Attached files
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| EX-2.1 - AGREEMENT AND PLAN OF MERGER - Brushy Resources, Inc. | bri_ex21.htm |
| EX-10.2 - VOTING AGREEMENT - Brushy Resources, Inc. | bri_ex102.htm |
| EX-10.1 - VOTING AGREEMENT - Brushy Resources, Inc. | bri_ex101.htm |
UNITED STATES
(Exact name of registrant as specified in its charter)
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000-1554970
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45-5634053
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Not applicable
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240. 13e-4(c))
Item 1.01. Entry Into A Material Definitive Agreement.
Agreement and Plan of Merger
On December 29, 2015, Lilis Energy, Inc. (“Lilis”), Lilis Merger Sub, Inc. (“Merger Sub”) and Brushy Resources, Inc. (“Brushy” or the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, each outstanding share of Brushy common stock will be exchanged for approximately 4.3257 shares of Lilis common stock (the “Merger Consideration”), and Merger Sub will merge with and into Brushy (the “Merger”) with Brushy continuing as the surviving corporation and a direct wholly-owned subsidiary of Lilis.
Refundable Deposit
Upon the execution of the Merger Agreement, Lilis paid a $1 million refundable deposit to Brushy (the “Refundable Deposit”). The Refundable Deposit shall be used for certain purposes specified in the Merger Agreement, including, but not limited to, payments towards accounts payable, transactions costs and other Brushy operating costs. However, the Refundable Deposit shall be fully repaid by Brushy to Lilis in the event the Merger is not consummated for reasons as described in the Merger Agreement.
Treatment of Options and Warrants
In connection with the Merger, each option and warrant to acquire Brushy common stock that is outstanding immediately prior to the effective time Merger will be cancelled and retired, cease to exist and be of no further force and effect. Prior to consummation of the Merger, Lilis will adopt a new equity incentive plan (the “New Equity Incentive Plan”) pursuant to which 25% of the pro forma shares outstanding of Lilis will be reserved for issuance to the management team of Lilis after consummation of the Merger. In addition, upon consummation of the Merger, Lilis will issue a warrant to purchase 2,000,000 shares of Lilis’s common stock, subject to any adjustments for stock splits, at an exercise price of $2.50 (the “SOS Warrant”). The exercise price of the SOS Warrant shall be adjusted such that if, prior to the date that is nine (9) months after the effective date of the Merger, Lilis issues new warrants to purchase common stock of Lilis with an exercise price of less than $2.50 per share, then the exercise price of the SOS Warrant will adjust to such new exercise price.
Representations and Warranties
The Merger Agreement contains customary and, in many cases, reciprocal representations and warranties by Lilis and Brushy that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement, in the disclosure letters delivered by Lilis and Brushy to each other in connection with the Merger Agreement or in any form, document or report filed with or furnished to the Securities and Exchange Commission (“SEC”) prior to the date of the Merger Agreement. Each of Lilis and Brushy has made representations and warranties to the other regarding, among other things, organization, capitalization, absence of certain changes, financial statements and material contracts. The representations and warranties in the Merger Agreement do not survive the effective time.
Voting Agreements
Concurrently with the execution of the Merger Agreement, each of SOSventures, LLC (“SOSventures”), Longview Marquis Fund LP, LMIF Investments LLC and SMF investments, LLC, each a significant stockholder of Brushy (each, a “Significant Stockholder”), entered into a Voting Agreement with Lilis, Merger Sub and Brushy (each, a “Voting Agreement”) pursuant to which each Significant Stockholder agreed, among other things, to (i) vote its shares of Brushy’s common stock for the approval of the Merger Agreement and against any alternative proposal, and (ii) comply with certain restrictions on the disposition of its shares, subject to the terms and conditions contained in the Voting Agreement. Each Significant Stockholder has also granted an irrevocable proxy in favor of Lilis and Brushy to vote its shares or other equity interests as required. The Voting Agreement will terminate upon the earlier of (a) the termination of the Merger Agreement in accordance with its terms, (b) upon the amendment, modification, change or waiver to any provision that reduces the amount or changes the form of Merger Consideration (as defined in the Merger Agreement), (c) the Effective Time, or (d) the date on which Brushy’s board of directors effects a Brushy Adverse Recommendation Change (as defined in the Merger Agreement). In addition, the voting agreement with SOSventures will terminate upon the date of any amendment, modification, change or waiver to any form of certain additional consideration to be received by SOSventures in the Merger Agreement, as described in such voting agreement, for which SOSventures has not given its written consent. The foregoing description of the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the Voting Agreement, copies of which are filed as Exhibits 10.1 and 10.2 hereto and are hereby incorporated into this report by reference.
Certain Covenants
Lilis and Brushy have agreed, among other things, not to solicit alternative transactions and, subject to certain exceptions, not to enter into discussions concerning, or provide confidential information in connection with, any alternative transaction. In addition, Lilis and Brushy have agreed to use their commercially reasonable efforts to cause the Merger to be consummated. Subject to certain exceptions, the Merger Agreement also requires Lilis and Brushy to obtain stockholder approval and for their respective boards of directors to recommend that their respective stockholders approve the Merger and adopt the Merger Agreement. Certain additional covenants of the parties include: (i) Lilis converting its outstanding debentures and preferred stock into common stock of Lilis (the “Debenture and Preferred Conversion”), (ii) Lilis effecting a reverse stock split (the “Stock Split”), (iii) Lilis raising $15 million prior to consummation of the Merger (the “Capital Raise”) and (iv) Lilis making a $1 million payment, on behalf of Brushy, to Independent Bank.
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Conditions to Consummation of the Merger
Consummation of the Merger is subject to the satisfaction or waiver of specified conditions. Lilis’s and Brushy’s obligations to consummate the Merger are subject to:
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Lilis’s stockholders approving the Merger Agreement, the Merger and the transactions contemplated thereby;
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Brushy’s stockholders approving the Merger Agreement, the Merger and the transactions contemplated thereby;
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the S-4 being declared effective;
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the New Equity Incentive Plan shall have been adopted;
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the completion of the Capital Raise, the Debenture and Preferred Conversion and the Stock Split;
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Brushy shall have assigned certain oil and gas properties to Creative Oil & Gas, LLC in exchange for forgiveness of the subordinated debt owed by Brushy to SOSventures;
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Lilis shall have entered into various participation and joint operating agreements with respect to certain oil and gas properties of Brushy;
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Lilis shall have paid $500,000, and issued a subordinated promissory note for $1 million, to SOSventures;
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Lilis shall have issued the SOS Warrant to SOSventures; and
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other customary closing conditions.
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If permitted under applicable law, either Lilis or Brushy may waive certain conditions for their own respective benefit and consummate the Merger even though one or more of these conditions have not been met.
Closing and Effective Time of the Merger
Unless otherwise mutually agreed to by Lilis and Brushy, the closing and effective time of the Merger will take place on a date to be specified by the parties to the Merger Agreement, which may be no later than the second business day following the day on which the last of the conditions to consummate the transactions contemplated by the Merger Agreement have been satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing of the Merger, but subject to the satisfaction or waiver of those conditions).
Termination
The Merger Agreement may be terminated in certain circumstances prior to the closing, including by either party if (i) the other party fails to obtain stockholder approval of the Merger Agreement and the Merger, (ii) the Merger is not consummated prior to April 30, 2016, (iii) the board of directors of the other party withdraws or changes its recommendation in support of the Merger, (iv) the other party receives an unsolicited proposal that its board of directors concludes, after following certain procedures, is a Superior Proposal (as defined in the Merger Agreement) and (iv) certain breaches of the Merger Agreement. If the Merger Agreement is terminated by one party because of a Superior Proposal, such party will pay a termination fee in the amount of $1.2 million.
A copy of the Merger Agreement is filed with this Current Report on Form 8-K as Exhibit 2.1 and is incorporated herein by reference. The foregoing summary of the material terms of the Merger Agreement does not purport to be a complete description thereof and is qualified in its entirety by the full text of the Merger Agreement. The Merger Agreement is included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the parties thereto. In particular, the assertions embodied in representations and warranties by Lilis and Brushy contained in the Merger Agreement are qualified by information in the disclosure letters provided by Lilis and Brushy in connection with the signing of the Merger Agreement. These disclosure letters contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, certain representations and warranties in the Merger Agreement were used for the purpose of allocating risk between Lilis and Brushy, rather than establishing matters as facts. Accordingly, investors and security holders should not rely on the representations and warranties in the Merger Agreement as characterizations of the actual state of facts about Lilis and Brushy.
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Additional Information
Lilis intends to file with the SEC a registration statement on Form S-4, which will include a joint preliminary proxy statement/information statement of Lilis and Brushy and related materials in connection with the proposed business combination. Lilis and Brushy will mail a definitive proxy statement/information statement and related materials to their respective stockholders and members. Stockholders of Lilis and Brushy and other interested persons are advised to read, when available, the preliminary proxy statement/information statement, amendments thereto, and definitive joint proxy statement/information statement in connection with Lilis’s and Brushy’s solicitation of proxies for their respective special meetings of stockholders or members to be held to approve the transaction because the joint proxy statement/information statement will contain important information about Lilis, Brushy, the combined company (assuming the business combination is consummated) and the proposed business combination. The definitive proxy statement/information statement will be mailed to stockholders of Lilis as of a record date to be established for voting on the transaction. Stockholders of Brushy will also be able to obtain copies of the proxy statement/information statement, without charge, once available, at the SEC’s Internet site at www.sec.gov or by directing a request to: Brushy Resources, Inc 300 E. Sonterra Blvd., Suite 1220, San Antonio, Texas 78258, Attention: Debbie Cherry.
Participants in the Solicitation
Lilis, Brushy and their respective directors and officers may be deemed participants in the solicitation of proxies to Lilis’s stockholders with respect to the proposed Merger. A list of the names of Lilis’s directors and officers and a description of their interests in Lilis is contained in Lilis’s annual report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the SEC, and will also be contained in the Registration Statement on Form S-4 (and the definitive joint proxy statement/prospectus for the proposed business combination) for the special meetings when available. A list of the names of the directors and officers of Brushy and a description of their interests in Brushy will be contained in the Registration Statement on Form S-4 (and will be included in the definitive proxy statement for the proposed transaction) and the other relevant documents filed with the SEC.
Forward-Looking Statements
This Current Report on Form 8-K may include “forward looking statements” within the meaning of the “safe harbor” provisions of the United Stated Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate,” “believe,” “expect,” “estimate,” “plan,” “outlook,” “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Such forward looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the businesses of Lilis, Brushy, and the combined company after completion of the proposed business combination, are based on current expectations that are subject to risks and uncertainties.
A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward looking statements. These factors include, but are not limited to: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, (2) the outcome of any legal proceedings that may be instituted against Lilis, Brushy or others following announcement of the Merger Agreement and the transactions contemplated thereby; (3) the inability to complete the transactions contemplated by the Merger Agreement due to the failure to obtain approval of the stockholders of the Lilis or Brushy or to satisfy other conditions to closing in the Merger Agreement, (4) delays in obtaining, adverse conditions contained in, or the inability to obtain, necessary regulatory approvals or complete regulatory reviews, if any, required to complete the transactions contemplated by the Merger Agreement; (5) the risk that the proposed transactions disrupt current plans and operations as a result of the announcement and consummation of the transactions described herein; (6) the ability to recognize the anticipated benefits of the transactions, which may be affected by, among other things, competition, the ability of the company to grow and manage growth profitably, maintain relationships with customers and retain its key employees; (7) costs related to the proposed transactions; (8) changes in applicable laws or regulations; (9) the possibility that Lilis or Brushy may be adversely affected by other economic, business and/or competitive factors; and (10) other risks and uncertainties indicated from time to time in filings with the SEC by Lilis and Brushy, including the Registration Statement on Form S-4 (including the joint proxy statement/prospectus) and the risks described under the caption “Risk Factors” therein.
Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made, and Lilis and Brushy undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Disclaimer
This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Furthermore, this communication is not a solicitation of proxies from the holders of Brushy’s common stock.
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Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
We reported in our Form 10-Q for the three month period ending September 30, 2015, filed November 13, 2015, that counsel for Independent Bank had notified us of the following defaults under our Credit Agreement with Independent Bank, as amended: (i) the interest coverage ratio covenant set forth in Section 7.15.1 of the Credit Agreement for the fiscal quarter ended June 30, 2015, (ii) the current ratio covenant set forth in Section 7.15.2 of the Credit Agreement for the fiscal quarter ended June 30, 2015, (iii) the leverage ratio covenant set forth in Section 7.15.3 of the Credit Agreement for the fiscal quarter ended June 30, 2015, and (iv) the Borrower is not currently maintaining the minimum Commodity Hedging Transactions required by Section 7.21 of the Credit Agreement. We reported in our Form 8-K dated November 27, 2015 that we had entered a “Forbearance Agreement” with Independent Bank described therein. One of the conditions in the Forbearance Agreement to extend forbearance to January 31, 2016 was for Independent Bank to receive $1,000,000 by December 29, 2015 for the Company’s benefit to pay down the Credit Agreement obligation. That payment has been made. Further detail on the terms of the Forbearance Agreement can be found in our Form 8-K dated November 27, 2015. Moreover, the Forbearance Agreement is attached as Exhibit 10.5.17 to our Form 8-K dated November 27, 2015.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
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Exhibit No.
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Description
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2.1*
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Agreement and Plan of Merger, dated as of December 29, 2015 between Lilis Energy, Inc., Lilis Merger Sub, Inc. and Brushy Resources, Inc.
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Voting Agreement, dated as of December 29, 2015 between Lilis Energy, Inc., Lilis Merger Sub, Inc., Brushy Resources, Inc. and SOSventures, LLC.
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Voting Agreement, dated as of December 29, 2015 between Lilis Energy, Inc., Lilis Merger Sub, Inc., Brushy Resources, Inc. and Longview Marquis Fund, L.P., LMIF Investments, LLC, and SMF Investments LLC.
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* Pursuant to Item 6.01(b)(2) of Regulation S-K, the Company has omitted certain schedules to the exhibit. The Company agrees to supplementally furnish a copy of any omitted schedule to the Securities and Exchange Commission upon request.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Brushy Resources, Inc. | |||
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Date: December 31, 2015
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By:
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/s/ Michael Pawelek | |
| Michael Pawelek | |||
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Chief Executive Officer
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