UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

 

 

 

Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐

 

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Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12

 

Osprey Energy Acquisition Corp.
(Name of Registrant as Specified In Its Charter)

 

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
OF OSPREY ENERGY ACQUISITION CORP.

 

Dear Stockholders of Osprey Energy Acquisition Corp.:

 

You are cordially invited to attend the special meeting (the “special meeting”) of stockholders of Osprey Energy Acquisition Corp. (“Osprey,” the “Company,” “we,” “our” or “us”). At the special meeting, Osprey stockholders will be asked to consider and vote on proposals to:

 

(1)approve and adopt the Contribution Agreement, dated as of June 3, 2018 (as the same may be amended from time to time, the “Contribution Agreement”), by and among Royal Resources L.P. (“Royal LP”), Royal Resources GP L.L.C. (“Royal GP” and collectively with Royal LP, “Royal”), Noble Royalties Acquisition Co., LP (“NRAC”), Hooks Ranch Holdings LP (“Hooks Holdings”), DGK ORRI Holdings, LP (“DGK”), DGK ORRI GP LLC (“DGK GP”), Hooks Holding Company GP, LLC (“Hooks GP,” and collectively with NRAC, Hooks Holdings, DGK, and DGK GP, the “Contributors”), and Osprey, pursuant to which Osprey will acquire from the Contributors all of their equity interests in certain of their subsidiaries (the “Royal Entities”) named in the Contribution Agreement, and approve the acquisitions and other transactions contemplated by the Contribution Agreement (the “business combination” and such proposal, the “Business Combination Proposal”);

 

(2)approve and adopt amendments to Osprey’s amended and restated certificate of incorporation (the “Charter”) to be effective upon the consummation of the business combination (the “closing”) (such proposal, the “Charter Proposal”), including six sub-proposals to:

 

a.create a new class of capital stock designated as Class C common stock, par value $0.0001 per share (the “Class C common stock”);

 

b.increase the number of authorized shares of Osprey’s capital stock, par value $0.0001 per share, from 146,000,000 shares to 361,000,000 shares and to increase the number of authorized shares of Osprey’s Class A common stock, par value $0.0001 per share (the “Class A common stock”), from 125,000,000 shares to 240,000,000 shares;

 

c.adopt Delaware as the exclusive forum for certain stockholder litigation;

 

d.require the affirmative vote of the holders of at least 75% of the voting power of all outstanding shares of capital stock of Osprey to amend, repeal or adopt certain provisions of the Charter;

 

e.provide that Section 203 of the Delaware General Corporation Law, which governs business combinations between Osprey and certain interested Osprey stockholders, does not apply to Osprey; and

 

f.eliminate certain provisions in the Charter relating to Osprey’s Class B common stock, par value $0.0001 per share (the “Class B common stock”), and our Initial Business Combination that will no longer be applicable to us following the closing;

 

 

 

 

(3)approve, in connection with the transaction, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (“NASDAQ”), (a) the issuance of shares of Class C common stock to the Contributors in connection with the business combination, which number of shares will equal 40,000,000 and be subject to upward adjustment at closing pursuant to the Contribution Agreement, (b) the issuance of up to an additional 20,000,000 shares of Class C common stock, which number will be subject to upward adjustment pursuant to the Contribution Agreement, that may be issued to Royal LP if the earn-out consideration described in the accompanying proxy statement is issued to the Contributor, (c) the issuance of 11,480,000 shares of Class A common stock concurrent with the closing to certain qualified institutional buyers and accredited investors that have entered into subscription agreements with Osprey for an aggregate consideration of $114,800,000, the proceeds of which will be used to fund a portion of the cash consideration required to effect the business combination, (d) the issuance of a number of shares of Class A common stock equal to the number of shares of Class C common stock issued to the Contributors, which shares of Class A common stock are issuable in the future to the Contributors in connection with the future redemption or exchange of their common units representing limited partner interests in Osprey Minerals Operating Partnership, LP, a Delaware limited partnership (“Osprey Opco”), in accordance with the amended and restated agreement of limited partnership of Osprey Opco to be entered into in connection with the closing, and (e) the issuance of a number of Class A common stock upon the conversion of Class B common stock in accordance with the terms of the Charter (the “NASDAQ Proposal”);

 

(4)approve and adopt the Falcon Minerals Corporation 2018 Long Term Incentive Plan (the “LTIP”) and material terms thereunder (the “LTIP Proposal”); and

 

(5)approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposal, the NASDAQ Proposal or the LTIP Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposal, the NASDAQ Proposal and the LTIP Proposal, the “Proposals”).

 

Each of the Proposals is more fully described in the accompanying proxy statement, which each Osprey stockholder is encouraged to review carefully.

 

Osprey’s Class A common stock and warrants, which are exercisable for shares of Class A common stock under certain circumstances, are currently listed on the NASDAQ under the symbols “OSPR” and “OSPRW,” respectively. Certain of our shares of Class A common stock and warrants currently trade as units consisting of one share of Class A common stock and one-half of one warrant, and are listed on the NASDAQ under the symbol “OSPRU.” The units will automatically separate into the component securities upon consummation of the business combination and, as a result, will no longer trade as a separate security. Upon the closing, we intend to change our name from “Osprey Energy Acquisition Corp.” to “Falcon Minerals Corporation,” and our Class A common stock and warrants will be listed following the closing under the symbols “FLMN” and “FLMNW”, respectively. We intend to apply to list our Class A common stock and warrants on the New York Stock Exchange (the “NYSE”) following the closing.

 

Pursuant to our Charter, we are providing the holders of shares of Class A common stock originally sold as part of the units issued in our initial public offering, which closed on July 26, 2017 (the “IPO” and such holders, the “public stockholders”), with the opportunity to redeem, upon the closing, shares of Class A common stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing) in the Trust Account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from the IPO and a concurrent private placement of warrants to Osprey Sponsor, LLC (“Osprey Sponsor”). For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of March 31, 2018 of approximately $276.7 million, the estimated per share redemption price would have been approximately $10.06. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. Notwithstanding the foregoing, a holder of the public shares, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), will be restricted from seeking redemption rights with respect to more than 15% of the shares of Class A common stock included in the units sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Holders of Osprey’s outstanding warrants sold in the IPO, which are exercisable for shares of Class A common stock under certain circumstances, do not have redemption rights in connection with the business combination. Certain of our current stockholders have agreed to waive their redemption rights in connection with the consummation of the business combination with respect to any shares of Class A common stock they may hold, and the founder shares, consisting of all of the outstanding shares of Class B common stock, will be excluded from the pro rata calculation used to determine the per share redemption price. Currently, Osprey Sponsor owns all of the outstanding founder shares, and together with certain of Osprey’s officers and directors, collectively own approximately 20% of Osprey’s outstanding Class A common stock and Class B common stock. Osprey Sponsor and certain members of Osprey Sponsor that are directors and officers of Osprey have agreed to vote any shares of Osprey common stock owned by them in favor of each of the Proposals.

 

 

 

 

Osprey is providing this proxy statement and accompanying proxy card to its stockholders in connection with the solicitation of proxies to be voted at the special meeting and any adjournments or postponements thereof. Your vote is very important. Whether or not you plan to attend the special meeting in person, please submit your proxy card without delay.

 

We encourage you to read this proxy statement carefully. In particular, you should review the matters discussed under the caption “Risk Factors” beginning on page 40 of this proxy statement.

 

The Osprey board recommends that Osprey stockholders vote FOR each of the Proposals. When you consider the recommendation of the Osprey board in favor of each of the Proposals, you should keep in mind that certain of Osprey’s directors and officers have interests in the business combination that may be different than, or in addition to, or conflict with, your interests as a stockholder. Please see the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

 

Approval of the Business Combination Proposal, the NASDAQ Proposal, the LTIP Proposal and the Adjournment Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the shares of Class A common stock and Class B common stock entitled to vote and actually cast thereon at the special meeting, voting as a single class. Approval of the Charter Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock entitled to vote thereon at the special meeting, voting as a single class.

 

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted FOR each of the Proposals presented at the special meeting. If you fail to return your proxy card or fail to submit your proxy by telephone or over the Internet, or fail to instruct your bank, broker or other nominee how to vote, and do not attend the special meeting in person, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have no effect on the Business Combination Proposal, the NASDAQ Proposal, the LTIP Proposal or the Adjournment Proposal, but will have the same effect as a vote AGAINST the Charter Proposal. If you are a stockholder of record and you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

 

TO EXERCISE YOUR REDEMPTION RIGHTS, YOU MUST ELECT TO HAVE OSPREY REDEEM YOUR SHARES FOR A PRO RATA PORTION OF THE FUNDS HELD IN THE TRUST ACCOUNT AND TENDER YOUR SHARES TO OSPREY’S TRANSFER AGENT AT LEAST TWO (2) BUSINESS DAYS PRIOR TO THE VOTE AT THE SPECIAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC (DEPOSIT WITHDRAWAL AT CUSTODIAN) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS.

 

Thank you for your consideration of these matters.

 

Sincerely,

 

Jonathan Z. Cohen
Chief Executive Officer and Director
Osprey Energy Acquisition Corp.

 

Whether or not you plan to attend the special meeting of Osprey stockholders, please submit your proxy by signing, dating and mailing the enclosed proxy card in the pre-addressed postage paid envelope or by using the telephone or Internet procedures provided to you by your broker or bank. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares to have your shares represented at the special meeting or, if you wish to attend the special meeting of Osprey stockholders and vote in person, you must obtain a proxy from your broker or bank.

 

Neither the Securities and Exchange Commission nor any state securities commission has passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is criminal offense.

 

This proxy statement is dated August 3, 2018 and is first being mailed to Osprey stockholders on or about August 3, 2018.

 

 

 

 

OSPREY ENERGY ACQUISITION CORP.
1845 Walnut Street, 10th Floor
Philadelphia, PA 19103

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OF OSPREY ENERGY ACQUISITION CORP.

 

To Be Held On August 20, 2018 

 

To the Stockholders of Osprey Energy Acquisition Corp.:

 

NOTICE IS HEREBY GIVEN that the special meeting (the “special meeting”) of stockholders of Osprey Energy Acquisition Corp. (“Osprey,” the “Company,” “we,” “our” or “us”) will be held at 3:00 p.m., local time, on August 20, 2018, at the Sofitel Hotel at 120 South 17th Street, Philadelphia, Pennsylvania 19103 for the following purposes:

 

1.The Business Combination Proposal—To consider and vote upon a proposal to approve and adopt the Contribution Agreement, dated as of June 3, 2018 (as may be amended from time to time, the “Contribution Agreement”), by and among Royal Resources L.P. (“Royal LP”), Royal Resources GP L.L.C. (“Royal GP” and collectively with Royal LP, “Royal”), Noble Royalties Acquisition Co., LP (“NRAC”), Hooks Ranch Holdings LP (“Hooks Holdings”), DGK ORRI Holdings, LP (“DGK”), DGK ORRI GP LLC (“DGK GP”), Hooks Holding Company GP, LLC (“Hooks GP,” and collectively with NRAC, Hooks Holdings, DGK, and DGK GP, the “Contributors”), and Osprey pursuant to which Osprey will acquire from the Contributors all of their equity interests in certain of their subsidiaries (the “Royal Entities”) named in the Contribution Agreement, and approve the acquisitions and other transactions contemplated by the Contribution Agreement (the “business combination” and such proposal, the “Business Combination Proposal”). A copy of the Contribution Agreement is attached to the accompanying proxy statement as Annex A;

 

2.The Charter Proposal—To consider and vote upon a proposal to approve and adopt amendments to Osprey’s amended and restated certificate of incorporation (the “Charter”), to be effective upon the consummation of the business combination (the “closing”) (such proposal, the “Charter Proposal”), including six sub-proposals to:

 

a.create a new class of capital stock designated as Class C common stock, par value $0.0001 per share (the “Class C common stock”);

 

b.increase the number of authorized shares of Osprey’s capital stock, par value $0.0001 per share, from 146,000,000 shares to 361,000,000 shares and to increase the number of authorized shares of Osprey’s Class A common stock, par value $0.0001 per share (the “Class A common stock”), from 125,000,000 shares to 240,000,000 shares;

 

c.adopt Delaware as the exclusive forum for certain stockholder litigation;

 

d.require the affirmative vote of the holders of at least 75% of the voting power of all outstanding shares of capital stock of Osprey to amend, repeal or adopt certain provisions of the Charter;

 

e.provide that Section 203 of the Delaware General Corporation Law, which governs business combinations between Osprey and certain interested Osprey stockholders, does not apply to Osprey; and

 

f.eliminate certain provisions in the Charter relating to Osprey’s Class B common stock, par value $0.0001 per share (the “Class B common stock”) and our Initial Business Combination that will no longer be applicable to us following the closing;

 

 

 

 

3.The NASDAQ Proposal—To consider and vote upon a proposal to approve, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (“NASDAQ”), (a) the issuance of shares of Class C common stock to the Contributors in connection with the business combination, which number of shares will equal 40,000,000 and be subject to upward adjustment at closing pursuant to the Contribution Agreement, (b) the issuance of up to an additional 20,000,000 shares of Class C common stock, which number will be subject to upward adjustment pursuant to the Contribution Agreement, that may be issued to Royal LP if the earn-out consideration described in the accompanying proxy statement is issued to the Contributor, (c) the issuance of 11,480,000 shares of Class A common stock concurrent with the closing to certain qualified institutional buyers and accredited investors that have entered into subscription agreements with Osprey for an aggregate consideration of $114,800,000, the proceeds of which will be used to fund a portion of the cash consideration required to effect the business combination, (d) the issuance of a number of shares of Class A common stock equal to the number of shares of Class C common stock issued to the Contributors, which shares of Class A common stock are issuable in the future to the Contributors in connection with the future redemption or exchange of their common units representing limited partner interests in Osprey Minerals Operating Partnership, LP, a Delaware limited partnership (“Osprey Opco”), in accordance with the amended and restated agreement of limited partnership of Osprey Opco to be entered into in connection with the closing, and (e) the issuance of a number of Class A common stock upon the conversion of Class B common stock in accordance with the terms of the Charter (the “NASDAQ Proposal”);

 

4.The LTIP Proposal—To consider and vote upon a proposal to approve and adopt the Falcon Minerals Corporation 2018 Long-Term Incentive Plan and material terms thereunder (the “LTIP Proposal”); and

 

5.The Adjournment Proposal—To consider and vote upon a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposal, the NASDAQ Proposal and the LTIP Proposal (the “Adjournment Proposal” and, together with the Business Combination Proposal, the Charter Proposal, the NASDAQ Proposal and the LTIP Proposal, the “Proposals”).

 

Only holders of record of Osprey’s Class A common stock and Class B common stock at the close of business on August 1, 2018 are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements thereof. A complete list of Osprey’s stockholders of record entitled to vote at the special meeting will be available for 10 days before the special meeting at Osprey’s principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting.

 

Pursuant to our Charter, we are providing the holders of shares of Class A common stock originally sold as part of the units issued in our initial public offering, which closed on July 26, 2017 (the “IPO” and such holders, the “public stockholders”), with the opportunity to redeem, upon the closing, shares of Class A common stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing) in the Trust Account (the “Trust Account”) that holds the proceeds (including interest but net of franchise and income taxes payable) from the IPO and a concurrent private placement of warrants to Osprey Sponsor, LLC (“Osprey Sponsor”). For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of March 31, 2018 of approximately $276.7 million, the estimated per share redemption price would have been approximately $10.06. Public stockholders may elect to redeem their shares even if they vote for the Business Combination Proposal. Notwithstanding the foregoing, a holder of the public shares, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), will be restricted from seeking redemption rights with respect to more than 15% of the shares of Class A common stock included in the units sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Holders of Osprey’s outstanding warrants sold in the IPO, which are exercisable for shares of Class A common stock under certain circumstances, do not have redemption rights in connection with the business combination. Certain of our current stockholders have agreed to waive their redemption rights in connection with the consummation of the business combination with respect to any shares of Class A common stock they may hold, and the founder shares, consisting of all of the outstanding shares of Class B common stock, will be excluded from the pro rata calculation used to determine the per share redemption price. Currently, Osprey Sponsor owns all of the outstanding founder shares, and together with certain of Osprey’s officers and directors, collectively own approximately 20% of Osprey’s outstanding Class A common stock and Class B common stock. Osprey Sponsor and certain members of Osprey Sponsor that are directors and officers of Osprey have agreed to vote any shares of Osprey common stock owned by them in favor of each of the Proposals.

 

If you have any questions or need assistance voting your shares, please call our proxy solicitor, Morrow Sodali LLC, toll free at (800) 662-5200, banks and brokers call collect at (203) 658-9400.

 

By Order of the Board of Directors,

 

Jonathan Z. Cohen
Chief Executive Officer and Director

 

August 3, 2018

 

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be held on August 20, 2018: This notice of meeting and the related proxy statement will be available at http://www.falconminerals.com.

 

 

 

 

TABLE OF CONTENTS

 

CERTAIN DEFINED TERMS 1
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS FOR OSPREY STOCKHOLDERS 3
SUMMARY OF THE PROXY STATEMENT 18
SELECTED HISTORICAL FINANCIAL INFORMATION OF OSPREY 37
SELECTED HISTORICAL FINANCIAL INFORMATION OF ROYAL 38
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 39
RISK FACTORS 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL INFORMATION OF OSPREY 66
NOTES TO OSPREY ENERGY ACQUISITION CORP. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS 71
COMPARATIVE SHARE INFORMATION 77
CAPITALIZATION 78
SPECIAL MEETING OF OSPREY STOCKHOLDERS 79
PROPOSAL NO. 1—THE BUSINESS COMBINATION PROPOSAL 83
PROPOSAL NO. 2—THE CHARTER PROPOSAL 120
PROPOSAL NO. 3—THE NASDAQ PROPOSAL 127
PROPOSAL NO. 4—THE LTIP PROPOSAL 128
PROPOSAL NO. 5—THE ADJOURNMENT PROPOSAL 132
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF OSPREY 133
BUSINESS OF OSPREY 136
OFFICERS AND DIRECTORS OF OSPREY 139
EXECUTIVE COMPENSATION 142
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ROYAL 143
BUSINESS OF ROYAL 155
BENEFICIAL OWNERSHIP OF SECURITIES 171
HOUSEHOLDING INFORMATION 174
SUBMISSION OF STOCKHOLDER PROPOSALS 174
WHERE YOU CAN FIND ADDITIONAL INFORMATION 175
   
INDEX TO FINANCIAL STATEMENTS F-1
ANNEX A: ROYAL CONTRIBUTION AGREEMENT A-1
ANNEX B: SUBSCRIPTION AGREEMENT B-1
ANNEX C: VOTING AGREEMENT C-1
ANNEX D: FORM OF SHAREHOLDERS AGREEMENT D-1
ANNEX E: FORM OF REGISTRATION RIGHTS AGREEMENT E-1
ANNEX F: SECOND AMENDED AND RESTATED CHARTER F-1
ANNEX G: AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FALCON MINERALS OPERATING PARTNERSHIP, LP G-1
ANNEX H: FORM OF LTIP H-1
ANNEX I: RESERVE REPORTS I-1
ANNEX J: GLOSSARY OF OIL AND NATURAL GAS TERMS J-1

 

i

 

 

CERTAIN DEFINED TERMS

 

Unless the context otherwise requires, references in this proxy statement to:

 

“Blackstone” are to Blackstone Management Partners, L.L.C.;

 

“business combination” are to the transactions contemplated by the Contribution Agreement;

 

“Class A common stock” are to the Class A common stock, par value $0.0001 per share, of Osprey;

 

“Class B common stock” are to the Class B common stock, par value $0.0001 per share, of Osprey;

 

“Class C common stock” are to the Class C common stock, par value $0.0001 per share, of Osprey;

 

“closing” are to the closing of the business combination;

 

“closing date” are to the date on which the closing occurs;

 

“common units” are to common units representing limited partner interests in Osprey Opco;

 

“Contribution Agreement” are to the Contribution Agreement, dated as of June 3, 2018, by and among Royal Resources L.P. (“Royal LP”), Royal Resources GP L.L.C. (“Royal GP” and collectively with Royal LP, “Royal”), Noble Royalties Acquisition Co., LP (“NRAC”), Hooks Ranch Holdings LP (“Hooks Holdings”), DGK ORRI Holdings, LP (“DGK”), DGK ORRI GP LLC (“DGK GP”), Hooks Holding Company GP, LLC (“Hooks GP,” and collectively with NRAC, Hooks Holdings, DGK, and DGK GP, the “Contributors”), and Osprey Energy Acquisition Corp., as such agreement may be amended from time to time;

 

“Contributors” are to Noble Royalties Acquisition Co., LP, Hooks Ranch Holdings LP, DGK ORRI Holdings, LP, DGK ORRI GP LLC, and Hooks Holding Company GP, LLC, collectively;

 

“Initial Business Combination” are to our initial merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses;

 

“initial stockholders” are to holders of our founder shares prior to the IPO, including Osprey Sponsor;

 

“IPO” are to our initial public offering of units, which closed on July 26, 2017;

 

“LTIP” are to the Falcon Minerals Corporation 2018 Long Term Incentive Plan;

 

“management” or our “management team” are to the offıcers and directors of Osprey;

 

“NASDAQ” are to The NASDAQ Capital Market;

 

“NYSE” are to the New York Stock Exchange;

 

“Osprey,” the “Company,” “we,” “our” or “us” are to Osprey Energy Acquisition Corp., which will be renamed “Falcon Minerals Corporation” in connection with the closing; references in this proxy statement to “we,” “our” or “us” as it relates to matters following the closing are to the combined company of Falcon Minerals Corporation and the Royal Entities acquired in the business combination;

 

“Osprey board” are to the board of directors of Osprey;

 

“Osprey GP” are to Osprey Minerals GP, LLC, which is the general partner of Osprey Opco and will be renamed to “Falcon Minerals GP, LLC” in connection with the closing;

 

“Osprey Opco” are to Osprey Minerals Operating Partnership LP, which is currently a wholly owned subsidiary of Osprey but will become the operating company of the combined company following the closing and will be renamed to “Falcon Minerals Operating Partnership, LP” in connection with the closing;

 

“Osprey Opco LPA” are to the amended and restated limited partnership operating agreement of Osprey Opco to be entered into in connection with the closing;

 

“Osprey Sponsor” are to Osprey Sponsor, LLC;

 

“private placement warrants” are to the warrants issued to the Osprey Sponsor in a private placement simultaneously with the closing of our IPO;

 

“public shares” are to shares of our Class A common stock sold as part of the units in the IPO (whether they were purchased in the IPO or thereafter in the open market);

 

 1 

 

 

“public stockholders” are to the holders of our public shares;

 

“public warrants” are to the warrants sold as part of the units in the IPO;

 

“Royal” are to Royal LP and Royal Resources GP L.L.C., collectively;

 

“Royal Entities” are to the entities that will be contributed by the Contributors to Osprey Opco in the business combination and include VickiCristina, L.P., a Delaware limited partnership, DGK ORRI Company, L.P., Noble EF DLG LP, a Texas limited partnership, Noble EF DLG GP LLC, a Texas limited liability company, Noble EF LP, a Texas limited partnership, Noble EF GP LLC, a Texas limited liability company, Noble Marcellus LP, a Delaware limited partnership, and Noble Marcellus GP, LLC, a Delaware limited liability company;

 

“Royal LP” are to Royal Resources L.P.;

 

“Royal Parties” are to Royal and the Contributors;
   
 

“Second A&R Charter” are to Osprey’s certificate of incorporation as amended and restated in connection with the closing pursuant to the terms of the Contribution Agreement;

 

“units” are to our units sold in our IPO, each of which consists of one share of Class A common stock and one-half of one public warrant; and

 

“voting common stock” are to our Class A common stock and Class B common stock prior to the closing, and to our Class A common stock and Class C common stock following the closing.

 

For additional defined terms commonly used in the oil and natural gas industry and used in this proxy statement, please see “Glossary of Oil and Natural Gas Terms” set forth in Annex J.

 

Unless otherwise specified, the voting and economic interests of Osprey stockholders set forth in this proxy statement assume the following:

 

at closing, Osprey has sufficient cash at closing to pay $400 million cash consideration to the Contributors and, accordingly, the Contributors receive 40 million common units and 40 million shares of Class C common stock in the aggregate;

 

no public stockholders elect to have their public shares redeemed;

 

the transactions contemplated by each of the Subscription Agreements is consummated concurrently with the closing and the Investors purchase 11,480,000 shares of Class A common stock, in the aggregate;

 

none of Osprey’s existing stockholders or the parties to the Contribution Agreement or Subscription Agreements, who will become stockholders of Osprey at the closing, purchase shares of Class A common stock in the open market; and

 

there are no other issuances of equity interests of Osprey or its subsidiaries prior to or in connection with the closing.

 

Certain sections in this proxy statement refer to an illustrative redemption scenario. Unless otherwise specified, that scenario assumes for illustrative purposes that 8,599,250 shares of Class A common stock are redeemed in connection with the closing, resulting in an aggregate payment of approximately $86.5 million from the Trust Account. This amount of redemptions is the maximum amount of allowable redemptions whereby Osprey believes it will be able to satisfy the closing conditions set forth in the Contribution Agreement, including the condition that the cash consideration available to be paid to the Contributors is at least $355 million in the aggregate and the condition that Osprey shall have complied in all material respects with its covenants under the Contribution Agreement, including the restriction on Osprey’s ability to incur debt financing proceeds in excess of $75 million without Royal’s prior consent. In the illustrative redemption scenario, the balance of the cash and equity consideration received by the Contributors at the closing are adjusted as a result of such redemptions in accordance with the terms of the Contribution Agreement so that the Contributors receive at the closing (x) 44,500,000 common units, (y) 44,500,000 shares of Class C common stock and (z) an amount of cash equal to $355,000,000. For more information, please see the sections entitled “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey” and “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement.” 

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
FOR OSPREY STOCKHOLDERS

 

The following questions and answers briefly address some commonly asked questions about the proposals to be presented at the special meeting (the “special meeting”) of stockholders of Osprey Energy Acquisition Corp. (“Osprey,” the “Company,” “we,” “our” or “us”), including the proposed business combination. The following questions and answers do not include all the information that is important to Osprey stockholders. We urge Osprey stockholders to read carefully this entire proxy statement, including the annexes and other documents referred to herein.

 

Q:Why am I receiving this proxy statement?

 

A:Osprey stockholders are being asked to consider and vote upon, among other things, a proposal to approve and adopt the Contribution Agreement, dated as of June 3, 2018 (as the same may be amended from time to time, the “Contribution Agreement”), by and among Royal Resources L.P. (“Royal LP”), Royal Resources GP L.L.C. (“Royal GP” and collectively with Royal LP, “Royal”), Noble Royalties Acquisition Co., LP (“NRAC”), Hooks Ranch Holdings LP (“Hooks Holdings”), DGK ORRI Holdings, LP (“DGK”), DGK ORRI GP LLC (“DGK GP”), Hooks Holding Company GP, LLC (“Hooks GP,” and collectively with NRAC, Hooks Holdings, DGK and DGK GP, the “Contributors”), and Osprey, pursuant to which Osprey will acquire from the Contributors all of their equity interests in certain of their subsidiaries (the “Royal Entities”) named in the Contribution Agreement, and approve the acquisitions and other transactions contemplated by the Contribution Agreement (the “business combination” and such proposal, the “Business Combination Proposal”). A copy of the Contribution Agreement is attached to this proxy statement as Annex A. This proxy statement and its annexes contain important information about the proposed business combination and the other matters to be acted upon at the special meeting. You should read this proxy statement and its annexes carefully and in their entirety.

 

Your vote is important. You are encouraged to submit your proxy as soon as possible after carefully reviewing this proxy statement and its annexes.

 

Q:When and where is the special meeting?

 

A:

The special meeting will be held on August 20, 2018, at 3:00 p.m., local time, at the Sofitel Hotel at 120 South 17th Street, Philadelphia, Pennsylvania 19103.

 

Q:What is being voted on at the special meeting?

 

A:Below are the proposals on which Osprey stockholders will vote at the special meeting.

 

1.The Business Combination Proposal—To consider and vote upon a proposal to approve and adopt the Contribution Agreement and the business combination.

 

2.The Charter Proposal—To consider and vote upon a proposal to approve and adopt amendments to Osprey’s amended and restated certificate of incorporation (the “Charter”), to be effective upon the consummation of the business combination (the “closing”), including six sub-proposals to:

 

a.create a new class of capital stock designated as Class C common stock;

 

b.increase the number of authorized shares of Osprey’s capital stock, par value $0.0001 per share, from 146,000,000 shares to 361,000,000 shares and to increase the number of authorized shares of Osprey’s Class A common stock, par value $0.0001 per share (the “Class A common stock”), from 125,000,000 shares to 240,000,000 shares;

 

c.adopt Delaware as the exclusive forum for certain stockholder litigation;

 

d.require the affirmative vote of the holders of at least 75% of the voting power of all outstanding shares of capital stock of Osprey to amend, repeal or adopt certain provisions of the Charter;

 

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e.provide that Section 203 of the Delaware General Corporation Law, which governs business combinations between Osprey and certain interested Osprey stockholders, does not apply to Osprey; and

 

f.eliminate certain provisions in the Charter relating to Osprey’s Class B common stock and our Initial Business Combination that will no longer be applicable to us following the closing.

 

3.The NASDAQ Proposal—To consider and vote upon a proposal to approve, for purposes of complying with applicable listing rules of The NASDAQ Capital Market (“NASDAQ”), (a) the issuance of shares of Class C common stock to the Contributors in connection with the business combination, which number of shares will equal 40,000,000 and be subject to upward adjustment at closing pursuant to the Contribution Agreement, (b) the issuance of up to an additional 20,000,000 shares of Class C common stock, which number will be subject to upward adjustment pursuant to the Contribution Agreement, that may be issued to Royal LP if the earn-out consideration described in this proxy statement is issued to Royal LP, (c) the issuance of 11,480,000 shares of Class A common stock concurrent with the closing to certain qualified institutional buyers and accredited investors that have entered into subscription agreements with Osprey for aggregate consideration of approximately $114,800,000, the proceeds of which will be used to fund a portion of the cash consideration required to effect the business combination, (d) the issuance of a number of shares of Class A common stock equal to the number of shares of Class C common stock issued to the Contributors, which shares of Class A common stock are issuable in the future to the Contributors in connection with the future redemption or exchange of their common units representing limited partner interests (the “common units”) in Osprey Minerals Operating Partnership, LP, a Delaware limited partnership (“Osprey Opco”), in accordance with the amended and restated agreement of limited partnership of Osprey Opco to be entered into in connection with the closing (the “Osprey Opco LPA”), and (e) the issuance of a number of Class A common stock upon the conversion of Class B common stock in accordance with the terms of the Charter.

 

4.The LTIP Proposal—To consider and vote upon a proposal to approve and adopt the Falcon Minerals Corporation 2018 Long Term Incentive Plan (the “LTIP”) and material terms thereunder.

 

5.The Adjournment Proposal—To consider and vote upon a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal, the Charter Proposal, the NASDAQ Proposal and the LTIP Proposal.

 

Q:Are the proposals conditioned on one another?

 

A:The closing is conditioned on the approval of the Business Combination Proposal, the Charter Proposal and the NASDAQ Proposal at the special meeting. The Business Combination Proposal is conditioned on the approval of the Charter Proposal and the NASDAQ Proposal, the Charter Proposal is conditioned on the approval of the Business Combination Proposal and the NASDAQ Proposal and the NASDAQ Proposal is conditioned on the approval of the Business Combination Proposal and the Charter Proposal. The LTIP Proposal is conditioned on the approval of the Business Combination Proposal and the NASDAQ Proposal. The Adjournment Proposal is not conditioned on the approval of any other Proposal set forth in this proxy statement.

 

Q:Why is Osprey providing stockholders with the opportunity to vote on the business combination?

 

A:Under our Charter, we must provide all holders of shares of Class A common stock originally sold as part of the units issued in our initial public offering, which closed on July 26, 2017 (the “IPO” and such shares and holders, the “public shares” and “public stockholders,” respectively), with the opportunity to have their public shares redeemed upon the consummation of an Initial Business Combination (as defined in our Charter) either in conjunction with a tender offer or in conjunction with a stockholder vote. The business combination, if consummated, would be an Initial Business Combination. For business and other reasons, we have elected to provide our stockholders with the opportunity to have their public shares redeemed in connection with a stockholder vote rather than a tender offer. Therefore, we are seeking to obtain the approval of our stockholders of the Business Combination Proposal in order to allow our public stockholders to effectuate redemptions of their public shares in connection with the consummation of the business combination. The approval of our stockholders of the Business Combination Proposal is also a condition to closing in the Contribution Agreement.

 

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Q:What will happen in the business combination?

 

A:At the closing, Osprey Opco, which is currently a wholly owned subsidiary of Osprey, will acquire all of equity interests of the Royal Entities.

 

Pursuant to the Contribution Agreement, at closing, Osprey will contribute cash to Osprey Opco, in exchange for (a) a number of common units equal to the number of shares of Class A common stock outstanding as of the closing and (b) a number of Osprey Opco warrants exercisable for common units equal to the number of warrants to purchase shares of Class A common stock (the “warrants”) outstanding as of the closing. Following the closing, we will control Osprey Opco through Osprey GP, a newly formed Delaware limited liability company and wholly owned subsidiary of Osprey, and general partner of Osprey Opco.

 

Pursuant to the terms of the Contribution Agreement, at the closing, the Contributors will receive consideration consisting of $800 million plus reimbursement of certain of their transaction expenses. The $800 million consideration will consist of (i) $400 million of cash and (ii) 40 million common units, with each common unit valued at $10.00 per unit. If there is insufficient cash at closing to pay $400 million to the Contributors (as a result of redemptions or otherwise), then the Contributors will receive less cash, and more common units with each additional common unit valued at $10.00 per unit. As a condition to the Contributors’ obligation to consummate the business combination, the cash consideration available to be paid to them must total at least $355 million, in the aggregate. For each common unit received by the Contributors as consideration, Osprey will also issue to the Contributors one share of non-economic Class C common stock, entitling the holder to one vote per share.

 

In addition to the above, Royal LP will be entitled to receive earn-out consideration to be paid in the form of common units (with a corresponding number of shares of Class C common stock) if the volume-weighted average price of the trading days during any thirty (30) calendar days (the “30-Day VWAP”) of the Class A common stock equals or exceeds certain hurdles set forth in the Contribution Agreement. If the 30-Day VWAP of the Class A common stock is $12.50 or more per share at any time within the seven years following the closing, Royal LP will receive (i) an additional 10 million common units (and an equivalent number of shares of Class C common stock), plus (ii) an amount of common units (and an equivalent number of shares of Class C common stock) equal to (x) the amount by which annual cash dividends paid on each share of Class A common stock exceeds $0.50 in each year between the closing and the date the first earn-out is achieved (with any dividends paid in the stub year in which the first earn-out is achieved annualized for purposes of determining what portion of such dividends would have, on an annual basis, exceeded $0.50), multiplied by 10 million, (y) divided by $12.50. If the 30-Day VWAP of the Class A common stock is $15.00 or more per share at any time within the seven years following the closing (which $15.00 threshold will be reduced by the amount by which annual cash dividends paid on each share of Class A common stock exceeds $0.50 in each year between the closing and the date the earn-out is achieved, but not below $12.50), Royal LP will receive an additional 10 million common units (and an equivalent number of Class C common stock).

 

In connection with the closing, Osprey will be renamed “Falcon Minerals Corporation,” and Osprey Opco will be renamed “Falcon Minerals Operating Partnership LP.” The combined company will be operated as an “Up-C,” meaning that substantially all the assets of the combined company will be held by Osprey Opco, and Osprey’s only assets will be its equity interests in Osprey Opco and the general partner of Opco (“Osprey GP”). Each common unit, together with one share of Class C common stock, will be exchangeable for one share of Class A common stock at the option of the holder, subject to certain restrictions.

 

For more information, please see the section entitled “Proposal No. 1—The Business Combination Proposal.”

 

Q:What conditions must be satisfied to complete the business combination?

 

A:There are a number of customary closing conditions in the Contribution Agreement, including the approval by our stockholders of the Business Combination Proposal, the Charter Proposal and the NASDAQ Proposal. For a summary of the conditions that must be satisfied or waived prior to the closing, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Conditions to Closing of the Business Combination.”

 

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Q:How will Osprey Opco and Osprey be managed and governed following the business combination?

 

A:Following the closing, assuming that the Contributors receive $400 million of cash, 40 million common units and 40 million shares of Class C common stock, Osprey will hold approximately 53% of the limited partner interests in Osprey Opco and will own Osprey GP. Osprey Opco will hold 100% of the economic equity interests in the Royal Entities. As such, Osprey will be responsible for all operational and administrative decisions of Osprey Opco and the day-to-day management of Osprey Opco’s business. Osprey does not currently have any management-level employees, other than Edward E. Cohen, Executive Chairman of our board of directors, Jonathan Z. Cohen, our Chief Executive Officer, Daniel C. Herz, our President, and Jeffrey F. Brotman, our Chief Financial Officer, Chief Legal Officer and Secretary. Following the closing, Mr. E. Cohen will remain Executive Chairman, Mr. J. Cohen will remain our Chief Executive Officer, Mr. Herz will remain our President and Mr. Brotman will remain our Chief Financial Officer, Chief Legal Officer and Secretary.

 

Osprey is, and after the closing will continue to be, managed by its board of directors. Following the closing, the size of our board of directors will be expanded from five directors to eleven and will include (a) six directors designated by Blackstone Management Partners, L.L.C. (“Blackstone”), which currently controls the Contributors, (b) two directors designated by Osprey Sponsor, and (c) three independent directors mutually selected prior to the closing by the Contributors and Osprey Sponsor.

 

Please see the sections entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—The Shareholders’ Agreement” and “Officers and Directors of Osprey.”

 

Q:Will Osprey obtain new financing in connection with the business combination?

 

A:On June 3, 2018, Osprey Opco entered into a commitment letter (the “debt commitment letter”) with the lenders party thereto (collectively, the “Commitment Parties”), pursuant to which the Commitment Parties committed to make available to Osprey Opco in accordance with the terms of the debt commitment letter, on the date of closing, a revolving credit facility in the aggregate principal amount of up to $500 million (the “Revolving Credit Facility”). A portion of the proceeds of the borrowings under the Revolving Credit Facility will be used to finance the cash portion of the consideration and the costs and the expenses of the business combination.

 

In addition, on June 3, 2018, Osprey entered into subscription agreements (the “Subscription Agreements”), each dated as of June 3, 2018, with certain qualified institutional buyers and accredited investors (the “Investors”), pursuant to which, among other things, Osprey agreed to issue and sell in a private placement an aggregate of 11,480,000 shares of Class A common stock to the Investors for aggregate consideration of $114,800,000 (the “Private Placement”). The proceeds from the Private Placement will be used to fund a portion of the cash consideration required to effect the business combination.

 

Q:Are there any arrangements to help ensure that Osprey will have sufficient funds, together with the proceeds in its Trust Account, to fund the cash consideration to be paid to the Contributors?

 

A:Yes. As noted above, Osprey Opco entered into the debt commitment letter on June 3, 2018 pursuant to which the lender parties thereto committed to make available to Osprey Opco in accordance with the terms of the debt commitment letter, on the date of closing, a revolving credit facility in the aggregate principal amount of up to $500 million (the “Revolving Credit Facility”). A portion of the proceeds of the borrowings under the Revolving Credit Facility will be used to finance the cash portion of the consideration and the costs and the expenses of the business combination. In addition, as noted above, on June 3, 2018, Osprey entered into the Subscription Agreements that will raise an additional $114,800,000 of cash at the closing from the sale of 11,480,000 shares of Class A common stock in the Private Placement.

 

The Contribution Agreement also provides that, if Osprey does not have cash on hand at the closing necessary to pay $400 million of cash consideration to the Contributors (including as a result of redemptions or otherwise), the Contributors will receive less cash, and more common units (with an equivalent number of shares of Class C common stock) with each additional common unit valued at $10.00. Under the Contribution Agreement, the Contributors have a right not to close the business combination if the cash consideration available to be paid to them is not at least $355 million in the aggregate.

 

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Q:What equity stake will current Osprey stockholders, the holders of our founder shares, the Investors and the Contributors hold in Osprey following the closing?

 

A:It is anticipated that, upon closing and based on the assumptions set forth in “Certain Defined Terms,” the ownership of Osprey will be as follows:

 

the public stockholders will own 27,500,000 shares of our Class A common stock, representing an approximate 60.0% economic interest and an approximate 32.0% voting interest in Osprey;

 

the holders of our founder shares, namely Osprey Sponsor, will own 6,875,000 shares of our Class A common stock, representing an approximate 15.0% economic interest and an approximate 8.0% voting interest in Osprey;

 

the Investors, which include public stockholders and certain of our directors and officers, will own 11,480,000 shares of our Class A common stock, representing an approximate 25.0% economic interest and an approximate 13.4% voting interest in Osprey; and

 

the Contributors will own 40,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 46.6% voting interest in Osprey.

 

Our existing affiliates, which include Osprey Sponsor and our directors, will collectively own an approximate 18.4% economic interest and an approximate 9.8% voting interest in Osprey upon the closing.

 

If the actual facts are different than the assumptions set forth in “Certain Defined Terms,” the economic and voting interest set forth above will be different. For example, if we assume that all outstanding 7,500,000 private placement warrants held by Osprey Sponsor and all the 13,750,000 public warrants were exercised following the closing, then the ownership of Osprey’s Class A common stock and Class C common stock would be as follows:

 

the public stockholders and former holders of the public warrants will own 41,250,000 shares of our Class A common stock, representing an approximate 61.5% economic interest and an approximate 38.5% voting interest in Osprey;

 

the holders of our founder shares and the former private placement warrants, namely Osprey Sponsor, will own 14,375,000 shares of our Class A common stock, representing an approximate 21.4% economic interest and an approximate 13.4% voting interest in Osprey;

 

the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 17.1% economic interest and an approximate 10.7% voting interest in Osprey; and

 

the Contributors will own 40,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 37.3% voting interest in Osprey.

 

In this scenario, our existing affiliates, which include Osprey Sponsor and our directors, will collectively own an approximate 23.7% economic interest and an approximate 14.9% voting interest in Osprey upon the closing.

 

The warrants will become exercisable on the later of 30 days after the completion of an Initial Business Combination and 12 months following the closing of the IPO and will expire five years after the completion of an Initial Business Combination or earlier upon their redemption or liquidation.

 

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See the sections entitled “Summary of the Proxy Statement—Impact of the Business Combination on Osprey’s Public Float” and “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey” for further information.

 

Q:How will the payment of the earn-out consideration to Royal LP affect the equity stake that the current Osprey stockholders, the holders of our founder shares and the Contributors will have in Osprey?

 

A:Pursuant to the Contribution Agreement, Royal LP may be entitled to receive additional common units (and acquire a corresponding number of shares of Class C common stock) as earn-out consideration if the 30-day VWAP of the Class A common stock equals or exceeds specified prices as follows (each such payment, an “earn-out payment”).

 

Under the Contribution Agreement, if the 30-day VWAP of the Class A common stock is $12.50 or more per share at any time within the seven years following the closing, Royal LP will receive (a) an additional 10 million common units (and an equivalent number of shares of Class C common stock), plus (b) an amount of common units (and an equivalent number of shares of Class C common stock) equal to (x) the amount by which annual cash dividends paid on each share of Class A common stock exceeds $0.50 in each year between the closing and the date the first earn-out is achieved (with any dividends paid in the stub year in which the first earn-out is achieved annualized for purposes of determining what portion of such dividends would have, on an annual basis, exceeded $0.50), multiplied by 10 million, (y) divided by $12.50. Assuming that this earn-out payment is paid and no annual cash dividends exceeded $0.50 prior to payment (including on an annualized basis), all outstanding 7,500,000 private placement warrants held by Osprey Sponsor and all the 13,750,000 public warrants were exercised, and based upon the other assumptions set forth under “Certain Defined Terms,” then the ownership of Osprey’s Class A common stock and Class C common stock would be as follows:

 

the public stockholders and former holders of the public warrants will own 41,250,000 shares of our Class A common stock, representing an approximate 61.5% economic interest and an approximate 35.2% voting interest;

 

the holders of our founder shares and the former private placement warrants, namely Osprey Sponsor, will own 14,375,000 shares of our Class A common stock, representing an approximate 21.4% economic interest and an approximate 12.3% voting interest;

 

the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 17.1% economic interest and an approximate 9.8% voting interest in Osprey; and

 

the Contributors will own 50,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 42.7% voting interest.

 

Under the Contribution Agreement if the 30-day VWAP of the Class A common stock is $15.00 or more per share at any time within the seven years following the closing (which $15.00 threshold will be reduced by the amount by which annual cash dividends paid on each share of Class A common stock exceeds $0.50 in each year between the closing and the date the earn-out is achieved, but not below $12.50), Royal LP will receive an additional 10 million common units (and an equivalent number of Class C common stock). Assuming that this earn-out payment is paid, all outstanding 7,500,000 private placement warrants held by Osprey Sponsor and all the 13,750,000 public warrants were exercised, and based upon the other assumptions set forth under “Certain Defined Terms,” then the ownership of Osprey’s Class A common stock and Class C common stock would be as follows:

 

the public stockholders and former holders of the public warrants will own 41,250,000 shares of our Class A common stock, representing an approximate 61.5% economic interest and an approximate 32.5% voting interest;

 

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the holders of our founder shares and the former private placement warrants, namely Osprey Sponsor, will own 14,375,000 shares of our Class A common stock, representing an approximate 21.4% economic interest and an approximate 11.3% voting interest;

 

the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 17.1% economic interest and an approximate 9.0% voting interest in Osprey; and

 

the Contributors will own 60,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 47.2% voting interest.

 

See the sections entitled “Summary of the Proxy Statement—Impact of the Business Combination on Osprey’s Public Float” and “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey” for further information.

 

Q:Why is Osprey proposing the amendments to the Charter set forth in the Charter Proposal?

 

A:The proposed amendments to the Charter that Osprey is asking its stockholders to approve in connection with the business combination provide for, among other things, the creation of the Class C common stock that will be issued to the Contributors at the closing, and the elimination of certain provisions relating to an initial merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (an “initial business combination”) that will no longer be applicable to us following the closing. In addition, Osprey is asking its stockholders to approve an amendment to increase the number of authorized shares of capital stock from 146,000,000 shares to 361,000,000 shares and to increase the number of authorized shares of Class A common stock from 125,000,000 shares to 240,000,000 shares, to adopt Delaware’s business combination statute, to adopt an amendment to require a supermajority vote of stockholders to amend, repeal or adopt certain provisions of the Charter, and to adopt an amendment to eliminate certain provisions relating to Class B common stock that would no longer be applicable to us following the closing. Stockholder approval of the Charter Proposal is required under our Charter and is a condition to closing the business combination. See the section entitled “Proposal No. 2—The Charter Proposal.”

 

Q:Why is Osprey proposing the NASDAQ Proposal?

 

A:Osprey is proposing the NASDAQ Proposal in order to comply with NASDAQ Listing Rules, which require stockholder approval of certain transactions that result in the issuance of 20% or more of a company’s outstanding voting power or shares of common stock outstanding before the issuance of stock or securities. Osprey will issue (a) shares of Class C common stock to the Contributors in connection with the business combination, which number of shares will equal 40,000,000 and be subject to upward adjustment at closing pursuant to the Contribution Agreement, (b) up to an additional 20,000,000 shares of Class C common stock, which number will be subject to upward adjustment pursuant to the Contribution Agreement, that may be issued to Royal LP if the earn-out consideration described in the accompanying proxy statement is issued to Royal LP, (c) 11,480,000 shares of Class A common stock concurrent with the closing, the issuance to certain qualified institutional buyers and accredited investors who have entered into subscription agreements with Osprey for aggregate consideration of $114,800,000, the proceeds of which will be used to fund a portion of the cash consideration required to effect the business combination, (d) the issuance of a number of shares of Class A common stock equal to the number of shares of Class C common stock issued to the Contributors, which shares are issuable in the future to the Contributors in connection with the future redemption or exchange of their common units in accordance with the amended and restated agreement of limited partnership of Osprey Opco, and (e) a number of Class A common stock upon the conversion of Class B common stock in accordance with the terms of the Charter. Because Osprey will issue 20% or more of its outstanding voting power and outstanding common stock in connection with the business combination, it is required to obtain stockholder approval of such issuances pursuant to NASDAQ Listing Rules. Stockholder approval of the NASDAQ Proposal is also a condition to closing in the Contribution Agreement. See the section entitled “Proposal No. 3—The NASDAQ Proposal” for additional information.

 

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Q:What happens if I sell my shares of Class A common stock before the special meeting?

 

A:The record date for the special meeting is earlier than the date that the business combination is expected to be completed. If you transfer your shares of Class A common stock after the record date, but before the special meeting, unless the transferee obtains from you a proxy to vote those shares, you will retain your right to vote at the special meeting. However, you will not be able to seek redemption of your shares of Class A common stock because you will no longer be able to deliver them for cancellation upon the closing in accordance with the provisions described herein. If you transfer your shares of Class A common stock prior to the record date, you will have no right to vote those shares at the special meeting or redeem those shares for a pro rata portion of the proceeds held in the Trust Account.

 

Q:How has the announcement of the business combination affected the trading price of Osprey’s Class A common stock, warrants and units?

 

A:

On June 1, 2018, the last trading date before the public announcement of the business combination, Osprey’s Class A common stock, warrants and units closed at $7.25, $0.98 and $10.15, respectively. On August 2, 2018, the trading date immediately prior to the date of this proxy statement, Osprey’s Class A common stock, warrants and units closed at $10.55, $1.98 and $11.40, respectively.

 

Q:Following the business combination, will Osprey’s securities continue to trade on a stock exchange?

 

  A: Yes. In connection with the closing, we intend to change our name from “Osprey Energy Acquisition Corp.” to “Falcon Minerals Corporation,” and our Class A common stock and warrants will be listed following the closing under the symbols “FLMN” and “FLMNW”, respectively. We intend to apply to list the Class A common stock and warrants on the New York Stock Exchange (the “NYSE”) following the closing. Our units will automatically separate into the component securities upon the closing and, as a result, will no longer trade as a separate security following the business combination.

 

Q:What vote is required to approve the Proposals presented at the special meeting?

 

A:Approval of the Business Combination Proposal, the NASDAQ Proposal, the LTIP Proposal and the Adjournment Proposal requires the affirmative vote (in person or by proxy) of the holders of the majority of the shares of Class A common stock and Class B common stock entitled to vote and actually cast thereon at the special meeting, voting as a single class. Approval of the Charter Proposal requires the affirmative vote (in person or by proxy) of the holders of a majority of the outstanding shares of Class A common stock and Class B common stock entitled to vote thereon at the special meeting, voting as a single class.

 

Q:May Osprey Sponsor, directors, officers, advisors or their affiliates purchase shares in connection with the business combination?

 

A:In connection with the stockholder vote to approve the proposed business combination, Osprey Sponsor, directors, officers, or advisors or their respective affiliates may privately negotiate transactions to purchase shares from stockholders who would have otherwise elected to have their shares redeemed in conjunction with a proxy solicitation pursuant to the proxy rules for a per share pro rata portion of the Trust Account. None of Osprey Sponsor, directors, officers or advisors or their respective affiliates will make any such purchases when they are in possession of any material non-public information not disclosed to the seller. Such a purchase would include a contractual acknowledgement that such stockholder, although still the record holder of our shares, is no longer the beneficial owner thereof and, therefore, agrees not to exercise its redemption rights, and could include a contractual provision that directs such stockholder to vote such shares in a manner directed by the purchaser. In the event that Osprey Sponsor, directors, officers or advisors or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. Any such privately negotiated purchases may be effected at purchase prices that are below or in excess of the per share pro rata portion of the Trust Account.

 

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Q:How many votes do I have at the special meeting?

 

  A: Osprey’s stockholders are entitled to one vote at the special meeting for each share of Class A common stock and one vote at the special meeting for each share of Class B common stock held of record as of August 1, 2018, the record date for the special meeting. As of the close of business on August 1, 2018, there were a combined 34,375,000 outstanding shares of Class A common stock and Class B common stock.

 

Q:What constitutes a quorum at the special meeting?

 

A:Holders of a majority in voting power of Class A common stock and Class B common stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitute a quorum.

 

Q:How will Osprey Sponsor and Osprey’s directors and officers vote?

 

A:Osprey Sponsor and certain of Osprey’s directors and officers entered into a voting agreement (the “Voting Agreement”) with Royal, pursuant to which each agreed to vote any shares of Class A common stock and Class B common stock owned by them in favor of the stockholders proposals presented at the Osprey special meeting. Currently, Osprey Sponsor owns all of the founder shares, representing approximately 20% of our issued and outstanding shares of Class A common stock and Class B common stock, in the aggregate. Our officers and directors currently do not separately hold any outstanding shares of Class A common stock or Class B common stock.

 

Q:What interests do the current officers and directors have in the business combination?

 

A:In considering the recommendation of the Osprey board to vote in favor of the business combination, stockholders should be aware that, aside from their interests as stockholders, Osprey Sponsor and certain of our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include, among other things:

 

the fact that Osprey Sponsor holds private placement warrants that would expire worthless if a business combination is not consummated;

 

the fact that Osprey Sponsor, officers and directors have agreed not to redeem any of the shares of Class A common stock and Class B common stock held by them in connection with a stockholder vote to approve the business combination;

 

  the fact that Osprey Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $72,531,250 based on the closing price of our Class A common stock on August 2, 2018;

 

if the Trust Account is liquidated, including in the event we are unable to complete an Initial Business Combination within the required time period, Jonathan Z. Cohen has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

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the continuation of Edward E. Cohen, Jonathan Z. Cohen, Brian L. Frank, Steven R. Jones and William D. Anderson as directors of Osprey, and Blackstone’s right to nominate up to six directors to our board of directors following the closing based on its and its affiliates’ beneficial ownership of our Class A common stock and Class C common stock in accordance with the terms of the Shareholders’ Agreement;

 

the fact that Edward E. Cohen, Jonathan Z. Cohen, Jeffrey F. Brotman and Steven R. Jones separately agreed to participate in the PIPE investment and purchase, in the aggregate, $15,550,000 of Class A common stock at $10.00 per share on the terms set forth in the Subscription Agreements;

  

the fact that Osprey Sponsor and our officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an Initial Business Combination or fail to complete an Initial Business Combination by July 26, 2019;

 

the fact that Osprey Sponsor and our officers and directors will lose their entire investment in us if an Initial Business Combination is not completed;

 

the fact that Osprey is party to a registration rights agreement with Osprey Sponsor which provides for registration rights to such parties;

 

the fact that it is currently expected that our executive officers will continue their employment with us following the closing of the business combination;

 

the fact that none of our directors or executive officers is entitled to compensation that is based on or otherwise relates to the closing; and

 

the fact that we will continue to provide indemnification and insurance coverage to our directors and executive officers following the closing of the business combination.

 

Q:What happens if I vote against the Business Combination Proposal?

 

A:Under our Charter, if the Business Combination Proposal is not approved and we do not otherwise consummate an alternative business combination by July 26, 2019, we will be required to dissolve and liquidate the Trust Account by returning the then-remaining funds in such account to our public stockholders.

 

Q:Do I have redemption rights?

 

A:If you are a holder of public shares, you may elect to have your public shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the Trust Account as of two (2) business days prior to the closing, including interest not previously released to Osprey to pay its franchise and income taxes, by (b) the total number of shares of Class A common stock included as part of the units sold in the IPO; provided that Osprey will not redeem any public shares to the extent that such redemption would result in Osprey having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of less than $5,000,001. Notwithstanding the foregoing, a holder of the public shares, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than 15% of the shares of Class A common stock included in the units sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Unlike some other blank check companies, other than the net tangible asset requirement and the 15% threshold described above, Osprey has no specified maximum redemption threshold and there is no other limit on the amount of public shares that you can redeem. Osprey Sponsor and certain of its members who are also directors and officers of Osprey have agreed to waive their redemption rights with respect to any shares of Osprey’s capital stock they may hold in connection with the closing, and the founder shares will be excluded from the pro rata calculation used to determine the per share redemption price. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of March 31, 2018 of approximately $276.7 million, the estimated per share redemption price would have been approximately $10.06. Additionally, shares properly tendered for redemption will only be redeemed if the business combination is consummated; otherwise holders of such shares will only be entitled to a pro rata portion of the Trust Account (including interest but net of franchise and income taxes payable) in connection with the liquidation of the Trust Account or if we subsequently complete a different business combination on or prior to July 26, 2019.

 

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Q:Will how I vote affect my ability to exercise redemption rights?

 

A:No. You may exercise your redemption rights whether you vote your shares of Class A common stock for or against or abstain from voting on the Business Combination Proposal or any other proposal described in this proxy statement. As a result, the business combination can be approved by stockholders who will redeem their shares and no longer remain stockholders.

 

Q:How do I exercise my redemption rights?

  

  A: In order to exercise your redemption rights, you must (i) if you hold your shares of Class A common stock through units, elect to separate your units into the underlying public shares and public warrants prior to exercising your redemption rights with respect to the public shares, (ii) check the box on the enclosed proxy card marked “Stockholder Certification,” and (iii) prior to 5:00 p.m., Eastern Time, on August 16, 2018 (two (2) business days before the special meeting), tender your shares physically or electronically and submit a request in writing that we redeem your public shares for cash to Continental Stock Transfer & Trust Company, our transfer agent, at the following address:

 

Continental Stock Transfer & Trust Company
1 State Street—30th Floor

New York, New York 10004
Attention: Mark Zimkind
Email: mzimkind@continentalstock.com

 

Please check the box on the enclosed proxy card marked “Stockholder Certification” if you are not acting in concert or as a “group” with any other stockholder with respect to shares of Class A common stock or Class B common stock. Notwithstanding the foregoing, a holder of the public shares, together with any affiliate or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than 15% of the shares of Class A common stock included in the units sold in our IPO, which we refer to as the “15% threshold.” Accordingly, all public shares in excess of the 15% threshold beneficially owned by a public stockholder or group will not be redeemed for cash. Stockholders seeking to exercise their redemption rights and opting to deliver physical certificates should allot sufficient time to obtain physical certificates from the transfer agent and time to effect delivery. It is Osprey’s understanding that stockholders should generally allot at least two weeks to obtain physical certificates from the transfer agent. However, Osprey does not have any control over this process and it may take longer than two weeks. Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares certificated or delivered electronically.

 

Holders of outstanding units of Osprey must separate the underlying public shares and public warrants prior to exercising redemption rights with respect to the public shares. If you hold units registered in your own name, you must deliver the certificate for such units to Continental Stock Transfer & Trust Company with written instructions to separate such units into public shares and public warrants. This must be completed far enough in advance to permit the mailing of the public share certificates back to you so that you may then exercise your redemption rights upon the separation of the public shares from the units.

 

If a broker, dealer, commercial bank, trust company or other nominee holds your units, you must instruct such nominee to separate your units. Your nominee must send written instructions by facsimile to Continental Stock Transfer & Trust Company. Such written instructions must include the number of units to be split and the nominee holding such units. Your nominee must also initiate electronically, using the Depository Trust Company’s (the “DTC”) DWAC (deposit withdrawal at custodian) system, a withdrawal of the relevant units and a deposit of an equal number of public shares and public warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights upon the separation of the public shares from the units. While this is typically done electronically on the same business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your public shares to be separated in a timely manner, you will likely not be able to exercise your redemption rights.

 

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Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the vote is taken with respect to the business combination. If you delivered your shares for redemption to the transfer agent and decide within the required time frame not to exercise your redemption rights, you may request that the transfer agent return the shares (physically or electronically). You may make such request by contacting our transfer agent at the phone number or address listed under the question “Who can help answer my questions?” below.

 

Q:What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A:Whether the redemption is subject to U.S. federal income tax depends on your particular facts and circumstances. See the section entitled “Proposal No. 1—The Business Combination Proposal—Certain U.S. Federal Income Tax Considerations.” We urge you to consult your tax advisors regarding the tax consequences of exercising your redemption rights.

 

Q:Are there any other material U.S. federal income tax consequences to Osprey that are expected to result from the business combination?

 

A:If the business combination is effected, we expect that we will be treated as a U.S. real property holding corporation for U.S. federal income tax purposes. If you are a Non-U.S. holder (defined below in the section entitled “Proposal No. 1—The Business Combination Proposal—Certain U.S. Federal Income Tax Considerations”), we urge you to consult your tax advisors regarding the tax consequences of such treatment.

 

Q:If I am a warrant holder, can I exercise redemption rights with respect to my warrants?

 

A:No. The holders of our warrants have no redemption rights with respect to our warrants.

 

Q:Do I have appraisal rights if I object to the proposed business combination?

 

A:No. There are no appraisal rights available to holders of Class A common stock or Class B common stock in connection with the business combination.

 

Q:What happens to the funds deposited in the Trust Account after the closing?

 

A:If the Proposals required for the business combination are approved, Osprey intends to use a portion of the funds held in the Trust Account to pay (i) a portion of Osprey’s aggregate costs, fees and expenses in connection with the closing, (ii) tax obligations and deferred underwriting commissions from the IPO and (iii) for any redemptions of public shares. The remaining balance in the Trust Account will be contributed to Osprey Opco to be paid to the Contributors in connection with the business combination. See the section entitled “Proposal No. 1—The Business Combination Proposal” for additional information.

 

Q:What happens if the business combination is not consummated or is terminated?

 

A:There are certain circumstances under which the Contribution Agreement may be terminated. See the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Termination” for additional information regarding the parties’ specific termination rights. In accordance with our Charter, if an Initial Business Combination is not consummated by July 26, 2019, Osprey will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than 10 business days thereafter subject to lawfully available funds therefor, redeem 100% of the public shares in consideration of a per share price, payable in cash, equal to the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest not previously released to Osprey to pay its franchise and income taxes (less up to $100,000 of such net interest to pay dissolution expenses), by (B) the total number of then outstanding public shares, which redemption will completely extinguish rights of the public stockholders as stockholders of Osprey (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under the Delaware General Corporation Law (the “DGCL”) to provide for claims of creditors and other requirements of applicable law.

 

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Osprey expects that the amount of any distribution its public stockholders will be entitled to receive upon its dissolution will be approximately the same as the amount they would have received if they had redeemed their shares in connection with the business combination, subject in each case to Osprey’s obligations under the DGCL to provide for claims of creditors and other requirements of applicable law. Holders of our founder shares have waived any right to any liquidating distributions with respect to those shares.

 

In the event of liquidation, there will be no distribution with respect to Osprey’s outstanding warrants. Accordingly, the warrants will expire worthless.

 

Q:When is the business combination expected to be consummated?

 

  A: It is currently anticipated that the business combination will be consummated promptly following the special meeting of Osprey stockholders to be held on August 20, 2018, provided that all the requisite stockholder approvals are obtained and other conditions to the closing have been satisfied or waived. For a description of the conditions for the closing, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Conditions to Closing of the Business Combination.”

  

Q:What do I need to do now?

 

A:You are urged to read carefully and consider the information contained in this proxy statement, including “Risk Factors” and the annexes, and to consider how the business combination will affect you as a stockholder. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement and on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

Q:How do I vote?

  

  A: If you were a holder of record of Class A common stock or Class B common stock on August 1, 2018, the record date for the special meeting of Osprey stockholders, you may vote with respect to the proposals in person at the special meeting or by completing signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or other nominee, you should follow the instructions provided by your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the record holder of your shares with instructions on how to vote your shares or, if you wish to attend the special meeting and vote in person, obtain a proxy from your broker, bank or nominee.

 

Q:What will happen if I abstain from voting or fail to vote at the special meeting?

 

A:At the special meeting, Osprey will count a properly executed proxy marked “ABSTAIN” with respect to a particular proposal as present for purposes of determining whether a quorum is present. For purposes of approval, failure to vote or an abstention will have no effect on the Business Combination Proposal, the NASDAQ Proposal, the LTIP Proposal or the Adjournment Proposal, but will have the same effect as a vote AGAINST the Charter Proposal.

 

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Q:What will happen if I sign and submit my proxy card without indicating how I wish to vote?

 

A:Signed and dated proxies received by Osprey without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each proposal presented to the stockholders.

 

Q:If I am not going to attend the special meeting in person, should I submit my proxy card instead?

 

A:Yes. Whether you plan to attend the special meeting or not, please read the enclosed proxy statement carefully, and vote your shares by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.

 

Q:If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A:No. Under the rules of various national and regional securities exchanges, your broker, bank, or nominee cannot vote your shares with respect to non-discretionary matters unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank, or nominee. Osprey believes the proposals presented to the stockholders will be considered non-discretionary and therefore your broker, bank, or nominee cannot vote your shares without your instruction. Your bank, broker, or other nominee can vote your shares only if you provide instructions on how to vote. You should instruct your broker to vote your shares in accordance with directions you provide.

 

Q:May I change my vote after I have submitted my executed proxy card?

 

A:Yes. You may change your vote by sending a later-dated, signed proxy card to Osprey’s secretary at the address listed below so that it is received by our secretary prior to the special meeting or attend the special meeting in person and vote. You also may revoke your proxy by sending a notice of revocation to Osprey’s secretary, which must be received prior to the special meeting.

 

Q:What should I do if I receive more than one set of voting materials?

 

A:You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast your vote with respect to all of your shares.

 

Q:Who will solicit and pay the cost of soliciting proxies?

 

A: Osprey will pay the cost of soliciting proxies for the special meeting. Osprey has engaged Morrow Sodali LLC to assist in the solicitation of proxies for the special meeting. Osprey has agreed to pay Morrow Sodali LLC a fee of $25,000 for its services plus the reimbursement of certain expenses. Osprey will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Class A common stock and Class B common stock for their expenses in forwarding soliciting materials to beneficial owners of Class A common stock and Class B common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

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Q:Who can help answer my questions?

 

A:If you have questions about the proposals or if you need additional copies of the proxy statement or the enclosed proxy card you should contact:

 

Osprey Energy Acquisition Corp.
1845 Walnut Street, 10th Floor

Philadelphia, PA 19103
Attention: Secretary

 

You may also contact our proxy solicitor at:

 

Morrow Sodali LLC

470 West Avenue

Stamford, Connecticut 06902

Telephone: (800) 662-5200

(banks and brokers call collect at (203) 658-9400)

Email: OSPR.info@morrowsodali.com

 

To obtain timely delivery, our stockholders must request the materials no later than five (5) business days prior to the special meeting.

 

You may also obtain additional information about Osprey from documents filed with the U.S. Securities and Exchange Commission (the “SEC”) by following the instructions in the section entitled “Where You Can Find Additional Information.”

 

If you intend to seek redemption of your public shares, you will need to send a letter demanding redemption and deliver your stock (either physically or electronically) to our transfer agent at least two business days prior to the special meeting in accordance with the procedures detailed under the question “How do I exercise my redemption rights?” If you have questions regarding the certification of your position or delivery of your stock, please contact:

 

Continental Stock Transfer & Trust Company
1 State Street—30th Floor

New York, New York 10004

Attention: Mark Zimkind
Email: mzimkind@continentalstock.com

 

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SUMMARY OF THE PROXY STATEMENT

 

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the business combination and the proposals to be considered at the special meeting, you should read this entire proxy statement carefully, including the annexes. See also the section entitled “Where You Can Find Additional Information.”

 

This proxy statement includes certain terms commonly used in the oil and natural gas industry, which are defined elsewhere in this proxy statement in “Glossary of Oil and Natural Gas Terms” set forth in Annex J.

 

Falcon Minerals Corporation

 

As discussed further herein, Osprey expects to acquire the Royal Entities from Royal and the Contributors pursuant to the business combination. In connection with the closing, we intend to change our name from “Osprey Energy Acquisition Corp.” to “Falcon Minerals Corporation.” Unless context otherwise requires, references in this section to the “Company,” “we,” “our” or “us” are to Osprey Energy Acquisition Corp. as it relates to matters prior to the consummation of the business combination, and are to the combined company of Falcon Minerals Corporation and the Royal Entities acquired in the business combination as it relates to matters following the consummation of the business combination.

 

Business Overview

 

Falcon Minerals Corporation is an oil and gas minerals company that will, following the consummation of the business combination, own and acquire royalty interests, mineral interests, non-participating royalty interests and overriding royalty interests (“Royalties”) in high-growth, top-tier, unconventional, oil-weighted basins in North America. Our primary business objective is to provide strong total shareholder returns through growing our intrinsic value and increasing cash dividends to stockholders over time. We expect our free cash flow to increase as a result of organic development on our properties in what we believe is the “core-of-the-core” Eagle Ford Shale. Also, we intend to grow intrinsic value and free cash flow per share by making accretive acquisitions from third parties while maintaining financial flexibility and a strong balance sheet. We intend to target acquisitions in highly economic basins with oil-weighted producing assets and substantial upside potential from undeveloped resources. We are led by the experienced management team of Osprey in partnership with Blackstone, both of whom have highly successful, multi-year track records of building energy companies organically and through acquisitions.

 

Overview of Royal and the Royal Entities

 

Royal owns Royalties that entitle it to a portion of the production of oil, natural gas and natural gas liquids (“NGLs”) from the underlying acreage at the sales price received by the operator, net of production expenses and taxes. Royal has no obligation to fund finding and development costs or pay capital expenditures associated with either drilling and completions operations or plugging and abandonment spending. Royal also has minimal allocated lease operating expenses. As such, Royal has historically operated with high cash margins, converting a large percentage of revenue to free cash flow, the majority of which can be distributed to its shareholders. Royal has historically paid out substantially all of its free cash flow to its equityholders in the form of cash dividends. Although Royal has made substantial cash dividends in the past, and Osprey plans to continue to pay out substantially all of its free cash flow following the consummation of the business combination, there is no guarantee or requirement that Osprey pay dividends in the future. See the sections titled “Summary of the Proxy Statement—Dividend Policy” and “Risk Factors—Risks Related to Osprey and the Business Combination—We may change our dividend policy at any time and there is no guarantee that we will pay dividends in the future.”

 

As of March 31, 2018, Royal’s assets consisted of Royalties underlying approximately 250,000 gross unit acres (approximately 20,000 net royalty acres normalized to a 1/8th royalty, which assumes eight royalty acres for every mineral acre or a 12.5% royalty interest per net mineral acre) that are concentrated in what we believe is the “core-of-the-core” of the liquids-rich condensate region of the Eagle Ford Shale in Karnes, DeWitt and Gonzales Counties, Texas. In all three of these counties, Royal also has substantial exposure to the Austin Chalk and Upper Eagle Ford formations, which have recently experienced increased horizontal development activity, in addition to the more established and historically developed Lower Eagle Ford formation. We believe that the wells and remaining drilling locations on the properties underlying Royal’s assets are among the most economic in North America, with operator IRRs in excess of 100% at current NYMEX pricing and operator break-even oil prices under $35 per barrel of oil. Further, we believe that the high levels of current and future forecasted development activity are supported by positive oil price differentials (averaging a positive $3.65 per barrel of oil over the past 12 months), which are currently advantaged relative to other onshore oil producing regions including the Midland and Delaware Basins of West Texas. At current NYMEX strip pricing, Royal has approximately 3,000 locations with operator IRRs in excess of 100%. In addition, Royal’s assets include Royalties related to approximately 58,000 gross unit acres in the Appalachian region, including Pennsylvania, West Virginia and Ohio. As of March 31, 2018, Royal’s acreage is extensively delineated by 1,814 producing wells, of which 1,495 are located in Karnes, DeWitt, and Gonzales Counties, providing extensive subsurface data control and substantial confidence on individual well initial production rates, production profiles and estimated ultimate recoveries (“EURs”). The average net daily production attributable to the net royalty interest owned by Royal was 4,764 BOE/d (70% liquids) for the three months ended March 31, 2018.

 

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The Eagle Ford Shale is the second largest oil field in North America and is one of the lowest-cost and most active unconventional shale trends. It has a world-class aerial extent that covers approximately 13 million surface acres and benefits from extensive data control as a result of more than 12,000 producing horizontal wells drilled on the acreage. The Eagle Ford has top-tier single-well economics, is operated by premier oil and gas companies and has access to abundant offtake infrastructure with close proximity to the U.S. Gulf Coast. In recent years, the entire Eagle Ford Shale play has undergone a technical transformation largely driven by the utilization of modern drilling and completion techniques, resulting in improved oil and gas sectional recoveries, enhanced production rates, EURs and well economics and increased activity by operators. Royal’s acreage is located in what we believe is the “core-of-the-core” of the Eagle Ford Shale and is characterized by high oil and liquids content and low finding and development costs as well as positive differentials that drive attractive economics to operators on an absolute basis and relative to other unconventional basins. We believe these factors make the development of Royal’s underlying acreage commercially viable and attractive in lower commodity price environments, and strongly attractive in normal commodity price environments, competing with the lowest-cost shale resources in North America. Over 98% of Royal’s Eagle Ford and Austin Chalk acreage is operated by ConocoPhillips (“ConocoPhillips”), EOG Resources, Inc. (“EOG”), BHP Billiton Petroleum (“BHP”) and Devon Energy Corporation (“Devon”) through a joint venture and Pioneer Natural Resources Company (“Pioneer”).

 

Upon the closing of the business combination, we will retain 100% ownership of the assets owned by the Royal Entities prior to the closing.

 

Our Competitive Strengths

 

We believe that the following strengths will allow us to successfully execute our business strategies:

 

Highly-economic, multi-year inventory of low-risk drilling locations in what we believe is the “core-of-the-core” liquids-rich condensate fairway of the Eagle Ford Shale. Royal’s concentrated acreage position is located in Karnes, DeWitt and Gonzales Counties, in what we believe is the “core-of-the-core” of the Eagle Ford Shale, one of the most prolific oil and liquids-rich plays in North America. This acreage contains a proven, productive hydrocarbon system across multiple benches that offers ideal rock quality properties and provides exposure to extensive, highly economic and long-lived oil-weighted resources. The resource underlying Royal’s Royalties is characterized by high oil and liquids content and low finding and development costs, supporting attractive operator economics compared to other unconventional basins. According to RS Energy Group, this area has industry-leading well economics with operator IRRs greater than 100% at current NYMEX pricing and operator break-evens under $35 per barrel of oil. Further, Royal’s acreage position is delineated by 1,814 producing wells, of which 1,495 are located in Karnes, DeWitt, and Gonzales Counties, illustrating the extensive subsurface data control underpinning operators’ development plans. We believe these characteristics make the acreage underlying Royal’s Royalties commercially viable, low risk and highly attractive to Royal’s operators in a variety of commodity price environments. At current NYMEX strip pricing, Royal has approximately 3,000 locations with operator IRRs in excess of 100%. We believe this extensive inventory of highly economic undeveloped drilling locations will contribute to strong organic growth on Royal’s acreage.

 

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High-quality operators with active development programs. Over 98% of Royal’s Eagle Ford and Austin Chalk acreage is controlled by large top-tier operators, which include ConocoPhillips, EOG, BHP and Devon through a joint venture and Pioneer. These operators are well-capitalized, among some of the most active in the play and have compelling recent well results. For example, in February 2018, ConocoPhillips brought a 6-well pad (4 Lower Eagle Ford and 2 Upper Eagle Ford wells) onto production on its Hooks Ranch lease. The sixty-day initial production rates of these wells outperformed the type curve of Royal’s independent petroleum engineer Ryder Scott by more than 50%. Royal owns a 22.5% royalty interest on the Hooks Ranch acreage, which spans 2,888 gross acres across eight contiguous drilling units and provides significant growth potential. We believe that the results of this 6-well pad support significant additional investment from ConocoPhillips on the Hooks Ranch lease and that there is substantial drilling inventory remaining since nearly 90% of the drilling locations are undeveloped. We are acquiring the full rights to Royal’s proprietary database, which includes the permit to first production life cycle history of all wells on Royal’s acreage since 2010. We believe that having access to this proprietary data provides visibility into near-term organic growth on Royal’s acreage, and we currently have line-of-sight to 149 wells, implying robust near-term activity. For the year ended December 31, 2017, there were 149 wells spud, 165 wells brought on to production and 230 drilling permits filed on Royal’s acreage. We believe that Royal’s operators will continue to develop this acreage due to the superior overall and relative economics compared to other development opportunities in their portfolios and public statements about their intentions to allocate capital to this region.

 

  Significant number of upside opportunities for Royal’s operators to increase production and reserves. The Eagle Ford is undergoing a technical and commercial renaissance as operators continue to focus on optimizing development of their assets. We believe that numerous upside opportunities exist. Examples of these opportunities include further development of the Upper Eagle Ford and Austin Chalk formations, utilization of modern drilling and completion techniques, continued evolution in well spacing, optimization and refinement of the placement and length of well laterals and opportunities for recompletions and enhanced oil recovery (“EOR”). The Lower Eagle Ford has historically been the primary production target on Royal’s acreage, however, recent Upper Eagle Ford and Austin Chalk wells have delivered similar performance. Austin Chalk wells drilled in Karnes County have demonstrated comparable results to nearby Eagle Ford wells. Based on recent Lower and Upper Eagle Ford results, we believe there is little degradation of well performance due to co-development between these zones. Across the entire play, operators are realizing improved oil and gas recoveries from drilling longer laterals and high initial production rates as a result of completion methods focused on proppant intensity greater than 3,000 pounds per foot and tighter frac stage spacing. Royal’s current proved reserves are attributable only to the Lower Eagle Ford Shale and assume well spacing in-line with publicly disclosed operator plans and industry standards. As such, we believe these spacing assumptions are conservative relative to ongoing industry technical learnings and that the significant in-place resource underlying Royal’s acreage can be further exploited via co-development as indicated by ConocoPhillips. Co-development continues to be a major theme for the operators on the acreage underlying Royal’s Royalties and we believe there is the potential to substantially increase Royal’s Eagle Ford inventory for this type of development over time. We also believe that there is a deep inventory of recompletion opportunities and that EOR could also create significant upside value. EOG has publicly stated plans to convert 90 wells to EOR in 2018 across its entire Eagle Ford position and it expects to increase reserves by 30% to 70% as a result of implementing its EOR program. We believe that the ongoing technical and commercial renaissance in the Eagle Ford has been a catalyst for increased activity levels and that it will to drive incremental production and free cash flow growth.

 

High margin cash flows with strong, visible free cash flow generation. For the three months ended March 31, 2018, Royal delivered strong free cash flow as a result of its operating model, which includes minimal direct operating costs and no capital expenditures. Over this same time period, Royal’s full cycle cash costs were $6.60 per BOE, a significant discount to that of leading upstream operators. Relative to exploration and production companies, Royal experiences significantly lower sensitivity to commodity price decreases, drilling and completion cost increases and limited legal and environmental liabilities. We believe that the Eagle Ford Shale is one of the most geographically advantaged large-scale oil plays in North America, with well-established midstream infrastructure and proximity to Gulf Coast refineries and export facilities. Recently, the Eagle Ford Shale region has experienced positive basis differentials, unlike the Permian Basin or Appalachia, which have both experienced widening basis differentials due to limited infrastructure capacity and extensive distances from end consumer markets. As of June 1, 2018, the Louisiana Light Sweet (“LLS”) benchmark for crude oil was priced at $74.81 per barrel, representing an approximate $9 per barrel premium to the WTI benchmark. Physical sales of Royal's net production are based on LLS pricing. We believe that Royal’s high margin cost structure coupled with its oil-weighted, high-return assets will provide high conversion of revenue to free cash flow.

 

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Experienced and proven management team. Osprey’s management team has significant energy industry experience, including founding, growing and monetizing public and private oil and gas exploration and production and gathering and transportation companies. Members of Osprey’s management team founded Atlas Energy, Inc. which drilled more wells in southwestern Pennsylvania between 2005 and 2010 than any other company and eventually sold to Chevron for $4.3 billion, generating a total return from the initial public offering of over 930%. Members of Osprey’s management team were also founders of Atlas Pipeline Partners, L.P., overseeing the growth of the company from a $40 million enterprise organization at the company’s IPO to its sale to Targa Resources for $7.7 billion in 2015. Osprey’s management team is responsible for the successful listings and initial public offerings of six energy companies over the last 18 years. Additionally, they have overseen over $23 billion in acquisitions and divestures in the upstream and midstream energy sectors.

 

Partnership with Blackstone, one of the largest alternative asset managers of private capital in the world. In 2011, Blackstone formed Royal. Blackstone has extensive experience in the Eagle Ford through current and prior investments in Royal, GeoSouthern Energy and Gavilan Resources. Blackstone is one of the largest alternative asset managers in the world, with more than $450 billion in assets under management and is a leading global private equity firm and energy private equity franchise. Over the past decade, Blackstone has built a leading energy private equity investing franchise with an extensive track record of investing in assets and in partnerships with exceptional management teams. As of March 31, 2018, Blackstone had committed approximately $15 billion of equity in energy transactions throughout the energy value-chain on a global basis. Oil and gas companies represent a significant share of Blackstone’s investments in the energy sector with approximately $7 billion committed. Following the closing of the business combination, Blackstone will retain a significant ownership stake in Falcon Minerals, representing approximately 47% of the voting interest in Osprey through its ownership in our Class C common stock and will control a majority of our board, with the ability to appoint six out of eleven directors. We believe that our partnership with Blackstone will provide access to a unique set of value enhancing opportunities and be a competitive advantage relative to our peers.

 

Business Strategies

 

Our primary business objective is to maximize stockholder returns through the execution of the following strategies:

 

Benefit from reserve, production and cash flow growth from organic development of Royal’s acreage. We are a beneficiary of the continued organic development by operators on the acreage underlying Royal’s Royalties. We believe that the acreage underlying these Royalties is located in the “core-of-the-core” Eagle Ford Shale, is delineated and has attractive operator economics. Operators on Royal’s acreage have publicly announced intentions to focus on multi-year development plans for the Eagle Ford, which we believe will drive growth in our production and free cash flow. For example, ConocoPhillips recently announced its intention to grow its Eagle Ford production by 25% per year through 2020. We believe there is an opportunity for production to grow over time as operators further delineate their Upper Eagle Ford and Austin Chalk positions, increasingly employ modern drilling and completion techniques, and increase overall recovery through recompletions and EOR.

 

Pursue third party acquisitions that increase intrinsic value, are accretive to free cash flow per share and leverage relationships of Osprey’s management team and Blackstone. We believe that the oil and gas Royalties market is highly fragmented and Osprey’s management team has identified a multitude of privately funded minerals companies that have more than $5.3 billion of committed capital in aggregate. Beyond these initial identified opportunities, we believe that the overall Royalties market is materially larger, as supported by Kimbell Royalty Partners, LP’s total minerals market size estimate of $500 billion in its May 29, 2018 investor presentation. As such, we believe tremendous potential exists for us to be an industry consolidator as a public company with what we believe is “core-of-the-core” Royalties assets that can leverage the acquisition experience of Osprey’s management team and Blackstone. Our disciplined criteria for acquisitions is focused on attractive acquisition multiples and include similar characteristics to Royal’s existing assets, such as high single-well rates of return, exposure to well-capitalized top-tier operators, existing oil-weighted production and the potential for organic production growth. In addition, Osprey’s management team and Blackstone have a broad network of industry relationships that we believe provides us with a competitive advantage in pursuing potential third party acquisition opportunities.

 

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Focus on growing cash dividends and increasing the intrinsic value of our business to provide strong total stockholder returns. We intend to pay out a substantial portion of our free cash flow through cash dividend payments to stockholders, and we also intend to focus on enhancing the intrinsic value of our business. As an owner of Royalties, we are able to convert a high percentage of our revenues to free cash flow because we have no obligation to fund capital expenditures and have minimal allocated lease operating expenses. We believe that our emphasis on owning Royalties with exposure to oil-weighted basins that are operated by well-capitalized and active operators will allow us to grow cash dividends over time as these operators develop their assets. We believe that our high margin, advantaged cost structure combined with our ability to successfully make accretive acquisitions will enhance the intrinsic value of our business over time, grow free cash flow per share and provide strong total stockholder returns.

 

Maintain a conservative capital structure and financial flexibility and prudently manage our business for the long term. We intend to maintain a conservative capital structure to allow us the financial flexibility to execute our business strategies over the long term, including the ability to pursue strategic acquisitions. We plan to target a debt to EBITDA ratio of less than one and expect that initial leverage post-combination will be approximately 0.5x on forecasted 2018 EBITDA. Following the completion of the business combination, assuming no redemptions, we expect to have approximately $82 million of available liquidity under our $115 million Revolving Credit Facility borrowing base. We believe that this liquidity, together with free cash flow from operations and access to the public debt and equity markets, will provide us with the financial flexibility to execute on strategic acquisitions.

 

Dividend Policy

 

Osprey has not paid any cash dividends on its common stock to date and does not intend to pay cash dividends prior to the completion of the business combination. Following the completion of the business combination, Osprey initially intends to pay out substantially all of the free cash flow of the combined company in the form of a regular quarterly dividend. As of the date hereof, Osprey plans to continue to pay substantially all of its free cash flow as a quarterly dividend for the foreseeable future. While it has no plans to change this policy, Osprey cannot assure you that we will pay dividends at any rate or at all for any specified period following the business combination. There is no guarantee or requirement that Osprey pay dividends in the future. The payment of cash dividends in the future will be dependent upon the combined company’s revenues, earnings and free cash flow, if any, capital requirements and general financial condition following the completion of the business combination. The payment of any cash dividends following the business combination will be within the discretion of the Osprey board at such time. See “Risk Factors—Risks Related to Osprey and the Business Combination—We may change our dividend policy at any time and there is no guarantee that we will pay dividends in the future.” Osprey defines free cash flow as cash flow less capital expenditures.

 

Under the Second A&R Charter and the Osprey Opco LPA, in the event of any dividend or distribution received by Osprey from Opco on account of the common units held by Osprey at any time following the completion of the business combination, the Osprey board is required to declare a dividend or distribution of that amount, net of Osprey’s taxes, to the holders of the Class A common stock. The record date for any such dividend or distribution to the holders of Class A common stock is to be the same or as soon as practicable after, the record date for the corresponding dividend or distribution received by Osprey from Opco. The payment of dividends or distributions by Opco to Osprey following the completion of the business combination (other than certain tax distributions and distributions in the event of a liquidation of Opco) will be within the discretion of the Opco GP at such time, which is a wholly-owned subsidiary of Osprey.

 

Osprey’s organizational documents, including the Second A&R Charter, do not otherwise require the Osprey board or Osprey to make any dividends or distributions to the holders of Class A common stock, other than distributions in the event of a liquidation of Osprey.

 

Summary Historical and Pro Forma Financial and Operating Data of Osprey

 

The following table presents summary historical unaudited financial information of Osprey and summary unaudited pro forma financial information for Osprey after giving effect to the business combination, assuming two redemption scenarios as follows:

 

No Redemptions: This scenario assumes that no shares of Class A common stock are redeemed from the public stockholders.

 

Illustrative Redemption: This scenario assumes for illustrative purposes that 8,599,250 shares of Class A common stock are redeemed, resulting in an aggregate payment of approximately $86.5 million from the Trust Account.

 

The unaudited pro forma condensed consolidated combined statement of operations data of Osprey for the three months ended March 31, 2018 combines the historical statement of operations of Osprey and the historical consolidated statement of the contributed operations of Royal, giving effect to the business combination as if it had been consummated on January 1, 2017. The unaudited pro forma condensed consolidated combined balance sheet of Osprey as of March 31, 2018 presents the historical balance sheet of Osprey and the historical condensed consolidated balance sheet of Royal pro forma for removal of certain of Royal LP’s subsidiaries not being contributed in the business combination, giving effect to the business combination as if it had been consummated on March 31, 2018. For more information, please see the sections entitled “Selected Historical Financial Information of Osprey” and “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey.”

 

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   Three Months Ended March 31, 2018 
   Osprey   Pro Forma Combined (Assuming No Redemptions)   Pro Forma Combined (Assuming Illustrative Redemptions) 
   (in thousands, except share and
per share data)
 
Statement of Operations Data            
Revenues:            
Oil sales   $   $19,205   $19,205 
Realized gain on hedging activities             
Unrealized (loss) gain on hedging activities             
Total revenues        19,205    19,205 
Operating costs and expenses:               
Production and ad valorem taxes        993    993 
Lease operating expenses             
Marketing and transportation        436    436 
Amortization of royalty and working interest in oil and natural gas properties        4,068    4,068 
General, administrative and other    175    1,576    1,576 
Total operating costs and expenses    175    7,073    7,073 
Other income and (expense):               
Gain on sale of assets             
Other income             
Unrealized loss on marketable securities    (100)        
Interest income    940         
Interest expense        (653)   (1,316)
Total other income (expense)    840    (653)   (1,316)
Income before provision for income taxes    665    11,479    10,815 
Provision for income taxes    (207)   (1,472)   (1,406)
Net Income    458    10,007    9,406 
Net income attributable to non-controlling interests        (4,662)   (5,122)
Net income attributable to Class A shareholders    458    5,345    4,288 
Weighted average shares outstanding—basic   8,234,246    45,855,000    37,255,750 
Net income per share attributable to Class A shareholders—basic   0.01    0.12    0.12 
Weighted average shares outstanding—diluted   8,234,246    85,855,000    81,755,750 
Net income per share attributable to Class A shareholders—Class A—diluted  $0.01   $0.10   $0.12 

 

    As of March 31, 2018 
    Osprey    Pro Forma Combined (Assuming No Redemptions)    Pro Forma Combined (Assuming Illustrative Redemptions) 
    (in thousands, except share data) 
Balance Sheet Data (at end of period)               
Total current assets    1,195    14,362    14,362 
Marketable securities held in Trust Account    276,728         
Derivative asset             
Deferred tax asset        67,700    57,800 
Royalty and working interests in oil and natural gas properties        220,848    220,848 
Total assets   $277,923   $302,910   $293,010 
Total current liabilities    440    663    663 
Total long-term liabilities    9,625    31,122    72,650 
Common stock subject to redemption    262,858         
Class A common stock        5    5 
Class B common stock    1         
Additional paid-in capital    4,019    153,634    130,198 
Retained earnings (accumulated deficit)    980    (5,862)   (5,862)
Non-controlling interest        123,348    95,356 
Total liabilities and equity   $277,923   $302,910   $293,010 

 

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Parties to the Business Combination

 

Osprey Energy Acquisition Corp.

 

Osprey Energy Acquisition Corp. is a Delaware special purpose acquisition company formed on June 13, 2016 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving Osprey and one or more businesses.

 

Osprey’s Class A common stock, warrants and units, consisting of one share of Class A common stock and one-half of one warrant (“units”), are traded on NASDAQ under the ticker symbols “OSPR,” “OSPRW” and “OSPRU,” respectively. Osprey intends to apply to list the Class A common stock and warrants on the New York Stock Exchange (“NYSE”) following the closing. The units will automatically separate into the component securities upon the closing and, as a result, will no longer trade as a separate security.

 

The mailing address of Osprey’s principal executive office is 1845 Walnut Street, 10th Floor, Philadelphia, Pennsylvania 19103.

 

Royal Resources L.P.

 

Royal Resources L.P. is a Delaware limited partnership formed on March 16, 2012 for the purpose of owning and acquiring royalty interests, mineral interests, non-participating royalty interests and overriding royalty interests, or ORRIs, in oil and natural gas properties in North America.

 

The mailing address of Royal’s principal executive office is One Allen Center, 500 Dallas Street, Suite 1250, Houston, Texas 77002.

 

The Business Combination

 

On June 3, 2018, Osprey entered into the Contribution Agreement to acquire from the Contributors all of their partnership interests in the Royal Entities, on the terms and subject to the conditions set forth therein. Pursuant to the Contribution Agreement, Osprey will contribute cash to Osprey Opco, in exchange for (i) a number of common units equal to the number of shares of Class A common stock outstanding as of the closing, and (ii) a number of Osprey Opco warrants exercisable for common units equal to the number of Osprey warrants outstanding as of the closing. Following the closing, Osprey will control Osprey Opco through its ownership of Osprey GP, the sole general partner of Osprey Opco.

 

Pursuant to the Contribution Agreement, at the closing, the Contributors will receive consideration of $800 million plus reimbursement of certain of their transaction expenses. The $800 million consideration will consist of (i) $400 million of cash and (ii) 40 million common units, with each common unit valued at $10.00 per unit. If there is insufficient cash at closing to pay $400 million to the Contributors (as a result of redemptions of Class A common stock or otherwise), then the Contributors will receive less cash and more common units with each additional unit valued at $10.00 per unit. In addition, Royal LP will be entitled to receive earn-out consideration to be paid in the form of common units (with a corresponding number of shares of Class C common stock) if the 30-day VWAP of the Class A common stock equals or exceeds certain hurdles set forth in the Contribution Agreement, as more fully described in “—Impact of the Business Combination on Osprey’s Public Float—Impact of the Earn-out Consideration.”

 

At the closing, Osprey will also issue to the Contributors a number of shares of our Class C common stock, equal to the number of common units issued to such Contributors pursuant to the Contribution Agreement. The Contributors will generally have the right to cause Osprey Opco to redeem all or a portion of their common units in exchange for shares of Class A common stock; provided that Osprey may, at its option, effect a direct exchange of such shares of Class A common stock for such common units in lieu of such a redemption by Osprey Opco. Upon the future redemption or exchange of common units held by a Contributor, a corresponding number of shares of Class C common stock will be cancelled. For more information about the Class C common stock, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Second Amended and Restated Charter.”

 

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For more information about the Contribution Agreement and the business combination and other transactions contemplated thereby, see the section entitled “Proposal No. 1—The Business Combination Proposal.”

 

Conditions to the Closing

 

Under the Contribution Agreement, the respective obligations of each party to consummate the business combination are subject to the satisfaction at or prior to closing of the following: (i) the absence of laws or orders restraining, enjoining, otherwise prohibiting or making illegal the closing; (ii) the expiration of the waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (iii) the representations and warranties of the other party being true and correct, subject to the materiality standards contained in the Contribution Agreement; (iv) material compliance by the other party with its covenants; (v) the approval for listing on the NASDAQ or the NYSE of the shares of Class A common stock issuable in connection with the business combination; (vi) receipt of the required approvals of Osprey’s stockholders in connection with the business combination; (vii) the completion of the offer to holders of Class A common stock to have their shares of Class A common stock redeemed upon the closing in accordance with the terms of the Charter and this proxy statement; and (viii) the delivery of documents and certificates required to be delivered at the closing by the other party under the Contribution Agreement.

 

In addition, the obligations of Royal and the Contributors to consummate the business combination is subject to the cash consideration available to be paid to the Contributors at closing as consideration for the contribution being no less than $355 million, in the aggregate.

 

For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Conditions to Closing of the Business Combination.”

 

Regulatory Matters

 

To complete the business combination, Osprey and the Contributors must obtain approvals or consents from, or make filings with certain U.S. federal authorities. The business combination is subject to the requirements of the HSR Act, which prevents Osprey and the Contributors from completing the business combination until required information and materials are furnished to the Antitrust Division of the Department of Justice (the “DOJ”) and the Federal Trade Commission (the “FTC”) and specified waiting period requirements have been satisfied.

 

On June 18, 2018, Osprey and Royal each filed a Premerger Notification and Report Form under the HSR Act. Osprey and Royal received notice of the early termination of the waiting period under the HSR Act on June 26, 2018.

 

For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—Regulatory Matters.”

 

Termination Rights

 

The Contribution Agreement contains certain customary termination rights, including, among others, the following: (i) if the closing is not consummated by December 31, 2018 (the “Outside Date”); (ii) upon the parties’ mutual written consent; (iii) if the consummation of the transaction is prohibited by law; (iv) breach of a representation, warranty, covenant or other agreement by a party which would or does result in the failure to fulfill a condition and has not been cured by the earlier of (x) 30 days following written notice from the other party of such breach and (y) the Outside Date; (v) upon a Change in Recommendation by the Osprey board; and (vi) if the required approvals of Osprey’s stockholders in connection with the business combination have not been duly obtained at the Osprey special meeting, after which, following termination of the Contribution Agreement, Osprey will not be permitted to pursue or engage in an alternative business combination, directly or indirectly, with any person engaged primarily in the business owning fee mineral interests and/or royalties.

 

None of the parties to the Contribution Agreement is required to pay a termination fee or reimburse any other party for its expenses as a result of a termination of the Contribution Agreement. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—The Contribution Agreement—Termination.”

 

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Related Agreements

 

Subscription Agreements. In connection with its entry into the Contribution Agreement, Osprey entered into subscription agreements (the “Subscription Agreements”), each dated as of June 3, 2018, with certain qualified institutional buyers and accredited investors (the “Investors”), pursuant to which, among other things, Osprey agreed to issue and sell in a private placement an aggregate of 11,480,000 shares of Class A common stock to the Investors for a purchase price of $10.00 per share, and aggregate consideration of $114,800,000 (the “Private Placement”). The Private Placement is conditioned upon, among other things, the satisfaction or waiver of all conditions precedent to the closing, and is expected to close concurrently with the business combination. The proceeds from the Private Placement will be used to fund a portion of the cash consideration required to effect the business combination.

 

The Subscription Agreements will terminate, and be of no further force and effect, upon the earliest to occur of (i) the termination of the Contribution Agreement in accordance with its terms, (ii) the failure of the parties to satisfy the conditions to closing set forth in the Contribution Agreement, including the receipt of required approvals of the Osprey stockholders in connection with the business combination, (iii) the mutual written agreement of the parties, and (iv) the Outside Date if the closing has not occurred by such date.

 

The shares of Class A common stock to be issued pursuant to the Subscription Agreements have not been registered under the Securities Act, and will be issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Subscription Agreements.” 

 

Lockup Agreement. On June 3, 2018, the Investors in the Private Placement that hold shares of Class A common stock as of the date of the Subscription Agreement, representing approximately 7.5 million shares of Class A common stock purchased in the IPO, each executed a Lockup Agreement pursuant to which they have agreed to refrain from transferring, selling or otherwise disposing of shares of Class A common stock beneficially owned by them as of the date of the Lockup Agreement until the earlier of the closing and the termination of the Contribution Agreement, and to waive their redemption rights with respect to their shares of Class A common stock in connection with the business combination.

 

Voting Agreement. Royal, Osprey Sponsor and certain other persons named therein are party to a voting agreement (the “Voting Agreement”) pursuant to which such parties agreed to, among other things, vote all shares of Osprey it beneficially owns or acquires prior to the closing in favor of the stockholder proposals approving the business combination and the transactions contemplated under the Contribution Agreement. The Voting Agreement also provides that the parties thereto will refrain from disposing, encumbering, redeeming or converting its voting shares of Osprey and refrain from soliciting, negotiating or entering into any agreement with any person relating to a potential business combination involving Osprey. The Voting Agreement terminates upon the earlier of (x) the date of the closing of the transactions and (y) the date on which the Contribution Agreement is terminated. For more information see “Proposal No. 1—The Business Combination Proposal—Related Agreements—Voting Agreement.”

 

Shareholders Agreement. Concurrently with the closing, Osprey, Osprey Sponsor, Royal, the Contributors and Blackstone Management Partners, L.L.C. (“Blackstone”) will enter into a shareholders agreement (the “Shareholders Agreement”) which provides for eleven directors on the Osprey board following the closing, consisting of six directors designated by Royal, two directors designated by Osprey Sponsor and three independent directors mutually selected by Blackstone and Osprey Sponsor.

 

The directors designated by Osprey Sponsor will serve in the class of directors whose term expires on the third annual meeting of Osprey stockholders following the closing. As of the closing, each class of directors will also contain two directors designated by Blackstone, and one independent director mutually selected by Osprey and Royal. The Shareholders Agreement sets forth additional agreements among Osprey, Osprey Sponsor, the Royal Parties and Blackstone regarding the right of Blackstone to designate a certain number of individuals for nomination by the Osprey board to be elected by Osprey’s stockholders at subsequent annual meetings of the Osprey stockholders, based on the percentage of the voting power of the outstanding Class A common stock and Class C common stock beneficially owned by Blackstone and its controlled affiliates, in the aggregate, as described in more detail under “—Related Agreements—Shareholders Agreement.” The Shareholders Agreement will terminate upon the later of (x) the time Blackstone is no longer entitled to designate a director for nomination to the board and (y) following the third annual meeting of stockholders of the Company. For more information, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Shareholders Agreement.”

 

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Registration Rights Agreement. Concurrently with the closing, Osprey and the Contributors will enter into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which Osprey will have certain obligations to register for resale under the Securities Act, all or any portion of the shares of Class A common stock that the holders hold as of the date of such agreement and that they may acquire thereafter, including upon the exchange or redemption of any other security therefor. Additionally, the Registration Rights Agreement provides for customary demand and piggyback rights. For more information about the Registration Rights Agreement, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Registration Rights Agreement.”

 

Second Amended and Restated Charter. Pursuant to the terms of the Contribution Agreement, upon the closing, we will amend and restate our Charter to, among other things, (a) create a new class of capital stock, the Class C common stock, to be issued to the Contributors at the closing, (b) increase the number of authorized shares of our capital stock from 146,000,000 shares to 361,000,000 shares and increase the number of authorized Class A common stock from 125,000,000 shares to 240,000,000 shares, (c) define the duties of certain persons with respect to business opportunities presented to such persons in similar business activities or lines of business as Osprey, (d) adopt Delaware as the exclusive forum for certain stockholder litigation, (e) require the affirmative vote of the holders of at least 75% of the voting power of all outstanding shares of Osprey to amend, repeal or adopt certain provisions of the Charter, (f) opt out of Delaware’s business combination statute, (g) provide for annual meetings of stockholders and prohibit cumulative voting and (h) eliminate certain provisions in the Charter relating to an initial merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (an “initial business combination”) that will no longer be applicable to us following the closing. In addition, we will amend our Charter to change the name of the corporation to “Falcon Minerals Corporation.” For more information about the amendments to our Charter, see the section entitled “Proposal No. 2—The Charter Proposal.”

 

Amended and Restated Limited Partnership Agreement of Opco. Following the closing, Osprey will operate its business through Osprey Opco. At the closing, Osprey, Osprey GP and the Contributors will enter into a second amended and restated agreement of limited partnership of Opco (the “Opco LPA”), which will set forth, among other things, the rights and obligations of the holders of Opco common units. For more information about the Opco LPA, see the section entitled “Proposal No. 1—The Business Combination Proposal—Related Agreements—Amended and Restated Agreement of Limited Partnership of Osprey Opco.”

 

Interests of Certain Persons in the Business Combination

 

In considering the recommendation of our board of directors to vote in favor of the business combination, stockholders should be aware that, aside from their interests as stockholders, Osprey Sponsor and certain of our directors and officers have interests in the business combination that are different from, or in addition to, those of other stockholders generally. Our directors were aware of and considered these interests, among other matters, in evaluating the business combination, and in recommending to stockholders that they approve the business combination. Stockholders should take these interests into account in deciding whether to approve the business combination. These interests include, among other things:

 

the fact that Osprey Sponsor holds private placement warrants that would expire worthless if a business combination is not consummated;

 

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the fact that Osprey Sponsor and our officers and directors have agreed not to redeem any of the shares of Class A common stock held by them in connection with a stockholder vote to approve the business combination;

 

  the fact that Osprey Sponsor paid an aggregate of $25,000 for its founder shares and such securities will have a significantly higher value at the time of the business combination, which if unrestricted and freely tradable would be valued at approximately $72,531,250 based on the closing price of our Class A common stock on August 2, 2018;

 

if the Trust Account is liquidated, including in the event we are unable to complete an Initial Business Combination within the required time period, Jonathan Z. Cohen has agreed to indemnify us to ensure that the proceeds in the Trust Account are not reduced below $10.00 per public share, or such lesser amount per public share as is in the Trust Account on the liquidation date, by the claims of prospective target businesses with which we have entered into an acquisition agreement or claims of any third party for services rendered or products sold to us, but only if such a vendor or target business has not executed a waiver of any and all rights to seek access to the Trust Account;

 

the continuation of Edward E. Cohen, Jonathan Z. Cohen, Brian L. Frank, Steven R. Jones and William D. Anderson as directors of Osprey;

 

the fact that Edward E. Cohen, Jonathan Z. Cohen, Jeffrey F. Brotman and Steven R. Jones participated in the Private Placement and executed Subscription Agreements to purchase, in the aggregate, $15,550,000 of Class A common stock at $10.00 per share on the terms set forth in the Subscription Agreements;

  

the fact that Osprey Sponsor and our officers and directors may not participate in the formation of, or become a director or officer of, any other blank check company until we have entered into a definitive agreement regarding an Initial Business Combination or fail to complete an Initial Business Combination by July 26, 2019;

 

the fact that Osprey Sponsor and our officers and directors will lose their entire investment in us if an Initial Business Combination is not completed;

 

the fact that we are a party to a registration rights agreement with Osprey Sponsor which provides for registration rights to such parties;

 

the fact that it is currently expected that our executive officers will continue their employment with us following the closing of business combination;

 

the fact that none of our directors or executive officers is entitled to compensation that is based on or otherwise relates to the closing; and

 

the fact that we will continue to provide indemnification and insurance coverage to our directors and executive officers following the closing of the business combination.

 

Reasons for the Approval of the Business Combination

 

After careful consideration, the Osprey board recommends that Osprey stockholders vote “FOR” each Proposal being submitted to a vote of the Osprey stockholders at the Osprey special meeting.

 

For a description of Osprey’s reasons for the approval of the business combination and the recommendation of the Osprey board, see the section entitled “Proposal No. 1—The Business Combination Proposal—Osprey’s Board of Directors’ Reasons for the Approval of the Business Combination.”

 

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Redemption Rights

 

Under our Charter, holders of our Class A common stock may elect to have their shares redeemed for cash at the applicable redemption price per share equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the Trust Account as of two (2) business days prior to the closing, including interest (which interest will be net of taxes payable), by (b) the total number of shares of Class A common stock issued in the IPO; provided that Osprey will not redeem any public shares to the extent that such redemption would result in Osprey having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) of less than $5,000,001. As of March 31, 2018, this would have amounted to approximately $10.06 per share. Under our Charter, in connection with an Initial Business Combination, a public stockholder, together with any affiliate or any other person with whom such stockholder is acting in concert of as a “group” (as defined under Section 13(d)(3) of the Exchange Act), is restricted from seeking redemption rights with respect to more than 15% of the public shares.

 

If a holder exercises its redemption rights, then such holder will be exchanging its shares of Class A common stock for cash and will no longer own shares of Class A common stock and will not participate in the future growth of Osprey, if any. Such a holder will be entitled to receive cash for its public shares only if it properly demands redemption and delivers its shares (either physically or electronically) to Osprey’s transfer agent in accordance with the procedures described herein. See the section entitled “Special Meeting of Osprey Stockholders—Redemption Rights” for the procedures to be followed if you wish to redeem your shares for cash.

 

Impact of the Business Combination on Osprey’s Public Float

 

It is anticipated that, upon the closing, the ownership of Osprey will be as follows:

 

the public stockholders will own 27,500,000 shares of our Class A common stock, representing an approximate 60.0% economic interest and an approximate 32.0% voting interest in Osprey;

 

the holders of our founder shares, namely Osprey Sponsor, will own 6,875,000 shares of our Class A common stock, representing an approximate 15.0% economic interest and an approximate 8.0% voting interest in Osprey;

 

the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 25.0% economic interest and an approximate 13.4% voting interest in Osprey;

 

the Contributors will own 40,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 46.6% voting interest in Osprey; and

 

Our affiliates, which include Osprey Sponsor and our directors will collectively own an approximate 18.4% economic interest and an approximate 9.8% voting interest in Osprey upon the closing.

 

If the actual facts are different than the assumptions set forth in “Certain Defined Terms,” the economic and voting interests set forth above will be different. For example, if we assume that all outstanding 7,500,000 private placement warrants held by Osprey Sponsor and all of the 13,750,000 public warrants were exercised following the closing, then the ownership of Osprey’s Class A common stock and Class C common stock would be as follows:

 

the public stockholders and former holders of the public warrants will own 41,250,000 shares of our Class A common stock, representing an approximate 61.5% economic interest and an approximate 38.5% voting interest in Osprey;

 

the holders of our founder shares and the former private placement warrants, namely Osprey Sponsor, will own 14,375,000 shares of our Class A common stock, representing an approximate 21.4% economic interest and an approximate 13.4% voting interest in Osprey;

 

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the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 17.1% economic interest and an approximate 10.7% voting interest in Osprey; and

 

the Contributors will own 40,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 37.3% voting interest in Osprey.

 

In this scenario, our affiliates, which include Osprey Sponsor and our directors, will collectively own an approximate 23.7% economic interest and an approximate 14.9% voting interest in Osprey upon the closing.

 

The warrants will become exercisable on the later of 30 days after the completion of an Initial Business Combination and 12 months following the closing of the IPO and will expire five years after the completion of an Initial Business Combination or earlier upon their redemption or liquidation.

 

Please see the section entitled “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey” for further information.

 

Impact of the Earn-out Consideration

 

Pursuant to the Contribution Agreement, Royal LP may be entitled to receive additional common units (and acquire a corresponding number of shares of Class C common stock) as earn-out consideration if the 30-day VWAP of the Class A common stock equals or exceeds specified prices as follows (each such payment, an “earn-out payment”).

 

The Contribution Agreement provides that, if the 30-day VWAP of the Class A common stock is $12.50 or more per share at any time within the seven years following the closing, Royal LP will receive (a) an additional 10 million common units (and an equivalent number of shares of Class C common stock), plus (b) an amount of common units (and an equivalent number of shares of Class C common stock) equal to (x) the amount by which annual cash dividends paid on each share of Class A common stock exceeds $0.50 in each year between the closing and the date the first earn-out is achieved (with any dividends paid in the stub year in which the first earn-out is achieved annualized for purposes of determining what portion of such dividends would have, on an annual basis, exceeded $0.50), multiplied by 10 million, (y) divided by $12.50. Assuming that this earn-out payment is paid and no annual cash dividends exceeded $0.50 prior to payment (including on an annualized basis), all outstanding 7,500,000 private placement warrants held by Osprey Sponsor and all the 13,750,000 public warrants were exercised, and based upon the other assumptions set forth under “Certain Defined Terms,” then the ownership of Osprey’s Class A common stock and Class C common stock would be as follows:

 

the public stockholders and former holders of the public warrants will own 41,250,000 shares of our Class A common stock, representing an approximate 61.5% economic interest and an approximate 35.2% voting interest;

 

the holders of our founder shares and the former private placement warrants, namely Osprey Sponsor, will own 14,375,000 shares of our Class A common stock, representing an approximate 21.4% economic interest and an approximate 12.3% voting interest;

 

the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 17.1% economic interest and an approximate 9.8% voting interest in Osprey; and

 

the Contributors will own 50,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 42.7% voting interest.

 

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The Contribution Agreement provides that, if the 30-day VWAP of the Class A common stock is $15.00 or more per share at any time within the seven years following the closing (which $15.00 threshold will be reduced by the amount by which annual cash dividends paid on each share of Class A common stock exceeds $0.50 in each year between the closing and the date the earn-out is achieved, but not below $12.50), Royal LP will receive an additional 10 million common units (and an equivalent number of Class C common stock). Assuming that this earn-out payment is paid, all outstanding 7,500,000 private placement warrants held by Osprey Sponsor and all the 13,750,000 public warrants were exercised, and based upon the other assumptions set forth under “Certain Defined Terms,” then the ownership of Osprey’s Class A common stock and Class C common stock would be as follows:

 

the public stockholders and former holders of the public warrants will own 41,250,000 shares of our Class A common stock, representing an approximate 61.5% economic interest and an approximate 32.5% voting interest;

 

the holders of our founder shares and the former private placement warrants, namely Osprey Sponsor, will own 14,375,000 shares of our Class A common stock, representing an approximate 21.4% economic interest and an approximate 11.3% voting interest;

 

the Investors, which include public stockholders and certain of our directors and officers, will purchase 11,480,000 shares of our Class A common stock, representing an approximate 17.1% economic interest and an approximate 9.0% voting interest in Osprey; and

 

the Contributors will own 50,000,000 shares of our Class C common stock, representing a 0% economic interest and an approximate 47.2% voting interest.

 

See the section entitled “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey” for further information.

 

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Organizational Structure

 

Prior to the Business Combination

 

The following diagram illustrates the ownership structure of Osprey prior to the business combination.

 

 

(1) Includes founder shares held by Osprey Sponsor and certain of our directors and officers.

 

(2) The economic and voting interests set forth above do not account for private placement warrants and public warrants that will remain outstanding following the business combination and may be exercised at a later date.

 

Following the Business Combination

 

The diagram below illustrates the ownership structure of Osprey immediately following the business combination. The voting and economic interests assume the following:

 

at closing, Osprey has sufficient cash at closing to pay $400 million cash consideration to the Contributors and, accordingly, the Contributors receive 40 million common units and 40 million shares of Class C common stock in the aggregate;

 

no public stockholders elect to have their public shares redeemed;

 

the transactions contemplated by each of the Subscription Agreements is consummated concurrently with the closing and the Investors purchase 11,480,000 shares of Class A common stock, in the aggregate;

 

none of Osprey’s existing stockholders or the parties to the Contribution Agreement or Subscription Agreements, who will become stockholders of Osprey at the closing, purchase shares of Class A common stock in the open market; and

 

there are no other issuances of equity interests of Osprey or its subsidiaries prior to or in connection with the closing.

 

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  (1) Includes founder shares held by Osprey Sponsor and certain of our directors and officers.
     

  

(2) Includes public stockholders and certain of our directors and officers participating in the Private Placement.
     
  (3) The economic and voting interests set forth above do not account for private placement warrants and public warrants that will remain outstanding following the business combination and may be exercised at a later date.

 

Board of Directors of Osprey Following the Business Combination

 

Upon the closing, we anticipate expanding the size of our board of directors from five directors to 11. The initial 11 directors following the closing will consist of: (a) six directors to be designated by Royal prior to the closing, (b) two directors to be designated by Osprey Sponsor prior to the closing and (c) three independent directors to be mutually selected by Osprey Sponsor and Royal prior to the closing. The directors designated by Osprey Sponsor will serve in the class of directors whose term expires on the third annual meeting of Osprey stockholders following the closing. The Shareholders Agreement sets forth additional agreements among Osprey, Osprey Sponsor, the Royal Parties and Blackstone regarding the right of Blackstone to designate a certain number of individuals for nomination by the Osprey board to be elected by Osprey’s stockholders at subsequent annual meetings of the Osprey stockholders, based on the percentage of the voting power of the outstanding Class A common stock and Class C common stock beneficially owned by Blackstone and its controlled affiliates, in the aggregate, as described in more detail under “—Related Agreements—Shareholders Agreement.”

 

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Accounting Treatment

 

The business combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Osprey will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on Royal being the largest single individual or group of owners, Royal having the largest minority voting interest, Royal operations comprising the ongoing operations of the combined entity, and Royal comprising a majority of the governing body of the combined entity. Accordingly, for accounting purposes, the acquisition will be treated as the equivalent of Royal issuing stock for the net assets of Osprey, accompanied by a recapitalization. The net assets of Osprey will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the acquisition will be those of Royal.

 

Appraisal Rights

 

Appraisal rights are not available to Osprey stockholders in connection with the business combination.

 

Litigation Relating to the Business Combination

 

On July 27, 2018, a purported Osprey stockholder filed a class action lawsuit in the Court of Common Pleas, Philadelphia, Pennsylvania, against Osprey and the members of the Osprey board, captioned Tomasulo v. Cohen, et al., No. 180703224.  The complaint alleges, among other things, that the Osprey board breached fiduciary duties in connection with the entry into the Contribution Agreement, and by causing Osprey to make allegedly materially inadequate disclosures and material omissions in the preliminary proxy statement initially filed with the SEC on June 14, 2018 in connection with the business combination.  The Company believes that the action is without merit.

 

Other Proposals

 

In addition to the Business Combination Proposal, Osprey stockholders will be asked to vote on the Charter Proposal, the NASDAQ Proposal, the LTIP Proposal and the Adjournment Proposal. For more information about the Charter Proposal, the NASDAQ Proposal, the LTIP Proposal and the Adjournment Proposal see the sections entitled “Proposal No. 2—The Charter Proposal,” “Proposal No. 3—The NASDAQ Proposal,” “Proposal No. 4—The LTIP Proposal” and “Proposal No.5—The Adjournment Proposal.”

 

Date, Time and Place of Special Meeting

 

The special meeting will be held at 3:00 p.m., local time, on August 20, 2018, at the Sofitel Hotel at 120 South 17th Street, Philadelphia, Pennsylvania 19103 or such other date, time and place to which such meeting may be adjourned or postponed, to consider and vote upon the proposals.

 

Voting Power; Record Date

 

You will be entitled to vote or direct votes to be cast at the special meeting if you owned shares of Class A common stock or Class B common stock at the close of business on August 1, 2018, which is the record date for the special meeting. You are entitled to one vote for each share of Class A common stock or Class B common stock that you owned as of the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. As of August 1, 2018, there were 34,375,000 shares of Class A common stock and Class B common stock outstanding in the aggregate, of which 27,500,000 are public shares and 6,875,000 are founder shares held by Osprey Sponsor.

 

Proxy Solicitation

 

Proxies may be solicited by mail. Osprey has engaged Morrow Sodali LLC to assist in the solicitation of proxies. If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the special meeting. A stockholder may also change its vote by submitting a later-dated proxy as described in the section entitled “Special Meeting of Osprey Stockholders—Revoking Your Proxy.”

 

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Quorum and Required Vote for Proposals for the Special Meeting

 

A quorum of Osprey stockholders is necessary to hold a valid meeting. Holders of a majority in voting power of Class A common stock and Class B common stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitute a quorum. Abstentions will count as present for the purposes of establishing a quorum.

 

The approval of the Business Combination Proposal, the NASDAQ Proposal, the LTIP Proposal and the Adjournment Proposal requires the affirmative vote of holders of a majority of the shares of Class A common stock and Class B common stock represented in person or by proxy and entitled to vote thereon and actually cast at the special meeting, voting as a single class. Approval of the Charter Proposal requires the affirmative vote of the holders of a majority of the shares of Class A common stock and Class B common stock represented in person or by proxy and entitled to vote thereon at the special meeting, voting as a single class. Accordingly, if a valid quorum is otherwise established, a stockholder’s failure to vote by proxy or to vote in person at the special meeting will have no effect on the outcome of any vote on the Business Combination Proposal, NASDAQ Proposal, the LTIP Proposal or the Adjournment Proposal, but will have the same effect as a vote AGAINST the Charter Proposal.

 

Recommendation to Osprey Stockholders

 

Our board of directors believes that each of the Business Combination Proposal, the Charter Proposal, the NASDAQ Proposal, the LTIP Proposal and the Adjournment Proposal is in the best interests of Osprey and its stockholders and recommends that its stockholders vote “FOR” each of the Proposals to be presented at the special meeting.

 

When you consider the recommendation of the board of directors in favor of approval of these Proposals, you should keep in mind that Osprey Sponsor, members of the board of directors and officers have interests in the business combination that are different from or in addition to (and which may conflict with) your interests as a stockholder. See the section entitled “Proposal No. 1—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

 

Risk Factors

 

In evaluating the proposals set forth in this proxy statement, you should carefully read this proxy statement, including the annexes, and especially consider the factors discussed in the section entitled “Risk Factors.”

 

Summary Historical Reserve and Operating Data of Royal and the Royal Entities

 

The following tables present, for the periods and as of the dates indicated, summary data with respect to the estimated net proved reserves for Royal and summary operating data for Royal.

 

The reserve estimates attributable to Royal’s properties on a consolidated historical basis as of December 31, 2017 presented in the table below are based on reserve reports prepared by Ryder Scott Company, L.P. (“Ryder Scott”) and Netherland, Sewell & Associates, Inc. (“NSAI”), Royal’s independent petroleum engineers, and represent 100% of the total net proved liquid hydrocarbon reserves and 100% of the total net proved gas reserves of Royal in the Eagle Ford Shale, Marcellus Shale, Point Pleasant, and Bakken formations as of December 31, 2017. The reserve estimates attributable to Royal’s properties on a pro forma basis as of December 31, 2017 presented in the table below are based on reserve reports prepared by Ryder Scott and were calculated by specifically identifying and removing the impact of any properties of Royal that are not being contributed pursuant to the Contribution Agreement. As a result the pro forma reserve presentation below represents only the reserves of the contributed Royal assets. A copy of the reserve reports are attached to this proxy statement as Annex I. All of these reserve estimates were prepared in accordance with the SEC’s rules regarding oil and natural gas reserve reporting that are currently in effect. The following tables also contain summary unaudited information regarding production and sales of oil, natural gas and natural gas liquids with respect to such properties.

 

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See the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Royal” and “Business of Royal—Oil and Natural Gas Data” in evaluating the material presented below.

  

Royal Historical

as of
December 31, 2017

  

Pro Forma Contributed Royal Entities

as of
December 31, 2017

 
Estimated proved developed reserves:        
Oil (MBbls)    6,301    4,343 
Natural gas (MMcf)    20,715    17,410 
Natural gas liquids (MBbls)    1,793    1,285 
Total (MBOE)    11,547    8,530 
Estimated proved undeveloped reserves:          
Oil (MBbls)    13,142    11,571 
Natural gas (MMcf)    39,037    35,152 
Natural gas liquids (MBbls)    2,650    2,057 
Total (MBOE)    22,298    19,487 
Estimated Net Proved Reserves:          
Oil (MBbls)    19,443    15,914 
Natural gas (MMcf)    59,752    52,562 
Natural gas liquids (MBbls)    4,443    3,342 
Total (MBOE)(l)    33,845    28,016 
Percent proved developed    34.12%   30.44%
PV-10 of proved reserves (in millions)(2)   $615.2   $521.1 

 

(1)Estimates of reserves as of December 31, 2017 were prepared using an average price equal to the unweighted arithmetic average of hydrocarbon prices received on a field-by-field basis on the first day of each month within the year ended December 31, 2017 in accordance with SEC rules and regulations applicable to reserve estimates as of the end of such period. The unweighted arithmetic average first day of the month prices were $51.34 per Bbl for oil and $2.98 per MMBtu for natural gas at December 31, 2017. The price per Bbl for natural gas liquids was modeled as a percentage of oil price, which was derived from historical accounting data. Reserve estimates do not include any value for probable or possible reserves that may exist, nor do they include any value for undeveloped acreage. The reserve estimates represent Royal’s ORRI share in its properties. Although Royal believes these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates.

(2)In this proxy statement, Royal has disclosed its PV-10 based on its reserve report. PV-10 represents the period end present value of estimated future cash inflows from Royal’s natural gas and crude oil reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash flows and using SEC pricing requirements in effect at the end of the period. Because of this, PV-10 can be used within the industry and by creditors and securities analysts to evaluate estimated net cash flows from proved reserves on a more comparable basis. PV-10 differs from standardized measure because it does not include the effects of income taxes. However, because Royal is a limited partnership, it is generally not subject to federal income taxes and thus historically its PV-10 for proved reserves and standardized measure are equivalent. Neither PV-10 nor standardized measure represents an estimate of fair market value of Royal’s natural gas and oil properties. Royal and others in the industry use PV-10 as a measure to compare the relative size and value of estimated reserves held by companies without regard to the specific tax characteristics of such entities.

   Pro Forma Contributed Royal Entities   Royal Historical 
  

Three Months Ended

March 31,

  

Year

Ended

December 31,

  

Three Months

Ended

March 31,

   Year Ended
December 31,
 
   2018   2017   2018   2017   2016   2015 
Production Data:                        
Eagle Ford Shale:                        
Oil (Bbls)   238,495    885,681    251,749    1,402,729    1,397,556    1,876,487 
Natural gas (Mcf)    468,898    1,761,343    507,052    3,083,099    2,936,394    4,201,152 
Natural gas liquids (Bbls)    57,190    269,953    62,307    493,334    476,780    621,222 
Combined volumes (BOE)    373,835    1,449,191    398,565    2,409,913    2,363,735    3,197,901 
Daily combined volumes (BOE/d)    4,154    3,970    4,429    6,603    6,476    8,761 
Total:                              
Oil (Bbls)    239,351    892,893    290,811    1,582,322    1,474,218    1,919,959 
Natural gas (Mcf)    759,783    3,124,338    828,148    4,565,892    4,143,679    5,357,859 
Natural gas liquids (Bbls)    62,811    301,553    72,011    542,706    511,337    650,599 
Combined volumes (BOE)    428,793    1,715,169    500,847    2,886,010    2,676,168    3,463,530 
Daily combined volumes (BOE/d)    4,764    4,699    5,565    7,907    7,332    9,489 
Average Realized Prices:                              
Oil (per Bbl)   $65.05   $50.96   $64.67   $50.10   $39.91   $46.12 
Natural gas (per Mcf)   $2.87   $2.70   $2.92   $2.81   $2.19   $2.33 
Natural gas liquids (per Bbl)   $23.49   $20.99   $23.53   $20.63   $12.04   $13.07 
Weighted average combined (per BOE)   $44.59   $34.98   $45.43   $35.67   $27.69   $31.19 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF OSPREY

 

The following table shows selected historical financial information of Osprey for the periods and as of the dates indicated. The selected historical financial information of Osprey as of December 31, 2017 and for the year ended December 31, 2017 was derived from the audited historical financial statements of Royal included elsewhere in this proxy statement. The selected historical interim financial information of Royal as of March 31, 2018 and for the three months ended March 31, 2018 was derived from the unaudited interim financial statements of Royal included elsewhere in this proxy statement. The following table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Osprey” and our historical financial statements and the notes and schedules related thereto, included elsewhere in this proxy statement.

 

   Three Months
Ended
March 31, 2018
  

Year

Ended December 31, 2017

 
   (unaudited)     
Statement of Operations Data:        
Operating costs   $(174,900)  $(378,454)
Other income    840,097    1,270,380 
Provision for income taxes    (207,154)   (369,512)
Net income   $458,043   $522,414 
Weighted average number of common shares outstanding:          
Basic and diluted    8,234,246    7,069,719 
Net income (loss) per common share—basic and diluted   $0.01   $(0.08)

 

   As of
March 31,
2018
   As of
December 31,
2017
 
   (unaudited)     
Balance Sheet Data:        
Total assets   $277,922,692   $277,358,427 
Total liabilities   $10,064,986   $9,958,764 
Value of common stock that may be redeemed in connection with an Initial Business Combination   $262,857,703   $262,399,662 
Total Stockholders’ equity   $5,000,003   $5,000,001 

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF ROYAL

 

The following table shows selected historical financial information of Royal for the periods and as of the dates indicated. The selected historical consolidated financial information of Royal as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 was derived from the audited historical consolidated financial statements of Royal included elsewhere in this proxy statement. The selected historical interim condensed consolidated financial information of Royal as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 was derived from the unaudited interim condensed consolidated financial statements of Royal included elsewhere in this proxy statement. The summary unaudited pro forma financial data as of March 31, 2018 and for the year and three months ended December 31, 2017 and March 31, 2018, respectively, has been prepared to present the Royal entities being contributed in the transaction described in this proxy statement. Please see the section entitled “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey.”

 

Royal’s historical results are not necessarily indicative of future operating results. In addition, the selected historical financial information below includes the results of operations from certain assets, which Osprey will not acquire in the business combination. The selected consolidated and combined financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Royal,” as well as the historical consolidated and combined financial statements of Royal and accompanying notes included elsewhere in this proxy statement.

 

   Royal Historical   Pro Forma Royal Contributed Entities   Royal Historical   Pro Forma Royal Contributed Entities 
   Three Months Ended March 31,  

Year

Ended

December 31,

   Year Ended
December 31,
   Three Months Ended March 31, 
   2018   2017   2017   2017   2016   2015   2018 
   (in thousands) 
Operating Results:                                   
Revenues:                                   
Oil and Gas Sales   $22,838   $29,420   $61,365   $104,321   $73,579   $108,018   $19,205 
Realized gain on hedging activities    3    30    391    751    197    -    3 
Unrealized gain (loss) on hedging activities    (94)   1,175    541    1,040    (1,040)   -    (94)
Total Revenues   22,747    30,625    62,296    106,112    72,736    108,018    19,114 
Costs and Expenses:                                   
Production and ad valorem taxes    1,238    1,663    3,266    5,980    4,768    6,527    993 
Lease operating expense    186    111    -    674    440    273    - 
Marketing and transportation    631    2,108    3,127    6,926    6,747    7,946    436 
Amortization of royalty and working interests in oil and natural gas properties    4,795    11,175    17,896    37,085    37,255    46,533    4,068 
General, administrative and other    2,619    1,675    6,018    8,450    6,309    12,175    1,401 
Total costs and expenses   9,469    16,732    30,308    59,115    55,529    73,454    6,898 
Other Income and (Expense):                                   
Gain on sale of assets    41,274    -    -    31,441    -    -    - 
Other income    -    1    60    34    823    436    - 
Interest expense    (638)   (654)   (1,445)   (2,799)   (3,250)   (5,462)   (623)
Total other income (expense):   40,636    (653)   (1,385)   28,676    (2,427)   (5,026)   (623)
Net Income:    53,914    13,240    30,604    75,673    14,780    29,538    11,592 
Net income attributable to non-controlling interest    (48)   (33)   (134)   (155)   (69)   (97)   (41)
Net Income attributable to Royal Resources L.P.   $53,866   $13,207   $30,470   $75,518   $14,711   $29,441   $11,551 
Balance Sheet Data:                                   
Cash and cash equivalents   $14,894             $10,497   $8,048        $6,132 
Total assets   $272,921             $352,483   $435,897        $240,159 
Total debt   $31,051             $57,923   $58,794        $29,888 
Total liabilities and owners’ equity   $272,921             $352,483   $435,897        $240,159 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this proxy statement may constitute “forward-looking statements” for purposes of the 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 proxy statement may include, for example, statements about:

 

our ability to consummate the business combination;

 

the benefits of the business combination;

 

the future financial performance of Osprey following the business combination;

 

changes in Royal’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans; and

 

expansion plans and opportunities.

 

These forward-looking statements are based on information available as of the date of this proxy statement, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

You should not place undue reliance on these forward-looking statements in deciding how to grant your proxy or instruct how your vote should be cast on the proposals set forth in this proxy statement. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

 

the occurrence of any event, change or other circumstances that could delay the business combination or give rise to the termination of the Contribution Agreement;

 

the outcome of any legal proceedings that may be instituted against Osprey following the announcement of the proposed business combination and transactions contemplated thereby;

 

the inability to complete the business combination due to the failure to obtain approval of the Osprey’s stockholders, or other conditions to closing in the Contribution Agreement;

 

the risk that the proposed business combination disrupts current plans and operations of Royal, the Contributors and the Royal Entities as a result of the announcement and consummation of the transactions described herein;

 

our ability to recognize the anticipated benefits of the business combination, which may be affected by, among other things, competition and the ability of Osprey to grow and manage growth profitably following the business combination;

 

costs related to the business combination;

 

changes in applicable laws or regulations;

 

the possibility that Osprey may be adversely affected by other economic, business, and/or competitive factors; and

 

other risks and uncertainties indicated in this proxy statement, including those under the section entitled “Risk Factors.”

 

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RISK FACTORS

 

The following risk factors apply to the business and operations of Royal and will also apply to our business and operations following the closing. These risk factors are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of Royal and our business, financial condition and prospects following the closing. You should carefully consider the following risk factors in addition to the other information included in this proxy statement, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business or financial condition. The following discussion should be read in conjunction with our and Royal’s financial statements and notes to the financial statements included herein.

 

Risks Related to Royal’s Business

 

All of Royal’s revenues are derived from royalty payments that are based on the price at which oil, natural gas and natural gas liquids produced from the underlying acreage is sold. The volatility of these prices due to factors beyond Royal’s control greatly affects its business, financial condition and results of operations.

 

Royal’s revenues, operating results and the carrying value of Royal’s oil and natural gas properties depend significantly upon the prevailing prices for oil and natural gas. Oil and natural gas are commodities, and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, oil and natural gas prices have been volatile and they are likely to remain volatile due to a variety of additional factors that are beyond Royal’s control, including:

 

worldwide and regional economic conditions affecting the global supply of and demand for oil and natural gas;

 

the level of prices and expectations about future prices of oil and natural gas;

 

political and economic conditions in oil producing countries, including the Middle East, Africa, South America and Russia;

 

the level of global oil and natural gas exploration and production;

 

the cost of exploring for, developing, producing and delivering oil and natural gas;

 

the price and quantity of foreign imports;

 

increases in U.S. domestic production;

 

the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

 

speculative trading in crude oil and natural gas derivative contracts;

 

the level of consumer product demand;

 

weather conditions and other natural disasters;

 

risks associated with operating drilling rigs;

 

technological advances affecting energy consumption;

 

domestic and foreign governmental regulations and taxes;

 

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the proximity, cost, availability and capacity of oil and natural gas pipelines and other transportation facilities; and

 

the price and availability of competitors’ supplies of oil and natural gas and alternative fuels.

 

These factors and the volatility of the energy markets make it extremely difficult to predict future oil and natural gas price movements with any certainty. For example, during the past five years, the posted price for West Texas intermediate light sweet crude oil, which Royal refers to as West Texas Intermediate or WTI, has ranged from a low of $26.19 per Bbl in February of 2016 to a high of $110.62 per Bbl in September of 2013. The Henry Hub spot market price of natural gas has ranged from a low of $1.49 per MMBtu in March of 2016 to a high of $8.15 per MMBtu in February of 2014. During 2017, West Texas Intermediate posted prices ranged from $42.53 to $60.42 per Bbl and the Henry Hub spot market price of natural gas ranged from $2.44 to $3.71 per MMBtu. On March 31, 2018, the West Texas Intermediate posted price for crude oil was $64.94 per Bbl and the Henry Hub spot market price of natural gas was $2.81 per MMBtu. In recent weeks, there has been a continued decline in the price of light sweet crude oil. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on Royal’s financial condition and results of operations.

 

In addition, lower oil and natural gas prices may also reduce the amount of oil and natural gas that can be produced economically by Royal’s operators. This may result in having to make substantial downward adjustments to Royal’s estimated proved reserves. Royal’s operators could also determine during periods of low commodity prices to shut in or curtail production from wells on the properties underlying its Royalties. In addition, they could determine during periods of low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under conditions of higher prices. Specifically, they may abandon any well if they reasonably believe that the well can no longer produce oil or natural gas in commercially paying quantities thereby potentially causing some or all of the underlying oil and gas lease to expire along with Royal’s Royalties therein.

 

Royal depends on four third-party operators for substantially all of the exploration and production on the properties underlying its Royalties. Substantially all of Royal’s revenue is derived from royalty payments made by these operators. Therefore, any reduction in production from the wells drilled on Royal’s acreage by these operators or the failure of Royal’s operators to adequately and efficiently develop and operate Royal’s acreage could have a material adverse effect on Royal’s revenues, financial condition and results of operations. None of the operators of the properties underlying Royal’s Royalties are contractually obligated to undertake any development activities, so any development and production activities will be subject to their discretion.

 

Because Royal depends on its third-party operators for all of the exploration, development and production on its properties, Royal has no control over the operations related to its properties. For the year ended December 31, 2017, Royal received approximately 28%, 18%, 18% and 15% of its revenue from Devon Energy Corporation (“Devon”), EOG Resources, Inc. (“EOG”), BHP Billiton Petroleum (“BHP”), and ConocoPhillips Company (“ConocoPhillips”), respectively. For the three months ended March 31, 2018, Royal received approximately 28%, 25%, 23% and less than 10% of its revenue from ConocoPhillips, EOG, Devon, and BHP, respectively. The failure of the aforementioned operators to adequately or efficiently perform operations or an operator’s failure to act in ways that are in Royal’s best interests could reduce production and revenues. Further, none of the operators of the properties underlying Royal’s Royalties are contractually obligated to undertake any development activities, so any development and production activities will be subject to their reasonable discretion. The success and timing of drilling and development activities on the properties underlying Royal’s Royalties, therefore, depends on a number of factors that will be largely outside of Royal’s control, including:

 

the ability of Royal’s operators to access capital;

 

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the availability of suitable drilling equipment, production and transportation infrastructure and qualified operating personnel;

 

the operators’ expertise, operating efficiency and financial resources;

 

approval of other participants in drilling wells;

 

the selection of technology;

 

the selection of counterparties for the sale of production; and

 

the rate of production of the reserves.

 

The third-party operators may elect not to undertake development activities, or may undertake such activities in an unanticipated fashion, which may result in significant fluctuations in Royal’s revenues, financial condition and results of operations. If reductions in production by the operators are implemented on the properties underlying Royal’s Royalties and sustained, Royal’s revenues may also be substantially affected. Additionally, if an operator were to experience financial difficulty, the operator might not be able to pay its royalty payments or continue its operations, which could have a material adverse impact on us. In August 2017, BHP announced its plan to sell its US Shale operations. If BHP successfully consummates a sale of any of its assets from which Royal derives revenues, Royal’s revenues, financial condition and results of operations may be adversely affected.

 

The development of Royal’s proved undeveloped reserves may take longer and may require higher levels of capital expenditures from Royal’s operators than Royal or they currently anticipate.

 

As of December 31, 2017, 65.9% of Royal’s total estimated proved reserves were proved undeveloped reserves and may not be ultimately developed or produced by Royal’s operators. Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations by Royal’s operators. The reserve data included in the reserve report of Royal’s independent petroleum engineer assume that substantial capital expenditures by Royal’s operators are required to develop such reserves. Royal cannot be certain that the estimated costs of the development of these reserves are accurate, that Royal’s operators will develop the properties underlying Royal’s Royalties as scheduled or that the results of such development will be as estimated. Delays in the development of Royal’s reserves, increases in costs to drill and develop such reserves or decreases in commodity prices will reduce the future net revenues of Royal’s estimated proved undeveloped reserves and may result in some projects becoming uneconomical for Royal’s operators. In addition, delays in the development of reserves could force Royal to reclassify certain of Royal’s proved reserves as unproved reserves.

 

Royal’s producing properties are located predominantly in the Eagle Ford Shale region of South Texas, making Royal vulnerable to risks associated with operating in a single geographic area. In addition, Royal has a large amount of proved reserves attributable to a single producing horizon within this area.

 

The majority of Royal’s properties are geographically concentrated in DeWitt County in the Eagle Ford Shale region of South Texas. As a result of this concentration, Royal may be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in this area caused by governmental regulation, processing or transportation capacity constraints, availability of equipment, facilities, personnel or services market limitations or interruption of the processing or transportation of crude oil, natural gas or natural gas liquids. In addition, the effect of fluctuations on supply and demand may become more pronounced within specific geographic oil and natural gas producing areas such as the Eagle Ford Shale region, which may cause these conditions to occur with greater frequency or magnify the effects of these conditions. Due to the concentrated nature of Royal’s properties, they could experience any of the same conditions at the same time, resulting in a relatively greater impact on Royal’s results of operations than they might have on other companies that have a more diversified portfolio of properties. Such delays or interruptions could have a material adverse effect on Royal’s financial condition and results of operations.

 

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Royal’s success depends on finding or acquiring additional reserves, and Royal’s operators developing those additional reserves.

 

Royal’s future success depends upon Royal’s ability to acquire additional oil and natural gas reserves that are economically recoverable. Royal’s proved reserves will generally decline as reserves are depleted, except to the extent that successful exploration or development activities are conducted on the properties underlying Royal’s Royalties by Royal’s operators or Royal acquires properties containing proved reserves, or both. Aside from acquisitions, Royal has no control over the exploration and development of Royal’s properties. To increase reserves and production, Royal would need Royal’s operators to undertake replacement activities or use third parties to accomplish these activities. Substantial capital expenditures will be necessary for the acquisition of oil and natural gas reserves. Neither Royal nor Royal’s third-party operators may have sufficient resources to acquire additional reserves or to undertake exploration, development, production or other replacement activities, such activities may not result in significant additional reserves and efforts to drill productive wells at low finding and development costs may be unsuccessful. Furthermore, although Royal’s revenues may increase if prevailing oil and natural gas prices increase significantly, finding costs for additional reserves could also increase.

 

Royal’s failure to successfully identify, complete and integrate acquisitions of properties or businesses could slow Royal’s growth and adversely affect Royal’s financial condition and results of operations.

 

There is intense competition for acquisition opportunities in Royal’s industry. The successful acquisition of producing properties requires an assessment of several factors, including:

 

recoverable reserves;

 

future oil and natural gas prices and their applicable differentials;

 

operating costs; and

 

potential environmental and other liabilities.

 

The accuracy of these assessments is inherently uncertain, and Royal may not be able to identify attractive acquisition opportunities. In connection with these assessments, Royal performs a review of the subject properties that it believes to be generally consistent with industry practices. Royal’s review will not reveal all existing or potential problems nor will it permit Royal to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Inspections may not always be performed on every well, and environmental problems, such as groundwater contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of the problems. Even if Royal does identify attractive acquisition opportunities, Royal may not be able to complete the acquisition or do so on commercially acceptable terms. Unless Royal’s operators further develop its existing properties, Royal will depend on acquisitions to grow its reserves, production and cash flow.

 

Competition for acquisitions may increase the cost of, or cause Royal to refrain from, completing acquisitions. Royal’s ability to complete acquisitions is dependent upon, among other things, Royal’s ability to obtain debt and equity financing and, in some cases, regulatory approvals. Further, these acquisitions may be in geographic regions in which Royal does not currently hold properties, which could result in unforeseen operating difficulties. In addition, if Royal enters into new geographic markets, Royal may be subject to additional and unfamiliar legal and regulatory requirements. Compliance with regulatory requirements may impose substantial additional obligations on Royal and Royal’s management, cause Royal to expend additional time and resources in compliance activities and increase Royal’s exposure to penalties or fines for non-compliance with such additional legal requirements. Further, the success of any completed acquisition will depend on Royal’s ability to integrate effectively the acquired business into Royal’s existing operations. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of Royal’s managerial and financial resources. In addition, possible future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions.

 

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No assurance can be given that Royal will be able to identify suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. Royal’s failure to achieve consolidation savings, to integrate the acquired businesses and assets into Royal’s existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on Royal’s financial condition and results of operations. The inability to effectively manage the integration of acquisitions could reduce Royal’s focus on subsequent acquisitions and current operations, which, in turn, could negatively impact Royal’s growth and results of operations.

 

Royal may acquire properties that do not produce as projected, and Royal may be unable to determine reserve potential, identify liabilities associated with such properties or obtain protection from sellers against such liabilities.

 

Acquiring oil and natural gas properties requires Royal to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain. In connection with the assessments, Royal performs a review of the subject properties, but such a review will not necessarily reveal all existing or potential problems. In the course of Royal’s due diligence, Royal may not inspect every well or pipeline. Royal cannot necessarily observe structural and environmental problems, such as pipe corrosion, when an inspection is made. Royal may not be able to obtain contractual indemnities from the seller for liabilities created prior to Royal’s purchase of the property. Royal may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with Royal’s expectations.

 

Identified drilling locations, which are scheduled out over many years, are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.

 

As of December 31, 2017, Royal had identified 1,247 gross proved undeveloped drilling locations across its acreage. These drilling locations represent a significant part of Royal’s growth strategy, however, Royal does not control the development of these locations. Royal’s operators’ ability to drill and develop identified potential drilling locations will depend on a number of factors, including the availability of capital, seasonal conditions, regulatory changes and approvals, negotiation of agreements with third parties, commodity prices, costs, the generation of additional seismic or geological information, the availability of drilling rigs, drilling results, construction of infrastructure, inclement weather, and lease expirations.

 

Further, identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional analysis of data. Royal will not be able to predict in advance of drilling and testing whether any particular drilling location will yield production in sufficient quantities for operators to recover drilling or completion costs or to be economically viable. Even if sufficient amounts of oil or natural gas reserves exist, the potentially productive hydrocarbon bearing formation may be damaged or mechanical difficulties may develop while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If Royal’s operators drill dry holes in Royal’s current and future drilling locations, Royal’s business may be materially harmed. Royal will not be able to assure you that the analogies drawn from available data from other wells, more fully explored locations or producing fields will be applicable to Royal’s drilling locations. Further, initial production rates reported by Royal or Royal’s operators in Royal’s areas of operations may not be indicative of future or long-term production rates.

 

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Because of these uncertainties, Royal does not know if the potential drilling locations identified on Royal’s acreage will ever be drilled or if oil or natural gas reserves will be able to be produced from these or any other potential drilling locations. As such, actual drilling activities with respect to Royal’s acreage may materially differ from those presently identified, which could adversely affect Royal’s business, financial condition and results of operations.

 

Royal’s estimated reserves are based on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions could materially affect the quantities and present value of Royal’s reserves.

 

Oil and natural gas reserve engineering is not an exact science and requires subjective estimates of underground accumulations of oil and natural gas and assumptions concerning future oil and natural gas prices, production levels, ultimate recoveries and operating and development costs. As a result, estimated quantities of proved reserves, projections of future production rates and the timing of development expenditures may be incorrect.

 

Royal’s historical estimates of proved reserves and related valuations as of December 31, 2017, were prepared by Ryder Scott, an independent petroleum engineering firm, which conducted a well-by-well review of all Royal’s properties for the period covered by its reserve report using information provided by us. Over time, Royal may make material changes to reserve estimates taking into account the results of actual drilling, testing and production. Also, certain assumptions regarding future oil and natural gas prices, production levels and operating and development costs may prove incorrect. Any significant variance from these assumptions to actual figures could greatly affect Royal’s estimates of reserves, the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, the classifications of reserves based on risk of recovery and estimates of future net cash flows. In addition, none of the operators of the properties underlying Royal’s Royalties are contractually obligated to provide Royal with information regarding drilling activities or historical production data with respect to the properties underlying Royal’s interests, which may affect Royal’s estimates of reserves. A substantial portion of Royal’s reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Numerous changes over time to the assumptions on which Royal’s reserve estimates are based, as described above, often result in the actual quantities of oil and natural gas that are ultimately recovered being different from Royal’s reserve estimates.

 

You should not assume that the present value of future net revenues from Royal’s reserves is the current market value of Royal’s estimated reserves. Royal generally bases the estimated discounted future net cash flows from reserves on prices and costs on the date of the estimate. Actual future prices and costs may differ materially from those used in the present value estimate.

 

The estimates of reserves as of December 31, 2017 were prepared using an average price equal to the unweighted arithmetic average of hydrocarbon prices received on a field-by-field basis on the first day of each month within the year ended December 31, 2017, in accordance with the revised SEC rules and regulations applicable to reserve estimates for such period.

 

SEC rules and regulations could limit Royal’s ability to book additional proved undeveloped reserves in the future.

 

SEC rules and regulations require that, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within five years after the date of booking. This requirement has limited and may continue to limit Royal’s ability to book additional proved undeveloped reserves as Royal’s operators pursue their drilling programs. Moreover, Royal may be required to write down Royal’s proved undeveloped reserves if those wells are not drilled within the required five-year time frame.

 

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The PV-10 of Royal’s estimated proved reserves is not necessarily the same as the current market value of Royal’s estimated proved oil and natural gas reserves.

 

The present value of future net cash flows from Royal’s proved reserves shown in this report, or PV-10, may not be the current market value of Royal’s estimated natural gas and oil reserves. In accordance with rules established by the SEC and the Financial Accounting Standards Board (“FASB”), Royal bases the estimated discounted future net cash flows from Royal’s proved reserves on the 12-month average oil and gas index prices, calculated as the unweighted arithmetic average for the first-day-of-the-month price for each month and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties. Actual future prices and costs may differ materially from those used in the net present value estimate, and future net present value estimates using then current prices and costs may be significantly less than the current estimate. In addition, the 10% discount factor Royal uses when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with Royal or the natural gas and oil industry in general.

 

Unless Royal replaces its reserves with new reserves that Royal’s operators develop, Royal’s reserves royalty payments will decline, which would adversely affect Royal’s future cash flows and results of operations.

 

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Unless Royal’s operators conduct successful ongoing development and exploration activities or Royal continually acquires properties containing proved reserves, Royal’s proved reserves will decline as those reserves are produced. Royal’s future natural gas reserves and production, and therefore Royal’s future cash flow and results of operations, are highly dependent on Royal’s operators’ success in efficiently developing and exploiting Royal’s current reserves and Royal economically finding or acquiring additional recoverable reserves. Royal may not be able to find or acquire sufficient additional reserves to replace Royal’s current and future production. If Royal is unable to replace its current and future production, the value of Royal’s reserves will decrease, and Royal’s business, financial condition and results of operations would be adversely affected.

 

Declining general economic, business or industry conditions could have a material adverse effect on Royal’s financial condition and results of operations.

 

Declines in general economic, business or industry conditions, including expectations of future declines or uncertainty with respect to such conditions, could adversely affect Royal’s financial condition and results of operations. Volatility in prices of oil, natural gas and natural gas liquids, as well as concerns about global economic growth, could also impact the price at which oil, natural gas and natural gas liquids from the properties underlying Royal’s Royalties are sold, affect the ability of vendors, suppliers and customers associated with the properties underlying Royal’s Royalties to continue operations and ultimately adversely impact Royal’s financial condition and results of operations.

 

Conservation measures and technological advances could reduce demand for oil and natural gas.

 

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy generation devices could reduce demand for oil and natural gas. The impact of the changing demand for oil and natural gas services and products may have a material adverse effect on Royal’s business, financial condition and results of operations.

 

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Competition in the oil and natural gas industry is intense, which may adversely affect Royal’s third-party operators’ ability to succeed.

 

The oil and natural gas industry is intensely competitive, and Royal’s third-party operators compete with other companies that may have greater resources. Many of these companies explore for and produce oil and natural gas, carry on midstream and refining operations, and market petroleum and other products on a regional, national or worldwide basis. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. Royal’s operators’ larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than Royal’s operators can, which would adversely affect Royal’s operators’ competitive position. Royal’s operators may have fewer financial and human resources than many companies in Royal’s operators’ industry, and may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties.

 

Increased costs of capital could adversely affect Royal’s business.

 

Royal’s business and ability to make acquisitions could be harmed by factors such as the availability, terms and cost of capital, increases in interest rates or a reduction in Royal’s credit rating. Changes in any one or more of these factors could cause Royal’s cost of doing business to increase, limit Royal’s access to capital, limit Royal’s ability to pursue acquisition opportunities, and place Royal at a competitive disadvantage. A significant reduction in the availability of credit could materially and adversely affect Royal’s ability to achieve Royal’s planned growth and operating results.

 

The oil and gas operations on the acreage underlying Royal’s Royalties are subject to environmental, health and safety laws and regulations that could adversely affect the cost, manner or feasibility of conducting operations on them or result in significant costs and liabilities, which could adversely affect Royal’s financial condition and results of operations.

 

The oil and natural gas exploration and production operations on the acreage underlying Royal’s Royalties are subject to stringent and comprehensive federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection or the health and safety of workers and other affected individuals. These laws and regulations may impose numerous obligations that apply to the operations on the acreage underlying Royal’s Royalties, including the requirement to obtain a permit before conducting drilling, waste disposal or other regulated activities; the restriction of types, quantities and concentrations of materials that can be released into the environment; restrictions on water withdrawal and use; the incurrence of significant development expenses to install pollution or safety-related controls at the operated facilities; the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands and other protected areas; the protection of threatened or endangered species; and the imposition of substantial liabilities for pollution resulting from operations.

  

There is an inherent risk of incurring significant environmental costs and liabilities in the operations on the acreage underlying Royal’s Royalties as a result of the handling of petroleum hydrocarbons and wastes, air emissions and wastewater discharges related to operations, and historical industry operations and waste disposal practices. Under certain environmental laws and regulations, the operators could be subject to joint and several strict liability for the removal or remediation of previously released materials or property contamination regardless of whether such operators were responsible for the release or contamination or whether the operations were in compliance with all applicable laws at the time those actions were taken. Private parties, including the owners of properties on or adjacent to well sites and facilities where petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. In addition, the risk of accidental spills or releases could expose the operators of the acreage underlying Royal’s Royalties to significant liabilities that could have a material adverse effect on the operators’ businesses, financial condition and results of operations.

 

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Changes in environmental laws and regulations occur frequently, and any changes that result in delays or restrictions in permitting or development of projects, more stringent or costly operational control requirements, or waste handling, storage, transport, disposal or cleanup requirements could require the operators of the acreage underlying Royal’s Royalties to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on their results of operations, competitive position or financial condition.

 

Climate change laws and regulations restricting emissions of greenhouse gases could result in increased operating costs and reduced demand for the oil and natural gas produced from the acreage underlying Royal’s Royalties, while potential physical effects of climate change could disrupt production and cause operators to incur significant costs in preparing for or responding to those effects.

 

In response to U.S. Environmental Protection Agency (“EPA”) findings that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) present an endangerment to public health and the environment, the EPA has adopted regulations to restrict emissions of GHGs under existing provisions of the federal Clean Air Act. In May 2016, the EPA finalized rules that set additional emissions limits for volatile organic compounds and established new controls for emissions of methane from new, modified or reconstructed sources in the oil and natural gas source category, including production, processing, transmission and storage activities. The rule includes first-time standards to address emissions of methane from equipment and processes across the source category, including hydraulically fractured oil and natural gas well completions. In June 2017, the EPA issued a proposal to stay certain of these requirements for two years and reconsider the entirety of the 2016 rules; however, the rules currently remain in effect. In addition, in April 2018, a coalition of states filed a lawsuit in the U.S. District Court for the District of Columbia aiming to force the EPA to establish guidelines for limiting methane emissions from existing sources in the oil and natural gas sector; that lawsuit is pending. These rules may require operators on the acreage underlying Royal’s Royalties to incur additional expenses to control air emissions by installing emissions control technologies and adhering to a variety of work practice and other requirements. These requirements could increase the costs of development and production, reducing the profits available to Royal and potentially impairing Royal’s operator’s ability to economically develop acreage underlying Royal’s Royalties. The EPA has also adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore and offshore oil and natural gas production sources in the United States on an annual basis, which include certain of the operations conducted on the acreage underlying Royal’s Royalties.

 

In addition, in 2015, the United States participated in the United Nations Climate Change Conference, which led to the creation of the Paris Agreement. The Paris Agreement requires member countries to review and “represent a progression” in their intended nationally determined contributions, which set GHG emission reduction goals every five years beginning in 2020. In June 2017, the United States announced its withdrawal from the Paris Agreement, although the earliest possible effective date of withdrawal is November 2020. Despite the planned withdrawal, certain U.S. city and state governments have announced their intention to satisfy their proportionate obligations under the Paris Agreement. While Congress has from time to time considered legislation to reduce emissions of GHGs, there has not been significant activity in the form of adopted legislation to reduce GHG emissions at the federal level in recent years. In the absence of such federal climate legislation, a number of state and regional efforts have emerged that are aimed at tracking and/or reducing GHG emissions by means of cap and trade programs. These programs typically require major sources of GHG emissions to acquire and surrender emission allowances in return for emitting those GHGs. Any such future laws and regulations imposing reporting obligations on, or limiting emissions of, GHGs could require operators of the acreage underlying Royal’s Royalties to incur costs to reduce emissions of GHGs. Substantial limitations on GHG emissions could adversely affect demand for oil and natural gas.

 

Finally, some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have a material adverse effect on the operations conducted on the acreage underlying Royal’s Royalties.

 

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Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing, including with respect to seismic activity allegedly related to hydraulic fracturing, could result in increased costs and additional operating restrictions or delays in the completion of oil and natural gas wells and adversely affect production on the acreage underlying Royal’s Royalties.

 

Hydraulic fracturing is an important and common practice that is used to stimulate production of oil and/or natural gas from dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, sand and chemicals under pressure into targeted subsurface formations to fracture the surrounding rock and stimulate production. Hydraulic fracturing is typically regulated by state oil and natural gas commissions. However, in February 2014, the EPA published permitting guidance under the federal Safe Drinking Water Act (“SDWA”) addressing the use of diesel fuels in certain hydraulic fracturing activities, and in May 2014, the EPA issued an Advance Notice of Proposed Rulemaking seeking comment on the development of regulations under the Toxic Substances Control Act to require companies to disclose information regarding the chemicals used in hydraulic fracturing. Further, in March 2015, the Bureau of Land Management (“BLM”) of the U.S. Department of the Interior published a final rule imposing requirements for hydraulic fracturing activities on federal and Indian lands, including new requirements relating to public disclosure, wellbore integrity and handling of flowback water. Following years of litigation, the BLM rescinded the rule in December 2017. However, in January 2018, California and several environmental groups filed lawsuits challenging BLM’s rescission of the rule; those lawsuits are pending. In addition, Congress has from time to time considered legislation to provide for federal regulation of hydraulic fracturing under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. If enacted, these or similar laws could result in additional permitting requirements for hydraulic fracturing operations as well as various restrictions on those operations. These permitting requirements and restrictions could result in delays in operations and increased costs on the acreage underlying Royal’s Royalties.

 

There may be other attempts to further regulate hydraulic fracturing under the SDWA, TSCA and/or other statutory or regulatory mechanisms. In December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain circumstances. At the state level, several states have adopted or are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing activities. Local governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular or prohibit the performance of well drilling in general or hydraulic fracturing in particular. If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where Royal holds Royalties, the operators of the acreage underlying Royal’s Royalties could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of development activities, and perhaps even be precluded from drilling wells.

 

New environmental initiatives and regulations could include restrictions on the ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the development or production of natural gas.

 

Finally, in some instances, the operation of underground injection wells has been alleged to cause earthquakes. Such issues have sometimes led to orders prohibiting continued injection or the suspension of drilling in certain wells identified as possible sources of seismic activity. Such concerns also have resulted in stricter regulatory requirements in some jurisdictions relating to the location and operation of underground injection wells. Future orders or regulations addressing concerns about seismic activity from well injection could affect operations on the acreage underlying Royal’s Royalties.

 

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Risks Related to Royal’s Operators

 

The unavailability, high cost or shortages of rigs, equipment, raw materials, supplies, oilfield services or personnel may restrict the operations of Royal’s operators.

 

The oil and natural gas industry is cyclical, which can result in shortages of drilling rigs, equipment, raw materials (particularly sand and other proppants), supplies and personnel. When shortages occur, the costs and delivery times of rigs, equipment and supplies increase and demand for, and wage rates of, qualified drilling rig crews also rise with increases in demand. Royal cannot predict whether these conditions will exist in the future and, if so, what their timing and duration will be. In accordance with customary industry practice, Royal’s operators will rely on independent third party service providers to provide most of the services necessary to drill new wells. If they are unable to secure a sufficient number of drilling rigs at reasonable costs, Royal’s financial condition and results of operations could suffer. In addition, they may not have long-term contracts securing the use of their rigs, and the operator of those rigs may choose to cease providing services to them. Shortages of drilling rigs, equipment, raw materials (particularly sand and other proppants), supplies, personnel, trucking services, frac crews, tubulars, fracking and completion services and production equipment could delay or restrict Royal’s operators’ exploration and development operations, which in turn could adversely affect Royal’s financial condition and results of operations.

 

Restrictions on Royal’s operators’ ability to obtain water may have an adverse effect on Royal’s financial condition and results of operations.

 

Water is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing processes. During the last several years, Texas has experienced extreme drought conditions. As a result of this severe drought, some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. If Royal’s operators or Royal is unable to obtain water to use in their operations from local sources, or Royal’s operators are unable to effectively utilize flowback water, they may be unable to economically drill for or produce oil and natural gas, which could have an adverse effect on Royal’s financial condition and results of operations.

 

The results of Royal’s operators’ exploratory drilling in shale plays will be subject to risks associated with drilling and completion techniques and drilling results may not meet Royal’s expectations for reserves or production.

 

The drilling by Royal’s operators involve a number of risks, including the risk of landing their well bore in the desired drilling zone, staying in the desired drilling zone while drilling horizontally through the formation, running their casing the entire length of the well bore and being able to run tools and other equipment consistently through the horizontal well bore. Risks that they will face while completing wells include, but are not limited to, being able to fracture stimulate the planned number of stages, being able to run tools the entire length of the well bore during completion operations and successfully cleaning out the well bore after completion of the final fracture stimulation stage. Furthermore, certain of the new techniques Royal’s operators may adopt, such as infill drilling and multi-well pad drilling, may cause irregularities or interruptions in production due to, in the case of infill drilling, offset wells being shut in and, in the case of multi-well pad drilling, the time required to drill and complete multiple wells before any such wells begin producing. The results of drilling in new or emerging formations are more uncertain initially than drilling results in areas that are more developed and have a longer history of established production. Newer or emerging formations and areas often have limited or no production history and consequently Royal will be less able to predict future drilling results in these areas.

 

Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are established over a sufficiently long time period. If Royal’s operators’ drilling results are less than anticipated or they are unable to execute their drilling program because of capital constraints, lease expirations, access to gathering systems, and/or declines in natural gas and oil prices, the return on Royal’s investment in these areas may not be as attractive as Royal anticipates.

 

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The marketability of oil and natural gas production is dependent upon transportation and other facilities, certain of which neither Royal nor Royal’s operators control. If these facilities are unavailable, Royal’s operators’ operations could be interrupted and Royal’s financial condition and results of operations could be adversely affected.

 

The marketability of Royal’s operators’ oil and natural gas production will depend in part upon the availability, proximity and capacity of transportation facilities, including gathering systems, trucks and pipelines, owned by third parties. Neither Royal nor Royal’s operators control these third party transportation facilities and Royal’s operators’ access to them may be limited or denied. Insufficient production from the wells on the acreage underlying Royal’s Royalties to support the construction of pipeline facilities by Royal’s purchasers or a significant disruption in the availability of third party transportation facilities or other production facilities could adversely impact Royal’s operators’ ability to deliver to market or produce oil and natural gas and thereby cause a significant interruption in Royal’s operators’ operations. If they are unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounter production related difficulties, they may be required to shut in or curtail production. In addition, the amount of oil and natural gas that can be produced and sold may be subject to curtailment in certain other circumstances outside of Royal’s control, such as pipeline interruptions due to maintenance, excessive pressure, ability of downstream processing facilities to accept unprocessed gas, physical damage to the gathering or transportation system or lack of contracted capacity on such systems. The curtailments arising from these and similar circumstances may last from a few days to several months, and in many cases, Royal and Royal’s operators are provided with limited, if any, notice as to when these circumstances will arise and their duration. Any such shut in or curtailment, or an inability to obtain favorable terms for delivery of the oil and natural gas produced from the acreage underlying Royal’s Royalties fields, could adversely affect Royal’s financial condition and results of operations.

 

Drilling for and producing oil and natural gas are high-risk activities with many uncertainties that may adversely affect Royal’s business, financial condition and results of operations.

 

Royal’s operators’ drilling activities will be subject to many risks. For example, Royal will not be able to assure you that wells drilled by Royal’s operators will be productive. Drilling for oil and natural gas often involves unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient oil or natural gas to return a profit at then realized prices after deducting drilling, operating and other costs. The seismic data and other technologies used do not provide conclusive knowledge prior to drilling a well that oil or natural gas is present or that it can be produced economically. The costs of exploration, exploitation and development activities are subject to numerous uncertainties beyond Royal’s control, and increases in those costs can adversely affect the economics of a project. Further, Royal’s operators’ drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other factors, including:

 

unusual or unexpected geological formations;

 

loss of drilling fluid circulation;

 

title problems;

 

facility or equipment malfunctions;

 

unexpected operational events;

 

shortages or delivery delays of equipment and services;

 

compliance with environmental and other governmental requirements; and

 

adverse weather conditions.

 

Any of these risks can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination or loss of wells and other regulatory penalties. In the event that planned operations, including the drilling of development wells, are delayed or cancelled, or existing wells or development wells have lower than anticipated production due to one or more of the factors above or for any other reason, Royal’s financial condition and results of operations may be adversely affected.

 

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Risks Related to Osprey and the Business Combination

 

Following the closing, Osprey’s only significant assets will be the ownership of the general partner interest and its limited partner interest in Osprey Opco, and such ownership may not be sufficient to enable us to pay any dividends on our Class A common stock or satisfy our other financial obligations.

 

Following the closing, we will have no direct operations and no significant assets other than the ownership of the general partner interest and a 53% limited partner interest in Osprey Opco. We will depend on Osprey Opco and its subsidiaries, including the Royal Entities, for distributions, loans and other payments to generate the funds necessary to meet our financial obligations or to pay any dividends with respect to our Class A common stock. Subject to certain restrictions, Osprey Opco generally will be required to (i) make quarterly pro rata distributions to its partners, including us, in an amount equal to 50% of the total federal taxable income allocated by Osprey Opco to the limited partners and (ii) reimburse us for certain corporate and other overhead expenses. However, legal and contractual restrictions in agreements governing future indebtedness of Osprey Opco and its subsidiaries, including the Royal Entities, as well as the financial condition and operating requirements of the Royal Entities, may limit our ability to obtain cash from Osprey Opco. The earnings from, or other available assets of, Osprey Opco and its subsidiaries, including the Royal Entities, may not be sufficient to enable us to pay any dividends on our Class A common stock or satisfy our other financial obligations. Osprey Opco will be treated as a partnership for U.S. federal income tax purposes and, as such, will not be subject to any entity-level U.S. federal income tax. Instead, taxable income will be allocated to holders of its common units, including us. As a result, we generally will incur income taxes on our allocable share of any net taxable income of Osprey Opco. Under the terms of the Osprey Opco LPA, Osprey Opco will be obligated to make tax distributions to holders of its common units, including us, except to the extent such distributions would render Osprey Opco insolvent or are otherwise prohibited by law or any of our current or future debt agreements. In addition to tax expenses, we will also incur expenses related to our operations, our interests in Osprey Opco and related party agreements, and expenses and costs of being a public company, all of which could be significant. To the extent that we need funds and Osprey Opco or its subsidiaries is restricted from making such distributions under applicable law or regulation or under the terms of their financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition, including our ability to pay our income taxes when due.

 

We may change our dividend policy at any time and there is no guarantee that we will pay dividends in the future.

 

Although following the closing we currently plan to pay out substantially all of the free cash flow of the combined company in the form of a regular quarterly dividend, there is no guarantee or requirement that Osprey pay dividends in the future. Our organizational documents, including the Second A&R Charter, only require the Osprey board or Osprey to make any dividends or distributions to the holders of Class A common stock in certain limited circumstances that are generally within the control of the Osprey board. Our dividend policy may change at any time without notice to our stockholders. The declaration and amount of any future dividends to holders of our Class A common stock will be at the discretion of our board of directors in accordance with applicable law and after taking into account various factors, including our financial condition, results of operations, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, contractual obligations, legal requirements and other factors that our board of directors deems relevant. As a result, we cannot assure you that we will pay dividends at any rate or at all. See the section titled “Summary of the Proxy Statement—Dividend Policy.”

 

Following the closing, the Contributors will own an amount of Class C common stock that will provide it with effective control over Osprey.

 

At the closing, the Contributors will receive $400 million of cash and 40 million Opco common units (together with 40 million shares of Class C common stock). If Osprey’s available cash is insufficient to pay the Contributors $400 million of cash, then the consideration is adjusted so that the Contributors receive less cash, and more Opco common units (together with an equivalent number of shares of Class C common stock), with each Opco common unit (together with an equivalent number of shares of Class C common stock) valued at $10.00. Assuming the Contributors receive 40 million shares of Class C common stock (and no warrants are exercised for shares of Osprey common stock), the Contributors will hold approximately 47% of the voting power over Osprey. This voting percentage may provide the Contributors with effective control over Osprey. In addition, Osprey has agreed to provide Blackstone with a right to nominate six out of 11 of the directors on the Osprey board so long as Blackstone, together with its affiliates, holds at least 40% of the voting power over Osprey common stock. Blackstone and the Contributors may exercise their control in a way that favors its respective interests to the detriment of the other stockholders of Osprey.

 

Restrictions in future debt agreements of Osprey and Osprey Opco could limit its growth and its ability to engage in certain activities.

 

On June 3, 2018, Osprey Opco entered into a commitment letter with the lenders party thereto, pursuant to which such lenders committed to make available to Osprey Opco a revolving credit facility in the aggregate principal amount of up to $500 million. A portion of the proceeds of the borrowings under the Revolving Credit Facility will be used to finance the cash portion of the consideration to be paid to the Contributors and the costs and the expenses of the business combination. The Revolving Credit Facility, or other future debt agreements of Osprey and Osprey Opco, will contain a number of restrictive covenants that may limit their ability to, among other things, incur additional indebtedness, make loans and advances, make capital expenditures, incur liens and sell assets. These restrictions may also limit the ability of Osprey and Osprey Opco to pursue business opportunities that may arise in the future.

 

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Subsequent to the closing, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

 

Although we have conducted due diligence on the Royal Entities, we cannot assure you that this diligence revealed all material issues that may be present in the businesses of the Royal Entities, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of our or the Royal Entities’ control will not later arise. As a result, we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges that could result in losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about Osprey following the closing or our securities. In addition, charges of this nature may cause us to be unable to obtain future financing on favorable terms or at all.

 

We and the Royal Entities will be subject to business uncertainties and contractual restrictions while the business combination is pending.

 

Uncertainty about the effect of the business combination on employees and third parties may have an adverse effect on us and the Royal Entities. These uncertainties may impair the ability of the Royal Entities to retain and motivate key personnel and could cause third parties that deal with the Royal Entities to defer entering into contracts or making other decisions or seek to change existing business relationships. If employees depart because of uncertainty about their future roles and the potential complexities of the business combination, our business following the business combination could be harmed.

 

Our ability to successfully effect the business combination and successfully operate the business thereafter will be largely dependent upon the efforts of certain key personnel. The loss of such key personnel and our inability to hire and retain replacements could negatively affect the operations and profitability of Osprey following the business combination.

 

Our ability to successfully effect the business combination and successfully operate the business is dependent upon the efforts of certain key personnel, including the management team of Osprey. The loss of such key personnel and our inability to hire and retain replacements could negatively affect the operations of the combined company.

 

Osprey Sponsor and certain other individuals are party to the Voting Agreement, pursuant to which they have agreed to vote in favor of the business combination, regardless of how our public stockholders vote.

 

Unlike many other blank check companies in which the founders agree to vote their founder shares in accordance with the majority of the votes cast by their public stockholders in connection with an Initial Business Combination, Osprey Sponsor and certain other individuals are party to the Voting Agreement with Royal, pursuant to which they have agreed to vote any shares of Class A common stock and Class B common stock owned by them in favor of the business combination. As of the date hereof, Osprey Sponsor and the individuals hold shares equal to approximately 20% of our issued and outstanding shares of Class A common stock and Class B common stock in the aggregate. Accordingly, it may be more likely that the necessary stockholder approval will be received for the business combination than would be the case if Osprey Sponsor and these individuals agreed to vote any shares of Class A common stock and Class B common stock owned by them in accordance with the majority of the votes cast by our public stockholders.

 

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Osprey Sponsor, certain members of our board of directors and our officers have interests in the business combination that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the Business Combination Proposal and approval of the other Proposals described in this proxy statement.

 

When considering our board of directors’ recommendation that our stockholders vote in favor of the approval of the Business Combination Proposal, our stockholders should be aware that Osprey Sponsor, certain members of our board of directors and our officers have interests in the business combination that may be different from, or in addition to, the interests of our stockholders in general. For a more complete description of these interests, please see “Proposal 1: The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

 

Our initial stockholders, including Osprey Sponsor, our officers and certain of our directors, hold a significant number of shares of our voting stock and warrants. They will lose their entire investment in us if we do not complete an Initial Business Combination.

 

Osprey Sponsor, our officers and certain of our directors hold all of our 6,875,000 founder shares, representing 20% of the total outstanding shares upon completion of our IPO. The founder shares will be worthless if we do not complete an Initial Business Combination by July 26, 2019. In addition, Osprey Sponsor holds an aggregate of 7,500,000 private placement warrants that will also be worthless if we do not complete an Initial Business Combination by July 26, 2019.

 

The founder shares are identical to the shares of Class A common stock included in the units, except that (i) the founder shares and the shares of Class A common stock into which the founder shares convert upon an Initial Business Combination are subject to certain transfer restrictions, (ii) Osprey Sponsor and our officers and directors have entered into a letter agreement with us, pursuant to which they have agreed (a) to waive their redemption rights with respect to their founder shares and public shares owned in connection with the completion of an Initial Business Combination and (b) to waive their rights to liquidating distributions from the Trust Account with respect to their founder shares if we fail to complete an Initial Business Combination by July 26, 2019 (although they will be entitled to liquidating distributions from the Trust Account with respect to any public shares they hold if we fail to complete an Initial Business Combination by July 26, 2019) and (iii) the founder shares are automatically convertible into shares of our Class A common stock at the time of an Initial Business Combination, as described herein.

 

The personal and financial interests of Osprey Sponsor and our officers and directors may have influenced their motivation in identifying and selecting the Royal Entities, completing the business combination with the Royal Entities and influencing the operation of Osprey following the business combination.

 

The unaudited pro forma condensed consolidated combined financial information included in this proxy statement may not be indicative of what our actual financial position or results of operations would have been.

 

The unaudited pro forma condensed consolidated combined financial information for Osprey following the business combination in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the business combination been completed on the dates indicated. See “Unaudited Pro Forma Condensed Consolidated Combined Financial Information of Osprey.”

 

The prospective financial information for the Royal Entities is based on various assumptions that may not prove to be correct.

 

The unaudited prospective financial information of the Royal Entities set forth in the section entitled “Proposal No. 1—The Business Combination Proposal—Unaudited Prospective Financial Information” were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. In the view of the Royal Entities’ management, the prospective information was prepared on a reasonable basis, reflected the best currently available estimates and judgments of the Royal Entities, as applicable, and presented, to the best of their knowledge and belief, the expected course of action and the expected future financial performance of the Royal Entities. However, the prospective information is not fact. Further, prospective financial information does not reflect any impact of the proposed transaction and have not been updated since the date of preparation.

 

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None of Osprey’s or the Royal Entities’ independent auditors, nor any other independent auditors, have compiled, examined or performed any procedures with respect to the unaudited prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for the information. The unaudited prospective financial information was prepared solely for internal use to assist in the evaluation of the business combination. Such information is inherently subjective in nature, though considered reasonable by the management of the Royal Entities as of the date such information was prepared, and are susceptible to interpretation and, accordingly, contemplated results may not be achieved. While presented with numerical specificity, the unaudited prospective financial information reflects numerous estimates and assumptions with respect to future industry performance under various industry scenarios as well as assumptions for competition, general business, economic, market and financial conditions and matters specific to the businesses of the Royal Entities, all of which are difficult to predict and many of which are beyond the preparing parties’ control. Accordingly, there can be no assurance that the assumptions made in preparing any particular information will prove accurate. There will be differences between actual and prospective results, and the differences may be material. The risk that these uncertainties and contingencies could cause the assumptions to fail to be reflective of actual results is further increased due to the length of time over which these assumptions apply. In light of the foregoing factors and the uncertainties inherent in the unaudited prospective financial information, the Osprey stockholders are cautioned not to place undue reliance on the unaudited prospective financial information and the inclusion of the unaudited prospective financial information in this proxy statement should not be regarded as a representation by any person that the results contained therein will be achieved.

 

The parties to the Contribution Agreement may waive one or more of the conditions to the business combination.

 

The parties to the Contribution Agreement may agree to waive, in whole or in part, one or more of the conditions to their respective obligations to complete the business combination, to the extent permitted by our Charter, bylaws and applicable laws. For example, it is a condition to Osprey’s obligation to close the business combination that there be no breach of the Royal Entities’ representations and warranties as of the closing date that would reasonably be expected to have a Material Adverse Effect (as defined in the Contribution Agreement). However, if our board of directors determines that any such breach is not material to the business of the Royal Entities, then the board may elect to waive that condition and close the business combination. It is a condition to Royal’s obligation to close the business combination that the cash consideration paid to the Contributors is at least $355 million in the aggregate. If Royal waives this condition and accepts less cash, it will receive more Osprey Opco common units (and an equivalent number of Class C common stock) valued at $10.00 per unit. The parties will not waive the condition that the Osprey stockholders approve the business combination.

 

If we are unable to complete an Initial Business Combination on or prior to July 26, 2019, our public stockholders may receive only approximately $10.06 per share on the liquidation of our Trust Account (or less than $10.00 per share in certain circumstances where a third-party brings a claim against us for which Mr. Jonathan Z. Cohen is unable to indemnify), and our warrants will expire worthless.

 

If we are unable to complete an Initial Business Combination on or prior to July 26, 2019, our public stockholders may receive only approximately $10.06 per share on the liquidation of our Trust Account (or less than $10.00 per share in certain circumstances where a third party brings a claim against us for which Mr. Jonathan Z. Cohen is unable to indemnify (as described below)), and our warrants will expire worthless.

 

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If third parties bring claims against us, the proceeds held in our Trust Account could be reduced and the per share redemption amount received by stockholders may be less than $10.00 per share.

 

Our placing of funds in our Trust Account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers (other than our independent auditors), prospective target businesses, including the Royal Entities, or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in our Trust Account for the benefit of our public stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against our Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in our Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in our Trust Account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.

 

Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against our Trust Account for any reason. Upon redemption of our public shares, if we are unable to complete the Initial Business Combination within the prescribed time frame, or upon the exercise of a redemption right in connection with the business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption.

 

Accordingly, the per share redemption amount received by public stockholders could be less than the $10.00 per share initially held in our Trust Account, due to claims of such creditors. Mr. Jonathan Z. Cohen has agreed that he will be liable to us if and to the extent any claims by a vendor for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in our Trust Account to below (i) $10.00 per public share or (ii) such lesser amount per public share held in our Trust Account as of the date of the liquidation of our Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to our Trust Account and except as to any claims under our indemnity of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act. Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, Mr. Jonathan Z. Cohen will not be responsible to the extent of any liability for such third-party claims. We have not independently verified whether Mr. Jonathan Z. Cohen has sufficient funds to satisfy his indemnity obligations and, therefore, Mr. Jonathan Z. Cohen may not be able to satisfy those obligations. We have not asked Mr. Jonathan Z. Cohen to reserve for such eventuality.

 

Our directors may decide not to enforce the indemnification obligations of Mr. Jonathan Z. Cohen, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public stockholders.

 

In the event that the proceeds in the Trust Account are reduced below the lesser of (i) $10.00 per public share or (ii) such lesser amount per share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay taxes, and Mr. Jonathan Z. Cohen asserts that he is unable to satisfy his obligations or that he has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against Mr. Jonathan Z. Cohen to enforce his indemnification obligations.

 

While we currently expect that our independent directors would take legal action on our behalf against Mr. Jonathan Z. Cohen to enforce his indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the Trust Account available for distribution to our public stockholders may be reduced below $10.00 per share.

 

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If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board may be exposed to claims of punitive damages.

 

If, after we distribute the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the Trust Account prior to addressing the claims of creditors.

 

If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

 

If, before distributing the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Trust Account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the Trust Account, the per share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.

 

Even if we consummate the business combination, there is no guarantee that the public warrants will be in the money at the time they become exercisable, and they may expire worthless.

 

The exercise price for our warrants is $11.50 per share of Class A common stock. There is no guarantee that the public warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless.

 

We have not registered the shares of Class A common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis and potentially causing such warrants to expire worthless.

 

We have not registered the shares of Class A common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed, as soon as practicable, but in no event later than 15 business days after the closing of the Initial Business Combination, to use our best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the Class A common stock issuable upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in such registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder or an exemption is available. Notwithstanding the above, if our Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under applicable state securities laws. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Class A common stock included in the units. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of Class A common stock for sale under all applicable state securities laws.

 

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We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least 65% of the then outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of shares of our Class A common stock purchasable upon exercise of a warrant could be decreased, all without your approval.

 

Our warrants were issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of our Class A common stock purchasable upon exercise of a warrant.

 

We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.

 

We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force the warrant holders (i) to exercise their warrants and pay the exercise price therefor at a time when it may be disadvantageous for them to do so, (ii) to sell their warrants at the then-current market price when they might otherwise wish to hold their warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of their warrants. None of the private placement warrants will be redeemable by us so long as they are held by Osprey Sponsor or its permitted transferees.

 

Because certain of our shares of Class A common stock and warrants currently trade as units consisting of one share of Class A common stock and one-half of one warrant, the units may be worth less than units of other blank check companies.

 

Certain of our shares of Class A common stock and warrants currently trade as units consisting of one share of Class A common stock and one-half of one warrant. Because, pursuant to the warrant agreement, the warrants may only be exercised for a whole number of shares, only a whole warrant may be exercised at any given time. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the public warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number the number of shares of Class A common stock to be issued to the warrant holder. As a result, public warrant holders who did not purchase a number of units or warrants that would convert into a whole share must sell any odd number of warrants in order to obtain full value from the fractional interest that will not be issued. This is different from other companies similar to ours whose units include one share of common stock and one warrant to purchase one whole share. This unit structure may cause our units to be worth less than if it included a warrant to purchase one whole share.

 

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Warrants will become exercisable for our Class A common stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

 

We issued warrants to purchase 13,750,000 shares of Class A common stock as part of our IPO and concurrent with our IPO, we issued an aggregate of 7,500,000 private placement warrants to Osprey Sponsor. In addition, prior to consummating an Initial Business Combination, nothing prevents us from issuing additional securities in a private placement so long as they do not participate in any manner in the Trust Account or vote as a class with the Class A common stock and Class B common stock on a business combination. Each warrant issued is exercisable to purchase one whole share of Class A common stock at $11.50 per whole share. To the extent such warrants are exercised, additional shares of our Class A common stock will be issued, which will result in dilution to the then existing holders of our Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Class A common stock.

 

The private placement warrants are identical to the warrants sold as part of the units issued in our IPO, except that, so long as they are held by Osprey Sponsor or its permitted transferees, (i) they will not be redeemable by us, (ii) they (including the Class A common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by Osprey Sponsor until 30 days after the completion of an Initial Business Combination and (iii) they may be exercised by the holders on a cashless basis.

 

A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.

 

Following the business combination, the price of our securities may fluctuate significantly due to the market’s reaction to the business combination and general market and economic conditions. An active trading market for our securities following the business combination may never develop or, if developed, it may not be sustained. In addition, the price of our securities after the business combination can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities are not listed on, or become delisted from, NASDAQ or NYSE for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on NASDAQ or NYSE or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

 

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A common stock to drop significantly, even if our business is doing well.

 

Sales of a substantial number of shares of Class A common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our Class A common stock. After the business combination (and assuming no redemptions by our public stockholders of public shares), Osprey Sponsor will own approximately 8.0% of our Class A common stock (or 8.4%, assuming an illustrative redemption by our public stockholders of 8,599,250 public shares). Pursuant to the terms of a letter agreement entered into at the time of the IPO, the founder shares (which will be converted into shares of Class A common stock at the closing) may not be transferred until the earlier to occur of (i) one year after the closing or (ii) the date on which we complete a liquidation, merger, stock exchange or other similar transaction that results in all of our public stockholders having the right to exchange their shares of Class A common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of our Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and other similar transactions) for any 20 trading days within any 30-trading day period commencing at least 150 days after the closing, the shares of Class A common stock into which the founder shares convert will be released from these transfer restrictions.

 

Additionally, the Contributors will have the ability to redeem or exchange their common units for shares of Class A common stock on a one-to-one basis, provided the ratio of the limited partner’s redeemed common units to the number of common units beneficially held by such limited partner remains equal to that of the Blackstone Funds. If the Contributors redeem or exchange all of their common units for shares of Class A common stock, and assuming no earn-out consideration is paid prior to such time, no public stockholders elect to have their public shares redeemed and we do not otherwise issue shares of Class A common stock, the Contributors will own 46.6% of our Class A common stock.

 

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In connection with the closing of our IPO, we entered into a registration rights agreement with Osprey Sponsor providing for registration rights to it. In addition, in connection with the closing, we will enter into a registration rights agreement with Royal LP and the Contributors, pursuant to which we will file a registration statement registering the shares of Class A common stock held by them for resale within 30 days following the closing.

 

If the business combination’s benefits do not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.

 

If the benefits of the business combination do not meet the expectations of investors or securities analysts, the market price of our securities prior to the closing may decline. The market values of our securities at the time of the business combination may vary significantly from their prices on the date the Contribution Agreement was executed, the date of this proxy statement, or the date on which our stockholders vote on the business combination.

 

In addition, following the business combination, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. Prior to the business combination, there has not been a public market for the equity securities of the Royal Entities and trading in the shares of our Class A common stock has not been active. Accordingly, the valuation ascribed to the Royal Entities and our Class A common stock in the business combination may not be indicative of the price that will prevail in the trading market following the business combination. If an active market for our securities develops and continues, the trading price of our securities following the business combination could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

 

Factors affecting the trading price of our securities following the business combination may include:

 

actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

changes in the market’s expectations about our operating results;

 

success of our competitors;

 

our operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

changes in financial estimates and recommendations by securities analysts concerning Osprey or the market in general;

 

operating and stock price performance of other companies that investors deem comparable to Osprey;

 

changes in laws and regulations affecting our business;

 

commencement of, or involvement in, litigation involving Osprey;

 

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

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the volume of shares of our Class A common stock available for public sale;

 

any major change in our board or management;

 

sales of substantial amounts of Class A common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

 

general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

 

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. Trading of stock on a national securities exchange has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to Osprey following the business combination could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

 

Following the business combination, if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our Class A common stock adversely, the price and trading volume of our Class A common stock could decline.

 

The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover Osprey following the business combination change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A common stock would likely decline. If any analyst who may cover Osprey following the business combination were to cease their coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

 

Osprey may be a “controlled company” within the meaning of the listing rules of the stock exchange on which our Class A common stock is listed following the business combination and, as a result, may qualify for exemptions from certain corporate governance requirements. If we rely on such exemptions, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

 

Upon closing, the Contributors and Osprey Sponsor will collectively own a majority of our outstanding voting stock. Following the closing, we may be a controlled company within the meaning of the listing rules and standards of the stock exchange on which our Class A common stock is listed. Under the rules of NASDAQ and the NYSE, a company of which more than 50% of the voting power is held by an individual, company or group of persons acting together is a controlled company and may elect not to comply with certain corporate governance requirements applicable to companies whose securities are listed on such exchanges, including the requirements that:

 

a majority of the board of directors consist of independent directors;

 

the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

These requirements will not apply to us as long as we remain a controlled company.

 

Blackstone, Royal and the Contributors will have significant influence over us after the closing.

 

Upon closing, Blackstone, Royal and the Contributors will beneficially own common stock representing approximately 46.6% of our outstanding voting power (assuming no redemptions of public shares by our public stockholders). As long as Osprey Sponsor and the Contributors own or control a significant percentage of our outstanding voting power, subject to the terms of the Shareholders’ Agreement, they will have the ability to influence certain corporate actions requiring stockholder approval. In certain circumstances, Royal and the Contributors may transfer their equity interests in Osprey and/or Osprey Opco without the consent of the public stockholders or the Osprey board, and the transferee would have significant influence over Osprey.

 

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In addition, under the Shareholders’ Agreement, Blackstone will be entitled to designate six directors for nomination by the Osprey board for election as directors by the Osprey stockholders, representing a majority of the Osprey board, and will have certain other rights with respect to the Osprey board composition, including consent rights with respect to individuals nominated by the Osprey board for election as independent directors, and Osprey’s governance. See “Proposal No. 1—The Business Combination Proposal—Related Agreements—Shareholders Agreement.”

 

Provisions in the Second A&R Charter may prevent or delay an acquisition of Osprey following the closing, which could decrease the trading price of our common stock, or otherwise may make it more difficult for certain provisions of the Second A&R Charter to be amended.

 

The Second A&R Charter contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with the Osprey board rather than to attempt a hostile takeover following the completion of the business combination. These provisions include:

 

a board of directors that is divided into three classes with staggered terms;
   
the right of our board of directors to issue preferred stock without stockholder approval;
   
restrictions on the right of stockholders to remove directors without cause; and
   
restrictions on the right of stockholders to call special meetings of stockholders.

 

These provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in our and our stockholders’ best interests.

 

In addition, the Second A&R Charter will require the affirmative vote of the holders of at least 75% of the voting power of all outstanding shares of capital stock of Osprey to amend, repeal or adopt certain provisions of the Second A&R Charter relating to the board of directors, the bylaws, meetings of stockholders, indemnification of officers and directors, waiver of corporate opportunities, exclusive forum, amendments to the Second A&R Charter and Delaware’s business combinations statute. This requirement will make it more difficult for these provisions of the Second A&R Charter, which include the provisions intended to deter coercive takeover practices and inadequate takeover bids, to be amended.

 

The Second A&R Charter designates the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, any state or the federal court sitting in the State of Delaware with jurisdiction over the matter) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Osprey’s stockholders following the completion of the business combination, which could limit the ability of Osprey’s stockholders to obtain a favorable judicial forum for disputes with Osprey or with directors, officers or employees of Osprey and may discourage stockholders from bringing such claims.

 

The Second A&R Charter designates the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, any state or the federal court sitting in the State of Delaware with jurisdiction over the matter) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Osprey’s stockholders following the completion of the business combination, which could limit the ability of Osprey’s stockholders to obtain a favorable judicial forum for disputes with Osprey or with directors, officers or employees of Osprey and may discourage stockholders from bringing such claims. Alternatively, if a court were to find these provisions of the Second A&R Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, Osprey may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition and results of operations.

 

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Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results of operations.

 

We are subject to laws, regulations and rules enacted by national, regional and local governments and NASDAQ (until our Class A common stock and warrants are listed on NYSE, after which we will be subject to NYSE regulations and rules). In particular, we are required to comply with certain SEC, NASDAQ, NYSE and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on our business and results of operations.

 

The recently passed tax law could adversely affect our business and financial condition.

 

On December 22, 2017, President Trump signed into law the final version of the tax reform bill commonly known as the “Tax Cuts and Jobs Act,” (the “TCJA”), that significantly amends the Internal Revenue Code of 1986, as amended (the “Code”). The TCJA, among other things, contains significant changes to corporate taxation, including a reduction of the corporate income tax rate, a partial limitation on the deductibility of business interest expense, a limitation of the deduction for net operating loss carryforwards to 80% of current year taxable income, an indefinite net operating loss carryforward, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and the modification or repeal of many business deductions and credits. We continue to examine the impact this legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the TCJA is uncertain and our business and financial condition could be adversely affected. The impact of this law on holders of our Class A common stock is also uncertain and could be adverse.

 

There can be no assurance that our Class A common stock that will be issued in connection with the business combination will be approved for listing on NYSE following the closing, or that we will be able to comply with the continued listing standards of NASDAQ or the NYSE.

 

Our Class A common stock, public units and public warrants are currently listed on NASDAQ. We intend to apply to list the Class A common stock and warrants on the New York Stock Exchange (“NYSE”). Our continued eligibility for listing, and the approval of the Class A common stock to be issued in connection with the business combination for listing, may depend on, among other things, the number of our shares that are redeemed. If, after the business combination, NASDAQ or NYSE delists our Class A common stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:

 

a limited availability of market quotations for our securities;

 

reduced liquidity for our securities;

 

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a determination that our Class A common stock is a “penny stock,” which will require brokers trading in our Class A common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

  

a limited amount of news and analyst coverage; and

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our Class A common stock, units and public warrants are currently listed on NASDAQ, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the state of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on NASDAQ or NYSE, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

 

The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.

 

We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following July 26, 2022, the fifth anniversary of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as measured on the last business day of our most recently completed second fiscal quarter, or (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

We cannot predict if investors will find our Class A common stock less attractive because we will rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

 

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Non-U.S. holders may be subject to U.S. federal income tax with respect to gain on disposition of their Class A common stock and warrants.

 

We believe that we will be a U.S. real property holding corporation (“USRPHC”), following our business combination. As a result, after the business combination is effected, Non-U.S. holders (defined below in the section entitled “Proposal No. 1—The Business Combination Proposal—Certain U.S. Federal Income Tax Considerations”) that own (or are treated as owning under constructive ownership rules) more than a specified amount of our Class A common stock or warrants during a specified time period may be subject to U.S. federal income tax on a sale, exchange, or other disposition of such Class A common stock or warrants and may be required to file a U.S. federal income tax return. If you are a Non-U.S. holder, we urge you to consult your tax advisors regarding the tax consequences of such treatment.

 

Unlike some other blank check companies, Osprey does not have a specified maximum redemption threshold. The absence of such a redemption threshold will make it easier for us to consummate the business combination even if a substantial number of our stockholders redeem.

 

Unlike some other blank check companies, Osprey has no specified maximum redemption threshold, except that we will not redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001. Some other blank check companies’ structures disallow the consummation of a business combination if the holders of such companies’ public shares elect to redeem or convert more than a specified percentage of the shares sold in such companies’ initial public offering. Because we have no such maximum redemption threshold, we may be able to consummate the business combination even though a substantial number of our public stockholders have redeemed their shares.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED
FINANCIAL INFORMATION OF OSPREY

 

The unaudited pro forma condensed consolidated combined statements of operations of Osprey for the three months ended March 31, 2018 and for the year ended December 31, 2017 combine the historical statements of operations of Osprey and the historical consolidated statements of the contributed operations of Royal pro forma for removal of certain of Royal LP’s subsidiaries, giving effect to the following transactions (the “Transaction”) as if they had been consummated on January 1, 2017, the beginning of the earliest period presented:

 

the acquisition by Osprey from the Contributors of (i) all of the Contributors’ equity interests of the Royal Entities, pursuant to the Contribution Agreement, in exchange for (i) the issuance by Opco at the closing of 40,000,000 common units to the Contributors, (ii) the issuance by Osprey at the closing of 40,000,000 shares of Class C common stock to the Contributors and (iii) an amount of cash equal to $400,000,000 plus the reimbursement of certain of their transaction expenses;

 

the redemption by Osprey of shares of Class A common stock held by public stockholders in connection with the Transaction and the adjustments to the foregoing consideration received by the Contributors as more fully described below; and

 

the conversion of 6,875,000 shares of Class B common stock into 6,875,000 shares of Class A common stock, in connection with the closing.

 

The unaudited pro forma condensed consolidated combined balance sheet of Osprey as of March 31, 2018 combines the historical condensed balance sheet of Osprey and the historical condensed consolidated balance sheet of Royal and then removes certain of Royal LP’s subsidiaries, as well as certain of Royal’s assets and liabilities, not being contributed in the Transactions, as if they had been consummated on March 31, 2018.

 

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed consolidated combined financial statements to give pro forma effect to events that are: (i) directly attributable to the Transaction; (ii) factually supportable; and (iii) with respect to the statement of operations, expected to have a continuing impact on Osprey’s results following the completion of the Transaction.

 

The unaudited pro forma condensed consolidated combined financial statements have been developed from and should be read in conjunction with:

 

the accompanying notes to the unaudited pro forma condensed consolidated combined financial statements;

 

the (i) historical audited financial statements of Osprey as of and for the year ended December 31, 2017 and (ii) historical condensed unaudited financial statements of Osprey as of and for the three months ended March 31, 2018, included elsewhere in this proxy statement;

 

the (i) historical audited consolidated financial statements of Royal as of and for the year ended December 31, 2017 and (ii) historical condensed consolidated unaudited financial statements of Royal as of and for the three months ended March 31, 2018, included elsewhere in this proxy statement; and

 

other information relating to Osprey and Royal contained in this proxy statement.

 

Pursuant to the Charter, public stockholders are being offered the opportunity to redeem, upon the closing, shares of Class A common stock then held by them for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior to the closing) in the Trust Account. For illustrative purposes, based on the fair value of marketable securities held in the Trust Account as of March 31, 2018 of approximately $276.6 million, the estimated per share redemption price would have been approximately $10.06.

 

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The unaudited pro forma condensed consolidated combined financial statements presents two redemption scenarios as follows:

 

Assuming No Redemption: This scenario assumes that no shares of Class A common stock are redeemed; and

 

Assuming Illustrative Redemption: This scenario assumes for illustrative purposes that (i) 8,599,250 shares of Class A common stock are redeemed, resulting in an aggregate payment of approximately $86.5 million from the Trust Account, which is the maximum amount of allowable redemptions whereby Osprey believes it will be able to satisfy the closing conditions set forth in the Contribution Agreement, including the condition that the cash consideration available to be paid to the Contributors is at least $355 million in the aggregate and the condition that Osprey shall have complied in all material respects with its covenants under the Contribution Agreement, including the restriction on Osprey’s ability to incur debt financing proceeds in excess of $75 million without Royal’s prior consent, and (ii) as a result of this redemption the balance of the cash and equity consideration received by the Contributors at the closing are adjusted in accordance with the terms of the Contribution Agreement so that the Contributors receive at the closing (x) 44,500,000 common units, (y) 44,500,000 shares of Class C common stock and (z) an amount of cash equal to $355,000,000 plus the reimbursement of certain of their transaction expenses, and (iii) certain other adjustments described more fully below.

 

The unaudited pro forma condensed consolidated combined financial statements have been prepared as follows:

 

(i)the acquisition of the Royal Entities under the Contribution Agreement has been accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Osprey will be treated as the acquired company and Royal will be treated as the acquirer for financial reporting purposes.

 

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed consolidated combined financial statements are described in the accompanying notes. The unaudited pro forma condensed consolidated combined financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Transaction and the other related transactions occurred on the dates indicated. Further, the unaudited pro forma condensed consolidated combined financial statements do not purport to project the future operating results or financial position of Osprey following the completion of the Transaction and the other related transactions. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed consolidated combined financial statements and are subject to change as additional information becomes available and analyses are performed.

 

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Unaudited Pro Forma Condensed Balance Sheet
March 31, 2018
(in thousands)

 

   Osprey (A)   Royal Historical (B)   Adjustment for Royal Entities not Contributed (C)  

Pro Forma

Contributed Royal Entities (C)

   Pro Forma Adjustments       Pro Forma Combined (Assuming No Redemption)   Redemption Adjustment       Pro Forma Combined (Assuming Illustrative Redemption) 
ASSETS                                                
CURRENT ASSETS:                                                
Cash and cash equivalents   $1,036   $14,894   $(8,763)  $6,132   $(6,132)   (D)  $1,036   $    (V)  $1,036 
Prepaid expenses    159    1,184    (1,184)               159            159 
Accounts receivable        14,251    (1,084)   13,166            13,166            13,166 
Current hedge receivable        3        3    (3)   (J)