Item 1.01. Entry
into a Material Definitive Agreement.
Restructuring
and Exchange Agreement
On September 30, 2019, Yuma Energy,
Inc. (the “Company”) and certain of its
subsidiaries entered into a Restructuring and Exchange Agreement
(the “Restructuring
Agreement”) with Red Mountain Capital Partners LLC, a
Delaware limited liability company (“Red Mountain”), RMCP PIV DPC, LP,
a Delaware limited partnership and an affiliate of Red Mountain
(“DPC PIV”),
RMCP PIV DPC II, LP, a Delaware limited partnership and an
affiliate of Red Mountain (“DPC PIV II” and together with Red
Mountain and DPC PIV, the “Investors”), and YE Investment
LLC, a Delaware limited liability company and an affiliate of Red
Mountain (“YE”),
which provides for (i) the modification (the “Loan Modification”) of the
Company’s credit facility as discussed below under the Loan
Modification Agreement; (ii) the exchange (the “Note Exchange”) of the promissory
note evidencing the Modified Note (as defined below) for a
convertible note (the “Convertible Note”) with a
principal amount of $1.4 million, an interest rate of 5% per annum,
payable monthly beginning in January 2020, a maturity date of
December 31, 2022, and that is convertible in shares of common
stock, $0.001 par value per share of the Company (the
“Common Stock”),
at a conversion price of $0.1288668927422 per share, and the
related elimination of a $360,588 outstanding hedge obligation by
YE; and (iii) the amendment and restatement of the Certificate of
Designation of the Series D Convertible Preferred Stock (the
“Certificate of
Designation”) to provide for a reduction of the
conversion price of the Series D convertible preferred stock,
$0.001 par value per share of the Company (the “Series D Preferred Stock”), from
$98.7571635 to $1.44372 per share, and certain other modifications
(the “COD
Amendment” and collectively with the Loan Modification
and the Note Exchange, the “Transactions”).
Consummation of the Transactions is
subject to several closing conditions, including (i) approval of
the COD Amendment by a majority of the outstanding voting
securities of the Company; (ii) approval of the issuance of the
shares of Common Stock issuable upon conversion of the Convertible
Note (the “Resulting
Shares”) by a majority of the voting securities of the
Company represented in person or by proxy provided that a quorum is
present; (iii) approval of the issuance of the shares of Common
Stock issuable upon conversion of the shares of Series D Preferred
Stock (the “COD
Shares”) by a majority of the voting securities of the
Company represented in person or by proxy provided that a quorum is
present; (iv) the absence of any injunction or other legal
restraint preventing or making illegal the Transactions; (v) the
accuracy of the representations and warranties and compliance with
their respective covenants of each of the Company, the Investors
and YE; (vi) the absence of a material adverse effect on the
Company; (vii) the execution and delivery of a customary
Registration Rights Agreement (see below); and (viii) the execution
and delivery of a customary Board Rights Agreement (see
below).
The Restructuring Agreement
provides that during the period from the execution date until the
closing of the Transactions, the Company will be subject to certain
restrictions on its ability to solicit alternative business
proposals from third parties, to provide non-public information to
third parties, and to engage in discussions with third parties
regarding alternative business combination proposals, subject to
customary exceptions. Under the Restructuring Agreement, an
alternative business proposal means any proposal that involves the
acquisition of 20% or more of the Company’s equity interests
or assets.
The
Restructuring Agreement provides that, subject to certain terms and
conditions, the Company will as promptly as reasonably practicable
hold a stockholders meeting for the purpose of approving the COD
Amendment, the issuance of the Resulting Shares and the issuance of
the COD Shares.
The Restructuring Agreement
includes a termination date of December 31, 2019, which may be
extended by any party in certain circumstances.
In connection with the closing of
the Transactions, the Company will enter into a customary
registration rights agreement (the “Registration Rights Agreement”)
with the Investors and YE containing provisions by which the
Company will, among other things and subject to certain
restrictions, file a registration statement with the Securities and
Exchange Commission (“SEC”) providing for the
registration of the shares of Common Stock issuable upon conversion
of the Convertible Note and shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and to cooperate in
certain underwritten offerings thereof.
In connection with the closing of
the Transactions, the Company will enter into a customary board
representation rights agreement (the “Board Rights Agreement”) with Red
Mountain containing provisions by which Red Mountain has the right
but not the obligation to nominate up to four directors to the
Board.
Also, in connection with the
Transactions, the Company and YE agreed to negotiate in good faith
an amended and restated credit agreement (the “A&R Credit Agreement”)
providing for an uncommitted delayed draw term loan with (i) a
principal amount of up to $2.0 million, (ii) an interest rate of
10%, payable monthly, (iii) a maturity date of September 30, 2022,
and (iv) a prepayment penalty of 10% of the principal amount
repaid.
The Restructuring Agreement is
included as Exhibit 10.1 to this Current Report on Form 8-K, and
the foregoing summary description of the Restructuring Agreement is
qualified in its entirety by reference to such exhibit, which is
incorporated herein by reference. The Restructuring Agreement is
filed herewith to provide readers with information regarding its
terms. It is not intended to provide any other factual information
about the parties. In particular, the assertions embodied in the
representations and warranties contained in the Restructuring
Agreement were made as of the date of the Restructuring Agreement
only and are in certain instances qualified by information in
confidential disclosure schedules provided by the parties to each
other in connection with the signing of the Restructuring
Agreement. These disclosure schedules contain information that
modifies, qualifies and creates exceptions to the representations
and warranties set forth in the Restructuring Agreement. Moreover,
certain representations and warranties in the Restructuring
Agreement may have been used for the purpose of allocating risk
between the parties rather than establishing matters of fact.
Accordingly, readers should not rely on the representations and
warranties in the Restructuring Agreement, as characterizations of
the actual statements of fact about the
parties.
Loan
Modification Agreement
On September 30, 2019, the Company
and certain of its subsidiaries (collectively, the
“Borrowers”)
entered into a loan modification agreement (the “Loan Modification Agreement”) with
YE which amends the credit agreement dated as of October 26, 2016
(the “Original Credit
Agreement”) by and among the Lender party thereto, YE
as Administrative Agent (in such capacity, the “Agent”), and the Borrowers, as
amended or modified by (A) the First Amendment to Credit Agreement
and Borrowing Base Redetermination dated as of May 19, 2017, (B)
the Second Amendment to Credit Agreement and Borrowing Base
Redetermination dated as of May 8, 2018, (C) the Waiver and Third
Amendment to Credit Agreement dated as of July 31, 2018, (D) the
Limited Waiver dated as of August 30, 2018, in each case among the
Lenders, the Agent and the Borrowers, and (E) and the Successor
Agent and Issuing Bank Agreement dated as of September 10, 2019
(the agreements in (A) through (E), the “Default Documents”, and the
Original Credit Agreement as so amended or modified by the Default
Documents, the “Credit
Agreement”). The Loan Modification Agreement, among
other things, modified the loans outstanding under the Credit
Agreement (the “Modified
Note”) in that it (i) reduced the outstanding
principal balance from approximately $32.8 million, plus accrued
and unpaid interest and expenses, to $1.4 million with the
forgiveness of approximately $31.4 million plus the accrued and
unpaid interest and expenses, (ii) increased the interest rate to
10% per annum payable quarterly until December 21, 2019 and monthly
beginning in January 2020, (iii) extended the maturity date to
September 30, 2022, and (iv) added an event of default if the
Transactions, among other events, do not occur on or before
September 30, 2020.
The Loan Modification Agreement is
included herein as Exhibit 10.2 and is incorporated herein by
reference. The foregoing description of the Loan Modification
Agreement does not purport to be complete and is qualified in its
entirety by reference to such agreement.
Voting
Agreement
In connection with the
Restructuring Agreement, on September 30, 2019, the Company entered
into a voting agreement (the “Voting Agreement”) with certain
stockholders of the Company, pursuant to which these entities have
agreed, among other things, to vote all shares of Common Stock and
Series D Preferred Stock owned by each of them in favor of the COD
Amendment, the issuance of the Resulting Shares and the issuance of
the COD Shares. As of the date of this Current Report on Form 8-K,
such stockholders own approximately 23% of the issued and
outstanding shares of Common Stock on an as-converted
basis.
The Voting Agreement is included
herein as Exhibit 10.3 and is incorporated herein by reference. The
foregoing description of the Voting Agreement does not purport to
be complete and is qualified in its entirety by reference to such
agreement.