Common use of Preliminary Purchase Price Allocation Clause in Contracts

Preliminary Purchase Price Allocation. The preliminary allocation of the total purchase price in the Transaction is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of December 31, 2021 using currently available information. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. The preliminary purchase price allocation is subject to change due to several factors, including but not limited to changes in the estimated fair value of assets acquired and liabilities assumed as of the closing date of the Transaction, which could result from changes in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors. For the ▇▇▇▇▇▇▇▇ Acquisition, the consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone were initially recorded as follows (in thousands, except share amounts and stock price): Shares of Earthstone Class A Common Stock issued 19,417,476 Earthstone Class A Common Stock price as of February 15, 2022 $ 12.85 Class A Common Stock consideration 249,515 Cash consideration 384,664 Total consideration transferred $ 634,179 Oil and gas properties $ 642,757 Amount attributable to assets acquired $ 642,757 Accrued liabilities 1,854 Noncurrent liabilities - ARO 6,724 Amount attributable to liabilities assumed $ 8,578 Total consideration was based on the terms of the Purchase Agreement. The consideration paid by Earthstone at closing consisted of 19,417,476 shares of Class A Common Stock and $384.7 million in cash due at closing. For the Bighorn Acquisition, the consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone are expected to be recorded as follows (in thousands, except share amounts and stock price): Shares of Earthstone Class A Common Stock issued 6,808,511 Earthstone Class A Common Stock price as of March 31, 2022 $ 12.63 Class A Common Stock consideration 85,991 Cash consideration 770,000 Total consideration transferred $ 855,991 Oil and gas properties $ 883,421 Amount attributable to assets acquired $ 883,421 Noncurrent liabilities - ARO 27,430 Amount attributable to liabilities assumed $ 27,430 Total consideration is based on the terms of the Purchase Agreement. The consideration expected to be paid by Earthstone at closing consists of 6,808,511 shares of Class A Common Stock with $770 million in cash due at closing. The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation. Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change.

Preliminary Purchase Price Allocation. The preliminary allocation of following table summarizes the total purchase price in the Transaction is based upon management’s estimates of and assumptions related allocation to the estimated fair value of assets and liabilities assumed in the merger (in thousands, except per share data): Total merger shares issued at Oct. 31, 2019 closing price (i) 26,228 Per share purchase price—represents Oct. 31, 2019 closing price $ 69.02 Total shares issued @ five-day average price (employee stock) 69 Per share purchase price—Stock @ five-day average price (employee stock) (ii) $ 72.90 Total purchase price—Stock $ 1,815,327 Total purchase price—Cash (i) $ 312,958 Total purchase price $ 2,128,285 (i) Under the terms of the merger agreement, holders of Legacy common stock, options and performance share awards received 0.5280 shares of Prosperity common stock and $6.28 cash for each share of Legacy common stock (or its equivalent), subject to certain conditions. (ii) Under the terms of the merger agreement, based upon the average Prosperity closing price for the five trading days immediately prior to October 31, 2019, which was $72.90. The merger consideration as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed of LegacyTexas based on their preliminary estimated fair values. As mentioned above in Note 1, Prosperity has not completed the valuation analysis and calculations in sufficient detail necessary to arrive at the required estimates of the fair market value of the LegacyTexas assets to be acquired or liabilities assumed, other than a preliminary estimate for intangible assets and held-to-maturity securities. Accordingly, apart from the aforementioned, certain assets acquired and liabilities to assumed are presented at their respective carrying amounts and should be assumed treated as of December 31preliminary values. The fair value assessments are preliminary and are based upon available information and certain assumptions, 2021 using currently available informationwhich Prosperity believes are reasonable under the circumstances. Because Actual results may differ materially from the assumptions within the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included hereinstatements. The following table sets forth a preliminary purchase price allocation is subject of the merger consideration to change due to several factors, including but not limited to changes in the estimated fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of LegacyTexas using LegacyTexas’ unaudited consolidated balance sheet as of the closing date of the TransactionJune 30, which could result from changes in future oil 2019: Total merger consideration $ 2,128,285 Assets Acquired: Total cash and natural gas commodity pricescash equivalents $ 263,843 Available for sale securities, reserve estimates, interest rates, as well as other factors. For the ▇▇▇▇▇▇▇▇ Acquisition, the consideration transferred, at fair value of assets acquired and liabilities assumed by Earthstone were initially recorded as follows (in thousands459,749 Held to maturity securities, except share amounts and stock price): Shares of Earthstone Class A Common Stock issued 19,417,476 Earthstone Class A Common Stock price as of February 15, 2022 $ 12.85 Class A Common Stock consideration 249,515 Cash consideration 384,664 Total consideration transferred $ 634,179 Oil and gas properties $ 642,757 Amount attributable to assets acquired $ 642,757 Accrued liabilities 1,854 Noncurrent liabilities - ARO 6,724 Amount attributable to liabilities assumed $ 8,578 Total consideration was based on the terms of the Purchase Agreement. The consideration paid by Earthstone at closing consisted of 19,417,476 shares of Class A Common Stock and $384.7 million in cash due at closing. For the Bighorn Acquisition, the consideration transferred, fair value of 128,075 Loans held for sale 46,571 Loans held for investment 8,459,510 Bank premises and equipment, net 106,313 Accrued interest receivable 32,525 Core deposit intangibles 102,600 Other real estate owned 584 Bank Owned Life Insurance (BOLI), net 59,724 Other assets acquired and 117,746 Total Assets Acquired $ 9,777,240 Liabilities Assumed: Deposits $ 7,055,790 Other borrowings 1,384,765 Securities sold under repurchase agreements 52,414 Other liabilities assumed by Earthstone are expected to be recorded as follows (165,063 Subordinated debentures 135,257 Total Liabilities Assumed $ 8,793,289 Net Assets Acquired $ 983,951 Preliminary pro forma goodwill $ 1,144,334 The following pro forma adjustments have been reflected in thousands, except share amounts and stock price): Shares of Earthstone Class A Common Stock issued 6,808,511 Earthstone Class A Common Stock price as of March 31, 2022 $ 12.63 Class A Common Stock consideration 85,991 Cash consideration 770,000 Total consideration transferred $ 855,991 Oil and gas properties $ 883,421 Amount attributable to assets acquired $ 883,421 Noncurrent liabilities - ARO 27,430 Amount attributable to liabilities assumed $ 27,430 Total consideration is based on the terms of the Purchase Agreementunaudited pro forma condensed combined financial information. The consideration expected to be paid by Earthstone at closing consists of 6,808,511 shares of Class A Common Stock with $770 million in cash due at closing. The fair value measurements of assets acquired and liabilities assumed All adjustments are based on inputs that current assumptions and valuations, which are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation. Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change. (a) This adjustment represents the cash consideration for LegacyTexas and estimated direct transaction costs calculated as follows: Total cash consideration ($6.28/share) $ 312,958 Estimated cash paid for direct transaction costs (pre-tax) $ 40,417 Pro forma net adjustment to cash and due from bank $ 353,375 (b) Estimated fair market value adjustment on securities held to maturity. (c) Adjustment to total loans of $175 million to reflect preliminary estimated fair value adjustments to acquired loans of $175 million for credit quality. Also, adjustment to eliminate historical allowance for loan losses of $92.2 million to reflect acquired loans and leases at fair value. (d) Adjustment to reflect the reclassification of LegacyTexas’ right-of-use asset from bank premises to other assets to conform with Prosperity’s financial statement presentation. (e) Adjustment to goodwill based on the preliminary purchase price allocation as follows: Fair value of merger consideration transferred in excess of the preliminary fair value of net assets acquired (from Note 4 above) $ 1,144,334 Removal of LegacyTexas’ historical goodwill (178,559 ) Pro forma net adjustment to goodwill $ 965,775 (f) Adjustment to core deposit intangible (“CDI”) based on the preliminary purchase price allocation as follows: Estimated CDI (2% of non-time deposits) $ 102,600 Removal of LegacyTexas’ historical CDI (193 ) Pro forma net adjustment to CDI $ 102,407 (g) Adjustment to Prosperity and LegacyTexas shareholders’ equity based upon the following: Fair value of equity consideration issued to LegacyTexas stockholders (from Note 4 above) $ 1,815,327 Removal of LegacyTexas’ historical shareholders’ equity (1,142,645 ) Estimated cash paid for direct transaction costs [(pre-tax)] (40,417 ) Pro forma net adjustment to shareholders’ equity $ 632,265 (h) Adjustment to interest income for accretion on LegacyTexas’ previously acquired loans. (i) Adjustment to interest expense for amortization on LegacyTexas’ previously acquired time deposits. (j) Adjustment to reflect the reclassification of safe deposit box income from customer service fees to other noninterest income to conform with Prosperity’s financial statement presentation. (k) Adjustment to reflect the reclassification of LegacyTexas’ gain/loss on sale of ORE from noninterest income to noninterest expense to conform with Prosperity’s financial statement presentation. (l) Adjustment to reflect the reclassification of LegacyTexas’ equipment and depreciation expense (on FF&E and data processing equipment) from other noninterest expense to net occupancy and equipment expense to conform with Prosperity’s financial statement presentation. (m) Estimated core deposit intangible at 2.0% of the acquired non-time deposits based upon 10 year life using straight line amortization method, net of LegacyTexas’ historical CDI. (n) Adjustment to reflect the net federal income tax effect of the pro forma adjustments using Prosperity’s statutory tax rate of 21.0%.

Preliminary Purchase Price Allocation. The preliminary allocation of the total purchase price in the Transaction Novo Acquisition, on a relative fair value basis, is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of December 31, 2021 the closing date of the transaction using currently available information. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. The preliminary purchase price allocation is subject to change due to several factors, including but not limited to changes in the estimated fair value of assets acquired and liabilities assumed as of the closing date of the Transactiontransaction, which could result from changes in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors. For the ▇▇▇▇▇▇▇▇ Acquisition, the The consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone were are expected to be initially recorded as follows (in thousands, except share amounts and stock price): Shares of Earthstone Class A Common Stock issued 19,417,476 Earthstone Class A Common Stock price as of February 15, 2022 $ 12.85 Class A Common Stock consideration 249,515 Cash consideration 384,664 (1) $ 936,873 Direct transaction costs (2) 2,556 Total consideration transferred $ 634,179 939,429 Cash $ 22,144 Accounts receivable - Oil, natural gas, and natural gas liquids revenues 58,101 Accounts receivable - Joint interest ▇▇▇▇▇▇▇▇ and other, net of allowance 12,575 Prepaid expenses and other current assets 1,434 Oil and gas properties $ 642,757 1,011,835 Office and other equipment, net 4,013 Amount attributable to assets acquired $ 642,757 1,110,102 Accounts payable $ 79,413 Revenues and royalties payable 46,525 Accrued liabilities 1,854 Noncurrent liabilities - ARO 6,724 expenses 20,685 Asset retirement obligation, noncurrent 2,856 Deferred revenues, noncurrent 21,194 Amount attributable to liabilities assumed $ 8,578 Total consideration was based on 170,673 (1) Includes preliminary customary purchase price adjustments. (2) Represents $2.6 million of estimated transaction costs associated with the terms of the Purchase AgreementNovo Acquisition which have been capitalized in accordance with ASC 805-50. The consideration paid by Earthstone at closing consisted of 19,417,476 shares of Class A Common Stock and $384.7 million in cash due at closing. For will be allocated to the Bighorn Acquisition, the consideration transferred, fair value of assets acquired and liabilities assumed by Earthstone are expected to be recorded as follows (in thousands, except share amounts and stock price): Shares of Earthstone Class A Common Stock issued 6,808,511 Earthstone Class A Common Stock price as of March 31, 2022 $ 12.63 Class A Common Stock consideration 85,991 Cash consideration 770,000 Total consideration transferred $ 855,991 Oil and gas properties $ 883,421 Amount attributable to assets acquired $ 883,421 Noncurrent liabilities - ARO 27,430 Amount attributable to liabilities assumed $ 27,430 Total consideration is based on the terms of the Purchase Agreement. The consideration expected to be paid by Earthstone at closing consists of 6,808,511 shares of Class A Common Stock with $770 million in cash due at closinga relative fair value basis. The fair value measurements of assets acquired and liabilities assumed assumed, on a relative fair value basis, are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation. Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change. The following adjustments were made in the preparation of the unaudited pro forma condensed combined balance sheet as of June 30, 2023 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2023 and for the year ended December 31, 2022: a) Represents cash consideration received from Northern and used to partially fund the Novo Acquisition. b) Adjustment to reflect the Novo assets acquired and liabilities assumed, on a relative fair value basis. c) Adjustment to reflect deferred financing costs related to Earthstone’s senior revolving credit facility to be recorded in connection with the Novo Acquisition, net of amortization. d) Adjustment to reflect cash-on-hand used to partially fund the Novo Acquisition. e) Adjustment to reflect new borrowings related to the cash consideration used in the Acquisitions. f) Adjustment to reflect the elimination of the Members’ Equity of Novo. g) Adjustments to reflect the depreciation, depletion and amortization expense that would have been recorded had the Acquisitions occurred on January 1, 2022 and the properties were adjusted in accordance with ASC 805. h) Represents nonrecurring transaction costs related to the Acquisitions that were incurred, or are expected to be incurred, by Earthstone in 2023 that are assumed to be incurred on January 1, 2022, including advisory, legal, regulatory, accounting, valuation and other professional fees that are not capitalized as part of the Acquisitions. i) Adjustments to reflect the estimated interest expense that would have been recorded in the periods presented with respect to the incremental borrowings expected to finance the cash consideration for the Acquisitions. j) Adjustments to reflect the amortization of deferred financing costs related to the financing of the Acquisitions. k) Adjustment to reduce the write-off of deferred financing costs based on additional amortization that would have occurred had the Acquisitions taken place on January 1, 2022. l) Adjustments to reflect the estimated incremental Income tax expense that would have been recorded in the period presented if the Acquisitions had occurred on January 1, 2022. The income tax rates used in calculating the tax impact of the adjustments recorded to the pro forma condensed combined statements of operations presented herein included a statutory federal income tax rate of 21%, a statutory Texas Margin tax rate of 0.75%, and a statutory New Mexico income tax rate of 5.9%, which represent the statutory rates in effect in those jurisdictions during the periods presented. The effective federal and New Mexico tax rates are less than the statutory rates as they only apply to taxable income related to the controlling interest of Earthstone. m) Adjustments to reflect the estimated incremental Net income (loss) attributable to noncontrolling interests that would have been recorded in the period presented if the Acquisitions had occurred on January 1, 2022. n) Adjustment to reflect the unacquired portion of Novo based on information provided by Novo. o) Adjustment to reflect Earthstone’s portion of deposit funds utilized to partially fund the Novo Acquisition. The following table sets forth information with respect to the historical and combined estimated oil and natural gas reserves as of December 31, 2022 for Earthstone and Novo. Future exploration, exploitation and development expenditures, as well as future commodity prices and service costs, will affect the quantity of reserve volumes. The reserve estimates shown below were determined using the average first day of the month price for each of the preceding 12 months for oil and natural gas for the year ended December 31, 2022 for Earthstone and Novo. Oil (MBbl) 88,759 12,335 101,094 Natural Gas (MMcf) 574,762 143,669 718,431 Natural Gas Liquids (MBbl) 80,168 20,944 101,112 Total (MBoe)(3) 264,721 57,224 321,945 Oil (MBbl) 49,641 8,197 57,838 Natural Gas (MMcf) 167,404 58,304 225,708 Natural Gas Liquids (MBbl) 25,673 9,694 35,367 Total (MBoe)(3) 103,215 27,608 130,823 Oil (MBbl) 138,400 20,532 158,932 Natural Gas (MMcf) 742,166 201,973 944,139 Natural Gas Liquids (MBbl) 105,841 30,638 136,479 Total (MBoe)(3) 367,936 84,832 452,768 (1) As of December 31, 2022, holders of Earthstone’s Class B Common Stock owned a non-controlling indirect interest of 24.4% of the estimated proved reserves, as adjusted for the impact of the Acquisitions. (2) Represents the retained two-thirds interest acquired in the Novo Acquisition. (3) Assumes a ratio of 6 Mcf of natural gas per Boe. The following table sets forth summary information with respect to historical and combined oil and natural gas production for the year ended December 31, 2022 for Earthstone, ▇▇▇▇▇▇▇▇, Bighorn, ▇▇▇▇▇ and Novo. The Earthstone oil and natural gas production data presented below was derived from Earthstone’s Annual Report on Form 10-K for the year ended December 31, 2022. The ▇▇▇▇▇▇▇▇, Bighorn, ▇▇▇▇▇ and Novo oil and natural gas production data presented below was derived from the supplemental oil and gas reserve information (unaudited) included in notes to their audited financial statements for the year ended December 31, 2022. Oil (MBbl) 11,866 343 902 4,021 2,259 19,391 Natural Gas (MMcf) 54,392 705 10,417 6,247 18,022 89,783 Natural Gas Liquids (MBbl) 7,599 90 1,338 1,007 2,607 12,641 Total (MBoe)(6) 28,531 551 3,976 6,069 7,870 46,997 (1) As of December 31, 2022, holders of Earthstone’s Class B Common Stock owned a non-controlling indirect interest of 24.4% of the estimated proved reserves, as adjusted for the impact of the Acquisitions. (2) Based on the pro rata allocation of 45 days of January-February 2022 production from internal reports. (3) Includes the pro rata allocation of 14 days of April 2022 production from internal reports. (4) Includes the pro rata allocation of 41 days of July-August 2022 production from internal reports. (5) Represents the retained two-thirds interest acquired in the Novo Acquisition. (6) Assumes a ratio of 6 Mcf of natural gas per Boe. The following unaudited combined estimated discounted future net cash flows reflect Earthstone, ▇▇▇▇▇▇▇▇, Bighorn, ▇▇▇▇▇ and Novo as of December 31, 2022. The unaudited combined standardized measure of discounted future net cash flows are as follows (in thousands): Future cash inflows $ 21,506,026 $ 4,013,814 $ 25,519,840 Future production costs (6,362,901 ) (1,258,890 ) (7,621,791 ) Future development costs (1,207,597 ) (195,155 ) (1,402,752 ) Future income tax expense (1,910,370 ) (4,213 ) (1,914,583 ) Future net cash flows 12,025,158 2,555,556 14,580,714 10% annual discount for estimated timing of cash flows (5,300,657 ) (925,442 ) (6,226,099 ) Standardized measure of discounted future net cash flows $ 6,724,501 $ 1,630,114 $ 8,354,615 (1) As of December 31, 2022, holders of Earthstone’s Class B Common Stock owned a non-controlling indirect interest of 24.4% of the estimated proved reserves, as adjusted for the impact of the Acquisitions. (2) Represents the retained two-thirds interest acquired in the Novo Acquisition.