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STARBOARD RESOURCES LLC DESCRIPTIVE MEMORANDUM NOVEMBER 2011 STRICTLY PRIVATE AND CONFIDENTIAL
STARBOARD RESOURCES LLC
DESCRIPTIVE MEMORANDUM
NOVEMBER 2011
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D E S C R I P T I V E M E M O R A N D U M
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IMPORTANT NOTICES
This Descriptive Memorandum (hereinafter, this “Memorandum”) was prepared exclusively for the internal use of ASYM Energy Investments LLC (“ASYM”) and Sachs Capital Group and is for discussion purposes only. The information contained in this Memorandum is strictly confidential. By acceptance of this Memorandum, the recipient agrees not to reproduce or distribute this Memorandum or its contents to others without the prior written consent of ASYM. ASYM makes no representation or warranty as to the accuracy or completeness of the information contained in this Memorandum. ASYM disclaims all liability for the information contained in this Memorandum. By accepting this Memorandum, you agree to the foregoing. If you do not agree to any of the foregoing, please advise ASYM of such and return this Memorandum as soon as possible.
INQUIRIES RELATED TO ANY INFORMATION CONTAINED IN THIS MEMORANDUM SHOULD BE DIRECTED TO:
ASYM ENERGY INVESTMENTS LLC 1055 Washington Blvd, Suite 410
Stamford, CT 06901
Greg Imbruce Greg White
203-595-5600 x11 203-541-0300
[The Remainder of this Page Intentionally Left Blank]
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INTRODUCTION: STARBOARD RESOURCES LLC Starboard Resources LLC (the “Company”) is a private, independent oil and natural gas company engaged in the operation, acquisition, development and production of both conventional and unconventional onshore oil and natural gas properties. The Company is headquartered in San Antonio, Texas and is organized as a Delaware limited liability company. The Company’s business strategy is to increase its asset and production base through a combination of acquisitions and low-risk development drilling efforts. The Company seeks to operate the wells in which it owns an interest, targeting oil reserves located in producing regions across Texas and Oklahoma that offer lower-risk development opportunities with multiple formations that are primarily developed utilizing horizontal drilling and frac completion technology. The Company employs a team of ten highly experienced E&P professionals and is currently developing core acreage positions located in three of the most prolific oil and natural gas resource plays in the United States. Proforma for the Tack-On Acquisition, during the six month ended June 30, 2011, the Company’s net daily production averaged over 1,200 BOE, resulting in $13.5 million in annualized EBITDA based on $20.0 million in annualized Revenues (68% EBITDA margin). The Company’s Proved Reserves and 3P Reserves total 6.5 and 8.7 MMBOE, respectively, representing a $168 and $202 million SEC PV10 at October 1, 2011 across approximately 25,000 net acres in Texas and Oklahoma, which are primarily held by production. The Company’s sponsor is ASYM Energy Investments LLC (“ASYM”). PROPOSED BUSINESS COMBINATION & TACK-ON ACQUISITION
In connection with its next phase of expansion, the Company recently approached the sponsor of a newly-formed blank check company1 (hereinafter, the “SPAC”) regarding a possible merger transaction (“Business Combination”) that would result in a publicly-listed “exploration and production” company. For avoidance of doubt, the SPAC recently consummated an initial public offering of shares of its common stock (“Common Shares”) through which it received net proceeds of $80 million which it intends to use for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, exchangeable share transaction or other similar business transaction, one or more operating businesses or assets. As of the date of this Memorandum, the Company and the SPAC are in the process of negotiating preliminary terms of the proposed Business Combination pursuant to which the two companies would be combined. As part of the proposed Business Combination, the Company intends to complete a separate transaction involving the acquisition of certain producing oil and gas properties (the “Target Properties”) and certain equity interests (together with the Target Properties, the “Target Assets”) principally located throughout various parts of South Texas (the “Tack-On Acquisition”). The proposed Business Combination and Tack-On Acquisition (collectively, the “Roll-Up Transaction”) will enable the Company to achieve greater scale (through lower unit costs), higher EBITDA and a significant oil-focused resource base consisting of over 110
1 Also known as a Special Purpose Acquisition Company.
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drilling locations. We expect the Roll-Up Transaction will close prior to March 31, 2012 and is ultimately expected to result in significant value creation as the Company will have the ability to fund the development of its extensive proved undeveloped and probable reserve base without the need for additional equity issuance absent any acquisitions. The Target Assets are currently held by a Bermuda-based life and annuity insurance company that is facing liquidity constraints (the “Seller”). The Tack-On Acquisition is anticipated to be structured as an asset contribution involving long-lived, mature upstream properties located principally in Texas, generally characterized by marginal decline rates and low maintenance capital requirements. The financial parameters of the Tack-On Acquisition have been negotiated and are being formalized through an exclusive and binding term sheet. The following table summarizes the proforma consolidation of the Tack-On Acquisition.
STARBOARD RESOURCES LLCPro-Forma Impact Summary % of Total PV-10 % of Total % Oil and
Estimated Reserves MBOE Reserves $MM PV-10 NGLs
Proved developed producing 1,341 21% 40.1$ 24% 51%Proved developed non-producing 906 14% 29.8$ 18% 66%
Proved developed 2,247 35% 69.8$ 42% 57%Proved undeveloped 4,239 65% 97.9$ 58% 74%
TOTAL 6,486 100% 167.8$ 100% 66% *Note: Excludes probable and possible reserves that will be included in the acquisition.
FINANCIAL TERMS OF THE TACK-ON ACQUISITION
In exchange for contributing the Target Assets, the Seller will receive purchase consideration comprised of $25 million in cash and a certain number of common shares to be issued by the Company, the sum of which shall represent “Aggregate Value” of approximately $70 million.2 The Seller successfully completed initial due diligence in regards to the Company and Roll-Up Transaction due to the large portion of purchase price consideration being in the form of common shares.
Terms: Description:
Purchase Price $70 million
Consideration $25 million cash
$45 million in common shares
Form of transaction Asset contribution
Lock-up All common shares will be subject to 12 month lock-up
Estimated close date March 31, 2012
TACK-ON ACQUISITION - KEY TRANSACTION TERMS
2 For avoidance of doubt, the “Aggregate Value” of the Proposed Transaction shall be the aggregate of the value of the consideration offered for the Target Assets, including the amount of cash offered plus the value of any debt obligations directly or indirectly assumed, repurchased or retired, and the value attributed to any securities offered as purchase consideration as well as the aggregate amount of any dividends or other distributions (in cash or otherwise) which are declared after the date the Proposed Transaction is announced or otherwise in connection with the Proposed Transaction (other than dividends and distributions that are declared or paid in the normal course of business).
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EQUITY BACKSTOP
In an effort to enhance the certainty of successfully closing the Roll-Up Transaction, ASYM and the SPAC (collectively, the “Sponsors”) are offering a limited number of select private investors the opportunity to backstop the proposed Business Combination by agreeing to fund the purchase of up to six million Common Shares (the “Backstop Investment Shares”) redeemed by the SPAC stockholders prior to the closing of the proposed Business Combination and in compliance with the issuer tender offer rules permitted under Rule 13e-4 and Regulation 14E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) at the offered price of $10.00 per share (the “Backstop Commitment”). The following table lists the largest shareholders of the SPAC (based on ASYM research).
Public Ownership Summary %Shareholder Shares Owned Total
SCG Financial Holdings LLCGregory Sachs Founder /Sponsor of SCG 2,190,477 23.0%
Archer Capital Management, L.P.Joshua A. Lobel Canton Holdings, L.L.C. 799,000 8.4%
Fir Tree, Inc.Jeffrey Tannenbaum Fir Tree Value Master Fund, L.P. 640,000 6.7%
Polar Securities Inc.Paul Sabourin North Pole Capital Master Fund 611,000 6.4%
Bulldog InvestorsPhillip Goldstein Brooklyn Capital Management 500,000 5.2%
*Reports total outstanding shares of 9,523,810.
Any Backstop Investment Shares sold under the Backstop Commitment will be made in reliance on Regulation D and Rule 144A under the Securities Act of 1933 (the “Securities Act”) and will be considered “restricted” securities for approximately 12 months following the consummation of the proposed Business Combination. Under the proposed terms of the Backstop Commitment, as contemplated herein, the designated Backstop Commitment purchaser (“Backstop Investor”) would agree to purchase up to $60 million in Backstop Investment Shares in the event that one or more public stockholders elect to redeem their Common Shares prior to the expiration of the tender offer period anticipated to occur prior to the closing of the proposed Business Combination. As compensation for the Backstop Commitment, the Sponsors will pay the Backstop Investor a $1.5 million minimum backstop fee. In addition, if the purchase price for Backstop Investment Shares is less than $45 million, the Sponsors will pay the Backstop Investor an additional three percent (3%) fee based on the difference between $45 million and the price paid for the Backstop Investment Shares.
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BACKSTOP FEE SCHEDULE
ACTUALBackstop Backstop Backstop Additional Total Fees as % of
Commitment Fee Investment Fee Fees Commitment
$60,000,000 $1,500,000 $60,000,000 - $1,500,000 2.5%
$60,000,000 $1,500,000 $50,000,000 - $1,500,000 2.5%
$60,000,000 $1,500,000 $40,000,000 $150,000 $1,650,000 2.8%
$60,000,000 $1,500,000 $30,000,000 $450,000 $1,950,000 3.3%
$60,000,000 $1,500,000 $20,000,000 $750,000 $2,250,000 3.8%
$60,000,000 $1,500,000 $10,000,000 $1,050,000 $2,550,000 4.3%
A + B = C
BACKSTOP OFFERING PROCESS
The backstop offering process will entail two phases. Phase I will be confined to a review of information contained in a summary-level business overview (the “Teaser Presentation”) with clarification, as appropriate, supplied only by and through ASYM. If interested parties, after reviewing the Teaser Presentation, wish to proceed with an in-depth evaluation of the Roll-Up Transaction with the objective of making a definitive proposal to backstop the proposed Business Combination, such interested parties will be required to submit a written preliminary proposal (a “Proposal”) in the form described below. ASYM’s principal objective in considering Proposals is the achievement of the highest and most certain value for the Business Combination. ASYM will consider Proposals that are consistent with the criteria described below as well as alternative structures that differ from those formally contemplated in this Memorandum. Proposals should include the following, at a minimum:
1) The amount, in US dollars, that interested parties would be prepared to pay for:
• 100% of the Backstop Investment Shares3 (total cash consideration).
2) Overview of anticipated financing sources and level of confidence in such sources.
3) A description of any material conditions and terms upon which the Proposal is based, including any such terms that are intended to satisfy ASYM’s principal objectives, as outlined above.
4) A description of the acquiring entity, including all its participants and affiliates.
5) A list of corporate, financing, shareholder or regulatory approvals (or contingencies) or any other conditions which may need to be fulfilled in order to consummate a
3 Represents Common Shares redeemed by the SPAC stockholders prior to the closing of the proposed Business Combination.
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transaction or any circumstances that may affect the timing and/or certainty of the consummation of a transaction.
6) The level of review the Proposal has already received by senior officers or directors and the level of further review that would be necessary prior to the submission of a definitive proposal.
7) The name of any external financial, legal or other advisors presently or to be engaged in connection with the transaction contemplated by the Proposal.
8) The due diligence required to complete the transaction contemplated by the Proposal.
Proposals should be submitted no later than 5:00 pm (New York City time) on ______. Proposals may be emailed to the email address set forth below with an original and copy and all supporting documentation to follow immediately by overnight courier service. Proposals should be submitted to:
ASYM Energy Investments LLC Attention: Greg Imbruce
1055 Washington Blvd, Suite 410 Stamford, CT 06901
[email protected] Phone: (203) 595-5600 ext. 11
Fax: (203) 742-1660
ASYM, on behalf of the Company and the Sponsor, will notify all parties who have submitted Proposals as to whether they will be invited to participate in Phase II of the offering process. The due diligence review that will be afforded to Phase II participants will include access to officers of ASYM, the Sponsor and the management team of the Company, as well as additional business, financial and legal information via access to a secure data room. The location, timing and procedures for management presentations and data room access will be provided to select Phase II participants at the appropriate time. Each participant invited to Phase II will be expected to execute a revised Confidentiality Agreement that will allow them access to non-public information regarding the Opportunity, as appropriate. ASYM expressly reserves the right, without giving reasons at any time or in any respect, to amend or terminate the offering procedures or process, to terminate discussions with any or all interested parties, to deny access to information or personnel, to reject any or all proposals or to negotiate with any party at any time with respect to a transaction. Any questions regarding the procedures detailed in this Memorandum should be directed to Greg Imbruce at (203) 595-5600 ext. 11 or Greg White at (203) 541-0300. Under no circumstance should management, employees or affiliates of the Company be contacted directly.
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POTENTIAL BACKSTOP INVESTORS
Abrams C apital, L LC Hall Phoenix Energy, L LC Shannon R iver C apital Management
Adage C apital Management Harbinger C apital Partners Sound Point C apital Management L .P
Balyasny Asset Management Long Oar G lobal Investors, L LC Standard General L P
Bennett Management Long Road Asset Management Touradji C apital Management Blackrock Inc. Monarch Partners Asset Management Trilantic C apital Management L LC
C ontext C apital Management, L LC Moore C apital Management Värde Partners
Farallon C apital Management MSD C apital L P Vollero Beach C apital Partners
Frontier C apital Management Passport C apital, L LC Wellington Management C ompany
G raham C apital Management Pine R iver C apital Management L .P Woodbine C apital AdvisorsGSO C apital Partners Platinum Partners Young C apital Management, L LC
