SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest
event reported): July 31, 2008
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COLONY ENERGY, INC.
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(Exact name of registrant as specified in its Charter)
Delaware 000-53124 76-0662309
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(State or other (Commission File (IRS Employer
jurisdiction of Incorporation) Number) Identification Number)
2100 West Loop South, Suite 900, Houston, Texas 77027
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: 713/ 590-5060
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______________________________________________________________________________
(Former name or former address if changed since last report)
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 (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] 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
GENERAL
On July 31, 2008, Colony Energy, Inc. (the "Company") entered into
contribution agreements (referred to hereinafter collectively as the
"Contribution Agreements") with each of the following entities or individuals
(referred to hereinafter collectively as the "Contributors"):
Modern Exploration, Inc.;
Taladro Resources, Inc.;
Woodward Development, Inc.;
CY Securities, Inc.;
Enexco, Inc.; and
F. McDonald Oil & Gas Investments, LP
Pursuant to the Contribution Agreements, each Contributor has agreed, upon
the satisfaction of certain conditions, to contribute and assign to the Company
certain assets separately owned by them (referred to hereinafter collectively as
the "Assets") in exchange for shares of a new class of preferred stock to be
created and to be designated (and referred to hereinafter) as the Company's
"Series A Preferred Stock." Pursuant to the Contribution Agreements, the
Company will assume no liabilities, other than for an aggregate of $890,000 in
indebtedness owed by Taladro Resources, Inc. ("Taladro") and Woodward
Development, Inc., such debt being used to acquire some or all of the assets
being contributed by the two preceding Contributors.
The Contribution Agreements contain representations, warranties,
indemnifications and other agreements believed by the Company to be customary or
appropriate for transactions such as the one provided for by the Agreement. The
consummation of the Transaction is subject to a number of customary conditions,
including, without limitation, that the Company has completed (within 180 days
of the execution of the Contribution Agreements) a private placement of common
stock raising at least $15.0 million, and (in certain cases) the Company has
procured releases of certain personal guaranties. In addition, the Contribution
Agreement to which Taladro is a party contains an additional closing condition
that the Company enter into a Prospect Generation Compensation Agreement
covering three prospects pursuant to which the Company may pay to Taladro a
one-time fee in the amount of $125,000 and pursuant to which Taladro would be
carried for an undivided 11.25% working interest in the initial wells drilled on
each prospect or in their associated units. There can be no assurance that the
Transaction will be completed and that the Company will thus acquire the Assets.
All descriptions of the Transaction contained herein and all references to
the terms, provisions and conditions of the Contribution Agreements are
qualified in their entirety by reference to the form of Contribution Agreement,
which is attached as Exhibit 10.1 hereto and is incorporated herein by reference
for all purposes hereof.
ASSETS
This section contains a brief discussion of the Assets.
MODERN EXPLORATION, INC. The Assets that Modern Exploration, Inc. is
expected to contribute to the Company pursuant to its Contribution Agreement
include (a) natural gas and oil leasehold interests in approximately 14,747
gross acres (7,583 net acres) and (b) working interest in 21 gross
(approximately .50 net) wells. These properties are located in Cooke, Montague
and Denton Counties, Texas.
TALADRO RESOURCES, INC. The Assets that Taladro Resources, Inc. is
expected to contribute to the Company pursuant to its Contribution Agreement
include (a) natural gas and oil leasehold interests in approximately 16,375
gross (9,721.4 net) acres, and (b) working interests in 12 gross
(approximately 1.12 net) non-operated wells. These properties are located in
Houston, Trinity, Robertson and Rusk Counties, Texas.
WOODWARD DEVELOPMENT, INC.. The Assets that Woodward Development,
Inc. is expected to contribute to the Company pursuant to its Contribution
Agreement include natural gas and oil leasehold interests in approximately
12,829 gross (4,776 net) acres. These properties are located in Houston
and Trinity Counties, Texas.
CY SECURITIES, INC. The Assets that CY Securities, Inc. is expected to
contribute to the Company pursuant to its Contribution Agreement include (a)
natural gas and oil leasehold interests in approximately 14,747 gross acres
(1,076 net acres), and (b) working interest in 21 gross (approximately .06 net)
wells. These properties are located in Cooke, Montague and Denton Counties,
Texas.
ENEXCO, INC. The Assets that Enexco, Inc. is expected to contribute to the
Company pursuant to its Contribution Agreement include (a) natural gas and oil
leasehold interests in approximately 1,969.71 gross (781.4895 net) acres, and
(b) working interests in 7 gross (approximately 1 net) wells. These properties
are located in Cooke and Montague Counties, Texas.
F. MCDONALD OIL & GAS INVESTMENTS, LP. The Assets that F. McDonald Oil &
Gas Investments, LP is expected to contribute to the Company pursuant to
his Contribution Agreement include (a) 1,635.80 gross (252.20 net) acres, and
(b) working interests in 2 gross (approximately .30 net) wells.
These properties are located in Montague County.
ACQUISITION CONSIDERATION
The Contribution Agreements provide that each Contributor is to receive the
number of shares of the Series A Preferred Stock set forth to the right of such
Contributor's name in the table immediately below:
NUMBER OF SHARES OF
NAME OF CONTRIBUTOR SERIES A PREFERRED STOCK
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Modern Exploration, Inc. 2,918,843
Taladro Resources, Inc. 869,212
Woodward Development, Inc. 426,982
CY Securities, Inc. 416,978
Enexco, Inc 287,312
F. McDonald Oil & Gas Investments, LP 215,100
Because the shares of Series A Preferred Stock to be received by the
Contributors will not be registered under the Securities Act of 1933, as amended
(the "Act"), such shares will be "restricted securities" (as defined in Rule 144
promulgated under the Act) and accordingly, may not be sold or transferred by
the holders thereof unless such shares are registered under the Act or are sold
or transferred pursuant to an exemption therefrom.
The following is a brief description of the terms of the Series A
Preferred Stock:
VOTING RIGHTS. Each share of Series A Preferred Stock has the right to vote
on all matters submitted to Common Stockholders, and has five votes per
share of Series A Preferred Stock on all such matters.
DIVIDENDS. Each share of Series A Preferred Stock has the right to a
dividend whenever the Board of Directors of the Company lawfully
declares a dividend on the Company's common stock (the "Common Stock"),
which shall be five times the dividend declared with respect to each
outstanding share of Common Stock.
REDEMPTION. The Series A Preferred Stock has no redemption or repurchase
rights in favor of either the Company or the holder thereof.
LIQUIDATION. Up any voluntary or involuntary liquidation, dissolution or
winding up of affairs of the Company, the holders of Series A Preferred
Stock and the holders of Common Stock share as a single group in the net
assets of the Company remaining after the satisfaction of prior claims, and
costs and expenses relating to such event; provided, however, that the
amount of net assets distributed with respect to each outstanding share of
Series A Preferred Stock shall be five times the amount of net assets
distributed with respect to each outstanding share of Common Stock
CONVERSION. The holders of the Series A Preferred Stock do not have any
right to convert voluntarily their shares of Series A Preferred Stock
into shares of Common Stock. However, each share of the Series A
Preferred Stock shall automatically convert into shares of Common Stock (i)
upon the increase in the authorized number of shares of Common Stock to
100,000,000 or more, or (ii) upon a reverse stock split of Common Stock in
which at least five shares or more shall be combined into one share. In
either of the preceding events, each share of the Series A Preferred Stock
would automatically convert into five shares of Common Stock, with the
one-for-five conversion ratio being reduced proportionately if a
reverse stock split causes the conversion.
ANTI-DILUTION. The Series A Preferred Stock is adjusted customarily if
the outstanding shares of Common Stock are subdivided into a greater
number of shares or combined into a smaller number of shares, of if a
dividend in Common Stock is paid in respect of Common Stock.
CHANGES IN OWNERSHIP STRUCTURE AND MANAGEMENT
The shares of Series A Preferred Stock to be issued in connection with the
consummation of the Transaction are otherwise expected to constitute
approximately 80.1% of the voting power and economic interest in the Company
after the completion of the Transaction. However, as a condition to the
consummation of the Transaction, the Company is also required to complete a
financing transaction that is expected to involve the issuance of equity
securities in a number not now determinable. As a result and in view of the
anticipated terms of a minimum financing transaction, the Contributors are
expected to own a percentage of the voting power and economic interest in the
Company after the completion of the Transaction and the required financing not
more than 41.3%, but the exact percentage figure cannot now be determined.
The Company believes that, until the Transaction, is consummated, control
of the Company will reside with Jimmy D. Wright and Kent E. Lovelace, Jr., the
Company's two directors and officers, and (prior to the Transaction) the holders
of an aggregate of approximately 42.2% of the outstanding voting power. The
Company believes that (after the Transaction) control of the Company will be
held by a reconstituted Board of Directors and dispersed among the Company's
largest stockholders who (to the best of the Company's knowledge) have not
agreed to act collectively as a group, except with regard to the election of
certain persons to the Company's Board of Directors as described herein. The
Company's largest stockholders after the Transaction are expected to include the
persons listed immediately below, who respectively control the percentage of the
outstanding voting power indicated to the immediate right of their respective
names:
NAME OF STOCKHOLDER PERCENTAGE OF OUTSTANDING VOTING POWER*
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Modern Exploration, Inc. 45.5%
Taladro Resources, Inc. 13.6%
Woodward Development, Inc. 6.7%
CY Securities, Inc. 6.5%
Kent E. Lovelace, Jr. 5.7%
F.E.I. Energy Trust 5.3%
Douglas C. Atnipp, Trustee 5.3%
Enexco, Inc 4.5%
F. McDonald Oil & Gas Investments, LP 3.4%
Jimmy D. Wright** 2.6%
* The percentage figures do not reflect any voting securities that
may be issued in the financing necessary to satisfy the
conditions to the consummation of the Transaction.
** Mr. Wright's shares are owned by Westside Resources, L.P., an
entity over which Mr. Wright has complete control.
The basis of the control of the Company by the persons listed above (beyond
their stock ownership) is described hereinafter.
In connection with the consummation of the Transaction, the following
events are expected to occur:
1. Kent E. Lovelace, Jr. will resign from his offices with the Company,
including the offices of Chief Executive Officer and
President.
2. After full compliance with applicable state corporation law and
federal securities laws, the number of directors constituting
the Board of Directors of the Company will be expanded from two to
five, and James H. Baccus, C. Noell Rather, Gary Yost and J.D.
Woodward will be elected to the Board of Directors of the Company
to fill the three newly-created vacancies and the vacancy created
by Mr. Lovelace's resignation. Company directors will serve as such
until the next annual meeting of the stockholders, and until
their respective successors have been duly elected and qualified.
Messrs. Baccus, Rather, Yost and Woodward have consented to serve as
directors of the Company if so elected. Information with respect
to the proposed new directors, including beneficial ownership of the
Common Stock held by such persons, will be included in a future
Proxy Statement, or Information Statement pursuant to Section 14(f)
of the Securities Exchange Act of 1934, as amended.
3. Jimmy D. Wright will remain as the Chairman of the Board, and James
H. Baccus will be elected as Chief Executive Officer. The Company
intends to enter into an employment agreement with Mr. Baccus
featuring an annual salary of $175,000.
4. Westside Resources, L.P, Modern Exploration, Inc., Taladro
Resources, Inc., Woodward Development, Inc. and Enexco, Inc. will
enter into a Voting Agreement (the Voting Agreement") pursuant to
which they will agree, for two years after the Transaction, to use
their best efforts (a) to maintain the number of directors on the
Board at a minimum of five and to vote all of their shares of Common
Stock to elect a nominee selected by each of them to the Board (b)
to approve any proposed amendment to the Company's restated
certificate of incorporation approved by the Company's Board of
Directors that would increase the authorized number of shares of
Common Stock to 100,000,000 or more, or that would effect a reverse
stock split of Common Stock in which at least five shares or more
shall be combined into one share, and (c) to approve any proposed
equity incentive plan for management approved by the Company's
Board of Directors that would have 6.0 million shares of Common
Stock available for the issuance of grants and that contains
customary terms, provisions and conditions.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit
Number Exhibit Title
10.1 Form of Contribution Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COLONY ENERGY, INC.
(Registrant)
Date: August 6, 2008 By: /s/ Kent E. Lovelace, Jr.
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Kent E. Lovelace, Jr.,
Chief Executive Officer