Item 1.01.
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Entry into a Material Definitive Agreement.
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Viking Secured Note Purchase
As previously disclosed in the Current Report on Form 8-K filed by Camber Energy, Inc. (the “Company”, “Camber”, “we”
and “us”) with the Securities and Exchange Commission on February 5, 2020, on February
3, 2020, the Company entered into an Agreement and Plan of Merger (as amended to date, the “Merger Agreement”)
with Viking Energy Group, Inc. (“Viking”). The Merger Agreement provides that, upon the terms and subject to
the conditions set forth therein, a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”) will
merge with and into Viking (the “Merger”), with Viking surviving the Merger as a wholly-owned subsidiary of
the Company.
A requirement of
the entry into the Merger Agreement was that the Company make a $5,000,000 investment in Viking’s Rule 506(c) offering, in
consideration for among other things, a 25% interest in Viking’s subsidiary Elysium
Energy, LLC (“Elysium”), which investment and which assignment of a 25% interest in Elysium to the Company was
made on February 3, 2020, and which $5 million loan was evidenced by a 10.5% Secured Promissory Note (the “February
2020 Secured Note”).
On
June 25, 2020, the Company loaned Viking an additional $4.2 million, pursuant to the terms of a Securities Purchase Agreement,
which was entered into on the same date (the “June 2020 SPA”). The $4.2 million loan was evidenced by a 10.5%
Secured Promissory Note (the “June 2020 Secured Note”), the repayment of which was secured by the terms of a
Security and Pledge Agreement (the “June 2020 Pledge”).
The
June 2020 Secured Note, accrues interest at the rate of 10.5% per annum, payable quarterly and is due and payable on February 3,
2022. The note includes standard events of default, including certain defaults relating to the trading status of Viking’s
common stock and change of control transactions involving Viking. Additionally, the termination of the Merger for any reason constitutes
an event of default under the June 2020 Secured Note. The June 2020 Secured Note can be prepaid at any time with prior notice as
provided therein, and together with a pre-payment penalty equal to 10.5% of the original amount of the June 2020 Secured Note.
The
June 2020 Secured Note is convertible into common shares of Viking at a conversion price of $0.24 per share at any time beginning
30 days after the date of the note (June 25, 2020), until the 15th day after Viking’s common stock has traded
at an average daily price of at least $0.55 for 15 consecutive business days, provided that we are restricted from converting any
portion of the June 2020 Secured Note into Viking’s common stock if upon such conversion we would beneficially own more than
4.99% of Viking’s common stock (which percentage may be increased or decreased to up to 9.99%, with 61 days prior written
notice to Viking).
In
addition to our other conversion rights under the June 2020 Secured Note, we also have the right to convert the June 2020 Secured
Note (principal and interest) into the securities offered by Viking in connection with Viking’s first public offering following
the date of the June 2020 Secured Note, at a conversion price equal to eighty-five percent (85%) of the offering price of the applicable
security (representing a fifteen percent (15%) discount) in such public offering.
The
June 2020 Pledge provides the Company, para passu with the other investors in Viking’s Secured Note offering, a security
interest (subject to certain pre-requisites) in Viking’s 70% ownership of Elysium and 100% of Ichor Energy Holdings, LLC
(“Ichor”). Additionally, pursuant to a separate Amended and Restated Security and Pledge Agreement entered into
on June 25, 2020, Viking provided the Company a security interest in the membership, common stock and/or ownership interests of
all of Viking’s existing and future, directly owned or majority owned subsidiaries, to secure the repayment of the June 2020
Secured Note and the February 2020 Secured Note (the “June 2020 Second Pledge”).
As
additional consideration for the Company making the loan to Viking, Viking assigned the Company an additional 5% of Elysium pursuant
to the terms of an Assignment of Membership Interests dated June 25, 2020 (the “June 2020 Assignment”), which
brings the Company’s current total ownership of Elysium up to 30% (when including the 25% ownership which was assigned to
the Company in partial consideration for making the February 3, 2020 $5 million loan to Viking).
As
described below, all or a portion of the Company’s current 30% ownership in Elysium will be retained by Camber and/or returned
to Viking under different circumstances relating to the termination of the Merger Agreement and repayment obligations associated
with the February 2020 Secured Note and June 2020 Secured Note.
Third
Amendment to Merger Agreement
Concurrently
with Camber’s entry into the June 2020 SPA and the loan of the funds evidenced by the June 2020 Secured Note, Camber and
Viking entered into a Third Amendment to Agreement and Plan of Merger (the “Third Amendment”), which
amended the Merger Agreement to:
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(1)
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Provide for the entry into the June 2020 SPA and the loan of the $4.2 million evidenced by
the June 2020 Secured Note;
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(2)
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Confirm that such February 2020 Secured Note and June 2020 Secured Note (collectively, the
“Viking Secured Notes”) will be forgiven by the Company in the event the Merger closes, and will be due 90
days after the date that the Merger Agreement is terminated by any party for any reason. If the Merger Agreement is
terminated prior to the closing of the Merger, Viking will owe the Company an additional amount equal to (i) 115.5% of the
original principal amount of the Viking Secured Notes, minus (ii) the amount due to Camber pursuant to the terms of the
Viking Secured Notes upon repayment thereof (the “Additional Payment”). As an example, if when the Merger
Agreement is terminated, $9,200,000 were due to the Company under the Viking Secured Notes (assuming all interest due
thereunder had been paid as of the date due), Viking would owe the Company (i) $9,200,000 multiplied by 1.155 = $10,626,000,
minus (ii) $9,200,000, or a total Additional Payment of $1,426,000, in addition to the amount due under the Viking Secured
Notes;
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(3)
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Confirm that the Additional Payment is considered a break-up fee in connection with the termination
of the Merger Agreement;
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(4)
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To update the required percentage of Elysium that the Company is required to return to Viking upon
the termination of the Merger Agreement in certain circumstances, as summarized below:
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Reason for Termination
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Percentage of Elysium Retained by Camber
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The reasonable likelihood that the combined company will not meet the initial listing requirements of the NYSE American, required regulatory approvals will not be obtained, or the registration statement on Form S-4 will not be declared effective, through no fault of the Company or Viking
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20%*
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Termination of the Merger Agreement by either party, through no fault of Camber
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25%*
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Termination of the Merger Agreement due to a material breach of the Merger Agreement by Camber or its disclosure schedules
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0%*
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Termination of the Merger Agreement for any reason and in the event the Viking Secured Notes are not repaid within 90 days of the date of termination and the Additional Payment (defined above) is not made.
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30%
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*Assumes
the payment of Viking Secured Notes within 90 days of the date of termination of the Merger Agreement and that the Additional Payment
(defined below) is made;
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(5)
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Confirm that none of the funds loaned by the Company to Viking will affect the merger ratios set
forth in the Merger Agreement; and
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(6)
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Allow for the Company’s Board of Directors to authorize the payment to the officers and
directors of the Company, of consideration of up to $150,000 each ($600,000 in aggregate), for past services rendered and
services to be rendered by such individuals through the closing date of the Merger, which compensation has not been formally
authorized by the Board of Directors to date, but which is expected to be authorized and documented in the coming weeks.
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As previously
disclosed in the Current
Report on Form 8-K filed by the Company with the Securities and Exchange Commission on June 23, 2020, we agreed that if
the Merger does not close by the required date approved by the parties thereto (as such may be extended from time to time),
we are required, at the option of the institutional investor which purchased $6 million of Series C Redeemable Convertible
Preferred Stock from the Company on June 22, 2020 (the “Investor”), to immediately repurchase from the
Investor a total of 630 shares of Series C Redeemable Convertible Preferred Stock, by paying to the Investor 110% of the
aggregate face value of such shares, which totals $6,930,000 (the “Redemption Amount”).
The amount of the
Additional Payment which would be due in connection with the June 2020 Secured Note (and $1.8 million of the February 2020
Note) corresponds to the additional amount which the Company would owe to the Investor, when aggregated with the amount of
principal and interest due in connection with the repayment of $6 million of the Viking Secured Notes, in the event the
Merger is terminated.
The
foregoing description of the Third Amendment, June 2020 SPA, June
2020 Secured Note, June 2020 Pledge, June 2020 Second
Pledge and June 2020 Assignment above, is subject to, and qualified in its entirety by, the
Third Amendment, the June 2020 SPA, June 2020 Secured Note,
June 2020 Pledge, June 2020 Second Pledge and June
2020 Assignment, attached as Exhibits 2.4, 10.1, 10.2, 10.3, 10.4 and 10.5 hereto,
which are incorporated in this Item 1.01 by reference in their entirety.
As
disclosed in greater detail in the February 5, 2020 Current Report on Form 8-K, completion of the
Merger is subject to various closing conditions, and required regulatory and other consents, which may not be able to be met or
obtained, on a timely basis, if at all.