching earnings season and agreed to continue the discussion following their respective earnings releases.

On July 23, 2020, representatives from Company I reached out to Mr. Cutt telephonically and mentioned that Company I would like to send over a high-level combination analysis with respect to QEP and Company I. Mr. Cutt agreed to review the material, and Company I emailed an information deck to Mr. Cutt that afternoon.

On July 24, 2020, Christopher K. Woosley, QEP’s Executive Vice President, General Counsel and Corporate Secretary, had a telephone call with management of Company J, where they expressed Company J’s intent to be a consolidator in the Permian Basin. Company J’s management explained they held a strategy session with Company J’s board and identified QEP as one of several companies they were interested in and that Company J would like to enter into a confidentiality agreement with QEP in order to review an initial list of diligence items. Mr. Woosley gave Mr. Cutt a summary of the call. On July 27, 2020, Company J sent QEP a draft confidentiality agreement for its review.

On July 28, 2020, at a regularly scheduled videoconference meeting, the QEP board discussed, among other things, an update on liability management and strategic alternatives with Company D, Company F, Company G, Company I and Company J. Mr. Buese provided the board with an overview of (i) the recent amendment QEP entered into with respect to its credit facility, (ii) total senior notes outstanding and (iii) authorizations to repurchase outstanding senior notes, including a summary of repurchases made in the first half of 2020. Mr. Buese then gave an overview of the market for new issuances of senior notes and a summary of indicative terms for a new issuance of guaranteed senior notes.

Representatives of Evercore provided the board with an update regarding status of discussions with each of Company D, Company F, Company G, Company I and Company J and Evercore’s preliminary financial analysis of each. Representatives of Evercore also provided a status update regarding the diligence process with respect to Company F and Company G. QEP management and representatives of Evercore noted that discussions with Private Equity Sponsor A were at an impasse regarding valuation and a path forward to address the combined company’s capital structure through liability management.

The QEP board then discussed with its advisors and considered current market conditions, the current reality for energy companies considering the ongoing COVID-19 pandemic, that the energy sector had significantly trailed the general market recovery, that despite active equity and debt capital markets across other sectors the few energy companies that were able to access capital markets were primarily large-cap, investment grade entities, and that efforts by highly levered exploration and production companies to exchange outstanding debt had limited participation levels.

Following a discussion, the QEP board determined that it was not interested in pursuing a transaction with Company I, but authorized QEP management and Evercore to continue discussions with Private Equity Sponsor B and Company J.

On July 31, 2020, Mr. Cutt sent an email to representatives of Company I informing them that QEP management had reviewed the opportunity with the QEP board and that QEP was not interested in pursuing a transaction at that time as the proposal was not competitive with, and did not provide as complimentary of an asset base compared with, other alternatives that were currently under consideration.

On August 3, 2020, QEP and Company J executed a confidentiality agreement. Throughout August, Mr. Cutt and members of Company J’s management had several email and telephonic exchanges regarding a potential transaction, with Company J continuing to express interest in a potential combination. In late August,

 

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discussions between Company J and QEP terminated with Company J noting its evaluation of a corporate transaction was complicated by concerns about the pro forma leverage that would occur in a combination of the two companies.

On August 14, 2020, Mr. Cutt and representatives of Company E had a telephone call to revisit a potential transaction, and on August 21, 2020, QEP received materials from Company E regarding a potential transaction.

On August 25, 2020, QEP received discussion materials from Private Equity Sponsor B regarding a potential transaction involving Company F and Company G. The same day, QEP management, representatives of Evercore and representatives of Private Equity Sponsor B participated on a telephone call to discuss the materials provided and a potential combination involving all three entities, the strategic rationale, valuation, liability management with respect to QEP’s outstanding senior notes and next steps.

On August 27, 2020, Company E sent an email to Mr. Cutt following up on the materials previously provided on August 21, 2020 and sought to arrange a call.

On September 1, 2020, Mr. Cutt responded to Company E informing Company E that it was premature to discuss a potential transaction. Mr. Cutt and Company E had additional communications on September 8, 2020 and September 29, 2020 regarding a potential transaction.

On September 2, 2020 and September 3, 2020, QEP management, representatives of Evercore and Private Equity Sponsor B met to conduct reciprocal technical diligence on QEP’s, Company F’s and Company G’s assets.

On September 9, 2020, members of QEP management and representatives of Evercore, Latham and Private Equity Sponsor B held meetings to conduct reciprocal corporate and financial diligence.

On September 10, 2020, the QEP board held a videoconference meeting to receive an update on strategic alternatives. Mr. Cutt provided a brief introduction, and noted that, based on diligence completed to date, management believed a transaction involving QEP, Company F and Company G could be an attractive opportunity due to the location of the assets, the positive impact on QEP’s balance sheet and the ability to bring a respected, knowledgeable energy investor – Private Equity Sponsor B – into QEP’s share register. Representatives of Evercore provided a market overview and status update with respect to the discussions with each potential counterparty.

Representatives of Evercore then provided to the board an updated preliminary financial analysis with respect to a potential business combination involving Company F and Company G based on diligence done to date. The presentation noted that Private Equity Sponsor B would condition the consummation of the business combination on QEP successfully executing a liability management transaction to address the near-term maturities of its 2022 and 2023 senior notes. The QEP board then discussed with its advisors the benefits of a liability management transaction, which included materially de-leveraging the balance sheet, extending maturities beyond 2023 to provide a capital structure that allows investors to realize the equity thesis of the combined company and ensure the combined company has adequate liquidity and flexibility to access traditional bank capital by entering into a secured reserve-based revolver.

The QEP board authorized management and Evercore to continue discussions with Private Equity Sponsor B regarding a potential business combination involving Company F and Company G.

From September 10, 2020 through September 24, 2020, QEP management and representatives of Evercore continued to conduct financial and technical diligence on Company F and Company G and engage in conversations with representatives of Private Equity Sponsor B regarding a potential transaction.

 

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On September 24, 2020, QEP management and representatives of Evercore participated on a telephone call with representatives of Private Equity Sponsor B where QEP outlined its financial analysis and response to the discussion materials submitted by Private Equity Sponsor B on August 25, 2020.

On September 30, 2020, Mr. Cutt and representatives of Private Equity Sponsor B had a telephone call to discuss the status of QEP’s feedback and next steps.

In the fall of 2020 Diamondback began discussions with Moelis & Company LLC (“Moelis”) regarding its corporate development strategy. Those conversations continued over the succeeding months, and included a discussion of a potential transaction with QEP.

On October 5, 2020, the QEP board held a videoconference meeting to discuss the proposed transaction with Private Equity Sponsor B, Company F and Company G and status of other strategic alternatives, including a standalone liability management exercise. QEP management provided the board with an overview of its technical and financial diligence done to date on Company F and Company G, and noted that Company F’s assets were stronger and more complimentary to QEP’s asset base compared to Company G’s assets.

Representatives of Evercore provided the board with an updated preliminary financial analysis of the proposed transaction with Company F and Company G.

Following a call between Company E and Mr. Cutt, and at the request of QEP management, representatives of Evercore then provided a preliminary financial analysis with respect to a potential business combination with Company E. The QEP board authorized management and Evercore to continue discussions with Private Equity Sponsor B regarding a potential transaction, but noted that it was only interested in pursuing a transaction with Company F and not Company G. The QEP board also instructed management and Evercore that it was not interested in pursuing a transaction with Company E and that they should not pursue any further discussions.

Mr. Buese then provided the QEP board with an overview of a proposed standalone liability management transaction should QEP choose to continue as a standalone company and not pursue a strategic business combination or similar transaction. Mr. Buese discussed the maturity profile of QEP’s outstanding debt and gave an illustrative example of management’s plan to obtain a secured reserve-based loan (“RBL”) that would provide adequate liquidity.

On October 7, 2020, Mr. Cutt informed representatives of Private Equity Sponsor B that QEP was interested in continuing discussions regarding a potential transaction, but it was only interested in pursuing a transaction with Company F, not Company G. From October 7, 2020 through October 21, 2020, QEP management, representatives of Evercore and representatives of Private Equity Sponsor B continued to discuss a potential transaction.

On October 7, 2020, Mr. Cutt notified representatives of Company E via email that the QEP board appreciated Company E’s indication of interest in a transaction with QEP but it was not interested in pursuing a transaction with Company E.

On October 8, 2020, Mr. Cutt had a phone call with representatives of Company E to discuss his email from the previous day. Mr. Cutt reiterated his message that QEP was not interested in pursuing a transaction with Company E at that time.

On October 21, 2020, Private Equity Sponsor B submitted a written proposal regarding a transaction involving Company F. The proposal contemplated QEP acquiring Company F in an all-stock transaction plus Private Equity Sponsor B investing cash in exchange for additional QEP equity. The offer contemplated that Private Equity Sponsor B would hold 75% of the outstanding common stock of the combined company and QEP’s stockholders would retain a 25% stake. The offer was subject to corporate governance discussions and

 

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confirmatory diligence and the transaction would be conditioned on, among other things, the successful execution of a liability management transaction, the terms of which were to be agreed upon with QEP.

On October 27, 2020, the QEP board held a regularly scheduled meeting to discuss, among other things, Private Equity Sponsor B’s proposed offer that was received on October 21, 2020 and the terms of a standalone liability management transaction. Also in attendance were certain members of QEP management and representatives of Evercore and Latham.

Mr. Buese provided an update on QEP’s standalone liability management strategy and RBL facility. He provided an overview of the proposed terms of a potential exchange offer involving QEP’s 2022 and 2023 senior notes in exchange for a new series of senior notes with an extended maturity date. Next, Mr. Buese provided a summary of key RBL facility terms and focus areas. He noted that management was in discussions with the QEP’s lenders regarding the RBL facility process and proposed terms. Evercore then provided illustrative terms of an exchange offer and QEP’s liquidity projections based on various assumptions. After further discussion, the board authorized management to continue negotiating the terms of a RBL facility and approved management to pursue an exchange offer.

Representatives of Evercore then provided a preliminary financial analysis with respect to the proposed transaction with Private Equity Sponsor B and Company F. Latham then provided the QEP board with an overview of the required approvals needed and the related voting thresholds to approve the proposed transaction. Latham also provided the board with an overview of fiduciary duties under Delaware law that would be applicable in a transaction of this nature and the governance structure that would be applicable to QEP post-transaction. Latham also advised on certain shareholder protections QEP should request as part of the negotiation with Private Equity Sponsor B. After discussing the proposed transaction in executive session, the board determined it was in the best interest of QEP and its stockholders to terminate discussions with Private Equity Sponsor B and proceed with the proposed standalone liability management transaction.

On October 28, 2020, Mr. Cutt called representatives of Private Equity Sponsor B and informed them that the QEP board decided that it was in the best interest of QEP and its stockholders to not pursue a transaction with Private Equity Sponsor B and Company F at that time.

From October 9, 2020 through November 30, 2020, QEP and representatives of Evercore and Latham (i) negotiated a term sheet for a RBL facility with, and solicited commitments from, the administrative agent and the joint book-running lenders under QEP’s existing credit facility and (ii) developed the terms of an exchange offer and consent solicitation with respect to its 2022 and 2023 senior notes, including a description of notes that would govern the terms of the exchange notes (clause (ii) is collectively referred to as the “Exchange Offer Term Sheet”).

On November 3, 2020, management of Company C called Mr. Cutt to discuss a potential combination involving QEP and Company C. Mr. Cutt told Company C management that QEP would be willing to discuss a potential transaction.

In early November of 2020, Diamondback’s senior management again began internal discussions about a potential transaction with QEP.

On November 11, 2020, management of Company C called Mr. Cutt and informed him that they intended to send Mr. Cutt a presentation outlining the benefits for a business combination between Company C and QEP. On November 12, 2020, management of Company C sent the presentation to Mr. Cutt.

On November 13, 2020, Mr. Cutt sent an email to the QEP board describing the proposed transaction with Company C. Mr. Cutt also advised the board that management did not believe that a transaction with Company C would be consistent with QEP’s current strategy of focusing on the Permian Basin.

 

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On November 16, 2020, Mr. Cutt and representatives of Evercore had a telephone call to discuss the merits of a transaction with Company C. Following this meeting, QEP agreed to enter into a confidentiality agreement with Company C to allow QEP to conduct one-way diligence on Company C. The confidentiality agreement with Company C was executed on November 19, 2020. Following the review of the information QEP received from Company C and input from the QEP board, Mr. Cutt informed management of Company C that QEP was not interested in pursuing a transaction with Company C.

On November 25, 2020, Latham contacted counsel to an ad hoc group of QEP noteholders (the “Ad Hoc Group”) to discuss wall crossing the Ad Hoc Group in order to negotiate the terms of an exchange offer and consent solicitation.

On November 25, 2020, Travis D. Stice, Diamondback’s Chief Executive Officer, and M. Kaes Van’t Hof, Diamondback’s Chief Financial Officer and Executive Vice President of Business Development, had a teleconference call with Steven West, Chairman of the Diamondback board, regarding a potential transaction with QEP. Mr. West indicated he was generally supportive of investigating a potential transaction, further discussion with the full Diamondback board and preliminary outreach to QEP.

On November 30, 2020, Mr. Stice contacted Mr. Cutt to inform him that Diamondback would be interested in making an offer to acquire QEP. Mr. Cutt responded that management of QEP and the QEP board would be willing to consider an offer.

On December 1, 2020 and December 2, 2020, QEP entered into confidentiality agreements with certain members of the Ad Hoc Group and circulated the Exchange Offer Term Sheet to the Ad Hoc Group.

On December 2, 2020, certain news organizations reported rumors that QEP had been contacted about a potential takeover.

From December 3, 2020 through December 18, 2020, QEP management and representatives of Evercore, Latham and the Ad Hoc Group and its counsel participated in discussions and negotiated the proposed terms of the exchange offer and consent solicitation.

On December 3, 2020, at a meeting of the QEP board held via videoconference, with certain members of QEP management and representatives of Evercore in attendance, Mr. Cutt notified the QEP board of Diamondback’s interest in a potential business combination with QEP. The QEP board engaged in a detailed discussion regarding the strategic rationale for a combination with Diamondback. The QEP board acknowledged the benefits of combining with an investment grade company such as Diamondback, the pro forma company’s operational scale, lower cost of capital, high asset quality, and its ability to generate free cash flow and return capital to stockholders. The QEP board also discussed the pros and cons of continuing as a standalone company, including the risk of an extended downturn caused by COVID-19, ongoing industry consolidation and negative investor sentiment towards the sector, the combination of which might further erode QEP’s trading multiples in comparison to larger competitors. Based on this discussion, the QEP board generally agreed that Diamondback was a very attractive potential merger partner. The QEP board authorized Mr. Cutt to continue discussions with Diamondback. During the board meeting, Mr. Buese provided the board with an update regarding the status of QEP’s proposed RBL facility and the proposed exchange offer and consent solicitation.

On December 3, 2020, Mr. Cutt called Mr. Stice to inform him that the QEP board was interested in continuing discussions with Diamondback regarding a potential business combination.

On December 3, the Diamondback board held a videoconference meeting to discuss, among other things, a potential transaction with QEP. The board members and certain members of management discussed certain financial and operational matters related to the proposed transaction, and then potential process. Following that discussion, the Diamondback board authorized Diamondback management to finalize an offer letter and related

 

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materials for an all-stock, at-market transaction, and to pursue the transaction, including engaging in due diligence and discussions with ratings agencies. The board stressed to Diamondback management the importance of maintaining Diamondback’s investment grade rating.

On December 7, 2020, Mr. Stice provided to Mr. Cutt a presentation containing certain information regarding Diamondback and the proposed transaction. That presentation noted that Diamondback believed it was the right counterparty for QEP, with complementary assets, an investment grade balance sheet, a strong free cash flow model built to return capital to stockholders and the size and scale to attract investors. It also stated that the exchange ratio would reflect an “at-market” transaction and emphasized that the all-stock nature of the proposed combination would provide QEP stockholders the opportunity to participate in the upside of the combined company as macroeconomic conditions improved.

Messrs. Stice and Van’t Hof then followed up with a phone call to review that presentation, indicated to Mr. Cutt that Diamondback was prepared to make an offer to acquire QEP and outlined the general terms of the proposed transaction. Mr. Stice emphasized Diamondback’s sensitivity to equity market reaction to a transaction premium perceived to be excessive, which would be to the detriment of both companies. Diamondback management concluded the call noting they would follow up with a formal offer letter and a confidentiality agreement.

Later that day, Mr. Cutt received an offer letter from Diamondback. The letter did not provide an exchange ratio; rather it provided that Diamondback was offering to acquire QEP in an all-stock, at-market transaction with an exchange ratio to be agreed upon closer to the execution of a definitive agreement. The letter indicated that the proposal implied a material premium relative to QEP’s unaffected share price as of December 1, 2020 (i.e., the last trading day before market rumors of a potential transaction). Mr. Stice also provided a draft confidentiality agreement for QEP to review and execute and requested exclusivity. Mr. Cutt notified the QEP board of Diamondback’s offer and recommended that QEP enter into the confidentiality agreement with Diamondback and start exchanging information and diligence materials with Diamondback.

Around the same time period, Mr. Woosley reached out to representatives of Evercore and Latham regarding the offer received from Diamondback. Mr. Woosley also authorized Latham to engage Richards, Layton & Finger, PA (“RLF”) to act as special Delaware counsel to QEP in connection with the proposed transaction. Mr. Woosley and representatives of Latham reviewed the draft confidentiality agreement provided by Diamondback, and Mr. Woosley sent a revised draft of the same to Mr. Van’t Hof.

On December 8, 2020, Messrs. Woosley and Van’t Hof had a telephone conversation to discuss general terms of the offer, timing, due diligence and other matters relating to the potential transaction. Later that day, QEP and Diamondback entered into a confidentiality agreement and each party was granted access to an electronic data room prepared by the other party. The confidentiality agreement included a customary mutual “standstill” provision that would automatically terminate if, among other things, either party entered into a definitive merger agreement with another party. Diamondback and QEP did not agree to exclusivity at that time.

From December 9, 2020 through December 20, 2020, QEP conducted extensive due diligence of Diamondback and Diamondback conducted extensive due diligence of QEP. Mr. Van’t Hof and P. Matt Zmigrosky, Diamondback’s Executive Vice President and General Counsel, held a series of reciprocal due diligence discussions, primarily with Mr. Woosley, and Lauren Baer, QEP’s Vice President, Human Resources & Community Investments. Representatives of QEP’s advisors (Latham and Evercore) and Diamondback’s advisors (Goldman Sachs & Co. LLC (“Goldman”) and Diamondback’s legal counsel, Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”)) also attended the meetings.

On December 10, 2020, the Diamondback board held a telephonic meeting focused primarily on the potential transaction with Guidon, but Messrs. Stice and Van’t Hof provided the board with an update on the status of the outreach to QEP.

 

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From December 10, 2020 through December 17, 2020, Diamondback management delivered presentations to and responded to follow-up inquiries from its ratings agencies (Standard & Poor’s and Fitch Ratings) regarding the potential transactions with QEP and Guidon and their potential impacts on Diamondback.

On December 12, 2020, QEP received a draft of the merger agreement from Diamondback. From December 12 through December 20, the parties and their respective legal advisors negotiated the terms of the merger agreement.

On December 14, 2020, the Diamondback board held a videoconference telephonic meeting, which was also attended by certain members of Diamondback’s management and representatives from Goldman. The board asked questions of Goldman and management regarding the potential QEP acquisition. After deliberation and discussions, the board authorized management to finalize a follow-up offer letter proposing an exchange ratio of 0.050 of a share of Diamondback common stock for each share of QEP common stock and again requesting exclusivity. The board further authorized continuing due diligence, ratings agency discussions and negotiation of definitive documents.

Following the Diamondback board meeting, later on December 14, 2020, Mr. Cutt received an offer letter from Diamondback, which letter included a proposed exchange ratio of 0.050 of a share of Diamondback common stock for each share of QEP common stock. The letter further indicated that the 0.050 exchange ratio represented a 1% premium to QEP’s closing price on that same day, a 10% premium to the ten-day average closing price and a 26% premium to the twenty-day average closing price.

From December 14, 2020 through December 20, 2020, Messrs. Cutt and Stice had multiple discussions regarding the terms of the potential transaction.

Also on December 14, 2020, representatives from Latham reviewed and discussed with QEP management key provisions of the merger agreement draft that had been provided by Diamondback on December 12, 2020, including (i) the fact that the merger agreement provided for a transaction structure that would generally result in a tax free transaction for QEP stockholders, (ii) the key conditions to closing of the merger, including receipt of QEP stockholder approval, and (iii) the deal protection provisions, including the non-solicitation and “force the vote” covenants and the proposed termination fee and expense reimbursement obligations of QEP, which were based on QEP’s enterprise value. QEP management provided Latham with direction as to how to respond on key terms of the merger agreement, and authorized Latham to prepare and distribute a revised draft of the merger agreement to Diamondback.

On December 15, 2020, Latham sent Akin Gump a revised draft of the merger agreement that included the following key terms: (i) a right for the QEP board to terminate the merger agreement to permit QEP to enter into a definitive agreement with respect to a superior proposal, (ii) a termination fee and expense reimbursement obligations calculated to represent a percentage of QEP’s equity value and (iii) additional restrictions on the ability of Diamondback to engage in certain transactions that would materially alter the nature of Diamondback between signing and closing without QEP’s consent, including certain transactions involving the issuance of equity, the incurrence of debt and the acquisition or divestiture of material assets.

On December 16, 2020, the QEP board held a videoconference with certain members of QEP management, and representatives of Evercore and Latham in attendance, to discuss the offer letter received from Diamondback. At the outset of the meeting, representatives of Latham reviewed with the members of the QEP board their fiduciary duties under Delaware law with respect to the evaluation of a potential strategic combination. In addition, representatives of Latham discussed legal considerations related to actual or potential conflicts that could arise in connection with the evaluation of a strategic transaction.

Following the discussion of fiduciary duties led by Latham, representatives of Evercore reviewed with the QEP board its preliminary financial analysis with respect to a possible combination of QEP and Diamondback. Representatives of Evercore also reviewed and discussed with members of the QEP board and management the

 

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continued underperformance of the upstream oil and gas sector relative to other market sectors and the challenges associated with market positioning and attracting investor interest. After further discussion, the QEP board asked the Latham and Evercore representatives to leave the meeting to allow the QEP board to continue its discussion in executive session. At the conclusion of the meeting, the QEP board determined that it should seek a higher exchange ratio from Diamondback, and authorized a formal response to Diamondback seeking an exchange ratio of 0.053.

Later that same day, Mr. Cutt called Mr. Stice to advise him of the outcome of the QEP board meeting, and to discuss the economic terms of a potential combination. Mr. Cutt advised Mr. Stice that the QEP board was prepared to move forward at an exchange ratio of 0.053. Mr. Stice declined to agree to the proposed exchange ratio, but said he would discuss with the Diamondback board.

On December 17, Messrs. Stice and Van’t Hof had a teleconference call with Mr. West to discuss the ongoing negotiations with QEP. Mr. West informed Diamondback management that he would not support an offer with an exchange ratio in excess of 0.050 and encouraged Mr. Stice to inform QEP and again request exclusivity through December 24, 2020. Following that call, by email communication, Mr. Stice informed Mr. Cutt that Diamondback declined QEP’s counter offer, renewed Diamondback’s offer of an exchange ratio of 0.050 and requested exclusivity through December 24, 2020.

On that same day, the QEP board, along with representatives from management, Evercore and Latham, held a telephonic board meeting to discuss Diamondback’s proposal, including the 0.050 exchange ratio. Evercore provided the board with an update of its preliminary financial analysis as well as supplementary financial data that the QEP board requested during the December 16, 2020 meeting. The QEP board also discussed with management, representatives of Latham and representatives of Evercore, Diamondback’s request for exclusivity. After further discussion, at the conclusion of the meeting, the QEP board authorized management and Evercore to agree to the proposed 0.050 per share exchange ratio and to continue negotiating definitive transaction documents, subject to satisfactory completion of due diligence, including financial due diligence. The QEP board also authorized QEP management to enter into the exclusivity agreement with Diamondback through December 24, 2020.

Following the meeting of the QEP board, on that same day, Mr. Cutt called Mr. Stice and informed him that the QEP board had approved the 0.050 exchange ratio.

On that same day, Diamondback entered into formal engagement letters with Goldman and Moelis to assist with the transaction with QEP.

On that same day, Akin Gump sent Latham a revised draft of the merger agreement. Later on that same day, Diamondback received positive preliminary feedback from its ratings agencies. Mr. Stice updated the Diamondback board by email regarding the ratings feedback and his discussions with Mr. Cutt.

On December 18, 2020, Diamondback and QEP signed an exclusivity agreement providing for exclusive negotiations through December 24, 2020.

On that same day, representatives from Latham reviewed and discussed with QEP management key provisions of the revised merger agreement draft that had been provided by Diamondback on December 17, 2020, including the deal protection provisions, the “force the vote” covenant and the proposed termination fee and expense reimbursement obligations of QEP, which were based on QEP’s enterprise value. QEP and representatives from Latham and RLF discussed the revised draft. QEP management provided Latham with direction as to how to respond on key terms of the merger agreement, and authorized Latham to prepare and distribute a revised draft of the merger agreement to Diamondback. Later that day, Latham sent Akin Gump a revised draft of the merger agreement.

 

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On that same day, Diamondback entered into a definitive agreement with Guidon (the “Guidon Agreement”), an oil exploration and production company, regarding the Pending Guidon Acquisition, and Guidon subsequently approved Diamondback informing QEP about the execution of the Guidon Agreement. Following the execution of the Guidon Agreement, there were a number of communications between Diamondback and QEP and internally at Diamondback and QEP regarding Guidon. First, Messrs. Cutt and Stice had a telephone conversation where Mr. Stice informed Mr. Cutt about the execution of the Guidon Agreement. Then, Messrs. Cutt, Woosley and Buese had a telephone call with representatives of Evercore and Latham to discuss Diamondback’s pending acquisition of all or substantially all of Guidon’s assets and the potential impact on the merger of QEP and Diamondback. Representatives of Latham, RLF and Mr. Woosley also discussed the board’s fiduciary duties in light of the Guidon Agreement. Finally, QEP management and representatives of Evercore, Latham and Goldman had a telephone conference call with Mr. Van’t Hof and other representatives of Diamondback to discuss the Pending Guidon Acquisition and conduct diligence regarding the same.

On the morning of December 19, 2020, Mr. Zmigrosky circulated a summary of the then-current draft of the merger agreement prepared by Akin Gump to the Diamondback board.

On the same day, Mr. Woosley and representatives of Latham had multiple discussions with Mr. Van’t Hof, Mr. Zmigrosky and/or representatives of Akin Gump regarding the terms of the merger agreement, including provisions relating to deal protection and the termination fee, scope of representations and warranties and interim operating covenants. Diamondback and Akin Gump represented that the “force the vote” covenant was a material term to Diamondback and insisted on its inclusion in the merger agreement. Mr. Woosley and Latham acknowledged the request and represented that it would discuss the request with the QEP board.

On that same day, the QEP board held a telephonic board call, along with representatives of management, Evercore and Latham, to continue to discuss a potential transaction between QEP and Diamondback on the basis of a 0.050 exchange ratio. Mr. Cutt provided the board with an update regarding the recent development related to Diamondback’s pending acquisition of Guidon’s assets. Mr. Cutt reminded the board that management had previously evaluated Guidon’s assets several times, including recent technical and financial diligence, and that management was impressed with the quality of Guidon’s assets and the overlap with Diamondback’s and QEP’s acreage in the Midland Basin. The board then received an overview of Guidon’s operations and assets based on information provided by Diamondback. Representatives of Evercore noted that Diamondback confirmed during a diligence session earlier that day that the pending acquisition of Guidon would not be significant from a financial perspective to Diamondback for SEC reporting purposes. Latham then reminded the board of its fiduciary duties under Delaware law that are owed in connection with the proposed transaction with Diamondback. Latham also provided the board with a summary of the Guidon transaction, and the high-level terms of the definitive agreement entered into with Guidon, based on the call earlier that day. The QEP board then asked several questions regarding the Guidon transaction and its impact on the board’s fiduciary duties when evaluating QEP’s transaction with Diamondback, and Latham addressed those questions.

Mr. Woosley and Latham then discussed the material terms of the merger agreement and open issues, including Diamondback’s request to include a “force the vote” provision in the merger agreement. The board asked several questions, and after discussion authorized QEP management to agree to a “force the vote” provision. After further discussion, at the conclusion of the meeting, the QEP board provided Mr. Woosley and Latham with direction as to how to respond on key terms of the merger agreement and authorized management to proceed with the proposed transaction, subject to finalizing the merger agreement and completing diligence.

On December 20, 2020, QEP and Diamondback exchanged emails to discuss their plans on investor relations in connection with the potential transaction, including a joint press release and an investor presentation.

On the same day, Akin Gump and Latham exchanged multiple drafts of, and finalized, the merger agreement.

On the same day, Mr. Zmigrosky circulated an updated summary of the then-current draft of the merger agreement prepared by Akin Gump to the Diamondback board.

 

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In the evening of December 20, 2020, the Diamondback board held a videoconference meeting, with members of Diamondback management, as well as representatives of Goldman and Akin Gump also in attendance. Members of the Diamondback board, members of Diamondback management and representatives of Goldman discussed the proposed transaction with QEP, including the financial terms thereof and related financial and operational matters. Messrs. Stice and Van’t Hof reviewed their presentation, previously circulated to the board, regarding certain financial and operational matters related to the Pending Guidon Acquisition and the proposed transaction with QEP. Then representatives of Akin Gump reviewed with the Diamondback board materials summarizing the key provisions of the current draft of the merger agreement, which materials were previously circulated to the board. Throughout these presentations and discussions, members of the Diamondback board asked questions of representatives of Goldman, Akin Gump and Diamondback management. Following additional discussion, the Diamondback board unanimously (i) determined that the merger agreement (including the 0.050 exchange ratio) and the transactions contemplated thereby (including the merger and the related share issuance), were fair to, advisable and in the best interests of Diamondback and its stockholders, (ii) approved the merger agreement and the transactions contemplated thereby, and (iii) approved certain related matters, including the preparation and filing with the SEC of a Registration Statement on Form S-4.

In the evening of December 20, 2020, the compensation committee of QEP and representatives of Meridian Compensation Partners, LLC and Alvarez & Marsal Holdings, LLC met via teleconference to consider, discuss and approve the compensation matters related to the proposed transaction with Diamondback.

Following the compensation committee meeting, the QEP board held a meeting via videoconference, together with members of QEP management and representatives of Evercore and Latham in attendance, to approve the compensation matters related to the proposed transaction and to consider the proposed transaction with Diamondback. QEP management provided an update on the status of negotiations with Diamondback. A representative of Latham reviewed with the QEP board materials summarizing the key provisions of the current draft of the merger agreement, which materials were previously provided to the board. Latham noted that in exchange for agreeing to the “force the vote” provision, Mr. Woosley was able to negotiate, among other things, a reduction in the previously discussed termination fee. The board asked several questions, and Latham and QEP management addressed the board’s questions. Representatives of Evercore then provided the board with Evercore’s financial analysis with respect to the proposed combination of Diamondback and QEP and rendered to the QEP board Evercore’s oral opinion, subsequently confirmed in Evercore’s written opinion dated as of December 20, 2020, that as of December 20, 2020 and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s written opinion, the merger consideration to be received by the holders of the QEP common stock in the merger was fair, from a financial point of view, to such holders. Following additional discussion, the QEP board unanimously (i) determined that the merger agreement and the transactions contemplated thereby, including the merger, were advisable and in the best interests of QEP and its stockholders, (ii) approved the merger agreement and the transactions contemplated thereby, (iii) approved submitting the merger agreement to QEP’s stockholders and (iv) resolved to recommend that QEP’s stockholders approve and adopt the merger agreement.

Following the QEP board meeting, Mr. Cutt informed Mr. Stice that the QEP board had unanimously approved the proposed transaction. Later in the evening on December 20, 2020, the parties executed the merger agreement and, on December 21, 2020, issued a joint press release announcing the transaction.

Diamondback’s Rationale for the Merger

Diamondback believes that the merger with QEP presents Diamondback with the opportunity:

 

   

to add material Tier-1 Midland Basin inventory;

 

   

to be accretive on all relevant 2021 per share metrics including cash flow per share, free cash flow per share and leverage, before accounting for synergies;

 

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to lower 2021 reinvestment ratio and enhances ability to generate free cash flow, de-lever and return capital to Diamondback stockholders; and

 

   

to realize significant, tangible annual synergies of $60 to $80 million comprised of general and administrative expense savings, cost of capital and interest expense savings, improved capital efficiency from high-graded development of combined acreage, physical adjacencies to increase lateral lengths and significant adjacent Permian Basin midstream assets.

In addition, Diamondback expects to maintain its investment grade credit ratings following the completion of the merger.

Recommendation of the QEP Board and Reasons for the Merger

By unanimous vote, the QEP board, at a meeting held on December 20, 2020, (i) declared that the merger agreement and the transactions contemplated thereby were fair to, and in the best interests of, QEP and the QEP stockholders, (ii) approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement and (iii) recommended that the QEP stockholders approve and adopt the merger agreement and the transactions contemplated by the merger agreement. The QEP board unanimously recommends that QEP stockholders vote “FOR” the merger proposal and “FOR” the non-binding compensation advisory proposal.

In evaluating the merger agreement, the merger and the other transaction documents (including the transactions contemplated by those documents), the QEP board consulted with QEP’s senior management, outside legal counsel, financial advisors and tax advisors. The QEP board determined that entering into the merger agreement with Diamondback provided the best alternative for maximizing stockholder value reasonably available to QEP, including when compared to continuing to operate on a standalone basis, strategic combinations with other counterparties and potential asset monetization opportunities.

In recommending that QEP stockholders vote their shares of QEP common stock to approve and adopt the merger agreement, the QEP board also considered a number of factors, including the following factors (not necessarily in order of relative importance) that the QEP board viewed as generally positive or favorable to its determination, approval and related recommendation:

Attractive Value and Merger Consideration. The attractive value and nature of the consideration to be received in the merger by QEP stockholders, including the fact that:

 

   

based on the closing trading price of Diamondback common stock of $45.84 on December 18, 2020 (the last trading day prior to entry into the merger agreement), the merger consideration represented an implied value of $2.29 per share of QEP common stock, a premium of 13.6% to the 20 day volume weighted average price of the shares of QEP common stock for the 20 trading days prior and up to December 18, 2020 and a premium of 45% to the closing price of the shares of QEP common stock on December 1, 2020, the last trading day that QEP’s stock price was “unaffected” by market rumors that QEP was a takeover target;

 

   

the stock-for-stock merger allows QEP stockholders to participate in the value and opportunities of the combined company after the merger, including dividends, potential future increases in commodity prices and expected future free cash flow growth, which the QEP board viewed as an important opportunity for QEP stockholders to enhance long-term returns;

 

   

the exchange ratio represented a greater interest for QEP stockholders in the combined company versus the implied exchange ratio calculated by using the average six month and one-year historical market-based exchange ratios;

 

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the trading market for Diamondback common stock should provide QEP stockholders who receive Diamondback common stock in the merger with greater trading liquidity than is currently available for QEP common stock; and

 

   

the QEP board believes that the shares of Diamondback common stock that will be delivered to QEP stockholders as merger consideration are a highly attractive currency that will benefit in the near and long term from the combination’s significant synergies described in more detail below.

Benefits of a Combined Company. The belief of the QEP board that the combined company resulting from a merger of Diamondback and QEP would be well positioned to achieve future free cash flow growth and generate superior returns for QEP’s former stockholders, is a result of:

 

   

the benefits associated with consolidating the assets of the two companies, including the expected annual operating synergies and reductions to expenses (including general and administrative), associated with the following:

 

   

creating a predominantly contiguous, interlocking footprint in the core of the Midland Basin with adjacent acreage footprints that allows for increased capital efficiency and optimized development with longer laterals;

 

   

leveraging existing and anticipated future water infrastructure to reduce fresh water utilization and optimize produced water utilization;

 

   

utilization of shared facilities, overlapping operations and scale efficiencies;

 

   

the fact that Diamondback is expected to maintain its investment grade rating after the merger, which will support reduced interest expense of the combined company, and in turn is expected to gradually reduce leverage and preserve the combined company’s financial flexibility, enhancing the return of capital to stockholders; and

 

   

the increased size and scale of the combined company, which is expected to afford new structural advantages including a lower cost of capital, a fortified balance sheet and economies of scale;

 

   

the shared strong focus on enhancing environmental, social and governance capabilities, and safety which is expected to promote a culture that prioritizes sustainable operations;

 

   

the shared values of integrity, teamwork, and caring of people, and the combined workforce is expected to continue to increase efficiency and deliver stockholder value;

 

   

combined Midland and Delaware basin acreage of approximately 396 thousand net acres and a combined production base of 218 thousand net barrels of oil per day and 364 thousand net barrels oil equivalent per day based on reported production for the third quarter of 2020;

 

   

the combined company will be less levered than QEP on a standalone basis, which together with the increased scale and operational synergies, will better position the combined company to operate through periods of low commodity prices and/or negative sentiment towards the energy industry from equity and debt investors;

 

   

the increased dividend base and enhanced variable dividend proposition of the combined company;

 

   

the combined company’s strengthened ability to return capital to stockholders, compared to QEP on a standalone basis, by combining two companies with attractive free cash flow profiles, which is expected to enhance the combined company’s investment framework; and

 

   

the proven track record of Diamondback’s executive management team, which is expected to continue as the executive management team of the combined company.

 

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Continuation of Standalone QEP. The QEP board’s consideration of QEP’s business, prospects and other strategic opportunities, and the QEP board’s belief that there are certain risks associated with continuing to operate as a standalone company, including:

 

   

the risk that QEP may have limited access to capital to refinance its existing debt at favorable interest rates;

 

   

the risk that QEP may become less competitive, on a relative basis, compared with larger producers, given scale-related advantages available to larger companies, including with respect to cost savings achieved by larger companies through economies of scale and greater purchasing power;

 

   

the risks related to the ongoing trend of investors seeking to allocate capital to the largest and most financially stable and flexible producers, which has contributed to accelerating consolidation of the U.S. upstream oil and gas industry;

 

   

the risks and uncertainties related to the ongoing and unprecedented disruption to oil demand, due to the COVID-19 pandemic, unpredictable geopolitical dynamics, including actions of foreign oil producers, and expected consumption of hydrocarbons trending lower long-term, which risks are relatively greater were QEP to continue to operate as a standalone company with relatively higher leverage, higher cost of capital, less liquidity and a smaller market capitalization than the combined company, which could limit QEP’s ability to generate sufficient free cash flow for debt repayment; and

 

   

the risk that it will become increasingly difficult for QEP to grow its production and reserves due to depleting inventory levels and restraints on future acquisitions given that many of the most attractive acquisition targets have been acquired by larger companies.

The QEP board also considered the following factors as being generally positive or favorable in making its determination, approval and related recommendation:

Alternative Combination Transactions. From February 2019 through August 2019, the QEP board conducted a comprehensive review of strategic alternatives to maximize shareholder value, and publicly disclosed that such process could result in the merger or sale of QEP. As part of that process, QEP announced that it intended to engage in discussions with a variety of parties that expressed interest in a potential transaction and, in consultation with its financial advisor Evercore, subsequently contacted representatives of 38 companies and executed confidentiality agreements with 14 of those companies as described in the section titled “—Background of the Merger,” none of which materialized. QEP engaged in discussions with multiple parties throughout 2020 as part of an informal process to evaluate strategic alternatives as further described under “—Background of the Merger,” none of which materialized. The QEP board believed that, given the outcome of its broad, public and private strategic review process, it was unlikely that an alternative bidder would consummate a transaction on superior terms and provide QEP stockholders more valuable consideration than provided in connection with the merger;

Opportunity to Receive Alternative Acquisition Proposals and to Change the QEP Board’s Recommendation Upon Receipt of a Superior Proposal. The QEP board considered the terms of the merger agreement related to QEP’s ability to respond to unsolicited acquisition proposals and determined that third parties would be unlikely to be deterred from making an acquisition proposal by the provisions of the merger agreement because the QEP board may, under certain circumstances, furnish information or enter into discussions in connection with an acquisition proposal. In this regard, the QEP board considered that:

 

   

subject to its compliance with the merger agreement, the QEP board can change its recommendation to QEP stockholders with respect to the approval and adoption of the merger agreement prior to the approval and adoption of the merger agreement by the vote of its stockholders if it determines, with respect to a superior proposal or an intervening event, in good faith (after consultation with its financial advisors and outside legal counsel) that the failure to take such action would be inconsistent with the QEP board’s fiduciary duties under applicable law; and

 

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while the merger agreement contains a termination fee of $17.0 million, representing approximately 3% of QEP’s equity value as of the date of the merger agreement, that QEP would be required to pay to Diamondback in certain circumstances, including if (i) Diamondback terminates the merger agreement in connection with a change in the QEP board’s recommendation to stockholders with respect to approval and adoption of the merger agreement, (ii) Diamondback terminates the merger agreement due to a breach by QEP of the non-solicit provisions of the merger agreement, (iii) under certain circumstances, Diamondback or QEP terminates the merger agreement following the failure of QEP stockholders to approve the merger proposal upon a vote at a duly held QEP special meeting and, prior to such meeting, a competing proposal was publicly announced or publicly disclosed, and not publicly withdrawn or (iv) under certain circumstances, within 12 months of termination of the merger agreement, QEP enters into or recommends an agreement in respect of any acquisition proposal, or a transaction in respect of any acquisition proposal with respect to QEP is consummated, the QEP board believed that this fee is reasonable in light of the circumstances and the overall terms of the merger agreement, consistent with fees in comparable transactions and not preclusive of other offers;

Tax Considerations for QEP Stockholders. The QEP board considered that the merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code;

Opinion of QEP’s Financial Advisor. The QEP board considered the oral opinion of Evercore, subsequently confirmed in Evercore’s written opinion dated December 20, 2020, to the QEP board, with respect to the fairness as of such date, from a financial point of view, to the QEP stockholders of the consideration to be received by the holders of shares of QEP common stock with respect to their shares of QEP common stock in the merger, which opinion was based on and subject to various assumptions made, procedures followed, qualifications, limitations, conditions and other matters considered, as more fully described below in the section titled “—Opinion of QEP’s Financial Advisor”; and

Likelihood of Completion and Terms of the Merger Agreement. The QEP board reviewed and considered the terms of the merger agreement, taken as a whole, including the parties’ representations, warranties and covenants, and the circumstances under which the merger agreement may be terminated, and concluded that such terms are reasonable and fair to QEP and the QEP stockholders. The QEP board also reviewed and considered the conditions to the completion of the merger, and concluded that while the completion of the merger is subject to regulatory approvals, such approvals were not likely to prevent the completion of the merger.

The QEP board also considered a number of uncertainties, risks and factors it deemed generally negative or unfavorable in making its determination, approval and related recommendation, including the following (not necessarily in order of relative importance):

Transacting During a Downturn in the Energy Industry. The QEP board considered that the merger with Diamondback would occur at a time when commodity prices and the stock prices of energy companies, including QEP, are depressed compared to recent historic prices;

Merger Consideration. The QEP board considered that, because the merger consideration is based on a fixed exchange ratio rather than a fixed value, QEP stockholders bear the risk of a decrease in the trading price of Diamondback common stock during the pendency of the merger and the fact that the merger agreement does not provide QEP with a value-based termination right;

Interim Operating Covenants. The QEP board considered the restrictions on the conduct of QEP’s and its subsidiaries’ businesses during the period between the execution of the merger agreement and the completion of the merger as set forth in the merger agreement;

Pending Guidon Acquisition. The QEP board considered factors relating to the Pending Guidon Acquisition, including: (i) the risk that the Pending Guidon Acquisition may not close, which could decrease the trading price

 

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of Diamondback common stock, (ii) whether the anticipated operational synergies of Diamondback, QEP and the assets acquired by Diamondback in the Pending Guidon Acquisition will be realized and (iii) the fact that the merger is not conditioned on the consummation of the Pending Guidon Acquisition;

Risks Associated with the Pendency of the Merger. The risks and contingencies relating to the announcement and pendency of the merger (including the likelihood of litigation or other opposition brought by or on behalf of QEP stockholders or Diamondback stockholders challenging the merger and the other transactions contemplated by the merger agreement) and the risks and costs to QEP if the merger is not completed in a timely manner or if the merger does not close at all, including potential employee attrition, the impact on QEP’s relationships with third parties and the effect termination of the merger agreement may have on the trading price of QEP common stock and QEP’s operating results;

Opportunity to Receive Acquisition Proposals and Inability to Terminate the Merger in Order to Accept a Superior Proposal; Termination Fees; Expense Reimbursement. The QEP board considered the possibility that a third party may be willing to enter into a strategic combination with QEP on terms more favorable than the merger. In connection therewith, the QEP board considered the terms of the merger agreement relating to no-shop covenants and termination fees (including the force the vote provision) and the potential that such provisions might deter alternative bidders that might have been willing to submit an acquisition proposal to QEP. The QEP board also considered that, under specified circumstances, QEP may be required to pay a termination fee or expenses in the event the merger agreement is terminated and the effect this could have on QEP, including:

 

   

the possibility that the termination fee and the force the vote provision could discourage other potential parties from making an acquisition proposal, although the QEP board believed that the termination fee was reasonable in amount and would not unduly deter any other party that might be interested in making an acquisition proposal;

 

   

if the merger is not consummated, QEP will generally be obligated to pay its own expenses incident to preparing for and entering into and carrying out its obligations under the merger agreement and the transactions contemplated by the merger agreement; and

 

   

the requirement that if the merger agreement is terminated as a result of the failure to obtain approval of the merger proposal by QEP stockholders, QEP would be obligated to reimburse Diamondback for up to $7.5 million of its reasonable, documented out-of-pocket expenses in connection with the due diligence investigation of QEP and the merger agreement;

Regulatory Approval. The QEP board considered that the merger and the related transactions require regulatory approval to complete such transactions and the risk that the applicable governmental entities may seek to impose unfavorable terms or conditions, or otherwise fail to grant, such approval;

Interests of Certain QEP Directors and Executive Officers and Other Concerns Related to Conflicts or the Potential Appearance of Conflicts. The QEP board considered that QEP’s directors and executive officers may have interests in the merger that may be different from, or in addition to, those of QEP stockholders. For more information about such interests, see the section titled “—Interests of QEP’s Directors and Executive Officers in the Merger”;

Merger Costs. The QEP board considered the costs associated with the completion of the merger, including QEP management’s time and energy and potential opportunity cost that will be incurred by the combined company as a result of the merger;

Pro Forma Ownership. The QEP board considered that, based on the implied value of the merger consideration as of December 18, 2020, and without regard to any dilution arising out of the consummation of the Pending Guidon Acquisition, QEP stockholders would only own approximately 7% of Diamondback after the merger, and no directors on the QEP board will serve on the Diamondback board of directors following the merger;

 

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Possible failure to achieve synergies. The QEP board considered the potential challenges and difficulties in integrating the operations of QEP, Diamondback and the assets to be acquired by Diamondback in the Pending Guidon Acquisition, and the risk that anticipated cost savings and operational efficiencies between the two companies, or other anticipated benefits of the merger, might not be realized or might take longer to realize than expected; and

Other Risks. The QEP board considered risks of the type and nature described under the sections titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

The QEP board believed that, overall, the potential benefits of the merger to QEP stockholders outweighed the risks and uncertainties of the merger.

The foregoing discussion of factors considered by the QEP board is not intended to be exhaustive, but includes the material factors considered by the QEP board. In light of the variety of factors considered in connection with its evaluation of the merger, the QEP board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the QEP board applied his or her own personal business judgment to the process and may have given different weight to different factors. The QEP board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The QEP board based its recommendation on the totality of the information presented.

Opinion of QEP’s Financial Advisor

Opinion of Evercore Group L.L.C.

At a meeting of the QEP board held on December 20, 2020, Evercore rendered to the QEP board its oral opinion, subsequently confirmed in writing, that as of December 20, 2020, and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s written opinion, the merger consideration to be received by the holders of the QEP common stock in the Merger was fair, from a financial point of view, to such holders.

The full text of the written opinion of Evercore, dated as of December 20, 2020, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex B to this proxy statement/prospectus and is incorporated by reference in its entirety into this proxy statement/prospectus. You are urged to read this opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the QEP board in connection with their evaluation of the proposed merger. The opinion does not constitute a recommendation to the QEP board or to any other persons in respect of the proposed merger, including as to how any holder of shares of QEP common stock should vote or act in respect of the proposed merger. Evercore’s opinion does not address the relative merits of the proposed merger as compared to other business or financial strategies that might be available to QEP, nor does it address the underlying business decision of QEP to engage in the proposed merger. Evercore expressed no opinion as to the price at which shares of QEP common stock or Diamondback common stock will trade at any time.

In connection with rendering its opinion Evercore had, among other things:

 

   

reviewed certain publicly available business and financial information relating to QEP and Diamondback that Evercore deemed to be relevant, including publicly available research analysts’ estimates;

 

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reviewed certain internal projected financial data relating to QEP and Diamondback as approved for Evercore’s use by QEP (the “Forecasts”) and which are summarized in the section entitled “—Certain QEP Unaudited Forecasted Financial Information” of this proxy statement/prospectus;

 

   

reviewed the cost savings and revenue synergies (together, the “Synergies”), estimated to result from the proposed merger and the amounts and the timing of the realization of such Synergies, in each case as estimated and furnished to Evercore by the management of Diamondback, as approved for Evercore’s use by QEP, and which are summarized in the section entitled “—Diamondback’s Rationale for the Merger” beginning on page 76 and “—Recommendation of the QEP Board and Reasons for the Merger” beginning on page 77 of this proxy statement/prospectus;

 

   

discussed with the managements of QEP and Diamondback the past and current operations, current financial condition and prospects of QEP and Diamondback, including the Forecasts and the Synergies;

 

   

reviewed the amount, timing and use of certain U.S. federal tax attributes of QEP (the “Tax Attributes”), as estimated and furnished to Evercore by the management of QEP;

 

   

reviewed the reported prices and the historical trading activity of each of QEP common stock and Diamondback common stock;

 

   

compared the financial performance of QEP and Diamondback and their respective stock market trading multiples with those of certain other publicly traded companies that Evercore deemed relevant;

 

   

compared the financial performance of QEP and the valuation multiples relating to the proposed merger with those of certain other transactions that Evercore deemed relevant;

 

   

reviewed the financial terms and conditions of a draft dated December 20, 2020 of the merger agreement; and

 

   

performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.

For purposes of its analysis and opinion, Evercore assumed and relied upon the accuracy and completeness of the financial and other information publicly available, and all of the information supplied or otherwise made available to, discussed with, or reviewed by Evercore, without any independent verification of such information (and Evercore assumed no responsibility or liability for any independent verification of such information), and further relied upon the assurances of the managements of QEP and Diamondback that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the Forecasts as well as the Synergies and the Tax Attributes, Evercore assumed with QEP’s consent that they were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the managements of QEP or Diamondback, as applicable, as to the future financial performance of QEP and Diamondback as well as the Synergies and the Tax Attributes, including the amount and timing of the realization of such Synergies and the amount, timing and use of such Tax Attributes and the other matters covered thereby. Evercore expressed no view as to the Forecasts, the Synergies, the Tax Attributes or the assumptions on which they were based.

For purposes of its analysis and opinion, Evercore assumed, in all respects material to its analysis, that the final executed merger agreement would not differ from the draft merger agreement reviewed by Evercore, that the representations and warranties of each party contained in the merger agreement were true and correct, that the proposed merger would qualify as a tax free reorganization for United States federal income tax purposes, that each party would perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger would be satisfied without waiver or modification thereof. Evercore further assumed, in all respects material to its analysis, that all governmental, regulatory or other consents, approvals or releases necessary for the consummation of the merger would be obtained without any delay, limitation, restriction or condition that would have an adverse effect on QEP or the consummation of the merger or reduce the contemplated benefits of the merger to the holders of QEP common stock.

 

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Evercore did not conduct a physical inspection of the properties or facilities of QEP or Diamondback and did not make or assume any responsibility for making any independent valuation or appraisal of the assets or liabilities (including any contingent, derivative or other off-balance sheet assets and liabilities) of QEP or Diamondback. Evercore was not furnished with any such valuations or appraisals, nor did Evercore evaluate the solvency or fair value of QEP or Diamondback under any state or federal laws relating to bankruptcy, insolvency or similar matters. Evercore’s opinion was necessarily based upon information made available to it as of December 20, 2020 and financial, economic, market and other conditions as they existed and as could be evaluated on such date. Subsequent developments may affect Evercore’s opinion and Evercore does not have any obligation to update, revise or reaffirm its opinion. The credit, financial and stock markets have been experiencing unusual volatility and Evercore expressed no opinion or view as to any potential effects of such volatility on QEP, Diamondback or the proposed merger.

Evercore was not asked to opine upon, and expressed no opinion with respect to, any matter other than the fairness to the holders of QEP common stock, from a financial point of view, of the merger consideration. Evercore did not express any view on, and its opinion does not address, the fairness of the proposed merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of QEP or Diamondback, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of QEP or Diamondback, or any class of such persons, whether relative to the merger consideration or otherwise. Evercore was not asked to, nor did Evercore express any view on, and Evercore’s opinion did not address, any other term or aspect of the merger agreement or the proposed merger, including, without limitation, the structure or form of the proposed merger, or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger agreement. Evercore’s opinion did not address the relative merits of the proposed merger as compared to other business or financial strategies that might be available to QEP, nor did Evercore’s opinion address the underlying business decision of QEP to engage in the proposed merger. In addition, shortly prior to the date Evercore rendered its opinion, QEP was made aware that Diamondback executed a definitive agreement to acquire all or substantially all of the assets of Guidon . The Forecasts relating to Diamondback and furnished to Evercore and approved for its use by QEP did not reflect the impact of the Pending Guidon Acquisition on Diamondback. Accordingly, with QEP’s consent, Evercore’s opinion did not address, and Evercore did not take into account for purposes of its analysis, the impact of the Pending Guidon Acquisition on Diamondback. In arriving at its opinion, Evercore was not authorized to solicit, and did not solicit, interest from any third party with respect to the acquisition of any or all of QEP’s common stock or any business combination or other extraordinary transaction involving QEP. Evercore’s opinion does not constitute a recommendation to the QEP board or to any other persons in respect of the proposed merger, including as to how any holder of shares of QEP common stock should vote or act in respect of the proposed merger. Evercore expressed no opinion as to the price at which shares of QEP common stock or Diamondback common stock will trade at any time. Evercore is not a legal, regulatory, accounting or tax expert and has assumed the accuracy and completeness of assessments by QEP and its advisors with respect to legal, regulatory, accounting and tax matters.

Set forth below is a summary of the material financial analyses reviewed by Evercore with the QEP board on December 20, 2020, in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described, and the results of these analyses, do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before December 20, 2020, and is not necessarily indicative of current market conditions.

The following summary of Evercore’s financial analyses includes information presented in tabular format. In order to fully understand the analyses, the tables must be read together with the full text of each summary. The tables are not intended to stand alone and do not constitute a complete description of Evercore’s financial analyses. Considering the tables below without considering the full narrative

 

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description of Evercore’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses.

Summary of Evercore’s Financial Analysis

QEP Analysis

Net Asset Value Analysis for QEP on a Standalone Basis

Evercore calculated the after-tax net present value, as of January 1, 2021, of future cash flows QEP was expected to generate based on the reserve report projections provided by QEP management to Evercore and approved for its use (the “QEP Reserve Report”) using two pricing scenarios in which the principal variables were oil and natural gas prices. One scenario was based on the NYMEX oil and natural gas strip pricing as of December 17, 2020 (the “NYMEX Strip Pricing”), which was used for calendar years 2021 through 2024 and held flat thereafter. Benchmark prices for the other scenario were based on QEP management plan pricing the (“QEP Management Plan Pricing”), which was used for calendar years 2021 through 2024 and held flat thereafter. For purpose of its analysis, Evercore selected discount rates ranging from 8% to 35% based on its professional judgment and experience depending on the determined risk profile of the reserve categories. Using the various discount rates depending on the reserve category, Evercore discounted to present value, as of January 1, 2021, the pre-tax cash flows estimated to be generated by QEP from the developed and undeveloped reserve estimates, as reflected in the QEP Reserve Report, to derive a range of total reserve value under each of the QEP Management Plan Pricing and the NYMEX Strip Pricing scenarios. Evercore then deducted from the resulting range of total reserve value the present value of the future estimated effects of QEP’s hedging based on the hedge portfolio as of December 9, 2020, provided by QEP management, the present value of the general and administrative expenses based on the Forecasts, the present value of cash taxes (discounted using a range of discount rates based on the weighted average of discount rates applied to the pre-tax cash flows by reserve category), and QEP’s estimated net debt as of December 31, 2020 (calculated as debt less cash and cash equivalents, inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent), and divided the results by the fully diluted outstanding shares of QEP common stock calculated based on information provided to Evercore by QEP management, to derive a range of implied equity values per share of QEP common stock, based on each of the QEP Management Plan Pricing and the NYMEX Strip Pricing, as follows:

 

     NYMEX Strip Pricing      Management Plan Pricing  

Implied After-Tax Equity Value Per Share

   $ (0.86) - $2.56      $ 0.41 - $4.80  

Discounted Cash Flow Analysis for QEP on a Standalone Basis

Evercore performed a discounted cash flow analysis to calculate ranges of implied present values per share of QEP common stock, utilizing estimates of the standalone, unlevered, after-tax free cash flows that QEP was expected to generate over the period from January 1, 2021 through December 31, 2024, based on both the NYMEX Strip Pricing and the QEP Management Plan Pricing.

For purposes of its discounted cash flow analyses, unlevered free cash flow was defined as earnings before interest and taxes, less taxes, plus depreciation and amortization, plus (less) changes in working capital, less capital expenditures and abandonment expenses.

Evercore calculated ranges of terminal values for QEP based on both the NYMEX Strip Pricing and the QEP Management Plan Pricing (i) using the perpetual growth rate method by applying an assumed perpetuity growth rate range of 2.0% to 3.0% to the estimate of terminal year unlevered free cash flow under both the NYMEX Strip Pricing and the QEP Management Plan Pricing and (ii) using the earnings before interest, taxes, depreciation, amortization and exploration expense (“EBITDAX”) exit multiple method by applying terminal year enterprise value to last-twelve-month (“LTM”) EBITDAX multiples ranging from 3.5x to 4.5x to estimated 2024 EBITDAX under both the NYMEX Strip Pricing and the QEP Management Plan Pricing.

 

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Evercore then discounted QEP’s projected, unlevered free cash flows over the period from 2021 through 2024 and the ranges of terminal values for QEP it calculated using the perpetuity growth rate method and the terminal year LTM EBITDAX multiple method, in each case, to present value as of January 1, 2021, using discount rates ranging from 11.0% to 13.0%, to derive ranges of implied enterprise values for QEP. The discount rates were based on Evercore’s judgment of the estimated range of QEP’s weighted average cost of capital. Evercore then deducted from the ranges of implied enterprise values QEP management’s estimate of QEP’s net debt (calculated as total debt less available cash and cash equivalents of QEP, inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent) as of December 31, 2020, and divided the results by the fully diluted outstanding shares of QEP common stock calculated based on information provided to Evercore by QEP management, to derive ranges of implied equity values per share of QEP common stock as follows:

 

Method

   Implied Per Share Equity
Value Reference Ranges
(NYMEX Strip Pricing)
     Implied Per Share Equity
Value Reference Ranges
(Management Plan Pricing)
 

Perpetuity Growth Rate Method

   $ (2.44) - $(1.45    $ 0.68 - $2.91  

EBITDAX Exit Multiple Method

   $ 2.09 - $4.59      $ 3.74 - $6.65  

Selected Public Company Trading Analysis for QEP on a Standalone Basis

Evercore reviewed and compared certain financial information of QEP to corresponding financial multiples and ratios for the following selected publicly traded companies in the energy industry (referred to in this section as the “selected companies”):

Selected Mid Cap Companies

 

   

Cimarex Energy Co.

 

   

Matador Resources Co.

 

   

PDC Energy, Inc.

Selected Small Cap Companies

 

   

Callon Petroleum Company

 

   

Centennial Resource Development, Inc.

 

   

SM Energy Company

Although none of these companies are directly comparable to QEP, Evercore selected these companies based on its professional judgment because they are exploration and production companies with business characteristics that for purposes of its analysis Evercore considered similar to the business characteristics of QEP.

For QEP and each of the selected companies identified above, Evercore calculated (i) enterprise value (defined as equity market capitalization plus total debt, which, in cases where publicly traded debt traded below 85 cents on the dollar, was added based on its market value, less available cash and cash equivalents, plus non-controlling interests) as a multiple of estimated EBITDAX for calendar years 2021 and 2022, and (ii) the closing share prices as of December 18, 2020 as a multiple of estimated cash flow per share (“CFPS”). The financial multiples and ratios for QEP and the selected companies were based on closing share prices as of December 18, 2020, financial data as reflected in the most recent public filings made by such company and consensus estimates for 2021 and 2022 obtained from publicly available equity research analysts’ projections made available by FactSet Research Systems as of December 18, 2020, and the financial multiples and ratios for QEP were also based on the Forecasts.

 

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The results of these calculations were as follows:

 

Company

   Enterprise Value /
EBITDAX
     Price / CFPS  
   2021E      2022E      2021E      2022E  

Selected Mid Cap Companies

           

Cimarex Energy Co.

     5.0x        4.3x        3.7x        3.3x  

Matador Resources Co.

     5.7x        5.1x        2.5x        2.2x  

PDC Energy, Inc.

     3.7x        3.4x        2.1x        2.0x  

Median

     5.0x        4.3x        2.5x        2.2x  

Mean

     4.8x        4.3x        2.8x        2.5x  

Selected Small Cap Companies

           

Callon Petroleum Company

     4.6x        4.1x        1.0x        0.9x  

Centennial Resource Development, Inc.

     4.2x        3.8x        1.7x        1.5x  

SM Energy Company

     3.4x        2.8x        1.1x        0.9x  

Median

     4.2x        3.8x        1.1x        0.9x  

Mean

     4.1x        3.6x        1.3x        1.1x  

QEP – Analyst Estimates

     4.2x        3.6x        1.3x        1.1x  

QEP – Forecasts

     4.0x        3.2x        1.1x        0.9x  

Based on the multiples it derived for the selected companies and its professional judgment and experience, Evercore applied (i) an enterprise value to EBITDAX multiple reference range of 3.50x to 4.50x to QEP management’s estimate of consolidated 2021 EBITDAX for QEP under the Forecasts based on Consensus Pricing as of December 17, 2020, and (ii) an enterprise value to EBITDAX multiple reference range of 3.00x to 4.00x to QEP management’s estimate of consolidated 2022 EBITDAX for QEP under the Forecasts based on Consensus Pricing as of December 17, 2020, in each case, to derive ranges of implied enterprise values for QEP. Evercore then deducted from the ranges of implied enterprise values QEP’s net debt (calculated as total debt less available cash and cash equivalents of QEP, inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent) as of September 30, 2020, based on current net debt per QEP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, and divided the results by the fully diluted outstanding shares of QEP common stock calculated based on information provided to Evercore by QEP management, to derive a range of implied equity values per share of QEP common stock.

Based on the multiples it derived for the selected companies and its professional judgment and experience, Evercore also applied (i) a price to CFPS multiple reference range of 1.00x to 1.75x to QEP management’s estimate of 2021 CFPS for QEP under the Forecasts based on Consensus Pricing as of December 17, 2020, and (ii) a price to CFPS multiple reference range of 1.00x to 1.50x to QEP management’s estimate of 2022 CFPS for QEP under the Forecasts based on Consensus Pricing as of December 17, 2020 to derive a range of implied equity values per share of QEP common stock.

The results of these calculations were as follows:

 

Metric

   Implied Equity Value
Range Per Share
 

Enterprise Value / EBITDAX

   $ 1.24 - $4.43  

Price / CFPS

   $ 2.02 - $3.70  

Precedent Transaction Analysis for QEP on a Standalone Basis

Evercore reviewed publicly available information related to selected precedent acquisition transactions involving publicly traded exploration & production companies in the oil and gas industry announced since 2016 with a total enterprise value between $500 million and $15 billion. For each selected precedent transaction,

 

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Evercore calculated (i) the implied equity value (based on transaction consideration) as a multiple of cash flow for the target company for each of the first fiscal year and the second fiscal year after the announcement of the applicable transaction based on mean consensus estimates obtained from publicly available equity research analysts’ projections, and (ii) the implied enterprise value (based on transaction consideration) as a multiple of EBITDAX for the target company for each of the first fiscal year and the second fiscal year after the announcement of the applicable transaction based on mean consensus estimates obtained from publicly available equity research analysts’ projections. The selected precedent transactions reviewed by Evercore and the implied equity value to cash flow multiples and implied enterprise value to EBITDAX multiples calculated by Evercore with respect to those target companies were:

 

            Equity Value /Cash Flow
multiples
    Enterprise Value /
EBITDAX multiples
 

Date Announced

 

Buyer

 

Seller

  Fiscal Year 1     Fiscal Year 2     Fiscal Year 1     Fiscal Year 2  

10-20-20

  Pioneer Natural Resources Company   Parsley Energy, Inc.     4.0x       3.8x       5.9x       5.7x  

10-19-20

  ConocoPhillips   Concho Resources Inc.     3.8x       4.7x       4.9x       5.6x  

9-28-20

  Devon Energy Corporation   WPX Energy, Inc.     2.1x       2.4x       3.7x       4.4x  

8-12-20

  Southwestern Energy Company   Montage Resource Corporation     1.5x       1.2x       4.3x       3.7x  

7-20-20

  Chevron Corporation   Noble Energy, Inc.     3.4x       3.0x       6.9x       6.4x  

10-14-19

  Parsley Energy, Inc.   Jagged Peak Energy Inc.     4.0x       2.9x       5.1x       3.7x  

8-26-19

  PDC Energy, Inc.   SRC Energy Inc.     1.9x       1.9x       3.2x       3.1x  

7-15-19

  Callon Petroleum Company(1)   Carrizo Oil & Gas, Inc.     1.1x       1.0x       3.7x       3.4x  

Median
(2019—Present)

      2.7x       2.6x       4.6x       4.1x  

Mean
(2019—Present)

      2.7x       2.6x       4.7x       4.5x  

11-19-18

  Cimarex Energy Co.   Resolute Energy Corporation     4.7x       2.4x       7.5x       4.2x  

11-1-18

  Encana Corporation   Newfield Exploration Company     3.8x       3.1x       5.0x       4.1x  

10-30-18

  Chesapeake Energy Corporation   WildHorse Resource Development Corporation     5.0x       3.9x       5.8x       4.5x  

8-14-18

  Diamondback Energy, Inc.   Energen Corporation     8.3x       6.1x       8.9x       6.8x  

3-28-18

  Concho Resources Inc.   RSP Permian, Inc.     9.4x       6.8x       10.0x       7.8x  

6-19-17

  EQT Corporation   Rice Energy Inc.     7.0x       5.5x       7.9x       6.3x  

5-15-16

  Range Resources Corporation   Memorial Resource Development Corp.     8.1x       10.3x       9.3x       11.8x  

Median
(2016—Present)

      4.0x       3.1x       5.8x       4.5x  

Mean
(2016—Present)

        4.5x       3.9x       6.1x       5.4x  

 

(1) 

Based on revised offer on November 14, 2019.

Although none of the target companies above are directly comparable to QEP and none of the precedent transactions are directly comparable to the proposed merger, Evercore selected these transactions based on its professional judgment because they involve target companies that are exploration and production companies with

 

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business characteristics that for purposes of its analysis Evercore considered similar to the business characteristics of QEP.

Based on the multiples it derived from the selected precedent transactions and based on its professional judgment and experience, Evercore (i) selected a reference range of enterprise value to EBITDAX multiples of 3.25x to 4.25x and applied this range of multiples to QEP’s estimated consolidated EBITDAX for 2021, as reflected in the Forecasts based on Consensus Pricing as of December 17, 2020, and (ii) selected a reference range of enterprise value to EBITDAX multiples of 3.00x to 4.00x and applied this range of multiples to QEP’s estimated consolidated EBITDAX for 2022, as reflected in the Forecasts based on Consensus Pricing as of December 17, 2020, in each case to calculate an implied enterprise value for QEP. Evercore then deducted from the ranges of implied enterprise values QEP’s net debt (calculated as total debt less available cash and cash equivalents of QEP, inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent) as of September 30, 2020, and divided the results by the fully diluted outstanding shares of QEP common stock calculated based on information provided to Evercore by QEP management, to derive a range of implied equity values per share of QEP common stock.

Based on the multiples it derived from the selected precedent transactions and based on its professional judgment and experience, Evercore also (i) selected a reference range of equity value to CFPS multiples of 1.00x to 1.75x and applied this range of multiples to QEP’s estimated CFPS for 2021, as reflected in the Forecasts based on Consensus Pricing as of December 17, 2020, and (ii) selected a reference range of equity value to CFPS multiples of 1.00x to 1.75x and applied this range of multiples to QEP’s estimated CFPS for 2022, as reflected in the Forecasts based on Consensus Pricing as of December 17, 2020, to derive a range of implied equity values per share of QEP common stock.

The results of the calculations were as follows:

 

Metric    Implied Equity Value
Range Per Share
 

Enterprise Value / EBITDAX

   $ 0.70 - $4.43  

Equity Value / CFPS

   $ 2.02 - $4.32  

Other Financial Analysis for QEP on a Standalone Basis

The analysis and data described below were presented to the QEP board for informational and reference purposes only and did not provide the basis for, and were not otherwise material to, the rendering of Evercore’s fairness opinion.

Analysts’ Price Targets

Evercore reviewed selected publicly available share price targets of research analysts’ estimates known to Evercore as of December 18, 2020, noting that the low and high share price targets ranged from $2.00 to $3.10 per share of QEP common stock.

52-Week Trading Range Analysis

Evercore reviewed historical trading prices of QEP common stock during the 52-week period ended December 18, 2020, noting that low and high closing prices during such period ranged from $0.28 to $4.72 per share of QEP common stock.

Premia Paid Analysis

Evercore reviewed and analyzed premia paid in the selected precedent acquisition transactions summarized above under the heading “—Precedent Transaction Analysis for QEP on a Standalone Basis”. Based on its

 

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professional judgment and experience and the premia reviewed in the selected transactions, Evercore applied reference ranges of premia of (5)% to 15% to the closing price of shares of QEP common stock as of December 18, 2020. This analysis implied a per share equity value reference range of approximately $2.19 to $2.66 per share of QEP common stock.

Diamondback Analysis

Discounted Cash Flow Analysis for Diamondback on a Standalone Basis

Evercore performed a discounted cash flow analysis to calculate ranges of implied present values per share of Diamondback common stock, utilizing estimates of the standalone, consolidated, unlevered, after-tax free cash flows Diamondback was expected to generate over the period from January 1, 2021 through December 31, 2024, based on both the NYMEX Strip Pricing and the QEP Management Plan Pricing.

For purposes of its discounted cash flow analyses, unlevered free cash flow was defined as earnings before interest and taxes, less taxes, plus depreciation and amortization, plus (less) changes in working capital, less capital expenditures, net acquisitions and capitalized cash costs.

Evercore calculated ranges of terminal values for Diamondback based on both the NYMEX Strip Pricing and the QEP Management Plan Pricing (i) using the perpetual growth rate method by applying an assumed perpetuity growth rate range of 2.0% to 3.0% to the estimate of terminal year unlevered free cash flow under both the NYMEX Strip Pricing and the QEP Management Plan Pricing and (ii) using the EBITDAX exit multiple method by applying terminal year enterprise value to LTM EBITDAX multiples ranging from 5.5x to 7.5x to estimated 2024 EBITDAX under both the NYMEX Strip Pricing and the QEP Management Plan Pricing.

Evercore then discounted Diamondback’s projected, unlevered free cash flows over the period from 2021 through 2024 and the ranges of terminal values for Diamondback it calculated using the perpetuity growth rate method and the terminal year LTM EBITDAX multiple method, in each case, to present value as of January 1, 2021, using discount rates ranging from 7.0% to 9.0%, to derive ranges of implied enterprise values for Diamondback. The discount rates were based on Evercore’s judgment of the estimated range of Diamondback’s weighted average cost of capital. Evercore then deducted from the ranges of implied enterprise values Diamondback management’s estimate of Diamondback’s net debt (calculated as total debt less available cash and cash equivalents of Diamondback, inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent) as of December 31, 2020 and market value of Diamondback’s direct interest in Viper Energy Partners and Rattler Midstream, and divided the results by the fully diluted outstanding shares of Diamondback common stock calculated based on information provided to Evercore by Diamondback management, to derive ranges of implied equity values per share of Diamondback common stock as follows:

 

Method

   Implied Per Share Equity
Value Reference Ranges
(NYMEX Strip Pricing)
     Implied Per Share Equity
Value Reference Ranges
(Management Plan Pricing)
 

Perpetuity Growth Rate Method

   $ 4.80 - $35.33      $ 38.14 - $93.32  

EBITDAX Exit Multiple Method

   $ 36.96 - $68.11      $ 56.24 - $93.74  

Selected Public Company Trading Analysis for Diamondback on a Standalone Basis

Evercore reviewed and compared certain financial information of Diamondback to corresponding financial multiples and ratios for the following selected publicly traded companies in the energy industry (referred to in this section as the “selected companies”):

Selected Large Cap Companies

 

   

Continental Resources, Inc.

 

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Devon Energy Corporation

 

   

Ovintiv Inc.

 

   

Pioneer Natural Resources Company

Selected Mid Cap Companies

 

   

Cimarex Energy Co.

 

   

Matador Resources Co.

 

   

PDC Energy, Inc.

Although none of these companies are directly comparable to Diamondback, Evercore selected these companies based on its professional judgment because they are exploration and production companies with business characteristics that for purposes of its analysis Evercore considered similar to the business characteristics of Diamondback.

For Diamondback and each of the selected companies identified above, Evercore calculated (i) enterprise value (defined as equity market capitalization plus total debt, less available cash and cash equivalents, plus non-controlling interests) as a multiple of estimated EBITDAX for calendar years 2021 and 2022, and (ii) the closing share prices as of December 18, 2020 as a multiple of estimated CFPS. The financial multiples and ratios for Diamondback and the selected companies were based on closing share prices as of December 18, 2020, financial data as reflected in the most recent public filings made by such company and consensus estimates for 2021 and 2022 obtained from publicly available equity research analysts’ projections made available by FactSet Research Systems as of December 18, 2020.

The results of these calculations were as follows:

 

Company

   Enterprise Value /
EBITDAX
     Price / CFPS  
   2021E      2022E      2021E      2022E  

Selected Large Cap Companies

                           

Continental Resources, Inc.(1)

     5.7x        5.2x        3.2x        2.9x  

Devon Energy Corporation(2)

     5.2x        4.4x        4.3x        3.5x  

Ovintiv Inc.

     4.6x        4.2x        1.9x        1.8x  

Pioneer Natural Resources Company(3)

     8.0x        6.6x        6.7x        5.6x  

Median

     5.4x        4.8x        3.8x        3.2x  

Mean

     5.9x        5.1x        4.1x        3.5x  
           

Selected Mid Cap Companies

                           

Cimarex Energy Co.

     5.0x        4.3x        3.7x        3.3x  

Matador Resources Co.

     5.7x        5.1x        2.5x        2.2x  

PDC Energy, Inc.

     3.7x        3.4x        2.1x        2.0x  

Median

     5.0x        4.3x        2.5x        2.2x  

Mean

     4.8x        4.3x        2.8x        2.5x  

 

(1)

Pro forma for announced cash tender offers.

(2) 

Pro forma for announced WPX acquisition.

(3) 

Pro forma for announced Parsley Energy acquisition.

Based on the multiples it derived for the selected companies and its professional judgment and experience, Evercore applied (i) an enterprise value to EBITDAX multiple reference range of 5.50x to 7.50x

 

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to estimates of consolidated 2021 EBITDAX for Diamondback as reflected in the Forecasts based on Consensus Pricing as of December 17, 2020, and (ii) an enterprise value to EBITDAX multiple reference range of 4.75x to 6.25x to consolidated 2022 EBITDAX for Diamondback as reflected in the Forecasts based on Consensus Pricing as of December 17, 2020, in each case, to derive ranges of implied enterprise values for Diamondback. Evercore then deducted from the ranges of implied enterprise values Diamondback’s net debt (calculated as total debt less available cash and cash equivalents of Diamondback, inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent) as of September 30, 2020 based on current net debt per Diamondback’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and market value of Diamondback’s direct interest in Viper Energy Partners and Rattler Midstream, and divided the results by the fully diluted outstanding shares of Diamondback common stock calculated based on information provided to Evercore by Diamondback management, to derive a range of implied equity values per share of Diamondback common stock.

Based on the multiples it derived for the selected companies and its professional judgment and experience, Evercore also applied (i) a price to CFPS multiple reference range of 3.25x to 4.75x to Diamondback management’s estimate of 2021 CFPS for Diamondback under the Forecasts based on Consensus Pricing as of December 17, 2020, and (ii) a price to CFPS multiple reference range of 3.00x to 4.00x to Diamondback management’s estimate of 2022 CFPS for Diamondback under the Forecasts based on Consensus Pricing as of December 17, 2020 to derive a range of implied equity values per share of Diamondback common stock.

The results of these calculations were as follows:

 

Metric    Implied Equity Value
Range Per Share
 

Enterprise Value / EBITDAX

   $ 35.05 - $69.05  

Price / CFPS

   $ 43.63 - $68.21  

Other Financial Analysis for Diamondback on a Standalone Basis

The analysis and data described below were presented to the QEP board for informational and reference purposes only and did not provide the basis for, and were not otherwise material to, the rendering of Evercore’s fairness opinion.

Analysts’ Price Targets

Evercore reviewed selected publicly available share price targets of research analysts’ estimates known to Evercore as of December 18, 2020, noting that the low and high share price targets ranged from $45.50 to $94.00 per share of Diamondback common stock.

52-Week Trading Range Analysis

Evercore reviewed historical trading prices of Diamondback common stock during the 52-week period ended December 18, 2020, noting that low and high closing prices during such period ranged from $15.56 to $96.42 per share of Diamondback common stock.

Miscellaneous

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by Evercore. In connection with the evaluation of the proposed merger by the QEP board, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial

 

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analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of the shares of QEP common stock. Further, Evercore’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of QEP or its advisors.

Evercore prepared these analyses for the purpose of providing an opinion to the QEP board as to the fairness, from a financial point of view, of the merger consideration to be received by the holders of the QEP common stock in the Merger to such holders. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates.

The issuance of the fairness opinion was approved by a Fairness Opinion Committee of Evercore.

Pursuant to the terms of Evercore’s engagement letter with QEP, Evercore is entitled to receive a fee of up to $25 million if the proposed merger is consummated, against which a fee of $2.5 million that was paid upon delivery of Evercore’s fairness opinion is fully creditable. QEP has also agreed to reimburse Evercore for its reasonable and documented out of pocket expenses (including reasonable and documented outside legal fees, expenses and disbursements) and to indemnify Evercore for certain liabilities arising out of its engagement.

During the two year period prior to the date of its written opinion, Evercore provided financial advisory or other services to QEP, for which Evercore received fees of less than $4 million. During the two-year period prior to the date of its written opinion, Evercore provided financial advisory or other services to Diamondback and/or its affiliates, for which Evercore received fees of less than $1 million. In the future, Evercore may provide financial advisory or other services to QEP and Diamondback and/or its affiliates and in connection with any such services Evercore may receive compensation.

In the ordinary course of business, Evercore or its affiliates may actively trade the securities, or related derivative securities, or financial instruments of QEP, Diamondback and their respective affiliates, for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or instruments.

QEP engaged Evercore to act as a financial advisor based on Evercore’s qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and is regularly engaged in the valuation of businesses in connection with mergers and acquisitions, leveraged buyouts, competitive biddings, private placements and valuations for corporate and other purposes.

Certain QEP Unaudited Forecasted Financial Information

QEP does not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, production, earnings or other results given, among other reasons, the uncertainty,

 

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unpredictability and subjectivity of the underlying assumptions and estimates. However, in connection with its evaluation of the merger, certain non-public unaudited internal financial forecasts with respect to QEP covering multiple years on a standalone basis were prepared by QEP’s management and not for public disclosure, which were based upon the internal financial model that QEP has historically used in connection with strategic planning, and which were provided to the QEP board and the Diamondback board in connection with their evaluations of the merger and were also provided to Evercore, QEP’s financial advisor, for their use in advising QEP and reliance in connection with its separate financial analysis and opinion as described in the section entitled “—Opinion of QEP’s Financial Advisor” and to Goldman Sachs, Diamondback’s financial advisor.

The summary of the unaudited forecasted financial and operating information presented below is not being included in this proxy statement/prospectus to influence your decision whether to vote for or against the merger proposal, but are being included because these forecasts were made available to the QEP board and QEP’s financial advisor. The QEP forecasted financial information was prepared by and is the responsibility of QEP management.

The inclusion of this information should not be regarded as an indication that the QEP board, QEP (or any of its affiliates, officers, directors, advisors or other representatives) or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.

This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the unaudited forecasted financial and operating information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of QEP’s management, including, among others, QEP’s future results, oil and gas industry activity, commodity prices, demand for crude oil and natural gas, the availability of financing to fund the exploration and development costs associated with the respective projected drilling programs, takeaway capacity and the availability of services in the areas in which QEP operates, general economic and regulatory conditions and other matters described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements,” “Where You Can Find More Information,” and “Risk Factors,” beginning on pages 50, 180 and 35, respectively. The unaudited forecasted financial and operating information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. QEP can give no assurance that the unaudited forecasted financial and operating information and the underlying estimates and assumptions will be realized or that actual results will not be significantly higher or lower than forecasted. As a result, the QEP forecasted financial information summarized in this proxy statement/prospectus should not be relied on as necessarily predictive of actual future events. In addition, since the unaudited forecasted financial and operating information covers multiple years, such information by its nature becomes less predictive with each successive year. This information constitutes “forward-looking statements” and actual results may differ materially and adversely from those projected. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited forecasted financial and operating information not be realized include, but are not limited to, risks and uncertainties relating to its business, industry performance, the regulatory environment, general business and economic conditions and other matters described under the section of this proxy statement/prospectus titled “Risk Factors.” See also “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information.”

This unaudited forecasted financial information was not prepared with a view toward public disclosure, compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of forecasted financial information. The forecasted financial information included in this document has been prepared by, and is the responsibility of, QEP’s management, and in the view of QEP’s management was prepared on a reasonable basis, reflects the best available estimates and judgments as of the date it was prepared, and presents, to the best of QEP management’s

 

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knowledge and belief, the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers are cautioned not to place undue reliance on the prospective financial information. PricewaterhouseCoopers LLP and Deloitte & Touche LLP have not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying forecasted financial information and, accordingly, PricewaterhouseCoopers LLP and Deloitte & Touche LLP do not express an opinion or any other form of assurance with respect thereto, and assume no responsibility for, and disclaim any association with, the forecasted financial information. The PricewaterhouseCoopers LLP report incorporated by reference in this document relates to QEP’s previously issued financial statements. It does not extend to the forecasted financial information and should not be read to do so.

Furthermore, the unaudited forecasted financial and operating information does not take into account any circumstances or events occurring after the date it was prepared. QEP can give no assurance that, had the unaudited forecasted financial and operating information been prepared either as of the date of the merger agreement or as of the date of this proxy statement/prospectus, similar estimates and assumptions would be used. Except as required by applicable securities laws, QEP does not intend to, and disclaims any obligation to, make publicly available any update or other revision to the unaudited forecasted financial and operating information to reflect circumstances existing since its preparation or to reflect the occurrence of events, even in the event that any or all of the underlying assumptions are shown to be not appropriate, including with respect to the accounting treatment of the merger under GAAP, or to reflect changes in general economic or industry conditions. The unaudited forecasted financial and operating information does not take into account possible financial and other effects on QEP of the merger, the effect on QEP of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the unaudited forecasted financial and operating information does not take into account the effect on QEP of any possible failure of the merger to occur. None of QEP or its affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any QEP stockholder or Diamondback stockholder or other person regarding QEP’s or Diamondback’s ultimate performance compared to the information contained in the unaudited forecasted financial and operating information or that the forecasted results will be achieved. The inclusion of the unaudited forecasted financial and operating information herein should not be deemed an admission or representation by QEP or its advisors or any other person that it is viewed as material information of QEP, particularly in light of the inherent risks and uncertainties associated with such forecasts.

In light of the foregoing, and considering that the special meeting will be held several months after the unaudited forecasted financial and operating information was prepared, as well as the uncertainties inherent in any forecasted information, QEP stockholders are cautioned not to place undue reliance on such information, and QEP urges all QEP stockholders to review QEP’s most recent SEC filings for a description of QEP’s reported financial results. See the section entitled “Where You Can Find More Information” beginning on page 180.

QEP’s Assumptions

The information described below in the section entitled “—QEP Unaudited Forecasted Financial Information” was based on various assumptions, including, but not limited to, the following two sets of commodity price assumptions: the QEP Management Plan Pricing, which was based on price assumptions for oil and natural gas pricing as of December 20, 2020, and the NYMEX Strip Pricing as of December 17, 2020.

 

     QEP Management Plan Pricing(1)  
     2020E      2021E      2022E      2023E      2024E  

Oil ($/Bbl)

   $ 38.78      $ 45.00      $ 50.00      $ 50.00      $ 50.00  

Natural Gas ($/MMBtu)

   $ 2.06      $ 2.75      $ 2.50      $ 2.50      $ 2.50  

 

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(1)

The table represents QEP’s pricing assumptions for 2020, which reflect actual prices through October 2020 and price assumptions for November and December 2020, and QEP’s price assumptions for 2021 through 2024.

 

     NYMEX Strip Pricing(1)  
     2020E      2021E      2022E      2023E      2024E  

Oil ($/Bbl)

   $ 39.39      $ 48.36      $ 47.08      $ 46.07      $ 45.48  

Natural Gas ($/MMBtu)

   $ 2.05      $ 2.75      $ 2.64      $ 2.51      $ 2.53  

 

(1)

The table represents QEP’s pricing assumptions for 2020, which reflect actual prices through October 2020 and price assumptions for November and December, and NYMEX strip pricing as of December 17, 2020, for 2021 through 2024.

The QEP Unaudited Forecasted Financial Information also reflects assumptions regarding the continuing nature of ordinary course operations that may be subject to change.

QEP Unaudited Forecasted Financial Information

The following tables set forth certain summarized unaudited prospective financial and operating information with respect to QEP for the fiscal years 2020 through 2024 on a standalone basis prepared by QEP management based on the QEP Management Plan Pricing, which was based on price assumptions for oil and natural gas pricing as of December 20, 2020, and the NYMEX Strip Pricing as of December 17, 2020.

 

     QEP Standalone -
QEP Management Plan Pricing(1)
For the Year Ended December 31,
 
($ in millions)    2020E      2021E      2022E      2023E      2024E  

Production (Mboe/d)

     82.3        84.3        82.6        89.6        101.0  

Adjusted EBITDA(2)

   $ 652.1      $ 522.5      $ 603.9      $ 681.4      $ 840.4  

Capital Expenditures

   $ 337.9      $ 305.7      $ 413.7      $ 511.3      $ 637.9  

Free Cash Flow(3)

   $ 210.1      $ 137.4      $ 109.7      $ 82.2      $ 103.5  

Net Debt/Adjusted EBITDA(4)

     2.4x        2.6x        2.0x        1.7x        1.3x  

 

(1)

The information set forth in this table does not take into account any circumstances or events occurring after the date it was prepared. Given that the QEP special meeting will be held several months after such information was prepared, as well as the uncertainties inherent in any forecasted information, QEP and Diamondback stockholders are cautioned not to place undue reliance on such information.

(2)

Adjusted EBITDA (a non-GAAP measure) is defined as earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA), adjusted to exclude changes in fair value of derivative contracts, exploration expenses, gains and losses from asset sales, impairment, gains or losses from early extinguishment of debt and certain other items.

(3)

Free Cash Flow (a non-GAAP measure) is defined as Adjusted EBITDA plus certain non-cash items that are included in Net Cash Provided by (Used in) Operating Activities but excluded from Adjusted EBITDA less interest expense, excluding amortization of debt issuance costs and discounts, and accrued property, plant and equipment capital expenditures.

 

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(4)

Net Debt is defined as long-term debt less cash and cash equivalents and is not inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent. Net Debt is a non-GAAP financial measure, and its most directly comparable measure calculated in accordance with GAAP is long-term debt. This measure should not be considered as an alternative to long-term debt or other measures derived in accordance with GAAP.

 

     QEP Standalone –
NYMEX Strip Pricing(1)
For the Year Ended December 31,
 
($ in millions)    2020E      2021E      2022E      2023E     2024E  

Production (Mboe/d)

     82.3        84.3        82.6        89.6       101.0  

Adjusted EBITDA(2)

   $ 652.6      $ 542.7      $ 548.5      $ 596.4     $ 729.1  

Capital Expenditures

   $ 337.9      $ 305.7      $ 413.7      $ 511.3     $ 637.9  

Free Cash Flow(3)

   $ 210.6      $ 157.6      $ 54.4      $ (2.8   $ (7.9

Net Debt/Adjusted EBITDA(4)

     2.4x        2.5x        2.3x        2.1x       1.8x  

 

(1)

The information set forth in this table does not take into account any circumstances or events occurring after the date it was prepared. Given that the QEP Special Meeting will be held several months after such information was prepared, as well as the uncertainties inherent in any forecasted information, QEP and Diamondback stockholders are cautioned not to place undue reliance on such information.

(2)

Adjusted EBITDA (a non-GAAP measure) is defined as earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA), adjusted to exclude changes in fair value of derivative contracts, exploration expenses, gains and losses from asset sales, impairment, gains or losses from early extinguishment of debt and certain other items.

(3)

Free Cash Flow (a non-GAAP measure) is defined as Adjusted EBITDA plus certain non-cash items that are included in Net Cash Provided by (Used in) Operating Activities but excluded from Adjusted EBITDA less interest expense, excluding amortization of debt issuance costs and discounts, and accrued property, plant and equipment capital expenditures.

(4)

Net Debt is defined as long-term debt less cash and cash equivalents and is not inclusive of the current portion of Alternative Minimum Tax refund treated as a cash equivalent. Net Debt is a non-GAAP financial measure, and its most directly comparable measure calculated in accordance with GAAP is long-term debt. This measure should not be considered as an alternative to long-term debt or other measures derived in accordance with GAAP.

Assumptions with respect to Diamondback

The information described below in the section entitled “—Forecasted Financial Information with respect to Diamondback” was based on various assumptions, including, but not limited to, the following two sets of commodity price assumptions: the QEP Management Plan Pricing, which was based on price assumptions for oil and natural gas pricing as of December 20, 2020, and the NYMEX Strip Pricing as of December 17, 2020.

 

     QEP Management Plan Pricing(1)  
     2020E      2021E      2022E      2023E      2024E  

Oil ($/Bbl)

   $ 38.33      $ 45.00      $ 50.00      $ 50.00      $ 50.00  

Natural Gas ($/MMBtu)

   $ 2.14      $ 2.75      $ 2.50      $ 2.50      $ 2.50  

 

(1)

The table represents Diamondback’s pricing assumptions for 2020, which reflect actual prices through November 2020 and a price assumption for December 2020, and QEP’s price assumptions for 2021 through 2024.

 

     NYMEX Strip Pricing(1)  
     2020E      2021E      2022E      2023E      2024E  

Oil ($/Bbl)

   $ 39.13      $ 48.36      $ 47.08      $ 46.07      $ 45.48  

Natural Gas ($/MMBtu)

   $ 2.15      $ 2.75      $ 2.64      $ 2.51      $ 2.53  

 

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(1)

The table represents Diamondback’s pricing assumptions for 2020, which reflect actual prices through November 2020 and a price assumption for December 2020, and NYMEX strip pricing as of December 17, 2020, for 2021 through 2024.

The Forecasted Financial Information with respect to Diamondback also reflects assumptions regarding the continuing nature of ordinary course operations that may be subject to change.

Forecasted Financial Information with respect to Diamondback

The following tables set forth certain summarized unaudited prospective financial and operating information with respect to Diamondback for the fiscal years 2020 through 2024 on a standalone basis. This information reflects forecasts prepared by Diamondback management (the “Original DB Forecasts”) and adjusted by QEP management to reflect, instead of the pricing assumptions provided by Diamondback management, the QEP Management Plan Pricing which was based on price assumptions for oil and natural gas pricing as of December 20, 2020, and the NYMEX Strip Pricing as of December 17, 2020 (such resulting forecasts, the “Adjusted DB Forecasts”).

 

     Diamondback Standalone –
QEP Management Plan Pricing(1)
For the Year Ended December 31,
 

($ in millions)

   2020E      2021E      2022E      2023E      2024E  

Production (Mboe/d)

     300.6        290.1        305.6        328.1        350.7  

Adjusted EBITDA(2)

   $ 2,127.0      $ 2,289.0      $ 2,835.0      $ 3,009.0      $ 3,195.0  

Capital Expenditures

   $ 1,872.0      $ 1,309.0      $ 1,575.0      $ 1,755.0      $ 1,855.0  

Free Cash Flow(3)

   $ 51.6      $ 844.9      $ 1,151.1      $ 1,153.6      $ 1,238.1  

Net Debt/Adjusted EBITDA(4)(5)

     2.6x        2.3x        1.6x        1.3x        1.0x  

 

(1)

The information set forth in this table does not take into account any circumstances or events occurring after the date it was prepared. Given that the QEP special meeting will be held several months after such information was prepared, as well as the uncertainties inherent in any forecasted information, QEP and Diamondback stockholders are cautioned not to place undue reliance on such information.

(2)

Adjusted EBITDA (a non-GAAP measure) is defined as earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA), adjusted to exclude changes in fair value of derivative contracts, stock-based compensation expense, gains and losses from asset sales, impairment, income from equity method investments, gains or losses from early extinguishment of debt and certain other items.

(3)

Free Cash Flow (a non-GAAP measure) is defined as total operating cash flow less changes in working capital and total capital expenditures before acquisitions.

(4)

Net Debt is defined as long-term debt less cash and cash equivalents. Net Debt is a non-GAAP financial measure, and its most directly comparable measure calculated in accordance with GAAP is long-term debt. This measure should not be considered as an alternative to long-term debt or other measures derived in accordance with GAAP.

(5)

Net Debt excludes Diamondback’s DrillCo obligation.

 

     Diamondback Standalone –
NYMEX Strip Pricing(1)
For the Year Ended December 31,
 

($ in millions)

   2020E      2021E      2022E      2023E      2024E  

Production (Mboe/d)

     300.6        290.1        305.6        328.1        350.7  

Adjusted EBITDA(2)

   $ 2,137.8      $ 2,264.2      $ 2,461.1      $ 2,545.3      $ 2,670.2  

Capital Expenditures

   $ 1,872.4      $ 1,309.5      $ 1,575.1      $ 1,755.1      $ 1,855.3  

Free Cash Flow(3)

   $ 62.3      $ 820.5      $ 777.4      $ 690.0      $ 713.0  

Net Debt/Adjusted EBITDA(4)(5)

     2.6x        2.3x        2.0x        1.8x        1.6x  

 

(1)

The information set forth in this table does not take into account any circumstances or events occurring after the date it was prepared. Given that the QEP Special Meeting will be held several months after such information was prepared, as well as the uncertainties inherent in any forecasted information, QEP and Diamondback stockholders are cautioned not to place undue reliance on such information.

 

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(2)

Adjusted EBITDA (a non-GAAP measure) is defined as earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA), adjusted to exclude changes in fair value of derivative contracts, stock-based compensation expense, gains and losses from asset sales, impairment, income from equity method investments, gains or losses from early extinguishment of debt and certain other items.

(3)

Free Cash Flow (a non-GAAP measure) is defined as total operating cash flow less changes in working capital and total capital expenditures before acquisitions.

(4)

Net Debt is defined as long-term debt less cash and cash equivalents. Net Debt is a non-GAAP financial measure, and its most directly comparable measure calculated in accordance with GAAP is long-term debt. This measure should not be considered as an alternative to long-term debt or other measures derived in accordance with GAAP.

(5)

Net Debt excludes Diamondback’s DrillCo obligation.

Certain Additional Information regarding Forecasted Financial Information with respect to Diamondback

Diamondback does not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, production, earnings or other results given, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, in connection with the merger, the Original DB Forecasts were prepared by Diamondback’s management and not for public disclosure and were provided to QEP for consideration and potential inclusion in materials provided to the QEP board and/or Evercore, QEP’s financial advisor. The Adjusted DB Forecasts were prepared by QEP’s management based on the Original DB Forecasts not for public disclosure and were included in materials provided to the QEP board and Evercore.

The inclusion of any unaudited forecasted financial and operating information regarding Diamondback in this proxy statement/prospectus including the Adjusted DB Forecasts, is not intended to influence your decision whether to vote for or against the merger proposal, but are being included because these forecasts were made available to the QEP board and QEP’s financial advisor. While the Original DB Forecasts were prepared by and are the responsibility of Diamondback management, the Adjusted DB Forecasts included in this proxy were prepared by QEP’s management based on the Original DB Forecasts and are the responsibility of QEP management.

The delivery to QEP of the Original DB Forecasts and the inclusion of the Adjusted DB Forecasts in this proxy statement/prospectus should not be regarded as an indication that the Diamondback board, Diamondback, the QEP board or QEP (or any of their respective affiliates, officers, directors, advisors or other representatives) or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.

Original DB Forecasts and the Adjusted DB Forecasts were prepared solely for use as described above and are subjective in many respects. While presented with numeric specificity, the unaudited forecasted financial and operating information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of Diamondback’s management, including, among others, the matters described above preceding the presentation of QEP Forecasted Financial Information and other matters described in the sections entitled “Cautionary Statement Regarding Forward-Looking Statements,” “Where You Can Find More Information” and “Risk Factors” beginning on pages 50, 180 and 35, respectively. The unaudited forecasted financial and operating information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Neither Diamondback nor QEP can give any assurance that the Original DB Forecasts or the Adjusted DB Forecasts and the underlying estimates and assumptions will be realized or that actual results will not be significantly higher or lower than forecasted. As a result, the Adjusted DB Forecasts in this proxy statement/prospectus should not be relied on as necessarily predictive of actual future events. In addition, since the unaudited forecasted financial and operating information covers multiple years, such information by its nature becomes less predictive with each successive year. This information constitutes “forward-looking statements” and actual results may differ materially and adversely from those projected. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited forecasted financial and operating information not be realized include, but are not limited to, risks and uncertainties relating to its business, industry performance, the regulatory environment, general business and

 

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economic conditions and other matters described under the section of this proxy statement/prospectus titled “Risk Factors.” See also “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information.”

Neither the Original DB Forecasts nor the Adjusted DB Forecasts was prepared with a view toward compliance with GAAP, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of forecasted financial information. The Original DB Forecasts have been prepared by and are the responsibility of Diamondback management. The Adjusted DB Forecasts have been prepared by QEP Management based on the Original DB Forecasts, and such Adjusted DB Forecasts are the responsibility of QEP management. Neither PricewaterhouseCoopers LLP nor Grant Thornton LLP has audited, reviewed, examined, compiled or applied agreed-upon procedures with respect to the Original DB Forecasts or the Adjusted DB Forecasts and, accordingly, neither PricewaterhouseCoopers LLP nor Grant Thornton LLP expresses an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report and Grant Thornton report incorporated by reference in this document relates to QEP’s and Diamondback’s previously issued financial statements. It does not extend to the forecasted financial information and should not be read to do so.

Furthermore, the Original DB Forecasts and the Adjusted DB Forecasts do not take into account any circumstances or events occurring after the date they were prepared. Neither QEP nor Diamondback can give any assurance that, had Original DB Forecasts or the Adjusted DB Forecasts been prepared either as of the date of the merger agreement or as of the date of this proxy statement/prospectus, similar estimates and assumptions would be used. Except as required by applicable securities laws, Neither QEP nor Diamondback intends to, and each disclaims any obligation to, make publicly available any update or other revision to the unaudited forecasted financial and operating information to reflect circumstances existing since its preparation or to reflect the occurrence of events, even in the event that any or all of the underlying assumptions are shown to be not appropriate, including with respect to the accounting treatment of the merger under GAAP, or to reflect changes in general economic or industry conditions. Original DB Forecasts and the Adjusted DB Forecasts do not take into account possible financial and other effects of the merger or the Pending Guidon Acquisition, the effect of any business or strategic decision or action that has been or will be taken as a result of the merger agreement or the agreement with Guidon having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement or the agreement with Guidon had not been executed, but which were instead altered, accelerated, postponed or not taken in anticipation of the merger. Further, the Original DB Forecasts and the Adjusted DB Forecasts do not take into account the effect on Diamondback of any possible failure of the merger to occur or failure to complete the Pending Guidon Acquisition. None of Diamondback, QEP or their respective affiliates, officers, directors, advisors or other representatives has made, makes or is authorized in the future to make any representation to any QEP stockholder or Diamondback stockholder or other person regarding QEP’s or Diamondback’s ultimate performance compared to the information contained in the Original DB Forecasts and the Adjusted DB Forecasts or that the forecasted results will be achieved. The delivery of the Original DB Forecasts to QEP and the inclusion of the Adjusted DB Forecasts in this proxy statement prospectus should not be deemed an admission or representation by Diamondback or its advisors or any other person that it is viewed as material information of Diamondback, particularly in light of the inherent risks and uncertainties associated with such forecasts.

In light of the foregoing, and considering that the QEP special meeting will be held several months after the unaudited forecasted financial and operating information was prepared, as well as the uncertainties inherent in any forecasted information, stockholders are cautioned not to place undue reliance on such information, and Diamondback urges all stockholders to review Diamondback’s most recent SEC filings for a description of Diamondback’s reported financial results. See the section entitled “Where You Can Find More Information” beginning on page 180.

NEITHER DIAMONDBACK NOR QEP INTENDS TO UPDATE OR OTHERWISE REVISE THE ABOVE UNAUDITED FORECASTED FINANCIAL AND OPERATING INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH UNAUDITED FORECASTED FINANCIAL AND OPERATING INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.

 

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Regulatory Approvals

The completion of the merger is subject to the receipt of antitrust clearance in the United States. Under the HSR Act and the rules promulgated thereunder, the merger may not be completed until notification and report forms have been filed with the United States Federal Trade Commission (“FTC”) and the Antitrust Division of the United States Department of Justice (“Antitrust Division”), and the applicable waiting period (or any extensions of such waiting period) has expired or been terminated. For additional information regarding regulatory approvals in connection with the merger, see the section entitled “The Merger Agreement—HSR and Other Regulatory Approvals” beginning on page 133.

On January 5, 2021, Diamondback and QEP filed their respective notification and report forms with the FTC and Antitrust Division. The statutory waiting period applicable to the merger under the HSR Act automatically expired on February 4, 2021 at 11:59 p.m. Eastern Time. Neither Diamondback nor QEP is aware of any material governmental approvals or actions that are required for completion of the merger other than as described above. It is presently contemplated that if any such additional material governmental approvals or actions are required, those approvals or actions will be sought.

At any time after the expiration of the statutory waiting period under the HSR Act, the Antitrust Division or the FTC may take action under the antitrust laws, including seeking to enjoin the completion of the merger, to rescind the merger or to conditionally permit completion of the merger subject to regulatory conditions or other remedies. In addition, non-U.S. regulatory bodies and U.S. state attorneys general could take action under the antitrust laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin the completion of the merger or permitting completion subject to regulatory conditions. There can be no assurance that regulatory authorities will not impose conditions on the completion of the merger or require changes to the terms of the transaction. Private parties may also seek to take legal action under the antitrust laws under some circumstances. There can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if such a challenge is made, that it would not be successful.

Board of Directors and Management of Diamondback Following Completion of the Merger

Upon closing of the merger, the Diamondback board of directors and executive officers will remain unchanged. Additionally, Diamondback will continue to be headquartered in Midland, Texas.

 

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Interests of QEP’s Directors and Executive Officers in the Merger

In considering the recommendation of the QEP board that you vote to adopt the merger agreement, you should be aware that certain directors and executive officers of QEP may have interests in the merger that are different from, or in addition to, the interests of QEP stockholders generally. The QEP board was aware of and considered these interests when it unanimously (i) adopted the merger agreement, (ii) approved and determined that it is in the best interests of QEP to consummate the merger and the other transactions contemplated by the merger agreement and execute and deliver the merger agreement and perform its obligations thereunder, and (iii) resolved to recommend the approval of the merger agreement by QEP stockholders.

Equity Compensation Awards

Treatment of Restricted Stock Awards

Each of QEP’s executive officers and certain of its directors hold unvested restricted shares of QEP common stock under QEP’s equity compensation plans. At the effective time of the merger, each unvested award of restricted shares of QEP common stock that is outstanding immediately prior to the effective time of the merger shall be converted into a number of time-based restricted shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (A) the total number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (B) the exchange ratio. Following the effective time, the restricted shares will be subject to the same terms and conditions (including time-based and termination related vesting conditions) that were applicable to such restricted shares under the applicable QEP stock plan and award agreement immediately prior to the effective time.

The following table sets forth the number of Restricted Stock Awards held by QEP’s executive officers and directors as of January 15, 2021:

 

Name

   Unvested Restricted
Shares (1)
(#)
 

Timothy J. Cutt

     681,474  

Christopher K. Woosley

     253,744  

William J. Buese

     200,839  

Joseph T. Redman

     186,529  

Joseph N. Jaggers

     80,646  

 

(1)

Amount shown does not include a pro-rated annual stock award that will be granted to QEP’s non-employee directors for their partial year of service in 2021, which is expected to be valued at approximately $43,750 for each director.

For QEP’s directors, such converted restricted shares will become fully vested as a result of the merger and for QEP’s executive officers, such restricted shares will vest if the officer incurs a “covered termination” upon or following the merger as described below under “—Executive Severance Compensation Plan—CIC.”

Treatment of PSU Awards

Each of QEP’s executive officers holds unvested performance share units denominated in shares of QEP common stock. The performance share units can be earned at a level of up to 200% of the target award level based on QEP’s stock price performance over a three-year period relative to a group of identified peer companies. As a result of the merger, each applicable three-year performance period will be shortened such that it ends prior to the effective time of the merger and at the effective time of the merger, each unvested award of performance share units will be converted into time-based restricted stock units in respect of that number of shares of Diamondback common stock (rounded to the nearest whole share) equal to the product of (A) the

 

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number of shares of QEP common stock subject to such award immediately prior to the effective time of the merger that would have been earned under the applicable terms of such award based upon the higher of (i) 100% of the target level of performance and (ii) actual performance through the closing date of the merger (as determined by QEP’s compensation committee) multiplied by (B) the exchange ratio. The performance share unit awards will be converted on the same terms and conditions (including time-based and termination related vesting conditions) applicable to such awards immediately prior to the effective time of the merger (other than any performance-based vesting conditions).

The following table sets forth the number of performance share units held by QEP’s executive officers as of January 15, 2021 (excluding performance share units for the 2018-2020 performance period, which will vest according to the terms prior to the closing of the merger):

 

Executive Officer    Target
Performance
Shares (#)
     Maximum
Performance
Shares (#)
 

Timothy J. Cutt

     1,142,310        2,284,620  

Christopher K. Woosley

     415,611        831,222  

William J. Buese

     305,674        611,348  

Joseph T. Redman

     295,558        591,116  

The converted time-based restricted share units in Diamondback will vest if the officer incurs a “covered termination” upon or following the merger as described below under “—Executive Severance Compensation Plan – CIC”.

Treatment of QEP Notional Stock Awards Under QEP’s Deferred Compensation Plans

QEP maintains non-qualified deferred compensation plans pursuant to which certain of its directors have elected to defer previously earned compensation (including previously granted restricted shares), which amounts are deemed, under the terms of the deferred compensation plans, to be invested in notional shares of QEP common stock. At the effective time of the merger, these QEP notional stock awards will, to the extent unvested, become fully vested and all notional stock awards held by QEP’s directors will be converted into and deemed notionally invested in a number of shares of Diamondback common stock equal to the product of (A) the total number of notional shares of QEP common stock subject to such award immediately prior to the effective time of the merger multiplied by (B) the exchange ratio. Such deferred compensation will be paid in cash promptly following the closing of the merger (but not later than the time in which payment is required under the QEP deferred compensation plan, which is generally within 60 days following the date of the merger).

The following table sets forth the number of notional QEP shares held by QEP’s directors as of January 15, 2021:

 

Name

   Total Number of Shares of
QEP Stock Subject to
Vested Notional Stock
Awards
(#)
     Total Number of Shares of
QEP Stock Subject to
Unvested Vested Notional
Stock Awards (1)
(#)
 

Mary Shafer-Malicki

     61,624        80,646  

Phillips S. Baker, Jr.

     115,213        80,646  

Michael J. Minarovic

     62,500        80,646  

Barth E. Whitham

     21,258        80,646  

Julie A. Dill

     102,439        80,646  

 

(1)

Amount shown does not include a pro-rated annual stock award that will be granted to QEP’s non-employee directors for their partial year of service in 2021, which is expected to be valued at approximately $43,750 ($53,750 for Ms. Shafer-Malicki).

 

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Treatment of QEP Options

At the effective time of the merger, each option to purchase shares of QEP common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, shall, as of the effective time of the merger, be automatically cancelled without any payment or other consideration required to be made in respect thereof.

The following table sets forth the number of QEP Options held by QEP’s executive officers as of January 15, 2021:

 

Executive Officer    QEP Options
(#)
 

Timothy J. Cutt

     —    

Christopher K. Woosley

     96,564  

William J. Buese

     31,543  

Joseph T. Redman

     9,203  

Executive Severance Compensation Plan—CIC

QEP’s Executive Severance Compensation Plan—CIC (or the “CIC Plan”) provides QEP’s officers with benefits if their employment is terminated by QEP for a reason other than “cause,” death or disability, or if the executive terminates employment for “good reason” within three years following a change in control of QEP (such as the merger) (each of which is referred to as a covered termination). The severance benefits that the executive officers are eligible to receive pursuant to the CIC Plan (and, with respect to long-term equity awards, the applicable award agreements) include the following: (i) a lump sum cash severance payment equal to 3 times (in the case of Mr. Cutt and Mr. Woosley) or 2 times (in the case of the other executive officers) the sum of annual base salary and the average of the annual incentive award the executive actually received for the three fiscal years prior to the change in control (or lesser number of years the officer was employed), (ii) a prorated annual incentive for the year of termination, (iii) full accelerated vesting of outstanding long-term equity incentive awards; and (iv) payment for medical, dental and vision insurance coverage, basic life insurance, and accidental death or dismemberment coverage under current employee plans for two years (three years, in the case of Mr. Cutt and Mr. Woosley). In addition, executive officers who are involuntarily terminated upon or following the closing of the merger will be eligible to receive up to 12 months of company-paid outplacement benefits.

Under the CIC Plan, “good reason” means any of the following events or conditions that occur without the executive’s written consent and remain in effect after notice has been provided by the executive to QEP of such event and the expiration of a 30-day cure period: (i) material diminution in the executive’s annual base salary, target incentive opportunity under the annual incentive plan of QEP or long-term incentive award opportunity under the long-term incentive plan or equity plan of QEP; (ii) a material diminution in the executive’s authority, duties, or responsibility; (iii) a material diminution in the authority, duties, or responsibilities of the supervisor to whom the executive is required to report, including a requirement that an executive report to a corporate officer or employee instead of reporting directly to the QEP board; (iv) a material diminution in the budget over which the executive retains authority; (v) a material change in the geographic location at which the executive performs services; or (vi) any other action or inaction that constitutes a material breach by an employer of the executive’s employment agreement (if any).

Under the CIC Plan, “cause” means (i) the willful and continued failure of the executive to substantially perform the executive’s duties (other than any such failure resulting from incapacity due to physical or mental illness), following written demand for substantial performance delivered to the executive by the QEP board or the chief executive officer of QEP; or (ii) the willful engagement in conduct by the executive which is materially injurious to QEP.

 

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Non-Competition Agreement Payments

In connection with the merger, the officers entered into Non-Competition Agreements with QEP (the “Non-Competition Agreements”), which provide that, subject to certain exceptions enumerated therein, for a period of 12 months following the date of their “covered termination,” if any, as described above under “—Executive Severance Compensation Plan – CIC,” the executives will be prohibited from (i) directly or indirectly engaging in, having any equity interest in, or managing, providing services to or operating any person, firm, corporation, partnership or business (whether as officer, employee, agent, representative, or otherwise) that engages in a competitive business with QEP in certain defined territories or (ii) directly or indirectly soliciting or encouraging to cease to work with QEP or any of its subsidiaries any person who is an employee of QEP or any of its subsidiaries or who was an employee of QEP or any of its subsidiaries within the six month period preceding such activity without QEP’s written consent, subject to customary exceptions.

In consideration for the executives’ agreements set forth in the Non-Competition Agreements, QEP agreed to provide the executives with the following benefits: (i) accelerated vesting in December 2020 of the executive’s outstanding restricted stock awards that would otherwise vest in March 2021, (ii) accelerated payment of the Executive’s annual cash incentive payment for 2020, which were paid at the target level in December 2020, and (iii) a one-time transaction bonus (the “Transaction Bonus”), paid in December 2020. Each executive has also entered into a letter agreement relating to the Transaction Bonus (the “Letter Agreements”). Pursuant to the Letter Agreements and the Non-Competition Agreements, the Executive is required to repay to the Company 100% of the Transaction Bonus if such executive resigns for any reason prior to the consummation of the merger. If the merger is not consummated, the executive is required to repay the Transaction Bonus if the executive resigns for any reason prior to December 31, 2021

 

Deferred Compensation

Certain of QEP’s executive officers and directors participate in QEP’s deferred compensation plans, pursuant to which they have elected to defer previously earned amounts of compensation. Such deferred compensation amounts are fully vested and would, absent the merger, be payable to the executive officer following his or termination of employment with QEP in accordance with the terms of the deferred compensation plans. As a result of the merger, all deferred compensation amounts will become immediately payable within 60 days after consummation of the merger.

The following table sets forth the aggregate balance of each executive officer or director’s deferred compensation account as of December 31, 2020 (excluding notional stock awards, which are described above):

 

Name    Aggregate Deferred
Compensation
Balance
($)
 

Timothy J. Cutt

     —    

Christopher K. Woosley

     980,768  

William J. Buese

     279,805  

Joseph T. Redman

     978,255  

Julie A. Dill

     980,216  

In addition, due to a payroll coding error, certain federal employment taxes were not withheld with respect to amounts deferred under our deferred compensation plans from 2011 through 2016. The employment tax error with respect to 2013 through 2016 was corrected in 2017. QEP will pay the employee and employer shares of the employment taxes for 2011 and 2012 and an additional amount to account for income taxes with respect to the payment of the employee shares when distributions under the deferred compensation plans are made. The aggregate balances shown in the table above exclude these amounts, which QEP estimates do not exceed $2,600 in the aggregate for all executive officers.

 

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Quantification of Potential Payments to QEP’s Named Executive Officers in Connection with the Merger

The information below sets forth the information required by Item 402(t) of the SEC’s Regulation S-K regarding compensation that is based on, or otherwise relates to, the merger for each “named executive officer” of QEP. The plans or arrangements pursuant to which such payments would be made (other than the merger agreement), consist of the CIC Plan, the Non-Competition Agreements and the respective equity awards specifying the terms and conditions of each such award. With respect to QEP’s named executive officers, no changes were made in the terms and conditions of the CIC Plan or the equity awards, other than pursuant to the Non-Competition Agreements or as specified in the merger agreement and described in the section entitled “The Merger Agreement—Treatment of QEP Equity Awards in the Merger.” Throughout this discussion, the following individuals are referred to collectively as the named executive officers of QEP:

 

   

Timothy J. Cutt—President and Chief Executive Officer

 

   

Christopher K. Woosley—Executive Vice President, General Counsel & Corporate Secretary

 

   

William J. Buese—Vice President, Chief Financial Officer & Treasurer

 

   

Joseph T. Redman—Vice President Energy

The potential payments in the table below are based on the following assumptions:

 

   

the closing date of the merger is March 1, 2021, which is the estimated date of the completion of the merger solely for purposes of this golden parachute compensation disclosure;

 

   

the named executive officers of QEP are terminated without “cause” immediately following the assumed closing date of the merger;

 

   

the per share value of QEP’s common stock is $2.33, which is the average of the closing price of QEP’s common stock over the first five trading days following the announcement of the merger; and

 

   

the performance share units held by QEP’s named executive officers are earned at 100% of the target award level.

The amounts shown are estimates of amounts that would be payable to the named executive officers based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement. Some of the assumptions are based on information not currently available and, as a result, the actual amounts received by a named executive officer may differ materially from the amounts shown in the following table.

The following tables, footnotes and discussion describe double-trigger benefits for the named executive officers, except where noted. For purposes of this discussion, “double-trigger” refers to benefits that require two conditions, which are the completion of the merger as well as a covered termination within three years following the completion of the merger.

Golden Parachute Compensation

 

Name    Cash(1)
($)
     Equity(2)
($)
     Perquisites/
Benefits(3)
($)
     Total ($)  

Timothy J. Cutt

     6,839,875        4,249,417        20,555        11,109,847  

Christopher K. Woosley

     4,096,100        1,559,597        124,441        5,780,138  

William J. Buese

     2,481,739        1,180,175        85,738        3,747,652  

Joseph T. Redman

     2,248,225        1,123,263        79,727        3,451,215  

 

(1)

The amounts reflect estimated payments of the lump-sum cash severance that would be provided to the named executive officer under the terms of the CIC Plan if the named executive officer were to experience a

 

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  covered termination for the purposes of the CIC Plan on the closing date of the merger, calculated as a lump sum severance payment equal to three times current eligible compensation for Messrs. Cutt and Woosley and two times current eligible compensation for the remaining executives of $5,589,875 to Mr. Cutt, $2,846,100 to Mr. Woosley, $1,481,739 to Mr. Buese and $1,498,225 to Mr. Redman, inclusive of pro-rated annual bonus payments for 2021. The amounts also include the single-trigger Transaction Bonus payments of $1,250,000 to Mr. Cutt, $1,250,000 to Mr. Woosley, $1,000,000 to Mr. Buese and $750,000 to Mr. Redman.
(2)

The amounts reflect the aggregate payment that each named executive officer would receive with respect to QEP equity awards subject to accelerated vesting in connection with the merger, as described above in “—Interests of QEP’s Directors and Executive Officers—Executive Severance Compensation Plan—CIC” above.

(3)

Includes (i) payment for medical, dental and vision insurance coverage, basic life insurance, and accidental death or dismemberment coverage under current employee plans for two years (three years, in the case of Mr. Cutt and Mr. Woosley) and (ii) outplacement benefits.

Share Ownership

As described below under “Share Ownership of Directors, Executive Officers and Certain Beneficial Owners of QEP” and “The Merger Agreement—Effect of the Merger on Capital Stock; Merger Consideration,” executive officers and directors of QEP beneficially own shares of QEP common stock, which will be entitled to receive the merger consideration in respect of each share of QEP common stock beneficially owned by them.

Indemnification and Insurance

The merger agreement provides that the executive officers and directors of QEP and its subsidiaries will have the right to indemnification and continued coverage under directors’ and officers’ liability insurance policies for at least six years following the effective time of the merger.

Listing of Diamondback Shares; Delisting and Deregistration of QEP Shares

Prior to the completion of the merger, Diamondback has agreed to take all necessary action to cause the shares of Diamondback common stock to be issued in connection with the merger to be approved for listing on the Nasdaq Global Select Market or such other Nasdaq market on which shares of Diamondback common stock are then listed subject to official notice of issuance. The listing on such Nasdaq market of the shares of Diamondback common stock to be issued in connection with the merger is also a condition to completion of the merger.

Prior to the effective time of the merger, QEP will cooperate with Diamondback and use its reasonable best efforts to take, or cause to be taken, all actions and do, or cause to be done, all things reasonably necessary, proper or advisable on its part pursuant to applicable law and the rules and regulations of the NYSE to enable the delisting of QEP common stock from the NYSE and the deregistration of QEP common stock pursuant to the Exchange Act as promptly as practicable after the effective time of the merger (and not more than 10 days after the effective time of the merger).

If the merger is completed, the shares of Diamondback common stock to be issued in the merger will be listed for trading on the Nasdaq Global Select Market or such other Nasdaq market on which shares of Diamondback common stock are then listed, shares of QEP common stock will be delisted from the NYSE and deregistered under the Exchange Act, and QEP will no longer be required to file periodic reports with the SEC pursuant to the Exchange Act.

Accounting Treatment of the Merger

Diamondback and QEP prepare their respective financial statements in accordance with GAAP. The accounting guidance for business combinations requires the use of the acquisition method of accounting for the

 

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merger, which requires the determination of the acquirer, the purchase price, the acquisition date, the fair value of the tangible assets and identifiable intangible assets acquired and liabilities assumed of the acquiree and the measurement of goodwill, if any. Diamondback will be treated as the acquirer for accounting purposes.

Treatment of Indebtedness

Under the merger agreement, QEP’s outstanding debt (other than its existing credit facility) will remain outstanding, which debt, as of September 30, 2020 was approximately $1.6 billion and consisted of the amounts outstanding under QEP’s senior notes. As of September 30, 2020, Diamondback had total long-term debt of approximately $5.8 billion, consisting primarily of the amounts outstanding under its revolving credit facility, its senior unsecured notes, the notes issued by its subsidiary Energen Corporation, the senior notes issued by Diamondback’s publicly traded subsidiaries, Viper and Rattler, and the amounts outstanding under Viper’s and Rattler’s revolving credit facilities. Diamondback’s pro forma indebtedness as of September 30, 2020, assuming consummation of the merger had occurred on such date and QEP’s senior notes remain outstanding, would have been approximately $7.4 billion.

Under the terms of the merger agreement, if requested by Diamondback, QEP will, and will cause its subsidiaries to, on the terms set forth in the merger agreement, deliver all notices and take all other actions reasonably necessary to facilitate, on the closing date, (i) the termination of all commitments in respect of QEP’s existing credit facility, (ii) the repayment in full of all obligations with respect to QEP’s existing credit facility (including the termination or cash collateralization of, or the making of other arrangements satisfactory to the administrative agent under the existing credit facility with respect to, letters of credit outstanding under the existing credit facility), and (iii) the release of any encumbrances securing such existing credit facility and related guarantees (if any). To the extent QEP does not have unrestricted cash on hand in an amount sufficient to make the repayment of the existing credit facility in full, Diamondback will provide to QEP an amount sufficient to make such repayment.

Subject to certain restrictions and obligations, prior to completion of the merger, Diamondback or any of its subsidiaries may, in their sole and absolute discretion, commence one or more offers to purchase for cash or exchange for securities issued by Diamondback or any of its affiliates any or all of the outstanding debt issued under QEP’s outstanding indenture, solicit the consent of the holders of debt issued under QEP’s outstanding indenture regarding proposed amendments to the indenture and deliver a notice of optional redemption to the holders of debt issued under QEP’s outstanding indenture, so long as the closing of any such transaction is conditioned on the occurrence of, and is not consummated until, the closing of the merger. QEP has agreed that it will, and will cause each of its subsidiaries to, use commercially reasonable efforts to provide, on a timely basis, all reasonable cooperation as may be reasonably requested by Diamondback in writing to assist Diamondback in connection with any such transaction and in connection with any potential offering of securities of Diamondback or its affiliates, the proceeds of which are used to refinance existing indebtedness of QEP or Diamondback and its affiliates. However, QEP’s obligation to cooperate is subject to certain exceptions and limitations, including, among other things, that QEP is not required to (i) provide any cooperation to the extent that it would, in the good faith determination of QEP, unreasonably interfere with the business or operations of QEP or any of its subsidiaries, or (ii) enter into any instrument or contract, agree to any change to any instrument or contract, or take any action with respect to its existing indebtedness prior to the closing of the merger that would be effective if the closing of the merger does not occur.

No Appraisal Rights in the Merger

Under Delaware law, QEP stockholders are not entitled to appraisal rights in connection with the merger.

Appraisal rights are statutory rights that enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the transaction.

 

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Holders of shares of QEP common stock will not have rights to an appraisal of the fair value of their shares. Under Delaware law, appraisal rights are not available for the shares of any class or series if the shares of the class or series are listed on a national securities exchange or held of record by more than 2,000 holders on the record date, unless the stockholders receive in exchange for their shares anything other than shares of stock of the surviving or resulting corporation or of any other corporation that is publicly listed or held by more than 2,000 holders of record, cash in lieu of fractional shares or fractional depositary receipts or any combination of the foregoing. Shares of QEP common stock are listed on the NYSE as of the record date, and QEP stockholders will receive Diamondback common stock pursuant to the merger agreement and cash in lieu of fractional shares. Approval for the listing of the shares of Diamondback common stock on the Nasdaq Global Select Market or such other Nasdaq market on which shares of Diamondback common stock are then listed is a condition to completion of the merger.

Litigation Relating to the Merger

As of February 8, 2021, seven individual lawsuits have been filed by purported QEP stockholders in United States District Courts in connection with the proposed merger.

On January 25, 2021, Elaine Wang, a purported stockholder of QEP, filed a complaint against QEP and the members of the QEP board in the United States District Court for the Southern District of New York, captioned Wang v. QEP Resources, Inc., et al., Case 1:21-cv-00651-NRB (the “Wang Lawsuit”), alleging, among other things, that the registration statement on Form S-4 filed by Diamondback on January 22, 2021 in connection with the merger fails to provide certain information allegedly material to the QEP stockholders in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Among other relief, the complaint seeks injunctive relief, including enjoining the merger until the defendants disclose the allegedly omitted material information, a recission of the completed merger or rescissory damages, an accounting of damages suffered by the plaintiff, an award of plaintiff’s expenses and attorney’s fees, and other equitable relief.

On January 27, 2021, John Andescavage, another puported stockholder of QEP, filed a complaint against QEP, the members of the QEP board, Diamondback and Merger Sub in the United States District Court for the District of Delaware, captioned Andescavage v. QEP Resources, et al., Case 1:21-cv-00096-CFC, on substantially similar grounds to those in the Wang Lawsuit. Among other relief, the complaint seeks injunctive relief, including enjoining the merger, rescinding the merger in the event the defendants consummate the merger (or awarding rescissory damages), dissemination of a registration statement on Form S-4 that does not omit allegedly material information or contain allegedly untrue statements of material fact, a declaratory judgment that the individual defendants violated Sections 14(a) and/or 20(a) of the Exchange Act and Rule 14a-9, an award of attorney’s and experts’ fees, and other relief.

On January 29, 2021, Todd Seale, a purported stockholder of QEP, filed a complaint against QEP and the members of the QEP board in the United States District Court for the District of Colorado, captioned Seale v. QEP Resources, Inc., et al., Case 1:21-cv-00303 on substantially similar grounds to those in the Wang Lawsuit. Among other relief, the complaint seeks injunctive relief, including enjoining the merger until the defendants disclose the allegedly omitted material information, a recission of the completed merger or rescissory damages, a declaratory judgment that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9, an award of costs and expenses to include attorney’s and experts’ fees, and other relief.

On February 4, 2021, Joe Hutchison, a puported stockholder of QEP, filed a complaint against QEP, the members of the QEP board, Diamondback, and Merger Sub in the United States District Court for the Southern District of New York, captioned Hutchison v. QEP Resources, et al., Case 1:21-cv-01020-VEC, on substantially similar grounds to those in the Wang Lawsuit. Among other relief, the complaint seeks injunctive relief, including enjoining the merger until the allegedly omitted information is disclosed, rescinding the merger in the event the defendants consummate the merger (or awarding rescissory damages), directing the defendants to account for all damages to plaintiff as a result of the alleged wrongdoing, an award of attorney’s and experts’ fees, and other equitable relief.

 

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On February 4, 2021, Angelika Andersen, a purported stockholder of QEP, filed a complaint against QEP and the members of the QEP board in the United States District Court for the Southern District of New York, captioned Andersen v. QEP Resources, Inc., et al., Case 1:21-cv-01010 alleging, among other things, that the amended registration statement on Form S-4/A filed by Diamondback on February 3, 2021 in connection with the merger fails to provide certain information allegedly material to the QEP stockholders in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Among other relief, the complaint seeks to enjoin the merger, to direct the defendants to disseminate an amendment to the registration statement to disclose the allegedly omitted material information, to direct the defendants to account for all damages to plaintiff as a result of the alleged wrongdoing, an award of costs and expenses to include attorney’s and experts’ fees, and other relief.

On February 5, 2021, Brandon D. Lozano, a purported stockholder of QEP, filed a complaint against QEP and the members of the QEP board in the United States District Court for the Southern District of New York, captioned Lozano v. QEP Resources, Inc., et al., Case 1:21-cv-01067 alleging, among other things, that the merger agreement contains preclusive deal protection devices and that the amended registration statement on Form S-4/A filed by Diamondback on February 3, 2021 in connection with the merger fails to provide certain information allegedly material to the QEP stockholders in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Among other relief, the complaint seeks to enjoin the special meeting of QEP shareholders to vote on the merger or enjoin consummation of the merger until the allegedly material information is disclosed, to direct the defendants to account for all damages to plaintiff as a result of the alleged wrongdoing, an award of costs and expenses to include attorney’s and experts’ fees, and other relief.

On February 5, 2021, Brandon Holten, a purported stockholder of QEP, filed a complaint against QEP and the members of the QEP board in the United States District Court for the Southern District of New York, captioned Holten v. QEP Resources, Inc., et al., Case 1:21-cv-01068 alleging, among other things, that the amended registration statement on Form S-4/A filed by Diamondback on February 3, 2021 in connection with the merger fails to provide certain information allegedly material to the QEP stockholders in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Mr. Holten also asserts a claim of breach of fiduciary duty against members of QEP’s board. Among other relief, the complaint seeks to enjoin the special meeting of QEP shareholders to vote on the merger or enjoin consummation of the merger until the allegedly material information is disclosed, to direct the defendants to account for all damages to plaintiff as a result of the alleged wrongdoing, an award of costs and expenses to include attorney’s and experts’ fees, and other relief.

Each of Diamondback and QEP believes that the allegations in the complaints are without merit. Additional lawsuits arising out of the merger may also be filed in the future. For a discussion of the risks associated with these complaints and any other similar litigation, see the section entitled “Risk Factors—Risk Factors