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As filed with the Securities and Exchange Commission on August 23, 2021
No. 333-   
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PENN VIRGINIA CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
1311
(Primary Standard Industrial
Classification Code Number)
23-1184320
(I.R.S. Employer
Identification No.)
16285 Park Ten Place, Suite 500
Houston, Texas 77084
(713) 722-6500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Katherine J. Ryan
Vice President, Chief Legal Counsel and Corporate Secretary
Penn Virginia Corporation
16285 Park Ten Place, Suite 500
Houston, Texas 77084
(713) 722-6500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to:
Sean T. Wheeler, P.C.
Debbie Yee, P.C.
Julian Seiguer, P.C.
Anne G. Peetz
Kirkland & Ellis LLP
609 Main Street, Suite 4700
Houston, Texas 77002
(713) 836-3600
Frank D. Bracken, III
Chief Executive Officer
Lonestar Resources US Inc.
111 Boland Street, Suite 301
Fort Worth, Texas 76107
(817) 921-1889
T. Mark Kelly
Lande A. Spottswood
D. Alex Robertson
Vinson & Elkins LLP
1001 Fannin Street, Suite 2500
Houston, Texas 77002
(713) 758-2222
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective and all other conditions to the proposed Integrated Mergers contemplated by the Agreement and Plan of Merger dated as of July 10, 2021, described in the proxy statement/consent solicitation statement/prospectus contained herein, have been satisfied or waived.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.
If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to be Registered
Amount
to be Registered
Proposed Maximum
Offering Price
Per Unit
Proposed Maximum
Aggregate
Offering Price(1)
Amount of
Registration Fee
Common Stock, par value $0.01 per share
5,855,940(1)
N/A
$92,087,532.72(2)
$10,046.75(3)
(1)
Represents the estimated maximum number of shares of common stock, par value $0.01 per share (“Penn Virginia Common Stock”), of Penn Virginia Corporation (“Penn Virginia”) being registered upon completion of the Integrated Mergers (as defined herein) of a wholly-owned subsidiary of Penn Virginia with and into Lonestar Resources US Inc. (“Lonestar”) described in the proxy statement/consent solicitation statement/prospectus contained herein based upon (a)(i) 10,107,081 shares of common stock, par value $0.001 per share (“Lonestar Common Stock”), of Lonestar, issued and outstanding as of August 23, 2021, (ii) 564,917 shares of Lonestar Common Stock potentially issuable in respect of Lonestar restricted stock units (“Lonestar RSUs”) granted under the Lonestar stock incentive plans (assuming performance-based vesting conditions, which will result in a number of Lonestar RSUs vesting equal to the number of Lonestar RSUs granted to the applicable participant on the applicable grant date, and not any greater number) are deemed achieved in full in the case of Lonestar RSUs subject to performance-based vesting conditions, (iii) 254,683 shares of Lonestar Common Stock reserved for the grant of additional awards under the Lonestar stock incentive plans, all of which are anticipated to be granted in the form of Additional Lonestar RSUs (as defined herein) as of immediately prior to the Effective Time (as defined herein), and (iv) Tranche 1 Warrants to purchase 555,555 shares of Lonestar Common Stock, and (b) the Exchange Ratio, as set forth in that certain merger agreement described herein, of 0.51 shares of Penn Virginia Common Stock per share of Lonestar Common Stock.
(2)
Calculated pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933, as amended (the “Securities Act”), solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act, based on the average of the high and low prices of Lonestar Common Stock as reported on the OTCQX Best Market on August 19, 2021 ($8.02 per share), multiplied by the estimated maximum number of shares of Lonestar Common Stock (11,482,236) that may be exchanged or converted for the securities being registered.
(3)
The registration fee for the securities registered hereby has been calculated pursuant to Section 6(b) of the Securities Act at a rate equal to $109.10 per $1,000,000 of the proposed maximum aggregate offering price.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this proxy statement/consent solicitation statement/prospectus is not complete and may be changed. A registration statement relating to the securities described in this proxy statement/consent solicitation statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This proxy statement/consent solicitation statement/prospectus does not constitute an offer to sell or the solicitation of offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY—SUBJECT TO COMPLETION, DATED AUGUST 23, 2021
SHARE ISSUANCE PROPOSAL—YOUR VOTE IS VERY IMPORTANT
Dear Shareholders of Penn Virginia Corporation:
On behalf of the board of directors of Penn Virginia Corporation (“Penn Virginia”), we are pleased to enclose the accompanying proxy statement/consent solicitation statement/prospectus relating to the merger of Penn Virginia and Lonestar Resources US Inc. (“Lonestar”). We are requesting that you take certain actions as a Penn Virginia shareholder.
On July 10, 2021, Penn Virginia and Lonestar entered into an Agreement and Plan of Merger (as amended from time to time, the “Merger Agreement”), providing for the merger of Upsilon Merger Sub Inc., a Delaware corporation and a wholly-owned, direct subsidiary of Penn Virginia, with and into Lonestar (the “First Merger”), with Lonestar continuing as the surviving corporation in the First Merger (the “Surviving Corporation”), and, immediately following the First Merger, the merger of the Surviving Corporation with and into Pi Merger Sub LLC, a Delaware limited liability company and a wholly-owned, direct subsidiary of Penn Virginia (“Merger Sub LLC” and, such merger, the “Second Merger” and, together with the First Merger, collectively, the “Integrated Mergers”), with Merger Sub LLC continuing as the surviving entity in the Second Merger (the “Surviving Company”).
Lonestar stockholders will be entitled to receive, in exchange for each share of Lonestar common stock, par value $0.001 per share (“Lonestar Common Stock”), owned by them immediately prior to the effective time of the First Merger (the “Effective Time”), 0.51 shares of Penn Virginia common stock, par value $0.01 per share (“Penn Virginia Common Stock”), with cash paid in lieu of the issuance of any fractional shares, which we refer to collectively as the merger consideration.
Promptly following the effective time of the Second Merger, Penn Virginia will contribute all of the limited liability company interests in the Surviving Company to Penn Virginia Holdings, LLC, a Delaware limited liability company that is a wholly-owned subsidiary of PV Energy Holdings, L.P., a Delaware limited partnership (“PV Energy Holdings”), in exchange for the issuance of common units representing limited partner interests in PV Energy Holdings in accordance with Section 3.04 of the Amended and Restated Agreement of Limited Partnership of PV Energy Holdings (the “Contribution” and, together with the Integrated Mergers, the Merger Agreement and the transactions contemplated thereby, the “Transactions”).
Penn Virginia will hold a special meeting of its shareholders in connection with the proposed Integrated Mergers (the “Special Meeting”). At the Special Meeting, holders of shares of Penn Virginia Common Stock and holders of shares of Penn Virginia’s Series A Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock” and, the holders of Penn Virginia Common Stock together with the holders of the Series A Preferred Stock, the “Penn Virginia shareholders”), will be asked to vote on proposals to (i) approve, for purposes of complying with Nasdaq Listing Rule 5635(a), the potential issuance of shares of Penn Virginia Common Stock to the holders of Lonestar Common Stock (the “Lonestar stockholders”) in connection with the Integrated Mergers pursuant to the terms of the Merger Agreement (the “Share Issuance Proposal”) and (ii) approve the adjournment of the Special Meeting to solicit additional proxies if there are not sufficient votes cast at the Special Meeting to approve the Share Issuance Proposal (the “Adjournment Proposal”).
Penn Virginia is also asking shareholders to consider and vote on an unrelated proposal to amend and restate Penn Virginia’s Third Amended and Restated Articles of Incorporation (as they shall be further amended and restated, the “A&R Articles of Incorporation”) to: (i) increase the number of shares of authorized capital stock of Penn Virginia to 145,000,000 shares, (ii) rename and reclassify the Company’s existing common stock, par value $0.01 per share, as Class A common stock, par value $0.01 per share, (iii) authorize, as a new class of capital stock of the Company, 30,000,000 shares of Class B common stock, par value of $0.01 per share (“Class B Common Stock”), (iv) remove provisions that are no longer applicable following the exchange of all outstanding shares of Series A Preferred Stock for shares of the newly authorized Class B Common Stock pursuant to an exchange agreement, to be dated on or prior to the effectiveness of the A&R Articles of Incorporation, by and among Penn Virginia and the holders of shares of Series A Preferred Stock, and (v) cancel the designation of the Series A Preferred Stock (collectively, the “Articles of Incorporation Amendment Proposal”). The Articles of Incorporation Amendment Proposal is unrelated to the Integrated Mergers, and approval of the Articles of Incorporation Amendment Proposal is not a condition to the completion of the Integrated Mergers or the approval of the Share Issuance Proposal. A copy of the A&R Articles of Incorporation reflecting the amendments contemplated by the Articles of Incorporation Amendment Proposal is attached as Annex E to the accompanying proxy statement/consent solicitation statement/prospectus.
Holders of Penn Virginia Common Stock and the Series A Preferred Stock will vote together as a single class at the Special Meeting. Holders of Penn Virginia Common Stock are entitled to one vote per share of Penn Virginia Common Stock on all matters to be presented at the Special Meeting. Holders of Series A Preferred Stock are entitled to one vote per each 1/100th of a share of Series A Preferred Stock on all matters submitted to a vote of the holders of Penn Virginia Common Stock.
The approval of the Share Issuance Proposal requires the affirmative vote of a majority of the votes cast on such proposal by Penn Virginia shareholders entitled to vote at the Special Meeting.

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The approval of the Adjournment Proposal requires the affirmative vote of a majority in voting power of the outstanding shares of capital stock present in person or represented by proxy at the Special Meeting and entitled to vote thereat.
The approval of the Articles of Incorporation Amendment Proposal requires the affirmative vote of more than 66 2/3% of the total voting power of outstanding shares entitled to vote.
In addition, under the Penn Virginia Bylaws, the Chairman of Penn Virginia has the power to adjourn the Special Meeting for any reason from time to time without notice, other than the announcement of the time and place of the adjourned meeting, provided that a new record date is not set.
Lonestar stockholders collectively holding approximately 80% of the outstanding shares of Lonestar Common Stock (the “Lonestar Supporting Stockholders”) entered into support agreements with Penn Virginia (the “Lonestar Support Agreements”) (the form of which is attached as Annex C to the accompanying proxy statement/consent solicitation statement/prospectus) pursuant to which the Lonestar Supporting Stockholders have agreed, among other things, to vote all shares of Lonestar Common Stock beneficially owned by such stockholders (i) in favor of the adoption of the Merger Agreement, (ii) against any Acquisition Proposal (as defined below) with respect to Lonestar and (iii) against any amendment of Lonestar’s certificate of incorporation or bylaws or other proposal that would delay, impede, frustrate, prevent or nullify the Integrated Mergers or Merger Agreement or change in any manner the voting rights of any outstanding class of capital stock of Lonestar. For more information, please see “The Merger Agreement—Lonestar Support Agreements” in the accompanying proxy statement/consent solicitation statement/prospectus.
Certain entities (the “Penn Virginia Supporting Shareholders”) comprised of affiliates of Juniper Capital Advisors, L.P. (together with the Penn Virginia Supporting Shareholders, “Juniper”) collectively holding approximately 60% of the outstanding voting power of the Company’s capital stock, entered into a support agreement with Lonestar (the “Penn Virginia Support Agreement”) (a copy of which is attached as Annex D to the accompanying proxy statement/consent solicitation statement/prospectus) pursuant to which they agreed, among other things, to vote all shares of their Series A Preferred Stock beneficially owned (i) in favor of the Share Issuance Proposal and approval of any other matter that is required to be approved by the shareholders of Penn Virginia in order to effect the Integrated Mergers and (ii) against any proposal made (A) in opposition to the Share Issuance Proposal or (B) in support of an Acquisition Proposal with respect to the Company. The Penn Virginia Supporting Shareholders also agreed that they would not transfer any number of shares of their Series A Preferred Stock that would result in their ownership (when combined with any other shares of Series A Preferred Stock with respect to which Juniper has sole or shared voting power) falling below the number of shares sufficient to approve the Share Issuance Proposal and any other matters required to be approved in order to effect the Integrated Mergers. For more information, please see “The Merger Agreement—Penn Virginia Support Agreement” in the accompanying proxy statement/consent solicitation statement/prospectus. For more information regarding the security ownership of Juniper, please see “Certain Beneficial Owners of Penn Virginia Common Stock” in the accompanying proxy statement/consent solicitation statement/prospectus.
The Special Meeting will be held virtually, conducted via live audio webcast at   , on   , 2021, at   , Central Time. Penn Virginia’s board of directors (the “Penn Virginia Board”) (solely with respect to the Articles of Incorporation Amendment Proposal, other than Edward Geiser, Kevin Cumming, Joshua Schmidt, Temitope Ogunyomi and Tim Gray, who recused themselves from such recommendation) unanimously recommends that Penn Virginia shareholders vote “FOR” the Share Issuance Proposal, “FOR” the Articles of Incorporation Amendment Proposal and “FOR” the Adjournment Proposal.
If the Integrated Mergers are completed, at the Effective Time, each issued and outstanding share of Lonestar Common Stock as of immediately prior to the Effective Time that is eligible to be converted into Penn Virginia Common Stock in accordance with the terms of the Merger Agreement will convert automatically into the right to receive 0.51 shares of Penn Virginia Common Stock (the “Exchange Ratio”), with cash paid in lieu of the issuance of fractional shares, if any. Although the number of shares of Penn Virginia Common Stock that Lonestar stockholders will receive in exchange for their shares of Lonestar Common Stock is fixed, the market value of the merger consideration will fluctuate with the market price of Penn Virginia Common Stock and will not be known at the time Lonestar stockholders execute and return written consents to adopt and approve the Merger Agreement or at the time Penn Virginia shareholders vote to approve the Share Issuance Proposal. Based on the closing price of Penn Virginia Common Stock on the Nasdaq Stock Market LLC (“Nasdaq”) on July 9, 2021, the last trading day before the public announcement of the parties entering into the Merger Agreement, the exchange ratio represented approximately $11.74 in value for each share of Lonestar Common Stock. Based on the closing price of Penn Virginia Common Stock on the Nasdaq on   , 2021, the last practicable trading day before the date of the accompanying proxy statement/consent solicitation statement/prospectus, the exchange ratio represented approximately $   in value for each share of Lonestar Common Stock. Based on the estimated number of shares of Penn Virginia Common Stock and estimated number of shares of Lonestar Common Stock, as well as the outstanding equity awards of the parties, that will be outstanding immediately prior to the consummation of the Integrated Mergers, we estimate that, upon consummation of the Integrated Mergers, Penn Virginia shareholders as of immediately prior to the Integrated Mergers will hold approximately 87%, and

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Lonestar stockholders as of immediately prior to the Integrated Mergers will hold approximately 13%, of the issued and outstanding shares of Penn Virginia Common Stock. We urge you to obtain current market quotations for Penn Virginia Common Stock (trading symbol “PVAC”) and Lonestar Common Stock (trading symbol “LONE”).
The obligations of Penn Virginia and Lonestar to complete the Integrated Mergers are subject to the satisfaction or waiver of a number of conditions set forth in the Merger Agreement, a copy of which is attached as Annex A to the accompanying proxy statement/consent solicitation statement/prospectus. The accompanying proxy statement/consent solicitation statement/prospectus describes the Special Meeting and the proposals to be considered thereat, the solicitation of Lonestar written consents to approve the Merger Agreement, the Integrated Mergers and the documents and agreements related to the Integrated Mergers. It also contains or references information about Penn Virginia and Lonestar and certain related agreements and matters. Please carefully read the entire accompanying proxy statement/consent solicitation statement/prospectus, including “Risk Factors” beginning on page 25, for a discussion of the risks relating to the proposed Integrated Mergers. You also can obtain information about Penn Virginia and Lonestar from documents that each has filed with the Securities and Exchange Commission (the “SEC”). Please see “Where You Can Find More Information” beginning on page 182 of the accompanying proxy statement/consent solicitation statement/prospectus for how you may obtain such information.
Sincerely,
/s/ Darrin J. Henke
Darrin J. Henke
President and Chief Executive Officer
Penn Virginia Corporation
Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued in connection with the Integrated Mergers described in the accompanying proxy statement/consent solicitation statement/prospectus or determined if the accompanying proxy statement/consent solicitation statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
The accompanying proxy statement/consent solicitation statement/prospectus is dated   , 2021 and is first being mailed to Penn Virginia shareholders of record and Lonestar stockholders of record on or about   , 2021.

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16285 Park Ten Place, Suite 500
Houston, Texas 77084

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
PENN VIRGINIA CORPORATION
TO BE HELD ON     , 2021
To Our Shareholders:
Notice is hereby given that the Special Meeting of Shareholders of Penn Virginia Corporation (“Penn Virginia” or the “Company”) will be held virtually, conducted via live audio webcast on     , 2021, at     , Central Time (the “Special Meeting”). You will be able to attend the Special Meeting online and submit questions during the Special Meeting by visiting      . You will also be able to vote your shares electronically at the Special Meeting. We believe that, given COVID-19, a virtual shareholder meeting provides greater access to those who may want to attend the Special Meeting.
The Special Meeting is being held to consider and act on the following matters:
1.
to consider and vote on a proposal (the “Share Issuance Proposal”) to approve, for purposes of complying with Nasdaq Listing Rule 5635(a), the potential issuance of shares of Penn Virginia’s common stock, par value $0.01 per share (the “Penn Virginia Common Stock”), pursuant to the Agreement and Plan of Merger, dated as of July 10, 2021 (the “Merger Agreement”), by and between Penn Virginia and Lonestar Resources US Inc. (“Lonestar”), as it may be amended from time to time, a copy of which is attached as Annex A to the accompanying proxy statement/consent solicitation statement/prospectus;
2.
to consider and vote on an unrelated proposal to amend and restate Penn Virginia’s Third Amended and Restated Articles of Incorporation (as they shall be further amended and restated, the “A&R Articles of Incorporation”) to: (i) increase the number of shares of authorized capital stock of Penn Virginia to 145,000,000 shares, (ii) rename and reclassify the Company’s existing common stock, par value $0.01 per share, as Class A common stock, par value $0.01 per share, (iii) authorize, as a new class of capital stock of the Company, 30,000,000 shares of Class B common stock, par value of $0.01 per share (“Class B Common Stock”), (iv) remove provisions that are no longer applicable following the exchange of all outstanding shares of the Company’s Series A Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”), for shares of the newly authorized Class B Common Stock pursuant to an exchange agreement, to be dated on or prior to the effectiveness of the A&R Articles of Incorporation, by and among Penn Virginia and the holders of shares of Series A Preferred Stock, and (v) cancel the designation of the Series A Preferred Stock (collectively, the “Articles of Incorporation Amendment Proposal”). The Articles of Incorporation Amendment Proposal is unrelated to the Integrated Mergers, and approval of the Articles of Incorporation Amendment Proposal is not a condition to the completion of the Integrated Mergers or the approval of the Share Issuance Proposal. A copy of the form of the proposed amended and restated A&R Articles of Incorporation reflecting the amendments contemplated by the Articles of Incorporation is attached as Annex E to the accompanying proxy statement/consent solicitation statement/prospectus; and
3.
to consider and vote on a proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Share Issuance Proposal (the “Adjournment Proposal”).
Penn Virginia will transact no other business at the Special Meeting or any adjournment or postponement thereof, except such business as may properly be brought before the Special Meeting by or at the direction of the board of directors of Penn Virginia (the “Penn Virginia Board”) in accordance with Penn Virginia’s Sixth Amended and Restated Bylaws (the “Penn Virginia Bylaws”). These items of business are described in the enclosed proxy statement/consent solicitation statement/prospectus. The Penn Virginia Board has designated the close of business on     , 2021 as the record date for the purpose of determining the holders of shares of Penn Virginia Common Stock and the holders of shares of Series A Preferred Stock (such holders, collectively, the “Penn Virginia shareholders”), who are entitled to receive notice of, and to vote at, the Special Meeting and any

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adjournment or postponement of the Special Meeting, unless a new record date is fixed in connection with any adjournment or postponement of the special meeting. Only Penn Virginia shareholders of record at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting and at any adjournment or postponement of the Special Meeting.
The Penn Virginia Board has (i) determined that it is in the best interest of Penn Virginia and the Penn Virginia shareholders to enter into the Merger Agreement, (ii) declared entry into the Merger Agreement and the transactions contemplated thereby to be advisable, (iii) authorized and approved Penn Virginia’s execution, delivery and performance of the Merger Agreement in accordance with its terms and Penn Virginia’s consummation of the transactions contemplated thereby, and the issuance of Penn Virginia Common Stock contemplated by the Share Issuance Proposal, (iv) directed that the approval of the Share Issuance Proposal be submitted to the Penn Virginia shareholders to a vote at the Special Meeting and (v) recommended that the Penn Virginia shareholders approve the Share Issuance Proposal at the Special Meeting. The Penn Virginia Board (other than Edward Geiser, Kevin Cumming, Joshua Schmidt, Temitope Ogunyomi and Tim Gray (the “Investor Directors”), who recused themselves from the following actions), in accordance with its good faith business judgment of the best interests the Company, authorized, approved and adopted the A&R Articles of Incorporation and directed that the Articles of Incorporation Amendment Proposal be submitted for adoption and approval by shareholders at the Special Meeting and recommended that the Penn Virginia shareholders approve the Articles of Incorporation Amendment Proposal at the Special Meeting. The Penn Virginia Board (solely with respect to the Articles of Incorporation Amendment Proposal, other than the Investor Directors, who recused themselves from such recommendation) unanimously recommends that the Penn Virginia shareholders vote “FOR” the Share Issuance Proposal, “FOR” the Articles of Incorporation Amendment Proposal and “FOR” the Adjournment Proposal.
Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Share Issuance Proposal, “FOR” the Articles of Incorporation Amendment Proposal and “FOR” the Adjournment Proposal. Even if you plan to attend the Special Meeting virtually, Penn Virginia requests that you complete, sign, date and return the enclosed proxy card in the accompanying envelope prior to the special meeting to ensure that your shares will be represented and voted at the special meeting if you later decide not to or become unable to attend virtually.
You may also submit a proxy over the Internet using the Internet address on the enclosed proxy card or by telephone using the toll-free number on the enclosed proxy card. If you submit your proxy through the Internet or by telephone, you will be asked to provide the control number from the enclosed proxy card. If you are not a shareholder of record, but instead hold your shares in “street name” through a broker, bank, trust or other nominee, you must provide a proxy executed in your favor from your broker, bank, trust or other nominee in order to be able to vote at the special meeting.
Submitting a proxy will not prevent you from voting virtually at the meeting, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Penn Virginia Common Stock or Series A Preferred Stock may vote virtually at the special meeting, thereby revoking any previous proxy. In addition, a proxy may also be revoked in writing before the special meeting in the manner described in the proxy statement/consent solicitation statement/prospectus.
Please vote as promptly as possible, whether or not you plan to attend the Special Meeting virtually. If your shares are held in the name of a broker, bank, or other nominee, please vote by following the instructions on the voting instruction form furnished by the broker, bank, or other nominee. If you hold your shares in your own name, submit a proxy to vote your shares as promptly as possible by (i) visiting the Internet site listed on the proxy card, (ii) calling the toll-free number listed on the proxy card or (iii) submitting your proxy card by mail by using the self-addressed, stamped envelope provided. Submitting a proxy will not prevent you from voting virtually, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Penn Virginia Common Stock or Series A Preferred Stock entitled to vote thereon and who is virtually present at the Special Meeting may vote, thereby revoking any previous proxy. In addition, a proxy may also be revoked in writing before the Special Meeting in the manner described in the accompanying proxy statement/consent solicitation statement/prospectus.

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If you have any questions concerning the Integrated Mergers or the proxy statement/consent solicitation statement/prospectus, would like additional copies or need help voting your shares of Penn Virginia Common Stock or Series A Preferred Stock, please contact Penn Virginia.
By Order of the Board of Directors
/s/ Katherine Ryan
Katherine Ryan
Vice President, Chief Legal Counsel and Corporate Secretary
Houston, Texas
    , 2021
Your vote is very important, regardless of the number of shares of Penn Virginia Common Stock or Series A Preferred Stock you own. The Integrated Mergers cannot be completed unless shareholders of Penn Virginia approve certain proposals related to the Integrated Mergers. Whether or not you plan to attend the Special Meeting virtually, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the Special Meeting.

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LONESTAR RESOURCES US INC.
111 Boland Street, Suite 301
Fort Worth, Texas

NOTICE OF SOLICITATION OF LONESTAR WRITTEN CONSENTS
To the Stockholders of Lonestar Resources US Inc.:
Pursuant to an agreement and plan of merger, dated as of July 10, 2021 (which we refer to as the “Merger Agreement”), by and between Lonestar Resources US Inc. (referred to as “Lonestar”) and Penn Virginia Corporation (which we refer to as “Penn Virginia”), Upsilon Merger Sub Inc., a wholly owned subsidiary of Penn Virginia (referred to as “Merger Sub Inc.”), will merge with and into Lonestar (which we refer to as the “First Merger”), with Lonestar surviving the First Merger. Immediately thereafter, Lonestar will merge with and into Pi Merger Sub LLC (referred to as “Merger Sub LLC”) (which we refer to as the “Second Merger” and together with the First Merger, the “Integrated Mergers”), with Merger Sub LLC surviving the Second Merger.
This proxy statement/consent solicitation statement/prospectus is being delivered to you on behalf of the Lonestar board of directors (the “Lonestar Board”) to request that holders of Lonestar common stock as of the record date of     , 2021 (which we refer to as the “Lonestar record date”) execute and return written consents to adopt and approve the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement (which we refer to as the “Lonestar Merger Proposal”). You are also being requested to approve, on a nonbinding, advisory basis, certain compensation that will or may be paid by Lonestar to its named executive officers that is based on or otherwise relates to the Integrated Mergers (which we refer to as the “Lonestar Compensation Proposal”).
This proxy statement/consent solicitation statement/prospectus describes the Integrated Mergers and the actions to be taken in connection with the Integrated Mergers and provides additional information about the parties involved. Please give this information your careful attention. A copy of the Merger Agreement is attached as Annex A to this proxy statement/consent solicitation statement/prospectus.
The Lonestar Board has carefully considered the terms of the Merger Agreement and has determined that the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement are in the best interests of, and advisable to, Lonestar and its stockholders.
Please complete, date and sign the written consent furnished with this proxy statement/consent solicitation statement/prospectus and return it promptly to Lonestar by one of the means described in “Lonestar Consent Solicitation.”
On behalf of the Board of Directors of Lonestar,
/s/ Frank D. Bracken, III
Frank D. Bracken, III
Chief Executive Officer

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The information in this proxy statement/consent solicitation statement/prospectus is not complete and may be changed. A registration statement relating to the securities described in this proxy statement/consent solicitation statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This proxy statement/consent solicitation statement/prospectus does not constitute an offer to sell or the solicitation of offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY—SUBJECT TO COMPLETION, DATED AUGUST 23, 2021
ABOUT THIS PROXY STATEMENT/CONSENT SOLICITATION
STATEMENT/PROSPECTUS
This document, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by Penn Virginia, constitutes a prospectus of Penn Virginia under Section 5 of the Securities Act of 1933 (as amended, the “Securities Act”) with respect to the shares of Penn Virginia Common Stock to be issued to Lonestar stockholders pursuant to the Merger Agreement. This document also constitutes a proxy statement of Penn Virginia under Section 14(a) of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) with respect to the proposals to approve the Penn Virginia Share Issuance Proposal and the Adjournment Proposal. This document also constitutes a consent solicitation statement of Lonestar under Section 14(a) of the Exchange Act with respect to the solicitation of Lonestar stockholders’ written consents to approve the Lonestar Merger Proposal and the Lonestar Compensation Proposal.
You should rely only on the information contained in or incorporated by reference into this proxy statement/consent solicitation statement/prospectus. Penn Virginia and Lonestar have not authorized anyone to provide you with information that is different from that contained in, attached to or incorporated by reference into this proxy statement/consent solicitation statement/prospectus. This proxy statement/consent solicitation statement/prospectus is dated    , 2021 and is first being mailed to Penn Virginia shareholders and Lonestar stockholders on    , 2021. The information contained in this proxy statement/consent solicitation statement/prospectus is accurate only as of that date or, in the case of information in a document incorporated by reference or attached to this proxy statement/consent solicitation statement/prospectus, as of the date of such document, unless the information specifically indicates that another date applies. Neither the mailing of this proxy statement/consent solicitation statement/prospectus to Penn Virginia shareholders and Lonestar stockholders nor the issuance by Penn Virginia of shares of Penn Virginia Common Stock pursuant to the Merger Agreement will create any implication to the contrary.
This proxy statement/consent solicitation statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Penn Virginia has supplied all information contained in this proxy statement/consent solicitation statement/prospectus relating to Penn Virginia, and Lonestar has supplied all such information relating to Lonestar. Penn Virginia and Lonestar have both contributed to the information related to the Integrated Mergers contained in this proxy statement/consent solicitation statement/prospectus.
Unless the context otherwise requires, all references in this proxy statement/consent solicitation statement/prospectus to:
“Adjournment Proposal” refer to the proposal for the Penn Virginia shareholders to approve the adjournment of the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Share Issuance Proposal;
“Articles of Incorporation Amendment Proposal” refer to the proposal for the Penn Virginia shareholders to approve the amendment and restatement of the Existing Articles of Incorporation to: (i) increase the number of shares of authorized capital stock of Penn Virginia to 145,000,000 shares, (ii) rename and reclassify the Company’s existing common stock, par value $0.01 per share, as Class A Common Stock, (iii) authorize, as a new class of capital stock of the Company, 30,000,000 shares of Class B Common Stock, (iv) remove provisions that are no longer applicable following the exchange of all outstanding shares of Series A Preferred Stock for shares of the newly authorized Class B Common Stock pursuant to the Exchange Agreement and (v) cancel the designation of the Series A Preferred Stock;
“A&R Articles of Incorporation” refer to the Fourth Amended and Restated Articles of Incorporation, the form of which is attached as Annex E to this proxy statement/consent solicitation statement/prospectus, to be filed with the SCC by Penn Virginia, subject to approval of the Articles of Incorporation Amendment Proposal, in connection with the Recapitalization;
“Class A Common Stock” refer to the common stock of Penn Virginia, par value $0.01 per share, following its renaming and reclassification as Class A common stock, par value $0.01 per share, pursuant to the A&R Articles of Incorporation in connection with the Recapitalization;

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“Class B Common Stock” refer to the Class B common stock of Penn Virginia, par value $0.01 per share, to be authorized pursuant to the A&R Articles of Incorporation in connection with the Recapitalization;
“closing” refer to the closing of the Transactions;
“closing date” refer to the date of the Effective Time;
“Common Units” refer to common units representing limited partner interests in PV Energy Holdings;
“Contribution” refer to the contribution by Penn Virginia, promptly following the effective time of the Second Merger, of all of the limited liability company interests in the Surviving Company to Penn Virginia Holdings, LLC, a Delaware limited liability company, in exchange for the issuance of Common Units in PV Energy Holdings, in accordance with Section 3.04 of the Amended and Restated Agreement of Limited Partnership of PV Energy Holdings;
“DGCL” refer to the General Corporation Law of the State of Delaware;
“Effective Time” refer to the effective time of the First Merger;
“Exchange Act” refer to the Securities Exchange Act of 1934, as amended;
“Exchange Agreement” refer to the exchange agreement, to be dated on or prior to the effective date of the A&R Articles of Incorporation, by and among Penn Virginia and the holders of shares of Series A Preferred Stock, pursuant to which of all outstanding shares of Series A Preferred Stock will be exchanged for shares of the newly authorized Class B Common Stock at a ratio of one share of Class B Common Stock for each 1/100th of a share of Series A Preferred Stock;
“Exchange Ratio” refer to the ratio of 0.51 shares of Penn Virginia Common Stock per outstanding share of Lonestar Common Stock that will be issued to Lonestar stockholders in connection with the Integrated Mergers;
“Existing Articles of Incorporation” refer to the Third Amended and Restated Articles of Incorporation of Penn Virginia, as in effect on the date of this proxy statement/consent solicitation statement/prospectus;
“Existing Penn Virginia Bylaws” refer to the Sixth Amended and Restated Bylaws of Incorporation of Penn Virginia, as in effect on the date of this proxy statement/consent solicitation statement/prospectus;
“First Merger” refer to the merger, pursuant to the Merger Agreement, of Merger Sub Inc. with and into Lonestar, with Lonestar continuing as the surviving corporation in the First Merger;
“GAAP” refer to accounting principles generally accepted in the United States of America;
“Integrated Mergers” refer to the First Merger and the Second Merger, collectively;
“Investor Directors” refer to the directors from time to time appointed to the Penn Virginia Board pursuant to Juniper’s designation rights under the Existing Articles of Incorporation, currently consisting of Edward Geiser, Kevin Cumming, Joshua Schmidt, Temitope Ogunyomi and Tim Gray;
“Lonestar” refer to Lonestar Resources US Inc., a Delaware corporation;
“Lonestar Board” refer to the Lonestar board of directors;
“Lonestar Common Stock” refer to the common stock of Lonestar, par value $0.001 per share;
“Lonestar Compensation Proposal” refer to the proposal for Lonestar stockholders to approve, on a nonbinding, advisory basis, certain compensation that will or may be paid by Lonestar to its named executive officers that is based on or otherwise relates to the Integrated Mergers;
“Lonestar Merger Proposal” refer to the proposal for Lonestar stockholders to adopt and approve the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement;
“Merger Agreement” refer to the Agreement and Plan of Merger, dated as of July 10, 2021, by and between Penn Virginia and Lonestar, as it may be amended from time to time, a copy of which is attached as Annex A to this proxy statement/consent solicitation statement/prospectus;

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“Merger Sub Inc.” refer to Upsilon Merger Sub Inc., a Delaware corporation and a wholly-owned, direct subsidiary of Penn Virginia;
“Merger Sub LLC” refer to Pi Merger Sub LLC, a Delaware limited liability company and a wholly-owned, direct subsidiary of Penn Virginia;
“Nasdaq” refer to The Nasdaq Stock Market LLC;
“Partnership” or “PV Energy Holdings” refer to PV Energy Holdings, L.P., a Delaware limited partnership of which Penn Virginia is the general partner;
“Penn Virginia,” “we,” “us,” “our,” or the “Company,” refer to Penn Virginia Corporation, a Virginia corporation;
“Penn Virginia Board” refer to the Penn Virginia board of directors;
“Penn Virginia Common Stock” refer to (i) the common stock of Penn Virginia, par value $0.01 per share, prior to the consummation of the Recapitalization, and (ii) the Class A common stock of Penn Virginia, par value $0.01 per share, following the consummation of the Recapitalization;
“Penn Virginia shareholders” refer to the holders of Penn Virginia Common Stock and the holders of Series A Preferred Stock, collectively;
“Preferred Stock” refer to the preferred stock, par value $0.01 per share of Penn Virginia;
“Recapitalization” refer to Penn Virginia’s proposed recapitalization pursuant to which the existing Series A Preferred Stock in the Company’s “up-C” structure will be replaced with a newly authorized class of capital stock of the Company, Class B Common Stock, such that the holders of Class B Common Stock shall have a voting interest in the Company that is commensurate with such holders’ economic interest in the Partnership;
“SCC” refer to the State Corporation Commission of the Commonwealth of Virginia;
“SEC” refer to the Securities and Exchange Commission;
“Second Merger” refer to the merger, pursuant to the Merger Agreement and immediately following the First Merger, of the Surviving Corporation with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity in the Second Merger;
“Securities Act” refer to the Securities Act of 1933, as amended;
“Series A Preferred Stock” refer to Penn Virginia’s Series A Preferred Stock, par value $0.01 per share;
“Share Issuance Proposal” refer to the proposal for the Penn Virginia shareholders to approve, for purposes of complying with Nasdaq Listing Rule 5635(a), the potential issuance of shares of Penn Virginia Common Stock pursuant to the Merger Agreement;
“Special Meeting” refer to the special meeting of Penn Virginia shareholders to be held in connection with the proposed Integrated Mergers;
“Surviving Company” refer to Merger Sub LLC following the Second Merger;
“Surviving Corporation” refer to Lonestar following the First Merger;
“Transactions” refer to the Contribution, the Integrated Mergers, the Merger Agreement and the transactions contemplated thereby, collectively; and
“VSCA” refer to the Virginia Stock Corporation Act.

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SUMMARY TERM SHEET
This summary term sheet, together with the sections entitled “Questions and Answers” and “Summary,” summarizes certain information contained in this proxy statement/consent solicitation statement/prospectus, but does not contain all of the information that is important to you. You should read carefully this entire proxy statement/consent solicitation statement/prospectus, including the attached Annexes, and the other documents referred to herein, for a more complete understanding of the matters to be considered at the special meeting of Penn Virginia shareholders in connection with the proposed Integrated Mergers (as defined herein) (the “Special Meeting”).
Penn Virginia Corporation, a Virginia corporation which we refer to as “we,” “us,” “our,” “Penn Virginia” or the “Company,” was incorporated in Virginia in January 1882. Based out of Houston, Texas, the Company is a pure-play independent oil and gas company engaged in the development and production of oil, natural gas liquids (“NGLs”), and natural gas, with operations in the Eagle Ford shale in south Texas. For more information about the Company, please see the section entitled “Summary—The Parties to the Integrated Mergers.”
Lonestar Resources US Inc., a Delaware Corporation which we refer to as “Lonestar” was incorporated in Delaware on December 16, 2015. For more information about Lonestar, please see the section entitled “Summary—The Parties to the Integrated Mergers.”
As of    , 2021, the record date for the Special Meeting, there were    shares of Penn Virginia Common Stock, and     shares of Series A Preferred Stock, issued and outstanding.
On July 10, 2021, Penn Virginia entered into an Agreement and Plan of Merger (the “Merger Agreement”), with Lonestar. The Merger Agreement provides that, among other things and upon the terms and subject to the conditions set forth therein, Upsilon Merger Sub Inc., a Delaware corporation and a wholly-owned, direct subsidiary of Penn Virginia (“Merger Sub Inc.”), will merge with and into Lonestar (the “First Merger”), with Lonestar continuing as the surviving corporation in the First Merger (the “Surviving Corporation”), and, immediately following the First Merger, the Surviving Corporation will merge with and into Pi Merger Sub LLC, a Delaware limited liability company and a wholly-owned, direct subsidiary of Penn Virginia (“Merger Sub LLC” and, such merger, the “Second Merger” and, together with the First Merger, the “Integrated Mergers”), with Merger Sub LLC continuing as the surviving entity in the Second Merger (the “Surviving Company”).
Subject to the terms and conditions of the Merger Agreement, at the effective time of the First Merger (the “Effective Time”), each share of common stock, $0.001 par value, of Lonestar (“Lonestar Common Stock”) issued and outstanding immediately prior to the Effective Time will automatically be converted into the right to receive 0.51 (the “Exchange Ratio”) fully paid and nonassessable shares of common stock, $0.01 par value, of Penn Virginia (“Penn Virginia Common Stock”). Cash will be paid in lieu of any fractional shares of Penn Virginia Common Stock that otherwise would have been issued to any Lonestar stockholder in the First Merger. Any shares of Lonestar Common Stock held by Penn Virginia, Merger Sub Inc. or Lonestar immediately prior to the Effective Time will be canceled and retired for no consideration and will cease to exist.
Promptly following the effective time of the Second Merger, Penn Virginia will contribute all of the limited liability company interests in the Surviving Company to Penn Virginia Holdings, LLC, a Delaware limited liability company that is a wholly-owned subsidiary of PV Energy Holdings, L.P., a Delaware limited partnership (“PV Energy Holdings”), in exchange for the issuance of common units representing limited partner interests in accordance with Section 3.04 of the Amended and Restated Agreement of Limited Partnership of PV Energy Holdings (the “Contribution” and, together with the Integrated Mergers, the Merger Agreement and the transactions contemplated thereby, the “Transactions”).
It is anticipated that, upon completion of the Integrated Mergers: (i) Penn Virginia’s current shareholders will own approximately 87% of the Company and (ii) Lonestar’s current stockholders will own approximately 13% of the Company, in each case subject to the adjustments set forth in the Merger Agreement.
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The Penn Virginia board of directors (the “Penn Virginia Board”) and the Lonestar board of directors (the “Lonestar Board”) considered various factors in determining whether to approve the Merger Agreement and the Transactions contemplated thereby. For more information about the Penn Virginia Board’s reasons for approving the Merger Agreement and the Transactions, see the section entitled “The Integrated Mergers—Recommendation of the Penn Virginia Board and its Reasons for the Integrated Mergers.” For more information about the Lonestar Board’s reasons for approving the Merger Agreement and the Transactions contemplated thereby, see the section entitled “The Integrated Mergers—Recommendation of the Lonestar Board and its Reasons for the Integrated Mergers.”
The Merger Agreement may be terminated at any time prior to the consummation of the Transactions upon agreement of the parties thereto, or by the Company or Lonestar in specified circumstances. For more information about the termination rights under the Merger Agreement, please see the section entitled “The Merger Agreement—Termination of the Merger Agreement.”
The proposed Transactions involve numerous risks. For more information about these risks, please see the section entitled “Risk Factors” beginning on page 25 of this proxy statement/consent solicitation statement/prospectus.
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ADDITIONAL INFORMATION
This proxy statement/consent solicitation statement/prospectus incorporates by reference important business and financial information about Penn Virginia from other documents that are not included in or delivered with this proxy statement/consent solicitation statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/consent solicitation statement/prospectus, see “Where You Can Find More Information” beginning on page 182.
You may request copies of this proxy statement/consent solicitation statement/prospectus and any of the documents incorporated by reference herein or other information concerning Penn Virginia or Lonestar, without charge, upon written or oral request to the applicable company’s principal executive offices. The respective addresses and phone numbers of such principal executive offices are listed below.
For Penn Virginia Shareholders:
For Lonestar Stockholders:
Penn Virginia Corporation
16285 Park Ten Place, Suite 500
Houston, TX 77084
Attention: Investor Relations
Telephone: (713) 722-6500
Lonestar Resources US Inc.
111 Boland Street, Suite 301
Fort Worth, TX 76107
Attention: Investor Relations
Telephone: (817) 921-1889
If you would like to request any of the Penn Virginia documents that are incorporated by reference into this proxy statement/consent solicitation statement/prospectus, please do so by     , 2021 in order to receive them before the Special Meeting.
You may also obtain any of the documents incorporated by reference into this proxy statement/consent solicitation statement/prospectus without charge through the SEC’s website at www.sec.gov. In addition, you may obtain copies of documents filed by Penn Virginia with the SEC by accessing Penn Virginia’s website at https://ir.pennvirginia.com. You may also obtain copies of documents filed by Lonestar with the SEC by accessing Lonestar’s website at https://lonestarresources.com/investor-relations.
We are not incorporating the contents of the websites of the SEC, Penn Virginia, Lonestar or any other entity into this proxy statement/consent solicitation statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this proxy statement/consent solicitation statement/prospectus at these websites only for your convenience.
In addition, if you have questions about the Integrated Mergers or this proxy statement/consent solicitation statement/prospectus, would like additional copies of this proxy statement/consent solicitation statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, contact Penn Virginia at 713-722-6500. You will not be charged for any of these documents that you request.
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QUESTIONS AND ANSWERS
The following questions and answers briefly address some commonly asked questions about the Integrated Mergers, the Merger Agreement, and the other transactions contemplated thereby, the Special Meeting and the solicitation of Lonestar written consents. They may not include all the information that is important to Penn Virginia shareholders and Lonestar stockholders. Penn Virginia shareholders and Lonestar stockholders should carefully read this entire proxy statement/consent solicitation statement/prospectus, including the annexes and the other documents referred to and/or incorporated by reference herein.
QUESTIONS AND ANSWERS ABOUT THE INTEGRATED MERGERS:
Q:
Why am I receiving this proxy statement/consent solicitation statement/prospectus?
A:
This proxy statement/consent solicitation statement/prospectus serves as the proxy statement for the Special Meeting of Penn Virginia, a consent solicitation statement of Lonestar and a prospectus of Penn Virginia.
You are receiving this proxy statement/consent solicitation statement/prospectus because Penn Virginia and Lonestar have agreed to combine in an all-stock merger transaction.
In order to complete the Integrated Mergers, among other things, Lonestar stockholders must execute and return written consents to adopt and approve the Merger Agreement in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), and Penn Virginia shareholders must approve the issuance of shares of Penn Virginia Common Stock in connection with the Integrated Mergers.
This proxy statement/consent solicitation statement/prospectus serves as (i) a proxy statement of Penn Virginia through which the Penn Virginia Board is soliciting proxies using this proxy statement/consent solicitation statement/prospectus from its shareholders, (ii) a consent solicitation statement of Lonestar through which the Lonestar Board is soliciting written consent using this proxy statement/consent solicitation statement/prospectus from its stockholders and (iii) a prospectus pursuant to which Penn Virginia will issue shares of Penn Virginia Common Stock as consideration in the Integrated Mergers.
This proxy statement/consent solicitation statement/prospectus, which you should carefully read in its entirety, contains important information about the Special Meeting, the solicitation of Lonestar written consents, the Integrated Mergers and other related matters.
Q:
What will happen in the Integrated Mergers?
A:
At the Effective Time, Merger Sub Inc. will merge with and into Lonestar, with Lonestar surviving the merger as the Surviving Corporation. Immediately following the First Merger, the Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity in the Second Merger. The Merger Agreement governs the terms of the Integrated Mergers and is attached to this proxy statement/consent solicitation statement/prospectus as Annex A. For a more complete discussion of the proposed Integrated Mergers, their effects and the other transactions contemplated by the Merger Agreement, please see “The Integrated Mergers” elsewhere in this proxy statement/consent solicitation statement/prospectus.
Q:
What will Lonestar stockholders receive if the Integrated Mergers are completed?
A:
If the Integrated Mergers are completed, eligible shares of Lonestar Common Stock outstanding at the Effective Time will automatically be converted into the right to receive 0.51 shares of Penn Virginia Common Stock. Each Lonestar stockholder will receive cash in lieu of any fractional share of Penn Virginia Common Stock that such stockholder would otherwise be entitled to receive in the Integrated Mergers.
Because Penn Virginia will issue a fixed number of shares of Penn Virginia Common Stock in exchange for each share of Lonestar Common Stock, the value of the merger consideration that Lonestar stockholders will receive in the Integrated Mergers will depend on the market price of shares of Penn Virginia Common Stock at the Effective Time. The market price of shares of Penn Virginia Common Stock that Lonestar stockholders receive at the Effective Time could be greater than, less than or the same as the market price of shares of Penn Virginia Common Stock on the date of this proxy statement/consent solicitation statement/prospectus. Accordingly, you should obtain current market quotations for Penn Virginia Common
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Stock and Lonestar Common Stock before deciding how to vote with respect to the Share Issuance Proposal, or the Lonestar Merger Proposal, as applicable. Penn Virginia Common Stock is traded on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “PVAC.” Lonestar Common Stock is quoted on the OTCQX Best Market under the symbol “LONE.”
For more information regarding the merger consideration to be received by Lonestar stockholders if the Integrated Mergers are completed, please see “The Merger Agreement—Merger Consideration.”
If both the Share Issuance Proposal and the Articles of Incorporation Amendment Proposal are approved by the Penn Virginia shareholders, Penn Virginia will not complete the Recapitalization until after the closing of the Integrated Mergers. Accordingly, the shares to be issued to Lonestar stockholders as consideration pursuant to the Merger Agreement will be shares of the existing Penn Virginia Common Stock. Your rights as a holder of Class A Common Stock shall be substantially identical to your rights as a holder of existing Penn Virginia Common Stock. For more information, please see the section entitled “Penn Virginia Proposal 2—The Articles of Incorporation Amendment Proposal.”
Q:
Who will own Penn Virginia immediately following the Integrated Mergers?
A:
Penn Virginia and Lonestar estimate that upon the completion of the Integrated Mergers, current Penn Virginia shareholders, collectively, will own approximately 87% of the outstanding shares of Penn Virginia Common Stock, and current Lonestar stockholders, collectively, will own approximately 13% of the outstanding Penn Virginia Common Stock.
Q:
Will Lonestar equity-based awards and Lonestar warrants be affected by the Integrated Mergers?
A:
Upon the completion of the Integrated Mergers, outstanding Lonestar equity-based awards will be affected as described below.
Immediately prior to the Effective Time, upon the terms and subject to the conditions of the Merger Agreement, each Lonestar restricted stock unit (each a “Lonestar RSU”) (including each Lonestar RSU subject to performance-based vesting conditions) that is outstanding immediately prior to the Effective Time, whether vested or unvested, will become fully vested at the Effective Time and will be cancelled and converted into a right to receive a number of shares of Penn Virginia Common Stock based on the Exchange Ratio (in addition to any cash received in lieu of fractional shares of Penn Virginia Common Stock), with any applicable performance-based vesting conditions to be treated as having been achieved in full (which will result in a number of Lonestar RSUs vesting equal to the number of Lonestar RSUs granted to the applicable participant on the applicable grant date, and not any greater number).
In addition, at the Effective Time, each outstanding, unexpired and unexercised warrant to purchase Lonestar Common Stock (the “Lonestar warrants”) shall be (i) cancelled and extinguished for no consideration on the closing date of the Integrated Mergers or (ii) in the case of the Tranche 1 Warrants (as defined in the Merger Agreement), acquired by Penn Virginia for a number of shares of Penn Virginia Common Stock equal to the Exchange Ratio, in each case in accordance with the terms of the agreement governing such warrants.
For additional information regarding the Lonestar equity-based awards and Lonestar warrants, please see “The Merger Agreement—Treatment of Lonestar Equity-Based Awards and Lonestar Warrants.”
Q:
What will the composition of the board of directors and management of Penn Virginia be following completion of the Integrated Mergers?
A:
The Penn Virginia Board at the Effective Time will be composed of nine members (each a “Penn Virginia Director” and collectively the “Penn Virginia Directors”). One member of the current Penn Virginia Board will resign and be replaced by one member currently serving on the Lonestar Board, as described below. Prior to the Effective Time, Penn Virginia will take all necessary actions to cause one director currently serving on the Lonestar Board prior to the Effective Time and mutually acceptable to both Penn Virginia and Lonestar (who shall meet the independence standards of the Nasdaq with respect to Penn Virginia) to be appointed to the Penn Virginia Board.
Edward Geiser will continue to serve as Chairman of the Penn Virginia Board, and Darrin Henke will continue to serve as President and CEO of Penn Virginia following the closing of the transaction.
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The officers of Merger Sub Inc. prior to the Effective Time will be the initial officers of the Surviving Corporation and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.
The officers of Merger Sub LLC prior to the Second Merger will be the initial officers of the Surviving Company and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.
For additional information regarding the Penn Virginia Board and the management of Penn Virginia, Merger Sub Inc. and Merger Sub LLC following the completion of the Integrated Mergers, please see “The Merger Agreement—Board of Directors and Executive Officers After Completion of the Integrated Mergers.”
Q:
What happens if the Integrated Mergers are not completed?
A:
If the Lonestar stockholders do not approve the Merger Agreement or the Penn Virginia shareholders do not approve the Share Issuance Proposal, or if the Integrated Mergers are not completed for any other reason, Lonestar stockholders will not receive any merger consideration for their shares of Lonestar Common Stock in connection with the Integrated Mergers. Instead, Penn Virginia and Lonestar will each remain independent public companies, the Penn Virginia Common Stock will continue to be listed and traded on the Nasdaq, and the Lonestar Common Stock will continue to be quoted on the OTCQX Best Market. If the Merger Agreement is terminated under certain specified circumstances, Penn Virginia may be required to pay Lonestar a termination fee of $6,000,000 (the “Penn Virginia Termination Fee”) and Lonestar may be required to pay Penn Virginia a termination fee of $3,000,000 (the “Lonestar Termination Fee”). Please see “The Merger Agreement—Termination Fee” for a more detailed discussion of the termination fees.
Q:
When are the Integrated Mergers expected to be completed?
A:
Subject to the satisfaction or waiver of the closing conditions described under “The Merger Agreement—Conditions to the Completion of the Integrated Mergers,” the Integrated Mergers are expected to close in calendar year 2021. However, neither Penn Virginia nor Lonestar can predict the actual date on which the Integrated Mergers will be completed, or if the Integrated Mergers will be completed at all, because completion of the Integrated Mergers are subject to conditions and factors outside the control of both companies. Penn Virginia and Lonestar hope to complete the Integrated Mergers as soon as reasonably practicable.
Q:
What are the conditions to completion of the Integrated Mergers?
A:
The Integrated Mergers are subject to a number of conditions to closing as specified in the Merger Agreement. These closing conditions include, among others, (i) the approval of the Lonestar Merger Proposal by the Lonestar stockholders, (ii) the approval of the Share Issuance Proposal by the Penn Virginia shareholders, (iii) that no provision of any applicable law and no order (preliminary or otherwise) is in effect that prohibits the consummation of the Integrated Mergers; (iv) that any waiting period (and any extension of such period) under the Hart Scott Rodino Act (the “HSR Act”) applicable to the transactions contemplated by the Merger Agreement has expired or been terminated; (v) this proxy statement/consent solicitation statement/prospectus is effective under the Securities Act and no stop order suspending the use of this proxy statement/consent solicitation statement/prospectus has been issued by the SEC, nor have proceedings seeking a stop order been initiated or, to the knowledge of Lonestar or Penn Virginia, as the case may be, been threatened by the SEC; and (vi) Penn Virginia has filed with the Nasdaq a subsequent listing application with respect to the shares of Penn Virginia Common Stock being issued pursuant to the Merger Agreement and such shares of Penn Virginia Common Stock have been approved and authorized for listing on the Nasdaq. More information may be found in “The Merger Agreement—Conditions to the Completion of the Integrated Mergers.”
QUESTIONS AND ANSWERS ABOUT THE PENN VIRGINIA SPECIAL MEETING:
Q:
What are Penn Virginia shareholders being asked to vote on?
A:
Penn Virginia is holding a special meeting of its shareholders to vote on the approval of the potential issuance of shares of Penn Virginia Common Stock in connection with the Integrated Mergers (the “Share Issuance Proposal”), pursuant to Section 5635(a) of the Nasdaq Listing Rules. For more information, please see the section entitled “Penn Virginia Proposal 1—The Share Issuance Proposal.”
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Penn Virginia is also asking shareholders to consider and vote on an unrelated proposal to amend and restate Penn Virginia’s Third Amended and Restated Articles of Incorporation (the “Existing Articles of Incorporation”) to: (i) increase the number of shares of authorized capital stock of Penn Virginia to 145,000,000 shares, (ii) rename and reclassify the Company’s existing common stock, par value $0.01 per share, as Class A common stock, par value $0.01 per share (“Class A Common Stock”), (iii) authorize, as a new class of capital stock of the Company, 30,000,000 shares of Class B common stock, par value of $0.01 per share (“Class B Common Stock”), (iv) remove provisions that are no longer applicable following the exchange of all outstanding shares of Series A Preferred Stock for shares of the newly authorized Class B Common Stock pursuant to an exchange agreement, to be dated on or prior to the effective date of the A&R Articles of Incorporation, by and among Penn Virginia and the holders of shares of Series A Preferred Stock (the “Exchange Agreement”), and (v) cancel the designation of the Series A Preferred Stock (collectively, the “Articles of Incorporation Amendment Proposal”). The Articles of Incorporation Amendment Proposal is unrelated to the Integrated Mergers, and approval of the Articles of Incorporation Amendment Proposal is not a condition to the completion of the Integrated Mergers or the approval of the Share Issuance Proposal. For more information, please see the section entitled “Penn Virginia Proposal 2—The Articles of Incorporation Amendment Proposal” and the proposed amended and restated Articles of Incorporation, the form of which is attached hereto as Annex E (the “A&R Articles of Incorporation”).
If necessary, Penn Virginia shareholders will be asked to approve the proposal to adjourn the Special Meeting to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Share Issuance Proposal or to ensure that any supplement or amendment to this proxy statement/consent solicitation statement/prospectus is timely provided to Penn Virginia shareholders (the “Adjournment Proposal” and, together with the Share Issuance Proposal and the Articles of Incorporation Amendment Proposal, the “Proposals”). For more information, please see the section entitled “Penn Virginia Proposal 3—The Adjournment Proposal.”
Your vote is very important, regardless of the number of shares that you own. The approval of the Share Issuance Proposal is a condition to the obligations of Penn Virginia to complete the Integrated Mergers.
Q:
Are any of the Penn Virginia Proposals conditioned on one another?
A:
No. The approval of the Share Issuance Proposal is not conditioned on the approval of the Articles of Incorporation Amendment Proposal, and vice versa. Approval of the Adjournment Proposal is not conditioned on, or a condition to, any other Proposal.
Q:
Why are Penn Virginia shareholders being asked to vote on the Share Issuance Proposal?
A:
Penn Virginia Common Stock is listed for trading on the Nasdaq, which requires us to abide by the listing rules established by the Nasdaq. Under Nasdaq Listing Rule 5635(a), shareholder approval is required prior to the issuance of securities in connection with the acquisition of stock or assets of another company that would result in the issuance, or potential issuance, of shares of common stock (including upon the conversion or exercise of securities into common stock) (a) having voting power equal to or in excess of 20% of the voting power outstanding prior to the issuance of the common stock or securities convertible into or exercisable for common stock or (b) in excess of 20% of the number of shares of common stock outstanding prior to the issuance of the common stock or securities convertible into or exercisable for common stock.
Penn Virginia currently has     shares of Penn Virginia Common Stock outstanding and     shares of Series A Preferred Stock outstanding. Pursuant to the Merger Agreement, Penn Virginia will issue up to     shares of Penn Virginia Common Stock, representing approximately    % of the outstanding shares of Penn Virginia Common Stock prior to such issuance. This would exceed the 20% threshold under Nasdaq Listing Rule 5635(a) described in clause (b) of the above paragraph. Accordingly, Penn Virginia is seeking shareholder approval under Nasdaq Listing Rule 5635(a) in connection with the potential issuance of up to     shares of Penn Virginia Common Stock be issued to Lonestar stockholders pursuant to the Merger Agreement.
Q:
How important is my vote as a Penn Virginia shareholder?
A:
Your vote at the Special Meeting is very important, and you are encouraged to submit a proxy as soon as
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possible. The Integrated Mergers between Penn Virginia and Lonestar cannot be completed without the approval of the Share Issuance Proposal by the Penn Virginia shareholders.
Q:
What constitutes a quorum, and what vote is required to approve each proposal at the Special Meeting?
A:
A quorum of Penn Virginia’s shareholders is necessary to hold a valid meeting. The presence, in person or by proxy, of a majority in voting power of the outstanding shares entitled to vote at the Special Meeting constitutes a quorum. Abstentions will be counted for the purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum at the Special Meeting, unless the broker, bank or other nominee has been instructed to vote on at least one of the proposals. The approval of the Share Issuance Proposal requires the affirmative vote of a majority of the votes cast on such proposal by Penn Virginia shareholders entitled to vote at the Special Meeting. The approval of the Adjournment Proposal requires the affirmative vote of a majority in voting power of the outstanding shares of capital stock present in person or represented by proxy at the Special Meeting and entitled to vote thereat. The approval of the Articles of Incorporation Amendment Proposal requires the affirmative vote of more than 66 2/3% of the total voting power of outstanding shares entitled to vote. Abstentions, a shareholder’s failure to vote by proxy or to vote online at the Special Meeting and a broker non-vote are not counted as a vote cast and, therefore, will have no effect on the Share Issuance Proposal. A shareholder’s failure to vote at the Special Meeting and a broker non-vote will have no effect on the Adjournment Proposal. Abstentions will have the effect of a vote “AGAINST” the Adjournment Proposal. Abstentions, a shareholder’s failure to vote by proxy or to vote online at the Special Meeting and a broker non-vote will have the effect of a vote “AGAINST” the Articles of Incorporation Amendment Proposal.
Q:
How do I vote my shares of Penn Virginia Common Stock?
A:
If you were a holder of record of Penn Virginia Common Stock on    , 2021, the record date for the Special Meeting (the “Penn Virginia Record Date”), you may submit your proxy before the special meeting in one of the following ways:
Telephone-use the toll-free number shown on your proxy card;
Internet-visit the website shown on your proxy card to vote via the Internet; or
Mail-complete, sign, date and return the enclosed proxy card in the enclosed postage-paid envelope.
If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to virtually attend the Special Meeting and vote online, obtain a proxy from your broker, bank or nominee.
Q:
Are there any shareholders who have already committed to voting in favor of any of the proposals at the Special Meeting?
A:
Yes. Certain entities (the “Penn Virginia Supporting Shareholders”), comprised of affiliates of Juniper Capital Advisors, L.P. (together with the Penn Virginia Supporting Shareholders, “Juniper”) and collectively holding approximately 60% of the outstanding voting power of the Company’s capital stock, entered into a support agreement with Lonestar (the “Penn Virginia Support Agreement”) (a copy of which is attached as Annex D to this proxy statement/consent solicitation statement/prospectus) pursuant to which they agreed, among other things, to vote all shares of their Series A Preferred Stock beneficially owned (i) in favor of the Share Issuance Proposal and approval of any other matter that is required to be approved by the shareholders of Penn Virginia in order to effect the Integrated Mergers and (ii) against any proposal made (A) in opposition to the Share Issuance Proposal or (B) in support of an Acquisition Proposal (as defined below) with respect to the Company. The Penn Virginia Supporting Shareholders also agreed that they would not transfer any number of shares of their Series A Preferred Stock that would result in their ownership (when combined with any other shares of Series A Preferred Stock with respect to which Juniper has sole or shared voting power) falling below the number of shares sufficient to approve the Share Issuance Proposal and any other matters required to be approved in order to effect the Integrated Mergers. For more information, please see “The Merger Agreement—Penn Virginia Support Agreement.”
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Q:
How does the Penn Virginia Board recommend that I vote at the Special Meeting?
A:
The Penn Virginia Board (solely with respect to the Articles of Incorporation Amendment Proposal, other than Edward Geiser, Kevin Cumming, Joshua Schmidt, Temitope Ogunyomi and Tim Gray (the “Investor Directors”), who recused themselves from such recommendation) unanimously makes the following recommendations with respect to each Proposal:
FOR” the Share Issuance Proposal
FOR” the Articles of Incorporation Amendment Proposal
FOR” the Adjournment Proposal
For additional information regarding the recommendation of the Penn Virginia Board, please see “The Integrated Mergers—Recommendation of the Penn Virginia Board and its Reasons for the Integrated Mergers.”
Q:
Who is entitled to vote at the Special Meeting?
A:
The Penn Virginia Record Date is    , 2021. Only holders of record of shares of Penn Virginia Common Stock, or Series A Preferred Stock, at the close of business on    , 2021 will be entitled to vote at the Special Meeting. Holders of Penn Virginia Common Stock and Series A Preferred Stock will vote together as a single class at the Special Meeting. Holders of Penn Virginia Common Stock are entitled to one vote per share of Penn Virginia Common Stock on all matters to be presented at the Special Meeting. Holders of Series A Preferred Stock are entitled to one vote per each 1/100th of a share of Series A Preferred Stock on all matters submitted to a vote of the holders of Penn Virginia Common Stock. Therefore, up to    votes may be cast at the Special Meeting. All shares represented by properly executed and delivered proxies will be voted at the Special Meeting. Please see “Penn Virginia Special Meeting—Voting at the Special Meeting” for instructions on how to vote your shares without attending the Special Meeting.
Q:
What is a proxy?
A:
A stockholder’s legal designation of another person to vote shares of such stockholder’s common stock at a special or annual meeting is referred to as a proxy. The document used to designate a proxy to vote your shares of common stock is called a proxy card.
Q:
How many votes do I have for the Special Meeting?
A:
Each Penn Virginia shareholder is entitled to one vote for each share of Penn Virginia Common Stock held of record as of the close of business on the Penn Virginia Record Date for each proposal. Each holder of Series A Preferred Stock is entitled to one vote per each 1/100th of a share of Series A Preferred Stock on all matters submitted to a vote of the holders of Penn Virginia Common Stock. As of the close of business on the Penn Virginia Record Date, there were     outstanding shares of Penn Virginia Common Stock and     outstanding shares of Series A Preferred Stock.
Q:
What will happen to my shares of Penn Virginia Common Stock?
A:
Following the completion of the Integrated Mergers, you will continue to own the same shares of Penn Virginia Common Stock that you owned prior to the Effective Time. As a result of the Share Issuance Proposal, however, the overall ownership percentage of current Penn Virginia shareholders in the combined company will be diluted.

In addition, if the Articles of Incorporation Amendment Proposal is approved, Penn Virginia will amend and restate the Existing Articles of Incorporation by filing the A&R Articles of Incorporation with the State Corporation Commission of the Commonwealth of Virginia (the “SCC”) as soon as practicable after the approval. However, if both the Share Issuance Proposal and the Articles of Incorporation Amendment Proposal are approved by the Penn Virginia shareholders, we will not complete the Recapitalization until after the closing of the Integrated Mergers. Upon the effectiveness of the A&R Articles of Incorporation, the existing single class of Penn Virginia Common Stock shall be reclassified and renamed as Class A Common Stock.
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Other than the foregoing, your rights as a holder of Class A Common Stock shall be substantially identical to your rights as a holder of existing Penn Virginia Common Stock. For more information, please see the section entitled “Penn Virginia Proposal 2—The Articles of Incorporation Amendment Proposal.”
Q:
What will happen to Penn Virginia’s securities if the Recapitalization is consummated? Will Penn Virginia continue to have securities listed on Nasdaq?
A:
If the Articles of Incorporation Amendment Proposal is approved and the Recapitalization is consummated, Penn Virginia’s Class A Common Stock shall succeed the existing Penn Virginia Common Stock and shall continue to be listed under the symbol “PVAC” on the Nasdaq. Pursuant to the Exchange Agreement, each outstanding 1/100th of a share of Series A Preferred Stock will be exchanged for one share of newly issued Class B Common Stock and the Series A Preferred Stock designation shall be cancelled.
Q:
What will happen to my shares of Series A Preferred Stock?
A:
You will continue to own the same shares of Series A Preferred Stock that you own prior to the Effective Time. If the Articles of Incorporation Amendment Proposal is approved, upon the effectiveness of the A&R Articles of Incorporation, and pursuant to the Exchange Agreement, each 1/100th of a share of Series A Preferred Stock you own will be exchanged for one share of newly issued Class B Common Stock and the Series A Preferred Stock designation shall be cancelled.
The proposed amendment will not affect the rights of current holders of Penn Virginia Common Stock, none of whom have preemptive or similar rights to acquire the newly authorized shares.
Q:
Why is Penn Virginia seeking to increase the number of authorized shares of capital stock in connection with the Recapitalization?
A:
The Company is seeking to amend the Existing Articles of Incorporation so that it can effect the proposed Recapitalization. Due to the current voting rights and the exchange rights being held through the Series A Preferred Stock, the market capitalization of the Company reported by certain third parties does not always include the Penn Virginia Common Stock underlying the Series A Preferred Shares, which can result in misconceptions about the Company’s business and financial condition. In addition, replacing the Series A Preferred Stock with the new Class B Common Stock will align the Company’s organizational structure with a majority of the public companies that employ an “up-C” structure. Thus, the Company believes that the Recapitalization will result in an organizational structure that is more familiar to market participants which in turn will lead to more accurate reporting of the Company’s market capitalization, reflecting both the Class A Common Stock and the Class B Common Stock, and financial condition.
As part of the Articles of Incorporation Amendment Proposal, the Company is proposing to increase the number of authorized shares of capital stock by 30,000,000 shares, the same number of shares of Class B Common Stock to be authorized under the A&R Articles of Incorporation, in order to ensure that Penn Virginia has the same number of shares of Penn Virginia Common Stock available for issuance following the Recapitalization as are currently available.
As of July 30, 2021, there were 15,312,273 shares of Penn Virginia Common Stock and 225,489.98 shares of Series A Preferred Stock issued and outstanding. If all of the outstanding shares of Series A Preferred Stock were exchanged for shares of Penn Virginia Common Stock and all 5,855,940 shares of Penn Virginia Common Stock were issued in connection with the Integrated Mergers, the Company would have 43,717,211 shares of Penn Virginia Common Stock issued and outstanding and 61,930,345 shares (excluding the 967,174 shares reserved for issuance for outstanding equity awards and the 3,385,270 shares reserved for issuance for future equity awards, as of July 30, 2021) available for future issuance. If the A&R Articles of Incorporation did not increase the total number of authorized shares of capital stock and the current 110,000,000 authorized shares of Penn Virginia Common Stock were split between 80,000,000 authorized shares of Class A Common Stock and 30,000,000 authorized shares of Class B Common Stock under the A&R Articles of Incorporation, the Company would only have 31,930,345 shares of Class A Common Stock (excluding the 967,174 shares reserved for issuance for outstanding equity awards and the 3,385,270 shares reserved for issuance for future equity awards) available for future issuance following the Recapitalization and the consummation of the Integrated Mergers. As a result, the Company’s ability to use its equity for capital raising, acquisitions or other strategic purposes, should they arise and be deemed advisable, would be
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materially reduced following the Recapitalization unless the total number of authorized shares of capital stock are increased in connection with the authorization of 30,000,000 new shares of Class B Common Stock. If the Articles of Incorporation Amendment Proposal is approved by the Penn Virginia shareholders and the Recapitalization and Integrated Mergers are completed, 61,930,345 shares of Class A Common Stock would be issuable by the Company without any further action by the shareholders (excluding the 967,174 shares reserved for issuance for outstanding equity awards and the 3,385,270 shares reserved for issuance for future equity awards, and assuming the 22,548,998 shares of Class B Common Stock issued in the Recapitalization are exchanged for an equivalent number of shares of Class A Common Stock), which is the same number of shares of Penn Virginia Common Stock that would be available for such future issuances if the Recapitalization was not completed.
Accordingly, by increasing the total number of authorized shares of capital stock by the same number of shares of Class B Common Stock to be authorized under the A&R Articles of Incorporation, the Company will have the same number of authorized and unissued shares of Class A Common Stock available for use in connection with potential strategic opportunities, including in connection with potential future financings, acquisitions, employee benefit plans or for other corporate purposes, as the number of authorized but unissued shares of Penn Virginia Common Stock that would be available if the Recapitalization was not completed. In turn, because the Company will have no more shares of Class A Common Stock available for future issuance without further action by the shareholders than the number of shares of Penn Virginia Common Stock currently available for such issuances, the increase in total authorized shares will not have a potential dilutive effect on the existing Penn Virginia shareholders. Additionally, the Class B Common Stock will not have superior voting rights to the Class A Common Stock.
For the foregoing reasons, and as more fully described under the section entitled “Penn Virginia Proposal 2—Articles of Incorporation Amendment Proposal,” the Company believes that increasing the total number of shares of authorized capital stock is a necessary and appropriate component of the proposed Recapitalization in order ensure that both existing shareholder rights and the Company’s current ability to issue additional shares to, among other things, raise additional equity capital, are not adversely affected by the Recapitalization.
Q:
If I am not going to virtually attend the Special Meeting, should I submit my proxy card or voting instruction card instead?
A:
Yes. Whether you plan to virtually attend the Special Meeting or not, please read the enclosed proxy statement carefully, and vote your shares by completing, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided, or by returning the voting instruction card to your bank, broker or other nominee.
Q:
What is the difference between a shareholder of record and a shareholder who holds Penn Virginia Common Stock in street name?
A:
Shareholders of Record. If your shares of Penn Virginia Common Stock are registered in your name with Penn Virginia’s transfer agent, American Stock Transfer & Trust Company, you are a shareholder of record with respect to those shares and the proxy materials were sent directly to you.
Street Name Holders. If you hold your shares in an account at a bank, broker or other nominee, then you are the beneficial owner of shares held in “street name.” The proxy materials were forwarded to you by your bank, broker or other nominee, who is considered the shareholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your bank, broker or other nominee on how to vote the shares held in your account.
Q:
If my shares of Penn Virginia Common Stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote those shares for me?
A:
Under the rules of the Nasdaq, your bank, broker or other nominee will only be permitted to vote your shares of Penn Virginia Common Stock with respect to “non-routine” matters if you instruct your bank, broker or other nominee how to vote. All of the proposals scheduled for consideration at the Special Meeting are “non-routine” matters. As a result, if you fail to provide voting instructions to your broker, bank or other nominee, your shares will not be counted as present at the Special Meeting for purposes of
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determining a quorum and will not be voted on any of the proposals. If you provide voting instructions to your broker, bank or other nominee on one or more of the proposals but not on one or more of the other proposals, then your shares will be counted as present for the purposes of determining a quorum but will not be voted on any proposal for which you fail to provide instructions. To make sure that your shares are voted with respect to each of the proposals, you should instruct your bank, broker or other nominee how you wish to vote your shares in accordance with the procedures provided by your bank, broker or other nominee regarding the voting of your shares.
A failure to instruct your bank, broker or other nominee how you wish to vote your shares (i) will not have any effect on the outcome of the Share Issuance Proposal or the Adjournment Proposal and (ii) will have the effect of a vote “AGAINST” the Articles of Incorporation Amendment Proposal.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.
Q:
If a shareholder gives a proxy, how are the shares of Penn Virginia Common Stock voted?
A:
Regardless of the method you choose to vote, the individuals named on the enclosed proxy card will vote your shares of Penn Virginia Common Stock, as applicable, in the way that you indicate. When completing the proxy card or the Internet or telephone processes, you may specify whether your shares of Penn Virginia 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 Special Meeting.
Q:
How will my shares of Penn Virginia Common Stock be voted if I return a blank proxy?
A:
If you sign, date and return your proxy card and do not indicate how you want your shares of Penn Virginia Common Stock to be voted, then your shares of Penn Virginia Common Stock will be voted “FOR” the Share Issuance Proposal, “FOR” the Articles of Incorporation Amendment Proposal and “FOR” the Adjournment Proposal.
Q:
May I change my vote after I have submitted my executed proxy card?
A:
Yes. You may change your vote by sending a later-dated, signed proxy card to Penn Virginia’s Corporate Secretary at the address listed below so that it is received by Penn Virginia’s secretary prior to the Special Meeting, or by virtually attending the Special Meeting online and voting. You also may revoke your proxy by sending a notice of revocation to Penn Virginia’s Corporate Secretary, which must be received prior to the Special Meeting. Execution or revocation of a proxy will not in any way affect your right to attend the Special Meeting and vote. Written notices of revocation and other communications with respect to the revocation of proxies should be addressed to:
Penn Virginia Corporation
Attn: Corporate Secretary
16285 Park Ten Place, Suite 500
Houston, Texas 77084
For more information, please see “Penn Virginia Special Meeting—Revocation of Proxy.”
Q:
If I hold my shares in “street name,” can I change my voting instructions after I have submitted voting instructions to my bank, broker or other nominee?
A:
If your shares are held in the name of a bank, broker or other nominee and you previously provided voting instructions to your bank, broker or other nominee, you should follow the instructions provided by your bank, broker or other nominee to revoke or change your voting instructions.
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Q:
Where can I find the voting results of the Special Meeting?
A:
The preliminary voting results for the Special Meeting will be announced at the meeting. In addition, within four business days of the Special Meeting, Penn Virginia intends to file the final voting results of its meeting with the SEC on a Current Report on Form 8-K.
Q:
Do Penn Virginia shareholders have appraisal rights or dissenters’ rights?
A:
No. No dissenters’ or appraisal rights will be available with respect to the Integrated Mergers, the Share Issuance Proposal, the Articles of Incorporation Amendment Proposal or any of the other transactions contemplated by the Merger Agreement.
Q:
As a Penn Virginia shareholder, are there any risks that I should consider in deciding whether to vote for the approval of the Share Issuance Proposal?
A:
Yes. You should read and carefully consider the risk factors set forth in “Risk Factors.” You also should read and carefully consider the risk factors of Penn Virginia and Lonestar contained in the reports of Penn Virginia and Lonestar which are incorporated by reference or attached to this proxy statement/consent solicitation statement/prospectus, as applicable.
Q:
Do any of the officers or directors of Penn Virginia have interests in the Integrated Mergers that may differ from or be in addition to my interests as a Penn Virginia shareholder?
A:
Other than continuing roles as directors or executive officers of Penn Virginia after the Effective Time, as described in further detail under the section entitled “The Merger Agreement—Board of Directors and Executive Officers After Completion of the Integrated Mergers,” and potential interests of the directors of Penn Virginia related to the composition of the Penn Virginia Board following the completion of the Integrated Mergers, as described under the section entitled “The Integrated Mergers—Interests of Penn Virginia’s Directors and Executive Officers in the Integrated Mergers,” the Penn Virginia executive officers and directors do not have any interests in the Integrated Mergers that may be different from, or in addition to, the interests of Penn Virginia shareholders generally.
Q:
What happens if I sell my shares of Penn Virginia Common Stock after the Penn Virginia Record Date but before the Special Meeting?
A:
The Penn Virginia Record Date is earlier than the date of the Special Meeting. If you transfer your shares of Penn Virginia Common Stock after the Penn Virginia Record Date but before the Special Meeting, you will, unless special arrangements are made, retain your right to vote at the Special Meeting.
Q:
Who will solicit and pay the cost of soliciting proxies in connection with the Special Meeting?
A:
The Penn Virginia Board is soliciting your proxy in connection with the Special Meeting, and Penn Virginia will bear the cost of soliciting such proxies, including the costs of printing and mailing this proxy statement/consent solicitation statement/prospectus. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through banks, brokers and other nominees to the beneficial owners of shares of Penn Virginia Common Stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by certain of Penn Virginia’s directors, officers and employees, without additional compensation.
Penn Virginia and Lonestar also may be required to reimburse banks, brokers and other custodians, nominees and fiduciaries or their respective agents for their expenses in forwarding proxy materials to beneficial owners of Penn Virginia Common Stock. Penn Virginia’s directors, officers and employees and Lonestar’s directors, officers and employees also may solicit proxies by telephone, by electronic means or in person. They will not be paid any additional amounts for soliciting proxies.
Q:
What should I do now?
A:
You should read this proxy statement/consent solicitation 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 you may submit your voting instructions by telephone or over the Internet as soon as possible so that your shares will be voted in accordance with your instructions.
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Q:
Whom do I call if I have questions about the Special Meeting or the Integrated Mergers?
A:
If you are a Penn Virginia shareholder and have questions about the Special Meeting or the Integrated Mergers, or desire additional copies of this proxy statement/consent solicitation statement/prospectus or additional proxy cards, you may contact:
Penn Virginia Corporation
Attn: Corporate Secretary
16285 Park Ten Place, Suite 500
Houston, Texas 77084
QUESTIONS AND ANSWERS ABOUT THE LONESTAR CONSENT SOLICITATION:
Q:
What approval is required by Lonestar stockholders to approve the Merger Agreement?
A:
The Integrated Mergers cannot be completed unless the Lonestar stockholders execute and return written consents to approve the Lonestar Merger Proposal. Adoption and approval of the Merger Agreement and the transactions contemplated thereby requires the approval of the holders of at least a majority of the outstanding shares of Lonestar Common Stock.
Q:
How do I return my Lonestar written consent?
A:
If you were a holder of record of Lonestar Common Stock (meaning your shares of Lonestar Common Stock are registered in your name with Lonestar’s transfer agent, Computershare, Inc.) on    , 2021, the record date for holders of Lonestar Common Stock being asked to execute written consents, and you wish to return your written consent, please complete, date and sign the written consent furnished with this proxy statement/consent solicitation statement/prospectus and promptly return it to Lonestar by emailing a .pdf copy to Chase Booth, Secretary of Lonestar, at cbooth@lonestarresources.com.
If you hold your shares in an account at a bank, broker or other nominee, please follow the instructions from your bank, broker or other nominee as to how to return your Lonestar written consent.
Lonestar will not be holding a stockholders’ meeting to consider the proposals set forth herein, and therefore you will be unable to vote in person by attending a stockholders’ meeting.
Q:
What is the difference between a stockholder of record and a stockholder who holds Lonestar Common Stock in street name?
A:
Shareholders of Record. If your shares of Lonestar Common Stock are registered in your name with Lonestar’s transfer agent, Computershare, Inc., you are a stockholder of record with respect to those shares and the consent solicitation materials were sent directly to you.
Street Name Holders. If you hold your shares in an account at a bank, broker or other nominee, then you are the beneficial owner of shares held in “street name.” The consent solicitation materials were forwarded to you by your bank, broker or other nominee, who is considered the stockholders of record for purposes of executing the written consent. As a beneficial owner, you have the right to direct your bank, broker or other nominee on how to vote the shares held in your account.
Q:
How does the Lonestar Board recommend that I vote on the Lonestar Merger Proposal and Lonestar Compensation Proposal?
A:
The Lonestar Board recommends that Lonestar stockholders “CONSENT” to each of the Lonestar Merger Proposal and Lonestar Compensation Proposal.
For additional information regarding the recommendation of the Lonestar Board, please see “The Integrated Mergers—Recommendation of the Lonestar Board and its Reasons for the Integrated Mergers.”
Q:
Do Lonestar stockholders have appraisal rights or dissenters’ rights?
A:
No. No dissenters’ or appraisal rights will be available with respect to the transactions contemplated by the Merger Agreement.
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Q:
As a Lonestar stockholder, are there any risks that I should consider in deciding whether to vote for the adoption and approval of the Merger Agreement?
A:
Yes. You should read and carefully consider the risk factors set forth in “Risk Factors.” You also should read and carefully consider the risk factors of Penn Virginia and Lonestar contained in the reports of Penn Virginia and Lonestar which are incorporated by reference or attached to this proxy statement/consent solicitation statement/prospectus, as applicable.
Q:
Do any of the officers or directors of Lonestar have interests in the Integrated Mergers that may differ from or be in addition to my interests as a Lonestar stockholder?
A:
Yes. Lonestar’s executive officers and certain non-employee directors may have interests in the Integrated Mergers that may be different from, or in addition to, the interests of Lonestar stockholders generally. The Lonestar Board was aware of and considered these interests to the extent such interests existed at the time, among other matters, in approving the Merger Agreement and in recommending that the Lonestar Merger Proposal and the Lonestar Compensation Proposal be adopted and approved by the stockholders of Lonestar. Please see “The Integrated Mergers—Interests of Lonestar’s Directors and Executive Officers in the Integrated Mergers.”
Q:
What are the material U.S. federal income tax consequences of the Integrated Mergers to Lonestar stockholders?
A:
The Integrated Mergers, taken together, are intended to qualify 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, and Penn Virginia and Lonestar intend to report the Integrated Mergers consistent with such qualification. Provided that the Integrated Mergers, taken together, so qualify, a U.S. holder (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Integrated Mergers”) of shares of Lonestar Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of its shares of Lonestar Common Stock for shares of Penn Virginia Common Stock pursuant to the Integrated Mergers, except for any gain or loss that may result from the receipt of cash in lieu of a fractional share of Penn Virginia Common Stock. It is not a condition to Penn Virginia’s obligation or Lonestar’s obligation to complete the Transactions that the Integrated Mergers, taken together, qualify as a “reorganization.” Penn Virginia and Lonestar have not requested, and will not request, any ruling from the Internal Revenue Service (the “IRS”) with respect to the tax treatment of the Integrated Mergers, and, as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth herein.
For a more detailed discussion of the U.S. federal income tax consequences of the Integrated Mergers, see the section entitled “Material U.S. Federal Income Tax Consequences of the Integrated Mergers.” Each Lonestar stockholder is strongly urged to consult with its own tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Integrated Mergers to it.
Q:
How will I receive the merger consideration to which I am entitled?
A:
If you hold your shares of Lonestar Common Stock through The Depository Trust Company (“DTC”), you will not be required to take any specific actions to exchange your shares of Lonestar Common Stock for shares of Penn Virginia Common Stock. After the completion of the Integrated Mergers, shares of Lonestar Common Stock held through DTC in book-entry form will be automatically exchanged for shares of Penn Virginia Common Stock in book-entry form and an exchange agent (the “Exchange Agent”) selected by the parties will deliver to you a check in the amount of any cash to be paid in lieu of any fractional share of Penn Virginia Common Stock to which you would otherwise be entitled. If you hold your shares of Lonestar Common Stock in certificated form, or in book-entry form but not through DTC, after receiving the proper documentation from you, following the Effective Time, the Exchange Agent will deliver to you the Penn Virginia Common Stock and a check in the amount of any cash in lieu of fractional shares to which you would otherwise be entitled. More information may be found in “The Merger Agreement—Exchange of Shares.”
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Q:
Whom do I call if I have questions about the Lonestar Consent Solicitation or the Integrated Mergers?
A:
If you are a Lonestar stockholder and have questions about the Lonestar consent solicitation or the Integrated Mergers, or desire additional copies of this proxy statement/consent solicitation statement/prospectus, you may contact:
Lonestar Resources US Inc.
Attn: Secretary
111 Boland Street, Suite 301
Fort Worth, Texas 76107
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SUMMARY
For your convenience, provided below is a brief summary of certain information contained in this proxy statement/consent solicitation statement/prospectus. This summary highlights selected information from this proxy statement/consent solicitation statement/prospectus and does not contain all of the information that may be important to you as a Lonestar stockholder or Penn Virginia shareholder. To understand the Integrated Mergers fully and for a more complete description of the terms of the Integrated Mergers, you should read this entire proxy statement/consent solicitation statement/prospectus carefully, including its annexes and the other documents to which you are referred. Additionally, important information, which you are urged to read, is contained in the documents incorporated by reference into this proxy statement/consent solicitation statement/prospectus. Please see “Where You Can Find More Information” beginning on page 182. Items in this summary include a page reference directing you to a more complete description of those items.
The Parties to the Integrated Mergers (See page 38)
Penn Virginia Corporation
Penn Virginia, whose legal name is Penn Virginia Corporation, was incorporated in Virginia in 1882. Based in Houston, Texas, Penn Virginia is an independent oil and gas company engaged in the exploration, development and production of oil, NGLs and natural gas in the Eagle Ford Shale in south Texas. Shares of Penn Virginia Common Stock are listed and traded on the Nasdaq under the ticker symbol “PVAC.” Penn Virginia has its executive offices located at 16285 Park Ten Place, Suite 500, Houston, Texas 77084, and can be reached by phone at (713) 722-6500.
Lonestar Resources US Inc.
Lonestar, whose legal name is Lonestar Resources US Inc., was incorporated in Delaware in 2015. Based in Fort Worth, Texas, Lonestar is an independent oil and natural gas company focused on the exploration, development and production of unconventional oil, NGLs and natural gas in the Eagle Ford Shale play in south Texas. Shares of Lonestar Common Stock are quoted on the OTCQX Best Marked under the ticker symbol “LONE.” Lonestar has its executive offices located at 111 Boland Street, Suite 301 Fort Worth, Texas 76107, and can be reached by phone at (817) 921-1889.
The Integrated Mergers and the Merger Agreement (See pages 39 and 78)
The terms and conditions of the Integrated Mergers are contained in the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/consent solicitation statement/prospectus. You are encouraged to read the Merger Agreement carefully and in its entirety, as it is the primary legal document that governs the Integrated Mergers.
Pursuant to the Merger Agreement, Merger Sub Inc. will merge with and into Lonestar, with Lonestar continuing as the surviving corporation in the First Merger, and, immediately following the First Merger, the Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity in the Second Merger.
Following the Integrated Mergers, Lonestar Common Stock will cease to be quoted on the OTCQX Best Market, will be deregistered under the Exchange Act and will cease to be publicly traded.
Exchange Ratio (See page 81)
At the Effective Time, each share of Lonestar Common Stock will be converted into the right to receive 0.51 shares of Penn Virginia Common Stock.
The Exchange Ratio is fixed, which means that it will not change between now and the Effective Time, regardless of changes in the market price of Lonestar Common Stock and Penn Virginia Common Stock. No fractional shares of Penn Virginia Common Stock will be issued upon the conversion of shares of Lonestar Common Stock pursuant to the Merger Agreement. Each Lonestar stockholder who otherwise would have been entitled to receive a fraction of a share of Penn Virginia Common Stock will be entitled to receive cash in lieu of such fractional share.
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Penn Virginia shareholders will continue to own their existing shares of Penn Virginia Common Stock, and it is expected that Penn Virginia shareholders will own approximately 87% of the Penn Virginia Common Stock and Lonestar stockholders will own approximately 13% of the Penn Virginia Common Stock immediately following the Effective Time.
The Special Meeting (See page 115)
The Special Meeting of Penn Virginia shareholders will be held virtually, conducted via live audio webcast on   , 2021, at    , Central Time. The Special Meeting is being held to consider and vote on the following proposals:
to approve the Share Issuance Proposal;
to approve the Articles of Incorporation Amendment Proposal; and
to approve the Adjournment Proposal.
Only holders of record of shares of Penn Virginia Common Stock, or Series A Preferred Stock, at the close of business on   , 2021 will be entitled to vote at the Special Meeting. All shares represented by properly executed and delivered proxies will be voted at the Special Meeting. On the record date, there were    shares of Penn Virginia Common Stock and    shares of Series A Preferred Stock outstanding and entitled to vote.
Holders of Penn Virginia Common Stock and Series A Preferred Stock will vote together as a single class at the Special Meeting. Holders of Penn Virginia Common Stock are entitled to one vote per share of Penn Virginia Common Stock on all matters to be presented at the Special Meeting. Holders of Series A Preferred Stock are entitled to one vote per each 1/100th of a share of Series A Preferred Stock on all matters submitted to a vote of the holders of Penn Virginia Common Stock. Therefore, up to    votes may be cast at the Special Meeting. All shares represented by properly executed and delivered proxies will be voted at the Special Meeting.
A quorum of Penn Virginia’s shareholders is necessary to hold a valid meeting. The presence, in person or by proxy, of a majority in voting power of the outstanding shares entitled to vote at the Special Meeting constitutes a quorum. Abstentions will be counted for the purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum at the Special Meeting, unless the broker, bank or other nominee has been instructed to vote on at least one of the proposals.
The approval of the Share Issuance Proposal requires the affirmative vote of a majority of the votes cast on such proposal by Penn Virginia shareholders entitled to vote at the Special Meeting. An abstention, a shareholder’s failure to vote by proxy or to vote at the Special Meeting and a broker non-vote are not counted as a vote cast and, therefore, will have no effect on the Share Issuance Proposal.
The approval of the Adjournment Proposal requires the affirmative vote of a majority in voting power of the outstanding shares of capital stock present in person or represented by proxy at the Special Meeting and entitled to vote thereat. Abstentions will have the effect as a vote “against” the Adjournment Proposal. A shareholder’s failure to vote by proxy or at the Special Meeting and a broker non-vote will have no effect on the Adjournment Proposal.
Approval of the Articles of Incorporation Amendment Proposal requires the affirmative vote of more than 66 2/3% of the total voting power of outstanding shares entitled to vote. An abstention, a shareholder’s failure to vote by proxy or to vote online at the Special Meeting and a broker non-vote will have the same effect of a vote “against” the Articles of Incorporation Amendment Proposal.
The Integrated Mergers are conditioned on, among other things, the approval of the Share Issuance Proposal at the Special Meeting. None of the Proposals are conditioned upon the approval of any of the other Proposals.
It is important for you to note that in the event that the Share Issuance Proposal does not receive the requisite vote for approval at the Special Meeting, including any adjournments or postponements thereof, we will not be able to consummate the Integrated Mergers.
Recommendation of the Penn Virginia Board and its Reasons for the Integrated Mergers (See page 48)
The Penn Virginia Board has determined that the Merger Agreement and the transactions contemplated thereby, including the Integrated Mergers, are advisable and fair to, and in the best interests of, Penn Virginia and its shareholders and has adopted, approved and declared advisable the Merger Agreement and the transactions
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contemplated thereby, including the Integrated Mergers. The Penn Virginia Board (solely with respect to the Articles of Incorporation Amendment Proposal, other than the Investor Directors, who recused themselves from such recommendation) unanimously recommends that Penn Virginia shareholders vote “FOR” the Share Issuance Proposal, “FOR” the Articles of Incorporation Amendment Proposal and “FOR” the Adjournment Proposal. For additional information on the factors considered by the Penn Virginia Board in reaching this decision and the recommendation of the Penn Virginia Board, please see “The Integrated Mergers—Recommendation of the Penn Virginia Board and its Reasons for the Integrated Mergers.”
Amended and Restated Articles of Incorporation (See page 120)
Subject to the approval of the Articles of Incorporation Amendment Proposal, Penn Virginia will amend and restate the Existing Articles of Incorporation by filing the A&R Articles of Incorporation with the SCC that will, among other things, (i) increase the number of shares of authorized capital stock of Penn Virginia to 145,000,000 shares, (ii) rename and reclassify the Company’s existing common stock, par value $0.01 per share, as Class A Common Stock, (iii) authorize, as a new class of capital stock of the Company, 30,000,000 shares of Class B Common Stock, (iv) remove provisions that are no longer applicable following the exchange of all outstanding shares of Series A Preferred Stock for shares of the newly authorized Class B Common Stock pursuant to the Exchange Agreement and (v) cancel the designation of the Series A Preferred Stock. The Class B Common Stock will be non-economic voting interests in the Company and each share of Class B Common Stock will entitle the holder thereof to one vote on all matters submitted to a vote of the holders of Common Stock of the Company. The Articles of Incorporation Amendment Proposal is unrelated to the Integrated Mergers, and approval of the Articles of Incorporation Amendment Proposal is not a condition to the completion of the Integrated Mergers or the approval of the Share Issuance Proposal. The A&R Articles of Incorporation will become effective following their filing with the SCC and upon the SCC’s issuance of a certificate of amendment or certificate of restatement, as the case may be, in respect thereof. If both the Share Issuance Proposal and the Articles of Incorporation Amendment Proposal are approved by the Penn Virginia shareholders, we will not seek effectiveness of the A&R Articles of Incorporation, or complete the Recapitalization, until after the closing of the Integrated Mergers. For more information, please see the section entitled “Penn Virginia Proposal 2—The Articles of Incorporation Amendment Proposal” and the proposed A&R Articles of Incorporation, the form of which is attached hereto as Annex E.
Interests of Penn Virginia’s Directors and Executive Officers in the Integrated Mergers (See page 76)
Other than continuing roles as directors or executive officers of Penn Virginia after the Effective Time, as described in further detail under the section entitled “The Merger Agreement—Board of Directors and Executive Officers After Completion of the Integrated Mergers,” and potential interests of the directors of Penn Virginia related to the composition of the Penn Virginia Board following the completion of the Integrated Mergers, as described under the section entitled “The Integrated Mergers—Interests of Penn Virginia’s Directors and Executive Officers in the Integrated Mergers,” the Penn Virginia executive officers and directors do not have any interests in the Integrated Mergers that may be different from, or in addition to, the interests of Penn Virginia shareholders generally.
Penn Virginia shareholders should take these interests into account in deciding whether to vote “FOR” the Share Issuance Proposal.
Lonestar’s Solicitation of Written Consents (See page 100)
Lonestar stockholders are being asked to approve the Lonestar Merger Proposal and the Lonestar Compensation Proposal by executing and delivering the written consent furnished with this proxy statement/consent solicitation statement/prospectus.
Lonestar stockholders may consent to the Lonestar Merger Proposal and the Lonestar Compensation Proposal with respect to their shares of Lonestar Common Stock by , if such shares are held in the stockholder's name on the books of Lonestar's transfer agent, Computershare, Inc., completing and signing the written consent furnished with this proxy statement/consent solicitation statement/prospectus and returning it to Lonestar by the Lonestar Written Consent Deadline (as defined below) by emailing a .pdf copy of the written consent to Chase Booth, Secretary of Lonestar, at cbooth@lonestarresources.com or, if the shares are held in an account at a bank, broker or other nominee, by following the directions of such bank, broker or other nominee.
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The delivery of written consents from the Lonestar Supporting Stockholders pursuant to the Lonestar Support Agreements will constitute receipt by Lonestar of the requisite approval to approve the Lonestar Merger Proposal, and a failure of any other Lonestar stockholder to deliver a written consent is not expected to have any effect on the approval of the Lonestar Merger Proposal or the Lonestar Compensation Proposal.
For more information, please see “Lonestar Consent Solicitation.”
Lonestar Support Agreements (See page 114)
Following the execution of the Merger Agreement, the Lonestar Supporting Stockholders entered into the Lonestar Support Agreements (a form of which is attached as Annex C to this proxy statement/consent solicitation statement/prospectus) pursuant to which the Lonestar Supporting Stockholders agreed, among other things, to vote all shares of Lonestar Common Stock beneficially owned by such stockholders (i) in favor of the adoption of the Merger Agreement, (ii) against any Acquisition Proposal with respect to Lonestar and (iii) against any amendment of Lonestar’s certificate of incorporation or bylaws or other proposal that would delay, impede, frustrate, prevent or nullify the Integrated Mergers or Merger Agreement or change in any manner the voting rights of any outstanding class of capital stock of Lonestar.
As of   , 2021, the Lonestar Supporting Stockholders held approximately 80% of the outstanding shares of Lonestar Common Stock. As a result, the delivery of Lonestar Stockholder Written Consents by the Lonestar Supporting Stockholders will constitute receipt of the requisite approval to approve the Lonestar Merger Proposal and Lonestar Compensation Proposal.
For additional information, see “The Merger Agreement—Lonestar Support Agreements.”
Penn Virginia Support Agreement (See page 114)
Following the execution of the Merger Agreement, the Penn Virginia Supporting Shareholders, compromised of affiliates of Juniper and collectively holding approximately 60% of the outstanding voting power of the Company’s capital stock, entered into the Penn Virginia Support Agreement (a copy of which is attached as Annex D to this proxy statement/consent solicitation statement/prospectus) pursuant to which they agreed, among other things, to vote all shares of their Series A Preferred Stock beneficially owned by such shareholders (i) in favor of the Share Issuance Proposal and approval of any other matter that is required to be approved by the shareholders of Penn Virginia in order to effect the Integrated Mergers and (ii) against any proposal made (A) in opposition to the Share Issuance Proposal or (B) in support of an Acquisition Proposal with respect to the Company. The Penn Virginia Supporting Shareholders also agreed that they would not transfer any number of shares of its Series A Preferred Stock that would result in their ownership (when combined with any other shares of Series A Preferred Stock with respect to which Juniper has sole or shared voting power) falling below the number of shares sufficient to approve the Share Issuance Proposal and any other matters required to be approved in order to effect the Integrated Mergers.
As of   , 2021, Juniper was the beneficial owner of shares of Series A Preferred Stock representing approximately 60% of the outstanding voting power of Penn Virginia’s capital stock.
For more information, please see “The Merger Agreement—Penn Virginia Support Agreement.” For more information regarding the security ownership of Juniper, please see “Certain Beneficial Owners of Penn Virginia Common Stock.”
Recommendation of the Lonestar Board and its Reasons for the Integrated Mergers (See page 50)
The Lonestar Board has unanimously determined that the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement are in the best interests of, and are advisable to, Lonestar and its stockholders and has unanimously approved and declared advisable the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement. The Lonestar Board unanimously recommends that Lonestar stockholders “CONSENT” to each of the Lonestar Merger Proposal and the Lonestar Compensation Proposal. For additional information on the factors considered by the Lonestar Board in reaching this decision and the recommendation of the Lonestar Board, please see “The Integrated Mergers—Recommendation of the Lonestar Board and its Reasons for the Integrated Mergers.”
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Opinion of Lonestar’s Financial Advisor (See page 53)
Lonestar engaged Stephens Inc. (“Stephens”) to provide a fairness opinion in connection with the proposed merger. In connection with this engagement, Stephens delivered a written opinion, dated July 10, 2021, to the Lonestar Board that as of such date and subject to the limitations, assumptions and qualifications stated therein, the merger consideration expected to be received in the transaction is fair from a financial point of view to the holders of Lonestar Common Stock (other than, as applicable, Penn Virginia and its affiliates). The full text of Stephens’ written opinion, dated July 10, 2021, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Stephens, is attached as Annex B to this proxy statement/consent solicitation statement/prospectus and is incorporated into this proxy statement/consent solicitation statement/prospectus by reference. The description of Stephens’ opinion set forth herein is qualified in its entirety by reference to the full text of Stephens’ opinion. Stephens’ opinion was provided for the information of the Lonestar Board (in its capacity as such) in connection with its evaluation of the Merger Consideration from a financial point of view and did not address any other terms, aspects or implications of the Integrated Mergers. Stephens expressed no view as to, and its opinion did not address, the underlying business decision of Lonestar to effect or enter into the Integrated Mergers, the relative merits of the Integrated Mergers as compared to any alternative business strategies that might exist for Lonestar or the effect of any other transaction which Lonestar might engage in or consider. Stephens’ opinion is not intended to be and does not constitute a recommendation as to how the Lonestar Board or any securityholder should vote or act on any matters relating to the proposed merger or otherwise.
Interests of Lonestar’s Directors and Executive Officers in the Integrated Mergers (See page 71)
When considering the recommendation of the Lonestar Board that Lonestar stockholders “CONSENT” to the Lonestar Merger Proposal, Lonestar stockholders should be aware that, aside from their interests as Lonestar stockholders, Lonestar’s directors and executive officers have interests in the Integrated Mergers that may be different from, or in addition to, the interests of the Lonestar stockholders generally. These interests include, among others, severance rights and rights to advancement of certain expenses and continuing indemnification and directors’ and officers’ liability insurance, as well as accelerated vesting of outstanding equity-based awards in exchange for a certain number of shares of Penn Virginia Common Stock (in addition to cash in lieu of fractional shares). See “The Integrated Mergers—Interests of Lonestar’s Directors and Executive Officers in the Integrated Mergers” beginning on page 71. The Lonestar Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and overseeing the negotiation, of the Integrated Mergers, in approving the Merger Agreement and the transactions contemplated thereby, including the Integrated Mergers, and in recommending that Lonestar stockholders “CONSENT” to the Lonestar Merger Proposal and “CONSENT” to the Lonestar Compensation Proposal.
Treatment of Lonestar Equity-Based Awards and Lonestar Warrants in the Integrated Mergers (See page 80)
Immediately prior to the Effective Time, upon the terms and subject to the conditions of the Merger Agreement, each Lonestar RSU (including each Lonestar RSU subject to performance-based vesting conditions) that is outstanding immediately prior to the Effective Time, whether vested or unvested, will become fully vested at the Effective Time and will be cancelled and converted into a right to receive a number of shares of Penn Virginia Common Stock based on the Exchange Ratio (in addition to any cash received in lieu of fractional shares of Penn Virginia Common Stock), with any applicable performance-based vesting conditions to be treated as having been achieved in full (which will result in a number of Lonestar RSUs vesting equal to the number of Lonestar RSUs granted to the applicable participant on the applicable grant date, and not any greater number).
In addition, at the Effective Time, each outstanding, unexpired and unexercised warrant to purchase the Lonestar warrants shall be (i) cancelled and extinguished for no consideration on the closing date of the Integrated Mergers, or (ii) in the case of the Tranche 1 Warrants (as defined in the Merger Agreement), acquired by Penn Virginia for a number of shares of Penn Virginia Common Stock equal to the Exchange Ratio, in each case in accordance with the terms of the agreement governing such warrants.
Treatment of Indebtedness (See page 70)
As of June 30, 2021, Lonestar had $254.6 million outstanding indebtedness under that certain Amended and Restated Credit Agreement, dated as of November 30, 2020, among Lonestar, as parent, Lonestar Resources
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America Inc., as borrower, Citibank, N.A., as administrative agent, and the lenders from time to time party thereto (the “Lonestar Credit Agreement”). The Merger Agreement requires Lonestar to deliver to Penn Virginia, prior to or at the closing date of the Integrated Mergers, customary executed payoff letters for the repayment in full of all indebtedness, and terminate all commitments, under, and discharge and release all guarantees and liens existing in connection with the Lonestar Credit Agreement.
For a description of Lonestar’s existing indebtedness, see Lonestar’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 10, 2021, which is attached to this proxy statement/consent solicitation statement/prospectus as Annex I.
On July 27, 2021, Penn Virginia Escrow LLC (“Escrow Issuer”) and Penn Virginia Holdings, LLC (“Holdings”), indirect, wholly owned subsidiaries of Penn Virginia, and certain subsidiaries of Penn Virginia that guarantee indebtedness under its revolving credit facility (the “Guarantors,” and collectively with Escrow Issuer and Holdings, the “Penn Virginia Notes Parties”) entered into a purchase agreement (the “Notes Purchase Agreement”), with BofA Securities, Inc., for itself and on behalf of the several initial purchasers listed therein, relating to the sale by Escrow Issuer of $400 million aggregate principal amount of its 9.250% Senior Notes due 2026 (the “Notes”) that are guaranteed on a senior unsecured basis by the Guarantors (the “Offering”). The Notes were sold at 99.018% of par and the Offering closed on August 10, 2021.
The gross proceeds of the Offering and other funds were deposited in an escrow account pending satisfaction of certain conditions, including the expected consummation of the Integrated Mergers on or prior to November 26, 2021. Upon satisfaction of the escrow release conditions, Holdings will assume the obligations under the Notes and Escrow Issuer will be merged with and into Holdings (with Holdings as the surviving entity). If the escrow release conditions are not satisfied on or before November 26, 2021, or at any time prior to such date the Integrated Mergers have been terminated or Penn Virginia has decided that it will not pursue the consummation of the Integrated Mergers (or determined that the consummation of the Integrated Mergers is not reasonably likely to be satisfied by such date), then the escrowed funds will be applied to the mandatory redemption of the Notes at a price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Upon the release of the funds from escrow, Penn Virginia intends to use the net proceeds from the Offering to repay and discharge the long-term debt of Lonestar and to use the remainder, along with cash on hand, to repay in full the outstanding borrowings under its Second Lien Facility (as defined below) and to pay related expenses.
As of June 30, 2021, Penn Virginia had $150.0 million borrowings outstanding under its second lien term loan governed by the credit agreement dated as of September 29, 2017 (as amended, restated, supplemented or otherwise modified from time to time, the “Second Lien Facility”).
For a description of Penn Virginia’s existing indebtedness, including the Second Lien Facility, see Penn Virginia’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 4, 2021, which is incorporated by reference into this proxy statement/consent solicitation statement/prospectus.
Certain Beneficial Owners of Lonestar Common Stock (See page 175)
At the close of business on   , 2021, the latest practicable date prior to the date of this proxy statement/consent solicitation statement/prospectus, Lonestar’s directors and executive officers and their affiliates, as a group, beneficially owned and were entitled to vote approximately    shares of Lonestar Common Stock, collectively representing   % of the shares of Lonestar Common Stock outstanding on that date. For more information regarding the security ownership of Lonestar directors and executive officers, please see “Certain Beneficial Owners of Lonestar Common Stock.”
Ownership of Penn Virginia after the Integrated Mergers (See page 78)
As of the date of this proxy statement/consent solicitation statement/prospectus, based on the Exchange Ratio, the number of outstanding shares of Lonestar Common Stock (plus the number of shares underlying outstanding Lonestar RSUs) and the number of outstanding shares of Penn Virginia Common Stock, it is estimated that Penn Virginia shareholders will own approximately 87% and Lonestar stockholders will own approximately 13% of the issued and outstanding shares of Penn Virginia Common Stock immediately following the Effective Time.
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Board of Directors and Executive Officers of Penn Virginia Following the Integrated Mergers
(See page 80)
The Penn Virginia Board at the Effective Time will be composed of nine members. One member of the current Penn Virginia Board will resign and be replaced by one member currently serving on the Lonestar Board, as described below. Prior to the Effective Time, Penn Virginia will take all necessary actions to cause one director currently serving on the Lonestar Board prior to the Effective Time and mutually acceptable to both Penn Virginia and Lonestar (who shall meet the independence standards of the Nasdaq with respect to Penn Virginia) to be appointed to the Penn Virginia Board.
Edward Geiser will continue to serve as Chairman of the Penn Virginia Board, and Darrin Henke will continue to serve as President and CEO of Penn Virginia following the closing of the transaction.
The officers of Merger Sub Inc. prior to the Effective Time will be the initial officers of the Surviving Corporation and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.
The officers of Merger Sub LLC prior to the Second Merger will be the initial officers of the Surviving Company and will hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.
For additional information regarding the Penn Virginia Board and the management of Penn Virginia, Merger Sub Inc. and Merger Sub LLC following the completion of the Integrated Mergers, please see “The Merger Agreement—Board of Directors and Executive Officers After Completion of the Integrated Mergers.”
Conditions to the Completion of the Integrated Mergers (See page 108)
Each party’s obligation to effect the Integrated Mergers is subject to the satisfaction at closing, or waiver at or prior to closing, of each of the following conditions:
the approval of the Lonestar Merger Proposal by the Lonestar stockholders;
the approval of the Share Issuance Proposal by the Penn Virginia shareholders;
the absence of any applicable law or order (preliminary or otherwise) prohibiting the consummation of the Integrated Mergers;
the expiration or earlier termination of the waiting period (and any extension of such period) under the HSR Act;
the registration statement on Form S-4, of which this proxy statement/consent solicitation statement/prospectus forms a part, will have become effective under the Securities Act and no stop order suspending the effectiveness may be in effect; and
the Nasdaq having approved the listing of the shares of Penn Virginia Common Stock to be issued in the Integrated Mergers.
In addition, Penn Virginia’s and Merger Sub’s obligation to effect the Integrated Mergers is subject to the satisfaction at closing, or waiver at or prior to closing, of each of the following conditions:
the accuracy of the representations and warranties of Lonestar as follows:
the representations and warranties of Lonestar regarding organization, the delivery of organizational documents, authority and certain representations regarding capital stock (as set forth in the first sentence of Section 2.1(a), Section 2.2(a), Section 2.2(c), Section 2.4(a) and Section 2.4(c) of the Merger Agreement) shall be true and correct in all respects as of the date of the Merger Agreement and as of the closing date, as if made as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), except for de minimis inaccuracies;
the representations and warranties of Lonestar regarding the absence of certain changes or developments that have had, or would reasonably be expected to have, a material adverse effect as
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set forth in Section 2.6(b) of the Merger Agreement shall be true and correct in all respects as of the date of the Merger Agreement and as of the closing date, as if made as of such date (except to the extent expressly made as of an earlier date, in which case as of such date); and
each other representation and warranty of Lonestar set forth in the Merger Agreement shall be true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth in any individual such representation or warranty) as of the date of the Merger Agreement and as of the closing date (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth in any individual such representation or warranty) would not reasonably have been expected to have, individually or in the aggregate, a material adverse effect on Lonestar;
Lonestar’s performance or compliance in all material respects with all of its covenants, obligations or agreements required to be performed or complied with under the Merger Agreement prior to the Effective Time; and
Lonestar having delivered to Penn Virginia a certificate of a duly authorized officer certifying the matters of the immediately preceding bullets.
Lonestar’s obligation to effect the Integrated Mergers is subject to the satisfaction at closing, or waiver at or prior to closing, of each of the following conditions:
the accuracy of the representations and warranties of Penn Virginia as follows:
the representations and warranties of Penn Virginia regarding organization, the delivery of organizational documents, authority and certain representations regarding capital stock (as set forth in the first sentence of Section 3.1(a), Section 3.2(a) and Section 3.2(c), and Section 3.4(a), Section 3.4(b), Section 3.4(c), Section 3.4(d), Section 3.4(f) and the last sentence of Section 3.4(i) of the Merger Agreement) shall be true and correct in all respects as of the date of the Merger Agreement and as of the closing date, as if made as of such date (except to the extent expressly made as of an earlier date, in which case as of such date), except for de minimis inaccuracies;
the representations and warranties of Penn Virginia as set forth in Section 3.6(b) of the Merger Agreement shall be true and correct in all respects as of the date of the Merger Agreement and as of the closing date, as if made as of such date (except to the extent expressly made as of an earlier date, in which case as of such date); and
each other representation and warranty of Penn Virginia set forth in the Merger Agreement shall be true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth in any individual such representation or warranty) as of the date of the Merger Agreement and as of the closing date (except to the extent expressly made as of an earlier date, in which case as of such date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” set forth in any individual such representation or warranty) would not reasonably have been expected to have, individually or in the aggregate, a material adverse effect on Penn Virginia.
Penn Virginia’s performance or compliance in all material respects with all of its covenants, obligations or agreements required to be performed or complied with under the Merger Agreement prior to the Effective Time; and
Penn Virginia having delivered to Lonestar a certificate of a duly authorized officer certifying the matters of the immediately preceding bullets.
No Solicitation of Acquisition Proposals by Lonestar (See page 92)
Lonestar has agreed that, except as expressly contemplated by the Merger Agreement, neither it nor any of its subsidiaries will, and Lonestar will use its reasonable best efforts to, and will cause each of its subsidiaries to use its respective reasonable best efforts to, cause their respective representatives not to:
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directly or indirectly initiate or solicit, or knowingly encourage or knowingly facilitate (including by way of furnishing non-public information relating to Lonestar or any of its subsidiaries) any inquiries or the making or submission of any proposal that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal with respect to Lonestar;
other than clarifying terms of the Acquisition Proposal in accordance with the Merger Agreement, participate or engage in discussions or negotiations with, or disclose any non-public information or data relating to Lonestar or any of its subsidiaries or afford access to the properties, books or records of Lonestar or any of its subsidiaries to any person that has made an Acquisition Proposal with respect to Lonestar or to any person in contemplation of making an Acquisition Proposal with respect to Lonestar; or
accept an Acquisition Proposal with respect to Lonestar or enter into any agreement, including any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement, arrangement or understanding:
constituting or related to, or that is intended to or could reasonably be expected to lead to, any Acquisition Proposal with respect to Lonestar (other than an acceptable confidentiality agreement permitted pursuant to the Merger Agreement); or
requiring, intending to cause, or which could reasonably be expected to cause Lonestar to abandon, terminate or fail to consummate the Integrated Mergers or any other transaction contemplated by the Merger Agreement (each, a “Lonestar Acquisition Agreement”).
Any violation of the preceding restrictions by subsidiaries or representatives of Lonestar who are directors or executive officers of Lonestar, whether or not such representative is so authorized and whether or not such representative is purporting to act on behalf of Lonestar or any of its subsidiaries or otherwise, will be deemed to be a breach of the Merger Agreement by Lonestar.
Notwithstanding anything to the contrary in the Merger Agreement, prior to the earlier of (1) delivery of the Requisite Lonestar Support Agreements or (2) in the event of a Lonestar Stockholder Meeting Election (as defined below) by Penn Virginia, the time the Lonestar Stockholder Approval is obtained, Lonestar and the Lonestar Board, may take any actions described in the immediately preceding second bullet with respect to a third party if (i) after the date of the Merger Agreement and prior to the earlier of (1) delivery of the Requisite Lonestar Support Agreements or (2) in the event of a Lonestar Stockholder Meeting Election by Penn Virginia, the time the Lonestar Stockholder Approval is obtained, Lonestar receives a written Acquisition Proposal with respect to Lonestar from such third party (and such Acquisition Proposal was not initiated, solicited, knowingly encouraged or knowingly facilitated by Lonestar or any of its subsidiaries or any representative of Lonestar or any of its subsidiaries), (ii) Lonestar provides Penn Virginia the notice required by the Merger Agreement with respect to such Acquisition Proposal, (iii) the Lonestar Board determines in good faith (after consultation with Lonestar’s financial advisors and outside legal counsel) that such proposal constitutes or could reasonably be expected to lead to a superior proposal with respect to Lonestar and (iv) the Lonestar Board determines in good faith (after consultation with Lonestar’s outside legal counsel) that the failure to participate in such discussions or negotiations or to disclose such information or data to such third party would be inconsistent with its fiduciary duties; provided that Lonestar will not deliver any information to such third party without first entering into an acceptable confidentiality agreement with such third party.
Notwithstanding the limitations described above, and subject to compliance with certain of Lonestar’s obligations contained in the non-solicitation provisions of the Merger Agreement, if Lonestar receives, following the date of the Merger Agreement and prior to the earlier of (1) delivery of the Requisite Lonestar Support Agreements or (2) in the event of a Lonestar Stockholder Meeting Election by Penn Virginia, the time the Lonestar Stockholder Approval is obtained, an unsolicited bona fide written Acquisition Proposal that did not result from a knowing and intentional breach of the non-solicitation provisions of the Merger Agreement, Lonestar and its representatives may contact the person or any of such person’s representatives who has made such Acquisition Proposal solely to clarify the terms of such Acquisition Proposal so that Lonestar may inform itself about such Acquisition Proposal.
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Nothing described above will prohibit Lonestar or the Lonestar Board from taking and disclosing to the Lonestar shareholders a position with respect to an Acquisition Proposal with respect to Lonestar pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any similar disclosure, in either case to the extent required by law.
No Solicitation of Acquisition Proposals by Penn Virginia (See page 93)
Penn Virginia has agreed that, except as expressly contemplated by the Merger Agreement, neither it nor any of its subsidiaries will, and Penn Virginia will use its reasonable best efforts to, and will cause each of its subsidiaries to use its respective reasonable best efforts to, cause their respective representatives not to:
directly or indirectly initiate or solicit, or knowingly encourage or knowingly facilitate (including by way of furnishing non-public information relating to Penn Virginia or any of its subsidiaries) any inquiries or the making or submission of any proposal that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal with respect to Penn Virginia;
other than clarifying terms of the Acquisition Proposal in accordance with the Merger Agreement, participate or engage in discussions or negotiations with, or disclose any non-public information or data relating to Penn Virginia or any of its subsidiaries or afford access to the properties, books or records of Penn Virginia or any of its subsidiaries to any person that has made an Acquisition Proposal with respect to Penn Virginia or to any person in contemplation of making an Acquisition Proposal with respect to Penn Virginia; or
accept an Acquisition Proposal with respect to Penn Virginia or enter into any agreement, including any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement, arrangement or understanding:
constituting or related to, or that is intended to or could reasonably be expected to lead to, any Acquisition Proposal with respect to Penn Virginia (other than an acceptable confidentiality agreement permitted pursuant to the Merger Agreement); or
requiring, intending to cause, or which could reasonably be expected to cause Penn Virginia to abandon, terminate or fail to consummate the Integrated Mergers or any other transaction contemplated by the Merger Agreement (each, a “Penn Virginia Acquisition Agreement”).
Any violation of the preceding restrictions by subsidiaries or representatives of Penn Virginia who are directors or executive officers of Penn Virginia, whether or not such representative is so authorized and whether or not such representative is purporting to act on behalf of Penn Virginia or any of its subsidiaries or otherwise, will be deemed to be a breach of the Merger Agreement by Penn Virginia.
Notwithstanding anything to the contrary in the Merger Agreement, prior to obtaining the approval of the Share Issuance Proposal by Penn Virginia’s stockholders, Penn Virginia and the Penn Virginia Board may take any actions described in the immediately preceding second bullet with respect to a third party if (i) after the date of the Merger Agreement, Penn Virginia receives a written Acquisition Proposal with respect to Penn Virginia from such third party (and such Acquisition Proposal was not initiated, solicited, knowingly encouraged or knowingly facilitated by Penn Virginia or any of its subsidiaries or any representative of Penn Virginia or any of its subsidiaries), (ii) Penn Virginia provides Lonestar the notice required by the Merger Agreement with respect to such Acquisition Proposal, (iii) the Penn Virginia Board determines in good faith (after consultation with Penn Virginia’s financial advisors and outside legal counsel) that such proposal constitutes or could reasonably be expected to lead to a superior proposal with respect to Penn Virginia and (iv) the Penn Virginia Board determines in good faith (after consultation with Penn Virginia’s outside legal counsel) that the failure to participate in such discussions or negotiations or to disclose such information or data to such third party would be inconsistent with its fiduciary duties; provided that Penn Virginia will not deliver any information to such third party without first entering into an acceptable confidentiality agreement with such third party.
Notwithstanding the limitations described above, and subject to compliance with certain of Penn Virginia’s obligations contained in the non-solicitation provisions of the Merger Agreement, if Penn Virginia receives, following the date of the Merger Agreement and prior to the Special Meeting, an unsolicited bona fide written Acquisition Proposal that did not result from a knowing and intentional breach of the non-solicitation provisions
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of the Merger Agreement, Penn Virginia and its representatives may contact the person or any of such person’s representatives who has made such Acquisition Proposal solely to clarify the terms of such Acquisition Proposal so that Penn Virginia may inform itself about such Acquisition Proposal.
Nothing described above will prohibit Penn Virginia or the Penn Virginia Board from taking and disclosing to the Penn Virginia shareholders a position with respect to an Acquisition Proposal with respect to Penn Virginia pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making any similar disclosure, in either case to the extent required by law.
No Change of Recommendation by Lonestar (See page 95)
The Merger Agreement provides that neither:
the Lonestar Board nor any committee thereof will directly or indirectly:
withhold or withdraw (or amend, modify or qualify in a manner adverse to Penn Virginia, Merger Sub Inc. or Merger Sub LLC), or publicly propose or announce any intention to withhold or withdraw (or amend, modify or qualify in a manner adverse to Penn Virginia, Merger Sub Inc. or Merger Sub LLC), the recommendation that the Lonestar shareholders approve the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement (the “Lonestar Recommendation”); or
recommend, adopt or approve, or propose publicly to recommend, adopt or approve, any Acquisition Proposal with respect to Lonestar (any action described in this bullet being referred to as a “Lonestar Adverse Recommendation Change”); nor
Lonestar nor any of its subsidiaries will execute or enter into a Lonestar Acquisition Agreement.
Permitted Change of Recommendation—Superior Proposal
Notwithstanding the provisions of the Merger Agreement described above, at any time prior to obtaining the approval of the Merger Proposal by Lonestar’s stockholders, and subject to Lonestar’s compliance in all material respects at all times with the non-solicitation and stockholder meeting provisions of the Merger Agreement, in response to a superior proposal with respect to Lonestar that was not initiated, solicited, knowingly encouraged or knowingly facilitated by Lonestar or any of the subsidiaries of Lonestar or any of their respective representatives, the Lonestar Board may make a Lonestar Adverse Recommendation Change; provided, however, that Lonestar will not be entitled to exercise its right to make a Lonestar Adverse Recommendation Change in response to a superior proposal with respect to Lonestar (i) until three business days after Lonestar provides written notice to Penn Virginia (a “Lonestar Notice”) advising Penn Virginia that the Lonestar Board or a committee thereof has received a superior proposal, specifying the material terms and conditions of such superior proposal, and identifying the person or group making such superior proposal, (ii) if during such three-business-day period, Penn Virginia proposes any alternative transaction (including any modifications to the terms of the Merger Agreement), unless the Lonestar Board determines in good faith (after consultation with Lonestar’s financial advisors and outside legal counsel, and taking into account all financial, legal, and regulatory terms and conditions of such alternative transaction proposal, including any conditions to and expected timing of consummation, and any risks of non-consummation of such alternative transaction proposal) that such alternative transaction proposal is not at least as favorable to Lonestar and its stockholders as the superior proposal (it being understood that any change in the financial or other material terms of a superior proposal will require a new Lonestar Notice and a new two-business-day period) and (iii) unless the Lonestar Board, after consultation with outside legal counsel, determines that the failure to make a Lonestar Adverse Recommendation Change would be inconsistent with its fiduciary duties.
Permitted Change of Recommendation—Intervening Event
Notwithstanding the provisions of the Merger Agreement described above, at any time prior to obtaining the approval of the Merger Proposal by Lonestar’s stockholders, and subject to Lonestar’s compliance in all material respects at all times with the non-solicitation and stockholder meeting provisions of the Merger Agreement, in response to a Lonestar Intervening Event (as defined in “The Merger Agreement—No Change of Recommendation—Lonestar”), the Lonestar Board may make a Lonestar Adverse Recommendation Change described in clause (i) of the definition thereof if the Lonestar Board:
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determines in good faith, after consultation with Lonestar’s outside legal counsel and any other advisor it chooses to consult, that the failure to make such Lonestar Adverse Recommendation Change would be inconsistent with its fiduciary duties;
determines in good faith that the reasons for making such Lonestar Adverse Recommendation Change are independent of any Acquisition Proposal (whether pending, potential or otherwise) with respect to Lonestar; and
provides written notice to Penn Virginia (a “Lonestar Notice of Change”) advising Penn Virginia that the Lonestar Board is contemplating making a Lonestar Adverse Recommendation Change and specifying the material facts and information constituting the basis for such contemplated determination;
provided, however, that (i) the Lonestar Board may not make such a Lonestar Adverse Recommendation Change until the third business day after receipt by Penn Virginia of the Lonestar Notice of Change and (ii) during such three-business-day period, at the request of Penn Virginia, Lonestar will negotiate in good faith with respect to any changes or modifications to the Merger Agreement which would allow the Lonestar Board not to make such Lonestar Adverse Recommendation Change consistent with its fiduciary duties.
No Change of Recommendation by Penn Virginia (See page 96)
The Merger Agreement provides that neither:
the Penn Virginia Board nor any committee thereof will directly or indirectly:
withhold or withdraw (or amend, modify or qualify in a manner adverse to Lonestar), or publicly propose or announce any intention to withhold or withdraw (or amend, modify or qualify in a manner adverse to Lonestar), the recommendation that the Penn Virginia shareholders approve the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement (the “Penn Virginia Recommendation”); or
recommend, adopt or approve, or propose publicly to recommend, adopt or approve, any Acquisition Proposal with respect to Penn Virginia (any action described in this bullet being referred to as a “Penn Virginia Adverse Recommendation Change”); nor
Penn Virginia nor any of its subsidiaries will execute or enter into a Penn Virginia Acquisition Agreement.
Permitted Change of Recommendation—Superior Proposal
Notwithstanding the provisions of the Merger Agreement described above, at any time prior to obtaining the approval of the Share Issuance Proposal by Penn Virginia’s stockholders, and subject to Penn Virginia’s compliance in all material respects at all times with the non-solicitation and stockholder meeting provisions of the Merger Agreement, in response to a superior proposal with respect to Penn Virginia that was not initiated, solicited, knowingly encouraged or knowingly facilitated by Penn Virginia or any of the subsidiaries of Penn Virginia or any of their respective representatives, the Penn Virginia Board may make a Penn Virginia Adverse Recommendation Change; provided, however, that Penn Virginia will not be entitled to exercise its right to make a Penn Virginia Adverse Recommendation Change in response to a superior proposal with respect to Penn Virginia (i) until three business days after Penn Virginia provides written notice to Lonestar (a “Penn Virginia Notice”) advising Lonestar that the Penn Virginia Board or a committee thereof has received a superior proposal, specifying the material terms and conditions of such superior proposal, and identifying the person or group making such superior proposal, (ii) if during such three-business-day period, Lonestar proposes any alternative transaction (including any modifications to the terms of the Merger Agreement), unless the Penn Virginia Board determines in good faith (after consultation with Penn Virginia’s financial advisors and outside legal counsel, and taking into account all financial, legal, and regulatory terms and conditions of such alternative transaction proposal, including any conditions to and expected timing of consummation, and any risks of non-consummation of such alternative transaction proposal) that such alternative transaction proposal is not at least as favorable to Penn Virginia and its stockholders as the superior proposal (it being understood that any change in the financial
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or other material terms of a superior proposal will require a new Penn Virginia Notice and a new two-business-day period) and (iii) unless the Penn Virginia Board, after consultation with outside legal counsel, determines that the failure to make a Penn Virginia Adverse Recommendation Change would be inconsistent with its fiduciary duties.
Permitted Change of Recommendation—Intervening Event
Notwithstanding the provisions of the Merger Agreement described above, at any time prior to obtaining the approval of the Share Issuance Proposal by Penn Virginia’s stockholders, and subject to Penn Virginia’s compliance in all material respects at all times with the non-solicitation and stockholder meeting provisions of the Merger Agreement, in response to a Penn Virginia Intervening Event (as defined in “The Merger Agreement—No Change of Recommendation—Penn Virginia”), the Penn Virginia Board may make a Penn Virginia Adverse Recommendation Change described in clause (i) of the definition thereof if the Penn Virginia Board:
determines in good faith, after consultation with Penn Virginia’s outside legal counsel and any other advisor it chooses to consult, that the failure to make such Penn Virginia Adverse Recommendation Change would be inconsistent with its fiduciary duties;
determines in good faith that the reasons for making such Penn Virginia Adverse Recommendation Change are independent of any Acquisition Proposal (whether pending, potential or otherwise) with respect to Penn Virginia; and
provides written notice to Lonestar (a “Penn Virginia Notice of Change”) advising Lonestar that the Penn Virginia Board is contemplating making a Penn Virginia Adverse Recommendation Change and specifying the material facts and information constituting the basis for such contemplated determination;
provided, however, that (i) the Penn Virginia Board may not make such a Penn Virginia Adverse Recommendation Change until the third business day after receipt by Lonestar of the Penn Virginia Notice of Change and (ii) during such three-business-day period, at the request of Lonestar, Penn Virginia will negotiate in good faith with respect to any changes or modifications to the Merger Agreement which would allow the Penn Virginia Board not to make such Penn Virginia Adverse Recommendation Change consistent with its fiduciary duties.
Termination of the Merger Agreement (See page 109)
Termination by Mutual Consent
The Merger Agreement may be terminated and the Integrated Mergers abandoned at any time prior to the Effective Time, whether before or after approval of the Merger Agreement by the Lonestar stockholders or approval of the Share Issuance Proposal by the Penn Virginia shareholders, by mutual written consent of Penn Virginia and Lonestar.
Termination by Either Penn Virginia or Lonestar
Either party may terminate the Merger Agreement if:
the Integrated Mergers have not been consummated on or prior to November 26, 2021 (the “Termination Date”); provided, however, that the right to terminate the Merger Agreement at the Termination Date will not be available to any party whose action or failure to act is the primary cause of the failure of the Integrated Mergers to occur on or before such date and such action or failure to act constitutes a material breach of the Merger Agreement by such party;
a court of competent jurisdiction or other governmental entity issues a final and nonappealable order, or takes any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Integrated Mergers; provided, however, the right to terminate the Merger Agreement in respect of any such order or action is not available to any party whose failure to perform any of its obligations pursuant to Section 5.5 of the Merger Agreement resulted in the entry of the order or the taking of such other action;
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the required approval by the Lonestar Stockholders has not been obtained through the delivery of Lonestar Stockholder Written Consents within three business days of delivery of a notice of effectiveness of the Registration Statement to each Lonestar Supporting Stockholder by Penn Virginia and no Lonestar Stockholder Meeting Election has been made by Penn Virginia or following a Lonestar Stockholder Meeting Election only, the required approval of the Lonestar Stockholders contemplated by the Merger Agreement at the Lonestar Stockholders’ Meeting, as applicable, shall not have been obtained; provided, however, that such right to terminate the Merger Agreement is not available to Lonestar where the failure to obtain the required approval of the Lonestar stockholders is caused by the action or failure to act of Lonestar and such action or failure to act constitutes a material breach by Lonestar of the Merger Agreement; or
the required approval of the Share Issuance Proposal at the Special Meeting (or at any adjournment thereof) is not obtained; provided, however, that such right to terminate the Merger Agreement is not available to Penn Virginia where the failure to obtain the required approval of the Penn Virginia shareholders is caused by the action or failure to act of Penn Virginia and such action or failure to act constitutes a material breach by Penn Virginia of the Merger Agreement.
Please see “The Merger Agreement—Conditions to the Completion of the Integrated Mergers” for additional details.
Termination by Penn Virginia
Penn Virginia may terminate the Merger Agreement:
at any time prior to the Effective Time, if any of Lonestar’s covenants, representations or warranties contained in the Merger Agreement (other than those set forth in the non-solicitation provisions of the Merger Agreement) are breached or any of Lonestar’s representations and warranties become untrue, such that any of the conditions regarding the accuracy of Lonestar’s representations and warranties or compliance by Lonestar with its covenants in the Merger Agreement is not satisfied, and such breach (i) is incapable of being cured by Lonestar or (ii) will not be cured within 30 days of receipt by Lonestar of written notice of such breach describing in reasonable detail such breach;
at any time prior to the approval of the Merger Agreement by the stockholders of Lonestar, if the Lonestar Board or any committee thereof:
makes a Lonestar Adverse Recommendation Change;
approves or adopts or recommends the approval or adoption of any Acquisition Proposal with respect to Lonestar or the execution of a definitive agreement with respect to an Acquisition Proposal with respect to Lonestar (other than any acceptable confidentiality agreement permitted by the Merger Agreement);
does not include the Lonestar Recommendation in the proxy statement/consent solicitation statement/prospectus;
resolves, agrees to, publicly proposes to or allows Lonestar to publicly propose to take any of the foregoing actions; or
at any time prior to the receipt of the approval of the Merger Agreement by the stockholders of Lonestar, if Lonestar materially breaches the non-solicitation provisions of the Merger Agreement, other than in the case where:
such material breach is a result of an isolated action by a person that is a representative of Lonestar;
Lonestar uses reasonable best efforts to remedy such material breach; and
Penn Virginia is not significantly harmed as a result thereof.
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Termination by Lonestar
Lonestar may terminate the Merger Agreement:
at any time prior to the Effective Time, if any of Penn Virginia’s covenants, representations or warranties contained in the Merger Agreement (other than those set forth in the non-solicitation provisions of the Merger Agreement) are breached or any of Penn Virginia’s representations and warranties become untrue, such that any of the conditions regarding the accuracy of Penn Virginia’s representations and warranties or compliance by Penn Virginia with its covenants in the Merger Agreement (i) is incapable of being cured by Penn Virginia or (ii) will not be cured within 30 days of receipt by Penn Virginia of written notice of such breach describing in reasonable detail such breach;
at any time prior to approval of the Share Issuance Proposal by the stockholders of Penn Virginia, if the Penn Virginia Board or any committee thereof:
makes a Penn Virginia Adverse Recommendation Change;
approves or adopts or recommends the approval or adoption of any Acquisition Proposal with respect to Penn Virginia or the execution of a definitive agreement with respect to an Acquisition Proposal with respect to Penn Virginia (other than any acceptable confidentiality agreement permitted by the Merger Agreement);
does not include the Penn Virginia Recommendation in the proxy statement/consent solicitation statement/prospectus;
resolves, agrees to, publicly proposes to or allows Penn Virginia to publicly propose to take any of the foregoing actions; or
at any time prior to the receipt of the approval of the Share Issuance Proposal by the stockholders of Penn Virginia, if Penn Virginia materially breaches the non-solicitation provisions of the Merger Agreement, other than in the case where:
such material breach is a result of an isolated action by a person that is a representative of Penn Virginia;
Penn Virginia uses reasonable best efforts to remedy such material breach; and
Lonestar is not significantly harmed as a result thereof.
Termination Fee (See page 112)
Lonestar will be required to pay to Penn Virginia the Lonestar Termination Fee if:
the Merger Agreement is terminated by Penn Virginia because Lonestar (i) makes a Lonestar Adverse Recommendation Change or (ii) materially breaches the non-solicitation provisions of the Merger Agreement;
(i) prior to the Lonestar Special Meeting, an Acquisition Proposal with respect to Lonestar is publicly proposed or publicly disclosed after the date of the Merger Agreement, (ii) the Merger Agreement is terminated by Penn Virginia or Lonestar because the Integrated Mergers are not consummated by the Termination Date, the Lonestar stockholders do not approve the Merger Agreement or a Lonestar breach of the Merger Agreement and (iii) concurrently with or within nine months after any such termination described in clause (ii), Lonestar or any of its subsidiaries enters into a definitive agreement with respect to, or otherwise consummates, any Acquisition Proposal with respect to Lonestar for at least 50% of the business, assets or equity of Lonestar; or
the Merger Agreement is terminated by either party because the Integrated Mergers are not consummated by the Termination Date and at the time of such termination, (i) the Lonestar stockholders have not approved the Merger Agreement and (ii) Penn Virginia would have been permitted to terminate the Merger Agreement because of a Lonestar Adverse Recommendation Change or Lonestar’s material breach of the non-solicitation provisions in the Merger Agreement.
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Penn Virginia will be required to pay to Lonestar the Penn Virginia Termination Fee if:
the Merger Agreement is terminated by Lonestar because Penn Virginia (i) makes a Penn Virginia Adverse Recommendation Change or (ii) materially breaches the non-solicitation provisions of the Merger Agreement;
(i) prior to the Special Meeting, an Acquisition Proposal with respect to Penn Virginia is publicly proposed or publicly disclosed after the date of the Merger Agreement, (ii) the Merger Agreement is terminated by Penn Virginia or Lonestar because the Integrated Mergers are not consummated by the Termination Date, the Penn Virginia shareholders do not approve the Share Issuance Proposal or a Penn Virginia breach of the Merger Agreement and (iii) concurrently with or within nine months after any such termination described in clause (ii), Penn Virginia or any of its subsidiaries enters into a definitive agreement with respect to, or otherwise consummates, any Acquisition Proposal with respect to Penn Virginia for at least 50% of the business, assets or equity of Penn Virginia; or
the Merger Agreement is terminated by either party because the Integrated Mergers are not consummated by the Termination Date and at the time of such termination, (i) the Penn Virginia shareholders have not approved the Share Issuance Proposal and (ii) Lonestar would have been permitted to terminate the Merger Agreement because of a Penn Virginia Adverse Recommendation Change or Penn Virginia’s material breach of the non-solicitation provisions in the Merger Agreement.
Accounting Treatment (See page 77)
Penn Virginia and Lonestar prepare their respective financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The Integrated Mergers will be accounted for using the acquisition method of accounting, with Penn Virginia being treated as the accounting acquirer. In identifying Penn Virginia as the acquiring entity for accounting purposes, Penn Virginia and Lonestar took into account a number of factors as of the date of this proxy statement/consent solicitation statement/prospectus, including which entity is issuing its equity interests, the expectation that following the Effective Time holders of shares of Penn Virginia Common Stock as of immediately prior to the Effective Time will hold, in the aggregate, approximately 87% of the issued and outstanding shares of Penn Virginia Common Stock immediately following the Effective Time, the intended corporate governance structure of Penn Virginia following the Effective Time, the intended senior management of Penn Virginia following the Effective Time and the terms of the share exchange. No single factor was the sole determinant in the overall conclusion that Penn Virginia is the acquirer for accounting purposes; rather, all factors were considered in arriving at such conclusion.
Material U.S. Federal Income Tax Consequences of the Integrated Mergers (See page 149)
The Integrated Mergers, taken together, are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, for U.S. federal income tax purposes, and Penn Virginia and Lonestar intend to report the Integrated Mergers consistent with such qualification. Provided that the Integrated Mergers, taken together, so qualify, a U.S. holder (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Integrated Mergers”) of shares of Lonestar Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of its shares of Lonestar Common Stock for shares of Penn Virginia Common Stock pursuant to the Integrated Mergers, except for any gain or loss that may result from the receipt of cash in lieu of a fractional share of Penn Virginia Common Stock. It is not a condition to Penn Virginia’s obligation or Lonestar’s obligation to complete the Transactions that the Integrated Mergers, taken together, qualify as a “reorganization.”
Penn Virginia and Lonestar have not requested, and will not request, any ruling from the IRS with respect to the tax treatment of the Integrated Mergers, and, as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth herein.
For a more detailed discussion of the U.S. federal income tax consequences of the Integrated Mergers, see the section entitled “Material U.S. Federal Income Tax Consequences of the Integrated Mergers.” Each Lonestar stockholder is strongly urged to consult with its own tax advisor to determine the particular U.S. federal, state or local or non-U.S. income or other tax consequences of the Integrated Mergers to it.
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Fractional Shares (See page 82)
No fractional shares will be issued in connection with the Integrated Mergers. Instead, a Lonestar stockholder will receive cash for any fractional share of Penn Virginia Common Stock that such stockholder would otherwise receive in the Integrated Mergers.
As promptly as practicable following the Effective Time, the Exchange Agent will (A) determine the number of whole shares of Penn Virginia Common Stock and the number of fractional shares of Penn Virginia Common Stock that each holder of Lonestar Common Stock is entitled to receive in connection with the consummation of the Integrated Mergers and (B) aggregate all such fractional shares of Penn Virginia Common Stock that would, except under certain circumstances, be issued to the holders of Lonestar Common Stock, rounding up to the nearest whole number (the “Penn Virginia Excess Shares”), and the Exchange Agent will, on behalf of former stockholders of Lonestar, sell the Penn Virginia Excess Shares at then-prevailing prices on the Nasdaq, all in the manner described below.
The sale of the Penn Virginia Excess Shares by the Exchange Agent will be executed on the Nasdaq through one or more member firms of the Nasdaq and will be executed in round lots to the extent practicable. The Exchange Agent will use reasonable efforts to complete the sale of the Penn Virginia Excess Shares as promptly following the Effective Time as, in the Exchange Agent’s sole judgment, is practicable consistent with obtaining the best execution of such sales in light of prevailing market conditions.
Until the net proceeds of such sale or sales have been distributed to the former holders of Lonestar Common Stock, the Exchange Agent will hold such proceeds in trust for such holders (the “Lonestar Common Stock Trust”). Penn Virginia will pay all commissions and other out-of-pocket transaction costs (other than any transfer or similar taxes imposed on a holder of Lonestar Common Stock), including the expenses and compensation of the Exchange Agent incurred in connection with such sale of the Penn Virginia Excess Shares.
The Exchange Agent will determine the portion of the Lonestar Common Stock Trust to which each former holder of Lonestar Common Stock is entitled, if any, by multiplying the amount of the aggregate net proceeds composing the Lonestar Common Stock Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such former holder of Lonestar Common Stock is entitled (after taking into account all shares of Lonestar Common Stock held at the Effective Time by such holder) and the denominator of which is the aggregate amount of fractional share interests to which all former holders of Lonestar Common Stock are entitled.
Comparison of Shareholders’ Rights (See page 156)
Upon the completion of the Integrated Mergers, Lonestar stockholders receiving shares of Penn Virginia Common Stock will become shareholders of Penn Virginia, and their rights will be governed by Virginia law and the governing corporate documents of Penn Virginia in effect at the Effective Time. Lonestar stockholders will have different rights once they become shareholders of Penn Virginia due to differences between the governing corporate documents of Lonestar and Penn Virginia, as further described in “Comparison of Shareholders’ Rights.”
Listing of Penn Virginia Common Stock; Delisting and Deregistration of Lonestar Common Stock (See page 77)
Before completion of the Integrated Mergers, Penn Virginia has agreed to use its reasonable best efforts to cause the shares of Penn Virginia Common Stock to be issued in the Integrated Mergers and reserved for issuance under any equity awards to be approved for listing on the Nasdaq. In addition, the new shares of Penn Virginia Common Stock to be issued to former Lonestar stockholders must be approved for listing on the Nasdaq, subject to official notice of issuance. If the Integrated Mergers are completed, the Lonestar Common Stock will cease to be quoted on the OTCQX Best Market and will be deregistered under the Exchange Act.
Regulatory Matters (See page 77)
Under the HSR Act and the rules promulgated thereunder, the Integrated Mergers cannot be completed until the parties to the Merger Agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”) and until the applicable waiting period (and any extension of such period) has expired or has been terminated. Penn Virginia and Lonestar have determined that no filing is required under the HSR Act with the DOJ or the FTC and as a result this condition has been met.
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No Appraisal Rights (See page 77)
No dissenters’ or appraisal rights will be available with respect to the Integrated Mergers, the Share Issuance Proposal, the Articles of Incorporation Amendment Proposal or any of the other transactions contemplated by the Merger Agreement.
Risk Factors (See page 25)
In evaluating the Merger Agreement and the Integrated Mergers, you should carefully read this proxy statement/consent solicitation statement/prospectus and give special consideration to the factors discussed in “Risk Factors.”
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma combined balance sheet data gives effect to the proposed Integrated Mergers as if the Integrated Mergers had occurred on June 30, 2021, while the unaudited pro forma combined statement of operations data for the year ended December 31, 2020 and the six months ended June 30, 2021 is presented as if the Integrated Mergers had occurred on January 1, 2020. These summary unaudited pro forma combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the Integrated Mergers occurred as of the date indicated. In addition, the unaudited pro forma combined financial statements do not purport to project the future financial position or operating 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 25. The following summary unaudited pro forma combined financial statements should be read in conjunction with the section titled “Unaudited Pro Forma Combined Financial Statements” beginning on page 132 and the related notes.
 
Six Months Ended
June 30, 2021
Year Ended
December 31, 2020
 
($ in millions, except per share amounts)
Pro Forma Combined Statements of Operations Data:
 
 
Total revenues
$299,092
$389,495
Net loss attributable to common shareholders
$(40,418)
$(260,116)
Basic and diluted net loss per common share
$(1.91)
$(12.37)
 
As of June 30, 2021
 
($ in millions)
Pro Forma Combined Balance Sheet Data:
 
Cash and cash equivalents
$52,469
Total assets
$1,448,152
Long-term debt, net
$634,071
Total shareholders’ equity
$224,146
Total equity
$451,997
Total liabilities and shareholders’ equity
$1,448,152
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SUMMARY UNAUDITED PRO FORMA COMBINED OIL, NATURAL GAS AND
NGL RESERVE INFORMATION AND PRODUCTION DATA
The following tables present the estimated pro forma combined net proved developed and undeveloped oil, natural gas and NGL reserves prepared as of December 31, 2020. The pro forma reserve information set forth below gives effect to the Integrated Mergers as if the Integrated Mergers had been completed on January 1, 2020. However, the proved reserves presented below represent the respective estimates made as of December 31, 2020 by Penn Virginia and Lonestar while they were separate companies. These estimates have not been updated for changes in development plans or other factors, which have occurred or may occur subsequent to (i) December 31, 2020 or (ii) the Integrated Mergers.
The following summary pro forma reserve information has been prepared for illustrative purposes 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 25. The summary pro forma reserve information should be read in conjunction with the section titled “Unaudited Pro Forma Combined Financial Statements” beginning on page 132 and the related notes included in this proxy statement/consent solicitation statement/prospectus.
 
As of December 31, 2020
 
Penn Virginia
Historical
Lonestar
Historical
Pro Forma
Combined
Proved Developed and Undeveloped Reserves:
 
 
 
Crude Oil (MBbl)
98,479
39,054
137,533
NGLs (MBbl)
15,598
19,494
35,092
Natural Gas (MMcf)
73,734
124,051
197,785
Total (MBOE)
126,366
79,223
205,589
Proved Developed Reserves:
 
 
 
Crude Oil (MBbl)
36,360
14,489
50,849
NGLs (MBbl)
7,979
7,350
15,329
Natural Gas (MMcf)
37,597
47,088
84,685
Total (MBOE)
50,605
29,687
80,292
Proved Undeveloped Reserves:
 
 
 
Crude Oil (MBbl)
62,119
24,565
86,684
NGLs (MBbl)
7,619
12,144
19,763
Natural Gas (MMcf)
36,137
76,963
113,100
Total (MBOE)
75,761
49,537
125,298
 
For the Six Months Ended June 30, 2021
 
Penn Virginia
Historical
Lonestar
Historical
Pro Forma
Combined
Production:
 
 
 
Crude Oil (MBbl)
3,300
1,066
4,366
NGLs (MBbl)
450
415
865
Natural Gas (MMcf)
2,156
3,188
5,344
Total (MBOE)
4,109
2,013
6,122
 
For the Year Ended December 31, 2020
 
Penn Virginia
Historical
Lonestar
Historical
Pro Forma
Combined
Production:
 
 
 
Crude Oil (MBbl)
6,829
2,457
9,286
NGLs (MBbl)
1,165
1,150
2,315
Natural Gas (MMcf)
5,360
8,196
13,566
Total (MBOE)
8,887
4,973
13,860
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The following table sets forth the closing sale prices per share of Penn Virginia Common Stock and Lonestar Common Stock on the Nasdaq on July 9, 2021, the last trading day prior to the public announcement of the Integrated Mergers, and on     , 2021, the last practicable trading day prior to the mailing of this proxy statement/consent solicitation statement/prospectus. Penn Virginia Common Stock is traded on the Nasdaq under the symbol “PVAC” and Lonestar Common Stock is traded on the OTCQX Best Market under the symbol “LONE.” The high and low trading prices for the Penn Virginia Common Stock on July 9, 2021, the last trading day immediately before the public announcement of the Integrated Mergers, were $23.10 and $21.82, respectively. The high and low trading prices for the Lonestar Common Stock on July 9, 2021, the last trading day immediately before the public announcement of the Integrated Mergers, were $10.00 and $10.00, respectively. The table also shows the estimated implied value of the merger consideration proposed for each share of Lonestar Common Stock as of the same two dates. The implied value for share consideration was calculated by multiplying the closing sales price of a share of Penn Virginia Common Stock on the relevant date by the exchange ratio of 0.51 shares of Penn Virginia Common Stock for each share of Lonestar Common Stock.
 
Penn Virginia
Common Stock
Lonestar
Common Stock
Implied Per Share Value
of Share Consideration
July 9, 2021
$23.02
$10.00
$11.74
    , 2021
$
$
$
The market prices of Penn Virginia Common Stock and Lonestar Common Stock have fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate prior to the completion of the Integrated Mergers. No assurance can be given concerning the market prices of Penn Virginia Common Stock or Lonestar Common Stock before completion of the Integrated Mergers or of Penn Virginia Common Stock after completion of the Integrated Mergers. Because the Exchange Ratio, which determines the merger consideration, is fixed and will not be adjusted for changes in the market prices of either Penn Virginia Common Stock or Lonestar Common Stock, the market price of Penn Virginia Common Stock (and, therefore, the value of the merger consideration) when received by Lonestar stockholders after the Integrated Mergers are completed could be greater than, less than or the same as shown in the table above. Accordingly, these comparisons may not provide meaningful information to stockholders in determining how to vote with respect to the proposals described in this proxy statement/consent solicitation statement/prospectus. We urge you to obtain current market quotations for Penn Virginia Common Stock and Lonestar Common Stock and to review carefully the other information contained in this proxy statement/consent solicitation statement/prospectus. Please see “Risk Factors—Risks Relating to the Integrated Mergers—Because the market price of Penn Virginia Common Stock will fluctuate, Lonestar stockholders cannot be sure of the value of the shares of Penn Virginia Common Stock they will receive in the Integrated Mergers. In addition, because the Exchange Ratio is fixed, the number of shares of Penn Virginia Common Stock to be received by Lonestar stockholders in the Integrated Mergers will not change between now and the time the Integrated Mergers are completed to reflect changes in the trading prices of Penn Virginia Common Stock or Lonestar Common Stock.”
For more information on the market for Penn Virginia’s or Lonestar’s common equity, related stockholder matters and issuer purchases of equity securities, see Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of Penn Virginia’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which is incorporated by reference into this proxy statement/consent solicitation statement/prospectus, or Lonestar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which is attached to this proxy statement/consent solicitation statement/prospectus as Annex F.
Dividend Information
Penn Virginia has not paid nor does it currently have plans to pay any cash dividends on Penn Virginia Common Stock in the foreseeable future. In addition, certain of Penn Virginia’s debt instruments place restrictions on its ability to pay cash dividends.
Lonestar has not paid nor does it currently have plans to pay any cash dividends in the foreseeable future. The terms of the Merger Agreement limit the ability of Lonestar to declare or pay dividends prior to the completion of the Integrated Mergers. In addition, certain of Lonestar’s debt instruments place restrictions on its ability to pay cash dividends.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this proxy statement/consent solicitation statement/prospectus may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “could,” “would,” “may,” “plan,” “will,” “guidance,” “look,” “goal,” “future,” “build,” “focus,” “continue,” “strive,” “allow” 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, (1) Penn Virginia’s future production and capital expenditures, its ability to maintain low cost structure, the impact of Gulf Coast pricing, the benefits of its hedge positions and resumption of the drilling program, and its ability to manage leverage and operate within cash flow, and (2) statements regarding the proposed Integrated Mergers with Lonestar described herein and as adjusted descriptions of the combined company and its operations, integration, debt levels, acreage, well performance, development plans, per unit costs, ability to maintain production within cash flow, production, cash flows, synergies, type curves, opportunities and anticipated future performance. Information adjusted for the proposed Integrated Mergers should not be considered a forecast of future results. 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/consent solicitation statement/prospectus. These include the possibility that shareholders of Penn Virginia may not approve the issuance of new shares of Penn Virginia Common Stock in the proposed Integrated Mergers or that stockholders of Lonestar may not approve the Merger Agreement; the risk that a condition to closing of the proposed Integrated Mergers may not be satisfied, that either party may terminate the Merger Agreement or that the closing of the proposed Integrated Mergers might be delayed or not occur at all; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed Integrated Mergers; the parties do not receive regulatory approval of the proposed Integrated Mergers; the risk that changes in Penn Virginia’s capital structure and governance, including its status as a controlled company, could have adverse effects on the market value of its securities; the ability of Penn Virginia to retain customers and retain and hire key personnel and maintain relationships with its suppliers and customers and on Penn Virginia’s operating results and business generally; the risk the proposed Integrated Mergers could distract management from ongoing business operations or cause Penn Virginia to incur substantial costs; the risk that the expanded acreage footprint does not allow for longer laterals, lower per unit operating expenses, and increased number of wells per pad as expected; the ability of Penn Virginia to develop drilling locations, which do not represent oil and gas reserves, into production or proved reserves; the risk that Penn Virginia may be unable to reduce expenses or access financing or liquidity; the risk that Penn Virginia does not realize expected benefits of its hedges; the impact of the COVID-19 pandemic, any related economic downturn and any related substantial decline in demand for oil and natural gas; the risk of changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters; and other important factors that could cause actual results to differ materially from those projected.
The forward-looking statements contained in this document are largely based on Penn Virginia’s and Lonestar’s expectations for the future, which reflect certain estimates and assumptions made by their respective managements. These estimates and assumptions reflect Penn Virginia’s and Lonestar’s best judgment based on currently known market conditions, operating trends and other factors. Although Penn Virginia and Lonestar believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond Penn Virginia’s and Lonestar’s control. As such, managements’ assumptions about future events may prove to be inaccurate. For a more detailed description of the risks and uncertainties involved, see “Risk Factors” in Penn Virginia’s and Lonestar’s most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other SEC filings. Penn Virginia and Lonestar do not intend to publicly update or revise any forward-looking statements as a result of new information, future events, changes in circumstances or otherwise.
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These cautionary statements qualify all forward-looking statements attributable to Penn Virginia or Lonestar, or persons acting on either’s behalf. Penn Virginia management and Lonestar management caution you that the forward-looking statements contained in this proxy statement/consent solicitation statement/prospectus are not guarantees of future performance, and neither Penn Virginia nor Lonestar can assure you that such statements will be realized or that the events and circumstances they describe will occur. Factors that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements herein include, but are not limited to:
the risk that Penn Virginia or Lonestar may be unable to obtain governmental and regulatory approvals required for the transaction, or that required governmental and regulatory approvals may delay the transaction or result in the imposition of conditions that could reduce the anticipated benefits from the Integrated Mergers or cause the parties to abandon the Integrated Mergers;
the risk that a condition to closing of the transaction may not be satisfied;
the length of time necessary to consummate the Integrated Mergers, which may be longer than anticipated for various reasons;
the risk that the businesses will not be integrated successfully;
the risk that the cost savings, synergies and growth from the Integrated Mergers may not be fully realized or may take longer to realize than expected;
the diversion of management time on transaction-related issues;
the effect of future regulatory or legislative actions on the companies or the industries in which they operate;
the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect;
potential liability resulting from pending or future litigation;
changes in the general economic environment, or social or political conditions, that could affect the businesses;
the potential impact of the announcement or consummation of the Integrated Mergers on relationships with customers, providers, vendors, competitors, management and other employees;
the ability to hire and retain key personnel;
reliance on and integration of information technology systems;
the risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings;
the volatility of oil, gas and NGL prices;
uncertainties inherent in estimating oil, gas and NGL reserves;
the impact of reduced demand for the companies’ products and products made from them due to governmental and societal actions taken in response to the COVID-19 pandemic;
the uncertainties, costs and risks involved in Penn Virginia’s and Lonestar’s operations, including as a result of employee misconduct;
natural disasters and epidemics;
counterparty credit risks;
risks relating to Penn Virginia’s and Lonestar’s indebtedness;
risks related to Penn Virginia’s and Lonestar’s hedging activities;
competition for assets, materials, people and capital;
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regulatory restrictions, compliance costs and other risks relating to governmental regulation, including with respect to environmental matters;
cyberattack risks;
Penn Virginia’s and Lonestar’s limited control over third parties who operate some of their respective oil and gas properties;
midstream capacity constraints and potential interruptions in production;
the extent to which insurance covers any losses Lonestar or Penn Virginia may experience;
risks related to investors attempting to effect change;
general domestic and international economic and political conditions, including the impact of COVID-19;
the impact of a prolonged federal, state or local government shutdown and threats not to increase the federal government’s debt limit; and
changes in tax, environmental and other laws, including court rulings, applicable to Penn Virginia’s and Lonestar’s business.
All subsequent written and oral forward-looking statements concerning Penn Virginia, Lonestar, the Integrated Mergers, the combined company or other matters and attributable to Penn Virginia or Lonestar or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Penn Virginia and Lonestar assume no duty to update or revise their respective forward-looking statements based on new information, future events or otherwise.
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RISK FACTORS
In deciding how to vote, shareholders of Penn Virginia and stockholders of Lonestar, respectively, should carefully consider the following risk factors and all of the information contained in or incorporated by reference herein, including, but not limited to, the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” as well as Lonestar’s and Penn Virginia’s other filings with the SEC incorporated herein by reference. Please see the section entitled “Where You Can Find More Information.”
Risks Relating to the Integrated Mergers
Because the market price of Penn Virginia Common Stock will fluctuate, Lonestar stockholders cannot be sure of the value of the shares of Penn Virginia Common Stock they will receive in the Integrated Mergers. In addition, because the Exchange Ratio is fixed, the number of shares of Penn Virginia Common Stock to be received by Lonestar stockholders in the Integrated Mergers will not change between now and the time the Integrated Mergers are completed to reflect changes in the trading prices of Penn Virginia Common Stock or Lonestar Common Stock.
As a result of the Integrated Mergers, each eligible share of Lonestar Common Stock will be converted automatically into the right to receive 0.51 shares of Penn Virginia Common Stock, with cash paid in lieu of the issuance of any fractional shares of Penn Virginia Common Stock. The Exchange Ratio is fixed, which means that it will not change between now and the closing date, regardless of whether the market price of either Penn Virginia Common Stock or Lonestar Common Stock changes. Therefore, the value of the merger consideration will depend on the market price of Penn Virginia Common Stock at the Effective Time. The market price of Penn Virginia Common Stock has fluctuated since the date of the announcement of the parties’ entry into the Merger Agreement and will continue to fluctuate from the date of this proxy statement/consent solicitation statement/prospectus to the date of the date of the Special Meeting, the date the Integrated Mergers are completed and thereafter. The market price of Penn Virginia Common Stock, when received by Lonestar stockholders after the Integrated Mergers are completed, could be greater than, less than or the same as the market price of Penn Virginia Common Stock on the date of this proxy statement/consent solicitation statement/prospectus. Accordingly, you should obtain current stock price quotations for Penn Virginia Common Stock and Lonestar Common Stock before deciding how to vote or abstain from voting on any of the proposals described in this proxy statement/consent solicitation statement/prospectus.
The market price for Penn Virginia Common Stock following the closing may be affected by factors different from those that historically have affected or currently affect Penn Virginia Common Stock and Lonestar Common Stock.
Upon the completion of the Integrated Mergers, Lonestar stockholders will receive shares of Penn Virginia Common Stock. Penn Virginia’s financial position may differ from its financial position before the completion of the Integrated Mergers, and the results of operations of the combined company may be affected by some factors that are different from those currently affecting the results of operations of Penn Virginia and those currently affecting the results of operations of Lonestar. Accordingly, the market price and performance of Penn Virginia Common Stock is likely to be different from the performance of Lonestar Common Stock in the absence of the Integrated Mergers. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, Penn Virginia Common Stock, regardless of Penn Virginia’s actual operating performance. For a discussion of the businesses of Penn Virginia and Lonestar and important factors to consider in connection with those businesses, see the documents incorporated by reference herein or attached to this proxy statement/consent solicitation statement/prospectus and referred to in “Where You Can Find More Information.”
Penn Virginia shareholders and Lonestar stockholders, in each case as of immediately prior to the Integrated Mergers, will have reduced ownership in the combined company.
Based on the number of issued and outstanding shares of Lonestar Common Stock as of     , 2021, and the number of outstanding Lonestar equity-based awards and Lonestar warrants currently estimated to be payable in shares of Penn Virginia Common Stock in connection with the Integrated Mergers, Penn Virginia anticipates issuing approximately 5,855,941 shares of Penn Virginia Common Stock pursuant to the Merger Agreement. The actual number of shares of Penn Virginia Common Stock to be issued pursuant to the Merger Agreement will be determined at the completion of the Integrated Mergers based on the number of shares of Lonestar Common Stock outstanding immediately prior to such time. The issuance of these new shares could have the effect of
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depressing the market price of Penn Virginia Common Stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Penn Virginia’s earnings per share could cause the price of Penn Virginia Common Stock to decline or increase at a reduced rate.
Immediately after the completion of the Integrated Mergers, it is expected that Penn Virginia shareholders as of immediately prior to the Integrated Mergers will own approximately 87%, and Lonestar stockholders as of immediately prior to the Integrated Mergers will own approximately 13%, of the issued and outstanding shares of Penn Virginia Common Stock.
The Integrated Mergers are subject to a number of conditions to the obligations of both Penn Virginia and Lonestar to complete the Integrated Mergers, which, if not fulfilled, or not fulfilled in a timely manner, may delay completion of the Integrated Mergers or result in termination of the Merger Agreement.
The respective obligations of each of Lonestar and Penn Virginia to effect the Integrated Mergers are subject to the satisfaction at or prior to the Effective Time of numerous conditions, including the following:
the adoption and approval of the Merger Agreement by the Lonestar stockholders;
the approval of the Share Issuance Proposal by the Penn Virginia shareholders;
the shares of Penn Virginia Common Stock that will be issued in the Integrated Mergers must have been authorized for listing on the Nasdaq, upon official notice of issuance;
the registration statement on Form S-4, of which this proxy statement/consent solicitation statement/prospectus forms a part, will have become effective under the Securities Act and no stop order suspending its effectiveness may be in effect;
the absence of any applicable law or order (preliminary or otherwise) prohibiting the consummation of the Integrated Mergers; and
the expiration or earlier termination of the waiting period (and any extension of such period) under the HSR Act.
Many of the conditions to completion of the Integrated Mergers are not within either Penn Virginia’s or Lonestar’s control, and neither company can predict when, or if, these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to November 26, 2021, it is possible that the Merger Agreement may be terminated. Although Penn Virginia and Lonestar have agreed in the Merger Agreement to use reasonable best efforts to, subject to certain limitations, to complete the Integrated Mergers as promptly as practicable, these and other conditions to the completion of the Integrated Mergers may fail to be satisfied. In addition, satisfying the conditions to and completion of the Integrated Mergers may take longer, and could cost more, than Penn Virginia and Lonestar expect. Neither Penn Virginia nor Lonestar can predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the Integrated Mergers for a significant period of time or prevent them from occurring. Any delay in completing the Integrated Mergers may adversely affect the cost savings and other benefits that Penn Virginia and Lonestar expect to achieve if the Integrated Mergers and the integration of the companies’ respective businesses are not completed within the expected timeframe. There can be no assurance that all required regulatory approvals will be obtained or obtained prior to the termination date.
The business relationships of Penn Virginia and Lonestar may be subject to disruption due to uncertainty associated with the Integrated Mergers, which could have a material adverse effect on the results of operations, cash flows and financial position of Penn Virginia or Lonestar pending and following the Integrated Mergers.
Parties with which Penn Virginia or Lonestar do business may experience uncertainty associated with the Integrated Mergers, including with respect to current or future business relationships with Penn Virginia or Lonestar following the Integrated Mergers. Penn Virginia’s and Lonestar’s business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than Penn Virginia or Lonestar following the Integrated Mergers. These disruptions could have a material and adverse effect on the results of operations, cash flows and financial position of Penn Virginia or Lonestar, regardless of whether the
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Integrated Mergers are completed, as well as a material and adverse effect on Penn Virginia’s ability to realize the expected cost savings and other benefits of the Integrated Mergers. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Integrated Mergers or termination of the Merger Agreement.
Penn Virginia or Lonestar may waive one or more of the closing conditions without re-soliciting stockholder approval.
Penn Virginia or Lonestar may determine to waive, in whole or part, one or more of the conditions to closing the Integrated Mergers prior to Penn Virginia or Lonestar, as the case may be, being obligated to consummate the Integrated Mergers. Each of Penn Virginia and Lonestar 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/consent solicitation statement/prospectus or any re-solicitation of proxies is required in light of such waiver. Any determination whether to waive any condition to the Integrated Mergers or to re-solicit stockholder approval or amending or supplementing this proxy statement/consent solicitation statement/prospectus as a result of a waiver will be made by Penn Virginia or Lonestar at the time of such waiver based on the facts and circumstances as they exist at that time.
Lonestar stockholders will not be entitled to appraisal rights in the Integrated Mergers.
Under Delaware law, holders of Lonestar Common Stock do not have appraisal rights in connection with the Integrated Mergers, as more fully described in “The Integrated Mergers—No Appraisal Rights.”
The Merger Agreement subjects Penn Virginia and Lonestar to restrictions on their respective business activities prior to the Effective Time.
The Merger Agreement subjects Penn Virginia and Lonestar to restrictions on their respective business activities prior to the Effective Time. The Merger Agreement obligates each of Penn Virginia and Lonestar to generally conduct its businesses in the ordinary course until the Effective Time and to use its commercially reasonable efforts to (i) preserve intact its present business organization, (ii) maintain its assets and properties and (iii) in the case of Lonestar, preserve its existing relationships and goodwill with governmental entities, key employees, customers, suppliers, licensors, licensees, distributors, lessors and others having business dealings with it. These restrictions could prevent Penn Virginia and Lonestar from pursuing certain business opportunities that arise prior to the Effective Time. Please see “The Merger Agreement—Covenants” for additional details.
Directors and executive officers of each party have interests in the Integrated Mergers that may be different from, or in addition to, the interests of the Penn Virginia and Lonestar stockholders generally.
In considering the recommendation of the (i) Penn Virginia Board that Penn Virginia shareholders vote in favor of the Share Issuance Proposal and (ii) Lonestar Board that Lonestar stockholders consent to the Lonestar Merger Proposal and the Lonestar Compensation Proposal, Penn Virginia shareholders and Lonestar stockholders should be aware of and take into account the fact that certain Penn Virginia and Lonestar directors and executive officers have interests in the Integrated Mergers that may be different from, or in addition to, the interests of Penn Virginia shareholders and Lonestar stockholders generally. Please see “The Integrated Mergers—Interests of Penn Virginia’s Directors and Executive Officers in the Integrated Mergers” for a more detailed description of these interests. The interests of Lonestar’s directors and executive officers include, among others, severance rights, rights to continuing indemnification and directors’ and officers’ liability insurance and accelerated vesting of outstanding equity-based awards in exchange for a certain number of shares of Penn Virginia Common Stock (in addition to cash in lieu of fractional shares). Please see “The Integrated Mergers—Interests of Lonestar’s Directors and Executive Officers in the Integrated Mergers” for a more detailed description of these interests. The Lonestar Board was aware of and carefully considered the interests of its respective directors and officers, among other matters, in evaluating the terms and structure, and overseeing the negotiation, of the Integrated Mergers, in approving the Merger Agreement and the transactions contemplated thereby, including the Integrated Mergers, and the recommendation of the Lonestar Board that Lonestar stockholders consent to the Lonestar Merger Proposal and the Lonestar Compensation Proposal.
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The Merger Agreement limits Penn Virginia’s and Lonestar’s respective ability to pursue alternatives to the Integrated Mergers, may discourage certain other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require Penn Virginia or Lonestar to pay the other party a termination fee.
The Merger Agreement contains certain provisions that restrict each of Penn Virginia’s and Lonestar’s ability to initiate, solicit, knowingly encourage or knowingly facilitate any inquiry or the making of any proposal or offer that constitutes, or would reasonably be expected to result in, a competing proposal with respect to Penn Virginia or Lonestar, as applicable, and Penn Virginia and Lonestar have each agreed to certain terms and conditions relating to their ability to engage in, continue or otherwise participate in any discussions with respect to, provide any third party confidential information with respect to or enter into any an acquisition agreement with respect to certain unsolicited proposals that constitute or are reasonably likely to lead to a competing proposal. Further, even if the Lonestar Board or Penn Virginia Board changes, withdraws, modifies, or qualifies its recommendation with respect to the Lonestar Merger Proposal or Share Issuance Proposal, as applicable, unless the Merger Agreement has been terminated in accordance with its terms, the Lonestar Board and Penn Virginia Board will still be required to submit the Lonestar Merger Proposal and Share Issuance Proposal, as applicable, to a vote of its stockholders. In addition, Penn Virginia and Lonestar generally have an opportunity to offer to modify the terms of the Merger Agreement in response to any competing Acquisition Proposals or intervening events before the Lonestar Board or Penn Virginia Board, respectively, may withdraw or qualify their respective recommendations. The Merger Agreement further provides that under specified circumstances, including after receipt of certain alternative Acquisition Proposals, Penn Virginia may be required to pay the other a cash termination fee equal to $6,000,000 and Lonestar may be required to pay the other a cash termination fee equal to $3,000,000. Please see “The Merger Agreement—Termination Fee” for additional details.
These provisions could discourage a potential third-party acquirer or other strategic transaction partner that might have an interest in acquiring all or a significant portion of Lonestar or Penn Virginia from considering or pursuing an alternative transaction with either party or proposing such a transaction, even if it were prepared, in Lonestar’s case, to pay consideration with a higher per share value than the total value proposed to be paid or received in the Integrated Mergers. These provisions might also result in a potential third-party acquirer or other strategic transaction partner proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee or expense reimbursement that may become payable in certain circumstances.
Failure to complete the Integrated Mergers could negatively impact Penn Virginia’s or Lonestar’s stock price and have a material adverse effect on their results of operations, cash flows and financial position.
If the Integrated Mergers are not completed for any reason, the ongoing businesses of Penn Virginia and Lonestar may be materially adversely affected and, without realizing any of the benefits of having completed the Integrated Mergers, Penn Virginia and Lonestar would be subject to a number of risks, including the following:
Penn Virginia and Lonestar may experience negative reactions from the financial markets, including negative impacts on their respective stock prices;
Penn Virginia, Lonestar and their respective subsidiaries may experience negative reactions from their respective customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners;
Penn Virginia and Lonestar will still be required to pay certain significant costs relating to the Integrated Mergers, such as legal, accounting, financial advisor and printing fees;
Penn Virginia or Lonestar may be required to pay a termination fee as required by the Merger Agreement;
the Merger Agreement places certain restrictions on the conduct of the respective businesses pursuant to the terms of the Merger Agreement, which may delay or prevent the respective companies from undertaking business opportunities that, absent the Merger Agreement, may have been pursued;
matters relating to the Integrated Mergers (including integration planning) require substantial commitments of time and resources by each company’s management, which may have resulted in the distraction of each company’s management from ongoing business operations and pursuing other opportunities that could have been beneficial to the companies; and
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litigation related to any failure to complete the Integrated Mergers or related to any enforcement proceeding commenced against Penn Virginia or Lonestar to perform their respective obligations pursuant to the Merger Agreement.
If the Integrated Mergers are not completed, the risks described above may materialize and they may have a material adverse effect on Penn Virginia’s or Lonestar’s results of operations, cash flows, financial position and stock prices.
The shares of Penn Virginia Common Stock to be received by Lonestar stockholders upon the completion of the Integrated Mergers will have different rights from shares of Lonestar Common Stock.
Upon the completion of the Integrated Mergers, Lonestar stockholders will no longer be stockholders of Lonestar. Instead, former Lonestar stockholders will become Penn Virginia shareholders and their rights as Penn Virginia shareholders will be governed by the laws of the state of Virginia, and the governing corporate documents of Penn Virginia in effect at the Effective Time. The terms of the Penn Virginia governing documents are in some respects different than the terms of the Lonestar second amended and restated certificate of incorporation and the Lonestar amended and restated bylaws, which currently govern the rights of Lonestar stockholders. Please see “Comparison of Shareholders’ Rights” for a discussion of the different rights associated with shares of Penn Virginia Common Stock and shares of Lonestar Common Stock.
Completion of the Integrated Mergers may trigger change in control or other provisions in certain agreements to which Lonestar is a party.
The completion of the Integrated Mergers may trigger change in control or other provisions in certain agreements to which Lonestar is a party. If Penn Virginia and Lonestar are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements, or seeking monetary damages. Even if Penn Virginia and Lonestar 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 Lonestar.
Penn Virginia and Lonestar are expected to incur significant transaction costs in connection with the Integrated Mergers, which may be in excess of those anticipated by them.
Penn Virginia and Lonestar have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the Integrated Mergers, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by Penn Virginia and Lonestar whether or not the Integrated Mergers are completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs and filing fees. Penn Virginia will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. Penn Virginia and Lonestar will continue to assess the magnitude of these costs and additional unanticipated costs may be incurred in connection with the Integrated Mergers and the integration of the two companies’ businesses. While Penn Virginia and Lonestar have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by Penn Virginia or Lonestar even if the Integrated Mergers are not completed, could have an adverse effect on Penn Virginia’s or Lonestar’s financial condition and operating results.
Litigation relating to the Integrated Mergers could result in an injunction preventing the completion of the Integrated Mergers and/or substantial costs to Penn Virginia and Lonestar.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger, or other business combination agreements. 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 Penn Virginia’s and Lonestar’s respective liquidity and financial condition.
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Lawsuits that may be brought against Penn Virginia, Lonestar or their respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Integrated Mergers. One of the conditions to the closing of the Integrated Mergers are that no injunction by any court, administrative agency or other governmental entity has been entered and continues to be in effect and no law having such effect has been adopted or is effective. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Integrated Mergers, that injunction may delay or prevent the Integrated Mergers from being completed within the expected timeframe or at all, which may adversely affect Penn Virginia’s and Lonestar’s respective business, financial position and results of operation.
There can be no assurance that any of the defendants will be successful in the outcome of any pending or any potential future lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Integrated Mergers are completed may adversely affect Penn Virginia’s or Lonestar’s business, financial condition, results of operations and cash flows.
If the Integrated Mergers, taken together, do not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, Lonestar stockholders may be required to pay substantial U.S. federal income taxes.
The Integrated Mergers, taken together, are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and Penn Virginia and Lonestar intend to report the Integrated Mergers consistent with such qualification. However, it is not a condition to Penn Virginia’s obligation or Lonestar’s obligation to complete the Transactions that the Integrated Mergers, taken together, be treated as a “reorganization,” and neither Penn Virginia nor Lonestar has requested, or will request, a ruling from the IRS with respect to the tax treatment of the Integrated Mergers. If the IRS or a court determines that the Integrated Mergers, taken together, should not be treated as a “reorganization” within the meaning of Section 368(a) of the Code, a U.S. holder of Lonestar Common Stock would generally recognize taxable gain or loss upon the exchange of Lonestar Common Stock for Penn Virginia Common Stock pursuant to the Integrated Mergers. See “Material U.S. Federal Income Tax Consequences of the Integrated Mergers.”
Risks Relating to Penn Virginia and Lonestar
Recent declines in crude oil prices to record low levels as a result of the outbreak of the novel strain of coronavirus (“COVID-19”) and a significantly oversupplied crude oil market have negatively impacted demand for the products of Penn Virginia and Lonestar and are expected to continue to negatively impact demand for the products of Penn Virginia, Lonestar and of the combined company, which may result in a material negative impact on the combined company’s results of operations, financial position and liquidity.
The COVID-19 outbreak in the United States and globally, together with the recent significant decline in commodity prices due, in significant part, to the actions of the Organization of the Petroleum Exporting Countries and other oil producing nations (“OPEC+”), have adversely affected and are expected to continue to adversely affect, both the price of and demand for crude oil and the continuity of the combined company’s business operations. Oil demand significantly deteriorated as a result of the COVID-19 pandemic and corresponding preventative measures taken around the world to mitigate its spread, including “shelter-in-place” orders, quarantines, executive orders and similar governmental orders and restrictions for their citizens to control the spread of COVID-19.
In March 2020, OPEC+ were unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase crude oil production. The convergence of the COVID-19 pandemic and the crude oil production increases caused the significant dual impact of global crude oil demand decline and the risk of a substantial increase in supply. While OPEC+ agreed in April 2020 to cut production, downward pressure on commodity prices has remained and could continue for the foreseeable future.
This decline in commodity prices has already adversely impacted the results of operations for Penn Virginia and Lonestar during 2020 and contributed to both companies recognizing material asset impairments to their oil and gas assets in 2020 and with respect to Penn Virginia, the first quarter of 2021. Any sustained weakness or further deterioration in commodity prices could further adversely impact the results of operations, the value of properties and the financial condition of Penn Virginia, Lonestar and the combined company.
The negative effects of COVID-19 on economic prospects across the world have contributed to concerns for the potential of a prolonged economic slowdown and recession. Any such downturn, or a protracted period of
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depressed commodity prices, could have significant adverse consequences for financial condition and liquidity of Penn Virginia, Lonestar and the combined company, by, among other things: (i) limiting their ability to access sources of capital due to disruptions in financial markets or otherwise; and (ii) increasing the risk of a downgrade from credit rating agencies, which could trigger new credit support obligations and further adversely affect their ability to access financing or trade credit. Moreover, any such downturn could also result in similar financial constraints for the companies’ non-operating partners, purchasers of the companies’ production and other counterparties, thereby increasing the risk that such counterparties default on their obligations. Such defaults or more general supply chain disruptions due to the pandemic may also jeopardize the supply of materials, equipment or services for the companies’ operations.
The COVID-19 pandemic and related restrictions aimed at mitigating its spread have caused Penn Virginia and Lonestar to modify certain business practices, including limiting employee travel, encouraging work-from-home practices and other social distancing measures. Such measures may cause disruptions to Penn Virginia’s, Lonestar’s and the combined company’s business and operational plans, which may include shortages of employees, contractors and subcontractors. There is no certainty that these or any other future measures will be sufficient to mitigate the risks posed by the disease, including the risk of infection of key employees, and the companies’ ability to perform certain functions could be impaired by these new business practices. For example, reliance on technology has necessarily increased due to the encouragement of remote communications and other work-from-home practices, which could make Penn Virginia, Lonestar and the combined company more vulnerable to cyber-attacks.
The COVID-19 pandemic and its related effects continue to rapidly evolve. The ultimate extent of the impact of the COVID-19 pandemic and any other future pandemic on the combined company’s business will depend on future developments, including, but not limited to, the nature, duration and spread of the disease, the responsive actions to contain its spread or address its effects and the duration, timing and severity of the related consequences on commodity prices and the economy more generally, including any recession resulting from the pandemic. Any extended period of depressed commodity prices or general economic disruption as a result of the pandemic would adversely affect the combined company’s business, financial condition and results of operations.
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 Penn Virginia or Lonestar as a result of the Integrated Mergers.
As a result of the Integrated Mergers, 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 Integrated Mergers whether or not contractual rights are triggered as a result of the Integrated Mergers. 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 Integrated Mergers. 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. Furthermore, the combined company will not have long-term arrangements with many of its significant suppliers. 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.
Penn Virginia and Lonestar also have contracts with vendors, landlords, licensors and other business partners which may require Penn Virginia or Lonestar, as applicable, to obtain consent from these other parties in connection with the Integrated Mergers. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs and lose rights that may be material to the business of the combined company. In addition, third parties with whom Penn Virginia or Lonestar currently have relationships may terminate or otherwise reduce the scope of their relationship with either party in anticipation of the Integrated Mergers. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the Integrated Mergers. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the Integrated Mergers or by a termination of the Merger Agreement.
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The combined company may fail to realize the anticipated benefits of the Integrated Mergers.
The success of the Integrated Mergers will depend on, among other things, the combined company’s ability to combine the Penn Virginia and Lonestar businesses in a manner that realizes anticipated synergies and benefits and meets or exceeds the forecasted stand-alone cost savings anticipated by the combined company. The combined company anticipates it will benefit from significant synergies, based on, among other things, increased scale. If the combined company is not able to successfully achieve these synergies, or the cost to achieve these synergies is greater than expected, then the anticipated benefits of the Integrated Mergers may not be realized fully or at all or may take longer to realize than expected.
The failure to successfully integrate the businesses and operations of Penn Virginia and Lonestar in the expected time frame may adversely affect the combined company’s future results.
Penn Virginia and Lonestar have operated and, until the completion of the Integrated Mergers, will continue to operate independently; however, their respective businesses may not be integrated successfully. It is possible that the integration process could result in the loss of key employees, customers, providers, vendors or business partners, the disruption of either company’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, potential unknown liabilities and unforeseen expenses, delays, or regulatory conditions associated with and following completion of the Integrated Mergers or higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integrating the operations of Penn Virginia and Lonestar in order to realize the anticipated benefits of the Integrated Mergers:
combining the companies’ operations and corporate functions and the resulting difficulties associated with managing a larger, more complex, integrated business;
combining the businesses of Penn Virginia and Lonestar in a manner that permits the combined company to achieve any cost savings or operating synergies anticipated to result from the Integrated Mergers;
reducing additional and unforeseen expenses such that integration costs are not more than anticipated;
avoiding delays in connection with the Integrated Mergers or the integration process;
minimizing the loss of key employees;
identifying and eliminating redundant functions and assets;
maintaining existing agreements with customers, providers and vendors or business partners and avoiding delays in entering into new agreements with prospective customers, providers and vendors or business partners; and
consolidating the companies’ operating, administrative and information technology infrastructure.
In addition, at times the attention of certain members of either company’s or both companies’ management and resources may be focused on completion of the Integrated Mergers and the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt each company’s ongoing business and the business of the combined company.
The unaudited pro forma combined financial information contained in this proxy statement/consent solicitation statement/prospectus may not be an indication of the combined company’s results of operations or financial condition following the closing of the Integrated Mergers.
This proxy statement/consent solicitation statement/prospectus includes unaudited pro forma combined financial information for the combined company, which give effect to the Integrated Mergers and should be read in conjunction with the financial statements and accompanying notes of Penn Virginia and Lonestar, which are incorporated by reference or attached to this proxy statement/consent solicitation statement/prospectus. The unaudited pro forma combined financial information contained in this proxy statement/consent solicitation statement/prospectus should not be considered to be an indication of the combined company’s results of operations or financial condition following the closing of the Integrated Mergers. The unaudited pro forma combined financial information has been derived from the historical financial statements of Penn Virginia and
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Lonestar and adjustments, assumptions and preliminary estimates have been made in connection with the preparation of this information. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments, assumptions and estimates are difficult to make with accuracy.
Moreover, the unaudited pro forma combined financial information does not reflect all costs that are expected to be incurred by the combined company in connection with the Integrated Mergers. For example, the impact of any incremental costs incurred in coordinating the operations of Penn Virginia and Lonestar are not reflected in the unaudited pro forma combined financial information. In addition, the unaudited pro forma combined financial information does not include, among other things, estimated cost synergies, adjustments related to restructuring or integration activities, future acquisitions or dispositions not yet known or probable, or impacts of change in control provisions that are currently not factually supportable or probable of occurring.
As a result, the actual results of operations and financial condition of the combined company following the closing of the Integrated Mergers may not be consistent with, or evident from, the unaudited pro forma combined financial information. The assumptions used in preparing the unaudited pro forma combined financial information may not prove to be accurate, and other factors may affect the combined company’s results of operations or financial condition following the closing of the Integrated Mergers. Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the price of the Penn Virginia Common Stock following the closing of the Integrated Mergers.
The unaudited pro forma combined financial information in this proxy statement/consent solicitation statement/prospectus is based on the best information available, which in part includes a number of estimates and assumptions. These estimates and assumptions may prove not to be accurate, and accordingly, the unaudited pro forma combined financial information should not be assumed to be indicative of what the combined company’s financial condition, results of operations or cash flows actually would have been as a stand-alone company or to be a reliable indicator of what the combined company’s financial condition or results of operations may actually be in the future.
The financial forecasts relating to Penn Virginia and Lonestar prepared in connection with the Integrated Mergers may not be realized, which may adversely affect the market price of the Penn Virginia Common Stock following the closing of the Integrated Mergers.
This proxy statement/consent solicitation statement/prospectus includes certain financial forecasts considered by Penn Virginia and Lonestar in connection with their respective businesses. None of the financial forecasts prepared by Penn Virginia or Lonestar were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, GAAP or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts. These forecasts are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them. 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 Penn Virginia and Lonestar. Important factors that may affect the actual results of Penn Virginia and Lonestar and cause the internal financial forecasts to not be achieved include risks and uncertainties relating to Penn Virginia’s and Lonestar’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/consent solicitation statement/prospectus.
In addition, the financial forecasts also reflect assumptions that are subject to change and do not reflect revised prospects for Penn Virginia’s and Lonestar’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 Penn Virginia’s, Lonestar’s or the combined company’s financial condition or results of operations will be consistent with those set forth in such forecasts.
The trading price and volume of the Penn Virginia Common Stock may be volatile following the Integrated Mergers.
The trading price and volume of the Penn Virginia Common Stock may be volatile following completion of the Integrated Mergers. The stock markets in general have experienced extreme volatility that has often been
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unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of the Penn Virginia Common Stock. As a result, you may suffer a loss on your investment.
The market for Penn Virginia Common Stock will depend on a number of conditions, most of which the combined company cannot control, including:
general economic conditions within the U.S. and internationally, including changes in interest rates;
general market conditions, including fluctuations in commodity prices;
domestic and international economic, legal and regulatory factors unrelated to the combined company’s performance;
changes in oil, natural gas and NGL prices, including as a result of the actions of OPEC+;
volatility in the financial markets or other global economic factors, including the impact of COVID-19;
actual or anticipated fluctuations in the combined company’s quarterly and annual results and those of its competitors;
quarterly variations in the rate of growth of the combined company’s financial indicators, such as revenue, EBITDA, net income and net income per share;
the businesses, operations, results and prospects of the combined company;
the operating and financial performance of the combined company;
future mergers, acquisitions, dispositions and strategic alliances;
market conditions in the oil and gas industry;
changes in government regulation, taxes, legal proceedings or other developments;
shortfalls in the combined company’s operating results from levels forecasted by equity research analysts;
investor sentiment toward the stock of oil and gas companies;
changes in revenue or earnings estimates, or changes in recommendations by equity research analysts;
failure of the combined company to achieve the perceived benefits of the Integrated Mergers, including financial results and anticipated synergies, as rapidly as or to the extent anticipated by financial or industry analysts;
speculation in the industry, press or investment community;
sales of Penn Virginia Common Stock by the combined company, large stockholders or management, or the perception that such sales may occur;
changes in accounting principles, policies, guidance, interpretations or standards;
announcements concerning the combined company or its competitors;
public reaction to the combined company’s press releases, other public announcements and filings with the SEC;
strategic actions taken by competitors;
actions taken by the combined company stockholders;
additions or departures of key management personnel;
access to the bank and capital markets on acceptable terms;
maintenance of acceptable credit ratings or credit quality;
the general state of the securities markets; and
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the risk factors described in this proxy statement/consent solicitation statement/prospectus and the documents incorporated by reference into this proxy statement/consent solicitation statement/prospectus.
These and other factors may impair the market for the Penn Virginia Common Stock and the ability of investors to sell shares at an attractive price. These factors also could cause the market price and demand for the Penn Virginia Common Stock to fluctuate substantially, which may negatively affect the price and liquidity of the Penn Virginia Common Stock. Many of these factors and conditions are beyond the control of the combined company or the combined company stockholders.
Future sales or issuances of Penn Virginia Common Stock could have a negative impact on the Penn Virginia Common Stock price.
The Penn Virginia Common Stock that Penn Virginia will issue to Lonestar stockholders if the Integrated Mergers are consummated generally may be sold immediately in the public market. It is possible that some Lonestar stockholders will decide to sell some or all of the shares of Penn Virginia Common Stock that they receive in the Integrated Mergers. Any disposition by a significant stockholder of Penn Virginia Common Stock, such as Juniper, or the perception in the market that such dispositions could occur, may cause the price of Penn Virginia Common Stock to fall. Any such decline could impair the combined company’s ability to raise capital through future sales of Penn Virginia Common Stock. Further, Penn Virginia Common Stock may not qualify for investment indices and any such failure may discourage new investors from investing in Penn Virginia Common Stock.
Combined company stockholders may experience dilution in the future.
The percentage ownership of combined company stockholders may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that the combined company may grant to its directors, officers and employees. Such issuances may have a dilutive effect on the combined company’s earnings per share, which could adversely affect the market price of the Penn Virginia Common Stock.
Certain employees of Lonestar will have rights to receive shares of Penn Virginia Common Stock (in addition to cash received in lieu of fractional shares of Penn Virginia Common Stock) in the Integrated Mergers as a result of the conversion of their Lonestar equity-based awards into shares of Penn Virginia Common Stock. The conversion of these Lonestar equity-based awards into shares of Penn Virginia Common Stock is described in further detail in the section entitled “The Merger Agreement—Treatment of Lonestar Equity-Based Awards and Lonestar Warrants.” The issuance of shares of Penn Virginia Common Stock pursuant to these awards will dilute the percentage ownership of combined company shareholders. It is also expected that, from time to time after the closing of the Integrated Mergers, the Compensation and Benefits Committee of the Penn Virginia Board will grant additional equity awards to employees and directors of the combined company under the combined company’s compensation and employee benefit plans. These additional equity awards will have a dilutive effect on the combined company’s earnings per share, which could adversely affect the market price of the Penn Virginia Common Stock.
In addition, the Existing Articles of Incorporation authorize Penn Virginia to issue, without the approval of shareholders, one or more classes or series of preferred stock having such designations, powers, preferences and relative, participating, optional and other special rights, including preferences over Penn Virginia Common Stock with respect to dividends and distributions, as the Penn Virginia Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of the Penn Virginia Common Stock. For example, the repurchase or redemption rights or liquidation preferences that could be assigned to holders of preferred stock could affect the residual value of the Penn Virginia Common Stock. For more information, see “Description of Penn Virginia Capital Stock.”
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The combined company will have a significant amount of indebtedness, which will limit its liquidity and financial flexibility, and any downgrade of its credit rating could adversely impact the combined company.
As of June 30, 2021, Penn Virginia had total indebtedness of approximately $110.7 million and on August 10, 2021, Penn Virginia completed the sale of $400 million aggregate principal amount of its 9.250% Senior Notes due 2026. Accordingly, Penn Virginia will have substantial indebtedness following completion of the Integrated Mergers. In addition, subject to the limits contained in the documents governing such indebtedness, Penn Virginia may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions or for other purposes. Penn Virginia’s indebtedness and other financial commitments have important consequences to its business, including, but not limited to:
requiring the company to dedicate a portion of its cash flows from operations to debt service payments, thereby limiting its ability to fund working capital, capital expenditures, investments or acquisitions and other general corporate purposes;
increasing the company’s vulnerability to general adverse economic and industry conditions, including low commodity price environments; and
limiting the company’s ability to obtain additional financing due to higher costs and more restrictive covenants.
In addition, Penn Virginia receives credit ratings from rating agencies in the U.S. with respect to its indebtedness. Any credit downgrades resulting from the Integrated Mergers or otherwise could adversely impact Penn Virginia’s ability to access financing and trade credit, require Penn Virginia to provide additional letters of credit or other assurances under contractual arrangements and increase Penn Virginia’s interest rate under any credit facility borrowing as well as the cost of any other future debt.
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 combined company will account for the Integrated Mergers as an acquisition of a business in accordance with GAAP. Under the acquisition method of accounting, the assets and liabilities of Lonestar and its subsidiaries will be recorded, as of completion, at their respective fair values and added to Penn Virginia’s. The combined company’s reported financial condition and results of operations for periods after completion of the Integrated Mergers will reflect Lonestar’s balances and results after completion of the Integrated Mergers but will not be restated retroactively to reflect the historical financial position or results of operations of Lonestar and its subsidiaries for periods prior to the Integrated Mergers.
Under the acquisition method of accounting, the total purchase price is allocated to Lonestar’s identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair market values as of the date of completion of the Integrated Mergers, with any excess purchase price allocated to goodwill. To the extent the value of goodwill or intangibles, if any, becomes impaired in the future, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.
Following the closing of the Integrated Mergers, Penn Virginia will incorporate Lonestar’s hedging activities into Penn Virginia’s business, and Penn Virginia may be exposed to additional commodity price risks arising from such hedges.
To mitigate its exposure to changes in commodity prices, Lonestar hedges oil, natural gas and NGL prices from time to time, primarily through the use of certain derivative instruments, including fixed price swaps, basis swaps and costless collars. Penn Virginia will novate or replace Lonestar’s current hedges following the closing of the Integrated Mergers. Actual crude oil, natural gas and NGL prices may differ from the combined company’s expectations and, as a result, such hedges may or may not have a negative impact on Penn Virginia’s business.
Risks Relating to Lonestar’s Business
You should read and consider risk factors specific to Lonestar’s business that will also affect the combined company after the Integrated Mergers. These risks are described in the sections entitled “Risk Factors” in Lonestar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in other documents
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attached to this proxy statement/consent solicitation statement/prospectus. Please see the section entitled “Where You Can Find More Information” beginning on page 182 of this document for the location of information incorporated by reference or attached to this proxy statement/consent solicitation statement/prospectus.
Risks Relating to Penn Virginia’s Business
You should read and consider risk factors specific to Penn Virginia’s business that will also affect the combined company after the Integrated Mergers. These risks are described in the sections entitled “Risk Factors” in Penn Virginia’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and in other documents incorporated by reference into this proxy statement/consent solicitation statement/prospectus. Please see the section entitled “Where You Can Find More Information” beginning on page 182 of this document for the location of information incorporated by reference into this proxy statement/consent solicitation statement/prospectus.
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THE PARTIES TO THE INTEGRATED MERGERS
Penn Virginia Corporation
16285 Park Ten Place, Suite 500
Houston, Texas 77084
(713) 722-6500
Penn Virginia, whose legal name is Penn Virginia Corporation, was incorporated in Virginia in 1882. Based in Houston, Texas, Penn Virginia is an independent oil and gas company engaged in the exploration, development and production of oil, NGLs and natural gas in the Eagle Ford Shale in south Texas. Shares of Penn Virginia Common Stock are listed and traded on the Nasdaq under the ticker symbol “PVAC.” Additional information about Penn Virginia and its subsidiaries, including, but not limited to, information regarding its business, properties, legal proceedings, financial statements, financial condition and results of operations, market risk, executive compensation and related party transactions is set forth in Penn Virginia’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and Penn Virginia’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, which are each incorporated by reference into this proxy statement/consent solicitation statement/prospectus.
For more information about Penn Virginia, please visit Penn Virginia’s website at www.pennvirginia.com. The information contained on Penn Virginia’s website or accessible through it does not constitute a part of this proxy statement/consent solicitation statement/prospectus.
Lonestar Resources US Inc.
111 Boland Street, Suite 301
Fort Worth, Texas 76107
(817) 921-1889
Lonestar, whose legal name is Lonestar Resources US Inc., was incorporated in Delaware in 2015. Based in Fort Worth, Texas, Lonestar is an independent oil and natural gas company focused on the exploration, development and production of unconventional oil, NGLs and natural gas in the Eagle Ford Shale play in south Texas. Shares of Lonestar Common Stock are quoted on the OTCQX Best Marked under the ticker symbol “LONE.” Additional information about Lonestar and its subsidiaries, including, but not limited to, information regarding its business, properties, legal proceedings, financial statements, financial condition and results of operations, market risk, executive compensation and related party transactions is set forth in Lonestar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, Lonestar’s Amendment No. 1 to Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and Lonestar’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021, which are attached to this proxy statement/consent solicitation statement/prospectus as Annexes F, G, H and I, respectively.
For more information about Lonestar, please visit Lonestar’s website at www.lonestarresources.com. The information contained on Lonestar’s website or accessible through it does not constitute a part of this proxy statement/consent solicitation statement/prospectus.
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THE INTEGRATED MERGERS
The following discussion contains certain information about the proposed Integrated Mergers. This discussion is subject, and qualified in its entirety by reference, to the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/consent solicitation statement/prospectus. You are urged to carefully read this entire proxy statement/consent solicitation statement/prospectus, including the Merger Agreement, before making any investment or voting decision.
Transaction Structure
Upon the terms and subject to the conditions set forth in the Merger Agreement, and in accordance with the DGCL, Merger Sub Inc. will merge with and into Lonestar, with Lonestar continuing as the surviving corporation in the First Merger, and, immediately following the First Merger, the Surviving Corporation will merge with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity in the Second Merger.
Promptly following the effective time of the Second Merger, Penn Virginia will contribute all of the limited liability company interests in the Surviving Company to Penn Virginia Holdings, LLC, a Delaware limited liability company, in exchange for the issuance of Common Units of PV Energy Holdings, in accordance with Section 3.04 of the Amended and Restated Agreement of Limited Partnership of PV Energy Holdings.
Consideration to Lonestar stockholders
At the Effective Time, by virtue of the Integrated Mergers and without any further action on the part of Penn Virginia, Lonestar or any holder of capital stock thereof:
each share of Lonestar Common Stock held immediately prior to the Effective Time by Penn Virginia, Merger Sub or any of Penn Virginia’s other subsidiaries, or by Lonestar or any of Lonestar’s subsidiaries (collectively, the “Excluded Shares”), will be canceled and retired and will cease to exist, and no consideration will be delivered in exchange therefor; and
subject to the Merger Agreement, each share of Lonestar Common Stock issued and outstanding (other than Excluded Shares) immediately prior to the Effective Time will be converted into the right to receive from Penn Virginia 0.51 fully paid and nonassessable shares of Penn Virginia Common Stock.
In addition, each outstanding Lonestar equity-based award in respect of Lonestar Common Stock and each Lonestar warrant will be treated as described in “The Merger Agreement—Treatment of Lonestar Equity-Based Awards and Lonestar Warrants.”
Background of the Integrated Mergers
The Penn Virginia Board and Penn Virginia’s management regularly review Penn Virginia’s performance, prospects and strategy in light of current and expected business and economic conditions, developments in the oil and gas exploration and production sector, and Penn Virginia’s position in the industry. These reviews have included the evaluation of potential strategic combinations and acquisition and divestiture opportunities. To that end, from time to time, senior management of Penn Virginia has engaged in discussions with other companies regarding potential business combinations and other strategic transactions to enhance stockholder value and further the strategic objectives of Penn Virginia. The Penn Virginia Board was regularly briefed on these discussions. In connection with Penn Virginia’s ongoing strategic review, the Penn Virginia Board authorized Penn Virginia’s management to engage legal and financial advisors, including Kirkland & Ellis LLP (“K&E”) and each of Evercore Partners (“Evercore”), Bank of America Merrill Lynch and the Royal Bank of Canada, to serve as Penn Virginia’s advisors for a potential strategic transaction or transactions.
The Lonestar Board, together with Lonestar senior management, regularly reviews and assesses Lonestar’s performance, strategy, financial position and leverage, opportunities and risks in light of current business and economic conditions, and developments in the oil and gas exploration and production sector, in each case across a range of scenarios and potential future industry developments.
On September 30, 2020, Lonestar and 21 affiliated debtors each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (Houston Division). Following Lonestar’s successful completion of a financial restructuring through a
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prepackaged plan of reorganization on November 30, 2020, the Lonestar Board was reconstituted to consist of Richard Burnett, Gary D. Packer, Andrei Verona, Eric Long and Frank D. Bracken, III, Lonestar’s Chief Executive Officer. Also in accordance with the plan, (i) Lonestar entered into a new $225 million first-out senior secured revolving credit facility and a $60 million second-out senior secured term loan credit facility, (ii) all existing shares of Lonestar’s common stock were cancelled, and Lonestar issued approximately 10,000,000 shares of new common stock in Lonestar to the holders of the prepetition notes and Lonestar’s old common shares and old preferred shares and (iii) Lonestar issued 555,555 Tranche 1 Warrants and 555,555  Tranche 2 Warrants to holders of certain prepetition claims under Lonestar’s credit agreement.
In its post-restructuring reviews of the outlook and strategy, the Lonestar Board, together with Lonestar senior management, regularly discussed likely key drivers of stockholder value creation and positive stock price performance for Lonestar as a publicly-traded company operating in a sector facing increasingly negative investor sentiment, due to, among other things, sector financial underperformance, commodity price volatility and the impact of increased investor focus on environmental, social and governance matters. The Lonestar Board noted in these discussions that investors have increasingly favored companies with larger market capitalizations that have the ability to maintain strong balance sheets across commodity price cycles and generate free cash flow. The Lonestar Board also discussed the challenges Lonestar would have in growing its scale organically, due to limited liquidity under its credit facility and likely challenges accessing the capital markets, including the likely inability to refinance Lonestar’s credit facility. Further, the Lonestar Board discussed the significant liquidity challenges facing Lonestar stockholders due to Lonestar’s small market capitalization, limited daily trading volumes and significant concentration of its stock in the hands of a relatively small number of equity holders that had been the holders of prepetition notes.
After Lonestar’s emergence from bankruptcy, the Lonestar Board had several discussions about ways to maximum shareholder value. During these discussions, the Lonestar Board concluded that increasing Lonestar’s scale, either through acquisitions or by combining with a larger company, would be a key driver for increasing shareholder value due to, among other things, the lower cost of capital, higher trading multiples and increased trading liquidity that larger companies benefit from in the marketplace. The Lonestar Board decided to conduct a strategic alternatives process and had several discussions about potential advisors, ultimately concluding that Barclays Capital Inc. (“Barclays”) would be best suited for the engagement.
On December 9, 2020, the Lonestar Board met, with members of Lonestar management and representatives of Barclays in attendance. Barclays presented a review of Lonestar’s current plan and capital structure along with a review of strategic alternatives to the Lonestar Board, which alternatives included growing Lonestar’s business through asset acquisitions, combining with another similarly sized company or being acquired by a larger company.
On January 5, 2021, the Lonestar Board met, with members of Lonestar management and representatives of Barclays in attendance. Representatives of Barclays further discussed exploring strategic alternatives with the Lonestar Board, and the Lonestar Board, after considering the Barclays presentation and the Lonestar Board’s consensus opinion that scale was a core business objective, determined to proceed with a strategic alternative review process, with a view towards determining whether there was an acquisition, sale or merger transaction that would increase long-term shareholder value.
On January 22, 2021, Lonestar’s common stock began being quoted on the OTCQX Best Market.
On January 27, 2021, Lonestar entered into an engagement letter with Barclays to act as financial advisor in connection with the strategic development of Lonestar’s business, including general advice with respect to mergers, acquisitions, divestitures, joint ventures or other corporate transactions.
On February 1, 2021, following direction from the Lonestar Board to contact as many potential counterparties as possible, and excluding certain companies that were going through restructurings or transformative transactions at such time, Barclays began an outreach to 57 parties regarding interest in a transaction with Lonestar, including a mix of strategic and financial parties. Ultimately, over the next several months Lonestar entered into confidentiality agreements with 17 different parties, including 3 public oil and gas companies, 3 private equity firms, and 11 private oil and gas companies, with and without associated financial sponsors. All but one confidentiality agreement either did not contain a standstill provision or contained a standstill provision that did
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not apply if Lonestar entered into a merger agreement with a third party. One of the confidentiality agreements contained a customary standstill provision that continued to apply if Lonestar entered into a merger agreement with a third party, but that standstill provision did not restrict the counterparty from making private offers to the Lonestar Board.
On February 5, 2021, Lonestar distributed preliminary materials to Penn Virginia.
On February 26, 2021, Barclays, on behalf of Lonestar, opened a first-round virtual data room for parties who had entered into confidentiality agreements by such time, and Lonestar began conducting reciprocal diligence with several of such parties.
On March 4, 2021, Mr. Edward Geiser, Chairman of the Penn Virginia Board, met with Mr. Richard Burnett. During the meeting, Messrs. Geiser and Burnett discussed the strategic merits of a potential combination of Penn Virginia and Lonestar.
On March 10, 2021, Penn Virginia and Lonestar entered into a mutual confidentiality agreement. Following execution of the mutual confidentiality agreement, over the following three months, management and outside advisors of each of Penn Virginia and Lonestar exchanged materials, conducted preliminary structuring, financial and operational due diligence regarding a potential combination (including a review of assets and liabilities), and analyzed the achievable synergies of the combined company following a combination transaction.
On March 23, 2021, Barclays granted Penn Virginia access to the virtual data room.
On March 24, 2021, Barclays sent a bid letter to 17 interested parties requesting the submission of initial non-binding proposals for a transaction with Lonestar by April 14, 2021.
On April 8, 2021, Lonestar signed a confidentiality agreement with Juniper Capital Investments, LLC, an entity affiliated with the controlling shareholder of Penn Virginia.
On April 14, 2021, Lonestar received non-binding proposals from a private equity firm focused on the upstream oil and gas sector (“Company A”) and a private equity-backed independent oil and gas company with operations focused in the Eagle Ford shale (“Company B”). Company A’s non-binding proposal offered to acquire Lonestar’s assets for $290 million in cash (implying a Lonestar equity value of $20 million after the repayment of approximately $270 million of Lonestar’s outstanding debt, before accounting for transaction costs), and Company B’s non-binding proposal offered to acquire Lonestar’s outstanding common stock for $8.40 in cash per share, in each case subject to further due diligence and negotiation of definitive transaction documents.
On April 16, 2021, Lonestar received a non-binding proposal from another private equity-backed oil and gas company with operations focused in the Eagle Ford shale (“Company C”). Company C’s non-binding proposal provided for a contribution of assets by Company C into Lonestar followed by a rights offering after which Lonestar stockholders would own 25% of a combined company with an equity value of $289 million.
Following its diligence efforts and discussions with Lonestar and its representatives, the Penn Virginia Board determined to submit an initial offer to Lonestar. On April 20, 2021, Penn Virginia sent a non-binding indication of interest to Lonestar proposing that Penn Virginia and Lonestar combine in an at-the-market, all-stock transaction in which the Lonestar shareholders would receive Penn Virginia common stock for each share of Lonestar common stock held by such holder.
On April 21, 2021, representatives of Barclays contacted Penn Virginia management to express Lonestar’s interest in exploring a transaction with Penn Virginia.
On April 23, 2021, Barclays granted Evercore access to the virtual data room.
During the next several weeks, Lonestar engaged in reciprocal due diligence with Penn Virginia, Company A, Company B and Company C and continued reciprocal diligence with other interested parties that had not submitted non-binding proposals.
On May 5, 2021, following approval from the Lonestar Board, Barclays granted Penn Virginia and Company B access to a second-round virtual data room. The Lonestar Board instructed Barclays to not grant access to the
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second-round virtual data room to Company C because its offer was lower than other counterparties but to continue to engage in reciprocal due diligence. The Lonestar Board instructed Barclays to tell Company A it would not be moving forward in the process because its offer was significantly lower than the other counterparties.
On May 20, 2021, representatives of Lonestar management and Barclays held a virtual operational and technical due diligence session with representatives of Penn Virginia’s management.
On May 24-25, 2021, following approval by the Lonestar Board, Barclays sent another bid instruction letter to a select pool of interested parties in the second-round virtual data room or engaged in reciprocal due diligence requesting the submission of non-binding proposals for a transaction with Lonestar by June 7, 2021.
On May 26, 2021, Mr. Geiser communicated via email a confidential non-binding proposal to Mr. Burnett specifying a fixed exchange ratio of 0.390 shares of Penn Virginia common stock per share of Lonestar common stock and reiterated the commercial logic of the proposed transaction (the “May 26 proposal”). Among other matters, the May 26 proposal emphasized the view of the Penn Virginia Board that the transaction would be an at-the-market, stock-for-stock transaction and proposed a period of exclusivity to finalize transaction terms and documentation.
On June 3, 2021, representatives of Penn Virginia reaffirmed its non-binding proposal to acquire Lonestar in an all-stock transaction with a presentation outlining the merits of such transaction.
On June 6, 2021, Lonestar received a non-binding proposal from Company C. Company C again proposed a combination of Lonestar and Company C following which the equity holders of Company C would own 45% of the combined company and Lonestar stockholders would own 55% of the combined company.
On June 7, 2021, Lonestar received a non-binding proposal from Company B. Company B proposed acquiring Lonestar for $7.50 in cash per share of Lonestar common stock.
On June 8, 2021, the Lonestar Board met, with members of Lonestar management and representatives of Barclays in attendance, to discuss the non-binding proposals from Company B, Company C and Penn Virginia. The Lonestar Board determined that Company B’s offer was too low. The Lonestar Board also discussed Penn Virginia’s offer, noting the benefits of combining with a larger public company with more liquid trading. The Lonestar Board discussed countering to Penn Virginia’s proposal with an exchange ratio valuing Lonestar at $12-16 per share. In addition, the Lonestar Board discussed the offer from Company C, noting that a combination with Company C could improve Lonestar’s capital structure if Company C would agree to favorable equity splits to Lonestar. The Lonestar Board discussed countering to Company C with a proposal for a combination following which the equity holders of Company C would own 25-30% of the combined company and Lonestar stockholders would own 70-75% of the combined company.
Later that day, Messrs. Geiser and Burnett spoke by phone and discussed a potential combination, including, among other things, the strategic fit of the companies’ respective assets, expected synergies and market reception, and the potential for the combined company to access debt financing on attractive terms.
On June 10, 2021, the Lonestar Board met, with members of Lonestar management and representatives of Barclays in attendance, to further discuss the non-binding proposals from Company C and Penn Virginia. The Lonestar Board decided to provide a counter to Penn Virginia with an exchange ratio valuing Lonestar at $16 per share and to Company C with a proposal for a combination following which the equity holders of Company C would own 30% of the combined company and Lonestar stockholders would own 70% of the combined company.
On June 11, 2021, Barclays, on behalf of Lonestar, made the counterproposal to Company C for a combination with Lonestar with 70% Lonestar/30% Company C equity splits.
Also on June 11, 2021, Barclays, on behalf of Lonestar, made the counterproposal to Penn Virginia, stating that the Lonestar Board did not believe an at-market deal was in the best interests of Lonestar’s stockholders and proposing an exchange ratio that would value Lonestar at $16.00 per share, which as of the close of trading on June 10, 2021, would have implied an exchange ratio of 0.67 Penn Virginia shares per Lonestar share.
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On June 15, 2021, Company C responded to Lonestar’s counteroffer of 70% Lonestar/30% Company C equity split stating that they were not willing to move forward on the proposed counteroffer and reiterated their previous proposal.
On June 16, 2021, Mr. Burnett and Mr. Geiser had a call to discuss Lonestar’s June 11th counteroffer to Penn Virginia. Mr. Geiser explained that Penn Virginia was unwilling to acquire Lonestar in a transaction valuing Lonestar’s common stock at $16.00 per share but would consider pursuing a transaction at an exchange ratio that valued Lonestar’s common stock at $12.00 per share. Mr. Burnett told Mr. Geiser that Lonestar would consider the revised offer, but would not likely be supportive of a transaction valuing Lonestar common stock at $12.00 per share due to the increased value of Lonestar’s assets that was brought about by the recent significant increase in the price of oil and natural gas.
Later on June 16, 2021, Penn Virginia submitted a new non-binding proposal to acquire Lonestar in an all-stock transaction. In its new proposal, Penn Virginia proposed an exchange ratio of 0.50 shares of Penn Virginia common stock for each share of Lonestar common stock, an implied effective price of $12.62 per share of Lonestar common stock based on the closing price of Lonestar’s common stock on June 16, 2021 (the “June 16 proposal”). The June 16 proposal did not include a financing contingency and stated that Penn Virginia anticipated refinancing a significant portion of Lonestar’s debt through the issuance of senior unsecured notes. In addition, the June 16 proposal included the concept that Lonestar would be entitled to appoint one member of Lonestar’s current board of directors to the Penn Virginia board at closing. The June 16 proposal also contemplated that each stockholder owning more than 15% of Lonestar’s outstanding common stock would sign voting agreements in support of the transaction. Further, Penn Virginia’s June 16 proposal included a proposed exclusivity period of two weeks to finalize transaction terms and documentation to limit execution risk to Penn Virginia.
On June 17, 2021, Mr. Burnett contacted Mr. Geiser to indicate that the Lonestar Board may be amenable to a transaction with Penn Virginia at the exchange ratio specified in the June 16 proposal. After discussion, Messrs. Geiser and Burnett agreed to instruct their respective legal advisors to advance a draft of the Merger Agreement, an exclusivity agreement for a period to be agreed by their respective companies (the “exclusivity agreement”), and an issues list summarizing the material, outstanding commercial and legal matters for each of Penn Virginia’s and Lonestar’s consideration.
On June 17, 2021, the Lonestar Board met, with members of Lonestar management and representatives of Barclays in attendance, to discuss the latest responses from Company C and Penn Virginia. After discussion, the Lonestar Board determined that a combination with Company C at equity splits favorable to Lonestar did not seem viable. The Lonestar Board agreed that a combination with Penn Virginia was the best option for Lonestar’s stockholders, noting the benefits of combining with a company with a larger market capitalization, increased trading liquidity and greater access to capital. Discussion then turned to whether to make another counteroffer to Penn Virginia. The Lonestar Board also discussed the pros and cons of continuing as a stand-alone company, including the risk of ongoing industry consolidation and negative investor sentiment towards the sector, the combination of which might further erode Lonestar’s trading multiples in comparison to larger competitors. Based on this discussion, the Lonestar Board agreed that Penn Virginia was an attractive merger partner, but that Lonestar should seek an exchange ratio in excess 0.50 before commencing negotiations of transaction documents. The Lonestar Board agreed to counter to Penn Virginia one more time with a proposed exchange ratio of 0.55 per share. The Lonestar Board then decided it was time to engage outside legal representation and a financial advisor to give a fairness opinion for a potential transaction. The Lonestar Board approached Stephens to provide a fairness opinion.
On June 18, 2021, and consistent with prior discussions among the members of the Penn Virginia Board, Mr. Geiser provided representatives of Barclays with a draft exclusivity agreement providing for an exclusivity period of 14 days.
Also on June 18, 2021, Lonestar engaged Vinson & Elkins LLP (“V&E”) to act as its counsel in negotiations with Penn Virginia.
That same day, the Lonestar Board met, with members of Lonestar management and representatives of Barclays in attendance, to receive an update on discussions with Penn Virginia. Christopher Watson, Managing Director at Barclays, summarized a phone call with Mr. Geiser where Mr. Watson made the Lonestar counteroffer of a 0.55 per share exchange ratio. Mr. Geiser explained that Penn Virginia would not go above a 0.50 exchange
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ratio. After discussion, the Lonestar Board agreed that following an extensive strategic evaluations process and given Lonestar’s size and debt levels, a deal with Penn Virginia at a 0.50 exchange ratio would be the best option for Lonestar’s stockholders. The Lonestar Board then decided to have a meeting with representatives of V&E the following day.
On June 19, 2021, the Lonestar Board met, with members of Lonestar management and representatives of V&E and Barclays in attendance. During the meeting, representatives of Barclays and the Lonestar Board summarized for V&E the extensive process Lonestar had run and the current proposals from Penn Virginia, Company B and Company C. A representative of V&E reviewed with the members of the Lonestar Board their fiduciary duties with respect to evaluating strategic alternatives. The Lonestar Board determined to proceed with negotiating a deal with Penn Virginia but to continue requesting a higher exchange ratio. The Lonestar Board and meeting participants then discussed whether to enter into a 14-day period of exclusive negotiations with Penn Virginia. Following discussion, the Lonestar Board determined that Mr. Long would contact Mr. Geiser to reiterate the Lonestar Board’s desire for an exchange ratio of 0.55 and reject Penn Virginia’s proposal for exclusivity at the current proposed exchange ratio.
On June 21, 2021, Mr. Bracken discussed with representatives of Stephens a potential engagement for Stephens to provide a fairness opinion for a transaction with Penn Virginia. Over the next several weeks, Lonestar management provided Stephens with the necessary materials to give such an opinion.
Also on June 21, 2021, through separate conversations, each of Mr. Eric Long on behalf of the Lonestar Board and representatives of Barclays acting at the direction of the Lonestar Board urged Mr. Geiser to increase the exchange ratio. Mr. Geiser reaffirmed the most recent exchange ratio of 0.50 shares of Penn Virginia common stock per share of Lonestar common stock from Penn Virginia’s June 16 proposal, highlighting the implied premium and the strategic benefits of a combination. That same day, the Lonestar Board met, with members of Lonestar management in attendance. Mr. Long summarized his discussion with Mr. Geiser that day. The Lonestar Board then discussed potential valuation differences and decided that Mr. Burnett should call Mr. Geiser the following day to discuss ways to bridge the valuation gap.
On June 22, 2021, Mr. Burnett and Mr. Geiser had a call during which Mr. Geiser stated that Penn Virginia would be willing to increase its offer to an exchange ratio of 0.51 so long as Lonestar agreed to two weeks of exclusivity. Mr. Burnett responded that he needed to discuss with the full Lonestar Board and its advisors before responding.
On June 23, 2021, and based on discussions with members of the Penn Virginia Board, Mr. Geiser sent a draft term sheet to Mr. Burnett (the “June 23 proposal”) specifying, among other things, the following: (i) an exchange ratio to 0.51 shares of Penn Virginia common stock per share of Lonestar common stock, (ii) support agreements requiring the majority stockholders of each of Lonestar and Penn Virginia to vote in favor of the transaction that would not terminate upon a change of recommendation by the applicable party’s board (a “Change of Recommendation Fall Away”), (iii) the Lonestar Supporting Stockholders would be required to approve the Integrated Mergers by written consent within three days after the effectiveness of the Form S-4 for the transaction (the “Written Consent Deadline”), (iv) a requirement by each of Lonestar and Penn Virginia to submit the transaction to its stockholders for approval, and an inability to terminate the merger agreement for a superior acquisition proposal, regardless of any change of recommendation by such party’s board or the announcement of an acquisition proposal (a “Force the Vote Provision”), (v) termination fees payable by each of Lonestar and Penn Virginia in certain circumstances, with the amount of the termination fee being the same for both Lonestar and Penn Virginia (“Reciprocal Termination Fee”) and (vi) a requirement of each of Lonestar and Penn Virginia to reimburse the other party for expenses in the event such party’s stockholders did not approve the transaction (a “Naked No Vote Fee”).
That same day, Mr. Burnett, on behalf of the Lonestar Board, sent an email to Mr. Geiser summarizing the status of discussions among the Lonestar Board regarding Penn Virginia’s June 23 proposal increasing the exchange ratio from the June 16 proposal to 0.51 shares of Penn Virginia common stock per share of Lonestar common stock and Penn Virginia’s proposal of a 14-day exclusivity period. Mr. Burnett also acknowledged receipt of the June 23 proposal, without agreeing to the terms thereof, and requested that Penn Virginia prepare a full merger agreement for Lonestar’s consideration.
Also on June 23, 2021, the Lonestar Board met, with members of Lonestar management and representatives of V&E and Barclays in attendance. Mr. Burnett summarized his conversation with Mr. Geiser the previous day. A
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representative of V&E also summarized the terms of the proposed merger agreement. After discussion, the Lonestar Board authorized Mr. Burnett to respond to Mr. Geiser by agreeing to move forward with an exchange ratio of 0.51 and ten days of exclusivity so long as the exclusivity terms were mutual as between Lonestar and Penn Virginia. That evening, Mr. Burnett and Mr. Chris Watson, advisor to Lonestar, conveyed to Mr. Geiser the determination of the Lonestar Board and discussed proceeding to negotiate the terms of the exclusivity agreement.
On June 24 and June 25, 2021, representatives of each of Penn Virginia and Lonestar exchanged drafts of and discussed the terms of the exclusivity agreement.
On June 25, 2021, Penn Virginia and Lonestar executed the exclusivity agreement providing for the parties to exclusively engage regarding the Transactions for a period of ten days, ending July 5, 2021, subject to certain exceptions.
Also on June 25, 2021, K&E sent V&E an initial draft of the merger agreement. The merger agreement was generally consistent with the June 23 proposal, except that it provided for the payment of a full termination fee by Lonestar to Penn Virginia in the event the Lonestar stockholders signing support agreements (the “Lonestar Supporting Stockholders”) did not approve the Integrated Mergers by written consent by the Written Consent Deadline (a “Written Consent Termination Fee”).
On June 27, 2021, representatives of Penn Virginia provided a draft of the Lonestar Support Agreement to Lonestar.
On June 28, 2021, V&E sent K&E a revised draft of the merger agreement. The revised draft, among other things, eliminated the Written Consent Termination Fee and Force the Vote Provision for Lonestar and the Naked No Vote Fee for Penn Virginia. The revised draft also provided that the Penn Virginia termination fee would be twice the amount of the Lonestar termination fee, instead of the Reciprocal Termination Fee proposed by Penn Virginia.
On June 29, 2021, representatives of V&E provided a draft of Lonestar’s disclosure schedules to K&E.
On June 30, 2021, K&E sent V&E a revised draft of the merger agreement. The revised draft, among other things, provided that a majority of Lonestar’s stockholders must approve the Integrated Mergers by written consent and, similarly, that a majority of Penn Virginia’s shareholders must deliver a support agreement obligating them to vote in favor of the transaction. In addition, the revised draft removed the Force the Vote Provision for Penn Virginia. The revised draft also provided Reciprocal Termination Fees for Lonestar and Penn Virginia.
On July 1, 2021, Penn Virginia provided access to its virtual data room to Lonestar and its legal and financial representatives. In addition, Lonestar and Stephens entered into an engagement letter pursuant to which Stephens would, if requested, provide an opinion to the Lonestar Board as to the fairness of the merger consideration in the proposed merger between Lonestar and Penn Virginia.
That same day, the Penn Virginia Board convened a special meeting with its legal and financial advisors. At the invitation of the Penn Virginia Board, Evercore provided a presentation to the Penn Virginia Board summarizing the history of Penn Virginia’s engagement with Lonestar and consolidating the various metrics and analyses conducted. Within such presentation, Evercore noted the Penn Virginia Board’s inquiry into (i) the strategic fit of the potential combination, (ii) the opportunity for accretion of key financial metrics, including free cash flow and cash flow from operations, (iii) the implied transaction value relative to the value of Lonestar’s assets, as updated using the Penn Virginia management team estimates of NYMEX strip pricing at June 23, 2021, (iv) the pro forma balance sheet resulting from the Integrated Mergers, including projected leverage and liquidity, and (v) Lonestar’s asset inventory as an opportunity for scale, operational efficiency and synergies.
Also on July 1, 2021, the Lonestar Board and representatives of V&E met to discuss K&E’s latest draft of the merger agreement. After discussion, the Lonestar Board determined that Mr. Burnett and Mr. Bracken would contact Messrs. Geiser, Henke and Kelley to attempt to resolve the outstanding business issues and that V&E would contact K&E to attempt to resolve the outstanding legal points. These discussions were held over the course of the next several days. During these discussions, representatives of Penn Virginia and K&E communicated to representatives of Lonestar and V&E that it was critically important to Penn Virginia that the merger agreement include a Force the Vote Provision for Lonestar and that the Lonestar Support Agreements not
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include a Change of Recommendation Fall Away, and that Penn Virginia was unwilling to pursue a transaction without those provisions given that increased transaction certainty would, among other things, enhance Penn Virginia’s ability to refinance Lonestar’s debt through a notes offering prior to closing.
On July 2, 2021, representatives of V&E sent a list of open issues with respect to the merger agreement to representatives of K&E. The list summarized material business points for discussion, including matters relating to deal certainty, limitations on Penn Virginia’s actions during the interim operating period and the treatment of employees post-closing, but reserved on other less material and legal drafting points.
On July 4, 2021, K&E sent V&E a further-revised draft of the merger agreement. The revised draft was similar to K&E’s June 30 draft with the notable exception that the draft reinserted a Force the Vote Provision applicable to each of Lonestar and Penn Virginia.
On July 5, 2021, V&E sent K&E a revised draft of the merger agreement. The revised draft, among other things, (i) removed the concept that a termination fee would be payable by each of Lonestar and Penn Virginia in the event a majority of its stockholders did not deliver support agreements by 6 AM the day following execution of the merger agreement and (ii) provided that the Penn Virginia termination fee would be twice the amount of the Lonestar termination fee, instead of the Reciprocal Termination Fee proposed by Penn Virginia.
Also on July 5, 2021, Lonestar sent a draft of the Lonestar Support Agreements to the Lonestar Supporting Stockholders.
Further on July 5, 2021, the initial 10-day exclusivity period expired and was not renewed by Lonestar and Penn Virginia, but the parties continued to work constructively and expeditiously towards finalizing the transaction documents, pending resolution of the remaining commercial and valuation points.
On July 6, 2021, the Lonestar Board met, with members of Lonestar management and representatives of V&E and Barclays in attendance. Representatives of V&E summarized the latest terms of the merger agreement and Lonestar Support Agreements. The Lonestar Board discussed at length the proposal in Penn Virginia’s July 5 draft of the merger agreement that the Lonestar Supporting Stockholders would be required to deliver irrevocable support agreements within 24 hours after signing. The Lonestar Board noted that this would eliminate Lonestar’s ability to communicate with other potential acquirers following the time the Lonestar Supporting Stockholders executed the support agreements. The Lonestar Board weighed this fact against others, including Penn Virginia’s position that it would not agree to a transaction without Lonestar stockholder approval certainty. The Lonestar Board also discussed the benefits of stockholder approval certainty, including that it would enhance Penn Virginia’s ability to refinance Lonestar’s debt through a notes offering prior to closing. In addition, the Lonestar Board noted it was confident that it had conducted an expansive market check and that the transaction with Penn Virginia was the best transaction to materialize for Lonestar stockholders following discussions with dozens of other potential bidders. The Lonestar Board also agreed to schedule a meeting with Stephens for July 8 to discuss Stephens’s financial analysis related to the Integrated Mergers.
Over the next several days, the business principals at Lonestar and Penn Virginia and representatives of V&E and K&E had several discussions on the outstanding business and legal points in the merger agreement and support agreements. During these discussions, the parties, after consulting with their respective board of directors, agreed (i) that Lonestar would be permitted to grant remaining unallocated equity awards under Lonestar’s management incentive plan at closing in its sole discretion, (ii) that Penn Virginia’s termination fee would be twice the amount of Lonestar’s termination fee and (iii) that no termination fee would be payable by each of Lonestar and Penn Virginia in the event its majority stockholders did not deliver support agreements by the support agreement deadline. In addition, during this period the parties discussed the treatment of Lonestar’s warrants in the Integrated Mergers.
On July 7, 2021, representatives of K&E provided a further revised draft of the Lonestar Support Agreement to V&E that reflected, among other updates regarding the transaction structure, discussions between the parties regarding transferability of the Lonestar common stock during the pendency of the transactions.
On July 8, 2021, K&E sent V&E an initial draft of the Penn Virginia Support Agreement to be signed by the Penn Virginia Supporting Shareholders, which was based on the form of the Lonestar Support Agreement.
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Also on July 8, 2021, the Lonestar Board met, with members of Lonestar management and representatives of V&E, Stephens and Barclays in attendance. At this meeting, Stephens presented its preliminary financial analysis regarding a transaction with Penn Virginia. In addition, the Lonestar Board and meeting attendees reviewed and discussed the open points in the merger agreement and support agreements.
On July 9, 2021, K&E sent V&E a revised draft of the merger agreement. The revised draft reflected the previously-agreed-upon points but provided that if either Lonestar’s or Penn Virginia’s supporting stockholders did not deliver support agreements by the support agreement deadline, the other party would be entitled to a $1.5 million expense reimbursement payment (the “Support Agreement Expense Reimbursement”).
Also on July 9, 2021, the parties finalized the terms of the Lonestar Support Agreements and Penn Virginia Support Agreement.
That same day, the Penn Virginia Board convened a special meeting with representatives of its legal and financial advisors. Representatives from K&E refreshed the Penn Virginia Board on its fiduciary duties under Virginia law in connection with the proposed merger. At this time, Penn Virginia’s management and counsel informed the Penn Virginia Board that the remaining significant matters in the Merger Agreement had been resolved in a manner consistent with the prior week’s discussions. Evercore provided a confirmatory analysis of the transaction on the basis of the metrics discussed at each meeting of the Penn Virginia Board, including the effect on the transaction premium resulting from the relative trading of each of Penn Virginia common stock and Lonestar common stock since last discussed. At close of market on July 9, 2021, an exchange ratio of 0.51 shares of Penn Virginia common stock per share of Lonestar common stock represented an approximate 17% premium to the closing price of Lonestar common stock on the last trading day prior to the announcement of the Integrated Mergers. Following a discussion of these matters, the Penn Virginia Board unanimously (i) determined that the Merger Agreement and transactions contemplated thereby, including the Integrated Mergers, the contribution and the share issuance, were in the best interests of Penn Virginia, (ii) approved the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Integrated Mergers and the contribution and (iii) directed that the stock issuance be submitted to the Penn Virginia shareholders for approval and (iv) resolved to recommend that Penn Virginia shareholders approve the share issuance contemplated by the Merger Agreement.
On July 10, 2021, following discussion among the business principals of Lonestar and Penn Virginia and representatives of V&E and K&E, Penn Virginia agreed to remove the Support Agreement Expense Reimbursement from the merger agreement.
That same day, the Lonestar Board met, with members of Lonestar management and representatives of V&E, Barclays and Stephens in attendance, to consider the proposed final terms of the Integrated Mergers. At this meeting, a representative of V&E updated the Lonestar Board on the key terms in the merger agreement and reviewed with the members of the Lonestar Board their fiduciary duties with respect to the evaluation of the proposed mergers. Stephens then reviewed its financial analysis of the exchange ratio and rendered an oral opinion to the Lonestar Board (confirmed by delivery of a written opinion addressed to the Lonestar Board dated the same date) to the effect that, as of the date of such opinion and subject to the limitations, qualifications and assumptions stated therein, the merger consideration expected to be received by the holders of Lonestar common stock (other than, as applicable, Penn Virginia and its affiliates) was fair to the holders of Lonestar common stock from a financial point of view, as more fully described below in the section entitled “—Opinion of Lonestar’s Financial Advisor.” Prior to the end of the meeting, the Lonestar Board unanimously (i) determined that the merger agreement, the Integrated Mergers and the other transactions contemplated by the merger agreement were in the best interests of, and were advisable to, Lonestar and its stockholders, (ii) approved and declared advisable the merger agreement, the Integrated Mergers and the other transactions contemplated thereby, (iii) approved and declared advisable the Penn Virginia Support Agreement and the transactions contemplated thereby and (iv) recommended that Lonestar stockholders adopt and approve the merger agreement, the Integrated Mergers and the other transactions contemplated thereby.
Later that evening, Penn Virginia and Lonestar executed the merger agreement. Following execution of the merger agreement, the Lonestar Supporting Stockholders and the Penn Virginia Supporting Shareholders executed and delivered the Lonestar Support Agreements and Penn Virginia Support Agreement, respectively.
Prior to the open of trading on the Nasdaq on the morning of July 12, 2021, Lonestar and Penn Virginia issued a joint press release announcing the transactions contemplated by the Merger Agreement.
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Recommendation of the Penn Virginia Board and its Reasons for the Integrated Mergers
On July 9, 2021 the Penn Virginia Board unanimously (a) approved and declared advisable the Merger Agreement and the Transactions contemplated thereby, including the Integrated Mergers and the Contribution, (b) approved the execution, delivery and performance of the Merger Agreement and the consummation of the Transactions contemplated thereby, including the Integrated Mergers and the Contribution and (c) directed that the stock issuance be submitted to the Penn Virginia shareholders for approval. The Penn Virginia Board unanimously recommends that holders of Penn Virginia Common Stock vote “FOR” the Share Issuance Proposal.
In the course of reaching its determinations and recommendations, the Penn Virginia Board consulted with Penn Virginia’s senior management and its outside legal and financial advisors and considered several potentially positive factors that weighed in favor of the Integrated Mergers, including the following (not necessarily presented in order of relative importance):
Synergies and Strategic Considerations
The belief that Lonestar’s contiguous and complementary assets represent an attractive strategic fit with Penn Virginia’s assets, which should allow for substantial value enhancement and immediate integration of operations;
The belief that the Integrated Mergers are expected to create approximately $20 million of annual synergies through operational efficiencies and reduction to overhead costs;
The fact that the combined company will continue to be led by Penn Virginia’s strong, experienced management team and that the addition of one member of the Lonestar Board will be added to the Penn Virginia Board in connection with the merger, which will enhance the likelihood of meeting or exceeding the strategic benefits that Penn Virginia expects to derive from the merger;
The fact that Lonestar’s current production and pending well completions will add substantial scale, asset diversity and additional cash flow to Penn Virginia’s operations;
The belief that the merger will further Penn Virginia’s commitment to sustainability by connecting more wells to pipelines to reduce flaring; by sharing facilities in order to reduce operational footprint; and implementing leak detection and prevention technologies at more locations to further mitigate emissions;
The belief that the Penn Virginia merger will be accretive to certain key metrics, including cash flow per share and free cash flow; and
The belief that the acquisition of Lonestar will add a substantial number of additional drilling locations, and the contiguous acreage allows for operational capital and operational efficiencies by drilling longer laterals.
Value, Leverage and Liquidity
The belief that the implied transaction value represents a discount to such proven producing assets’ PV-10 valuation at then current commodity prices, excluding the value of future development opportunities or synergies, and the proposed acquisition cost equates to less than $30,000/boe per day for Lonestar’s current production, a significant discount relative to other recent comparable transactions;
The belief that the combined company will have low leverage which is expected to be further reduced in 2022; and
The belief that the combined company will maintain substantial liquidity and financial flexibility due to its enhanced scale and expected free cash flow generation.
Likelihood of Completion of the Transaction
The belief that the transaction will be consummated prior to November 26, 2021, due to the limited number and customary nature of the closing conditions;
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The fact that Lonestar stockholders collectively holding approximately 80% of the outstanding shares of Lonestar common stock as of July 9, 2021 entered into support agreements with Penn Virginia pursuant to which such Lonestar stockholders have agreed, among other things, to vote all shares of Lonestar common stock beneficially owned by such stockholders in favor of the adoption of the Merger Agreement; and
The fact that Juniper, which holds approximately 60% of the voting power of Penn Virginia, entered into a support agreement with Lonestar pursuant to which such Penn Virginia shareholders have agreed, among other things, vote all shares of Series A Preferred Stock beneficially owned by such shareholders (i) in favor of the share issuance.
Favorable Terms of the Merger Agreement
The belief that, in coordination with Penn Virginia’s legal advisors, the terms of the Merger Agreement, taken as a whole, including the parties’ representations, warranties, covenants and conditions to closing, and the circumstances under which the Merger Agreement may be terminated, are reasonable.
The Penn Virginia Board also considered and balanced against the potentially positive factors a number of uncertainties, risks and other countervailing factors in its deliberations concerning the merger and the Merger Agreement, including the following (not necessarily presented in order of relative importance):
The fact that the merger may not be completed in a timely manner or at all and the potential consequences of non-completion or delays in completion;
The fact that the exchange ratio is fixed and will not fluctuate in the event that the market price of Penn Virginia common stock increases relative to the market price of Lonestar common stock between the date of the Merger Agreement and the closing of the merger;
The effect that the length of time from announcement until completion of the merger could have on the market price of Penn Virginia common stock, oil and natural gas prices, Penn Virginia’s operating results and the relationship with Penn Virginia’s employees, shareholders, customers, suppliers, regulators and others who do business with Penn Virginia;
The risks and contingencies relating to the announcement and pendency of the merger, including the potential for diversion of management and employee attention and the potential effect of the combination on the businesses of both companies and the restrictions on the conduct of Penn Virginia’s business during the period between the execution of the Merger Agreement and the completion of the transactions contemplated thereby;
The transaction costs to be incurred by Penn Virginia in connection with the merger;
The fact that Penn Virginia would be required to pay Lonestar a termination fee of $6 million, if the Merger Agreement is terminated under certain circumstances. The Penn Virginia Board believed that the termination fee is consistent with comparable transactions and would not be preclusive of other offers. In addition, if the Merger Agreement is terminated, Penn Virginia will generally be required to pay its own expenses associated with the transaction;
The fact that there are restrictions in the Merger Agreement on Penn Virginia’s ability to solicit competing bids to acquire it and to entertain other acquisition proposals unless certain conditions are satisfied;
The fact that the restrictions on Penn Virginia’s conduct of business prior to completion of the transaction could delay or prevent Penn Virginia from undertaking business opportunities that may arise or taking other actions with respect to its operations during the pendency of the transaction; and
The Penn Virginia Board considered risks of the type and nature described under the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 22 and 25, respectively.
After taking into account the factors set forth above, as well as others, the Penn Virginia Board concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the transaction were outweighed by the potential benefits of the transaction to Penn Virginia shareholders. The foregoing discussion of
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factors considered by Penn Virginia is not intended to be exhaustive but summarizes the material factors considered by the Penn Virginia Board. In light of the variety of factors considered in connection with their evaluation of the Merger Agreement and the transaction, Penn Virginia did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Penn Virginia Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Penn Virginia Board based its recommendation on the totality of the information presented, including thorough discussions with, and questioning of, Penn Virginia’s senior management and the Penn Virginia Board’s outside legal and financial advisors.
In considering the recommendation of the Penn Virginia Board to approve the Merger Agreement, holders of Penn Virginia common stock should be aware that the executive officers and directors of Penn Virginia may have certain interests in the transaction that may be different from, or in addition to, the interests of Penn Virginia shareholders generally. See the section entitled “—Interests of Penn Virginia’s Directors and Executive Officers in the Integrated Mergers” beginning on page 76.
It should be noted that this explanation of the reasoning of the Penn Virginia Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 22.
Recommendation of the Lonestar Board and its Reasons for the Integrated Mergers
By unanimous vote, the Lonestar Board, at a meeting held on July 10, 2021, among other things, (i) determined that the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement are in the best interests of, and are advisable to, Lonestar and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Integrated Mergers and the other transactions contemplated thereby, (iii) approved and declared advisable the Penn Virginia Support Agreement and the transactions contemplated thereby and (iv) recommended that Lonestar stockholders adopt and approve the Merger Agreement, the Integrated Mergers and the other transactions contemplated thereby. The Lonestar Board unanimously recommends that Lonestar stockholders “CONSENT” to the Lonestar Merger Proposal and “CONSENT” to the Lonestar Compensation Proposal.
In evaluating the Merger Agreement, the Integrated Mergers and the other transactions contemplated by the Merger Agreement, the Lonestar Board consulted with Lonestar’s senior management, outside legal counsel and financial advisors. The Lonestar Board determined that entering into the Merger Agreement with Penn Virginia provided a superior path for maximizing stockholder value reasonably available to Lonestar and mitigating risk, compared to pursuing an alternative transaction. In arriving at this determination and in recommending that the Lonestar stockholders vote their shares of Lonestar Common Stock in favor of adoption of the Merger Agreement, the Lonestar Board considered a number of factors, including the following factors (not necessarily in order of relative importance) which the Lonestar Board viewed as being generally positive or favorable in coming to its determination, approval and related recommendation:
Increases Scale in the Eagle Ford Shale. The fact that the combined company will be a scaled pure-play operator in the Eagle Ford and the Lonestar Board’s belief that the combined company will benefit from premier and complementary acreage in the Eagle Ford, headlined by approximately 750 estimated gross well locations and a strong history of productive assets within the basin.
Credit Profile and Cost of Capital. The fact that the combined company will have an enhanced credit profile relative to Lonestar’s credit profile, which is expected to result in significantly better access to capital and at a lower cost of capital than would be realized by Lonestar on a standalone basis.
Improves and Strengthens Balance Sheet and Liquidity. The fact that the combined company will retain a strong balance sheet, with a pro forma net debt-to-adjusted EBITDAX ratio of less than 1.6x on a trailing 12-month basis as of June 30, 2021 and a target of 1.0x expected to be achieved in early 2022, and strong liquidity, with significant undrawn capacity on its credit facility expected at closing.
Larger and More Liquid Market Capitalization; Listing on a Premier Stock Exchange. The fact that the combined company will have a larger market capitalization than Lonestar on a standalone basis and will be listed on the Nasdaq, increasing visibility, access to the capital markets and liquidity for Lonestar stockholders. Moreover, the Lonestar Board considered the fact that trading liquidity of the combined company is expected to allow for enhanced trading capabilities for Lonestar stockholders.
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Exchange Ratio and Form of Merger Consideration. The value offered by the exchange ratio of 0.51 shares of Penn Virginia Common Stock for each share of Lonestar Common Stock, which represents a premium of approximately 17.4% to the closing price of Lonestar Common Stock on July 9, 2021, the last trading day before the public announcement of the Integrated Mergers and a premium of approximately 31.4% to the 30-day volume weighted average trading price of Lonestar Common Stock immediately prior to the execution of the Merger Agreement. Additionally, the fact that the all-stock merger consideration will allow Lonestar stockholders to potentially benefit from longer-term economic appreciation and participate in any further energy market recovery.
Drives Significant Cost Synergies. The belief that the Integrated Mergers are expected to create approximately $20 million of annual synergies through operational efficiencies and reduction to overhead costs.
Meaningful Participation in the Combined Company. The Lonestar Board considered that the strategic combination with Penn Virginia would allow the Lonestar stockholders to have a meaningful ownership interest in a larger enterprise, with an expected pro forma ownership of approximately 13%, and allow one Lonestar director to have a continuing influence on the execution of the strategy and business plan of the combined company through the appointment of one current Lonestar director to the Penn Virginia Board at closing.
Strategic Alternatives Process; Alternative Combination Transactions. The Lonestar Board considered the strategic alternative review process conducted by the Lonestar Board with the assistance of Barclays, including that since February 2021 representatives of Barclays and/or Lonestar’s management contacted 57 counterparties, including public and private companies and companies sponsored by financial sponsors, regarding a strategic transaction with Lonestar as part of the Lonestar Board’s exploration of strategic alternatives. The Lonestar Board considered, with the assistance of Lonestar’s management and advisors, the potential for and benefits of alternative transactions based on preliminary, non-binding indications of interest received in connection with Lonestar’s exploration of strategic alternatives, and believed that it was unlikely that an alternative transaction would provide more long-term value to the Lonestar stockholders than the Integrated Mergers. For further discussion regarding the consideration of alternative transactions by Lonestar, please see “The Integrated Mergers—Background of the Integrated Mergers” beginning on page 39.
Stockholder Support. The Lonestar Board considered the support of the Integrated Mergers by the Lonestar Supporting Stockholders, as evidenced by the execution of the Lonestar Support Agreements, and that the Lonestar Supporting Stockholders are receiving the same per-share consideration in the Integrated Mergers as all other Lonestar stockholders generally and are not receiving, in connection with the Integrated Mergers, any other consideration or benefit not received by all other Lonestar stockholders generally.
Tax Considerations. The Lonestar Board considered that the Integrated Mergers, taken together, are intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes.
Opinion of Lonestar’s Financial Advisor. The Lonestar Board considered the financial presentation and opinion of Stephens, dated July 10, 2021, to the Lonestar Board as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration expected to be received by holders of Lonestar Common Stock, which opinion was based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Stephens as more fully described below under the heading “—Opinion of Lonestar’s Financial Advisor.”
Terms of the Merger Agreement; Likelihood of Completion. The Lonestar Board reviewed, in consultation with Lonestar’s legal advisors, and considered that 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, in its belief, are reasonable. The Lonestar Board also reviewed and considered the conditions to the completion of the Integrated Mergers, including customary regulatory approvals.
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The Lonestar Board also considered and balanced against the potentially positive factors a number of uncertainties, risks and factors it deemed generally negative or unfavorable in making its determination, approval and related recommendation, including the following (not necessarily in order of relative importance):
Merger Consideration. The Lonestar Board considered that, because the merger consideration is based on a fixed exchange ratio rather than a fixed value, Lonestar stockholders bear the risk of a decrease in the trading price of Penn Virginia Common Stock during the pendency of the Integrated Mergers and the fact that the Merger Agreement does not provide Lonestar with a value-based termination right or an adjustment to the consideration received. Further, as the merger consideration consists of Penn Virginia Common Stock, the value of such consideration is subject to certain risks related to the business and financial condition of Penn Virginia, as more fully described in the section entitled “Risk Factors—Risks Relating to Penn Virginia and Lonestar” beginning on page 30.
Interim Operating Covenants. The Lonestar Board considered the restrictions on the conduct of Lonestar’s and its subsidiaries’ businesses during the period between the execution of the Lonestar Agreement and the completion of the Integrated Mergers as set forth in the Merger Agreement, including that Lonestar must conduct its business only in the ordinary course, subject to specific limitations, which could negatively impact Lonestar’s ability to pursue certain business opportunities or strategic transactions.
Risks Associated with the Timing and Pendency of the Integrated Mergers. The Lonestar Board considered the risks and contingencies relating to the announcement and pendency of the Integrated Mergers and the amount of time that may be required to consummate the Integrated Mergers (including the likelihood of litigation or other opposition brought by or on behalf of Lonestar stockholders or Penn Virginia shareholders challenging the Integrated Mergers and the other transactions contemplated by the Merger Agreement, and the fact that the completion of the Integrated Mergers depends on factors outside of Lonestar’s or Penn Virginia’s control) and the risks and costs to Lonestar if the completion of the Integrated Mergers is not accomplished in a timely manner or if the Integrated Mergers do not close at all, either of which could have an adverse impact on Lonestar, including potential employee attrition, the impact on Lonestar’s relationships with third parties and the effect termination of the Merger Agreement may have on the trading price and volumes of Lonestar’s Common Stock and Lonestar’s operating results.
Possible Failure to Achieve Synergies. The Lonestar Board considered the potential challenges and difficulties in integrating the business, operations and workforce of Lonestar into those of Penn Virginia and the risk that anticipated cost synergies and operational efficiencies between the two companies, or other anticipated benefits of the Integrated Mergers, might not be realized or might take longer to realize than expected.
Alternative Proposals. The Lonestar Board considered the terms of the Merger Agreement relating to the no-shop covenants, including the fact that Lonestar would be prohibited from responding to alternative acquisition proposals following the earlier of (a) the delivery of the Lonestar Support Agreements by Lonestar Supporting Stockholders holding a majority of Lonestar’s outstanding common stock or (b) in the event of a Lonestar Stockholder Meeting Election by Penn Virginia, the time the Lonestar Stockholder Approval is obtained.
Change of Recommendation. The Lonestar Board considered that, in the event that the Lonestar Board changes its recommendation to its stockholders to adopt the Merger Agreement, Lonestar is still required to hold a stockholder vote on the adoption of the Merger Agreement and the Lonestar Supporting Stockholders would continue to be obligated to vote in favor of the Merger Proposal.
Termination Fee. The Lonestar Board considered that, under specified circumstances, Lonestar may be required to pay a termination fee in the event the Merger Agreement is terminated and the effect this could have on Lonestar. For further discussion regarding the circumstances in which Lonestar would be required to pay the termination fee to Penn Virginia, please see “The Merger Agreement—Termination Fee” beginning on page 112.
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Interests of Lonestar’s Directors and Executive Officers. The Lonestar Board considered that Lonestar’s directors and executive officers may have interests in the Integrated Mergers that may be different from, or in addition to, those of the Lonestar stockholders generally. For more information about such interests, see below under the heading “—Interests of Lonestar’s Directors and Executive Officers in the Integrated Mergers” beginning on page 5.
Costs. The Lonestar Board considered the substantial transaction costs associated with entering into the Merger Agreement and the completion of the Integrated Mergers, as well as the possible diversion of management and employee time and energy, potential opportunity cost and disruption of Lonestar’s business operations.
Litigation. The potential for litigation relating to the Integrated Mergers and the associated costs, burden and inconvenience involved in defending those proceedings.
Other Risks. The Lonestar Board considered risks of the type and nature described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” beginning on pages 25 and 22, respectively.
The Lonestar Board considered all of these factors as a whole, as well as others, and, on balance, concluded that the potential benefits of the Integrated Mergers to Lonestar stockholders outweighed the risks, uncertainties, restrictions and potentially negative factors associated with the Integrated Mergers.
The foregoing discussion of factors considered by the Lonestar Board is not intended to be exhaustive, but is meant to include material factors considered by the Lonestar Board. The Lonestar Board collectively reached the conclusion to approve the Merger Agreement in light of the various factors described above and other factors that the members of the Lonestar Board believed were appropriate. In light of the variety of factors considered in connection with its evaluation of the Integrated Mergers, the Lonestar 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 Lonestar Board applied his own personal business judgment to the process and may have given different weight to different factors. The Lonestar 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 Lonestar Board based its recommendation on the totality of the information available to it, including discussions with Lonestar’s management and outside legal and financial advisors.
It should be noted that this explanation of the reasoning of the Lonestar Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 22.
Opinion of Lonestar’s Financial Advisor
Pursuant to an engagement letter executed as of July 1, 2021, Lonestar retained Stephens to render a fairness opinion to the Lonestar Board in connection with a proposed merger transaction between Lonestar and certain subsidiaries of Penn Virginia.
Pursuant to the Merger Agreement, a wholly-owned subsidiary of Penn Virginia will merge with and into Lonestar, with Lonestar surviving as a wholly-owned subsidiary of Penn Virginia, followed by the merger of the Surviving Corporation into a second wholly-owned subsidiary of Penn Virginia, with the wholly-owned subsidiary of Penn Virginia surviving the merger. In the First Merger, each share of Lonestar Common Stock outstanding, other than shares held by Penn Virginia, its merger subsidiary or Lonestar, will be converted into the right to receive the Exchange Ratio of Penn Virginia Common Stock (such consideration, the “Merger Consideration”). Immediately following the Transaction, Lonestar stockholders and Penn Virginia stockholders will own 13.0% and 87.0%, respectively, of the Penn Virginia Common Stock outstanding.
At the meeting of the Lonestar Board on July 10, 2021, Stephens rendered its oral opinion, subsequently confirmed in writing, to the Lonestar Board that, as of the date of the opinion, and based upon and subject to the various assumptions, methodologies, limitations and considerations described in such opinion, the Merger Consideration expected to be received in the Transaction is fair from a financial point of view to the holders of Lonestar Common Stock (other than, as applicable, Penn Virginia and its affiliates). No limitations were imposed by the Lonestar Board upon Stephens with respect to the investigations made or procedures followed in rendering its opinion.
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The issuance of Stephens’ opinion was approved by a fairness opinion committee of Stephens on July 8, 2021.The full text of the written opinion of Stephens, dated as of July 10, 2021, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex B to this proxy statement. Lonestar’s stockholders are urged to read the opinion in its entirety. Stephens’ written opinion is addressed to the Lonestar Board and is directed only to the Merger Consideration expected to be received by holders of Lonestar Common Stock in the Transaction and does not constitute a recommendation to any Lonestar stockholder as to how such stockholder should vote or act in respect of the proposed Transaction. Stephens has not assumed any responsibility for updating or revising its opinion based on circumstances or events occurring after the date of its opinion. The summary of the opinion of Stephens set forth in this proxy statement/consent solicitation statement/prospectus is qualified in its entirety by reference to the full text of such opinion.
In connection with developing its opinion, Stephens:
(i)
discussed with management of Lonestar the operations of, and future business prospects for Lonestar and Penn Virginia;
(ii)
reviewed certain financial statements and other financial and operating data (including financial projections, reserves estimates and acreage positions) concerning Lonestar and Penn Virginia prepared by, or based on assumptions provided by, Lonestar management or Penn Virginia management;
(iii)
compared the financial performance of Lonestar and Penn Virginia with that of certain publicly-traded companies Stephens deemed relevant to Stephens analysis of the Transaction;
(iv)
reviewed the financial terms, to the extent publicly available, of certain other merger or acquisition transactions Stephens deemed relevant to Stephens’ analysis of the Transaction;
(v)
reviewed drafts of the Merger Agreement that were provided to Stephens; and
(vi)
performed such other analyses and provided such other services as Stephens deemed appropriate.
Stephens relied on the accuracy and completeness of the information and financial data provided to it by Lonestar and Penn Virginia (including but not limited to reserves reports and analyses) and of the other information reviewed by Stephens (including but not limited to consensus research analyst data) in connection with the preparation of the opinion, and the opinion is based upon such information. Stephens did not assume any responsibility for independent verification of the accuracy or completeness of any of such information or financial data. The management of Lonestar assured Stephens that they are not aware of any relevant information that was omitted or remained undisclosed to Stephens. While Stephens reviewed reserve reports of Lonestar and Penn Virginia and estimates of the oil and gas reserves of Lonestar and Penn Virginia, Stephens has not assumed any responsibility for making or undertaking an independent evaluation or appraisal of any of the assets, oil and gas reserves or liabilities of Lonestar or of Penn Virginia, and Stephens has not been furnished with any such evaluations or appraisals; nor has Stephens evaluated the solvency or fair value of Lonestar or of Penn Virginia under any laws relating to bankruptcy, insolvency or similar matters. Stephens has not assumed any obligation to conduct any physical inspection of the properties or facilities of Lonestar or of Penn Virginia. With respect to the financial forecasts and estimates and assessments of oil and gas reserves prepared by the managements of Lonestar and Penn Virginia, and also reserves as prepared by an independent petroleum engineering consultant in the case of Penn Virginia, Stephens has assumed that they have been reasonably prepared and reflect the best currently available estimates, assessments and judgments of the managements of Lonestar and Penn Virginia as to the future financial performance of Lonestar and Penn Virginia and Stephens has relied thereon. Stephens is not an expert in the evaluation of oil and gas reserves and Stephens expressed no view as to the reserve quantities or the potential for development and production (including, without limitation, the feasibility or timing thereof) of any oil and gas properties. Stephens relied, without independent verification, upon the assessments of Lonestar and Penn Virginia management and on a third party reserve report as to the respective oil and gas reserves of Lonestar and Penn Virginia and as to market trends and prospects relating to the oil and gas industry and the potential effects of such trends and prospects on Lonestar and Penn Virginia, including without limitation the assumptions as to commodity prices reflected in the financial forecasts and estimates referred to above, which prices are subject to significant volatility and which, if different from such assumptions, could have a material impact on Stephens’ opinion.
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Stephens is not a legal, regulatory, accounting or tax expert, and Stephens relied solely, and without independent verification, on the assessments of Lonestar and its other advisors with respect to legal, regulatory, accounting and tax such matters. Stephens assumed, with Lonestar’s consent, that the Transaction will not result in adverse tax consequences for Lonestar or its stockholders. Stephens also assumed that the representations and warranties contained in the Merger Agreement and all related documents are true, correct and complete in all material respects.
In connection with the preparation of the opinion, Stephens reviewed and relied on one reserves report case for Lonestar (the “Lonestar Mgmt. Case”), which was prepared by the management of Lonestar, as of July 1, 2021. Stephens reviewed and relied on three separate reserves report cases for Penn Virginia: (i) the “Lonestar Mgmt. Case” (prepared by the management of Lonestar); (ii) the “Penn Virginia Mgmt. Case” (prepared by the management of Penn Virginia); and (iii) the “Penn Virginia Third Party Case” (prepared by an independent petroleum engineering consultant on behalf of Penn Virginia), in each case, as of July 1, 2021.
In reaching its opinion, Stephens applied and considered the results of valuation methods that Stephens believes are customarily used in investment banking practice for developing fairness opinions. The following is a summary of the material financial analyses utilized by Stephens in connection with providing its opinion and does not claim to be a complete description of the analysis underlying Stephens’ opinion. Unless otherwise noted, all numbers presented in Stephens’ analysis are expressed in millions of U.S. dollars, except for per share amounts or oil and gas metrics.
Penn Virginia Valuation
In determining a range of estimated values for Penn Virginia Common Stock, Stephens conducted each of the following analyses with respect to Penn Virginia.
Unless otherwise noted, all numbers presented in Stephens’ analysis are expressed in millions of U.S. dollars, except for per share amounts or oil and gas metrics.
Publicly Traded Comparable Companies
Using publicly available information, Stephens determined the following companies were relevant to an evaluation of Penn Virginia based on Stephens’ view of the comparability of the operating and financial characteristics of these companies, in terms of market capitalization, enterprise value, geography, and size and characteristics of oil and gas reserves and acreage (recognizing, however, that none of the relevant companies below is identical to Penn Virginia):
Earthstone Energy, Inc., Laredo Petroleum, Inc., Lonestar Resources US Inc., Magnolia Oil & Gas Corporation, SilverBow Resources, Inc., and Whiting Petroleum Corporation.
The implied values for Penn Virginia were based on a multiple range for the following four metrics determined by reference to the corresponding multiple ranges for the selected comparable companies. The following table sets forth the mean, median, maximum and minimum multiples for the selected comparable companies.
 
Enterprise Value /
 
Proved
Reserves
($/Boe)
Net
Production
($/Boe/d)
2021E
EBITDA
(x)
2022E
EBITDA
(x)
Mean
$11.87
$36,600
4.5x
3.8x
Median
$9.00
$32,681
4.6x
3.7x
Max
$35.32
$63,708
5.7x
5.2x
Min
$3.67
$22,544
3.4x
3.2x
The proved reserves, daily production and EBITDA values for each of the selected comparable companies were based on SEC filings, adjusted for public data regarding balance sheet activity, acquisitions or divestitures made after their respective quarterly reports were submitted. In the following analyses, (i) implied equity value is calculated as implied enterprise value less net debt, plus mark-to-market hedge value, in each case, as of July 9, 2021, and (ii) implied share price is calculated as implied enterprise value less net debt, plus mark- to- market hedge value, in each case, as of July 9, 2021, divided by Penn Virginia’s fully diluted shares outstanding.
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The multiples selected to apply to Penn Virginia metrics were not entirely mathematical in nature, but required careful consideration to adjust for differences in the operating characteristics of the companies as well as other market factors which could affect the market value of selected companies.
Penn Virginia Metrics:
Value
Multiple
Range
Implied
Enterprise Value
Implied
Equity Value
Implied
Share Price
Net Production (MBoe/d)
24.8
$45,000-
$1,116.5-
$713.9-
$18.55-
 
 
$55,000
$1,364.6
$962.0
$25.00
2021E EBITDA
$282.0