PEDEVCO CORP. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated December 30, 2015, covers events occurring on December 29, 2015. PEDEVCO Corp. (the "Company") announced the mutual termination of its pending merger with Dome Energy AB due to a downturn in oil prices and challenging market conditions. Immediately following this termination, the Company entered into a new Agreement and Plan of Merger and Reorganization with GOM Holdings, LLC ("GOM").
Key Financial Metrics and Transaction Terms
This filing details a proposed merger rather than historical financial performance. Key financial terms of the GOM transaction include:
- Target Profile: GOM produces approximately 2,700 barrels of oil equivalent per day (BOEPD) with approximately $500 million in PV-10 value of proved reserves.
- Consideration: The Company will issue 1,551,552 shares of restricted common stock and 698,448 shares of Series B Convertible Preferred Stock to GOM members.
- Debt Assumption: The Company will assume approximately $125 million of subordinated debt and a $30 million undrawn letter of credit backing asset retirement obligations.
- Preferred Stock Terms: Series B Preferred has a $250 per share liquidation preference and accrues a 10% annual dividend. Upon shareholder and exchange approval, dividends are forfeited, the liquidation preference reduces to $0.001, and shares convert to common stock on a 1,000:1 basis.
- Escrow Recovery: The Company is entitled to receive $250,000 previously deposited in escrow by Dome Energy.
Material Changes and Strategic Shifts
The Company has pivoted its acquisition strategy from Dome Energy to GOM Holdings. The termination of the Dome merger resulted in no further obligations or termination liabilities to Dome Energy. The new GOM merger is subject to customary closing conditions, including regulatory approvals, debt restructuring, and NYSE MKT listing approval. The targeted closing period is between January 19, 2016, and February 29, 2016.
Outlook, Risks, and Management Commentary
Management views the GOM merger as fair and in the best interests of the Company. The transaction is structured to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code. Key risks and contingencies include:
- Closing Conditions: The deal requires restructuring of existing debt for both parties and approval from the NYSE MKT for the issuance of new shares.
- Shareholder Approval: While not required for the closing of the merger, the Company intends to seek shareholder approval within 30 days of closing for the issuance of shares upon conversion of Series B Preferred and an increase in the Equity Incentive Plan.
- Related Party Transactions: GOM is majority-owned by Platinum Partners, an affiliate of Platinum Management (NY) LLC, which employs a member of the Company's Board of Directors. Platinum Management also advises entities that have provided prior funding to the Company.
- Executive Vesting: Vesting of 511,250 restricted common stock shares held by three executives is delayed until the later of shareholder approval or NYSE MKT approval, or June 1, 2016, if the merger is not consummated.
Investor Verification Checklist
- Verify the status of the debt restructuring for both PEDEVCO and GOM, as this is a condition to closing.
- Confirm the timeline for the filing of the proxy statement to seek shareholder approval for the Series B conversion and equity plan increase.
- Review the full text of the GOM Merger Agreement (Exhibit 2.1) for specific representations, warranties, and termination rights.
- Assess the impact of the 10% dividend on Series B Preferred stock on the Company's cash flow prior to conversion.
- Monitor the $250,000 escrow recovery from Dome Energy to ensure receipt.