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2020-12-14 iso4217:USD xbrli:shares iso4217:USD xbrli:shares
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities Exchange
Act of 1934
Date of
Report (Date of earliest event reported):
December 14, 2020
Torchlight Energy Resources, Inc.
(Exact name
of registrant as specified in its charter)
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Nevada |
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001-36247 |
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74-3237581 |
(State or other jurisdiction of
incorporation or organization)
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(Commission File Number) |
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(IRS Employer Identification No.) |
5700 W. Plano Parkway,
Suite 3600 |
Plano,
Texas
75093 |
(Address of principal executive offices) |
Telephone
– (214) 432-8002
Check the
appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
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o |
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR
230.425) |
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x |
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a
-12) |
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o |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d -2(b)) |
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o |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e -4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
Title of
each class |
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Trading
Symbol(s) |
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Name of each
exchange on which registered |
Common Stock, $0.001 par value |
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TRCH |
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The Nasdaq Stock Market LLC |
Indicate by
check mark whether the registrant is an emerging growth company as
defined in Rule 405 of the Securities Act of 1933 (§230.405 of this
chapter) or Rule 12b-2 of the Securities Exchange Act of 1934
(§240.12b-2 of this chapter).
Emerging
growth company
o
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. o
Item
1.01. Entry into a Material Definitive Agreement.
On December
14, 2020, Torchlight Energy Resources, Inc. (“Torchlight”) and its
newly formed subsidiaries, 2798832 Ontario Inc. (“Canco”) and
2798831 Ontario Inc., both Ontario corporations, entered into an
Arrangement Agreement (the “Agreement”) with Metamaterial Inc., an
Ontario corporation headquartered in Nova Scotia, Canada
(“Metamaterial”). Under the Agreement, Canco is to acquire all of
the outstanding common shares of Metamaterial by way of a statutory
plan of arrangement under the Business Corporations Act
(Ontario)(the “Arrangement”), on and subject to the terms and
conditions of the Agreement.
The
Agreement provides that the Metamaterial shareholders may elect to
receive either shares of Torchlight common stock or shares of the
capital stock of Canco (the “Exchangeable Shares”) in exchange for
such holder’s Metamaterial common shares, in each case based on an
exchange ratio (the “Exchange Ratio”) to be determined based on the
number of Metamaterial common shares and shares of Torchlight
common stock outstanding as of immediately prior to the effective
time of the Arrangement (the “Effective Time”). After the Effective
Time, each Exchangeable Share will be exchangeable by the holder
for one share of Torchlight common stock (subject to customary
adjustments for stock splits or other reorganizations). In
addition, Torchlight may require all outstanding Exchangeable
Shares to be exchanged upon the occurrence of certain events and at
any time following the seventh anniversary of the closing of the
Arrangement. While outstanding, holders of Exchangeable Shares will
be entitled to cast votes on matters for which holders of
Torchlight common stock are entitled to vote, and will be entitled
to receive dividends economically equivalent to the dividends
declared by Torchlight with respect to its common stock.
Eligibility to receive Exchangeable Shares will be subject to
certain Canadian residency restrictions and tax
statuses.
The
Agreement additionally makes provision for the conversion or
amendment of other outstanding Metamaterial securities, including
options, deferred share units and warrants, such that they will be
exercisable for shares of Torchlight common stock, in each case
with adjustments based on the Exchange Ratio.
Immediately
following the Effective Time, based on the Exchange Ratio, the
former shareholders of Metamaterial are anticipated to own
approximately 75% of the economic and voting interest of the
combined company, with current Torchlight stockholders holding the
remaining 25% economic and voting interest. Following the Effective
Time, the combined company’s board of directors will be comprised
of seven directors, with five of such directors to be nominees of
Metamaterial, one to be jointly nominated by Metamaterial and
Torchlight and one director to be a nominee of Torchlight, subject
to the reasonable approval of Metamaterial. Additionally, the
current management of Torchlight will resign and be replaced by
George Palikaras as Chief Executive Officer and Kenneth Rice as
Chief Financial Officer.
Under the
Agreement, Torchlight will also submit to its stockholders a
proposal to amend Torchlight’s articles of incorporation to effect
a reverse split to regain and maintain compliance with the listing
standards of the NASDAQ Stock Market LLC (the “Reverse
Split”).
Following
the Reverse Split, and prior to the Effective Time, Torchlight will
declare and issue a dividend, on a one-for-one basis, of shares of
preferred stock to the holders of its common stock. Following the
Effective Time, the holders of preferred stock will be entitled to
a dividend based on the net proceeds of the sale of any assets that
are used or held for use in Torchlight’s oil and gas exploration
business (the “O&G Assets”), subject to certain holdbacks. Such
asset sales must occur prior to the earlier of (i) December 31,
2021 or (ii) the date which is six months from the closing of the
Arrangement (the “Sale Expiration Date”). Following the Sale
Expiration Date, subject to certain conditions, the combined
company will effect a spin-off of any remaining O&G Assets with
the preferred stockholders to receive their pro rata equity
interest in the spin-off entity.
The
transaction has been unanimously approved by the board of directors
of Metamaterial, and shareholders representing 48.06% of
Metamaterial’s common shares have entered into voting and support
agreements in connection with the transaction a form of which is
filed here as Exhibit 10.1. The transaction has also been
unanimously approved by the board of directors of Torchlight, and
shareholders representing 16.53% of Torchlight’s common stock have
entered into voting and support agreements in connection with the
transaction.
The
consummation of the Arrangement is subject to certain closing
conditions, including without limitation the requirement that (i)
prior to the Effective Time, Torchlight raise gross proceeds of at
least $10 million through the issuance of common stock or
securities convertible into or exercisable for common stock, less
the aggregate principal amount of and accrued interest on certain
loans Torchlight has made to Metamaterial, and (ii) all debt of
Torchlight is converted into shares of its common stock or repaid
in full, provided that if the senior secured debt held by The David
A. Straz, Jr. Foundation and by The David A. Straz, Jr. Irrevocable
Trust DTD 11/11/1986, has not been so converted or repaid, then
prior to the Effective Time, the terms of such debt will have been
modified such that the debtholders’ sole recourse in respect
thereof will be against the O&G Assets. Other closing
conditions include without limitation the receipt of all required
approvals from the shareholders of each of Torchlight and
Metamaterial and from the Ontario Superior Court of Justice
(Commercial List), and all other required regulatory approvals, as
well as other customary closing conditions, including the absence
of a material adverse effect with respect to either Metamaterial or
Torchlight.
The
transaction is expected to close in the first half of 2021 and is
to be implemented by way of an arrangement under the Business
Corporations Act (Ontario). The Agreement provides for
customary representations, warranties and covenants, including
covenants of each party to (i) subject to certain exceptions, carry
on its business in the ordinary course of business consistent with
past practice during the period between the execution of the
Agreement and the Effective Time and (ii) not solicit any
alternate transactions or, subject to certain exceptions, to engage
in any discussions or negotiations with respect thereto. Subject to
certain terms and conditions, the Agreement may be terminated by
either party after March 31, 2021, and if the Agreement is
terminated prior to that date by either party as a result of
obtaining a superior proposal from a third party, such terminating
party is required to pay a termination fee of
$2,000,000.
Under the
Agreement, Torchlight has also agreed to loan Metamaterial $500,000
no later than five days following execution of the Agreement, in
exchange for an unsecured promissory note in substantially the same
form as the 8% Unsecured Convertible Promissory Note that evidences
Torchlight’s loan to Metamaterial of $500,000 on September 20,
2020. Upon closing, these two bridge loans, including the aggregate
principal and unpaid interest, are to be included in, and credited
against, the $10 million pre-closing financing described above,
with such notes to be deemed cancelled and paid in full.
As
previously disclosed in Torchlight’s current report on Form 8-K
filed on September 23, 2020, McCabe Petroleum Corporation, a
company owned by Torchlight’s chairman Gregory McCabe, loaned
Torchlight $1,500,000 on September 18, 2020, evidenced by a 6%
Secured Convertible Promissory, of which $500,000 was deposited
into an escrow account. Under the terms of the note, this $500,000
has been released from escrow to Torchlight, and will be used for
the bridge loan described above.
The
description above of the Agreement is qualified in its entirety by
reference to the terms of the Agreement, a copy of which is filed
as Exhibit 2.1 hereto and is incorporated herein by
reference.
The
Agreement has been included to provide investors and security
holders with information regarding its terms. It is not
intended to provide any other factual information about Torchlight,
Metamaterial or their respective subsidiaries and affiliates.
The Agreement contains representations and warranties by Torchlight
and Metamaterial made solely for the benefit of the parties.
The assertions embodied in those representations and warranties are
subject to qualifications and limitations agreed to by the
respective parties in negotiating the terms of the Agreement,
including information in confidential disclosure letters delivered
by each party in connection with the signing of the
Agreement. Moreover, certain representations and warranties
in the Agreement were made as of a specified date, may be subject
to a contractual standard of materiality different from what might
be viewed as material to investors, or may have been used for the
purpose of allocating risk between Torchlight and Metamaterial,
rather than establishing matters as facts. Accordingly, the
representations and warranties in the Agreement should not be
relied on by any persons as characterizations of the actual state
of facts about Torchlight or Metamaterial at the time they were
made or otherwise. In addition, information concerning the subject
matter of the representations and warranties may change after the
date of the Agreement, which subsequent information may or may not
be fully reflected in Torchlight’s or Metamaterial’s public
disclosures.
Item
3.02. Unregistered Sales of Equity Securities.
The
disclosure under Item 1.01 of this current report on Form 8-K
relating to the Agreement and the issuance of the shares of common
stock of Torchlight and the Exchangeable Shares is incorporated
herein by reference.
The
securities to be issued under the Agreement will be issued in
reliance upon Section 3(a)(10) of the Securities Act of 1933, as
amended (the “Securities Act”), which exempts from the registration
requirements under the Securities Act any securities that are
issued in exchange for one or more bona fide outstanding securities
where the terms and conditions of such issuance and exchange are
approved, after a hearing upon the fairness of such terms and
conditions at which all persons to whom it is proposed to issue
securities in such exchange shall have the right to appear, by any
court expressly authorized by law to grant such
approval.
Forward-Looking
Statement
This current
report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the “safe harbor” created by those
sections. All statements in this current report that are not based
on historical fact are “forward looking statements.” These
statements may be identified by words such as “estimates,”
“anticipates,” “projects,” “plans,” “strategy,” “goal,” or
“planned,” “seeks,” “may,” “might”, “will,” “expects,” “intends,”
“believes,” “should,” and similar expressions, or the negative
versions thereof, and which also may be identified by their
context. All statements that address operating performance or
events or developments Torchlight expects or anticipates will occur
in the future, such as stated objectives or goals, refinement of
strategy, attempts to secure additional financing, exploring
possible business alternatives, or that are not otherwise
historical facts, are forward-looking statements. While management
has based any forward-looking statements included in this current
report on its current expectations, the information on which such
expectations were based may change. Forward-looking statements
involve inherent risks and uncertainties which could cause actual
results to differ materially from those in the forward-looking
statements as a result of various factors, including risks
associated with Torchlight’s ability to obtain additional capital
in the future to fund planned expansion, the demand for oil and
natural gas which demand could be materially affected by the
economic impacts of COVID-19 and possible increases in supply from
Russia and OPEC, the proposed business combination transaction with
Metamaterial, general economic factors, competition in the industry
and other factors that could cause actual results to be materially
different from those described herein as anticipated, believed,
estimated or expected. Additional risks and uncertainties are
described in or implied by the Risk Factors and Management’s
Discussion and Analysis of Financial Condition and Results of
Operations sections of Torchlight’s 2019 Annual Report on Form
10-K, filed on March 16, 2020 and other reports filed from time to
time with the Securities and Exchange Commission (“SEC”).
Torchlight urges you to consider those risks and uncertainties in
evaluating its forward-looking statements. Readers are cautioned to
not place undue reliance upon any such forward-looking statements,
which speak only as of the date made. Except as otherwise required
by the federal securities laws, Torchlight disclaims any obligation
or undertaking to publicly release any updates or revisions to any
forward-looking statement contained herein (or elsewhere) to
reflect any change in its expectations with regard thereto, or any
change in events, conditions, or circumstances on which any such
statement is based.
Additional
Information and Where to Find It
Torchlight
and Metamaterial will prepare a proxy statement for Torchlight’s
stockholders to be filed with the SEC. The proxy statement will be
mailed to Torchlight’s stockholders. Torchlight and Metamaterial
urge investors, stockholders and other interested persons to read,
when available, the proxy statement, as well as other documents
filed with the SEC, because these documents will contain important
information about the proposed business combination transaction.
Such persons can also read Torchlight’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2019, for a description of
the security holdings of its officers and directors and their
respective interests as security holders in the consummation of the
transactions described herein. Torchlight’s definitive proxy
statement will be mailed to stockholders of Torchlight as of a
record date to be established for voting on the transactions
described in this report. Torchlight’s stockholders will also be
able to obtain a copy of such documents, without charge, by
directing a request to: John A. Brda, President of Torchlight
Energy Resources, Inc., 5700 W. Plano Parkway, Suite 3600, Plano,
Texas 75093; e-mail:
john@torchlightenergy.com. These documents, once available,
can also be obtained, without charge, at the SEC’s web site
(http://www.sec.gov).
Participants in
Solicitation
Torchlight,
Metamaterial and their respective directors, executive officers and
other members of their management and employees, under SEC rules,
may be deemed to be participants in the solicitation of proxies of
Torchlight stockholders in connection with the proposed business
combination. Investors and security holders may obtain more
detailed information regarding the names, affiliations and
interests of Torchlight’s directors in its Annual Report on Form
10-K for the fiscal year ended December 31, 2019, which was filed
with the SEC on March 16, 2020. Information regarding the persons
who may, under SEC rules, be deemed participants in the
solicitation of proxies to Torchlight’s stockholders in connection
with the proposed business combination will be set forth in the
proxy statement for the proposed business combination when
available. Information concerning the interests of Torchlight’s and
Metamaterial’s participants in the solicitation, which may, in some
cases, be different than those of Torchlight’s and Metamaterial’s
equity holders generally, will be set forth in the proxy statement
relating to the proposed business combination when it becomes
available.
Item 8.01. Other Events.
On December 14, 2020, the Company issued a press release announcing
the signing of the Agreement. A copy of the press release is
attached as Exhibit 99.1 to this current report on Form 8-K and is
incorporated herein by reference.
Item
9.01. Financial Statements and Exhibits.
(d)
Exhibits.
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.
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Torchlight
Energy Resources, Inc. |
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Date: December
14, 2020 |
By: /s/
John A. Brda |
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John A.
Brda |
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President |