UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,
2022
☐TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
HNR ACQUISITION CORP
(Exact name of registrant as specified in its
charter)
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (619)500-7747
Not Applicable
(Former name or former address, if changed
since last report)
Securities registered pursuant to Section 12(b)
of the Act:
Title of Each Class: Trading Symbol: Name of Each Exchange on Which Registered:
Common Stock, par value $0.0001 per share HNRA NYSE American LLC
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No
☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See definition of “large accelerated filer,” “accelerated filer, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that require a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒ No ☐
The Registrant’s Units began trading on
the NYSE American on February 11, 2022 (separate trading of the Registrant’s common stock and warrants underlying such Units commenced
trading separately on the NYSE American on April 4, 2022, and the Units ceased trading on April 4, 2022). As of June 30, 2021, the last
business day of the Registrant’ most recently completed second fiscal quarter, the Registrant’s common stock was not publicly
traded. Accordingly, there was no market value for the Registrant’s common stock on such date.
As of March 27, 2023, 11,631,250 shares of common stock, par value
$0.0001 per share, were issued and outstanding.
TABLE OF CONTENTS
PAGE
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS iii
PART I 1
Item 1 Business 1
Item 1.A. Risk Factors 23
Item 1.B. Unresolved Staff Comments 50
Item 2. Properties 50
Item 3. Legal Proceedings 50
Item 4. Mine Safety Disclosures 50
Item 6. [Reserved] 52
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 56
Item 8. Financial Statements and Supplementary Data 56
Item 9A. Controls and Procedures 56
Item 9B. Other Information. 57
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. 57
PART III 58
Item 10. Directors, Executive Officers and Corporate Governance 58
Item 11. Executive Compensation 65
Item 14. Principal Accountant Fees and Services 69
Item 15. Exhibits and Financial Statement Schedules 70
i
CERTAIN TERMS
Unless otherwise stated in this Annual Form 10-K (this “Report”),
or the context otherwise requires, references to:
● “common stock” is to our common stock;
● “management” or our “management team” are to our officers and directors;
● “Sponsor” refers to HNRAC Sponsors, LLC, a Delaware limited liability company;
● “HNR,” “we,” “us,” “company” or “our company” are to HNR Acquisition Corp.
ii
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Some statements contained in this Report may
constitute “forward-looking statements” for purposes of United States federal securities laws. Our forward-looking statements
include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or
strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,”
“should,” “would” and similar expressions may identify forward-looking statements, but the absence of these
words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example,
statements about:
● our ability to select an appropriate target business or businesses;
● our ability to complete our initial business combination;
● our pool of prospective target businesses;
● our public securities’ potential liquidity and trading;
● the lack of a market for our securities;
● the trust account not being subject to claims of third parties; or
● our financial performance following our Initial Public Offering.
The forward-looking statements contained
in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There
can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements
involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or
performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties
include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these
risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from
those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These
risks and others described under “Risk Factors” may not be exhaustive.
By their nature, forward-looking statements involve
risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution
you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition
and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking
statements contained in this Amendment. In addition, even if our results or operations, financial condition and liquidity, and developments
in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments
may not be indicative of results or developments in subsequent periods.
iii
PART I
ITEM 1. BUSINESS
Overview of Initial Public Offering
We are a blank check company incorporated on
December 9, 2020 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more businesses.
The registration statement for the Company’s Initial Public Offering
was declared effective on February 10, 2022 (the “Effective Date”). On February 15, 2022, we consummated the Initial
Public Offering of 7,500,000 units (the “Units” and, with respect to the common stock included in the Units sold,
the “Public Shares”), at $10.00 per Unit, generating proceeds of $75,000,000. Additionally, the underwriter fully exercised
its option to purchase 1,125,000 additional Units, for which we received cash proceeds of $11,250,000. Simultaneously with the
closing of the Initial Public Offering, we consummated the sale of 505,000 units (the “Private Placement Units”)
at a price of $10.00 per unit generating proceeds of $5,050,000 in a private placement to HNRAC Sponsors, LLC, our sponsor (the
“Sponsor”) and EF Hutton (formerly Kingswood Capital Markets) (“EF Hutton”). Our management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the Private Placement Units, although
substantially all of the net proceeds are intended to be generally applied toward consummating the Purchase. On April 4, 2022, the
Units separated into common stock and warrants, and ceased trading. On April 4, 2022, the common stock and warrants commenced
trading on the NYSE American.
Transaction costs amounted to $4,793,698 comprised
of $1,725,000 of underwriting discount, $2,587,500 of deferred underwriting fee, and $481,198 of other offering costs. In addition,
$1,368,050 of cash from the Initial Public Offering was held outside of the trust account and is available for working capital purposes.
White Lion Common Stock Purchase Agreement
and Registration Rights Agreement
On October 17, 2022, the Company entered into
a common stock purchase agreement (the “Common Stock Purchase Agreement”) and a related registration rights agreement (the
“White Lion RRA”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”). Pursuant to
the Common Stock Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to
time, up to $150,000,000 in aggregate gross purchase price of newly issued shares of the Company’s common stock, par value $0.0001
per share, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement. Capitalized terms used but
not otherwise defined herein shall have the meaning given to such terms by the Common Stock Purchase Agreement.
Subject to the satisfaction
of certain customary conditions including, without limitation, the effectiveness of a registration statement registering the shares issuable
pursuant to the Common Stock Purchase Agreement, the Company’s right to sell shares to White Lion will commence on the effective
date of the registration statement and extend until December 31, 2025. During such term, subject to the terms and conditions of the Common
Stock Purchase Agreement, the Company may notify White Lion when the Company exercises its right to sell shares (the effective date of
such notice, a “Notice Date”). The number of shares sold pursuant to any such notice may not exceed (i) the lower of
(a) $2,000,000 and (b) the dollar amount equal to the product of (1) the Effective Daily Trading Volume (2) the closing price of Common
Stock on the Effective Date (3) 400% and (4) 30%, divided by the closing price of common stock on NYSE American preceding the Notice Date
and (ii) a number of shares of common stock equal to the Average Daily Trading Volume multiplied by the Percentage Limit.
1
The purchase price to
be paid by White Lion for any such shares will equal 96% of the lowest daily volume-weighted average price of common stock during a period
of two consecutive trading days following the applicable Notice Date.
The Company will have
the right to terminate the Common Stock Purchase Agreement at any time after Commencement, at no cost or penalty, upon three trading days’
prior written notice. Additionally, White Lion will have the right to terminate the Common Stock Purchase Agreement upon three days’
prior written notice to the Company if (i) there is a Fundamental Transaction, (ii) the Company is in breach or default in any material
respect of the White Lion RRA, (iii) there is a lapse of the effectiveness, or unavailability of, the Registration Statement for a period
of 45 consecutive trading days or for more than an aggregate of 90 trading days in any 365-day period, (iv) the suspension of trading
of the common stock for a period of five consecutive trading days, (v) the material breach of the Common Stock Purchase Agreement by the
Company, which breach is not cured within the applicable cure period or (vi) a Material Adverse Effect has occurred and is continuing.
No termination of the Common Stock Purchase Agreement will affect the registration rights provisions contained in the White Lion RRA.
In consideration for
the commitments of White Lion, as described above, the Company has agreed that it will issue to White Lion shares of Common Stock having
a value of $1,500,000 based on the volume-weighted average price of the common stock on a date which is the earlier to occur of (i) two
Trading Days prior to the filing of the registration statement it will file pursuant to the White Lion RRA and (ii) after the closing
of any business combination agreement, the Trading Day prior to the Investor sending a written request to the Company for such commitment
shares, and to include such shares in the registration statement it will file pursuant to the White Lion RRA.
Registration Rights
Agreement (White Lion)
Concurrently with the
execution of the Common Stock Purchase Agreement, the Company entered into the White Lion RRA with the White Lion in which the Company
has agreed to register the shares of common stock purchased by White Lion with the SEC for resale within 30 days of the consummation of
a business combination. The White Lion RRA also contains usual and customary damages provisions for failure to file and failure to have
the registration statement declared effective by the SEC within the time periods specified.
The Common Stock Purchase Agreement and the White
Lion RRA contain customary representations, warranties, conditions and indemnification obligations of the parties. The representations,
warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely
for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
2
Membership Interest Purchase Agreement and
Related Agreements
On December 27, 2022, the “Company
entered into a membership interest purchase agreement (the “MIPA”) with CIC Pogo LP, a Delaware limited partnership
(“CIC”), DenCo Resources, LLC, a Texas limited liability company (“DenCo”), Pogo Resources Management,
LLC, a Texas limited liability company (“Pogo Management”), 4400 Holdings, LLC, a Texas limited liability company (“4400”
and, together with CIC, DenCo and Pogo Management, collectively, “Seller” and each a “Seller”),
and, solely with respect to Section 7.20 of the MIPA, the Sponsor.
Pursuant to the MIPA, and subject to the terms,
provisions, and conditions set forth therein, at the closing of the transactions contemplated by the MIPA (the “Closing”),
Seller will sell, assign, and convey to the Company, and the Company will purchase and accept from Seller, effective as of the Effective
Time, one hundred percent (100%) of the outstanding membership interests (the “Target Interests”) of Pogo Resources,
LLC, a Texas limited liability company (“Pogo” or the “Target”). As used herein, the “Effective
Time” means 12:01 a.m. on the first day of the calendar month that is four (4) months prior to the calendar
month of the Closing Date.
The purchase price (the “Base Purchase
Price”) for the Target Interests will be (a) cash in the amount of $100,000,000 in immediately available funds (the “Cash
Consideration”); provided, that up to $15,000,000 of the Cash Consideration may be payable through a promissory note to Seller
(the “SellerPromissory Note”) and (b) 2,000,000 shares of the Company’s common stock, par value
$0.0001, valued at $10.00 per share (the “Share Consideration”); provided, that, at Closing, 500,000 shares of
Share Consideration (the “Escrowed Share Consideration”) will be placed in escrow for the benefit of the Company. The
Base Purchase Price is subject to adjustment in accordance with the MIPA.
Conditions to Closing
The obligation of Seller to consummate the transactions
contemplated by the MIPA are subject, at the option of Seller, to the satisfaction on or prior to Closing of certain conditions, including:
(i) the accuracy of certain representations and warranties of the Company, except for such breaches, if any, as would not have a
material adverse effect; (ii) the performance and observance of all covenants and agreements to be performed or performed by the
Company, except for such covenants and agreements for which the nonperformance or nonobservance does not or would not be reasonably expected
to have a material adverse effect; (iii) no proceeding by a third party (including any governmental body) seeking to restrain, enjoin,
or otherwise prohibit the consummation of the transactions contemplated by the MIPA will be pending before any governmental body or have
resulted in an injunction, order, or award that grants such relief; (iv) execution and delivery of certain agreements, including
the registration rights agreement and the board observer agreement, by the Company; (v) the aggregate amount of all valid title
defects asserted by the Company do not exceed an amount equal to 20% of the Base Purchase Price; (vi) the Company will be ready,
willing, and able to pay the Cash Consideration to Seller (with at least $85,000,000 payable in cash and no more than $15,000,000 subject
to payment through the terms of the Seller Promissory Note) and issue the Share Consideration to Seller; (vii) the Share Consideration
will have been approved for listing on the NYSE American, Nasdaq or another nationally recognized securities exchange listing mutually
agreed by the Parties, subject only to official notice of issuance thereof; (viii) any waiting period applicable to the transactions
contemplated by the MIPA under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the “HSR Act”) will have been terminated or have expired; and (ix) the transactions
contemplated by the MIPA will have been approved by the Company’s stockholders at a special meeting.
3
The obligations of the Company to consummate the
transactions contemplated by the MIPA are subject, at the option of the Company, to the satisfaction on or prior to Closing of certain
conditions, including: (i) the accuracy of certain representations and warranties of Seller, except for such breaches, if any, as
would not have a material adverse effect; (ii) the performance and observance of all covenants and agreements to be performed or
performed by Seller in all material aspects; (iii) no proceeding by a third party (including any governmental body) seeking to restrain,
enjoin, or otherwise prohibit the consummation of the transactions contemplated by the MIPA will be pending before any governmental body
or have resulted in an injunction, order, or award that grants such relief, with certain exceptions; (iv) execution and delivery
of certain transaction documents and financial statements by Seller; (v) any waiting period applicable to the transactions contemplated
by the MIPA under the HSR Act will have been terminated or shall have expired; (vi) the transactions contemplated by the MIPA will
have been approved by the Company’s stockholders at a special meeting; (vii) the Minimum Cash Amount plus the principal amount
of the Seller Promissory Note will equal a total amount of $100,000,000; (viii) the Company will not have redeemed shares of the
Company’s common stock in an amount that would cause the Company to have less than $5,000,001 of net tangible assets; (ix) No
material adverse effect will have occurred between the date of the MIPA and the date of closing (the “Closing Date”) with
respect to the Target; (x) the aggregate amount of all valid title defects will not exceed an amount equal to 20% of the Base Purchase
Price; and (xi) the Company’s common stock will have listed, and will have been approved for continued listing, on the NYSE
American, Nasdaq or another nationally recognized securities exchange mutually agreed by the Parties.
Representations, Warranties and Covenants
The MIPA contains customary representations,
warranties and covenants of the Company, Target and Seller.
Termination
The MIPA may be terminated (i) at any time
prior to Closing by the mutual prior written consent of Seller and the Company; (ii) by Seller or the Company if Closing has not
occurred on or before March 31, 2023 (the “Outside Date”); (iii) by the Company, if all conditions to Seller’s
obligation to proceed with Closing have been satisfied or waived by the Company but Seller has refused to close; (iv) by Seller or
the Company if, after the final adjournment of the special meeting of the Company’s stockholders at which a vote of the Company’s
stockholders has been taken in accordance with the MIPA, the Company’s stockholder approval has not been obtained; (v) by Seller,
if (1) the Closing has not occurred on or before February 14, 2023 and Sponsor has not effected the extension of time allowed
for the SPAC (the “SPAC Extension”) to consummate a purchase (on February 8, 2023, the Company effected a SPAC
Extension of 3 months until May 15, 2023); (2) the Company has not obtained aggregate binding commitments of at least $60,000,000.00
in the form of debt, equity or other additional sources of capital from reputable lenders or financing providers, and in a form reasonably
satisfactory to Seller and presented copies of such commitments to Seller on or before December 31, 2022; or (3) the Company
delivers a notice with respect to the determination that the minimum cash amount will not be satisfied; (vi) by either party if a
breach of any representation or warranty or failure to perform any covenant or agreement on the part of the other party set forth in the
MIPA will have occurred that would cause any of the conditions to closing to not to be satisfied, and is incapable of being cured by the
Outside Date or, if curable, is not cured by the breaching party within thirty (30) days of receipt by the breaching party of written
notice of such breach or failure (or, if the Outside Date is less than thirty (30) days from the date of receipt of such notice,
by the Outside Date); or (vii) by Seller, if all conditions to the Company’s obligation to proceed with Closing have been satisfied
or waived by Seller (other than those conditions that, by their nature, are to be satisfied at Closing) but the Company has refused to
close.
If the MIPA is validly terminated, the transactions
contemplated therein will become void and of no further force or effect without any further action of or liability to indemnitees (absent
fraud, or any willful and material breach of the MIPA by a party hereto), and following such termination, Seller will be free immediately
to enjoy all rights of ownership of the Target Interests and to sell, transfer, encumber, or otherwise dispose of the Target Interests
to any Person without any restriction under this Agreement.
4
SPAC Stockholder Support Agreement
Concurrently with the execution of the MIPA, the
Company entered into a SPAC Stockholder Support Agreement with certain of the holders of the Company’s common stock and warrants
(each, a “SPAC Stockholder”), pursuant to which, among other things, and for no consideration payable to any SPAC Stockholder,
(i) each SPAC Stockholder agrees not to, exercise redemption rights or otherwise elect to redeem, tender or submit for redemption any
securities pursuant to or in connection with the transactions contemplated by the MIPA, and waives any redemption rights; (ii) agrees
unconditionally and irrevocably to vote in favor of the transactions contemplated by the MIPA at a special meeting of the Company’s
stockholders and in favor of any other proposals set forth in the proxy statement filed by the Company with the Securities and Exchange
Commission (the “SEC”) relating to the transactions contemplated by the MIPA, and against any transaction, proposal, agreement
or action made in competition or inconsistent with the transactions or matters contemplated by the MIPA.
Seller Promissory Note
To the extent the minimum cash amount is less
than $100,000,000, the Seller may issue a Promissory Note to, and payable by the Company, in an amount equal to the lesser of (i) the
difference between $100,000,000 and the minimum cash amount and (ii) $15,000,000, providing for a maturity date that will be six (6) months
from the Closing Date, bearing an interest rate equal to the greater of 12% per annum and the highest interest rate applicable to the
Company financing, and with no penalty for prepayment; provided, that if the Seller Promissory Note is not repaid in full on or prior
to its stated maturity date, the Company will owe interest equal to the lesser of 18% per annum and the highest amount permissible under
law, compounded monthly.
Until the obligations under the Seller Promissory
Note are repaid in full, the Company (1) shall conduct the business of Pogo and its Subsidiaries in the ordinary course, consistent with
past practice during the nine (9) months prior to the closing the transactions contemplated by the MIPA; (2) will not (i) transfer, sell,
hypothecate, encumber, dispose of any material assets of Target or its subsidiaries unless, following such transfer or sale of assets
the proceeds received by the Company or Target are used to repay 100% of the obligations owed under the Seller Promissory Note or (ii)
acquire any material assets outside of the ordinary course of business; (3) use any proceeds the Company, Target or any of their respective
subsidiaries raised in connection with the issuance of any equity or debt securities to repay (whether full or in part) the accrued and
outstanding obligations under the Seller Promissory Note.
Registration Rights Agreement
At Closing, the Company and the Seller will enter
into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company has agreed to provide
Seller with certain registration rights with respect to the Share Consideration, as defined in the MIPA, including filing with the SEC
an initial Registration Statement on Form S-1 covering the resale by the Seller of the Share Consideration so as to permit their
resale under Rule 415 under the Securities Act, no later than thirty (30) days following the Closing, use its commercially reasonable
efforts to have the initial Registration Statement declared effective by the SEC as soon as reasonably practicable following the filing
thereof with the SEC and use commercially reasonable efforts to convert the Form S-1 (and any subsequent Registration Statement)
to a shelf registration statement on Form S-3 as promptly as practicable after the Company is eligible to use a Form S-3 Shelf.
In certain circumstances, the Seller can demand
the Company’s assistance with underwritten offerings, and the Seller will be entitled to certain piggyback registration rights.
Extension
On February 5, 2023, the Company received a notice
from Sponsor, informing the Company of its intention to extend the period of time the Company will have to consummate its initial business
combination by 3 months from February 15, 2023 to May 15, 2023.
On February 8, 2023, in accordance with the Company’s
amended and restated certificate of incorporation, the Company effected the extension after the Sponsor’s designee timely deposited
$862,500 into the Company’s trust account in connection with the extension. The extension was the first of up to two three-month
extensions permitted under the Company’s amended and restated certificate of incorporation.
5
Our Management Team
We will seek to capitalize on the extensive experience
of each of the members of our management team who have more than 40 years average experience in the energy industry. Mr. Donald
H. Goree, our Chairman and Chief Executive Officer has over 40 years’ experience in the oil and gas industry involving exploration
and production, oil and gas pipeline construction and operations, natural gas gathering, processing and gas liquification. Mr. Goree
was the Founder and President of Goree Petroleum Inc., a corporation engaged in oil and gas exploration and production in premiere basins
throughout the United States for 35 years. Currently, Mr. Goree is the Founder, Chairman and Chief Executive officer of
Houston Natural Resources, Inc., a global natural resource corporation located in Houston, Texas and the controlling member of our sponsor.
Mr. Goree also previously served as Founder, Chairman and Chief Executive officer of Global Xchange Solutions AG., a publicly reporting
corporation, private equity, investment bank and market-making firm, based in Zurich, Switzerland, with offices in Frankfurt, Germany
and London, United Kingdom. Global Xchange Solutions sponsored listings of private companies to the London Stock Exchange, AIM,
the Frankfurt Stock Exchange, the Berlin Stock Exchange and the Börse Stuttgart, and provided public company development
and marketdevelopment advice. Mr. Goree also previously served as Chairman and Chief Executive officer of Azur Holdings,
Inc., a Fort Lauderdale, Florida-based, OTC-listed luxury real estate developer of mid-rise waterfront condominiums. Mr. Donald
W. Orr, our President, is a degreed geologist with over 42 years of experience in petroleum geology and production operations. Mr. Orr
began his career as a junior geologist with Texas Oil and Gas Corporation in 1976, and was elevated within two years to a supervisory
role overseeing over five geologists on his team, most of whom had more experience than Mr. Orr. In 1979, Mr. Orr helped form
American Shoreline, Inc., an independent oil and gas company. Mr. Orr formerly held a position with Seven Energy LLC, a wholly owned
subsidiary of Weatherford International plc in 2005, where he pioneered numerous innovations in underbalanced drilling, or UBD, including
drilling with unconventional materials and devising the methodology for unlocking the productive capacity of the Buda Lime through the
use of UBD. In June 2009, Mr. Orr founded XNP Resources, LLC, an independent oil and gas company engaged in the exploration,
development, production, and acquisition of oil and natural gas resources. Shortly thereafter, XNP Resources teamed up with Tahoe Energy
Partners, LLC to acquire oil and gas leases for drilling in the Rocky Mountain region. At Mr. Orr’s direction, XNP Resources
began acquiring a strategic leasehold position in the Sand Wash Basin in Colorado. XNP Resources was able to secure a major leasehold
position in the heart of what has become the highly competitive Niobrara Shale formation in western Colorado. Since 2014, Mr. Orr
has been developing an unconventional resource play in Alaska that contains over 600 billion cubic feet of gas in stacked coal reservoirs.
More recently, Mr. Orr assembled a team of oil and gas professionals in order to study certain oil provinces in Columbia. South
America.
The past performance of the members of our management
team is not a guarantee that we will be able to identify a suitable candidate for our initial business combination or of success with
respect to any business combination we may consummate. You should not rely on the historical record of the performance of our management
team as indicative of our future performance. Additionally, in the course of their respective careers, members of our management team
have been involved in businesses and deals that were unsuccessful. None of our officers and directors has experience with SPACs.
Business Strategy
Our acquisition and value creation strategy will
be to identify, acquire and, after our initial business combination, build a company in the energy industry in North America that complements
the experience of our management team and can benefit from their operational expertise and/or executive oversight. Our acquisition strategy
will leverage our management team’s network of potential proprietary and public transaction sources where we believe a combination
of our relationships, knowledge and experience in the energy industry could effect a positive transformation or augmentation of existing
businesses or properties to improve their overall value proposition.
We plan to utilize the network and industry experience
of our management team and business partners in seeking an initial business combination and employing our acquisition strategy. Over
the course of their careers, the members of our management team and their affiliates have developed a broad network of contacts and industry
relationships that we believe will serve as a useful source of acquisition opportunities. This network has been developed through our
management team’s extensive experience in both investing and operating in the energy industry. In addition to our industry and
lending community relationships, we plan to leverage relationships with management teams of public and private companies, capital market
participants, private equity groups, investment banking firms, consultants, restructuring advisers, attorneys and accounting firms, which
we believe should provide us with a number of business combination opportunities. The members of our management team will communicate
with their networks of relationships to articulate the parameters for our search for a target business and a potential business combination
and begin the process of pursuing and reviewing opportunities with value creation potential.
6
The primary strategies our management team will
use to identify a potential business combination to generate favorable returns include seeking to:
Acquisition Criteria
Consistent with this strategy, we have identified
the following general criteria and guidelines that we believe are important in evaluating prospective target businesses. We will use
these criteria and guidelines in evaluating acquisition opportunities, but we may decide to enter into our initial business combination
with a target business that does not meet these criteria and guidelines. We intend to acquire companies that we believe:
● have the ability to generate significant current free cash flow;
We will seek to acquire the target on terms and
in a manner that leverage our management team’s experience investing within the energy industry. Potential upside from growth in
the target business and an improved capital structure will be weighed against any identified downside risks.
These criteria are not intended to be exhaustive.
Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general
guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to
enter into our initial business combination with Pogo and decide to enter into our initial business combination with another target business
that does not meet these criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder
communications related to our initial business combination, which, as discussed in this Report, would be in the form of tender offer documents
or proxy solicitation materials filed with the SEC.
7
Our Acquisition Process
In evaluating a prospective target business,
we expect to conduct a thorough due diligence review that will encompass, among other things, meetings with incumbent management and
employees, document reviews, inspection of facilities, as well as a review of financial and other information that will be made available
to us. In conducting our due diligence review, we intend to leverage the experience of members of our management team on an efficient
and cost effective basis as we deploy them to review matters related to their specific areas of functional expertise.
We are not prohibited from pursuing an initial
business combination with a company that is affiliated with our sponsor, or any of our officers or directors. In the event we seek to
complete our initial business combination with a company that is affiliated with our sponsor, or any of our officers or directors, we,
or a committee of independent directors, will obtain an opinion from either an independent investment banking firm or another independent
entity that commonly renders valuation opinions that our initial business combination is fair to our company from a financial point of
view. We will also provide a summary of any such opinion or report to shareholders in connection with any vote on an initial business
combination in our proxy materials or tender offer documents, as applicable, related to our initial business combination in accordance
with Section 1015(b) of Regulation S-K. Additionally, pursuant to the NYSE American rules, any initial business combination must be approved
by a majority of our independent directors.
Members of our management team directly or indirectly
own founder shares and/or private placement units and, accordingly, may have a conflict of interest in determining whether a particular
target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and
directors may have a conflict of interest with respect to evaluating a particular business combination target if the retention or resignation
of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business
combination.
Each of our officers and directors presently
has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such
officer or director is or will be required to present a business combination opportunity. Accordingly, if any of our officers or directors
becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary
or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such
entity. We do not believe, however, that the fiduciary duties or contractual obligations of our officers or directors will materially
affect our ability to complete our business combination. Our Certificate of Incorporation provides that we renounce our interest in any
corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or
her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake
and would otherwise be reasonable for us to pursue.
Our executive officers are not required to commit
any specified amount of time to our affairs, and, accordingly, will have conflicts of interest in allocating management time among various
business activities, including identifying potential business combination targets and monitoring the related due diligence.
Initial Business Combination
So long as we maintain a listing for our securities
on the NYSE American, our initial business combination must be with one or more target businesses that together have an aggregate fair
market value equal to at least 80% of the value of the assets held in the trust account (excluding any deferred underwriters fees and
taxes payable on the interest earned on the trust account) at the time of our signing a definitive agreement in connection with our initial
business combination. The fair market value of the target or targets will be determined by our board of directors based upon one or more
standards generally accepted by the financial community (such as actual and potential sales, earnings, cash flow and/or book value).
Although our board of directors will rely on generally accepted standards, our board of directors will have discretion to select the
standards employed. In addition, the application of the standards generally involves a substantial degree of judgment. Accordingly, investors
will be relying on the business judgment of the board of directors in evaluating the fair market value of the target or targets. The
proxy solicitation materials or tender offer documents used by us in connection with any proposed transaction will provide public stockholders
with our analysis of the fair market value of the target business, as well as the basis for our determinations. If our board of directors
is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an
independent investment banking firm or another independent entity that commonly renders valuation opinions that our initial business
combination is fair to our company from a financial point of view. We will also provide a summary of any such opinion or report to shareholders
in connection with any vote on an initial business combination in our proxy materials or tender offer documents, as applicable, related
to our initial business combination in accordance with Section 1015(b) of Regulation S-K. Additionally, pursuant to the NYSE American
rules, any initial business combination must be approved by a majority of our independent directors.
8
We currently anticipate structuring our initial
business combination so that the post-transaction company in which our public stockholders own shares will own or acquire 100% of
the equity interests or assets of the target business or businesses. We may, however, structure our initial business combination such
that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to
meet certain objectives of the target management team or stockholders or for other reasons. However, we will only complete such business
combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise
acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment
Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders
prior to the business combination may collectively own a minority interest in the post-transaction company, depending on valuations
ascribed to the target and us in the business combination transaction. For example, we could pursue a transaction in which we issue a
substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100%
controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately
prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business
combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company,
the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% fair market value
test. If the business combination involves more than one target business, the 80% fair market value test will be based on the aggregate
value of all of the target businesses and we will treat the target businesses together as the initial business combination for purposes
of a tender offer or for seeking stockholder approval, as applicable.
Sourcing of Potential Business Combination
Targets
We believe our management team’s significant
operating and transaction experience and relationships with companies will provide us with a substantial number of potential business
combination targets. Over the course of their careers, such individuals have developed a broad network of contacts and corporate relationships
around the world. This network has grown through the activities of our management team sourcing, acquiring, financing and selling businesses,
our management team’s relationships with sellers, financing sources and target management teams and the experience of such individuals
in executing transactions under varying economic and financial market conditions.
In addition, members of our management team have
developed contacts from serving on the boards of directors of several companies in diverse sectors, as described more fully in “Management.”
This network is expected to provide us with a
robust and consistent flow of acquisition opportunities which we expect to be proprietary or where a limited group of investors will
be invited to participate in the sale process. In addition, we anticipate that target business candidates will be brought to our attention
from various unaffiliated sources, including investment market participants, private equity funds and large business enterprises seeking
to divest non-core assets or divisions.
We are not prohibited from pursuing an initial
business combination with a company that is affiliated with our sponsor, officers or directors. In the event we seek to complete our
initial business combination with a company that is affiliated with our sponsor, officers or directors, we, or a committee of independent
directors, will obtain an opinion from an independent investment banking firm or another independent entity that commonly renders valuation
opinion that our initial business combination is fair to our company from a financial point of view. We will also provide a summary of
any such opinion or report to shareholders in connection with any vote on an initial business combination in our proxy materials or tender
offer documents, as applicable, related to our initial business combination in accordance with Section 1015(b) of Regulation S-K. Additionally,
pursuant to the NYSE American rules, any initial business combination must be approved by a majority of our independent directors.
As more fully discussed in “Management —
Conflicts of Interest,” if any of our executive officers or directors becomes aware of a business combination opportunity that
falls within the line of business of any entity to which such officer or director has pre-existing fiduciary or contractual obligations,
such officer or director may be required to present such business combination opportunity to such entity prior to presenting such business
combination opportunity to us. Our executive officers and directors currently have fiduciary duties or contractual obligations to several
entities that may present a conflict of interest. As a result of these duties and obligations, situations may arise in which business
opportunities may be given to one or more of these other entities prior to being presented to us.
9
Status as a Public Company
We believe our structure makes us an attractive
business combination partner to target businesses. As a public company, we offer a target business an alternative to the traditional initial
public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their
shares of stock in the target business for shares of our stock or for a combination of shares of our stock and cash, allowing us to tailor
the consideration to the specific needs of the sellers. Although there are various costs and obligations associated with being a public
company, we believe target businesses will find this method a more certain and cost effective method to becoming a public company than
the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, road show
and public reporting efforts that may not be present to the same extent in connection with a business combination with us.
Furthermore, once a proposed business combination
is completed, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriter’s
ability to complete the offering, as well as general market conditions, which could delay or prevent the offering from occurring. Once
public, we believe the target business would then have greater access to capital and an additional means of providing management incentives
consistent with stockholders’ interests. It can offer further benefits by augmenting a company’s profile among potential
new customers and vendors and aid in attracting talented employees.
While we believe that our structure and our management
team’s backgrounds make us an attractive business partner, some potential target businesses may view our status as a blank check
company, without an operating history, and the uncertainty relating to our ability to obtain stockholder approval of our proposed initial
business combination and retain sufficient funds in our trust account in connection therewith, negatively.
Emerging Growth Company
We are an “emerging growth company,”
as defined in the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find
our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities
may be more volatile.
In addition, Section 107 of the JOBS Act
also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B)
of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company”
can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to
take advantage of the benefits of this extended transition period. Accordingly, the information we provide to you may be different than
you might get from other public companies in which you hold securities.
We will remain an emerging growth company until
the earliest of (i) the last day of the fiscal year following the fifth anniversary of the closing of our Initial Public Offering,
or December 31, 2027, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion,
(iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million
as of the last business day of the second fiscal quarter of such year or (iv) the date on which we have issued more than $1.00 billion
in non-convertible debt securities during the prior three-year period.
Financial Position
With funds available for a business combination
initially in the amount of $87,975,000, assuming no redemptions, we offer a target business a variety of options such as creating a liquidity
event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by
reducing its debt ratio. Because we are able to complete our business combination using our cash, debt or equity securities, or a combination
of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be
paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there
can be no assurance it will be available to us.
10
Effecting our Initial Business Combination
We are not presently engaged in, and we will not
engage in, any operations for an indefinite period of time. We intend to effectuate our initial business combination using cash from the
proceeds of our Initial Public Offering and the private placement of the private placement units, the sale and issuance of equity, debt
or a combination of these as the consideration to be paid in our initial business combination. We may seek to complete our initial business
combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject
us to the numerous risks inherent in such companies and businesses.
If our initial business combination is paid for
using equity or debt securities, or not all of the funds released from the trust account are used for payment of the consideration in
connection with our business combination or used for redemptions of purchases of our common stock, we may apply the balance of the cash
released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the post-transaction company,
the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase
of other companies or for working capital.
We may seek to raise additional funds through
a private offering of debt or equity securities in connection with the completion of our initial business combination, and we may effectuate
our initial business combination using the proceeds of such offering rather than using the amounts held in the trust account.
In the case of an initial business combination
funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business combination
would disclose the terms of the financing and, only if required by law, we would seek stockholder approval of such financing. There are
no prohibitions on our ability to raise funds privately or through loans in connection with our initial business combination.
At this time, we are not a party to any arrangement
or understanding with any third party with respect to raising any additional funds through the sale of securities or otherwise.
Selection of a target business and structuring
of our initial business combination
The NYSE American rules require that our initial
business combination must be with one or more target businesses that together have an aggregate fair market value equal to at least 80%
of the value of the assets held in the trust account (excluding any deferred underwriters fees and taxes payable on the interest earned
on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination. So long as
we maintain a listing for our securities on the NYSE American, we will be required to comply with such rule. The fair market value of
the target or targets will be determined by our board of directors based upon one or more standards generally accepted by the financial
community. Although our board of directors will rely on generally accepted standards, our board of directors will have discretion to select
the standards employed. In addition, the application of the standards generally involves a substantial degree of judgment. Accordingly,
investors will be relying on the business judgment of the board of directors in evaluating the fair market value of the target or targets.
The proxy solicitation materials or tender offer documents used by us in connection with any proposed transaction will provide public
stockholders with our analysis of the fair market value of the target business, as well as the basis for our determinations. If our board
is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent
investment banking firm or another independent entity that commonly renders valuation opinion that our initial business combination is
fair to our company from a financial point of view. We will also provide a summary of any such opinion or report to shareholders in connection
with any vote on an initial business combination in our proxy materials or tender offer documents, as applicable, related to our initial
business combination in accordance with Section 1015(b) of Regulation S-K. Additionally, pursuant to the NYSE American rules, any initial