ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On
August 17, 2017, PEDEVCO Corp. (the “
Company
”,
“
we
”,
“
us
” or
“
PEDEVCO
”) entered into a
Series B Convertible Preferred Stock and Warrant Subscription
Agreement (the “
Subscription Agreement
”)
with Dragon Gem Limited (“
DGL
”) and Absolute
Frontier Limited (“
AFL
,” and together with
DGL, the “
Investors
”), pursuant to
which the Investors agreed to pay $12 million in cash to the
Company in exchange for the issuance by the Company of (i) an
aggregate of 542,790 shares of to-be-designated Series B
Convertible Preferred Stock of the Company (the “
Series B Preferred
”),
convertible into an aggregate of 53.86% of the Company’s
issued and outstanding shares on an as-converted to common stock
basis (the “
I/O
Shares
”), subject to adjustment as provided below, and
(ii) warrants (“
Warrants
”) issuable to
AFL to purchase an additional aggregate of 10% of the
Company’s I/O Shares, to be issued five (5) business days
following the later to occur of receipt of Shareholder Approval and
receipt of NYSE American Approval (previously NYSE MKT) (each as
defined below). The Warrants will have a three (3) year term and be
exercisable on a cash basis with an exercise price equal to the
5-day trailing average closing price of the Company’s common
stock as of the date of issuance.
The
closing (“
Closing
”) of the offering
contemplated by the Subscription Agreement (the “
Offering
”) is scheduled
to occur as soon as possible, but no later than September 30, 2017,
subject to the satisfaction of certain closing conditions,
including: (i) forfeiture, cancellation or conversion of 100% of
the Company’s currently outstanding Series A Convertible
Preferred Stock (the “
Series A Preferred
”);
(ii) the conversion into Series B Preferred, or satisfaction and/or
discharge of, all Company debt other than the Company’s
senior secured debt issued in May 2016, with an aggregate
outstanding principal amount of approximately $5.8 million (the
“
Tranche A
Debt
”) and seven (7) secured bridge promissory notes
issued in March 2013 with an aggregate outstanding principal amount
of approximately $475,000; (iii) the restructuring of the Tranche A
Debt on terms acceptable to the Investors; (iv) the entry into
voting agreements with key shareholders of the Company necessary to
secure Shareholder Approval; (v) the Company’s receipt of
confirmation from the NYSE American (formerly the NYSE MKT) that
the issuance of the Series B Preferred and Warrants will not
require Company shareholder approval prior to Closing, and that the
additional listing of the common stock issuable upon conversion of
the Series B Preferred is approved for additional listing on the
NYSE American, pending receipt of Shareholder Approval (the
“
NYSE American
Approval
”); (vi) receipt of approvals by any such U.S.
regulatory committees as may be required by the parties; and (vii)
other standard and customary closing conditions described in the
Subscription Agreement.
The
Company plans to use the proceeds from the Offering (i) to fund
development of the Company’s existing oil and gas assets,
(ii) fund additional asset acquisitions and business combinations
consistent with the Investors’ vision for growing the
Company, (iii) for general working capital, including funding
expenses related to the Offering, which include a cash commission
equal to 7.0% of the cash investment received from the Investors in
the Offering that is payable to the Company’s placement
agent, Somerley International (Beijing) Limited (the
“
Placement
Agent
”), (iv) to repay no more than $500,000 of
existing Company debt being discharged at Closing that will not be
converted into Series B Preferred, and (v) to fund such additional
Company debt repayment and/or repurchase or redemption of shares
issuable to Company debtholders upon conversion of their debt at or
following Closing as approved by the Investors and the
Company’s Board of Directors. The Company anticipates that
approximately $1 million in cash will be paid to certain senior
lenders at Closing to discharge their debt, which is anticipated to
be funded by Company cash on hand and $500,000 of Offering
proceeds. If Offering proceeds are used to discharge these debts,
AFL will receive an additional 26,480 shares of Series B Preferred
at Closing, which will be convertible into an additional
approximately 2.5% of the Company’s I/O Shares following
receipt of Shareholder Approval. At Closing, the aggregate number
of Series B Preferred will be adjusted proportionately based on the
Company’s I/O Shares as calculated immediately prior to
Closing, provided that the number of shares of Series B Preferred
to be issued to DGL will not exceed 49.0% of the Company’s
I/O Shares at Closing, with any and all additional Series B
Preferred to be issued to the Investors being issued to AFL at
Closing.
Upon
Closing, the Company’s existing management team will remain
in place and continue to oversee the post-Closing Company’s
operations, subject to Board of Directors’ approval. In
addition,
upon Closing, the
Company’s Board of Directors will be composed of six (6)
members, comprised of existing Board members Frank C. Ingriselli,
Elizabeth P. Smith, and Adam McAfee, and up to three (3) designees
of the Investors, at least two (2) of whom are required to be
“independent” as defined under applicable NYSE American
and Securities and Exchange Commission (“
SEC
”) regulations.
Within
sixty (60) days of the Closing, the Company is required to use
commercially reasonable efforts to file all the required documents
with the SEC necessary to seek requisite approval from the
Company’s shareholders necessary to approve the conversion
terms of the Series B Preferred into Company common stock, the
creation of a new (or amendment to the current) Company equity
incentive plan (the “
New Plan
”), and such
other matters that are required to be approved by the shareholders
of the Company pursuant to applicable NYSE American and SEC rules
and regulations (the “
Shareholder
Approval
”).
It is
contemplated that upon receipt of Shareholder Approval and NYSE
American Approval, all of the Series B Preferred will convert into
common stock of the Company, resulting in Company capitalization
structure on an issued and outstanding basis (excluding options,
warrants and other convertible securities) approximately as
follows: (i) 11.0% held by current Company common stockholders;
(ii) 33.0% held by converting Company debtholders; (iii) 51.0% held
by the Investors; and (iv) 5.0% held by then-current members of
Company management as fully-vested restricted stock, which shares
are contemplated to be issued thereto after NYSE American Approval
and Shareholder Approval.
In
addition, following Closing, the Company is required to use
commercially reasonable efforts to file all the required documents
with the SEC to raise funds through a registered public offering (a
“
Secondary
Offering
”), which Secondary Offering is contemplated
to include a portion of the shares issuable to the converting
lenders at Closing, pursuant to the terms and conditions to be set
forth in a debt conversion agreement currently being negotiated
with the Company’s converting lenders, which terms and
conditions are subject to final approval by the Investors before
Closing.
The
Subscription Agreement contains customary representations of the
parties and requires that the Company indemnify the Investors
against any breaches of the Subscription Agreement by the
Company.
The
foregoing descriptions of the Subscription Agreement and
Warrant are qualified in their entirety by the full text of
the documents which are filed as
Exhibit 10.1
and
Exhibit 10.2
, respectively, to
this Current Report on Form 8-K and incorporated in this
Item 1.01
by
reference.