Yuma Energy, Inc. (NYSE MKT: YUMA) (NYSE MKT: YUMA-PA) and privately held Davis Petroleum Acquisition Corp. jointly announced today that they have entered into a definitive merger agreement for an all-stock transaction. Upon completion of the transaction, which is subject to the approval of stockholders of both companies, Davis will become a wholly owned subsidiary of Yuma.
'We believe the combination of these two companies is a compelling value transaction for each company's owners and look forward to working with Davis and its Board of Directors to complete the merger,' said Sam L. Banks, Chairman and Chief Executive Officer of Yuma. 'This transaction truly represents a scenario where the whole is greater than the sum of its parts, and is anticipated to increase our proved reserves by approximately 4.8 million barrels of oil equivalent at year end 2015, and to substantially increase our net daily production by approximately 1,500 barrels of oil equivalent per day based on Davis' fourth quarter 2015 production rates. Once the transaction is complete, Yuma expects significant G&A synergies associated with the merger and will be well positioned to take advantage of the collective portfolios of the combined companies, as well as to capitalize on the current environment, which we believe will provide opportunities to grow primarily through further consolidations and acquisitions.'
'We are excited about the combination and the resulting synergies that this merger will bring, creating value for both companies. The Davis properties complement Yuma's existing portfolio from a geographic and strategic standpoint, while also strengthening its position in resource plays. We believe that Davis brings near term liquidity and long term optionality for the Pro Forma Company,' said Michael Reddin, Chairman, President and Chief Executive Officer of Davis. 'Our major stockholders are all committed to the deal, and look forward to becoming part of a larger, more diverse, publicly-traded enterprise.'Key attributes of Davis include:
- No bank debt and approximately $4.1 million of cash as of December 31, 2015;
- 1,533 average barrels of oil equivalent per day (BOE/d) of production for the fourth quarter of 2015;
- 4.8 million barrels of oil equivalent (BOE) of proved reserves (64% proved developed) as estimated by Netherland, Sewell & Associates, Inc. effective December 31, 2015.
Material Terms and Conditions
Under the terms of the definitive agreement, Yuma will reincorporate in Delaware, implement a one for ten reverse split of its common stock, and convert each share of its existing Series A preferred stock into 35 shares of common stock prior to giving effect for the reverse split (3.5 shares post reverse split). Following these actions, Yuma will issue additional shares of common stock in an amount sufficient to result in approximately 61.1% of the common stock being owned by the current common stockholders of Davis. In addition, Yuma will issue approximately 3.3 million shares of a new Series D preferred stock to existing Davis preferred stockholders, which is estimated to have a conversion price of approximately $5.70 per share, after giving effect for the reverse split. The Series D preferred stock is estimated to have a liquidation preference of approximately $18.7 million at closing, and will be paid dividends in the form of additional Series D preferred stock at a rate of 7% per annum.
The Boards of Directors of both companies have approved the merger agreement and believe that it is in the best interest of both companies' stockholders. The transaction is subject to stockholder approval of both companies, including the holders of preferred stock, as well as other customary approvals, including authorization to list the newly issued shares of common stock on the NYSE MKT. The transaction is expected to qualify as a tax-deferred reorganization under Section 368(a) of the Internal Revenue Code. The companies anticipate completing the transaction around mid-year 2016.
Upon closing, four of the five current Yuma Board members will continue to serve on the combined company Board. Richard K. Stoneburner will serve as Non-Executive Chairman, and Sam L. Banks will continue to serve as Director, President and Chief Executive Officer. James W. Christmas and Frank A. Lodzinski will also continue to serve. Three additional Directors will be nominated by Davis, bringing the size of the new Board to seven, and the Board will meet the director independence requirements of the NYSE MKT. All current officers of Yuma will serve in their same capacity in the combined company.
Among other conditions to closing, the transaction is conditioned upon the negotiation of a reserve-based credit facility with existing Yuma lenders and/or others, with a borrowing base of at least $44.0 million and other terms and conditions acceptable to both parties.
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