TALO Enters Material Agreement, Issues Unregistered Equity

TL;DR

**TALO just took on new debt and issued more shares, watch for potential dilution.**

AI Summary

Talos Energy Inc. (TALO) filed an 8-K on January 16, 2024, reporting a material definitive agreement, the creation of a direct financial obligation, and unregistered sales of equity securities, all effective January 13, 2024. This filing indicates that Talos Energy has entered into significant new financial arrangements and issued new shares without public registration, which could impact existing shareholders by diluting their ownership or altering the company's debt profile.

Why It Matters

This filing signals significant changes to Talos Energy's financial structure and potential dilution for existing shareholders, which could affect the stock's value.

Risk Assessment

Risk Level: medium — The creation of a direct financial obligation and unregistered sales of equity securities introduce new financial risks and potential shareholder dilution.

Analyst Insight

Investors should investigate the details of the 'Material Definitive Agreement' and the 'Direct Financial Obligation' to understand the nature and terms of the new debt, and assess the extent of the 'Unregistered Sales of Equity Securities' to quantify potential dilution before making any investment decisions.

Key Players & Entities

• Talos Energy Inc. (company) — the registrant filing the 8-K
• January 13, 2024 (date) — date of the earliest event reported
• January 16, 2024 (date) — date the 8-K was filed
• NYSE (company) — exchange where Talos Energy's common stock is registered

FAQ

Key Financial Figures

• $0.01 — , each share of common stock, par value $0.01 per share, of QuarterNorth (the "Quarte
• $964,904,000 — ash equal to quotient of (i) sum of (A) $964,904,000, plus (B) the amount of net unrestricte
• $500,000 — rities Act") in an amount not to exceed $500,000, divided by (ii) the aggregate number o
• $67.5 million — fails to fund a deposit in an amount of $67.5 million (the "Deposit") into an escrow account
• $10 million — to pay Talos a termination fee equal to $10 million. Other Terms of the Merger Agreement
• $1.075 billion — nd (ii) reaffirms the borrowing base at $1.075 billion as part of the biannual redetermination
• $650,000,000 — satisfactory to us, we have received a $650,000,000 commitment for a bridge credit facility

Filing Documents

• d47198d8k.htm (8-K) — 59KB
• d47198dex21.htm (EX-2.1) — 642KB
• d47198dex101.htm (EX-10.1) — 72KB
• d47198dex991.htm (EX-99.1) — 42KB
• g47198g0116075007463.jpg (GRAPHIC) — 3KB
• 0001193125-24-008137.txt ( ) — 1128KB
• talo-20240113.xsd (EX-101.SCH) — 3KB
• talo-20240113_lab.xml (EX-101.LAB) — 18KB
• talo-20240113_pre.xml (EX-101.PRE) — 11KB
• d47198d8k_htm.xml (XML) — 3KB

01

Item 1.01. Entry into a Material Definitive Agreement. Merger Agreement On January 13, 2024, Talos Energy Inc., a Delaware corporation ("Talos"), QuarterNorth Energy Inc., a Delaware corporation ("QuarterNorth"), Compass Star Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Talos ("Merger Sub") and representatives of the equityholders of QuarterNorth, entered into an Agreement and Plan of Merger (the "Merger Agreement"). Capitalized terms used herein but not otherwise defined will have the meanings ascribed to them in the Merger Agreement. Transaction Structure and Consideration The Merger Agreement provides that, among other things and upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into QuarterNorth (the "Merger"), with QuarterNorth continuing as the surviving corporation in the Merger (the "Surviving Company") and an indirect wholly-owned subsidiary of Talos. (a) an amount in cash equal to quotient of (i) sum of (A) $964,904,000, plus (B) the amount of net unrestricted cash of QuarterNorth as of December 31, 2023, plus (C) the aggregate exercise price payable for the exercise of the QuarterNorth Warrants (as defined below), plus (D) additional cash payable in lieu of the Per Share Stock Consideration (as defined below) to certain QuarterNorth stockholders who are not determined prior to closing to be "accredited investors" as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the "Securities Act") in an amount not to exceed $500,000, divided by (ii) the aggregate number of shares of QuarterNorth Com

03

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. We expect to fund the cash portion for the purchase price of the Merger via cash on hand, borrowings under our bank credit facility (the "Bank Credit Facility") and opportunistically to the extent market conditions warrant, debt or equity financings, as appropriate. In the event that these prospective financing arrangements cannot be obtained at all or on terms satisfactory to us, we have received a $650,000,000 commitment for a bridge credit facility from a syndicate of lenders, including some of the lenders under our Bank Credit Facility, to be used to fund the cash portion of the consideration for the Merger. The information required by Item 2.03 relating to the Tenth Amendment is contained in Item 1.01 of this Current Report and is incorporated herein by reference.

02

Item 3.02. Unregistered Sales of Equity Securities. The information required by Item 3.02 relating to the shares of Talos Common Stock issuable as consideration under the Merger Agreement is contained in Item 1.01 of this Current Report on Form 8-K above and is incorporated by reference herein. All shares of Talos Common Stock to be issued to QuarterNorth stockholders in connection with the Merger will be issued in reliance upon an exemption from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) thereof.

01

Item 7.01. Regulation FD Disclosure. On January 15, 2024, Talos issued a press release announcing the entry into the Merger Agreement. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated into this Item 7.01. Additionally, Talos posted an investor presentation relating to the Merger on January 15, 2024. The press release and investor presentation can each be reviewed on Talos's website at www.talosenergy.com under the "Investor Relations" tab. Information on Talos's website does not constitute a part of this Current Report on Form 8-K. Talos will host a conference call, relating to the Merger, which will be broadcast live over the internet, on Tuesday, January 16, 2024 at 8:30 AM Eastern Time (7:30 AM Central Time). Listeners can access the conference call through a webcast link on the Talos's website at: https://www.talosenergy.com/investor-relations/events-calendar/ . Alternatively, the conference call can be accessed by dialing (888) 348-8927 (U.S. toll free), (855) 669-9657 (Canada toll-free) or (412) 902-4263 (international). Please dial in approximately 15 minutes before the teleconference is scheduled to begin and ask to be joined into the Talos call. A replay of the call will be available one hour after the conclusion of the conference until January 23, 2024 and can be accessed by dialing (877) 344-7529 and using access code 5346787. The information above, including Exhibit 99.1 hereto, is being furnished pursuant to this Item 7.01 of Form 8-K and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing under the Securities Act, or the Exchange Act, unless specifically identified therein as being incorporated therein by reference.

Forward Looking Statements

Forward Looking Statements This Current Report on Form 8-K contains "forward-looking statements" within the meaning within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements, other than statements of historical fact included in this communication, regarding the proposed transaction with QuarterNorth, including our ability to satisfy the conditions to closing and the expected timing and benefits of the transaction, our strategy, pro forma descriptions of the combined company and future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this communication, the words "will," "could," "believe," "anticipate," "intend," "estimate," "expect," "project," "forecast," "may," "objective," "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, changes in market conditions affecting the oil and gas industry or long-term oil and gas price levels; political or regulatory developments; reservoir performance; the outcome of future exploration efforts; timely completion of development projects; technical or operating factors; the uncertainty inherent in projecting ultimate recoverable resources and future rates of production and cash flows and access to capital; the timing of development expenditures; potential adverse reactions or competitive responses to our acquisitions and other tr

Financial Statements and Exhibits

Financial Statements and Exhibits. (d) Exhibits. Exhibit Number Description of Exhibit 2.1# Merger Agreement, dated January 13, 2024, by and among Talos Energy Inc., QuarterNorth Energy Inc., Compass Star Merger Sub Inc. and the equityholder representatives named therein. 10.1# Form of QuarterNorth Support Agreement. 99.1 Press release dated January 15, 2024. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document). # The exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.

SIGNATURES

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TALOS ENERGY INC. Date: January 16, 2024 By: /s/ William S. Moss III Name: William S. Moss III Title: Executive Vice President, General Counsel and Secretary

View Full Filing

View this 8-K filing on SEC EDGAR