Page 7 of 13 – SEC Filing Item 3. Source and Amount of Funds or Other Consideration.
The Shares purchased by Lone Star Value Investors and held in Separately Managed Account I were purchased with working capital (which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business) in open market purchases, except as otherwise noted, as set forth in Schedule A, which is incorporated by reference herein. The aggregate purchase price of the 3,300,000 Shares beneficially owned by Lone Star Value Investors is approximately $3,531,167, including brokerage commissions. The aggregate purchase price of the 450,000 Shares held in Separately Managed Account I is approximately $487,278, including brokerage commissions. Item 4. Purpose of Transaction.
The Reporting Persons, collectively referred to as Lone Star Value (“LSV”), purchased the Shares based on their belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable. The Reporting Persons may engage in communications with management and the Board of Directors (the “Board”) of the Issuer, engage in discussions with shareholders of the Issuer and others, and make proposals to the Issuer concerning its business or strategic alternatives for the Issuer. The Reporting Persons agree with the Issuer’s recent decision to pursue a strategic alternatives process and hire a financial advisor. LSV is concerned, however, that the Issuer’s strategic alternatives process is not adequately focused on maximizing shareholder value. LSV stresses to the Board and management team the importance of carrying out a thorough and proper strategic alternatives process with a focus on selling the Issuer. The Reporting Persons believe the Issuer’s assets have significant value to a company that operates at a lower cost of capital and has a larger market presence. This leads LSV to believe the sale of the Issuer to the highest bidder, in a competitive auction process, would generate higher returns for the Issuer’s shareholders than remaining a going concern. LSV’s conclusion is further enhanced by the Issuer’s poor exploration drilling track record and its unnecessary cost structure (the Issuer’s corporate overhead and public company costs, for example, would not be needed by an industry buyer). The Reporting Persons’ concern about the adequacy of the Issuer’s strategic alternatives process stems from the Issuer’s recent presentation dated April 11, 2016 where the Issuer listed the potential outcomes from its planned strategic alternatives process as follows: 1. Securing additional investment to bolster liquidity
2. Funding growth opportunities
3. Considering joint ventures, asset sales or farm‐outs
4. Pursuing potential sale or merger of the Issuer
5. Continuing to execute the Issuer’s existing operating plan
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| Item 3. | Source and Amount of Funds or Other Consideration. |
The Shares purchased by Lone Star Value Investors and held in Separately Managed Account I were purchased with working capital (which may, at any given time, include margin loans made by brokerage firms in the ordinary course of business) in open market purchases, except as otherwise noted, as set forth in Schedule A, which is incorporated by reference herein. The aggregate purchase price of the 3,300,000 Shares beneficially owned by Lone Star Value Investors is approximately $3,531,167, including brokerage commissions. The aggregate purchase price of the 450,000 Shares held in Separately Managed Account I is approximately $487,278, including brokerage commissions.
| Item 4. | Purpose of Transaction. |
The Reporting Persons, collectively referred to as Lone Star Value (“LSV”), purchased the Shares based on their belief that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to the Reporting Persons, and the availability of Shares at prices that would make the purchase or sale of Shares desirable, the Reporting Persons may endeavor to increase or decrease their position in the Issuer through, among other things, the purchase or sale of Shares on the open market or in private transactions or otherwise, on such terms and at such times as the Reporting Persons may deem advisable.
The Reporting Persons may engage in communications with management and the Board of Directors (the “Board”) of the Issuer, engage in discussions with shareholders of the Issuer and others, and make proposals to the Issuer concerning its business or strategic alternatives for the Issuer.
The Reporting Persons agree with the Issuer’s recent decision to pursue a strategic alternatives process and hire a financial advisor. LSV is concerned, however, that the Issuer’s strategic alternatives process is not adequately focused on maximizing shareholder value. LSV stresses to the Board and management team the importance of carrying out a thorough and proper strategic alternatives process with a focus on selling the Issuer.
The Reporting Persons believe the Issuer’s assets have significant value to a company that operates at a lower cost of capital and has a larger market presence. This leads LSV to believe the sale of the Issuer to the highest bidder, in a competitive auction process, would generate higher returns for the Issuer’s shareholders than remaining a going concern. LSV’s conclusion is further enhanced by the Issuer’s poor exploration drilling track record and its unnecessary cost structure (the Issuer’s corporate overhead and public company costs, for example, would not be needed by an industry buyer).
The Reporting Persons’ concern about the adequacy of the Issuer’s strategic alternatives process stems from the Issuer’s recent presentation dated April 11, 2016 where the Issuer listed the potential outcomes from its planned strategic alternatives process as follows:
| 1. | Securing additional investment to bolster liquidity |
| 2. | Funding growth opportunities |
| 3. | Considering joint ventures, asset sales or farm‐outs |
| 4. | Pursuing potential sale or merger of the Issuer |
| 5. | Continuing to execute the Issuer’s existing operating plan |
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