Item
1.01 Entry into a Material Definitive Agreement.
On
July 8, 2019 (the “
Closing Date
”), Camber Energy, Inc. (the “
Company
”, “
we
”
and “
us
”), entered into, and closed the transactions contemplated by, an Agreement and Plan of Merger (the
“
Plan of Merger
” and the merger contemplated therein, the “
Merger
”), by and between the
Company, Camber Energy Merger Sub 2, Inc., the Company’s newly formed wholly-owned subsidiary (“
Merger Sub
”),
Lineal Star Holdings, LLC (“
Lineal
”), and the Members of Lineal (the “
Lineal Members
”).
Pursuant to the Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal Members in consideration
for newly issued shares of Series E Redeemable Convertible Preferred Stock and Series F Redeemable Preferred Stock, as described
in greater detail below.
Lineal,
based in Houston, Texas, is the parent company of (a) 64-year-old Lineal Industries Inc. (“
Lineal Industries
”),
based in Pittsburgh, Pennsylvania, and (b) Lineal Star Incorporated (“
Lineal Star
”), headquartered in Houston,
each of which were acquired by the Company as part of the Merger. Lineal Industries has provided over six decades of upstream,
midstream, and utilities pipeline maintenance, specialty construction and integrity services to Fortune 500 companies located
in the states of Ohio, Pennsylvania, Virginia, West Virginia, Maryland and New York.
Moving
forward the Company plans to expand the Lineal brand by acquiring and developing complementary specialty engineering, procurement
and construction energy infrastructure service businesses, as well as generating organic growth in downstream field services in
Lineal Star, Lineal’s newly formed Gulf Coast based operation. The Company’s strategy will be a balanced approach
to acquire and grow energy service businesses that focus in upstream, midstream and downstream sectors that are not severely affected
by wide swings in the commodity price of oil and natural gas.
In
connection with the Plan of Merger the Company entered into several other agreements, described below, including (a) a Security
Exchange Agreement dated July 8, 2019 (the “
Exchange Agreement
”), by and between the Company and Discover Growth
Fund LLC (“
Discover
”); (b) a Termination Agreement dated July 8, 2019, by and between the Company and Discover
Growth Fund (“
Discover Growth
”); and (c) a Funding and Loan Agreement dated July 8, 2019, by and among the
Company, Lineal, and certain of the Lineal Members who also acquired shares of the Company’s preferred stock as a result
of the Merger (the “
Funding Agreement
”), which provided for the Company to loan $1,050,000 to Lineal, which
loan was evidenced by a Promissory Note entered into by Lineal, as borrower, in favor of the Company, as lender, dated July 8,
2019 (the “
Note
”).
Also
as part of the Merger, the Company designated three new series of preferred stock, (1) Series D Convertible Preferred Stock (the
“
Series D Preferred Stock
” and the certificate of designations setting forth the rights thereof, the “
Series
D Designation
”); (2) Series E Redeemable Convertible Preferred Stock (the “
Series E Preferred Stock
”
and the certificate of designation setting forth the rights thereof (the “
Series E Designation
”); and (3) Series
F Redeemable Preferred Stock (the “
Series F Preferred Stock
” and the certificate of designation setting forth
the rights thereof, the “
Series F Designation
”, and the Series E Preferred Stock and the Series F Preferred
Stock, collectively, the “
Series E and F Preferred Stock
”). Additionally, with the approval of the holders
thereof, the Company amended and restated the designation of its Series C Redeemable Convertible Preferred Stock (the “
Series
C Preferred Stock
” and the amended and restated designation setting forth the rights thereof, the “
Series C
Designation
”). All of the preferred stock and related designations are described in greater detail below under “
Item
5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
”.
The
result of the Plan of Merger, Series D Designation and Series E Designation, each as described in greater detail below, will be
that, effective upon the Shareholder Approval Date (as defined below under “
Plan of Merger
”), and subject to
the Closing Conditions of the Exchange Agreement (defined and discussed below under “
Exchange Agreement
”),
(a) the common stock holders of the Company will hold 6.67% of the Company’s fully-diluted capitalization; (b) Discover
will hold Series D Preferred Stock convertible into 26.67% of the Company’s fully-diluted capitalization, subject to the
terms of the Series D Preferred Stock;
and (c) the Lineal Members, who hold the Series E Preferred Stock, will have the
right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed below, into 66.67% of the Company’s
fully-diluted capitalization, subject to the 3% Increase described below under “
Item 5.03 Amendments to Articles of Incorporation
or Bylaws; Change in Fiscal Year
” – “
Series E Redeemable Convertible Preferred Stock
”. In the
event the Shareholder Approval Date does not occur, the Series E Preferred Stock will not convertible, the Series C Preferred
Stock will not be exchanged for Series D Preferred Stock, no Series D Preferred Stock will not be outstanding and as a result,
the terms of the Series C Preferred Stock, as set forth in the Series C Designation, will continue to apply.
Currently
the Company does not anticipate holding a meeting to seek the Shareholder Approval (described below under “
Plan of Merger
”)
until the later of November 4, 2019, and the date that the Board of Directors reasonably believes that the Company will meet
the NYSE American’s initial listing requirements on the date of such Shareholder Approval, which the Company believes will
be required, as a result of prior conversations with the NYSE American, due to the fact that upon Shareholder Approval, a ‘reverse
merger’ under the NYSE American rules will be deemed to have occurred and the combined company (the Company and Lineal)
will be required to re-meet the initial listing requirements of the NYSE American.
Plan
of Merger
Pursuant
to the Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Merger and
as a wholly-owned subsidiary of the Company.
As
a result of the Merger, (b) each outstanding common share of Lineal (the “
Lineal Common Shares
”) issued and
outstanding immediately prior to the effective time of the Merger (the “
Effective Time
”) was converted into
0.95 shares of newly designated Series E Preferred Stock (i.e., into an aggregate of 950,000 shares of Series E Preferred Stock);
and (b) (i) 1,140,000 preferred shares of Lineal (“
Lineal Preferred Shares
”) issued and outstanding prior to
the Effective Time, were converted into 50,000 shares of Series E Preferred Stock; and (ii) 535,000 Lineal Preferred Shares, issued
and outstanding immediately prior to the Effective Time, were converted into 16,750 shares of newly designated Series F Preferred
Stock. The Company issued to the members of Lineal a total of 1,000,000 shares of Series E Preferred Stock (“
Series E
Shares
”) and 16,750 shares of Series F Preferred Stock (“
Series F Shares
”), pursuant to the Plan of
Merger. The Series E Preferred Stock and Series F Preferred Stock have the rights and privileges described below in
Item 5.03
.
The completion of the Merger was not subject to the approval of the shareholders of the Company, however, as discussed below,
the conversion rights of the Series E Preferred Stock, are subject to shareholder approval.
At
the Effective Time, by virtue of the Merger, all shares of common stock of Merger Sub issued and outstanding immediately prior
to the Effective Time were converted into and became 1,000,000 validly issued, fully paid and nonassessable Lineal Common Shares
and 1,675,000 validly issued, fully paid and nonassessable Lineal Preferred Shares, all of which are held by the Company.
The
Plan of Merger contains customary representations and warranties of each party for a transaction of this type. The Plan of Merger
also contains customary covenants and indemnification obligations of the parties.
The
Plan of Merger contained certain post-closing requirements. Those include:
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Requiring
the Company to prepare and file a proxy statement on Schedule 14A with the Securities
and Exchange Commission (“
SEC
”) in order to seek shareholder approval
of the issuance of the shares of common stock upon conversion of the Series E Preferred
Stock, the terms of the Plan of Merger and such other matters that the holders of the
Series E Preferred Stock may reasonably request and/or that are required to be approved
by the shareholders of Company pursuant to applicable NYSE American rules and regulations
in accordance with applicable rules and requirements of the SEC and the NYSE American
(the “
Shareholder Approval
” and the date of such Shareholder Approval,
the “
Shareholder Approval Date
”) at a duly called meeting of shareholders
of the Company (the “
Shareholder Meeting
”) which Shareholder Approval
shall be received prior to November 22, 2019, or if a Lineal Transaction has not occurred
prior to September 23, 2019, a date which is 60 days after the closing of a Lineal Transaction,
or such other later date which is approved by the Company and a majority in interest
of the Series E Preferred Stock (a “
Majority Interest
”). “
Lineal
Transaction
” means an acquisition by Lineal of assets or securities which results
in the Company, immediately after such acquisition, being able to meet the initial listing
requirements of the NYSE American.
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Notwithstanding
the above, the Shareholder Approval is not to be received, and the Shareholder Meeting
shall be adjourned, extended, delayed, abandoned or re-scheduled, if the NYSE American
determines that a “
back-door listing
”/“
reverse merger
”
is deemed to occur upon receipt of such Shareholder Approval, until or unless the Company,
upon receipt of the Shareholder Approval (or immediately prior to such anticipated date
of Shareholder Approval), in the reasonable determination of the Company, qualifies for
initial listing of the Company’s common stock on the NYSE American, pursuant to
the applicable guidance and requirements of the NYSE American.
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After
the Closing Date, until the Shareholder Approval is received, the executive officers
and directors of Company, shall not, in aggregate, be paid, or accrue, compensation in
excess of $78,333 per month, not including the reimbursement of certain expenses, unless
such compensation is approved with the consent of a Majority Interest.
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Additionally,
pursuant to the Plan of Merger, and the letter of intent entered into in connection therewith, we agreed to pay for the audits
required in connection with the filings required to be made by the Company, post-closing, and to reimburse Lineal for its reasonable
and actual expenses incurred in connection with the transactions contemplated by the Plan of Merger, up to a maximum of $200,000,
upon receipt by the Company of documentation of the same.
Securities
Exchange Agreement
Pursuant
to the Exchange Agreement, Discover agreed, that on the Approval Date (which also requires that the shares of common stock issuable
upon conversion of the Series D Preferred Stock and the terms of the Exchange Agreement are approved by the Company’s shareholders),
subject to the terms and conditions of the Exchange Agreement, that all shares of Series C Preferred Stock held by Discover as
of the Approval Date will be exchanged for a number of shares of Series D Preferred Stock equal to four (4) times the total number
of shares of common stock outstanding as of such date, divided by 1,000, rounded up to the nearest whole share (the “
Exchange
Shares
”). For example only, if the total number of shares of common stock outstanding are 3,000,000, the number of Series
D Preferred Stock shares due to Discover would equal 12,000 (3,000,000 x 4 = 12,000,000, divided by 1,000 = 12,000).
The
closing of the transactions contemplated by the Exchange Agreement is subject to the satisfaction of certain closing conditions,
including the following (the “
Closing Conditions
”):
●
(i) the shareholders of the Company have provided the Shareholder Approval and approved (a) the transactions contemplated by the
Exchange Agreement; and (b) the issuance of shares of common stock upon the conversion of the Series D Preferred Stock; (ii) the
Company has received approval by the NYSE American of the supplemental listing of shares of common stock issuable upon conversion
of the Series E Preferred Stock; and (iii) the shareholders have approved such other terms and conditions as may be required to
be approved by the NYSE American, including for the continued listing of the Company’s common stock after the transactions
contemplated by the Plan of Merger (collectively, the “
Approval
”). “
Approval Date
” means
the first business day after the date that all of the requirements of Approval are met;
●
Immediately following the issuance of the Exchange Shares, such Exchange Shares will be convertible into 26.67% of the Company’s
shares of common stock on a fully-diluted basis; and
●
The Company’s common stock is listed for and trading on the NYSE American on the Approval Date.
Effective
on the Approval Date, the November 23, 2018 Stock Purchase Agreement (the “
November 2018 Stock Purchase
”) entered
into between the Company and Discover will be deemed terminated and Discover will be deemed to have released the Company from
any and all obligations under such November 2018 Stock Purchase including, but not limited to obligations or liabilities for past
defaults or failures to comply with the terms of such November 2018 Stock Purchase or the securities issued in connection therewith.
The
Exchange Agreement also includes indemnification obligations requiring the Company to indemnify Discover against certain breaches
by the Company of the terms of the Exchange Agreement and from actions to challenge the Exchange Agreement.
The
Exchange Agreement included provisions whereby Discover (a) agreed to vote any shares of common stock of the Company which it
holds in favor of and “
for
” approval of the Plan of Merger and the terms thereof, and the securities issuable
upon conversion of preferred stock issued therewith, and those other proposals which are recommended by approval by the Board
of Directors of the Company in the proxy statement filed by the Company in connection with the Shareholder Meeting to approve
such items; (b) consented to the terms of the Plan of Merger and related transactions; (c) agreed not to transfer ownership of
the shares of Series C Preferred Stock which it held prior to the earlier of the Approval Date and the date the Exchange Agreement
is terminated; and (d) agreed not to short the Company’s common stock (collectively, the “
Discover Obligations
”).
The Company also provided Discover and its affiliates a general release in connection with Discover’s entry into the Exchange
Agreement.
The
Exchange Agreement terminates if the Approval Date has not been received before December 31, 2020.
Finally,
the Exchange Agreement amended the terms of the November 2018 Purchase Agreement to delete the terms thereof relating to future
sales of additional shares of Series C Preferred Stock under such agreement. As a result, Discover has no obligation to sell,
and we have no right to purchase, any additional shares of Series C Preferred Stock under the November 2018 Purchase Agreement.
Termination
Agreement
Pursuant
to the Termination Agreement, Discover LLC agreed, that effective as of the Approval Date, all of its rights under the (a) Preferred
Stock Purchase Agreement between Discover LLC and the Company, dated April 6, 2016; (b) Securities Purchase Agreement between
Discover LLC and the Company, dated April 6, 2016; (c) Stock Purchase Agreement between Discover LLC and the Company, dated October
5, 2017; and (d) Stock Purchase Agreement between Discover LLC and the Company, dated October 26, 2018, each of (a) through (d),
as amended from time to time (collectively, the “
Purchase Agreements
”), and all of Discover LLC’s rights
under the Redeemable Convertible Subordinated Debenture from the Company in the original principal amount of $530,000 (“
Debenture
”),
and all rights to true-ups thereunder, would be terminated, along with all rights thereunder.
The
Termination Agreement is subject to the same Closing Conditions as the Exchange Agreement (discussed above). The Termination Agreement
also included obligations of Discover LLC substantially similar to the Discover Obligations. The Company also provided Discover
LLC and its affiliates a general release in connection with Discover’s entry into the Exchange Agreement.
Funding
and Loan Agreement
The
Funding Agreement required the Company, promptly following the Closing Date, to deposit into a newly opened and
dedicated bank account, $4,000,000 (the “
Deposit
”), which is intended to be used for acquisitions. The disbursement of
the Deposit from the account is required to be approved by (i) a person designated by the holders of the Series E Preferred
Stock; and (ii) the Company. The entire amount of the Deposit and all interest thereon, is to be held in the account until
the earlier of (a) the receipt of a final, non appealable order of any court or arbitrator of competent jurisdiction with
written payment instructions of the prevailing party to effectuate such order; and (b) the written agreement executed by (a)
Majority In Interest and the holder of the Series F Preferred Stock (collectively, a “
Preferred
Majority
”); and (b) the Company, setting forth the disbursement of all or a portion of the Deposit for acquisitions
of assets and/or securities of complementary businesses of Lineal (the “
Release Approval
”). Each Release
Approval is also required to set forth the structure of the acquisition, including the ownership breakdown of any acquired
entity, business or assets, between Lineal and the Company.
The
Funding Agreement also required the Company to wire $1,050,000 in immediately available funds to Lineal (the “
Loan
”).
The Loan was documented by the Note (described below).
The
Funding Agreement terminates on the first to occur of (a) the distribution of all of the amounts in the account in accordance
with the agreement; (b) the consent of a Preferred Majority; and (c) delivery to the former holders of the Series E and F Preferred
Stock, by the Company, of a notice of termination, in the event the Series E and F Preferred Stock have been fully redeemed by
the Company.
Promissory
Note
The
Note, issued by Lineal as borrower, in the amount of $1,050,000, accrues interest, compounded monthly, at 10% per annum
(18% upon the occurrence of an event of default), beginning upon the date, if ever, that the Company no longer owns at least
50% of the voting securities of Lineal (the “
Interest Effective Date
”), and is either to be (a) forgiven
on the Shareholder Approval Date; or (b) payable in full together with accrued interest thereon, two (2) years from
the Interest Effective Date, or earlier upon acceleration upon the occurrence of an event of default under the Note. The
Note contains standard and customary events of default. The amount loaned by the Company to Lineal pursuant to the Note was,
or will be, promptly paid to affiliates of Lineal in order to satisfy amounts owed to such affiliates as of
the Closing.
In
the event the Shareholder Approval has been received, the Note and all principal and interest due thereunder will be automatically
forgiven by the Company.
Indemnification
Agreements
On
July 3, 2019, the Company entered into an Indemnification Agreement with each of its then officers and directors. The Indemnification
Agreements provide for certain indemnification obligations and requirements of the Company as to each officer and director, including
contractual rights of indemnification, which are in addition to and which do not limit, the rights to indemnification provided
in the Company’s Articles of Incorporation (as amended) and Bylaws (as amended), and expense advancement obligations of
the Company in connection therewith. The rights to indemnification are subject to certain exceptions contained in the Indemnification
Agreement, including for claims brought by the indemnitee, claims under Section 16(b) of the Securities Exchange Act of 1934,
as amended, and claims which include assertions made by an indemnitee which a court of competent jurisdiction determines were
not made in good faith or were frivolous.
*
* * * *
The
foregoing descriptions of the Plan of Merger, Exchange Agreement, Termination Agreement, Funding Agreement, Note and Indemnification
Agreements do not purport to be complete and are qualified in their entirety by reference to the Plan of Merger, Exchange Agreement,
Termination Agreement, Funding Agreement, Note, and form of Indemnification Agreement, copies of which are incorporated by reference
as
Exhibits 2.1
,
10.1
,
10.2
,
10.3
,
10.4
and
10.5,
respectively, to this Current Report
on Form 8-K and incorporated herein by reference.