UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Camber Energy, Inc.
(Exact name of Registrant as specified in its charter)
| Nevada | 1311 | 20-2660243 | ||
| (State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
1415 Louisiana, Suite 3500
Houston, Texas 77002
(210) 998-4035
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Louis G. Schott
Interim Chief Executive Officer
1415 Louisiana, Suite 3500
Houston, Texas 77002
(210) 998-4035
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Aaron D. McGeary, Esq. The McGeary Law Firm, P.C. 1600 Airport Fwy., Suite 300 Bedford, Texas 76022 (817) 282-5885 |
Lance Brunson, Esq. Callie Tempest Jones, Esq. Brunson Chandler & Jones, PLLC Walker Center 175 S. Main Street, 14th Floor Salt Lake City, Utah 84111 (801) 303-5737 |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective and upon completion of the merger described herein.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
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 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction: ☐
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
CALCULATION OF REGISTRATION FEE
| Title of each class of securities to be registered | Amount to be registered | Proposed maximum offering price per share | Proposed maximum aggregate offering price | Amount of registration fee (3) | ||||||||||
| Common Stock, par value $0.001 per share | 196,078,433(1) | N/A | $23,549,020.00(2) | $3,056.67 | ||||||||||
| (1) | The number of shares of common stock, par value $0.001 per share, of Camber Energy, Inc. (“Camber” and such shares, the “Camber common stock”) being registered is based upon an estimate of the maximum number of shares of common stock, par value $0.001 per share, of Viking Energy Group, Inc. (“Viking” and such shares, the “Viking common stock”) issuable in connection with the merger of Viking with and into a subsidiary of Camber. |
| (2) | Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended and calculated in accordance with Rules 457(c), 457(f)(1) and 457(i) promulgated thereunder. The aggregate offering price is (x) the average of the high and low prices of Viking common stock as reported on the OTCQB (OTC Link ATS) on June 1, 2020 ($0.1399 (high) and $0.1003 (low)), which date is within five business days prior to filing this Registration Statement, multiplied by (y) the estimated maximum number of shares of Viking common stock to be exchanged in the merger (196,078,433), without taking into account the proposed reverse stock split described below. |
| (3) | Calculated by multiplying the estimated aggregate offering price of securities to be registered by .0001298. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE.
The information in this joint proxy statement/prospectus is not complete and may be changed. A registration statement relating to the securities described in this joint proxy statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not be issued until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This joint proxy statement/prospectus does not constitute an offer to sell or the solicitation of offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY—SUBJECT TO COMPLETION—DATED JUNE 3, 2020
To the stockholders of Camber Energy, Inc. and Viking Energy Group, Inc.
MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT
On behalf of the boards of directors of Camber Energy, Inc. (“Camber”) and Viking Energy Group, Inc. (“Viking”), we are pleased to enclose the accompanying joint proxy statement/prospectus relating to the proposed business combination of Camber and Viking. We are requesting that you take certain actions as a Camber stockholder or a Viking stockholder, as described in greater detail below.
Pursuant to the Agreement and Plan of Merger, dated as of February 3, 2020 and amended by the First Amendment to Agreement and Plan of Merger, dated as of May 27, 2020 (which we collectively refer to as the “merger agreement,” including as it may be amended from time to time), by and between Camber and Viking, a newly formed wholly-owned of Camber (“Merger Sub”) will merge with and into Viking (which we refer to as the “merger”) on the terms and subject to the conditions of the merger agreement, with Viking continuing as the surviving entity in the merger and a wholly-owned subsidiary of Camber. We sometimes refer to Camber following the merger and in its capacity as parent company of Viking as “Camber Viking” or the “combined company.”
In the merger, Viking stockholders will be entitled to receive a number of shares of Camber common stock for each share of Viking common stock they own. The actual number of shares of Camber common stock that Viking stockholders will receive per share of Viking common stock (the “merger consideration”) will fluctuate based on a number factors described below and will not be known at the time Viking stockholders vote on the merger, and the market value of the merger consideration will fluctuate with the market price of Camber common stock and will not be known at the time Viking stockholders vote on the merger.
At the effective time of the merger (the “effective time”), each share of Viking common stock issued and outstanding immediately prior to the effective time (other than Viking shares owned by Camber, Viking and Merger Sub) will be converted into the right to receive the pro rata share of an adjustable percentage (initially 80% prior to adjustment) of Camber’s post-effective time capitalization (Camber’s 20% share is referred to as the “Camber Percentage”), taking into account the number of shares of common stock of Camber outstanding on a fully-diluted basis, but without taking into account any shares of common stock which the holder of Camber’s Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock (which are currently convertible into approximately [66,837,256] shares of common stock, subject to adjustment as provided in the designation of such Series C Preferred Stock, and in connection with the proposed reverse stock split described below). Holders of Viking common stock will have any fractional shares of Camber common stock after the merger rounded up to the nearest whole share.
The Camber Percentage is to be adjusted as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt), which is not contingent or conditional upon the closing of the merger, available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or be increased to more than 25%.
Based on the closing price of Camber’s common stock on the NYSE American stock exchange on February 4, 2020, the last trading day before public announcement of the merger and the fully diluted number of shares of Camber and Viking on that date (without taking into account the Series C Preferred Stock in the case of Camber), the exchange ratio represented approximately $0.09 in value for each share of Viking common stock, without taking into account the proposed reverse stock split discussed below. Based on the closing price of Camber’s common stock on the NYSE American stock exchange on [●], 2020 of $[●], and the fully diluted number of shares of Camber and Viking on that date, the exchange ratio represented approximately $[●] in value for each share of Viking common stock. The value of the Camber common stock at the time of completion of the merger could be greater than, less than or the same as, the value of Camber common stock on the date of the accompanying joint proxy statement/prospectus. We urge you to obtain current market quotations of Camber common stock (trading symbol “CEI”) and Viking common stock (trading symbol “VKIN”). Following the completion of the merger, the common stock of the combined company will be listed on the NYSE American stock exchange under the symbol “CEI.”
We expect the merger will qualify as a reorganization for federal income tax purposes. Accordingly, Viking stockholders generally will not recognize any gain or loss for federal income tax purposes on the exchange of shares of Viking common stock for Camber common stock in the merger.
Based on the number of shares of Viking common stock and Camber common stock considered outstanding on a fully diluted basis as of [●], 2020, Camber expects to issue approximately [●] million shares of Camber common stock to Viking stockholders in the aggregate in the merger, representing total aggregate consideration of approximately $[●] in value, based on the closing price of Camber’s common stock on the NYSE American stock exchange on [●], 2020 of $[●]. Upon completion of the merger, we estimate that Viking stockholders as of immediately prior to the merger will collectively own approximately 80% and Camber stockholders as of immediately prior to the merger will own approximately 20% of the outstanding shares of common stock of the combined company (assuming there is no adjustment of the Camber Percentage per the conditions described above, and in each case, on a fully diluted basis and without regard to the fact that immediately prior to the merger, some stockholders may own both Camber and Viking stock), and without taking into account the conversion rights of Camber’s Series C Preferred Stock.
Camber and Viking will each hold a special meeting of their stockholders in connection with the merger. Camber stockholders will be asked to vote to approve among other things, the issuance of shares of Camber common stock, pursuant to the terms of the merger agreement, in an amount necessary to complete the merger and the other transactions contemplated by the merger agreement (which we refer to as the “Camber share issuance proposal”), which requires the approval of the holders of a majority of the outstanding shares of stock entitled to vote thereon present in person or by proxy at the Camber special meeting, and to approve certain other matters related to the merger. Viking stockholders will be asked to approve the merger agreement and approve the merger (which we refer to as the “Viking merger proposal”), which requires the approval of the holders of a majority of the outstanding shares of Viking common stock, and to approve certain other matters related to the merger.
The special meeting of Viking stockholders will be held on [●], 2020 at [●], at [●] local time. The special meeting of Camber stockholders will be held on [●], 2020 at [●], at [●] local time. Information about these meetings and the merger is contained in this joint proxy statement/prospectus. In particular, see “Risk Factors” beginning on page 29. We urge you to read this joint proxy statement/prospectus carefully and in its entirety.
Your vote is very important regardless of the number of shares of Camber common stock, Viking common stock or Viking Series C Preferred Stock that you own. The merger cannot be completed without the approval of the Camber share issuance proposal by Camber stockholders and the approval of the Viking merger proposal by the Viking stockholders. Whether or not you plan to attend your special meeting, please vote as soon as possible to make sure that your shares are represented at the meeting.
Each of our boards of directors recommends that holders of stock vote “FOR” each of the proposals to be considered at the respective meetings. We strongly support this combination of our companies and join our boards in their recommendations.
| Robert Schleizer | James A. Doris |
| Chief Financial Officer and Director | Chief Executive Officer and Director |
| Camber Energy, Inc. | Viking Energy Group, Inc. |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the merger or determined if this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
The accompanying joint proxy statement/prospectus is dated [●], 2020, and is first being mailed to Camber stockholders and Viking stockholders on or about [●], 2020.
ADDITIONAL INFORMATION
Camber and Viking file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including both Camber and Viking, which can be accessed at http://www.sec.gov. You can also request such information, and copies of any of the other information or documents attached hereto or incorporated herein, in writing, by e-mail or by telephone at the appropriate address below:
if you are a Camber stockholder: Camber Energy, Inc. 1415 Louisiana, Suite 3500 Houston, Texas 77002 Attn: Investor Relations Email: Info@camber.energy |
if you are a Viking stockholder: Viking Energy Group, Inc. 15915 Katy Freeway, Suite 450 Houston, Texas 77094 Attn: Investor Relations Email: andrew@barwicki.com |
You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five (5) business days before the date of the applicable special meeting. This means that Camber stockholders requesting documents must do so by [●], 2020 in order to receive them before the Camber special meeting, and Viking stockholders requesting documents must do so by [●], 2020 in order to receive them before the Viking special meeting.
No one has been authorized to provide you with information that is different from that contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated [●], 2020, and you should assume that the information in this joint proxy statement/prospectus is accurate only as of such date. You should assume that the information included in this joint proxy statement/prospectus is accurate as of the date of such document. Neither the mailing of this joint proxy statement/prospectus to Camber stockholders or Viking stockholders, nor the issuance by Camber of shares of Camber common stock in connection with the merger will create any implication to the contrary.
This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this joint proxy statement/prospectus regarding Camber has been provided by Camber, and information contained in this document regarding Viking has been provided by Viking.
See “Where You Can Find More Information” beginning on page 223 of the accompanying joint proxy statement/prospectus for further information.
Camber Energy, Inc.
1415 Louisiana, Suite 3500
Houston, TX 77002
Notice of Special Meeting of Stockholders
To Camber Stockholders:
On February 3, 2020, Camber Energy, Inc. (“Camber”) and Viking Energy Group, Inc. (“Viking”) entered into an Agreement and Plan of Merger, which was amended by the First Amendment to Agreement and Plan of Merger, dated as of May 27, 2020 (which we collectively refer to as the “merger agreement,” including as it may be further amended from time to time), pursuant to which a newly formed wholly-owned subsidiary of Camber (“Merger Sub”) will merge with and into Viking (which we refer to as the “merger”) on the terms and subject to the conditions of the merger agreement, with Viking continuing as the surviving entity in the merger and as a wholly-owned subsidiary of Camber. A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.
NOTICE IS HEREBY GIVEN that a special meeting of Camber stockholders (which we refer to as the “Camber special meeting,” including any adjournments or postponements thereof) will be held on [●], 2020 at [●], local time at [●]. We are pleased to notify you of and invite you to the Camber special meeting.
At the Camber special meeting you will be asked to vote on the following matters:
| ● | Proposal to approve the issuance of shares of Camber common stock pursuant to the terms of the merger agreement, in an amount necessary to complete the merger, the merger agreement and the other transactions contemplated by the merger agreement (the “Camber share issuance proposal”).
| |
| ● | Proposal to approve and adopt an amendment to Camber’s articles of incorporation (which we refer to as the “Camber charter”) to increase the number of authorized shares of Camber common stock from 25 million to 250 million, which will be effective upon the closing of the merger (or shortly prior to such closing)(such amendment being referred to as the “Camber charter amendment” and such proposal being referred to as the “Camber charter amendment proposal”). | |
| ● | Proposal to authorize the board of directors of Camber to effect a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five (the “Camber reverse stock split”), in their sole discretion, as mutually agreed to between Camber and Viking, prior to the effectiveness of the merger (the “Camber reverse split proposal”). | |
| ● | Proposal to approve and adopt Camber’s 2020 Equity Incentive Plan (the “Camber equity plan proposal”). |
| ● | Proposal to adjourn the Camber special meeting, if necessary or appropriate, to solicit additional proxies if, immediately prior to such adjournment, there are not sufficient votes to approve the Camber share issuance proposal, Camber charter amendment proposal, Camber reverse split proposal, Camber equity plan proposal or to ensure that any supplement or amendment to the accompanying joint proxy statement/prospectus is timely provided to Camber stockholders (the “Camber adjournment proposal”). |
The board of directors of Camber has fixed the close of business on [●], 2020, as the record date for the Camber special meeting. Only holders of record of Camber common stock as of the close of business on the record date for the Camber special meeting are entitled to notice of, and to vote at, the Camber special meeting or any adjournment or postponement thereof.
Your vote is very important regardless of the number of shares of Camber common stock that you own. The merger cannot be completed without the approval of the Camber charter amendment proposal and Camber share issuance proposal by Camber stockholders and the closing conditions of the merger likely will not be met if the Camber reverse split proposal is not approved by Camber stockholders.
Camber’s board of directors recommends that holders of common stock vote “FOR” each of the proposals to be considered at the Camber special meeting.
Whether or not you plan to attend the Camber special meeting, please vote as soon as possible by either completing, signing, dating and returning the accompanying proxy card in the enclosed postage-paid envelope or voting using the telephone or Internet voting procedures described on your proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by such bank, broker or other nominee.
By Order of the Board of Directors
/s/ Robert Schleizer
Robert Schleizer
Chief Financial Officer and Director
[●], 2020
Viking Energy Group, Inc.
15915 Katy Freeway, Suite 450
Houston, TX 77094
Notice of Special Meeting of Stockholders
To Viking Stockholders:
On February 3, 2020, Viking Energy Group, Inc. (“Viking”) and Camber Energy, Inc. (“Camber”) entered into an Agreement and Plan of Merger, which was amended by the First Amendment to Agreement and Plan of Merger, dated as of May 27, 2020 (which we collectively refer to as the “merger agreement,” including as it may be further amended from time to time), pursuant to which a newly formed wholly-owned subsidiary of Camber (“Merger Sub”) will merge with and into Viking (which we refer to as the “merger”) on the terms and subject to the conditions of the merger agreement, with Viking continuing as the surviving entity in the merger and as a wholly-owned subsidiary of Camber. A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.
NOTICE IS HEREBY GIVEN that a special meeting of Viking stockholders (which we refer to as the “Viking special meeting,” including any adjournments or postponements thereof) will be held on [●], 2020 at [●], local time at [●]. We are pleased to notify you of and invite you to the Viking special meeting. The purpose of the Viking special meeting is to consider and vote upon the following matters:
| ● | Proposal to approve the merger agreement (which we refer to as the “Viking merger proposal”).
| |
| ● | Proposal to approve, on an advisory (non-binding) basis, an amendment to Camber’s articles of incorporation (which we refer to as the “Camber charter”) to increase the number of authorized shares of Camber common stock from 25 million to 250 million (such amendment being referred to as the “Camber charter amendment” and such proposal being referred to as the “Viking charter amendment proposal”). | |
| ● | Proposal to approve, on an advisory (non-binding) basis, authority for the board of directors of Camber to affect a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five (the “Camber reverse stock split”), in their sole discretion, as mutually agreed to between Camber and Viking, prior to the effectiveness of the merger (the “Viking reverse split proposal”). |
| ● | Proposal to adjourn the Viking special meeting, if necessary or appropriate, to solicit additional proxies if, immediately prior to such adjournment, there are not sufficient votes to approve the Viking merger proposal or to ensure that any supplement or amendment to the accompanying joint proxy statement/prospectus is timely provided to Viking stockholders (which we refer to as the “Viking adjournment proposal”). |
The board of directors of Viking has fixed the close of business on [●], 2020, as the record date for the Viking special meeting. Only holders of record of Viking common stock and Viking Series C Preferred Stock as of the close of business on the record date for the Viking special meeting are entitled to notice of, and to vote at, the Viking special meeting or any adjournment or postponement thereof.
Your vote is very important regardless of the number of shares of Viking common stock or Viking Series C Preferred Stock that you own. The merger cannot be completed without the approval of the Viking merger proposal by Viking stockholders.
Viking’s board of directors recommends that holders of common stock and Viking Series C Preferred Stock vote “FOR” each of the proposals to be considered at the Viking special meeting.
Whether or not you plan to attend the Viking special meeting, please vote as soon as possible by either completing, signing, dating and returning the accompanying proxy card in the enclosed postage-paid envelope or voting using the telephone or Internet voting procedures described on your proxy card. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by such bank, broker or other nominee.
By Order of the Board of Directors
/s/ James A. Doris
James A. Doris
Chief Executive Officer and Director
[●], 2020
TABLE OF CONTENTS
| PART II INFORMATION NOT REQUIRED IN PROSPECTUS | II-1 | |||
| Item 20. Indemnification of Directors and Officers | II-1 | |||
| Item 21. Exhibits and Financial Statement Schedules | II-2 | |||
| Item 22. Undertakings | II-5 | |||
The following are some questions that you may have about the merger, the Camber special meeting or the Viking special meeting, and brief answers to those questions. We urge you to read carefully the remainder of this joint proxy statement/prospectus because the information in this section does not provide all of the information that might be important to you with respect to the merger and the Camber special meeting or the Viking special meeting. For your convenience, we have also provided a Glossary of Oil and Natural Gas Terms, beginning on page 219, of selected terms and abbreviations.
In this joint proxy statement/prospectus, unless the context otherwise requires:
| ● | “Camber” refers to Camber Energy, Inc., a Nevada corporation; |
| ● | “Camber adjournment proposal” refers to the proposal to adjourn the Camber special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the Camber special meeting to approve the Camber share issuance proposal or Camber charter amendment proposal, or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Camber stockholders; |
| ● | “Camber board” refers to the board of directors of Camber. |
| ● | “Camber charter” means the articles of incorporation of Camber as in effect as of the date of this joint proxy statement/prospectus; |
| ● | “Camber charter amendment” means the amendment of the Camber charter to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares; |
| ● | “Camber charter amendment proposal” refers to the proposal that Camber stockholders adopt the Camber charter amendment; |
| ● | “Camber equity plan proposal” means the proposal for the Camber stockholders to approve Camber’s 2020 Equity Incentive Plan; |
| ● | “Camber reverse stock split” means a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, as mutually agreed to between Camber and Viking, to be approved by the board of directors of Camber, in their sole discretion; |
| ● | “Camber reverse split proposal” means the proposal for the Camber stockholders to authorize the board of directors of Camber to approve the Camber reverse stock split, prior to the effectiveness of the merger; |
| ● | “Camber common stock” refers to the common stock of Camber, par value $0.001 per share; |
1
| ● | “Camber Percentage” refers to the percentage, initially equal to 20%, subject to adjustment at the time of the merger as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5% (for example, from 20% to 20.5%); and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt), which is not contingent or conditional upon the closing of the merger, available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, the Camber Percentage will decrease by an incremental 0.5% (for example, from 20% to 19.5%). Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%. |
| ● | “Camber’s Series C Preferred Stock” refers to Camber’s Series C Redeemable Convertible Preferred Stock, par value $0.001 per share; |
| ● | “Camber share issuance proposal” refers to the proposal that Camber stockholders approve the issuance of shares of Camber common stock pursuant to the terms of the merger agreement, in an amount necessary to complete the merger, the merger agreement and the other transactions contemplated by the merger agreement; |
| ● | “Camber special meeting” refers to the special meeting of Camber stockholders to consider and vote upon the Camber share issuance proposal, Camber charter amendment proposal, Camber reverse stock split proposal, and Camber equity plan proposal and related matters, including any adjournments or postponements thereof; |
| ● | “Camber stockholder” refers to one or more holders of Camber common stock, as applicable; |
| ● | “Camber Surplus Cash” refers to the unencumbered cash (without any associated debt) available for use by the combined company after the merger, which is raised by Camber from February 3, 2020 through the closing of the merger through the sale of equity; |
| ● | “Camber Viking” or the “combined company” refers to Camber following the merger, including in its capacity as the parent company of Viking; |
| ● | “Camber Viking board” refers to the board of directors of Camber Viking following the merger; |
| ● | “Camber Viking stockholder” refers to one or more holders of Camber Viking common stock, as applicable; |
| ● | “Code” refers to the Internal Revenue Code of 1986, as amended; |
| ● | “Discover” means Discover Growth Fund, an institutional investor which has funded Camber in the past and which holds Camber’s Series C Preferred Stock. |
| ● | “effective time” refers to the effective time of the merger; |
2
| ● | “Elysium” means Elysium Energy Holdings, LLC, a Nevada limited liability currently owned 25% by Camber and 75% by Viking; |
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; |
| ● | “exchange ratio” refers to the number of shares of Camber common stock issuable in the merger per share of Viking common stock; |
| ● | “Lineal” means Lineal Star Holdings, LLC, which Camber acquired pursuant to a July 8, 2019 Agreement and Plan of Merger which was effectively rescinded pursuant to a Preferred Stock Redemption Agreement dated December 31, 2019; |
| ● | “Mercer Capital” refers to Mercer Capital Management, Inc.; |
| ● | “merger” refers to the merger of Merger Sub with and into Viking, on the terms and subject to the conditions of the merger agreement, with Viking continuing as the surviving entity in the merger and as a wholly-owned subsidiary of Camber; |
| ● | “merger agreement” refers to the Agreement and Plan of Merger, dated as of February 3, 2020, and amended by the First Amendment to Agreement and Plan of Merger, dated as of May 27, 2020, each by and among Camber and Viking, as it may be further amended from time to time in accordance with its terms; |
| ● | “merger consideration” means the shares of Camber common stock the Viking stockholders are entitled to receive pursuant to the merger agreement; |
| ● | “Merger Sub” means Viking Merger Sub, Inc., a Nevada corporation, a newly formed wholly-owned subsidiary of Camber which will merge with and into Viking in the merger pursuant to the merger agreement; |
| ● | “NRS” refers to Chapters 78 and 92A of the Nevada Revised Statutes of the State of Nevada, as amended; |
| ● | “NYSE American” refers to the NYSE American stock exchange; |
| ● | “OTCQB” refers to the over-the-counter OTC Link Alternative Trading System (ATS) operated by OTC Markets Group, Inc.; |
| ● | “Other Camber Surplus Assets” refers to the non-cash unencumbered assets acquired by Camber after February 3, 2020, and prior to the effective time without increasing Camber’s liabilities; |
| ● | “SEC” refers to the Securities and Exchange Commission; |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended; |
| ● | “Series C Preferred Stock” refers to either Camber’s Series C Preferred Stock or Viking’s Series C Preferred Stock as the context requires; |
| ● | “Viking” refers to Viking Energy Group, Inc., a Nevada corporation; |
| ● | “Viking adjournment proposal” refers to the proposal to adjourn the Viking special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the Viking special meeting to approve the Viking merger proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Viking stockholders; |
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| ● | “Viking board” refers to the board of directors of Viking; |
| ● | “Viking common stock” refers to the common stock of Viking, par value $0.001 per share; |
| ● | “Viking charter amendment proposal” refers to the proposal that Viking stockholders approve, by advisory (non-binding) vote, the Camber charter amendment; |
| ● | “Viking merger proposal” refers to the proposal that Viking stockholders approve the merger agreement and approve the merger; |
| ● | “Viking reverse split proposal” refers to the proposal that Viking stockholders approve, by advisory (non-binding) vote, the Camber reverse stock split; |
| ● | “Viking’s Series C Preferred Stock” refers to Viking’s Series C Preferred Stock, par value $0.001 per share; |
| ● | “Viking special meeting” refers to the special meeting of Viking stockholders to consider and vote upon the Viking merger proposal and related matters, including any adjournments or postponements thereof; |
| ● | “Viking stockholder” refers to one or more holders of Viking common stock and/or Viking Series C Preferred Stock, as applicable; and |
| ● | “Viking Unencumbered Cash” refers to Viking’s unencumbered cash (without any associated debt) outside of Viking’s Ichor subsidiary division or Elysium subsidiary division, raised through the sale of equity from February 3, 2020, through the closing date of the merger (without any associated debt). |
| Q: | Why am I receiving this joint proxy statement/prospectus? |
| A: | You are receiving this joint proxy statement/prospectus because Camber and Viking have agreed to combine their companies in a merger, structured as a merger of a newly formed wholly-owned subsidiary of Camber, Viking Merger Sub, Inc., a Nevada corporation (“Merger Sub”) with and into Viking (the “merger”), with Viking continuing as the surviving entity in the merger and as a wholly-owned subsidiary of Camber thereafter. A copy of the Agreement and Plan of Merger, dated as of February 3, 2020 and amended by the First Amendment to Agreement and Plan of Merger, dated as of May 27, 2020, by and among Camber and Viking (the “merger agreement”), which provides for the merger, is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference herein. |
In order to complete the merger, among other things:
| ● | Camber stockholders must approve the issuance of shares of Camber common stock pursuant to the terms of the merger agreement, in an amount necessary to complete the merger, the merger agreement and the other transactions contemplated by the merger agreement (the “Camber share issuance proposal”); |
| ● | Camber stockholders must approve and adopt an amendment to Camber’s articles of incorporation (the “Camber charter”) to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares, effective at the effective time of the merger (such amendment the “Camber charter amendment” and such proposal the “Camber charter amendment proposal”); and |
| ● | Viking stockholders must approve the merger agreement and approve the merger (the “Viking merger proposal”). |
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Additionally, it is anticipated that in order for Camber’s common stock to be authorized for continued trading on the NYSE American following the merger, Camber will need to complete a reverse stock split in order to meet the minimum stock price requirements of the NYSE American, and as such, it expected that in the event the Camber reverse split proposal is not approved by the Camber stockholders, the conditions to closing the merger will not be met and the merger will not close.
Camber is holding a special meeting of Camber stockholders (the “Camber special meeting,” including any adjournments or postponements thereof) to obtain approval of the Camber share issuance proposal, the Camber charter amendment proposal, Camber reverse stock split proposal, and Camber equity plan proposal. Camber stockholders will also be asked to approve the proposal to adjourn the Camber special meeting to solicit additional proxies if there are not sufficient votes at the time of the Camber special meeting to approve the Camber share issuance proposal, the Camber charter amendment proposal, Camber reverse stock split proposal or Camber equity plan proposal, or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Camber stockholders (the “Camber adjournment proposal”). The approval of the Camber adjournment proposal by the Camber stockholders is not required in order to complete the merger.
Viking is holding a special meeting of Viking stockholders (the “Viking special meeting,” including any adjournments or postponements thereof) to obtain approval of the Viking merger proposal. Viking stockholders will also be asked to approve, on an advisory (non-binding) basis, an amendment to the Camber charter, effective upon the completion of the merger, to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares (the “Viking charter amendment proposal”), authority for Camber’s board of directors to approve a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, prior to the closing of the merger (the “Viking stock split proposal”), and to approve the proposal to adjourn the Viking special meeting to solicit additional proxies if there are not sufficient votes at the time of the Viking special meeting to approve the Viking merger proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Viking stockholders (the “Viking adjournment proposal”). Neither the approval of the Viking charter amendment proposal, Viking reverse split proposal, nor the approval of the Viking adjournment proposal by the Viking stockholders is required in order to complete the merger.
This document is also a prospectus that is being delivered to Viking stockholders because, in connection with the merger, Camber is offering shares of Camber common stock to Viking stockholders.
This joint proxy statement/prospectus contains important information about the merger agreement and the merger. You should read it carefully and in its entirety. The enclosed materials allow you to vote your shares of common stock without attending the meeting either by completing and submitting the enclosed proxy card or voting using the telephone or Internet voting procedures described on your proxy card. Your vote is important, and we encourage you to vote or submit your proxy as soon as possible.
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| Q: | What will happen in the merger? |
| A: | In the merger, Merger Sub will merge with and into Viking, with Viking continuing as the surviving entity in the merger as a wholly-owned subsidiary of Camber. Each share of Viking common stock issued and outstanding immediately prior to the effective time of the merger (the “effective time”) (other than certain shares owned by Camber, Viking or Merger Sub) will be converted into the right to receive a number of shares (the “exchange ratio” and such shares, the “merger consideration”) of Camber common stock calculated as follows: (w) the number of shares of Camber common stock considered outstanding on a fully-diluted basis immediately prior to the effective time of the merger (the “effective time”), excluding any shares into which Camber’s Series C Preferred Stock may be convertible, (x) multiplied by the difference between 100% and the Camber Percentage (as defined and described below), (y) divided by the Camber Percentage, (z) divided by the number of shares of Viking common stock considered outstanding on a fully diluted basis immediately prior to the merger, rounded up to the nearest one-hundred thousandth (1/100,000th).
The “Camber Percentage” will initially equal 20%, and the Camber Percentage shall be subject to adjustment at the time of the merger as follows: (i) for each (A) additional $500,000 of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger (the “Camber Surplus Cash”), or (B) $500,000 in other unencumbered assets acquired by Camber after February 3, 2020, and prior to the effective time without increasing Camber’s liabilities (the “Other Camber Surplus Assets”), the Camber Percentage will generally be increased by 0.5% (for example, from 20% to 20.5%) (unless by the written agreement of Viking and Camber, such Camber Surplus Cash or Other Camber Surplus Assets, as applicable, shall be distributed to the Camber Common Stock holders subject to applicable law); and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division (“Viking Unencumbered Cash”) in excess of $500,000 at the effective time (the “Viking Surplus Cash”), which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, the Camber Percentage shall decrease by 0.5% (for example, from 20% to 19.5%). Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%.
After completion of the merger, Viking will no longer be a public company, and the Viking common stock will no longer be quoted on the OTCQB, will be deregistered under the Exchange Act, and will cease to be publicly traded. Camber stockholders will continue to own their existing shares of common stock. Following the merger, shares of Camber Viking common stock will be traded on the NYSE American. See “The Merger Agreement—Structure of the Merger” beginning on page 168 and the merger agreement for more information about the merger and the calculation of the exchange ratio. |
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| Q: | When and where will each of the special meetings take place? |
| A: | The Camber special meeting will be held at [●] on [●], 2020 at [●] local time.
The Viking special meeting will be held at [●] on [●], 2020 at [●] local time.
Even if you plan to attend your respective company’s special meeting, Camber and Viking recommend that you vote your shares in advance as described below so that your vote will be counted if you later decide not to or become unable to attend the applicable special meeting. Shares held in “street name” may be voted in person by you only if you obtain a signed legal proxy from your bank, broker or other nominee giving you the right to vote the shares.
As described above and throughout this joint proxy statement/prospectus, both Camber and Viking intend to hold their special meetings in person. However, both Camber and Viking are monitoring the situation regarding COVID-19 (coronavirus), taking into account guidance from public health officials. The health and well-being of Camber’s and Viking’s employees and stockholders is our top priority. Accordingly, both Camber and Viking are planning for the possibility that one or both of the special meetings may be held in a different location or solely by means of remote communication (i.e., a virtual-only meeting). Camber and Viking will announce any such updates as promptly as practicable, including details on how to participate, by press release, through a filing with the SEC and on their websites. We encourage you to check Camber’s and Viking’s websites prior to the special meetings if you plan to attend. As always, we encourage you to vote your shares prior to the special meetings. |
| Q: | What matters will be considered at each of the special meetings? |
| A: | At the Camber special meeting, Camber stockholders will be asked to consider and vote on the following proposals: |
| ● | Camber Proposal 1: The Camber share issuance proposal. Approval of (a) the issuance of shares of Camber common stock, pursuant to the terms of the merger agreement, in an amount necessary to complete the merger and the other transactions contemplated by the merger agreement, (b) the merger agreement, and (c) the other transactions contemplated by the merger agreement (which we refer to in this joint proxy statement/prospectus as the “Camber share issuance proposal”); |
| ● | Camber Proposal 2: The Camber charter amendment proposal. Adoption and approval of an amendment to the Camber charter (which we refer to in this joint proxy/statement/prospectus as the “Camber charter amendment”), effective upon the completion of the merger, to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares (which we refer to in this joint proxy statement/prospectus as the “Camber charter amendment proposal”); |
| ● | Camber Proposal 3: The Camber reverse split proposal. Authorization and approval of the board of directors of Camber to affect a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, in their sole discretion, as mutually agreed to between Camber and Viking, prior to the effectiveness of the merger; | |
| ● | Camber Proposal 4: The Camber equity plan proposal. Approval of Camber’s 2020 Equity Incentive Plan; and | |
| ● | Camber Proposal 5: The Camber adjournment proposal. Approval of the adjournment of the Camber special meeting to solicit additional proxies if there are not sufficient votes at the time of the Camber special meeting to approve the Camber share issuance proposal, the Camber charter amendment proposal, the Camber reverse split proposal, the Camber equity plan proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Camber stockholders (which we refer to in this joint proxy statement/prospectus as the “Camber adjournment proposal”). |
Additionally, it is anticipated that in order for Camber’s common stock to be authorized for continued trading on the NYSE American following the merger, Camber will need to complete a reverse stock split in order to meet the minimum stock price requirements of the NYSE American, and as such, it expected that in the event the Camber reverse split proposal is not approved by the Camber stockholders, the conditions to closing the merger will not be met and the merger will not close.
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At the Viking special meeting, Viking stockholders will be asked to consider and vote on the following proposals:
| ● | Viking Proposal 1: The Viking merger proposal. Approval of the merger agreement (which we refer to in this joint proxy statement/prospectus as the “Viking merger proposal”); |
| ● | Viking Proposal 2: The Viking charter amendment proposal. Approval of, on an advisory (non-binding) basis, an amendment to the Camber charter, effective upon the completion of the merger, to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares (which we refer to in this joint proxy statement/prospectus as the “Viking charter amendment proposal”); |
| ● | Viking Proposal 3: The Viking reverse split proposal. Approval of authority for the board of directors of Camber to affect a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, in their sole discretion, as mutually agreed to between Camber and Viking, prior to the effectiveness of the merger (which we refer to in this joint proxy statement/prospectus as the “Viking reverse split proposal”); | |
| ● | Viking Proposal 4: The Viking adjournment proposal. Approval of the adjournment of the Viking special meeting to solicit additional proxies if there are not sufficient votes at the time of the Viking special meeting to approve the Viking merger proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Viking stockholders (which we refer to in this joint proxy statement/prospectus as the “Viking adjournment proposal”). |
In order to complete the merger, among other things, Camber stockholders must approve the Camber share issuance proposal and the Camber charter amendment proposal, and Viking stockholders must approve the Viking merger proposal.
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| Q: | What will Viking stockholders receive in the merger? |
| A: | In the merger, Viking stockholders will be entitled to receive a number of shares of Camber common stock for each share of Viking common stock they own. The actual number of shares of Camber common stock that Viking stockholders will receive per share of Viking common stock (the exchange ratio) will fluctuate based on a number of factors described below and will not be known at the time Viking stockholders vote on the merger, and the market value of the merger consideration will fluctuate with the market price of Camber common stock and will not be known at the time Viking stockholders vote on the merger.
At the effective time of the merger, each share of Viking common stock issued and outstanding immediately prior to the effective time (other than Viking shares owned by Camber, Viking and Merger Sub) will be converted into the right to receive the pro rata share of an adjustable percentage (initially 80% prior to adjustment) of Camber’s post-effective time capitalization (Camber’s 20% share is referred to as the “Camber Percentage”), taking into account the number of shares of common stock of Camber outstanding on a fully-diluted basis, but without taking into account any shares of common stock which the holder of Camber’s Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock. Camber will not issue any fractional shares of Camber common stock in the merger. Instead, holders of Viking common stock will have any fractional shares of Camber common stock after the merger rounded up to the nearest whole share.
The Camber Percentage is to be adjusted as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger which is not contingent or conditional upon the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%. |
| Q: | What will Camber stockholders receive in the merger? |
| A: | In the merger, Camber stockholders will not receive any consideration, and their shares of Camber stock will remain outstanding and will constitute shares of the combined company. Following the merger, shares of Camber Viking common stock will be traded on the NYSE American. The shares of Camber’s Series C Preferred Stock outstanding prior to the merger will continue to remain outstanding and will continue to have conversion rights into Camber Viking common stock following the merger, on the same terms as they had prior to the merger. |
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| Q: | Will the value of the merger consideration change between the date of this joint proxy statement/prospectus and the time the merger is completed? |
| A: | Yes. The number of shares of Camber common stock that Viking stockholders will receive will fluctuate on a number of factors described above (i.e., the number of shares of Camber and Viking common stock considered outstanding immediately prior to the effective time of the merger on a fully-diluted basis, and the amounts of Camber Surplus Cash, Other Camber Unencumbered Assets, and Viking Unencumbered Cash at the effective time), and the value of the merger consideration will fluctuate between the date of this joint proxy statement/prospectus and the completion of the merger based upon the market value of Camber common stock.
Based on the closing price of Camber common stock on the NYSE American on February 4, 2020, the last trading day before public announcement of the merger, and the fully diluted number of shares of Camber and Viking on that date (without taking into account the conversion rights of the holder of Camber’s Series C Preferred Stock), the exchange ratio represented approximately $0.09 in value for each share of Viking common stock. Based on the closing price of Camber’s common stock on the NYSE American stock exchange on [●], 2020 of $[●], and the fully diluted number of shares of Camber and Viking on that date (without taking into account the conversion rights of the holder of Camber’s Series C Preferred Stock, which are currently convertible into approximately [66,837,256] shares of common stock, subject to adjustment as provided in the designation of such Series C Preferred Stock), the exchange ratio represented approximately $[●] in value for each share of Viking common stock. Any fluctuation in the market price of Camber common stock after the date of this joint proxy statement/prospectus will change the value of the shares of Camber common stock that Viking stockholders will receive. We urge you to obtain current market quotations of Camber common stock (trading symbol “CEI”) and Viking common stock (trading symbol “VKIN”). |
| Q: | How will the merger affect Viking warrants, options, convertible promissory notes, and preferred stock? |
| A: | At the effective time, each outstanding Viking warrant or option will vest (if not already vested and granted prior to February 3, 2020) and be converted into Camber warrants or options, as applicable, with proportional adjustments to the number of shares and the per share exercise price based on the exchange ratio.
At the effective time, each outstanding Viking convertible promissory note will be converted into a Camber convertible promissory note having the same terms and conditions, except that the conversion price, shares issuable upon conversion or reserved for issuance thereunder and related matters shall be adjusted based on the exchange ratio.
Immediately prior to the effective time, no shares of Viking preferred stock will be outstanding. Currently, there are 28,092 shares of Viking’s Series C Preferred Stock outstanding held by Viking’s CEO and director, James Doris. The terms of a redemption, conversion or cancellation of Viking’s Series C Preferred Stock have not yet been determined; however, as discussed herein, it a condition to closing the merger that Viking have no shares of Series C Preferred Stock outstanding at the time of closing.
For details on the treatment of Viking convertible securities, including additional details regarding Viking’s preferred stock, see “The Merger Agreement—Treatment of Viking Convertible Securities” beginning on page 172.
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| Q: | How will the merger affect Camber equity awards? |
| A: | Each warrant or option to purchase shares of Camber common stock will not be impacted by the merger and will continue to be a warrant or option in respect of Camber common stock following the effective time, subject to the same terms and conditions that were applicable to such warrant or option before the effective time.
For details on the treatment of Camber equity awards, see “The Merger Agreement—Treatment of Camber Convertible Securities” beginning on page 172. |
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| Q: | How does the Camber board recommend that I vote at the Camber special meeting? |
| A: | The Camber board recommends that you vote “FOR” the Camber share issuance proposal, “FOR” the Camber charter amendment proposal, “FOR” the Camber reverse split proposal, “FOR” the Camber equity plan proposal and “FOR” the Camber adjournment proposal.
In considering the recommendations of the Camber board, Camber stockholders should be aware that Camber directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Camber stockholders generally. For a more complete description of these interests, see “The Merger—Interests of Camber’s Directors and Executive Officers in the Merger” beginning on page 162. |
| Q: | How does the Viking board recommend that I vote at the Viking special meeting? |
| A: | The Viking board recommends that you vote “FOR” the Viking merger proposal, “FOR” the Viking charter amendment proposal, “FOR” the Viking reverse split proposal and “FOR” the Viking adjournment proposal.
In considering the recommendations of the Viking board, Viking stockholders should be aware that Viking directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Viking stockholders generally. For a more complete description of these interests, see “The Merger—Interests of Viking’s Directors and Executive Officers in the Merger” beginning on page 163. |
| Q: | Who is entitled to vote at the Camber special meeting? |
| A: | The record date for the Camber special meeting is [●], 2020. All Camber stockholders who held shares at the close of business on the record date for the Camber special meeting are entitled to receive notice of, and to vote at, the Camber special meeting.
Each Camber stockholder is entitled to cast one (1) vote on each matter properly brought before the Camber special meeting for each share of Camber common stock that such holder owned of record as of the record date. As of the close of business on the record date for the Camber special meeting, there were [●] outstanding shares of Camber common stock. Physical attendance at the special meeting is not required to vote. See below and “The Camber Special Meeting—Proxies” beginning on page 73 for instructions on how to vote your shares without attending the Camber special meeting. |
| Q: | Who is entitled to vote at the Viking special meeting? |
| A: | The record date for the Viking special meeting is [●], 2020. All Viking stockholders who held shares at the close of business on the record date for the Viking special meeting are entitled to receive notice of, and to vote at, the Viking special meeting.
Each Viking stockholder is entitled to cast one (1) vote on each matter properly brought before the Viking special meeting for each share of Viking common stock that such holder owned of record as of the record date and 32,500 votes on each matter properly brought before the Viking special meeting for each share of Viking Series C Preferred Stock that such holder owned as of record as of the record date. As of the close of business on the record date for the Viking special meeting, there were [●] outstanding shares of Viking common stock and [●] outstanding shares of Viking Series C Preferred Stock, for a total of [●] outstanding voting shares. Physical attendance at the special meeting is not required to vote. See below and “The Viking Special Meeting—Proxies” beginning on page 90 for instructions on how to vote your shares without attending the Viking special meeting. |
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| Q: | What constitutes a quorum for the Camber special meeting? |
| A: | Holders of at least 33% of the shares of Camber common stock entitled to vote at the special meeting, present in person or represented by proxy, will be necessary to constitute a quorum for the transaction of business at the Camber special meeting. If you fail to submit a proxy or to vote at the Camber special meeting, your shares of Camber common stock will not be counted towards a quorum. Abstentions are considered present for purposes of establishing a quorum. Broker non-votes, which occur when a stockholder’s broker or nominee does not have voting instructions or discretionary authority to vote on the matter, will not be counted for the purpose of determining the presence of a quorum for the transaction of business at the Camber special meeting. |
| Q: | What constitutes a quorum for the Viking special meeting? |
| A: | Holders of a majority of the shares entitled to vote at the special meeting, present in person or represented by proxy, will be necessary to constitute a quorum for the transaction of business at the Viking special meeting. If you fail to submit a proxy or to vote at the Viking special meeting, your shares will not be counted towards a quorum. Abstentions are considered present for purposes of establishing a quorum. Broker non-votes, which occur when a stockholder’s broker or nominee does not have voting instructions or discretionary authority to vote on the matter, will not be counted for the purpose of determining the presence of a quorum for the transaction of business at the Viking special meeting. |
| Q: | What vote is required for the approval of each proposal at the Camber special meeting? |
| A: | Camber Proposal 1: Camber share issuance proposal. Approval of the Camber share issuance proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber share issuance proposal present in person or by proxy at the Camber special meeting. Shares of Camber common stock not present (in person or by proxy) at the Camber special meeting and broker non-votes will have no effect on the outcome of the Camber share issuance proposal. Abstentions will have the same effect as votes cast “AGAINST” the Camber share issuance proposal.
Camber Proposal 2: Camber charter amendment proposal. Adoption and approval of the Camber charter amendment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber charter amendment proposal present in person or by proxy at the Camber special meeting. Shares of Camber common stock not present (in person or by proxy) at the Camber special meeting, and shares present but not voted, whether by broker non-vote, abstention or otherwise, will have the same effect as votes cast “AGAINST” the Camber charter amendment proposal.
Camber Proposal 3: Camber reverse split proposal. Adoption and approval of the Camber reverse split proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber reverse split proposal present in person or by proxy at the Camber special meeting. Shares of Camber common stock not present (in person or by proxy) at the Camber special meeting, and shares present but not voted, whether by broker non-vote, abstention or otherwise, will have the same effect as votes cast “AGAINST” the Camber reverse split proposal.
Camber Proposal 4: Camber equity plan proposal. Approval of the Camber equity plan proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber equity plan proposal present in person or by proxy at the Camber special meeting. Shares of Camber common stock not present (in person or by proxy) at the Camber special meeting and broker non-votes will have no effect on the outcome of the Camber equity plan proposal. Abstentions will have the same effect as votes cast “AGAINST” the Camber equity plan proposal.
Camber Proposal 5: Camber adjournment proposal. Approval of the Camber adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber adjournment proposal present in person or by proxy at the Camber special meeting. Shares of Camber common stock not present (in person or by proxy) at the Camber special meeting and broker non-votes will have no effect on the outcome of the Camber adjournment proposal. Abstentions will have the same effect as votes cast “AGAINST” the Camber adjournment proposal. |
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| Q: | What vote is required for the approval of each proposal at the Viking special meeting? |
| A: | Viking Proposal 1: Viking merger proposal. Approval of the Viking merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Viking common stock and Viking Series C Preferred Stock entitled to vote on the Viking merger proposal, voting together. Shares of Viking common stock and Viking Series C Preferred Stock not present (in person or by proxy) at the Viking special meeting, and shares present but not voted, whether by broker non-vote, abstention or otherwise, will have the same effect as votes cast “AGAINST” the Viking merger proposal.
Viking Proposal 2: Viking charter amendment proposal. Approval of the Viking charter amendment proposal requires the affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking charter amendment proposal. Shares of Viking common stock and Viking Series C Preferred Stock not present (in person or by proxy) at the Viking special meeting and broker non-votes will have no effect on the outcome of the Viking charter amendment proposal. Abstentions will have the same effect as votes cast “AGAINST” the Viking charter amendment proposal. As further described below, the vote on the Viking charter amendment proposal by Viking stockholders is advisory (non-binding) and will have no impact on whether the Camber charter amendment is approved by Camber stockholders under applicable law.
Viking Proposal 3: Viking reverse split proposal. Approval of the Viking reverse split proposal requires the affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking reverse split proposal. Shares of Viking common stock and Viking Series C Preferred Stock not present (in person or by proxy) at the Viking special meeting and broker non-votes will have no effect on the outcome of the Viking reverse split proposal. Abstentions will have the same effect as votes cast “AGAINST” the Viking reverse split proposal. As further described below, the vote on the Viking reverse split proposal by Viking stockholders is advisory (non-binding) and will have no impact on whether the Camber reverse split proposal is approved by Camber stockholders under applicable law.
Viking Proposal 4: Viking adjournment proposal. Approval of the Viking adjournment proposal requires the affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking adjournment proposal. Shares of Viking common stock and Viking Series C Preferred Stock not present (in person or by proxy) at the Viking special meeting and broker non-votes will have no effect on the outcome of the Viking adjournment proposal. Abstentions will have the same effect as votes cast “AGAINST” the Viking adjournment proposal. |
| Q: | Why are Viking stockholders being asked to consider and vote on a proposal to approve the Camber charter amendment (i.e., the Viking charter amendment proposal) and the Camber reverse stock proposal (i.e., the Camber reverse stock split)? |
| A: | Even though approval by Viking stockholders of the Camber charter amendment and Camber reverse stock split is not a condition to the closing of the merger, the SEC has issued interpretive guidance with respect to the “unbundling” of proposals under the Exchange Act that requires Viking stockholders (in their capacity as stockholders of Viking) to also separately vote on the Camber charter amendment and Camber reverse stock split. As further described below, this vote by Viking stockholders is advisory (non-binding) and will have no impact on whether the Camber charter amendment or Camber reverse stock split is approved by Camber stockholders under applicable law. |
| Q: | What if I hold shares in both Camber and Viking? |
| A: | If you hold shares of both Camber common stock and Viking common stock or Viking Series C Preferred Stock, you will receive two (2) separate packages of proxy materials. A vote cast as a Camber stockholder will not count as a vote cast as a Viking stockholder, and a vote cast as a Viking stockholder will not count as a vote cast as a Camber stockholder. Therefore, please submit separate proxies for your shares of Camber common stock and your shares of Viking common stock and Viking Series C Preferred Stock. |
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| Q: | How can I vote my shares in person at my respective special meeting? |
| A: | Record holders. Shares held directly in your name as the holder of record of Camber or Viking may be voted in person at the Camber special meeting or the Viking special meeting, as applicable. If you choose to vote your shares in person at the respective special meeting, please bring your enclosed proxy card and proof of identification. |
Shares in “street name.” Shares held in “street name” may be voted in person by you only if you obtain a signed legal proxy from your bank, broker or other nominee giving you the right to vote the shares. If you choose to vote your shares in person at the Camber special meeting or the Viking special meeting, as applicable, please bring the signed legal proxy and proof of identification.
Even if you plan to attend the Camber special meeting or the Viking special meeting, as applicable, Camber and Viking recommend that you vote your shares in advance as described below so that your vote will be counted if you later decide not to or become unable to attend the respective special meeting.
Additional information on attending the special meetings can be found under the section entitled “The Camber Special Meeting” on page 70 and under the section entitled “The Viking Special Meeting” on page 88.
| Q: | How can I vote my shares without attending my respective special meeting? |
| A: | Whether you hold your shares directly as the holder of record of Camber or Viking or beneficially in “street name,” you may vote your shares of common stock without attending the Camber special meeting or the Viking special meeting, as applicable, by either completing and submitting the enclosed proxy card or voting over the Internet, by telephone or by mail by following the instructions provided in the enclosed proxy card. Please note that if you hold shares beneficially in “street name,” you should follow the voting instructions provided by your bank, broker or other nominee. |
Additional information on voting procedures can be found under the section entitled “The Camber Special Meeting” on page 70 and under the section entitled “The Viking Special Meeting” on page 88.
| Q: | What do I need to do now? |
| A: | After carefully reading and considering the information contained in this joint proxy statement/prospectus, please respond by completing, signing and dating the accompanying proxy card and returning it in the enclosed postage-paid envelope, or by voting by telephone or through the Internet, as described on your proxy card, as soon as possible so that your shares may be represented at your meeting. Please note that if you hold shares beneficially in “street name,” you should follow the voting instructions provided by your bank, broker or other nominee. |
| Q: | If my shares are held in “street name” by a broker, bank or other nominee, will my broker, bank or other nominee vote my shares for me? |
| A: | No. Your bank, broker or other nominee cannot vote your shares without instructions from you. You should instruct your bank, broker or other nominee how to vote your shares in accordance with the instructions provided to you. Please check the voting instructions provided by your bank, broker or other nominee. |
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| Q: | Why is my vote important? |
| A: | If you do not vote, it will be more difficult for Camber or Viking to obtain the necessary quorum to hold its respective special meeting. In addition, your failure to submit a proxy or vote at the meeting, or failure to instruct your bank or broker how to vote, will have the same effect as a vote “AGAINST” the Camber share issuance proposal by Camber stockholders, the Camber charter amendment proposal by Camber stockholders, the Camber reverse split proposal by Camber stockholders, the Camber equity plan proposal by Camber stockholders, and the Viking merger proposal, as applicable. The merger cannot be completed without the approval of the Camber share issuance proposal and Camber charter amendment by Camber stockholders and the approval of the Viking merger proposal by the Viking stockholders.
Additionally, it is anticipated that in order for Camber’s common stock to be authorized for continued trading on the NYSE American following the merger, Camber will need to complete a reverse stock split in order to meet the minimum stock price requirements of the NYSE American, and as such, it expected that in the event the Camber reverse split proposal is not approved by the Camber stockholders, the conditions to closing the merger will not be met and the merger will not close.
The Camber board and the Viking board recommend that you vote “FOR” for each of the proposals submitted at the Camber special meeting and the Viking special meeting, respectively. |
| Q: | Can I change my vote after I have voted or delivered my proxy or voting instruction card? |
| A: | Yes. You can change your vote at any time before your proxy is voted at your meeting. You can do this by: |
| ● | submitting a written statement that you would like to revoke your proxy to the corporate secretary of Camber or Viking, as applicable; | |
| ● | signing and returning a proxy card with a later date; | |
| ● | attending the applicable special meeting in person, notifying the corporate secretary and voting by ballot at the applicable special meeting; or | |
| ● | voting by telephone or the Internet at a later time. |
If your shares are held by a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.
| Q: | Will Camber be required to submit the Camber share issuance proposal to its stockholders even if the Camber board has withdrawn, modified or qualified its recommendation? |
| A: | Yes. Unless the merger agreement is terminated before the Camber special meeting, Camber is required to submit the Camber share issuance proposal to its stockholders even if the Camber board has withdrawn or modified its recommendation. |
| Q: | Will Viking be required to submit the Viking merger proposal to its stockholders even if the Viking board has withdrawn, modified or qualified its recommendation? |
| A: | Yes. Unless the merger agreement is terminated before the Viking special meeting, Viking is required to submit the Viking merger proposal to its stockholders even if the Viking board has withdrawn or modified its recommendation. |
| Q: | Are Camber stockholders entitled to appraisal or dissenters’ rights? |
| A: | No. Camber stockholders are not entitled to appraisal rights under Chapters 78 and 92A of the Nevada Revised Statutes of the State of Nevada, as amended (the “NRS”). For more information, see “The Merger—Appraisal Rights in the Merger” beginning on page 166. |
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| Q: | Are Viking stockholders entitled to appraisal or dissenters’ rights? |
| A: | Yes. Viking stockholders who comply with the requirements of the NRS and who do not vote in favor of the Viking merger proposal, may elect to exercise statutory dissenters’ rights under the NRS. For more information, see “The Merger—Appraisal Rights in the Merger” beginning on page 166 and the text of the Nevada dissenters’ rights statute, Sections 92A.300 – 92A.500 of the Nevada Revised Statutes, which is reproduced in its entirety as Annex G to this proxy statement/prospectus. |
| Q: | Are there any risks that I should consider in deciding whether to vote? |
| A: | Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 29. |
| Q: | What are the material U.S. federal income tax consequences of the merger to Viking stockholders? |
| A: | The merger has been structured to qualify as a reorganization for U.S. federal income tax purposes. Accordingly, Viking stockholders generally will not recognize any gain or loss for federal income tax purposes on the exchange of their Viking common stock for Camber common stock in the merger. You should be aware that the tax consequences to you of the merger may depend upon your own situation. In addition, you may be subject to U.S. federal non-income, state, local or foreign tax laws that are not discussed in this joint proxy statement/prospectus. You should therefore consult with your own tax advisors for a full understanding of the tax consequences to you of the merger. For a more complete discussion of the material U.S. federal income tax consequences of the merger, see “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 201. |
| Q: | When is the merger expected to be completed? |
| A: | Camber and Viking expect the merger to close in the [third] calendar quarter of 2020. However, neither Camber nor Viking can predict the actual date on which the merger will be completed, or if the merger will be completed at all, because completion is subject to conditions and factors outside the control of both companies. Camber and Viking must first obtain the required approvals of Camber stockholders and Viking stockholders, as well as obtain necessary regulatory approvals and satisfy certain other closing conditions in order to close the merger. |
| Q: | What happens if the merger is not completed? |
| A: | If the merger is not completed, Viking stockholders will not receive any consideration for their shares of Viking common stock in connection with the merger. Instead, Viking and Camber will remain independent public companies, Viking common stock will continue to be listed and traded on the OTCQB, Camber common stock will continue to be listed and traded on the NYSE American and Camber will not complete the issuance of shares of Camber common stock pursuant to the merger agreement. In addition, if the merger agreement is terminated in certain circumstances, Camber may retain all or a portion of its 25% interest in Viking’s subsidiary, Elysium Energy Holdings, LLC (“Elysium”). See “The Merger Agreement—Camber’s Elysium Interest” beginning on page 182 for a more detailed discussion regarding Camber’s Elysium interest. |
| Q: | Should I send in my stock certificates now? |
| A: | No. Please do not send in your stock certificates with your proxy or vote. After the merger is completed, an exchange agent designated by Camber and reasonably acceptable to Viking (the “exchange agent”) will send you instructions for exchanging Viking stock certificates for the consideration to be received in the merger. See “The Merger Agreement—Conversion of Shares; Exchange of Viking Stock Certificates” beginning on page 173. |
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| Q: | What should I do if I receive more than one set of voting materials for the same special meeting? |
| A: | If you hold shares of Camber common stock or Viking common stock or Viking Series C Preferred Stock in “street name” and also directly in your name as a holder of record or otherwise or if you hold shares of Camber common stock or Viking common stock or Viking Series C Preferred Stock in more than one (1) brokerage account or such shares are registered differently, you may receive more than one (1) set of voting materials relating to the same special meeting. To ensure that all shares are voted, please either vote each account as discussed herein or sign and return by mail all proxy cards or voting instruction forms for each separate account. |
Record holders. For shares held directly, please complete, sign, date and return each proxy card by mail (or cast your vote by telephone or Internet as provided on each proxy card) or otherwise follow the voting instructions provided in this joint proxy statement/prospectus in order to ensure that all of your shares of Camber common stock or Viking common stock or Viking Series C Preferred Stock are voted.
Shares in “street name.” For shares held in “street name” through a bank, broker or other nominee, you should follow the procedures provided by your bank, broker or other nominee to vote your shares.
| Q: | Who can help answer my questions? |
| A: | Camber stockholders: If you have any questions about the merger or how to submit your proxy or vote, or if you need additional copies of this joint proxy statement/prospectus or the enclosed proxy card or voting instruction card, you should contact Camber’s Secretary, Robert Schleizer at Info@camber.energy, or at the following address or phone number: 1415 Louisiana, Suite 3500, Houston, Texas 77002 | (210) 998-4035. |
Viking stockholders: If you have any questions about the merger or how to submit your proxy or vote, or if you need additional copies of this joint proxy statement/prospectus or the enclosed proxy card or voting instruction card, you should contact Viking’s Investor Relations, Barwicki Investor Relations Inc., at andrew@barwicki.com or at the following address or phone number: 30 Wall Street, 8 FL, New York, NY 10005 or (516) 662-9461.
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This summary highlights selected information in this joint proxy statement/prospectus and may not contain all of the information that is important to you. You should carefully read this entire joint proxy statement/prospectus and the other documents we refer you to for a more complete understanding of the matters being considered at the special meetings. For your convenience, we have also provided a Glossary of Oil and Natural Gas Terms, beginning on page 219, of selected terms and abbreviations.
Camber Energy, Inc.
1415 Louisiana, Suite 3500
Houston, Texas 77002
(210) 998-4035
Camber is an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations in the Texas Panhandle.
Camber’s common stock is traded on the NYSE American under the symbol “CEI.”
Viking Energy Group, Inc.
15915 Katy Freeway
Suite 450
Houston, Texas 77094
(281) 404-4387
Viking is an independent exploration and production company focused on the acquisition and development of oil and natural gas properties in the Gulf Coast and Mid-Continent regions of the United States. The company owns oil and gas leases in Texas, Louisiana, Mississippi and Kansas.
Viking’s common stock is traded on the OTCQB under the symbol “VKIN.”
The Merger and the Merger Agreement
The terms and conditions of the merger are contained in the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus. You are encouraged to read the merger agreement carefully in its entirety, as it is the primary legal document that governs the merger.
On May 27, 2020, Camber and Viking entered in a first amendment to the merger agreement. The disclosure of the merger agreement herein includes the changes to the merger agreement affected by the first amendment and all references herein to the merger agreement mean a reference to such agreement as modified by the first amendment.
Subject to the terms and conditions of the merger agreement, at the completion of the merger, Merger Sub (a newly formed wholly-owned subsidiary of Camber) will merge with and into Viking, with Viking surviving the merger as a wholly-owned subsidiary of Camber.
In the merger, Viking stockholders will receive a number of shares of Camber common stock for each share of Viking common stock they own immediately prior to the effective time. The actual number of shares of Camber common stock that Viking stockholders will receive per share of Viking common stock (the exchange ratio) will fluctuate based on a number of factors described below and will not be known at the time Viking stockholders vote on the merger, and the market value of the merger consideration will fluctuate with the market price of Camber common stock and will not be known at the time Viking stockholders vote on the merger.
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At the effective time of the merger, each share of Viking common stock issued and outstanding immediately prior to the effective time (other than Viking shares owned by Camber, Viking and Merger Sub) will be converted into the right to receive the pro rata share of an adjustable percentage (initially 80% prior to adjustment) of Camber’s post-effective time capitalization (Camber’s 20% share is referred to as the “Camber Percentage”), taking into account the number of shares of common stock of Camber outstanding on a fully-diluted basis, but without taking into account any shares of common stock which the holder of Camber’s Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock. Camber will not issue any fractional shares of Camber common stock in the merger. Instead, holders of Viking common stock will have any fractional shares of Camber common stock after the merger rounded up to the nearest whole share.
The Camber Percentage is to be adjusted as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%.
Camber common stock is listed on the NYSE American under the symbol “CEI,” and Viking common stock is quoted on the OTCQB under the symbol “VKIN.” The following table shows the closing sale prices of Camber common stock and Viking common stock as reported on NYSE American and OTCQB respectively on February 4, 2020, the last full trading day before the public announcement of the merger agreement, and on [●], 2020, the last practicable trading day before the date of this joint proxy statement/prospectus. This table also shows the implied value of the merger consideration to be issued in exchange for each share of Viking common stock, which was calculated by multiplying the closing price of Camber common stock on those dates by the exchange ratio on those dates of 0.055728 as of February 4, 2020 (based on 5,000,000 and 358,884,280 shares of Camber and Viking common stock considered outstanding on a fully-diluted basis, and without any adjustment to the 20% Camber Percentage and without taking into account any shares issuable upon conversion of Camber’s Series C Preferred Stock) and [●] as of [●], 2020 (based on [●] and [●] shares of Camber and Viking common stock considered outstanding on a fully-diluted basis, and without any adjustment to the 20% Camber Percentage and without taking into account any shares issuable upon conversion of Camber’s Series C Preferred Stock).
| Camber Common Stock |
Viking Common Stock |
Implied
Value of One Share of Viking Common Stock(1) |
|||||||||||
| February 4, 2020 | $ | 1.64 | $ | 0.238 | $ | 0.09 | |||||||
| [●], 2020 | $ | [● | ] | $ | [● | ] | $ | [● | ] | ||||
(1)
|
The implied value of one share of Viking common stock has been determined by (i) multiplying (a) the number of fully-diluted shares of Camber outstanding on the applicable date (without taking into account any shares issuable upon conversion of Camber’s Series C Preferred Stock), by (b) 1 minus the Camber Percentage (initially 20%), (ii) dividing that number by the Camber Percentage (initially 20%), (iii) dividing that number by the number of fully-diluted shares of Viking outstanding on the applicable date of determination, and (iv) multiplying the resulting number by the applicable Camber common stock value on the date of determination and is presented for comparative and information purposes only. The “Implied Value of One Share of Viking Common Stock” value does not represent the value of the consideration that Viking stockholders will receive per share as a result of the merger. | ||||||||||||
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For more information on the exchange ratio, see “The Merger—Terms of the Merger” beginning on page 140 and “The Merger Agreement—Merger Consideration” beginning on page 168.
Treatment of Viking Warrants, Options, Convertible Promissory Notes, and Preferred Stock
At the effective time, each outstanding warrant or option to purchase shares of Viking common stock (“Viking option”) will be converted into a warrant or option, as applicable, to purchase shares of Camber common stock (“Camber option”), with adjustments to the number of shares and the per share exercise price based on the exchange ratio. Other than those adjustments, the Camber option will have the same terms and conditions as applied to the corresponding Viking option, including any extended post-termination exercise period that applies following the effective time, provided that any then unvested Viking options granted prior to February 3, 2020, will vest at the effective time.
At the effective time, each outstanding Viking convertible promissory note (“Viking convertible note”) will be converted into a Camber convertible promissory note (“Camber convertible note”), having the same terms and conditions, with adjustments to the conversion price and shares issuable upon conversion or reserved for issuance thereunder to take into account the exchange ratio and related matters, and with the same terms and conditions as the Viking convertible note otherwise. As of May 16, 2020, Viking convertible notes consisted of (i) convertible notes maturing on August 31, 2020, in the aggregate principal amount of approximately $11,469,565, with 50% of the principal amount under each note convertible into Viking common stock at $0.20 per share; and (ii) convertible notes maturing on February 11, 2022, in the aggregate principal amount of approximately $1,954,229, with 100% of the principal amount under each note convertible into Viking common stock at $0.175 per share.
As of May 29, 2020, Viking’s CEO and director, James Doris, holds 28,092 shares of Viking’s Series C Preferred Stock, with each share of preferred stock entitling the holder thereof to 32,500 votes on all matters submitted to the vote of Viking’s security holders. There are no other shares of Viking preferred stock outstanding.
The merger agreement requires that there be no shares of Viking preferred stock outstanding at the effective time of the merger. However, Mr. Doris and Viking have not yet reached any agreement as to the terms of any redemption, conversion or cancellation of Mr. Doris’s 28,092 shares of Viking’s Series C Preferred Stock. If Viking and Mr. Doris do not reach an agreement resulting in Viking’s Series C Preferred Stock no longer being outstanding, the merger will not be able to be completed.
For additional information on Viking’s warrants, options, convertible promissory notes, and preferred stock see “The Merger Agreement—Treatment of Viking Convertible Securities” beginning on page 172.
Treatment of Camber Warrants and Options
Each warrant or option to purchase shares of Camber common stock will not be impacted by the merger and will continue to be an award in respect of Camber common stock following the effective time, subject to the same terms and conditions that were applicable to such award before the effective time.
For additional information on Camber’s warrants and options, see “The Merger Agreement—Treatment of Camber Convertible Securities” beginning on page 172.
Material U.S. Federal Income Tax Consequences
The merger has been structured to qualify as a reorganization for U.S. federal income tax purposes. Accordingly, Viking stockholders generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of their Viking common stock for Camber common stock in the merger.
You should be aware that the tax consequences to you of the merger may depend upon your own situation. In addition, you may be subject to U.S. federal non-income, state, local or foreign tax laws that are not discussed in this joint proxy statement/prospectus. You should therefore consult with your own tax advisors for a full understanding of the tax consequences to you of the merger.
Camber’s Reasons for the Merger; Recommendation of the Camber Board
The Camber board has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Camber and its stockholders and has adopted and approved the merger agreement, the merger (subject to stockholder approval) and the other transactions contemplated by the merger agreement. The Camber board recommends that Camber stockholders vote “FOR” the approval of the Camber share issuance proposal, Camber charter amendment, the Camber reverse split proposal, the Camber equity plan proposal and “FOR” the other proposals presented at the Camber special meeting. For a more detailed discussion of the Camber board’s recommendation, see “The Merger—Camber’s Reasons for the Merger; Recommendation of the Camber Board” beginning on page 154.
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Viking’s Reasons for the Merger; Recommendation of the Viking Board
The Viking board has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Viking and its stockholders and has adopted and approved the merger agreement, the merger (subject to stockholder approval) and the other transactions contemplated by the merger agreement. The Viking board recommends that Viking stockholders vote “FOR” the approval of the merger agreement and “FOR” the other proposals presented at the Viking special meeting. For a more detailed discussion of the Viking board’s recommendation, see “The Merger—Viking’s Reasons for the Merger; Recommendation of the Viking Board” beginning on page 151.
Opinion of Camber’s Financial Advisor (page 157)
Mercer Capital Management, Inc. (“Mercer Capital”) delivered its written opinion to the Camber board that, as of April 23, 2020, and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to Camber.
The full text of the written opinion of Mercer Capital, dated April 23, 2020, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex E . Mercer Capital provided advisory services and its opinion for the information and assistance of Camber and the Camber board in connection with its consideration of the merger. Mercer Capital’s opinion is not a recommendation as to how any Camber stockholder should vote with respect to the Camber share issuance proposal or any other matter. Pursuant to an engagement letter between Camber and Mercer Capital, Camber has agreed to pay Mercer Capital a transaction fee equal to $82,500, of which $41,125 was payable upon Mercer Capital’s engagement and $41,375 was paid upon delivery of Mercer Capital’s opinion to the Camber board.
For a further discussion of Mercer Capital’s opinion, Camber’s relationship with Mercer Capital and the terms of Mercer Capital’s engagement, see “The Merger—Opinion of Camber’s Financial Advisor” beginning on page 157 of this joint proxy statement/prospectus.
Opinion of Viking’s Financial Advisor (page 154)
______ (“______”) delivered its opinion to the Viking board that, as of [●], and based upon and subject to the factors and assumptions set forth therein, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders (other than Camber and its affiliates) of shares of Viking common stock.
The full text of the written opinion of ______, dated [●], 2020, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex F . ______ provided advisory services and its opinion for the information and assistance of the Viking board in connection with its consideration of the merger. The ______ opinion is not a recommendation as to how any holder of shares of Viking common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between Viking and ______, Viking has agreed to pay ______ a transaction fee equal to $_____, $_____ of which was payable at engagement, and the remainder of which is payable upon delivery of ______’s written opinion.
For a further discussion of ______’s opinion, Viking’s relationship with ______ and the terms of ______’s engagement, see “The Merger—Opinion of Viking’s Financial Advisor” beginning on page 154 of this joint proxy statement/prospectus.
Appraisal Rights in the Merger
Camber stockholders are not entitled to appraisal or dissenters’ rights under the relevant provision of the NRS of the State of Nevada. Viking stockholders who do not vote in favor of the Viking merger proposal may elect to exercise statutory dissenters’ rights under the NRS. For more information, see “The Merger—Appraisal Rights in the Merger” beginning on page 166.
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Interests of Camber’s Directors and Executive Officers in the Merger
In considering the Camber board’s recommendation to vote for the Camber share issuance proposal, the Camber charter amendment proposal, the Camber reverse split proposal, and the Camber equity plan proposal, Camber stockholders should be aware that Camber’s directors and executive officers may have interests in the merger that are different from, or in addition to, those of Camber stockholders generally. These interests include:
| • | Camber’s directors and executive officers are entitled to receive cash bonuses payable in connection with the merger in cash and shares of common stock. | |
| • | [At closing of the merger, certain of Camber’s directors and executive officers will continue to serve as directors or executive officers, as applicable, of the combined company.] | |
| • | Camber’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement. |
The Camber board was aware of and considered these respective interests when deciding to adopt the merger agreement. For more information, see “The Merger—Interests of Camber’s Directors and Executive Officers in the Merger” beginning on page 162.
Interests of Viking’s Directors and Executive Officers in the Merger
In considering the recommendations of the Viking board with respect to the merger, Viking stockholders should be aware that Viking’s executive officers and directors have certain interests in the merger that may be different from, or in addition to, the interests of Viking stockholders generally.
| • | At closing of the merger, certain of Viking’s directors and executive officers will continue to serve as directors or executive officers, as applicable, of the combined company. | |
| • | Viking’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement. |
The Viking board was aware of these interests and considered them, among other matters, in making its recommendations. For more information, see “The Merger—Interests of Viking’s Directors and Executive Officers in the Merger” beginning on page 163.
Governance and Leadership of the Combined Company After the Merger
Charter
If the Camber charter amendment proposal is approved by the Camber stockholders, the Camber charter will be amended at the time of merger to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares. If the charter amendment proposal is not approved at the Camber special meeting, shares of Camber common stock issuable to Viking stockholders as the merger consideration in the merger will not be able to be issued, and the merger will not be able to be completed. Additionally, if the Camber reverse split proposal is approved by the Camber stockholders and the board of directors of Camber determines to affect such Camber reverse stock split, the outstanding shares of common stock of Camber prior to the merger will be reduced in a ratio of between one-for-five and one-for-twenty-five, depending on the final ratio approved by the board of directors.
Bylaws
No changes to the current bylaws of Camber will be made in connection with the merger. A copy of the current bylaws of Camber are incorporated by reference as Exhibit 3.22 to the registration statement of which this joint proxy statement/prospectus forms a part.
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Board of Directors
Pursuant to the terms of the merger agreement, following the completion of the merger, the board of directors of the combined company after the merger will have five (5) members, consisting of four (4) members designated by Viking prior to the completion of the merger, and one (1) member designated by Camber prior to the completion of the merger.
Chief Executive Officer
Following completion of the merger, James A. Doris, the current Chief Executive Officer and President of Viking, and one of its directors, will serve as Chief Executive Officer of the combined company.
Name and Headquarters of the Combined Company After the Merger
The name of the combined company will remain “Camber Energy, Inc.” upon the completion of the merger, and shares of Camber Viking common stock will be traded on the NYSE American under the symbol “CEI.”
As of the effective time, the headquarters of the combined company will be located in Houston, Texas.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), certain combination transactions may not be completed until notifications have been given and information furnished to the Antitrust Division of the United States Department of Justice, referred to as the Antitrust Division, and the United States Federal Trade Commission, referred to as the FTC, and all statutory waiting period requirements have been satisfied. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar day waiting period following the parties’ filings of their respective HSR Act notification forms or the early termination of that waiting period. Based on the current net sales and total assets of Camber and Viking, we do not currently anticipate being required to comply with HSR Act notification requirements and as such do not anticipate compliance with the HSR Act being an impediment to closing the merger.
There can be no assurance that a challenge to the merger on antitrust or other regulatory grounds will not be made or, if such a challenge is made, that it would not be successful.
Conditions to Complete the Merger
As more fully described in this joint proxy statement/prospectus and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. These conditions include:
| • | approval of the Camber share issuance proposal and Camber charter amendment proposal by Camber stockholders and the Viking merger proposal by Viking stockholders; |
| • | the expiration or termination of any waiting period applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of certain other required regulatory approvals (provided that we do not currently anticipate that any notification to, or approval under, the HSR Act is required for the transaction); |
| • | the effectiveness of the registration statement on Form S-4 for the Camber common stock to be issued in the merger; |
| • | the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the merger or making the completion of the merger illegal; |
| • | each of Viking and Camber receiving an opinion, in writing, to the effect that as of the date thereof and based upon and subject to the matters set forth therein, the exchange ratio in the merger is fair, from a financial point of view, to Camber or Viking, as applicable, and their stockholders; |
| • | subject to certain exceptions, the accuracy of the representations and warranties of each of Camber and Viking; |
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| • | performance by each of Camber and Viking of its obligations under the merger agreement in all material respects; |
| • | the absence of any material adverse effect on the other party, as defined in the merger agreement; |
| • | authorization for listing of the shares of Camber common stock to be issued in the merger on the NYSE American; |
| • | in the event the NYSE American determines that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the closing of the merger; |
| • | Viking having arranged to extend the maturity date to June 1, 2021, or later, of the promissory note executed and delivered by Viking in connection with Viking’s oil and gas acquisition closed on or about December 28, 2018, or any promissory note(s) issued in replacement thereof; |
| • | Camber obtaining the consent of its Series C Preferred Stock holder for the merger and not being in breach of any of its agreements with the holder; |
| • | Viking having no preferred stock outstanding; |
| • | Viking obtaining the consent its lender, ABC Funding, LLC, for the merger; |
| • | Viking having negotiated a new remuneration arrangement with Network 1 Financial Securities, Inc. with respect to its role in and compensation associated with the merger, on terms and conditions satisfactory to Viking and Camber; |
| • | Viking having negotiated a new remuneration arrangement with RHK Capital with respect to its role in and compensation associated with the merger, on terms and conditions satisfactory to Viking and Camber; |
| • | members of the existing management team of Camber having executed agreements as to their role with and compensation from Camber following the merger, for a transition period following the closing of six months; and |
| • | Viking having no loan obligations with a maturity date in 2020 other than the series of $13.5 million of convertible debt issued in connection with Viking’s offering completed in December of 2018. |
Additionally, it is anticipated that in order for Camber’s common stock to be authorized for continued trading on the NYSE American following the merger, Camber will need to complete a reverse stock split in order to meet the minimum stock price requirements of the NYSE American, and as such, it expected that in the event the Camber reverse split proposal is not approved by the Camber stockholders, the conditions to closing the merger will not be met and the merger will not close.
Finally, if the merger closes on or prior to August 31, 2020, or prior to the repayment in full (or partial conversion and repayment of the remaining portion) of Viking’s outstanding convertible promissory notes maturing on August 31, 2020, each of the holders of those notes will have to approve the merger, or their notes will need to be repaid in full at closing of the merger.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the completion of the merger, whether before or after the receipt of the required vote by Camber stockholders or Viking stockholders, as applicable, in the following circumstances:
| • | at any time with the mutual consent of the parties; |
| • | by either Camber or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the merger; |
| • | by either Viking or Camber if the merger has not occurred by June 30, 2020, provided that Camber or Viking shall have the right to extend such date from time to time, until up to December 31, 2020, in the event that Camber has not fully resolved SEC comments on the Form S-4 or other SEC filings related to the merger, and Camber is responding to such comments in a reasonable fashion, subject to certain exceptions; |
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| • | by Camber or Viking (provided, that the terminating party is not then in material breach of any obligation, covenant or other agreement contained in the merger agreement), upon the breach by the other of a term of the merger agreement, which is not cured within 30 days of the date of written notice thereof by the other; |
| • | by Camber or Viking if (i) the approval of the Camber share issuance proposal and Camber charter amendment proposal by Camber stockholders has not been obtained following a vote taken at the Camber special meeting (unless the Camber special meeting has been validly adjourned or postponed, or validly requested by Viking to be adjourned or postponed, in accordance with the merger agreement, in which case at the final adjournment or postponement thereof), or (ii) the approval of the Viking merger proposal by Viking stockholders has not been obtained following a vote taken at the Viking special meeting (unless the Viking special meeting has been validly adjourned or postponed, or validly requested by Camber to be adjourned or postponed, in accordance with the merger agreement, in which case at the final adjournment or postponement thereof); |
| • | by Camber, at any time prior to the approval of the Viking merger proposal by Viking stockholders, if (i) Viking or the Viking board has made a change in their recommendation that Viking stockholders approve the merger, or (ii) there has been a willful breach by Viking (including by the Viking board) of its obligations relating to non-solicitation of acquisition proposals or its obligations related to stockholder approval and the Viking board recommendation; or |
| • | by Viking, at any time prior to the approval of the Camber share issuance proposal and Camber charter amendment proposal by Camber stockholders, if (i) Camber or Camber’s board has made a change in their recommendation that Camber stockholders approve such proposals, or (ii) there has been a willful breach by Camber (including by the Camber board) of its obligations relating to non-solicitation of acquisition proposals or its obligations related to stockholder approval and the Camber board recommendation in any material respect. |
Termination – Retention of Elysium Interest
If the merger agreement is terminated under certain circumstances, Camber may retain all or a portion of its 25% interest in Viking’s subsidiary, Elysium Energy Holdings, LLC. See “The Merger Agreement—Camber’s Elysium Interest” beginning on page 182.
Camber and Viking each prepare their respective financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The merger will be accounted for using the reverse acquisition method of accounting, and Viking will be treated as the accounting acquirer in the transaction.
The Rights of Viking Stockholders Will Change as a Result of the Merger
The rights of Viking stockholders are governed by Nevada law and by the articles of incorporation and bylaws of Viking. In the merger, Viking stockholders will become holders of common stock of the combined company, and their rights will continue to be governed by Nevada law and the articles of incorporation of Camber as amended by the Camber charter amendment, and Camber reverse stock split (if approved by the stockholders and authorized by Camber’s board of directors) and the bylaws of Camber. Viking stockholders will have different rights once they become holders of common stock of the combined company due to differences between the Viking governing documents and the Camber governing documents. These differences are described in more detail under the section entitled “Comparison of Stockholders’ Rights” beginning on page 208.
Listing of Camber Common Stock; Delisting and Deregistration of Viking Common Stock
The shares of Camber common stock to be issued in the merger will be listed for trading on the NYSE American. Following the merger, shares of Camber common stock will be traded on the NYSE American, under the symbol “CEI.” In addition, following the merger, Viking common stock will no longer be quoted on the OTCQB, will be deregistered under the Exchange Act and cease to be publicly traded.
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The Camber special meeting will be held at [●] on [●], 2020, at [●], local time. At the Camber special meeting, Camber stockholders will be asked to vote on the following matters:
| • | approval of the Camber share issuance proposal; | |
| • | approval of the Camber charter amendment proposal; | |
| • | approval of the Camber reverse split proposal; | |
| • | approval of the Camber equity plan proposal; | |
| • | approval of the Camber adjournment proposal. |
You may vote at the Camber special meeting if you owned shares of Camber common stock at the close of business on [●], 2020. On that date there were [●] shares of Camber common stock outstanding, none of which were owned and entitled to be voted by Camber directors and executive officers and their affiliates.
The Camber share issuance proposal and Camber equity plan proposal will be approved if a quorum exists at the special meeting and the holders of a majority of the outstanding shares of stock entitled to vote on the Camber share issuance proposal and Camber equity plan proposal present in person or by proxy at the Camber special meeting vote “FOR” such proposals, respectively. The Camber charter amendment proposal and Camber reverse split proposal will be approved if a majority of the outstanding shares of stock entitled to vote on the Camber charter amendment and Camber reverse split proposal vote “FOR” such proposals, respectively. The Camber adjournment proposal will be approved if the holders of a majority of the outstanding shares of stock entitled to vote on the Camber adjournment proposal present in person or by proxy at the Camber special meeting vote “FOR” such proposal.
If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Camber share issuance proposal, Camber equity plan proposal or the Camber adjournment proposal, as applicable. If you fail to submit a proxy or to vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber share issuance proposal or the Camber adjournment proposal, your shares will not be deemed to be represented at the Camber special meeting, and it will have no effect on the Camber share issuance proposal or the Camber adjournment proposal, as applicable. If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber charter amendment proposal and/or Camber reverse split proposal, it will have the same effect as a vote “AGAINST” the Camber charter amendment proposal and/or Camber reverse split proposal, as applicable.
The Viking special meeting will be held at [●] on [●], 2020, at [●], local time. At the Viking special meeting, Viking stockholders will be asked to vote on the following matters:
| • | Approval of the Viking merger proposal; | |
| • | approval of the Viking charter amendment proposal; | |
| • | approval of the Viking reverse split proposal; and | |
| • | approval of the Viking adjournment proposal. |
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You may vote at the Viking special meeting if you owned shares of Viking common stock or Viking Series C Preferred Stock at the close of business on [●], 2020. On that date there were [●] shares of Viking common stock outstanding, approximately [●] percent ([●]%) of which were owned and entitled to be voted by Viking directors and executive officers and their affiliates, approximately [●] shares of Viking Series C Preferred Stock, collectively representing [●]% of the shares of Viking Series C Preferred Stock outstanding on [●], 2020, and approximately [●] total voting shares, collectively representing [●]% of Viking’s total voting shares on [●], 2020. We currently expect that Viking’s directors and executive officers will vote their shares in favor of the merger, although none of them has entered into any agreements obligating them to do so.
The Viking merger proposal will be approved if the holders of a majority of Viking’s outstanding voting shares entitled to vote on the Viking merger proposal vote “FOR” such proposal. The Viking charter amendment proposal and Viking reverse split proposal will be approved if the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking charter amendment proposal and Viking reverse split proposal vote “FOR” such proposals, respectively. The Viking adjournment proposal will be approved if the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking adjournment proposal vote “FOR” such proposal.
If you mark “ABSTAIN” on your proxy, fail to submit a proxy or vote in person at the Viking special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Viking merger proposal, it will have the same effect as a vote “AGAINST” the Viking merger proposal. If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Viking charter amendment proposal, Viking reverse split proposal and the Viking adjournment proposal, as applicable. If you fail to submit a proxy or to vote in person at the Viking special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Viking charter amendment proposal, Viking reverse split proposal or the Viking adjournment proposal, your shares will not be deemed to be represented at the Viking special meeting, and it will have no effect on the Viking charter amendment proposal, Viking reverse split proposal or the Viking adjournment proposal, as applicable.
Certain Beneficial Owners of Camber Common Stock
At the close of business on [●], 2020, directors and executive officers of Camber beneficially owned and were entitled to vote no shares of Camber common stock, see “Security Ownership of Camber Beneficial Owners and Management” beginning on page 216.
Certain Beneficial Owners of Viking Securities
At the close of business on [●], 2020, directors and executive officers of Viking beneficially owned and were entitled to vote approximately [●] shares of Viking common stock, collectively representing [●]% of the shares of Viking common stock outstanding on [●], 2020, approximately [●] shares of Viking Series C Preferred Stock, collectively representing [●]% of the shares of Viking Series C Preferred Stock outstanding on [●], 2020, and approximately [●] total voting shares, collectively representing [●]% of Viking’s total voting shares on [●], 2020. Although none of them has entered into any agreement obligating them to do so, Viking currently expects that all of its directors and executive officers will vote their shares “FOR” the Viking merger proposal, “FOR” the Viking charter amendment proposal, “FOR the Viking reverse split proposal and “FOR” the Viking adjournment proposal. For more information regarding the security ownership of Viking directors and executive officers, see “Security Ownership of Viking Beneficial Owners and Management” beginning on page 216.
In evaluating the merger agreement, the merger or the issuance of shares of Camber common stock in the merger, you should carefully read this joint proxy statement/prospectus and give special consideration to the factors discussed in the section entitled “Risk Factors” beginning on page 29.
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HISTORICAL PER SHARE DATA, MARKET PRICE AND DIVIDEND DATA
Stock Prices
Shares of Camber’s common stock are listed for trading on the NYSE American. The following table sets forth the closing sales prices per share of Camber common stock on the following dates:
| • | February 4, 2020, the last full trading day prior to the public announcement of the merger, and | |
| • | , 2020, the last practicable trading day for which this information could be calculated prior to the filing of this joint proxy statement/prospectus. |
| Camber Common Stock |
Viking Common Stock |
Implied
Value of One Share of Viking Common Stock(1) |
|||||||||||
| February 4, 2020 | $ | 1.64 | $ | 0.238 | $ | 0.09 | |||||||
| [●], 2020 | $ | [● | ] | $ | [● | ] | $ | [● | ] | ||||
(1)
|
The implied value of one share of Viking common stock has been determined by (i) multiplying (a) the number of fully-diluted shares of Camber outstanding on the applicable date (without taking into account any shares issuable upon conversion of Camber’s Series C Preferred Stock), by (b) 1 minus the Camber Percentage (initially 20%), (ii) dividing that number by the Camber Percentage (initially 20%), (iii) dividing that number by the number of fully-diluted shares of Viking outstanding on the applicable date of determination, and (iv) multiplying the resulting number by the applicable Camber common stock value on the date of determination and is presented for comparative and information purposes only. The “Implied Value of One Share of Viking Common Stock” value does not represent the value of the consideration that Viking stockholders will receive per share as a result of the merger. | ||||||||||||
Market Price Data
Historical information regarding sales prices of Camber’s common stock is widely available because Camber’s common stock is listed on the NYSE American.
The following table sets forth the high and low sales prices per share of Viking common stock for each quarterly period since March 31, 2018. For current price information, you should consult publicly available sources.
| Calendar Period | High | Low | ||||||
| Twelve months ended December 31, 2018 | ||||||||
| First Quarter | $ | 0.24 | $ | 0.12 | ||||
| Second Quarter | $ | 0.23 | $ | 0.15 | ||||
| Third Quarter | $ | 0.42 | $ | 0.16 | ||||
| Fourth Quarter | $ | 0.42 | $ | 0.22 | ||||
| Twelve months ended December 31, 2019 | ||||||||
| First Quarter | $ | 0.29 | $ | 0.16 | ||||
| Second Quarter | $ | 0.24 | $ | 0.14 | ||||
| Third Quarter | $ | 0.24 | $ | 0.15 | ||||
| Fourth Quarter | $ | 0.18 | $ | 0.07 | ||||
| Twelve months ending December 31, 2020 | ||||||||
| First Quarter | $ | 0.27 | $ | 0.06 | ||||
| Second Quarter (through June 2, 2020) | $ | 0.17 | $ | 0.09 | ||||
Market price data for Merger Sub common stock is not available because Merger Sub is currently a wholly-owned subsidiary of Camber, and shares of Merger Sub common stock do not trade separately from shares of Camber common stock.
Dividends
Camber has not declared or paid cash dividends or made distributions in the past. Camber does not anticipate that it will pay cash dividends or make distributions in the foreseeable future. Camber currently intends to retain and reinvest future earnings to finance operations.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this joint proxy statement/prospectus are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Words such as “anticipate,” “estimate,” “continue,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “objective,” “goal,” “positions,” “prospects,” “potential,” “will,” “would,” “should,” “could,” “may” and words and terms of similar substance identify forward-looking statements, including any statements or discussions regarding timing of completion of the merger, expected benefits of the merger and the future operating or financial performance of Camber, Viking or the combined company identify forward-looking statements. All forward-looking statements are management’s present expectations or forecasts of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The factors relating to the merger discussed under the caption “Risk Factors” beginning on page 29 and the factors previously disclosed in Camber’s and Viking’s reports filed with the SEC, among others, could cause actual results to differ materially from those described in the forward-looking statements. For any forward-looking statements made in this joint proxy statement/prospectus, Camber and Viking claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus. Except as required by applicable law, neither Camber nor Viking undertakes to update these forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made.
For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, see the reports that Camber and Viking have filed with the SEC as described under “Where You Can Find More Information” beginning on page 223.
We expressly qualify in their entirety all forward-looking statements attributable to either of us or any person acting on our behalf by the cautionary statements contained or referred to in this joint proxy statement/prospectus.
In addition to the other information contained in this joint proxy statement/prospectus, including the matters addressed under the caption “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 29, you should carefully consider the following risk factors in deciding whether to vote for the approval of the merger agreement.
Because the exchange ratio in the merger will be set based on a number of factors immediately prior to closing the merger that cannot be determined now, Viking stockholders cannot be certain of the number of shares of Camber common stock they will receive, and Camber stockholders cannot be certain how many shares of Camber common stock will be issued to the Viking stockholders, in the merger.
At the effective time of the merger (the “effective time”), each share of Viking common stock issued and outstanding immediately prior to the effective time (other than Viking shares owned by Camber, Viking and Merger Sub) will be converted into the right to receive the pro rata share of an adjustable percentage (initially 80% prior to adjustment) of Camber’s post-effective time capitalization (Camber’s 20% share is referred to as the “Camber Percentage”), taking into account the number of shares of common stock of Camber outstanding on a fully-diluted basis, but without taking into account any shares of common stock which the holder of Camber’s Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock (which are currently convertible into approximately [66,837,256] shares of common stock, subject to adjustment as provided in the designation of such Series C Preferred Stock, without taking into account the effects of the proposed reverse stock split). Holders of Viking common stock will have any fractional shares of Camber common stock after the merger rounded up to the nearest whole share.
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The Camber Percentage is to be adjusted as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, which is not contingent or conditional upon the closing of the merger, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%.
These factors will not be known at the time the Viking and Camber stockholders vote on the merger, and therefore Viking stockholders will not know precisely how many shares of Camber common stock will be issued to the Viking stockholders at the time of the merger. For examples of different number of shares of Camber common stock issuable in certain situations, see “The Merger Agreement – Merger Consideration”, beginning on page 168.
In addition to the above, as of May 29, 2020, Viking’s CEO and director, James Doris, holds 28,092 shares of Viking’s Series C Preferred Stock, with each share of preferred stock entitling the holder thereof to 32,500 votes on all matters submitted to the vote of Viking’s security holders. The merger agreement requires that there be no shares of Viking preferred stock outstanding at the effective time of the merger. However, Mr. Doris and Viking have not yet reached any agreement as to the terms of any redemption, conversion or cancellation of Mr. Doris’s 28,092 shares of Viking’s Series C Preferred Stock. If Viking and Mr. Doris do not reach an agreement resulting in Viking’s Series C Preferred Stock no longer being outstanding, the merger cannot be completed. Immediately prior to the closing of the merger, and provided all other conditions related to the merger are satisfied, Mr. Doris has indicated to the Company that he intends to return his shares of Viking’s Series C Preferred Stock to Viking for cancellation in exchange for common stock, common stock warrants and/or options of Viking (the “Exchanged Securities”) with a view to converting such Exchanged Securities into Camber common stock, warrants or options at closing of the merger. Mr. Doris has indicated that he intends to receive such number of Exchanged Securities that would result in him owning, when combined with existing shares issued to Mr. Doris by Viking, approximately 23% of the issued and outstanding shares of Viking’s common stock on a fully-diluted basis immediately prior to closing of the merger. The issuance of shares to Mr. Doris prior to closing of the merger will cause significant dilution to current Viking shareholders and reduce the number (and percentage) of shares such shareholders would have otherwise received as part of the merger.
It is also anticipated that the board of directors of Camber will approve the issuance to each of Louis G. Schott, Camber’s Interim Chief Executive Officer and Robert Schleizer, Camber’s Chief Financial Officer, and Fred S. Zeidman and James G. Miller, directors of Camber, of shares of Camber common stock in consideration for past and in some cases, future services, immediately prior to the effective time of the merger, which in aggregate will total 15% of Camber’s outstanding shares of common stock at the time the merger closes (split equally between each of the four officers and directors of Camber), provided the exact amount of such awards are not currently known. Such awards will result in significant dilution to existing shareholders of Camber.
Also, as discussed in the risk factors below, Viking may raise funding through the sale of debt or equity prior to the closing of the merger and/or may issue equity securities to certain note holders or warrant holders, in consideration for such holders agreeing to the terms of the merger, which may cause significant dilution to existing stockholders of Viking and may reduce (as a result of the exchange ratio) the number of shares of Camber common stock which Viking stockholders would otherwise receive as part of the merger. Such dilution and adjustment to the exchange ratio will not be known until after Viking stockholders have approved the merger.
See also “The Merger Agreement—Merger Consideration” beginning on page 168.
Because the market price of the Camber common stock may fluctuate, Viking stockholders cannot be certain of the market value of the merger consideration they will receive.
In the merger, each share of Viking common stock issued and outstanding immediately prior to the effective time (other than certain shares owned by Camber, Viking or Merger Sub) will be converted into a number of shares of Camber common stock based on the fluctuating exchange ratio described in the prior risk factor. Even though the exchange ratio will fluctuate based on a number of factors, the exchange ratio will not be adjusted for changes in the market price of either Camber common stock or Viking common stock between the date of the merger agreement and the effective time. Therefore, changes in the price of Camber common stock prior to the merger will affect the value that Viking stockholders will receive in the merger.
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Stock price changes may result from a variety of factors, including general market and economic conditions, the market for and demand for oil and gas, the status of the U.S. and global economy, economic recessions and depressions, pandemics, including the recent pandemic related to Covid-19, and world governmental responses to such pandemics, changes in Viking’s and Camber’s businesses, operations and prospects and regulatory considerations, many of which factors are beyond Viking’s and Camber’s control. Therefore, at the time of the Viking special meeting, Viking stockholders will not know the market value of the consideration to be received at the effective time. Viking stockholders should obtain current market quotations for shares of Camber common stock and for shares of Viking common stock.
The market price of Camber common stock after the merger may be affected by factors different from those affecting the shares of Viking or Camber currently.
In the merger, Viking stockholders will become Camber stockholders. Camber’s business differs from that of Viking. Accordingly, the results of operations of the combined company and the market price of Camber common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of Camber and Viking. For a discussion of the businesses of Camber and Viking and of certain factors to consider in connection with those businesses, see “Information about Camber” and “Information about Viking”, beginning on pages 94 and 112, respectively.
Camber has not obtained an updated fairness opinion from Mercer Capital, reflecting changes in circumstances that may have occurred since the date such fairness opinion was provided. Viking has not yet obtained a fairness opinion from ______.
While Camber has obtained a fairness opinion as of the date of this joint proxy statement/prospectus, Viking has not yet obtained a fairness opinion. Additionally, changes in the operations and prospects of Camber or Viking, general market and economic conditions and other factors which may be beyond the control of Camber and Viking, and on which the Mercer Capital fairness opinion was based, may have altered the value of Camber or Viking or the prices of shares of Camber common stock and shares of Viking common stock as of the date of this joint proxy statement/prospectus, or may alter such values and prices by the time the merger is completed. The Mercer Capital opinion does not speak as of any date other than the date of that opinion. A condition to closing is that Viking obtain a fairness opinion. In the event that Viking does not obtain a fairness opinion, it is unlikely that the merger will close.
Combining Camber and Viking may be more difficult, costly or time-consuming than expected and Camber and Viking may fail to realize the anticipated benefits of the merger, including expected financial and operating performance of the combined company.
The success of the merger will depend, in part, on the combined company’s ability to realize anticipated cost savings from combining the businesses of Camber and Viking. To realize the anticipated benefits and cost savings from the merger, Camber and Viking must successfully integrate and combine their businesses in a manner that permits those cost savings to be realized. If Camber and Viking are not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the merger could be less than anticipated.
Camber and Viking have operated and, until the completion of the merger, must continue to operate independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with leaseholders, customers, suppliers and employees or to achieve the anticipated benefits and cost savings of the merger. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on each of Camber and Viking during this transition period and for an undetermined period after completion of the merger on the combined company. All projections regarding the combined company’s business are, by their nature, estimates which are subject to risks and uncertainties. Business and financial measures of the combined company, including, but not limited to, revenue, free cash flow, synergies and dividend yield, are uncertain and subject to change based on changes in assumptions underlying such measures or other changes in circumstances, many of which may be outside of Camber’s or Viking’s control.
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The combined company may be unable to retain Camber and/or Viking personnel successfully after the merger is completed.
The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by Camber and Viking. It is possible that these employees may decide not to remain with Camber or Viking, as applicable, while the merger is pending, or with the combined company after the merger is consummated. If key employees terminate their employment, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating Camber and Viking to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, Camber and Viking may not be able to locate or retain suitable replacements for any key employees who leave either company.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.
Before the merger may be completed, applicable waiting periods must expire or terminate, and applicable approvals may need to be obtained under certain antitrust and competition laws and regulations. In deciding whether to grant regulatory clearances and approvals, the relevant governmental entities may consider, among other things, the effect of the merger on competition within their relevant jurisdiction. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the merger or imposing additional material costs on or materially limiting the revenues of the combined company following the merger. In addition, neither Camber nor Viking can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. For a more detailed description of the regulatory review process, see “The Merger—Regulatory Approvals” beginning on page 165.
The unaudited pro forma condensed combined financial statements included in this joint proxy statement/prospectus are preliminary and estimated, and the actual financial condition and results of operations of the combined company after the merger may differ materially.
The unaudited pro forma condensed combined financial statements in this joint proxy statement/prospectus are presented for illustrative purposes only and are not necessarily indicative of what the combined company’s actual financial condition or results of operations would have been had the merger been completed on the dates indicated. The unaudited pro forma condensed combined financial statements reflect adjustments, which are based upon preliminary estimates, to record Viking as the accounting acquirer, and to estimate the fair value of Camber’s identifiable assets acquired and liabilities assumed and the resulting goodwill recognized. The purchase price allocation reflected in this joint proxy statement/prospectus is preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets and liabilities of Camber/Viking as of the date of the completion of the merger. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus. For more information, see “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 204.
Certain of Camber’s and Viking’s directors and executive officers may have interests in the merger that may differ from the interests of Camber stockholders and Viking stockholders.
Camber stockholders and Viking stockholders should be aware that some of Camber’s and Viking’s directors and executive officers may have interests in the merger and have arrangements that are different from, or in addition to, those of Camber stockholders and Viking stockholders generally. These interests and arrangements may create potential conflicts of interest. The Camber board and the Viking board were aware of these respective interests and considered these interests, among other matters, when making their decisions to approve the merger agreement, and in recommending that holders of common stock vote to for the merger agreement and the Camber share issuance, as applicable. For a more complete description of these interests, see “The Merger—Interests of Camber’s Directors and Executive Officers in the Merger” beginning on page 162 and “The Merger—Interests of Viking’s Directors and Executive Officers in the Merger” beginning on page 163.
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Termination of the merger agreement could negatively impact Camber or Viking.
If the merger agreement is terminated, there may be various consequences. For example, Camber’s or Viking’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of Camber’s or Viking’s common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, Camber may also retain a portion of Viking’s Elysium subsidiary, which could negatively impact Viking and/or Camber. For example, in the event of termination of the merger agreement by either party because there is a 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 Form S-4 of which this joint proxy statement/prospectus is a part, will not be declared effective, through no fault of Camber or Viking, Camber will retain a 15% interest in Elysium if the Secured Note (defined below under “Agreements Relating to the Merger” beginning on page 186) owed by Viking to Camber is repaid on or prior to the 90th day following the termination of the merger agreement (and a required additional payment is made in connection therewith from Viking to Camber), and Camber will return a 10% interest in Elysium to Viking. In the event of termination of the merger agreement by either party, through no fault of Camber, Camber will retain a 20% interest in Elysium if the payment obligations relating to the Secured Note are met and it will return a 5% interest in Elysium to Viking; and in the event of termination of the merger agreement due to a material breach of the merger agreement by Camber or its disclosure schedules, and if the payment obligations relating to the Secured Note are met, Camber will return the entire 25% interest in Elysium to Viking. If the payment obligations relating to the Secured Note are not met, Camber will retain the entire 25% interest in Elysium following any termination of the merger agreement for any reason. See also “Agreements Relating to the Merger” beginning on page 186. In the event of termination of the merger agreement through no fault of Viking, due to the failure of the Camber stockholders to approve the Camber share issuance and charter amendment, Camber will issue Viking 300,000 restricted shares of Camber common stock as a termination fee, subject to Viking confirming its status as an ‘accredited investor’ and making certain other customary representations to Camber in order to allow Camber to claim an exemption from registration for such issuance, and subject to NYSE American additional listing approval of such shares. See also “The Merger Agreement—Termination of the Merger Agreement” beginning on page 183.
Additionally, each of Camber and Viking has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, as well as the costs and expenses of filing, printing and mailing this joint proxy statement/prospectus, and filing and other fees paid or to be paid to the SEC and other regulatory agencies in connection with the merger. If the merger is not completed, Camber and Viking would nonetheless have to recognize these expenses but without realizing the expected benefits of the merger.
Camber and Viking will be subject to business uncertainties and contractual restrictions while the merger is pending.
Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on Camber or Viking. These uncertainties may impair Camber’s or Viking’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Camber or Viking to seek to change existing business relationships with Camber or Viking. In addition, subject to certain exceptions, Camber and Viking have agreed to operate their respective businesses in the ordinary course consistent with past practice prior to closing. See “The Merger Agreement—Covenants and Agreements” beginning on page 175 for a description of the restrictive covenants applicable to Camber and Viking.
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The merger agreement contains provisions that could adversely impact competing proposals to acquire Camber. These provisions include the prohibition on Camber generally from soliciting any acquisition proposal or offer for a competing transaction and the requirement that Camber transfer back to Viking up to the entire 25% interest in Elysium which it acquired on February 3, 2020 if the merger agreement is terminated in specified circumstances and requiring Camber, upon termination of the merger, to redeem 525 shares of Series C Preferred Stock held by Discover at an aggregate price of $5,775,000. These provisions might discourage a third party that might have an interest in acquiring all or a significant part of Camber from considering or proposing an acquisition, even if that party were prepared to pay consideration with a higher value than the current proposed merger consideration. Furthermore, the termination fee may result in a potential competing acquirer proposing to pay a lower per share price to acquire Camber than it might otherwise have proposed to pay.
Holders of Camber and Viking common stock will have a reduced ownership and voting interest in the combined company after the merger and will therefore have less voting influence over the combined company.
Holders of Camber and Viking common stock currently have the right to vote in the election of the board of directors and on other matters involving Camber and Viking, respectively. In the merger, each Viking stockholder who receives shares of Camber common stock will become a holder of common stock of the combined company, with a percentage ownership of the combined company that is smaller than such holder’s percentage ownership of Viking. Upon completion of the merger, Viking stockholders as of immediately prior to the merger will collectively own approximately (80%) of the outstanding shares of the combined company immediately after the merger, and Camber stockholders as of immediately prior to the merger will collectively own approximately (20%) of the outstanding shares of the combined company immediately after the merger (in each case, on a fully diluted basis and without regard to the fact that immediately prior to the merger, certain stockholders may own both Camber and Viking stock), without taking into account the ownership of Camber’s Series C Preferred Stock holder. As a result, Viking stockholders will have less voting influence on the combined company and may have less influence on its management and policies than they now have on Viking, and Camber stockholders will have less voting influence on the combined company and may have less influence on its management and policies than they now have on Camber.
Camber stockholders will not have appraisal rights in the merger.
Appraisal rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.
Under the relevant provisions of the NRS, the Camber stockholders will not be entitled to appraisal rights in connection with the merger with respect to their shares of Camber common stock.
Stockholder litigation could prevent or delay the closing of the merger or otherwise negatively impact the business and operations of Camber and Viking.
Camber and Viking may incur costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the merger. Such litigation could have an adverse effect on the financial condition and results of operations of Camber and Viking and could prevent or delay the consummation of the merger.
In the event the merger closes, it will cause immediate and substantial dilution to existing stockholders and a change of control of Camber.
Upon the terms and subject to the conditions set forth in the merger agreement, at the effective time of the merger, each share of common stock of Viking issued and outstanding immediately prior to the effective time, other than certain shares owned by Camber, Viking and Merger Sub, will be converted into the right to receive the pro rata share of 80% of Camber’s post-effective time capitalization, taking into account the number of shares of common stock of Camber outstanding on a fully-diluted basis and without taking into account any shares of common stock which the holder of Camber’s Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock, subject to certain adjustment mechanisms discussed in the merger agreement. As such, in the event the contemplated merger closes, the issuance of the common stock consideration to Viking will result in immediate and substantial dilution to the interests of Camber’s then stockholders and result in a change of control of Camber.
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Failure to complete the merger could negatively impact Camber’s stock price and future business and financial results.
If the merger is not completed, Camber’s ongoing business may be adversely affected and it would be subject to a number of risks, including the following:
● it will not realize the benefits expected from the merger, including a potentially enhanced competitive and financial position, expansion of assets and therefore opportunities, and will instead be subject to all the risks Camber currently faces as an independent company;
● it may experience negative reactions from the financial markets and its partners and employees;
● under the merger agreement, Camber may be required to transfer back to Viking the 25% interest in Elysium which it acquired on February 3, 2020, and will be required to redeem 525 shares of Series C Preferred Stock held by Discover at a price of $5,775,000 if the merger is terminated. If such termination fee is payable, the payment of this fee could have material and adverse consequences to Camber’s financial condition and operations. Furthermore, although Viking has agreed to pay Camber the difference, if any, between the amount of the Secured Note (defined below under “Agreements Relating to the Merger” beginning on page 186) and the amount Camber owes to Discover upon any termination of the merger agreement, Viking may be unable to pay such amount when due;
● the merger agreement places certain restrictions on the conduct of Camber’s business prior to the completion of the merger or the termination of the merger agreement. Such restrictions, the waiver of which is subject to the consent of Viking, may prevent Camber from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the merger; and
● matters relating to the merger (including integration planning) may require substantial commitments of time and resources by Camber’s management, which would otherwise have been devoted to other opportunities that may have been beneficial to Camber as an independent company.
The merger agreement may be terminated in accordance with its terms, and the merger may not be completed.
The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger as described below under “The Merger Agreement—Conditions to Complete the Merger” beginning on page 180. These conditions to the closing of the merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is not completed by June 30, 2020 (or up to December 30, 2020, if the required closing date is extended by the parties, which is allowed under certain circumstances), either Camber or Viking may choose not to proceed with the merger, and the parties can mutually decide to terminate the merger agreement at any time, before or after stockholder approval. In addition, Camber or Viking may elect to terminate the merger agreement in certain other circumstances.
Certain of Viking’s convertible note holders will need to approve the merger, or be repaid, prior to the merger closing.
As of May 16, 2020, Viking’s outstanding convertible notes consisted of (i) convertible notes maturing August 31, 2020, in the aggregate principal amount of approximately $11,469,565, with 50% of the principal amount under each note convertible into Viking common stock at $0.20 per share; and (ii) convertible notes due February 11, 2022, in the aggregate principal amount of approximately $1,954,229, with 100% of the principal amount under each note convertible into Viking common stock at $0.175 per share. If the merger closes on or prior to August 31, 2020, or prior to the repayment in full (or partial conversion and repayment of the remaining portion) of Viking’s outstanding convertible promissory notes maturing on August 31, 2020, each of the holders of those notes will have to approve the merger, or their notes will need to be repaid in full at closing of the merger. Any failure of those note holders to approve the merger, or Viking to repay those note holders prior to closing, may prevent the merger from closing. Viking may raise funding through the sale of debt or equity prior to the closing of the merger to repay those note holders, which may cause significant dilution to existing stockholders of Viking and may reduce (as a result of the exchange ratio) the number of shares of Camber common stock which Viking stockholders would otherwise receive as part of the merger. Such dilution and adjustment to the exchange ratio will not be known until after Viking stockholders have approved the merger.
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Certain of Viking’s warrant holders will need to approve the merger prior to the merger closing.
As of March 31, 2020, Viking’s outstanding warrants to purchase common stock of Viking included (i) warrants to purchase approximately 10,043,431 shares of Viking common stock, with the warrants requiring the consent of the holders of the warrants (the “Consenting Warrant Holders”) prior to closing the merger, and (ii) warrants to purchase approximately 36,411,508 shares of Viking common stock not requiring warrant holder consent prior to closing the merger. If Viking is unable to obtain the consent of the Consenting Warrant Holders to the merger, the closing of the merger may not occur. Furthermore, Viking may need to issue such Consenting Warrant Holders equity consideration in order to induce them to approve the merger, the issuance of which may cause dilution to existing stockholders of Viking and may reduce (as a result of the exchange ratio) the number of shares of Camber common stock which Viking stockholders would otherwise receive as part of the merger. Such dilution and adjustment to the exchange ratio will not be known until after Viking stockholders have approved the merger.
Termination of the merger agreement could negatively impact Camber.
In the event the merger agreement is terminated, Camber’s business may have been adversely impacted by its failure to pursue other beneficial opportunities due to the focus of management on the merger, and the market price of its common stock might decline to the extent that the current market price reflects a market assumption that the merger will be completed. If the merger agreement is terminated and Camber’s Board of Directors seeks another merger or business combination, Camber’s stockholders cannot be certain that Camber will be able to find a party willing to offer equivalent or more attractive consideration than the consideration provided for by the merger. If the merger agreement is terminated under certain circumstances, Camber may be required to transfer Viking back the 25% interest in Elysium and will be required to redeem 525 shares of Series C Preferred Stock held by Discover at a price of $5,775,000. Although Viking has agreed to repay the Secured Note upon the termination of the merger agreement and to pay Camber the difference between the amount of the Secured Note and the amount Camber owes to Discover, Viking may be unable to pay such amounts when due. If Camber is unable to timely pay Discover amounts due in connection with the required redemption of the Series C Preferred Stock it could have a material adverse effect on Camber’s cash flows, operations, and its ability to continue as a going concern, all of which could cause the value of Camber’s common stock to decline in value or become worthless.
The exchange ratio of the merger is calculated without taking into account Camber’s Series C Preferred Stock.
The merger agreement provides that the exchange ratio representing the number of shares of Camber common stock that each holder of Viking common stock will receive in the merger is calculated without regard to the conversion rights of Camber’s Series C Preferred Stock. The conversion price of the Series C Preferred Stock is $3.25 per share for the face amount of each share of Series C Preferred Stock ($10,000 per share). The Series C Preferred Stock also provides that all applicable dividends (conversion premiums), which initially accrued in the amount of 24.95% per annum and which increase or decrease subject to the terms of the Series C Preferred Stock, based on among other things, the trading price of Camber’s common stock, up to a maximum of 34.95% per annum, are due upon conversion or repayment/redemption (where applicable) thereof, for the full seven year term of such securities, based on the face amount of such security. The conversion premium under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable. Specifically, the conversion rate of such premiums and dividends equals 95% of the average of the lowest 5 individual daily volume weighted average prices during the Measuring Period, not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common stock, unless a trigger event has occurred, in which case the conversion rate equals 85% of the lowest daily volume weighted average price during the Measuring Period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last day of such Measuring Period, less $0.10 per share. Notwithstanding the above, in no event will the value of the common stock pursuant to the foregoing be below the par value per share of the common stock ($0.001). The “Measuring Period” is the period beginning, if no trigger event has occurred, 30 trading days, and if a trigger event has occurred, 60 trading days, before the applicable notice has been provided regarding the exercise or conversion of the applicable security, and ending, if no trigger event has occurred, 30 trading days, and if a trigger event has occurred, 60 trading days, after the applicable number of shares stated in the initial exercise/conversion notice have actually been received into Discover’s designated brokerage account in electronic form and fully cleared for trading. Trigger events are described in the designation of the Series C Preferred Stock, but include items which would typically be events of default under a debt security, including filing of reports late with the SEC.
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As a result of the above, based on recent trading prices of Camber’s common stock, the [2,566] currently outstanding shares of Series C Preferred Stock would, if converted in full, convert into approximately [66,837,256] shares of common stock, which shares are not included in the calculation of the exchange ratio, and the conversion of which will cause significant dilution to Camber stockholders following the merger. Because the exchange ratio does not take into account the shares of common stock issuable upon conversion of the Series C Preferred Stock, the actual percentage of Camber’s post-merger capitalization received by stockholders of Viking in the merger will be significantly less than 80% of the post-merger capitalization of merger.
Although Discover may not receive shares of common stock exceeding 9.99% of its outstanding shares of common stock immediately after affecting such conversion, this restriction does not prevent Discover from receiving shares up to the 9.99% limit, selling those shares, and then receiving the rest of the shares it is due, in one or more tranches, while still staying below the 9.99% limit. If Discover chooses to do this, it will cause substantial dilution to the then holders of its common stock. Additionally, the continued sale of shares issuable upon successive conversions will likely create significant downward pressure on the price of its common stock as Discover sells material amounts of Camber’s common stock over time and/or in a short period of time. This could place further downward pressure on the price of its common stock and in turn result in Discover receiving an ever increasing number of additional shares of common stock upon conversion of its securities, and adjustments thereof, which in turn will likely lead to further dilution, reductions in the exercise/conversion price of Discover’s securities and even more downward pressure on its common stock, which could lead to its common stock becoming devalued or worthless.
The combined company will be required to re-meet the initial listing standards of the NYSE American in order to close the merger.
The merger agreement provides that in the event the NYSE American determines that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the date of the merger and the NYSE American has expressed their initial opinion that the merger will constitute, a “back-door listing”/”reverse merger”. The NYSE American initial listing standards include more stringent requirements than the NYSE American continued listing standards, which as discussed in the risk factors below, Camber is not currently in compliance with; provided that Camber believes it will be in compliance with the continued listing standards upon closing of the merger.
The NYSE American initial listing standards require that issuers meeting one of the following tests: (1) $750,000 of pre-tax income (in either the last fiscal year or two of the three most recent years), $3 million of public float, $4 million of stockholders’ equity and a minimum share price of $3 per share; (2) $15 million of public float, $4 million of stockholders’ equity, a $3 per share price and 2 years of operating history; (3) a $50 million market cap; $15 million of public float, $4 million of stockholders’ equity, and a $2 per share price; (4) a $75 million market cap; $20 million of public float and a $3 per share price; or (5) $75 million in total assets and total revenue (in either the last fiscal year or two of the three most recent years); $20 million of public float and a $3 per share price, plus in each case either (a) 800 public stockholders and 500,000 shares of total public float; (b) 400 public stockholders and 1,000,000 shares of total public float; or (c) 400 public stockholders, 500,000 shares of total public float and a 2,000 share daily trading volume (over the past six months).
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Camber as a stand-alone company does not currently meet the initial listing standards described above, and the combined company may similarly not meet such requirements.
Camber’s Series C Preferred Stock holder, Discover, holds rights of first refusal to provide further funding and favored nation rights.
Camber has granted Discover a right of first offer to match any offer for financing Camber receives from any person while the shares of Series C Preferred Stock sold pursuant to the 2020 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match. Such right of first refusal may delay or prevent Camber from raising funding in the future.
Camber also agreed that if it issues any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Discover, then Camber would notify Discover of such additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with Discover, including the Series C Preferred Stock and the agreements relating to the sale thereof. Such favored nations provision may make it more costly to complete transactions in the future, may prevent future transactions from occurring and/or may provide Discover additional rights than it currently has, all of which may cause significant dilution to existing stockholders, and/or cause the value of Camber’s common stock to decline in value.
Viking’s Chief Executive Officer, James Doris, holds preferred stock which currently affords him enough shareholder votes to control Viking and approve the merger on behalf of Viking’s shareholders.
Viking’s CEO and director, James Doris, holds 28,092 shares of Viking’s Series C Preferred Stock, with each share of preferred stock entitling the holder thereof to 32,500 votes on all matters submitted to the vote of Viking’s security holders. By virtue of such stock ownership, Mr. Doris is able to control the election of the members of Viking’s Board of Directors and to generally exercise control over the affairs of Viking, including approving the merger.
Although it is a condition of the merger that no shares of Viking preferred stock are outstanding at the time of the merger, Mr. Doris and Viking have not yet reached any agreement as to the terms of a redemption, conversion or cancellation of Mr. Doris’s 28,092 shares of Viking’s Series C Preferred Stock. If Viking and Mr. Doris do not reach an agreement resulting in Viking’s Series C Preferred Stock no longer being outstanding, the merger cannot be completed. There can be no assurance that Mr. Doris’s conflicts of interest will not arise with respect to Mr. Doris’s ownership of Viking’s Series C Preferred Stock, or that such conflicts will be resolved in a manner favorable to Viking. See “The Merger—Interests of Viking’s Directors and Executive Officers in the Merger” beginning on page 163.
General Business and Other Risks Relating to Camber
Camber’s business and operations are subject to many risks. The risks described below may not be the only risks Camber faces, as its business and operations may also be subject to risks that it does not yet know of, or that it currently believes are immaterial. If any of the events or circumstances described below actually occurs, Camber’s business, financial condition, results of operations or cash flow could be materially and adversely affected and the trading price of its common stock could decline. The following risk factors should be read in conjunction with the other information contained herein, including the financial statements and the related notes. Please read “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 29 of this joint proxy statement/prospectus, where Camber describes additional uncertainties associated with Camber’s business and the forward-looking statements included in this joint proxy statement/prospectus.
Camber currently has only limited oil and gas operations.
Camber’s Hutchinson County, Texas leases make up approximately 30% of its historical total producing properties. Camber has been notified by the Texas Railroad Commission that its P 4 Certificate of Compliance has been cancelled because its Hutchinson County, Texas wells have been inactive for more than one year and have not yet been granted a plugging extension. As part of the settlement agreement entered into with PetroGlobe Energy Holdings, LLC (“PetroGlobe”), as discussed below under “Information About Camber - Camber Legal Proceedings”, below, beginning on page 110, Camber has agreed to remedy the issues with the Texas Rail Road Commission and transfer ownership of its Hutchinson County, Texas properties to PetroGlobe or its designees. As such, assuming the transfer occurs, Camber will no longer have ownership of, or generate any revenues from, such Hutchinson County, Texas leases. Additionally, notwithstanding the above, until such time as Camber is able to cure the outstanding issues with the Texas Railroad Commission, its ability to produce oil and gas from its Hutchinson County, Texas wells is suspended and Camber is prohibited from transporting any previously produced oil and gas through the pipeline on such property. As a result, Camber is unable to transport or sell approximately 1,000 barrels of oil previously produced and currently held on such properties. Prior to the suspension, Camber was in the process of performing workovers on the wells and had very limited production from the properties. Camber’s oil and gas revenues, results of operations and prospects may be materially adversely affected as a result of such transfer and/or issues and it may be costly and/or time consuming to cure such issues, if such issues are able to be cured at all. However, notwithstanding the above, Camber’s management believes that Camber’s non-operated properties will be immaterial to the combined company following the merger and following the merger the combined company’s management will determine what course to take regarding such combined company assets, including Camber’s non-operated properties.
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Lineal and Viking owe Camber a substantial amount of money which may not be timely repaid, if at all.
Pursuant to a December 31, 2019 Redemption Agreement entered into between Camber and the prior owners of Lineal, Camber entered into a new unsecured promissory note in the amount of $1,539,719 with Lineal, evidencing the outstanding amount of a prior July 2019 promissory note, together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); and loaned Lineal an additional $800,000, which was evidenced by an unsecured promissory note in the amount of $800,000, entered into by Lineal in favor of Camber on December 31, 2019 (“Lineal Note No. 2”). The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. The December 2019 Lineal Note and Lineal Note No. 2 are unsecured.
On February 3, 2020, Camber advanced $5 million to Viking and Viking provided Camber, among other things, the Secured Note. The 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. The 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 Secured Note. The Secured Note is secured by a security interest, para passu with the other investors in Viking’s Secured Note offering (subject to certain pre-requisites) in Viking’s 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a separate Security and Pledge Agreement entered into on February 3, 2020, Viking provided Camber 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 Secured Note. The Secured Note will be forgiven upon the closing of the merger.
In the event the Lineal notes or the Secured Note are not paid when due and/or the interest thereon is not timely paid, Camber may have to take legal action to enforce the repayment of such notes. Furthermore, Lineal and/or Viking may not have sufficient cash to repay such notes when due, including, but not limited to interest due thereon. The Lineal notes are unsecured and as such, secured credits of Lineal may have priority rights to Lineal’s assets in connection with any liquidation or bankruptcy. Although the Secured Note is secured by Viking, such security interest may not be sufficient to repay the note and other creditors may have priority rights to such collateral. In the event the notes payable to Camber are not timely paid and/or not paid in full, it could have a material adverse effect on Camber’s cash flows and its ability to pay its debts as they become due. Any failure by Viking or Lineal to timely repay their debt obligations to Camber could cause the value of Camber’s securities to decline in value or become worthless.
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Camber may have difficulty managing growth in its business, which could have a material adverse effect on its business, financial condition and results of operations and its ability to execute its business plan in a timely fashion.
Because of Camber’s small size, growth in accordance with its business plans, if achieved, will place a significant strain on its financial, technical, operational and management resources. If Camber expands its activities, developments and production, and increases in the number of projects it is evaluating or in which it participates, there will be additional demands on its financial, technical and management resources. The failure to continue to upgrade its technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the inability to recruit and retain experienced managers, geoscientists, petroleum engineers, landmen, engineers and employees could have a material adverse effect on Camber’s business, financial condition and results of operations and its ability to execute its business plan in a timely fashion.
Camber depends significantly upon the continued involvement of its present management.
Camber depends to a significant degree upon the involvement of its management, specifically, its Interim Chief Executive Officer, Louis G. Schott, who is in charge of its strategic planning and operations, and its Chief Financial Officer, Robert Schleizer. Camber’s performance and success are dependent to a large extent on the efforts and continued employment of Mr. Schott and Mr. Schleizer. Camber does not believe that Mr. Schott or Mr. Schleizer could be quickly replaced with personnel of equal experience and capabilities, and their successor(s) may not be as effective. If Mr. Schott, Mr. Schleizer, or any of its other key personnel resign or become unable to continue in their present roles and if they are not adequately replaced, Camber’s business operations could be adversely affected.
Camber has an active Board of Directors that meets several times throughout the year and is intimately involved in its business and the determination of its operational strategies. Members of Camber’s Board of Directors work closely with management to identify potential prospects, acquisitions and areas for further development. If any of its directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, its operations may be adversely affected.
Future increases in Camber’s tax obligations; either due to increases in taxes on energy products, energy service companies and exploration activities or reductions in currently available federal income tax deductions with respect to oil and natural gas exploration and development, may adversely affect its results of operations and increase its operating expenses.
Federal, state and local governments have jurisdiction in areas where Camber operates and impose taxes on the oil and natural gas products it sells. There are constant discussions by federal, state and local officials concerning a variety of energy tax proposals, some of which, if passed, would add or increase taxes on energy products, service companies and exploration activities. The passage of any legislation or any other changes in U.S. federal income tax laws could impact or increase the taxes that it is required to pay and consequently adversely affect Camber’s results of operations and/or increase its operating expenses.
Because of the inherent dangers involved in oil and gas exploration, there is a risk that Camber may incur liability or damages for its conduct or its business operations, which could force it to expend a substantial amount of money in connection with litigation and/or a settlement.
The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to Camber from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, Camber may be liable for environmental damages caused by previous owners of property purchased and leased by it in the future. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for the purchase of properties and/or property interests, exploration, development or acquisitions or result in the loss of Camber’s properties and/or force it to expend substantial monies in connection with litigation or settlements. As such, Camber’s current insurance or the insurance that it may obtain in the future may not be adequate to cover any losses or liabilities. Camber cannot predict the availability of insurance or the availability of insurance at premium levels that justify its purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect Camber’s financial condition and operations. Camber may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on Camber’s financial condition and results of operations, which could lead to any investment in Camber declining in value or becoming worthless.
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Camber incurs certain costs to comply with government regulations, particularly regulations relating to environmental protection and safety, and could incur even greater costs in the future.
Camber’s operations are regulated extensively at the federal, state and local levels and are subject to interruption or termination by governmental and regulatory authorities based on environmental or other considerations. Moreover, Camber has incurred and will continue to incur costs in its efforts to comply with the requirements of environmental, safety and other regulations. Further, the regulatory environment in the oil and natural gas industry could change in ways that Camber cannot predict and that might substantially increase its costs of compliance and, in turn, materially and adversely affect its business, results of operations and financial condition.
Specifically, as an owner or lessee and operator of crude oil and natural gas properties, Camber is subject to various federal, state, local and foreign regulations relating to the discharge of materials into, and the protection of, the environment. These regulations may, among other things, impose liability on it for the cost of pollution cleanup resulting from operations, subject Camber to liability for pollution damages and require suspension or cessation of operations in affected areas. Moreover, Camber is subject to the United States Environmental Protection Agency (“EPA”) rule requiring annual reporting of greenhouse gas (“GHG”) emissions. Changes in, or additions to, these regulations could lead to increased operating and compliance costs and, in turn, materially and adversely affect Camber’s business, results of operations and financial condition.
Camber is aware of the increasing focus of local, state, national and international regulatory bodies on GHG emissions and climate change issues. In addition to the U.S. EPA’s rule requiring annual reporting of GHG emissions, Camber is also aware of legislation proposed by U.S. lawmakers to reduce GHG emissions.
Additionally, there have been various proposals to regulate hydraulic fracturing at the federal level, including possible regulations limiting the ability to dispose of produced waters. Currently, the regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements. Any new federal regulations that may be imposed on hydraulic fracturing could result in additional permitting and disclosure requirements (such as the reporting and public disclosure of the chemical additives used in the fracturing process) and in additional operating restrictions. In addition to the possible federal regulation of hydraulic fracturing, some states and local governments have considered imposing various conditions and restrictions on drilling and completion operations, including requirements regarding casing and cementing of wells, testing of nearby water wells, restrictions on the access to and usage of water and restrictions on the type of chemical additives that may be used in hydraulic fracturing operations. Such federal and state permitting and disclosure requirements and operating restrictions and conditions could lead to operational delays and increased operating and compliance costs and, moreover, could delay or effectively prevent the development of crude oil and natural gas from formations which would not be economically viable without the use of hydraulic fracturing.
Camber will continue to monitor and assess any new policies, legislation, regulations and treaties in the areas where it operates to determine the impact on its operations and take appropriate actions, where necessary. Camber is unable to predict the timing, scope and effect of any currently proposed or future laws, regulations or treaties, but the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect its business, results of operations and financial condition.
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Possible regulation related to global warming and climate change could have an adverse effect on Camber’s operations and demand for oil and gas.
Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response to these studies, governments have begun adopting domestic and international climate change regulations that require reporting and reductions of the emission of greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a by-product of the burning of oil, natural gas and refined petroleum products, are considered greenhouse gases. In the United States, at the state level, many states, either individually or through multi-state regional initiatives, have begun implementing legal measures to reduce emissions of greenhouse gases, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs or have begun considering adopting greenhouse gas regulatory programs. At the federal level, Congress has considered legislation that could establish a cap and trade system for restricting greenhouse gas emissions in the United States. The ultimate outcome of this federal legislative initiative remains uncertain. In addition to pending climate legislation, the EPA has issued greenhouse gas monitoring and reporting regulations. Beyond measuring and reporting, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding that greenhouse gas pollution threatens the public health and welfare of current and future generations. The finding served as a first step to issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities. Moreover, the EPA has begun regulating greenhouse gas emission from certain facilities pursuant to the Prevention of Significant Deterioration and Title V provisions of the Clean Air Act. In the courts, several decisions have been issued that may increase the risk of claims being filed by government entities and private parties against companies that have significant greenhouse gas emissions. Such cases may seek to challenge air emissions permits that greenhouse gas emitters apply for and seek to force emitters to reduce their emissions or seek damages for alleged climate change impacts to the environment, people, and property. Any existing or future laws or regulations that restrict or reduce emissions of greenhouse gases could require Camber to incur increased operating and compliance costs. In addition, such laws and regulations may adversely affect demand for the fossil fuels Camber produces, including by increasing the cost of combusting fossil fuels and by creating incentives for the use of alternative fuels and energy.
Camber’s officers and directors have limited liability, and Camber is required in certain instances to indemnify its officers and directors for breaches of their fiduciary duties.
Camber has adopted provisions in its articles of incorporation and bylaws which limit the liability of its officers and directors and provide for indemnification by it of its officers and directors to the full extent permitted by Nevada corporate law. Camber’s articles generally provide that its officers and directors shall have no personal liability to it or its stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit Camber’s stockholders’ ability to hold officers and directors liable for breaches of fiduciary duty, and may require Camber to indemnify its officers and directors.
Camber currently has outstanding indebtedness and it may incur additional indebtedness which could reduce its financial flexibility, increase interest expense and adversely impact its operations in the future.
Camber currently has outstanding indebtedness, and in the future, may incur significant amounts of additional indebtedness in order to make acquisitions or to develop properties. Camber’s level of indebtedness could affect its operations in several ways, including the following:
| ● | a significant portion of its cash flows could be used to service its indebtedness; | |
| ● | a high level of debt would increase its vulnerability to general adverse economic and industry conditions; | |
| ● | any covenants contained in the agreements governing its outstanding indebtedness could limit its ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; |
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| ● | a high level of debt may place it at a competitive disadvantage compared to its competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that its indebtedness may prevent it from pursuing; and | |
| ● | debt covenants to which it may agree may affect its flexibility in planning for, and reacting to, changes in the economy and in its industry. |
A high level of indebtedness increases the risk that Camber may default on its debt obligations. Camber may not be able to generate sufficient cash flows to pay the principal or interest on its debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If it does not have sufficient funds and is otherwise unable to arrange financing, Camber may have to sell significant assets or have a portion of its assets foreclosed upon which could have a material adverse effect on its business, financial condition and results of operations.
Risks Relating to Camber’s Oil and Gas Operations and Industry
Camber is subject to production declines and loss of revenue due to shut-in wells.
The majority of Camber’s oil and gas production revenues come from a small number of producing wells. In the event those wells are required to be shut-in (as they were for various periods in the past), its production and revenue could be adversely affected. Camber’s wells are shut-in from time-to-time for maintenance, workovers, upgrades and other matters outside of its control, including repairs, adverse weather (including hurricanes, flooding and tropical storms), inability to dispose of produced water or other regulatory and market conditions. Any significant period where its wells, and especially its top producing wells, are shut-in, would have a material adverse effect on its results of production, oil and gas revenues and net income or loss for the applicable period. However, notwithstanding the above, Camber’s management believes that Camber’s non-operated properties will be immaterial to the combined company following the merger and following the merger the combined company’s management will determine what course to take regarding such combined company assets, including Camber’s non-operated properties.
Many of Camber’s leases are in areas that have been partially depleted or drained by offset wells.
Many of Camber’s leases are in areas that have been partially depleted or drained by offset drilling. Interference from offset drilling may inhibit its ability to find or recover commercial quantities of oil and/or may result in an acceleration in the decline in production of its wells, which may in turn have an adverse effect on its recovered barrels of oil and consequently its results of operations.
Crude oil and natural gas prices are highly volatile in general and low prices will negatively affect Camber’s financial results.
Camber’s oil and gas revenues, operating results, profitability, cash flow, future rate of growth and ability to borrow funds or obtain additional capital, as well as the carrying value of its oil and natural gas properties, are substantially dependent upon prevailing prices of crude oil and natural gas. Lower crude oil and natural gas prices also may reduce the amount of crude oil and natural gas that Camber can produce economically. Historically, the markets for crude oil and natural gas have been very volatile, and such markets are likely to continue to be volatile in the future. Prices for oil and natural gas fluctuate widely in response to a variety of factors beyond its control, such as:
| ● | overall U.S. and global economic conditions; | |
| ● | weather conditions and natural disasters; | |
| ● | seasonal variations in oil and natural gas prices; |
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| ● | price and availability of alternative fuels; | |
| ● | technological advances affecting oil and natural gas production and consumption; | |
| ● | consumer demand; | |
| ● | domestic and foreign supply of oil and natural gas; | |
| ● | variations in levels of production; | |
| ● | regional price differentials and quality differentials of oil and natural gas; price and quantity of foreign imports of oil, NGLs and natural gas; | |
| ● | the completion of large domestic or international exploration and production projects; | |
| ● | restrictions on exportation of oil and natural gas; | |
| ● | the availability of refining capacity; | |
| ● | the impact of energy conservation efforts; | |
| ● | political conditions in or affecting other oil producing and natural gas producing countries, including the current conflicts in the Middle East and conditions in South America and Russia; and | |
| ● | domestic and foreign governmental regulations, actions and taxes. |
Further, oil and natural gas prices do not necessarily fluctuate in direct relation to each other. Camber’s revenue, profitability, and cash flow depend upon the prices of supply and demand for oil and natural gas, and a drop in prices can significantly affect Camber’s financial results and impede its growth. In particular, declines in commodity prices may:
| ● | negatively impact the value of Camber’s reserves, because declines in oil and natural gas prices would reduce the value and amount of oil and natural gas that it can produce economically; | |
| ● | reduce the amount of cash flow available for capital expenditures, repayment of indebtedness, and other corporate purposes; and | |
| ● | limit Camber’s ability to borrow money or raise additional capital. |
Camber’s business and operations may be adversely affected by the recent COVID-19 pandemic or other similar outbreaks.
As a result of the recent COVID-19 outbreak or other adverse public health developments, including voluntary and mandatory quarantines, travel restrictions and other restrictions, Camber’s operations, and those of its subcontractors, customers and suppliers, have and may continue to experience delays or disruptions and temporary suspensions of operations. In addition, Camber’s financial condition and results of operations have been and may continue to be adversely affected by the coronavirus outbreak.
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The timeline and potential magnitude of the COVID-19 outbreak is currently unknown. The continuation or amplification of this virus could continue to more broadly affect the United States and global economy, including Camber’s business and operations, and the demand for oil and gas. For example, a significant outbreak of coronavirus or other contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect Camber’s operating results. In addition, the effects of COVID-19 and concerns regarding its global spread have recently negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility, impacted the price Camber receives for oil and natural gas and materially and adversely affected the demand for and marketability of Camber’s production. As the potential impact from COVID-19 is difficult to predict, the extent to which it may negatively affect Camber’s operating results or the duration of any potential business disruption is uncertain. Any impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond Camber’s control. These potential impacts, while uncertain, could adversely affect Camber’s operating results, notwithstanding the fact that the impact of COVID-19 has already negatively affected Camber’s first quarter and second quarter results of operations.
Downturns and volatility in global economies and commodity and credit markets have materially adversely affected Camber’s business, results of operations and financial condition.
Camber’s results of operations are materially adversely affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, Camber has recently been adversely impacted, and anticipates to continue to be adversely impacted, due to a global reduction in consumer demand for oil and gas, and consumer lack of access to sufficient capital to continue to operate their businesses or to operate them at prior levels. In addition, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result Camber’s results of operations.
Camber may be forced to write-down material portions of its assets if low oil prices continue.
The recent Covid-19 outbreak has led to low oil prices. A continued period of low prices may force Camber to incur material write-downs of its oil and natural gas properties, which could have a material effect on the value of its properties, and cause the value of its securities to decline in value.
Camber faces intense competition in connection with its oil and gas operations.
Camber is in direct competition for properties with numerous oil and natural gas companies, drilling and income programs and partnerships exploring various areas of Texas and Oklahoma. Many competitors are large, well-known energy companies, although no single entity dominates the industry. Many of its competitors possess greater financial and personnel resources enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than Camber. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry. Management of Camber believes that a viable marketplace exists for smaller producers of natural gas and crude oil.
Camber’s oil and gas competitors may use superior technology and data resources than it may be able to afford or that would require a costly investment by Camber in order to compete with them more effectively.
The oil and gas industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using new technologies and databases. As Camber’s competitors use or develop new technologies, Camber may be placed at a competitive disadvantage, and competitive pressures may force Camber to implement new technologies at a substantial cost. In addition, many of Camber’s competitors will have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before Camber can. Camber cannot be certain that it will be able to implement technologies on a timely basis or at a cost that is acceptable to it. One or more of the technologies that Camber will use or that it may implement in the future may become obsolete, and Camber may be adversely affected.
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Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect Camber’s ability to conduct drilling activities in some of the areas where it operates.
Oil and natural gas operations in Camber’s operating areas can be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Seasonal restrictions may limit its ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay its operations and materially increase its operating and capital costs. Permanent restrictions imposed to protect endangered species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures. Specifically, applicable laws protecting endangered species prohibit the harming of endangered or threatened species, provide for habitat protection, and impose stringent penalties for noncompliance. The designation of previously unprotected species as threatened or endangered in areas where Camber operates could cause it to incur increased costs arising from species protection measures or could result in limitations, delays, or prohibitions on Camber’s exploration and production activities that could have an adverse impact on Camber’s ability to develop and produce reserves.
If Camber does not hedge its exposure to reductions in oil and natural gas prices, it may be subject to significant reductions in prices. Alternatively, Camber may use oil and natural gas price hedging contracts, which involve credit risk and may limit future revenues from price increases and result in significant fluctuations in its profitability.
In the event that Camber chooses not to hedge its exposure to reductions in oil and natural gas prices by purchasing futures and by using other hedging strategies, Camber may be subject to significant reduction in prices which could have a material negative impact on its profitability. Alternatively, Camber may elect to use hedging transactions with respect to a portion of its oil and natural gas production to achieve more predictable cash flow and to reduce its exposure to price fluctuations. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.
Declines in oil and, to a lesser extent, NGL and natural gas prices, have in the past, and will continue in the future to, adversely affect Camber’s business, financial condition and results of operations may adversely affect Camber’s ability to meet its capital expenditure obligations or targets and financial commitments.
The price Camber receives for oil and, to a lesser extent, natural gas and NGLs, heavily influences its revenue, profitability, cash flows, liquidity, access to capital, present value and quality of reserves, the nature and scale of Camber’s operations and future rate of growth. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. In recent years, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. In general our financial results are more sensitive to movements in oil prices. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“WTI”) crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak, provided that pricing has since increased to over $30 per barrel prior to the filing of this joint proxy statement/prospectus. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect Camber’s business, financial condition and liquidity and Camber’s ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on Camber’s stock price and indebtedness. Additionally, lower oil and natural gas prices have, and may in the future, cause, a decline in Camber’s stock price. During the year ended December 31, 2019, the daily NYMEX WTI oil spot price ranged from a high of $66.24 per Bbl to a low of $46.31 per Bbl and the NYMEX natural gas Henry Hub spot price ranged from a high of $4.25 per MMBtu to a low of $1.75 per MMBtu.
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Camber’s oil and gas operations are substantially dependent on the availability of water. Restrictions on its ability to obtain water may have an adverse effect on Camber’s financial condition, results of operations and cash flows.
Water is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing, or fracking processes. Camber’s oil and gas operations and future operations could be adversely impacted if it is unable to locate sufficient amounts of water or dispose of or recycle water used in its exploration and production operations. Currently, the quantity of water required in certain completion operations, such as hydraulic fracturing, and changing regulations governing usage may lead to water constraints and supply concerns (particularly in some parts of the country). As a result, future availability of water from certain sources used in the past may be limited. Moreover, the imposition of new environmental initiatives and conditions could include restrictions on Camber’s ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and natural gas. The CWA and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants, including produced waters and other oil and natural gas waste, into navigable waters or other regulated federal and state waters. Permits or other approvals must be obtained to discharge pollutants to regulated waters and to conduct construction activities in such waters and wetlands. Uncertainty regarding regulatory jurisdiction over wetlands and other regulated waters has, and will continue to, complicate and increase the cost of obtaining such permits or other approvals. The CWA and analogous state laws provide for civil, criminal and administrative penalties for any unauthorized discharges of pollutants and unauthorized discharges of reportable quantities of oil and other hazardous substances. Many state discharge regulations, and the Federal National Pollutant Discharge Elimination System General permits issued by the EPA, prohibit the discharge of produced water and sand, drilling fluids, drill cuttings and certain other substances related to the oil and natural gas industry into coastal waters. While generally exempt under federal programs, many state agencies have also adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain permits for storm water discharges. There has been recent nationwide concern over earthquakes associated with Class II underground injection control wells, a predominant storage method for crude oil and gas wastewater. It is likely that new rules and regulations will be developed to address these concerns, possibly eliminating access to Class II wells in certain locations, and increasing the cost of disposal in others. Finally, EPA studies have previously focused on various stages of water use in hydraulic fracturing operations. It is possible that, in the future, the EPA will move to more strictly regulate the use of water in hydraulic fracturing operations. While Camber cannot predict the impact that these changes may have on its business at this time, they may be material to Camber’s business, financial condition, and operations. Compliance with environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing of wells or the disposal or recycling of water will increase Camber’s operating costs and may cause delays, interruptions or termination of its operations, the extent of which cannot be predicted. In addition, Camber’s inability to meet water supply needs to conduct its operations may impact its business, and any such future laws and regulations could negatively affect Camber’s financial condition, results of operations and cash flows.
If Camber acquires crude oil and natural gas properties in the future, its failure to fully identify existing and potential problems, to accurately estimate reserves, production rates or costs, or to effectively integrate the acquired properties into its operations could materially and adversely affect Camber’s business, financial condition and results of operations.
From time to time, Camber may seek to acquire crude oil and natural gas properties. Although Camber performs reviews of properties to be acquired in a manner that it believes is duly diligent and consistent with industry practices, reviews of records and properties may not necessarily reveal existing or potential problems, and may not permit Camber to become sufficiently familiar with the properties in order to fully assess their deficiencies and potential. Even when problems with a property are identified, Camber may assume environmental and other risks and liabilities in connection with acquired properties pursuant to the acquisition agreements. Moreover, there are numerous uncertainties inherent in estimating quantities of crude oil and natural gas reserves (as discussed further below), actual future production rates and associated costs with respect to acquired properties. Actual reserves, production rates and costs may vary substantially from those assumed in Camber’s estimates. Camber may be unable to locate or make suitable acquisitions on acceptable terms and future acquisitions may not be effectively and profitably integrated. Acquisitions involve risks that could divert management resources and/or result in the possible loss of key employees and customers of the acquired operations. For the reasons above, among others, an acquisition may have a material and adverse effect on Camber’s business and results of operations, particularly during the periods in which the operations of the acquired properties are being integrated into Camber’s ongoing operations or if Camber is unable to effectively integrate the acquired properties into its ongoing operations.
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If Camber makes any acquisitions or enters into any business combinations in the future, they may disrupt or have a negative impact on Camber’s business.
If Camber makes acquisitions or enters into any business combinations in the future, funding permitting, it could have difficulty integrating the acquired companies’ assets, personnel and operations with its own. Additionally, acquisitions, mergers or business combinations it may enter into in the future (other than the merger) could result in a change of control of Camber, and a change in the Board of Directors or officers of Camber. In addition, the key personnel of the acquired business may not be willing to work for the combined company. Camber cannot predict the effect expansion may have on its core business. Regardless of whether Camber is successful in making an acquisition or completing a business combination, the negotiations could disrupt Camber’s ongoing business, distract management and employees and increase expenses. In addition to the risks described above, acquisitions and business combinations are accompanied by a number of inherent risks, including, without limitation, the following:
| ● | the difficulty of integrating acquired companies, concepts and operations; | |
| ● | the potential disruption of the ongoing businesses and distraction of Camber’s management and the management of acquired companies; | |
| ● | change in Camber’s business focus and/or management; | |
| ● | difficulties in maintaining uniform standards, controls, procedures and policies; | |
| ● | the potential impairment of relationships with employees and partners as a result of any integration of new management personnel; | |
| ● | the potential inability to manage an increased number of locations and employees; | |
| ● | Camber’s ability to successfully manage the companies and/or concepts acquired; | |
| ● | the failure to realize efficiencies, synergies and cost savings; or | |
| ● | the effect of any government regulations which relate to the business acquired. |
Camber’s business could be severely impaired if and to the extent that it is unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition or business combination, many of which cannot be presently identified. These risks and problems could disrupt Camber’s ongoing business, distract its management and employees, increase its expenses and adversely affect its results of operations.
Any acquisition or business combination transaction Camber enters into in the future could cause substantial dilution to existing stockholders, result in one party having majority or significant control over Camber or result in a change in business focus of Camber.
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Camber’s business is subject to extensive regulation.
As many of Camber’s activities are subject to federal, state and local regulation, and as these rules are subject to constant change or amendment, Camber’s operations may be adversely affected by new or different government regulations, laws or court decisions applicable to its operations.
Government regulation and liability for environmental matters may adversely affect Camber’s business and results of operations.
Crude oil and natural gas operations are subject to extensive federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of crude oil and natural gas wells below actual production capacity in order to conserve supplies of crude oil and natural gas. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of crude oil and natural gas, byproducts thereof and other substances and materials produced or used in connection with crude oil and natural gas operations. In addition, Camber may inherit liability for environmental damages caused by previous owners of property it purchases or leases. As a result, Camber may incur substantial liabilities to third parties or governmental entities. The implementation of new, or the modification of existing, laws or regulations could have a material adverse effect on Camber.
The crude oil and natural gas reserves Camber reports in its SEC filings are estimates and may prove to be inaccurate.
There are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their estimated values. The reserves Camber reports in its filings with the SEC now and in the future will only be estimates and such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a subjective and inexact process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable crude oil and natural gas reserves depend upon a number of variable factors, such as historical production from the area compared with production from other producing areas and assumptions concerning effects of regulations by governmental agencies, future crude oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and remedial costs. Some or all of these assumptions may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and expenditures with respect to Camber’s reserves will likely vary from estimates, and such variances may be material.
Additionally, “probable” and “possible reserve estimates” are considered unproved reserves and as such, the SEC views such estimates to be inherently unreliable, may be misunderstood or seen as misleading to investors that are not “experts” in the oil or natural gas industry. Unless you have such expertise, you should not place undue reliance on these estimates. Except as required by applicable law, Camber undertakes no duty to update this information and does not intend to update this information.
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The calculated present value of future net revenues from Camber’s proved reserves will not necessarily be the same as the current market value of its estimated oil and natural gas reserves.
You should not assume that the present value of future net cash flows as included in Camber’s public filings is the current market value of its estimated proved oil and natural gas reserves. Camber generally bases the estimated discounted future net cash flows from proved reserves on current costs held constant over time without escalation and on commodity prices using an unweighted arithmetic average of first-day-of-the-month index prices, appropriately adjusted, for the 12-month period immediately preceding the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs used for these estimates and will be affected by factors such as:
| ● | actual prices it receives for oil and natural gas; | |
| ● | actual cost and timing of development and production expenditures; | |
| ● | the amount and timing of actual production; and | |
| ● | changes in governmental regulations or taxation. |
In addition, the 10% discount factor that is required to be used to calculate discounted future net revenues for reporting purposes under GAAP is not necessarily the most appropriate discount factor based on the cost of capital in effect from time to time and risks associated with Camber’s business and the oil and natural gas industry in general.
Crude oil and natural gas development, re-completion of wells from one reservoir to another reservoir, restoring wells to production and exploration, drilling and completing new wells are speculative activities and involve numerous risks and substantial and uncertain costs.
Camber’s oil and gas operations will be materially dependent upon the success of its future development program. Even considering its business philosophy to avoid wildcat wells, drilling for crude oil and natural gas and reworking existing wells involves numerous risks, including the risk that no commercially productive crude oil or natural gas reservoirs will be encountered. The cost of exploration, drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond Camber’s control, including: unexpected drilling conditions; pressure or irregularities in formations; equipment failures or accidents; inability to obtain leases on economic terms, where applicable; adverse weather conditions and natural disasters; compliance with governmental requirements; and shortages or delays in the availability of drilling rigs or crews and the delivery of equipment. Furthermore, Camber cannot provide investors with any assurance that it will be able to obtain rights to additional producing properties in the future and/or that any properties it obtains rights to will contain commercially exploitable quantities of oil and/or gas.
Drilling or reworking is a highly speculative activity. Even when fully and correctly utilized, modern well completion techniques such as hydraulic fracturing and horizontal drilling do not guarantee that Camber will find crude oil and/or natural gas in its wells. Hydraulic fracturing involves pumping a fluid with or without particulates into a formation at high pressure, thereby creating fractures in the rock and leaving the particulates in the fractures to ensure that the fractures remain open, thereby potentially increasing the ability of the reservoir to produce oil or natural gas. Horizontal drilling involves drilling horizontally out from an existing vertical well bore, thereby potentially increasing the area and reach of the well bore that is in contact with the reservoir. Camber’s future drilling activities may not be successful and, if unsuccessful, such failure would have an adverse effect on its future results of operations and financial condition. Camber’s overall drilling success rate and/or drilling success rate for activities within a particular geographic area may decline in the future. Camber may identify and develop prospects through a number of methods, some of which do not include lateral drilling or hydraulic fracturing, and some of which may be unproven. The drilling and results for these prospects may be particularly uncertain. Camber’s drilling schedule may vary from its capital budget. The final determination with respect to the drilling of any scheduled or budgeted prospects will be dependent on a number of factors, including, but not limited to: the results of previous development efforts and the acquisition, review and analysis of data; the availability of sufficient capital resources to Camber and the other participants, if any, for the drilling of the prospects; the approval of the prospects by other participants, if any, after additional data has been compiled; economic and industry conditions at the time of drilling, including prevailing and anticipated prices for crude oil and natural gas and the availability of drilling rigs and crews; its financial resources and results; the availability of leases and permits on reasonable terms for the prospects; and the success of Camber’s drilling technology.
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These projects may not be successfully developed and the wells discussed, if drilled, may not encounter reservoirs of commercially productive crude oil or natural gas. There are numerous uncertainties in estimating quantities of proved reserves, including many factors beyond Camber’s control. If Camber is unable to find commercially exploitable quantities of oil and natural gas in any properties it may acquire in the future, and/or Camber is unable to commercially extract such quantities it may find in any properties it may acquire in the future, the value of Camber’s securities may decline in value.
Unless Camber replaces its oil and natural gas reserves, its reserves and production will decline, which would adversely affect Camber’s business, financial condition and results of operations.
The rate of production from Camber’s oil and natural gas properties will decline as its reserves are depleted. Camber’s future oil and natural gas reserves and production and, therefore, its income and cash flow, are highly dependent on Camber’s success in (a) efficiently developing and exploiting its current reserves on properties owned by Camber or by other persons or entities and (b) economically finding or acquiring additional oil and natural gas properties. In the future, Camber may have difficulty acquiring new properties. During periods of low oil and/or natural gas prices, it will become more difficult to raise the capital necessary to finance expansion activities. If Camber is unable to replace its production, its reserves will decrease, and its business, financial condition and results of operations would be adversely affected.
The unavailability or high cost of drilling rigs, completion equipment and services, supplies and personnel, including hydraulic fracturing equipment and personnel, could adversely affect Camber’s ability to establish and execute exploration and development plans within budget and on a timely basis, which could have a material adverse effect on Camber’s business, financial condition and results of operations.
Shortages or the high cost of drilling rigs, completion equipment and services, supplies or personnel could delay or adversely affect Camber’s operations. When drilling activity in the United States increases, associated costs typically also increase, including those costs related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. These costs may increase, and necessary equipment and services may become unavailable to Camber at economical prices. Should this increase in costs occur, Camber may delay drilling activities, which may limit its ability to establish and replace reserves, or Camber may incur these higher costs, which may negatively affect its business, financial condition and results of operations.
Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
Hydraulic fracturing is a common practice that is used to stimulate production of hydrocarbons from tight formations. The process involves the injection of water, sand and chemicals under pressure into rock formations to fracture the surrounding rock and stimulate production. There has been increasing public controversy regarding hydraulic fracturing with regard to the transportation and use of fracturing fluids, impacts on drinking water supplies, use of waters, and the potential for impacts to surface water, groundwater, air quality and the environment generally. A number of lawsuits and enforcement actions have been initiated implicating hydraulic fracturing practices. Additional legislation or regulation could make it more difficult to perform hydraulic fracturing, cause operational delays, increase Camber’s operating costs or make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings. New legislation or regulations in the future could have the effect of prohibiting the use of hydraulic fracturing, which would prevent Camber from completing wells as planned and would have a material adverse effect on production from Camber’s wells. If these legislative and regulatory initiatives cause a material delay or decrease in Camber’s drilling or hydraulic fracturing activities, Camber’s business and profitability could be materially impacted.
The lack of availability or high cost of drilling rigs, equipment, supplies, insurance, personnel and oilfield services could adversely affect Camber’s ability to execute its exploration and development plans on a timely basis and within budget.
The oil and gas industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and supplies tend to increase, in some cases substantially. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases within a geographic area. If increasing levels of exploration and production result in response to strong prices of oil and natural gas, the demand for oilfield services will likely rise, and the costs of these services will likely increase, while the quality of these services may suffer. The future lack of availability or high cost of drilling rigs, as well as any future lack of availability or high costs of other equipment, supplies, insurance or qualified personnel, in the areas in which Camber operates could materially and adversely affect Camber’s business and results of operations.
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Camber’s oil and gas properties are located in Texas, making it vulnerable to risks associated with operating in one major geographic area.
All of Camber’s oil and gas properties are located in Texas. As a result, Camber may be disproportionately exposed to the impact of delays or interruptions of production from wells caused by transportation capacity constraints, curtailment of production, availability of equipment, facilities, personnel or services, significant governmental regulation, natural disasters, adverse weather conditions, or interruption of transportation of oil or natural gas produced from the wells in this area. In addition, the effect of fluctuations on supply and demand may become more pronounced within specific geographic oil and gas producing areas such as the ones Camber operates in, which may cause these conditions to occur with greater frequency or magnify the effect of these conditions. Due to the concentrated nature of Camber’s portfolio, a number of its properties could experience any of the same conditions at the same time, resulting in a relatively greater impact on its results of operations than they might have on other companies that have a more diversified portfolio of properties. Such delays or interruptions could have a material adverse effect on Camber’s financial condition and results of operations.
Future acquired properties may not be worth what Camber pays, due to uncertainties in evaluating recoverable reserves and other expected benefits, as well as potential liabilities.
Successful property acquisitions require an assessment of a number of factors beyond Camber’s control. These factors include estimates of recoverable reserves, exploration potential, future natural gas and oil prices, operating costs, production taxes and potential environmental and other liabilities. These assessments are complex and inherently imprecise. Camber’s review of the properties it acquires may not reveal all existing or potential problems. In addition, Camber’s review may not allow it to fully assess the potential deficiencies of the properties. Camber does not inspect every well, and even when it does inspect a well it may not discover structural, subsurface, or environmental problems that may exist or arise. There may be threatened or contemplated claims against the assets or businesses it acquires related to environmental, title, regulatory, tax, contract, litigation or other matters of which camber is unaware, which could materially and adversely affect production, revenues and results of operations. Camber may not be entitled to contractual indemnification for pre-closing liabilities, including environmental liabilities, and its contractual indemnification may not be effective. At times, Camber acquires interests in properties on an “as is” basis with limited representations and warranties and limited remedies for breaches of such representations and warranties. In addition, significant acquisitions can change the nature of Camber’s operations and business if the acquired properties have substantially different operating and geological characteristics or are in different geographic locations than its existing properties.
Camber has limited control over activities in properties it does not operate, which could reduce its production and revenues, affect the timing and amounts of capital requirements and potentially result in a dilution of its respective ownership interest in the event it is unable to make any required capital contributions.
Camber does not currently operate any of the wells in which it has an interest. As a result, it may have a limited ability to exercise influence over normal operating procedures, expenditures or future development of underlying properties and their associated costs. For all of the properties that are operated by others, it is dependent on their decision-making with respect to day-to-day operations over which it has little control. The failure of an operator of wells in which it has an interest to adequately perform operations, or an operator’s breach of applicable agreements, could reduce production and revenues it receives from that well. The success and timing of Camber’s drilling and development activities on properties operated by others depend upon a number of factors outside of its control, including the timing and amount of capital expenditures, the available expertise and financial resources, the inclusion of other participants and the use of technology. Since Camber does not own the majority interest in many of the wells it does not operate, it may not be in a position to remove the operator in the event of poor performance.
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Risks Relating Ownership of Camber’s Securities
If Camber is unable to maintain compliance with NYSE American continued listing standards, its common stock may be delisted from the NYSE American equities market, which would likely cause the liquidity and market price of its common stock to decline.
Camber’s common stock is currently listed on the NYSE American. The NYSE American will consider suspending dealings in, or delisting, securities of an issuer that do not meet its continued listing standards. If it cannot meet the NYSE American continued listing requirements, the NYSE American may delist its common stock, which could have an adverse impact on Camber and the liquidity and market price of its stock.
On February 24, 2020, Camber received notice from the NYSE American (the “Exchange”) that Camber was not in compliance with certain of the Exchange’s continued listing standards as set forth in Part 10 of the NYSE American Company Guide (the “Company Guide”). Specifically, because Camber reported stockholders’ equity of $3.1 million as of December 31, 2019 and net losses in three of its four most recent fiscal years then ended, Camber did not comply with Section 1003(a)(ii) of the Company Guide because it had stockholders’ equity of less than $4,000,000 and reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. In order to maintain its listing on the Exchange, the Exchange requested Camber submit a plan of compliance (the “Plan”) by March 25, 2020 addressing how Camber intended to regain compliance with Section 1003(a)(ii) of the Company Guide by August 24, 2021, which plan was submitted and accepted. During the plan period, Camber is able to continue its listing and will be subject to continued periodic review by the Exchange staff. If Camber does not make progress consistent with the Plan during the plan period, Camber will be subject to delisting procedures as set forth in the Company Guide.
It is a required condition to the closing of the merger that in the event the Exchange determines that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, which we expect that it will, Camber (and its common stock) will qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the Exchange.
Camber may be unable to comply with NYSE American continued listing standards. Camber’s business has been and may continue to be affected by worldwide macroeconomic factors, which include uncertainties in the credit and capital markets. External factors that affect its stock price, such as liquidity requirements of its investors, as well as its performance, could impact its market capitalization, revenue and operating results, which, in turn, could affect its ability to comply with the NYSE American’s listing standards. The NYSE American has the ability to suspend trading in its common stock or remove its common stock from listing on the NYSE American if in the opinion of the exchange: (a) the financial condition and/or operating results of Camber appear to be unsatisfactory; or (b) it appears that the extent of public distribution or the aggregate market value of its common stock has become so reduced as to make further dealings on the exchange inadvisable; or (c) it has sold or otherwise disposed of its principal operating assets, or has ceased to be an operating company; or (d) it has failed to comply with its listing agreements with the exchange (which include requiring additional listing approval from the exchange prior to issuing any shares of common stock, something Camber has inadvertently failed to comply with in the past); or (e) any other event shall occur or any condition shall exist which makes further dealings on the exchange unwarranted.
In the past Camber has been out of compliance with the NYSE American’s continued listing standards which (a) require a listed company to maintain shareholders’ equity of more than $2 - $6 million, depending on the prior years of net losses experienced by the listed company; and (b) require a listed company to maintain an average trading price for its securities which exceeds $0.20 per share, for each 30 day rolling period. While it has cured such prior non-compliance, as discussed above, Camber is currently not in compliance with the Exchange’s continued listing rules. Notwithstanding that, Camber expects that upon completion of the merger it will once again regain compliance with the NYSE American listing standards and the parties anticipate Camber being able to meet the initial listing standards of the Exchange prior to the closing of the merger, which is a condition to closing the merger.
If Camber is unable to maintain compliance with the NYSE American criteria for continued listing, its common stock would be subject to delisting. A delisting of its common stock could negatively impact it by, among other things, reducing the liquidity and market price of its common stock and reducing the number of investors willing to hold or acquire its common stock, which could negatively impact its ability to raise equity financing. In addition, delisting from the NYSE American might negatively impact its reputation and, as a consequence, its business. Additionally, if Camber were delisted from the NYSE American and it was not able to list its common stock on another national exchange, it would no longer be eligible to use Form S-3 registration statements (provided that Camber is currently not eligible to use Form S-3 until approximately October 2020 due to a late Form 8-K which was due in September 2019) and will instead be required to file a Form S-1 registration statement for any primary or secondary offerings of common stock, which would delay its ability to raise funds in the future, may limit the type of offerings of common stock its could undertake, and would increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC review and comments whereas take downs pursuant to a previously filed Form S-3 are not.
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If Camber is delisted from the NYSE American, your ability to sell your shares of common stock of Camber would also be limited by the penny stock restrictions, which could further limit the marketability of your shares.
If Camber’s common stock is delisted from the NYSE American, it would come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell Camber’s securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit Camber’s ability to raise additional capital in the future.
Camber does not intend to pay cash dividends to stockholders.
Camber currently anticipates that it will retain all future earnings, if any, to finance the growth and development of its business. Camber does not intend to pay cash dividends in the foreseeable future. Any payment of cash dividends will depend upon its financial condition, capital requirements, earnings and other factors deemed relevant by its Board of Directors. As a result, only appreciation of the price of Camber’s common stock, which may not occur, will provide a return to stockholders.
Camber currently has a volatile market for its common stock, and the market for its common stock is and may remain volatile in the future.
Camber currently has a highly volatile market for its common stock, which market is anticipated to remain volatile in the future. Factors that could affect Camber’s stock price or result in fluctuations in the market price or trading volume of its common stock include:
| ● | its actual or anticipated operating and financial performance and drilling locations, including reserve estimates; | |
| ● | quarterly variations in the rate of growth of its financial indicators, such as net income/loss per share, net income/loss and cash flows, or those of companies that are perceived to be similar to Camber; | |
| ● | changes in revenue, cash flows or earnings estimates or publication of reports by equity research analysts; | |
| ● | speculation in the press or investment community; | |
| ● | public reaction to Camber’s press releases, announcements and filings with the SEC; |
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| ● | sales of Camber’s common stock by Camber or other stockholders, or the perception that such sales may occur; | |
| ● | the amount of Camber’s freely tradable common stock available in the public marketplace; | |
| ● | general financial market conditions and oil and natural gas industry market conditions, including fluctuations in commodity prices; | |
| ● | the realization of any of the risk factors that it is subject to; | |
| ● | the recruitment or departure of key personnel; | |
| ● | commencement of, or involvement in, litigation; | |
| ● | the prices of oil and natural gas; | |
| ● | the success of Camber’s exploration and development operations, and the marketing of any oil and natural gas it produces; | |
| ● | changes in market valuations of companies similar to Camber; and | |
| ● | domestic and international economic, legal and regulatory factors unrelated to Camber’s performance. |
Camber’s common stock is listed on the NYSE American under the symbol “CEI.” Camber’s stock price may be impacted by factors that are unrelated or disproportionate to Camber’s operating performance. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of Camber’s common stock. Additionally, general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of Camber’s common stock. Due to the limited volume of Camber’s shares which trade, it believes that its stock prices (bid, ask and closing prices) may not be related to its actual value, and not reflect the actual value of its common stock. You should exercise caution before making an investment in Camber.
A prolonged decline in the market price of Camber’s common stock could affect its ability to obtain additional financing which would adversely affect its operations.
Historically, Camber has relied on equity and debt financing as primary sources of financing. A prolonged decline in the market price of its common stock or a reduction in its accessibility to the global markets may result in its inability to secure additional financing which would have an adverse effect on Camber’s operations.
Nevada law and Camber’s articles of incorporation authorize Camber to issue shares of stock which shares may cause substantial dilution to its existing stockholders.
Camber has authorized capital stock consisting of 25,000,000 shares of common stock, $0.001 par value per share (which will increase to 250,000,000 shares in the event the Camber charter amendment is approved by stockholders at the meeting) and 10,000,000 shares of preferred stock, $0.001 par value per share. As of May 29, 2020, Camber had 7,758,103 shares of common stock outstanding (prior to taking into account the Camber reverse stock split, in the event the Camber reverse split proposal is approved and such Camber reverse stock split is authorized by the board of directors and becomes effective) and [2,566] shares of Series C Preferred Stock outstanding (each as described in greater detail below under “Description of Camber Capital Stock”, beginning on page 195). As a result, Camber’s Board of Directors has the ability to issue a large number of additional shares of common stock without stockholder approval, subject to the requirements of the NYSE American (which generally require stockholder approval for any transactions which would result in the issuance of more than 20% of its then outstanding shares of common stock or voting rights representing over 20% of its then outstanding shares of stock), which if issued could cause substantial dilution to Camber’s then stockholders. Shares of additional preferred stock may also be issued by Camber’s Board of Directors without stockholder approval, with voting powers and such preferences and relative, participating, optional or other special rights and powers as determined by its Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by its Board of Directors which cause the holders to have majority voting power over its shares, provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of its common stock, which may cause substantial dilution to its then common stock stockholders and/or have other rights and preferences greater than those of its common stock stockholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to its existing stockholders. Additionally, the dilutive effect of any preferred stock which Camber may issue may be exacerbated given the fact that such preferred stock may have super voting rights and/or other rights or preferences which could provide the preferred stockholders with substantial voting control over Camber subsequent to the date of this joint proxy statement/prospectus and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or Preferred Stock may cause the value of Camber’s securities to decrease and/or become worthless.
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Stockholders may be diluted significantly through Camber’s efforts to obtain financing and/or satisfy obligations through the issuance of additional shares of Camber’s common stock.
Wherever possible, Camber’s Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, Camber believes that the non-cash consideration will consist of shares of its common stock. Subject to certain consent rights of Discover, Camber’s Board of Directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued shares of common stock (subject to NYSE American rules which limit among other things, the number of shares Camber can issue without stockholder approval to no more than 20% of Camber’s outstanding shares of common stock, subject to certain exceptions). These actions will result in dilution of the ownership interests of existing stockholders, and that dilution may be material.
If persons engage in short sales of Camber’s common stock, including sales of shares to be issued upon exercise of its outstanding warrants, convertible debentures and preferred stock, the price of Camber’s common stock may decline.
Selling short is a technique used by a stockholder to take advantage of an anticipated decline in the price of a security. In addition, holders of options, warrants and other convertible securities will sometimes sell short knowing they can, in effect, cover through the exercise or conversion of options, warrants and other convertible securities, thus locking in a profit. A significant number of short sales or a large volume of other sales within a relatively short period of time can create downward pressure on the market price of a security. Further sales of common stock issued upon exercise or conversion of options, warrants and other convertible securities could cause even greater declines in the price of Camber’s common stock due to the number of additional shares available in the market upon such exercise/conversion, which could encourage short sales that could further undermine the value of Camber’s common stock. You could, therefore, experience a decline in the value of your investment as a result of short sales of Camber’s common stock.
The market price for Camber’s common stock may be volatile, and its stockholders may not be able to sell common stock at a favorable price or at all.
Many factors could cause the market price of Camber’s common stock to rise and fall, including: actual or anticipated variations in its quarterly results of operations; changes in market valuations of companies in its industry; changes in expectations of future financial performance; fluctuations in stock market prices and volumes; issuances of dilutive common stock or other securities in the future; the addition or departure of key personnel; announcements by Camber or its competitors of acquisitions, investments or strategic alliances; and the increase or decline in the price of oil and natural gas.
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Substantial sales of Camber’s common stock, or the perception that such sales might occur, could depress the market price of Camber’s common stock.
Camber cannot predict whether future issuances of its common stock or resales in the open market will decrease the market price of its common stock. The impact of any such issuances or resales of its common stock on Camber’s market price may be increased as a result of the fact that its common stock is thinly, or infrequently, traded. The exercise of any options that Camber has or that it may grant to directors, executive officers and other employees in the future, the issuance of common stock in connection with acquisitions and other issuances of its common stock (including shares previously registered in its registration statements and prospectus supplements, and/or in connection with future registration statements or prospectus supplements) could have an adverse effect on the market price of Camber’s common stock. In addition, future issuances of common stock may be dilutive to existing stockholders. Any sales of substantial amounts of common stock in the public market, or the perception that such sales might occur, could lower the market price of Camber’s common stock.
Camber incurs significant costs as a result of operating as a fully reporting publicly traded company and its management is required to devote substantial time to compliance initiatives.
Camber incurs significant legal, accounting and other expenses in connection with its status as a fully reporting public company. Specifically, it is required to prepare and file annual, quarterly and current reports, proxy statements and other information with the SEC. Additionally, Camber’s officers, directors and significant stockholders are required to file Forms 3, 4 and 5 and Schedules 13D/G with the SEC disclosing their ownership of Camber and changes in such ownership. Furthermore, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. In addition, the Sarbanes-Oxley Act requires, among other things, that Camber maintains effective internal controls for financial reporting and disclosure of controls and procedures. The costs and expenses of compliance with SEC rules and Camber’s filing obligations with the SEC, or its identification of deficiencies in its internal controls over financial reporting that are deemed to be material weaknesses, could materially adversely affect Camber’s results of operations or cause the market price of its stock to decline in value.
Securities analyst coverage or lack of coverage may have a negative impact on Camber’s common stock’s market price.
The trading market for Camber’s common stock will depend, in part, on the research and reports that securities or industry analysts publish about Camber or its business. Camber does not have any control over these analysts. If securities or industry analysts stop their coverage of Camber or additional securities and industry analysts fail to cover Camber in the future, the trading price for Camber’s common stock would be negatively impacted. If any analyst or analysts who cover Camber downgrade its common stock, change their opinion of its shares or publish inaccurate or unfavorable research about Camber’s business, Camber’s stock price would likely decline. If any analyst or analysts cease coverage of Camber or fails to publish reports on Camber regularly, demand for Camber’s common stock could decrease and it could lose visibility in the financial markets, which could cause its stock price and trading volume to decline.
Due to the fact that Camber’s common stock is listed on the NYSE American, it is subject to financial and other reporting and corporate governance requirements which increase its cost and expenses.
Camber is currently required to file annual and quarterly information and other reports with the SEC that are specified in Sections 13 and 15(d) of the Exchange Act. Additionally, due to the fact that Camber’s common stock is listed on the NYSE American, it is also subject to the requirements to maintain independent directors, comply with other corporate governance requirements and is required to pay annual listing and stock issuance fees. These obligations require a commitment of additional resources including, but not limited, to additional expenses, and may result in the diversion of Camber’s senior management’s time and attention from its day-to-day operations. These obligations increase its expenses and may make it more complicated or time consuming for it to undertake certain corporate actions due to the fact that it may require the approval of the NYSE American for such transactions and/or NYSE American rules may require Camber to obtain stockholder approval for such transactions.
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You may experience future dilution as a result of future equity offerings or other equity issuances.
Camber may in the future issue additional shares of its common stock or other securities convertible into or exchangeable for its common stock.
Risks Relating to Camber’s Series C Preferred Stock
The full amount of premiums, interest and dividends through the maturity date of the Series C Preferred Stock is due upon the repayment/redemption (where applicable), or conversion, as applicable, of the Series C Preferred Stock.
The Series C Preferred Stock provides that all applicable dividends, which initially accrued in the amount of 24.95% per annum and which increase or decrease subject to the terms of the Series C Preferred Stock, based on among other things, the trading price of Camber’s common stock, up to a maximum of 34.95% per annum, are due upon conversion or repayment/redemption (where applicable) thereof, for the full seven year term of such securities.
The requirement that Camber pay all premiums, interest and dividends through maturity and the adjustable nature of such premium, interest and dividend rates, may force it to issue Discover significant additional shares of common stock, which may cause significant dilution to existing stockholders. The requirement that Camber pay all premiums, interest and dividends through maturity may make it too costly for it to repay or redeem, as applicable, Discover’s securities, prior to conversion thereof, as applicable.
The number of shares of common stock issuable in consideration for premiums, interest and dividends through maturity on the Series C Preferred Stock continue to be adjustable after the conversion of such securities.
Pursuant to the terms of the Series C Preferred Stock, the conversion rate of such securities in connection with the premiums and dividends due on such securities through maturity (7 years, regardless of when converted), continues to be adjustable after the issuance of such securities. Specifically, such securities remain adjustable, based on a discount to the lowest daily volume weighted average price during a measuring period for a period of 30 or 60 days (depending on whether or not a Triggering Event has occurred) after the applicable number of shares stated in the initial conversion notice have actually been received into Discover’s designated brokerage account in electronic form and fully cleared for trading (subject to certain extensions described in the applicable securities). Because Discover is limited to holding not more than 9.99% of Camber’s common stock upon exercise/conversion of any security, Discover will not receive all of the shares due upon any conversion, until it has sold shares and been issued additional shares and as such, the beginning date for the applicable 30 or 60 day period after conversion is impossible to determine and may be a significant additional number of days after the initial conversion by Discover.
In the event of a decrease in Camber’s stock price during the applicable measuring periods, the conversion rate of the premiums and dividends due on such applicable securities will adjust downward and Discover will be due additional shares of common stock, which issuances may cause further significant dilution to existing stockholders and the sale of such shares may cause the value of Camber’s common stock to decline in value. Furthermore, it is likely that the sale by Discover of the shares of common stock which Discover receives in connection with any conversion, during the applicable measuring period, will cause the value of Camber’s common stock to decline in value and the conversion rate to decrease and will result in Discover being due additional shares of common stock during the measuring period, which will trigger additional decreases in the value of Camber’s common stock upon further public sales by Discover. If this were to occur, Discover would be entitled to receive an increasing number of shares, upon conversion of the remaining securities, which could then be sold, triggering further price declines and conversions for even larger numbers of shares, which would cause additional dilution to its existing stockholders and would likely cause the value of its common stock to decline.
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The issuance of common stock upon conversion of the Series C Preferred Stock will cause immediate and substantial dilution.
The issuance of common stock upon conversion of the Series C Preferred Stock will result in immediate and substantial dilution to the interests of other stockholders. Although Discover may not receive shares of common stock exceeding 9.99% of its outstanding shares of common stock immediately after affecting such conversion, this restriction does not prevent Discover from receiving shares up to the 9.99% limit, selling those shares, and then receiving the rest of the shares it is due, in one or more tranches, while still staying below the 9.99% limit. If Discover chooses to do this, it will cause substantial dilution to the then holders of its common stock. Additionally, the continued sale of shares issuable upon successive conversions will likely create significant downward pressure on the price of its common stock as Discover sells material amounts of Camber’s common stock over time and/or in a short period of time. This could place further downward pressure on the price of its common stock and in turn result in Discover receiving an ever increasing number of additional shares of common stock upon conversion of its securities, and adjustments thereof, which in turn will likely lead to further dilution, reductions in the exercise/conversion price of Discover’s securities and even more downward pressure on its common stock, which could lead to its common stock becoming devalued or worthless.
Camber is limited in its ability to undertake subsequent financings.
On and effective February 3, 2020, Camber and Discover entered into a Stock Purchase Agreement (the “2020 Purchase Agreement”). Pursuant to the 2020 Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, Camber agreed that, except as contemplated in connection with the merger, it would not issue or enter into or amend an agreement pursuant to which it may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price; or issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (a) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (b) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of Camber or the market for the common stock. These restrictions may make it more costly for Camber to raise funding in the future or may limit its ability to raise funding, which could force it to curtail its business plan or prohibit Camber from taking advantage of an attractive investment, acquisition or drilling activities, all of which could have a negative effect on the value of its common stock and its near-term or long-term prospects.
Discover holds an approximately [$44.8] million liquidation preference in Camber.
Each share of Series C Preferred Stock held by Discover includes a liquidation preference, payable to Discover upon any liquidation, dissolution or winding up of Camber, whether voluntary or involuntary, after payment or provision for payment of debts and other liabilities of Camber, prior to any distribution or payment made to the holders of preferred stock or common stock, by reason of their ownership thereof equal to $10,000, plus an amount equal to any accrued but unpaid dividends thereon. Because the dividends currently require that interest be paid on the Face Value of between 24.95% and 34.95% per annum, for the entire seven year term of the Series C Preferred Stock (even if payable sooner than seven years after the issuance date), the total liquidation value required to be paid to Discover upon a liquidation, dissolution or winding up of Camber is approximately [$44.8] million as of the date of this joint proxy statement/prospectus. As referenced above, this liquidation preference would be payable prior to any amount being distributed to the holders of its common stock. Because Camber’s net assets total significantly less than $[44.8] million, it is likely that its common stockholders would not receive any amount in the event Camber was liquidated, dissolved or wound up, and that Discover would instead receive the entire amount of available funds after liquidation.
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Discover effectively has the ability to consent to any material transaction involving Camber including the merger.
Due to the restrictions placed on Camber as a result of the Series C Preferred Stock, including, but not limited to the significant liquidation preference discussed above, Discover has to effectively consent to any material transaction involving Camber, including the merger; provided that the consent of Discover is also a condition to closing the merger. In the event Discover does not consent to any such transaction, it may be prohibited (either effectively or otherwise) from completing a material transaction in the future, including, but not limited to a combination or acquisition which may be accretive to stockholders. Furthermore, Discover may condition the approval of a future transaction, which conditions may not be favorable to stockholders. It is contemplated that Discover will need to consent to the terms of the merger in connection with the completion for the merger, for the merger to close. As such, in the event Discover fails to approve the merger, it is likely the merger won’t be able to move forward and will be terminated.
Discover, subject to applicable contractual restrictions, and/or a third party, may sell short Camber’s common stock, which could have a depressive effect on the price of its common stock.
Discover is currently prohibited from selling Camber’s stock short; however, in the event a trigger event occurs under the Series C Preferred Stock such restriction is waived. Additionally, nothing prohibits a third party from selling Camber’s common stock short based on their belief that due to the dilution caused by the conversions/exercises of the securities held by Discover, that the trading price of Camber’s common stock will decline in value. The significant downward pressure on the price of its common stock as Discover sells material amounts of its common stock could encourage investors to short sell its common stock. This could place further downward pressure on the price of its common stock and in turn result in Discover receiving additional shares of common stock upon exercise/conversion of its securities, and adjustments thereof.
The Shares of Series C Preferred Stock sold pursuant to the February 2020 Purchase Agreement include the obligation for Camber to redeem such shares under certain circumstances.
Camber agreed pursuant to the 2020 Purchase Agreement 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), which date is currently June 30, 2020, but which may be extended until December 31, 2020, in the event that Camber has not fully resolved SEC comments on the Form S-4 or other SEC filings related to the merger, and Camber is responding to such comments in a reasonable fashion, subject to certain exceptions, and if the $5 million of funds loaned by Camber to Viking in connection with the Secured Note, as discussed below under “Agreements Related to the Merger” beginning on page 185, plus any applicable interest is returned to Camber by Viking, Camber is required, at Discover’s option in its sole and absolute discretion, to immediately repurchase from Discover all then outstanding Series C Preferred Stock shares acquired by Discover pursuant to the February 2020 Purchase Agreement, by paying to Discover 110% of the aggregate face value of all such shares ($5,775,000). Viking also agreed pursuant to the merger agreement to pay Camber the difference, if any, between the amount Camber is repaid pursuant to the terms of the Secured Note and the amount Camber owes to Discover in connection with such required redemption. The required redemption of the Series C Preferred Stock, if legally authorized under Nevada law, could reduce the amount of cash Camber has available for working capital and could require Camber to raise additional funding in the future.
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Because the conversion discounts related to the conversion premiums payable in connection with the Series C Preferred Stock are fixed, and not based on percentages, the percentage of such discounts increase as Camber’s stock price declines.
As described above, the conversion rate of such premiums and dividends payable on the Series C Preferred Stock equals 95% of the average of the lowest 5 individual daily volume weighted average prices during the Measuring Period, not to exceed 100% of the lowest sales prices on the last day of the Measuring Period (the “Non-Triggering Event Percentage Discounted VWAP”), less $0.05 per share of common stock, unless a triggering event (described in the Series C Preferred Stock Designation) has occurred, in which case the conversion rate equals 85% of the lowest daily volume weighted average price during the Measuring Period (the “Triggering Event Percentage Discounted VWAP” and together with the Non-Triggering Event Percentage Discounted WWAP, as applicable, the “Percentage Discounted WWAP”), less $0.10 per share of common stock, not to exceed 85% of the lowest sales prices on the last day of such Measuring Period, less $0.10 per share. Because the $0.05 and $0.10 discounts (the “Fixed Conversion Discounts”) which apply to the already discounted Percentage Discounted VWAPs are fixed, the percentage of such discounts increase as the value of its common stock decreases. For example, see the table below:
| $0.05
Discount to Percentage Discounted VWAP |
$0.10
Discount to Percentage Discounted VWAP |
|||||||||||||||||||||
| Percentage Discounted VWAP |
Conversion Price* |
Percentage
of Discount ($0.05) Compared to Percentage Discounted VWAP |
Percentage Discounted VWAP |
Conversion Price* |
Percentage
of Discount ($0.10) Compared to Percentage Discounted VWAP |
|||||||||||||||||
| $ | 2.00 | $ | 1.95 | 2.5 | % | $ | 2.00 | $ | 1.90 | 5.0 | % | |||||||||||
| $ | 1.75 | $ | 1.70 | 2.9 | % | $ | 1.75 | $ | 1.65 | 5.7 | % | |||||||||||
| $ | 1.50 | $ | 1.45 | 3.3 | % | $ | 1.50 | $ | 1.40 | 6.7 | % | |||||||||||
| $ | 1.25 | $ | 1.20 | 4.0 | % | $ | 1.25 | $ | 1.15 | 8.0 | % | |||||||||||
| $ | 1.00 | $ | 0.95 | 5.0 | % | $ | 1.00 | $ | 0.90 | 10.0 | % | |||||||||||
| $ | 0.75 | $ | 0.70 | 6.7 | % | $ | 0.75 | $ | 0.65 | 13.3 | % | |||||||||||
| $ | 0.50 | $ | 0.45 | 10.0 | % | $ | 0.50 | $ | 0.40 | 20.0 | % | |||||||||||
| $ | 0.25 | $ | 0.20 | 20.0 | % | $ | 0.25 | $ | 0.15 | 40.0 | % | |||||||||||
| $ | 0.10 | $ | 0.05 | 50.0 | % | $ | 0.10 | $ | 0.001 | 99.0 | % | |||||||||||
| $ | 0.05 | $ | 0.001 | 98.0 | % | $ | 0.05 | $ | 0.001 | 98.0 | % | |||||||||||
* Minimum conversion price is $0.001 per share (the par value of the common stock).
As a result, as shown above, as the trading price of Camber’s common stock decreases in value, the percentage discount to the Percentage Discounted VWAP which each further $0.05/$0.10 discount results in, increases exponentially, and in certain cases may result in the ultimate conversion price being less than 0, which would result in a conversion price of $0.001 per share, the par value of Camber’s common stock, and the minimum conversion price which the Series C Preferred Stock is convertible at.
The effects of the Fixed Conversion Discounts will be further exacerbated in the event of a reverse stock split of Camber’s outstanding common stock. For example, if in the future Camber completes a 1-for-25 reverse stock split of Camber’s outstanding shares of common stock, the $0.05/$0.10 Fixed Conversion Discounts will be automatically adjusted to equal a fixed conversion discount to the Percentage Discounted VWAP of $1.25/$2.50 per share, which will likely result in a conversion price significantly below such values, and any decrease in the Percentage Discounted VWAP below $1.25/$2.50 per share, will result in a conversion price of the Series C Preferred Stock of $0.001 per share.
Risks Relating to Viking’s Oil and Gas Operations
Oil and gas price fluctuations in the market may adversely affect the results of Viking’s operations.
Viking’s profitability, cash flows and the carrying value of its oil and natural gas properties are highly dependent upon the market prices of oil and natural gas. A significant portion of Viking’s sales of oil and natural gas, if any, are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts. Accordingly, the prices received for Viking’s oil and natural gas production are dependent upon numerous factors beyond its control. These factors include the level of consumer product demand, governmental regulations and taxes, the price and availability of alternative fuels, the level of foreign imports of oil and natural gas and the overall economic environment.
Historically, the oil and natural gas markets have proven cyclical and volatile as a result of factors that are beyond Viking’s control. Any additional declines in oil and natural gas prices or any other unfavorable market conditions could have a material adverse effect on Viking’s financial condition.
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Actual quantities of recoverable oil and gas reserves and future cash flows from those reserves most likely will vary from Viking’s estimates.
Estimating accumulations of oil and gas is complex. The process relies on interpretations of available geological, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions, some of which are mandated by the SEC, such as oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:
| • | the quality and quantity of available data; | |
| • | the interpretation of that data; | |
| • | the accuracy of various mandated economic assumptions; and | |
| • | the judgment of the persons preparing the estimate. |
Estimates of proved reserves prepared by others might differ materially from Viking’s estimates. Actual quantities of recoverable oil and gas reserves, future production, oil and gas prices, revenues, taxes, development expenditures and operating expenses most likely will vary from Viking’s estimates. Any significant variance could materially affect the quantities and net present value of Viking’s reserves. In addition, Viking may adjust estimates of proved reserves to reflect production history, results of exploration and development and prevailing oil and gas prices. Viking’s reserves also may be susceptible to drainage by operators on adjacent properties.
Viking’s operations will require significant expenditures of capital that may not be recovered.
Viking requires significant expenditures of capital to locate and develop producing properties and to drill exploratory and exploitation wells. In conducting exploration, exploitation and development activities for a particular well, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause Viking’s exploration, exploitation, development and production activities to be unsuccessful, potentially resulting in abandonment of the well. This could result in a total loss of Viking’s investment. In addition, the cost and timing of drilling, completing and operating wells is difficult to predict.
Compliance with, or breach of, environmental laws can be costly and could limit Viking’s operations.
Viking’s operations are subject to numerous and frequently changing laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Any properties Viking owns for the exploration and production of oil and gas and the wastes disposed on these properties may be subject to the Comprehensive Environmental Response, Compensation and Liability Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, and similar state laws. Under such laws, Viking could be required to remove or remediate previously released wastes or property contamination. Laws and regulations protecting the environment have generally become more stringent and may, in some cases, impose “strict liability” for environmental damage. Strict liability means that Viking may be held liable for damage without regard to whether Viking was negligent or otherwise at fault. Environmental laws and regulations may expose Viking to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. Failure to comply with these laws and regulations may result in the imposition of administrative, civil and criminal penalties.
Although Viking believes that its operations are in substantial compliance with existing requirements of governmental bodies, Viking’s ability to conduct continued operations is subject to satisfying applicable regulatory and permitting controls. Viking’s current permits and authorizations and ability to get future permits and authorizations may be susceptible on a go-forward basis to increased scrutiny, greater complexity resulting in increased costs, or delays in receiving appropriate authorizations.
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Viking is subject to other changing laws and regulations and other governmental actions that can significantly and adversely affect Viking’s business.
Federal, state, local, territorial and foreign laws and regulations relating to tax increases and retroactive tax claims, disallowance of tax credits and deductions, expropriation or nationalization of property, mandatory government participation, cancellation or amendment of contract rights, and changes in import and export regulations, limitations on access to exploration and development opportunities, as well as other political developments may adversely affect Viking’s operations.
The oil and gas Viking produces may not be readily marketable at the time of production.
Crude oil, natural gas, condensate and other oil and gas products are generally sold to other oil and gas companies, government agencies and other industries. The availability of ready markets for oil and gas that Viking produces and the prices obtained for such oil and gas depend on many factors beyond Viking’s control, including:
| • | the extent of local production and imports of oil and gas, | |
| • | the proximity and capacity of pipelines and other transportation facilities, | |
| • | fluctuating demand for oil and gas, | |
| • | the marketing of competitive fuels, and | |
| • | the effects of governmental regulation of oil and gas production and sales. |
Natural gas associated with oil production is often not marketable due to demand or transportation limitations and is often flared at the producing well site. Pipeline facilities do not exist in some of Viking’s areas of exploration and, therefore, Viking intends on utilizing trucks to transport any oil that is discovered to other markets.
The price of oil and natural gas has historically been volatile and recently has declined significantly. If prices were to stay depressed or further decrease, Viking’s projections, budgets and revenues would be adversely affected, potentially forcing Viking to make changes in its operations.
Viking’s future financial condition, results of operations and the carrying value of any oil and natural gas interests Viking acquires will depend primarily upon the prices paid for oil and natural gas production. Oil and natural gas prices historically have been volatile, during calendar 2020 have significantly decreased, and likely will continue to be volatile in the future, especially given current world geopolitical and pandemic conditions. Viking’s cash flows from operations are highly dependent on the prices that Viking receives for oil and natural gas. This price volatility also affects the amount of Viking’s cash flows available for capital expenditures and Viking’s ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond Viking’s control. These factors include:
| • | the level of consumer demand for oil and natural gas; | |
| • | the domestic and foreign supply of oil and natural gas; | |
| • | the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to agree to and maintain oil price and production controls; | |
| • | the price of foreign oil and natural gas; | |
| • | domestic governmental regulations and taxes; | |
| • | the price and availability of alternative fuel sources; | |
| • | weather conditions; | |
| • | market uncertainty due to political conditions in oil and natural gas producing regions, including Russia and the Middle East; and | |
| • | worldwide economic conditions. |
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These factors as well as the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas prices adversely affect Viking’s revenues and could reduce the amount of oil and natural gas that Viking can produce economically. Accordingly, such declines could have a material adverse effect on Viking’s financial condition, results of operations, oil and natural gas reserves and the carrying values of Viking’s oil and natural gas properties. If the oil and natural gas industry continues to experience significant price declines or if recent price declines do not recover, Viking may be unable to make planned expenditures, among other things. If this were to happen, Viking may be forced to abandon or curtail its business operations, which would cause the value of an investment in Viking to decline in value, or become worthless.
Because of the inherent dangers involved in oil and gas operations, there is a risk that Viking may incur liability or damages as it conducts its business operations, which could force Viking to expend a substantial amount of money in connection with litigation and/or a settlement.
The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to Viking from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, Viking may be liable for environmental damages caused by previous owners of property purchased and leased by Viking. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of Viking’s properties and/or force Viking to expend substantial monies in connection with litigation or settlements. Viking currently has no insurance to cover such losses and liabilities, and even if insurance is obtained, there can be no assurance that it will be adequate to cover any losses or liabilities. Viking cannot predict the availability of insurance or the availability of insurance at premium levels that justify Viking’s purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect Viking’s financial condition and operations. Viking may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on Viking’s financial condition and results of operations, which could lead to any investment in Viking becoming worthless.
Viking may encounter operating hazards that may result in substantial losses.
Viking will be subject to operating hazards normally associated with the exploration and production of oil and gas, including hurricanes, blowouts, explosions, oil spills, cratering, pollution, earthquakes, pandemics, labor disruptions and fires. The occurrence of any such operating hazards could result in substantial losses to Viking due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties. Viking does not maintain insurance coverage for some matters that may adversely affect its operations, including war, terrorism, pandemics, nuclear reactions, government fines, treatment of waste, blowout expenses, earthquake damage, wind damage and business interruptions. Losses and liabilities arising from uninsured or underinsured events could reduce Viking’s revenues or increase its costs. There can be no assurance that any insurance Viking does obtain will be adequate to cover losses or liabilities associated with operational hazards. Viking cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase.
Viking faces strong competition from larger oil and gas companies, which could result in adverse effects on Viking’s business.
The petroleum exploration and production business is highly competitive. Many of Viking’s competitors have substantially larger financial resources, staffs and facilities. Viking competitors in the United States include numerous major oil and gas exploration and production companies. Additionally, other oil and gas companies may compete with Viking from time to time in obtaining capital from investors. Competitors include larger companies which, in particular, may have access to greater resources, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations, which may give them a competitive advantage. Actual or potential competitors may be strengthened through the acquisition of additional assets and interests. Additionally, there are numerous companies focusing their resources on creating fuels and/or materials which serve the same purpose as oil and gas but are manufactured from renewable resources.
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Viking’s estimates of the volume of reserves could have flaws, or such reserves could turn out not to be commercially extractable; and as a result, future estimates of revenues and other projections could be incorrect.
Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. Viking’s actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, any estimates of Viking’s future net revenues and the present value thereof are based on assumptions derived in part from historical price and cost information, which may not reflect current and future values, and/or other assumptions made by Viking that only represent its best estimates. If these estimates of quantities, prices and costs prove inaccurate, Viking may be unsuccessful in expanding its oil and gas reserves base with its acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs in the capitalized costs associated with any oil and gas assets Viking acquires may be required. Because of the nature of the estimates of Viking’s reserves and estimates in general, Viking can provide no assurance that reductions to its estimated proved oil and gas reserves and estimated future net revenues will not be required in the future, and/or that its estimated reserves will be present and/or commercially extractable. If Viking’s reserve estimates are incorrect, the value of Viking common stock could decrease, and it may be forced to write down the capitalized costs of its oil and gas properties.
Viking’s business will suffer if it cannot obtain or maintain necessary licenses.
Viking’s operations will require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities. Viking’s, and its operators’, ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to change in regulations and policies and to the discretion of the applicable governments, among other factors. Inability to obtain, or loss of or denial of extension of, any of these licenses or permits could hamper Viking’s ability to produce oil and gas and generate revenues from operations.
Viking’s operations may be subject to various litigation matters in the future that could have an adverse effect on its business.
From time to time, Viking may become a defendant in various litigation matters. The nature of Viking’s oil and gas operations exposes it to further possible litigation claims, including litigation relating to climate change in the future. There is risk that any matter in litigation could be adversely decided against Viking regardless of its belief, opinion and position, which could have a material adverse effect on Viking’s financial condition and results of operations. Litigation is highly costly, and the costs associated with defending litigation could also have a material adverse effect on Viking’s financial condition.
Viking may be affected by global climate change or by legal, regulatory, or market responses to such change.
The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost to produce Viking’s products. Additionally, the sale of Viking’s products can be impacted by weather conditions.
Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in states and jurisdictions where Viking operates. Laws enacted that directly or indirectly affect Viking’s oil and gas production could impact Viking’s business and financial results.
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If oil or natural gas prices decrease or drilling efforts are unsuccessful, Viking may be required to record write-downs of its oil and natural gas properties.
Viking could be required to write-down the carrying value of certain of its oil and natural gas properties. Write-downs may occur when oil and natural gas prices are low, or if Viking has downward adjustments to its estimated proved reserves, increases in its estimates of operating or development costs, deterioration in drilling results or mechanical problems with wells where the cost to re-drill or repair is not supported by the expected economics.
Accounting rules require that the carrying value of oil and natural gas properties be periodically reviewed for possible impairment. Under the full cost method of accounting, capitalized oil and natural gas property costs less accumulated depletion, net of deferred income taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. An impairment charge would reflect Viking’s long-term ability to recover an investment, reduce Viking’s reported earnings and increase its leverage ratios.
Viking’s future success depends on its ability to replace reserves that are produced.
Because the rate of production from oil and natural gas properties generally declines as reserves are depleted, Viking’s future success depends upon its ability to economically find or acquire and produce additional oil and natural gas reserves. Except to the extent that Viking acquires additional properties containing proved reserves, conducts successful exploration and development activities, or, through engineering studies, identifies additional behind-pipe zones or secondary recovery reserves, Viking’s proved reserves will decline as its reserves are produced. Future oil and natural gas production, therefore, is highly dependent upon Viking’s level of success in acquiring or finding additional reserves that are economically recoverable. Viking cannot provide any assurance that it will be able to find or acquire and develop additional reserves at an acceptable cost.
Viking may acquire significant amounts of unproved property to further its development efforts. Development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. Viking may acquire both proved and producing properties as well as undeveloped acreage that it believes will enhance growth potential and increase earnings over time. However, Viking cannot provide any assurance that these properties will contain economically viable reserves or that Viking will not abandon its investments. Additionally, Viking cannot provide any assurance that unproved reserves or undeveloped acreage that it acquires will be profitably developed, that new wells drilled on its properties will be productive or that it will recover all or any portion of its investments in its properties and reserves.
Viking’s lack of industry and geographical diversification may increase the risks to its operations.
Viking operates in the oil and gas sector, and its leases are located, in the United States in Kansas, Missouri, Texas, Louisiana, and Mississippi. This lack of geographic diversification may make Viking’s operations more sensitive to economic developments within a regional area, which may result in reduced rates of return or higher rates of default than might be incurred with a company that is more geographically diverse.
Viking’s business depends on oil and natural gas transportation and processing facilities and other assets that are owned by third parties.
The marketability of Viking’s oil and natural gas depends in part on the availability, proximity and capacity of pipeline systems, processing facilities, oil trucking fleets and rail transportation assets owned by third parties. The lack of available capacity on these systems and facilities, whether as a result of proration, physical damage, scheduled maintenance or other reasons, could result in the delay or discontinuance of development plans for Viking’s properties. The curtailments arising from these and similar circumstances may last from a few days to several months.
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Viking’s leasehold acreage is subject to leases that will expire over the next several years unless production is established or maintained or the leases are extended.
Some of Viking’s leasehold acreage is currently held by production or held by operations, or is otherwise dependent on production commencing or being established. Unless production in paying quantities is established or operations are commenced on units containing these latter leases during their terms, those leases may expire. Likewise, if Viking is unable to maintain production on acreage held by production or operations, those leases may expire. If Viking’s leases expire and it is unable to renew the leases, Viking will lose its right to develop or utilize the related properties, and Viking’s operations would be harmed.
Deficiencies of title to leased interests could significantly affect Viking’s financial condition.
Viking or its contractual counterparties often incur the expense of a title examination prior to acquiring oil and natural gas leases or undivided interests in oil and natural gas leases or other developed rights. If an examination of the title history of a property reveals that an oil or natural gas lease or other developed rights have been purchased in error from a person who is not the owner of the mineral interest desired, Viking’s interest would substantially decline in value or be eliminated. In such cases, the amount paid for the oil or natural gas lease or leases or other developed rights at issue may be lost.
Other Risks Relating to Viking
Viking has not established an effective system of internal control over its financial reporting, and if Viking fails to maintain such internal control, it may not be able to accurately report its financial results, and current and potential stockholders may lose confidence in Viking’s financial reporting.
Viking has not established and maintained adequate and effective internal control over financial reporting that would provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Viking is, however, required to evaluate the effectiveness of its internal controls and to disclose any changes and material weaknesses in those internal controls.
Any failure to maintain adequate internal controls could adversely impact Viking’s ability to report its financial results on a timely and accurate basis. If Viking’s financial statements are not accurate, investors may not have a complete understanding of its operations. Likewise, if Viking’s financial statements are not filed on a timely basis as required by the SEC, Viking could face severe consequences from those authorities. In either case, there could result a material adverse effect on Viking’s business. Ineffective internal controls could also cause investors to lose confidence in Viking’s reported financial information, which could have a negative effect on the trading price of Viking’s stock.
Viking currently has outstanding indebtedness, and it may incur additional indebtedness which could reduce its financial flexibility, increase interest expense and adversely impact its operations in the future.
Viking currently has outstanding indebtedness, and, in the future, it may incur significant amounts of additional indebtedness in order to continue operations, make acquisitions or to develop properties. Viking’s level of indebtedness could affect its operations in several ways, including the following:
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a significant portion of its cash flows could be used to service its indebtedness; |
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a high level of debt would increase its vulnerability to general adverse economic and industry conditions; |
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any covenants contained in the agreements governing its outstanding indebtedness could limit its ability to borrow additional funds, dispose of assets, pay dividends and make certain investments; |
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a high level of debt may place it at a competitive disadvantage compared to its competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that its indebtedness may prevent it from pursuing; and |
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debt covenants to which it may agree may affect its flexibility in planning for, and reacting to, changes in the economy and in its industry. |
A high level of indebtedness increases the risk that Viking may default on its debt obligations. Viking may not be able to generate sufficient cash flows to pay the principal or interest on its debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If it does not have sufficient funds and is otherwise unable to arrange financing, Viking may have to sell significant assets or have a portion of its assets foreclosed upon which could have a material adverse effect on its business, financial condition and results of operations.
As of March 31, 2020, Viking has a working capital deficiency in excess of $19,000,000, with current liabilities including (i) promissory notes maturing on August 31, 2020, in the aggregate principal amount of approximately $12.5 million as of March 31, 2020, and (ii) other debt obligations requiring principal payments of approximately $8.5 million in 2020.
Viking currently has limited available funds, and as of March 31, 2020, it has a working capital deficiency in excess of $19,000,000, with current liabilities including (i) promissory notes maturing on August 31, 2020, in the aggregate principal amount of approximately $12.5 million as of March 31, 2020, and (ii) other debt obligations requiring principal payments of approximately $8.5 million in 2020. As of May 16, 2020, the aggregate principal amount due on Viking’s notes maturing on August 31, 2020, was approximately $11,469,565. If Viking is not able to raise additional capital on terms agreeable to Viking by August 31, 2020, and if cash flows from operations are not sufficient to satisfy Viking’s repayment obligations under the notes maturing August 31, 2020, Viking may default under the notes maturing August 31, 2020, and Viking’s operations would then be materially and adversely affected. Similarly, if Viking is not able to raise additional capital or generate sufficient cash flows to service Viking’s other debt obligations, Viking may default under those debt obligations, and Viking’s operations would then be materially and adversely affected. There is no assurance that funds will be available from any source within the time required, or, if available, that funds can be obtained on terms acceptable to Viking.
Viking stockholders may be diluted significantly through Viking’s efforts to obtain financing and/or satisfy obligations through the issuance of additional shares of Viking’s common stock, promissory notes which may be convertible into shares of Viking common stock, or warrants to purchase shares of Viking common stock.
When possible, Viking will attempt to use non-cash consideration to satisfy obligations. In many instances, Viking believes that such non-cash consideration will consist of shares of its common stock. Additionally, in connection with obtaining financing, Viking may issue (i) shares of its common stock to investors, (ii) debt instruments which are partially or wholly convertible into shares of Viking’s common stock, and (iii) warrants to purchase shares of Viking common stock. Viking’s Board of Directors has authority, without action or vote of Viking’s stockholders, to issue all or part of Viking’s authorized but unissued shares of common stock. These actions will result in dilution of the ownership interests of existing stockholders, and that dilution may be material. Additionally, any issuances of equity prior to the closing of the merger will reduce (as a result of the exchange ratio) the number of shares of Camber common stock which Viking stockholders would otherwise receive as part of the merger. Such dilution and adjustment to the exchange ratio will not be known until after Viking stockholders have approved the merger.
Viking’s common stock may be subject to additional regulations as a “penny stock.”
Viking’s common stock may be subject to an SEC rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth, or joint net worth with spouse, in excess of $1,000,000 excluding the value of the person’s primary residence or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell Viking’s securities and also may affect the ability of purchasers in an offering to sell their securities in any market that might develop.
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In addition, the SEC has adopted a number of rules to regulate “penny stocks.” Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. Because the securities of Viking may constitute “penny stocks” within the meaning of the rules, the rules would apply to Viking and to its securities. The rules may further affect the ability of owners of shares to sell the securities of Viking in any market that might develop for them.
Shareholders should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
Viking is substantially dependent on its Chief Executive Officer, James Doris, who has not entered into an employment contract with Viking.
Viking does not currently have an employment agreement with its Chief Executive Officer, President and Director, James Doris. As a result, there is no assurance that Mr. Doris will continue to be associated with Viking in the future. In connection with future business opportunities, it is possible that Mr. Doris may resign as an officer and director of Viking subject to compliance with Section 14f of the Exchange Act. Any decision to resign would occur without the vote or consent of the stockholders of Viking.
Viking is required to indemnify its officers and directors.
Nevada law provides for the indemnification of Viking’s directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of Viking. If Viking were called upon to indemnify an officer or director, then the portion of its available funds expended for such purpose would reduce the amount otherwise available for Viking’s business operations. This indemnification obligation and the resultant costs associated with indemnification may also discourage Viking from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by Viking’s shareholders against Viking’s directors and officers even though such actions, if successful, might otherwise benefit the company and shareholders.
Viking would bear the expenses of such litigation for any of its directors, officers, employees, or agents, upon such person’s promise to repay Viking if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by Viking which it may be unable to recoup.
Viking is dependent upon outside advisors.
To supplement Viking’s officers, directors and employees, Viking may engage accountants, technical experts, appraisers, attorneys, or other outside consultants or advisors on an “independent contractor” basis rather than as employees. The selection of any such advisors would likely be made by Viking without any input from its stockholders. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary, employment or similar obligation to Viking.
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Viking does not anticipate paying any cash dividends to its common shareholders.
Viking does not anticipate that it will pay dividends on any of its common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon revenues and earnings, if any, capital requirements, and the company’s general financial condition. The payment of any common stock dividends will be within the discretion of Viking’s Board of Directors. Viking presently intend to deploy available capital to pay its obligations as they come due and to execute its business and operational plans; accordingly, Viking does not anticipate the declaration of any dividends for common stock in the foreseeable future.
The outbreak of the coronavirus may negatively impact demand for oil and natural gas and Viking’s business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which spread in China and is continuing to spread throughout the United States and other parts of the world. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that has adversely affected the economies and financial markets worldwide, has adversely affected the demand for oil and natural gas, has already adversely affected the realized prices for Viking’s oil and gas, and Viking’s business, results of operations and financial conditions, and may continue to do so in the future.
The ultimate extent of the impact of any epidemic, pandemic or other health crisis on demand for oil and natural gas and Viking’s business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore continue to materially and adversely affect demand for oil and natural gas and Viking’s business, financial condition and results of operations.
This section contains information for Camber stockholders about the special meeting that Camber has called to allow Camber stockholders to consider and vote on the Camber share issuance, the Camber charter amendment, the Camber reverse split proposal, the Camber equity plan proposal and other related matters. This joint proxy statement/prospectus is accompanied by a notice of the special meeting of Camber stockholders and a form of proxy card that the Camber board is soliciting for use at the special meeting and at any adjournments or postponements of the special meeting.
Date, Time and Place of the Meeting
The Camber special meeting will be held on [●], 2020 at [●], at [●] local time.
At the Camber special meeting, Camber stockholders will be asked to consider and vote upon the following proposals:
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the Camber share issuance proposal; |
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the Camber charter amendment proposal; |
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the Camber reverse split proposal; |
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the Camber equity plan proposal; |
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the Camber adjournment proposal. |
Recommendation of the Camber Board
The Camber board recommends that you vote “FOR” the Camber share issuance proposal, “FOR” the Camber charter amendment proposal, “FOR” the Camber reverse split proposal, “FOR” the Camber equity plan proposal, and “FOR” the Camber adjournment proposal. See “The Merger—Camber’s Reasons for the Merger; Recommendation of the Camber Board” beginning on page 154 for a more detailed discussion of the Camber board’s recommendation.
The Camber board has fixed the close of business on [●], 2020 as the record date for determination of Camber stockholders entitled to notice of and to vote at the Camber special meeting. On the record date for the Camber special meeting, there were [●] shares of Camber common stock outstanding.
Holders of at least 33% of the shares of Camber common stock outstanding on the record date must be present, either in person or by proxy, to constitute a quorum at the Camber special meeting. If you fail to submit a proxy or to vote in person at the Camber special meeting, your shares of Camber common stock will not be counted towards a quorum. Abstentions are considered present for purposes of establishing a quorum.
Each share of Camber common stock is entitled to one (1) vote on all matters properly submitted to Camber stockholders at the Camber special meeting.
As of [●], 2020, the last date before the date of this joint proxy statement/prospectus for which it was practicable to obtain this information, Camber directors and executive officers and their affiliates owned and were entitled to vote no shares of Camber common stock.
Vote Required; Treatment of Abstentions and Failure to Vote
Camber share issuance proposal:
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Vote required: Approval of the Camber share issuance proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber share issuance proposal present in person or by proxy at the Camber special meeting. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Camber share issuance proposal. If you fail to submit a proxy or to vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber share issuance proposal, your shares will not be deemed to be represented at the Camber special meeting, and it will have no effect on the Camber share issuance proposal. |
Camber charter amendment proposal:
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Vote required: Approval of the Camber charter amendment proposal requires the affirmative vote of a majority of the outstanding shares of stock entitled to vote on the Camber adjournment proposal at the Camber special meeting. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, fail to submit a proxy or to vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber charter amendment proposal, it will have the same effect as a vote “AGAINST” the Camber charter amendment proposal. |
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Camber reverse split proposal:
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Vote required: Approval of the Camber reverse split proposal requires the affirmative vote of a majority of the outstanding shares of stock entitled to vote on the Camber reverse split proposal at the Camber special meeting. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, fail to submit a proxy or to vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber reverse split proposal, it will have the same effect as a vote “AGAINST” the Camber reverse split proposal. |
Camber equity plan proposal:
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Vote required: Approval of the Camber equity plan proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber equity plan proposal present in person or by proxy at the Camber special meeting. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Camber equity plan proposal. If you fail to submit a proxy or to vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber equity plan proposal, your shares will not be deemed to be represented at the Camber special meeting, and it will have no effect on the Camber equity plan proposal. |
Camber adjournment proposal:
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Vote required: Approval of the Camber adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote on the Camber adjournment proposal present in person or by proxy at the Camber special meeting. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Camber adjournment proposal. If you fail to submit a proxy or to vote in person at the Camber special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Camber adjournment proposal, your shares will not be deemed to be represented at the Camber special meeting, and it will have no effect on the Camber adjournment proposal. |
Attendance at the special meeting will be limited to stockholders of Camber as of the record date and Camber’s invited guests. Your proxy card is your admission ticket. When you arrive at the Camber special meeting, you will be asked to present photo identification, such as a driver’s license. If you are a beneficial owner of Camber common stock held by a broker, bank or other nominee, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. If you want to vote your Camber common stock held in nominee name in person, you must get a “legal proxy” in your name from the broker, bank or other nominee that holds your shares and present it with your identification at the meeting. You should indicate that you plan to attend the Camber special meeting when submitting your proxy card by checking the box under the caption “Meeting Attendance” on the proxy card. If you are a beneficial owner of Camber common stock held by a broker, bank or other nominee, or if you are a record holder and have not submitted your proxy card or did not indicate on your submitted proxy card that you plan to attend the Camber special meeting, please contact the office of the Corporate Secretary at Camber Energy, Inc., 1415 Louisiana, Suite 3500, Houston, Texas, 77002, (210) 998-4035, to request an admission ticket. If you do not have an admission ticket, you must present proof of ownership in order to be admitted to the meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership.
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A Camber stockholder may vote by proxy or in person at the Camber special meeting. If you hold your shares of Camber common stock in your name as a holder of record, to vote, you, as a Camber stockholder, may use one of the following methods:
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By telephone: by calling the toll-free number indicated on the accompanying proxy card and following the recorded instructions. |
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Through the Internet: by visiting the website indicated on the accompanying proxy card and following the instructions. |
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By mail: by completing and returning the accompanying proxy card in the enclosed postage-paid envelope. The envelope requires no additional postage if mailed in the United States. |
Camber requests that Camber stockholders vote by telephone, over the Internet or by completing and signing the accompanying proxy card and returning it to Camber as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed, the shares of Camber common stock represented by it will be voted at the Camber special meeting in accordance with the instructions contained on the proxy card.
If a holder’s shares are held in “street name” by a broker, bank or other nominee, the holder should check the voting form used by that firm to determine whether the holder may vote by telephone or the Internet.
Every vote is important. Accordingly, you should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not you plan to attend the Camber special meeting in person. Sending in your proxy card or voting by telephone or on the Internet will not prevent you from voting your shares personally at the meeting because you may revoke your proxy at any time before it is voted at the meeting.
If your shares are held in “street name” through a broker, bank or other nominee, you must instruct the broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee will vote your shares only if you provide specific instructions on how to vote by following the instructions provided to you by your broker, bank or other nominee.
You may not vote shares held in “street name” by returning a proxy card directly to Camber or by voting in person at the Camber special meeting unless you provide a “legal proxy” giving you the right to vote the shares, which you must obtain from your broker, bank or other nominee. If you choose to vote your shares in person at the Camber special meeting, please bring proof of identification and the proxy from your bank, broker or other nominee.
Further, brokers, banks or other nominees who hold shares of Camber common stock on behalf of their customers may not give a proxy to Camber to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks, and other nominees do not have discretionary voting power on the proposals that will be voted upon at the Camber special meeting.
If you are a Camber stockholder of record, you may revoke your proxy at any time before it is voted by:
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submitting a written notice of revocation to Camber’s corporate secretary; |
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granting a subsequently dated proxy; |
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voting by telephone or the Internet at a later time; or |
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attending in person and voting at the Camber special meeting. |
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If you hold your shares of Camber common stock through a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.
Attendance at the Camber special meeting will not in and of itself constitute revocation of a proxy. A revocation or later-dated proxy received by Camber after the vote will not affect the vote. Camber’s corporate secretary’s mailing address is: Corporate Secretary, Camber Energy, Inc., 1415 Louisiana, Suite 3500, Houston, Texas, 77002. If the Camber special meeting is postponed or adjourned, it will not affect the ability of Camber stockholders of record as of the record date to exercise their voting rights or to revoke any previously-granted proxy using the methods described above.
As permitted by applicable law, only one (1) copy of this joint proxy statement/prospectus is being delivered to Camber stockholders residing at the same address, unless such Camber stockholders have notified Camber of their desire to receive multiple copies of the joint proxy statement/prospectus.
Camber will promptly deliver, upon oral or written request, a separate copy of the joint proxy statement/prospectus to any Camber stockholder residing at an address to which only one (1) copy of such document was mailed. Requests for additional copies should be directed to Camber’s Secretary, Robert Schleizer at Info@camber.energy, or at the following address or phone number: 1415 Louisiana, Suite 3500, Houston, Texas 77002 | (210) 998-4035.
Camber and Viking will share equally the expenses incurred in connection with the printing and mailing of this joint proxy statement/prospectus. To assist in the solicitation of proxies, Camber has retained [—], for a fee of $[●] plus reimbursement of out-of-pocket expenses for its services. Camber and its proxy solicitor may also request banks, brokers and other intermediaries holding shares of Camber common stock beneficially owned by others to send this joint proxy statement/prospectus to, and obtain proxies from, the beneficial owners and may reimburse such record holders for their reasonable out-of-pocket expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone and other electronic means, advertisements and personal solicitation by the directors, officers or employees of Camber. No additional compensation will be paid to our directors, officers or employees for solicitation.
Other Matters to Come Before the Camber Special Meeting
Camber management knows of no other business to be presented at the Camber special meeting, but if any other matters are properly presented to the meeting or any adjournments thereof, the persons named in the proxies will vote upon them in accordance with the Camber board’s recommendations.
If you need assistance in completing your proxy card, have questions regarding Camber’s special meeting or would like additional copies of this joint proxy statement/prospectus, please contact Camber’s Secretary, Robert Schleizer at Info@camber.energy, or at the following address or phone number: 1415 Louisiana, Suite 3500, Houston, Texas 77002 | (210) 998-4035.
Proposal 1: Camber Share Issuance Proposal
Camber is asking Camber stockholders to approve the issuance of shares of Camber common stock, pursuant to the terms of the merger agreement, in an amount necessary to complete the transactions contemplated thereby, approve the merger agreement and the transactions contemplated therein. Camber stockholders should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger, and the issuance of shares of Camber common stock in connection with the merger and the other transactions contemplated by the merger agreement. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.
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After careful consideration, the Camber board determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of Camber and the Camber stockholders and adopted and approved the merger agreement, the merger (subject to stockholder approval) and the other transactions contemplated by the merger agreement. Accordingly, the Camber board directed that the Camber share issuance proposal be submitted to the Camber stockholders and recommended that Camber stockholders approve the Camber share issuance proposal. See “The Merger—Camber’s Reasons for the Merger; Recommendation of the Camber Board” beginning on page 154 in this joint proxy statement/prospectus for a more detailed discussion of the Camber board’s recommendation.
The Camber board recommends a vote “FOR” the Camber share issuance proposal.
Proposal 2: Camber Charter Amendment Proposal
In connection with the merger, Camber is asking its stockholders to approve an amendment to the Camber charter to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares, effective only upon the completion of the merger. The increase will be affected by the filing of a Certificate of Amendment to Camber’s Articles of Incorporation in substantially the form of Annex B to this joint proxy statement/prospectus, which is subject to non-material technical, administrative or similar changes and modifications in order to comply with Nevada law. Camber stockholders should read the proposed amendment to the Camber charter in its entirety.
The Camber board approved and recommends that the Camber stockholders adopt the amendment to the Camber charter.
The Camber board recommends a vote “FOR” the Camber charter amendment proposal.
Proposal 3: Camber Reverse Split Proposal
The Camber board of directors has approved and has recommended that the Camber stockholders approve a proposal to authorize Camber’s board of directors to effect a reverse stock split of all of its outstanding common stock at a ratio of between one-for-five and one-for-twenty-five (the “Exchange Ratio”), with the Camber board of directors having the discretion as to whether or not the reverse split is to be effected, and with the exact Exchange Ratio of any reverse split to be set at a whole number within the above range as determined by the Camber board of directors in its sole discretion (the “Reverse Stock Split”). The proposal provides that the board of directors of Camber will have sole discretion to elect, at any time prior to or concurrently with, the merger, as it determines to be in Camber’s best interest, with the approval of Viking, whether or not to effect the Reverse Stock Split, and, if so, the number of Camber shares of common stock within the Exchange Ratio which will be combined into one share of Camber’s common stock.
The Reverse Stock Split will be implemented by the Camber board of directors, if the Camber reverse split proposal is approved by the Camber stockholders, in order for the combined company to meet the initial listing requirements of the NYSE American. Specifically, Camber and Viking currently anticipate that the NYSE American will determine that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger” and as such, that Camber (and its common stock) will be required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the closing of the merger. One of the requirements for such initial listing approval (based on the listing standard that Camber anticipates meeting) is that Camber have a stock price above $3 per share.
The determination as to whether the Reverse Stock Split will be affected and, if so, pursuant to which Exchange Ratio, will be based upon those market or business factors deemed relevant by the Camber board of directors at that time, including, but not limited to:
● listing standards under the NYSE American;
● existing and expected marketability and liquidity of the Camber common stock;
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● prevailing stock market conditions;
● the historical trading price and trading volume of Camber’s common stock;
● the then prevailing trading price and trading volume of Camber’s common stock and the anticipated impact of the reverse split on the trading market for Camber’s common stock;
● the anticipated impact of the reverse split on Camber’s ability to raise additional financing;
● business developments affecting Camber;
● Camber’s actual or forecasted results of operations; and
● the likely effect on the market price of Camber’s common stock.
The board of directors of Camber believes that stockholder approval granting the board discretion to set the actual exchange ratio within the range of the Exchange Ratio, rather than stockholder approval of a specified exchange ratio, provides Camber with maximum flexibility to react to then-current market conditions and volatility in the market price of Camber’s common stock in order to set an exchange ratio that is intended to result in a stock price in excess of $3.00 per share. If the Camber board of directors determines to implement the Reverse Stock Split, Camber intends to issue a press release announcing the terms and effective date of the Reverse Stock Split before it files the amendment with the Secretary of State of the State of Nevada.
If Camber’s board of directors determines that effecting the Reverse Stock Split is in its best interest, the Reverse Stock Split will become effective upon the filing of an amendment to Camber’s articles of incorporation with the Secretary of State of the State of Nevada. The form of the proposed amendment to Camber’s Articles of Incorporation to effect the Reverse Stock Split will be in substantially the form as attached to this joint proxy statement/prospectus as Annex C (which assumes the amendment set forth in proposal 2 is approved)(the “Amendment”), which is subject to non-material technical, administrative or similar changes and modifications in order to comply with Nevada law. The Amendment filed thereby will set forth the number of shares to be combined into one share of Camber’s common stock within the limits set forth in this proposal, but will not have any effect on the number of shares of common stock or preferred stock then authorized (or the effects of the Camber charter amendment), the ability of Camber’s board of directors to designate preferred stock, the par value of Camber’s common or preferred stock, or any series of preferred stock previously authorized (except to the extent such Reverse Stock Split adjusts the conversion ratio of such previously designated preferred stock).
Purpose of the Reverse Stock Split
The primary purpose of the Reverse Stock Split will be to increase proportionately the per share trading price of Camber’s common stock. As discussed above, in the event the combined company is required to meet the initial listing requirements of the NYSE American for the Camber common stock to trade on the NYSE American, we anticipate that Camber’s common stock price will need to be above $3.00 per share. Approval of the Camber reverse split proposal will be necessary to provide the Camber board of directors the ability to affect the Camber reverse stock split in order to make sure that such minimum stock price is met upon closing of the merger.
Camber Board of Directors Discretion to Implement the Reverse Stock Split
If the Camber reverse stock proposal is approved by the Camber stockholders, the Reverse Stock Split will be affected, if at all, only upon a determination by the board of directors of Camber that the Reverse Stock Split is in the best interests of Camber and its stockholders. The board’s determination as to whether the Reverse Stock Split will be affected and, if so, at which Exchange Ratio, will be based upon certain factors, including prevailing stock market conditions, trading prices of Camber’s common stock prior to such Reverse Stock Split, the timing of closing the merger, the likely effect on the market price of Camber’s common stock, and the listing standards of the NYSE American. If the board does not act to implement the Reverse Stock Split prior to closing the merger, the authorization granted by stockholders pursuant to this proposal would be deemed abandoned and without any further effect.
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Effect of the Reverse Stock Split
If approved by Camber stockholders and implemented by the board of directors of Camber, as of the effective time of the Amendment, each issued and outstanding share of Camber’s common stock would immediately and automatically be reclassified and reduced into a fewer number of shares of Camber common stock, depending upon the Exchange Ratio selected by the board, which could range between one-for-five and one-for-twenty-five. As discussed in further detail below, Camber will not issue any fractional shares of Camber common stock in connection with the Reverse Stock Split. Instead, holders of Camber common stock will have any fractional shares of Camber common stock which they would be due as a result of the Reverse Stock Split rounded up to the nearest whole share.
Except to the extent that the Reverse Stock Split would result in any stockholder having any fractional shares rounded up to the nearest whole share as a result of the Reverse Stock Split, as described below, the Reverse Stock Split will not:
● affect any stockholder’s percentage ownership interest in Camber;
● affect any stockholder’s proportionate voting power;
● substantially affect the voting rights or other privileges of any stockholder; or
● alter the relative rights of common stockholders, preferred stockholders, warrant holders or holders of equity compensation plan awards and options.
Depending upon the Exchange Ratio selected by the board of directors, the principal effects of the Reverse Stock Split are:
● the number of shares of common stock issued and outstanding will be reduced by a factor ranging between five and twenty-five, notwithstanding any rounding;
● the per share exercise price will be increased by a factor between five and twenty-five, and the number of shares issuable upon exercise shall be decreased by the same factor, for all outstanding options, warrants and other convertible or exercisable equity instruments entitling the holders to purchase shares of Camber common stock;
● the number of shares authorized and reserved for issuance under Camber’s existing equity compensation plans will be reduced proportionately; and
● the conversion rates for holders of Camber’s preferred stock and other outstanding securities will be adjusted proportionately, subject to their terms.
If the Reverse Stock Split is implemented, the Amendment will not reduce the number of shares of Camber’s common stock or preferred stock authorized under its Articles of Incorporation (including as a result of the Camber charter amendment proposal), as amended, the right of its board of directors to designate preferred stock, the par value of Camber’s common or preferred stock, or otherwise effect Camber’s designated series of preferred stock, except to affect the exchange ratio thereof.
Camber’s common stock is currently registered under Section 12(b) of the Exchange Act, and Camber is subject to the periodic reporting and other requirements thereof. Camber does not have any intent to seek any change in its status as a reporting company under the Exchange Act either before or after the Reverse Stock Split.
Fractional Shares
No fractional shares will be issued in connection with the Reverse Stock Split. Stockholders of record who otherwise would be entitled to receive fractional shares because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares for which each post-split share is to be reclassified (based on the final Exchange Ratio), will be entitled to have their fractional shares rounded up to the nearest whole share.
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Effective Time of the Reverse Stock Split
The effective time for the Reverse Stock Split will be the date on which Camber files the Amendment with the office of the Secretary of State of the State of Nevada or such later date and time as specified in the Amendment, provided that the effective date must occur prior to or concurrently with, the merger.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the Camber stockholders approve the Reverse Stock Split, and if the Camber board of directors believes that a reverse stock split is in the best interests of Camber and its stockholders, Camber will file the amendment to the Certificate of Incorporation with the Secretary of State of the State of Nevada at such time as the Camber board of directors has determined to be the appropriate split effective time. The amendment filed thereby will contain the final Exchange Ratio selected by the Camber board of directors within the limits set forth in this proposal to be combined and reclassified into one share of Camber common stock. The Camber board of directors may delay effecting the reverse stock split without resoliciting stockholder approval. Beginning at the split effective time, each stock certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
As soon as practicable after the split effective time, stockholders will be notified that the Reverse Stock Split has been affected. Camber expects that the Camber transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent stock certificates representing pre-split shares in exchange for stock certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by Camber. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares.
STOCKHOLDERS OF CAMBER SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATE(S) UNLESS REQUESTED TO DO SO
No Going-Private Transaction
Notwithstanding the decrease in the number of outstanding shares following the proposed Reverse Stock Split, Camber’s board of directors does not intend for the Reverse Stock Split to be the first step in a “going-private transaction” within the meaning of Rule 13e-3 of the Exchange Act.
Accounting Matters
The Reverse Stock Split will not affect the par value of Camber’s common stock ($0.001 per share). However, at the effective time of the Reverse Stock Split, the stated capital attributable to common stock on Camber’s balance sheet will be reduced proportionately based on the Exchange Ratio (including a retroactive adjustment of prior periods), and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Reported per share net income or loss would be expected to be proportionally higher because there will be fewer shares of Camber’s common stock outstanding.
Appraisal Rights
Under the Nevada Revised Statutes, Camber stockholders are not entitled to appraisal rights with respect to the Reverse Stock Split.
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Certain Risks Associated with the Reverse Stock Split
Before voting on this proposal, you should consider the following risks associated with the implementation of the Reverse Stock Split:
● The price per share of Camber’s common stock after the Reverse Stock Split may not reflect the Exchange Ratio implemented by the board of directors of Camber and the price per share following the effective time of the Reverse Stock Split may not be maintained for any period of time following the Reverse Stock Split. For example, based on the closing price of Camber’s common stock on May 29, 2020 of $1.28 per share, if the Reverse Stock Split was implemented at an Exchange Ratio of 1-for-10, there can be no assurance that the post-split trading price of Camber’s common stock would be $12.80 or even that it would remain above the pre-split trading price. Accordingly, the total market capitalization of Camber’s common stock following a Reverse Stock Split may be lower than before the Reverse Stock Split.
● There is no assurance that following the Reverse Stock Split that combined company will, to the extent required, meet the initial listing criteria for companies trading on the NYSE American, which could cause Camber’s common stock to be delisted or subject to delisting.
● The trading liquidity of Camber’s common stock could be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split.
● If a Reverse Stock Split is implemented by the board of directors, some stockholders may consequently own less than 100 shares of common stock. A purchase or sale of less than 100 shares (an “odd lot” transaction) may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers. Therefore, those stockholders who own fewer than 100 shares following the Reverse Stock Split may be required to pay higher transaction costs if they should then determine to sell their shares of Camber’s common stock.
Potential Anti-Takeover Effect
The increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of Camber’s board or contemplating a tender offer or other transaction for Camber’s combination with another company). However, the Reverse Stock Split Proposal is not being proposed in response to any effort of which we are aware to accumulate shares of Camber’s common stock or obtain control of Camber, nor is it part of a plan by management to recommend a series of similar amendments to Camber’s board or stockholders, other than in connection with the merger.
Federal Income Tax Consequences of the Reverse Stock Split
A summary of the federal income tax consequences of the proposed Reverse Stock Split to individual stockholders of Camber is set forth below. It is based upon present federal income tax law, which is subject to change, possibly with retroactive effect. The discussion is not intended to be, nor should it be relied on as, a comprehensive analysis of the tax issues arising from or relating to the proposed Reverse Stock Split. In addition, Camber has not requested and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of the proposed Reverse Stock Split. Accordingly, stockholders are advised to consult their own tax advisors for more detailed information regarding the effects of the proposed Reverse Stock Split on them under applicable federal, state, local and foreign income tax laws.
● Camber believes that the Reverse Stock Split will be a tax-free recapitalization for federal income tax purposes. Accordingly, a stockholder will generally not recognize any gain or loss as a result of the receipt of the post-reverse split common stock pursuant to the Reverse Stock Split. However, a stockholder who receives a “round up” from a fractional share to a whole share may have a tax event based on the value of the “rounded up” share provided to the stockholder. Camber believes such tax event will be minimal or insignificant for most stockholders.
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● The shares of post-reverse split common stock in the hands of a stockholder will have an aggregate basis for computing gain or loss equal to the aggregate basis of the shares of pre-reverse split common stock held by that stockholder immediately prior to the Reverse Stock Split.
● A stockholder’s holding period for the post-reverse split common stock will include the holding period of the pre-reverse split common stock exchanged.
HOLDERS OF CAMBER COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT ARISING UNDER OTHER U.S. FEDERAL TAX LAWS (INCLUDING ESTATE AND GIFT TAX LAWS), UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Tax Consequences of the Reverse Stock Split
The Reverse Stock Split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a United States Holder of Camber common stock generally should not recognize gain or loss upon the reverse stock split. A United States Holder’s aggregate tax basis in the shares of Camber common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of the Camber common stock surrendered, and such United States Holder’s holding period in the shares of Camber common stock received should include the holding period in the shares of Camber common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Camber common stock surrendered to the shares of Camber common stock received in a recapitalization pursuant to the reverse stock split. United States Holders of shares of Camber common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
Recommendation of the Board of Directors
The Camber board of directors recommends that you vote “FOR” the amendment to Camber’s Articles of Incorporation and the authorization of the board of Camber, without further stockholder approval, to amend Camber’s Articles of Incorporation, at any time prior to the closing of the merger, or concurrently therewith, to effect a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, with all fractional shares resulting from the Reverse Stock split rounded up to the nearest whole share.
Vote Required
The approval of this proposal requires the affirmative vote of the holders of a majority of the shares eligible to be voted at the Camber special meeting, in person or by proxy. As a result, abstentions will have the same effect as votes against this proposal. For the approval of this Proposal, you may vote “FOR” or “AGAINST” or abstain from voting.
Proposal 4: Camber Equity Plan Proposal
On [●], 2020, Camber’s board of directors adopted Camber’s 2020 Equity Incentive Plan, which we refer to as the 2020 equity plan, subject to stockholder approval at the Camber special meeting (i.e., such 2020 equity plan is not effective until adopted by the stockholders of Camber).
The following is a summary of the principal features of the 2020 equity plan. This summary does not purport to be a complete description of all of the provisions of the 2020 equity plan. It is qualified in its entirety by reference to the full text of the 2020 equity plan, as proposed to be ratified, which is included as Annex D to this joint proxy statement/prospectus.
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General
The 2020 equity plan will provide an opportunity for any employee, officer, director or consultant of Camber, subject to limitations provided by federal or state securities laws, to receive (i) incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) stock awards; (v) shares in performance of services; or (vi) any combination of the foregoing. In making such determinations, the Board may take into account the nature of the services rendered by such person, his or her present and potential contribution to Camber’s success, and such other factors as the Board in its discretion shall deem relevant.
Shares Available Under the 2020 equity plan; Evergreen Provision
Subject to adjustment in connection with the payment of a stock dividend, a stock split or subdivision or combination of the shares of common stock, or a reorganization or reclassification of Camber’s common stock, the aggregate number of shares of common stock which may be issued pursuant to awards under the 2020 equity plan is the sum of (i) [●] ([●]) shares, and (ii) an annual increase on April 1st of each calendar year, beginning in 2021 and ending in 2030, in each case subject to the approval of the board of directors or the compensation committee of Camber on or prior to the applicable date, equal to the lesser of (A) four percent (4%) of the total shares of common stock of Camber outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the board of directors or Compensation Committee (the “Share Limit”), also known as an “evergreen” provision. Notwithstanding the foregoing, shares added to the Share Limit are available for issuance as incentive stock options only to the extent that making such shares available for issuance as incentive stock options would not cause any incentive stock option to cease to qualify as such. In the event that the board of directors or the Compensation Committee does not take action to affirmatively approve an increase in the Share Limit on or prior to the applicable date provided for under the plan, the Share Limit remains at its then current level. Notwithstanding the above, no more than [●] incentive stock options may be granted pursuant to the terms of the 2020 equity plan.
If an award granted under the 2020 equity plan entitles a holder to receive or purchase shares of Camber’s common stock, then on the date of grant of the award, the number of shares covered by the award (or to which the award relates) will be counted against the total number of shares available for granting awards under the 2020 equity plan. As a result, the shares available for granting future awards under the 2020 equity plan will be reduced as of the date of grant. However, certain shares that have been counted against the total number of shares authorized under the 2020 equity plan in connection with awards previously granted under such 2020 equity plan will again be available for awards under the 2020 equity plan as follows: shares of Camber’s common stock covered by an award or to which an award relates which were not issued because the award terminated or was forfeited or cancelled without the delivery of shares will again be available for awards.
In no event, however, may common stock that is surrendered or withheld to pay the exercise price of a stock option or to satisfy tax withholding requirements be available for future grants under the 2020 equity plan. In addition, shares of common stock related to awards that expire, are forfeited or cancelled or terminate for any reason without the issuance of shares shall not be treated as issued pursuant to the 2020 equity plan.
The shares available for awards under the 2020 equity plan will be authorized but unissued shares of Camber’s common stock or shares acquired in the open market or otherwise.
Administration
Camber is the issuer (manager) of the 2020 equity plan. The 2020 equity plan is administered by either (a) the Compensation Committee; or (b) the entire board of directors of Camber, as determined from time to time by the board of directors (the “Administrator”). The Administrator has the exclusive right to interpret and construe the 2020 equity plan, to select the eligible persons who shall receive an award, and to act in all matters pertaining to the grant of an award and the determination and interpretation of the provisions of the related award agreement, including, without limitation, the determination of the number of shares subject to stock options and the option period(s) and option price(s) thereof, the number of shares of restricted stock or shares subject to stock awards or performance shares subject to an award, the vesting periods (if any) and the form, terms, conditions and duration of each award, and any amendment thereof consistent with the provisions of the 2020 equity plan.
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On or after the date of grant of an award under the 2020 equity plan, the Administrator may (i) accelerate the date on which any such award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such award, including, without limitation, extending the period following a termination of a participant’s employment during which any such award may remain outstanding, or (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of any such award; provided, that the Administrator shall not have any such authority to the extent that the grant of such authority would cause any tax to become due under Section 409A of the Code.
Eligibility
Employees, non-employee directors, and consultants of Camber and its subsidiaries are eligible to participate in the 2020 equity plan. Incentive stock options may be granted under the 2020 equity plan only to employees of Camber and its affiliates. Employees, directors and consultants of Camber and its affiliates are eligible to receive all other types of awards under the 2020 equity plan.
No awards are issuable by Camber under the 2020 equity plan (a) in connection with services associated with the offer or sale of securities in a capital-raising transaction; or (b) where the services directly or indirectly promote or maintain a market for Camber’s securities.
Option Terms
Stock options may be granted by the Administrator and may be either non-qualified (non-statutory) stock options or incentive stock options. The Administrator, in its sole discretion, determines the exercise price of any options granted under the Plan which exercise price is set forth in the agreement evidencing the option, provided however that at no time can the exercise price be less than the $0.001 par value per share of Camber’s common stock. Stock options are subject to the terms and conditions, including vesting conditions, set by the Administrator (and incentive stock options are subject to further statutory restrictions that will be set forth in the grant agreement for those options). The exercise price for all stock options granted under the 2020 equity plan will be determined by the Administrator, except that no incentive stock options can be granted with an exercise price that is less than 100% of the fair market value of Camber’s common stock on the date of grant. Further, stockholders who own greater than 10% of Camber’s voting stock will not be granted incentive stock options that have an exercise price less than 110% of the fair market value of Camber’s common stock on the date of grant.
The term of all stock options granted under the 2020 equity plan will be determined by the Administrator, but the term of an incentive stock option may not exceed 10 years (five years for incentive stock options granted to stockholders who own greater than 10% of Camber’s voting stock). Each stock option gives the grantee the right to receive a number of shares of Camber’s common stock upon exercise of the stock option and payment of the exercise price. The exercise price may be paid in cash or if approved by the Administrator, shares of Camber’s common stock. The Administrator may also permit other ways for a grantee to pay the exercise price.
Options granted under the 2020 equity plan may be exercisable in cumulative increments, or “vest,” as determined by the Administrator. The Administrator has the power to accelerate the time as of which an option may vest or be exercised.
A recipient may not transfer an incentive stock option otherwise than by will or by the laws of descent and distribution. During the lifetime of the recipient, only the recipient may exercise an option. The Administrator may grant non-statutory stock options that are transferable to the extent provided in the applicable written agreement.
Incentive stock options granted under the 2020 equity plan are intended to qualify as “incentive stock options” within the meaning of Section 422 of the Code. Nonqualified (non-statutory stock options) granted under the 2020 equity plan are not intended to qualify as incentive stock options under the Code.
Terms of Restricted Stock Awards and Stock Awards
The Administrator may issue shares of restricted stock under the 2020 equity plan as a grant or for such consideration, including services, and, subject to the Sarbanes-Oxley Act of 2002, promissory notes, as determined in its sole discretion. Restricted shares are shares of Camber’s common stock that may (but are not required to be) forfeitable until the applicable restrictions lapse. The Administrator will determine the restrictions for each award and the restrictions may be based on the passage of time or the achievement of specific performance goals. If the performance goals are not achieved or the restrictions do not lapse within the time period provided in the award agreement, the grantee will forfeit his or her restricted shares. Unless the Administrator determines otherwise, a grantee will have stockholder rights with respect to his or her restricted shares, including the right to vote the shares and receive dividends on them. Any stock dividends on restricted shares are subject to the same restrictions that apply to those restricted shares. Generally, in the event a recipient’s employment or service with Camber terminates, any or all of the shares of common stock held by such recipient that have not vested as of the date of termination under the terms of the restricted stock agreement may be forfeited to Camber in accordance with such restricted stock agreement.
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The Administrator determines how any awards granted under the 2020 equity plan will vest.
Additionally, common stock may be issued as stock awards or performance shares pursuant to the 2020 equity plan without vesting restrictions or with such restrictions as determined by the Administrator in its sole discretion.
Rights to acquire shares of common stock under the restricted stock purchase or grant agreement are transferable by the recipient only upon such terms and conditions as are set forth in the restricted stock agreement, as the Administrator may determine in its discretion, so long as shares of common stock awarded under the restricted stock agreement remain subject to the terms of such agreement.
Terms of Performance Shares
The Administrator, in its sole discretion, may from time to time award performance shares to eligible persons as an incentive for the performance of future services that will contribute materially to the successful operation of Camber. The Administrator determines the terms and conditions of any award of performance shares, which shall be set forth in the related award agreement, including without limitation: (a) the purchase price, if any, to be paid for such performance shares, which may be zero, subject to such minimum consideration as may be required by applicable law; (b) the performance period (the “Performance Period”) and/or performance objectives (the “Performance Objectives”) applicable to such awards; (c) the number of performance shares that shall be paid to the participant if the applicable Performance Objectives are exceeded or met in whole or in part; and (d) the form of settlement of a performance share. Each performance share shall have a value equal to the fair market value of a share of common stock.
Performance Periods may overlap, and participants may participate simultaneously with respect to performance shares for which different Performance Periods are prescribed. Performance Objectives may vary from participant to participant and between awards and shall be based upon such performance criteria or combination of factors as the Administrator may deem appropriate, including, but not limited to, minimum earnings per share or return on equity. If during the course of a Performance Period there shall occur significant events which the Administrator expects to have a substantial effect on the applicable Performance Objectives during such period, the Administrator may revise such Performance Objectives.
In the sole discretion of the Administrator and as set forth in the award agreement for an award of performance shares, all performance shares held by a participant and not earned shall be forfeited by the participant upon the participant’s termination of service with Camber. Notwithstanding the foregoing, unless otherwise provided in an award agreement with respect to an award of performance shares, in the event of the death, disability or retirement of a participant during the applicable Performance Period, or in other cases of special circumstances (including hardship or other special circumstances of a participant whose employment is involuntarily terminated), the Administrator may determine to make a payment in settlement of such performance shares at the end of the Performance Period, based upon the extent to which the Performance Objectives were satisfied at the end of such period and pro-rated for the portion of the Performance Period during which the participant was employed by Camber or an affiliate; provided, however, that the Administrator may provide for an earlier payment in settlement of such performance shares in such amount and under such terms and conditions as the Administrator deems appropriate or desirable.
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The settlement of a performance share shall be made in cash, whole shares of common stock or a combination thereof and shall be made as soon as practicable after the end of the applicable Performance Period. Notwithstanding the foregoing, the Administrator in its sole discretion may allow a participant to defer payment in settlement of performance shares on terms and conditions approved by the Administrator and set forth in the related award agreement entered into in advance of the time of receipt or constructive receipt of payment by the participant.
Performance shares shall not be transferable by the participant. The Administrator has the authority to place additional restrictions on the Performance Shares including, but not limited to, restrictions on transfer of any shares of common stock that are delivered to a participant in settlement of any performance shares.
Tax Withholding Adjustments
To the extent provided by the terms of an option or other award, a participant may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option, or award by a cash payment upon exercise, or in the discretion of the Administrator, by authorizing Camber to withhold a portion of the stock otherwise issuable to the participant, by delivering already-owned shares of Camber’s common stock or by a combination of these means.
Termination of Service
With respect to incentive stock options granted under the 2020 equity plan, unless the applicable award agreement provides otherwise, in the event of a grantee’s termination of service due to his or her death or disability, that the grantee’s stock options will vest in their entirety and remain exercisable until one year after such termination of service (but not beyond the original term of the stock option); and thereafter, all stock options will be cancelled and forfeited to Camber. Except as set forth above, the incentive stock options shall lapse and cease to be exercisable upon the termination of service of an employee or director as defined in the 2020 equity plan, or within such period following a termination of service as shall have been determined by the Administrator and set forth in the related award agreement; provided, further, that such period shall not exceed the period of time ending on the date three (3) months following a termination of service.
Non-incentive stock options are governed by the related award agreements and have such terms as determined by the Administrator.
In the sole discretion of the Administrator, all shares of restricted stock held by a participant and still subject to restrictions shall be forfeited by the participant upon the participant’s termination of service and shall be reacquired, canceled and retired by Camber. Notwithstanding the foregoing, unless otherwise provided in an award agreement with respect to an award of restricted stock, in the event of the death, disability or retirement of a participant during the restriction period, or in other cases of special circumstances (including hardship or other special circumstances of a participant whose employment is involuntarily terminated), the Administrator may elect to waive in whole or in part any remaining restrictions with respect to all or any part of such participant’s restricted stock, if it finds that a waiver would be appropriate.
Duration; Termination of the 2020 equity plan
The 2020 equity plan will automatically terminate on the 10th anniversary of original approval date of the 2020 equity plan ([●], 2030). However, prior to that date, Camber’s board of directors may amend or terminate the 2020 equity plan as it deems advisable, but it cannot adopt an amendment if it would (1) without a grantee’s consent, materially and adversely affect that grantee’s award; or (2) without stockholder approval, increase the number of shares of Camber’s common stock that can be awarded under the 2020 equity plan.
Camber’s board of directors may submit any other amendment to the 2020 equity plan for stockholder approval if it concludes that stockholder approval is otherwise advisable.
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Effect of Certain Corporate Events
Adjustments. In the event of (1) changes in the outstanding stock or in the capital structure of Camber by reason of stock or extraordinary cash dividends, stock splits, reverse stock splits, recapitalization, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date of grant of any award or (2) any change in applicable laws or any change in circumstances that results in, or would result in, any substantial dilution or enlargement of the rights granted to, or available for, grantees, or which otherwise warrants equitable adjustment because it interferes with the intended operation of the 2020 equity plan, the Administrator will adjust or substitute awards as it determines equitable.
Change of Control Treatment. Upon the occurrence of:
(i) the adoption of a plan of merger or consolidation of Camber with any other corporation or association as a result of which the holders of the voting capital stock of Camber as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation;
(ii) the approval by the Board of Directors of an agreement providing for the sale or transfer (other than as security for obligations of Camber) of substantially all of the assets of Camber; or
(iii) in the absence of a prior expression of approval by the Board of Directors, the acquisition of more than 20% of Camber’s voting capital stock by any person within the meaning of Rule 13d-3 under the Securities Act of 1933, as amended (other than Camber or a person that directly or indirectly controls, is controlled by, or is under common control with, Camber); and unless otherwise provided in the award agreement with respect to a particular award, all outstanding stock options shall become immediately exercisable in full, subject to any appropriate adjustments, and shall remain exercisable for the remaining option period, regardless of any provision in the related award agreement limiting the ability to exercise such stock option or any portion thereof for any length of time. All outstanding performance shares with respect to which the applicable performance period has not been completed shall be paid out as soon as practicable; and all outstanding shares of restricted stock with respect to which the restrictions have not lapsed shall be deemed vested and all such restrictions shall be deemed lapsed and the restriction period ended.
Additionally, after the merger of one or more corporations into Camber, any merger of Camber into another corporation, any consolidation of Camber and one or more corporations, or any other corporate reorganization of any form involving Camber as a party thereto and involving any exchange, conversion, adjustment or other modification of the outstanding shares of the common stock, each participant shall, at no additional cost, be entitled, upon any exercise of such participant’s stock option, to receive, in lieu of the number of shares as to which such stock option shall then be so exercised, the number and class of shares of stock or other securities or such other property to which such participant would have been entitled to pursuant to the terms of the agreement of merger or consolidation or reorganization, if at the time of such merger or consolidation or reorganization, such participant had been a holder of record of a number of shares of common stock equal to the number of shares as to which such stock option shall then be so exercised.
Federal Income Tax Consequences
The following is a summary of the principal United States federal income tax consequences to the recipient and Camber with respect to participation in the 2020 equity plan. This summary is not intended to be exhaustive, and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may reside.
Incentive Stock Options
There will be no federal income tax consequences to either Camber or the recipient upon the grant of an incentive stock option. Upon exercise of the option, the excess of the fair market value of the stock over the exercise price, or the “spread,” will be added to the alternative minimum tax base of the recipient unless a disqualifying disposition is made in the year of exercise. A disqualifying disposition is the sale of the stock prior to the expiration of two years from the date of grant and one year from the date of exercise. If the shares of common stock are disposed of in a disqualifying disposition, the recipient will realize taxable ordinary income in an amount equal to the spread at the time of exercise, and Camber will be entitled (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation) to a federal income tax deduction equal to such amount. If the recipient sells the shares of common stock after the specified periods, the gain or loss on the sale of the shares will be long-term capital gain or loss and Camber will not be entitled to a federal income tax deduction.
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Non-statutory Stock Options and Restricted Stock Awards
Non-statutory stock options and restricted stock awards granted under the 2020 equity plan generally have the following federal income tax consequences.
There are no tax consequences to the participant or Camber by reason of the grant. Upon acquisition of the stock, the recipient will recognize taxable ordinary income equal to the excess, if any, of the stock’s fair market value on the acquisition date over the purchase price. However, to the extent the stock is subject to “a substantial risk of forfeiture” (as defined in Section 83 of the Code), the taxable event will be delayed until the forfeiture provision lapses unless the recipient elects to be taxed on receipt of the stock by making a Section 83(b) election within 30 days of receipt of the stock. If such election is not made, the recipient generally will recognize income as and when the forfeiture provision lapses, and the income recognized will be based on the fair market value of the stock on such future date. On that date, the recipient’s holding period for purposes of determining the long-term or short-term nature of any capital gain or loss recognized on a subsequent disposition of the stock will begin. If a recipient makes a Section 83(b) election, the recipient will recognize ordinary income equal to the difference between the stock’s fair market value and the purchase price, if any, as of the date of receipt and the holding period for purposes of characterizing as long-term or short-term any subsequent gain or loss will begin at the date of receipt.
Potential Limitation on Company Deductions
Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain senior executives of Camber (a “covered employee”) in a taxable year to the extent that compensation to such employees exceeds $1,000,000. It is possible that compensation attributable to awards, when combined with all other types of compensation received by a covered employee from Camber, may cause this limitation to be exceeded in any particular year.
Modification of Awards under the 2020 equity plan
The Board is permitted to amend the terms and provisions of outstanding awards if the amended terms and provisions would have been permissible when the award was granted, including extensions of the exercise period and acceleration of the vesting schedule of such awards. However, no such action may (1) materially and adversely affect the rights of any grantee with respect to outstanding awards without his or her written consent or (2) cause an award intended to qualify as performance-based compensation under Section 162(m) of the Code to cease being qualified as that type of compensation.
Additionally, notwithstanding anything to the contrary in the 2020 equity plan, Camber may reprice any stock option granted under the plan without the approval of the stockholders of Camber. For this purpose, “reprice” means (i) any of the following or any other action that has the same effect: (A) lowering the exercise price of a stock option after it is granted, (B) any other action that is treated as a repricing under GAAP, or (C) cancelling a stock option at a time when its exercise price exceeds the fair market value of the underlying common stock, in exchange for another stock option, restricted stock or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction; and (ii) any other action that is considered to be a repricing under formal or informal guidance issued by exchange or market on which Camber’s common stock then trades or is quoted.
In addition to, and without limiting the above, the Administrator may permit the voluntary surrender of all or a portion of any stock option granted under the plan to be conditioned upon the granting to the participant of a new stock option for the same or a different number of shares of common stock as the stock option surrendered, or may require such voluntary surrender as a condition precedent to a grant of a new stock option to such participant. Subject to the provisions of the plan, such new stock option shall be exercisable at such option price, during such option period and on such other terms and conditions as are specified by the Administrator at the time the new stock option is granted. upon surrender, the stock options surrendered shall be canceled and the shares of common stock previously subject to them shall be available for the grant of other stock options.
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Awards planned under the 2020 equity plan
Upon the closing of the merger, all of the outstanding options of Viking will be reissued as Camber options, as awards under the 2020 equity plan, subject to equitable adjustments in connection with the merger/exchange ratio.
Additionally, it is anticipated that the board of directors of Camber will approve the issuance to each of Louis G. Schott, Camber’s Interim Chief Executive Officer and Robert Schleizer, Camber’s Chief Financial Officer, and Fred S. Zeidman and James G. Miller, directors of Camber, of shares of Camber common stock in consideration for past and in some cases, future services, immediately prior to the effective time of the merger, which in aggregate will total 15% of Camber’s outstanding shares of common stock immediately prior to the closing of the merger (split equally between each of the four officers and directors of Camber), provided the exact amount of such awards are not currently known. Camber currently anticipates that such awards will total approximately [●]% of the total number of shares available for future issuance under the 2020 equity plan.
Vote required
The approval and adoption of the 2020 equity plan requires the affirmative vote of a majority of the votes cast on such proposal provided that a quorum exists at the Camber special meeting. Broker non-votes and abstentions will have no effect on determining whether the affirmative vote constitutes a majority of the shares present or represented by proxy and voting on the proposal. However, broker non-votes and abstentions could prevent the approval of this proposal because they do not count as affirmative votes. In order to minimize the number of broker non-votes, Camber encourages you to vote or to provide voting instructions to the organization that holds your shares by carefully following the instructions provided in the Notice.
If this proposal is not approved by Camber’s stockholders, the 2020 equity plan will not become effective. In that case the merger may not be able to close in the event the outstanding options of Viking cannot otherwise be assumed by Camber pursuant to the rules of the NYSE American.
The Camber board recommends a vote “FOR” the adoption of the 2020 equity plan.
Proposal 5: Camber Adjournment Proposal
The Camber special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Camber special meeting to approve the Camber share issuance proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Camber stockholders.
If, at the Camber special meeting, the number of shares of Camber common stock present or represented and voting in favor of the Camber share issuance proposal, Camber charter amendment proposal, Camber reverse split proposal, or the Camber equity plan proposal is insufficient to approve such proposals, Camber intends to move to adjourn the Camber special meeting in order to enable the Camber board to solicit additional proxies for approval of the Camber share issuance proposal, Camber charter amendment proposal, Camber reverse split proposal, or the Camber equity plan proposal, as applicable. In that event, Camber will ask Camber stockholders to vote upon the Camber adjournment proposal, but not the Camber share issuance proposal, the Camber charter amendment proposal, Camber reverse split proposal, or the Camber equity plan proposal. The chairperson of the Camber special meeting also has authority to adjourn the Camber special meeting.
In this proposal, Camber is asking Camber stockholders to authorize the holder of any proxy solicited by the Camber board on a discretionary basis to vote in favor of adjourning the Camber special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Camber stockholders who have previously voted, or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Camber stockholders.
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The Camber board recommends a vote “FOR” the Camber adjournment proposal.
This section contains information for Viking stockholders about the special meeting that Viking has called to allow Viking stockholders to consider and vote on the merger agreement and other related matters. This joint proxy statement/prospectus is accompanied by a notice of the special meeting of Viking stockholders and a form of proxy card that the Viking board is soliciting for use at the special meeting and at any adjournments or postponements of the special meeting.
Date, Time and Place of the Meeting
The Viking special meeting will be held on [●], 2020 at [●], at [●] local time.
At the Viking special meeting, holders of Viking common stock and Viking Series C Preferred Stock will be asked to consider and vote upon the following proposals:
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the Viking merger proposal; |
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the Viking charter amendment proposal; |
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the Viking reverse split proposal; and |
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the Viking adjournment proposal. |
Recommendation of the Viking Board
The Viking board recommends that you vote “FOR” the Viking merger proposal, “FOR” the Viking charter amendment proposal, “FOR” the Viking reverse split proposal; and “FOR” the Viking adjournment proposal. See “The Merger—Viking’s Reasons for the Merger; Recommendation of the Viking Board” beginning on page 151 for a more detailed discussion of the Viking board’s recommendation.
The Viking board has fixed the close of business on [●], 2020 as the record date for determination of Viking stockholders entitled to notice of and to vote at the Viking special meeting. As of [●], 2020, the last date before the date of this joint proxy statement/prospectus for which it was practicable to obtain this information, there were [●] shares of Viking common stock outstanding and [●] shares of Viking Series C Preferred Stock outstanding.
Holders of a majority of Vikings outstanding voting shares, on the record date must be present, either in person or by proxy, to constitute a quorum at the Viking special meeting. If you fail to submit a proxy or to vote in person at the Viking special meeting, your shares of Viking common stock will not be counted towards a quorum. Abstentions are considered present for purposes of establishing a quorum.
Each share of Viking common stock is entitled to one (1) vote on all matters properly submitted to holders of Viking common stock at the Viking special meeting. Each share of Viking Series C Preferred Stock is entitled to 32,500 votes on all matters properly submitted to the holders of Viking Series C Preferred Stock at the Viking special meeting.
As of [●], 2020 the last date before the date of this joint proxy statement/prospectus for which it was practicable to obtain this information, Viking directors and executive officers and their affiliates owned and were entitled to vote approximately [●] shares of Viking common stock, representing [●] percent ([●]%) of the outstanding shares of Viking common stock, approximately [●] shares of Viking Series C Preferred Stock, collectively representing [●]% of the outstanding Viking Series C Preferred Stock, and approximately [●] total voting shares, collectively representing [●]% of Viking’s total voting shares as of the Viking record date. We currently expect that Viking’s directors and executive officers will vote their shares in favor of the merger, although none of them has entered into any agreements obligating them to do so.
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Vote Required; Treatment of Abstentions and Failure to Vote
Viking merger proposal:
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Vote required: Approval of the Viking merger proposal requires the affirmative vote of the holders of a majority of Viking’s outstanding voting shares entitled to vote on the Viking merger proposal. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, fail to submit a proxy or to vote in person at the Viking special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Viking merger proposal, it will have the same effect as a vote “AGAINST” the Viking merger proposal. |
Viking charter amendment proposal:
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Vote required: Approval of the Viking charter amendment proposal requires the affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking charter amendment proposal. Approval of this proposal is non-binding. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Viking charter amendment proposal. If you fail to instruct your bank, broker or other nominee how to vote with respect to the Viking charter amendment proposal, your shares will not be deemed to be represented at the Viking special meeting, and it will have no effect on the Viking charter amendment proposal. |
Viking reverse split proposal:
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Vote required: Approval of the Viking reverse split proposal requires the affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking reverse split proposal. Approval of this proposal is non-binding. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Viking reverse split proposal. If you fail to instruct your bank, broker or other nominee how to vote with respect to the Viking reverse split proposal, your shares will not be deemed to be represented at the Viking special meeting, and it will have no effect on the Viking reverse split proposal. |
Viking adjournment proposal:
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Vote required: Approval of the Viking adjournment proposal requires the affirmative vote of the holders of a majority of the shares present or represented by proxy at the meeting and entitled to vote on the Viking adjournment proposal. |
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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, it will have the same effect as a vote “AGAINST” the Viking adjournment proposal. If you fail to submit a proxy or to vote in person at the Viking special meeting or fail to instruct your bank, broker or other nominee how to vote with respect to the Viking adjournment proposal, your shares will not be deemed to be represented at the Viking special meeting, and it will have no effect on the Viking adjournment proposal. |
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Attendance at the special meeting will be limited to stockholders of Viking as of the record date and Viking’s invited guests. The proxy card is your admission ticket. When you arrive at the Viking special meeting, you will be asked to present photo identification, such as a driver’s license. If you want to vote your shares of Viking common stock or Viking Series C Preferred Stock held in nominee name in person, you must get a “legal proxy” in your name from the broker, bank or other nominee that holds your shares. You should indicate that you plan to attend the Viking special meeting when submitting your proxy card by checking the box under the caption “Meeting Attendance” on the proxy card. If you are a beneficial owner of Viking common stock or Viking Series C Preferred Stock held by a broker, bank or other nominee, or if you are a record holder and have not submitted your proxy card or did not indicate on your submitted proxy card that you plan to attend the Viking special meeting, please contact the office of the Corporate Secretary at Viking Energy Group, Inc., Suite 450, 15915 Katy Freeway, Houston, Texas, 77094 or via telephone at (281) 404-4387; to request an admission ticket. If you do not have an admission ticket, you must present proof of ownership in order to be admitted to the meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership.
A holder of shares of Viking common stock or Viking Series C Preferred Stock may vote by proxy or in person at the Viking special meeting. If you hold your shares in your name as a holder of record, to vote, you, as a holder of Viking shares, may use one of the following methods:
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By telephone: by calling the toll-free number indicated on the accompanying proxy card and following the recorded instructions. |
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Through the Internet: by visiting the website indicated on the accompanying proxy card and following the instructions. |
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By mail: by completing and returning the accompanying proxy card in the enclosed postage-paid envelope. The envelope requires no additional postage if mailed in the United States. |
Viking requests that holders of Viking shares vote by telephone, over the Internet or by completing and signing the accompanying proxy card and returning it to Viking as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed, the shares represented by it will be voted at the Viking special meeting in accordance with the instructions contained on the proxy card.
If a holder’s shares are held in “street name” by a broker, bank or other nominee, the holder should check the voting form used by that firm to determine whether the holder may vote by telephone or the Internet. Every vote is important. Accordingly, you should sign, date and return the enclosed proxy card, or vote via the Internet or by telephone, whether or not you plan to attend the Viking special meeting in person. Sending in your proxy card or voting by telephone or on the Internet will not prevent you from voting your shares personally at the meeting because you may change your vote at the meeting or revoke your proxy at any time before it is voted at the meeting.
If your shares of Viking common stock or Viking Series C Preferred Stock are held in “street name” through a broker, bank or other nominee, you must instruct the broker, bank or other nominee on how to vote your shares. Your broker, bank or other nominee will vote your shares only if you provide specific instructions on how to vote by following the instructions provided to you by your broker, bank or other nominee.
You may not vote shares of Viking common stock or Viking Series C Preferred Stock held in “street name” by returning a proxy card directly to Viking or by voting in person at the Viking special meeting unless you provide a “legal proxy” giving you the right to vote the shares, which you must obtain from your broker, bank or other nominee. If you choose to vote your shares in person at the Viking special meeting, please bring proof of identification.
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Further, brokers, banks or other nominees who hold shares on behalf of their customers may not give a proxy to Viking to vote those shares with respect to any of the proposals without specific instructions from their customers, as brokers, banks, and other nominees do not have discretionary voting power on the proposals that will be voted upon at the Viking special meeting.
If you are a holder of shares of Viking common stock or Viking Series C Preferred Stock of record, you may revoke your proxy at any time before it is voted by:
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submitting a written notice of revocation to Viking’s corporate secretary; |
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granting a subsequently dated proxy; |
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voting by telephone or the Internet at a later time; or |
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attending in person and voting at the Viking special meeting. |
If you hold your shares of Viking common stock or Viking Series C Preferred Stock through a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.
Attendance at the Viking special meeting will not in and of itself constitute revocation of a proxy. A revocation or later-dated proxy received by Viking after the vote will not affect the vote. Viking’s corporate secretary’s mailing address is: Viking Energy Group, Inc., 15915 Katy Freeway, Suite 450, Houston, Texas, 77094, Attention: Corporate Secretary. If the Viking special meeting is postponed or adjourned, it will not affect the ability of holders of Viking common stock or Viking Series C Preferred Stock as of the record date to exercise their voting rights or to revoke any previously-granted proxy using the methods described above.
As permitted by applicable law, only one (1) copy of this joint proxy statement/prospectus is being delivered to holders of Viking common stock and Viking Series C Preferred Stock residing at the same address, unless such holders of Viking common stock have notified Viking of their desire to receive multiple copies of the joint proxy statement/prospectus.
Viking will promptly deliver, upon oral or written request, a separate copy of the joint proxy statement/prospectus to any holder of Viking common stock or Viking Series C Preferred Stock residing at an address to which only one (1) copy of such document was mailed. Requests for additional copies should be directed to Camber’s Secretary, Robert Schleizer at Info@camber.energy, or at the following address or phone number: 1415 Louisiana, Suite 3500, Houston, Texas 77002 | (210) 998-4035 or Viking’s Investor Relations contact, Barwicki Investor Relations Inc., at andrew@barwicki.com or at the following address or phone number: 30 Wall Street, 8 FL, New York, NY 10005 or (516) 662-9461.
Camber and Viking will share equally the expenses incurred in connection with the printing and mailing of this joint proxy statement/prospectus. To assist in the solicitation of proxies, Viking has retained [●] and estimates it will pay [●] a fee of approximately $[●] plus reimbursement of out-of-pocket expenses for [●]’s services. Viking and its proxy solicitor will also request banks, brokers and other intermediaries holding shares of Viking common stock and Viking Series C Preferred Stock beneficially owned by others to send this joint proxy statement/prospectus to, and obtain proxies from, the beneficial owners and may reimburse such record holders for their reasonable out-of-pocket expenses in so doing. Solicitation of proxies by mail may be supplemented by telephone and other electronic means, advertisements and personal solicitation by the directors, officers or employees of Viking. No additional compensation will be paid to our directors, officers or employees for solicitation.
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You should not send in any Viking stock certificates with your proxy card (or, if you hold your shares in “street name” your voting instruction card). If the merger closes, the exchange agent will mail a transmittal letter with instructions for the surrender of stock certificates to holders of Viking common stock as soon as practicable after completion of the merger.
Other Matters to Come Before the Viking Special Meeting
Viking management knows of no other business to be presented at the Viking special meeting, but if any other matters are properly presented to the meeting or any adjournments thereof, the persons named in the proxies will vote upon them in accordance with the Viking board’s recommendations.
If you need assistance in voting or completing your proxy card, have questions regarding Viking’s special meeting or would like additional copies of this joint proxy statement/prospectus, please contact the Company’s Secretary, Robert Schleizer at Info@camber.energy, or at the following address or phone number: 1415 Louisiana, Suite 3500, Houston, Texas 77002 | (210) 998-4035.
Proposal 1: Viking Merger Proposal
Viking is asking holders of Viking common stock and Viking Series C Preferred Stock to approve the merger agreement and the transactions contemplated thereby. Holders of Viking common stock and Viking Series C Preferred Stock should read this joint proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.
After careful consideration, the Viking board approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger. See “The Merger—Viking’s Reasons for the Merger; Recommendation of the Viking board” beginning on page 151 for a more detailed discussion of the Viking board’s recommendation.
The Viking board recommends a vote “FOR” the Viking merger proposal.
Proposal 2: Viking Charter Amendment Proposal
Pursuant to the merger agreement, Camber will, subject to the requisite vote of Camber’s stockholders to approve the Camber charter amendment proposal, amend the Camber charter to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares, effective only upon the completion of the merger. Even though the approval by Viking stockholders of the Camber charter amendment proposal is not a condition to the closing of the merger, the SEC has issued interpretive guidance with respect to the “unbundling” of proposals under the Exchange Act that requires Viking stockholders (in their capacity as stockholders of Viking) to also separately vote on the Camber charter amendment. The increase will be affected by the filing of a Certificate of Amendment to Camber’s Articles of Incorporation in substantially the form of Annex B to this joint proxy statement/prospectus, which is subject to non-material technical, administrative or similar changes and modifications in order to comply with Nevada law. Viking stockholders should read the proposed amendment to the Camber charter in its entirety.
Accordingly, Viking is asking holders of Viking common stock and Viking Series C Preferred Stock to vote “FOR” the adoption of the following resolution, on a non-binding advisory basis:
“RESOLVED, that the amendment to Camber’s articles of incorporation to increase the number of authorized shares of Camber common stock to 250 million shares is hereby APPROVED.”
The vote on the Viking charter amendment proposal is a vote separate from the vote on the Viking merger proposal. Approval by Viking’s stockholders of the Viking charter amendment proposal is not a condition to completion of the merger. The votes received by Viking stockholders with respect to the Viking charter amendment proposal are advisory and will not be binding on Viking or Camber (or the combined company that results from the merger) regardless of whether the Viking merger proposal is approved. If Camber’s stockholders approve the Camber charter amendment, such amendment will be effective only upon completion of the merger and effective as of the effective time. For more information on the existing rights of Viking stockholders and their post-merger rights as Camber Viking stockholders, see “Comparison of Stockholders’ Rights” beginning on page 208.
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The Viking board recommends a vote “FOR” the advisory Viking charter amendment proposal.
Proposal 3: Viking Reverse Split Proposal
Prior to the closing of the merger, Camber anticipates, subject to the requisite vote of Camber’s stockholders to approve the Camber reverse split proposal, affecting a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, in order for Camber’s common stock to be more likely to meet the minimum price requirements of the NYSE American which are required for the continued listing of Camber’s common stock following the merger, which is a required term and condition of the merger agreement. Camber is seeking stockholder approval for authority for its board of directors to affect the Camber reverse stock split if it deems necessary in its discretion, prior to the closing of the merger, in the ratio described above. Even though the approval by Viking stockholders of the Camber reverse split proposal is not a condition to the closing of the merger, the SEC has issued interpretive guidance with respect to the “unbundling” of proposals under the Exchange Act that requires Viking stockholders (in their capacity as stockholders of Viking) to also separately vote on the Camber reverse stock split. The Camber reverse stock split will be affected by the filing of a Certificate of Amendment to Camber’s Articles of Incorporation in substantially the form of Annex C to this joint proxy statement/prospectus, which is subject to non-material technical, administrative or similar changes and modifications in order to comply with Nevada law. Viking stockholders should read the proposed amendment to the Camber charter in its entirety.
Accordingly, Viking is asking holders of Viking common stock and Viking Series C Preferred Stock to vote “FOR” the adoption of the following resolution, on a non-binding advisory basis:
“RESOLVED, that the authority for the board of directors of Camber to affect a reverse stock split of Camber’s outstanding common stock in a ratio of between one-for-five and one-for-twenty-five, in their sole discretion, as mutually agreed to between Camber and Viking, prior to the effectiveness of the merger, and to file an amendment to Camber’s articles of incorporation to affect such reverse stock split is hereby APPROVED.”
The vote on the Viking reverse stock split proposal is a vote separate from the vote on the Viking merger proposal. Approval by Viking’s stockholders of the Viking reverse stock split proposal is not a condition to completion of the merger. The votes received by Viking stockholders with respect to the Viking reverse stock split proposal are advisory and will not be binding on Viking or Camber (or the combined company that results from the merger) regardless of whether the Viking merger proposal is approved. If Camber’s stockholders approve the Camber reverse stock split proposal, such Camber reverse stock split will only be effective if approved by the board of directors prior to the merger. For more information on the existing rights of Viking stockholders and their post-merger rights as Camber Viking stockholders, see “Comparison of Stockholders’ Rights” beginning on page 208.
The Viking board recommends a vote “FOR” the advisory Viking reverse stock split proposal.
Proposal 4: Viking Adjournment Proposal
The Viking special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Viking special meeting to approve the Viking merger proposal or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Viking stockholders.
If, at the Viking special meeting, the number of shares of Viking common stock and Viking Series C Preferred Stock present or represented and voting in favor of the Viking merger proposal is insufficient to approve the Viking merger proposal, Viking intends to move to adjourn the Viking special meeting in order to enable the Viking board to solicit additional proxies for approval of the merger. In that event, Viking will ask holders of Viking common stock and Viking Series C Preferred Stock to vote upon the Viking adjournment proposal, but not the Viking merger proposal, the Viking charter amendment proposal, or the Viking reverse split proposal. The chairperson of the Viking special meeting also has authority to adjourn the Viking special meeting.
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In this proposal, Viking is asking holders of Viking common stock and Viking Series C Preferred Stock to authorize the holder of any proxy solicited by the Viking board on a discretionary basis to vote in favor of adjourning the Viking special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from holders of Viking common stock and Viking Series C Preferred Stock who have previously voted, or to ensure that any supplement or amendment to this joint proxy statement/prospectus is timely provided to Viking stockholders.
The Viking board recommends a vote “FOR” the Viking adjournment proposal.
Description of Business of Camber
Corporate History and Operations
Camber Energy, Inc., a Nevada corporation, was incorporated in Nevada in December 2003 under the name Panorama Investments Corp. Camber changed its name to Lucas Energy, Inc. effective September 9, 2006 and effective January 4, 2017, Camber changed its name to Camber Energy, Inc. Camber is based in Houston, Texas.
Camber is an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations, including the Cline shale and upper Wolfberry shale in Glasscock County, Texas, as well as in productive zones in the Panhandle in Hutchinson County, Texas. Additionally, from the July 8, 2019 acquisition of Lineal Star Holdings, LLC (“Lineal”), until the divestiture of Lineal effective on December 31, 2019, each as discussed in further detail below, Camber was involved in the oil and gas services industry.
On July 8, 2019, Camber acquired Lineal pursuant to the terms of an Agreement and Plan of Merger dated as of the same date (the “Lineal Plan of Merger” and the merger contemplated therein, the “Lineal Merger”), by and between Lineal, Camber, Camber Energy Merger Sub 2, Inc., Camber’s wholly-owned subsidiary (“Merger Sub”), and the Members of Lineal (the “Lineal Members”). Lineal is a specialty construction and oil and gas services enterprise providing services to the energy industry. Pursuant to the Lineal Plan of Merger, Camber 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.
In connection with the Lineal Plan of Merger, Camber entered into several other agreements, including (a) a Security Exchange Agreement dated July 8, 2019 (the “Exchange Agreement”), by and between Camber and an accredited institutional investor, Discover Growth Fund LLC (“Discover”); (b) a Termination Agreement dated July 8, 2019, by and between Camber and Discover Growth Fund, which purchased shares of Series C Preferred Stock from Camber in December 2018 (“Discover Growth”, which subsequently transferred all of its shares of Series C Preferred Stock to Discover); and (c) a Funding and Loan Agreement dated July 8, 2019, by and among Camber, Lineal, and certain of the Lineal Members who also acquired shares of Camber’s preferred stock as a result of the Lineal Merger (the “Funding Agreement”), which provided for Camber to loan $1,050,000 to Lineal, which loan was evidenced by a Promissory Note entered into by Lineal, as borrower, in favor of Camber, as lender, dated July 8, 2019 (the “July 2019 Lineal Note”).
Also as part of the Lineal Merger, Camber 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, Camber 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”).
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The Lineal Plan of Merger, Series D Designation and Series E Designation, provided that, effective upon the date that the stockholders of Camber had approved the Lineal Plan of Merger and issuance of shares in connection therewith (the “Stockholder Approval” and such date of Stockholder Approval, the “Stockholder Approval Date”), and subject to certain closing conditions, (a) the common stock holders of Camber were to hold between 6% and 6.67% of Camber’s fully-diluted capitalization (depending on certain factors); (b) Discover was to hold Series D Preferred Stock convertible into 26.67% of Camber’s fully-diluted capitalization, subject to the terms of the Series D Preferred Stock; and (c) the Lineal Members, who held the Series E Preferred Stock, were to have the right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed above, into 66.67% of Camber’s fully-diluted capitalization, or 70%, subject to certain factors.
Pursuant to the Lineal Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Lineal Merger and as a wholly-owned subsidiary of Camber.
The Funding Agreement required Camber to fund $1,050,000 in immediately available funds to Lineal (the “Loan”). The Loan was documented by the July 2019 Lineal Note and the Loan was made on July 9, 2019.
On December 31, 2019, Camber entered into a Preferred Stock Redemption Agreement (the “Redemption Agreement”) by and between Camber and Lineal, whereby Camber redeemed its Series E and F Preferred Stock (the holders of such preferred stock, collectively, the “Preferred Holders”) issued in connection with the Lineal Merger. Pursuant to the Redemption Agreement, effective as of December 31, 2019, ownership of 100% of Lineal was transferred back to the Preferred Holders, and, all of the Series E Preferred Stock and Series F Preferred Stock of Camber outstanding were cancelled through the redemption.
The Redemption Agreement also provided for (a) the entry by Lineal and Camber into a new unsecured promissory note in the amount of $1,539,719, the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); (b) the unsecured loan by Camber to Lineal on December 31, 2019 of an additional $800,000, entered into by Lineal in favor of Camber on December 31, 2019 (“Lineal Note No. 2”); and (c) the termination of the prior Lineal Plan of Merger and Funding Agreement entered into in connection therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned pursuant to Lineal Note No. 2, were released back to Camber). The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. As of December 31, 2019, $51,656 of interest related to the December 2019 Lineal Note and Lineal Note No. 2 was accrued and included in the consolidated balance sheet in Accounts Receivable.
Prior to the acquisition of Lineal, Camber has acquired certain assets in December 2018 and then sold significantly all of those assets back to affiliates of the sellers in August 2018, as discussed below.
On December 30, 2015, Camber entered into an Asset Purchase Agreement (as amended from time to time, the “Asset Purchase Agreement”) to acquire, from twenty-three different entities and individuals (the “Sellers”), working interests in producing properties and undeveloped acreage (the “Acquisition”), which acquisition transaction was completed on August 25, 2016. The assets acquired include varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region. In connection with the closing of the acquisition, Camber assumed approximately $30.6 million of commercial bank debt, issued 416 shares of common stock to certain of the Sellers, issued 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate (which have since been converted into common stock), and paid $4,975,000 in cash to certain of the Sellers. The effective date of the Acquisition was April 1, 2016.
On July 12, 2018, Camber entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018 and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with N&B Energy, LLC (“N&B Energy”) as purchaser, which entity is affiliated with Richard N. Azar II, Camber’s former Chief Executive Officer and former director (“Azar”), and Donnie B. Seay, Camber’s former director (“Seay”), each of which were Sellers in the Asset Purchase Agreement. Pursuant to the Sale Agreement, Camber agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of a December 31, 2015 Asset Purchase Agreement and certain other acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay Camber $100 in cash to assume Camber’s liabilities and contractual obligations in connection with the Disposed Assets (including lease and bonus payments), to assume all of Camber’s obligations and debt owed under its outstanding loan agreement with International Bank of Commerce (“IBC Bank”), which had a then outstanding principal balance of approximately $36.9 million and the other parties agreed to enter into a settlement agreement.
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On September 26, 2018, Camber entered into an Assumption Agreement (the “Assumption Agreement”) with IBC Bank; CE Operating, LLC, Camber’s wholly-owned subsidiary (“CE Operating”), which became a party to the Sale Agreement pursuant to the second amendment thereto; N&B Energy; Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”); Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay. Azar, Seay, RAD2, and DBS are collectively referred to as the “Guarantors”.
Pursuant to the Assumption Agreement, N&B Energy agreed to assume all of Camber’s liabilities and obligations owed to IBC Bank and IBC Bank approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities which Camber owed to IBC Bank (collectively, the “IBC Obligations”). Finally, pursuant to the Assumption Agreement, IBC Bank released and forever discharged Camber and CE Operating and each of their current and former officers, directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at equity, which IBC Bank then had, arising out of or related to the amounts which Camber owed to IBC Bank under the Note, Loan Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held on certain of Camber’s properties located in west Texas.
On September 26, 2018, the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid Camber $100 in cash, and Camber transferred ownership of the Disposed Assets to N&B Energy.
Notwithstanding the sale of the Disposed Assets, Camber retained its assets in Glasscock and Hutchinson Counties, Texas and also retained a 12.5% production payment (effective until a total of $2.5 million has been received, of which $0 has been received to date); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and retained an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignment of Overriding Royalty Interests.
The effective date of the Sale Agreement was August 1, 2018. The Disposed Assets were assigned “as is” with all faults.
As a result of the Assumption Agreement and the Sale Agreement, Camber reduced its liabilities by $37.9 million and its assets by approximately $12.1 million.
Camber’s website address is http://www.camber.energy. Camber’s fiscal year ends on the last day of March of each year. The information on, or that may be accessed through, Camber’s website is not incorporated by reference into this joint proxy statement/prospectus and should not be considered a part of this joint proxy statement/prospectus.
As of December 31, 2019 and March 31, 2019, Camber had leasehold interests (working interests) covering approximately 221 / 3,500 (net / gross) acres, producing from the Cline and Wolfberry formations. The remaining Texas acreage consists of leasehold covering approximately 555 / 638 (net / gross) acres and wellbores located in the Panhandle in Hutchinson County, Texas, which was acquired by Camber in March 2018. On May 30, 2019, Camber received a Severance Order from the Texas Railroad Commission (the “TRC”) for noncompliance with TRC rules, suspending Camber’s ability to produce or sell oil and gas from its Panhandle leases in Hutchinson County, Texas, until certain well performance criteria are met. Since that time, Camber has been following TRC procedures in order to regain TRC compliance for the Panhandle wells. Additionally, as a result of a notice from its working interest partner, PetroGlobe Energy, and related litigation, all prior production on the Panhandle wells is held in suspense. Camber is working to cure the issues raised by the TRC. Additionally, Camber’s oil purchaser is holding hydrocarbons in suspense pursuant to the terms of the PetroGlobe lawsuit as discussed below under “Information About Camber - Camber Legal Proceedings”, below, beginning on page 110; however that as described above, the parties have recently entered into a settlement agreement which provides for among other things, Camber to cure the issues with the TRC and to transfer its ownership of its Hutchinson County, Texas properties and wells to PetroGlobe, which transaction and transfer has not closed to date.
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As of December 31, 2019, Camber was producing an average of approximately 36.5 net barrels of oil equivalent per day (“Boepd”) from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Camber’s production sales totaled 3,161 and 10,035 Boe, net to its interest, for the three and nine months ended December 31, 2019, respectively. At December 31, 2019, Camber’s total estimated proved producing reserves were 155,376 Boe, of which 120,590 Bbls were crude oil and NGL reserves, and 208,710 Mcf were natural gas reserves and of which 18,200 Bbls of crude oil relates to Camber’s Panhandle properties. There are no natural gas reserves related to the Panhandle properties.
The Hutchinson County, Texas, acquisition in March 2018 included interests in 48 gross non-producing well bores, 5 saltwater disposal wells, and the required infrastructure and equipment necessary to support future hydrocarbon production as well as approximately 555 net leasehold acres in Hutchinson County, Texas. Camber holds an interest in 25 producing wells in Glascock County and Camber previously restored 11 wells in Hutchinson County to production, which are not currently producing and which are planned to be plugged.
As of December 31, 2019, and through the date of this joint proxy statement/prospectus, Camber has curtailed production from its wells in Hutchinson County, Texas, because of the Severance Order discussed above. Camber is actively working to resolve the issues raised by the TRC. Additionally, Camber’s oil purchaser is holding hydrocarbons in suspense pursuant to the terms of the PetroGlobe lawsuit as discussed below under “Information About Camber - Camber Legal Proceedings”, below, beginning on page 110; however that as described above, the parties have recently entered into a settlement agreement which provides for among other things, Camber to cure the issues with the TRC and to transfer its ownership of its Hutchinson County, Texas properties and wells to PetroGlobe, which transaction and transfer has not closed to date. Notwithstanding the above, Camber’s management believes that Camber’s non-operated properties will be immaterial to the combined company following the merger and following the merger the combined company’s management will determine what course to take regarding such combined company assets, including Camber’s non-operated properties.
As of March 31, 2020, Camber had no employees and also, utilized independent contractors on an as-needed basis.
Moving forward, Camber plans to complete the merger with Viking and then focus on growing through the development of Viking’s properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. Camber anticipates raising additional financing to complete acquisitions following the closing of the merger, which may be accomplished through the sale of debt or equity.
Trading Symbol and More Information
Camber’s common stock is traded on the NYSE American under the symbol “CEI.”
Camber’s headquarters are located at 1415 Louisiana, Suite 3500, Houston, Texas, 77002. The telephone number at that location is (210) 998-4035. Additional information about Camber can be found at www.camber.energy. See “Where You Can Find More Information” beginning on page 223.
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Prior Material Events
October 2017 Purchase Agreement
On October 5, 2017, Camber and Discover, with whom Camber had previously entered into equity and debt purchase agreements in 2016 entered into a Stock Purchase Agreement (as amended to date, the “October 2017 Purchase Agreement”).
On October 5, 2017, in connection with the entry into the October 2017 Purchase Agreement, Discover purchased 212 shares of Series C Preferred Stock for $2 million, and thereafter Discover purchased 106 shares of Series C Preferred Stock for $1 million on November 21, 2017; 105 shares of Series C Preferred Stock for $1 million on December 27, 2017; 105 shares of Series C Preferred Stock for $1 million on January 31, 2018; 105 shares of Series C Preferred Stock for $1 million on February 22, 2018; 105 shares of Series C Preferred Stock for $1 million on March 9, 2018; 105 shares of Series C Preferred Stock for $1 million on April 10, 2018; and 105 shares of Series C Preferred Stock for $1 million on May 22, 2018, each under the October 2017 Purchase Agreement.
On March 2, 2018, Camber and Discover entered into an amendment to the October 2017 Purchase Agreement (the “Amendment”), pursuant to which Discover (a) waived any and all Trigger Events (as defined in the certificate of designation of the Series C Preferred Stock (the “Designation”)) that had occurred prior to March 2, 2018, (b) agreed that all calculations provided for in the Designation would be made as if no such Trigger Event had occurred, and (c) waived any right to receive any additional shares of common stock based upon any such Trigger Event, with respect to all shares of Series C Preferred Stock, other than any which have already been converted.
Discover also agreed, pursuant to the Amendment, that the conversion rate of conversion premiums pursuant to the Designation would remain 95% of the average of the lowest 5 individual daily volume weighted average prices during the applicable Measuring Period (as defined in the Designation), not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common stock, unless a triggering event has occurred, and that such $0.05 per share discount would not be adjusted in connection with Camber’s previously reported 1-for-25 reverse stock split affected on March 5, 2018. Notwithstanding the above, in no event will the value of the common stock pursuant to the foregoing be below the par value per share of the common stock ($0.001).
October 2018 Stock Purchase Agreement
On October 29, 2018, Camber and Discover entered into a Stock Purchase Agreement (the “October 2018 Purchase Agreement”), whereby Discover purchased 369 shares of Series C Preferred Stock for $3.5 million. The Series C Preferred Stock sold pursuant to the October 2018 Purchase Agreement have substantially similar terms as those sold pursuant to the October 2017 Purchase Agreement.
November 2018 Stock Purchase Agreement
On November 23, 2018 and effective November 23, 2018, Camber and Discover entered into a Stock Purchase Agreement (the “November 2018 Purchase Agreement”). The Series C Preferred Stock sold pursuant to the November 2018 Purchase Agreement have substantially similar terms as those sold pursuant to the October 2017 Purchase Agreement.
Under the terms of the November 2018 Purchase Agreement, Discover agreed to purchase up to 2,941 shares of Series C Preferred Stock (the “Maximum Shares”) from Camber for an aggregate of $28 million, including agreeing to purchase 106 shares of Series C Preferred Stock within two business days of the satisfaction of the Closing Conditions (defined below), in consideration for $1 million (the “Initial Closing”), and additional shares of Series C Preferred Stock, in such amount(s) requested by Camber, from time to time, up to the remaining amount of Series C Preferred Stock available to be sold under the November 2018 Purchase Agreement, until the Maximum Shares are sold, subject in each case to the closing conditions.
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On December 3, 2018, Camber entered into a First Amendment to Stock Purchase Agreement with Discover (the “First Amendment”), pursuant to which the parties agreed to (a) amend the Initial Closing to be for a total of $2.5 million and 263 shares of Series C Preferred Stock, and (b) change the terms of the November 2018 Purchase Agreement to require that, notwithstanding the other closing conditions set forth in the November 2018 Purchase Agreement, for each sale of $800,000 of Series C Preferred Stock, in additional closings after the Initial Closing, that an aggregate dollar trading volume of at least $10 million must have traded on NYSE American during regular trading hours, from the trading day after the immediately prior closing until the trading day immediately before the relevant closing, but expressly excluding all volume traded on any days that Discover is prevented or delayed from reselling shares of common stock.
On December 4, 2018, upon the satisfaction of the applicable closing conditions, Discover acquired 263 shares of Series C Preferred Stock for a total of $2.5 million.
On July 8, 2019, Camber entered into a Termination Agreement with Discover, pursuant to which the parties agreed, that among other things, the rights of Discover to purchase additional shares of Series C Preferred Stock under the November 2018 Purchase Agreement were terminated.
2020 Stock Purchase Agreement
On and effective February 3, 2020, Camber and Discover entered into a Stock Purchase Agreement (the “2020 Purchase Agreement”).
Under the terms of the 2020 Purchase Agreement, Discover purchased 525 shares of Series C Preferred Stock for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock (the “Face Value”).
Pursuant to the 2020 Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, Camber agreed that, except as contemplated in connection with the merger, it would not issue or enter into or amend an agreement pursuant to which Camber may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price. Camber also agreed that it would not issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of Camber or the market for the common stock.
Additionally, provided that Camber has not materially breached the terms of the 2020 Purchase Agreement, Camber may at any time, in its sole and absolute discretion, repurchase from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold pursuant to the agreement by paying to Discover 110% of the aggregate face value of all such shares.
Camber also agreed to provide Discover a right of first offer to match any offer for financing Camber receives from any person while the shares of Series C Preferred Stock sold pursuant to the 2020 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match.
Finally, Camber agreed that if it issues any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Discover, then Camber would notify Discover of such additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with Discover.
Camber also agreed pursuant to the 2020 Purchase Agreement 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), and if the amount of funds loaned by Camber to Viking in connection with the Secured Note, plus any applicable interest is returned to Camber by Viking, Camber is required, at Discover’s option in its sole and absolute discretion, to immediately repurchase from Discover all then outstanding Series C Preferred Stock shares acquired by Discover pursuant to the 2020 Purchase Agreement, by paying to Discover 110% of the aggregate Face Value of all such shares.
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Waiver and Amendment Agreement
On February 3, 2020, Camber and Discover entered into a Waivers and Amendments to Stock Purchase Agreements (the “Amendment”), pursuant to which Discover (a) waived any and all Trigger Events (as defined in the certificate of designation of the Series C Preferred Stock (the “Designation”)) that had occurred prior to February 3, 2020, (b) agreed that all calculations provided for in the Designation would be made as if no such Trigger Event had occurred, and (c) waived any right to receive any additional shares of common stock based upon any such Trigger Event, with respect to all shares of Series C Preferred Stock, other than any which have already been converted.
The Investor also (a) waived any and all breaches and defaults that have occurred through February 3, 2020, and (b) waived all rights and remedies with respect to such breaches and defaults.
The Amendment also provided that Camber was required to file a proxy to hold a stockholder meeting to approve an increase in Camber’s authorized common stock to 25 million shares as soon as possible (which meeting was held on April 16, 2020), and use its commercially reasonable best efforts to cause such increase to be declared effective as soon as possible, and in any event within 90 days of February 3, 2020; provided that such increase became effective on April 17, 2020. Discover also agreed that all calculations provided for in the Designation shall be made as if no such Trigger Event had occurred, and to waive any right to receive any additional shares of common stock based upon any such Trigger Event.
Discover also agreed, pursuant to the Amendment, that the conversion rate of conversion premiums pursuant to the Designation would remain (a) 95% of the average of the lowest 5 individual daily volume weighted average prices during the applicable Measuring Period (as defined in the Designation), not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common stock, unless a triggering event has occurred, and that such $0.05 per share discount would not be adjusted in connection with Camber’s previously reported reverse stock splits; and (b) 85% of the average of the lowest individual daily volume weighted average price during the applicable Measuring Period (as defined in the Designation), not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.10 per share of common stock, if a triggering event has occurred, and that such $0.10 per share discount would not be adjusted in connection with Camber’s previously reported reverse stock splits.
The Amendment also provided that the Measuring Period (as defined in the Designation) would begin on the date of the Agreement, February 3, 2020; and that the Designation would be amended to provide that holders of the Series C Preferred Stock will vote with holders of common stock as a single class, on an as converted basis subject to the beneficial ownership limitation set forth in the Designation; provided that the NYSE American has since advised Camber that such amendment would not be possible under the current rules of the NYSE American.
Industry Segments
Camber’s operations are all crude oil and natural gas exploration and production related.
Operations and Oil and Gas Properties
Camber has operated and invested in areas that are known to be productive, with a reasonably established production history, in order to decrease geological and exploratory risk. With the closing of the Acquisition in October 2016, Camber acquired over 13,000 net acres in producing fields located primarily in the Mid-Continent region of Oklahoma including Payne, Lincoln and Logan Counties, along with a small amount of interest in production located in Glasscock County, Texas. The Mid-Continent assets produce from a liquids-rich, gas reservoir known as the Hunton formation. These properties include interests in four different fields, of which one was operated by Camber and the other three are non-operated.
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Camber’s Glasscock County, Texas properties produced oil and gas primarily from the Wolfberry, Cline and Fusselman formations and are all non-operated.
In January 2018, Camber acquired approximately 3,000 leasehold acres in Okfuskee County, Oklahoma which includes eight currently producing wells and three salt water disposal wells (as described above).
In March 2018, Camber acquired an interest in 48 gross non-producing well bores, five salt water disposal wells and approximately 555 net leasehold acres in Hutchinson County, Texas (as described above).
On September 26, 2018, the transactions contemplated by the Sale Agreement (described above) closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid Camber $100 in cash, and Camber transferred ownership of the Disposed Assets (defined above, constituting a substantial portion of its assets) to N&B Energy. Notwithstanding the sale of the Disposed Assets, which included approximately 18,000 net acres, Camber retained its assets in Glasscock County and Hutchinson Counties, Texas, and also retained a 12.5% production payment (effective until a total of $2.5 million has been received – of which none has been received as of the date of this joint proxy statement/prospectus); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and retained an overriding royalty interest on certain other undeveloped leasehold interests.
Camber intends to pursue additional acquisition opportunities in the energy services sector whether the merger closes or not, as the primary focus of its growth strategy.
Marketing
As of the date of this joint proxy statement/prospectus, Camber operates exclusively in the onshore United States oil and natural gas industry. Camber’s crude oil and natural gas production sales are to gatherers and marketers with national reputations. Camber’s sales are made on a month-to-month basis, and title transfer occurs when the oil is loaded onto the purchaser’s truck. Crude oil prices realized from production sales are indexed to published posted refinery prices, and to published crude indexes with adjustments on a contract basis.
Camber generally sells a significant portion of its oil and gas production to a relatively small number of customers. For the year ended March 31, 2019, its consolidated revenues were from the sale of oil, gas and natural gas liquids under marketing contracts primarily with Superior Pipeline Company, Scissortail Energy, LLC and Apache Corporation. For the quarter ended December 31, 2019, Camber’s only purchaser of oil and gas was Apache Corporation. Camber is not dependent upon any one purchaser and has alternative purchasers available at competitive market prices if there is disruption in services or other events that cause it to search for other ways to sell its production.
During the year ended March 31, 2019, three customers accounted for 84% of Camber’s total revenues and during the year ended March 31, 2018, two customers accounted for 72% of Camber’s total revenues. For the three months ended December 31, 2019, one customer accounted for 100% of Camber’s total revenues. Camber does not believe the loss of any customer will have a material effect on it because alternative customers are readily available.
Competition
Camber is in direct competition for properties with numerous oil and natural gas companies and partnerships exploring various areas of Texas, Oklahoma and elsewhere. Many competitors are large, well-known oil and natural gas and/or energy companies, although no single entity dominates the industry. Many of its competitors possess greater financial and personnel resources, enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than Camber. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry.
Regulation
Camber’s operations are subject to various types of regulation at the federal, state and local levels. These regulations include requiring permits for the drilling of wells; maintaining hazard prevention, health and safety plans; submitting notification and receiving permits related to the presence, use and release of certain materials incidental to oil and natural gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface plugging and abandonment of wells and the transporting of production. Camber’s operations are also subject to various conservation matters, including the number of wells which may be drilled in a unit and the unitization or pooling of oil and natural gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration, while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally limiting the venting or flaring of natural gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to possibly limit the amounts of oil and natural gas Camber can produce from its wells and to limit the number of wells or the locations at which it can drill.
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In the United States, legislation affecting the oil and natural gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous federal, state and local departments and agencies issue recommended new and extensive rules and regulations binding on the oil and natural gas industry, some of which carry substantial penalties for failure to comply. These laws and regulations have a significant impact on oil and natural gas drilling, natural gas processing plants and production activities, increasing the cost of doing business and, consequently, affect profitability. Insomuch as new legislation affecting the oil and natural gas industry is common-place and existing laws and regulations are frequently amended or reinterpreted, Camber may be unable to predict the future cost or impact of complying with these laws and regulations. Camber considers the cost of environmental protection a necessary and manageable part of its business. Camber has historically been able to plan for and comply with new environmental initiatives without materially altering its operating strategies.
Insurance Matters
Camber maintains insurance coverage which it believes is reasonable per the standards of the oil and natural gas industry. It is common for companies in these industries to not insure fully against all risks associated with their operations either because such insurance is unavailable or because premium costs are considered prohibitive. A material loss not fully covered by insurance could have an adverse effect on Camber’s financial position, results of operations or cash flows. Camber maintains insurance at industry customary levels to limit its financial exposure in the event of a substantial environmental claim resulting from sudden, unanticipated and accidental discharges of certain prohibited substances into the environment. Such insurance might not cover the complete amount of such a claim and would not cover fines or penalties for a violation of an environmental law.
Other Matters
Environmental. Camber’s exploration, development, and production of oil and natural gas, including its operation of saltwater injection and disposal wells, are subject to various federal, state and local environmental laws and regulations. Such laws and regulations can increase the costs of planning, designing, installing and operating oil, natural gas, and disposal wells. Camber’s domestic activities are subject to a variety of environmental laws and regulations, including but not limited to, the Oil Pollution Act of 1990 (“OPA”), the Clean Water Act (“CWA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”), the Clean Air Act (“CAA”), and the Safe Drinking Water Act (“SDWA”), as well as state regulations promulgated under comparable state statutes. Camber is also subject to regulations governing the handling, transportation, storage, and disposal of naturally occurring radioactive materials that are found in its oil and gas operations. Civil and criminal fines and penalties may be imposed for non-compliance with these environmental laws and regulations. Additionally, these laws and regulations require the acquisition of permits or other governmental authorizations before undertaking certain activities, limit or prohibit other activities because of protected areas or species, and impose substantial liabilities for cleanup of pollution.
Under the OPA, a release of oil into water or other areas designated by the statute could result in Camber being held responsible for the costs of remediating such a release, certain OPA specified damages, and natural resource damages. The extent of that liability could be extensive, as set forth in the statute, depending on the nature of the release. A release of oil in harmful quantities or other materials into water or other specified areas could also result in Camber being held responsible under the CWA for the costs of remediation, and civil and criminal fines and penalties.
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CERCLA and comparable state statutes, also known as “Superfund” laws, can impose joint and several and retroactive liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the release of a “hazardous substance” into the environment. In practice, cleanup costs are usually allocated among various responsible parties. Potentially liable parties include site owners or operators, past owners or operators under certain conditions, and entities that arrange for the disposal or treatment of, or transport hazardous substances found at the site. Although CERCLA, as amended, currently exempts petroleum, including but not limited to, crude oil, natural gas and natural gas liquids, from the definition of hazardous substance, Camber’s operations may involve the use or handling of other materials that may be classified as hazardous substances under CERCLA. Furthermore, the exemption may not be preserved in future amendments of the act, if any.
RCRA and comparable state and local requirements impose standards for the management, including treatment, storage, and disposal, of both hazardous and non-hazardous solid wastes. Camber generates hazardous and non-hazardous solid waste in connection with its routine operations. From time to time, proposals have been made that would reclassify certain oil and natural gas wastes, including wastes generated during drilling and production operations, as “hazardous wastes” under RCRA, which would make such solid wastes subject to much more stringent handling, transportation, storage, disposal, and clean-up requirements. This development could have a significant impact on its operating costs. While state laws vary on this issue, state initiatives to further regulate oil and natural gas wastes could have a similar impact. Because oil and natural gas exploration and production, and possibly other activities, have been conducted at some of Camber’s properties by previous owners and operators, materials from these operations remain on some of the properties and in some instances, require remediation. In addition, in certain instances, Camber has agreed to indemnify sellers of producing properties from which it has acquired reserves against certain liabilities for environmental claims associated with such properties. While Camber does not believe that costs to be incurred by it for compliance and remediating previously or currently owned or operated properties will be material, there can be no guarantee that such costs will not result in material expenditures.
Additionally, in the course of Camber’s routine oil and natural gas operations, surface spills and leaks, including casing leaks, of oil or other materials occur, and these can lead to costs for waste handling and environmental compliance. Moreover, Camber is able to control directly the operations of only those wells for which it acts as the operator. Management believes that Camber is in substantial compliance with applicable environmental laws and regulations.
In response to liabilities associated with these activities, accruals are established when reasonable estimates are possible. Such accruals would primarily include estimated costs associated with remediation. Camber has used discounting to present value in determining Camber’s accrued liabilities for environmental remediation or well closure, but no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in Camber’s financial statements. Camber adjust the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.
Camber does not anticipate being required in the near future to expend amounts that are material in relation to its total capital expenditures program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are frequently changed, it is unable to predict the ultimate cost of compliance. More stringent laws and regulations protecting the environment may be adopted in the future and it may incur material expenses in connection with environmental laws and regulations in the future.
Occupational Health and Safety. Camber is also subject to laws and regulations concerning occupational safety and health. Due to the continued changes in these laws and regulations, and the judicial construction of many of them, it is unable to predict with any reasonable degree of certainty its future costs of complying with these laws and regulations. Camber considers the cost of safety and health compliance a necessary and manageable part of its business. Camber has been able to plan for and comply with new initiatives without materially altering its operating strategies.
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Hydraulic Fracturing. Vast quantities of natural gas, natural gas liquids and oil deposits exist in deep shale and other unconventional formations. It is customary in Camber’s industry to recover these resources through the use of hydraulic fracturing, combined with horizontal drilling. Hydraulic fracturing is the process of creating or expanding cracks, or fractures, in deep underground formations using water, sand and other additives pumped under high pressure into the formation. As with the rest of the industry, Camber uses hydraulic fracturing as a means to increase the productivity of almost every well that it drills and completes. These formations are generally geologically separated and isolated from fresh ground water supplies by thousands of feet of impermeable rock layers. Camber follows applicable legal requirements for groundwater protection in its operations that are subject to supervision by state and federal regulators (including the Bureau of Land Management (“BLM”) on federal acreage). Furthermore, Camber’s well construction practices require the installation of multiple layers of protective steel casing surrounded by cement that are specifically designed and installed to protect freshwater aquifers by preventing the migration of fracturing fluids into aquifers.
Injection rates and pressures are required to be monitored in real time at the surface during Camber’s hydraulic fracturing operations. Pressure is required to be monitored on both the injection string and the immediate annulus to the injection string. Hydraulic fracturing operations are required to be shut down if an abrupt change occurs to the injection pressure or annular pressure. These aspects of hydraulic fracturing operations are designed to prevent a pathway for the fracturing fluid to contact any aquifers during the hydraulic fracturing operations.
Hydraulic fracture stimulation requires the use of water. Camber uses fresh water or recycled produced water in its fracturing treatments in accordance with applicable water management plans and laws. Several proposals have previously been presented to the U.S. Congress that, if implemented, would either prohibit or restrict the practice of hydraulic fracturing or subject the process to regulation under the Safe Drinking Water Act. Several states have previously considered, or are currently considering, legislation to regulate hydraulic fracturing practices that could impose more stringent permitting, transparency, and well construction requirements on hydraulic-fracturing operations or otherwise seek to ban fracturing activities altogether. Hydraulic fracturing of wells and subsurface water disposal are also under public and governmental scrutiny due to potential environmental and physical impacts, including possible contamination of groundwater and drinking water and possible links to earthquakes. In addition, some municipalities have significantly limited or prohibited drilling activities and/or hydraulic fracturing, or are considering doing so.
Restrictions on hydraulic fracturing could make it prohibitive to conduct Camber’s operations, and also reduce the amount of oil, natural gas liquids and natural gas that it is ultimately able to produce in commercial quantities from its properties.
The Endangered Species Act. The Endangered Species Act (“ESA”) restricts activities that may affect areas that contain endangered or threatened species or their habitats. While some of Camber’s assets and lease acreage may be located in areas that are designated as habitats for endangered or threatened species, Camber believes that it is in substantial compliance with the ESA. However, the designation of previously unidentified endangered or threatened species in areas where it intends to conduct construction activity could materially limit or delay its plans.
Global Warming and Climate Change. Various state governments and regional organizations are considering enacting new legislation and promulgating new regulations governing or restricting the emission of greenhouse gases from stationary sources such as Camber’s equipment and operations. Legislative and regulatory proposals for restricting greenhouse gas emissions or otherwise addressing climate change could require Camber to incur additional operating costs and could adversely affect demand for the natural gas and oil that it sells. The potential increase in its operating costs could include new or increased costs to obtain permits, operate and maintain its equipment and facilities, install new emission controls on its equipment and facilities, acquire allowances to authorize its greenhouse gas emissions, pay taxes related to its greenhouse gas emissions and administer and manage a greenhouse gas emissions program.
Taxation. Camber’s operations, as is the case in the petroleum industry generally, are significantly affected by federal tax laws. Federal, as well as state, tax laws have many provisions applicable to corporations which could affect its future tax liabilities.
104
Commitments and Contingencies. Camber is liable for future restoration and abandonment costs associated with its oil and gas properties. These costs include future site restoration, post closure and other environmental exit costs. The costs of future restoration and well abandonment have not been determined in detail. State regulations require operators to post bonds that assure that well sites will be properly plugged and abandoned. Camber currently operates only in Texas, which requires a security bond based on the number of wells Camber operates. Management views this as a necessary requirement for operations and does not believe that these costs will have a material adverse effect on its financial position as a result of this requirement.
Recent Reverse Stock Splits and Amendments to Articles
On March 1, 2018, Camber filed a Certificate of Amendment to Camber’s Articles of Incorporation with the Secretary of State of Nevada to affect a 1-for-25 reverse stock split of all outstanding common stock shares of Camber which was effective on March 5, 2018. On December 20, 2018, Camber filed a Certificate of Change with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of Camber’s (a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock, which was effective on December 24, 2018. Effective on April 10, 2019, Camber amended its Articles of Incorporation to increase the number of Camber’s authorized shares of common stock, $0.001 per value per share, from 20,000,000 shares to 250,000,000 shares. On July 3, 2019, Camber filed a Certificate of Amendment to Camber’s Articles of Incorporation with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of all outstanding common stock shares of Camber, which was effective on July 8, 2019. The effect of the July 2019 reverse stock split was to combine each 25 shares of outstanding common stock into one new share, with no change in authorized shares (which remained 250 million) or par value per share, and to reduce the number of common stock shares outstanding from approximately 53.9 million shares to approximately 2.2 million shares (prior to rounding). On October 28, 2019, Camber filed a Certificate of Change with the Secretary of State of Nevada to affect a 1-for-50 reverse stock split of Camber’s (a) authorized shares of common stock (from 250,000,000 shares to 5,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on October 29, 2019. The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with a proportionate 1-for-50 reduction in Camber’s authorized shares of common stock, but with no change in the par value per share of the common stock. The result of the reverse stock split was to reduce the number of common stock shares outstanding on the effective date of the reverse, from approximately 74.5 million shares to approximately 1.5 million shares (prior to rounding).
Effective on April 17, 2020, Camber filed a Certificate of Amendment to its Articles of Incorporation with the Secretary of State of Nevada to increase its authorized shares of common stock to 25 million shares of common stock.
All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants to purchase common stock and per share amounts contained herein have been retroactively adjusted to reflect the reverse splits for all periods presented.
Camber Description of Property
Areas of Activities
Camber operates and invests in areas that are known to be productive, with a reasonably established production history, in order to decrease geological and exploratory risk. In 2016, Camber acquired over 13,000 net acres in producing fields located primarily in the Mid-Continent region of Oklahoma including Payne, Lincoln and Logan Counties, along with a small amount of interest in production located in Glasscock County, Texas. The Mid-Continent assets produce from a liquids-rich, gas reservoir known as the Hunton formation. These properties include interests in four different fields, of which one is operated by Camber and the other three are non-operated. In January 2018, Camber acquired 3,000 net acres in Okfuskee, Oklahoma. Camber’s Glasscock County, Texas properties produce oil and gas primarily from the Wolfberry, Cline and Fusselman formations and are all non-operated. In March 2018, Camber acquired 555 net acres, 48 gross non-producing well bores and five saltwater disposal wells in Hutchinson County, Texas. In November of 2017, Camber sold approximately 2,600 net acres in the Permian Basin in Gaines County, Texas. In September 2018, Camber sold to N&B Energy, a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other more recent acquisitions, other than the production payment and certain overriding royalty interests.
105
The following table summarizes Camber’s gross and net developed leasehold acreage at March 31, 2019. Developed acreage is the number of acres that are allocated or assignable to producing wells or wells capable of production. Camber held no undeveloped acreage as of March 31, 2019. Acreage in which Camber’s interest is limited to royalty and overriding royalty interests is excluded:
Acreage
|
|
|
Total |
|
|
Developed |
|
|
Undeveloped |
|
|||||||||||||||
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
||||||
|
Glasscock and Hutchinson County, Texas |
|
|
4,138 |
|
|
|
776 |
|
|
|
4,138 |
|
|
|
776 |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
4,138 |
|
|
|
776 |
|
|
|
4,138 |
|
|
|
776 |
|
|
|
— |
|
|
|
— |
|
Camber believes that it has satisfactory title, in all material respects, to substantially all of its producing properties in accordance with standards generally accepted in the oil and natural gas industry.
Production, Sales Price and Production Costs
As of December 31, 2019, Camber was producing an average of approximately 36.5 net barrels of oil equivalent per day (“Boepd”) from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Camber’s production sales totaled 3,161 and 10,035 Boe, net to its interest, for the three and nine months ended December 31, 2019, respectively. At December 31, 2019, Camber’s total estimated proved producing reserves were 155,376 Boe, of which 120,590 Bbls were crude oil and NGL reserves, and 208,710 Mcf were natural gas reserves and of which 18,200 Bbls of crude oil relates to Camber’s Panhandle properties. There are no natural gas reserves related to the Panhandle properties.
The following table sets forth the operating results and production data for Camber’s oil and gas exploration and production segment, for the three months ended December 2019 and 2018:
|
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
|
|
|
2019 |
|
|
2018 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
|
Sale Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Crude Oil (Bbls) |
|
|
1,234 |
|
|
|
1,398 |
|
|
|
(164 |
) |
|
|
(12 |
)% |
|
Natural Gas (Mcf) |
|
|
4,570 |
|
|
|
5,271 |
|
|
|
(701 |
) |
|
|
(13 |
)% |
|
NGL (Gallons) |
|
|
48,919 |
|
|
|
57,408 |
|
|
|
(8,489 |
) |
|
|
(15 |
)% |
|
Total (Boe)(1) |
|
|
3,161 |
|
|
|
3,643 |
|
|
|
(482 |
) |
|
|
(13 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls per day) |
|
|
13 |
|
|
|
15 |
|
|
|
(2 |
) |
|
|
(13 |
)% |
|
Natural Gas (Mcf per day) |
|
|
50 |
|
|
|
57 |
|
|
|
(7 |
) |
|
|
(12 |
)% |
|
NGL (Gallons per day) |
|
|
532 |
|
|
|
624 |
|
|
|
(92 |
) |
|
|
(15 |
)% |
|
Total (Boe per day)(1) |
|
|
34 |
|
|
|
40 |
|
|
|
(6 |
) |
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sale Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil ($/Bbl) |
|
$ |
55.97 |
|
|
$ |
52.43 |
|
|
$ |
3,54 |
|
|
|
7 |
% |
|
Natural Gas ($/Mcf) |
|
$ |
2.16 |
|
|
$ |
2.49 |
|
|
$ |
(0.33 |
) |
|
|
(13 |
)% |
|
NGL ($/Bbl) |
|
$ |
0.31 |
|
|
$ |
0.72 |
|
|
$ |
(0.41 |
) |
|
|
(57 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
$ |
69,092 |
|
|
$ |
73,301 |
|
|
$ |
(4,209 |
) |
|
|
(6 |
)% |
|
Natural Gas |
|
|
9,871 |
|
|
|
13,114 |
|
|
|
(3,243 |
) |
|
|
(25 |
)% |
|
NGL |
|
|
15,152 |
|
|
|
41,522 |
|
|
|
(26,370 |
) |
|
|
(64 |
)% |
|
Total Oil and Gas Revenues |
|
$ |
94,115 |
|
|
$ |
127,937 |
|
|
$ |
(33,822 |
) |
|
|
(26 |
)% |
(1) Assumes 6 Mcf of natural gas equivalents and 42 gallons of NGL to 1 barrel of oil, respectively.
106
The following table sets forth the operating results and production data for Camber’s oil and gas exploration and production segment, for the nine months ended December 2019 and 2018:
|
|
|
Nine Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
|
|
|
2019 |
|
|
2018 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
|
Sale Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Crude Oil (Bbls) |
|
|
4,083 |
|
|
|
7,257 |
|
|
|
(3,174 |
) |
|
|
(44 |
)% |
|
Natural Gas (Mcf) |
|
|
14,748 |
|
|
|
316,249 |
|
|
|
(301,501 |
) |
|
|
(95 |
)% |
|
NGL (Gallons) |
|
|
146,747 |
|
|
|
2,098,435 |
|
|
|
(1,951,688 |
) |
|
|
(93 |
)% |
|
Total (Boe)(1) |
|
|
10,035 |
|
|
|
109,928 |
|
|
|
(99,893 |
) |
|
|
(91 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls per day) |
|
|
15 |
|
|
|
27 |
|
|
|
(12 |
) |
|
|
(44 |
)% |
|
Natural Gas (Mcf per day) |
|
|
54 |
|
|
|
1,150 |
|
|
|
(1,096 |
) |
|
|
(95 |
)% |
|
NGL (Gallons per day) |
|
|
534 |
|
|
|
7,631 |
|
|
|
(7,097 |
) |
|
|
(93 |
)% |
|
Total (Boe per day)(1) |
|
|
36 |
|
|
|
400 |
|
|
|
(364 |
) |
|
|
(91 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sale Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil ($/Bbl) |
|
$ |
56.23 |
|
|
$ |
62.74 |
|
|
$ |
(6.51 |
) |
|
|
(10 |
)% |
|
Natural Gas ($/Mcf) |
|
$ |
1.99 |
|
|
$ |
2.38 |
|
|
$ |
(0.39 |
) |
|
|
(16 |
)% |
|
NGL ($/Bbl) |
|
$ |
0.34 |
|
|
$ |
0.68 |
|
|
$ |
(0.34 |
) |
|
|
(50 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
$ |
229,577 |
|
|
$ |
455,322 |
|
|
$ |
(225,745 |
) |
|
|
(50 |
)% |
|
Natural Gas |
|
|
29,418 |
|
|
|
753,057 |
|
|
|
(723,639 |
) |
|
|
(96 |
)% |
|
NGL |
|
|
49,224 |
|
|
|
1,423,720 |
|
|
|
(1,374,496 |
) |
|
|
(97 |
)% |
|
Total Oil and Gas Revenues |
|
$ |
308,219 |
|
|
$ |
2,632,099 |
|
|
$ |
(2,323,880 |
) |
|
|
(88 |
)% |
(1) Assumes 6 Mcf of natural gas equivalents and 42 gallons of NGL to 1 barrel of oil, respectively.
Camber produced oil, natural gas and NGLs from 36 wells in two Texas counties and 68 wells in four Oklahoma counties in the Mid-Continent regions during the year ended March 31, 2019.
The following tables represent Camber’s total production, average sales prices and average production costs for the years ended March 31, 2019 and 2018:
|
|
|
2019 |
|
|
2018 |
|
||
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
Crude Oil |
|
$ |
526,365 |
|
|
$ |
1,198,514 |
|
|
Natural Gas |
|
|
772,105 |
|
|
|
2,051,846 |
|
|
NGL |
|
|
1,443,632 |
|
|
|
3,609,407 |
|
|
Total Revenues |
|
$ |
2,742,102 |
|
|
$ |
6,859,767 |
|
|
|
|
|
|
|
|
|
|
|
|
Production sales: |
|
|
|
|
|
|
|
|
|
Crude oil (Bbls) |
|
|
8,846 |
|
|
|
27,704 |
|
|
Natural gas (Mcf) |
|
|
321,423 |
|
|
|
796,384 |
|
|
NGL (Gallons) |
|
|
2,153,280 |
|
|
|
6,177,153 |
|
|
Total (barrels oil equivalent or Boe) (1) |
|
|
113,685 |
|
|
|
307,510 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Price: |
|
|
|
|
|
|
|
|
|
Crude Oil ($/Bbl) |
|
$ |
59.51 |
|
|
$ |
43.26 |
|
|
Natural Gas ($/Mcf) |
|
|
2.40 |
|
|
|
2.58 |
|
|
NGL ($/Gal) |
|
|
0.67 |
|
|
|
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Production Cost ($/Boe): |
|
$ |
26.42 |
|
|
$ |
16.83 |
|
107
As of March 31, 2019, production from the Hutchinson area and Glasscock fields are the only fields that comprise 15% or more of Camber’s total proved reserves as of that date. The production volumes for the years ended March 31, 2019 and 2018 are represented in the table below:
|
|
|
2019 |
|
|
2018 |
|
||
|
Hutchinson Area |
|
|
|
|
|
|
|
|
|
Crude oil (Bbls) |
|
|
132 |
|
|
|
— |
|
|
Natural gas (Boe) |
|
|
— |
|
|
|
— |
|
|
NGL (Bbls) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Glasscock County |
|
|
|
|
|
|
|
|
|
Crude oil (Bbls) |
|
|
5,897 |
|
|
|
7,530 |
|
|
Natural gas (Boe) |
|
|
20,241 |
|
|
|
22.030 |
|
|
NGL (Bbls) |
|
|
5,387 |
|
|
|
6,261 |
|
Well Summary
The following table presents Camber’s ownership in productive crude oil and natural gas wells at March 31, 2019. The gross number represents the number of wells in which Camber has a working interest. The net number is the sum of Camber’s net revenue interest in each well.
|
|
|
Gross |
|
|
Net |
|
||
|
Hutchinson and Glasscock Counties, Texas: |
|
|
36 |
|
|
|
5.37 |
|
|
Total |
|
|
36 |
|
|
|
5.37 |
|
Drilling Activity
For the three and nine months ended December 31, 2020 and for the years ended March 31, 2019 and 2018, Camber had no gross or net wells that were in the process of being drilled nor did it have any delivery commitments.
At March 31, 2020, Camber had no gross or net wells that were in the process of being drilled nor did it have any delivery commitments.
Oil and Natural Gas Reserves
Reserve Information. For estimates of Camber’s net proved producing reserves of crude oil and natural gas, as well as discussion of Camber’s proved and probable undeveloped reserves, see “Supplemental Oil and Gas Disclosures (Unaudited)” of the Audited Consolidated Financial Statements of Camber beginning on page F-31. At December 31, 2019, Camber’s total estimated proved producing reserves were 155,376 Boe, of which 120,590 Bbls were crude oil and NGL reserves, and 208,710 Mcf were natural gas reserves and of which 18,200 Bbls of crude oil relates to Camber’s Panhandle properties.
There are no natural gas reserves related to the Panhandle properties. As of December 31, 2019 and March 31, 2019, Camber had leasehold interests (working interests) covering approximately 221 / 3,500 (net / gross) acres, producing from the Cline and Wolfberry formations. The remaining Texas acreage consists of leasehold covering approximately 555 / 638 (net / gross) acres and wellbores located in the Panhandle in Hutchinson County, Texas, which was acquired by Camber in March 2018.
108
As of December 31, 2019, Camber was producing an average of approximately 36.5 net barrels of oil equivalent per day (“Boepd”) from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Camber’s production sales totaled 3,161 and 10,035 Boe, net to its interest, for the three and nine months ended December 31, 2019, respectively.
The Hutchinson County, Texas, acquisition in March 2018 included interests in 48 gross non-producing well bores, 5 saltwater disposal wells, and the required infrastructure and equipment necessary to support future hydrocarbon production as well as approximately 555 net leasehold acres in Hutchinson County, Texas. Camber holds an interest in 25 producing wells in Glascock County and the Company previously restored 11 wells in Hutchinson County to production, which are not currently producing and which are planned to be plugged.
Internal Controls. Stephen R. Keene, a consultant, is the technical person primarily responsible for overseeing the preparation of the reserves estimates, which means that he was primarily responsible for the input parameters of Camber’s internal reserves estimation process (which are based upon the best available production, engineering and geologic data) and provided a technical review of the veracity of the annual audit of Camber’s year end reserves by its independent third party engineers.
Mr. Keene has over 39 years’ experience in oil and gas and has performed oil and gas consulting, supervision and design and analysis services for various entities in the states of Colorado, Texas, New Mexico, Wyoming, Utah and Oklahoma. Mr. Keene graduated from Texas Tech University with a Bachelor’s of Science Degree in Petroleum Engineering in 1976. Mr. Keene has experience with leasing large ranches, assembling small lot tracts, leasing corporate mineral interests, drafting lease terms, managing land teams, negotiating on and offsite drilling locations, pipeline easements, review of title documents, farmout and participation agreements, Texas Rail Road Commission filings, gas contracts and JIB agreements. He also has experience with vertical and horizontal drilling supervision, well design, AFE cost estimations, well log analysis, and control, logistics, urban noise abatement and equipment routing.
The preparation of Camber’s reserve estimates is in accordance with its prescribed procedures that include verification of input data into a reserve forecasting and economic software, as well as management review. Camber’s reserve analysis includes, but is not limited to, the following:
|
|
● |
Research of operators near its lease acreage. Review operating and technological techniques, as well as reserve projections of such wells. |
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● |
The review of internal reserve estimates by well and by area by a qualified petroleum engineer. A variance by well to the previous year-end reserve report is used as a tool in this process. |
|
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● |
SEC-compliant internal policies to determine and report proved reserves. |
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● |
The discussion of any material reserve variances among management to ensure the best estimate of remaining reserves. |
Qualifications of Third Party Engineers. For the years ended March 31, 2019 and 2018, respectively, the technical person responsible for the audit of Camber’s reserve estimates at Graves & Co. Consulting LLC was Allen C. Barron, who meets the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Graves & CO. Consulting LLC is an independent firm and does not own an interest in Camber’s properties and is not employed on a contingent fee basis. Reserve estimates are imprecise and subjective, and may change at any time as additional information becomes available. Furthermore, estimates of oil and gas reserves are projections based on engineering data. There are uncertainties inherent in the interpretation of this data as well as the projection of future rates of production. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. A copy of the report issued by Graves & Co. Consulting LLC is incorporated by reference into this joint proxy statement/prospectus as Exhibit 23.3.
For more information regarding Camber’s oil and gas reserves, please refer to “Supplemental Oil and Gas Disclosures (Unaudited)” of the Audited Consolidated Financial Statements of Camber beginning on page F-31.
109
Office Lease
Camber has a month-to-month lease at 1415 Louisiana, Suite 3500 Houston, Texas 77002. The entity providing use of the space without charge is affiliated with Camber’s Chief Financial Officer.
Legal Proceedings. From time to time suits and claims against Camber arise in the ordinary course of Camber’s business, including contract disputes and title disputes. Camber records reserves for contingencies when information available indicates that a loss is probable, and the amount of the loss can be reasonably estimated.
MidFirst
In October 2018, Camber entered into a confidential settlement agreement with MidFirst Bank, its prior landlord, and settled all claims relating to Camber’s prior office space lease.
Maranatha Oil Matter
In November 2015, Randy L. Robinson, d/b/a Maranatha Oil Co. sued Camber in Gonzales County, Texas (Cause No. 26160). The plaintiff alleged that it assigned oil and gas leases to Camber in April 2010, retaining a 4% overriding royalty interest and 50% working interest and that Camber failed to pay such overriding royalty interest or royalty interest. The interests relate to certain oil and gas properties which Camber subsequently sold to Nordic Oil USA in April 2013. The petition alleges causes of actions for breach of contract, failure to pay royalties, non-payment of working interest, fraud, fraud in the inducement of contract, money had and received, constructive trust, violation of theft liability act, continuing tort and fraudulent concealment. The suit seeks approximately $100,000 in amounts alleged owed, plus pre-and post-judgment interest. Camber has filed a denial to the claims and intends to vehemently defend itself against the allegations.
PetroGlobe Energy Holdings, LLC and Signal Drilling, LLC
In March 2019, PetroGlobe Energy Holdings, LLC (“PetroGlobe”) and Signal Drilling, LLC (“Signal”) sued Camber in the 316th Judicial District of Hutchinson County, Texas (Cause No. 43781). The plaintiffs alleged causes of action relating to negligent misrepresentation; fraud and willful misconduct; gross negligence; statutory fraud; breach of contract; and specific performance, in connection with a purchase and sale agreement entered into between the parties in March 2018, relating to the purchase by plaintiffs of certain oil and gas assets from Camber, and a related joint venture agreement. The lawsuit seeks in excess of $600,000 in damages, as well as pre- and post-judgment interest, court costs and attorneys’ fees, and punitive and exemplary damages. Additionally, a portion of the revenues from the properties in contention are being held in suspense as a result of the lawsuit. On October 31, 2019, Camber brought counterclaims against PetroGlobe and Signal, and Petrolia Oil, LLC and Ian Acrey, including bringing claims for causes of actions including declaratory judgment (that PetroGlobe and certain other plaintiffs represented that a lease and related wells were free of all agreements and rights in favor of third parties and provided a special warranty of title pursuant to the purchase and sale agreement); breach of contract (in connection with the purchase and sale agreement); statutory fraud; common law fraud (against Mr. Acrey and other plaintiffs); fraud by non-disclosure (against Mr. Acrey and other plaintiffs); negligent misrepresentation (against Mr. Acrey and other plaintiffs); breach of fiduciary duty (against Mr. Acrey and other plaintiffs) and seeking attorney’s fees and pre- and post-judgment interest.
On January 31, 2020, Camber entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe, Signal, Petrolia Oil, LLC (“Petrolia”), Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River Trading Company, LLC (“CRTC”). Pursuant to the Settlement Agreement, Camber agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which release is subject to approval by Camber upon the successful transfer of all wells and partnership interests of Camber’s current wholly-owned subsidiary CE to PetroGlobe. CE operates all of Camber’s producing wells and leases which are located in Hutchinson County, Texas. The $250,000 that Camber agreed to pay has been included in current liabilities on the consolidated balance sheet as of December 31, 2019, and Camber recognized its asset retirement obligations related to these properties as current liabilities as Camber expected to become compliant with the Texas Railroad Commission in March 2020, resulting in a net settlement cost of $204,842 included on the statement of operations for the three and nine-month periods ended December 31, 2019. Camber’s subsidiary, CE Energy, has since completed all required steps to become compliant with the Texas Railroad Commission. Upon satisfaction of the Settlement Agreement conditions and disposition of the assets and related liabilities, Camber will record the transfer of a deposit of a surety bond of $50,000 and the related oil and gas properties of approximately $70,000 at December 31, 2019, oil currently held in storage at Camber’s location and any related outstanding accounts receivable due to Camber. Camber has fully reserved any amounts related to the oil in storage and the accounts receivable which are recorded on the Consolidated Balance Sheet as of December 31, 2019 at $0.
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The intention of such transfer of wells and partnership interests of CE is that (a) Camber shall be completely removed from liabilities resulting from future acts or omissions of CE occurring after such transfer date, (b) CE is effectively transferred and all steps have been approved by the Railroad Commission of Texas, including approval of new directors, officers, and owners of greater than a 25% interest in CE, and (c) that liability for the wells and partnership interests of Camber in CE, and the current officers and directors of CE, will be transferred after approval by the Railroad Commission along with all oil in storage tanks and the bond currently in place.
Camber also agreed to bring the certain wells into regulatory compliance to the extent such compliance is required to obtain Railroad Commission of Texas approval and upon successful completion of Camber bringing the properties into regulatory compliance, Camber is required to assign to PetroGlobe, or its designee, all of its right, title and interest in all wells, leases, royalties, minerals, equipment, and other tangible assets associated with specified wells and properties. Such properties shall be free and clear of all claims and liens arising during the direct operation of such properties by CE. In the event that the Railroad Commission of Texas fails or refuses to approve the form “P-5 O” to remove all current officers, directors, and owners of CE from the form and substitute the officers, directors and owners of CE as directed by PetroGlobe within 180 days of delivery of assignment of Camber’s interests in CE to PetroGlobe, or its designee, the parties will cooperate to seek divestiture of their interests in the wells and leaseholds held in escrow. Upon completion of such divestiture and removal of Company and the current officers and directors of CE from potential regulatory responsibility for such wells and leaseholds, Camber is required to direct the release to PetroGlobe of all funds held in escrow. If the properties are not divested within the additional 180-day period, the funds held in escrow are to be returned to Camber.
Upon Camber successfully bringing properties into regulatory compliance and assigning the properties to PetroGlobe, or its designee, Camber is required to also assign all of its membership interests in Petrolia.
Camber released the parties to the Settlement Agreement, including Ian Acrey, individually, as well as their officers, directors, or members from any claims asserted in the lawsuit, and the parties to the Settlement Agreement along with Ian Acrey, individually, released Camber, its officers, directors, stockholders and affiliate corporations from any claims asserted in the lawsuit. Camber did not release any claims or causes of action against N&B Energy, LLC, Sezar Energy, LLP related to Richard Azar, or any of their affiliates, or predecessors, or successors.
The parties agreed to promptly cause the filing of a motion and order to dismiss the lawsuit with prejudice shortly after execution of the Settlement Agreement.
Apache Corporation
In December 2018, Apache Corporation (“Apache”) sued Camber, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is seeking $586,438 in actual damages, exemplary damages, pre- and post-judgment interest, court costs and other amounts which it may be entitled. Camber has filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. The parties are currently moving towards discovery. Camber denies Apache’s claims and intends to vehemently defend itself against the allegations.
111
N&B Energy
On September 12, 2019, N&B Energy filed a petition in the District Court for the 285th Judicial District of Bexar County, Texas (Case #2019CI11816). Pursuant to the petition, N&B Energy raises claims against Camber for breach of contract, unjust enrichment, money had and received and disgorgement, in connection with $706,000 which it alleges it is owed under the Sale Agreement for true ups and post-closing adjustments associated therewith. The petition seeks amounts owed, pre- and post-judgment interest and attorney’s fees. Camber denies N&B Energy’s claims, believes it is owed approximately $400,000 related to the Sale Agreement and intends to vehemently defend itself against the allegations and claims and seek counterclaims. Camber is currently in negotiations to settle the matter with N&B Energy through binding arbitration.
Merger Sub is a direct, wholly-owned subsidiary of Camber. Merger Sub was incorporated in the State of Nevada on May 19, 2020 for the purposes of merging with and into Viking in the merger. Merger Sub has not carried on any activities other than in connection with the merger agreement.
Overview
Viking Energy Group, Inc. is an independent exploration and production company focused on the acquisition and development of oil and natural gas properties in the Gulf Coast and Mid-Continent regions of the United States. The company owns oil and gas leases in Texas, Louisiana, Mississippi and Kansas.
Viking’s common stock is traded on the OTCQB under the symbol “VKIN.”
Viking’s headquarters are located at 15915 Katy Freeway, Suite 450, Houston, Texas, 77094. The telephone number at that location is (281) 404-4387. Additional information about Viking can be found at www.vikingenergygroup.com. See also “Where You Can Find More Information” beginning on page 223.
Viking’s business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. On March 8, 2016, Viking incorporated a wholly-owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to hold its Canadian oil and gas interests. On August 30, 2016, Viking organized a wholly-owned subsidiary, Mid-Con Petroleum, LLC (“Mid-Con Petroleum”), a Kansas limited liability company, to hold oil and gas interests in the central United States. On August 25, 2017, Viking organized another wholly-owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”), a Kansas limited liability company, to hold additional oil and gas interests in the central United States. On December 27, 2017, Viking organized a third wholly-owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”), a Kansas limited liability company, to hold additional oil and gas interests in the central United States. In 2016 and 2017, Viking acquired oil and gas interests in Kansas through these subsidiaries, and in December of 2017, Viking acquired Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with interests in oil and gas leases in Texas, Louisiana and Mississippi. During November, 2018, Viking organized, Ichor Energy Holdings, LLC, (a Nevada limited liability company), Ichor Energy, LLC (a Nevada limited liability company), Ichor Energy (TX), LLC (a Texas limited liability company), and Ichor Energy (LA), LLC (a Louisiana limited liability company) to facilitate the acquisition and ownership of additional oil and gas interests in Texas and Louisiana. On December 28, 2018, Viking completed an acquisition of additional oil and gas interests in Texas and Louisiana, and in connection therewith: (i) Ichor Energy (LA), LLC, a wholly-owned subsidiary of Ichor Energy LLC, acquired all of the purchased assets located in Louisiana; and (ii) Ichor Energy (TX), LLC, an initially wholly-owned subsidiary of Ichor Energy, acquired all of the purchased assets located in Texas. On February 3, 2020, Viking completed an acquisition of additional oil and gas interests in Texas and Louisiana through a partially owned Nevada subsidiary, Elysium Energy Holdings, LLC.
Oil and Natural Gas Properties
On November 3, 2014, Viking entered into a Purchase and Sale, Petroleum and Natural Gas Conveyance Agreement (the “Agreement”), with Tanager Energy Inc., a Canadian corporation listed on the TSX Venture Exchange as a Tier 2 company and trading under the stock symbol “TAN” (“Tanager Energy”). Pursuant to the Agreement, Viking acquired a 50% working interest in the Joffre oil and gas property located in Alberta, Canada (the “Joffre Property”). On or about March 30, 2016, the working interest was registered in the name of Viking’s wholly-owned subsidiary, Viking Oil & Gas (Canada) ULC. The administration of these assets proved to be inefficient and unprofitable. The investment in these properties, as well as all uncollected receivables associated with it, were either fully impaired or fully reserved. Effective September 30, 2018, Viking negotiated a sale and settlement of this Canadian interest and a resolution of all intercompany balances associated with it, for proceeds to Viking of $232,545. An asset retirement obligation of $466,031, offset by the net asset retirement cost of $293,296 associated with this investment, generated a gain from disposal of these assets of $405,280.
112
On February 23, 2016, Viking closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. On October 4, 2016, Viking completed an acquisition whereby Viking (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property. On September 11, 2017, Viking, through its wholly-owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”) acquired a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property. On October 2, 2017, Viking, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas. On October 4, 2017, Viking, through Mid-Con Drilling, closed on an acquisition, effective September 1, 2017, of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas. On December 29, 2017, Viking through its wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) completed an acquisition of working interests in approximately 41 oil and gas leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. On January 12, 2018, Viking, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas. Effective February 1, 2018, Viking, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. As of December 31, 2019, these central United States oil and gas properties consist of interests in approximately 377 producing wells and 135 injector wells.
On December 22, 2017, Viking closed on the acquisition of 100% of the membership interests in Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with multiple subsidiaries having working interests in multiple oil and gas leases in Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.
On January 12, 2018, Viking, through Mid-Con Drilling completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.
Effective February 1, 2018, Viking, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in Eastern Kansas.
On December 28, 2018, Viking, through its subsidiary Ichor Energy, LLC (“Ichor Energy”) completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells, 31 salt water disposal wells, 46 shut in wells and 4 non-producing wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet.
On May 1, 2019, Viking’s subsidiary, Mid-Con Development sold all of its interests in the oil and gas assets Mid-Con Development owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.
On May 10, 2019, Petrodome Louisiana Pipeline LLC (“Petrodome LA”), a subsidiary of Viking’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
113
On February 3, 2020, Elysium Energy, LLC (“Elysium Energy”), the subsidiary of Viking’s 75%-owned subsidiary, Elysium Energy Holdings, LLC, acquired interests in oil and gas properties located in Texas and Louisiana, which included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells in 11 counties) and Louisiana (approximately 55 wells in 6 parishes), along with associated equipment. On February 4, 2020, Elysium Energy hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021, and 50% of the estimated production for the period between January 2022 to July 2022. Theses hedges have a floor of $45.00 and a ceiling ranging from $52.70 to $56.00 for oil, and a floor of $2.00 and a ceiling of $2.425 for natural gas.
Oil and Natural Gas Reserves
As of December 31, 2019, all of Viking’s proved oil and natural gas reserves were located in the United States, in the States of Texas, Louisiana, Mississippi and Kansas.
The following tables set forth summary information with respect to Viking’s proved reserves as of December 31, 2019 and 2018. For additional information see Supplemental Information on Oil and Natural Gas Producing Activities – (Unaudited)” in Viking’s consolidated audited financial statements under “Index to the Financial Statements”, beginning on page F-67.
|
|
|
Proved Reserves at December 31, 2019 |
|
|||||||||
|
Reserves Category |
|
Crude Oil (MBBLs) |
|
|
Natural Gas (MMCF) |
|
|
Total Proved (BOE) (1) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Proved Reserves |
|
|
|
|
|
|
|
|
|
|||
|
Developed |
|
|
4,524,462 |
|
|
|
18,888,400 |
|
|
|
7,672,566 |
|
|
Developed Non-Producing |
|
|
959,240 |
|
|
|
6,125,500 |
|
|
|
1,980,157 |
|
|
Undeveloped |
|
|
2,512,363 |
|
|
|
9,958,800 |
|
|
|
4,172,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved Reserves |
|
|
7,996,065 |
|
|
|
34,972,700 |
|
|
|
13,824,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Net Cash Flows |
|
|
|
|
|
|
|
|
|
$ |
303,763,487 |
|
|
10% annual discount for estimated timing of cash flows |
|
|
|
|
|
|
|
|
|
|
(135,523,587 |
) |
|
Standardized Measure of Discounted Future Net Cash Flows - (PV10) (2) |
|
|
|
|
|
|
|
|
|
$ |
168,239,900 |
|
|
|
|
Proved Reserves at December 31, 2018 |
|
|||||||||
|
Reserves Category |
|
Crude Oil (MBBLs) |
|
|
Natural Gas (MMCF) |
|
|
Total Proved (BOE) (1) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|||
|
Proved Reserves |
|
|
|
|
|
|
|
|
|
|||
|
Developed |
|
|
5,808,882 |
|
|
|
20,195,830 |
|
|
|
9,174,854 |
|
|
Developed Non-Producing |
|
|
916,914 |
|
|
|
2,515,620 |
|
|
|
1,336,184 |
|
|
Undeveloped |
|
|
4,005,422 |
|
|
|
12,046,650 |
|
|
|
6,013,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved Reserves |
|
|
10,731,218 |
|
|
|
34,758,100 |
|
|
|
16,524,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Net Cash Flows |
|
|
|
|
|
|
|
|
|
$ |
464,214,477 |
|
|
10% annual discount for estimated timing of cash flows |
|
|
|
|
|
|
|
|
|
|
(219,657,382 |
) |
|
Standardized Measure of Discounted Future Net Cash Flows - (PV10) (2) |
|
|
|
|
|
|
|
|
|
$ |
244,557,095 |
|
114
(1) - BOE (barrels of oil equivalent) is calculated by a ratio of 6 Mcf to 1 Bbl of oil.
(2) - PV-10 represents the discounted future net cash flows attributable to Viking’s proved oil and natural gas reserves discounted at 10%. PV-10 of Viking’s total year-end proved reserves is considered a non-US GAAP financial measure as defined by the SEC. Viking believes that the presentation of the PV-10 is relevant and useful to investors because it presents the discounted future net cash flows attributable to Viking’s proved reserves. Viking further believes investors and creditors use its PV-10 as a basis for comparison of the relative size and value of Viking’s reserves to other companies.
Net Production, Unit Prices and Costs
The following table presents certain information with respect to oil and natural gas production attributable to Viking’s interests in all of its properties in the United States, the revenue derived from the sale of such production, average sales prices received and average production costs during the years ended December 31, 2019 and 2018.
|
|
|
Unit of |
|
|
December 31, |
|
||||||
|
|
|
Measure |
|
|
2019 |
|
|
2018 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
Barrels |
|
|
|
531,893 |
|
|
|
130,889 |
|
|
Natural Gas |
|
|
Mcf |
|
|
|
2,366,280 |
|
|
|
56,685 |
|
|
BOE |
|
|
|
|
|
|
926,273 |
|
|
|
140,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
Barrels |
|
|
$ |
32,056,714 |
|
|
$ |
8,032,407 |
|
|
Natural Gas |
|
|
Mcf |
|
|
$ |
6,019,879 |
|
|
$ |
190,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil |
|
|
Barrels |
|
|
$ |
60.27 |
|
|
$ |
61.37 |
|
|
Natural Gas |
|
|
Mcf |
|
|
$ |
2.54 |
|
|
$ |
3.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production - Lease operating expenses |
|
|
|
|
|
$ |
13,076,020 |
|
|
$ |
3,835,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Cost of Production per BOE |
|
|
|
|
|
$ |
14.12 |
|
|
$ |
27.33 |
|
Drilling and Other Exploratory and Development Activities
During the year ended December 31, 2019, Viking invested approximately $2.5 million relative to drilling and development activities.
In the counties of Riley and Wabaunsee, Kansas, Viking commenced drilling projects on two new wells. The first project proved to be non-productive, and Viking elected to plug and abandon the project. The second project was not completed, and Viking may pursue this project in 2020, funding permitting.
In Liberty County, Texas, Viking performed a recompletion on a well, shot new perforations and brought it back to production for a small increase in output. Additionally, Viking opened two previously shut-in wells resulting in increased gas production of 300 mcf per day and an increase in oil production of 100 barrels per day. Viking shot new zones and perforations in a salt water disposal well to achieve lower pressure on the well. Additional swabbing of the casing is still needed to achieve the desired results. Viking also used a coil unit on an additional well to achieve lowering pressures to desired results.
In Newton County, Texas, Viking moved in a workover rig to mill through an obstruction that was impeding production on a particular well. After washing it out, Viking was able to bring it back to production.
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In St. Landry Parish, Louisiana, Viking replaced a failed down hole pump with a larger pump and corresponding tubing to increase production.
In Acadia Parish, Louisiana, Viking moved in a coil unit to wash out a salt water disposal well, moved in an electric line unit and shot a new zone, resulting in a lower pressure and an increased capacity to dispose of water.
In Calcasieu Parish, Louisiana, Viking washed out the perforations on several salt water wells using a coil unit to lower pressure on the wells, and also performed equipment repairs on a separator. Viking moved a workover rig in to fix the casing on a well, and attempted to pull a packer in the process. While washing it down to get the packer Viking discovered additional leaks and determined to shut in the well. In two wells, Viking installed a dehydration unit to dry the gas, and stop it from freezing. Viking also performed an acid treatment on a well to help clean out the tubing and the perforations.
In Jefferson Parish, Louisiana, Viking swabbed a well in to help bring the oil and water to the surface because of low bottom hole pressure on the well.
In Cameron Parish, Louisiana, Viking utilized a workover rig on some newly purchased assets to pull tubing and a packer, and to re-perforate a new zone. As Viking was pulling the tubing, it found parted tubing and tried fishing it out. Viking reached a point where it couldn’t pull more tubing, so it ran back into the hole, set a new packer and tubing, and turned the well back to production at a volume a bit lower than when it started. On yet another well Viking was able to increase production by converting the well from a pumping unit to a down hole pump.
Present Activities
Viking is not presently drilling any new wells.
Delivery Commitments
Viking is not currently committed to provide a fixed and determinable quantity of oil or gas in the near future under existing contracts or agreements.
Productive Wells
The following table sets forth the number of wells in Viking’s inventory, in which Viking maintained ownership interests as of December 31, 2019 and 2018. All wells are located in the United States, in the States of Texas, Louisiana, Mississippi and Kansas.
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
||||||||||
|
Well Category |
|
|
Oil |
|
|
|
Gas |
|
|
|
Oil |
|
|
|
Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producers |
|
|
261 |
|
|
|
38 |
|
|
|
472 |
|
|
|
34 |
|
|
Producer - P&A’d |
|
|
6 |
|
|
|
— |
|
|
|
9 |
|
|
|
— |
|
|
Non-Producing |
|
|
13 |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
Injector |
|
|
89 |
|
|
|
— |
|
|
|
129 |
|
|
|
— |
|
|
Salt Water Disposal |
|
|
36 |
|
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
Shut In |
|
|
46 |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
ORRI |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452 |
|
|
|
38 |
|
|
|
719 |
|
|
|
34 |
|
Employees
As of March 31, 2020, Viking has 10 full-time employees, all working at the company’s office in Houston, Texas. Outside of the Houston operation, Viking continues to retain outside consultants as needed, involved in business development, business analysis, financial consulting, web programming and designing, execution and support of Viking’s business.
116
Legal Proceedings
From time to time, Viking may be involved in litigation relating to claims arising out of its operations in the normal course of business. As of March 31, 2020, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on Viking’s results of operations.
Competition
Viking is in direct competition for properties with numerous oil and natural gas companies and partnerships exploring various areas of the United States and elsewhere. Many competitors are large, well-known oil and natural gas and/or energy companies, although no single entity dominates the industry. Many of its competitors possess greater financial and personnel resources, enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than Viking. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry.
Regulation
Viking’s operations are subject to various types of regulation at the federal, state and local levels. These regulations include requiring permits for the drilling of wells; maintaining hazard prevention, health and safety plans; submitting notification and receiving permits related to the presence, use and release of certain materials incidental to oil and natural gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface plugging and abandonment of wells and the transporting of production. Viking’s operations are also subject to various conservation matters, including the number of wells which may be drilled in a unit and the unitization or pooling of oil and natural gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration, while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally limiting the venting or flaring of natural gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to possibly limit the amounts of oil and natural gas Viking can produce from its wells and to limit the number of wells or the locations at which it can drill.
In the United States, legislation affecting the oil and natural gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous federal, state and local departments and agencies issue recommended new and extensive rules and regulations binding on the oil and natural gas industry, some of which carry substantial penalties for failure to comply. These laws and regulations have a significant impact on oil and natural gas drilling, natural gas processing plants and production activities, increasing the cost of doing business and, consequently, affect profitability. Insomuch as new legislation affecting the oil and natural gas industry is common-place and existing laws and regulations are frequently amended or reinterpreted, Viking may be unable to predict the future cost or impact of complying with these laws and regulations. Viking considers the cost of environmental protection a necessary and manageable part of its business. Viking has historically been able to plan for and comply with new environmental initiatives without materially altering its operating strategies.
Insurance Matters
Viking maintains insurance coverage which it believes is reasonable per the standards of the oil and natural gas industry. It is common for companies in these industries to not insure fully against all risks associated with their operations either because such insurance is unavailable or because premium costs are considered prohibitive. A material loss not fully covered by insurance could have an adverse effect on Viking’s financial position, results of operations or cash flows. Viking maintains insurance at industry customary levels to limit its financial exposure in the event of a substantial environmental claim resulting from sudden, unanticipated and accidental discharges of certain prohibited substances into the environment. Such insurance might not cover the complete amount of such a claim and would not cover fines or penalties for a violation of an environmental law.
117
Other Matters
Environmental. Viking’s exploration, development, and production of oil and natural gas, including its operation of saltwater injection and disposal wells, are subject to various federal, state and local environmental laws and regulations. Such laws and regulations can increase the costs of planning, designing, installing and operating oil, natural gas, and disposal wells. Viking’s domestic activities are subject to a variety of environmental laws and regulations, including but not limited to, the Oil Pollution Act of 1990 (“OPA”), the Clean Water Act (“CWA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”), the Clean Air Act (“CAA”), and the Safe Drinking Water Act (“SDWA”), as well as state regulations promulgated under comparable state statutes. Viking is also subject to regulations governing the handling, transportation, storage, and disposal of naturally occurring radioactive materials that are found in its oil and gas operations. Civil and criminal fines and penalties may be imposed for non-compliance with these environmental laws and regulations. Additionally, these laws and regulations require the acquisition of permits or other governmental authorizations before undertaking certain activities, limit or prohibit other activities because of protected areas or species, and impose substantial liabilities for cleanup of pollution.
Under the OPA, a release of oil into water or other areas designated by the statute could result in Viking being held responsible for the costs of remediating such a release, certain OPA specified damages, and natural resource damages. The extent of that liability could be extensive, as set forth in the statute, depending on the nature of the release. A release of oil in harmful quantities or other materials into water or other specified areas could also result in Viking being held responsible under the CWA for the costs of remediation, and civil and criminal fines and penalties.
CERCLA and comparable state statutes, also known as “Superfund” laws, can impose joint and several and retroactive liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the release of a “hazardous substance” into the environment. In practice, cleanup costs are usually allocated among various responsible parties. Potentially liable parties include site owners or operators, past owners or operators under certain conditions, and entities that arrange for the disposal or treatment of, or transport hazardous substances found at the site. Although CERCLA, as amended, currently exempts petroleum, including but not limited to, crude oil, natural gas and natural gas liquids, from the definition of hazardous substance, Viking’s operations may involve the use or handling of other materials that may be classified as hazardous substances under CERCLA. Furthermore, the exemption may not be preserved in future amendments of the act, if any.
RCRA and comparable state and local requirements impose standards for the management, including treatment, storage, and disposal, of both hazardous and non-hazardous solid wastes. Viking generates hazardous and non-hazardous solid waste in connection with its routine operations. From time to time, proposals have been made that would reclassify certain oil and natural gas wastes, including wastes generated during drilling and production operations, as “hazardous wastes” under RCRA, which would make such solid wastes subject to much more stringent handling, transportation, storage, disposal, and clean-up requirements. This development could have a significant impact on its operating costs. While state laws vary on this issue, state initiatives to further regulate oil and natural gas wastes could have a similar impact. Because oil and natural gas exploration and production, and possibly other activities, have been conducted at some of Viking’s properties by previous owners and operators, materials from these operations remain on some of the properties and in some instances, require remediation. In addition, in certain instances, Viking has agreed to indemnify sellers of producing properties from which it has acquired reserves against certain liabilities for environmental claims associated with such properties. While Viking does not believe that costs to be incurred by it for compliance and remediating previously or currently owned or operated properties will be material, there can be no guarantee that such costs will not result in material expenditures.
Additionally, in the course of Viking’s routine oil and natural gas operations, surface spills and leaks, including casing leaks, of oil or other materials occur, and these can lead to costs for waste handling and environmental compliance. Moreover, Viking is able to control directly the operations of only those wells for which it acts as the operator. Management believes that Viking is in substantial compliance with applicable environmental laws and regulations.
118
In response to liabilities associated with these activities, accruals are established when reasonable estimates are possible. Such accruals would primarily include estimated costs associated with remediation. Viking has used discounting to present value in determining Viking’s accrued liabilities for environmental remediation or well closure, but no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in Viking’s financial statements. Viking adjusts the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.
Viking does not anticipate being required in the near future to expend amounts that are material in relation to its total capital expenditures program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are frequently changed, it is unable to predict the ultimate cost of compliance. More stringent laws and regulations protecting the environment may be adopted in the future and it may incur material expenses in connection with environmental laws and regulations in the future.
Occupational Health and Safety. Viking is also subject to laws and regulations concerning occupational safety and health. Due to the continued changes in these laws and regulations, and the judicial construction of many of them, it is unable to predict with any reasonable degree of certainty its future costs of complying with these laws and regulations. Viking considers the cost of safety and health compliance a necessary and manageable part of its business. Viking has been able to plan for and comply with new initiatives without materially altering its operating strategies.
Hydraulic Fracturing. Vast quantities of natural gas, natural gas liquids and oil deposits exist in deep shale and other unconventional formations. It is customary in Viking’s industry to recover these resources through the use of hydraulic fracturing, combined with horizontal drilling. Hydraulic fracturing is the process of creating or expanding cracks, or fractures, in deep underground formations using water, sand and other additives pumped under high pressure into the formation. As with the rest of the industry, Viking uses hydraulic fracturing as a means to increase the productivity of almost every well that it drills and completes. These formations are generally geologically separated and isolated from fresh ground water supplies by thousands of feet of impermeable rock layers. Viking follows applicable legal requirements for groundwater protection in its operations that are subject to supervision by state and federal regulators (including the Bureau of Land Management (“BLM”) on federal acreage). Furthermore, Viking’s well construction practices require the installation of multiple layers of protective steel casing surrounded by cement that are specifically designed and installed to protect freshwater aquifers by preventing the migration of fracturing fluids into aquifers.
Injection rates and pressures are required to be monitored in real time at the surface during Viking’s hydraulic fracturing operations. Pressure is required to be monitored on both the injection string and the immediate annulus to the injection string. Hydraulic fracturing operations are required to be shut down if an abrupt change occurs to the injection pressure or annular pressure. These aspects of hydraulic fracturing operations are designed to prevent a pathway for the fracturing fluid to contact any aquifers during the hydraulic fracturing operations.
Hydraulic fracture stimulation requires the use of water. Viking uses fresh water or recycled produced water in its fracturing treatments in accordance with applicable water management plans and laws. Several proposals have previously been presented to the U.S. Congress that, if implemented, would either prohibit or restrict the practice of hydraulic fracturing or subject the process to regulation under the Safe Drinking Water Act. Several states have previously considered, or are currently considering, legislation to regulate hydraulic fracturing practices that could impose more stringent permitting, transparency, and well construction requirements on hydraulic-fracturing operations or otherwise seek to ban fracturing activities altogether. Hydraulic fracturing of wells and subsurface water disposal are also under public and governmental scrutiny due to potential environmental and physical impacts, including possible contamination of groundwater and drinking water and possible links to earthquakes. In addition, some municipalities have significantly limited or prohibited drilling activities and/or hydraulic fracturing, or are considering doing so.
119
Restrictions on hydraulic fracturing could make it prohibitive to conduct Viking’s operations, and also reduce the amount of oil, natural gas liquids and natural gas that it is ultimately able to produce in commercial quantities from its properties.
The Endangered Species Act. The Endangered Species Act (“ESA”) restricts activities that may affect areas that contain endangered or threatened species or their habitats. While some of Viking’s assets and lease acreage may be located in areas that are designated as habitats for endangered or threatened species, Viking believes that it is in substantial compliance with the ESA. However, the designation of previously unidentified endangered or threatened species in areas where it intends to conduct construction activity could materially limit or delay its plans.
Global Warming and Climate Change. Various state governments and regional organizations are considering enacting new legislation and promulgating new regulations governing or restricting the emission of greenhouse gases from stationary sources such as Viking’s equipment and operations. Legislative and regulatory proposals for restricting greenhouse gas emissions or otherwise addressing climate change could require Viking to incur additional operating costs and could adversely affect demand for the natural gas and oil that it sells. The potential increase in its operating costs could include new or increased costs to obtain permits, operate and maintain its equipment and facilities, install new emission controls on its equipment and facilities, acquire allowances to authorize its greenhouse gas emissions, pay taxes related to its greenhouse gas emissions and administer and manage a greenhouse gas emissions program.
Taxation. Viking’s operations, as is the case in the petroleum industry generally, are significantly affected by federal tax laws. Federal, as well as state, tax laws have many provisions applicable to corporations which could affect its future tax liabilities.
Commitments and Contingencies. Viking is liable for future restoration and abandonment costs associated with its oil and gas properties. These costs include future site restoration, post closure and other environmental exit costs. The costs of future restoration and well abandonment have not been determined in detail. State regulations require operators to post bonds that assure that well sites will be properly plugged and abandoned. Viking currently operates only in Texas, which requires a security bond based on the number of wells Viking operates. Management views this as a necessary requirement for operations and does not believe that these costs will have a material adverse effect on its financial position as a result of this requirement.
CAMBER’S MANAGEMENT’S DISCUSSION
AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally located in the material set forth under the heading “Risk Factors” beginning on page 29, but may be found in other locations as well. These forward-looking statements are subject to risks and uncertainties and other factors that may cause Camber’s actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Camber identifies forward-looking statements by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “hope,” “plan,” “believe,” “predict,” “envision,” “intend,” “continue,” “potential,” “should,” “confident,” “could” and similar words and expressions, although some forward-looking statements may be expressed differently. You should be aware that Camber’s actual results could differ materially from those contained in the forward-looking statements. You should consider carefully the statements under the heading “Risk Factors” beginning on page 29, and other sections of this joint proxy statement/prospectus which describe factors that could cause Camber’s actual results to differ from those set forth in the forward-looking statements. Forward-looking statements speak only as of the date of this joint proxy statement/prospectus. Except to the extent required by applicable law or regulation, Camber does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events.
Summary of Current Operations
Camber’s website address is http://www.camber.energy. Camber’s fiscal year ends on the last day of March of each year. The information on, or that may be accessed through, Camber’s website is not incorporated by reference into this joint proxy statement/prospectus and should not be considered a part of this joint proxy statement/prospectus. Camber refers to the twelve-month periods ended March 31, 2020 and March 31, 2019 as its 2020 Fiscal Year and 2019 Fiscal Year, respectively.
120
As of December 31, 2019 and March 31, 2019, Camber had leasehold interests (working interests) covering approximately 221 / 3,500 (net / gross) acres, producing from the Cline and Wolfberry formations. The remaining Texas acreage consists of leasehold covering approximately 555 / 638 (net / gross) acres and wellbores located in the Panhandle in Hutchinson County, Texas, which was acquired by Camber in March 2018. On May 30, 2019, Camber received a Severance Order from the Texas Railroad Commission (the “TRC”) for noncompliance with TRC rules, suspending Camber’s ability to produce or sell oil and gas from its Panhandle leases in Hutchinson County, Texas, until certain well performance criteria are met. Since that time, Camber has been following TRC procedures in order to regain TRC compliance for the Panhandle wells. Additionally, as a result of a notice from its working interest partner, PetroGlobe Energy, and related litigation, all prior production on the Panhandle wells is held in suspense. Camber is working to cure the issues raised by the TRC. Additionally, Camber’s oil purchaser is holding hydrocarbons in suspense pursuant to the terms of the PetroGlobe lawsuit as discussed below under “Information About Camber - Camber Legal Proceedings”, below, beginning on page 110; however, as described above, the parties have recently entered into a settlement agreement which provides for among other things, Camber to cure the issues with the TRC and to transfer its ownership of its Hutchinson County, Texas properties and wells to PetroGlobe, which transaction and transfer has not closed to date.
As of December 31, 2019, Camber was producing an average of approximately 36.5 net barrels of oil equivalent per day (“Boepd”) from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Camber’s production sales totaled 3,161 and 10,035 Boe, net to its interest, for the three and nine months ended December 31, 2019, respectively. At December 31, 2019, Camber’s total estimated proved producing reserves were 155,376 Boe, of which 120,590 Bbls were crude oil and NGL reserves, and 208,710 Mcf were natural gas reserves and of which 18,200 Bbls of crude oil relates to Camber’s Panhandle properties. There are no natural gas reserves related to the Panhandle properties.
The Hutchinson County, Texas, acquisition in March 2018 included interests in 48 gross non-producing well bores, 5 saltwater disposal wells, and the required infrastructure and equipment necessary to support future hydrocarbon production as well as approximately 555 net leasehold acres in Hutchinson County, Texas. Camber holds an interest in 25 producing wells in Glascock County and Camber previously restored 11 wells in Hutchinson County to production, which are not currently producing and which are planned to be plugged.
As of December 31, 2019, and through the date of this joint proxy statement/prospectus, Camber has curtailed production from its wells in Hutchinson County, Texas, because of the Severance Order issued by the TRC on May 30, 2019. Camber is actively working to resolve the issues raised by the TRC. Additionally, Camber’s oil purchaser is holding hydrocarbons in suspense pursuant to the terms of the PetroGlobe lawsuit as discussed below under “Information About Camber - Camber Legal Proceedings”, below, beginning on page 110; however as described above, the parties have recently entered into a settlement agreement which provides for among other things, Camber to cure the issues with the TRC and to transfer its ownership of its Hutchinson County, Texas properties and wells to PetroGlobe, which transaction and transfer has not closed to date.
As of December 31, 2019, Camber had no employees and also, utilized independent contractors on an as-needed basis.
Camber also holds a 12.5% production payment (effective until a total of $2.5 million has been received, of which $0 has been received to date); a 3% overriding royalty interest in its prior Okfuskee County, Oklahoma asset; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard to any of the items noted above through December 31, 2019 or through the date of this joint proxy statement/prospectus.
Moving forward, Camber plans to complete the merger with Viking and then focus on growing through the development of Viking’s properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. Camber anticipates raising additional financing to complete acquisitions following the closing of the merger, which may be accomplished through the sale of debt or equity. As described herein, the merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all.
121
Separately, the price Camber receives for its oil heavily influences its revenue and cash flows, and the present value and quality of its reserves. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“WTI”) crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then, in 2020, most recently dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, due to the COVID-19 outbreak, governmental responses thereto, decreased demand in connection therewith, or other factors will likely adversely affect Camber’s business, financial condition and liquidity and its ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy.
Industry Segments
Camber’s operations during the three and nine months ended December 31, 2018 were all crude oil and natural gas exploration and production related. For the three and nine months ended December 31, 2019, Camber’s operations were all crude oil and natural gas exploration and production related, except that from July 8, 2019 to December 31, 2019, Camber also owned and operated Lineal, which operated as an oil and gas service company and generated oil and gas service revenues. As described below under “Certain Relationships and Related Party Transactions – Redemption Agreement”, beginning on page 193, on December 31, 2019, Camber divested its entire interest in Lineal (the “Lineal Divestiture”). In conjunction with the Lineal Divestiture, all contract revenue (oil and gas service revenue) has been included in “Loss from Discontinued Operations” for the three and nine months ended December 31, 2019, on Camber’s statement of operations.
Operations
Oil and Gas Properties
Camber operates and invests in areas that are known to be productive, with a reasonably established production history, in order to decrease geological and exploratory risk. Camber has certain interests in wells producing from the Wolfberry and Cline formations in Glasscock County and Hutchinson County, Texas.
Additionally, in March 2018, Camber completed the acquisition of working interests in certain leases, wells and equipment located in the Texas panhandle and a 37.5% interest in one partnership that owned certain leases, wells and equipment in the same fields, for a total purchase price of $250,000, payable in three tranches, from an entity which is controlled by Ian Acrey, who served as the operating manager of Camber’s operations through a different entity. The acquisition included 49 non-producing well bores, 5 saltwater disposal wells and the required infrastructure and equipment necessary to support future hydrocarbon production as well as approximately 555 net leasehold acres in Hutchinson County, Texas. As a result of the May 30, 2019 Severance Order from the TRC discussed above, Camber is effectively blocked from selling oil and gas from its 11 Panhandle wells located in Hutchinson County, Texas, and as a result of the PetroGlobe lawsuit, as discussed above under “Information About Camber - Camber Legal Proceedings”, beginning on page 110, a total of approximately 1,000 barrels of oil are held in suspension pending the outcome of the lawsuit. Also as discussed above under “Information About Camber - Camber Legal Proceedings”, beginning on page 110, on January 27, 2020, Camber entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe, Signal, Petrolia, PGCO, and CRTC. Pursuant to the Settlement Agreement, Camber agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which payment has been made, which release is subject to approval by Camber upon the successful transfer of all wells and partnership interests of Camber’s current wholly-owned subsidiary CE to PetroGlobe. The intention of such transfer of wells and partnership interests of CE is that (a) Camber shall be completely removed from liabilities resulting from future acts or omissions of CE occurring after such transfer date, (b) CE is effectively transferred and all steps have been approved by the Railroad Commission of Texas, including approval of new directors, officers, and owners of greater than a 25% interest in CE, and (c) that liability for the wells and partnership interests of Camber in CE, and the current officers and directors of CE, will be transferred after approval by the Railroad Commission along with all oil in storage tanks and the bond currently in place. CE operates all of Camber’s producing wells and leases located in Hutchinson County, Texas.
122
Financing
A summary of Camber’s financing transactions, funding agreements and other material funding and loan transactions can be found under “Index to the Financial Statements”, beginning on page 224, under “Camber Unaudited Interim Consolidated Financial Statements” - “NOTE 2 – Liquidity and Going Concern Considerations”, “NOTE 6 – Note Payables and Debenture”, “NOTE 10 – Merger Agreement and Divestiture”, “NOTE 12 – Stockholders’ Equity (Deficit)” and “NOTE 17– Subsequent Events”.
Camber believes it will have sufficient liquidity to operate as a going concern for the next twelve months with cash on hand and revenues generated from the sale of oil and gas if it can raise new funding, which may be through the sale of debt or equity. The accompanying financial statements of Camber have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements of Camber do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should Camber be unable to continue as a going concern.
Market Conditions and Commodity Prices
Camber’s financial results depend on many factors, particularly the price of natural gas, natural gas liquids and crude oil and Camber’s ability to market its production on economically attractive terms. Commodity prices are affected by many factors outside of Camber’s control, including changes in market supply and demand, which are impacted by weather conditions, inventory storage levels, basis differentials and other factors. As a result, Camber cannot accurately predict future commodity prices and, therefore, cannot determine with any degree of certainty what effect increases or decreases in these prices will have on its production volumes or revenues. Camber expects prices to remain volatile for the remainder of the year. For information about the impact of realized commodity prices on Camber’s crude oil revenues, refer to “Results of Operations” below.
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations for the three and nine-month periods ended December 31, 2019 and 2018 should be read in conjunction with Camber’s consolidated financial statements and notes thereto included in joint proxy statement/prospectus under “Index to the Financial Statements”, beginning on page 224. The majority of the numbers presented below are rounded numbers and should be considered as approximate.
Three Months Ended December 31, 2019 vs. Three Months Ended December 31, 2018
Camber reported a net loss for the three months ended December 31, 2019 of $1.8 million, or $1.27 per share of common stock. Camber reported a net loss for the three months ended December 31, 2018 of $1.6 million, or $800.49 per share of common stock. As discussed in more detail below, Camber’s net loss increased by $0.2 million, primarily due to the loss from the discontinued operations related to the Lineal Divestiture, see also “NOTE 10 – Merger Agreement and Divestiture” of Camber’s Unaudited Interim Financial Statements under “Index to the Financial Statements”, beginning on page 224
123
Oil and Gas Exploration and Production Segment Information
The following table sets forth the operating results and production data for Camber’s oil and gas exploration and production segment, for the periods indicated:
|
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
|
|
|
2019 |
|
|
2018 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
|
Sale Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Crude Oil (Bbls) |
|
|
1,234 |
|
|
|
1,398 |
|
|
|
(164 |
) |
|
|
(12 |
)% |
|
Natural Gas (Mcf) |
|
|
4,570 |
|
|
|
5,271 |
|
|
|
(701 |
) |
|
|
(13 |
)% |
|
NGL (Gallons) |
|
|
48,919 |
|
|
|
57,408 |
|
|
|
(8,489 |
) |
|
|
(15 |
)% |
|
Total (Boe)(1) |
|
|
3,161 |
|
|
|
3,643 |
|
|
|
(482 |
) |
|
|
(13 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls per day) |
|
|
13 |
|
|
|
15 |
|
|
|
(2 |
) |
|
|
(13 |
)% |
|
Natural Gas (Mcf per day) |
|
|
50 |
|
|
|
57 |
|
|
|
(7 |
) |
|
|
(12 |
)% |
|
NGL (Gallons per day) |
|
|
532 |
|
|
|
624 |
|
|
|
(92 |
) |
|
|
(15 |
)% |
|
Total (Boe per day)(1) |
|
|
34 |
|
|
|
40 |
|
|
|
(6 |
) |
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sale Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil ($/Bbl) |
|
$ |
55.97 |
|
|
$ |
52.43 |
|
|
$ |
3,54 |
|
|
|
7 |
% |
|
Natural Gas ($/Mcf) |
|
$ |
2.16 |
|
|
$ |
2.49 |
|
|
$ |
(0.33 |
) |
|
|
(13 |
)% |
|
NGL ($/Bbl) |
|
$ |
0.31 |
|
|
$ |
0.72 |
|
|
$ |
(0.41 |
) |
|
|
(57 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
$ |
69,092 |
|
|
$ |
73,301 |
|
|
$ |
(4,209 |
) |
|
|
(6 |
)% |
|
Natural Gas |
|
|
9,871 |
|
|
|
13,114 |
|
|
|
(3,243 |
) |
|
|
(25 |
)% |
|
NGL |
|
|
15,152 |
|
|
|
41,522 |
|
|
|
(26,370 |
) |
|
|
(64 |
)% |
|
Total Oil and Gas Revenues |
|
$ |
94,115 |
|
|
$ |
127,937 |
|
|
$ |
(33,822 |
) |
|
|
(26 |
)% |
(1) Assumes 6 Mcf of natural gas equivalents and 42 gallons of NGL to 1 barrel of oil, respectively.
Operating and Other Expenses
The following table summarizes Camber’s production costs and operating expenses for the periods indicated:
|
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
|
|
|
2019 |
|
|
2018 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
|
Direct lease operating expense |
|
$ |
57,328 |
|
|
$ |
361,910 |
|
|
$ |
(304,582 |
) |
|
|
(84 |
)% |
|
Workovers expense |
|
|
— |
|
|
|
51,151 |
|
|
|
(51,151 |
) |
|
|
(100 |
)% |
|
Other |
|
|
15,627 |
|
|
|
28,251 |
|
|
|
(12,624 |
) |
|
|
(45 |
)% |
|
Lease Operating Expenses |
|
$ |
72,955 |
|
|
$ |
441,312 |
|
|
$ |
(368,357 |
) |
|
|
(83 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Property Taxes |
|
$ |
4,081 |
|
|
$ |
5,937 |
|
|
$ |
(1,856 |
) |
|
|
(31 |
)% |
|
Depreciation, Depletion, Amortization and Accretion |
|
|
7,382 |
|
|
|
1,026 |
|
|
|
6,356 |
|
|
|
619 |
% |
|
Impairment of Oil and Gas Properties |
|
|
— |
|
|
|
548,819 |
|
|
|
(548,819 |
) |
|
|
(100 |
)% |
|
General and Administrative (“G&A”) |
|
|
1,146,374 |
|
|
|
677,566 |
|
|
|
468,808 |
|
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
9,750 |
|
|
$ |
202,669 |
|
|
$ |
(192,919 |
) |
|
|
(95 |
)% |
|
Other Expense (Income), Net |
|
$ |
(22,861 |
) |
|
$ |
(163,308 |
) |
|
$ |
(140,447 |
) |
|
|
(86 |
)% |
|
Loss from Discontinued Operations |
|
$ |
(710,112 |
) |
|
$ |
— |
|
|
$ |
(710,112 |
) |
|
|
100 |
% |
Lease Operating Expenses
There was a decrease in lease operating expense of approximately $0.4 million when comparing the current quarter to the prior year quarter. The decrease is primarily due to the decline in costs expended in the Panhandle wells.
124
Depreciation, Depletion, Amortization and Accretion (“DD&A”)
DD&A increased for the current quarter as compared to the prior year’s quarter by approximately $6,000.
Impairment of Oil and Gas Properties
There was no impairment expense for the three months ended December 31, 2019, compared to impairment expense of $0.5 million for the three months ended December 31, 2018. The decrease was due to the expiration of all remaining leases not held by production during the year ended March 31, 2019.
General and Administrative (G&A) Expenses
G&A expenses increased by approximately $0.5 million for the three months ended December 31, 2019, compared to the prior year’s period. The increase was due primarily to consulting, legal and other costs incurred related to the Lineal Merger and Lineal Divestiture.
Interest Expense
Interest expense for the three months ended December 31, 2019 decreased by approximately $0.2 million when compared to the three-month period ended December 31, 2018, due to the disposition of all significant interest-bearing obligations.
Other Expense (Income), Net
Other expense (income), net, for the three months ended December 31, 2019 decreased by approximately $0.1 million, compared to the same period ended December 31, 2018, due, in part, to a decline in interest earned on excess operating funds during the quarter ended December 31, 2019 due to declines in cash.
Loss from Discontinued Operations
Camber had a loss from discontinued operations of $0.7 million relating to Lineal for the three months ended December 31, 2019, compared to no loss from discontinued operations for the three months ended December 31, 2018.
Nine Months Ended December 31, 2019 vs. Nine Months Ended December 31, 2018
Camber reported a net loss for the nine months ended December 31, 2019 of $3.4 million, or $7.84 per share of common stock. Camber reported net income for the nine months ended December 31, 2018 of $18.1 million, or $529.23 per share of common stock. As discussed in more detail below, Camber’s net income decreased by $21.5 million, primarily due to the N&B Energy Sale Agreement and related transactions which closed in September 2018, as described in greater detail above under “Information About Camber – Description of Business of Camber”, beginning on page 94 (the “September 2018 N&B Disposition”).
Oil and Gas Exploration and Production Segment Information
The following table sets forth the operating results and production data for Camber’s oil and gas exploration and production segment, for the periods indicated:
|
|
Nine Months
Ended |
|
|
Increase |
|
|
% Increase |
|
|||||||
|
|
2019 |
|
|
2018 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
Sale Volumes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Crude Oil (Bbls) |
|
|
4,083 |
|
|
|
7,257 |
|
|
|
(3,174 |
) |
|
|
(44 |
)% |
Natural Gas (Mcf) |
|
|
14,748 |
|
|
|
316,249 |
|
|
|
(301,501 |
) |
|
|
(95 |
)% |
NGL (Gallons) |
|
|
146,747 |
|
|
|
2,098,435 |
|
|
|
(1,951,688 |
) |
|
|
(93 |
)% |
Total (Boe)(1) |
|
|
10,035 |
|
|
|
109,928 |
|
|
|
(99,893 |
) |
|
|
(91 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil (Bbls per day) |
|
|
15 |
|
|
|
27 |
|
|
|
(12 |
) |
|
|
(44 |
)% |
Natural Gas (Mcf per day) |
|
|
54 |
|
|
|
1,150 |
|
|
|
(1,096 |
) |
|
|
(95 |
)% |
NGL (Gallons per day) |
|
|
534 |
|
|
|
7,631 |
|
|
|
(7,097 |
) |
|
|
(93 |
)% |
Total (Boe per day)(1) |
|
|
36 |
|
|
|
400 |
|
|
|
(364 |
) |
|
|
(91 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Sale Price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil ($/Bbl) |
|
$ |
56.23 |
|
|
$ |
62.74 |
|
|
$ |
(6.51 |
) |
|
|
(10 |
)% |
Natural Gas ($/Mcf) |
|
$ |
1.99 |
|
|
$ |
2.38 |
|
|
$ |
(0.39 |
) |
|
|
(16 |
)% |
NGL ($/Bbl) |
|
$ |
0.34 |
|
|
$ |
0.68 |
|
|
$ |
(0.34 |
) |
|
|
(50 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
$ |
229,577 |
|
|
$ |
455,322 |
|
|
$ |
(225,745 |
) |
|
|
(50 |
)% |
Natural Gas |
|
|
29,418 |
|
|
|
753,057 |
|
|
|
(723,639 |
) |
|
|
(96 |
)% |
NGL |
|
|
49,224 |
|
|
|
1,423,720 |
|
|
|
(1,374,496 |
) |
|
|
(97 |
)% |
Total Oil and Gas Revenues |
|
$ |
308,219 |
|
|
$ |
2,632,099 |
|
|
$ |
(2,323,880 |
) |
|
|
(88 |
)% |
(1) Assumes 6 Mcf of natural gas equivalents and 42 gallons of NGL to 1 barrel of oil, respectively.
125
Operating and Other Expenses
The following table summarizes Camber’s production costs and operating expenses for the periods indicated:
|
|
Nine
Months Ended |
|
|
Increase |
|
|
% Increase |
|
|||||||
|
|
2019 |
|
|
2018 |
|
|
(Decrease) |
|
|
(Decrease) |
|
||||
Direct lease operating expense |
|
$ |
336,758 |
|
|
$ |
1,807,756 |
|
|
$ |
(1,470,998 |
) |
|
|
(81 |
)% |
Workovers expense |
|
|
— |
|
|
|
109,996 |
|
|
|
(109,996 |
) |
|
|
(100 |
)% |
Other |
|
|
48,237 |
|
|
|
682,601 |
|
|
|
(634,364 |
) |
|
|
(93 |
)% |
Lease Operating Expenses |
|
$ |
384,995 |
|
|
$ |
2,600,353 |
|
|
$ |
(2,215,358 |
) |
|
|
(85 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Property Taxes |
|
$ |
10,686 |
|
|
$ |
133,192 |
|
|
$ |
(122,506 |
) |
|
|
(92 |
)% |
Depreciation, Depletion, Amortization and Accretion |
|
|
15,215 |
|
|
|
464,952 |
|
|
|
(449,737 |
) |
|
|
(97 |
)% |
Impairment of Oil and Gas Properties |
|
|
— |
|
|
|
1,304,785 |
|
|
|
(1,304,785 |
) |
|
|
(100 |
)% |
Gain on Sale of Properties |
|
|
— |
|
|
|
25,808,246 |
|
|
|
(25,808,246 |
) |
|
|
(100 |
)% |
General and Administrative (“G&A”) |
|
|
3,381,159 |
|
|
|
3,169,186 |
|
|
|
211,973 |
|
|
|
7 |
% |
Share-Based Compensation |
|
|
37,690 |
|
|
|
343,629 |
|
|
|
(305,939 |
) |
|
|
(89 |
)% |
Total G&A Expense |
|
$ |
3,418,849 |
|
|
$ |
3,512,816 |
|
|
$ |
(93,967 |
) |
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
14,771 |
|
|
$ |
2,436,776 |
|
|
$ |
(2,422,005 |
) |
|
|
(99 |
)% |
Other Expense (Income), Net |
|
$ |
(138,057 |
) |
|
$ |
(142,714 |
) |
|
$ |
(4,657 |
) |
|
|
(3 |
)% |
Lease Operating Expenses
There was a decrease in lease operating expense of approximately $2.2 million when comparing the current nine months ended December 31, 2019 to the prior year’s period. The decrease is primarily due to the September 2018 N&B Disposition.
Depreciation, Depletion, Amortization and Accretion
DD&A decreased for the nine months ended December 31, 2019 to the prior year’s period by approximately $0.4 million, primarily related to the decrease in total depreciable assets caused by the September 2018 N&B Disposition.
126
Impairment of Oil and Gas Properties
There was no impairment expense for the nine months ended December 31, 2019, compared to impairment expense of $1.3 million for the nine months ended December 31, 2018. The decrease was due to the expiration of all remaining leases not held by production during the year ended March 31, 2019.
Gain on Sale of Assets
Gain on sale of oil and gas properties was $25.8 million for the nine months ended December 31, 2018, compared to $0 for the same nine-month period ended December 31, 2019 due to the September 2018 N&B Disposition.
General and Administrative (G&A) Expenses and Share-Based Compensation
G&A expenses decreased by approximately $0.1 million for the nine months ended December 31, 2019, compared to the prior year’s period. The decrease was primarily due to the reduction in share-based payments due to the expiration of commitments in the prior year.
Interest Expense
Interest expense for the nine months ended December 31, 2019 decreased by approximately $2.4 million when compared to the nine-month period ended December 31, 2018, due to the assignment of the IBC Bank debt in connection with the September 2018 N&B Disposition.
Other Expense (Income), Net
Other expense (income), net, for the nine months ended December 31, 2019 decreased by approximately $5,000, compared to the same period ended December 31, 2018, due, in part, to a decrease in interest earned on excess operating funds during the nine months ended December 31, 2019.
LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements of Camber have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should Camber be unable to continue as a going concern.
Camber’s primary sources of cash for the nine months ended December 31, 2019 were from funds generated from the sale of preferred stock during fiscal 2019, the sale of natural gas and crude oil production and revenue generated from Lineal which is now divested. The primary uses of cash were funds used in operations. As of December 31, 2019, Camber had net working capital of approximately $0.4 million. Camber believes that it will not have sufficient liquidity to operate as a going concern for the next twelve months following the issuance of the financial statements included herein unless it can raise new funding, which may be through the sale of debt or equity or unless it closes the Viking merger, which is scheduled to be closed by June 30, 2020, extendable to up to December 31, 2020, as discussed under “The Merger Agreement – Termination of the Merger Agreement”, beginning on page 183, the completion of which is Camber’s current plan.
Pursuant to the December 31, 2019 Redemption Agreement, Camber entered into a new unsecured promissory note in the amount of $1,539,719 with Lineal, evidencing the repayment of a prior July 2019 Lineal Note, together with additional amounts loaned by Camber to Lineal through December 31, 2019; and loaned Lineal an additional $800,000, which was evidenced by an unsecured promissory note in the amount of $800,000, entered into by Lineal in favor of Camber on December 31, 2019. The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. The December 2019 Lineal Note and Lineal Note No. 2 are unsecured.
127
On February 3, 2020, Camber and Discover entered into a Stock Purchase Agreement pursuant to which Discover purchased 525 shares of Series C Preferred Stock for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock.
On February 3, 2020, Camber advanced the $5.0 million raised from the sale of Series C Preferred Stock to Discover to Viking and Viking provided Camber, among other things, the Secured Note. The 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. The 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 Secured Note. The Secured Note is secured by a security interest, para passu with the other investors in Viking’s Secured Note offering (subject to certain pre-requisites) in Viking’s 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a separate Security and Pledge Agreement entered into on February 3, 2020, Viking provided Camber 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 Secured Note. As additional consideration for providing the Secured Note, Viking assigned Camber 25% of Elysium, which is fully or partially assignable back to Viking upon termination of the Merger, under certain circumstances, as discussed in greater detail under “Agreements Relating to the Merger”, beginning on page 186.
Plan of Operations
Moving forward, Camber plans to complete the merger with Viking and then focus on growing through the development of Viking’s properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. Camber anticipates raising additional financing to complete acquisitions following the closing of the merger, which may be through the sale of debt or equity.
Working Capital
At December 31, 2019, Camber’s total current assets of $2.4 million exceeded its total current liabilities of approximately $2.0 million, resulting in working capital of $0.4 million, while at March 31, 2019, Camber’s total current assets of $8.2 million exceeded its total current liabilities of approximately $2.1 million, resulting in working capital of $6.1 million. The reduction from $6.1 million to $0.4 million is due to losses from continuing operations and costs incurred with the Lineal Merger and ultimate divestiture with Lineal as discussed below under “Information About Camber - Camber Legal Proceedings”, below, beginning on page 110.
Cash Flows
|
|
Nine Months
Ended |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Cash flows used in operating activities |
|
$ |
(1,991,340 |
) |
|
$ |
(4,188,452 |
) |
Cash flows used in investing activities |
|
|
(4,641,019 |
) |
|
|
(2,328,311 |
) |
Cash flows provided by financing activities |
|
|
1,107,375 |
|
|
|
15,000,000 |
|
Net (decrease) increase in cash and restricted cash |
|
$ |
(5,524,984 |
) |
|
$ |
8,438,237 |
|
Net cash used in operating activities was $2.0 million for the nine months ended December 31, 2019, compared to $4.2 million for the same period a year ago. For the nine-month period ended December 31, 2019, net cash used in operating activities decreased due to payments of accounts payable offset by a reduction in gain on sale of oil and gas properties in the prior period.
128
Net cash used in investing activities was $4.6 million for the nine months ended December 31, 2019, compared to net cash used in investing activities of $2.3 million for the same period a year ago. The increase in net cash used in investing activities was primarily due to cash used by Lineal.
Net cash provided by financing activities was $1.1 million for the nine-month period ended December 31, 2019, and cash provided by financing activities was $15.0 million for the nine months ended December 31, 2018. The decrease in net cash provided by financing activities was due to no sales of Series C Preferred Stock shares in the current period, compared to $15 million in such sales during the prior period.
Significant Accounting Polices
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform them with the current year presentation. These reclassifications had no effect on the reported results of operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Camber and all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
Accounts Receivable
Accounts receivable, net, include amounts due for oil and gas revenues from prior month production, accrued interest on the notes receivable due from Lineal and an estimate of amounts due from N&B Energy related to the September 2018 Sale Agreement. The allowance for doubtful accounts is Camber’s best estimate of the probable amount of credit losses in Camber’s existing accounts receivable. At December 31, 2019 and March 31, 2019, there were allowances for doubtful accounts of approximately $208,000 and $190,000, respectively, included in accounts receivable, and there were bad debts of $0 and $17,694, recognized for the three and nine-month periods ended December 31, 2019, respectively.
Notes Receivable
Notes receivable include the two notes due from Lineal in the amounts of $1,539,719 and $800,000, respectively, as more fully discussed in “NOTE 10 – Merger Agreement and Divestiture” of the unaudited financial statements of Camber attached hereto under “Index to the Financial Statements”, beginning on page 224. Notes receivable are reported based on the principal amounts due from Lineal pursuant to notes receivable issued by Camber to Lineal pursuant to the Redemption Agreement. As of December 31, 2019, Camber had no allowance for uncollectible amounts related to the notes receivable.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the equipment under capital leases related to the Lineal operations was computed using the straight-line method over lives ranging from 3 to 5 years and is included in depreciation expense. Costs of maintenance and repairs were charged to expense when incurred.
Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of its intangible assets, requires Camber to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for Camber’s services and future market conditions. Estimating future cash flows requires significant judgment, and Camber’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the periods ended December 31, 2019 and March 31, 2019.
129
Goodwill
Goodwill is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings of businesses one level below the operating segment level. Camber’s operating segments are the same as the reporting units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed. Camber recognized goodwill during the three months ended September 30, 2019 in conjunction with the Lineal Merger which was written off during the quarter ended December 31, 2019 as a result of the Lineal Divestiture as more fully discussed in “NOTE 10 – Merger Agreement and Divestiture” of the unaudited financial statements of Camber included herewith under “Index to the Financial Statements”, beginning on page 224.
Revenue Recognition
Exploration and Production Revenue
Camber’s revenue for its exploration and production segment is comprised entirely of revenue from exploration and production activities. Camber’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. Natural gas liquids (NGLs) are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.
Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. Camber recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.
Revenues are recognized for the sale of Camber’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.
Oil and Gas Services Revenue
The majority of Lineal’s oil and gas service revenue is derived from contracts and projects that typically span between 3 to 12 months. The oil and gas service contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
Lineal’s construction contracts are recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. Contract costs include labor, material, and indirect costs. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, Lineal estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
130
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On Lineal’s construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.
Fair Value of Financial Instruments
Accounting Standards Codification (ASC) 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
● Level 1 – Quoted prices in active markets for identical assets or liabilities.
● Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
● Level 3 – Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
As of December 31, 2019 and March 31, 2019, the significant inputs to Camber’s derivative liability and mezzanine equity calculations were Level 3 inputs.
Recently Adopted Accounting Pronouncements
ASC 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Camber adopted Topic 606 on April 1, 2018, using the modified retrospective method applied to contracts that were not completed as of April 1, 2018. Under the modified retrospective method, prior period financial positions and results will not be adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While Camber does not expect 2020 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning April 1, 2018. Refer to “NOTE 9 – Revenue from Contracts with Customers” of the unaudited financial statements of Camber included herein under “Index to the Financial Statements”, beginning on page 224.
In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. Camber adopted this ASU on April 1, 2018.
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Following is a summary of cash and cash equivalents and restricted cash:
|
|
December
31, |
|
|
March 31, |
|
||
Cash, cash equivalents and restricted cash |
|
$ |
2,253,739 |
|
|
$ |
7,778,723 |
|
|
|
|
|
|
|
|
|
|
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017. Camber adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to Camber’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired are concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. Camber adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to Camber’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. Camber adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to Camber’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with an alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. Camber adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the disclosures related to those periods, are not restated.
In addition, Camber elected practical expedients provided by the new standard, and Camber has elected to not reassess its prior conclusions about lease identification, lease classification, and initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less which do not contain purchase options that Camber is reasonably likely to exercise). As a result of the short-term expedient election, Camber does not have leases that require the recording of a net lease asset and lease liability on Camber’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of April 1, 2019. Moving forward, Camber will evaluate any new lease commitments for application of Topic 842.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. Camber adopted ASU 2018-13 effective April 1, 2019. The adoption did not have a material impact on its consolidated financial statements.
132
Recently Issued Accounting Pronouncements
Camber does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.
VIKING’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Viking Plan of Operations
Viking’s business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Viking has relationships with industry experts and formulated an acquisition strategy, with emphasis on acquiring under-valued, producing properties from distressed vendors or those deemed as non-core assets by larger sector participants. Viking does not focus on speculative exploration programs, but rather targets properties with current production and untapped reserves. Viking’s growth strategy includes the following key initiatives:
|
● |
Acquisition of under-valued producing oil and gas assets |
|
● |
Employ enhanced recovery techniques to maximize production |
|
● |
Implement responsible, lower-risk drilling programs on existing assets |
|
● |
Aggressively pursue cost-efficiencies |
|
● |
Opportunistically explore strategic mergers and/or acquisitions |
|
● |
Actively hedge mitigating commodity risk |
The following overview provides a background for the current strategy being implemented by management of Viking.
Kansas
|
● |
On January 12, 2018, Viking, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas. |
|
● |
Effective February 1, 2018, Viking, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. |
These Kansas properties are operated by third party contractors. Viking’s plans relative to these properties includes the development of the production potential of existing wells and capitalizing on the drilling opportunities that exist within the acreage covered by these working interests. In 2018, Viking began drilling new wells in various Kansas locations.
|
● |
On May 1, 2019, Viking’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres. |
Acquisitions – Texas, Louisiana and Mississippi
On December 22, 2017, Viking completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.
As a part of this acquisition, Viking retained an operational office in Houston, Texas that includes several senior level professionals with over 100 years of combined oil and gas experience which provides Viking the capability of operating many of its own wells internally. This expertise has since been utilized to evaluate additional oil and gas acquisitions, evaluate the profitable management of all of Viking’s oil and gas assets, and evaluate and develop new drilling prospects.
133
Acquisitions – Texas and Louisiana
On December 28, 2018, Viking, through its newly formed Ichor Energy subsidiaries completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet, and daily production volumes averaging in excess of 2,300 BOE. This acquisition of these assets is consistent with the location of Viking’s Petrodome assets and are effectively managed from Viking’s Houston office.
On October 10, 2019, Viking, through a newly formed subsidiary, Elysium Energy, LLC (“Elysium Energy”), entered into a Purchase and Sale Agreement to purchase working interests and over-riding royalty interests in oil and gas properties in Texas and Louisiana, along with associated wells and equipment (the “Elysium Energy Acquisition”). On February 3, 2020, Elysium Energy, the subsidiary of Viking’s 75%-owned subsidiary, Elysium Energy Holdings, LLC, completed the Elysium Energy Acquisition, acquiring interests in oil and gas properties located in Texas and Louisiana, which included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells in 11 counties) and Louisiana (approximately 55 wells in 6 parishes), along with associated equipment. On February 4, 2020, Elysium Energy hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021, and 50% of the estimated production for the period between January 2022 to July 2022. Theses hedges have a floor of $45.00 and a ceiling ranging from $52.70 to $56.00 for oil, and a floor of $2.00 and a ceiling of $2.425 for natural gas.
Acquisitions – Louisiana
On May 10, 2019, Petrodome Louisiana Pipeline LLC (“Petrodome LA”), a subsidiary of Viking’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
Viking Results of Operations
The following discussion of the consolidated financial condition and results of operation of Viking should be read in conjunction with Viking’s consolidated financial statements and the related notes included elsewhere in this joint proxy statement/prospectus under “Index to the Financial Statements”, beginning on page 224.
Liquidity and Capital Resources
|
|
March 31, |
|
|
December 31, |
|
||
Working Capital: |
|
2020 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
||
Current assets |
|
$ |
10,989,692 |
|
|
$ |
8,671,832 |
|
Current liabilities |
|
$ |
30,827,772 |
|
|
$ |
34,243,588 |
|
Asset retirement obligation |
|
$ |
5,178,585 |
|
|
$ |
3,538,637 |
|
Working capital (deficit) |
|
$ |
(19,838,080 |
) |
|
$ |
(25,571,756 |
) |
|
|
Three Months Ended March 31, |
|
|||||
Cash Flows: |
|
2020 |
|
|
2019 |
|
||
|
|
|
|
|
|
|
||
Net Cash Provided by Operating Activities |
|
$ |
64,002 |
|
|
$ |
366,910 |
|
Net Cash Used in Investing Activities |
|
$ |
(811,276 |
) |
|
$ |
(493,126 |
) |
Net Cash Provided by Financing Activities |
|
$ |
1,373,665 |
|
|
$ |
361,374 |
|
Increase in Cash during the Period |
|
$ |
626,391 |
|
|
$ |
251,158 |
|
Cash and Cash Equivalents, end of Period |
|
$ |
6,265,115 |
|
|
$ |
4,245,050 |
|
134
|
|
Years Ended December 31, |
|
|||||
Cash Flows: |
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
||
Net Cash Provided by (Used in) Operating Activities |
|
$ |
4,027,639 |
|
|
$ |
(3,926,435 |
) |
Net Cash Provided by (Used in) Investing Activities |
|
$ |
(4,654,725 |
) |
|
$ |
(6,514,936 |
) |
Net Cash Provided by (Used in) Financing Activities |
|
$ |
2,255,918 |
|
|
$ |
8,716,004 |
|
Increase (Decrease) in Cash during the Period |
|
$ |
1,628,832 |
|
|
$ |
(1,725,367 |
) |
Cash and Cash Equivalents, end of Period |
|
$ |
5,638,724 |
|
|
$ |
4,009,892 |
|
Viking had current assets of $8,671,832 as of December 31, 2019, as compared to $4,392,635 in the comparable period in 2018. Viking had current liabilities of $34,243,588 as of December 31, 2019, as compared to $19,504,401 in the comparable period in 2018. The increase in current assets and current liabilities is mainly a result of the increased volumes associated with the assets acquired through Ichor Energy at the end of 2018. Viking had a working capital deficit of $25,571,756 as of December 31, 2019 as compared to a working capital deficit of $15,111,766 as of December 31, 2018.
Net cash provided by operating activities increased to 4,027,639 during the fiscal year ended December 31, 2019, as compared to cash used by operating activities of ($3,926,435) in the comparable period in 2018.
Net cash used in investing activities decreased to ($4,654,725) during the fiscal year ended December 31, 2019, as compared to ($6,514,936) in the comparable period in 2018. The decrease is a reflection of reduced capital expenditures during 2019.
Net cash flows from financing activities decreased to $2,255,918 during the fiscal year ended December 31, 2019, as compared to $8,716,004 in the comparable period in 2018. This decrease is mainly the result of reduced borrowings during 2019, coupled with an extra $4 million principal payment applied to the financing associated with the Ichor Energy Acquisition.
As of March 31, 2020, and December 31, 2019, Viking had $6,265,115 (of which $4,650,864 is restricted) and $5,638,724 (of which $3,877,229 is restricted) in cash holdings, respectively.
Viking’s restricted cash in the amount of $4,650,864 as of March 31, 2020, consists of $2,571,026 held by Ichor Energy, LLC, and/or its subsidiaries, and $2,079,838 held by Elysium Energy, LLC, and/or its subsidiaries.
Pursuant to the Term Loan Credit Agreement to which Viking’s subsidiary, Ichor Energy LLC, and its subsidiaries are parties to, following March 31, 2019, the borrowers are required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the borrowers are required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR, and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six month period by an approved plan of development (“APOD Capex Amount”). At March 31, 2020, the restricted cash did not exceed the MLR and the APOD Capex Amount.
Pursuant to the Term Loan Credit Agreement to which Viking’s majority-owned subsidiary, Elysium Energy, LLC, and its subsidiaries are parties to, all receipts are to be deposited to a lockbox account under the control of the lender’s administrative agent, and then subsequently transferred for operations to the borrowers’ bank accounts, all of which are subject to deposit account control agreements. Commencing with the quarter ended September 30, 2020, the borrowers are required to make mandatory prepayments of principal equal to 75% of excess cash flow as specified in the agreement.
As of March 31, 2020, Viking has total long-term debt and other short-term borrowings of $133,176,440, with a current portion of $21,098,455. The current portion consists primarily of (a) notes payable with a face value aggregating approximately $12.5 million due in August of 2020, and (b) other debtor obligations requiring principal payments of approximately $8.5 million in 2020.
135
Three months ended March 31, 2020, compared to the three months ended March 31, 2019
Revenue
Viking had gross revenues of $11,787,952 for the three months ended March 31, 2020, as compared to $9,346,592 for the three months ended March 31, 2019, reflecting an increase in excess of 26% or $2,441,360. This increase in revenue is primarily a result of the increased production from the oil and gas assets acquired by Viking’s 75%-owned subsidiary, Elysium Energy Holdings, LLC, in February of 2020, and to a lesser extent new drilling and enhancements to existing wells.
Expenses
Viking’s operating expenses increased by approximately 40%, or $2,474,867 to $8,600,422 for the three-month period ended March 31, 2020, from $6,125,555 in the corresponding prior year period. Lease operating costs increased by approximately 45%, or $1,159,809, to 3,759,203 from $2,599,394 as compared to the three months ended March 31, 2019. Depreciation, depletion, amortization and accretion (DD&A) expense, a non-cash expense, increased by $806,514, to $3,177,202 from $2,370,688 for the corresponding period in 2019. These expense increases were primarily the result of acquiring additional oil and gas assets during the quarter ended March 31, 2020. General and administrative expenses reflected an increase of approximately 15%, to $1,284,647, when compared to $1,033,345 in the corresponding prior period.
Income (loss) from Operations
Viking generated income from operations for the three months ended March 31, 2020, of $3,187,530, when compared to income from operations of $3,221,037 for the three months ended March 31, 2019.
Other Income (Expense)
Viking had other income of $17,061,628 for the three months ended March 31, 2020, as compared to other expense of $(15,152,518) for the three months ended March 31, 2019. This significant difference is primarily a result of a gain on Viking’s subsidiaries’ commodity derivatives offset by increased interest expense and amortization of debt discount due to increased debt associated with acquisitions.
Net Income (Loss)
Viking had net income of $20,249,159 during the three-month period ended March 31, 2020, compared with a net loss of $(11,931,481) for the three-month period ended March 31, 2019, a $32,180,639 difference primarily as a result of the items discussed above.
Fiscal year ended December 31, 2019, compared to the fiscal year ended December 31, 2018
Revenue
Viking had gross revenues of $34,592,850 for the year ended December 31, 2019 as compared to 7,967,972 for the year ended December 31, 2018 reflecting the impact of the acquisition of the assets acquired by Ichor Energy at the end of 2018, along with continued oil and gas acquisitions and development in the central United States.
Expenses
Viking’s operating expenses increased by $14,581,148 to $29,716,265 for the year ended December 31, 2019, from $15,135,117 for the year ended December 31, 2018. This increase is mainly attributable to increases in lease operating costs commensurate with the new oil and gas wells purchased, as well as a substantial increase in depletion expenses, Additionally, there were increases in accretion expense, depreciation and amortization expense.
136
Income (Loss) from Operations
Viking generated income from operations of $4,876,585 for the year ended December 31, 2019, as compared to a loss from operations of $7,167,145 for the year ended December 31, 2018. This increase in income from operations was mainly due to the increased production resulting from the acquisitions of oil and gas assets during 2019 and at the end of 2018 through Ichor Energy.
Off Balance Sheet Arrangements
Viking does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in Viking’s securities.
Seasonality
Viking’s operating results are not affected by seasonality.
Inflation
Viking’s business and operating results are not currently affected in any material way by inflation although they could be adversely affected in the future were inflation to increase, resulting in cost increases.
Going Concern Qualification
Viking’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Viking generated a net income of $19,291,990 for the three months ended March 31, 2020, as compared to a net loss of $11,931,481 for the three months ended March 31, 2019. As of March 31, 2020, Viking has a working capital deficiency in excess of $19,000,000. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $12.5 million as of March 31, 2020, due on August 31, 2020, and (b) other debtor obligations requiring principal payments of approximately $8.5 million in 2020.
Management of Viking evaluated these conditions and has developed a plan which, in part, attempts to address these obligations as follows:
|
● |
The acquisition of Petrodome Energy LLC in 2017 and the oil and gas expertise retained by Petrodome at the end of 2017 provided an internal lease operating company to efficiently evaluate development opportunities. |
|
|
|
|
● |
The Ichor Energy Acquisition at the end of 2018 is believed to provide cash flow sufficient to not only satisfy Viking’s debt service associated with this acquisition, but to also fund a work over program to increase this purchased production beyond its current average daily production of 2,000 Boe and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, and distributions to Viking of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates if applicable. On a quarterly basis after appropriate distributions to Viking, any cash in excess of $2,000,000 plus unfunded approved development projects is swept by the term loan lender as an additional principal payment on the debt. |
|
|
|
|
● |
Viking has a revolving credit facility with CrossFirst Bank, which was approved for $30,000,000. The balance outstanding at March 31, 2020, is approximately $7,390,000, with a maturity date of May 10, 2021. Additional funds could be made available from this facility for projects reviewed and approved by the lender. |
137
|
|
|
|
● |
The Elysium Energy Acquisition on February 3, 2020, is believed to provide cash flow sufficient to not only satisfy Viking’s debt service associated with this acquisition, but to also fund a development program to increase this purchased production beyond its current average daily production of 2,700 Boe and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, certain oil and gas development projects approved by the lender, and a cost allocation for general and administrative expenses of $150,000 per month. Additionally, to the extent that Elysium Energy has excess cash flow (as specified in the term loan agreement), Elysium Energy is required to make mandatory prepayments of the term loan, without penalty or premium, equal to seventy-five percent (75%) of such excess cash flow. |
|
|
|
|
● |
With respect to the approximately $12.5 million in notes payable due on August 31, 2020, as of March 31, 2020, Viking has offered noteholders to exchange all or a portion of their principal and/or accrued interest into a new subordinated, secured, convertible debt offering. The new offering commenced on February 18, 2020, and includes equity incentives, a conversion entitlement, additional security and a maturity date of February 11, 2022. |
Furthermore, the global COVID-19 pandemic could have a negative impact on Viking’s financial position and results of operations. Negative impacts could include but are not limited to: Viking’s ability to sell its oil and gas production, reduction in the selling price of its oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, Viking’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital.
These conditions described above raise substantial doubt regarding Viking’s ability to continue as a going concern. Viking’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes Viking will be able to continue to develop new opportunities and will be able to obtain additional funds through debt and/or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. Viking’s consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should Viking have to curtail operations or be unable to continue in existence.
Critical Accounting Policies
Viking prepares its financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. Viking bases its estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared, actual results could differ from the estimates and such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, Viking reviews its critical accounting policies and how they are applied in the preparation of its financial statements, as well as the sufficiency of the disclosures pertaining to it accounting policies in the footnotes accompanying its financial statements. Described below are the most significant policies it applies in preparing its consolidated financial statements, some of which are subject to alternative treatments under GAAP. Viking also describes the most significant estimates and assumptions it makes in applying these policies in “Note 2 - Summary of Significant Accounting Policies” to Viking’s audited financial statements included herein under “Index to the Financial Statements”, beginning on page 224.
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Oil and Gas Property Accounting
Viking uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.
The full cost method requires Viking to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense.
Proved Reserves
Estimates of Viking’s proved reserves included in this joint proxy statement/prospectus are prepared in accordance with U.S. SEC guidelines for reporting corporate reserves and future net revenue. The accuracy of a reserve estimate is a function of:
i. |
the quality and quantity of available data; |
ii. |
the interpretation of that data; |
iii. |
the accuracy of various mandated economic assumptions; and |
iv. |
the judgment of the persons preparing the estimate. |
Viking’s proved reserve information included in this joint proxy statement/prospectus was predominately based on estimates. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate.
In accordance with SEC requirements, Viking based the estimated discounted future net cash flows from proved reserves on the unweighted arithmetic average of the prior 12-month commodity prices as of the first day of each of the months constituting the period and costs on the date of the estimate.
The estimates of proved reserves materially impact depreciation, depletion, amortization and accretion (“DD&A”) expense. If the estimates of proved reserves decline, the rate at which Viking records DD&A expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce from higher-cost fields.
Asset Retirement Obligation
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount Viking will incur to plug, abandon and remediate Viking’s producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. Viking determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties. Periodic accretion of discount of the estimated liability is recorded as accretion expense in the accompanying consolidated statements of operations and comprehensive income.
ARO liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated ARO.
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Commodity derivatives
Viking does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of Viking’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in Viking classifying such derivatives as Level 2. Although Viking’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
This section of the joint proxy statement/prospectus describes material aspects of the merger. This summary may not contain all of the information that is important to you. You should carefully read this entire joint proxy statement/prospectus, the merger agreement (attached hereto as Annex A) and the other documents we refer you to for a more complete understanding of the merger.
Each of the Viking board and the Camber board has approved the merger agreement, the merger (subject to stockholder approval, as applicable) and the other transactions contemplated by the merger agreement. The merger agreement provides that Merger Sub will merge with and into Viking, with Viking surviving the merger as a wholly-owned subsidiary of Camber.
In the merger, each share of Viking common stock issued and outstanding immediately prior to the effective time (other than certain shares owned by Camber, Viking or Merger Sub) will be converted into the right to receive a number of shares (the “exchange ratio” and such shares, the “merger consideration”) of Camber common stock calculated as follows: (w) the number of shares of Camber common stock considered outstanding on a fully diluted basis immediately prior to the effective time, excluding any shares into which Camber’s Series C Preferred Stock may be convertible, (x) multiplied by the difference between 100% and the Camber Percentage (as defined and described below), (y) divided by the Camber Percentage, (z) divided by the number of shares of Viking common stock considered outstanding on a fully diluted basis immediately prior to the merger, rounded up to the nearest one-hundred thousandth (1/100,000th).
The “Camber Percentage” will initially equal 20%, and the Camber Percentage shall be subject to adjustment at the time of the merger as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%.
Camber will not issue any fractional shares of Camber common stock in the merger. Instead, holders of Viking common stock will have any fractional shares of Camber common stock which they would be due as a result of the merger rounded up to the nearest whole share.
Viking stockholders are being asked to approve the merger agreement and approve the merger. Camber stockholders are being asked to approve the merger agreement and the issuance of shares of Camber common stock pursuant to the terms of the merger agreement, in an amount necessary to complete the merger and the other transactions contemplated by the merger agreement. See “The Merger Agreement” beginning on page 167 for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the merger agreement.
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As part of the ongoing consideration and evaluation of their respective long-term prospects and strategies, each of the Camber board and the Viking board and Camber’s and Viking’s management have regularly reviewed and assessed their respective business strategies and objectives, including strategic opportunities and challenges, and have considered various strategic options potentially available to them, all with the goal of enhancing value for their respective stockholders.
Camber (then named Lucas Energy, Inc.), had been seeking acquisitions to build value and assets since January 2014. This led to its acquisition of assets from parties associated with Segundo Resources LLC, in August 2016 and subsequent name change to Camber Energy, Inc. in January 2017. Even after the acquisition, Camber had substantial debt in relation to its asset value and a cash deficiency. Camber completed no significant acquisitions and had no success growing its assets through November 2017, when Camber received a deficiency letter from the NYSE American advising that it was not in compliance with certain continued listing standards of the NYSE American which require that listed companies maintain minimum levels of stockholders’ equity. The NYSE American required Camber to submit a plan of compliance to the exchange and provided Camber until August 3, 2018 to regain compliance with the additional listing rules, which date was subsequently extended through February 3, 2019.
Upon receiving the deficiency notice from the NYSE American, Camber implemented a plan to regain compliance while improving its balance sheet. Additionally, Camber’s management accelerated its process of exploring potential acquisitions of operating companies or assets that would be accretive to cash flow and earnings with its available liquidity, in an effort to among other things, cure Camber’s continued listing deficiencies with the NYSE American.
At that time, Camber’s debt was almost twice as much as the value of Camber’s oil and gas assets.
Effective August 1, 2018, Camber sold a substantial part of its assets to N&B Energy, LLC (“N&B Energy”), which entity is affiliated with Mr. Richard N. Azar II, Camber’s former Chief Executive Officer and former director, and Mr. Donnie B. Seay, Camber’s former director. A condition of the sale was that N&B Energy and related parties assume certain of Camber’s debt, which transaction eliminated all of Camber’s bank debt, resulting in a substantial improvement to Camber’s balance sheet. On the other hand, the need to acquire new assets and new operations became even more important to Camber after this sale.
Continuing after the N&B Energy sale Camber’s management continued to explore various opportunities for acquisitions and transactions which could be accretive to stockholders.
From January 23 - 25, 2019, Mr. Jim Miller, a Camber board member, introduced Camber’s interim CEO, Mr. Louis G. Schott, to Viking’s CEO, Mr. James Doris, through Mr. Steve Cochennet, a mutual acquaintance of Mr. Miller and Mr. Doris. Mr. Miller, who then owned 319,933 shares of Viking’s stock (representing approximately 0.351% of the then issued and outstanding shares of Viking), made the introduction between the parties because he believed that there might be potential for a transaction between the two companies. At that time, Viking desired to enhance its liquidity and up-list to the NYSE American and Camber was looking for a partner with substantial oil and gas operations and a platform for growth.
Mr. Cochennet was part owner of a company based in Kansas, S&B Operating, LLC, that operated certain of Viking’s oil and gas assets that were purchased throughout 2016 to 2018, and Mr. Cochennet was aware of Viking’s desire to up-list to a national stock exchange. Mr. Cochennet reached out to Mr. Doris to see if Mr. Doris was interested in having an initial discussion with Mr. Schott of Camber to determine if it might be worth pursuing a business arrangement between Camber and Viking. Mr. Doris has been Viking’s President and CEO since late 2014, and was leading Viking’s expansion in the oil and gas industry.
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On or about January 23, 2019, Messrs. Schott and Doris had a brief phone call and agreed it might be appropriate for the parties to sign a non-disclosure agreement (“NDA”) and share initial information. Mr. Doris sent Mr. Schott an email following the call stating he looked forward to receiving the form of NDA from Camber, and on January 25, 2019, Mr. Doris sent a follow up email to Mr. Schott inquiring about the status of the NDA, but did not hear back. It was later discussed that Camber was pursuing a different transaction with Lineal Star Holdings, LLC at that time and Mr. Schott decided to table discussions with Viking until a later date.
In February 2019, the NYSE American provided Camber notice that it had regained compliance with all of the continued listing standards requiring minimum levels of stockholders’ equity. Camber was able to regain such compliance without completing an acquisition transaction.
In July 2019, Camber entered into, and closed the transactions contemplated by, an agreement and plan of merger with Lineal Star Holdings, LLC (“Lineal”), its owners and subsidiaries, pursuant to which Camber acquired Lineal in consideration for preferred stock, which, upon stockholder approval, would have rights to convert into, and vote, a majority of Camber’s outstanding common stock. Lineal is a specialty construction and oil and gas services enterprise providing services to the energy industry. As part of the acquisition, Camber planned to transition its operations to those of Lineal. A requirement of the acquisition was that the combined company needed to re-meet the NYSE American initial listing requirements at the time of stockholders’ approval of the conversion terms of the preferred stock. Camber determined that such NYSE American initial listing requirements were not going to be able to be met and from the time of the closing until December 2019, the former Lineal owners and Camber discussed potential other acquisitions and transactions which would allow the combined company to meet such listing standards.
Camber evaluated other oil and gas property acquisitions as well as oil and gas service companies while Lineal focused more on potential acquisitions of pipeline service companies and related businesses as acquisition targets.
On August 29 2019, representatives of Network 1 Financial Securities, Inc., an SEC and FINRA licensed entity (“Network 1”), advised Mr. Doris that they knew of an NYSE American listed company interested in acquiring an oil and gas company as part of a potential merger arrangement, and asked Mr. Doris if Viking was interested in exploring such a transaction to which Mr. Doris said he was interested in learning more.
Viking signed a Non-Disclosure Agreement with Network 1, and on August 30, 2019, Network 1 sent Mr. Doris a draft Term Sheet concerning a potential merger involving Camber, which contemplated among other things:
o |
A 70%/30% ownership split for Viking/Camber |
o |
Camber to have $6.4 million in cash on hand at closing |
o |
Mr. James Doris and Mr. Louis Schott to be co-CEOs of the merged entity |
o |
Camber’s existing management to have a right to approve financings for 12 months following the closing |
o |
A 10-day due diligence period following execution of the Term Sheet, and if the parties decided to move toward, the next steps after such period, then Viking was to deposit $1 million with Camber as a good faith commitment of its intention to move forward with the transaction |
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A requirement that the parties sign the Term Sheet by August 31, 2019 |
Mr. Doris advised Mr. Kurt McDonald of Network 1 that Viking’s main priority at that time was completing an acquisition of oil & gas assets that Viking had been assessing over the past couple of months, which at the time had a scheduled closing date of October 31, 2019, and that a deal with Camber only made sense if it assisted Viking with accomplishing that task. Regarding the draft Term Sheet provided by Network 1, Mr. Doris advised Mr. McDonald that for Viking to move forward the document would have to contemplate the following:
o |
Use of Funds for Viking Acquisition: a provision acknowledging Camber’s surplus cash (less Network 1’s fee) would be used as part of the equity contribution for Viking’s proposed acquisition. |
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Seller’s Ownership Interest of Combined Company: - 30% was too high under the circumstances. Viking’s calculations supported a 10 to 12% ownership interest to Camber shareholders on closing of the merger (assuming Viking was successful in closing its target acquisition) but Viking was willing to offer Camber a 15% interest in the merged entity on closing given the cash contribution, Camber’s shareholder base and the NYSE American listing. |
o |
Deposit: Viking was not willing to provide a $1 million deposit. Mr. Doris advised that $250,000 would be reasonable provided the deposit is returned to Viking if the deal falls apart through no fault of Viking. |
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Camber’s Veto on Financing Transactions: the provision giving Camber’s management team a veto right on financing transactions for a 12- month period post-closing would have to be removed. Viking was willing to give Camber a nominee on the board, and the board would need to be properly constituted with a majority of independent members, all highly qualified professionals, so future financing decisions were to be determined by management and the board, as applicable. |
Viking agreed to pay a fee to Network 1 provided a deal between Viking and Camber could be reached on the terms described above, which never materialized.
Between August 31, 2019 and September 3, 2019, Mr. Doris had various communications with Network 1 and, among other things, Mr. Doris requested to speak with representatives of Camber.
On September 4, 2019, Network 1 coordinated a conference call amongst Mr. Schott, Mr. Doris and certain representatives of Network 1.
On September 5, 2019, Viking signed a mutual NDA, which was counter-signed by Camber on September 9, 2019. The parties then began a preliminary dialogue on their respective companies, diligence items on each company and timing related to a possible transaction.
On September 9, 2019, Mr. McDonald, a representative of Network 1, provided Camber, on behalf of Viking, via email, information on Viking’s corporate structure and financials.
From September 11 through September 25, 2019, Camber began initial diligence on data provided by Viking. On September 16 and 17, 2019, Mr. McDonald, a representative of Network 1, requested various information from Mr. Schott, on behalf of Viking, via email, including requesting information regarding Camber’s Series C Preferred Stock holder, requesting copies of Camber’s Non-Objecting Beneficial Owners (“NOBOs”) and a shareholders list, a capitalization table, and answers regarding potential cash available for acquisitions, as part of Viking’s due diligence.
On September 26, 2019, Mr. Doris met with Mr. Ed Cabrera of Network 1 in New York City to discuss the potential deal between Viking and Camber, and Mr. Doris advised Mr. Cabrera that Viking would like to better understand the following:
- |
Camber’s estimated net cash that would be available on closing |
- |
Estimated timeframe for |
o |
Finalizing a proposed Term Sheet |
o |
Obtaining NYSE American preliminary approval |
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Camber obtaining shareholder approval |
o |
Closing |
- |
There were also questions regarding Camber’s possible contractual obligations, if any, to its pipeline subsidiary (Lineal), including any capital requirements. |
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Mr. Doris also advised Mr. Cabrera that Viking was not in a position to entertain a break-up fee, and that perhaps it might be appropriate for Camber to pay Viking a break-up fee if Camber walks away from the transaction.
On September 27, 2019, Mr. McDonald of Network 1 coordinated a follow-up call with Mr. Schott on behalf of Camber and Mr. Doris on behalf of Viking, regarding the due diligence process.
On or about September 29, 2019, Network 1 advised Mr. Doris that Camber’s estimated cash on closing, should a deal be reached, would be around $3.5 million, down from the previous estimate of $6.4 million. Mr. Doris advised Network 1 that the deal was less attractive with such cash balance, but still of value on the proper terms, including if a deal could be closed by November 26, 2019. Mr. Doris also advised Network 1 that the merger would have to be conditional upon Viking and Network 1 agreeing to a new compensation arrangement since the existing agreement was based on Camber having $6.4 million in the bank on closing.
From September 29 through October 23, 2019, the parties continued discussions and exchanged diligence information while they negotiated a non-binding term sheet on a potential transaction.
Mr. Schott presented the potential merger opportunity, the Viking financials and summary information, to the Camber board of directors (the “Camber Board”) at the October 2, 2019 Camber Board meeting. Because the proposed term sheet was not binding, approval by Camber’s Board was not required.
On October 4, 2019 the parties negotiated, but did not execute, term sheets relating to a bifurcated acquisition structure, which would have resulted in Viking selling Camber its rights to acquire certain oil and gas properties located in Louisiana and Texas as part of an initial transaction and Camber acquiring Viking via a reverse triangular merger (similar to the merger as signed) as part of a second transaction. The parties subsequently agreed the two-part structure would be overly complicated and did not reflect the intentions of the parties.
On October 17, 2019, Mr. Schott and Mr. Doris had a brief in-person meeting in Houston, Texas at Viking’s offices. Both individuals happened to be in Houston on that day and agreed it made sense to meet in person. Mr. Doris provided Mr. Schott with another overview of Viking and its business strategy, and Mr. Schott provided Mr. Doris with a more detailed overview of Mr. Schott’s involvement in Camber. Mr. Schott mentioned he intended to share with Camber’s board of directors over the coming weekend the most recent version of the Term Sheet concerning the proposed merger.
Camber and Viking subsequently entered into a confidential non-binding Term Sheet on October 24, 2019, which contemplated among other things:
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An 85%/15% ownership split for Viking/Camber, respectively, subject to adjustments, post-closing |
o |
Camber to have $4.5 million in cash on hand at closing |
o |
Parties to sign a definitive agreement by November 25, 2019 |
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Camber’s Series C Preferred Stock shares to be terminated on closing |
There were continued discussions regarding the Camber Viking Term Sheet as well as the diligence summary including Viking reserves at the October 29, 2019 Camber Board Meeting.
On October 28, 2019, Camber shared a link to a Dropbox folder with Viking containing information concerning Camber. On October 31, 2019, after reviewing such information, Mr. Doris asked Mr. Schott for further details concerning Camber’s accounts payable, litigation matters, employment/consulting agreements and obligations involving Lineal. Camber responded with comments on November 4, 2019.
From November 2 through November 27, 2019, the parties continued discussions and diligence. Camber’s primary focus was an analysis of Viking’s reserves, Viking’s debt levels and its potential to complete an acquisition, which was then subject to a letter of intent. Viking focused on Camber’s remaining liabilities, its cash position rolled forward to closing, the Lineal transaction, Camber’s other assets and Camber’s preferred shareholders and remaining obligations associated therewith.
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On November 8, 2019, Mr. Schott advised Mr. Doris that Camber was still working on its analysis of information provided by Viking.
On November 9, 2019, Mr. Doris emailed Mr. Schott to request additional information, including: (i) the amount of cash on hand at Camber; (ii) a copy of the most recent statement from the Gonzales County, Texas Tax Office regarding a tax bill then due; (iii) a copy of the most recent statement from the law firm, Porter Hedges, about their legacy invoice(s); (iv) a copy of the most recent statement from one of Camber’s service providers; and (v) an estimate of future legal fees and potential payouts associated with outstanding lawsuits.
On November 12, 2019, Mr. Doris sent Mr. Schott and Mr. Robert Schleizer, the Chief Financial Officer of Camber, a link to the Quarterly Report on Form 10-Q filed earlier that day by Viking with respect to the quarter ending September 30, 2019.
The status of due diligence on the transaction was discussed at a November 20, 2019 Camber Board Meeting.
On November 22, 2019, Mr. Doris spoke with Mr. Schott and provided him an update on the status of Viking’s efforts to secure a senior secured credit facility for its target acquisition (Viking received a Term Sheet relating to the acquisition earlier that day). Mr. Schott said he would pass along the information to Camber’s board of directors over the weekend and get back to Mr. Doris. On November 25, 2019, Mr. Doris emailed Mr. Schott to advise the aforementioned Term Sheet was fully executed that day.
On November 25, 2019, Mr. Doris asked Mr. McDonald of Network 1 to follow up with Camber on certain items. Because a definitive agreement was not signed by November 25, 2019, the executed Term Sheet between Camber and Viking expired.
On November 26, 2019, Mr. McDonald of Network 1 emailed Mr. Schott and Mr. Doris with a status update regarding dealings between Viking and Camber. Within the correspondence, Mr. McDonald acknowledged there was no active Letter of Intent or Term Sheet between the parties, but that Camber was still willing to negotiate in good faith. Mr. McDonald outlined questions from Camber to Viking regarding Viking’s target acquisition (i.e., closing date, capital needs, post-closing balance sheet), and questions from Viking to Camber (i.e., requesting statements regarding certain payables and details regarding accounts receivable and accounts payable, and inquiring as to whether Camber believed it would be able to negotiate a deal with its Series C Preferred Shareholder to terminate said preferred shares on or prior to the closing of any merger). Network 1 advised that it was hopeful that a definitive agreement could be concluded by Camber and Viking by December 2, 2019.
On November 27, 2019, Mr. Doris forwarded Mr. Schott and others information regarding Viking’s estimated reserves and debt schedule.
On November 29, 2019, Mr. Doris spoke briefly with Mr. Schott inquiring as to Camber’s position on a potential deal with Viking. Mr. Schott advised that he would communicate with his board of directors and report back.
On December 1, 2019, Mr. McDonald of Network 1 emailed Mr. Doris and Mr. Schott advising that Mr. McDonald understood that Mr. Doris and Mr. Schott spoke recently, and that Camber would get back to Viking with an update on Monday, December 9, 2019.
On December 4, 2019, Mr. Doris updated Network 1 on Viking’s efforts to secure a senior secured credit facility with respect to its target acquisition (Viking had two term sheets in place by such time), and Network 1 in turn updated Camber.
Viking had engaged Advisory Group Services, Ltd. dba RHK Capital (“RHK Capital”), a FINRA-member broker dealer, to assist Viking with raising capital for its target acquisition. RHK was under a non-disclosure agreement with Viking and was made aware of discussions between Viking and Camber regarding a potential merger. Mr. Doris thought it would be helpful to connect Camber and RHK Capital so RHK could learn more about the prospective merger, and so Camber could learn more about RHK’s efforts regarding raising capital for Viking. In that regard, on December 13, 2019, Mr. Richard Kreger and Mr. Jeffrey Morfit of RHK participated in a conference call with Mr. Doris and Mr. Schott. Between December 13 and December 16, 2019, RHK was made aware of the terms set out in the Term Sheet previously signed by Camber and Viking (which had since expired) and RHK, Camber and Viking discussed the possibility of Viking and Camber reviving the deal on similar terms or possibly structuring a new deal whereby Viking would assign to Camber, Viking’s interest in the purchase and sale agreement regarding its target assets, so Camber could raise capital directly to help with the acquisition, in exchange for a combination of cash, preferred shares and common shares of Camber.
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On December 16, 2019, Mr. Doris had a call with Mr. Schott regarding the deal structure and emailed Mr. Schott later that day with further detailed terms and a proposed structure for the merger.
On December 17, 2019, Mr. Doris emailed Mr. Schott a pro forma of Viking’s estimated number of wells, reserves and EBITDA for 2020, assuming Viking successfully completed its target acquisition.
At the end of December 2019, Viking negotiated an extension of the closing date for its target acquisition to February 3, 2020.
At the same time that discussions were ongoing between Camber and Viking as discussed above, between November and December 2019, because no definitive timeline was able to be established as to how or when Camber (i.e., at that time, the combined company of Camber and Lineal) would meet the NYSE American initial listing standards, which as discussed above, was a required term and condition of Camber’s July 2019 Lineal acquisition, the former Lineal owners and Camber began discussions regarding a potential unwinding of the Lineal acquisition. Effective on December 31, 2019, the former Lineal owners and Camber entered into a preferred stock redemption agreement which resulted in the July 2019 Lineal acquisition effectively being unwound. As a result of such transaction, Camber’s operations changed back to being entirely related to oil and gas exploration and production effective December 31, 2019.
At that time, Camber’s management re-intensified its search for potential new acquisition targets for Camber. These included other oil and gas assets and operating company targets, oil and gas service companies, green energy companies and other acquisition opportunities.
On January 2, 2020, Mr. Doris emailed Mr. Schott with an update regarding the senior secured credit facility Viking was looking to put in place for its target acquisition.
On January 3, 2020, Camber and Viking began discussions on a revised Letter of Intent. Mr. Doris emailed Mr. Schott and Mr. Schleizer an updated draft Letter of Intent which contemplated the following:
● |
Camber acquiring the outstanding shares of Viking in exchange of shares of Camber, pursuant to a merger of Viking and Camber, with the post-transaction shareholdings being split as follows: |
o |
Camber – 15% |
o |
Viking – 85% |
The above percentages were to be calculated based on all issued or issuable securities of each entity, on a fully-diluted basis.
● |
Material Conditions: |
o |
Closing of Oil & Gas Transaction. Viking completing its target acquisition. |
o |
Extension of Maturity Date of Promissory Note. Viking extending the maturity date of its December 28, 2018 outstanding promissory note (the “2018 Seller Note”) (or any replacement note) to June 1, 2021. |
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o |
Minimum Cash Requirement. Camber having at least $4,000,000 in unencumbered cash (and without any associated debt) available for use for working capital purposes upon closing of the merger. |
o |
Camber’s Series C Preferred Stock. Among other things, Camber would be required to have redeemed or otherwise extinguished all of its existing Series C Preferred Stock. |
o |
Ownership Percentage Adjustment. The parties would be required to agree on a formula to adjust the aforementioned 85/15 ownership interest in the combined company to account for the possibility where on closing of the merger: (a) Camber had more than the $4,000,000 minimum cash requirement; and/or (b) Viking, outside of its Ichor division or Elysium division, had surplus unencumbered cash. |
o |
Approval from each company’s shareholders and board of directors. |
o |
Approval from the NYSE American and SEC. |
● |
Potential Interim Steps – if the parties believed it was more prudent prior to the merger to raise equity capital through Camber (as opposed to Viking) for the immediate acquisition of assets, the parties would consider transferring Viking’s Elysium subsidiary to Camber and for Viking to receive preferred stock in Camber in consideration for such transfer. |
● |
Exclusivity Period – 10 business days. |
On January 7, 2020, Mr. Schott emailed Mr. Doris with a few comments to the proposed revised Letter of Intent, including with respect to the following:
● |
Camber wanting to make sure Viking had no debt maturing in 2020, other than promissory notes executed by Viking in 2018 that mature on August 31, 2020; |
● |
Camber possibly having to issue a fixed number of common shares to its Series C Preferred Stock holder in order to extinguish the Series C Preferred Stock shares, acknowledging that any such common shares issued/issuable to such Series C Preferred Stock holder would come out of the 15% of the merged entity which Camber stockholders are due. |
● |
Camber requiring a fairness opinion. |
● |
Camber possibly having to make an acquisition before closing of the merger to comply with NYSE American listing requirements. |
● |
Camber wanting the ability to raise equity prior to closing of the merger, if necessary. |
In the evening of January 7, 2020, Mr. Doris responded to Camber’s comments to the revised Letter of Intent. For the most part, Camber’s requested changes were accepted, subject to some clarifying language. Viking also added a requirement to the draft Letter of Intent for Viking to obtain a fairness opinion. The revised Letter of Intent was discussed with the Camber Board on January 8, 2020.
On January 9, 2020, Mr. Fred Zeidman, a member of the Camber Board had a call with Mr. Richard Kreger of RHK Capital, which discussion included background information on Mr. Doris, as well as summary information on Viking’s history, financials, assets, liabilities and plans. On that same date, Mr. Zeidman had a meeting in New York City with Mr. Richard Kreger and Mr. Jeffrey Morfit of RHK Capital, which discussion included the pending Camber/Viking merger discussions, equity raises and a potential path towards a settlement with Camber’s Series C Preferred Stock holder.
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On January 10, 2020, the Camber Board discussed the proposed Viking merger, material deal points and hurdles to overcome, the status of due diligence and related items. At the meeting the Camber Board unanimously resolved to enter into a Letter of Intent with Viking relating to the merger on the terms circulated by the parties.
On January 10, 2020, Camber, via email from Mr. Schott to Mr. Doris, requested a change to the “Exclusivity” section in the Letter of Intent. Mr. Doris revised the Letter of Intent accordingly, and sent an updated version of the document, along with a copy executed by Mr. Doris on behalf of Viking, to Mr. Schott and Mr. Schleizer in the evening of January 10, 2020.
On January 13, 2020, Mr. Doris followed up with Mr. Schott inquiring as to the status of the Letter of Intent, and Mr. Schott advised via email that he was planning to sign the Letter of Intent on behalf of Camber later that morning, and requested a follow up call with Mr. Doris that day. Mr. Schott sent a counter-signed copy of the Letter of Intent to Mr. Doris later in the day on January 13, 2020. As mentioned above, the Letter of Intent included the following proposed terms of an acquisition by Camber of Viking:
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85%/15% ownership split for Viking/Camber of the combined company, respectively, subject to adjustments |
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Camber to have $4.0 million in cash on hand at closing |
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Camber’s Series C Preferred Stock shares to be terminated on closing |
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Viking to have closed on an acquisition of additional oil and gas assets in Texas and Louisiana (“Viking Acquisition”) |
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Viking to have negotiated an extension of the maturity date of a certain promissory note (the then maturity date of said note was January 30, 2020) (the “Seller Note”) |
These terms were primarily negotiated between Camber and Viking management with input and support of both boards of directors. The resulting terms agreed upon were the result of negotiations based on each party’s assets.
On January 17, 2020, Viking’s legal counsel provided Camber’s legal counsel with a draft of a definitive merger agreement.
On January 20, 2020, Mr. Doris reached out to Mr. Schott and Mr. Schleizer to see if Camber had any comments to the draft definitive merger agreement, to which Mr. Schott responded that Camber still needed to review the document in detail with its legal counsel.
On January 21, 2020, Mr. Doris sent Mr. Schott an email with an update on Viking’s progress with finalizing the senior secured credit facility for Viking’s target acquisition. Mr. Doris also advised that RHK Capital was optimistic it could raise other capital required by Viking for the acquisition if the merger agreement between Camber and Viking was signed that particular week. The merger agreement was never a condition for RHK Capital to raise capital for Viking, but RHK Capital believed the entry into the merger agreement would assist RHK Capital in helping Viking meet its capital objectives.
On January 23, 2020, Mr. Schott advised Mr. Doris via telephone call that it was unlikely that Camber’s lawyers would finish reviewing the draft definitive merger agreement by the end of the week. Since the January 13, 2020 Letter of Intent required the parties to reach a definitive agreement in 10 days, i.e., by January 23, 2020, Mr. Schott believed it would be appropriate for the parties to enter into another replacement Letter of Intent to extend the date by which the parties were required to enter into a definitive agreement. Thus a replacement Letter of Intent was signed, and on January 24, 2020, the parties each filed Current Reports on Form 8-K disclosing the parties’ entry into the extended Letter of Intent, including the extended Letter of Intent as an exhibit to the filing, and releasing a joint press release relating to the proposed merger.
On January 27, 2020, Mr. Doris, Mr. Schleizer and Mr. Schott met in New York with Mr. Richard Kreger, Mr. Jeffrey Morfit and Mr. Michael Grachien of RHK Capital regarding the proposed merger as well as the proposed Viking Acquisition. There were discussions about specific equity partners as well as the need for a resolution with Camber’s Series C Preferred Stock holder.
At that time, Viking was finalizing its debt financing for the Viking Acquisition but needed to raise at least $5 million in equity or subordinated debt to close. Despite working on this initiative since October 2019, RHK Capital had no realistic financing sources to provide the $5 million, and with only four business days remaining to close the Viking Acquisition, Viking had to immediately explore alternatives. Accordingly, Mr. Schott and Mr. Doris began discussions relating to the possibility of Camber, through funds obtained from its Series C Preferred Stock holder, providing the $5 million to Viking. Having Camber (through funds generated through the sale of Series C Preferred Stock) effectively finance part of the Viking Acquisition, would make the terms of the merger less favorable to Viking shareholders, as Camber’s Series C Preferred Stock holder would not want the Series C Preferred Stock shares to be terminated on closing of the merger; however Viking was potentially going to lose the ability to close the Viking Acquisition, which had been negotiated for months, if it was not able close the Viking Acquisition by the required deadline. Additionally, among other things, Viking would lose $2,750,000 in deposits paid to the selling group, as well as default on a material promissory note within its capitalization in favor of the same selling group, which would have likely triggered a foreclosure of Viking’s most significant oil and gas assets if the Viking Acquisition fell through. Faced with this alternative, Viking’s management determined it was in Viking’s and its stockholders’ best interests to explore an arrangement with Camber and its preferred shareholder.
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On January 30, 2020, Mr. Doris emailed Mr. Schott and the representative of Camber’s Series C Preferred Stock holder advising of the following framework regarding a potential deal:
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Camber’s Preferred stockholder waives existing triggering events (i.e., defaults) relating to Series C Preferred Stock |
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Camber’s Preferred stockholder advances at least $5 million in new money to Camber through the purchase of additional shares of Series C Preferred Stock (on similar terms as prior purchases) |
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Camber and Viking sign a definitive merger agreement (with such merger agreement to be revised such that the existing Series C Preferred Stock share structure can remain in place following the closing of the merger (i.e., to remove the prior requirement set forth in the revised Letter of Intent that the Series C Preferred Stock would be required to be extinguished prior to closing the merger), provided Camber is not in default of the terms of such preferred stock at the time of the merger) |
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Camber loans $5 million to Viking, with funds to be released only if Viking closes its acquisition. |
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Parties to proceed to close the merger as soon as possible. |
On January 31, 2020, Camber’s legal counsel circulated a revised draft of the definitive merger agreement to Viking for review.
On February 1, 2020 Viking’s legal counsel sent a further revised draft of the definitive merger agreement to Camber’s counsel.
Items which were being worked out between the parties during this period include Camber negotiating the requirement that Viking pay any repayment penalties and fee amounts which Camber would be required to pay its Series C Preferred Stock holder in the event the merger agreement was terminated and the loan made to Viking from Camber was required to be repaid – which would in turn trigger the requirement that Camber return the amount paid by Camber’s Series C Preferred Stock holder as part of the sale of Series C Preferred Stock.
On February 1, 2020, Mr. Doris sent Mr. Schott and the representative of Camber’s Series C Preferred Stock holder copies of the material documents associated with the financing offering Viking structured with input from RHK Capital, including the Term Sheet, Securities Purchase Agreement, Promissory Note and Security and Pledge Agreement (collectively, the “Loan and Security Documents”). The Loan and Security Documents were negotiated previously by Viking and RHK Capital and their respective counsel, and it was anticipated that RHK Capital would facilitate new investors participating in the offering following the entry into the merger agreement, and thus the new investors would share pari passu with Camber as it related to the security described in the Security and Pledge Agreement, being a first-ranking security interest against the membership interests owned by Viking in Elysium Energy, LLC. In addition, Camber was to receive a second ranking security interest against the membership interests owned by Viking in its other subsidiaries.
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Throughout February 1 and February 2, 2020, representatives of Viking and Camber and/or their respective legal advisors exchanged several emails with questions and comments regarding the merger agreement and the Loan and Security Documents.
The final definitive merger agreement as agreed to by the parties included the following terms:
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80%/20% ownership split for Viking/Camber, respectively, subject to adjustments |
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Camber to provide a $5.0 million loan to Viking to assist Viking with completing the Viking Acquisition. Viking to repay the $5 million, plus interest and other amounts required to be paid by Camber to its Series C Preferred Stock holder upon termination of the merger (which required the redemption of the Series C Preferred Stock shares sold to the Series C Preferred Stock holder as part of the transaction), within 90 days of termination of the merger, if applicable. |
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No requirement to terminate Camber’s Series C Preferred Stock at closing |
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Viking to have closed the Viking Acquisition |
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The requirement that both Camber and Viking obtain fairness opinions prior to closing |
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Viking to have negotiated an extension of the maturity date of the Seller Note |
Camber’s ownership post-merger increased from the terms as originally negotiated between the parties as Camber was advancing the capital to close the Viking Acquisition prior to the closing of the merger agreement. Additionally, Camber negotiated a 25% interest in the Viking Acquisition as additional consideration for making the $5 million advance.
From January 31 through February 3, 2020, there were several discussions with the Camber Board on the status of negotiations on the transaction. The Board, following lengthy deliberation and review of many options and proposals for alternative transactions presented to the Board by management, determined that the Viking Merger was the best avenue for Camber and proceeding forward was in the best interest of the Camber stockholders. The Camber Board’s decision was based on the fact that Viking had a sizable asset base with a substantial platform for growth, that with the Elysium acquisition Viking almost doubled its asset base, that Viking’s management team had a strong track record for growth and that the only negatives relating to Viking were associated with its listing on the OTCQB, its low liquidity and its high debt levels, would be resolved via the combination with Camber as part of the merger and the combined company being listed on the NYSE American post-merger and the associated enhanced liquidity of the combined company stock and the potential to raise capital to reduce debt and enhance growth through the combined company’s liquidity (through Camber) and assets (through Viking’s assets to be acquired by the combined company pursuant to the merger).
On February 3, 2020, Mr. Schott presented the negotiated merger agreement to the Camber Board for review and approval. Because of the significant discussions regarding the potential merger which had already taken place between the Camber Board and the fact that Mr. Schott generally kept the Camber Board informed (formally and informally) of the negotiation of the merger agreement, the approval for the merger agreement and related transactions was given via a unanimous written consent to action without a meeting of the Camber Board executed on February 3, 2020. The merger transaction was unanimously approved at the Camber Board level with no directors dissenting.
On February 3 and 4, 2020, members of Camber and Viking management, together with representatives of Camber’s and Viking’s legal counsel, coordinated the signing of the merger agreement and the announcement of the merger.
On February 4, 2020, Viking and Camber executed the merger agreement, memorializing the terms above, including the $5 million advance by Camber to Viking. The parties also entered into a Securities Purchase Agreement, relating to Viking’s sale to Camber of a $5 million 10.5% Secured Promissory Note to evidence the amount advanced by Camber to Viking, a 10.5% Secured Promissory Note and various pledge agreements securing the loan. Additionally, as part of the transaction, Viking assigned Camber 25% of Elysium. All or a portion of the assigned Elysium interests 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 secured note. See also a more detailed discussion of these agreements and transactions under “Agreements Relating to the Merger”, beginning on page 185.
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Pursuant to a Placement Agent Agreement between Viking and RHK Capital, RHK Capital was to receive a commission equal to 8% of the proceeds raised by RHK Capital on behalf of Viking in connection with the Viking Acquisition. RHK Capital participated in a few calls between Viking and Camber, and with Camber’s preferred shareholder, and given the $5 million advanced by Camber to Viking took the position that RHK Capital was entitled to a $400,000 commission as a result of the transaction. Viking disagreed with this assessment as RHK Capital played only a minor role in the entire arrangement; however, so as not to disrupt matters regarding the merger and to avoid a litigious situation at a critical time, Viking opted to pay RHK Capital the 8% commission fee.
On February 5, 2020, Viking closed the Viking Acquisition and Viking and Camber each filed a Current Report on Form 8-K regarding the entry into the merger agreement and the terms of Camber’s advance.
On February 12, 2020, Viking’s legal counsel sent Camber’s legal counsel Viking’s merger schedules, which were required to be provided by the parties no later than 10 business days after the parties’ entry into the merger agreement.
On February 13, 2020, Viking’s legal counsel provided Camber’s legal counsel an extension for Camber to provide Viking Camber’s merger schedules, and on February 18, 2020, Camber’s legal counsel sent Viking copies of Camber’s merger schedules.
On February 10, 2020, the parties exchanged merger schedules which were required to be provided by the parties no later than 10 business days after the parties’ entry into the merger agreement.
On February 19, 2020, Camber engaged CapShield, LLC to perform additional due diligence on Viking and the merger focusing on land and title review, environmental and asset condition reports, engineering and reserve reviews and financial and accounting verifications.
On March 10, 2020, Camber engaged Mercer Capital to provide a fairness opinion for the transaction, which fairness opinion was finalized and delivered to Camber on April 23, 2020.
On [________], Viking engaged ______, to provide a fairness opinion for the transaction, [________________________].
Viking’s Reasons for the Merger; Recommendation of the Viking Board
In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Viking board invested considerable time and conducted substantial due diligence, including consulting with Viking’s management, financial advisor, outside legal counsel and other consultants and advisors, and participating in multiple meetings of the Viking board. The Viking board, in reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, and to recommend that Viking stockholders approve the Viking merger proposal and the other proposals presented at the Viking special meeting considered a number of factors, including the following material factors:
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each of Viking’s and Camber’s business, operations, financial condition, stock performance, earnings and prospects (in reviewing these factors, the Viking board considered Camber’s financial condition, the fact that Camber’s business, operations and risk profile complement those of Viking, creating the opportunity for the combined company to leverage complementary and diversified revenue streams and to have superior future earnings and prospects compared to Viking’s earnings and prospects on a stand-alone basis or relative to other potential strategic alternatives reasonably available to Viking); |
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the strategic rationale for the merger, including: |
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the combined company’s ability to maintain Camber’s listing on a national securities exchange, and the increased liquidity of the combined company’s stock as a result; |
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the combined company’s expected revenue and oil and gas asset base and production synergies; |
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its conclusion after its analysis that Viking and Camber have complementary businesses and prospects due to the nature of their operations, and the expectation that the merger would provide economies of scale, enhanced ability to secure financing and raise capital, cost savings opportunities and enhanced opportunities for growth; |
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the anticipated pro forma financial impact of the merger on the combined company; |
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the Viking board’s understanding of the current and prospective environment in which Viking and Camber operate, including national and local economic conditions, and the highly competitive oil and gas environment; |
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the fact that Viking stockholders as of immediately prior to the completion of the merger are expected to own approximately 80% of the fully-diluted shares of the combined company immediately following the completion of the merger, without taking into account the number of shares which Camber’s Series C Preferred Stock is convertible into, and will have the opportunity to share in the future growth and expected synergies of the combined company while retaining the flexibility of selling all or a portion of those shares; |
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the expectation that investors will benefit from accelerated growth opportunities, cost synergies, and better financing opportunities, all enhancing stockholder value; |
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the terms of the merger agreement, including: |
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the customary and reciprocal nature of the representations, warranties, and covenants of Viking and Camber in the merger agreement; |
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the flexibility permitted under the interim operating covenants which restrict the conduct of Viking’s business prior to closing of the merger, and the fact that Camber is subject to substantially similar provisions; |
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the parties’ covenants to use their respective reasonable best efforts to obtain regulatory approvals, including the commitment of the parties to agree to divestitures or other remedies (other than divestitures or remedies that would result in or would reasonably be expected to result in a material adverse effect on the business of the combined company and its subsidiaries, taken as a whole, after giving effect to the merger); |
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the corporate governance provisions of the merger agreement, including the provisions providing that (i) the combined company’s board of directors would be comprised of five (5) directors, four (4) of which will be determined by Viking, and (ii) James A. Doris, the Chief Executive Officer of Viking, would serve as Chief Executive Officer of the combined company as of the effective time, each of which provisions the Viking board believes enhances the likelihood that the strategic benefits Viking expects to achieve as a result of the merger will be realized; |
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the review of the Viking board, with the assistance of Viking’s legal and financial advisors, of the terms and conditions of other recent comparable transactions, including the governance terms, consideration mix and announced synergy targets, and its overall belief that the terms of the merger agreement were consistent with market practice and in the best interest of Viking and its stockholders. |
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the expectation that the merger will be generally tax-free for United States federal income tax purposes to Viking’s stockholders; |
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the relative prices of the parties’ stock at the time of announcement; |
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its review and discussions with Viking’s senior management concerning the due diligence examination of the operations, financial condition and regulatory compliance programs and prospects of Camber; and |
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its expectation that the required regulatory approvals could be obtained in a timely fashion. |
The Viking board also considered the potential risks related to the merger but concluded that the anticipated benefits of combining with Camber were likely to substantially outweigh these risks. These potential risks included:
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the risk that the merger may not be completed despite Viking’s and Camber’s efforts, including the possibility that the conditions to the parties’ obligations to complete the merger transactions (which include certain conditions that are not within the control of the parties to the merger agreement) may not be satisfied or that completion of the merger may be unduly delayed, and any resulting adverse impacts on Viking, its business and the trading price of Viking common stock; |
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the regulatory and other approvals required in connection with the merger, and the risk that such approvals will not be received in a timely manner or at all or may result in costs and expenses or impose unacceptable conditions; |
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the fact that the merger consideration is based on a fluctuating exchange ratio, based in part on factors outside of Viking’s control (like the amounts of unencumbered cash or unencumbered assets possessed by Camber at closing, which may decrease the exchange ratio); |
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the diversion of management focus and resources from other strategic opportunities and operational matters while working to implement the merger and integrate the two companies; |
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the possibility of encountering difficulties in achieving cost savings and synergies in the amounts currently estimated or in the time frame currently contemplated; |
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the possibility of encountering difficulties in successfully integrating Camber’s business, operations and workforce with those of Viking; |
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the risk that Viking or Camber may be subject to lawsuits or other challenges to the merger, and that the adverse effects of these challenges, including any adverse rulings in lawsuits, may delay or prevent the merger from being completed or may require Viking or Camber to incur significant costs to address such challenges, including any costs to defend or settle any lawsuits; |
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the difficulties and management challenges inherent in completing the merger, integrating the businesses and managing an expanded business, operations and workforce of Viking and Camber, potential time commitment, distractions and other factors, including the challenge of blending board and management leadership, harmonizing compensation philosophies, employee compensation arrangements, and the potential loss of key personnel, customers and suppliers during the pendency of the merger and thereafter; |
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the fees and expenses related to the merger and the integration of the businesses, operations and workforce of Viking and Camber; |
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the fact that certain provisions of the merger agreement, although reciprocal, may have the effect of discouraging proposals for alternative acquisition transactions involving Viking, including: (i) the restriction on Viking’s ability to solicit proposals for alternative transactions; (ii) the requirement that the Viking board submit the merger agreement to Viking stockholders for approval in certain circumstances, even if it withdraws or changes its recommendation for the merger; and (iii) the retention by Camber of all or a portion of its 25% interest in Viking’s Elysium subsidiary in certain circumstances following the termination of the merger agreement; |
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the terms of the merger agreement that restrict Viking’s abilities to operate its business outside of the ordinary course before the closing of the merger; |
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the limitations on the ability of the Viking board to change its recommendation to Viking stockholders under the terms of the merger agreement; and |
| ● | the other risks described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”. |
The Viking board determined that the benefits expected to be achieved for Viking and Viking stockholders as a result of the merger outweighed these potential risks and uncertainties. The Viking board recognized that there can be no assurance of future results, including results considered or expected as disclosed in this section of the joint proxy statement/prospectus.
This discussion of the information and factors considered by the Viking board includes material factors considered by the Viking board, but it is not intended to be exhaustive and may not include all the factors considered by the Viking board. In view of the wide variety of factors considered, and the complexity of these matters, the Viking board did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement. Rather, the Viking board viewed its decision and respective recommendations as being based on the totality of the information presented to and factors considered by it, including discussions with, and questioning of, Viking management and Viking’s financial and legal advisors. In addition, individual members of the Viking board may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the Viking board and certain information presented in this section are forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.
In considering the recommendation of the Viking board, you should be aware that certain directors and executive officers of Viking may have interests in the merger that are different from, or in addition to, interests of stockholders of Viking generally and may create potential conflicts of interest. The Viking board was aware of these interests and considered them when evaluating and negotiating the merger agreement, the merger and the other transactions contemplated by the merger agreement, and in making their respective recommendations, including the Viking board’s recommendation that Viking stockholders approve the Viking charter amendment proposal, the Viking reverse split proposal and the other proposals presented at the Viking special meeting. See “The Merger—Interests of Viking Directors and Executive Officers in the Merger”.
For the reasons set forth above, the Viking board recommends that the holders of Viking common stock and Viking Series C Preferred Stock vote “FOR” the Viking merger proposal.
Opinion of Viking’s Financial Advisor
[To be provided upon amendment]
Camber’s Reasons for the Merger; Recommendation of the Camber Board
In evaluating the merger agreement, the merger, the Camber share issuance, the Camber charter amendment, the Camber reverse split proposal, the Camber equity plan proposal and the other transactions contemplated by the merger agreement, the Camber board invested considerable time and conducted substantial due diligence, including consulting with Camber’s management, financial advisor, outside legal counsel and other consultants and advisors, and participating in multiple meetings of the Camber board. The Camber board, in reaching its decision to approve the merger agreement, the merger, the Camber share issuance, the Camber charter amendment and the other transactions contemplated by the merger agreement, and to recommend that Camber stockholders approve the Camber share issuance proposal and Camber charter amendment proposal and the other proposals presented at the Camber special meeting, considered a number of factors, including the following material factors:
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each of Viking’s and Camber’s business, operations, financial condition, stock performance, earnings and prospects (in reviewing these factors, the Camber board considered Viking’s financial condition, the fact that Viking’s business, operations and risk profile complement those of Viking, creating the opportunity for the combined company to leverage complementary and diversified revenue streams and to have superior future earnings and prospects compared to Camber’s earnings and prospects on a stand-alone basis or relative to other potential strategic alternatives reasonably available to Camber); |
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the strategic rationale for the merger, including: |
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the combined company’s ability to maintain Camber’s listing on a national securities exchange, and the increased liquidity of the combined company’s stock as a result; |
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the combined company’s expected revenue and oil and gas asset base and production synergies; |
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its conclusion after its analysis that Viking and Camber have complementary businesses and prospects due to the nature of their operations, and the expectation that the merger would provide economies of scale, enhanced ability to secure financing and raise capital, cost savings opportunities and enhanced opportunities for growth; |
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the anticipated pro forma financial impact of the merger on the combined company; |
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the Camber board’s understanding of the current and prospective environment in which Camber and Viking operate, including national and local economic conditions, and the highly competitive oil and gas environment; |
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the fact that Camber stockholders as of immediately prior to the completion of the merger are expected to own approximately 20% of the fully-diluted shares of the combined company immediately following the completion of the merger, without taking into account the conversion rights of Camber’s Series C Preferred Stock and will have the opportunity to share in the future growth and expected synergies of the combined company while retaining the flexibility of selling all or a portion of those shares; |
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the expectation that investors will benefit from accelerated growth opportunities, cost synergies, and better financing opportunities, all enhancing stockholder value; |
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the terms of the merger agreement, including: |
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the customary and reciprocal nature of the representations, warranties, and covenants of Camber and Viking in the merger agreement; |
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the flexibility permitted under the interim operating covenants which restrict the conduct of Camber’s business prior to closing of the merger, and the fact that Viking is subject to substantially similar provisions; |
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the parties’ covenants to use their respective reasonable best efforts to obtain regulatory approvals, including the commitment of the parties to agree to divestitures or other remedies (other than divestitures or remedies that would result in or would reasonably be expected to result in a material adverse effect on the business of the combined company and its subsidiaries, taken as a whole, after giving effect to the merger); |
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the provisions permitting Camber to retain all or a portion of its 25% interest in Viking’s Elysium subsidiary in certain circumstances following the termination of the merger agreement; |
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the review of the Camber board, with the assistance of Camber’s legal and financial advisors, of the terms and conditions of other recent comparable transactions, including the governance terms, consideration mix and announced synergy targets, and its overall belief that the terms of the merger agreement were consistent with market practice and in the best interest of Camber and its stockholders. |
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the relative prices of the parties’ stock at the time of announcement; |
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its review and discussions with Camber’s senior management concerning the due diligence examination of the operations, financial condition and regulatory compliance programs and prospects of Viking; and |
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its expectation that the required regulatory approvals could be obtained in a timely fashion. |
The Camber board also considered potential uncertainties and risks related to the merger including the following:
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the risk that the merger may not be completed despite Camber’s and Viking’s efforts, including the possibility that the conditions to the parties’ obligations to complete the merger transactions (which include certain conditions that are not within the control of the parties to the merger agreement) may not be satisfied or that completion of the merger may be unduly delayed, and any resulting adverse impacts on Camber, its business and the trading price of Camber common stock; |
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the regulatory and other approvals required in connection with the merger, and the risk that such approvals will not be received in a timely manner or at all or may result in costs and expenses or impose unacceptable conditions; |
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the fact that the merger consideration is based on a fluctuating exchange ratio, based in part on factors outside of Camber’s control (like the amount of unencumbered cash possessed by Viking at closing, which may increase the exchange ratio); |
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the diversion of management focus and resources from other strategic opportunities and operational matters while working to implement the merger and integrate the two companies; |
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the possibility of encountering difficulties in achieving cost savings and synergies in the amounts currently estimated or in the time frame currently contemplated; |
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the possibility of encountering difficulties in successfully integrating Viking’s business, operations and workforce with those of Camber; |
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the risk that Camber or Viking may be subject to lawsuits or other challenges to the merger, and that the adverse effects of these challenges, including any adverse rulings in lawsuits, may delay or prevent the merger from being completed or may require Camber or Viking to incur significant costs to address such challenges, including any costs to defend or settle any lawsuits; |
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the difficulties and management challenges inherent in completing the merger, integrating the businesses and managing an expanded business, operations and workforce of Camber and Viking, potential time commitment, distractions and other factors, including the challenge of blending board and management leadership, harmonizing compensation philosophies, employee compensation arrangements, and the potential loss of key personnel, customers and suppliers during the pendency of the merger and thereafter; |
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the fees and expenses related to the merger and the integration of the businesses, operations and workforce of Camber and Viking; |
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the fact that certain provisions of the merger agreement, although reciprocal, may have the effect of discouraging proposals for alternative acquisition transactions involving Camber, including: (i) the restriction on Camber’s ability to solicit proposals for alternative transactions; and (ii) the requirement that the Camber board submit the merger agreement to Camber stockholders for approval in certain circumstances, even if it withdraws or changes its recommendation for the merger; |
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the terms of the merger agreement that restrict Camber’s abilities to operate its business outside of the ordinary course before the closing of the merger; |
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the limitations on the ability of the Camber board to change its recommendation to Camber stockholders under the terms of the merger agreement; and |
| ● | the other risks described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”. |
The Camber board determined that the benefits expected to be achieved for Camber and Camber stockholders as a result of the merger outweighed these potential risks and uncertainties. The Camber board recognized that there can be no assurance of future results, including results considered or expected as disclosed in this section of the joint proxy statement/prospectus.
This discussion of the information and factors considered by the Camber board includes material factors considered by the Camber board, but it is not intended to be exhaustive and may not include all the factors considered by the Camber board. In view of the wide variety of factors considered, and the complexity of these matters, the Camber board did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger agreement, the merger, the Camber share issuance, the Camber charter amendment and the other transactions contemplated by the merger agreement. Rather, the Camber board viewed its decision and respective recommendations as being based on the totality of the information presented to and factors considered by it, including discussions with, and questioning of, Camber management and Camber’s financial and legal advisors. In addition, individual members of the Camber board may have given differing weights to different factors. It should be noted that this explanation of the reasoning of the Camber board and certain information presented in this section are forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.
In considering the recommendation of the Camber board, you should be aware that certain directors and executive officers of Camber may have interests in the merger that are different from, or in addition to, interests of Camber stockholders generally and may create potential conflicts of interest. The Camber board were aware of these interests and considered them when evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, and in making their respective recommendations, including the Camber board’s recommendation that Camber stockholders approve the Camber share issuance proposal and Camber charter amendment proposal and the other proposals presented at the Camber special meeting. See the section entitled “The Merger—Interests of Camber’s Directors and Executive Officers in the Merger”.
Opinion of Camber’s Financial Advisor
Camber retained Mercer Capital as a financial advisor to the Camber Board of Directors in connection with the merger and the other transactions contemplated by the merger agreement. In connection with this engagement, the Camber Board of Directors requested that Mercer Capital evaluate the fairness, from a financial point of view, to Camber of the exchange ratio, which will result in pro forma ownership of the fully diluted shares of Camber common stock being held 20% by the equityholders of Camber immediately prior to the effective time of the merger and 80% by the equityholders of Viking, without in either case taking into account the conversion rights of Camber’s Series C Preferred Stock. Camber selected Mercer Capital to provide a fairness opinion on the transaction because Mercer Capital is a nationally recognized business valuation and financial advisory firm. In the ordinary course of its business, Mercer Capital is regularly engaged in the valuation of mergers and acquisitions and other corporate transactions.
157
Opinion of Mercer Capital Management, Inc.
On April 23, 2020, Mercer Capital provided the Board of Directors an opinion, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Mercer Capital in preparing its opinion, the exchange ratio was fair, from a financial point of view, to Camber.
The full text of Mercer Capital’s written opinion, dated April 23, 2020, which describes the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Mercer Capital in preparing its opinion, is attached as Annex E and is incorporated by reference in this document.
The summary of the written opinion of Mercer Capital, dated April 23, 2020, set forth below is qualified in its entirety by the full text of Mercer Capital’s written opinion attached as Annex E. Mercer Capital’s financial advisory services and opinion were provided for the information and assistance of the Camber Board of Directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the merger and Mercer Capital’s opinion only addressed the fairness, from a financial point of view, as of the date thereof, of the exchange ratio to Camber. Mercer Capital’s opinion did not address any other term or aspect of the merger agreement and is not intended to and does not constitute a recommendation to any stockholders or any other person as to how such stockholder or other person should vote or act with respect to the merger or any other matter relating thereto.
The full text of Mercer Capital’s written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Mercer Capital in preparing its opinion.
In connection with rendering the opinion described above and performing its related financial analyses, Mercer Capital reviewed, among other things:
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1. |
the Agreement and Plan of Merger by and between Viking Energy Group, Inc., and Camber Energy, Inc., dated as of February 3, 2020; |
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2. |
Camber Energy, Inc. Amended and Restated Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on July 8, 2019; |
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3. |
Form of Stock Purchase Agreement relating to the purchase of $5 million in shares of Series C Redeemable Convertible Preferred Stock dated February 3, 2020; |
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4. |
Form of Waivers and Amendments to Stock Purchase Agreements dated February 3, 2020, by and between Camber Energy, Inc. and the Investor Named Therein; |
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5. |
Securities Purchase Agreement dated as of February 3, 2020 by and between Camber Energy, Inc. (Purchaser) and Viking Energy Group, Inc.; |
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6. |
$5,000,000 10.5% Secured Promissory Note Issued by Viking Energy Group, Inc. to Camber Energy, Inc. Dated February 3, 3020; |
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7. |
Security and Pledge Agreement, dated as of February 3, 2020 by and among Viking Energy Group, Inc. and Camber Energy, Inc.; |
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8. |
Security and Pledge Agreement, dated as of February 3, 2020 by and among Viking Energy Group, Inc. and Camber Energy, Inc.; |
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9. |
Assignment of Membership Interests by Viking Energy Group, Inc. in favor of Camber Energy, Inc. dated February 3, 2020; |
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10. |
various third-party reserve reports for certain oil & gas properties owned by Viking Energy Group, Inc.; |
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11. |
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Camber and Viking; |
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12. |
certain press releases and other information made publicly available by Camber and Viking; |
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13. |
certain other communications from Camber and Viking to investors of the companies; |
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14. |
certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Camber, including certain financial forecasts, analyses and projections relating to Camber prepared by management of Camber and furnished to Mercer Capital by Camber for purposes of Mercer Capital’s analysis, which are referred to in this summary of Mercer Capital’s opinion as the “Camber Projections” and which are collectively referred to in this summary of Mercer Capital’s opinion as the “Camber Internal Data”; |
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15. |
certain internal information relating to the business, operations, earnings, cash flow, assets, liabilities and prospects of Viking, including certain financial forecasts, analyses and projections relating to Viking prepared by management of Viking and furnished to Mercer Capital by Camber for purposes of Mercer Capital’s analysis, which are referred to in this summary of Mercer Capital’s opinion as the “Viking Projections” and which are collectively referred to in this summary of Mercer Capital’s opinion as the “Viking Internal Data”; and |
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16. |
certain other information provided by Viking and Camber to Mercer Capital. |
Mercer Capital also participated in discussions with members of the senior management and representatives of Camber and Viking regarding their assessment of the Camber Internal Data, the Viking Internal Data, as appropriate, and the strategic rationale for the merger. In addition, Mercer Capital reviewed publicly available financial and stock market data, including valuation multiples, for Camber and Viking and compared that data with similar data for certain other companies, the securities of which are publicly-traded, in lines of business that Mercer Capital deemed relevant. Mercer Capital also compared certain of the proposed financial terms of the merger with the financial terms, to the extent publicly available, of certain other transactions that Mercer Capital deemed relevant and conducted such other financial studies and analyses and took into account such other information as Mercer Capital deemed appropriate.
In all cases, Mercer Capital relied upon the referenced information without independent verification and assumed that the reserve reports provided to by management reflect a reasonable assessment of Camber and Viking’s future operating and financial performance.
Mercer Capital’s opinion expressed no view as to, and did not address, Camber’s underlying business decision to proceed with or effect the merger, or the relative merits of the merger as compared to any alternative business strategies or transactions that might be available to Camber or in which Camber might engage. Mercer Capital’s opinion is limited to and addressed only the fairness, from a financial point of view, as of the date of Mercer Capital’s written opinion, to Camber of the exchange ratio. For purposes of its opinion, Mercer Capital was not asked to, and did not express any view on, and its opinion did not address, any other term or aspect of the merger agreement. In addition, Mercer Capital expressed no view or opinion as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to be paid or payable to any of the officers, directors or employees of Camber or any party, or class of such persons in connection with the merger, whether relative to the exchange ratio or otherwise. Mercer Capital’s opinion relates to the relative values of Camber and Viking. Mercer Capital’s opinion is necessarily based on financial, economic, monetary, currency, market and other conditions and circumstances as in effect on, and the information made available to Mercer Capital as of, the date of Mercer Capital’s opinion, and Mercer Capital does not have any obligation or responsibility to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of Mercer Capital’s opinion. Mercer Capital expressed no view or opinion as to what the value of Camber common stock actually will be when issued pursuant to the merger or the prices at which the Camber common stock will trade or otherwise be transferable at any time, including following the announcement or consummation of the merger. Mercer Capital’s opinion is not intended to and does not constitute a recommendation to any stockholder of Camber or any other person as to how such stockholder or other person should vote or act with respect to the merger or any other matter.
159
Mercer Capital’s financial advisory services and its written opinion were provided for the information and assistance of the Camber Board of Directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the merger.
Certain Unaudited Prospective Financial Information
Camber and Viking do not, as a matter of course, publicly disclose forecasts or internal projections as to their respective future performance, earnings or other results due to, among other reasons, the inherent uncertainty and subjectivity of the underlying assumptions and estimates, other than, from time to time, estimated ranges of certain expected financial results and operational metrics for the current year and certain future years in their respective regular earnings press releases and other investor materials. However, Camber and Viking are including certain unaudited prospective financial information in this section of this joint proxy statement/prospectus solely because it was among the financial information provided to and considered by Mercer Capital and ______ for the purpose of performing financial analyses in connection with the delivery of their respective fairness opinions, as described above in the sections titled “The Merger—Opinion of Camber’s Financial Advisor” and “The Merger—Opinion of Viking’s Financial Advisor”. We refer in this joint proxy statement/prospectus to the unaudited prospective financial information included in this section of this joint proxy statement/prospectus, collectively, as the “prospective financial information”.
The prospective financial information was not prepared for the purpose of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, published guidelines of the SEC regarding forward-looking statements or generally accepted accounting principles. The prospective financial information is not being included in this joint proxy statement/prospectus in order to influence any Camber stockholder or Viking stockholder as to whether or how such stockholder should vote or act with respect to the approval of any of the proposals presented at the Camber special meeting or the Viking special meeting or any other matter.
Although presented with numeric specificity, the prospective financial information reflects numerous estimates and assumptions made by the respective management of Camber and Viking, as applicable, at the time such prospective financial information was prepared or approved for use by the financial advisors. The estimates and assumptions underlying the prospective financial information involve judgments with respect to, among other things, economic, competitive, financial, market and industry conditions and future business decisions and contingencies that may not be realized and that are inherently subject to significant business, economic, competitive, financial, market and industry uncertainties and risks, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which Camber and Viking operate and the risks and uncertainties described under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this joint proxy statement/prospectus and in the reports that Camber and Viking file with the SEC from time to time, all of which are difficult to predict and many of which are outside the control of Camber and Viking and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions would prove to be accurate or that the expected contingencies or estimated results would be realized, and actual results could differ materially from those reflected in the prospective financial information, whether or not the merger is completed. Further, these assumptions do not include all potential actions that the management of Camber or Viking could or might have taken during these time periods. The inclusion in this joint proxy statement/prospectus of the unaudited prospective financial information below should not be regarded as an indication that Camber, Viking or their respective boards of directors or advisors considered, or now consider, this prospective financial information to be material information to any Camber stockholders or Viking stockholders, as the case may be, particularly in light of the inherent risks and uncertainties associated with such prospective financial information. The prospective financial information is not fact and should not be relied upon as being necessarily indicative of actual future results.
The prospective financial information also reflects numerous variables, expectations and assumptions based on information available to the respective management of Camber and Viking, as applicable, at the time it was prepared, that are subject to change and do not take into account changes in such variables, expectations, assumptions or information or in any underlying circumstances or events occurring after the date they were prepared. No assurances can be given that if the prospective financial information and the underlying assumptions had been prepared as of the date of this joint proxy statement/prospectus, similar variables, expectations or assumptions would be used and similar prospective financial information would be prepared. In addition, the prospective financial information may not reflect the manner in which the combined company would operate after the merger. Neither Camber nor Viking have updated the prospective financial information included in this joint proxy statement/prospectus, and neither Camber, nor Viking, after completion of the merger, the combined company, undertakes any obligation to update or otherwise revise the prospective financial information, to reflect circumstances existing since their preparation or to reflect the occurrence of subsequent or unanticipated circumstances or events, even in the event that any or all of the underlying variables, expectations, assumptions or information are shown to be in error, or to reflect changes in economic, competitive, financial, market or industry conditions.
160
In light of the foregoing, and considering that the Camber special meeting and the Viking special meeting will be held several months after the prospective financial information was prepared, as well as the uncertainties inherent in any forecasted information, Camber stockholders and Viking stockholders are cautioned not to place unwarranted reliance on such information, and are urged to review Camber’s and Viking’s most recent SEC filings for a description of their reported financial results and the financial statements of Camber and Viking, which information is also included herein under “Index to the Financial Statements” beginning on page 224. See also “Where You Can Find More Information” beginning on page 223 of this joint proxy statement/prospectus for further information.
The prospective financial information was prepared by management of Camber and Viking, as applicable. Neither Marcum LLP (Camber’s independent registered public accounting firm) nor Turner, Stone & Company, L.L.P. (Viking’s independent registered public accounting firm) have audited, reviewed, examined, compiled or applied agreed upon procedures with respect to the prospective financial information and, accordingly, neither Marcum LLP nor Turner, Stone & Company, L.L.P. have expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the prospective financial information. The reports of the independent registered public accounting firms included in this joint proxy statement/prospectus relate to the historical financial information of Camber and Viking, respectively. Such reports do not extend to the prospective financial information and should not be read to do so. No independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information.
By including in this joint proxy statement/prospectus a summary of the prospective financial information, neither Camber nor Viking, nor any of their respective representatives has made or makes any representation to any person regarding the ultimate performance of Camber, Viking or the combined company compared to the information contained in the prospective financial information.
Viking prospective financial information
The following table sets forth selected unaudited prospective financial information representing Viking management’s evaluation of Viking’s estimated future financial performance on a stand-alone basis, without reference to the merger. This unaudited prospective financial information was prepared by Viking management and was provided to ______ and Mercer Capital for the purpose of performing financial analyses in connection with the delivery of their respective fairness opinions.
In preparing the prospective financial and operating information described below, Viking’s management used the following price assumptions, which are based on NYMEX oil and gas strip pricing as of January 27, 2019.
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NYMEX* |
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2020E |
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2021E |
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2022E |
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2023E |
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2024E |
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2025E |
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Commodity Prices |
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Crude Oil ($/Bbl) |
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$ |
53.59 |
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$ |
51.77 |
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$ |
50.95 |
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$ |
51.58 |
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$ |
51.90 |
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$ |
52.45 |
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Natural Gas ($/Mcf) |
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$ |
2.00 |
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$ |
2.21 |
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$ |
2.23 |
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$ |
2.26 |
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$ |
2.30 |
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$ |
2.34 |
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NGL ($/Bbl) |
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$ |
19.22 |
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$ |
18.59 |
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$ |
18.30 |
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$ |
18.52 |
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$ |
18.63 |
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$ |
18.82 |
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* Prices have been averaged for each year based on estimated pricing on quarterly basis. For 2020, the average is calculated based on the 11 months ended December 31, 2020.
161
The following table sets forth certain summarized prospective financial and operating information regarding Viking for the years 2020 through 2025, based on the respective price assumptions indicated above, which information was prepared by Viking’s management.
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2020E |
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2021E |
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2022E |
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2023E |
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2024E |
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2025E |
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Operating Results(1) |
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Total Production (Boe)(in millions) |
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1.99 |
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1.98 |
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2.01 |
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1.84 |
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1.71 |
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1.54 |
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Financial Results (in millions) |
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EBITDA(2) |
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$ |
33.5 |
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$ |
33.3 |
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$ |
31.2 |
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$ |
29.2 |
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$ |
26.7 |
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$ |
23.9 |
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Income(3) |
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$ |
18.8 |
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$ |
21.7 |
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$ |
22.7 |
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$ |
23.0 |
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$ |
22.5 |
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$ |
21.8 |
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Operating Expenses(4) |
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$ |
23.7 |
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$ |
24.7 |
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$ |
23.5 |
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$ |
21.9 |
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$ |
20.9 |
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$ |
19.9 |
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(1) |
For 2020 all financial information is based on the 11 months ended December 31, 2020. |
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(2) |
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. |
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(3) |
EBITDA minus hedge and other expenses, service fees and interest expense. |
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(4) |
Production taxes, lease operating expenses, general and administrative expenses and ad valorem taxes. |
Interests of Camber’s Directors and Executive Officers in the Merger
The directors and executive officers of Camber will receive no extra or special benefit that is not shared on a pro rata basis by all other Camber stockholders in connection with the merger, except as described herein. None of Camber’s officers or directors will receive any severance or other additional compensation as a result of the merger (except as discussed below). Certain of Camber’s executive officers have financial interests in the merger that may be different from, or in addition to, the interests of stockholders generally. As with all Viking stockholders, if a director or executive officer of Camber owns shares of Viking common stock or Viking Series C Preferred Stock, such person may participate in the merger on the same terms as other Viking stockholders. As of the date of this joint proxy statement/prospectus, Camber’s directors and executive officers beneficially owned none of the outstanding shares of Viking common stock or Viking Series C Preferred Stock.
Continued Employment
A requirement of the merger agreement is that Louis G. Schott, Camber’s Interim Chief Executive Officer and Robert Schleizer, Camber’s Chief Financial Officer enter into employment agreements with the combined company to provide for at least six months of post-merger employment to assist with the transition of the combined company following the merger. Such agreements have not been structured to date.
In connection with the merger, Camber’s board of directors approved the payment of cash bonuses to each of Louis G. Schott, Camber’s Interim Chief Executive Officer and Robert Schleizer, Camber’s Chief Financial Officer, in the amounts of $[●] and $[●], respectively.
Also in connection with the merger, Camber’s board of directors approved the payment of cash bonuses to each of Fred S. Zeidman and James G. Miller, Camber’s non-executive directors, in the amounts of $[●] and $[●], respectively.
162
Such transaction bonuses shall be payable following the effective time of the merger, less applicable withholdings and deductions, subject to such persons continued service to Camber until immediately prior to the effective time of the merger.
It is also anticipated that the board of directors of Camber will approve the issuance to each of Louis G. Schott, Camber’s Interim Chief Executive Officer and Robert Schleizer, Camber’s Chief Financial Officer, and Fred S. Zeidman and James G. Miller, directors of Camber, of shares of Camber common stock in consideration for past and in some cases, future services, immediately prior to the effective time of the merger, which in aggregate will total 15% of Camber’s outstanding shares of common stock at the time the merger closes (split equally between each of the four officers and directors of Camber), provided the exact amount of such awards are not currently known.
Indemnification
Pursuant to the terms of the merger agreement, Camber’s directors and executive officers will be entitled to ongoing indemnification from the surviving corporation pertaining to matters existing or occurring at or prior to the merger for as long as permitted by law following the effective time. This indemnification is further described in the section entitled “The Merger Agreement— Covenants and Agreements - Director and Officer Indemnification and Insurance.”
Membership on the Board of Directors
The board of directors of the combined company in the merger will consist of five (5) members, four (4) of which will be designated by Viking prior to the completion of the merger, and one (1) of which will be designated by Camber prior to completion of the merger. As of the date of this joint proxy statement/prospectus, no decisions have been made with respect to which person will be appointed by Camber to the board of directors of the combined company. Non-employee members of the combined company’s board of directors will be compensated for such service.
Interests of Viking’s Directors and Executive Officers in the Merger
In considering the recommendation of the Viking board that Viking stockholders approve the merger agreement, Viking stockholders should be aware that the executive officers and directors of Viking have certain interests in the transactions that may be different from, or in addition to, the interests of Viking stockholders generally. The Viking board was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated by it, including the merger, and in making their recommendation that Viking stockholders approve the merger agreement.
Viking’s Series C Preferred Stock
As of May 29, 2020, Viking’s CEO and director, James Doris, holds 28,092 shares of Viking’s Series C Preferred Stock, with each share of preferred stock entitling the holder thereof to 32,500 votes on all matters submitted to the vote of Viking’s security holders, and there are no other shares of Viking preferred stock outstanding.
The merger agreement requires that there be no shares of Viking preferred stock outstanding at the effective time of the merger. However, Mr. Doris and Viking have not yet reached any agreement as to the terms of any redemption, conversion or cancellation of Mr. Doris’s 28,092 shares of Viking’s Series C Preferred Stock. If Viking and Mr. Doris do not reach an agreement resulting in Viking’s Series C Preferred Stock no longer being outstanding, the merger cannot be completed.
Immediately prior to the closing of the merger, and provided all other conditions related to the merger are satisfied, Mr. Doris has indicated to the Company that he intends to return his shares of Viking’s Series C Preferred Stock to Viking for cancellation in exchange for common stock, common stock warrants and/or options of Viking (the “Exchanged Securities”) with a view to converting such Exchanged Securities into Camber common stock, warrants or options at closing of the merger. Mr. Doris has indicated that he intends to receive such number of Exchanged Securities that would result in him owning, when combined with existing shares issued to Mr. Doris by Viking, approximately 23% of the issued and outstanding shares of Viking’s common stock on a fully-diluted basis immediately prior to closing of the merger.
163
Continuing Employment
James Doris, Viking’s CEO and director, does not currently have an employment agreement with Viking. It is expected that immediately prior to, or shortly following, the closing of the merger, Mr. Doris will enter into an employment agreement with Viking or Camber, as applicable, pursuant to which, in addition to receiving cash remuneration, Mr. Doris may receive shares, options and/or warrants of Viking or Camber, as applicable, which would be in addition to any securities currently held by Mr. Doris or which may be issued to him in connection with any cancellation of Viking’s Series C Preferred Stock.
Indemnification
Pursuant to the terms of the merger agreement, Viking’s directors and executive officers will be entitled to ongoing indemnification from the surviving corporation pertaining to matters existing or occurring at or prior to the merger for as long as permitted by law following the effective time. This indemnification is further described in the section entitled “The Merger Agreement— Covenants and Agreements - Director and Officer Indemnification and Insurance.”
Membership on the Board of Directors
The board of directors of the combined company in the merger will consist of five (5) members, four (4) of which will be designated by Viking prior to the completion of the merger, and one (1) of which will be designated by Camber prior to completion of the merger. As of the date of this joint proxy statement/prospectus, no decisions have been made with respect to which persons will be appointed by Viking to the board of directors of the combined company. Non-employee members of the combined company’s board of directors will be compensated for such service.
Governance and Leadership of the Combined Company After the Merger
Charter
If the Camber charter amendment proposal is approved by the Camber stockholders, the Camber charter will be amended effective upon the completion of the merger to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares. If the charter amendment proposal is not approved at the Camber special meeting, shares of Camber common stock issuable to Viking stockholders as the merger consideration in the merger will not be able to be issued, and the merger will not be able to be completed. Additionally, if the Camber reverse split proposal is approved by the Camber stockholders and the board of directors of Camber determines to affect such Camber reverse stock split, the outstanding shares of common stock of Camber prior to the merger will be reduced in a ratio of between one-for-five and one-for-twenty-five, depending on the final ratio approved by the board of directors.
Bylaws
The bylaws of Camber as currently in effect will remain the bylaws of the combined company after the merger.
Board of Directors
Pursuant to the terms of the merger agreement, following the completion of the merger, the board of directors of the combined company after the merger will have five (5) members, four (4) of which will be designated by Viking prior to the completion of the merger, and one (1) of which will be designated by Camber prior to completion of the merger. As of the date of this joint proxy statement/prospectus, no decisions have been made with respect to which persons will be appointed to the board of directors of the combined company.
164
Chief Executive Officer; Chairman; Lead Independent Director
Following completion of the merger, Mr. James A. Doris will serve as President and Chief Executive Officer of the combined company.
Committees of the Board of Directors
Following the completion of the merger, the board of directors of the combined company will have the following standing committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. The initial composition of such committees will be mutually agreed by Viking and Camber prior to the completion of the merger.
Name and Headquarters of the Combined Company After the Merger
The name of the combined company will continue to be “Camber Energy, Inc.” Following the merger, shares of the combined company’s common stock will be traded on the NYSE American, under the symbol “CEI.”
As of the effective time, the headquarters of the combined company will be located in Houston, Texas.
Dividends of Viking and Camber Prior to the Merger
Neither Viking nor Camber will be paying cash or stock dividends prior to the merger, however Camber accrues dividends related to its Series C Preferred Stock.
Camber and Viking prepare their respective financial statements in accordance with GAAP. GAAP requires that one party to the merger be identified as the acquirer. The merger will be accounted for using the reverse acquisition method of accounting, and Viking will be treated as the accounting acquirer since Viking’s pre-merger stockholders will own approximately 80% of the combined company after the merger (without taking into account any of the rights of Camber’s Series C Preferred Stock holder).
Under the HSR Act and related rules, certain combination transactions, may not be completed until notifications have been given and information furnished to the Antitrust Division and the FTC and all statutory waiting period requirements have been satisfied. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar day waiting period following the parties’ filings of their respective HSR Act notification forms or the early termination of that waiting period. Based on the current net sales and total assets of Camber and Viking, we do not currently anticipate being required to comply with HSR Act notification requirements and as such do not anticipate compliance with the HSR Act being an impediment to closing the merger.
In addition, other regulatory bodies, like the Texas Railroad Commission, and U.S. state attorneys generals could take action under other applicable regulatory laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin or otherwise prevent the completion of the merger or permitting completion subject to regulatory conditions. Private parties may also seek to take legal action under regulatory laws under some circumstances. There can be no assurance that a challenge to the merger on antitrust or other regulatory grounds will not be made or, if such a challenge is made, that it would not be successful.
Camber common stock is listed for trading on the NYSE American stock exchange under the symbol “CEI,” and Viking common stock is quoted on the OTC Link ATS operated by OTC Markets Group, Inc. (the “OTCQB”) under the symbol “VKIN.”
Under the terms of the merger agreement, Camber is required to use its reasonable best efforts to cause the shares of Camber common stock to be issued in the merger to be approved for listing on the NYSE American, subject to official notice of issuance, prior to the effective time. Neither Camber nor Viking will be required to complete the merger if such shares are not authorized for listing on the NYSE American.
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Additionally, in the event the NYSE American determines that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE, as a condition to closing the merger.
The merger agreement further provides that, as promptly as practicable after the effective time, Viking is required to use its reasonable best efforts to cause and enable shares of Viking common stock currently quoted on the OTCQB to no longer be quoted on the OTCQB and to be deregistered under the Exchange Act.
Appraisal Rights in the Merger
Appraisal rights, also called dissenters’ rights, are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.
Camber stockholders will not have appraisal or dissenters’ rights in respect of the merger, but Viking stockholders will.
Holders of shares of Viking common stock who do not vote in favor of the Viking merger proposal, who hold their shares through the effective time of the merger and who follow the procedures set forth in Sections 92A.300 to 92A.500 inclusive, of the Nevada Revised Statutes, which we refer to as the “Dissenters’ Rights Provisions,” will be entitled to dissent from the merger and demand payment of the fair value of their shares. The “fair value” of the shares as used in the Dissenters’ Rights Provisions is the value of the shares immediately before the effectuation of the proposed merger, excluding appreciation or depreciation in anticipation of the merger unless exclusion would be inequitable, using customary and current valuation concepts and techniques generally employed for similar businesses in the context of a merger, and without discounting for lack of marketability or minority status.
If a Viking stockholder elects to dissent, it must deliver to Viking a written notice of dissent stating that it intends to demand payment for its shares if the merger is consummated, and it must refrain from voting on the Viking merger proposal. This notice must be delivered to the Company before the vote on the Viking merger proposal at Viking’s special meeting. If the Viking stockholder fails to comply with these requirements, it will not be entitled to dissenters’ rights.
Within 10 days after the effective time of the merger, the combined company will give written notice of the effective date of the merger by certified mail to each Viking stockholder who properly delivered a written notice of dissent. The combined company’s notice will also state where demand for payment must be sent and where and when share certificates must be deposited, among other information. Within the time period set forth in the notice, which may not be less than 30 days nor more than 60 days following the date notice is delivered, the dissenting stockholder must make a written demand on the combined company for payment of the fair value of its shares and deposit its share certificates in accordance with the notice.
Within 30 days after the receipt of the dissenters’ demand for payment, the combined company will pay each dissenter who complied with the required procedures the amount it estimates to be the fair value of the dissenter’s shares, plus accrued interest. Additionally, the payment must be accompanied by a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, a statement of income for that year, a statement of changes in the stockholders’ equity for that year, the latest available interim financial statements, if any, a statement as to how fair value was calculated, a statement as to how interest was calculated, and a statement of the dissenters’ right to demand payment of fair value under Nevada law.
Following receipt of payment for the shares, a dissenting stockholder, within 30 days, may send the combined company notice containing such stockholder’s own estimate of fair value and accrued interest, and demand payment for that amount less the amount received pursuant to the combined company’s payment of fair value to such stockholder. This right is waived if the stockholder does not make written demand within 30 days of receiving the combined company’s payment or offer of payment for the stockholders’ shares, and the stockholder will only be entitled to the payment made or offered.
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If a demand for payment remains unsettled, the combined company will petition the court to determine fair value and accrued interest. If the combined company fails to commence an action within 60 days following the receipt of the stockholder’s demand, the combined company will pay to the stockholder the amount demanded by the stockholder in the stockholder’s notice containing the stockholder’s estimate of fair value and accrued interest.
All dissenting holders, whether residents of Nevada or not, must be made parties to the action, and the court will render judgment for the fair value of their shares. Each party must be served with the petition. The judgment shall include payment for the amount, if any, by which the court finds the fair value of such shares, plus interest, exceeds the amount already paid. The costs and expenses of bringing the action will be determined by the court. If the court finds that the demand of any dissenting stockholder for payment was arbitrary, vexatious or otherwise not in good faith, the court may assess costs, including reasonable fees of counsel and experts, against such stockholder. In addition, reasonable fees and expenses of counsel and experts may be assessed against the combined company if the court finds that it did not substantially comply with the requirements of the Dissenters’ Rights Provisions or that it acted arbitrarily, vexatiously, or not in good faith with respect to the rights granted to dissenters under Nevada law.
The foregoing discussion is not a complete statement of the law pertaining to dissenters’ rights under the Dissenters’ Rights Provisions and is qualified in its entirety by the full text of the Dissenters’ Rights Provisions, which is attached to this joint proxy statement/prospectus as Annex G. You are encouraged to read Annex G carefully. All references in the Dissenters’ Rights Provisions and in this summary to a “stockholder” are to the record holder of the shares of Company common stock as to which dissenters’ rights are asserted. A person having a beneficial interest in shares of Company common stock held of record in the name of another person, such as a broker, fiduciary, depositary or other nominee, must act promptly to cause the record holder to follow the steps summarized above properly and in a timely manner to perfect dissenters’ rights.
This section of the joint proxy statement/prospectus describes the material terms of the merger agreement. The description in this section and elsewhere in this joint proxy statement/prospectus is subject to, and qualified in its entirety by reference to, the complete text of the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We urge you to read the full text of the merger agreement, as it is the legal document governing the merger. This section is not intended to provide you with any factual information about Camber or Viking. Such information can be found elsewhere in this joint proxy statement/prospectus.
Explanatory Note Regarding the Merger Agreement
The merger agreement and this summary of terms are included to provide you with information regarding the terms of the merger agreement. Factual disclosures about Camber and Viking contained in this joint proxy statement/prospectus may supplement, update or modify the factual disclosures about Camber and Viking contained in the merger agreement. The merger agreement contains representations and warranties by Camber, on the one hand, and by Viking, on the other hand, made solely for the benefit of the parties to the merger agreement. The representations, warranties and covenants made in the merger agreement by Camber and Viking were qualified and subject to important limitations and qualifications agreed to by Camber and Viking in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties also may be subject to a contractual standard of materiality different from that generally applicable to stockholders and reports and documents filed with the SEC, and some were qualified by the matters contained in the confidential disclosure schedules that Camber and Viking each delivered in connection with the merger agreement and certain documents filed with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this joint proxy statement/prospectus, may have changed since the date of the merger agreement. Accordingly, the representations and warranties in the merger agreement should not be relied on by any persons as characterizations of the actual state of facts about Camber and Viking at the time they were made or otherwise.
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On May 27, 2020, Camber and Viking entered in a First Amendment to Agreement and Plan of Merger, which we refer to as the first amendment. Pursuant to the first amendment, the parties updated the calculations relating to the adjustments to the exchange ratio and added a cap on the maximum adjustment to the exchange ratio in either direction (i.e., set a maximum exchange ratio for Camber of between 15% and 25%).The disclosure of the merger agreement herein includes the changes to the merger agreement affected by the first amendment and all references herein to the merger agreement mean a reference to such agreement as modified by the first amendment.
Each of the Camber board and the Viking board has adopted and approved the merger agreement. The merger agreement provides for the merger of Merger Sub, a wholly-owned subsidiary of Camber, with and into Viking, with Viking surviving the merger as a wholly-owned subsidiary of Camber.
Prior to the completion of the merger, Camber and Viking may, by mutual agreement, change the method or structure of effecting the combination of Viking and Camber, to the extent they both deem such change to be necessary, appropriate or desirable. In addition, at any time beginning on the date that is forty (40) days after the date of the merger agreement and ending on the date that the registration statement of which this joint proxy statement/prospectus forms a part has become effective under the Securities Act, if either the Camber board or the Viking board determines in good faith that a change in the structure of effecting the combination of Viking and Camber to a direct merger of Viking with and into Camber, with Camber surviving such merger, would be in the best interests of the combined company following the merger, upon written notice to the other party delivered to the other party following good faith consultation with the other party, the other party will be required to take all action necessary and cooperate in good faith to effect such change in structure. Notwithstanding the foregoing, no such change in the method or structure of effecting the combination of Viking and Camber will (i) alter or change the exchange ratio or the number of shares of Camber common stock received by Viking stockholders in exchange for each share of Viking common stock, unless, in connection with any change effected by decision of either of the boards of directors of Camber or Viking as described in the foregoing sentence, the economic benefits that are intended to accrue to Camber stockholders and Viking stockholders pursuant to the terms of the merger agreement and the transactions contemplated hereby are identical in all but de minimis respects, (ii) adversely affect the tax treatment of Camber’s stockholders or Viking’s stockholders pursuant to the merger agreement, (iii) adversely affect the tax treatment of Viking, Camber, the combined company and/or their respective subsidiaries pursuant to the merger agreement, or (iv) would reasonably be expected to prevent the consummation of the transactions contemplated by the merger agreement or delay the consummation of such transactions beyond the termination date.
Each share of Viking common stock issued and outstanding immediately prior to the effective time, except for shares of Viking common stock that are owned by Camber, Viking or Merger Sub (in each case other than shares of Viking common stock held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity that are beneficially owned by third parties), will be converted into a number of shares (the “exchange ratio” and such shares the “merger consideration”) of Camber common stock calculated as follows: (w) the number of shares of Camber common stock considered outstanding on a fully diluted basis immediately prior to the effective time of the merger (the “effective time”), excluding any shares into which Camber’s Series C Preferred Stock may be convertible, (x) multiplied by the difference between 100% and the Camber Percentage (as defined and described below), (y) divided by the Camber Percentage, (z) divided by the number of shares of Viking common stock considered outstanding on a fully diluted basis immediately prior to merger, rounded up to the nearest one-hundred thousandth (1/100,000th).
The “Camber Percentage” will initially equal 20%, and the Camber Percentage shall be subject to adjustment at the time of the merger as follows: The Camber Percentage is to be adjusted as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%.
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The following table summarizes the exchange ratio and number of shares of Camber common stock that would be issued in the merger based on various assumptions regarding (i) the number of shares of common stock of Viking considered outstanding on a fully-diluted basis immediately prior to the merger, (ii) the number of shares of Camber common stock considered outstanding on a fully-diluted basis (without regard to the number of shares of Camber common stock into which Camber’s Series C Preferred Stock may be convertible) immediately prior to the merger, (iii) the Camber Surplus Cash or Camber Surplus Assets, and (iv) Viking’s Unencumbered Cash. The below table does not take into account the proposed Camber reverse stock split discussed under “Camber Proposals-Proposal 3: Camber Reverse Split Proposal” beginning on page 75 and assumes for all purposes that the Camber charter amendment proposal as discussed above under “Camber Proposals – Proposal 2: Camber Charter Amendment Proposal” beginning on page 74, has been approved. The below is provided for information purposes only and the exchange ratio may be materially different than the estimates provided below based on the actual number of shares of Camber common stock and Viking common stock outstanding at the time of the merger on a fully-diluted basis. All share numbers (except the ratio of shares issued to Viking shareholders as merger consideration) are in thousands and all dollar amounts are in millions
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|
Outstanding Shares of Common Stock of Camber* |
Issuable to officers and directors of Camber as a bonus in connection with the closing of the transaction |
Total Fully-Diluted Shares of Camber*(2) |
Outstanding Shares of Common Stock of Viking* |
Issuable upon exercise of outstanding options and warrants of Viking and Potentially Issuable Through Closing |
Issuable upon conversion of outstanding convertible notes of Viking (not including notes held by Camber) |
Expected to be Issued to James Doris in consideration for the conversion of the Series C Preferred Stock of Viking |
Fully-Diluted Shares of Viking *(4) |
Total of Camber’s Surplus Cash and Other Camber Surplus Assets |
Viking’s Unencumbered Cash (in Millions) |
Adjusted Camber Percentage |
Total Shares held by Camber stockholders on a fully-diluted basis post-merger |
Adjusted Viking Percentage |
Ratio of shares of common stock of Camber issuable for each outstanding share of Viking as part of the merger consideration |
Total Shares held by Viking stockholders on a fully-diluted basis post-merger |
|
(A) |
(B) |
(C) |
(D) |
(E) |
(F) |
(G) |
(H) |
(I) |
(J) |
(K) |
(L) |
(M) |
(N) |
(O) |
|
7,500 |
1,324 |
8,824 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$0.0 |
20.0% |
8,824 |
80.0% |
0.120139 |
35,296 |
|
7,500 |
1,324 |
8,824 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$1.0 |
$0.0 |
21.0% |
8,824 |
79.0% |
0.112988 |
33,195 |
|
7,500 |
1,324 |
8,824 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$2.0 |
18.0% |
8,824 |
82.0% |
0.136825 |
40,198 |
|
7,500 |
1,324 |
8,824 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.5 |
$0.0 |
20.5% |
8,824 |
79.5% |
0.116476 |
34,220 |
|
7,500 |
1,324 |
8,824 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$1.0 |
19.0% |
8,824 |
81.0% |
0.128043 |
37,618 |
|
10,000 |
1,765 |
11,765 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$0.0 |
20.0% |
11,765 |
80.0% |
0.160181 |
47,060 |
|
10,000 |
1,765 |
11,765 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$1.0 |
$0.0 |
21.0% |
11,765 |
79.0% |
0.150647 |
44,259 |
|
10,000 |
1,765 |
11,765 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$2.0 |
18.0% |
11,765 |
82.0% |
0.182429 |
53,596 |
|
10,000 |
1,765 |
11,765 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.5 |
$0.0 |
20.5% |
11,765 |
79.5% |
0.155298 |
45,625 |
|
10,000 |
1,765 |
11,765 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$1.0 |
19.0% |
11,765 |
81.0% |
0.170719 |
50,156 |
|
25,000 |
4,412 |
29,412 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$0.0 |
20.0% |
29,412 |
80.0% |
0.400446 |
117,648 |
|
25,000 |
4,412 |
29,412 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$1.0 |
$0.0 |
21.0% |
29,412 |
79.0% |
0.376610 |
110,645 |
|
25,000 |
4,412 |
29,412 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$2.0 |
18.0% |
29,412 |
82.0% |
0.456064 |
133,988 |
|
25,000 |
4,412 |
29,412 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.5 |
$0.0 |
20.5% |
29,412 |
79.5% |
0.388237 |
114,061 |
|
25,000 |
4,412 |
29,412 |
134,847 |
68,564 |
40,432 |
49,949 |
293,792 |
$0.0 |
$1.0 |
19.0% |
29,412 |
81.0% |
0.426791 |
125,388 |
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* Immediately prior to the closing of the merger and as to Camber’s calculation, not including any shares of common stock issuable upon conversion of outstanding shares of Camber Series C Preferred Stock.
(1) See “The Merger – Interests of Camber’s Directors and Executive Officers in the Merger – Transaction Bonuses” beginning on page 162.
(2) Total of columns (A) and (B). The total shares of common stock issuable upon exercise of outstanding warrants and options in Camber is nominal.
(3) See “The Merger - Interests of Viking’s Directors and Executive Officers in the Merger – Viking’s Series C Preferred Stock”, beginning on page 163. Total shares anticipated to be issued to Mr. Doris, the CEO of Viking, in connection with the conversion of the Series C Preferred Stock of Viking held by Mr. Doris into common stock is expected to be 23% of Viking's outstanding common stock on a fully-diluted basis prior to the closing of the merger and after the offering disclosed in footnote (3).
(4) Total of columns (D), (E), (F) and (G). Does not include shares issuable upon conversion of outstanding Viking Series C Preferred Stock since the termination of such Viking Series C Preferred Stock is a condition to closing the merger.
(5) The “Adjusted Camber Percentage” refers to the percentage, initially equal to 20%, subject to adjustment at the time of the merger as follows: (i) for each additional $500,000 (a) of unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, which comes from equity sold by Camber for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, or (b) in other unencumbered assets acquired by Camber after the date of the merger agreement and prior to closing without increasing Camber’s liabilities, the Camber Percentage will increase by an incremental 0.5%; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the combined company after the closing of the merger, outside of Viking’s Ichor division or Elysium division in excess of $500,000, which comes from equity sold by Viking for cash from February 3, 2020 through the closing of the merger, which is not contingent or conditional upon the closing of the merger, the Camber Percentage will decrease by an incremental 0.5%. Notwithstanding the above, the Camber Percentage will not be decreased to lower than 15% or increased to more than 25%.
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Camber will not issue any fractional shares of Camber common stock in the merger. In lieu of the issuance of any such fractional share, Camber will instead round such fractional share up to the nearest whole share.
The merger agreement requires Camber to seek the approval by the Camber stockholders of the Camber charter amendment proposal at the Camber special meeting. If the Camber charter amendment proposal is approved, the Camber charter will be amended to increase the number of authorized shares of Camber common stock from 25 million to 250 million shares.
If the Camber charter amendment proposal is not approved at the Camber special meeting, shares of Camber common stock issuable to Viking stockholders as the merger consideration in the merger could not be issued, and the merger could not be completed.
Treatment of Viking Convertible Securities
Viking Stock Options and Warrants. At the effective time, each outstanding option or warrant to purchase shares of Viking common stock (“Viking option”) will be converted into an option or warrant, as applicable, to purchase shares of Camber common stock (“Camber option”), with adjustments to the number of shares and the per share exercise price based on the exchange ratio. The Camber option will have the same other terms and conditions as applied to the corresponding Viking option, including any extended post-termination exercise period that applies following the effective time, except that any then unvested Viking options granted prior to February 3, 2020, will vest at the effective time.
Viking Convertible Notes. At the effective time, each outstanding Viking promissory note convertible into Viking common stock (“Viking convertible note”) will be converted into a Camber promissory note convertible into Camber common stock (“Camber option”), with adjustments to the conversion price and number of shares issuable upon conversion and reserved for issuance thereunder based on the exchange ratio. The Camber convertible note will have the same other terms and conditions as applied to the corresponding Viking convertible note.
As of May 16, 2020, Viking’s outstanding convertible notes consisted of (i) convertible notes maturing on August 31, 2020, in the aggregate principal amount of approximately $11,469,565, with 50% of the principal amount under each note convertible into Viking common stock at $0.20 per share; and (ii) convertible notes due February 11, 2022, in the aggregate principal amount of approximately $1,954,229, with 100% of the principal amount under each note convertible into Viking common stock at $0.175 per share. If the merger closes on or prior to August 31, 2020, or prior to the repayment in full (or partial conversion and repayment of the remaining portion) of Viking’s outstanding convertible promissory notes maturing on August 31, 2020, each of the holders of those notes will have to approve the merger, or their notes will need to be repaid in full at closing of the merger.
Viking Preferred Stock. As of May 29, 2020, Viking’s CEO and director, James Doris, holds 28,092 shares of Viking’s Series C Preferred Stock, with each share of preferred stock entitling the holder thereof to 32,500 votes on all matters submitted to the vote of Viking’s security holders, and there are no other shares of Viking preferred stock outstanding.
The merger agreement requires that there be no shares of Viking preferred stock outstanding at the effective time of the merger. However, Mr. Doris and Viking have not yet reached any agreement as to the terms of any redemption, conversion or cancellation of Mr. Doris’s 28,092 shares of Viking’s Series C Preferred Stock. If Viking and Mr. Doris do not reach an agreement resulting in Viking’s Series C Preferred Stock no longer being outstanding, the merger cannot be completed.
Immediately prior to the closing of the merger, and provided all other conditions related to the merger are satisfied, Mr. Doris has indicated to Viking that he intends to return his shares of Viking’s Series C Preferred Stock to Viking for cancellation in exchange for common stock, common stock warrants and/or options of Viking (the “Exchanged Securities”) with a view to converting such Exchanged Securities into Camber warrants or options at closing of the merger. Mr. Doris has indicated that he intends to receive a number of Exchanged Securities that would result in him owning, when combined with existing shares issued to Mr. Doris by Viking, approximately 23% of the issued and outstanding shares of Viking’s common stock on a fully-diluted basis immediately prior to closing of the merger.
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Treatment of Camber Convertible Securities
Each warrant or option to purchase shares of Camber common stock will not be impacted by the merger and will continue to be a warrant or option in respect of Camber common stock following the effective time, subject to the same terms and conditions that were applicable to such warrant or option before the effective time.
Unless the merger agreement is terminated, as described in the section entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 183, the closing of the transactions contemplated by the merger will take place on a date no later than three (3) business days after the satisfaction or waiver (to the extent permitted under applicable law) of all of the conditions described in the section entitled “The Merger Agreement—Conditions to Complete the Merger” beginning on page 180 (other than those conditions that by their nature can only be satisfied at the date of merger, but subject to the satisfaction or permitted waiver thereof), unless another date, time or place is agreed to in writing by Viking and Camber.
The merger will become effective at the time that articles of merger regarding the merger have been duly filed with the Secretary of State of the State of Nevada, or at such later time as Viking and Camber will agree and specify in the articles of merger.
Conversion of Shares; Exchange of Viking Stock Certificates
Letter of Transmittal
As promptly as practicable after the effective time, but in no event later than ten (10) days thereafter, Camber is required to cause the exchange agent to mail to each holder of record of Viking common stock immediately prior to the effective time that have been converted at the effective time into the right to receive Camber common stock, a letter of transmittal and instructions for use in effecting the surrender of shares of Viking common stock in exchange for the whole shares of Camber common stock that the shares of Viking common stock will have been converted into the right to receive, as well as any dividends or distributions to be paid pursuant the merger agreement.
If a certificate for Viking common stock has been lost, stolen or destroyed, (i) upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed, and (ii) if required by Camber, the combined company or the exchange agent, the posting by such person of a bond in such amount as Camber, the combined company or the exchange agent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such certificate, the exchange agent will issue in exchange for such lost, stolen or destroyed certificate the shares of Camber common stock.
After the effective time, there will be no transfers on the stock transfer books of Viking of the shares of Viking common stock that were issued and outstanding immediately prior to the effective time.
Withholding
Each of Camber, Viking, Merger Sub, the surviving entity in the merger and the combined company, and any other person that has any withholding obligation with respect to any payment made pursuant to the merger agreement will be entitled to deduct and withhold, or cause the exchange agent to deduct and withhold, from any payment made pursuant to the merger agreement such amounts as it is required to deduct and withhold with respect to the making of such payment under applicable law. To the extent that amounts are so withheld and paid over to the appropriate governmental authority, such amounts will be treated for all purposes of the merger agreement as having been paid to the person in respect of which such deduction and withholding was made.
Dividends and Distributions
No dividends or other distributions declared with respect to Camber common stock will be paid to the holder of any unsurrendered certificate until the holder thereof surrenders such certificate in accordance with the merger agreement. After the surrender of a certificate in accordance with the merger agreement, the record holder thereof will be entitled to receive any such dividends or other distributions, without any interest thereon, which had previously become payable with respect to the whole shares of Camber common stock that the shares of Viking common stock represented by such certificate have been converted into the right to receive.
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Representations and Warranties
The merger agreement contains representations and warranties made by each of Camber and Viking regarding:
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corporate matters, including due organization and qualification and subsidiaries; |
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capitalization; |
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authority relative to execution and delivery of the merger agreement and the absence of conflicts with, or violations of, organizational documents or other obligations as a result of the merger; |
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required governmental and other regulatory filings and consents and approvals in connection with the merger; |
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financial statements, internal controls, books and records; |
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broker’s fees payable in connection with the merger; |
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the absence of certain changes or events; |
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legal and regulatory proceedings; |
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tax matters; |
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employee benefit matters; |
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SEC reports; |
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compliance with applicable laws; |
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certain material contracts; |
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government contracts; |
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environmental matters; |
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real property; |
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intellectual property; |
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related party transactions; |
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inapplicability of takeover statutes; |
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absence of action or circumstance that would prevent the merger from qualifying as a reorganization under Section 368(a) of the Code; |
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board of directors’ recommendations; |
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the accuracy of information supplied for inclusion in this joint proxy statement/prospectus and other similar documents; |
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customers and suppliers; |
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insurance matters; and |
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the absence of other representations or warranties. |
Certain representations and warranties of Camber and Viking are qualified as to “material adverse effect.” For purposes of the merger agreement, a “material adverse effect,” when used in reference to either Camber, Viking, Merger Sub, the surviving entity in the merger or the combined company, means any effect, change, event, circumstance, condition, occurrence or development that, either individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, properties, results of operations or financial condition of such party and its subsidiaries taken as a whole.
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However, a material adverse effect will not be deemed to include the impact of:
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changes, after the date of the merger agreement, in U.S. generally accepted accounting principles or applicable regulatory accounting requirements or official interpretations thereof; |
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changes, after the date of the merger agreement, in laws, rules or regulations of general applicability to companies in the industries in which such party and its subsidiaries operate, or interpretations thereof by courts or governmental entities; |
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changes, after the date of the merger agreement, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market (including equity, credit and debt markets, as well as changes in interest rates) or other general industry-wide conditions affecting industries in which such party or its subsidiaries operate; |
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the announcement or the existence of, compliance with, pendency of or performance under, the merger agreement or the transactions contemplated thereby or the identity of the parties to the merger agreement or any of their affiliates, including the impact thereof on the relationships, contractual or otherwise, of a party or any of its subsidiaries with officers and employees, financing sources, customers, suppliers, vendors, service providers or other partners (provided that this bullet will not apply to any representation or warranty to the extent the purpose of such representation or warranty is to address the consequences resulting from the execution of or performance under the merger agreement or the transactions contemplated thereby); |
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a decline in the trading price of a party’s common stock or any change in the credit ratings or ratings outlook for, or the availability or cost of equity, debt or other financing to, such party or any of its subsidiaries, or the failure, in and of itself, to meet earnings projections, earnings guidance, budgets, expectations, estimates or internal financial forecasts (but not including the underlying causes of such events, to the extent not otherwise excluded by any of the other bullets); |
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weather conditions or other acts of God; |
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any action required to be taken by a party or any of its subsidiaries at the written request of the other party; |
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any actions or claims made or brought by any of the current or former stockholders of a party (or on their behalf or on behalf of such party) against another party or any of its directors, officers or employees arising out of the merger agreement or the transactions contemplated thereby; or |
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except, with respect to the first, second, third and sixth bullet, to the extent that the effects of such change are materially disproportionately adverse to the business, properties, results of operations or financial condition of such party and its subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its subsidiaries operate. |
The representations and warranties in the merger agreement do not survive the effective time.
Conduct of Businesses Prior to the Completion of the Merger
Each of Camber and Viking has agreed that, prior to the effective time (or earlier termination of the merger agreement), subject to specified exceptions, it will, and will cause each of its subsidiaries to, (i) conduct its business in the ordinary course in all material respects, and (ii) use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships.
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Additionally, prior to the effective time (or earlier termination of the merger agreement), subject to specified exceptions, neither Camber nor Viking may, and neither Camber nor Viking may permit any of their respective subsidiaries to, without the prior written consent of the other party (such consent not to be unreasonably withheld, conditioned or delayed), take any of the following actions:
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incur, assume, guarantee or become liable for any indebtedness for borrowed money, other than (i) intercompany indebtedness, (ii) borrowings in the ordinary course existing as of the date of the merger agreement up to the amount committed thereunder on such date, (iii) guarantees by either party of any entity within its group, (iv) indebtedness incurred to refinance, roll-over, replace or renew any indebtedness existing as of the date of the merger agreement, (v) indebtedness incurred in respect of letters of credit, performance bonds, surety bonds, appeal bonds or other similar arrangements in the ordinary course, (vi) capital lease, purchase money or equipment financing arrangements entered into in the ordinary course of business, (vii) indebtedness arising from customary cash management and treasury services and the honoring of checks, drafts or similar instruments against insufficient funds or from the endorsement of instruments for collection, in each case, in the ordinary course of business, (viii) interest, exchange rate and commodity swaps, options, futures, forward contracts and similar derivatives or other hedging contracts (x) not entered for speculative purposes and (y) entered into in the ordinary course consistent with past practice and in compliance with its risk management and hedging policies or practices in effect on the date of the merger agreement; |
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adjust, split, combine or reclassify any capital stock; |
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make, declare, pay or set a record date for any dividend, or any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or other equity or voting securities or any securities or obligations convertible or exchangeable into or exercisable for any shares of its capital stock or other equity or voting securities, including any securities of Camber or any securities of its subsidiaries, in the case of Camber, or any securities of Viking or any securities of its subsidiaries, in the case of Viking, except, in each case, (A) regular quarterly cash dividends paid by Camber, (B) regular quarterly cash dividends paid by Viking, (C) dividends paid by any of the subsidiaries of each of Camber and Viking to Camber or Viking or any of their wholly-owned subsidiaries, respectively or (D) the acceptance of shares of Camber common stock or Viking common stock as payment for the exercise price of stock options or for withholding taxes incurred in connection with the exercise of stock options or the vesting or settlement of equity compensation awards, or the payment of dividend equivalents thereon, in each case, in accordance with past practice and the terms of the applicable award agreements; |
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sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any individual, corporation or other entity, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, in each case other than (i) to any wholly-owned subsidiary or to the other party, as applicable or (ii) in the ordinary course of business; |
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make any material investment in or material acquisition of (whether by purchase of stock or securities, contributions to capital, property transfers, merger or consolidation, or formation of a joint venture or otherwise) any other person or business or the property or assets of any other person, in each case other than a wholly-owned subsidiary of Viking or Camber, as applicable, in each case other than, with respect to acquisitions of properties and assets, in the ordinary course of business or pursuant to contracts or agreements in force at the date of the merger agreement; |
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except in the ordinary course of business consistent with past practice, (i) terminate, materially amend, or waive any material provision of, certain material Viking contracts or Camber contracts, as the case may be, or make any material change in any instrument or agreement governing certain material Viking contracts or Camber contracts, as the case may be, other than normal renewals of contracts and leases without material adverse changes of terms with respect to Viking or Camber, as the case may be, or (ii) other than in the ordinary course of business consistent with past practice, enter into any contract that would constitute a material Viking contract or Camber contract, as the case may be, if it were in effect as of the date of the merger agreement; |
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except as required under applicable law or the terms of any Viking benefit plan or Camber benefit plan existing as of the date hereof, as applicable, (i) enter into, adopt or terminate any employee benefit or compensation plan, program, policy or arrangement for the benefit or welfare of any current or former employee, officer, director or individual consultant, other than in the ordinary course of business consistent with past practice, (ii) amend (whether in writing or through the interpretation of) any employee benefit or compensation plan, program, policy or arrangement for the benefit or welfare of any current or former employee, officer, director or individual consultant, other than in the ordinary course of business consistent with past practice, (iii) materially increase the compensation or benefits payable to any current or former employee, officer, director or individual consultant (other than in connection with a relocation of an employee in the ordinary course of business or a promotion or change in responsibilities), (iv) pay or award, or commit to pay or award, any bonuses or incentive compensation other than in the ordinary course of business consistent with past practice, (v) grant (other than the permitted grants) or accelerate the vesting of any equity-based awards or other compensation, (vi) enter into any new, or amend any existing, employment, severance, change in control, retention, bonus guarantee, collective bargaining agreement or similar agreement or arrangement, (vii) fund any rabbi trust or similar arrangement, (viii) terminate the employment or services of any officer or any employee whose target annual compensation (that is, base salary or wages plus annual bonus or other short-term cash incentive compensation) is greater than $1,000,000, other than for cause, or (ix) hire or promote any officer, employee or individual consultant who has (or, following such hire or promotion, would have) target annual compensation (that is, base salary or wages plus annual bonus or other short-term cash incentive compensation) greater than $1,000,000; |
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settle any claim, suit, action or proceeding, except involving monetary remedies in an amount not in excess of $1,000,000 individually or $5,000,000 in the aggregate and that would not impose any material restriction on, or create any adverse precedent that would be material to, the business of it or its subsidiaries, the surviving entity in the merger or the combined company; |
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take any action or fail to take any action where such action or failure to act could reasonably be expected to impede or prevent the merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code; |
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amend either party’s certificate of incorporation, bylaws or comparable governing documents of its “significant subsidiaries” (as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Exchange Act); |
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merge or consolidate either party or any of its significant subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its significant subsidiaries, other than mergers, consolidations, restructurings or reorganizations solely between or among its wholly-owned subsidiaries; |
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enter into any new line of business or discontinue any existing line of business, other than in the ordinary course of business consistent with past practice; |
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make, change or revoke any material tax election, change an annual tax accounting period, adopt or change any material tax accounting method, file any material amended tax return, enter into any closing agreement with respect to a material amount of taxes, or settle any material tax claim, audit, assessment or dispute or surrender any material right to claim a refund of taxes; or |
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agree to take or make any commitment to do any of the foregoing. |
Regulatory Matters
Camber and Viking have agreed to cooperate with each other and use their respective reasonable best efforts to prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, (and in the case of the applications, notices, petitions and filings in respect of certain regulatory approvals (referred to as the “requisite regulatory approvals”), use their reasonable best efforts to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities which are necessary or advisable to consummate the transactions contemplated by the merger agreement, and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such governmental entities. Each of Camber and Viking has agreed to use its reasonable best efforts to resolve any objection that may be asserted by any governmental entity with respect to the merger agreement or the transactions contemplated by the merger agreement. However, in no event will Camber or Viking or any of their respective subsidiaries be required to, and in no event will Camber or Viking or any of their respective subsidiaries be permitted to (without the written consent of the other party), take any action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the required permits, consents, approvals and authorizations of governmental entities that would reasonably be expected to have a material adverse effect on the combined company and its subsidiaries, taken as a whole, after giving effect to the merger.
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Camber and Viking have also agreed to furnish each other with all information reasonably necessary or advisable in connection with any statement, filing, notice or application to any governmental entity in connection with the merger, as well as to keep each other apprised of the status of matters related to the completion of the transactions contemplated by the merger agreement.
Director and Officer Indemnification and Insurance
The merger agreement provides that after the effective time, the combined company will indemnify and hold harmless and will advance expenses as incurred, in each case to the maximum extent permitted by applicable law, such persons that are indemnified as of the date of the merger agreement by Viking pursuant to the Viking articles of incorporation, the Viking bylaws, the governing or organizational documents of any Viking subsidiary and any indemnification agreements in existence as of the date of the merger agreement and such persons that are indemnified as of the date of the merger agreement by Camber pursuant to the Camber articles of incorporation, the Camber bylaws, the governing or organizational documents of any Camber subsidiary and any indemnification agreements in existence as of the date of the merger agreement, against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, damages or liabilities incurred in connection with any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, whether arising before or after the effective time, arising out of the fact that such person is or was a director, officer or employee of Viking or any Viking subsidiary, or of Camber or any Camber subsidiary, and pertaining to matters existing or occurring at or prior to the effective time, including the transactions contemplated by the merger agreement; provided, that in the case of advancement of expenses, any Viking indemnified party or Camber indemnified party, to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
Certain Additional Covenants
The merger agreement also contains additional covenants, including, among others, covenants relating to the filing of this joint proxy statement/prospectus, obtaining required consents and approvals, access to information of the other company, the listing of the shares of Camber common stock to be issued in the merger, advice of changes, the coordination of dividend declarations, stockholder litigation relating to the transactions contemplated by the merger agreement, public announcements with respect to the transactions contemplated by the merger agreement, exemption from takeover laws, cooperation on financing and indebtedness and pre-closing transition efforts.
Combined Company Governance and Headquarters Matters
Under the merger agreement, Camber and Viking have agreed to certain provisions relating to the governance and headquarters of the combined company, including composition of the combined company board of directors and the role of chief executive officer. The initial composition of the audit committee, the compensation committee and the nominating and governance committee of the board of directors of the combined company, respectively, will be mutually agreed by Viking and Camber prior to the effective time. As of the effective time, the headquarters of the combined company will be located in Houston, Texas. For a more detailed description of the governance matters relating to the combined company, see “The Merger—Governance and Leadership of the Combined Company After the Merger” beginning on page 164.
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Stockholder Meetings and Recommendation of Camber’s and Viking’s Boards of Directors
Camber and Viking have each agreed to hold the Camber special meeting and the Viking special meeting as soon as practicable after the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part. Camber and Viking may each choose to postpone or adjourn its own special meeting (the Camber special meeting or the Viking special meeting, as the case may be) up to two times and for up to forty-five (45) days in the aggregate, (i) for the absence of a quorum, (ii) in the event of a board recommendation change by its respective board of directors or (iii) in the event of a change to the method or structure of effecting the combination of Viking and Camber. In addition, Camber and Viking must each adjourn or postpone its own special meeting (the Camber special meeting or the Viking special meeting, as the case may be) at the request of the other party up to two times and for up to forty-five (45) days in the aggregate in the event of a (x) board recommendation change by its respective board of directors or (y) change to the method or structure of effecting the combination of Viking and Camber.
Camber and Viking have agreed under the merger agreement to, through their respective boards of directors, recommend that Camber stockholders approve the Camber share issuance proposal and the Camber charter amendment proposal and that Viking stockholders approve the Viking merger proposal, respectively, and to include such recommendations in this joint proxy statement/prospectus.
The merger agreement provides that, subject to the exceptions described below, neither the Camber board nor the Viking board will (i) withhold, withdraw, modify or qualify, in each case in a manner adverse to the other party, its approval or recommendation of the merger or the merger agreement, (ii) fail to include in this joint proxy statement/prospectus its recommendation in favor of the merger agreement and the Camber share issuance proposal and Camber charter amendment proposal or the Viking merger proposal, as applicable, (iii) adopt, approve, recommend or endorse an alternative transaction proposal or publicly announce an intention to adopt, approve, recommend or endorse an alternative transaction proposal, (iv) fail to publicly and without qualification (x) recommend against any alternative transaction proposal or (y) reaffirm its recommendation of the merger agreement and the merger within ten (10) business days of the other party’s written request to do so (or, if earlier, at least two (2) business days prior to the Camber special meeting or the Viking special meeting, as applicable), following the public announcement of any alternative transaction proposal, or (v) publicly propose to do any of the foregoing actions in clauses (i) through (iv) (any action in clauses (i) through (iv) is referred to in the joint proxy statement/prospectus as a “board recommendation change”).
Notwithstanding the foregoing restrictions, in the event that, prior to obtaining the approval of the Camber share issuance proposal and the Camber charter amendment proposal by the Camber stockholders or the approval of the Viking merger proposal by the Viking stockholders, the Camber board or the Viking board, respectively, may effect a board recommendation change if (i) after receiving advice of its outside counsel and, with respect to financial matters, its financial advisors, it determines in good faith that taking such action would be required to comply with its fiduciary duties under applicable law, (ii) it has provided the other party five (5) business days’ written notice that it intends to effect a board recommendation change and a reasonable description of the event or circumstances giving rise to its determination to take such action and (iii) at the end of such notice period, taking into account any amendment or modification to the merger agreement proposed by the other party and, after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisors, it determines in good faith that taking such action would nevertheless be required to comply with its fiduciary duties under applicable law.
Agreement Not to Solicit Other Offers
Each of Camber and Viking has agreed that it will not, and will cause each of its subsidiaries and their respective directors and officers not to, and will not permit its and their other respective agents, advisors and representatives to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals with respect to any acquisition proposal, (ii) engage or participate in any negotiations with any person concerning any acquisition proposal, (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with any person relating to any acquisition proposal or (iv) unless the merger agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (other than a confidentiality agreement referred to below) in connection with or relating to any acquisition proposal.
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For purposes of the merger agreement, an “acquisition proposal” means, with respect to Camber and Viking, as applicable, other than the merger, any offer, proposal or inquiry, or any third-party indication of interest, by or on behalf of any third party, relating to (i) any acquisition or purchase, direct or indirect, of twenty-five percent (25%) or more of the consolidated assets of a party and its subsidiaries or twenty-five percent (25%) or more of any class of equity or voting securities of a party or its subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of the party, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party (or its affiliates) beneficially owning twenty-five percent (25%) or more of any class of equity or voting securities of a party or its subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of the party, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving a party or its subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of the party, which would, in the case of this clause (iii), result in the stockholders of such party prior to such transaction ceasing to own at least seventy-five percent (75%), directly or indirectly, of such party or its applicable subsidiaries.
However, in the event that after the date of the merger agreement and prior to obtaining the approval of the Camber share issuance proposal and Camber charter amendment proposal by the Camber stockholders or the approval of the Viking merger proposal by the Viking stockholders, Camber or Viking, respectively, receives a bona fide written acquisition proposal not solicited in violation of the merger agreement, such party may, and may permit its subsidiaries and its subsidiaries’ representatives to, furnish or cause to be furnished confidential or nonpublic information or data and participate in such negotiations or discussions with the person making the acquisition proposal and such person’s representatives if the board of directors of such party concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors) that taking such actions would be required to comply with its fiduciary duties under applicable law; provided, that, prior to furnishing any confidential or nonpublic information permitted to be provided pursuant to this sentence, such party must have entered into a confidentiality agreement with the person making such acquisition proposal on terms no less favorable to it than the confidentiality agreement between Camber and Viking, which confidentiality agreement must not provide such person with any exclusive right to negotiate with such party, and must otherwise permit such party to comply with its obligations in the merger agreement. Camber and Viking also caused their representatives to cease and cause to be terminated any activities, discussions or negotiations conducted before the date of the merger agreement with any person other than Viking or Camber, as applicable, with respect to any acquisition proposal, and requested the return or destruction of any confidential information previously delivered to any such person pursuant to the terms of any confidentiality agreement to the extent provided by such agreement.
Each of Camber and Viking will promptly (within twenty-four (24) hours) advise the other party following receipt of any acquisition proposal or any inquiry which could reasonably be expected to lead to an acquisition proposal, and the substance thereof (including the terms and conditions of and the identity of the person making such inquiry or acquisition proposal), will provide the other party with an unredacted copy of any such acquisition proposal and any draft agreements, proposals or other materials received in connection with any such inquiry or acquisition proposal, and will keep the other party apprised of any related material developments, discussions and negotiations on a current basis, including any amendments to or revisions of the terms of such inquiry or acquisition proposal (other than amendments or revisions that are immaterial in all respects). Each of Camber and Viking is required to use its reasonable best efforts to enforce any confidentiality agreements (other than “standstill” provisions therein) to which it or any of its subsidiaries is or becomes a party in accordance with the terms thereof.
Conditions to Complete the Merger
Camber’s and Viking’s respective obligations to complete the merger are subject to the satisfaction or waiver, at or prior to the effective time, of the following conditions:
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approval of the Camber share issuance and charter amendment by Camber stockholders and approval of the merger agreement by Viking stockholders; |
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authorization for listing of the shares of Camber common stock to be issued in the merger on NYSE American, subject to official notice of issuance; |
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in the event the NYSE American determines that the merger constitutes, or will constitute, a “back-door listing” /” reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the closing of the merger; |
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any waiting period applicable to the merger under the HSR Act having expired or been terminated (provided that we currently do not anticipate any such waiting periods applying to the transaction); |
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all requisite regulatory approvals having been obtained and remaining in full force and effect, and all statutory waiting periods in respect thereof having expired or been terminated; |
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the effectiveness of the registration statement of which this joint proxy statement/prospectus is a part, and the absence of any stop order (or proceedings for such purpose initiated or threatened and not withdrawn); |
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no order, injunction, or decree by any court or governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the merger being in effect, and no law, order, injunction or decree having been enacted, entered, promulgated or enforced by any governmental entity which prohibits or makes illegal the consummation of the merger; |
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the accuracy of the representations and warranties of the other party contained in the merger agreement as of the date on which the merger agreement was entered into and as of the date on which the merger is completed, subject to the materiality standards provided in the merger agreement (and the receipt by each party of an officers’ certificate from the other party to such effect); |
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the performance by the other party in all material respects of all obligations, covenants and agreements required to be performed by it under the merger agreement at or prior to the date on which the merger is completed (and the receipt by each party of an officers’ certificate from the other party to such effect); |
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each of Camber and Viking having received a written opinion to the effect that as of the date thereof and based upon and subject to the matters set forth therein, the exchange ratio in the merger is fair, from a financial point of view, to Camber or Viking, as applicable, and their shareholders; |
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Viking, its subsidiary Elysium or one of Elysium’s subsidiaries having completed the acquisition of oil and gas assets described in Viking’s Current Report on Form 8-K filed with the SEC on October 11, 2019 (which condition was satisfied when Viking completed this acquisition on February 3, 2020); |
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Viking having arranged to extend the maturity date to June 1, 2021, or later, of the promissory note executed and delivered by Viking in connection with Viking’s oil and gas acquisition closed on or about December 28, 2018, or any promissory note(s) issued in replacement thereof; |
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Camber having obtained the consent from the holders of its Series C Preferred Stock for the merger; |
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Viking having obtained consent from ABC Funding, LLC, one of Viking’s lenders, for the merger; |
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Viking having negotiated new renumeration arrangements with its brokers, Network 1 Financial Securities, Inc. and Advisory Group Equity Services, Ltd. d/b/a RHK Capital, with respect to the brokers role in and compensation in connection with the merger; |
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Viking having no loan obligations with a maturity date in 2020 other than the series of $13.5 million of convertible notes issued in connection with Viking’s offering completed in December of 2018; |
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Viking having no outstanding shares of preferred stock; and |
| ● | Camber having acquired 25% of Elysium as part of a $5,000,000 investment by Camber in Viking’s and in connection therewith shall have received a $5,000,000 promissory note by Viking, accruing interest at 10.5% per annum (which condition was satisfied on February 3, 2020, when Camber loaned Viking $5,000,000 and Viking issued Camber the promissory note described in the section entitled in “The Merger Agreement—Camber’s Elysium Interest” beginning on page 182). |
Additionally, if the merger closes on or prior to August 31, 2020, or prior to the repayment in full (or partial conversion and repayment of the remaining portion) of Viking’s outstanding convertible promissory notes maturing on August 31, 2020, each of the holders of those notes will have to approve the merger, or their notes will need to be repaid in full at closing of the merger. Finally, some of the holders of Viking’s outstanding warrants to purchase shares of Viking common stock will have to approve the merger for Viking to be able to proceed with closing the merger.
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Additionally, as of March 31, 2020, Viking’s outstanding warrants to purchase common stock of Viking included (i) warrants to purchase approximately 10,043,431 shares of Viking common stock, with the warrants requiring the consent of the holders of the warrants (the “Consenting Warrant Holders”) prior to closing the merger, and (ii) warrants to purchase approximately 36,411,508 shares of Viking common stock not requiring warrant holder consent prior to closing the merger. If Viking is unable to obtain the consent of the Consenting Warrant Holders to the merger, the closing of the merger may not occur.
Neither Camber nor Viking can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party.
As a condition to closing the merger, Camber was required to loan Viking $5,000,000, with Camber (i) receiving a $5,000,000 promissory note by Viking, accruing interest at 10.5% per annum, and (ii) acquiring a 25% interest in Elysium.
On February 3, 2020, Viking and Camber entered into a Securities Purchase Agreement (the “SPA”), pursuant to which Camber made the $5,000,000 loan to Viking. The loan was evidenced by a 10.5% Secured Promissory Note (the “Secured Note”) issued to Camber, the repayment of which was secured by the terms of a Security and Pledge Agreement (the “Pledge”).
The 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. The Note can be prepaid at any time with prior notice as provided therein, and together with a prepayment penalty equal to 10.5% of the original amount of the Secured Note.
The 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 Secured Note (February 3, 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 Camber is restricted from converting any portion of the Secured Note into Viking’s common stock if upon such conversion Camber 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 Camber’s other conversion rights under the Secured Note, Camber also has the right to convert the Secured Note (principal and interest) into the securities offered by Viking in connection with Viking’s first public offering following the date of the 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 Pledge provides Camber, pari passu with the other investors in Viking’s 506(c) secured note offering, a security interest (subject to certain prerequisites) in Viking’s 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC (“Ichor”). Additionally, pursuant to a separate Security and Pledge Agreement entered into on February 3, 2020, Viking provided Camber a junior 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 Secured Note (the “Second Pledge”).
As additional consideration for Camber making the loan to Viking and entering into the merger agreement, Viking assigned Camber 25% of Elysium (the “Assigned Elysium Interests”) pursuant to the terms of an Assignment of Membership Interests dated February 3, 2020 (the “Assignment”). As described in the section entitled in “The Merger Agreement—Termination of the Merger Agreement” beginning on page 183, all or a portion of the Assigned Elysium Interests 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 Secured Note and certain amounts owed by Camber to the Series C Preferred Stock holder in the event of the termination of the merger agreement and required repayment of the Secured Note (as discussed in greater detail below under “Termination of the Merger Agreement”). See also “Agreements Relating to the Merger” beginning on page 186.
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Termination of the Merger Agreement
The merger agreement can be terminated at any time prior to completion of the merger, whether before or after the receipt of approval of the Camber share issuance by Camber stockholders or approval of the merger agreement by Viking stockholders, in the following circumstances:
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by mutual written consent of Camber and Viking; |
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by either Camber or Viking if any (i) governmental entity that must grant a requisite regulatory approval has denied approval of the merger and such denial has become final and nonappealable or (ii) court or governmental entity of competent jurisdiction has issued a final and nonappealable order, injunction or decree or other legal restraint or prohibition permanently enjoining or preventing the consummation of the merger, unless the failure to obtain a requisite regulatory approval or the issuance of such order, injunction, decree or other legal restraint, as applicable, is principally due to the failure of the party seeking to terminate the merger agreement to perform or observe the obligations, covenants and agreements of such party set forth in the merger agreement; |
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by either Camber or Viking if the merger has not been consummated on or before June 30, 2020 (the “Termination Date”), provided that Camber or Viking shall have the right to extend the Termination Date up to December 31, 2020, in the event that Camber has not fully resolved SEC comments on the registration statement of which this joint proxy statement/prospectus is a part or the other SEC filings related to the merger, and Camber is responding to such comments in a reasonable fashion, unless the failure of the merger to occur by the Termination Date is principally due to the failure of the party seeking to terminate to perform or observe the obligations, covenants and agreements of such party set forth in the merger agreement; |
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by either Camber or Viking (provided, that the terminating party is not then in material breach of any obligation, covenant or other agreement contained in the merger agreement) if there has been a breach of any of the obligations, covenants or agreements or any of the representations or warranties (or any such representation or warranty ceases to be true) set forth in the merger agreement on the part of the other party, which either individually or in the aggregate would constitute, if occurring or continuing on the date the merger is completed, the failure of a closing condition of the terminating party and which is not cured within thirty (30) days following written notice to the party committing such breach, or by its nature or timing cannot be cured during such period (or such fewer days as remain prior to the termination date); |
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by either Camber or Viking if the approval of the (i) Camber share issuance and charter amendment by Camber stockholders has not been obtained following a vote taken at the Camber special meeting (unless the Camber special meeting has been validly adjourned or postponed, or validly requested by Viking to be adjourned or postponed, in accordance with the merger agreement, in which case at the final adjournment or postponement thereof), or (ii) merger agreement by Viking stockholders has not been obtained following a vote taken at the Viking special meeting (unless the Viking special meeting has been validly adjourned or postponed, or validly requested by Camber to be adjourned or postponed, in accordance with the merger agreement, in which case at the final adjournment or postponement thereof); |
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by Camber, at any time prior to obtaining the approval of the merger agreement by Viking stockholders, if (i) Viking or the Viking board has made a board recommendation change or (ii) there has been a willful breach by Viking (including by the Viking board) of its obligations relating to non-solicitation of acquisition proposals or its obligations related to stockholder approval; or |
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by Viking, at any time prior to obtaining the approval of the Camber share issuance and charter amendment by Camber stockholders, if (i) Camber or the Camber board has made a board recommendation change or (ii) there has been a willful breach by Camber (including by the Camber board) of its obligations relating to non-solicitation of acquisition proposals or its obligations related to stockholder approval. |
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If the merger agreement is terminated, it will become void and have no effect, and none of Camber, Viking, any of their respective subsidiaries or any of the officers or directors of any of them will have any liability of any nature whatsoever under the merger agreement, or in connection with the transactions contemplated by the merger agreement, except that (i) designated provisions of the merger agreement will survive the termination, including those relating to the confidential treatment of information, public announcement and the Secured Note and termination fee provisions described below will survive any termination of the merger agreement, and (ii) notwithstanding anything to the contrary contained in the merger agreement, neither Viking nor Camber will be relieved or released from any liabilities or damages arising out of its willful breach of any provision of the merger agreement.
The Secured Note issued by Viking to Camber, described in the section entitled in “The Merger Agreement—Camber’s Elysium Interest” above, shall be due 90 days after the date that the merger agreement is terminated by any party for any reason, at which time an additional payment (the “Camber Additional Payment”) shall also be due to Camber and payable by Viking in an amount equal to (i) the amount owed by Camber to Camber’s Series C Preferred Stock holder in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock, minus (ii) the amount due to Camber pursuant to the Acquisition Note. For example, if (i) the merger agreement were terminated, (ii) $5,525,000 were due to Camber under the Secured Note, and (iii) Camber owed its Series C Preferred Stock holder $5,775,000 in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock, Viking would owe an additional $250,000 to Camber along with the amount due under the Secured Note. The Acquisition Note shall be forgiven in the event the Merger closes.
Camber will retain all, a portion, or none of its 25% interest in Elysium, described in the section entitled in “The Merger Agreement—Camber’s Elysium Interest” above, as a termination fee if the merger agreement is terminated in the following circumstances:
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If the Secured Note is not repaid, along with the Camber Additional Payment described above (the Secured Note repayment and the Additional Payment collectively referred to as the “Camber Payments”), by the 90th day following termination of the merger agreement, Camber will retain the entire 25% interest in Elysium. |
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In the event of termination of the merger agreement due to either (i) Camber’s determination not to proceed with the merger even though Viking has substantially performed its obligations pursuant to the merger agreement, or (ii) a matter raised in Camber’s merger agreement disclosure schedule which was (A) not disclosed by Camber in its SEC reports, (B) could reasonably result in a material adverse effect on Camber in excess of $500,000, and (c) which Viking objected to within 5 business days of disclosure by Camber to Viking, Camber will return the 25% interest in Elysium to Viking (assuming Viking makes the Camber Payments as required). |
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In the event of termination of the merger agreement by mutual agreement of the parties because the conditions to closing in the second through sixth bullets set forth under the section entitled “The Merger Agreement—Conditions to Complete the Merger” above (regarding receipt of exchange listing and regulatory approvals) have a reasonable likelihood of not being satisfied through no fault of Camber or Viking, Camber will retain a 15% interest in Elysium, and Camber will return a 10% interest in Elysium to Viking (assuming Viking makes the Camber Payments as required). |
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Except as set forth in the bullets above, in the event of termination of the merger agreement by either party through no fault of Camber, Camber will retain a 20% interest in Elysium, and it will return a 5% interest in Elysium to Viking (assuming Viking makes the Camber Payments as required). |
In the event of termination of the merger agreement through no fault of Viking due to the failure of the Camber stockholders to approve the Camber share issuance and charter amendment, Camber shall issue Viking 300,000 restricted shares of Camber common stock as a termination fee, subject to Viking confirming its status as an “accredited investor’ and making certain other customary representations to Camber in order to allow Camber to claim an exemption from registration for such issuance, and subject to NYSE American additional listing approval of such shares.
Except as otherwise expressly provided in the merger agreement, all costs and expenses incurred in connection with the merger agreement and the transactions contemplated thereby will be paid by the party incurring such expense, except that all filing and other fees paid to governmental entities in connection with the merger and the other transactions contemplated thereby will be borne equally by Camber and Viking.
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Amendment, Waiver and Extension of the Merger Agreement
Subject to compliance with applicable law, the merger agreement may be amended by the parties at any time before or after the receipt of the approval of the Camber share issuance by Camber stockholders or the approval of the merger agreement by the Viking stockholders; provided, however, that after the receipt of the approval of the Camber share issuance by the Camber stockholders or the approval of the merger agreement by Viking stockholders, there may not be, without further approval of the stockholders of Camber or Viking, as applicable, any amendment of the merger agreement that requires such further approvals under applicable law. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto and duly approved by the parties’ respective boards of directors or a duly authorized committee thereof.
At any time prior to the completion of the merger, each of the parties may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other party hereto, (ii) waive any inaccuracies in the representations and warranties of the other party contained in the merger agreement or in any document delivered by such other party pursuant to the merger agreement, and (iii) waive compliance with any of the agreements or satisfaction of any conditions for its benefit contained in the merger agreement; provided, however, that after the receipt of the approval of the Camber share issuance by Camber stockholders or the approval of the merger agreement by the Viking stockholders, there may not be, without further approval of the stockholders of Camber or Viking, as applicable, any extension or waiver of the merger agreement or any portion thereof that requires such further approval under applicable law. Any agreement on the part of a party hereto to any such extension or waiver will be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
The merger agreement is governed by and will be construed in accordance with the laws of the State of Nevada, without regard to any applicable conflicts of law principles.
Camber and Viking will be entitled to an injunction or injunctions to prevent breaches or threatened breaches of the merger agreement or to enforce specifically the performance of the terms and provisions hereof (including the parties’ obligation to consummate the merger), in addition to any other remedy to which they are entitled at law or in equity. Each of Camber and Viking have waived (i) any defense in any action for specific performance that a remedy at law would be adequate, and (ii) any requirement under any law to post security or a bond as a prerequisite to obtaining equitable relief.
AGREEMENTS RELATING TO THE MERGER
A requirement to the closing of the merger Camber was required to acquire 25% of Elysium as part of a $5,000,000 investment in Viking’s Rule 506(c) offering (the “Pre-Merger Acquisition”), which transaction was completed on February 3, 2020, as discussed below.
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In the event of termination of the merger agreement, Camber is required, under certain circumstances described below, to return a portion of the Elysium interests to Viking:
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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 Camber or Viking |
15%* |
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Termination of the merger agreement by either party, through no fault of Camber |
20%* |
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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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Termination of the merger agreement for any reason and in the event the Secured Note is not repaid within 90 days of the date of termination and the Additional Payment (defined below) is not made. |
25% |
*Assumes the payment of Secured Note within 90 days of the date of termination of the merger agreement and the Additional Payment (defined below) is made.
The merger agreement provides that the Secured Note (defined below) will be forgiven in the event the merger closes, and the Secured Note will be due 90 days after the date that the merger agreement is terminated by any party for any reason, at which time an additional payment shall also be due to Camber and payable by Viking in an amount equal to (i) the amount owed by Camber to its Series C Preferred Stock holder in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock, minus (ii) the repayment amount due to Camber from Viking pursuant to the Secured Note (the “Additional Payment”).
Camber Viking Investment
A required condition to the entry into the merger was that Camber loan Viking $5 million, pursuant to the terms of a Securities Purchase Agreement, which was entered into on February 3, 2020 (the “SPA”). Pursuant to the SPA, Camber made a $5 million loan to Viking, which was evidenced by a 10.5% Secured Promissory Note (the “Secured Note”), the repayment of which was secured by the terms of a Security and Pledge Agreement (the “Pledge”).
The 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. The 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 Secured Note.
The 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 (February 3, 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 Camber is restricted from converting any portion of the Secured Note into Viking’s common stock if upon such conversion it 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 Camber’s other conversion rights under the Secured Note it also has the right to convert the Secured Note (principal and interest) into the securities offered by Viking in connection with Viking’s first public offering following the date of the 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 Pledge provides Camber, pari passu with the other investors in Viking’s Secured Note offering, a security interest (subject to certain pre-requisites) in Viking’s 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a separate Security and Pledge Agreement entered into on February 3, 2020, Viking provided Camber 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 Secured Note.
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As additional consideration for Camber making the loan to Viking, Viking assigned Camber 25% of Elysium (the “Assigned Elysium Interests”) pursuant to the terms of an Assignment of Membership Interests dated February 3, 2020 (the “Assignment”). As described above, all or a portion of the Assigned Elysium Interests 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 Secured Note.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transactions
There have been no transactions between Camber and any officer, director, or any stockholder owning greater than five percent (5%) of Camber’s outstanding voting shares, or any member of the above referenced individual’s immediate family, since April 1, 2018, and there is not currently any proposed transaction, in which Camber was or is to be a participant, where the amount involved exceeds $120,000, and in which Camber had or will have a direct or indirect material interest, except as set forth below.
N&B Energy Asset Disposition Agreement
On July 12, 2018, Camber entered into an Asset Purchase Agreement (the “Sale Agreement”), as seller, with N&B Energy, LLC (“N&B Energy”) as purchaser, which entity is affiliated with Richard N. Azar II, Camber’s former Chief Executive Officer and former director, and Donnie B. Seay, Camber’s former director. Pursuant to the Sale Agreement, Camber agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of a December 31, 2015 Asset Purchase Agreement with Segundo Resources, LLC (“Segundo”, which entity is controlled by Mr. Azar) and certain other more recent acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay Camber $100 in cash, to assume all of Camber’s obligations and debt owed under its outstanding loan agreement with International Bank of Commerce (“IBC Bank”), which had a then outstanding principal balance of approximately $36.9 million and Segundo agreed to enter into the Segundo Settlement, described below.
Segundo Settlement
On July 12, 2018, Camber entered into a Compromise Settlement Agreement and Mutual Release with Segundo, which is owned and controlled by Mr. Azar, in partial consideration for N&B Energy agreeing to enter into the Sale Agreement. Pursuant to the Segundo Settlement, Segundo surrendered 1 share of common stock valued at $1,191,875 per share as of the effective date of the closing of the acquisition contemplated by the December 31, 2015 Asset Purchase Agreement (which closing effective date was April 1, 2016) for cancellation (which cancellation occurred in October 2018), and released Camber from any and all claims which Segundo previously alleged were owed under the terms of the December 31, 2015 Asset Purchase Agreement. Camber and Segundo also provided each other full releases in connection with the December 31, 2015 Asset Purchase Agreement and Segundo agreed to indemnify Camber and hold it harmless against any claims made by the other sellers under the December 31, 2015 Asset Purchase Agreement.
First Amendment to Sale Agreement
Also on August 3, 2018, Camber and N&B Energy entered into a First Amendment to Asset Purchase Agreement (the “First Amendment”), which amended the terms of the Sale Agreement to (a) modify, clarify and replace certain of the exhibits to the original Sale Agreement, including the terms of the overriding royalty interests and production payment agreed to be granted to Camber as part of such Sale Agreement; (b) amend the Sale Agreement to remove the requirement that Camber obtain stockholder approval prior to the closing of such Sale Agreement; and (c) include a deadline of August 31, 2018 for N&B Energy’s due diligence under the Sale Agreement.
Additionally, in order to avoid the significant time required to file a proxy statement with the Securities and Exchange Commission, clear comments with the Securities and Exchange Commission, hold a meeting and obtain stockholder approval, and because such stockholder approval was not required pursuant to applicable law or the rules of the NYSE American, Camber’s management determined to not seek stockholder approval, but to instead seek a third-party opinion as to the fairness of the transaction to Camber’s stockholders.
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Second Amendment to Sale Agreement
On September 24, 2018, Camber, N&B Energy and CE Operating, LLC, Camber’s wholly-owned subsidiary (“CE Operating”), entered into a Second Amendment to Asset Purchase Agreement (the “Second Amendment”), which amended the terms of the Sale Agreement. Pursuant to the Second Amendment, Camber, N&B Energy and CE Operating agreed (a) to clarify that all of the representations of Camber made in the Sale Agreement relating to portions of the Disposed Assets held in the name of CE Operating shall be deemed made by CE Operating and not Camber and that CE Operating shall be deemed a party to the Sale Agreement, solely in order to make such representations; and (b) to extend the deadline for closing the transactions contemplated by the Sale Agreement to September 26, 2018, or such other date as Camber and N&B shall agree upon in writing.
Assumption Agreement
On September 26, 2018, Camber entered into an Assumption Agreement (the “Assumption Agreement”) with IBC Bank; CE Operating; N&B Energy, which entity is affiliated with Richard N. Azar, II, Camber’s former Chief Executive Officer and former director (“Azar”), and Donnie B. Seay, Camber’s former director (“Seay”); Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”); Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay. Azar, Seay, RAD2, and DBS are collectively referred to as the “Guarantors”.
Pursuant to the Assumption Agreement, N&B Energy agreed to assume all of Camber’s liabilities and obligations owed to IBC Bank under Camber’s prior note, loan agreement and related documents with IBC Bank (the “Loan Documents”), the amount due under and in connection which was secured by (a) an Oil and Gas Mortgage, Security Agreement, Financing Statement and Assignment of Production (Oklahoma) dated August 25, 2016, covering all of Camber’s right, title and interest in and to certain oil, gas and mineral leases and/or minerals, mineral interests and estates located in Lincoln, Payne, and Logan Counties, Oklahoma; (b) an Oil and Gas Mortgage, Security Agreement, Financing Statement and Assignment of Production (Oklahoma) dated August 1, 2018, covering all of Camber’s right, title, and interest in and to certain oil, gas, and mineral leases and/or mineral interests and estates located in Okfuskee County, Oklahoma (collectively, the “Orion Interests”); and (c) the Mortgage, Deed of Trust, Assignment, Security Agreement and Financing Statement dated as of August 25, 2016, covering Camber’s mineral interests located in Glasscock County, Texas (collectively, the “West Texas Properties”).
Additionally, pursuant to the Assumption Agreement, IBC Bank approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities which Camber owed to IBC Bank (the “IBC Obligations”) and N&B Energy agreed to assume all of the IBC Obligations. Finally, pursuant to the Assumption Agreement, IBC Bank released and forever discharged Camber and CE Operating and each of their current and former officers, directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at equity, which IBC Bank then had, arising out of or related to the amounts which Camber owed to IBC Bank under the Note, Loan Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held on the West Texas Properties.
N&B Energy Sale Agreement Closing
On September 26, 2018, the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid Camber $100 in cash, and Camber transferred ownership of the Disposed Assets to N&B Energy.
Notwithstanding the sale of the Disposed Assets, Camber retained its assets in Glasscock County and Hutchinson Counties, Texas and also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and retained an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignment of Overriding Royalty Interests.
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The effective date of the Sale Agreement was August 1, 2018. The Assets were assigned “as is” with all faults.
As a result of the Assumption Agreement and the Sale Agreement, Camber reduced its liabilities by $37.9 million and its assets by approximately $12.1 million.
Discover Transactions
On October 5, 2017, Camber and Discover Growth entered into a Stock Purchase Agreement, amended on March 2, 2018 (as amended, the “October 2017 Purchase Agreement”) pursuant to which Camber agreed to sell, pursuant to the terms thereof, 1,683 shares of its Series C Preferred Stock for $16 million (a 5% original issue discount to the face value of such shares), subject to certain conditions set forth therein.
During the years ended March 31, 2019 and 2018, Camber sold 1,577 and 738 shares of Series C Preferred Stock pursuant to the terms of the October 2017 Purchase Agreement, October 2018 Purchase Agreement (discussed and defined below) and November 2018 Purchase Agreement (discussed and defined below), for total consideration of $15 million and $7 million, respectively.
During the years ended March 31, 2019 and 2018, Discover converted 404 and 10 shares of the Series C Preferred stock with a face value of $4.04 million and $0.1 million and was issued shares of common stock and additional shares of common stock in dividend premium shares.
During the nine months ended December 31, 2019, Discover Growth Fund LLC (“Discover”) and Discover Growth Fund (“Discover Growth”) converted 1 and 10 shares of the Series C Preferred Stock with a face value of $10,000 and $1,000,000, respectively, and a total of 65,479 shares and 4.6 million shares of common stock were issued, respectively, which includes additional shares for conversion premiums.
From January 1, 2020 to the date of this joint proxy statement/prospectus, Discover has converted 253 additional shares of the Series C Preferred Stock into 2,448,937 shares of Camber common stock.
As of the date of this joint proxy statement/prospectus the holders of the Series C Preferred Stock are still due approximately [66,837,256] shares of common stock upon the conversion of the outstanding Series C Preferred Stock, when including conversion premiums thereon.
On April 6, 2016, Camber entered into a Securities Purchase Agreement with Discover, pursuant to which Camber issued a redeemable convertible subordinated debenture, with a face value of $530,000, initially convertible into shares of common stock at a conversion price equal to $101,562.50 per share. The debenture matures in seven years and accrues interest at a rate of 6.0% per annum. Due to the prior decline in the price of Camber’s common stock and that a trigger event occurred on June 30, 2016 as a result of the delay in filing Camber’s Annual Report on Form 10-K for the year ended March 31, 2016, the premium rate on the debenture increased from 6% to 34% and the conversion discount became (a) 85% of the lowest daily volume weighted average price during the measuring period (60 days prior to and 60 days after the last date that Discover receives the last of the shares due), less $78,125 per share of common stock which resulting value is not to exceed (b) 85% of the lowest sales price on the last day of such period less $78,125 per share.
On October 31, 2018, Discover converted the entire $495,000 remaining balance of principal owed under the terms of a convertible debenture, into an aggregate of 642 shares of common stock, including 5 shares of common stock issuable upon conversion of the principal amount thereof (at a conversion price of $101,562.50 per share), and 637 shares in connection with conversion premiums due thereon (at an initial conversion price, as calculated as provided in such debenture, of $1,912.50 per share). A total of 80 of such shares were issued to Discover in connection with the initial conversion and the remaining shares were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of Discover. Subsequent to the October 31, 2018 conversion date, Discover was due an additional 38,116 shares of common stock in connection with true ups associated with the original issuance, as a result of the conversion price of the conversion premiums falling to $31.25 per share pursuant to the terms of the convertible debenture, all of which shares have been issued to date.
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On October 29, 2018 and effective October 26, 2018, Camber and Discover, entered into a Stock Purchase Agreement (as amended from time to time, the “October 2018 Purchase Agreement”).
Under the terms of the October 2018 Purchase Agreement, Discover purchased 369 shares of Series C Preferred Stock on the closing date of the agreement, October 29, 2018, for $3.5 million.
Pursuant to the October 2018 Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, Camber agreed that it would not issue or enter into or amend an agreement pursuant to which it may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price; or issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of Camber or the market for the common stock.
Additionally, provided that Camber has not materially breached the terms of the October 2018 Purchase Agreement, Camber may at any time, in its sole and absolute discretion, repurchase from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold pursuant to the agreement by paying to Discover 110% of the aggregate face value of all such shares.
Camber also agreed to provide Discover a right of first offer to match any offer for financing Camber may receive from any person while the shares of Series C Preferred Stock sold pursuant to the October 2018 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match.
Finally, Camber agreed that if it issues any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Discover, then it would notify Discover of such additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with Discover.
The October 2018 Purchase Agreement includes customary provisions requiring that Camber indemnify Discover against certain losses; representations and warranties and covenants.
November 2018 Purchase Agreement
On November 23, 2018 and effective November 23, 2018, Camber and Discover entered into a Stock Purchase Agreement, which was amended on December 3, 2018 (as amended to date, and from time to time, the “November 2018 Purchase Agreement”).
Under the terms of the November 2018 Purchase Agreement, Discover purchased 263 shares of Series C Preferred Stock, in consideration for $2.5 million on December 4, 2018.
Pursuant to the November 2018 Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, Camber agreed that it would not issue or enter into or amend an agreement pursuant to which it may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price; or issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security, or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of Camber or the market for the common stock.
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Additionally, provided that Camber has not materially breached the terms of the November 2018 Purchase Agreement, Camber may at any time, in its sole and absolute discretion, repurchase from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold pursuant to the agreement by paying to Discover 110% of the aggregate face value of all such shares.
Camber also agreed to provide Discover a right of first offer to match any offer for financing it may receive from any person while the shares of Series C Preferred Stock sold pursuant to the November 2018 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match.
Finally, Camber agreed that if Camber issues any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Discover, then Camber would notify Discover of such additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with Discover.
The November 2018 Purchase Agreement includes customary provisions requiring that Camber indemnify Discover against certain losses; representations and warranties and covenants.
2020 Stock Purchase Agreement
On and effective February 3, 2020, Camber and Discover entered into a Stock Purchase Agreement (the “2020 Purchase Agreement”).
Under the terms of the 2020 Purchase Agreement, Discover purchased 525 shares of Series C Preferred Stock for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock (the “Face Value”).
Pursuant to the 2020 Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, Camber agreed that, except as contemplated in connection with the merger, it would not issue or enter into or amend an agreement pursuant to which Camber may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price. Camber also agreed that it would not issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of Camber or the market for the common stock.
Additionally, provided that Camber has not materially breached the terms of the 2020 Purchase Agreement, Camber may at any time, in its sole and absolute discretion, repurchase from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold pursuant to the agreement by paying to Discover 110% of the aggregate face value of all such shares.
Camber also agreed to provide Discover a right of first offer to match any offer for financing Camber receives from any person while the shares of Series C Preferred Stock sold pursuant to the 2020 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match.
Finally, Camber agreed that if it issues any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Discover, then Camber would notify Discover of such additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with Discover.
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Camber also agreed pursuant to the 2020 Purchase Agreement 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), and if the amount of funds loaned by Camber to Viking in connection with the Secured Note, plus any applicable interest is returned to Camber by Viking, Camber is required, at Discover’s option in its sole and absolute discretion, to immediately repurchase from Discover all then outstanding Series C Preferred Stock shares acquired by Discover pursuant to the 2020 Purchase Agreement, by paying to Discover 110% of the aggregate Face Value of all such shares.
Waiver and Amendment Agreement
On February 3, 2020, Camber and Discover entered into a Waivers and Amendments to Stock Purchase Agreements (the “Amendment”), pursuant to which Discover (a) waived any and all Trigger Events (as defined in the certificate of designation of the Series C Preferred Stock (the “Designation”)) that had occurred prior to February 3, 2020, (b) agreed that all calculations provided for in the Designation would be made as if no such Trigger Event had occurred, and (c) waived any right to receive any additional shares of common stock based upon any such Trigger Event, with respect to all shares of Series C Preferred Stock, other than any which have already been converted.
The Investor also (a) waived any and all breaches and defaults that have occurred through February 3, 2020, and (b) waived all rights and remedies with respect to such breaches and defaults.
The Amendment also provided that Camber was required to file a proxy to hold a stockholder meeting to approve an increase in Camber’s authorized common stock to 25 million shares as soon as possible (which meeting was held on April 16, 2020), and use its commercially reasonable best efforts to cause such increase to be declared effective as soon as possible, and in any event within 90 days of February 3, 2020; provided that such increase became effective on April 17, 2020. Discover also agreed that all calculations provided for in the Designation shall be made as if no such Trigger Event had occurred, and to waive any right to receive any additional shares of common stock based upon any such Trigger Event.
Discover agreed, pursuant to the Amendment, that the conversion rate of conversion premiums pursuant to the Designation would remain (a) 95% of the average of the lowest 5 individual daily volume weighted average prices during the applicable Measuring Period (as defined in the Designation), not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common stock, unless a triggering event has occurred, and that such $0.05 per share discount would not be adjusted in connection with Camber’s previously reported reverse stock splits; and (b) 85% of the average of the lowest individual daily volume weighted average price during the applicable Measuring Period (as defined in the Designation), not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.10 per share of common stock, if a triggering event has occurred, and that such $0.10 per share discount would not be adjusted in connection with Camber’s previously reported reverse stock splits.
The Amendment also provided that the Measuring Period (as defined the Designation) would begin on the date of the Agreement, February 3, 2020; and that the Designation would be amended to provide that holders of the Series C Preferred Stock will vote with holders of common stock as a single class, on an as converted basis subject to the beneficial ownership limitation set forth in the Designation; provided that the NYSE American has since advised Camber that such amendment would not be possible under the current rules of the NYSE American.
Securities Exchange Agreement and Termination Agreement
In connection with an Agreement and Plan of Merger entered into on July 9, 2019 with Lineal, Camber entered into (a) a Security Exchange Agreement dated July 8, 2019 (the “Exchange Agreement”), by and between Camber and Discover Growth Fund LLC (“Discover”); and (b) a Termination Agreement dated July 8, 2019, by and between Camber and Discover Growth Fund (“Discover Growth”), both of which agreements have since terminated prior to any transactions contemplated thereunder becoming effective as a result of the Redemption Agreement (discussed below).
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Redemption Agreement
On December 31, 2019 (the “Effective Date”), Camber entered into, and closed the transactions contemplated by, a Preferred Stock Redemption Agreement (the “Redemption Agreement” and the redemption contemplated thereby, the “Redemption”), by and between Camber, Lineal Star Holdings, LLC, Camber’s wholly-owned subsidiary at the time of the entry into the Redemption Agreement (“Lineal”), Lineal’s wholly-owned subsidiaries, and the holders of Camber’s Series E Redeemable Convertible Preferred Stock (“Series E Preferred Stock”) and Series F Redeemable Preferred Stock (“Series F Preferred Stock”, and the holders of the Series E Preferred Stock and Series F Preferred Stock, the “Preferred Holders”).
Effective on July 9, 2019, Camber had acquired 100% ownership of Lineal from the Preferred Holders, then members of Lineal, in consideration for 1,000,000 shares of Series E Preferred Stock and 16,750 shares of Series F Preferred Stock, pursuant to the terms of an Agreement and Plan of Merger entered into on July 9, 2019 (the “Lineal Merger”).
The certificate of designations providing for the rights and preferences of the Series E Preferred Stock and Series F Preferred Stock allowed for certain rights of the Preferred Holders, including, in certain cases, the redemption, at the option of the Preferred Holders, of all shares of Series E Preferred Stock and Series F Preferred Stock, for 100% of the outstanding interests of Lineal held by Camber.
Pursuant to the Redemption Agreement, the parties thereto mutually agreed to unwind the Lineal Merger and allow for the redemption in full of Lineal by the Preferred Holders. The mutual determination to move forward with such redemption transaction was due partially to the fact that Lineal had, since the date of the Lineal Merger, been unable to complete a further acquisition or combination which would allow the post-Lineal Merger combined company to meet the initial listing standards of the NYSE American. This was a requirement to Camber having to seek stockholder approval for the terms of the Series E Preferred Stock (including the voting rights (i.e., the right, together with the Series F Preferred Stock, to vote 80% of Camber’s voting shares) and conversion rights (i.e., the right to convert into between 67-70% of Camber’s post-stockholder approval capitalization) associated therewith). Consequently, and because no definitive timeline was able to be established for when Camber believed it would meet the NYSE American initial listing standards and consequently, when stockholder approval would be sought or received for the terms of the Series E Preferred Stock and Series F Preferred Stock, the Preferred Holders and Camber determined it was in their mutual best interests to unwind the Lineal Merger by way of the Redemption.
Pursuant to the Redemption Agreement, effective as of December 31, 2019, each holder of Series E Preferred Stock transferred such Series E Preferred Stock to Camber in consideration for their pro rata share (except as discussed below in connection with the Series F Preferred Stock holder, who was also a holder of Series E Preferred Stock) of 100% of the Common Shares of Lineal and the holder of the Series F Preferred Stock transferred such Series F Preferred Stock (and such Series E Preferred Stock shares held by such holder) to Camber in consideration for 100% of the Preferred Shares of Lineal and as a result, ownership of 100% of Lineal was transferred back to the Preferred Holders, the original owners of Lineal prior to the Lineal Merger. Additionally, all of the Series E Preferred Stock and Series F Preferred Stock of Camber was automatically cancelled and deemed redeemed by Camber and the Series F Holder waived and forgave any and all accrued dividends on the Series F Preferred Stock.
The Redemption Agreement also provided for (a) the entry by Lineal and Camber into a new promissory note in the amount of $1,539,719, evidencing the repayment of a promissory note in the original amount of $1,050,000 provided by Lineal to Camber at the time of the closing of the Lineal Merger, together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “New Note”); (b) the loan by Camber to Lineal of an additional $800,000, which was evidenced by a promissory note in the amount of $800,000, entered into by Lineal in favor of Camber on December 31, 2019 (“Note No. 2”); and (c) the termination of the prior Plan of Merger and Funding and Loan Agreement entered into in connection therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned pursuant to Note No. 2, were released back to Camber).
The Redemption Agreement also requires Camber to obtain a tail directors and officers liability insurance policy for six years following the effective date of the Redemption, which must be in place prior to December 31, 2020 and provides for (i) mutual general releases by (a) Lineal, its subsidiaries, and each Preferred Holder, subject to certain limited exceptions in the event of a third-party claim and (b) Camber; (ii) non-disparagement and confidentiality obligations of the parties; and (iii) indemnification obligations, each as described in greater detail in the Redemption Agreement.
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The New Note, issued by Lineal as borrower, in the amount of $1,539,719, accrues interest, payable quarterly in arrears, beginning on March 31, 2020, at 10% per annum (18% upon the occurrence of an event of default), and continuing until December 31, 2021, when all interest and principal is due. The New Note contains a provision whereby payments of principal and interest owed under the note are suspended and interest does not accrue if Camber fails to pay certain indemnification obligations under the Redemption Agreement, and if such amounts continue unpaid for 30 days, then the amount of principal and interest due under the note is offset by the amount of such unpaid obligations. The New Note contains standard and customary events of default, including cross-defaults with Note No. 2, and if a change of control of Lineal occurs (as described in the New Note) which is not pre-approved by Camber.
Note No. 2, issued by Lineal as borrower, in the amount of $800,000, accrues interest, payable quarterly in arrears, beginning on March 31, 2020, at 8% per annum (18% upon the occurrence of an event of default), and continuing until December 31, 2021, when all interest and principal is due. The New Note contains a provision whereby payments of principal and interest owed under the note are suspended and interest does not accrue if Camber fails to pay certain indemnification obligations under the Redemption Agreement, and if such amounts continue unpaid for 30 days then the amount of principal and interest due under the note is offset by the amount of such unpaid obligations (provided there is only one offset under either of the New Note and Note No. 2, with priority being given to the New Note). The New Note contains standard and customary events of default, including cross-defaults with the New Note, if a change of control of Lineal occurs (as described in the New Note) which is not pre-approved by Camber or if Lineal distributes cash or other assets to its members, other than amounts to cover taxes of the members, as described in greater detail in the New Note.
The result of the Redemption was to effectively unwind the Lineal Merger, effective as of December 31, 2019.
Compensation Agreements
Severance Agreement
Anthony C. Schnur
Effective on June 2, 2017, Mr. Anthony C. Schnur’s employment as Chief Executive Officer of Camber was terminated. In connection with such termination, Camber entered into a severance agreement with Mr. Schnur, which provided (as amended), for Mr. Schnur to be issued 1 share of common stock and the payment of $168,000 in total compensation (payable over time). The payments owed as of March 31, 2018 of $79,025 were accrued and included in Accrued Expenses on the balance sheet. The Settlement Shares were issued in February 2018. During the year ended March 31, 2019, Camber paid all remaining amounts to Mr. Schnur pursuant to the original settlement. Camber and Mr. Schnur entered into an amendment to the severance agreement on April 8, 2019, pursuant to which Camber paid Mr. Schnur $10,000 in lieu of the payment of payroll taxes on amounts previously paid to Mr. Schnur under the original settlement.
Service Agreement
On April 27, 2017, Camber entered into a service agreement (the “Service Agreement”), effective on May 1, 2017, with Enerjex Resources (“Enerjex”), whose CEO at the time was Louis G. Schott, Camber’s current Interim Chief Executive Officer, to outsource the management of Camber’s back-office functions for a fixed monthly fee. Under the terms of the Service Agreement, Enerjex was responsible for performing all back-office services for Camber, including all data entry and bookkeeping, financial reporting, management reporting, reserve reporting, SEC compliance, audits, filings, and any other services required to maintain Camber’s good standing with all local, state, and federal laws. Enerjex was not responsible for any field operations, including drilling, operating or maintaining any wells or leases, of Camber under the terms of the Service Agreement. Enerjex received a fee of $150,000 per month for services rendered, plus any pre-approved out-of-pocket travel expenses. The monthly fee could be reduced to the extent Camber retained employees to perform certain of the functions contemplated to be performed by Enerjex. Effective December 4, 2017, Enerjex and Camber mutually agreed to terminate the Service Agreement. Robert Schleizer, who was appointed as the Interim Chief Financial Officer and principal accounting officer of Camber on June 2, 2017, was compensated through the fees paid by Camber under the Service Agreement. Mr. Schott was personally paid $192,500 under the Service Agreement.
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Separation and Release Agreement
Effective on May 25, 2018, Richard N. Azar II resigned as Chief Executive Officer of Camber. Pursuant to a Separation Agreement entered into with Mr. Azar, he released Camber from claims in connection with various employment related statutes and laws and Camber agreed to pay him a severance payment of $150,000 and to grant him warrants to purchase 32 shares of Camber’s common stock at an exercise price of $12,187.50 per share.
Engagement Agreement
Effective upon Mr. Azar’s resignation, the Board of Directors of Camber appointed Mr. Louis G. Schott as Interim Chief Executive Officer of Camber. In connection with Mr. Schott’s appointment as Interim Chief Executive Officer of Camber, Camber entered into an engagement letter with Fides Energy LLC (“Fides”). Pursuant to the letter, Fides agreed to supply Mr. Schott’s services to Camber as Interim Chief Executive Officer and Camber agreed to pay Fides $25,000 per month for the use of Mr. Schott’s services. The agreement can be terminated by either party with 90 days’ notice and terminates automatically upon the death of Mr. Schott. Pursuant to the agreement, Mr. Schott is also eligible to receive bonus compensation at the discretion of the Board of Directors.
Letter Agreement
Effective on December 1, 2017, Camber entered into a letter agreement with BlackBriar Advisors LLC (“BlackBriar”), pursuant to which BlackBriar agreed to provide advisory and accounting services to Camber and to make Mr. Robert Schleizer available to Camber as Camber’s Chief Financial Officer. In consideration for such services, Camber agreed to pay BlackBriar a fee of $40,000 per month, and to reimburse BlackBriar for reasonable customary and necessary expenses including for travel and related costs. BlackBriar is also eligible for bonuses in the discretion of the Compensation Committee of Camber. The letter agreement includes customary indemnification obligations and can be terminated at any time upon written notice of either party.
Related Party Office Space Use
BlackBriar is also providing Camber’s office space without charge to Camber.
DESCRIPTION OF CAMBER CAPITAL STOCK
Description of Capital Stock
The total number of shares of all classes of stock that Camber has authority to issue is 35,000,000, consisting of 25,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of the filing date of this joint proxy statement/prospectus, Camber had (i) [7,758,103] shares of common stock outstanding; and (ii) 5,000 designated shares of Series C Preferred Stock, [2,566] of which were outstanding.
Common Stock
Holders of Camber’s common stock: (i) are entitled to share ratably in all of its assets available for distribution upon liquidation, dissolution or winding up of its affairs; (ii) do not have preemptive, subscription or conversion rights, nor are there any redemption or sinking fund provisions applicable thereto; and (iii) are entitled to one vote per share on all matters on which stockholders may vote at all stockholder meetings. Each stockholder is entitled to receive the dividends as may be declared by Camber’s directors out of funds legally available for dividends. Camber’s directors are not obligated to declare a dividend. Any future dividends will be subject to the discretion of Camber’s directors and will depend upon, among other things, future earnings, the operating and financial condition of Camber, its capital requirements, general business conditions and other pertinent factors.
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The presence of the persons entitled to vote 33% of the outstanding voting shares on a matter before the stockholders shall constitute the quorum necessary for the consideration of the matter at a stockholders meeting.
The vote of the holders of a majority of the votes cast on the matter at a meeting at which a quorum is present shall constitute an act of the stockholders, except for the election of directors, who shall be appointed by a plurality of the shares entitled to vote at a meeting at which a quorum is present. The common stock does not have cumulative voting rights, which means that the holders of a majority of the common stock voting for election of directors can elect 100% of Camber’s directors if they choose to do so.
Preferred Stock
Subject to the terms contained in any designation of a series of preferred stock, the Board of Directors of Camber is expressly authorized, at any time and from time to time, to fix, by resolution or resolutions, the following provisions for shares of any class or classes of preferred stock:
1) |
The designation of such class or series, the number of shares to constitute such class or series which may be increased (but not below the number of shares of that class or series then outstanding) by a resolution of the Board of Directors; |
2) |
Whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; |
3) |
The dividends, if any, payable on such class or series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any share of stock of any other class or any other shares of the same class; |
4) |
Whether the shares of such class or series shall be subject to redemption by Camber, and, if so, the times, prices and other conditions of such redemption or a formula to determine the times, prices and such other conditions; |
5) |
The amount or amounts payable upon shares of such series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of Camber; |
6) |
Whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund, and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; |
7) |
Whether the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of the same class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchanges; |
8) |
The limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by Camber of the common stock or shares of stock of any other class or any other series of the same class; |
9) |
The conditions or restrictions, if any, upon the creation of indebtedness of Camber or upon the issuance of any additional stock, including additional shares of such class or series or of any other series of the same class or of any other class; |
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10) |
The ranking (be it pari passu, junior or senior) of each class or series vis-à-vis any other class or series of any class of preferred stock as to the payment of dividends, the distribution of assets and all other matters; |
11) |
Facts or events to be ascertained outside the articles of incorporation of Camber, or the resolution establishing the class or series of stock, upon which any rate, condition or time for payment of distributions on any class or series of stock is dependent and the manner by which the fact or event operates upon the rate, condition or time of payment; and |
12) |
Any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of Camber’s articles of incorporation, as amended, to the full extent permitted by the laws of the State of Nevada. |
The powers, preferences and relative, participating, optional and other special rights of each class or series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
Camber previously designated (a) 2,000 shares of preferred stock as Series A Convertible Preferred Stock (November 2011); (b) 600,000 shares of preferred stock as Series B Redeemable Convertible Preferred Stock (August 2016); (c) 50,000 shares of preferred stock as Series D Convertible Preferred Stock (July 2019); (d) 1,000,000 shares of preferred stock as Series E Redeemable Convertible Preferred Stock (July 2019); and (e) 16,750 shares of preferred stock as Series F Redeemable Preferred Stock (July 2019). Effective on May 15, 2020, due to the fact that no shares of Series A Convertible Preferred Stock, Series B Redeemable Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Redeemable Convertible Preferred Stock or Series F Redeemable Preferred Stock were outstanding, Camber filed a Certificate of Withdrawal of Certificate of Designations relating to such series of preferred stock with the Secretary of State of Nevada and terminated the designation of its Series A Convertible Preferred Stock, Series B Redeemable Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Redeemable Convertible Preferred Stock or Series F Redeemable Preferred Stock effective as of the same date. As a result, the only preferred stock which is currently designated by Camber is Camber’s Series C Redeemable Convertible Preferred Stock, discussed below.
Series C Redeemable Convertible Preferred Stock
Holders of the Series C Preferred Stock are entitled to cumulative dividends in the amount of 24.95% per annum (adjustable up to 34.95% if a trigger event, as described in the designation of the Series C Preferred Stock occurs), payable upon redemption, conversion, or maturity, and when, as and if declared by Camber’s Board of Directors in its discretion, provided that upon any redemption, conversion, or maturity, seven years of dividends are due and payable on such redeemed, converted or matured stock. The Series C Preferred Stock ranks senior to the common stock. The Series C Preferred Stock has no right to vote on any matters, questions or proceedings of Camber including, without limitation, the election of directors except: (a) during a period where a dividend (or part of a dividend) is in arrears; (b) on a proposal to reduce Camber’s share capital; (c) on a resolution to approve the terms of a buy-back agreement; (d) on a proposal to wind up Camber; (e) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertakings; and (f) during the winding-up of Camber.
The Series C Preferred Stock may be converted into shares of common stock (“Conversion Shares”) at any time at the option of the holder, or at Camber’s option if certain equity conditions (as defined in the certificate of designation for the Series C Preferred Stock), are met. Upon conversion, Camber will pay the holders of the Series C Preferred Stock being converted an amount, in cash or stock at its sole discretion, equal to the dividends that such shares would have otherwise earned if they had been held through the maturity date (i.e., seven years), and issue to the holders such number of shares of Common stock equal to $10,000 per share of Series C Preferred Stock (the “Face Value”) multiplied by the number of such shares of Series C Preferred Stock divided by the applicable Conversion Price of $0.065 per share.
The conversion premium under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable. Specifically, the conversion rate of such premiums and dividends equals 95% of the average of the lowest 5 individual daily volume weighted average prices during the Measuring Period, not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common stock, unless a trigger event has occurred, in which case the conversion rate equals 85% of the lowest daily volume weighted average price during the Measuring Period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last day of such the Measuring Period, less $0.10 per share. Notwithstanding the above, in no event will the value of the common stock pursuant to the foregoing be below the par value per share of the common stock ($0.001). The “Measuring Period” is the period beginning, if no trigger event has occurred, 30 trading days, and if a trigger event has occurred, 60 trading days, before the applicable notice has been provided regarding the exercise or conversion of the applicable security, and ending, if no trigger event has occurred, 30 trading days, and if a trigger event has occurred, 60 trading days, after the applicable number of shares stated in the initial exercise/conversion notice have actually been received into Discover’s designated brokerage account in electronic form and fully cleared for trading. Trigger events are described in the designation of the Series C Preferred Stock, but include items which would typically be events of default under a debt security, including filing of reports late with the SEC.
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The Series C Preferred Stock has a maturity date that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted into shares of common stock prior to such date, Camber may redeem the Series C Preferred Stock on such date by repaying to the investor in cash 100% of the Face Value plus an amount equal to any accrued but unpaid dividends thereon. 100% of the Face Value, plus an amount equal to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution or winding up by Camber.
Camber may not issue any other preferred stock (other than the Series B Preferred Stock) that is pari passu or senior to the Series C Preferred Stock with respect to any rights for a period of one year after the earlier of such date (i) a registration statement is effective and available for the resale of all shares of common stock issuable upon conversion of the Series C Preferred Stock, or (ii) Rule 144 under the Securities Act is available for the immediate unrestricted resale of all shares of common stock issuable upon conversion of the Series C Preferred Stock.
The Series C Preferred Stock is subject to a beneficial ownership limitation, which prevents any holder of the Series C Preferred Stock from converting such Series C Preferred Stock into common stock, if upon such conversion, the holder would beneficially own greater than 9.99% of Camber’s outstanding common stock.
Anti-Takeover Provisions Under The Nevada Revised Statutes
Business Combinations
Sections 78.411 to 78.444 of the Nevada revised statues (the “NRS”) prohibit a Nevada corporation from engaging in a “combination” with an “interested stockholder” for three years following the date that such person becomes an interested stockholder and place certain restrictions on such combinations even after the expiration of the three-year period. With certain exceptions, an interested stockholder is a person or group that owns 10% or more of the corporation’s outstanding voting power (including stock with respect to which the person has voting rights and any rights to acquire stock pursuant to an option, warrant, agreement, arrangement, or understanding or upon the exercise of conversion or exchange rights) or is an affiliate or associate of the corporation and was the owner of 10% or more of such voting stock at any time within the previous three years.
A Nevada corporation may elect not to be governed by Sections 78.411 to 78.444 by a provision in its articles of incorporation. Camber does not have such a provision in its Articles of Incorporation, as amended, therefore, these sections do apply to Camber.
Control Shares
Nevada law also seeks to impede “unfriendly” corporate takeovers by providing in Sections 78.378 to 78.3793 of the NRS that an “acquiring person” shall only obtain voting rights in the “control shares” purchased by such person to the extent approved by the other stockholders at a meeting. With certain exceptions, an acquiring person is one who acquires or offers to acquire a “controlling interest” in the corporation, defined as one-fifth or more of the voting power. Control shares include not only shares acquired or offered to be acquired in connection with the acquisition of a controlling interest, but also all shares acquired by the acquiring person within the preceding 90 days. The statute covers not only the acquiring person but also any persons acting in association with the acquiring person.
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A Nevada corporation may elect to opt out of the provisions of Sections 78.378 to 78.3793 of the NRS. Camber has a provision in its bylaws pursuant to which Camber has elected to opt out of Sections 78.378 to 78.3793; therefore, these sections do not apply to Camber.
Removal of Directors
Section 78.335 of the NRS provides that 2/3rds of the voting power of the issued and outstanding shares of Camber are required to remove a Director from office. As such, it may be more difficult for stockholders to remove Directors due to the fact the NRS requires greater than majority approval of the stockholders for such removal.
Listing
Camber’s shares of common stock are currently quoted on the NYSE American under the symbol “CEI.”
Transfer Agent and Registrar
The transfer agent and registrar for Camber’s common stock is Cleartrust, LLC, 16540 Pointe Village Drive, Suite 205, Lutz, Florida 33558, and the phone number is (813) 235-4490.
MANAGEMENT
FOLLOWING THE MERGER
Board of Directors
Pursuant to the terms of the merger agreement, following the completion of the merger, the board of directors of the combined company after the merger will have five (5) members, consisting of four (4) members designated by Viking prior to the completion of the merger, and one (1) member designated by Camber prior to the completion of the merger. None of the members of the board of directors of the combined company have been determined to date.
Chief Executive Officer
Following completion of the merger, James A. Doris, the current Chief Executive Officer and President of Viking, and one of its directors, will serve as Chief Executive Officer of the combined company.
Camber Executive Officer Compensation
The following table sets forth information concerning the compensation of Camber’s interim Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and the most highly compensated executive officer other than the CEO and CFO who was serving as an executive officer of Camber at the end of March 31, 2020 and 2019 (Camber did not have any executive officers other than its CEO and CFO as of March 31, 2020), and up to two additional individuals for whom disclosure would have been required had they been serving as an executive officer at the end of the last completed fiscal year (collectively, the “Named Executive Officers”).
Name and Principal Position |
|
Fiscal |
|
|
Consulting |
|
|
Bonus |
|
|
Stock |
|
|
All
Other |
|
|
Total |
|
|||||
Louis G. Schott |
|
2020 |
|
|
$ |
300,000 |
(4) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
34,453 |
(5) |
|
$ |
334,453 |
|
Interim Chief Executive Officer (1) |
|
2019 |
|
|
$ |
300,000 |
(4) |
|
$ |
25,000 |
|
|
$ |
— |
|
|
$ |
33,120 |
(5) |
|
$ |
358,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Schleizer |
|
2020 |
|
|
$ |
200,000 |
(6) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
53,333 |
(6) |
|
$ |
253,333 |
|
Chief Financial Officer (2) |
|
2019 |
|
|
$ |
200,000 |
(6) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
26,666 |
(6) |
|
$ |
226,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard N. Azar II |
|
2019 |
|
|
$ |
90,000 |
(7) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
214,000 |
|
|
$ |
304,000 |
|
Former Chief Executive Officer (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Does not include perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is more than $10,000.
199
No executive officer earned any non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported above. The value of the Stock Awards in the table above was calculated based on the fair value of such securities calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718.
(1) Mr. Schott has served as the Interim Chief Executive Officer of Camber since May 25, 2018.
(2) Mr. Schleizer has served as Chief Financial Officer (beginning as Interim Chief Financial Officer) since June 2, 2017, as a member of the Board of Directors since October 6, 2017, and as Treasurer of Camber since January 9, 2018.
(3) From June 2, 2017 to May 25, 2018, Mr. Richard N. Azar II served as the Interim Chief Executive Officer (through January 9, 2018) and then Chief Executive Officer of Camber. On December 28, 2017, the Board approved compensation of $10,000 per month to Mr. Azar for services which he rendered over the last seven months of calendar 2017, and compensation of $35,000 per month beginning in January 2018, for future services as CEO, which services as CEO were terminated in May 2018. Effective on June 21, 2018, Mr. Azar resigned as a member of the Board of Directors.
(4) Mr. Schott works on a consulting basis through Fides Energy LLC.
(5) Represents amounts paid to Mr. Schott in connection with reimbursement for health insurance premiums.
(6) Mr. Schleizer is the Managing Partner of BlackBriar Advisors LLC (“BlackBriar”). In addition to financial management, BlackBriar provides accounting, treasury, administrative and financial reporting services to Camber. Total fees paid by Camber to BlackBriar during the years ended March 31, 2020 and 2019 were $485,000 and $713,000, respectively, of which Mr. Schleizer attributed $200,000 to his services as Chief Financial Officer for each of 2020 and 2019. Mr. Schleizer also received director’s fees from Camber for the years ended March 31, 2020 and March 31, 2019 of $53,333 and $26,666, respectively.
(7) Includes $90,000 paid to McClowd Dynamics, Ltd. (an entity which Mr. Azar owns and controls) in fiscal 2019.
Outstanding Equity Awards at Fiscal Year-End
None of Camber’s Named Executive Officers had any stock options or stock awards outstanding as of March 31, 2019.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 27, 2018, Camber engaged Marcum LLP (“Marcum”) as its independent registered public accountants. This engagement occurred in connection with Camber’s prior independent public accountants, GBH CPAs, PC (“GBH”) resigning, effective as of the same date, July 27, 2018, as a result of combining its practice with Marcum. The engagement of Marcum was approved by the Audit Committee of Camber’s Board of Directors.
200
Pursuant to applicable rules, Camber makes the following additional disclosures:
(a) GBH’s reports on the consolidated financial statements of Camber as at and for the fiscal years ended March 31, 2018 and 2017 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that such reports contained explanatory paragraphs in respect to uncertainty as to Camber’s ability to continue as a going concern.
(b) During the fiscal years ended March 31, 2018 and 2017 and through July 27, 2018, there were no disagreements with GBH on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which if not resolved to GBH’s satisfaction would have caused it to make reference thereto in connection with its reports on the financial statements for such years. During the fiscal years ended March 31, 2018 and 2017 and through July 27, 2018, there were no events of the type described in Item 304(a)(1)(v) of Regulation S-K.
(c) During the fiscal years ended March 31, 2018 and 2017 and through July 27, 2018, Camber did not consult with Marcum with respect to any matter whatsoever including without limitation with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on Camber’s financial statements; or (iii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or an event of the type described in Item 304(a)(1)(v) of Regulation S-K.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), Camber is not required to provide the information required by this Item as it is a “smaller reporting company,”as defined by Rule 229.10(f)(1).
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of Viking common stock. This discussion is limited to U.S. holders and does not address any tax consequences arising under U.S. federal non-income tax or the laws of any state, local or foreign jurisdiction. This discussion is based upon the Code, the regulations of the U.S. Treasury Department and judicial authorities and published positions of the Internal Revenue Service all as currently in effect on the date of this joint proxy statement/prospectus. These laws may change, possibly retroactively, and any change could affect the continuing validity of this discussion.
This discussion does not address any tax consequences of the mergers under U.S. federal tax laws other than those pertaining to U.S. federal income tax, nor does it address any considerations under any state, local or foreign tax laws or under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010. This discussion also does not address any withholding considerations under the Foreign Account Tax Compliance Act of 2010 (including the Treasury Regulations issued thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith). No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences set forth below.
If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of Viking common stock, the tax treatment of a person treated as a partner in such partnership for U.S. federal income tax purposes generally will depend upon the status of the partner and the activities of the partnership. Such partnerships and partners in such partnerships should consult their tax advisors about the tax consequences of the merger to them.
All holders are urged to consult with their tax advisors as to the specific tax consequences of the mergers to them in light of their particular situations, including the applicability and effect of any U.S. federal, state, local, foreign or other tax laws.
For purposes of this discussion, we use the term “U.S. holder” to mean:
|
• |
|
An individual who is a citizen or resident of the United States; |
201
|
• |
|
a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any of its political subdivisions; |
|
• |
|
a trust if it (i) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person; or |
|
• |
|
an estate that is subject to U.S. federal income tax on its income regardless of its source. This discussion assumes that you hold your shares of Viking common stock as a capital asset within the meaning of Section 1221 of the Code. Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are: |
|
• |
|
a financial institution; |
|
• |
|
a tax-exempt organization; |
|
• |
|
an S corporation or other pass-through entity or an investor in the foregoing; |
|
• |
|
an insurance company; |
|
• |
|
a mutual fund; |
|
• |
|
a dealer in securities or foreign currencies; |
|
• |
|
a trader in securities who elects the mark-to-market method of accounting for your securities; |
|
• |
|
a Viking stockholder subject to the alternative minimum tax provisions of the Code or the Medicare surtax on net investment income; |
|
• |
|
a Viking stockholder who received Viking common stock through the exercise of employee stock options or through a tax-qualified retirement plan or otherwise as compensation; |
|
• |
|
a person that has a functional currency other than the U.S. dollar; |
|
• |
|
a person who holds Viking shares as “qualified small business stock” pursuant to Section 1202 of the Code; |
|
• |
|
a person subject to special tax accounting rules as a result of any item of gross income with respect to Viking common stock being taken into account in an “applicable financial statement” as defined in Section 451(b) of the Code; |
|
• |
|
a holder of options granted under any Viking benefit plan; or |
|
• |
|
a Viking stockholder who holds Viking common stock as part of a hedge, straddle or a constructive sale or conversion transaction. |
Viking stockholders that are not U.S. holders may have different U.S. federal income tax consequences than those described below and are urged to consult their own tax advisors regarding the tax treatment of the merger to them under U.S. and non-U.S. laws.
The following discussion does not address the tax consequences of any transactions effectuated before, after or at the same time as the merger, whether or not they are in connection with the merger, including, without limitation, the tax consequences to holders of options, warrants or similar rights to purchase Viking shares.
202
Tax Consequences of the Merger Generally
Camber and Viking have structured the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Assuming the merger qualifies as a reorganization, the material U.S. federal income tax consequences of the merger are as follows:
|
• |
|
you will not recognize gain or loss when you exchange your Viking common stock solely for Camber common stock; |
|
• |
|
your aggregate tax basis in the Camber common stock that you receive in the merger will equal your aggregate tax basis in the Viking common stock you surrender; and |
|
• |
|
your holding period for the Camber common stock that you receive in the merger (including any additional share of Camber common stock you received in lieu of a fractional share issuable pursuant to the terms of the merger) will include your holding period for the shares of Viking common stock that you surrender in the exchange. |
If you acquired different blocks of Viking common stock at different times and at different prices, your tax basis and holding period in your Camber common stock may be determined with reference to each block of Viking common stock.
You will generally be required to retain certain records pertaining to the merger. Each U.S. holder who owned, immediately before the merger, at least five percent (by vote or value) of the total outstanding stock of Viking or Viking securities with a basis of $1,000,000 or more is required to attach a statement to their U.S. federal income tax return for the year in which the merger is consummated that contains the information listed in Treasury Regulations Section 1.368-3(b). Such statement must include the names and employer identification numbers of Camber and Viking, the date of the merger, the holder’s tax basis in, and the fair market value of, such holder’s Viking shares surrendered in the merger.
Camber and Viking have not and do not intend to seek a formal tax legal opinion or any ruling from the Internal Revenue Service regarding any matters relating to the merger, and as a result, there can be no assurance that the Internal Revenue Service will not disagree with or challenge any of the conclusions described herein.
Information Reporting and Backup Withholding
If you are a non-corporate Viking stockholder you may be subject to information reporting and backup withholding. You will not be subject to backup withholding, however, if you:
|
• |
|
furnish a correct taxpayer identification number and certify that you are not subject to backup withholding on IRS Form W-9 (or a suitable substitute or successor form) included in the letter of transmittal to be delivered to you following the completion of the merger and otherwise comply with all the applicable requirements of the backup withholding rules; or |
|
• |
|
are otherwise exempt from backup withholding. |
Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against your U.S. federal income tax liability, provided you timely furnish the required information to the Internal Revenue Service.
This summary of certain material U.S. federal income tax consequences is for general information only and is not tax advice. You are urged to consult your tax advisors with respect to the application of U.S. federal income tax laws to your particular situation as well as any tax consequences arising under the U.S. federal estate or gift tax rules, or under the laws of any state, local, foreign or other taxing jurisdiction.
203
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information and related notes present the historical financial information of Camber giving effect to the proposed merger. The unaudited pro forma condensed combined financial information set forth below has been presented for informational purposes only. The pro forma information is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the merger been completed on the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.
The unaudited pro forma condensed combined balance sheet gives effect to the merger as if it had occurred on December 31, 2019. The unaudited pro forma condensed combined statements of operations for the year ended March 31, 2019 and the nine months ended December 31, 2019, each give effect to the proposed merger as if it had occurred on April 1, 2018 (the first day of Camber’s fiscal year 2019).
The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the statements of earnings, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial information was based on, and should be read in conjunction with, the historical consolidated financial statements and accompanying notes of Camber and Viking for the applicable periods, which are included herein under “Index to the Financial Statements” beginning on page 224.
Pursuant to the terms of the merger agreement, Viking will be merged with and into Merger Sub, pursuant to a reverse triangular
merger structure; with Viking surviving the merger as a wholly-owned subsidiary of Camber. Following the proposed merger, Camber
will adopt the business plan and operations of Viking Energy Group, Inc. The merger is accounted for as a reverse acquisition
in accordance with the Financial Accounting Standards Board (ASC 805, Business Combinations). Management evaluated the guidance
contained in ASC 805 with respect to the identification of the acquirer in the merger and concluded, based on consideration of
the pertinent facts and circumstances, that Viking will be treated as the acquiror of Camber for financial accounting purposes.
Accordingly, the merger has been accounted for as a continuation of the financial statements of Viking, together with an exchange
of shares, along with a re-capitalization of the equity of Camber.
The purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the merger closing date, and any excess value of the consideration transferred over the net assets will be recognized as goodwill. Camber and Viking have made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the merger closing date based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed using information currently available. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined company’s future results of operations and financial position.
The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the merger, nor the costs that may be incurred to achieve such benefits.
204
CAMBER ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 2019
| Viking Energy | Camber | Proforma | |||||||||||||||||
| Group, Inc. | Energy, Inc. | Adjustments | Pro Forma | ||||||||||||||||
| ASSETS | |||||||||||||||||||
| Current Assets | |||||||||||||||||||
| Cash | $ | 1,761,495 | $ | 2,253,739 | $ | 4,015,234 | |||||||||||||
| Restricted cash | 3,877,229 | — | 3,877,229 | ||||||||||||||||
| Accounts receivable | 2,864,114 | 176,038 | 3,040,152 | ||||||||||||||||
| Prepaid expenses | 168,994 | — | 168,994 | ||||||||||||||||
| Total current assets | 8,671,832 | 2,429,777 | — | 11,101,609 | |||||||||||||||
| Oil and Gas properties | 119,742,116 | 176,466 | 119,918,582 | ||||||||||||||||
| Fixed Assets, net | 509,934 | — | 509,934 | ||||||||||||||||
| Note receivable | — | 2,339,719 | 2,339,719 | ||||||||||||||||
| Other assets | 2,821,594 | 155,053 | 2,976,647 | ||||||||||||||||
| TOTAL ASSETS | $ | 131,745,476 | $ | 5,101,015 | $ | — | $ | 136,846,491 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Current liabilities | |||||||||||||||||||
| Accounts payable | $ | 3,791,894 | $ | 1,427,022 | $ | 5,218,916 | |||||||||||||
| Common stock payable | — | 10,000 | 10,000 | ||||||||||||||||
| Accrued expenses and other current liabilities | 3,229,594 | 296,843 | 3,526,437 | ||||||||||||||||
| Undistributed revenues and royalties | 2,247,678 | — | 2,247,678 | ||||||||||||||||
| Asset retirement obligation - current | — | 239,167 | 239,167 | ||||||||||||||||
| Derivative liability | 5,158,822 | — | 5,158,822 | ||||||||||||||||
| Amount due to director | 590,555 | — | 590,555 | ||||||||||||||||
| Current income taxes payable | — | 3,000 | 3,000 | ||||||||||||||||
| Current portion of long-term debt | 19,225,045 | — | 19,225,045 | ||||||||||||||||
| Total current liabilities | 34,243,588 | 1,976,032 | — | 36,219,620 | |||||||||||||||
| Long-term debt - net of current portion | 84,988,117 | — | 84,988,117 | ||||||||||||||||
| Operating lease liability | 308,279 | — | 308,279 | ||||||||||||||||
| Asset retirement obligation | 3,538,637 | 42,137 | 3,580,774 | ||||||||||||||||
| Total Liabilities | 123,078,621 | 2,018,169 | — | 125,096,790 | |||||||||||||||
| Commitments and liabilities | — | — | — | ||||||||||||||||
| Stockholders’ Equity | |||||||||||||||||||
| Preferred stock | 28 | 2 | (28 | ) | (1 | ) | 2 | ||||||||||||
| Common stock | 124,198 | 4,709 | (4,709 | ) | (1 | ) | 124,198 | ||||||||||||
| Additional paid-in-capital | 38,825,392 | 146,890,176 | (146,890,176 | ) | (1 | ) | 28,103,596 | ||||||||||||
| (10,721,796 | ) | (1 | ) | ||||||||||||||||
| Stock Dividends Distributable | — | 13,804,668 | (1 | ) | 13,804,668 | ||||||||||||||
| Retained earnings (deficit) | (30,282,763 | ) | (157,616,709 | ) | 157,616,709 | (1 | ) | (30,282,763 | ) | ||||||||||
| Total stockholders’ equity | 8,666,855 | 3,082,846 | — | 11,749,701 | |||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $ | 131,745,476 | $ | 5,101,015 | $ | — | $ | 136,846,491 | |||||||||||
| BUSINESS NOTES AND ELIMINATIONS | |||||||||||||||||||
(1) |
To eliminate the equity accounts of Camber as Viking Energy Group, Inc. (Viking is the accounting acquirer). The number of shares to be issued and the final resolution of the Series C Preferred stock and related Stock Dividends Distributable of Camber have not yet been determined. Viking is also in the process of canceling its outstanding preferred stock, but a final agreement has not yet been executed. Accordingly, the final recapitalization and purchase price allocation is currently not determinable. Under the current terms of the merger, Viking stockholders will own 80% of the combined entities. |
205
CAMBER ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine months ended December 31, 2019
| Viking Energy | Camber | Proforma | ||||||||||||||
| Group, Inc. | Energy, Inc. | Adjustments | Pro Forma | |||||||||||||
| Revenue | ||||||||||||||||
| Oil and Gas Sales | $ | 25,246,258 | $ | 308,219 | $ | 25,554,477 | ||||||||||
| Total Revenue | 25,246,258 | 308,219 | — | 25,554,477 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Lease Operating Costs including Severance and Property Taxes | 9,604,383 | 395,681 | 10,000,064 | |||||||||||||
| General and Administrative | 4,199,682 | 3,418,849 | 7,618,531 | |||||||||||||
| Stock Based Compensation | 911,951 | — | 911,951 | |||||||||||||
| Accretion | 308,936 | — | 308,936 | |||||||||||||
| Depreciation, Depletion and Amortization | 8,565,758 | 15,215 | 8,580,973 | |||||||||||||
| Total Operating Expenses | 23,590,710 | 3,829,745 | — | 27,420,455 | ||||||||||||
| Income (loss) from Operations | 1,655,548 | (3,521,526 | ) | — | (1,865,978 | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | (9,857,302 | ) | (14,771 | ) | (9,872,073 | ) | ||||||||||
| Amortization of debt discount | (5,696,285 | ) | (5,696,285 | ) | ||||||||||||
| Change in fair value of derivatives | 6,436,703 | 6,436,703 | ||||||||||||||
| Interest and other income | 1,967 | 138,057 | 140,024 | |||||||||||||
| Total other income (expense) | (9,114,917 | ) | 123,286 | — | (8,991,631 | ) | ||||||||||
| Net loss before income taxes | (7,459,369 | ) | (3,398,240 | ) | — | (10,857,609 | ) | |||||||||
| Income tax benefit (expense) | — | — | ||||||||||||||
| Net loss | $ | (7,459,369 | ) | $ | (3,398,240 | ) | — | $ | (10,857,609 | ) | ||||||
206
CAMBER ENERGY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended March 31, 2019
| Viking | Camber | Pro Forma | ||||||||||||||
| 12 Months Ended | Year Ended | Year Ended | ||||||||||||||
| March 31, 2019 | March 31, 2019 | Eliminations | March 31, 2019 | |||||||||||||
| Revenue | ||||||||||||||||
| Oil and Gas Sales | $ | 15,152,617 | $ | 2,742,102 | $ | 17,894,719 | ||||||||||
| Total Revenue | 15,152,617 | 2,742,102 | — | 17,894,719 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Lease Operating Costs | 5,426,675 | 2,870,908 | 8,297,583 | |||||||||||||
| Severance and Property taxes | 132,993 | 132,993 | ||||||||||||||
| General and Administrative | 7,398,459 | 5,152,766 | 12,551,225 | |||||||||||||
| Stock Based Compensation | 2,169,308 | 2,169,308 | ||||||||||||||
| Impairment of Oil and Gas Properties | 1,304,785 | 1,304,785 | ||||||||||||||
| (Gain) loss on Sale of Property and Equipment | (25,808,246 | ) | (25,808,246 | ) | ||||||||||||
| Accretion | 120,138 | — | 120,138 | |||||||||||||
| Depreciation, Depletion and Amortization | 3,525,695 | 478,770 | 4,004,465 | |||||||||||||
| Total Operating Expenses | 18,640,275 | (15,868,024 | ) | — | 2,772,251 | |||||||||||
| Income from Operations | (3,487,658 | ) | 18,610,126 | — | 15,122,468 | |||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | (4,680,577 | ) | (2,438,097 | ) | (7,118,674 | ) | ||||||||||
| Amortization of debt discount | (7,540,738 | ) | (7,540,738 | ) | ||||||||||||
| Change in fair value of derivatives | (10,995,546 | ) | (10,995,546 | ) | ||||||||||||
| Gain on ARO Settlement | (58,041 | ) | (58,041 | ) | ||||||||||||
| Gain on disposal of assets | 623,960 | 623,960 | ||||||||||||||
| Interest and other income | 3,417 | 474,124 | 477,541 | |||||||||||||
| Total other income (expense) | (22,647,525 | ) | (1,963,973 | ) | — | (24,611,498 | ) | |||||||||
| Net income (loss) before income taxes | (26,135,183 | ) | 16,646,153 | — | (9,489,030 | ) | ||||||||||
| Income tax benefit (expense) | 910,827 | (3,000 | ) | 907,827 | ||||||||||||
| Net Income (loss) | $ | (25,224,356 | ) | $ | 16,643,153 | $ | — | $ | (8,581,203 | ) | ||||||
207
PRO FORMA OIL, NATURAL GAS AND NGL RESERVE INFORMATION
The following tables present the estimated pro forma combined net proved developed and undeveloped oil, natural gas and NGL reserves as of March 31, 2020. The pro forma reserve information set forth below gives effect to the merger as if the merger had been completed on March 31, 2020. The following summary pro forma reserve information has been prepared for illustrative purposes only and is not intended to be a projection of future results of the combined company. Future results may vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page 29. The summary pro forma reserve information should be read in conjunction with the section titled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 204 and the related notes included in this joint proxy statement/prospectus. Reserve information for Viking is as of December 31, 2019, and reserve information for Camber is as of March 31, 2020.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated as of March 31, 2020(1) |
|
|||||||||
|
|
Camber |
|
|
Viking |
|
|
Camber |
|
|||
Proved Developed Reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
[●] |
|
|
|
4,494 |
|
|
|
[●] |
|
Natural Gas (Mcf) |
|
|
[●] |
|
|
|
18,887 |
|
|
|
[●] |
|
Natural Gas Liquids (MBbls) |
|
|
[●] |
|
|
|
— |
|
|
|
[●] |
|
Proved Undeveloped Reserves: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
[●] |
|
|
|
959 |
|
|
|
[●] |
|
Natural Gas (Mcf) |
|
|
[●] |
|
|
|
6,126 |
|
|
|
[●] |
|
Natural Gas Liquids (MBbls) |
|
|
[●] |
|
|
|
— |
|
|
|
[●] |
|
|
|
|||||||||||
|
|
Year Ended March 31, 2020(2) |
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|||||||||
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Camber |
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Viking |
|
|
Camber |
|
|||
Production: |
|
|
|
|
|
|
|
|
|
|
|
|
Oil (MBbls) |
|
|
[●] |
|
|
|
561,489 |
|
|
|
[●] |
|
Natural Gas (Mcf) |
|
|
[●] |
|
|
|
3,166,623 |
|
|
|
[●] |
|
Natural Gas Liquids (MBbls) |
|
|
[●] |
|
|
|
— |
|
|
|
[●] |
|
(1) |
Reserve information for Viking is as of December 31, 2019, and reserve information for Camber is as of March 31, 2020. Viking’s December 31, 2019 reserve information has not been adjusted in connection with any production which may have occurred during the three months ended March 31, 2020, or since. |
(2) |
Information for Camber is for the year ended March 31, 2020. Information for Viking is for the 12 months ended March 31, 2020. |
COMPARISON OF STOCKHOLDERS’ RIGHTS
In the merger, holders of Viking common stock will receive shares of Camber common stock in exchange for their shares of Viking common stock. Camber and Viking are both organized under the law of the State of Nevada. The following is a summary of the material differences between (1) the current rights of holders of Viking common stock under the NRS and the Viking governing documents, and (2) the current rights of holders of Camber common stock under the NRS and the Camber governing documents.
Camber and Viking believe that this summary describes the material differences between the rights of holders of Camber common stock as of the date of this joint proxy statement/prospectus and the rights of holders of Viking common stock as of the date of this joint proxy statement/prospectus; however, it does not purport to be a complete description of those differences. Copies of Camber’s and Viking’s governing documents have been filed with the SEC. To find out where copies of these documents can be obtained, see “Where You Can Find More Information” beginning on page 223.
208
Camber
|
Viking
| |||
| Authorized Capital Stock: | Camber’s authorized capital stock consists of (i) 25,000,000 shares of common stock, par value $0.001 per share; and (ii) 10,000,000 shares of preferred stock, par value of $0.001 per share. If the Camber charter amendment proposal is approved by Camber stockholders at the Camber special meeting, effective upon the completion of the merger, Camber’s authorized capital stock will consist of (i) 250,000,000 shares of common stock, par value $0.001 per share; and (ii) 10,000,000 shares of preferred stock, par value of $0.001 per share.
If the Camber reverse split proposal is approved by the Camber stockholders and the board of directors of Camber affects the Camber reverse stock split, the outstanding shares of Camber prior to the merger will be reduced in a ratio (to be approved by the Camber board of directors) in a ratio of between one-for-five and one-for-twenty-five, with fractional shares being rounded up to the nearest whole share.
As of the record date for the Camber special meeting, there were [●] shares of Camber common stock outstanding, [●] shares of Series C Redeemable Convertible Preferred Stock of Camber outstanding, and no other shares of preferred stock outstanding. |
Viking’s authorized capital stock consists of (i) 500,000,000 shares of common stock, par value of $0.001 per share; and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share.
As of the record date for Viking’s special meeting, there were [●] shares of Viking common stock outstanding, 28,092 shares of Series C Preferred Stock preferred stock of Viking outstanding, and no other shares of preferred stock outstanding.
| ||
| Preferred Stock: | The Camber charter authorizes the board to issue from time to time one or more series of preferred stock, consisting of such number of shares and having such voting powers, designations, preferences, relative rights and limitations as the board shall determine.
As of the record date for the Camber special meeting, Camber has [●] shares of Series C Redeemable Convertible Preferred Stock of Camber outstanding, and no other shares of preferred stock outstanding. Camber’s Series C Redeemable Preferred Stock is described in greater detail under “Description of Camber Capital Stock”, beginning on page 195.
|
The Viking charter authorizes the board to issue from time to time one or more series of preferred stock, consisting of such number of shares and having such voting powers, designations, preferences, relative rights and limitations as the board shall determine.
As of the record date for the Viking special meeting, Viking has 28,092 shares of Series C Preferred Stock outstanding, and no other shares of preferred stock outstanding.
| ||
209
| Voting Rights: | Holders of Camber common stock are entitled to one (1) vote for each share of stock which has voting power upon the matter in question. Except as required by applicable law, the holders of shares of Camber’s Series C Preferred Stock have no right to vote on any matters except: (a) during a period where a dividend (or part of a dividend) is in arrears; (b) on a proposal to reduce Camber’s share capital; (c) on a resolution to approve the terms of a buy-back agreement; (d) on a proposal to wind up Camber; (e) on a proposal for the disposal of all or substantially all Camber’s property, business and undertaking; and (f) during the winding-up of the entity.
There are no cumulative voting rights in the election of directors.
|
Holders of Viking common stock are entitled to one (1) vote for each share of stock which has voting power upon the matter in question. Holders of shares of Viking’s Series C Preferred Stock are entitled to 32,500 votes for each share of Series C Preferred Stock held by them in connection with the matter in question.
For the election of directors, the Viking bylaws provide that holders of Viking common stock are entitled to cumulative voting rights, which means that in each election of directors each holder is entitled to cast as many votes as the number of shares of common stock held by such holder multiplied by the number of directors to be elected and may cast all such votes for the election of one nominee or distribute such votes among two (2) or more nominees.
| ||
| Size of Board of Directors: | The Camber bylaws require that there be not less than one (1) director nor more than ten (10) directors on the Camber board, the exact number of directors to be determined from time to time as the board or the majority stockholders shall determine. | The Viking charter and bylaws generally provide that the number of directors on the Viking board shall be fixed by the board in the bylaws or by the board in an amendment to the bylaws, and if the board amends the bylaws to change the number of directors, the board shall submit such change to the stockholders to approve at the next stockholder meeting. |
210
| Stockholder Nomination of Directors for Election or Stockholder Proposals to take other action: | The Camber bylaws provide that nominations for directors and other actions proposed to be taken by the stockholders may be made at an annual meeting of stockholders, provided the stockholders provide timely notice to the Secretary of Camber.
To be timely, a stockholder’s notice must be delivered to or mailed and received at Camber’s principal executive offices (i) not earlier than the close of business on the day which falls 120 days prior to the one year anniversary of Camber’s last annual stockholder meeting, and (ii) not later than the close of business on the day which falls 90 days prior to the one year anniversary of Camber’s last annual stockholder meeting, unless the annual meeting date occurs more than 30 days before or 30 days after the one year anniversary of the last annual meeting. In that case, Camber must receive proposals (i) not earlier than the close of business on the 120th day prior to the date of the annual meeting, and (ii) not later than (x) the close of business on the later of the 90th day prior to the date of the annual meeting, or (y) if the first public announcement of the date of the annual meeting is less than 100 days prior to the date of the meeting, the 10th day following the day on which Camber first makes a public announcement of the date of the annual meeting.
Such notice must be in writing and must include a (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the meeting; (ii) the name and record address of the stockholder proposing such business; (iii) the class, series and number of shares of capital stock of Camber which are beneficially owned by the stockholder; and (iv) any material interest of the stockholder in such business.
|
The Viking bylaws do not provide for the nomination of directors by the stockholders or proposals for other actions to be taken. | ||
| Election of Directors | The Camber bylaws provide that director nominees shall be elected by the vote of the plurality of votes cast at an annual meeting of stockholders or an adjourned annual meeting. | The Viking bylaws provide that director nominees shall be elected by the vote of the plurality of votes cast at an annual meeting of stockholders, an adjourned annual meeting, or a special meeting of the shareholders called by the directors as soon as possible thereafter. |
211
| Vacancies on the Board of Directors: | The Camber bylaws provide that vacancies, including vacancies arising through resignation, retirement, removal from office, disqualification, or death or through an increase in the number of directors, may be filled by a majority of the remaining directors, the sole remaining director or the majority stockholders. | The Viking bylaws provide that vacancies for a reason other than vacancies created by the removal of a director by the stockholders or by an increase in the number of directors may be filled by the board, acting by the majority of the directors then in office, even if less than a quorum. Vacancies created by the removal of a director by the stockholders at a meeting shall be filled by the stockholders at that meeting unless the stockholders fail to fill the vacancy, in which case the board may fill the vacancy. Vacancies created by increasing the number of directors shall be elected by the stockholders at the next regular annual meeting or at a special meeting called for that purpose.
| ||
| Removal of Directors: | The Camber charter and bylaws provide that any director or the entire board may be removed from office at any time, with or without cause, by the vote of the holders of two-thirds of the outstanding shares entitled to vote at an election of directors. | Under the NRS, any director or the entire board may be removed from office at any time by the vote of the holders of two-thirds of the outstanding shares entitled to vote at an election of directors. | ||
| Amendments to Organizational Documents: | Under the NRS, an amendment to the articles of incorporation generally requires the approval of (i) the board of directors, (ii) a majority of the voting power of the outstanding stock entitled to vote upon the proposed amendment, and (iii) the approval of the holders of a majority of the outstanding stock of each class entitled to vote thereon, if any.
Camber’s charter and bylaws do not provide for a different standard to amend the charter than that provided under the NRS.
The board has concurrent power with the stockholders to adopt and repeal the bylaws.
|
Under the NRS, an amendment to the articles of incorporation generally requires the approval of (i) the board of directors, (ii) a majority of the voting power of the outstanding stock entitled to vote upon the proposed amendment, and (iii) the approval of the holders of a majority of the outstanding stock of each class entitled to vote thereon, if any.
Viking’s charter and bylaws do not provide for a different standard to amend the charter than that provided under the NRS.
The Viking board is authorized and empowered from time to time in its discretion to make, alter, amend or repeal the bylaws, provided that if the board amends the bylaws, the board shall submit such change to the stockholders to approve at the next stockholders meeting.
| ||
| Stockholder Action by Written Consent: | The Camber bylaws provide that any action required to be or which may be taken at any annual or special stockholder meeting, may be taken without a meeting, without prior notice and without a vote, if a written consent setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
|
Viking’s charter and bylaws do not specifically provide for action to be taken by written consent, but the NRS generally permit any action required to be or which may be taken at any annual or special stockholder meeting, may be taken without a meeting, without prior notice and without a vote, if a written consent setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. | ||
212
| Special Meetings of Stockholders: | The Camber charter and bylaws provide that special meetings of the stockholders may be called by the corporation only at the request (i) of the board or the chairman of the board, (ii) Camber’s president or a committee of the board whose powers and authority include the power to call meetings, or (iii) holders of at least 10% of all shares entitled to vote at the special meeting. Except for requests by the board or chairman of the board, the request must be in writing, specify the general nature of the business proposed to be transacted at the meeting, and be delivered personally or sent by registered mail or by facsimile transmission to the corporate secretary. Business transacted at all special meetings of stockholders must be confined to the matters set forth in the notice.
The board must determine the date, time and place of any special meeting, which must be held not more than ninety (90) days after the receipt of the written request. |
The Viking charter and bylaws provide that special meetings of the stockholders may be called by written request of Viking’s president or by the holders of at least 33% of the stock entitled to vote at the meeting. The meeting shall be held not less than 10 days nor more than 60 days after receipt of the request, as fixed by the board. If the board fails to fix a time or place, the meeting shall be held at Viking’s principal office at a time as shall be fixed by the corporate secretary within the above time limits. | ||
| Quorum: | The Camber bylaws provide that except as otherwise provided by law, 33% of all of the shares of the stock entitled to vote at the meeting, represented in person or by proxy, shall constitute a quorum for the transaction of business.
|
The Viking bylaws provide that a majority of the outstanding shares entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of business. | ||
| Notice of Stockholder Actions/Meetings: | The Camber bylaws require the written notice of all meetings to be personally delivered, mailed to, or electronically transmitted to each stockholder of record entitled to vote not less than ten (10) days nor more than sixty (60) days before the date of such meeting. Such notice shall specify the place, date and hour of the meeting and, in the case of a special meeting, also shall state the purpose(s) of the meeting.
|
The Viking bylaws require the written notice of all meetings to be mailed or delivered to each stockholder of record entitled to vote not less than ten (10) days nor more than sixty (60) days before the date of such meeting. Such notice shall specify the purpose or purposes of the meeting, and the time and place such meeting.
| ||
| Exchange Act Proxy Access: | The Camber bylaws do not provide for proxy access.
|
The Viking bylaws do not provide for proxy access. | ||
| Limitation of Liability of Directors and Officers: | Camber’s amended articles of incorporation provide that Camber’s directors and officers shall not be personally liable to Camber or Camber’s stockholders for damages for breach of such directors’ or officers’ fiduciary duty, but do not eliminate liability for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or the payment of dividends in violation of the NRS. | The Viking charter provides a director or officer shall not be liable to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officers, except to the extent such exemption from liability or limitation thereof is (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or (ii) for the payment of dividends in violation of Section 78.300 of the NRS. If the NRS are amended thereafter to authorize corporate action further limiting the personal liability of directors or officers, then the liability of the directors or officers shall be limited to fullest extent permitted by the NRS. |
213
| Indemnification of Directors and Officers: | Camber’s bylaws, as amended, provide that Camber shall indemnify every (i) present or former director, advisory director or officer of Camber, (ii) any person who while serving in any of the capacities referred to in clause (i) served at Camber’s request as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) the Board of Directors or any committee thereof to serve in any of the capacities referred to in clauses (i) or (ii) (each, an “Indemnitee”). Camber’s bylaws provide that Camber shall indemnify each Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any proceeding in which Camber was, is or is threatened to be named as a defendant or respondent, or in which he was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, if it is determined that the Indemnitee (a) conducted himself in good faith, (b) reasonably believed, in the case of conduct in his official capacity, that his conduct was in Camber’s best interests and, in all other cases, that his conduct was at least not opposed to Camber’s best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful; provided, however, that in the event that an Indemnitee is found liable to Camber or is found liable on the basis that personal benefit was improperly received by the Indemnitee, the indemnification (i) is limited to reasonable expenses actually incurred by the Indemnitee in connection with the proceeding and (ii) shall not be made in respect of any proceeding in which the Indemnitee shall have been found liable for willful or intentional misconduct in the performance of his duty to Camber. Camber believes that the indemnification provisions in its articles of incorporation, as amended, and bylaws, as amended, are necessary to attract and retain qualified persons as directors and officers.
Camber’s bylaws provide that no indemnification shall be made in respect to any proceeding in which such Indemnitee has been (i) found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the Indemnitee’s official capacity, or (ii) found liable to Camber. The termination of any proceeding by judgment, order, settlement or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the requirements set forth in clauses (a), (b) or (c) in the preceding paragraph. An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses shall, include, without limitation, all court costs and all fees and disbursements of attorneys’ fees for the Indemnitee. The indemnification provided shall be applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven. |
The Viking charter provides that the corporation shall, to the fullest extent permitted under the NRS, indemnify its current and former directors and officers from and against any and all expenses (including attorneys’ fees), liabilities or other matters connected with any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative.
The Viking bylaws provide similar indemnification rights to Viking’s current and former directors and officers and Viking employees, except that the individual’s right to reimbursement is limited in relation to matters as to which he or she has been adjudged liable to Viking for negligence or misconduct in the performance of his or her duties, or was derelict in the performance of his or her duty as director, officer or employee by reason of willful misconduct, bad faith, gross negligence or reckless disregard of the duties of his or her office or employment.
| ||
214
| Anti-Takeover Provisions: | The Camber bylaws contain a provision electing to “opt-out” of the anti-takeover sections of the NRS, Sections 78.378 to 78.3793 et seq. of the NRS. These sections, which generally govern acquisitions of controlling interests of corporations with over 200 shareholders of record, dictate that the person who acquires a controlling percentage of shares may not vote their controlling shares unless the other stockholders have restored those voting rights. Since Camber has elected to “opt-out,” these anti-takeover sections of the NRS do not apply to Camber.
|
The Viking charter contains a provision electing to “opt-out” of the anti-takeover sections of the NRS, Sections 78.378 to 78.3793 et seq. of the NRS. These sections, which generally govern acquisitions of controlling interests of corporations with over 200 shareholders of record, dictate that the person who acquires a controlling percentage of shares may not vote their controlling shares unless the other stockholders have restored those voting rights. Since Viking has elected to “opt-out,” these anti-takeover sections of the NRS do not apply to Viking.
| ||
| Stockholder Rights Plan: | Camber does not currently have a stockholder rights plan in effect. | Viking does not currently have a stockholder rights plan in effect. |
215
SECURITY OWNERSHIP OF CAMBER BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of Camber common stock as of May 29, 2020, by (i) each person known by Camber to be the beneficial owner of more than 5% of Camber’s outstanding common stock, (ii) each director and each of named executive officers of Camber, and (iii) all executive officers and directors of Camber as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities. These rules generally provide that shares of common stock subject to options, warrants or other convertible securities that are currently exercisable or convertible, or exercisable or convertible within 60 days of the date of determination, are deemed to be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.
To Camber’s knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to applicable community property laws. Unless otherwise indicated, the address for each of the officers or directors listed in the table below is 1415 Louisiana, Suite 3500, Houston, Texas 77002.
| Stockholder | Number of Shares of Common Stock |
Percent of Common Stock |
||||||
| Executive Officers and Directors | ||||||||
| Louis G. Schott | — | — | % | |||||
| Robert Schleizer | — | — | % | |||||
| Fred S. Zeidman | — | — | % | |||||
| James G. Miller | — | — | % | |||||
| All Executive Officers and Directors as a Group (Four Persons) | — | — | % | |||||
| Greater than 5% Stockholders | ||||||||
| Discover Growth Fund (2) | 775,035 | 9.99 | % | |||||
* Indicates beneficial ownership of less than 1% of the outstanding common stock.
(1) Address: P.O. Box 6172 San Antonio, Texas 78209.
(2) 103 South Church Street, 4th Floor, Grand Cayman KYI-002, Cayman Islands. The holder holds [2,566] shares of Series C Redeemable Convertible Preferred Stock; provided that Camber may not issue shares which, when aggregated with all other shares of common stock then deemed beneficially owned by the holder, would result in the reporting person holding at any one time more than 9.99% of all common stock outstanding immediately after giving effect to such issuance. To the best of Camber’s knowledge, David Sims has voting and dispositive control over the securities held by Discover Growth Fund.
SECURITY OWNERSHIP OF VIKING BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of Viking common stock and Viking Series C Preferred Stock as of May 29, 2020, by (i) each person known by Viking to be the beneficial owner of more than 5% of Viking’s outstanding common stock or Viking Series C Preferred Stock, (ii) each director and each of named executive officers of Viking, and (iii) all executive officers and directors of Viking as a group.
216
The number of shares of common stock and Viking Series C Preferred Stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
The address of each of the persons set forth below is in care of Viking at 15915 Katy Freeway, Suite 450, Houston, Texas, 77094.
| Title of Class | Name & Address of Beneficial Owners | Amount & Nature of Beneficial Ownership (1) | Percent of Class (2) | |||||||
| Common Stock | James Doris (3) | 17,000,000 | 11.7 | % | ||||||
| Common Stock | Frank W. Barker, Jr. (4) | 5,000,000 | 3.7 | % | ||||||
| Common Stock | Mark Finckle (5) | 2,766,789 | 2.1 | % | ||||||
| Common Stock | David Herskovits | 65,000 | * | % | ||||||
| Common Stock | Lawrence Fisher | 25,907 | * | % | ||||||
| Common Stock | All Officers and Directors as a Group | 24,857,696 | 16.3 | % | ||||||
| Series C Preferred | James A. Doris | 28,092 | 100.0 | % | ||||||
| Series C Preferred | All Officers and Directors as a Group | 28,092 | 100.0 | % | ||||||
* Less than 1%.
| 1. | Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of Viking’s common stock. |
| 2. | As of May 29, 2020, a total of 130,049,851 shares of Viking’s common stock, and 28,092 shares of Viking’s preferred stock, as well as 45,954,939 warrants to purchase common stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner above, any warrants exercisable within 60 days have been included for purposes of calculating the relevant percentage. |
| 3. | Includes warrants to purchase 15,000,000 shares of common stock held by James Doris. |
| 4. | Includes warrants to purchase 5,000,000 shares of common stock held by FWB Consulting, Inc., a company controlled by Frank W. Barker, Jr. |
| 5. | Includes warrants to purchase 2,000,000 shares of common stock held by Mark Finckle. |
The validity of the Camber common stock to be issued in connection with the merger will be passed upon for Camber by The McGeary Law Firm, P.C., Bedford, Texas.
217
Camber. The financial statements of Camber Energy, Inc. as of and for the fiscal year ended March 31, 2019, included in this Prospectus, have been audited by Marcum LLP, an independent registered public accounting firm, as stated in their report included herein. Such financial statements have been included in reliance upon the reports of such firms given upon their authority as experts in accounting and auditing. The financial statements as of and for the fiscal year ended March 31, 2018, included in this Prospectus, have been audited by GBH CPAs, PC, an independent registered public accounting firm, as stated in their report, which are included herein. Such financial statements have been included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
Viking. The (a) financial statements of Viking Energy Group, Inc. as of and for the fiscal years ended December 31, 2019 and 2018, and (b) the combined statements of revenues and direct operating expenses of properties acquired by Elysium Energy, L.L.C., a subsidiary of Viking, from 5Jabor, LLC, Bass Petroleum, L.L.C., Bodel Holdings, LLC, Delbo Holdings, L.L.C., James III Investments, L.L.C., JamSam Energy, LLC, Lake Boeuf Investments, LLC, Oakley Holdings, L.L.C., and Plaquemines Holdings, L.L.C., for the years ended December 31, 2019 and 2018, included in this Prospectus, have been audited by Turner, Stone & Company, L.L.P., an independent registered public accounting firm, as set forth in their reports thereon included therein, which are included herein. Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
DEADLINES FOR SUBMITTING STOCKHOLDER PROPOSALS
Camber
Proposals of holders of Camber voting securities intended to be presented at Camber’s 2021 fiscal year Annual Meeting of stockholders and included in Camber’s proxy statement and form of proxy relating to such meeting pursuant to Rule 14a-8 of Regulation 14A must be received by Camber, addressed to Camber’s Secretary, at Camber’s principal executive offices at 1415 Louisiana, Suite 3500, Houston, Texas, 77002, not earlier than the close of business on November 11, 2020, and not later than the close of business on December 11, 2020, together with written notice of the stockholder’s intention to present a proposal for action at the fiscal 2021 Annual Meeting of stockholders, unless Camber’s annual meeting date occurs more than 30 days before or 30 days after March 11, 2021. In that case, Camber must receive proposals not earlier than the close of business on the 120th day prior to the date of the fiscal 2021 annual meeting and not later than the close of business on the later of the 90th day prior to the date of the annual meeting or, if the first public announcement of the date of the Annual Meeting is less than 100 days prior to the date of the meeting, the 10th day following the day on which Camber first makes a public announcement of the date of the meeting. The notice must be personally delivered to the Company or sent by first class certified mail, return receipt requested, postage prepaid, and must include the name and address of the stockholder, the number of voting securities held by the stockholder of record, a statement that the stockholder holds such shares beneficially and the text of the proposal to be presented for vote at the meeting, a statement in support of the proposal, and must otherwise comply with Rule 14a-8 of Regulation 14A and the requirements of Camber’s Bylaws.
The proposal should state as clearly as possible the proposal and should be accompanied by a supporting statement. The proposal, including the accompanying supporting statement, may not exceed 500 words. Upon receipt of any such proposal, the Company will determine whether or not to include such proposal in the proxy statement and proxy in accordance with regulations governing the solicitation of proxies. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable rules and requirements. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.
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Viking
Proxy Statement Proposals. If the merger is completed on the expected timetable, Viking does not expect to hold a 2020 annual meeting of Viking stockholders (the “Viking 2020 annual meeting”). If, however, the merger is not completed and the Viking 2020 annual meeting is held, under SEC rules, stockholders wishing to submit proposals for inclusion in the proxy statement for the Viking 2020 annual meeting must submit such written proposals to the following address: Viking Energy Group, Inc., 15915 Katy Freeway, Suite 450, Houston, Texas, 77094, Attention: Corporate Secretary. Proposals must have been received no later than May 23, 2020, unless the Viking 2020 annual meeting is called for a date that is not between October 9, 2020 and December 8, 2020, in which case proposals must be received a reasonable time before Viking begins to print and send its proxy materials. In addition, proposals must comply with SEC Rule 14a-8 in order for the proposal to be considered for inclusion in Viking’s proxy statement.
Other Proposals and Nominations. The Viking bylaws do not permit stockholder submission of nominations for director or other business proposals that a stockholder wishes to have considered at a meeting of stockholders.
GLOSSARY OF OIL AND NATURAL GAS TERMS
The following is a description of the meanings of some of the oil and natural gas terms used in this joint proxy statement/prospectus.
AFE or Authorization for Expenditures. A document that lays out proposed expenses for a particular project and authorizes an individual or group to spend a certain amount of money for that project.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in this joint proxy statement/prospectus in reference to crude oil or other liquid hydrocarbons.
Bcf. An abbreviation for billion cubic feet. Unit used to measure large quantities of gas, approximately equal to 1 trillion Btu.
Boe. Barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas.
Boepd. Barrels of oil equivalent per day.
Bopd. Barrels of oil per day.
Btu or British thermal unit. The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.
Completion. The operations required to establish production of oil or natural gas from a wellbore, usually involving perforations, stimulation and/or installation of permanent equipment in the well or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.
Condensate. Liquid hydrocarbons associated with the production of a primarily natural gas reserve.
Conventional resources. Natural gas or oil that is produced by a well drilled into a geologic formation in which the reservoir and fluid characteristics permit the natural gas or oil to readily flow to the wellbore.
CAA means the Clean Air Act.
CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act.
CWA means the Clean Water Act.
Developed acreage. The number of acres that are allocated or assignable to productive wells.
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Development well. A well drilled into a proved oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.
Estimated ultimate recovery or EUR. Estimated ultimate recovery is the sum of reserves remaining as of a given date and cumulative production as of that date.
Exploratory well. A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.
Farmin or farmout. An agreement under which the owner of a working interest in an oil or natural gas lease assigns the working interest or a portion of the working interest to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a “farmin” while the interest transferred by the assignor is a “farmout.”
FERC. Federal Energy Regulatory Commission.
Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.
Gross acres or gross wells. The total acres or wells in which a working interest is owned.
Henry Hub. A natural gas pipeline located in Erath, Louisiana that serves as the official delivery location for futures contracts on the NYMEX. The settlement prices at the Henry Hub are used as benchmarks for the entire North American natural gas market.
Held by production. An oil and natural gas property under lease in which the lease continues to be in force after the primary term of the lease in accordance with its terms as a result of production from the property.
Horizontal drilling or well. A drilling operation in which a portion of the well is drilled horizontally within a productive or potentially productive formation. This operation typically yields a horizontal well that has the ability to produce higher volumes than a vertical well drilled in the same formation. A horizontal well is designed to replace multiple vertical wells, resulting in lower capital expenditures for draining like acreage and limiting surface disruption.
Liquids. Liquids, or natural gas liquids, are marketable liquid products including ethane, propane, butane and pentane resulting from the further processing of liquefiable hydrocarbons separated from raw natural gas by a natural gas processing facility.
LOE or Lease operating expenses. The costs of maintaining and operating property and equipment on a producing oil and gas lease.
MBbl. One thousand barrels of crude oil or other liquid hydrocarbons.
MMBbl/d. One thousand barrels of crude oil or other liquid hydrocarbons per day.
Mcf. One thousand cubic feet of natural gas.
Mcfgpd. Thousands of cubic feet of natural gas per day.
MMcf. One million cubic feet of natural gas.
MMBtu. One million British thermal units.
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Net acres or net wells. The sum of the fractional working interest owned in gross acres or wells.
Net revenue interest. The interest that defines the percentage of revenue that an owner of a well receives from the sale of oil, natural gas and/or natural gas liquids that are produced from the well.
NGL. Natural gas liquids.
NYMEX. New York Mercantile Exchange.
OPA means the Oil Pollution Act of 1990.
Permeability. A reference to the ability of oil and/or natural gas to flow through a reservoir.
Petrophysical analysis. The interpretation of well log measurements, obtained from a string of electronic tools inserted into the borehole, and from core measurements, in which rock samples are retrieved from the subsurface, then combining these measurements with other relevant geological and geophysical information to describe the reservoir rock properties.
Play. A set of known or postulated oil and/or natural gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock, migration pathways, timing, trapping mechanism and hydrocarbon type.
Possible reserves. Additional reserves that are less certain to be recognized than probable reserves.
Probable reserves. Additional reserves that are less certain to be recognized than proved reserves but which, in sum with proved reserves, are as likely as not to be recovered.
Producing well, production well or productive well. A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the well’s production exceed production-related expenses and taxes.
Properties. Natural gas and oil wells, production and related equipment and facilities and natural gas, oil or other mineral fee, leasehold and related interests.
Prospect. A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is considered to have potential for the discovery of commercial hydrocarbons.
Proved developed reserves. Proved reserves that can be expected to be recovered through existing wells and facilities and by existing operating methods.
Proved reserves. Reserves of oil and natural gas that have been proved to a high degree of certainty by analysis of the producing history of a reservoir and/or by volumetric analysis of adequate geological and engineering data.
Proved undeveloped reserves or PUDs. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.
P&A’d. Plugged and abandoned.
RCRA means the Resource Conservation and Recovery Act.
Repeatability. The potential ability to drill multiple wells within a prospect or trend.
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Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.
Royalty interest. An interest in an oil and natural gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.
SDWA means the Safe Drinking Water Act.
2-D seismic. The method by which a cross-section of the earth’s subsurface is created through the interpretation of reflecting seismic data collected along a single source profile.
3-D seismic. The method by which a three-dimensional image of the earth’s subsurface is created through the interpretation of reflection seismic data collected over a surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do 2-D seismic surveys and contribute significantly to field appraisal, exploitation and production.
Trend. A region of oil and/or natural gas production, the geographic limits of which have not been fully defined, having geological characteristics that have been ascertained through supporting geological, geophysical or other data to contain the potential for oil and/or natural gas reserves in a particular formation or series of formations.
Unconventional resource play. A set of known or postulated oil and or natural gas resources or reserves warranting further exploration which are extracted from (a) low-permeability sandstone and shale formations and (b) coalbed methane. These plays require the application of advanced technology to extract the oil and natural gas resources.
Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether such acreage contains proved reserves. Undeveloped acreage is usually considered to be all acreage that is not allocated or assignable to productive wells.
Unproved and unevaluated properties. Refers to properties where no drilling or other actions have been undertaken that permit such property to be classified as proved.
Vertical well. A hole drilled vertically into the earth from which oil, natural gas or water flows are pumped.
Volumetric reserve analysis. A technique used to estimate the amount of recoverable oil and natural gas. It involves calculating the volume of reservoir rock and adjusting that volume for the rock porosity, hydrocarbon saturation, formation volume factor and recovery factor.
Wellbore. The hole made by a well.
WTI or West Texas Intermediate. A grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content.
Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production.
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WHERE YOU CAN FIND MORE INFORMATION
Camber and Viking file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including both Camber and Viking, which can be accessed at http://www.sec.gov. In addition, documents filed with the SEC by Camber, including the registration statement on Form S-4, of which this joint proxy statement/prospectus forms a part, will be available free of charge by accessing Camber’s website at www.camber.energy under the heading Investors, or, alternatively, by directing a request by telephone or mail to Camber Energy, Inc. at 1415 Louisiana, Suite 3500, Houston, Texas, 77002, (210) 998-4035, and documents filed with the SEC by Viking will be available free of charge by accessing Viking’s website at www.vikingenergygroup.com under the heading Investor Relations, or, alternatively, by directing a request by telephone or mail to Viking Energy Group, Inc. at 15915 Katy Freeway, Houston, Texas, 77094, (281) 404-4387. The web addresses of the SEC, Camber and Viking are included as inactive textual references only. Except as specifically incorporated by reference into this joint proxy statement/prospectus, information on those websites is not part of this joint proxy statement/prospectus.
Camber
has filed a registration statement on Form S-4 under the Securities Act with the SEC with respect to Camber’s securities
to be issued in the merger. This joint proxy statement/prospectus constitutes the prospectus of Camber filed as part of the registration
statement. This joint proxy statement/prospectus does not contain all of the information set forth in the registration statement
because certain parts of the registration statement are omitted in accordance with the rules and regulations of the SEC. The registration
statement and its exhibits are available for inspection and copying as set forth above.
Statements contained in this joint proxy statement/prospectus regarding the contents of any contract or other document, are not necessarily complete, and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC.
All information contained in this joint proxy statement/prospectus relating to Camber has been supplied by Camber, all such information relating to Viking has been supplied by Viking, and all such information relating to Merger Sub has been supplied by both Camber and Viking. Information provided by either Camber, Merger Sub, or Viking does not constitute any representation, estimate or projection of any other party.
This document is a joint proxy statement/prospectus of Camber and Viking for the Camber and Viking special meeting. Camber and Viking have not authorized anyone to give any information or make any representation about the merger, Camber or Viking that is different from, or in addition to, that contained in this joint proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. The information contained in this joint proxy statement/prospectus speaks only as of the date of this joint proxy statement/prospectus unless the information specifically indicates that another date applies.
You may request additional copies of this joint proxy statement/prospectus and/or any of the documents filed as exhibits to the registration statement of which this joint proxy statement/prospectus forms a part by contacting:
if you are a Camber stockholder: Camber Energy, Inc. 1415 Louisiana, Suite 3500 Houston, Texas 77002 (210) 998-4035 Attn: Investor Relations |
if you are a Viking stockholder: Viking Energy Group, Inc. 15915 Katy Freeway, Suite 450 Houston, Texas 77094 (281) 404-4387 Attn: Investor Relations |
This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this joint proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction. Neither the delivery of this joint proxy statement/prospectus nor any distribution of securities pursuant to this joint proxy statement/prospectus shall, under any circumstances, create any implication that there has been no change in the information set forth or incorporated into this joint proxy statement/prospectus by reference or in our affairs since the date of this joint proxy statement/prospectus.
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INDEX TO THE FINANCIAL STATEMENTS
Camber Energy, Inc. Unaudited Financial Statements
Camber Energy, Inc. Audited Financial Statements
Viking Energy Group, Inc. Unaudited Financial Statements
Viking Energy Group, Inc. Audited Financial Statements
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Combined statements of revenues and direct operating expenses of properties acquired by Elysium Energy, LLC, a subsidiary of Viking Energy Group, Inc., from 5Jabor, LLC; Bass Petroleum, L.L.C.; Bodel Holdings, LLC; Delbo Holdings, L.L.C.; James III Investments, LLC; JamSam Energy, L.L.C.; Lake Boeuf Investments LLC; Oakley Holdings, L.L.C.; Plaquemines Holdings, L.L.C.
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CAMBER ENERGY, INC.
(Unaudited)
| December 31, 2019 |
March 31, 2019 |
|||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 2,253,739 | $ | 7,778,723 | ||||
| Accounts Receivable, Net of Allowance | 176,038 | 129,037 | ||||||
| Other Current Assets | — | 263,205 | ||||||
| Total Current Assets | 2,429,777 | 8,170,965 | ||||||
| Property and Equipment | ||||||||
| Oil and Gas Properties - Subject to Amortization | 50,504,527 | 50,528,953 | ||||||
| Oil and Gas Properties - Not Subject to Amortization | 28,016,989 | 28,016,989 | ||||||
| Other Property and Equipment | 1,570 | 1,570 | ||||||
| Total Property and Equipment | 78,523,086 | 78,547,512 | ||||||
| Accumulated Depletion, Depreciation, Amortization and Impairment | (78,346,620 | ) | (78,334,324 | ) | ||||
| Total Property and Equipment, Net | 176,466 | 213,188 | ||||||
| Notes Receivable | 2,339,719 | — | ||||||
| Other Assets | 155,053 | 198,519 | ||||||
| Total Assets | $ | 5,101,015 | $ | 8,582,672 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 1,427,022 | $ | 1,521,329 | ||||
| Common Stock Payable | 10,000 | 303,340 | ||||||
| Accrued Expenses | 296,843 | 276,133 | ||||||
| Asset Retirement Obligation - Current | 239,167 | — | ||||||
| Current Income Taxes Payable | 3,000 | 3,000 | ||||||
| Total Current Liabilities | 1,976,032 | 2,103,802 | ||||||
| Asset Retirement Obligations | 42,137 | 303,809 | ||||||
| Derivative Liability | — | 5 | ||||||
| Total Liabilities | 2,018,169 | 2,407,616 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock Series A, 2,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding | — | — | ||||||
| Preferred Stock Series B, 600,000 Shares Authorized of $0.001 Par Value, 0 and 44,000 Shares Issued and Outstanding, respectively | — | 44 | ||||||
| Preferred Stock Series C, 5,000 Shares Authorized of $0.001 Par Value, 2,294 and 2,305 Shares Issued and Outstanding, respectively, Liquidation Preference of $56,122,710 | 2 | 2 | ||||||
| Preferred Stock Series D, 50,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding | — | — | ||||||
| Preferred Stock Series E, 1,000,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding | — | — | ||||||
| Preferred Stock Series F, 16,750 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding | — | — | ||||||
| Common Stock, 5,000,000 Shares Authorized of $0.001 Par Value, 4,709,167 and 13,441 Shares Issued and Outstanding, respectively | 4,709 | 13 | ||||||
| Additional Paid-in Capital | 146,890,176 | 152,251,623 | ||||||
| Stock Dividends Distributable | 13,804,668 | 8,141,843 | ||||||
| Accumulated Deficit | (157,616,709 | ) | (154,218,469) | |||||
| Total Stockholders’ Equity | 3,082,846 | 6,175,056 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 5,101,015 | $ | 8,582,672 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-1 |
CAMBER ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Operating Revenues | ||||||||||||||||
| Crude Oil | $ | 69,092 | $ | 73,301 | $ | 229,577 | $ | 455,322 | ||||||||
| Natural Gas | 9,871 | 13,114 | 29,418 | 753,057 | ||||||||||||
| Natural Gas Liquids | 15,152 | 41,522 | 49,224 | 1,423,720 | ||||||||||||
| Total Revenues | 94,115 | 127,937 | 308,219 | 2,632,099 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Lease Operating Expenses | 72,955 | 441,312 | 384,995 | 2,600,353 | ||||||||||||
| Severance and Property Taxes | 4,081 | 5,937 | 10,686 | 133,192 | ||||||||||||
| Depreciation, Depletion, Amortization, and Accretion | 7,382 | 1,026 | 15,215 | 464,952 | ||||||||||||
| Impairment of Oil and Gas Properties | — | 548,819 | — | 1,304,785 | ||||||||||||
| General and Administrative | 1,146,374 | 677,566 | 3,418,849 | 3,512,816 | ||||||||||||
| Gain on Sales of Assets | — | — | — | (25,808,246 | ) | |||||||||||
| Total Operating Expenses | 1,230,792 | 1,674,660 | 3,829,745 | (17,792,148 | ) | |||||||||||
| Operating Income (Loss) | (1,136,677 | ) | (1,546,723 | ) | (3,521,526 | ) | 20,424,247 | |||||||||
| Other Expense (Income) | ||||||||||||||||
| Interest Expense | 9,750 | 202,669 | 14,771 | 2,436,776 | ||||||||||||
| Other (Income), Net | (22,861 | ) | (163,308 | ) | (138,057 | ) | (142,714 | ) | ||||||||
| Total Other (Income) Expenses | (13,111 | ) | 39,361 | (123,286 | ) | 2,294,062 | ||||||||||
| Net Income (Loss) Before Discontinued Operations | (1,123,566 | ) | (1,586,084 | ) | (3,398,240 | ) | 18,130,185 | |||||||||
| Loss from Discontinued Operations | (710,112 | ) | — | — | — | |||||||||||
| Net Income (Loss) | $ | (1,833,678 | ) | $ | (1,586,084 | ) | $ | (3,398,240 | ) | $ | 18,130,185 | |||||
| Net Income (Loss) Per Common Share | ||||||||||||||||
| Basic | ||||||||||||||||
| Continuing Operations | $ | (1,03 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 7,982.41 | |||||
| Discontinued Operations | (0.24 | ) | — | — | — | |||||||||||
| Total | $ | (1.27 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 7,982.41 | |||||
| Diluted | ||||||||||||||||
| Continuing Operations | $ | (1.03 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 529.23 | |||||
| Discontinued Operations | (0.24 | ) | — | — | — | |||||||||||
| Total | $ | (1.27 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 529.23 | |||||
| Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| Basic | 2,937,254 | 4,000 | 1,155,285 | 1,869 | ||||||||||||
| Diluted | 2,937,254 | 4,000 | 1,155,285 | 28,190 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
CAMBER ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018
| Series E Preferred Stock |
Series F Preferred Stock |
Series B Preferred Stock |
Series C Preferred Stock |
Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Number of |
Amount | Number of Shares |
Amount |
Number of Shares |
Amount | Number of Shares |
Amount | Number of Shares |
Amount | Additional Paid-In Capital |
Stock Divided Distributable |
Accumulated Deficit |
Total Stockholders’ (Deficit) Equity |
|||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2018 | — | $ | — | — | $ | — | 408,508 | $ | 409 | 1,132 | $ | 1 | 184 | $ | — | $ | 141,429,941 | $ | 2,467,910 | $ | (170,861,622 | ) | $ | (26,963,361 | ) | |||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | — | — | (251 | ) | — | 332 | 1 | (1 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Payment of Series B Dividend | — | — | — | — | — | — | — | — | 1 | — | 1,348 | (1,348 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | — | — | — | — | 343,730 | — | — | 343,730 | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of Debenture | — | — | — | — | — | — | — | — | 5 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Warrants - Abeyance | — | — | — | — | — | — | — | — | 10 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series C Preferred Shares for Cash Proceeds | — | — | — | — | — | — | 210 | — | — | — | 2,000,000 | — | — | 2,000,000 | ||||||||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | — | — | (698,996 | ) | 698,996 | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | — | — | (3,512,097 | ) | (3,512,097 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2018 | — | — | — | — | 408,508 | 409 | 1,091 | 1 | 532 | 1 | 143,076,022 | 3,165,558 | (174,373,719 | ) | (28,131,728 | ) | ||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | — | — | (143 | ) | — | 1,837 | 1 | (1 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Payment of Series B Dividend | — | — | — | — | — | — | — | — | 1 | — | 882 | (882 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
| Payment of Consulting Fees | — | — | — | — | — | — | — | — | 1 | — | 200,000 | — | — | 200,000 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series C Preferred Shares for Cash Proceeds | — | — | — | — | — | — | 735 | 1 | — | — | 6,999,999 | — | — | 7,000,000 | ||||||||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | — | — | (896,182 | ) | 896,182 | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | — | — | — | — | — | — | 23,228,366 | 23,228,366 | ||||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2018 | — | — | — | — | 408,508 | 409 | 1,683 | 2 | 2,371 | 2 | 149,380,720 | 4,060,858 | (151,145,353 | ) | 2,296,638 | |||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B to Common | — | — | — | — | (364,508 | ) | (365 | ) | — | — | 3 | — | 365 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | — | — | (10 | ) | — | 2,234 | 2 | (2 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Payment of Series B Dividend | — | — | — | — | — | — | — | — | 10 | — | 469 | (469 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
| Debenture Conversion | — | — | — | — | — | — | — | — | 800 | 1 | 917,103 | — | — | 917,104 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series C Preferred Shares for Cash Proceeds | — | — | — | — | — | — | 632 | — | — | 6,000,000 | — | — | 6,000,000 | |||||||||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | — | — | (1,615,886 | ) | 1,615,886 | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | — | — | — | — | — | — | — | — | — | — | — | — | (1,586,084 | ) | (1,586,084 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2018 | — | $ | — | — | $ | — | 44,000 | $ | 44 | 2,305 | $ | 2 | 5,418 | $ | 5 | $ | 154,682,769 | $ | 5,676,275 | $ | (152,731,437 | ) | $ | 7,267,658 | ||||||||||||||||||||||||||||||||
| Balances, March 31, 2019 | — | $ | — | — | $ | — | 44,000 | $ | 44 | 2,305 | $ | 2 | 13,441 | $ | 13 | $ | 152,251,623 | $ | 8,141,843 | $ | (154,218,469 | ) | $ | 6,175,056 | ||||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred Stock | — | — | — | — | (44,000 | ) | (44 | ) | — | — | — | — | 44 | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Payment of Series B Dividend | — | — | — | — | — | — | — | — | — | — | 3 | (3 | ) | — | — | |||||||||||||||||||||||||||||||||||||||||
| Conversion of Debenture - Abeyance | — | — | — | — | — | — | — | — | 25,008 | 25 | (25 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Payment for Consulting Fees | — | — | — | — | — | — | — | — | 600 | 1 | 303,339 | — | — | 303,340 | ||||||||||||||||||||||||||||||||||||||||||
| Rounding Adjustment for Split | — | — | — | — | — | — | — | — | 4 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | — | — | (1,878,055 | ) | 1,878,055 | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | — | — | (1,287,598 | ) | (1,287,598 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2019 | — | — | — | — | — | — | 2,305 | 2 | 39,053 | 39 | 150,676,929 | 10,019,895 | (155,506,067 | ) | 5,190,798 | |||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Paid for Settlement of Series B Preferred Stock Warrants | — | — | — | — | — | — | — | — | — | — | (25,000 | ) | — | — | (25,000 | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | — | — | (3 | ) | — | 1,004,450 | 1,005 | (1,005 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Conversion of Debenture - Abeyance | — | — | — | — | — | — | — | — | 4,065 | 4 | (4 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Payment of Consulting Fees | — | — | — | — | — | — | — | — | 80 | — | 27,690 | — | — | 27,690 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series E and F Preferred Stock | 1,000,000 | 18,701,00 | 16,750 | 1,417,000 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | — | — | (1,893,886 | ) | 1,893,886 | — | — | |||||||||||||||||||||||||||||||||||||||||
| Rounding adjustment for reverse stock split | — | — | — | — | — | — | — | — | 884 | 1 | (1 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | — | — | (276,964 | ) | (276,964 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2019 | 1,000,000 | 18,701,000 | 16,750 | 1,417,000 | — | — | 2,302 | 2 | 1,048,532 | 1,049 | 148,784,723 | 11,913,781 | (155,783,031 | ) | 4,916,524 | |||||||||||||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | — | — | (8 | ) | — | 3,604,160 | 3,604 | (3,604 | ) | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Change in Valuation of Series E and F Preferred Stock | — | (4,035,000 | ) | — | 1,017,000 | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Redemption of Series E and F Preferred Stock | (1,000,000 | ) | (14,666,000 | ) | (16,750 | ) | (2,434,000 | ) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | — | — | (1,890,887 | ) | 1,890,887 | — | — | |||||||||||||||||||||||||||||||||||||||||
| Rounding adjustment for reverse stock split | — | — | — | — | — | — | — | — | 56,475 | 56 | (56 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | — | — | (1,883,678 | ) | (1,883,678 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balances December 31, 2019 | — | $ | — | — | $ | — | — | $ | — | 2,294 | $ | 2 | 4,709,167 | $ | 4,709 | $ | 146,890,176 | $ | 13,804,668 | $ | (157,616,709 | ) | $ | 3,082,846 | ||||||||||||||||||||||||||||||||
See accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
CAMBER ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (Loss) | $ | (3,398,240 | ) | $ | 18,130,185 | |||
| Net Loss from Discontinued Operations | — | — | ||||||
| Net Income (Loss) from Continuing Operations | (3,398,240 | ) | 18,130,185 | |||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation, Depletion, Amortization and Accretion | 15,215 | 463,926 | ||||||
| Impairment of Oil and Gas Properties | — | 1,304,785 | ||||||
| Bad Debt Expense | 17,694 | — | ||||||
| Gain on Sale of Oil and Gas Properties | — | (25,808,246 | ) | |||||
| Share-Based Compensation | 37,690 | 343,629 | ||||||
| Litigation Settlement - PetroGlobe | 204,842 | — | ||||||
| Change in fair value of derivatives | (5 | ) | — | |||||
| Amortization of Discount on Notes | — | 1,499,647 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts Receivable | (64,695 | ) | 576,320 | |||||
| Other Current Assets | 263,205 | (3,444 | ) | |||||
| Accounts Payable and Accrued Expenses | (279,437 | ) | (696,281 | ) | ||||
| Cash Used in Operating Activities from Continuing operations | (3,203,731 | ) | (4,188,452 | ) | ||||
| Cash Provided by Operating Activities from Discontinued Operations | 1,212,391 | — | ||||||
| Cash Used in Operating Activities | (1,991,340 | ) | (4,188,452 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Cash Acquired in Lineal Acquisition | 449,763 | — | ||||||
| Cash Disposed of in Connection with Lineal Redemption | (2,101,879 | ) | — | |||||
| Cash Loaned to Lineal Holdings | (2,339,719 | ) | — | |||||
| Cash Paid for Fixed Asset Additions | — | (2,187,302 | ) | |||||
| Cash Received (Paid) for Deposits | 43,466 | (141,009 | ) | |||||
| Cash Used in Investing activities from Continuing Operations | (3,948,369 | ) | (2,328,311 | ) | ||||
| Cash Used in Investing Activities from Discontinued Operations | (692,650 | ) | — | |||||
| Net Cash Used in Investing Activities | (4,641,019 | ) | (2,328,311 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Cash Paid for Settlement of Series B Preferred Stock Warrants | (25,000 | ) | — | |||||
| Proceeds from Issuance of Series C Preferred Stock | — | 15,000,000 | ||||||
| Cash Used in Financing Activities from continuing operations | (25,000 | ) | 15,000,000 | |||||
| Cash Provided by Financing Activities from Discontinued Operations | 1,132,375 | — | ||||||
| Cash Provided by Financing Activities | 1,107,375 | 15,000,000 | ||||||
| (Decrease) Increase in Cash and Restricted Cash | (5,524,984 | ) | 8,483,237 | |||||
| Cash and Restricted Cash at Beginning of the Period | 7,778,723 | 789,151 | ||||||
| Cash and Restricted Cash at End of the Period | $ | 2,253,739 | $ | 9,272,388 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
CAMBER ENERGY, INC.
(Unaudited)
Camber Energy, Inc. (“Camber” or the “Company”) is an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations, including the Cline shale and upper Wolfberry shale in Glasscock County, Texas, as well as in productive zones in the Panhandle in Hutchinson County, Texas. Additionally, from the July 8, 2019 acquisition of Lineal Star Holdings, LLC (“Lineal”), until the divestiture of Lineal effective on December 31, 2019, each as discussed below, the Company, through Lineal, was involved in the oil and gas services industry.
On July 8, 2019, the Company acquired Lineal pursuant to the terms of an Agreement and Plan of Merger dated as of the same date (the “Lineal Plan of Merger” and the merger contemplated therein, the “Lineal Merger”), by and between Lineal, Camber, Camber Energy Merger Sub 2, Inc., Camber’s wholly-owned subsidiary (“Merger Sub”), and the Members of Lineal (the “Lineal Members”). Lineal is a specialty construction and oil and gas services enterprise providing services to the energy industry. Pursuant to the Lineal Plan of Merger, Camber acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock (“Series E Preferred Stock”) and Series F Redeemable Preferred Stock (“Series F Preferred Stock”). See also “NOTE 10 – Merger Agreement and Divestiture”. On October 8, 2019, Lineal acquired an 80% interest in Evercon Energy LLC (“Evercon”). The acquisition required Lineal to assume certain liabilities and provide working capital for a period of six months in an amount of $50,000 per month to Evercon. As part of the Lineal Divestiture, described below, Evercon was divested effective December 31, 2019.
On December 31, 2019, the Company entered into a Preferred Stock Redemption Agreement (the “Redemption Agreement”) by and between the Company and Lineal, whereby the Company redeemed the Company’s Series E and F Preferred Stock (the holders of such preferred stock, collectively, the “Preferred Holders”) issued in connection with the Lineal Merger. Pursuant to the Redemption Agreement, effective as of December 31, 2019, ownership of 100% of Lineal was transferred back to the Preferred Holders, and, all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were cancelled through the redemption See also “NOTE 10 – Merger Agreement and Divestiture”.
Prior to the acquisition of Lineal, the Company sold a significant portion of its oil and gas production assets in Oklahoma to N&B Energy, LLC (“N&B Energy”) effective August 1, 2018 (see further discussion in “NOTE 2 – Liquidation and Going Concern Considerations”). Additionally, as part of the sale of its assets to N & B Energy, the Company also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard to any of the retained items noted above through December 31, 2019 and the filing date of these financial statements.
Camber retained its assets in Glasscock County and operates in Hutchinson County, Texas.
On January 31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe Energy Holdings, LLC (“PetroGlobe”), Signal Drilling, LLC (“Signal”), Petrolia Oil, LLC (“Petrolia”), Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River Trading Company, LLC (“CRTC”). Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which release is subject to approval by the Company upon the successful transfer of all wells and partnership interests of the Company’s current wholly-owned subsidiary CE to PetroGlobe. CE operates all of our producing wells and leases which are located in Hutchinson County, Texas. See also “NOTE 8 – Commitments and Contingencies” – “Legal Proceedings”.
| F-5 |
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in (a) Camber’s annual report filed with the SEC on Form 10-K for the year ended March 31, 2019; and (b) as relates to Lineal, the consolidated audited financial statements of Lineal and its subsidiaries, contained in Exhibit 99.1 to Camber’s Current Report on Form 8-K (Amendment No. 2), filed with the SEC on October 7, 2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
On March 1, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to affect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company. The reverse stock split was effective on March 5, 2018. The effect of the reverse stock split was to combine every 25 shares of outstanding common stock into one new share, with no change in authorized shares or par value per share. On December 20, 2018, the Company filed a Certificate of Change with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of the Company’s (a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on December 24, 2018. The effect of the reverse stock split was to combine every 25 shares of outstanding common stock into one new share, with a proportionate 1-for-25 reduction in the Company’s authorized shares of common stock, but no change in the par value per share of the common stock. Effective on April 10, 2019, the Company filed, with the Secretary of State of Nevada, a Certificate of Amendment to the Company’s Articles of Incorporation to increase the number of the Company’s authorized shares of common stock, $0.001 per value per share, from 20,000,000 shares to 250,000,000 shares. On July 3, 2019, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of all outstanding common stock shares of the Company. The reverse stock split was effective on July 8, 2019. The effect of the reverse stock split was to combine every 25 shares of outstanding common stock into one new share, with no change in authorized shares (250,000,000 shares of common stock) or par value per share. On October 28, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada to affect a 1-for-50 reverse stock split of the Company’s (a) authorized shares of common stock (from 250,000,000 shares to 5,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on October 29, 2019. The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with a proportionate 1-for-50 reduction in the Company’s authorized shares of common stock, but with no change in the par value per share of the common stock. The result of the reverse stock split was to reduce, as of the effective date of the reverse stock split, the number of common stock shares outstanding from approximately 74.5 million shares to approximately 1.5 million shares (prior to rounding).
Proportional adjustments were made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans in connection with each of the reverse splits described above. The reverse stock splits did not affect any stockholder’s ownership percentage of the Company’s common stock, except to the limited extent that the reverse stock splits resulted in any stockholder owning a fractional share. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s aggregate ownership of the Company. All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants to purchase common stock and per share amounts contained in the financial statements, in accordance with SAB TOPIC 4C, have been retroactively adjusted to reflect the reverse splits for all periods presented.
| F-6 |
NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS
At December 31, 2019, the Company’s total current assets of $2.4 million exceeded its total current liabilities of approximately $2.0 million, resulting in working capital of $0.4 million, while at March 31, 2019, the Company’s total current assets of $8.2 million exceeded its total current liabilities of approximately $2.1 million, resulting in working capital of $6.1 million. The reduction from $6.1 million to $0.4 million is due to losses from continuing operations and costs incurred with the merger and ultimate divestiture of Lineal, including funds loaned to Lineal in connection with such divestiture. See also “NOTE 10 – Merger Agreement and Divestiture”.
The factors above raise substantial doubt about the Company's ability to continue to operate as a going concern for the twelve months following the issuance of these financial statements. The Company believes that it will not have sufficient liquidity to meet its operating costs unless it can raise new funding, which may be through the sale of debt or equity or unless it closes the Viking Merger (discussed below), which is scheduled to be closed by June 30, 2020, extendable up to December 31, 2020 under certain circumstances, the completion of which is the Company's current plan. There is no guarantee though that the Viking merger will be completed or other sources of funding be available. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has no secured debt outstanding as of December 31, 2019.
During the three and nine months ended December 31, 2019 and 2018, the Company sold 0 shares and 632 shares and 0 shares and 1,577 shares, respectively, of Series C Preferred Stock pursuant to the terms of an October 2017, October 2018 and November 2018 Stock Purchase Agreement, for total consideration of $0 and $6 million and $0 and $15 million, respectively.
N&B Energy Asset Disposition Agreement
On July 12, 2018, the Company entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018 and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with N&B Energy as purchaser, which entity is affiliated with Richard N. Azar II, the Company’s former Chief Executive Officer and former director (“Azar”), and Donnie B. Seay, the Company’s former director (“Seay”). Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash to assume the Company’s liabilities and contractual obligations in connection with the Disposed Assets (including lease and bonus payments), to assume all of the Company’s obligations and debt owed under its outstanding loan agreement with International Bank of Commerce (“IBC Bank”), which had a then outstanding principal balance of approximately $36.9 million and the other parties agreed to enter into a settlement agreement.
Assumption Agreement
On September 26, 2018, the Company entered into an Assumption Agreement (the “Assumption Agreement”) with IBC Bank; CE Operating, LLC, the Company’s wholly-owned subsidiary (“CE Operating”), which became a party to the Sale Agreement pursuant to the second amendment thereto; N&B Energy; Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”); Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay. Azar, Seay, RAD2, and DBS are collectively referred to as the “Guarantors”.
Pursuant to the Assumption Agreement, N&B Energy agreed to assume all of the Company’s liabilities and obligations owed to IBC Bank and IBC Bank approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities which the Company owed to IBC Bank (collectively, the “IBC Obligations”). Finally, pursuant to the Assumption Agreement, IBC Bank released and forever discharged the Company and CE Operating and each of their current and former officers, directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at equity, which IBC Bank then had, arising out of or related to the amounts which the Company owed to IBC Bank under the Note, Loan Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held on certain of the Company’s properties located in west Texas.
N&B Energy Sale Agreement Closing
On September 26, 2018, the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid the Company $100 in cash, and the Company transferred ownership of the Assets to N&B Energy.
| F-7 |
Notwithstanding the sale of the Assets, the Company retained its assets in Glasscock and Hutchinson Counties, Texas and also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and retained an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignment of Overriding Royalty Interests.
The effective date of the Sale Agreement was August 1, 2018. The Assets were assigned “as is” with all faults.
As a result of the Assumption Agreement and the Sale Agreement, the Company reduced its liabilities by $37.9 million and its assets by approximately $12.1 million.
The following table summarizes the net assets sold and gain recognized in connection with the Assumption Agreement and Sale Agreement:
| Transaction Summary |
||||
| Assumption of IBC Bank Loan | $ | 36,943,617 | ||
| Assumption of ARO Liability | 699,536 | |||
| Assumption of Capital Lease Obligations and Other | 287,074 | |||
| Cash Received at Closing | 100 | |||
| Oil and Gas Properties Transferred | (12,122,081 | ) | ||
| Total Gain on Sale | $ | 25,808,246 | ||
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has provided a discussion of significant accounting policies, estimates and judgments in its March 31, 2019 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies since March 31, 2019 which are expected to have a material impact on the Company’s financial position, operations or cash flows.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform them with the current year presentation. These reclassifications had no effect on the reported results of operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Camber and all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
Accounts Receivable
Accounts receivable, net, include amounts due for oil and gas revenues from prior month production, accrued interest on the notes receivable due from Lineal and an estimate of amounts due from N&B Energy related to the September 2018 Sale Agreement. The allowance for doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing accounts receivable. At December 31, 2019 and March 31, 2019, there were allowances for doubtful accounts of approximately $208,000 and $190,000, respectively, included in accounts receivable, and there were bad debts of $0 and $17,694, recognized for the three and nine-month periods ended December 31, 2019, respectively.
| F-8 |
Notes Receivable
Notes receivable includes the two notes due from Lineal in the amounts of $1,539,719 and $800,000, respectively, as more fully discussed in “NOTE 10 – Merger Agreement and Divestiture”. Notes receivable are reported based on the principal amounts due from Lineal pursuant to notes receivable issued by Camber to Lineal pursuant to the Redemption Agreement. As of December 31, 2019, the Company had no allowance for uncollectible amounts related to the notes receivable.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the equipment under capital leases related to the Lineal operations was computed using the straight-line method over lives ranging from 3 to 5 years and is included in depreciation expense. Costs of maintenance and repairs were charged to expense when incurred.
Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the periods ended December 31, 2019 and March 31, 2019.
Goodwill
Goodwill is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings of businesses one level below the operating segment level. The Company’s operating segments are the same as the reporting units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed. The Company recognized goodwill during the three months ended September 30, 2019 in conjunction with the Lineal Merger which was written off during the quarter ended December 31, 2019 as a result of the Lineal Divestiture as discussed in “NOTE 10 – Merger Agreement and Divestiture”.
Revenue Recognition
Exploration and Production Revenue
The Company’s revenue for its exploration and production segment is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. Natural gas liquids (NGLs) are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.
| F-9 |
Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.
Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.
Oil and Gas Services Revenue
The majority of Lineal’s oil and gas service revenue is derived from contracts and projects that typically span between 3 to 12 months. The oil and gas service contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
Lineal’s construction contracts are recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. Contract costs include labor, material, and indirect costs. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, Lineal estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On Lineal’s construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.
Fair Value of Financial Instruments
Accounting Standards Codification (ASC) 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services. |
| F-10 |
| ● | Level 3 – Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort. |
As of December 31, 2019 and March 31, 2019, the significant inputs to the Company’s derivative liability and mezzanine equity calculations were Level 3 inputs.
Recently Adopted Accounting Pronouncements
ASC 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method applied to contracts that were not completed as of April 1, 2018. Under the modified retrospective method, prior period financial positions and results will not be adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While the Company does not expect 2020 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning April 1, 2018. Refer to “NOTE 9 – Revenue from Contracts with Customers” for additional information.
In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on April 1, 2018.
Following is a summary of cash and cash equivalents and restricted cash:
| December 31, 2019 |
March 31, 2019 |
|||||||
| Cash, cash equivalents and restricted cash | $ | 2,253,739 | $ | 7,778,723 | ||||
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
| F-11 |
In February 2016, the FASB issued ASU No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with an alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the disclosures related to those periods, are not restated.
In addition, the Company elected practical expedients provided by the new standard, and the Company has elected to not reassess its prior conclusions about lease identification, lease classification, and initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less which do not contain purchase options that the Company is reasonably likely to exercise). As a result of the short-term expedient election, the Company does not have leases that require the recording of a net lease asset and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of April 1, 2019. Moving forward, the Company will evaluate any new lease commitments for application of Topic 842.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. The Company adopted ASU 2018-13 effective April 1, 2019. The adoption did not have a material impact on its consolidated financial statements.
Recently Issued Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.
Subsequent Events
The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE 4 – PROPERTY AND EQUIPMENT
Oil and Gas Properties
Camber uses the full cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil and natural gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management’s intention with regard to future development of individually significant properties and the ability of Camber to obtain funds to finance their programs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.
| F-12 |
Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Costs of oil and natural gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit of production amounted to $1.18 and $4.20 per barrel of oil equivalent for the nine months ended December 31, 2019 and 2018, respectively.
All of Camber’s oil and natural gas properties are located in the United States. Costs being amortized at December 31, 2019 and March 31, 2019 are as follows:
|
At 2019 |
At 2019 |
||||||
| Oil and gas properties subject to amortization | $ | 50,352,304 | $ | 50,352,304 | |||
| Oil and gas properties not subject to amortization | 28,016,989 | 28,016,989 | |||||
| Capitalized asset retirement costs | 152,223 | 176,649 | |||||
| Total oil & natural gas properties | 78,521,516 | 78,545,944 | |||||
| Accumulated depreciation, depletion, and impairment | (78,345,531 | ) | (78,333,628 | ) | |||
| Net Capitalized Costs | $ | 175,985 | $ | 212,316 | |||
Impairments
For the nine months ended December 31, 2019, the Company recorded no impairments. For the nine months ended December 31, 2018, the Company recorded impairments totaling $1,304,785, which were due to lease expirations.
Additions and Depletion
During the nine months ended December 31, 2019 and 2018, the Company incurred costs of $0 and $2,187,302, respectively, for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded $11,902 and $459,835 for depletion for the nine months ended December 31, 2019 and 2018, respectively.
Disposition of Oil and Natural Gas Properties
On July 12, 2018, the Company entered into the Sale Agreement, as seller, with N&B Energy as purchaser. Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other acquisitions, other than a production payment and overriding royalty interests (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash, to assume all of the Company’s obligations and debt owed under its outstanding loan agreement with IBC Bank, which had a then outstanding principal balance of approximately $36.9 million, and certain other parties agreed to enter into a settlement agreement. The transaction closed in September 2018.
| F-13 |
Leases
As part of the Lineal Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles and machinery and equipment. Due to the Redemption Agreement discussed above in “NOTE 10 – Merger Agreement and Divestiture”, the Company no longer owns the operating and finance leases that it had acquired in connection with the Lineal Acquisition.
Effective August 1, 2018, the Company entered into a month-to-month lease at 1415 Louisiana, Suite 3500, Houston, Texas 77002. The entity providing use of the space without charge is affiliated with the Company’s Chief Financial Officer.
NOTE 5 – ASSET RETIREMENT OBLIGATIONS
The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of current and long-term obligations associated with the future retirement of oil and natural gas properties for the nine-month periods ended December 31, 2019 and 2018, respectively.
| 2019 | 2018 | |||||||
| Carrying amount at beginning of period | $ | 303,809 | $ | 979,159 | ||||
| Accretion | 2,920 | 4,725 | ||||||
| Dispositions | — | (699,536 | ) | |||||
| Revisions of previous estimates | (25,425 | ) | 35,422 | |||||
| Carrying amount at end of period | $ | 281,304 | $ | 319,770 | ||||
Camber has short-term obligations of $239,167 and $0 related to the plugging liabilities at December 31, 2019 and March 31, 2019, respectively.
NOTE 6 – NOTES PAYABLE AND DEBENTURE
The Company had no notes payable or debenture outstanding as of December 31, 2019 or March 31, 2019.
| F-14 |
Debenture
On October 31, 2018, an accredited institutional investor, Discover Growth Fund LLC (“Discover”) converted the entire $495,000 remaining balance of principal owed under the terms of a convertible debenture which it held, into an aggregate of 642 shares of common stock, including 5 shares of common stock issuable upon conversion of the principal amount thereof (at a conversion price of $101,562.50 per share), and 637 shares in connection with conversion premiums due thereon (at an initial conversion price, as calculated as provided in such debenture, of $1,912.50 per share). A total of 80 of such shares were issued to Discover in connection with the initial conversion and the remaining shares were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of Discover. Subsequent to the October 31, 2018 conversion date, Discover was due an additional 38,116 shares of common stock in connection with true ups associated with the original issuance, as a result of the conversion price of the conversion premiums falling to $31.25 per share pursuant to the terms of the convertible debenture. Through December 31, 2019, all of the shares have been issued.
NOTE 7 – DERIVATIVE LIABILITY
The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The warrants granted to Ironman PI Fund II, LP contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined in accordance with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time. The warrants expired on April 21, 2019.
Activities for derivative warrant instruments during the nine months ended December 31, 2019 and 2018 were as follows:
| 2019 | 2018 | |||||||
| Carrying amount at beginning of period | $ | 5 | $ | 5 | ||||
| Change in fair value | (5 | ) | — | |||||
| Carrying amount at end of period | $ | — | $ | 5 | ||||
The fair value of the derivative warrants was calculated using the Black-Scholes pricing model. Variables used in the Black Scholes pricing model as of December 31, 2018 include (1) discount rate of 2.20%, (2) expected term of 0.30 years, (3) expected volatility of 238.27%, and (4) zero expected dividends.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
During March and April 2018, the Company purchased certain equipment pursuant to capital leases. The effective borrowing rate was approximately 35%, and all obligations were due by December 2018. In conjunction with the assignment of the liabilities owed under the IBC Bank loan agreements to N&B Energy in September 2018, as discussed under “NOTE 2 – Liquidity and Going Concern Considerations” – “Assumption Agreement” all of the remaining obligations were assumed by the purchaser.
| F-15 |
Lineal (which as of December 31, 2019 has been completely divested in connection with the Lineal Divestiture discussed in “NOTE 10 – Merger Agreement and Divestiture”) has the usual liability of contractors for the completion of contracts and the warranty of its work. In addition, Lineal acts as prime contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project, including subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying consolidated financial statements.
Legal Proceedings. From time to time suits and claims against Camber arise in the ordinary course of Camber’s business, including contract disputes and title disputes. Camber records reserves for contingencies when information available indicates that a loss is probable, and the amount of the loss can be reasonably estimated.
MidFirst
In October 2018, the Company entered into a confidential settlement agreement with MidFirst Bank, its prior landlord, and settled all claims relating to the Company’s prior office space lease.
Maranatha Oil Matter
In November 2015, Randy L. Robinson, d/b/a Maranatha Oil Co. sued the Company in Gonzales County, Texas (Cause No. 26160). The plaintiff alleged that it assigned oil and gas leases to the Company in April 2010, retaining a 4% overriding royalty interest and 50% working interest and that the Company failed to pay such overriding royalty interest or royalty interest. The interests relate to certain oil and gas properties which the Company subsequently sold to Nordic Oil USA in April 2013. The petition alleges causes of actions for breach of contract, failure to pay royalties, non-payment of working interest, fraud, fraud in the inducement of contract, money had and received, constructive trust, violation of theft liability act, continuing tort and fraudulent concealment. The suit seeks approximately $100,000 in amounts alleged owed, plus pre-and post-judgment interest. The Company has filed a denial to the claims and intends to vehemently defend itself against the allegations.
PetroGlobe Energy Holdings, LLC and Signal Drilling, LLC
In March 2019, PetroGlobe and Signal sued the Company in the 316th Judicial District of Hutchinson County, Texas (Cause No. 43781). The plaintiffs alleged causes of action relating to negligent misrepresentation; fraud and willful misconduct; gross negligence; statutory fraud; breach of contract; and specific performance, in connection with a purchase and sale agreement entered into between the parties in March 2018, relating to the purchase by plaintiffs of certain oil and gas assets from the Company, and a related joint venture agreement. The lawsuit seeks in excess of $600,000 in damages, as well as pre- and post-judgment interest, court costs and attorneys’ fees, and punitive and exemplary damages. Additionally, a portion of the revenues from the properties in contention are being held in suspense as a result of the lawsuit. On October 31, 2019, the Company brought counterclaims against PetroGlobe and Signal, and Petrolia Oil, LLC and Ian Acrey, including bringing claims for causes of actions including declaratory judgment (that PetroGlobe and certain other plaintiffs represented that a lease and related wells were free of all agreements and rights in favor of third parties and provided a special warranty of title pursuant to the purchase and sale agreement); breach of contract (in connection with the purchase and sale agreement); statutory fraud; common law fraud (against Mr. Acrey and other plaintiffs); fraud by non-disclosure (against Mr. Acrey and other plaintiffs); negligent misrepresentation (against Mr. Acrey and other plaintiffs); breach of fiduciary duty (against Mr. Acrey and other plaintiffs) and seeking attorney’s fees and pre- and post-judgment interest.
On January 31, 2020, the Company entered into a Settlement Agreement as discussed in “NOTE 1 – General”. The $250,000 that the Company agreed to pay has been included in current liabilities on the consolidated balance sheet as of December 31, 2019, and the Company recognized its asset retirement obligations related these properties as current liabilities as the Company expects to become compliant with the Texas Railroad Commission in March 2020, resulting in a net settlement cost of $204,842 included on the statement of operations for the three and nine-month periods ended December 31, 2019. Upon satisfaction of the Settlement Agreement conditions and disposition of the assets and related liabilities, the Company will record the transfer of a deposit of a surety bond of $50,000 and the related oil and gas properties of approximately $70,000 at December 31, 2019, oil currently held in storage at the Company’s location and any related outstanding accounts receivable due to the Company. The Company has fully reserved any amounts related to the oil in storage and the accounts receivable which are recorded on the Consolidated Balance Sheet as of December 31, 2019 at $0.
| F-16 |
The intention of such transfer of wells and partnership interests of CE is that (a) the Company shall be completely removed from liabilities resulting from future acts or omissions of CE occurring after such transfer date, (b) CE is effectively transferred and all steps have been approved by the Railroad Commission of Texas, including approval of new directors, officers, and owners of greater than a 25% interest in CE, and (c) that liability for the wells and partnership interests of the Company in CE, and the current officers and directors of CE, will be transferred after approval by the Railroad Commission along with all oil in storage tanks and the bond currently in place. CE operates all of our producing wells and leases located in Hutchinson County, Texas.
The Company also agreed to bring the certain wells into regulatory compliance to the extent such compliance is required to obtain Railroad Commission of Texas approval and upon successful completion of the Company bringing the properties into regulatory compliance, the Company is required to assign to PetroGlobe, or its designee, all of its right, title and interest in all wells, leases, royalties, minerals, equipment, and other tangible assets associated with specified wells and properties. Such properties shall be free and clear of all claims and liens arising during the direct operation of such properties by CE. In the event that the Railroad Commission of Texas fails or refuses to approve the form “P-5 O” to remove all current officers, directors, and owners of CE from the form and substitute the officers, directors and owners of CE as directed by PetroGlobe within 180 days of delivery of assignment of the Company’s interests in CE to PetroGlobe, or its designee, the parties will cooperate to seek divestiture of their interests in the wells and leaseholds held in escrow. Upon completion of such divestiture and removal of Company and the current officers and directors of CE from potential regulatory responsibility for such wells and leaseholds, the Company is required to direct the release to PetroGlobe of all funds held in escrow. If the properties are not divested within the additional 180 day period, the funds held in escrow are to be returned to the Company.
Upon the Company successfully bringing properties into regulatory compliance and assigning the properties to PetroGlobe, or its designee, the Company is required to also assign all of its membership interests in Petrolia.
The Company released the parties to the Settlement Agreement, including Ian Acrey, individually, as well as their officers, directors, or members from any claims asserted in the lawsuit, and the parties to the Settlement Agreement along with Ian Acrey, individually, released the Company, its officers, directors, shareholders and affiliate corporations from any claims asserted in the lawsuit. The Company did not release any claims or causes of action against N&B Energy, LLC, Sezar Energy, LLP related to Richard Azar, or any of their affiliates, or predecessors, or successors.
The parties agreed to promptly cause the filing of a motion and order to dismiss the lawsuit with prejudice shortly after execution of the Settlement Agreement.
Apache Corporation
In December 2018, Apache Corporation (“Apache”) sued the Company, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is seeking $586,438 in actual damages, exemplary damages, pre- and post-judgment interest, court costs and other amounts which it may be entitled. The Company has filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. The parties are currently moving towards discovery. The Company denies Apache’s claims and intends to vehemently defend itself against the allegations.
| F-17 |
N&B Energy
On September 12, 2019, N&B Energy filed a petition in the District Court for the 285th Judicial District of Bexar County, Texas (Case #2019CI11816). Pursuant to the petition, N&B Energy raises claims against the Company for breach of contract, unjust enrichment, money had and received and disgorgement, in connection with $706,000 which it alleges it is owed under the Sale Agreement for true ups and post-closing adjustments associated therewith. The petition seeks amounts owed, pre- and post-judgment interest and attorney’s fees. The Company denies N&B Energy’s claims, believes it is owed approximately $400,000 related to the Sale Agreement and intends to vehemently defend itself against the allegations and claims and seek counterclaims. The Company is currently in negotiations to settle the matter with N&B Energy through binding arbitration.
NOTE 9 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Oil and Gas Contracts
The following table disaggregates revenue by significant product type for the three and nine months ended December 31, 2019 and 2018:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Oil sales | $ | 69,092 | $ | 78,301 | $ | 229,577 | $ | 455,32 | ||||||||
| Natural gas sales | 9,871 | 13,114 | 29,418 | 753,057 | ||||||||||||
| Natural gas liquids sales | 15,152 | 41,522 | 49,224 | 1,423,720 | ||||||||||||
| Total oil and gas revenue from customers | $ | 94,115 | $ | 127,937 | $ | 308,219 | $ | 2,632,099 | ||||||||
NOTE 10 – MERGER AGREEMENT AND DIVESTITURE
Merger Agreement
On July 8, 2019 (the “Closing Date”), the Company entered into, and closed the transactions contemplated by, the Lineal Plan of Merger, by and between the Company, Camber Energy Merger Sub 2, Inc., the Company’s then newly formed wholly-owned subsidiary, Lineal, and the Lineal Members. Pursuant to the Lineal 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.
In connection with the Lineal Plan of Merger, the Company entered into several other agreements, including (a) a Security Exchange Agreement dated July 8, 2019 (the “Exchange Agreement”), by and between the Company and Discover; (b) a Termination Agreement dated July 8, 2019, by and between the Company and 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 Lineal 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 “July 2019 Lineal Note”).
| F-18 |
Also as part of the Lineal 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”).
The Lineal Plan of Merger, Series D Designation and Series E Designation, provided that, effective upon the date that the stockholders of the Company had approved the Lineal Plan of Merger and issuance of shares in connection therewith (the “Stockholder Approval” and such date of Stockholder Approval, the “Stockholder Approval Date”), and subject to certain closing conditions, (a) the common stock holders of the Company were to hold between 6% and 6.67% of the Company’s fully-diluted capitalization (depending on certain factors); (b) Discover was to 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 held the Series E Preferred Stock, were to have the right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed above, into 66.67% of the Company’s fully-diluted capitalization, or 70%, subject to certain factors.
Pursuant to the Lineal Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Lineal Merger and as a wholly-owned subsidiary of the Company.
The Funding Agreement required the Company to fund $1,050,000 in immediately available funds to Lineal (the “Loan”). The Loan was documented by the July 2019 Lineal Note and the Loan was made on July 9, 2019.
The consideration paid for the acquisition was as follows:
| Series E Preferred Shares | $ | 18,701,000 | ||
| Series F Preferred Shares | 1,417,000 | |||
| Total consideration | $ | 20,118,000 |
The Series E Preferred Shares and the Series F Preferred Shares were determined to be contingently redeemable preferred stock and were accounted for as mezzanine equity. The fair value of the instruments was determined using an income valuation approach to estimated cash flows of the acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company and an assessment of the probability of the various scenarios that could occur depending on the outcome of the Stockholder Approval vote, and the impact each scenario would have on the capital structure of the Company. Subsequent to the date of the Lineal Merger, the instruments will be assessed to determine whether it is probable of the instruments being redeemed as a result of contingencies being resolved. When it is deemed probable, the fair value will be adjusted to the new estimate of fair value in that period.
| F-19 |
The allocation of the preliminary purchase price to the assets and liabilities acquired in connection with the Lineal Merger was based on the current values of the assets and liabilities of Lineal as of the Lineal Merger date on July 8, 2019 and are as follows:
| Cash | $ | 449,763 | ||
| Accounts receivable | 2,776,477 | |||
| Deferred tax assets | 34,000 | |||
| Cost in excess of billings | 944,250 | |||
| Property and equipment | 1,436,920 | |||
| Right of use asset – operating leases | 913,396 | |||
| Other current assets and deposits | 60,132 | |||
| Goodwill | 17,992,118 | |||
| Accounts payable – trade | (400,889 | ) | ||
| Accrued and other liabilities | (893,013 | ) | ||
| Operating lease liabilities | (913,396 | ) | ||
| Finance lease liabilities | (313,472 | ) | ||
| Loan Payable – shareholder | (492,337 | ) | ||
| Notes payable | (1,475,949 | ) | ||
| Net assets acquired | $ | 20,118,000 |
The total purchase price was allocated to the acquired tangible and intangible assets and liabilities of Lineal based on their estimated fair values as of the purchase closing date. The excess of the purchase price over the fair value of assets and liabilities acquired was allocated to goodwill.
Divestiture
On December 31, 2019, the Company entered into, and closed the transactions contemplated by the Redemption Agreement, by and between the Company, Lineal and the Preferred Holders.
Pursuant to the Redemption Agreement, the Company redeemed the Company’s Series E and F Preferred Stock issued in connection with the Lineal Merger and ownership of 100% of Lineal was transferred back to the Preferred Holders, and all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were cancelled through the redemption. See also “NOTE 10 – Merger Agreement and Divestiture”.
The Redemption Agreement also provided for (a) the entry by Lineal and the Company into a new unsecured promissory note in the amount of $1,539,719, the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); (b) the unsecured loan by the Company to Lineal on December 31, 2019 of an additional $800,000, entered into by Lineal in favor of the Company on December 31, 2019 (“Lineal Note No. 2”); and (c) the termination of the prior Lineal Plan of Merger and Funding Agreement entered into in connection therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned pursuant to Lineal Note No. 2, were released back to the Company). The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. As of December 31, 2019, $51,656 of interest related to the December 2019 Lineal Note and Lineal Note No. 2 was accrued and included in the consolidated balance sheet in Accounts Receivable.
The divestiture resulting from the Redemption Agreement qualifies as a discontinued operation in accordance with U.S. generally accepted accounting principles (“GAAP”). As a result, operating results and cash flows related to the Lineal operations have been reflected as discontinued operations in the Company’s consolidated statements of operations and consolidated statements of cash flows for the periods presented.
| F-20 |
The net consideration received for the divestiture was as follows:
| Return of Series E Preferred Shares | $ | 14,666,000 | ||
| Return of Series F Preferred Shares | 2,434,000 | |||
| Total net consideration | $ | 17,100,000 |
The fair value of the instruments immediately prior to the divestiture was determined using an income valuation approach to estimate cash flows of the acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company and an assessment of the probability of the various scenarios that could occur depending on the outcome of the Stockholder Approval vote, and the impact each scenario would have on the capital structure of the Company. Immediately prior to the Lineal Disposition, the Company recognized a gain on the change in fair value of the Series E and F Preferred Shares of $3,018,000, included within net loss from discontinued operations.
The following table summarizes the assets and liabilities of Lineal which were transferred from the Company to the Preferred Holders, together with Lineal, as part of the Redemption agreement:
| Cash | $ | 2,101,879 | ||
| Accounts receivable | 1,673,538 | |||
| Deferred tax assets | 34,000 | |||
| Cost in excess of billings | 497,340 | |||
| Property and equipment | 1,996,229 | |||
| Right of use asset – operating leases | 710,898 | |||
| Other current assets and deposits | 49,275 | |||
| Goodwill | 18,314,222 | |||
| Accounts payable – trade | (260,882 | ) | ||
| Accrued and other liabilities | (369,448 | ) | ||
| Billings in excess of costs | (445,759) | |||
| Operating lease liabilities | (710,898 | ) | ||
| Finance lease liabilities | (237,925 | ) | ||
| Notes payable | (3,545,841 | ) | ||
| Net assets divested | $ | 19,806,628 |
As a result of the above, the Company recognized a loss on the disposal of the Lineal operations of $2,706,628 included within net loss from discontinued operations.
Components of amounts reflected in the Company’s consolidated statements of operations related to discontinued operations are presented in the following table for the three and nine months ended December 31, 2019.
| Three Months Ended | Nine Months Ended | |||||||
| December 31, 2019 | December 31, 2019 | |||||||
| Contract revenue | $ | 2,821,229 | $ | 9,106,764 | ||||
| Contract costs | (2,875,530 | ) | (7,772,726 | ) | ||||
| Depreciation and amortization | (90,415 | ) | (155,282 | ) | ||||
| Selling, general and administrative | (885,164 | ) | (1,649,643 | ) | ||||
| Operating loss | (1,029,880 | ) | (470,887 | ) | ||||
| Other income | 9,925 | 273,037 | ||||||
| Interest expense | (1,529 | ) | (113,522) | |||||
| Net (loss) from discontinued operations | (1,021,484) | (311,372 | ) | |||||
| Loss on disposal of business | (2,706,628 | ) | (2,706,628 | ) | ||||
| Change in value of preferred stock | 3,018,000 | 3,018,000 | ||||||
| Total loss on discontinued operations | $ | (710,112 | ) | $ | — | |||
| F-21 |
NOTE 11 - INCOME TAXES
The Company has estimated that its effective tax rate for U.S. purposes will be zero percent for the 2020 and 2019 fiscal years as a result of net losses and a full valuation allowance against the net deferred tax assets. Consequently, the Company has recorded no provision or benefit for income taxes for the nine months ended December 31, 2019 and 2018. The tax liability of $3,000 as shown on the balance sheet as of December 31, 2019, relates to the Company’s potential Oklahoma franchise tax liability and is not related to income tax.
NOTE 12 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
On April 20, 2018, Discover was issued 5 shares of common stock as a result of true-ups in connection with the August 23, 2017 conversion of $35,000 of the principal amount of the debenture held by Discover.
During the quarter ended September 30, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 1 share (with a fair value of $15,625 based on the share price at September 30, 2018) of the Company’s common stock. Due to the fact that the Company is in a retained deficit position, the Company recognized a charge to additional paid in-capital of $882 and stock dividends distributable but not issued based on the par value of the common stock issued. During the quarter ended September 30, 2018, the Company issued 1 share to settle a stock dividend accrued on Series B Preferred Stock.
On November 15, 2018, the Company entered into a consulting agreement with Regal Consulting, an investor relations firm, pursuant to which the firm agreed to provide the Company investor relations and consulting services for a period of six months, for monthly consideration of $28,000 and 7 restricted shares of the Company’s common stock. In January 2019, the Company issued 13 shares of restricted common stock to Regal Consulting for the months of November and December 2018, which shares were issued during the year ended March 31, 2019. On February 13, 2019, and effective on January 31, 2019, the Company entered into a First Amendment to the Consulting Agreement previously entered into with Regal Consulting. Pursuant to the First Amendment, the parties agreed to expand the investor relations services required to be provided by Regal Consulting under the agreement in consideration for $50,000 per month and 40 restricted shares of common stock per month (the “Regal Shares”)(which are fully-earned upon issuance) during the term of the agreement, and agreed to extend the term of the agreement until October 1, 2019 (unless the Company completes an acquisition or combination prior to such date). All of the Regal Shares had been earned and issued to Regal as of September 30, 2019. On October 15, 2019, the Company entered into a Settlement and Mutual Release Agreement (the “Release”) with Regal, pursuant to which it agreed to settle and terminate the consulting agreement with Regal. Pursuant to the Release, the Company agreed to issue Regal 1,514 shares of the Company’s restricted common stock and to pay Regal $17,500 in consideration for agreeing to terminate the agreement. The Company and Regal also provided each other mutual releases in connection with the Release.
On February 13, 2019, the Company entered into a letter agreement with SylvaCap Media (“SylvaCap”), pursuant to which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider in consideration for an aggregate of 480 shares of restricted common stock (the “SylvaCap Shares”), which are fully-earned upon their issuance, and $50,000 per month during the term of the agreement, which ends on November 12, 2019 (unless the Company completes an acquisition or combination prior to such date) or upon termination by either party for cause. The Company also agreed to provide SylvaCap piggy-back registration rights in connection with the SylvaCap Shares and to pay SylvaCap $6,250 every three months as an expense reimbursement. The total value of the restricted shares of common stock due of $261,540 was accrued in common stock payable as of March 31, 2019. The 480 SylvaCap shares were issued in May 2019 and there are no shares due as of December 31, 2019.
| F-22 |
During the three and nine months ended December 31, 2019, Discover and Discover Growth Fund, which purchased shares of Series C Preferred Stock from us in December 2018 (“Discover Growth”, which subsequently transferred all of its shares of Series C Preferred Stock to Discover) converted 8 and 11 shares of the Series C Preferred Stock with a face value of $80,000 and $110,000, respectively, and a total of 3,604,160 shares and 4,608,610 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through December 31, 2019.
As of December 31, 2019, a total of 777,489 shares were due to Discover in connection with the Series C Preferred Stock conversions discussed above, which shares were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of such party, of which 290,833 shares were issued subsequent to December 31, 2019.
From April 1, 2019 to December 31, 2019, Discover was issued 29,073 shares of common stock as true-ups in connection with the October 31, 2018 conversion of the $495,000 remaining balance of principal owed under the terms of a convertible debenture.
Series A Convertible Preferred Stock
As of December 31, 2019 and March 31, 2019, the Company had no Series A Convertible Preferred Stock issued or outstanding.
Series B Redeemable Convertible Preferred Stock
As of December 31, 2019 and March 31, 2019, there were 0 and 44,000 shares of Series B Preferred Stock outstanding, respectively, which have the following features:
| ● | a liquidation preference senior to all of the Company’s common stock; |
| ● | a dividend, payable quarterly, at an annual rate of six percent (6%) of the original issue price until such Series B Preferred Stock is no longer outstanding either due to conversion, redemption or otherwise; and |
| ● | voting rights on all matters, with each share having 1/781,250 of one vote. |
During the quarter ended September 30, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 1 share of the Company’s common stock as described above.
On May 15, 2019, the Company entered into a conversion agreement with the then holder of all 44,000 shares of the Company’s then outstanding Series B Preferred Stock. Pursuant to the Conversion Agreement, all of the Series B Preferred Stock was converted into 1 share of the Company’s common stock pursuant to the stated terms of such Series B Preferred Stock, in consideration for $25,000 in cash due at the time of the parties entry into the agreement, which payment was made during the three months ended September 30, 2019. The holder also provided the Company a release in connection with certain of his rights under the Series B Preferred Stock (including any and all accrued and unpaid dividends) and certain other matters.
Series C Redeemable Convertible Preferred Stock
During the three and nine months ended December 31, 2018, the Company sold 632 and 1,577 shares of Series C Preferred Stock pursuant to the terms of an October 2017 Stock Purchase Agreement, October 2019 Stock Purchase Agreement and November 2018 Stock Purchase Agreement, for total consideration of $6 million and $15 million, respectively. During the three and nine months ended December 31, 2019, the Company sold no shares of Series C Preferred Stock. As of December 31, 2019 and 2018, there were 2,294 and 2,305 shares of Series C Preferred Stock outstanding, respectively.
During the three and nine months ended December 31, 2018, Discover converted 10 and 404 shares of the Series C Preferred Stock with a face value of $0.1 million and $4.04 million, respectively, and a total of 2,234 shares and 4,403 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through December 31, 2018.
| F-23 |
During the three and nine months ended December 31, 2019, Discover and Discover Growth converted 8 and 11 shares of the Series C Preferred Stock with a face value of $80,000 and $110,000, respectively, and a total of 3,604,160 shares and 4,608,610 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through December 31, 2019.
As of December 31, 2019 and March 31, 2019, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 34.95% premium dividend rate. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued of $1,890,887 and $1,615,886 related to the stock dividend declared but not issued for the quarters ended December 31, 2019 and 2018, respectively. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued of $5,662,828 and $3,211,064 related to the stock dividends declared but not issued for the nine months ended December 31, 2019 and 2018, respectively.
As of December 31, 2019, a total of 777,489 shares were due to Discover, which shares were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of such party, of which 290,833 shares were issued subsequent to December 31, 2019.
Series E Redeemable Convertible Preferred Stock and Series F Convertible Preferred Stock
As described above in “NOTE 1 – General” and “NOTE 10 – Merger Agreement and Divestiture”, on the Closing Date, pursuant to the Lineal Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal Members in consideration for 1,000,000 of the newly issued shares of Series E Preferred Stock and 16,750 of the newly issued shares of Series F Preferred Stock and effective on December 31, 2019, the Company divested its ownership in Lineal and the Series E Preferred Stock and Series F Preferred Stock were returned to the Company and cancelled.
Warrants
The following is a summary of the Company’s outstanding warrants at December 31, 2019:
| Warrants | Exercise | Expiration | Intrinsic Value at | |||||||||
| Outstanding | Price ($) | Date | December 31, 2019 | |||||||||
| 1 | (1) | 1,171,875.00 | April 26, 2021 | $ | — | |||||||
| 3 | (2) | 195,412.50 | September 12, 2022 | — | ||||||||
| 32 | (3) | 12,187.50 | May 24, 2023 | — | ||||||||
| 36 | $ | — |
| (1) | Warrants issued in connection with the sale of convertible notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until April 26, 2021. |
| (2) | Warrants issued in connection with the Initial Tranche of the funding from Vantage. The warrants were exercisable on the grant date (September 12, 2017) and remain exercisable until September 12, 2022. |
| (3) | Warrants issued in connection with the Severance Agreement with Richard N. Azar II. The warrants were exercisable on the grant date (May 25, 2018) and remain exercisable until May 24, 2023. |
NOTE 13 – SHARE-BASED COMPENSATION
Camber measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award over the vesting period.
Stock Options
As of December 31, 2019 and March 31, 2019, the Company had 2 stock options outstanding with a weighted average exercise price of $40,429,700.
| F-24 |
Of the Company’s outstanding options, no options were exercised or forfeited during the nine months ended December 31, 2019. Additionally, no stock options were granted during the nine months ended December 31, 2019. Compensation expense related to stock options during the nine-month periods ended December 31, 2019 and 2018 was $0.
Options outstanding and exercisable at December 31, 2019 and March 31, 2019 had no intrinsic value, respectively. The intrinsic value is based upon the difference between the market price of Camber’s common stock on the date of exercise and the grant price of the stock options.
As of December 31, 2019 and March 31, 2019, there was no remaining unrecognized share-based compensation expense related to all non-vested stock options.
Options outstanding and exercisable as of December 31, 2019:
| Exercise | Remaining | Options | Options | |||||||||
| Price ($) | Life (Yrs.) | Outstanding | Exercisable | |||||||||
| 40,429,700 | 0.75 | 2 | 2 | |||||||||
| Total | 2 | 2 | ||||||||||
NOTE 14 – INCOME (LOSS) PER COMMON SHARE
The calculation of earnings (loss) per share for the three and nine months ended December 31, 2019 and 2018 was as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Numerator: | ||||||||||||||||
| Income (loss) before discontinued operations | $ | (1,123,566 | ) | $ | (1,586,084 | ) | $ | (3,398,240 | ) | $ | 18,130,185 | |||||
| Discontinued operations | (710,112 | ) | — | — | — | |||||||||||
| Net income (loss) | (1,833,678 | ) | (1,586,084 | (3,398,240 | ) | 18,130,185 | ||||||||||
| Less preferred dividends | (1,890,887 | ) | (1,615,886 | ) | (5,662,828 | ) | (3,211,064 | ) | ||||||||
| Net income (loss) attributable to common stockholders | $ | (3,724,565 | ) | $ | (3,201,970 | ) | $ | (9,061,068 | ) | $ | 14,919,121 | |||||
| Denominator | ||||||||||||||||
| Weighted average share – basic | 2,937,254 | 4,000 | 1,155,285 | 1,869 | ||||||||||||
| Dilutive effect of common stock equivalents | ||||||||||||||||
| Options/warrants | — | — | — | 494 | ||||||||||||
| Convertible debenture | — | — | — | — | ||||||||||||
| Preferred C shares | — | — | — | 25,827 | ||||||||||||
| Denominator | ||||||||||||||||
| Total Weighted average shares – diluted | 2,937,254 | 4,000 | 1,155,285 | 28,190 | ||||||||||||
| Income (loss) per share – basic | ||||||||||||||||
| Continuing operations | $ | (1.03 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 7,982.41 | |||||
| Discontinued operations | (0.24 | ) | — | — | — | |||||||||||
| Total | $ | (1.27 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 7,982.41 | |||||
| Income (loss) per share – diluted | ||||||||||||||||
| Continuing Operations | $ | (1.03 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 529.23 | |||||
| Discontinued operations | (0.24 | ) | — | — | — | |||||||||||
| Total | $ | (1.27 | ) | $ | (800.49 | ) | $ | (7.84 | ) | $ | 529.23 | |||||
| F-25 |
For the three and nine months ended December 31, 2019 and 2018, the following share equivalents related to convertible debt and warrants to purchase shares of common stock were excluded from the computation of diluted net income (loss) per share as the inclusion of such shares would be anti-dilutive.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Common Shares Issuable for: | ||||||||||||||||
| Convertible Debt | 276 | — | 276 | — | ||||||||||||
| Options and Warrants | 38 | 1,071,7182 | 38 | — | ||||||||||||
| Series C Preferred Shares | 1,123,372,859 | 32,284,833 | 1,123,372,859 | — | ||||||||||||
| Total | 1,123,373,173 | 33,356,551 | 1,123,373,173 | — | ||||||||||||
NOTE 15 – SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for interest and income taxes was as follows for the nine months ended December 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Interest | $ | 14,771 | $ | 842,520 | ||||
| Income taxes | $ | — | $ | — | ||||
Non-cash investing and financing activities included the following:
|
Nine Months Ended December 31, |
||||||||
| 2019 | 2018 | |||||||
| Change in Accounts Payable for Accrued Capital Expenditures | $ | — | $ | 547,033 | ||||
| Settlement of Common Stock Payable | $ | 331,030 | $ | 200,000 | ||||
| Change in Estimate for Asset Retirement Obligations | $ | 25,425 | $ | 35,422 | ||||
| Stock Dividends Distributable but not Issued | $ | 5,662,828 | $ | 3,211,064 | ||||
| Issuance of Stock Dividends | $ | 3 | $ | 2,699 | ||||
| Conversion of Convertible Notes to Common Stock | $ | — | $ | 917,104 | ||||
| Conversion of Preferred Stock to Common Stock | $ | 4,653 | $ | 122,070 | ||||
| Common Stock Issued in Abeyance | $ | 29 | $ | 308 | ||||
| F-26 |
NOTE 16 – FAIR VALUE MEASUREMENTS
When applying fair value principles in the valuation of assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets or liabilities during the fiscal years presented. The fair value estimates take into consideration the credit risk of both the Company and its counterparties.
When active market quotes are not available for financial assets and liabilities, the Company uses industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk, interest rate curves, foreign currency rates and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value. Generally, the fair value of our Level 3 instruments are estimated as the net present value of expected future cash flows based on internal and external inputs.
Fair Value Measurements
The liabilities and mezzanine equity carried at fair value as of December 31, 2019 and March 31, 2019 were as follows:
| December 31, 2019 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ | — | $ | — | $ | — | $ | — | ||||||||
| Mezzanine Equity: | ||||||||||||||||
| Series E Preferred Stock | 14,666,000 | — | — | 14,666,000 | ||||||||||||
| Series F Preferred Stock | 2,434,000 | — | — | 2,434,000 | ||||||||||||
| Total liabilities and mezzanine equity at fair value | $ | 17,100,000 | $ | — | $ | — | $ | 17,100,000 | ||||||||
| March 31, 2019 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liability | $ | 5 | $ | — | $ | — | $ | 5 | ||||||||
| Total liabilities at fair value | $ | 5 | $ | — | $ | — | $ | 5 | ||||||||
There were no transfers in or out of Level 3 for the nine months ended December 31, 2019.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
In addition to the financial instruments that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a non-recurring basis as required by U.S. GAAP. Generally, assets are recorded at fair value on a non-recurring basis as a result of impairment charges or as part of a business combination. As discussed in “NOTE 10 – Merger Agreement and Divestiture, during the nine months ended December 31, 2019, the Company recorded non-recurring fair value measurements related to the Lineal Plan of Merger. These fair value measurements were classified as Level 3 within the fair value hierarchy.
Additionally, the Series E Preferred Stock and Series F Preferred Stock were considered contingently redeemable preferred stock and were classified as mezzanine equity. The fair value of these instruments was estimated as part of the accounting for the Lineal Plan of Merger described in “NOTE 10 – Merger Agreement and Divestiture”. Effective December 31, 2019, the Series E and Series F Preferred Stock were returned to the Company and cancelled as part of the Lineal Divestiture. Immediately prior to the Merger, the estimated fair value of the Series E and Series F Preferred Stock was determined using an income valuation approach to estimate the future cash flows of the Lineal business as of December 31, 2019, including an analysis of the terms and rights of each class of equity and their current value based on the disposition of the Lineal business.
| F-27 |
2020 Stock Purchase Agreement
On February 3, 2020, the Company and Discover entered into a Stock Purchase Agreement (the “2020 Purchase Agreement”) pursuant to which Discover purchased 525 shares of Series C Preferred Stock for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock (the “Face Value”).
The Company also agreed that if the Merger (described below) does not close by the required merger date, and if the amount of funds loaned by the Company to Viking in connection with the Secured Note, as discussed and defined below, plus any applicable interest is returned to the Company by Viking, the Company is required, at Discover’s option, to immediately repurchase from Discover all then outstanding Series C Preferred Stock shares acquired by Discover pursuant to the 2020 Purchase Agreement, by paying to Discover 110% of the aggregate Face Value of all such shares.
Waiver and Amendment Agreement
On February 3, 2020, the Company and Discover entered into a Waivers and Amendments to Stock Purchase Agreements, pursuant to which Discover (a) waived any and all Trigger Events (as defined in the certificate of designation of the Series C Preferred Stock (the “Designation”)) that had occurred prior to February 3, 2020, (b) agreed that all calculations provided for in the Designation would be made as if no such Trigger Event had occurred, (c) waived any right to receive any additional shares of common stock based upon any such Trigger Event, with respect to all shares of Series C Preferred Stock, other than any which have already been converted; (d)(i) waived any and all breaches and defaults that have occurred through February 3, 2020, and (ii) waived all rights and remedies with respect to such breaches and defaults; and (e) agreed that if the Company files a proxy statement to hold a stockholder meeting to approve an increase in the Company’s authorized common stock to 25 million shares, and in any event within 90 days of February 3, 2020, Discover agreed (a) to waive any and all Trigger Events, breaches and defaults related to reserving or issuing shares of common stock upon conversion of outstanding Series C Preferred Stock that may occur or continue during such time, (b) that all calculations provided for in the Designation shall be made as if no such Trigger Event had occurred, and (c) to waive any right to receive any additional shares of common stock based upon any such Trigger Event.
Viking Plan of Merger
On February 3, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Viking Energy Group, Inc. (“Viking”). The Merger Agreement provides that 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.
Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of Viking (the “Viking Common Stock”) issued and outstanding, other than certain shares owned by the Company, Viking and Merger Sub, will be converted into the right to receive the pro rata share of 80% of the Company’s post-closing capitalization, subject to certain adjustment mechanisms discussed in the Merger Agreement (including for shares due to the Company’s current Series C Preferred Stock holders – which holders will be required to agree to a fixed number of shares of Company common stock post-closing in order for the Merger to close). Holders of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. The completion of the Merger is subject to certain closing conditions.
| F-28 |
The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either the Company or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Viking or the Company if the Merger shall not have been consummated on or before June 30, 2020, provided that the Company or Viking shall have the right to extend such date from time to time, until up to December 31, 2020, in the event that the Company has not fully resolved SEC comments on the Form S-4 or other SEC related to the Merger, and Camber is responding to such comments in a reasonable fashion, subject to certain exceptions; (iv) by the Company or Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by the Company if Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Viking if the Company is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Viking or the Company if the other party’s directors change their recommendation to their stockholders to approve the Merger, subject to certain exceptions set forth in the Merger Agreement, or if there is a willful breach of the Merger Agreement by the other party thereto.
A further requirement to the closing of the Merger is that the Company was required to have acquired 25% of Viking’s subsidiary Elysium Energy, LLC (“Elysium”) as part of a $5,000,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020, as discussed below under “Camber Viking Investment”.
The Merger Agreement can be terminated under certain circumstances and depending on the reason for the termination, the Company, upon such termination will retain a portion, all, or none of the 25% interest in Elysium acquired as discussed above.
The Merger Agreement provides that the Secured Note (defined below) will be forgiven in the event the Merger closes, and the Secured Note will be due 90 days after the date that the Merger Agreement is terminated by any party for any reason, at which time an additional payment shall also be due to the Company and payable by Viking in an amount equal to (i) the amount owed by the Company to its Series C Preferred Stock holder in connection with the redemption of 525 shares of the Company’s Series C Preferred Stock, minus (ii) the repayment amount due to the Company from Viking pursuant to the Secured Note (the “Additional Payment”).
A required condition to the entry into the Merger was that the Company loan Viking $5 million, pursuant to the terms of a Securities Purchase Agreement, which was entered into on February 3, 2020 (the “SPA”). Pursuant to the SPA, the Company made a $5 million loan to Viking, which was evidenced by a 10.5% Secured Promissory Note (the “Secured Note”). The Secured Note is secured by a security interest, para passu with the other investors in Viking’s Secured Note offering (subject to certain pre-requisites) in Viking’s 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a separate Security and Pledge Agreement entered into on February 3, 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 Secured Note.
The 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 (February 3, 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 the Company is restricted from converting any portion of the Secured Note into Viking’s common stock if upon such conversion the Company 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).
| F-29 |
As additional consideration for the Company making the loan to Viking, Viking assigned the Company 25% of Elysium pursuant to the terms of an Assignment of Membership Interests dated February 3, 2020.
Settlement Agreement with PetroGlobe
On January 31, 2020, the Company entered into a Compromise Settlement Agreement (with PetroGlobe, Signal, Petrolia, PGCO, and CRTC. See NOTE 8 – Commitments and Contingencies.
Issuance of Common Stock In Connection With Series C Preferred Stock Conversion
From January 1, 2020 through the date of this filing, a total of an aggregate of 290,833 shares of common stock were issued to Discover in connection with the December 12, 2019 conversion by Discover of one share of Series C Preferred Stock and represented shares held in abeyance in connection with such issuance.
| F-30 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of
Camber Energy, Inc.
Houston, Texas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Camber Energy, Inc. (the “Company”) as of March 31, 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company's auditor since 2015.
Houston, Texas
July 1, 2019
| F-31 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of
Camber Energy, Inc.
Houston, Texas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Camber Energy, Inc. (the “Company”) as of March 31, 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ GBH CPAs, PC
We served as the Company’s auditor from 2015 to 2018.
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
July 2, 2018
| F-32 |
CAMBER ENERGY, INC.
| As of March 31, | 2019 | 2018 | ||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 7,778,723 | $ | 760,317 | ||||
| Restricted Cash | — | 28,834 | ||||||
| Accounts Receivable, Net of Allowance | 129,037 | 646,891 | ||||||
| Inventories | — | — | ||||||
| Other Current Assets | 263,205 | 228,733 | ||||||
| Total Current Assets | 8,170,965 | 1,664,775 | ||||||
| Property and Equipment | ||||||||
| Oil and Gas Properties - Subject to Amortization | 50,528,953 | 61,082,526 | ||||||
| Oil and Gas Properties - Not Subject to Amortization | 28,016,989 | 28,016,989 | ||||||
| Other Property and Equipment | 1,570 | 1,570 | ||||||
| Total Property and Equipment | 78,547,512 | 89,101,085 | ||||||
| Accumulated Depletion, Depreciation, Amortization and Impairment | (78,334,324 | ) | (76,555,506 | ) | ||||
| Total Property and Equipment, Net | 213,188 | 12,545,579 | ||||||
| Other Assets | 198,519 | 57,510 | ||||||
| Total Assets | $ | 8,582,672 | $ | 14,267,864 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 1,521,329 | $ | 2,972,261 | ||||
| Common Stock Payable | 303,340 | 200,000 | ||||||
| Accrued Expenses | 276,133 | 1,140,730 | ||||||
| Current Income Taxes Payable | 3,000 | — | ||||||
| Current Portion of Long-Term Notes Payable, Net of Discount | — | 35,691,567 | ||||||
| Total Current Liabilities | 2,103,802 | 40,004,558 | ||||||
| Long-term Notes Payable, Net of Discount | — | 247,403 | ||||||
| Asset Retirement Obligation | 303,809 | 979,159 | ||||||
| Derivative Liability | 5 | 5 | ||||||
| Total Liabilities | 2,407,616 | 41,231,125 | ||||||
| Commitments and Contingencies (see Note 8) | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred Stock Series A, 2,000 Shares Authorized of $0.001 Par Value, -0- Shares issued and Outstanding | — | — | ||||||
| Preferred Stock Series B, 600,000 Shares Authorized of $0.001 Par Value, 44,000 and 408,508 Shares issued and Outstanding, respectively, Liquidation Preference of $1,100,000 | 44 | 409 | ||||||
| Preferred Stock Series C, 5,000 Shares Authorized of $0.001 Par Value, 2,305 and 1,132 Shares issued and Outstanding, respectively, Liquidation Preference of $23,050,000 | 2 | 1 | ||||||
| Common Stock, 250,000,000 Shares Authorized of $0.001 Par Value, 16,802,587 and 230,359 Shares Issued and Outstanding, respectively | 16,803 | 230 | ||||||
| Additional Paid-in Capital | 152,234,833 | 141,429,811 | ||||||
| Stock Dividends Distributable | 8,141,843 | 2,467,910 | ||||||
| Accumulated Deficit | (154,218,469 | ) | (170,861,622 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 6,175,056 | (26,963,261 | ) | |||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 8,582,672 | $ | 14,267,864 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-33 |
| CAMBER ENERGY, INC. |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| For the Year Ended March 31, | 2019 | 2018 | ||||||
| Net Operating Revenues | ||||||||
| Crude Oil | $ | 526,365 | $ | 1,198,514 | ||||
| Natural Gas | 772,105 | 2,051,846 | ||||||
| Natural Gas Liquids | 1,443,632 | 3,609,407 | ||||||
| Total | 2,742,102 | 6,859,767 | ||||||
| Operating Expenses | ||||||||
| Lease Operating Expenses | 2,870,908 | 4,874,724 | ||||||
| Severance and Property Taxes | 132,993 | 300,314 | ||||||
| Depreciation, Depletion, Amortization and Accretion | 478,770 | 1,480,535 | ||||||
| Impairment of Oil and Gas Properties | 1,304,785 | 8,137,987 | ||||||
| (Gain) Loss on Sale of Property and Equipment | (25,808,246 | ) | 3,559,083 | |||||
| General and Administrative | 5,152,766 | 7,173,829 | ||||||
| Total | (15,868,024 | ) | 25,526,472 | |||||
| Operating Income (Loss) | 18,610,126 | (18,666,705 | ) | |||||
| Other Expense (Income) | ||||||||
| Interest Expense | 2,438,097 | 6,018,829 | ||||||
| Other Expense (Income), Net | (474,124 | ) | 86,054 | |||||
| Total Other Expense | 1,963,973 | 6,104,883 | ||||||
| Income (Loss) Before Income Taxes | 16,646,153 | (24,771,588 | ) | |||||
| Income Tax Benefit (Expense) | (3,000 | ) | — | |||||
| Net Income (Loss) | $ | 16,643,153 | $ | (24,771,588 | ) | |||
| Net Income (Loss) Per Common Share | ||||||||
| Basic | $ | 2.22 | $ | (287.86 | ) | |||
| Diluted | $ | 0.21 | $ | (287.86 | ) | |||
| Weighted Average Number of Common Shares Outstanding | ||||||||
| Basic | 4,938,259 | 92,753 | ||||||
| Diluted | 52,256,732 | 92,753 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-34 |
|
CAMBER ENERGY, INC. Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the Years Ended March 31, 2019 and 2018 |
|
Series A Preferred Stock |
Series B Preferred Stock |
Series C Preferred Stock |
Common Stock | Additional | Stock | Total | ||||||||||||||||||||||||||||||||||||||||||
| Number | Number | Number | Number | Paid-In | Divided | Accumulated | Stockholders' | |||||||||||||||||||||||||||||||||||||||||
| Of Shares | Amount | Of Shares | Amount | Of Shares | Amount | Of Shares | Amount | Capital | Distributable | Deficit | (Deficit) Equity | |||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2017 | — | $ | — | 552,000 | $ | 552 | 404 | $ | 1 | 43,385 | $ | 43 | $ | 134,921,809 | $ | 598,650 | $ | (146,090,034 | ) | $ | (10,568,979 | ) | ||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred Stock | — | — | (143,492 | ) | (143 | ) | — | — | 1,640 | 2 | 141 | — | — | — | ||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | (10 | ) | — | 16,390 | 16 | (16 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock Dividends | — | — | — | — | — | — | 305 | — | 58,824 | (58,824 | ) | — | — | |||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | 9,004 | 9 | 1,017.805 | — | — | 1,017,814 | ||||||||||||||||||||||||||||||||||||
| Warrants Abeyance | — | — | — | — | — | — | 156,380 | 156 | (156 | ) | — | — | — | |||||||||||||||||||||||||||||||||||
| Conversion of Debenture | — | — | — | — | — | — | 2,808 | 3 | 34,997 | — | — | 35,000 | ||||||||||||||||||||||||||||||||||||
| Lender Shares | — | — | — | — | — | — | 80 | — | 35,900 | — | — | 35,900 | ||||||||||||||||||||||||||||||||||||
| Issuance of Series C Preferred Stock | — | — | — | — | 738 | — | — | — | 7,000,000 | — | — | 7,000,000 | ||||||||||||||||||||||||||||||||||||
| Rounding Adjustment for Split | — | — | — | — | — | — | 367 | 1 | (1 | ) | — | — | — | |||||||||||||||||||||||||||||||||||
| Warrants - Vantage | — | — | — | — | — | — | — | — | 288,592 | — | — | 288,592 | ||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | (1,928,084 | ) | 1,928,084 | — | — | |||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | — | — | — | — | (24,771,588 | ) | (24,771,588 | ) | ||||||||||||||||||||||||||||||||||
| Balances, March 31, 2018 | — | — | 408,508 | 409 | 1,132 | 1 | 230,359 | 230 | 141,429,811 | 2,467,910 | (170,861,622 | ) | (26,963,261 | ) | ||||||||||||||||||||||||||||||||||
| Common Shares issued for: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Series B Preferred Stock | — | — | (364,508 | ) | (365 | ) | — | — | 3,543 | 4 | 361 | — | — | — | ||||||||||||||||||||||||||||||||||
| Conversion of Series C Preferred Stock | — | — | — | — | (404 | ) | — | 4,741,986 | 4,742 | (4,742 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
| Rounding Adjustment for Split | — | — | — | — | — | — | 29,035 | 30 | (30 | ) | — | — | — | |||||||||||||||||||||||||||||||||||
| Payment of Series B Dividend | — | — | — | — | — | — | 231 | — | 2,782 | (2,782 | ) | — | — | |||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | — | — | — | — | 343,631 | — | — | 343,631 | ||||||||||||||||||||||||||||||||||||
| Warrants - Abeyance | — | — | — | — | — | — | 12,336 | 12 | (12 | ) | — | — | — | |||||||||||||||||||||||||||||||||||
| Conversion of Debenture | — | — | — | — | — | — | 11,767,097 | 11,767 | 905,336 | — | — | 917,103 | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Shares for Consulting | — | — | — | — | — | — | 18,000 | 18 | 234,412 | — | — | 234,430 | ||||||||||||||||||||||||||||||||||||
| Issuance of Series C Preferred Shares | — | — | — | — | 1,577 | 1 | — | — | 14,999,999 | — | — | 15,000,000 | ||||||||||||||||||||||||||||||||||||
| Stock Dividends to be Issued | — | — | — | — | — | — | — | — | (5,676,715 | ) | 5,676,715 | — | — | |||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | — | — | — | — | — | 16,643,153 | 16,643,153 | ||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2019 | — | $ | — | 44,000 | $ | 44 | 2,305 | $ | 2 | 16,802,587 | $ | 16,803 | $ | 152,234,833 | $ | 8,141,843 | $ | (154,218,469 | ) | $ | 6,175,056 | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-35 |
| CAMBER ENERGY, INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| For the Year Ended March 31, | 2019 | 2018 | ||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (Loss) | $ | 16,643,153 | $ | (24,771,588 | ) | |||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Used in Operating Activities: | ||||||||
| Depreciation, Depletion, Amortization and Accretion | 478,770 | 1,480,535 | ||||||
| Impairment of Oil and Gas Properties | 1,304,785 | 8,137,987 | ||||||
| Share-Based Compensation | 343,631 | 1,194,243 | ||||||
| Amortization of Discount on Notes | 1,499,647 | 1,124,396 | ||||||
| Bad Debt Expense | 190,365 | 258,594 | ||||||
| Change in Fair Value of Derivative Liability | — | (21,657 | ) | |||||
| (Gain) Loss on Sale of Property and Equipment | (25,808,246 | ) | 3,559,083 | |||||
| Changes in Components of Working Capital and Other Assets: | ||||||||
| Accounts Receivable | 327,489 | 312,766 | ||||||
| Other Current Assets | (34,472 | ) | (108,738 | ) | ||||
| Accounts Payable and Accrued Expenses | (718,550 | ) | 3,068,275 | |||||
| Net Cash Used in Operating Activities | (5,773,428 | ) | (5,766,104 | ) | ||||
| Investing Cash Flows | ||||||||
| Cash paid for Oil and Gas Property Development Costs | (2,095,991 | ) | (2,046,057 | ) | ||||
| Proceeds from Sale of Oil and Gas Properties | — | 1,825,587 | ||||||
| Proceeds from Sale of Other Property and Equipment | — | 10,069 | ||||||
| Cash (Paid for) Proceeds from Deposits | (141,009 | ) | 88,859 | |||||
| Cash Paid for Other Property and Equipment | — | (1,570 | ) | |||||
| Net Cash Used in Investing Activities | (2,237,000 | ) | (123,112 | ) | ||||
| Financing Cash Flows | ||||||||
| Principal Repayments on Long-Term Notes Payable | — | (2,861,394 | ) | |||||
| Proceeds from Issuance of Series C Preferred Stock and Warrants | 15,000,000 | 7,000,000 | ||||||
| Proceeds from Borrowings on Notes Payable | — | 150,000 | ||||||
| Net Cash Provided by Financing Activities | 15,000,000 | 4,288,606 | ||||||
| Increase (Decrease) in Cash | 6,989,572 | (1,600,610 | ) | |||||
| Cash and Restricted Cash at Beginning of the Year | 789,151 | 2,389,761 | ||||||
| Cash and Restricted Cash at End of the Year | $ | 7,778,723 | $ | 789,151 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-36 |
CAMBER ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND OPERATIONS OF THE COMPANY
Camber Energy, Inc. (“Camber” or the “Company”) is an independent oil and gas company engaged in the development and acquisition of onshore properties in Texas. Subsequent to the sale of its assets in Oklahoma to N&B Energy, LLC (“N&B Energy”) effective August 1, 2018 (see further discussion in “Note 2 – Liquidation and Going Concern Considerations”), Camber retained its assets in Glasscock County and operates in Hutchinson County, Texas. Additionally, as part of the sale of its assets to N&B Energy, the Company also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests.
Effective August 1, 2018, the Company relocated its corporate headquarters from San Antonio, Texas to Houston, Texas.
On March 1, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company (the “Amendment”). The reverse stock split was effective on March 5, 2018. The effect of the reverse stock split was to combine each 25 shares of outstanding common stock into one new share, with no change in authorized shares or par value per share, and to reduce the number of common stock shares outstanding from approximately 103.5 million shares to approximately 4.1 million shares (prior to rounding). Proportional adjustments were made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans. The reverse stock split did not affect any stockholder’s ownership percentage of the Company’s common stock, except to the limited extent that the reverse stock split resulted in any stockholder owning a fractional share. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s aggregate ownership of the Company. All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants to purchase common stock and per share amounts contained in the financial statements, in accordance with SAB TOPIC 4C, have been retroactively adjusted to reflect the reverse split for all periods presented.
On December 20, 2018, the Company filed a Certificate of Change with the Secretary of State of Nevada to effect another 1-for-25 reverse stock split of the Company’s (a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on December 24, 2018. The effect of the reverse stock split was to combine each 25 shares of outstanding common stock into one new share, with a proportionate 1-for-25 reduction in the Company’s authorized shares of common stock, but no change in the par value per share of the common stock. Proportional adjustments were made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock (subject to the terms thereof), warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s aggregate ownership of the Company. All issued and outstanding shares of common stock, conversion terms of preferred stock (subject to the terms thereof), options and warrants to purchase common stock and per share amounts contained in the financial statements, have been retroactively adjusted to reflect the reverse split for all periods presented.
Effective on April 10, 2019, the Company filed, with the Secretary of State of Nevada, a Certificate of Amendment to the Company’s Articles of Incorporation to increase the number of the Company’s authorized shares of common stock, $0.001 per value per share, from 20,000,000 shares to 250,000,000 shares. The amendment was previously approved by the Company’s stockholders at the 2019 annual meeting of stockholders held on February 19, 2019, as reported in the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 20, 2019.
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NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS
At March 31, 2019, the Company’s total current assets of $8.2 million exceeded its total current liabilities of approximately $2.1 million, resulting in working capital of $6.1 million, while at March 31, 2018, the Company’s total current liabilities of $40.0 million exceeded its total current assets of $1.7 million, resulting in a working capital deficit of $38.3 million. The $44.4 million increase in the working capital is primarily related to the settlement of the debt related to the sale closing in September 2018.
Management believes that with the elimination of its outstanding debt and the funds raised through equity transactions during the current fiscal year, the Company has sufficient capital to fund operating costs and planned capital expenditures on existing wells through the end of June 2020. In May 2019, the Company entered into a non-binding LOI to acquire Lineal Star Holdings, LLC (“Lineal”), a specialty construction and oil and gas services enterprise providing services to the energy industry. In the event the Lineal transaction does not occur, management intends to use a portion of its working capital to facilitate other targeted acquisitions and mergers. If additional financing is required to consummate transactions, management intends to seek additional equity and debt financing, as needed, of which no financing arrangements are currently in place.
As discussed in “Note 6 – Notes Payable and Debenture”, the Company borrowed $40 million from IBC effective August 25, 2016. The proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain of the Sellers to IBC as part of the closing of the Acquisition. As of March 31, 2018, the Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain a net worth of $30 million, the Company is in default of the terms of the loan, and the balance of the loan due to IBC of $36.9 million (less unamortized debt issuance costs of approximately $1.3 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2018. The Company also recognized approximately $39,000 in accrued interest as of March 31, 2018 related to this note. In conjunction with the “Assumption Agreement”, the Company reduced its liabilities by $37.9 million, including all of the outstanding amounts due to IBC, and its assets by approximately $12.1 million, and currently has no secured debt outstanding.
During the years ended March 31, 2019 and 2018, the Company sold 1,577 and 738 shares of Series C Preferred Stock pursuant to the terms of an October 2017 Stock Purchase Agreement, October 2018 Stock Purchase Agreement and November 2018 Stock Purchase Agreement, for total consideration of $15 million and $7 million, respectively.
In September 2017, a note holder of the Company foreclosed on the assets of CATI Operating, LLC (“CATI”), the Company’s then wholly-owned subsidiary, which assets secured the note. On October 3, 2017, the trustee of those assets, for the benefit of the lender, sold these assets in public auction foreclosure sales which took place in Gonzales County and Karnes County, Texas. The proceeds from the foreclosure sales of approximately $3.5 million were applied against the outstanding indebtedness. In December 2017, the remaining indebtedness owed was released by the note holder (approximately $5.8 million in principal and interest). Additionally, the remaining leasehold and ownership of CATI was assigned to Arkose Lease Partners, LLC, a third party (“Arkose”), in November 1, 2017, in exchange for Arkose’s assumption of all plugging and abandonment liabilities of CATI of approximately $1.8 million.
Effective January 31, 2017, the Company borrowed $1,000,000 from one of the Company’s then directors. As additional consideration for the director agreeing to make the loan, we issued the director 64 shares of restricted common stock. On November 9, 2017, the Company repaid the director the full amount due on the short-term promissory note of $1,050,000.
On March 9, 2017, the Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory note. As additional consideration for agreeing to make the loan, the Company agreed to issue the lender 16 restricted shares of common stock. On November 9, 2017, the Company paid the non-related individual the full amount due on the short-term promissory note of $263,158.
On August 2, 2017, and effective June 13, 2017, the Company entered into an agreement with Vantage Fund, LLC (“Vantage” and the “Vantage Agreement”), pursuant to which Vantage agreed to provide up to $6 million of funding to the Company, in the sole discretion of Vantage. On July 17, 2017, Vantage provided $120,000 to the Company under the agreement and on July 20, 2017, Vantage provided $30,000 to the Company under the agreement. On November 9, 2017, the Company paid Vantage the full amount due to Vantage.
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N&B Energy Asset Disposition Agreement
On July 12, 2018, the Company entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018 and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with N&B Energy, LLC as purchaser, which entity is affiliated with Richard N. Azar II, the Company’s former Chief Executive Officer and former director (“N&B Energy”), and Donnie B. Seay, the Company’s former director. Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other more recent acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash to assume the Company’s liabilities and contractual obligations in connection with the Disposed Assets (including lease and bonus payments), to assume all of the Company’s obligations and debt owed under its outstanding loan agreement with IBC Bank, which had a then outstanding principal balance of approximately $36.9 million and the other parties agreed to enter into the Segundo Settlement as described in “Note 8 – Commitments and Contingencies”.
Assumption Agreement
On September 26, 2018, the Company entered into an Assumption Agreement (the “Assumption Agreement”) with IBC Bank; CE Operating, LLC, the Company’s wholly-owned subsidiary (“CE Operating”), which became a party to the Sale Agreement pursuant to the second amendment thereto; N&B Energy, which entity is affiliated with Richard N. Azar, II, the Company’s former Chief Executive Officer and former director (“Azar”), and Donnie B. Seay, the Company’s former director (“Seay”); Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”); Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay. Azar, Seay, RAD2, and DBS are collectively referred to as the “Guarantors”.
Pursuant to the Assumption Agreement, N&B Energy agreed to assume all of the Company’s liabilities and obligations owed to IBC Bank and IBC Bank approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities which the Company owed to IBC Bank (the “IBC Obligations”). Finally, pursuant to the Assumption Agreement, IBC Bank released and forever discharged the Company and CE Operating and each of their current and former officers, directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at equity, which IBC Bank then had, arising out of or related to the amounts which the Company owed to IBC Bank under the Note, Loan Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held on certain of the Company’s properties located in west Texas.
N&B Energy Sale Agreement Closing
On September 26, 2018, the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid the Company $100 in cash, and the Company transferred ownership of the Assets to N&B Energy.
Notwithstanding the sale of the Assets, the Company retained its assets in Glasscock County and Hutchinson Counties, Texas and also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and retained an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignment of Overriding Royalty Interests.
The effective date of the Sale Agreement is August 1, 2018. The Assets were assigned “as is” with all faults.
As a result of the Assumption Agreement and the Sale Agreement, the Company reduced its liabilities by $37 .9 million and its assets by approximately $12.1 million.
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The following table summarizes the net assets sold and gain recognized in connection with the Assumption Agreement and Sale Agreement:
| Transaction Summary |
||||
| Assumption of IBC Loan | $ | 36,943,617 | ||
| Assumption of ARO Liability | 699,536 | |||
| Assumption of Capital Lease Obligations and Other | 287,074 | |||
| Cash Received at Closing | 100 | |||
| Oil and Gas Properties Transferred | (12,122,081 | ) | ||
| Total Gain on Sale | $ | 25,808,246 |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements of Camber Energy include the accounts of its wholly-owned subsidiaries, CATI Operating, LLC, a Texas limited liability company, which was wholly-owned (“CATI”) until it was divested on November 9, 2017, CEI Operating LLC, a Texas limited liability company, which was wholly-owned until it was divested on November 1, 2017, Camber Permian LLC, a Texas limited liability company, which is wholly-owned, Camber Permian II LLC, a Texas limited liability company, until it was divested on November 9, 2017, CE Operating, LLC, an Oklahoma limited liability company, which is wholly-owned, and C E Energy LLC, a Texas limited liability company which is wholly-owned.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Camber’s financial statements are based on a number of significant estimates, including oil and natural gas reserve quantities which are the basis for the calculation of depreciation, depletion and impairment of oil and natural gas properties, and timing and costs associated with its asset retirement obligations, as well as those related to the fair value of stock options, stock warrants and stock issued for services. While the Company believes that its estimates and assumptions used in preparation of the financial statements are appropriate, actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and financial instruments which mature within three months of the date of purchase. The Company maintains cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits of $250,000. At March 31, 2019 and 2018, the Company’s cash in excess of the federally insured limit were $7,463,944 and $490,460, respectively. Historically, the Company has not experienced any losses in such accounts. The Company had no cash equivalents at March 31, 2019 or 2018, respectively.
Accounts Receivable
Accounts receivable consist of uncollateralized oil and natural gas revenues due under normal trade terms. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. At March 31, 2019 and 2018, the Company’s allowance for doubtful accounts was $190,365 and $1,038,015, respectively.
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Concentration of Credit Risk
The Company generally sells a significant portion of its oil and gas production to a relatively small number of customers. For the year ended March 31, 2019, the Company’s consolidated revenues were from the sale of oil, gas and natural gas liquids under marketing contracts primarily with Superior Pipeline Company, Scissortail Energy, LLC and Apache Corporation. The Company is not dependent upon any one purchaser and has alternative purchasers available at competitive market prices if there is disruption in services or other events that cause the Company to search for other ways to sell the Company’s production.
During the year ended March 31, 2019, three customers accounted for 84% of total revenues. During the year ended March 31, 2018, two customers accounted for 72% of the Company’s total revenues. The Company does not believe the loss of any customer will have a material effect on the Company because alternative customers are readily available.
Oil and Natural Gas Properties, Full Cost Method
Camber uses the full cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil and natural gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management’s intention with regard to future development of individually significant properties and the ability of Camber to obtain funds to finance their programs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.
Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized, unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Ceiling Test
In applying the full cost method, Camber performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the “estimated present value” of its proved reserves discounted at a 10% interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense.
During the year ended March 31, 2019, the Company recorded impairments totaling $1.3 million that were primarily related to unproved properties due to expirations of leaseholds. During the year ended March 31, 2018, the Company recorded impairments totaling $8.1 million, which were primarily related to unproved properties due to expirations of leaseholds.
Asset Retirement Obligations
The Company records the fair value of a liability for asset retirement obligations (“ARO”) in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and is depreciated over the useful life of the asset. Camber accrues an abandonment liability associated with its oil and natural gas wells when those assets are placed in service. The ARO is recorded at its estimated fair value and accretion is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is determined by using the expected future cash outflows discounted at Camber’s credit-adjusted risk-free interest rate. No market risk premium has been included in Camber’s calculation of the ARO balance.
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Other Property and Equipment
Other property and equipment are stated at cost and consist primarily of furniture and computer equipment. Depreciation is computed on a straight-line basis over the estimated useful lives.
Income Taxes
Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating losses and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and accrued tax liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Camber has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements as of March 31, 2019 and 2018. The Company’s policy is to classify assessments, if any, for tax related interest expense and penalties as interest expense.
Earnings per Common Share
Basic and diluted net income per share calculations are calculated on the basis of the weighted average number of shares of the Company’s common stock outstanding during the year. Purchases of treasury stock reduce the outstanding shares commencing on the date that the stock is purchased. Common stock equivalents are excluded from the calculation when a loss is incurred as their effect would be anti-dilutive.
Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services. |
| ● | Level 3 – Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort. |
As of March 31, 2019, the significant inputs to the Company’s derivative liability calculation were Level 3 inputs.
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Share-Based Compensation
Camber measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award over the vesting period.
Revenue and Cost Recognition
The Company’s revenue is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. NGLs are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.
Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.
Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation.
Recently Adopted Accounting Pronouncements
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method applied to contracts that were not completed as of April 1, 2018. Under the modified retrospective method, prior period financial positions and results will not be adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While the Company does not expect 2019 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning April 1, 2018. Refer to Note 9 – Revenue from Contracts with Customers for additional information.
In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on April 1, 2018 on a retrospective basis with the following impacts to the Company’s consolidated statements of cash flows for the year ended March 31, 2018:
|
Previously Reported |
Adjustment | As Revised | ||||||||||
| Net cash provided by financing activities | $ | 5,944,299 | $ | (1,655,693 | ) | $ | 4,288,606 | |||||
As of March 31, 2019 and 2018, respectively, the Company had restricted cash of $0 and $26,834 related to the loan agreement with IBC bank.
Following is a summary of cash and cash equivalents and restricted cash:
| March 31, 2019 |
March 31, 2018 |
|||||||
| Cash | $ | 7,778,723 | $ | 760,317 | ||||
| Restricted cash – current | — | 28,834 | ||||||
| Cash, cash equivalents and restricted cash | $ | 7,778,723 | $ | 789,151 | ||||
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
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In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. ASU 2018-13 is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures and does not expect it to have a material impact on its consolidated financial statements.
In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Target Improvements”. The amendments in this update also clarify which Topic (Topic 842 or Topic 606) applies for the combined component. Specifically, if the non-lease component or components associated with the lease component are the predominant component of the combined component, an entity should account for the combined component in accordance with Topic 606. Otherwise, the entity should account for the combined component as an operating lease in accordance with Topic 842. An entity that elects the lessor practical expedient also should provide certain disclosures. The Company is currently evaluating the adoption of this guidance and does not expect that this guidance will have a material impact on its consolidated financial statements. The Company has not adopted this standard and will do so when specified by the FASB.
In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. The amendments in this update affect narrow aspects of the guidance issued in the amendments in update 2016-02 as described in the table below. The amendments in this update related to transition do not include amendments from proposed Accounting Standards Update, Leases (Topic 842): Targeted Improvements, specific to a new and optional transition method to adopt the new lease requirements in Update 2016-02. That additional transition method will be issued as part of a forthcoming and separate update that will result in additional amendments to transition paragraphs included in this Update to conform with the additional transition method. The Company is currently evaluating the adoption of this guidance and does not expect that this guidance will have a material impact on its consolidated financial statements. The Company has not adopted this Standard and will do so when specified by the FASB.
The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.
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Subsequent Events
The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE 4 – PROPERTY AND EQUIPMENT
Oil and Natural Gas Properties
All of Camber’s oil and natural gas properties are located in the United States. Costs being amortized at March 31, 2019 and 2018 are as follows:
| At March 31, | ||||||||
| 2019 | 2018 | |||||||
| Oil and gas properties subject to amortization | $ | 50,352,306 | $ | 60,760,056 | ||||
| Oil and gas properties not subject to amortization | 28,016,989 | 28,016,989 | ||||||
| Capitalized asset retirement costs | 176,649 | 322,470 | ||||||
| Total oil & natural gas properties | 78,545,944 | 89,099,515 | ||||||
| Accumulated depreciation, depletion, and impairment | (78,333,628 | ) | (76,555,320 | ) | ||||
| Net Capitalized Costs | $ | 212,316 | $ | 12,544,195 | ||||
Impairments
During the year ended March 31, 2019, the Company recorded impairments totaling $1.3 million that were primarily related to unproved properties due to expirations of leaseholds. During the year ended March 31, 2018, the Company recorded impairments totaling $8.1 million that were primarily related to unproved properties due to expirations of leaseholds.
Additions and Depletion
During the years ended March 31, 2019 and 2018, the Company incurred costs of approximately, $2.1 million and $2.0 million, respectively, for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded approximately $0.5 million and $1.5 million for depletion for the years ended March 31, 2019 and 2018, respectively.
Disposition of Oil and Natural Gas Properties
On August 2, 2017, the Company entered into an agreement with Vantage pursuant to which Vantage agreed to provide up to $6 million of funding to the Company. On June 12, 2017, the Company received the initial tranche of $400,000 in consideration for the assignment, by the Company, of its interest in the undeveloped Arrowhead oil and gas property, with a book value of $114,500 and warrants to purchase 2,560 shares of the Company's common stock (see further discussion of these warrants in Note 10). The Company recorded a gain of $1,195 as a result of this assignment that was recorded in loss on sale of property and equipment for the year ended March 31, 2018.
In September 2017, a note holder of the Company foreclosed on the assets of CATI, which assets secured the note. On October 3, 2017, the trustee of those assets, for the benefit of the lender, sold these assets in public auction foreclosure sales which took place in Gonzales County and Karnes County, Texas. The proceeds from the foreclosure sales of approximately $3.5 million were applied against the outstanding indebtedness. In December 2017, the remaining indebtedness owed was released by the note holder (approximately $5.8 million in principal and interest). Additionally, the remaining leasehold and ownership of CATI was assigned to Arkose in November 2017, in exchange for Arkose’s assumption of all plugging and abandonment liabilities of CATI of approximately $1.8 million. The Company recorded an approximate loss on sale of property of approximately $4.1 million in conjunction with the settlement of the approximate $9.4 million of debt and accrued interest and the removal of approximately $1.3 million of remaining ARO. See Note 6 “Notes Payable and Debenture” for further details. Effective November 1, 2017, the Company and NFP Energy LLC (“NFP”) its joint venture partner, sold its 90% ownership position in oil and gas properties totaling approximately 2,452 acres in Gaines County, Texas, to Fortuna Resources Permian (“Fortuna”), for $1,000 per acre or an aggregate of $2,206,718 payable to the Company. The transaction resulted in a $727,732 gain, which is included in Loss on Sale of Property and Equipment on the statement of operations for the year ended March 31, 2018.
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On July 12, 2018, the Company entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018 and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with N&B Energy as purchaser, which entity is affiliated with Richard N. Azar II, the Company’s former Chief Executive Officer and former director, and Donnie B. Seay, the Company’s former director. Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other more recent acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash, to assume all of the Company’s obligations and debt owed under its outstanding loan agreement with IBC Bank, which had a then outstanding principal balance of approximately $36.9 million and the other parties agreed to enter into the Segundo Settlement as described in “Note 8 – Commitments and Contingencies”. The transaction closed in September 2018.
Acquisition of Oil and Natural Gas Properties
On August 25, 2016, the Company completed the Acquisition and acquired working interests in producing properties and undeveloped acreage from the Sellers (see “Note 2 – Liquidity and Going Concern Considerations”). The assets acquired include varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region.
As consideration for the Acquisition of the acquired assets, the Company assumed approximately $30.6 million of commercial bank debt, issued 20,816 shares of common stock to certain of the Sellers valued at the grant date fair value, issued 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate (see “Note 11 – Stockholders’ Equity (Deficit)”) valued at the grant date fair value, and paid $4,975,000 in cash to certain of the Sellers. The effective date of the Acquisition was April 1, 2016.
In January 2018, the Company acquired approximately 3,000 leasehold acres in Okfuskee County, Oklahoma, including two producing wells and 7 non-producing well bores, in consideration for cash paid of $210,000. The acquisition included three salt water disposal wells, to support existing and potential future hydrocarbon production.
In March 2018, the Company completed an acquisition of working interest in certain leases, wells and equipment located in the Texas panhandle, for a purchase price of $250,000, payable in three tranches. A payment of $85,000 was due at closing; $85,000 was due thirty days after closing and $80,000 was due sixty days after closing these remaining payments have been accrued as of March 31, 2018 and are included in accrued expenses on the balance sheet. Camber earned 25% of the working interest at the closing and earned an additional 25% of the working interest at each of the two subsequent closings. The seller retained a 25% carried working interest in the assets. The acquisition includes interests in 48 gross non-producing well bores, 5 saltwater disposal wells and the required infrastructure and equipment necessary to support future hydrocarbon production, as well as approximately 555 net leasehold acres in Hutchinson County, Texas.
Capital Leases
During March and April 2018, the Company purchased certain equipment pursuant to capital leases. The effective value of the equipment was approximately $575,000, and such amount is included in oil and gas properties and the corresponding current liability of approximately $387,000 which was included in accrued expenses as of June 30, 2018. The effective borrowing rate was approximately 35%, and all obligations were due by December 2018. In conjunction with the assignment of the liabilities owed under the IBC Bank loan agreements to N&B Energy in September 2018, as discussed under “Note 2 – Liquidity and Going Concern Considerations – Assumption Agreement” all of the remaining obligations were assumed by the purchaser.
| F-46 |
Office Lease
In August 2017, the Company ceased its use of its prior office space in Houston, Texas, and moved its headquarters to San Antonio, Texas. The Company was committed to the remaining lease payments for the Houston lease for approximately $346,000 after vacating the property. The Company recorded monthly rent expense through its occupancy date and, in accordance with the accounting guidance in ASC 420-10-25-13 regarding exit or disposal cost obligations, as of August 2017, the Company recorded rent expense, within general and administrative expense, and accrued a liability of $302,289, which represents the fair value of costs that will continue to be incurred during the remaining term of the Houston lease without economic benefit to the Company. As of March 31, 2019 and March 31, 2018, the carrying amount of the liability of $0 and $302,289, respectively, is included in Current Liabilities in the consolidated balance sheets. In addition, the Company wrote-off $189,533 of abandoned property and equipment, recognizing a loss of $3,368 during the fiscal year ended March 31, 2018. In October 2018, the Company entered into a settlement with its prior landlord to pay $100,000 plus $10,000 per month for each of the next 20 months. In the event that an aggregate of $150,000 is paid by April 15, 2019, in addition to the $100,000 payment made in October 2018, the remaining $50,000 of payments would be forgiven and waived. The Company made the payments prior to March 31, 2019, resulting in no remaining unpaid amounts at March 31, 2019. See also “Note 8 – Commitments and Contingencies – Legal Proceedings – MidFirst”.
Effective October 1, 2017, the Company entered into an agreement to sublease space on a month-to-month basis in San Antonio, Texas from RAD2 Minerals, Ltd., an entity owned and controlled by Mr. Azar, the Company’s former Interim Chief Executive Officer and former Director. Monthly rent through December 2017 was $5,000 per month, increasing to $7,500 per month effective January 2018. The lease agreement was terminated effective June 30, 2018. The Company agreed under a verbal contract to lease the same space on a month-to-month basis for $2,500 per month beginning effective July 1, 2018, which was terminated July 31, 2018.
Effective August 1, 2018 entered into a month-to-month lease at 1415 Louisiana, Suite 3500 Houston, Texas 77002. The entity providing use of the space without charge is affiliated with the Company’s Chief Financial Officer.
NOTE 5 – ASSET RETIREMENT OBLIGATIONS
The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with the future retirement of oil and natural gas properties for the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Carrying amount at beginning of year | $ | 979,159 | $ | 2,045,847 | ||||
| Acquisition of oil and gas properties | — | 437,071 | ||||||
| Accretion | 4,725 | 92,620 | ||||||
| Dispositions | (699,536 | ) | (1,328,260 | ) | ||||
| Revisions of previous estimates | 19,461 | (268,119 | ) | |||||
| Carrying amount at end of year | $ | 303,809 | $ | 979,159 | ||||
NOTE 6 – NOTES PAYABLE AND DEBENTURE
The Company’s notes payable and debenture consisted of the following:
|
March 31, 2019 |
March 31, 2018 |
|||||||
| Debenture | $ | — | 495,000 | |||||
| Note Payable - IBC | — | 36,943,617 | ||||||
| — | 37,438,617 | |||||||
| Unamortized debt discount | — | (1,499,647 | ) | |||||
| Total Notes Payable and Debenture | — | 35,938,970 | ||||||
| Less current portion | — | (35,691,567 | ) | |||||
| Long-term portion | $ | — | $ | 247,403 | ||||
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Rogers Loan and Promissory Note
Letter Loan Agreement
At March 31, 2017, the Company had $6,883,697 due under a letter loan agreement, which amount was settled in December 2017 as discussed above under Note 2 “Liquidity and Going Concern Considerations.”
Dreeben Note
Effective January 31, 2017, the Company borrowed $1,000,000 from Alan Dreeben, then one of the Company’s directors. As additional consideration for Mr. Dreeben agreeing to make the loan, the Company issued Mr. Dreeben 64 shares of restricted common stock. On November 9, 2017, the Company repaid Mr. Dreeben the full amount due on the short-term promissory note of $1,050,000.
Non-Related Individual Note
On March 9, 2017, the Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory note. As additional consideration for agreeing to make the loan, the Company agreed to issue the lender 16 restricted shares of common stock. On November 9, 2017, the Company paid the non-related individual the full amount due on the short-term promissory note of $263,158.
Debenture
On August 23, 2017, the Investor converted $35,000 of the principal amount of a convertible Debenture with a face value of $530,000, into an aggregate of 2,808 shares of common stock, which included 17 shares for conversion of principal (at $2,031.25 per share) and 2,791 shares for premiums and on April 20, 2018, the Investor was issued 5,679 shares of common stock as a result of true-ups in connection with the August 23, 2017 conversion of the Debenture.
As of March 31, 2018, the convertible subordinated debenture, with a face value of $495,000 and a balance of $247,403, respectively (net of unamortized discount $247,597, respectively), which was recognized as a short-term liability on the Company’s balance sheet at March 31, 2018. The Company had accrued interest of $388,183 related to the obligation outstanding at March 31, 2018.
On October 31, 2018, the Investor converted the entire $495,000 of principal and accrued interest of $422,103 owed under the terms of the debenture, into an aggregate of 801,507 shares of common stock, including 6,092 shares of common stock issuable upon conversion of the principal amount thereof (at a conversion price of $81.25 per share), and 795,414 shares in connection with conversion premiums due thereon (at an initial conversion price, as calculated as provided in such debenture, of $1.53 per share). A total of 100,000 of such shares were issued to the Investor in connection with the initial conversion and the remaining shares were held in abeyance subject to the Investor’s 9.99% ownership limitation, to be issued from time to time, at the request of the Investor. Subsequent to the October 31, 2018 conversion date, the Investor was due an additional 47,645,285 shares of common stock in connection with true ups associated with the original issuance, as a result of the conversion price of the conversion premiums falling to $0.025 per share pursuant to the terms of the convertible debenture. Through March 31, 2019, a total of 11,761,418 of the conversion shares had been issued and the remainder of the shares were held in abeyance subject to the Investor’s 9.99% ownership limitation, to be issued from time to time, at the request of the Investor.
Loan Agreement with International Bank of Commerce (“IBC”)
As of March 31, 2018, the Company was not in compliance with certain covenants of its $40 million loan agreement with IBC. Since the Company was in default of the terms of the loan, the balance of the loan due to IBC of $36.9 million (less unamortized debt issuance costs of approximately $1.3 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2018. The Company also recognized approximately $39,000 in accrued interest as of March 31, 2018 related to this note.
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On September 26, 2018, the Company entered into an Assumption Agreement (the “Assumption Agreement”) with IBC; CE Operating, LLC, the Company’s wholly-owned subsidiary (“CE Operating”), which became a party to the Sale Agreement pursuant to the second amendment thereto; N&B Energy, which entity is affiliated with Richard N. Azar, II, the Company’s former Chief Executive Officer and former director (“Azar”), and Donnie B. Seay, the Company’s former director (“Seay”); Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”); Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay.
Pursuant to the Assumption Agreement, N&B Energy agreed to assume all of the Company’s liabilities and obligations owed to IBC Bank and IBC Bank approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities which the Company owed to IBC Bank (the “IBC Obligations”). Finally, pursuant to the Assumption Agreement, IBC Bank released and forever discharged the Company and CE Operating and each of their current and former officers, directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at equity, which IBC Bank then had, arising out of or related to the amounts which the Company owed to IBC Bank under the Note, Loan Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held on certain of the Company’s properties located in west Texas.
On September 26, 2018, the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid the Company $100 in cash, and the Company transferred ownership of the Assets to N&B Energy.
NOTE 7 – DERIVATIVE LIABILITIES
The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The warrants granted to Ironman PI Fund II, LP contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined in accordance with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time.
Activities for derivative warrant instruments during the years ended March 31, 2019 and 2018 were as follows:
| Fair Value | ||||
| Balance, March 31, 2017 | $ | 21,662 | ||
| Change in fair value | (21,657 | ) | ||
| Balance, March 31, 2018 | 5 | |||
| Change in fair value | — | |||
| Balance, March 31, 2019 | $ | 5 | ||
The fair value of the derivative warrants was calculated using the Black-Scholes pricing model. Variables used in the Black-Scholes pricing model as of March 31, 2019 include (1) discount rate of 2.2%, (2) expected term of 0.1 year, (3) expected volatility of 253.77%, and (4) zero expected dividends. Variables used in the Black-Scholes pricing model as of March 31, 2018 include (1) discount rate of 2.09, (2) expected term of 1 year, (3) expected volatility of 145.70%, and (4) zero expected dividends.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Office Lease. Information regarding the Company’s office space is disclosed in greater detail above under Note 4 “Property and Equipment” – “Office Lease”, above.
| F-49 |
Legal Proceedings. From time to time suits and claims against Camber arise in the ordinary course of Camber’s business, including contract disputes and title disputes. Camber records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.
Maranatha Oil Matter
In November 2015, Randy L. Robinson, d/b/a Maranatha Oil Co. sued the Company in Gonzales County, Texas (Cause No. 26160). The plaintiff alleged that it assigned oil and gas leases to the Company in April 2010, retaining a 4% overriding royalty interest and 50% working interest and that the Company failed to pay such overriding royalty interest or royalty interest. The interests relate to certain oil and gas properties which the Company subsequently sold to Nordic Oil USA in April 2013. The petition alleges causes of actions for breach of contract, failure to pay royalties, non-payment of working interest, fraud, fraud in the inducement of contract, money had and received, constructive trust, violation of theft liability act, continuing tort and fraudulent concealment. The suit seeks approximately $100,000 in amounts alleged owed, plus pre-and post-judgment interest. The Company has filed a denial to the claims.
Rubenstein Matter
On September 28, 2017, Aaron Rubenstein, a purported stockholder of the Company’s common stock, filed a lawsuit against the Company (as nominal defendant) and Richard N. Azar II, it’s then Chief Executive Officer and director (who has since resigned from both positions), RAD2 Management, LLC, RAD2 Minerals, Ltd. and Segundo Resources, LLC, each an entity owned and controlled by Mr. Azar, in the United States District Court, Western District of Texas (Case No. 5:17-cv-962-FB). The suit seeks the recovery (for the benefit of the Company) of alleged short-swing profits from Mr. Azar and his related entities under Section 16(b) of the Exchange Act relating to various transactions involving Series B Preferred Stock of the Company in November 2016 and January 2017. Mr. Azar denies the existence of any short-swing profits and filed a denial with the court. The Company also filed a denial with the court. Subsequently, the parties mediated the dispute in October 2018, and agreed to a confidential settlement of the plaintiff’s claims in December 2018, which resulted in the dismissal of the claims.
Petroflow Matter
In October 2017, the Company agreed to pay directly and reimburse entities owned in part by Alan Dreeben, a former director of the Company, for legal fees and settlement payments expended in connection with the defense of Petroflow Energy Corporation v. Sezar Energy, L.P. and Brittany Energy, LLC, Case No. 16-CV-700-TCK;TLW, In the United States District Court – N.D. OK. The Company was the beneficiary through the release of interest in disputed lease interests from Petroflow to the Company that provides the Company with complete control over those properties to renew expired leases and to have 100% of the drilling rights related to those properties. Sezar Energy and Brittany Energy have assigned any interests they may have had in conjunction with litigation in exchange for the Company making the agreed settlement payments of $475,000 plus direct payments and reimbursement of the legal costs paid on behalf of the defendants by Mr. Dreeben. Total legal fees expended by such entities totaled $392,043, and the Company reimbursed such fees by issuing Mr. Dreeben 3,137 shares of common stock with a value of $0.20 per share in November 2017. In addition, the Company directly paid legal fees and settlement payments totaling $567,633. The total expense related to the Petroflow matter of $959,676 is included in General and Administrative expense on the statement of operations for the year ended March 31, 2018.
Segundo Settlement Agreement
Also on July 12, 2018, the Company entered into a Compromise Settlement Agreement and Mutual Release with Segundo (the “Segundo Settlement”). Pursuant to the agreement, Segundo surrendered 25 shares of common stock valued at $1,906.25 per share as of the effective date of the closing of the Acquisition, and released the Company from any and all claims which Segundo previously alleged were owed under the terms of the December 31, 2015 Asset Purchase Agreement. The Company and Segundo also provided each other full releases in connection with the December 31, 2015 Asset Purchase Agreement and Segundo agreed to indemnify the Company and hold it harmless against any claims made by the other sellers under the December 31, 2015 Asset Purchase Agreement.
| F-50 |
Petroglobe Energy Holdings, LLC and Signal Drilling, LLC
In March 2019, Petroglobe Energy Holdings, LLC and Signal Drilling, LLC sued the Company in the 316th Judicial District of Hutchinson County, Texas (Cause No. 43781). The plaintiffs alleged causes of action relating to negligent misrepresentation; fraud and willful misconduct; gross negligence; statutory fraud; breach of contract; and specific performance, in connection with a purchase and sale agreement entered into between the parties in March 2018, relating to the purchase by plaintiffs of certain oil and gas assets from the Company, and a related joint venture agreement. The lawsuit seeks in excess of $600,000 in damages, as well as pre- and post-judgment interest, court costs and attorneys’ fees, and punitive and exemplary damages. The Company denies the plaintiffs’ claims and intends to vehemently defend itself against the allegations and file counter claims against the plaintiffs.
Apache Corporation
In December 2018, Apache Corporation (“Apache”) sued the Company, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is seeking $586,438 in actual damages, exemplary damages, pre- and post-judgment interest, court costs and other amounts which it may be entitled. The Company has filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. The parties are currently moving towards discovery. The Company denies Apache’s claims and intends to vehemently defend itself against the allegations.
N&B Energy
On June 12, 2019, N&B Energy filed a petition in the District Court for the 285th Judicial District of Bexar County, Texas (Case #2019CI11816). Pursuant to the petition, N&B Energy raises claims for breach of contract, unjust enrichment, money had and received and disgorgement, in connection with $706,000 which it alleges it is owed under the Sale Agreement for true ups and post-closing adjustments associated therewith. The petition seeks amounts owed, pre- and post-judgment interest and attorney’s fees. The Company denies N&B Energy’s claims, believes it is owed approximately $400,000 related to the Sale Agreement and intends to vehemently defend itself against the allegations and claims and seek counterclaims.
Settlement with Prior Chief Executive Officer. Effective on June 2, 2017, Mr. Anthony C. Schnur’s employment as Chief Executive Officer of the Company was terminated. In connection with such termination, the Company entered into a severance agreement with Mr. Schnur, which provided (as amended) for Mr. Schnur to be issued 192 shares of common stock and the payment of $168,000 in total compensation (payable over time). The payments owed as of March 31, 2018 of $79,025 were accrued and included in Accrued Expenses on the balance sheet. The settlement shares were issued in February 2018. During the year ended March 31, 2019, the Company paid all remaining amounts to Mr. Schnur pursuant to the original settlement. The Company and Mr. Schnur entered into an amendment to the severance agreement on April 8, 2019, pursuant to which the Company paid Mr. Schnur $10,000 in lieu of the payment of payroll taxes on amounts previously paid to Mr. Schnur under the original settlement.
NOTE 9 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Change in Accounting for Revenue from Oil and Gas Operations
The Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, on April 1, 2018, using the modified retrospective method applied to contracts that were not completed as of April 1, 2018. Refer to “Note 3 – Summary of Significant Accounting Policies” for additional information.
Exploration and Production
There were no significant changes to the timing or valuation of revenue recognized for sales of production from exploration and production activities.
| F-51 |
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates revenue by significant product type for the years ended March 31, 2019 and 2018, respectively:
|
March 31, 2019 |
March 31, 2018 |
|||||||
| Oil sales | $ | 526,365 | $ | 1,198,514 | ||||
| Natural gas sales | 772,105 | 2,051,846 | ||||||
| Natural gas liquids sales | 1,443,632 | 3,609,407 | ||||||
| Total revenue from customers | $ | 2,742,102 | $ | 6,859,767 | ||||
NOTE 10 – INCOME TAXES
The Company recorded a provision for income taxes of approximately $3,000 and $0 for the years ended March 31, 2019 and March 31, 2018, respectively.
| 2019 | 2018 | |||||||
| Current taxes: | ||||||||
| Federal | $ | — | $ | — | ||||
| State | 3,000 | — | ||||||
| 3,000 | — | |||||||
| Deferred taxes: | ||||||||
| Federal | — | — | ||||||
| State | — | — | ||||||
| — | — | |||||||
| Total | $ | 3,000 | $ | — | ||||
The following is a reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate 21% for 2019 and 31.5% for 2018) to income from continuing operations before income taxes for the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Computed at expected tax rates | $ | 3,495,692 | $ | (7,805,048 | ) | |||
| Nondeductible expenses | 77,473 | 91,439 | ||||||
| State Taxes net of FIT benefit | 2,370 | — | ||||||
| Return to accrual true-up | 1,490,624 | — | ||||||
| Change in effective tax rates | — | (11,470,220 | ) | |||||
| Change in valuation allowance | (5,063,159 | ) | 19,183,829 | |||||
| Total | $ | 3,000 | $ | — | ||||
| F-52 |
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred liabilities are presented below:
| At March 31, | ||||||||
| 2019 | 2018 | |||||||
| Deferred tax assets: | ||||||||
| Net operating tax loss carryforwards | $ | 9,396,605 | $ | 12,310,895 | ||||
| Depreciation, depletion and amortization | 643,497 | 2,522,833 | ||||||
| Unrealized loss in investments | — | — | ||||||
| Share-based compensation | 302,916 | 245,944 | ||||||
| Accrued compensation | — | 37,998 | ||||||
| Bad Debt reserve | 39,977 | 217,983 | ||||||
| Other | 1 | 110,502 | ||||||
| Total deferred tax assets (liabilities) | 10,382,996 | 15,446,155 | ||||||
| Less: valuation allowance | (10,382,996 | ) | (15,446,155 | ) | ||||
| Total | $ | — | $ | — | ||||
The above estimates are based on management’s decisions concerning certain elections which could change the relationship between net income and taxable income. Management decisions are made annually and could cause the estimates to vary significantly.
The Company experienced an "ownership change" within the meaning of IRC Section 382 during the year ended March 31, 2017. As a result, certain limitations apply to the annual amount of net operating losses that can be used to offset post ownership change taxable income. The Company has estimated that $44.5 million of its pre-ownership change net operating loss could potentially be lost due to the IRC Section 382 limitation for the year ending March 31, 2017. This amount may increase if the Company experiences another ownership change(s) since the last ownership change. However, the income tax effect of those ownership change(s) should be nil as the Company had recorded a full valuation allowance against its deferred assets.
At March 31, 2019, the Company had estimated net operating loss carryforwards for federal income tax purposes of approximately $44.8 million, adjusted for the ownership change limitation discussed above, which will begin to expire, if not previously used, beginning in the fiscal year 2028. A valuation allowance has been established for the entire amount of the deferred tax assets for years ended March 31, 2019 and March 31, 2018.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the 2017 Tax Cuts and Jobs Act ("2017 Tax Reform"). The 2017 Tax Reform significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. The Company has reasonably estimated the effects of the 2017 Tax Reform and recorded provisional amounts in the consolidated financial statements as of March 31, 2018. This amount is primarily comprised of the re-measurement of federal net deferred tax liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21%, from 34%. The Company will continue to monitor additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, so we may make adjustments to the provisional amounts (if any). However, management's opinion is that future adjustments due to the 2017 Tax Reform should not have a material impact on the Company's provision for income taxes.
The Company files income tax returns for federal and state purposes. Management believes that with few exceptions, the Company is not subject to examination by United States tax authorities for periods prior to 2015.
| F-53 |
NOTE 11 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
On April 4, 2017, the Company paid the required quarterly dividend on the Series B Preferred Stock by way of the issuance of 95 shares of common stock to the preferred stockholders at a fair market value of $34,896, based on the closing price of the Company’s common stock ($368.75 per share) on March 31, 2017.
On June 19, 2017, a holder of the Company’s Series B Convertible Preferred Stock converted 143,492 shares of Series B Convertible Preferred Stock into 1,640 shares of common stock of the Company.
On August 23, 2017, the Investor converted $35,000 of the principal amount of the Debenture into an aggregate of 2,808 shares of common stock, which included 17 shares for conversion of principal and 2,791 shares for premiums.
On October 4, 2017, the Company entered into an agreement with a digital marketing advisor pursuant to which the advisor agreed to create original content with the goal of increasing public awareness about the Company and the Company agreed to pay the advisor (a) $20,000 per month beginning in October 2017 and ending on February 28, 2018, (b) $50,000 per month thereafter through October 4, 2018, the end of the term of the agreement, and (c) 6,000 shares of restricted common stock, with 4,000 shares payable within 15 days of the parties’ entry into the agreement and the remainder due on May 1, 2018.
On October 4, 2017, the Company entered into a consulting agreement with a third party consultant which consultant agreed to provide investor relations and public relations services to the Company. As consideration pursuant to the agreement, the Company agreed to issue the consultant 1,600 shares of restricted common stock, with piggy-back registration rights.
In November 2017, the Company reimbursed entities owned in part by Alan Dreeben, a former director of the Company, for legal fees expended by such entities. Total legal fees expended by such entities totaled $392,043, and the Company reimbursed such fees by issuing Mr. Dreeben 3,137 shares of common stock with an agreed value of $125 per share in November 2017.
As of December 31, 2017, the 408,508 outstanding shares of Series B Preferred Stock had accrued an aggregate of $453,573 in quarterly dividends ($153,191 each for the quarters ended June 30, 2017, September 30, 2017 and December 30, 2017). The Company paid the accrued dividends on February 5, 2018, by way of the issuance of an aggregate of 210 shares of the Company’s common stock to the preferred stockholders pursuant to the terms of the designation (which provides that the shares shall be based on a value of $2,187.50 per share).
In June 2017, the Company entered into a settlement agreement with Mr. Anthony C. Schnur, its former Chief Executive Officer and director as described in greater detail above under Note 8 “Commitments and Contingencies” - “Settlement with Prior Chief Executive Officer”.
During the year ended March 31, 2018, the Investor received 156,380 shares of common stock in connection with the exercise of a warrant and adjustments thereon.
On April 20, 2018, the Investor was issued 5,679 shares of common stock as a result of true-ups in connection with the August 23, 2017 conversion of the Debenture.
During the year ended March 31, 2019, the outstanding shares of Series B Preferred Stock accrued quarterly dividends in the aggregate of $522,813. The Company paid the accrued dividends by way of the issuance of an aggregate of 231 shares of the Company’s common stock to the preferred stockholders pursuant to the terms of the designation (which provides that the shares shall be based on a value of $2,187.50 per share), including 8 shares issued after March 31, 2019. Also during the year ended March 31, 2019, a total of 364,508 shares of Series B Preferred Stock were converted into an aggregate of 4,153 shares of common stock, of which 497 of such shares, along with 113 shares of common stock originally owned by one of the converting holders, were cancelled pursuant to the terms of a settlement agreement.
| F-54 |
On November 15, 2018, the Company entered into a consulting agreement with Regal Consulting, an investor relations firm, pursuant to which the firm agreed to provide the Company investor relations and consulting services for a period of six months, for monthly consideration of $28,000 and 8,000 restricted shares of the Company’s common stock. In January 2019, the Company issued 16,000 shares of restricted common stock to Regal Consulting for the months of November and December 2018, which shares were issued during the year ended March 31, 2019. On February 13, 2019, and effective on January 31, 2019, the Company entered into a First Amendment to the Consulting Agreement previously entered into with Regal Consulting. Pursuant to the First Amendment, the parties agreed to expand the investor relations services required to be provided by Regal Consulting under the agreement in consideration for $50,000 per month and 50,000 restricted shares of common stock per month (the “Regal Shares”)(which are fully-earned upon issuance) during the term of the agreement, and agreed to extend the term of the agreement until October 1, 2019 (unless the Company completes an acquisition or combination prior to such date). A total of 150,000 of the Regal Shares have been issued as of the date of this filing for shares due for services between January and March 2019, and 300,000 shares remain to be issued pursuant to the terms of the agreement. As of March 31, 2019, the 104,000 shares had not been issued and a total of $41,800 had been accrued in common stock payable as of March 31, 2019. The shares were issued in May 2019.
On February 13, 2019, the Company entered into a letter agreement with SylvaCap Media (“SylvaCap”), pursuant to which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider in consideration for an aggregate of 600,000 shares of restricted common stock (the “SylvaCap Shares”), which are fully-earned upon their issuance, and $50,000 per month during the term of the agreement, which ends on November 12, 2019 (unless the Company completes an acquisition or combination prior to such date) or upon termination by either party for cause. The Company also agreed to provide SylvaCap piggy-back registration rights in connection with the SylvaCap Shares and to pay SylvaCap $6,250 every three months as an expense reimbursement. The total value of the restricted shares of common stock due of $261,540 has been accrued in common stock payable as of March 31, 2019. The SylvaCap shares were issued in May 2019.
Series A Convertible Preferred Stock
As of March 31, 2019 and 2018, respectively, the Company had no Series A Convertible Preferred Stock issued or outstanding.
Series B Redeemable Convertible Preferred Stock
On September 1, 2016, as consideration for the closing of the Acquisition, the Company issued an aggregate of 552,000 shares of Redeemable Convertible Preferred Stock, which had a total value of $13,800,000 based on the $25 per Series B Preferred Stock share par value. The preferred shares were issued to RAD2 (200,000 shares) and Segundo Resources, LLC (an affiliate of RAD2)(352,000 shares) on behalf of and for the benefit of RAD2.
As of March 31, 2019 and 2018, there were 44,000 and 408,508 shares of Series B Preferred Stock outstanding, respectively, which have the following features:
| ● | a liquidation preference senior to all of the Company’s common stock; |
| ● | a dividend, payable quarterly, at an annual rate of six percent (6%) of the original issue price until such Series B Preferred Stock is no longer outstanding either due to conversion, redemption or otherwise; and |
| ● | voting rights on all matters, with each share having 1 vote. |
During the year ended March 31, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 210 shares of the Company’s common stock. Due to the fact that the Company is in a retained deficit position, the Company recognized a charge to additional paid in-capital of $143, based on the par value of the common stock issued. As of March 31, 2018, the Company recognized additional stock dividends on the Series B Preferred Stock consisting of 24 shares of our common stock, which was recognized as a charge to additional paid in-capital and stock dividends distributable but not issued of $449, based on the closing price of the Company’s common stock of $19.25 per share on March 31, 2018.
| F-55 |
During the year ended March 31, 2019, the Company issued a stock dividend on the Series B Preferred Stock consisting of 231 shares of the Company’s common stock. Due to the fact that the Company is in a retained deficit position, the Company recognized a charge to additional paid in-capital of $2,782, based on the par value of the common stock issued paid in-capital and stock dividends distributable but not issued of $3, based on the closing price of the Company’s common stock of $0.3822 per share on March 31, 2019. In April 2019, the Company issued 8 shares of common stock in lieu of cash dividends which had accrued on the Series B Preferred Stock for the quarter ended March 31, 2019.
Also during the year ended March 31, 2019, a total of 364,508 shares of Series B Preferred Stock were converted into an aggregate of 4,166 shares of common stock, of which 497 of such shares, along with 113 shares of common stock originally owned by one of the converting holders, were cancelled pursuant to the terms of a settlement agreement.
Series C Redeemable Convertible Preferred Stock
During the year ended March 31, 2019, the Company sold and issued 1,577 shares of Series C Preferred Stock pursuant to the terms of a October 2017 Stock Purchase Agreement, October 2018 Stock Purchase Agreement and November 2018 Stock Purchase Agreement, for total consideration of $15 million. During the year ended March 31, 2018, the Company sold and issued 738 shares of Series C Preferred Stock pursuant to the terms of a October 2017 Stock Purchase Agreement, for total consideration of $7 million. As of March 31, 2019 and 2018, there were 2,305 and 1,132 shares of Series C Preferred Stock outstanding, respectively.
During the year ended March 31, 2019, the Investor converted 404 shares of the Series C Preferred Stock with a face value of $4.04 million into a total of 49,724 shares of common stock and was issued an additional 4,741,986 shares for conversion premiums and true ups in connection with those conversions. During the year ended March 31, 2018, the Investor converted 10 shares of Series C Preferred Stock with a face value of $100,000 into a total of 49 shares of common stock and was issued an additional 16,341 shares for true ups in connection with that conversion.
As of March 31, 2019 and 2018, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 34.95% premium dividend rate described above. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued of $5,676,715 and $1,928,084 related to the stock dividend declared but not issued for the years ended March 31, 2019 and 2018, respectively.
| F-56 |
Warrants
The following summarizes Camber’s warrant activity for each of the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Number of | Exercise | Number of | Exercise | |||||||||||||
| Warrants | Price | Warrants | Price | |||||||||||||
| Outstanding at Beginning of Year | 2,904 | $ | 453.75 | 410 | $ | 8,025.25 | ||||||||||
| Issued | 40,000 | 9.75 | 2,560 | 156.25 | ||||||||||||
| Expired | (37 | ) | 13,150.61 | (66 | ) | 35,937.50 | ||||||||||
| Exercised | — | — | — | — | ||||||||||||
| Outstanding at End of Year | 42,867 | $ | 26.74 | 2,904 | $ | 453.75 | ||||||||||
In June 2017, the Company granted 2,560 warrants to purchase shares of the Company’s common stock which were valued at the grant date under the Black-Scholes Option pricing model at $288,592. The exercise price of the warrants is $156.25 per share of common stock. The warrants expire five years from the grant date. The volatility utilized in the model was 135.42%. The discount rate was 1.78%.
In May 2018, the Company granted 40,000 warrants to purchase shares of the Company’s common stock which were valued at the grant date under the Black-Scholes Option pricing model at $343,631 which is included in the March 31, 2019 consolidated financial statements as share-based compensation. The exercise price of the warrants is $9.75 per share of common stock. The warrants expire five years from the grant date. The volatility utilized in the model was 145.36%. The discount rate was 2.76%.
The following is a summary of the Company’s outstanding warrants at March 31, 2019:
| Warrants | Exercise | Expiration | Intrinsic Value at | |||||||||||
| Outstanding | Price ($) | Date | March 31, 2019 | |||||||||||
| 108 | (1) | 1,572.44 | April 21, 2019 | $ | — | |||||||||
| 199 | (2) | 937.50 | April 26, 2021 | — | ||||||||||
| 2,560 | (3) | 156.25 | June 12, 2022 | — | ||||||||||
| 40,000 | (4) | 9.75 | May 24, 2023 | — | ||||||||||
| 42,867 | $ | — | ||||||||||||
| (1) | Warrants issued in connection with the sale of units in the Company’s unit offering in April 2014. The warrants became exercisable on April 21, 2014 and will remain exercisable thereafter until April 21, 2019. These warrants expired unexercised. |
| (2) | Warrants issued in connection with the sale of convertible notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until April 26, 2021. |
| (3) | Warrants issued in connection with the Initial Tranche of the funding from Vantage. The warrants were exercisable on the grant date (June 12, 2017) and remain exercisable until June 12, 2022. |
| (4) | Warrants issued in connection with the Severance Agreement with Richard Azar. The warrants were exercisable on the grant date (May 25, 2018) and remain exercisable until May 24, 2023. |
NOTE 12 – SHARE-BASED COMPENSATION
Common Stock
The Company stockholders approved the 2014 Stock Incentive Plan (as amended to date, the “2014 Plan”) at the annual stockholder meeting held on February 13, 2014. The 2014 Plan provides the Company with the ability to offer up to 2.5 million (i) incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) stock awards; (v) shares in performance of services; or (vi) any combination of the foregoing, to employees, consultants and contractors as provided in the 2014 Plan.
| F-57 |
The Company stockholders approved the Lucas Energy, Inc. 2012 Stock Incentive Plan (“2012 Incentive Plan”) at the annual stockholder meeting held on December 16, 2011. The 2012 Incentive Plan provides the Company with the ability to offer (i) incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) stock awards; (v) shares in performance of services; or (vi) any combination of the foregoing, to employees, consultants and contractors as provided in the 2012 Incentive Plan.
The Company stockholders approved the Lucas Energy, Inc. 2010 Long Term Incentive Plan (“2010 Incentive Plan” or “2010 Plan”) at the annual stockholder meeting held on March 30, 2010. The 2010 Incentive Plan provides the Company with the ability to offer (1) incentive stock options, (2) non-qualified stock options, and (3) restricted shares (i.e., shares subject to such restrictions, if any, as determined by the Compensation Committee or the Board) to employees, consultants and contractors as performance incentives.
Under the 2010 Incentive Plan, 58 shares of the Company’s common stock are authorized for initial issuance or grant, under the 2012 Incentive Plan, 96 shares of the Company’s common stock are authorized for initial issuance or grant, and under the 2014 Incentive Plan, as amended, 2,500,000 shares of the Company’s common stock are authorized for issuance or grant. As of March 31, 2019, there was an aggregate of 1 share available for issuance or grant under the 2010 Incentive Plan, 5 shares were available for issuance or grant under the 2012 Incentive Plan and an aggregate of approximately 2,499,996 securities were available for issuance or grant under the 2014 Incentive Plan as amended for future issuances and grants, respectively. The number of securities available under the 2010, 2012 and 2014 Plans is reduced one for one for each security delivered pursuant to an award under the Plans. Any issued or granted security that becomes available due to expiration, forfeiture, surrender, cancellation, termination or settlement in cash of an award under the Incentive Plans may be requested and used as part of a new award under the Plans.
The Plans are administered by the Compensation Committee and/or the Board in its discretion (the “Committee”). The Committee interprets the Plans and has broad discretion to select the eligible persons to whom awards will be granted, as well as the type, size and terms and conditions of each award, including the exercise price of stock options, the number of shares subject to awards, the expiration date of awards, and the vesting schedule or other restrictions applicable to awards.
For the year ended March 31, 2018, Camber issued 268 shares of its common stock with an aggregate grant date fair value of $54,533, which were valued based on the trading value of Camber’s common stock on the date of grant. The shares were awarded according to the employment agreement with an officer and as additional compensation for other officers and managerial personnel.
On October 4, 2017, the Company entered into an agreement with a digital marketing and a consulting agreement with a third party consultant pursuant to which shares of common stock were issued. See Note 11 “Stockholders’ Equity (Deficit)” – “Common Stock”, above.
In May 2018, the Company granted 40,000 warrants to purchase shares of the Company’s common stock which were valued at the grant date under the Black-Scholes Option pricing model at $343,631 which is included in the March 31, 2019 consolidated financial statements as share-based compensation.
On November 15, 2018, the Company entered into a consulting agreement with Regal Consulting, an investor relations firm (as amended on February 13, 2019) and on February 13, 2019, the Company entered into a letter agreement with SylvaCap, pursuant to which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider pursuant to which shares of common stock were issued and agreed to be issued. See Note 11 “Stockholders’ Equity (Deficit)” – “Common Stock”, above.
Stock Options
The following summarizes Camber’s stock option activity for each of the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||||||||||
| Number of Stock Options |
Weighted
Average
Exercise Price |
Number of Stock Options |
Weighted
Average Exercise Price |
|||||||||||||
| Outstanding at Beginning of Year | 4 | $ | 32,343.75 | 32 | $ | 21,130.75 | ||||||||||
| Expired/Cancelled | — | — | (28 | ) | 21,002.50 | |||||||||||
| Outstanding at End of Year | 4 | $ | 32,343.75 | 4 | $ | 32,343.75 | ||||||||||
| F-58 |
During the year ended March 31, 2019, the Company granted no stock options, and of the Company’s outstanding options, no options were exercised, expired or forfeited.
During the year ended March 31, 2018, the Company granted no stock options, and of the Company’s outstanding options, no options were exercised or forfeited, while options to purchase 28 shares of common stock expired.
Share-based compensation expense related to stock options during the years ended March 31, 2019 and 2018 was $0 and $11,238, respectively.
Options outstanding and exercisable at March 31, 2019 and 2018 had no intrinsic value. The intrinsic value is based upon the difference between the market price of Camber’s common stock on the date of exercise and the grant price of the stock options.
At March 31, 2019 and 2018, there was no unrecognized compensation expense related to non-vested stock options.
Options outstanding and exercisable as of March 31, 2019:
| Exercise | Remaining | Options | Options | |||||||||||
| Price ($) | Life (Yrs.) | Outstanding | Exercisable | |||||||||||
| 32,343.75 | 1.5 | 4 | 4 | |||||||||||
| Total | 4 | 4 | ||||||||||||
| F-59 |
NOTE 13 – INCOME (LOSS) PER COMMON SHARE
The calculation of earnings (loss) per share for the years ended March 31, 2019 and 2018 was as follows:
| Year Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Numerator: | ||||||||
| Net Income (Loss) | $ | 16,643,153 | $ | (24,771,588 | ) | |||
| Less Preferred Dividends | (5,676,715 | ) | (1,928,084 | ) | ||||
| Net Income (Loss) Attributable to Common Stockholders | $ | 10,966,438 | $ | (26,699,672 | ) | |||
| Denominator | ||||||||
| Weighted Average Share – Basic | 4,938,259 | 92,753 | ||||||
| Income (Loss) per Share – Basic | $ | 2.22 | $ | (287.86 | ) | |||
| Dilutive Effect of Common Stock Equivalents | ||||||||
| Options and Warrants | — | — | ||||||
| Series C Preferred Shares | 47,318,473 | — | ||||||
| Denominator | ||||||||
| Total Weighted average shares – diluted | 52,256,732 | 92,753 | ||||||
| Income (loss) per share – diluted | $ | 0.21 | $ | (287.86 | ) | |||
For the years ended March 31, 2019 and 2018, the following share equivalents related to convertible debt and warrants to purchase shares of common stock were excluded from the computation of diluted net income (loss) per share as the inclusion of such shares would be anti-dilutive.
| Year Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Common Shares Issuable for: | ||||||||
| Convertible Debt | — | 45,386 | ||||||
| Options and Warrants | 42,871 | 2,907 | ||||||
| Series B and C Preferred Shares | — | 632,839 | ||||||
| Total | 42,871 | 681,132 | ||||||
NOTE 14 – POSTRETIREMENT BENEFITS
Camber maintained a matched defined contribution savings plan for its employees. During the years ended March 31, 2019 and 2018, Camber’s total costs recognized for the savings plan were $0 and $7,234, respectively. The plan was terminated during the year ended March 31, 2018.
| F-60 |
NOTE 15 – SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for interest and income taxes was as follows for the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Interest | $ | 842,520 | $ | 2,489,990 | ||||
| Income taxes | $ | — | $ | — | ||||
Non-cash investing and financing activities for the years ended March 31, 2019 and 2018 included the following:
| 2019 | 2018 | |||||||
| Reduction in Accounts Payable for Payments Made on Previously Accrued Capital Expenditures | $ | 547,033 | $ | 4,402 | ||||
| Cancellation of Debt and Interest on Rogers Foreclosure | $ | — | $ | 11,018,385 | ||||
| Issuance of Common Stock for Payment of Consulting Fees | $ | 234,430 | $ | — | ||||
| Additions to Asset Retirement Obligation | $ | — | $ | 437,071 | ||||
| Change in Estimate for Asset Retirement Obligations | $ | 19,461 | $ | 268,119 | ||||
| Conversion of Preferred B Shares to Common Stock | $ | 365 | $ | — | ||||
| Stock Dividends Distributable but not Issued | $ | 5,676,715 | $ | 1,928,084 | ||||
| Conversion of Notes and Accrued Interest to Common Stock | $ | 917,103 | $ | 35,000 | ||||
| Conversion of Preferred Stock to Common Stock | $ | 4,742 | $ | 553 | ||||
| Issuance of Lender Shares | $ | — | $ | 35,900 | ||||
| Warrants Issued in Abeyance | $ | 12 | $ | 3,910 | ||||
| Issuance of Common Stock for Dividends | $ | 2,782 | $ | 58,824 | ||||
NOTE 16 – SUBSEQUENT EVENTS
On April 22, 2019, the Company issued 8 shares of common stock in lieu of cash dividends which had accrued on the Series B Preferred Stock for the quarter ended March 31, 2019.
On May 15, 2019, the Company entered into an Agreed Conversion Agreement with the then holder of all 44,000 shares of the Company’s then outstanding Series B Preferred Stock. Pursuant to the Conversion Agreement, all of the Series B Preferred Stock was agreed to be converted into 503 shares of the Company’s common stock pursuant to the stated terms of such Series B Preferred Stock, in consideration for $25,000 in cash. The holder also provided the Company a release in connection with certain of his rights under the Series B Preferred Stock (including any and all accrued and unpaid dividends) and certain other matters.
On May 22, 2019, the 150,000 shares due to Regal Consulting and the 600,000 shares due to SylvaCap (as described in greater detail under Note 11 “Stockholders’ Equity (Deficit)” – “Common Stock”) were issued.
Subsequent to March 31, 2019, and through June 25, 2019, the Investor has been issued an aggregate of 28,458,521 shares of common stock in connection with true-ups associated with the October 2018 conversion, by the Investor, of the Debenture. As of June 25, 2019, the Investor was still due 24,133,311 shares in connection with true ups on the conversion of the Debenture, which shares are being held in abeyance until such time, as ever, as such shares can be issued to the Investor without the Investor exceeding the 4.99% ownership limitation set forth in the Debenture.
Supplemental Oil and Gas Disclosures (Unaudited)
The following disclosures for the Company are made in accordance with authoritative guidance regarding disclosures about oil and natural gas producing activities. Users of this information should be aware that the process of estimating quantities of “proved,” “proved developed,” and “proved undeveloped” crude oil, natural gas liquids and natural gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
| F-61 |
Proved reserves represent estimated quantities of crude oil, natural gas liquids and natural gas that geoscience and engineering data can estimate, with reasonable certainty, to be economically producible from a given day forward from known reservoirs under economic conditions, operating methods and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.
Proved developed reserves are proved reserves expected to be recovered under operating methods being utilized at the time the estimates were made, through wells and equipment in place or if the cost of any required equipment is relatively minor compared to the cost of a new well.
Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. Estimates for proved undeveloped reserves are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
PROVED RESERVE SUMMARY
All of the Company’s reserves are located in the United States. The following tables sets forth the changes in Camber’s net proved reserves (including developed and undeveloped reserves) for the years ended March 31, 2019 and 2018. Reserves estimates as of March 31, 2019 and 2018, respectively, were estimated by the independent petroleum consulting firm Graves & Co. Consulting LLC:
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Crude Oil (Bbls) | ||||||||
| Net proved reserves at beginning of year | 129,573 | 1,586,750 | ||||||
| Revisions of previous estimates | 3,868 | (1,430,073 | ) | |||||
| Purchases in place | — | 2,010 | ||||||
| Extensions, discoveries and other additions | — | — | ||||||
| Sales in place | (75 | ) | (1,410 | ) | ||||
| Production | (8,846 | ) | (27,704 | ) | ||||
| Net proved reserves at end of year | 124,520 | 129,573 | ||||||
| Natural Gas (Mcf) | ||||||||
| Net proved reserves at beginning of year | 8,147,168 | 9,804,010 | ||||||
| Revisions of previous estimates | (7,609,052 | ) | (1,134,687 | ) | ||||
| Purchases in place | — | 274,810 | ||||||
| Extensions, discoveries and other additions | — | — | ||||||
| Sales in place | (7,983 | ) | (581 | ) | ||||
| Production | (321,423 | ) | (796,384 | ) | ||||
| Net proved reserves at end of year | 208,710 | 8,147,168 | ||||||
| NGL (Bbls) | ||||||||
| Net proved reserves at beginning of year | 1,435,703 | 2,420,110 | ||||||
| Revisions of previous estimates | (1,338,916 | ) | (885,224 | ) | ||||
| Purchases in place | — | 47,980 | ||||||
| Extensions, discoveries and other additions | — | — | ||||||
| Sales in place | (1,418 | ) | (87 | ) | ||||
| Production | (51,269 | ) | (147,076 | ) | ||||
| Net proved reserves at end of year | 44,100 | 1,435,703 | ||||||
| Oil Equivalents (Boe) | ||||||||
| Net proved reserves at beginning of year | 2,923,138 | 5,640,862 | ||||||
| Revisions of previous estimates | (2,603,224 | ) | (2,504,412 | ) | ||||
| Purchases in place | — | 95,792 | ||||||
| Extensions, discoveries and other additions | — | — | ||||||
| Sales in place | (2,823 | ) | (1,594 | ) | ||||
| Production | (113,685 | ) | (307,510 | ) | ||||
| Net proved reserves at end of year | 203,406 | 2,923,138 | ||||||
| F-62 |
The following table sets forth Camber’s proved developed and undeveloped reserves at March 31, 2019 and 2018:
| At March 31, | ||||||||
| 2019 | 2018 | |||||||
| Proved Developed Producing Reserves | ||||||||
| Crude Oil (Bbls) | 76,490 | 129,573 | ||||||
| Natural Gas (Mcf) | 208,710 | 8,147,168 | ||||||
| NGL (Bbls) | 44,100 | 1,435,703 | ||||||
| Oil Equivalents (Boe) | 155,376 | 2,923,138 | ||||||
| Proved Developed Non-Producing Reserves | ||||||||
| Crude Oil (Bbls) | 48,030 | — | ||||||
| Natural Gas (Mcf) | — | — | ||||||
| NGL (Bbls) | — | — | ||||||
| Oil Equivalents (Boe) | 48,030 | — | ||||||
| Proved Undeveloped Reserves | ||||||||
| Crude Oil (Bbls) | — | |||||||
| Natural Gas (Mcf) | — | — | ||||||
| NGL (Bbls) | — | — | ||||||
| Oil Equivalents (Boe) | — | |||||||
| Proved Reserves | ||||||||
| Crude Oil (Bbls) | 124,520 | 129,573 | ||||||
| Natural Gas (Mcf) | 208,710 | 8,147,168 | ||||||
| NGL (Bbls) | 44,100 | 1,435,703 | ||||||
| Oil Equivalents (Boe) | 203,406 | 2,923,138 | ||||||
*The Company engaged Graves & Co Consulting, LLC, an independent reserve engineering firm, to provide a reserve report on the Company’s properties as of March 31, 2019.
Proved Developed Not Producing Reserves
At March 31, 2019, the Company had proved developed not producing reserves of 48,030 Bbls of crude oil and 0 proved developed not producing reserves at March 31, 2018.
Proved Undeveloped Reserves
At March 31, 2019, the Company had no proved undeveloped reserves. During the year ended March 31, 2018, total proved undeveloped reserves decreased by 2.3 million Boe to 0 Boe, due to expiring leases. The Company’s proved reserves at March 31, 2018 were concentrated mainly in the Hunton formation and totaled 2.8 million Boe, or 96% of the total proved developed reserves. These reserves were sold as part of the N&B Energy transaction discussed earlier. As of March 31, 2019, our proved reserves totaled 203,406 Boe and are concentrated mainly in the Trend and Hutchinson areas.
| F-63 |
The following table sets forth Camber’s net reserves in Boe by reserve category and by formation at March 31, 2019 and 2018:
|
Proved
Developed |
Proved Non-Producing |
Proved
Undeveloped |
Total
Proved |
|||||||||||||
| Hunton Area | ||||||||||||||||
| At March 31, 2019 | — | — | — | — | ||||||||||||
| At March 31, 2018 | 2,803,670 | — | — | 2,803,670 | ||||||||||||
| Hutchinson Area | ||||||||||||||||
| At March 31, 2019 | 18,200 | 48,030 | — | 66,230 | ||||||||||||
| At March 31, 2018 | — | — | — | — | ||||||||||||
| Trend Area | ||||||||||||||||
| At March 31, 2019 | 132,361 | — | — | 132,361 | ||||||||||||
| At March 31, 2018 | 119,468 | — | — | 119,468 | ||||||||||||
| Other | ||||||||||||||||
| At March 31, 2019 | 4,815 | — | — | 4,815 | ||||||||||||
| At March 31, 2018 | — | — | — | — | ||||||||||||
| Total | ||||||||||||||||
| At March 31, 2019 | 155,376 | 48,030 | — | 203,406 | ||||||||||||
| At March 31, 2018 | 2,923,138 | 48,030 | — | 5,640,862 | ||||||||||||
Capitalized Costs Relating to Oil and Natural Gas Producing Activities. The following table sets forth the capitalized costs relating to Camber’s crude oil and natural gas producing activities at March 31, 2019 and 2018:
| At March 31, | ||||||||
| 2019 | 2018 | |||||||
| Oil and gas properties subject to amortization | $ | 50,352,306 | $ | 60,760,056 | ||||
| Oil and gas properties not subject to amortization | 28,016,989 | 28,016,989 | ||||||
| Capitalized asset retirement costs | 176,649 | 322,470 | ||||||
| Total oil & natural gas properties | 78,545,944 | 89,099,515 | ||||||
| Accumulated depreciation, depletion, and impairment | (78,333,628 | ) | (76,555,320 | ) | ||||
| Net Capitalized Costs | $ | 212,316 | $ | 12,544,195 | ||||
Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities. The following table sets forth the costs incurred in Camber’s oil and natural gas property acquisition, exploration and development activities for the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Acquisition of properties | ||||||||
| Proved | $ | — | $ | 460,000 | ||||
| Unproved | — | — | ||||||
| Exploration costs | — | — | ||||||
| Development costs | 1,548,958 | 1,586,057 | ||||||
| Total | $ | 1,548,958 | $ | 2,046,057 | ||||
| F-64 |
Results of Operations for Oil and Natural Gas Producing Activities. The following table sets forth the results of operations for oil and natural gas producing activities for the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Crude oil and natural gas revenues | $ | 2,742,102 | $ | 6,859,767 | ||||
| Production costs | (3,003,901 | ) | (5,175,038 | ) | ||||
| Depreciation and depletion | (473,521 | ) | (1,380,418 | ) | ||||
| Results of operations for producing activities, excluding corporate overhead and interest costs | $ | (735,320 | ) | $ | 304,311 | |||
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves. The following information has been developed utilizing procedures prescribed by ASC Topic 932 and based on crude oil and natural gas reserves and production volumes estimated by the independent petroleum consultants of Camber. The estimates were based on a 12-month average of first-of-the-month commodity prices for the years ended March 31, 2019 and 2018. The following information may be useful for certain comparison purposes, but should not be solely relied upon in evaluating Camber or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of Camber.
The future cash flows presented below are based on cost rates and statutory income tax rates in existence as of the date of the projections and average prices over the preceding twelve months. It is expected that material revisions to some estimates of crude oil and natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used.
Management does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable and possible as well as proved reserves, and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated.
The following table sets forth the standardized measure of discounted future net cash flows from projected production of Camber’s oil, NGL, and natural gas reserves as of March 31, 2019 and 2018:
| At March 31, | ||||||||
| 2019 | 2018 | |||||||
| Future cash inflows | $ | 9,223,561 | $ | 54,991,829 | ||||
| Future production costs | (4,073,084 | ) | (35,232,113 | ) | ||||
| Future development costs | (595,000 | ) | — | |||||
| Future income taxes | (956,650 | ) | (6,915,899 | ) | ||||
| Future net cash flows | 3,598,827 | 12,843,817 | ||||||
| Discount to present value at 10% annual rate | (1,520,346 | ) | (5,375,702 | ) | ||||
| Standardized measure of discounted future net cash flows relating to proved oil and gas reserves | $ | 2,078,481 | $ | 7,468,115 | ||||
| F-65 |
Changes in Standardized Measure of Discounted Future Net Cash Flows. The following table sets forth the changes in the standardized measure of discounted future net cash flows for each of the years ended March 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Standardized measure, beginning of year | $ | 7,468,115 | $ | 16,012,422 | ||||
| Crude oil and natural gas sales, net of production costs | 260,928 | (1,684,075 | ) | |||||
| Net changes in prices and production costs | 1,842,171 | (4,509,864 | ) | |||||
| Changes in estimated future development costs | 344,759 | — | ||||||
| Revisions of previous quantity estimates | 17,112,424 | (3,689,687 | ) | |||||
| Accretion of discount | 263,955 | 1,148,940 | ||||||
| Net change in income taxes | 3,460,184 | 5,391,659 | ||||||
| Purchases of reserves in place | — | 680,200 | ||||||
| Sales of reserves in place | (10,083 | ) | (9,500 | ) | ||||
| Change in timing of estimated future production | (28,663,972 | ) | (5,871,980 | ) | ||||
| Standardized measure, end of year | $ | 2,078,481 | $ | 7,468,115 | ||||
| F-66 |
| VIKING ENERGY GROUP, INC. |
| Consolidated Balance Sheets |
|
March 31, 2020 |
December 31, 2019 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,614,251 | $ | 1,761,495 | ||||
| Restricted cash | 4,650,864 | 3,877,229 | ||||||
| Accounts receivable – oil and gas - net | 4,620,305 | 2,864,114 | ||||||
| Prepaid expenses | 104,272 | 168,994 | ||||||
| Total current assets | 10,989,692 | 8,671,832 | ||||||
| Oil and gas properties, full cost method | ||||||||
| Proved developed producing oil and gas properties, net | 89,452,026 | 68,924,441 | ||||||
| Proved undeveloped and non-producing oil and gas properties, net | 58,944,434 | 50,817,675 | ||||||
| Total oil and gas properties, net | 148,396,460 | 119,742,116 | ||||||
| Fixed assets, net | 483,830 | 509,934 | ||||||
| Derivative asset | 17,720,622 | - | ||||||
| Deposits | 119,190 | 2,821,594 | ||||||
| TOTAL ASSETS | $ | 177,709,794 | $ | 131,745,476 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,999,431 | $ | 3,791,894 | ||||
| Accrued expenses and other current liabilities | 4,467,469 | 3,229,594 | ||||||
| Undistributed revenues and royalties | 2,671,862 | 2,247,678 | ||||||
| Derivative liability | - | 5,158,822 | ||||||
| Amount due to director | 590,555 | 590,555 | ||||||
| Current portion of long-term debt and other short-term borrowings – net of debt discount | 21,098,455 | 19,225,045 | ||||||
| Total current liabilities | 30,827,772 | 34,243,588 | ||||||
| Long term debt - net of current portion and debt discount | 112,077,985 | 84,988,117 | ||||||
| Operating lease liability | 292,528 | 308,279 | ||||||
| Asset retirement obligation | 5,178,585 | 3,538,637 | ||||||
| TOTAL LIABILITIES | 148,376,870 | 123,078,621 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued and outstanding as of March 31, 2020 and December 31, 2019 | 28 | 28 | ||||||
| Common stock, $0.001 par value, 500,000,000 shares authorized, 126,925,314 and 124,198,309 shares issued and outstanding as of March 31, 2020 and December 31, 2019 respectively. | 126,925 | 124,198 | ||||||
| Additional paid-in capital | 39,239,575 | 38,825,392 | ||||||
| Accumulated deficit | (10,990,773 | ) | (30,282,763 | ) | ||||
| Equity attributable to Viking Energy Group, Inc. | 28,375,755 | 8,666,855 | ||||||
| Noncontrolling interest | 957,169 | - | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 29,332,924 | 8,666,855 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 177,709,794 | $ | 131,745,476 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-67 |
| VIKING ENERGY GROUP, INC. |
| Consolidated Statements of Operations (Unaudited) |
| Three months ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Revenue | ||||||||
| Oil and gas sales | $ | 11,787,952 | $ | 9,346,592 | ||||
| Operating expenses | ||||||||
| Lease operating costs | 3,759,203 | 2,599,394 | ||||||
| General and administrative | 1,284,647 | 1,033,345 | ||||||
| Stock based compensation | 253,750 | 39,582 | ||||||
| Depreciation, depletion and amortization | 3,177,202 | 2,370,688 | ||||||
| Accretion - ARO | 125,620 | 82,546 | ||||||
| Total operating expenses | 8,600,422 | 6,125,555 | ||||||
| Income from operations | 3,187,530 | 3,221,037 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (4,583,560 | ) | (3,131,393 | ) | ||||
| Amortization of debt discount | (1,235,530 | ) | (2,278,959 | ) | ||||
| Change in fair value of derivatives | 22,879,444 | (9,745,583 | ) | |||||
| Interest and other income | 1,275 | 3,417 | ||||||
| Total other income (expense) | 17,061,629 | (15,152,518 | ) | |||||
| Net income (loss) before income taxes | 20,249,159 | (11,931,481 | ) | |||||
| Income tax benefit (expense) | - | - | ||||||
| Net income (loss) | 20,249,159 | (11,931,481 | ) | |||||
| Net income attributable to noncontrolling interest | (957,169 | ) | - | |||||
| Net income (loss) attributable to Viking Energy Group, Inc. | $ | 19,291,990 | $ | (11,931,481 | ) | |||
| Earnings (loss) per common share | ||||||||
| Basic and Diluted | $ | 0.15 | $ | (0.13 | ) | |||
| Weighted average number of common shares outstanding | ||||||||
| Basic and Diluted | 125,320,234 | 91,103,394 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-68 |
| VIKING ENERGY GROUP, INC. |
| Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) |
For the three months ended March 31, 2020
| Retained | ||||||||||||||||||||||||||||||||
| Additional | Earnings | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | (Accumulated | Noncontrolling | Stockholders' | |||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Deficit) | Interest | Equity | |||||||||||||||||||||||||
| Balances at December 31, 2019 | 28,092 | $ | 28 | 124,198,309 | $ | 124,198 | $ | 38,825,392 | $ | (30,282,763 | ) | $ | - | $ | 8,666,855 | |||||||||||||||||
| Shares issued for services | 1,512,755 | 1,513 | 252,237 | 253,750 | ||||||||||||||||||||||||||||
| Warrant exercise | 416,250 | 416 | 37,584 | 38,000 | ||||||||||||||||||||||||||||
| Warrants exercised to reduce debt | 150,000 | 150 | 14,850 | 15,000 | ||||||||||||||||||||||||||||
| Shares issued as debt discount | 648,000 | 648 | 109,512 | 110,160 | ||||||||||||||||||||||||||||
| Net income | 19,291,990 | 957,169 | 20,249,159 | |||||||||||||||||||||||||||||
| Balances at March 31, 2020 | 28,092 | $ | 28 | 126,925,314 | $ | 126,925 | $ | 39,239,575 | $ | (10,990,773 | ) | $ | 957,169 | $ | 29,332,924 | |||||||||||||||||
For the three months ended March 31, 2019
| Retained | ||||||||||||||||||||||||||||||||
| Additional | Earnings | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | (Accumulated | Noncontrolling | Stockholders' | |||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Deficit) | Interest | Equity | |||||||||||||||||||||||||
| Balances at December 31, 2018 | 28,092 | $ | 28 | 90,989,025 | $ | 90,989 | $ | 32,015,913 | $ | (10,891,913 | ) | $ | - | $ | 21,215,017 | |||||||||||||||||
| Shares issued for services | 198,056 | 198 | 39,384 | 39,582 | ||||||||||||||||||||||||||||
| Net loss | (11,931,481 | ) | (11,931,481 | ) | ||||||||||||||||||||||||||||
| Balances at March 31, 2019 | 28,092 | $ | 28 | 91,187,081 | $ | 91,187 | $ | 32,055,297 | $ | (22,823,394 | ) | $ | - | $ | 9,323,118 | |||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-69 |
| VIKING ENERGY GROUP, INC. |
| Consolidated Statements of Cash Flows (Unaudited) |
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 20,249,159 | $ | (11,931,481 | ) | |||
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | ||||||||
| Change in fair value of derivative liability | (22,879,444 | ) | 9,745,583 | |||||
| Stock based compensation | 253,750 | 39,582 | ||||||
| Depreciation, depletion and amortization | 3,177,202 | 2,370,688 | ||||||
| Amortization of operational right-of-use assets | 768 | 1,286 | ||||||
| Accretion – Asset retirement obligation | 125,620 | 82,546 | ||||||
| Amortization of debt discount | 1,235,530 | 2,278,959 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (1,756,191 | ) | (2,781,548 | ) | ||||
| Prepaid expenses and other assets | 17,126 | (17,611 | ) | |||||
| Accounts payable | (1,792,463 | ) | (263,807 | ) | ||||
| Accrued expenses and other current liabilities | 1,008,761 | 917,665 | ||||||
| Undistributed revenues and royalties | 424,184 | (74,952 | ) | |||||
| Net cash provided by operating activities | 64,002 | 366,910 | ||||||
| Cash flows from investing activities: | ||||||||
| Investment in and acquisition of oil and gas properties | (811,276 | ) | (493,126 | ) | ||||
| Net cash used in investing activities | (811,276 | ) | (493,126 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from long term debt | 3,773,679 | - | ||||||
| Proceeds from exercise of warrants | 38,000 | - | ||||||
| Short term advance | - | 693,706 | ||||||
| Repayment of long-term debt | (2,438,014 | ) | (332,332 | ) | ||||
| Net cash provided by financing activities | 1,373,665 | 361,374 | ||||||
| Net increase in cash | 626,391 | 251,158 | ||||||
| Cash and Restricted Cash, beginning of period | 5,638,724 | 4,009,892 | ||||||
| Cash and Restricted Cash, end of period | $ | 6,265,115 | $ | 4,245,050 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 3,531,095 | $ | 2,239,731 | ||||
| Income taxes | $ | - | $ | - | ||||
| Supplemental disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Recognition of asset retirement obligation | $ | 1,514,328 | $ | - | ||||
| Recognition of right-of-use asset and lease liability | $ | - | $ | 367,365 | ||||
| Amortization of right-of-use asset and lease liability | $ | 15,751 | $ | 14,292 | ||||
| Purchase of transportation equipment through direct financing | $ | - | $ | 56,760 | ||||
| Issuance of warrant shares as reduction of debt | $ | 15,000 | $ | - | ||||
| Issuance of shares as discount on debt | $ | 110,160 | $ | - | ||||
| Private placement debt exchanged for new private placement debt | $ | 654,000 | $ | - | ||||
| Purchase of working interest through new debt | $ | 29,496,356 | $ | - | ||||
| Accrued interest rolled into new private placement | $ | 39,592 | $ | - | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-70 |
| VIKING ENERGY GROUP, INC. |
| Notes to Consolidated Financial Statements |
| (Unaudited) |
Note 1 Nature of Business and Going Concern
Viking Energy Group, Inc. (“Viking” or the “Company”) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Since the beginning of 2019 the Company has had the following related activities:
| ● | On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres. | |
| ● | On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres. | |
| ● | On February 3, 2020, Elysium Energy, LLC (“Elysium”), a wholly-owned subsidiary of Viking’s majority-owned subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”), acquired interests in certain oil and gas properties located in Texas and Louisiana. The assets purchased included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells) and Louisiana (approximately 55 wells), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January 2022 to July 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56 for oil, and a floor of $2 and a ceiling of $2.425 for natural gas. |
These accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company generated net income of $19,291,990 for the three months ended March 31, 2020 as compared to a net loss of $11,931,481 for the three months ended March 31, 2019. As of March 31, 2020, the Company has a working capital deficiency in excess of $19,000,000. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $12.5 million as of March 31, 2020, due in August of 2020 and (b) other debtor obligations requiring principal payments of approximately $8.5 million in 2020.
Management has evaluated these conditions and has developed a plan which, in part, address these obligations as follows:
| ● | The acquisition of Petrodome Energy LLC in 2017 and the oil and gas expertise retained by Petrodome at the end of 2017 provided an internal lease operating company to efficiently evaluate development opportunities. | |
| ● | The Ichor Energy Acquisition at the end of 2018 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a work over program to increase this purchased production beyond its current average daily production of 2,000 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, and distributions to Viking of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates if applicable. On a quarterly basis after appropriate distributions to the Company, any cash in excess of $2,000,000 plus unfunded approved development projects is swept by the term loan lender as an additional principal payment on the debt. |
| F-71 |
| ● | The Company has a revolving credit facility with CrossFirst Bank, which was approved for $30,000,000. The balance outstanding at March 31, 2020 is approximately $7,390,000 with a maturity date of May 10, 2021. Additional funds could be made available from this facility for projects reviewed and approved by the lender. | |
| ● | The Elysium Energy Acquisition on February 3, 2020 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a development program to increase this purchased production beyond its current average daily production of 2,700 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, certain oil and gas development projects approved by the lender, and a cost allocation for general and administrative expenses of $150,000 per month. Additionally, to the extent that Elysium has excess cash flow (as specified in the term loan agreement), the Company is required to make mandatory prepayments of the term loan, without penalty or premium, equal to seventy-five percent (75%) of such Excess Cash Flow. | |
| ● | With respect to the approximately $12.5 million in notes payable due in August of 2020 as of March 31, 2020, the Company has offered noteholders to exchange all or a portion of their principal and/or accrued interest into a new subordinated, secured, convertible debt offering. The new offering commenced on February 18, 2020, and includes equity incentives, a conversion entitlement, additional security and a maturity date of February 11, 2022. |
Additionally, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had, are expected to continue to have a negative impact on the Company’s financial position and results of operations. Negative impacts could include but are not limited to: the Company’s ability to sell our oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, the Company’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital and financing.
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities, and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
Note 2 Summary of Significant Accounting Policies
a) Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") and the interim reporting rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in Viking’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
| F-72 |
b) Basis of Consolidation
The financial statements presented herein reflect the consolidated financial results of the Company, its wholly owned subsidiaries, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed to provide a base of operations for properties in Canada; Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC, which were all formed to provide a base of operations for properties in the Central United States, and Petrodome Energy, LLC, Ichor Holdings, LLC, Ichor Energy, LLC, Ichor Energy (TX), LLC, and Ichor Energy (LA), LLC., and its majority owned (75%) subsidiary, Elysium Energy Holdings, LLC, and its wholly owned subsidiaries, Elysium Energy, LLC, Elysium Energy TX, LLC, Elysium Energy LA, LLC, Pointe A La Hache, L.L.C., Potash, L.L.C., Ramos Field, L.L.C., and Turtle Bayou, L.L.C., all based in Houston, Texas which provides a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi. The noncontrolling interest (25%) of Elysium Energy Holdings, LLC and its subsidiaries is separately stated in stockholders’ equity in the consolidated balance sheet and the net income attributable to the noncontrolling interest is stated separately in the consolidated statement of operations. All significant intercompany transactions and balances have been eliminated.
c) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to impairment of long-lived assets, fair value of commodity derivatives, stock-based compensation, asset retirement obligations, and the determination of expected tax rates for future income tax recoveries.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
d) Financial Instruments
Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for deposits, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to director, and convertible notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| • | Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| • | Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| • | Level 3: inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
| F-73 |
Assets and liabilities measured at fair value as of March 31, 2020 are classified below based on the three fair value hierarchy described above:
| Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total Gains (Losses) |
||||||||||||
| Financial Assets | ||||||||||||||||
| Commodity Derivative | - | 17,720,622 | - | 22,879,444 | ||||||||||||
| $ | - | $ | 17,720,622 | $ | - | $ | 22,879,444 | |||||||||
| Financial liabilities | ||||||||||||||||
| Commodity Derivative | - | - | - | - | ||||||||||||
| $ | - | $ | - | $ | - | $ | - | |||||||||
Assets and liabilities measured at fair value as of December 31, 2019 are classified below based on the three fair value hierarchy described above:
| Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total Gains (Losses) |
||||||||||||
| Financial Assets | ||||||||||||||||
| Commodity Derivative | - | - | - | - | ||||||||||||
| $ | - | $ | - | $ | - | $ | - | |||||||||
| Financial liabilities | ||||||||||||||||
| Commodity Derivative | - | 5,158,822 | - | (3,308,880 | ) | |||||||||||
| $ | - | $ | 5,158,822 | $ | - | $ | (3,308,880 | ) | ||||||||
The Company has entered into certain commodity derivative instruments containing swaps and collars, which management believes are effective in mitigating commodity price risk associated with a portion of its future monthly natural gas and crude oil production and related cash flows. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
| F-74 |
In a commodities swap agreement, the Company trades the fluctuating market prices of oil or natural gas at specific delivery points over a specified period, for fixed prices. As a producer of oil and natural gas, the Company holds these commodity derivatives to protect the operating revenues and cash flows related to a portion of its future natural gas and crude oil sales from the risk of significant declines in commodity prices, which helps reduce exposure to price risk and improves the likelihood of funding its capital budget. If the price of a commodity rises above what the Company has agreed to receive in the swap agreement, the amount that it agreed to pay the counterparty is expected to be offset by the increased amount it received for its production.
The Company has also entered into collar agreements related to oil and gas production with established floors and ceilings. Upon settlement, if the current market price of the commodity is below the floor, the Company receives the difference. Conversely, if the current market price of the commodity is above the ceiling at settlement, the Company pays the excess over the ceiling price.
Although the Company is exposed to credit risk to the extent of nonperformance by the counterparties to these derivative contracts, the Company does not anticipate such nonperformance and monitors the credit worthiness of its counterparties on an ongoing basis.
The derivative assets were $17,720,622 and $0 as of March 31, 2020 and December 31, 2019 respectively, and the derivative liabilities were $0 and $5,158,822 as of March 31, 2020 and December 31, 2019 and 2018 respectively. The change in the fair value of the derivative assets and liabilities for the three months ended March 31, 2020 consisted of an increase of $19,531,850 associated with commodity derivatives existing at the beginning of 2020 and an increase of $3,347,594 associated with the new commodity derivative related to Elysium’s’ acquisition on February 3, 2020.
The table below is a summary of the Company’s commodity derivatives as of March 31, 2020:
| Natural Gas | Period | Average MMBTU per Month | Fixed Price per MMBTU | |||
| Swap | Dec-18 to Dec-22 | 118,936 | $2.715 | |||
| Collar | Mar 20 / Aug 22 | 196,078 | $2.00 / $2.43 | |||
| Crude Oil | Period | Average BBL per Month | Price per BBL | |||
| Swap | Dec-18 to Dec- 22 | 24,600 | $ 50.85 | |||
| Swap | Jan-20 to Jun-20 | 1,400 | $ 52.71 | |||
| Collar | Dec-17 to Jun-20 | 4,000 | $55.00 / $72.00 | |||
| Collar | Feb 20 to Dec 20 | 16,278 | $45.00 / $54.20 | |||
| Collar | Jan 21 to Dec 21 | 10,135 | $45.00 / $56.00 | |||
| Collar | Jan 22 to July 22 | 6,934 | $45.00 / $52.70 |
| F-75 |
e) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At March 31, 2020 and December 31, 2019, the Company has cash deposits in excess of FDIC insured limits in the amounts of $4,163,474 and $4,163,360 respectively.
Restricted cash in the amount of $4,650,864 as of March 31, 2020 consists of $2,571,026 held by Ichor Energy, LLC and/or its subsidiaries and $2,079,838 held Elysium Energy, LLC and/or its subsidiaries.
Pursuant to the Term Loan Credit Agreement to which Ichor Energy LLC and its subsidiaries are parties, following March 31, 2019 the company is required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the company is required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six month period by an approved plan of development (“APOD Capex Amount”). At March 31, 2020, the restricted cash did not exceed the MLR and the APOD Capex Amount.
Pursuant to the Term Loan Credit Agreement to which Elysium Energy, LLC and its subsidiaries are parties, all receipts are to be deposited to a lockbox account under the control of the administrative agent, and then subsequently transferred for operations to the company’s bank accounts, all of which are subject to deposit account control agreements. Commencing with the quarter ended September 30, 2020, the company is required to make mandatory prepayments of principal equal to 75% of Excess Cash Flow as defined in the agreement.
f) Accounts receivable
Accounts receivable consist of oil and gas receivables. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $217,057 at March 31, 2020 and December 31, 2019, respectively.
g) Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
| F-76 |
h) Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting date, to perform a test to determine the limit on the book value of our oil and natural gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:
| (a) | the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus | |
| (b) | the cost of properties not being amortized; plus | |
| (c) | the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of | |
| (d) | the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties. |
i) Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
j) Income (loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding and adjusted by any effects of warrants and options outstanding during the period, if dilutive. For the three months ended March 31, 2020 there were approximately 102,438,703 common stock equivalents that were omitted from the calculation of diluted income per share as they were not dilutive. There were approximately 92,274,782 common stock equivalents that were anti-dilutive for the three months ended March 31, 2019.
| F-77 |
k) Revenue Recognition
Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.
The following table disaggregates the Company’s revenue by source for the three months ended March 31, 2020 and 2019:
| Three months ended | ||||||||
| March 31, | ||||||||
| 2020 | 2019 | |||||||
| Oil | $ | 9,525,764 | $ | 7,732,163 | ||||
| Natural gas and natural gas liquids | 2,262,188 | 1,614,429 | ||||||
| $ | 11,787,952 | $ | 9,346,592 | |||||
l) Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.
The Company recognizes deferred tax assets and liabilities to the extent that we believe that these assets and/or liabilities are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
| F-78 |
In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.
The Company has estimated net operating losses in excess of $20,000,000 at March 31, 2020. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. In December 2017, tax legislation was enacted limiting the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income and eliminating net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017. On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act was enacted which modified the prior legislation to allow 100% of the net operating losses arising in tax years 2018, 2019, and 2020 to be carried back five years. The Company does not have taxable income available in the carryback period. Net operating losses originating in taxable years beginning prior to January 1, 2018 are still subject to former carryover rules. The net operating loss carryforwards generated prior to this date of approximately $11,000,000, will expire between 2019 through 2038.
m) Stock-Based Compensation
The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. The cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
The fair value of stock options and warrants is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
The following table represents stock warrant activity as of and for the three months ended March 31, 2020:
| Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life |
Aggregate Intrinsic Value |
|||||||||||||
| Warrants Outstanding – December 31, 2019 | 44,629,939 | 0.26 | 6.0 years | - | ||||||||||||
| Granted | - | 0.22 | 4.9 years | - | ||||||||||||
| Exercised | 675,000 | - | - | - | ||||||||||||
| Forfeited/expired/cancelled | - | - | - | |||||||||||||
| Warrants Outstanding – March 31, 2020 | 43,954,939 | $ | 0.25 | 5.2 years | $ | - | ||||||||||
| Outstanding Exercisable – March 31, 2020 | 43,954,939 | $ | 0.25 | 5.2 years | $ | - | ||||||||||
The Company issued 566,250 common shares from the exercise of 675,000 warrants during the three months ended March 31, 2020.
| F-79 |
n) Impairment of long-lived assets
The Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the three months ended March 31, 2020 and 2019.
o) Accounting for Asset Retirement Obligations
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
The following table describes the changes in the Company’s asset retirement obligations for the three months ended March 31, 2020:
|
Three months ended March 31, 2020 |
||||
| Asset retirement obligation – beginning | $ | 3,538,637 | ||
| Oil and gas purchases | 1,514,328 | |||
| Accretion expense | 125,620 | |||
| Asset retirement obligation – ending | $ | 5,178,585 | ||
p) Undistributed Revenues and Royalties
The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.
q) Subsequent events
The Company has evaluated all subsequent events from March 31, 2020 through the date of filing this report.
| F-80 |
Note 3. Business Acquisition
As discussed in Note 1, on February 3, 2020, the Company, through its subsidiary Elysium Energy, LLC (“Elysium Energy”) completed an acquisition of working interests in certain oil and gas leases in Texas and Louisiana. The aggregate consideration transferred for the working interests of $29,496,356 substantially consisted of (i) the net proceeds from the Company’s borrowings on February 3, 2020 with various lenders represented by 405 Woodbine, LLC and Camber Energy, Inc. less (ii) the net effect of the resolution on February 3, 2020 on all amounts outstanding under the Company’s December 2018 promissory note with RPM Investments in exchange for a new note with EMC Capital Partners, LLC (including the pay-down of such new note as a result of the post-closing adjustments). See Note 7 to the consolidated financial statements for further information on all of these borrowings. The aggregate consideration has been provisionally allocated to the fair value of assets and liabilities as follows:
| Provisional Fair Value of Assets and Liabilities | ||||
| Oil and Gas Properties | $ | 31,010,684 | ||
| Asset retirement obligations assumed | (1,514,328 | ) | ||
| $ | 29,496,356 | |||
Proforma unaudited condensed selected financial data for the three months ended March 31, 2019 as though the Elysium Energy Acquisition had taken place at January 1, 2019 are as follows:
|
Three Months Ended March 31, 2019 |
||||
| Revenues | $ | 12,586,114 | ||
| Net loss | $ | (12,608,099 | ) | |
| Net loss per share | $ | (0.13 | ) | |
| F-81 |
Note 4. Oil and Gas Properties
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the three months ended March 31, 2020:
|
December 31, 2019 |
Adjustments | Impairments |
March 31, 2020 |
|||||||||||||
| Proved developed producing oil and gas properties | ||||||||||||||||
| United States cost center | $ | 76,532,985 | $ | 22,580,153 | $ | - | $ | 99,113,138 | ||||||||
| Accumulated depreciation, depletion and amortization | (7,608,544 | ) | (2,052,568 | ) | - | (9,661,112 | ) | |||||||||
| Proved developed producing oil and gas properties, net | $ | 68,924,441 | $ | 20,527,585 | $ | - | $ | 89,452,026 | ||||||||
| Undeveloped and non-producing oil and gas properties | ||||||||||||||||
| United States cost center | $ | 56,168,428 | $ | 9,235,973 | $ | - | $ | 65,404,401 | ||||||||
| Accumulated depreciation, depletion and amortization | (5,350,753 | ) | (1,109,214 | ) | - | (6,459,967 | ) | |||||||||
| Undeveloped and non-producing oil and gas properties, net | $ | 50,817,675 | $ | 8,126,759 | $ | - | $ | 58,944,434 | ||||||||
| Total Oil and Gas Properties, Net | $ | 119,742,116 | $ | 28,654,344 | $ | - | $ | 148,396,460 | ||||||||
Note 5. Related Party Transactions
The Company’s CEO and director, James Doris has incurred expenses on behalf of, and made advances to, the Company in order to provide the Company with funds to carry on its operations. Additionally, Mr. Doris has made several loans through promissory notes to the Company, all accruing interest at 12%, and payable on demand. As of March 31, 2020, the total amount due to Mr. Doris for these loans is $590,555. Accrued interest of $100,173 is included in accrued expenses and other current liabilities at March 31, 2020.
The Company’s CFO, Frank W. Barker, Jr., renders professional services to the Company through FWB Consulting, Inc., an affiliate of Mr. Barker’s. As of March 31, 2020, the total amount due to FWB Consulting, Inc. is $194,468 and is included in accounts payable.
Note 6. Equity
(a) Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”), of which 50,000 have been designated as Series C Preferred Stock (the “Series C Preferred Stock”). Pursuant to the amended Certification of Designation of the Series C Preferred Stock filed on September 5, 2019, each share of Series C Preferred Stock entitles the holder thereof to 32,500 votes on all matters submitted to the vote of the stockholders of the Company. Each share of Series C Preferred Stock is convertible, at the option of the holder, at any time after the date of issuance of such share, at the office of the Company or any transfer agent for such stock, into one share of fully paid and non-assessable common stock.
(b) Common Stock
On November 5, 2018, the Company amended its Articles of Incorporation to increase the number of shares of common stock the Company is authorized to issue from 100,000,000 to 500,000,000.
| F-82 |
During the three months ended March 31, 2020, the Company issued shares of its common stock as follows:
| ● | 1,512,755 shares of common stock issued for services valued at fair market value on the date of the transactions, totaling $253,750 | |
| ● | 566,250 shares of common stock pursuant to the exercise of 675,000 warrants. | |
| ● | 648,000 shares of common stock issued as discount on debt valued at fair market value on the date of the transaction totaling $110,160. |
During the three months ended March 31, 2019, the Company issued shares of its common stock as follows:
| ● | 198,056 shares of common stock issued for services valued at fair market value on the date of the transaction totaling $39,582. |
(c) Noncontrolling Interest
As described in Note 7 to the consolidated financial statements, on February 3, 2020 Viking borrowed $5.0 million from Camber Energy, Inc. As additional consideration for this loan, Viking assigned Camber 25% of the membership interests in Elysium Holdings, LLC. At the time of assignment, the fair value of such interest was zero.
The following schedule discloses the effects of changes in the Company’s ownership interest in its subsidiaries on the Company’s equity for the three months ended March 31, 2020:
| Noncontrolling interest - December 31, 2019 | $ | - | ||
| Transfers to the noncontrolling interest | ||||
| Recognition of noncontrolling interest at fair value | - | |||
| Net income attributable to noncontrolling interest | (957,169 | ) | ||
| Change from net income attibutable to Viking Energy Group, Inc and transfers to from noncontrolling interest | $ | (957,169 | ) |
| F-83 |
Note 7. Long Term Debt and other short-term borrowings
Long term debt and other short-term borrowings consisted of the following at March 31, 2020 and December 31, 2019:
|
March 31, 2020 |
December 31, 2019 |
|||||||
| Long-term debt: | ||||||||
| During June through December of 2018, the Company borrowed $9,459,750 from private lenders, and exchanged $5,514,000 of amounts due lenders from prior borrowings as well as $191,250 in accrued interest, pursuant to a 10% Secured Promissory Note with 50% of the principal convertible into the Company’s common stock at $0.20 per share, all principal and accrued interest payable on the maturity date of August 31, 2020. The notes are secured by the Company’s membership interests in the following subsidiaries: Petrodome Energy, LLC, Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC. The balance shown is net of unamortized discount of $1,308,030 at March 31, 2020 and $2,086,008 at December 31, 2019. A majority of these lenders are also Viking shareholders. | 11,272,335 | 11,163,357 | ||||||
| On June 13, 2018, the Company borrowed $12,400,000 pursuant to a revolving line of credit facility with a maximum principal amount of $30,000,000 from Crossfirst Bank, bearing interest 1.5% above a base rate equal to the prime rate of interest published by the Wall Street Journal, interest only for June and July of 2018, at which time Principal is payable at $100,000 monthly through the maturity date of May 10, 2021, at which time all remaining unpaid principal and accrued interest shall be due. The loan is secured by a mortgage on all of the oil and gas leases of Petrodome Energy, LLC and its subsidiaries, a security agreement covering all of Petrodome Energy, LLC’s assets and a guaranty by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $17,205 at March 31, 2020 and $34,411 at December 31, 2019 | 7,372,794 | 7,655,589 | ||||||
| On December 28, 2018, to facilitate the acquisition of certain oil and gas assets, the Company, through its subsidiary, Ichor Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by ABC Funding, LLC as administrative agent. The agreement provided for a total loan amount of $63,592,000, bearing interest at a rate per annum equal to the greater of (i) a floating rate of interest equal to 10% plus LIBOR, and (ii) a fixed rate of interest equal to 12%, payable monthly on the last day of each calendar month, commencing January 31, 2019. Principal payments are made quarterly at 1.25% of the initial loan amount, commencing on the last business day of the fiscal quarter ending June 30, 2019. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, approximately $12,000,000 of oil and gas development projects approved by the lender, and distributions to the Company of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, Ichor Energy, LLC is required to pay, as an additional principal payment on the debt, any cash in excess of the MLR and the APOD Capex Amount. To the extent not previously paid, all loans under the Loan Agreement shall be due and payable on the December 28, 2023 (the Maturity Date). The loan agreement contains prepayment penalties through December 28, 2021 and “make-whole” obligations through December 28, 2020. In addition, at maturity (or sooner under certain circumstances which include prepayment of the loan or sale of Ichor Energy, LLC) the lenders will receive a payment approximating 5% of the fair value of Ichor Energy, LLC at that time; such amount is not estimable. Obligations under the loan agreement are secured by mortgages on the oil and gas leases of Ichor Energy, LLC and all of its subsidiaries, a security agreement covering all assets of Ichor Energy, LLC, and a pledge by Ichor Holdings of all if the membership interests in Ichor Energy LLC. The balance shown is net of unamortized discount of $3,288,455 at March 31, 2020 and $3,507,364 at December 31, 2019. | 53,123,950 | 53,699,940 | ||||||
| F-84 |
| On December 28, 2018, the Company issued a 10% secured promissory note in the amount of $23,777,948, payable to RPM Investments, secured by 100% of the membership interests of Ichor Energy Holdings, LLC. All accrued interest and unpaid principal were due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020. This note was secured by a pledge of all of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. On February 3, 2020 in connection with an acquisition of oil and gas interests this note (including all unpaid accrued interest of $2,625,346) was settled and replaced with a new note. | - | 23,777,948 | ||||||
| On February 14, 2019, the Company executed a promissory note payable to CrossFirst Bank in the amount of $56,760 for the purchase of transportation equipment, bearing interest at 7.15%, payable in 60 installments of $1,130, secured by a vehicle, with a maturity date of February 14, 2024. | 45,326 | 48,658 | ||||||
| On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Petroleum, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $2,241,758, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $43,438, with a final payment due on a maturity date of July 24, 2025. The note is secured by a first mortgage on all of the assets of Mid-Con Petroleum, LLC and a guarantee of payment by Viking Energy Group, Inc.. The balance shown is net of unamortized discount of $25,349 at March 31, 2020 and $26,538 at December 31, 2019. | 2,216,409 | 2,215,221 | ||||||
| On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Drilling, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $1,109,341, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $21,495, with a final payment due on a maturity date of July 24, 2025. The note is secured by a first mortgage on all of the assets of Mid-Con Drilling, LLC and a guarantee of payment by Viking Energy Group, Inc.The balance shown is net of unamortized discount of $25,279 at March 31, 2020 and $26,464 at December 31, 2019. | 1,033,400 | 1,032,215 | ||||||
| On February 3, 2020, the Company executed a promissory note payable to Camber Energy, Inc. in the amount of $5,000,000, bearing interest at 10.5% payable quarterly with a maturity date of February 3, 2022. The note is generally convertible into common shares of Viking at a conversion price of $0.24 per share subject to certain restrictions. The terms of the note provide Camber with a security interest (subject to certain prerequisites) in Viking’s 75% ownership of Elysium Holdings, LLC and 100% of Ichor Energy Holdings, LLC. Additionally, Viking provided Camber a junior security interest in the membership or common stock of ownership interests of all of Viking’s other existing and future, directly-owned or majority-owned subsidiaries. | 5,000,000 | - | ||||||
| On February 3, 2020, in connection with an acquisition of oil and gas interests, the Company executed a secured promissory note in the amount of $20,869,218, payable to EMC Capital Partners, LLC, subject to revision to the extent of any post-closing adjustment payments in connection with the acquisition. Such payments were to be applied to reduce the balance owing under the promissory note. During April 2020 the Company received post-closing adjustment payments in the amount of $5,277,589 which were applied to the note balance. This note replaced the secured promissory dated December 18, 2018 in favor of RPM Investments. This note bears interest at 10% and is payable along with the full amount of principal on June 1, 2021 and is secured by a pledge of all of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. If the note is paid in full on or before the 150th day following the date of its issuance, all interest will be waived. | 15,591,629 | - | ||||||
| On February 3, 2020, to facilitate the acquisition of certain oil and gas assets, the Company, through one of its subsidiaries, Elysium Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by 405 Woodbine, LLC as administrative agent. The agreement provides for a total loan amount of $35,000,000 at a 4.0% original issue discount. bearing interest at the prime rate plus seven and three quarters percent (7.75%) payable monthly. Principal payments are due beginning on May 1, 2020, and on each month thereafter at one percent (1%) of the then-outstanding balance, and to the extent not paid on the maturity date of August 3, 2022. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, oil and gas development projects approved by the lender, and a cost allocation of $150,000 per month for general and administrative expenses of the Company. The Borrower shall have the right at any time to prepay all or a portion of the Loan Balance. The loan agreement contains a prepayment penalty of 5% of any voluntary prepayment of principal through February 3, 2021 and 3% of any voluntary prepayment of principal on or between February 3, 2021 and February 3, 2022. Commencing with the quarter ended September 30, 2020 the Borrower is required to make mandatory prepayments of principal equal to 75% of Excess Cash Flow as defined in the agreement without any prepayment penalty fees. The loans are secured by mortgages on the oil and gas leases of Elysium Energy LLC and its subsidiaries, a security agreement covering all assets of Elysium and its subsidiaries, and a pledge of all of Elysium’s membership interests. The balance shown is net of unamortized discount of $4,079,645 at March 31, 2020. | 32,378,688 | - |
| F-85 |
| On or about February 18, 2020, the Company commenced an offering of securities consisting of a subordinated, secured, convertible debt instrument with equity features; during the quarter ended March 31, 2020, the Company borrowed $1,080,000 under this offering from private lenders. The notes bear interest at 12%, payable quarterly, contain a conversion entitlement to convert all or a portion of the amount outstanding into common shares of the Company at $0.175 per share, and provide for the issuance of 60,000 common shares of the Company for every $100,000 exchanged or advanced. As security, the holders received, pari passu with all other holders, a pledge of the Company’s membership interest in Elysium Energy Holdings, LLC, and, as soon as the Company’s obligations to EMC Capital Partners, LLC are satisfied, a pledge of the Company’s membership interest in Ichor Energy Holdings, LLC. Any unpaid principal and interest is due on the maturity date of February 11, 2022. The balance shown is net of unamortized discount of $118,543. | 961,457 | - | ||||||
| 128,995,988 | 99,592,928 | |||||||
| Other short-term borrowings: | ||||||||
| On September 30, 2019, the Company received $910,000 under an agreement that requires the Company to make 28 weekly payments aggregating $1,237,600 through April 13, 2020. On December 23, 2019, the Company received an additional $242,750 under a replacement agreement that requires the Company to make 25 weekly payments aggregating $1,620,000 through June 15, 2020. The agreement provides discounts for early payment. The balance shown is net of the maximum discount of $200,384 at March 31, 2020 and $413,445 at December 31, 2019. | 923,603 | 1,141,755 | ||||||
| On October 3, 2019, the Company received $480,200 under an agreement that requires the Company to make 28 weekly payments aggregating $666,400 through April 20, 2020. The agreement provides discounts for early payment. The balance shown is net of the maximum discount of $4,351 at March 31, 2020 and $132,289 at December 31, 2019. | 108,021 | 423,111 | ||||||
| On December 23, 2019, the Company received $2,939,970 under an agreement that requires the Company to make 25 weekly payments aggregating $4,050,000 through June 15, 2020. The agreement provides discounts for early payment. The balance shown is net of the maximum discount of $511,139 at March 31, 2020 and $1,110,030 at December 31, 2019. | 2,373,828 | 2,855,368 | ||||||
| On November 26, 2019, the Company received $200,000 from an individual. The advance was non-interest bearing and payable on demand. | - | 200,000 | ||||||
| On February 7, 2020, the Company received $900,000 from a company. The advance is non-interest bearing and payable on demand. | 775,000 | - | ||||||
| Total long-term debt and other short-term borrowings | 133,176,440 | 104,213,162 | ||||||
| Less current portion | (21,098,455 | ) | (19,225,045 | ) | ||||
| $ | 112,077,985 | $ | 84,988,117 |
Principal maturities of long-term debt for the next five years and thereafter are as follows:
| Twelve month period ended March 31, | ||||||||||||
| Principal | Unamortized Discount | Net | ||||||||||
| 2021 | $ | 25,090,437 | $ | 3,991,982 | $ | 21,098,455 | ||||||
| 2022 | 35,112,384 | 2,663,401 | 32,448,983 | |||||||||
| 2023 | 32,515,124 | 1,532,212 | 30,982,912 | |||||||||
| 2024 | 48,397,531 | 662,399 | 47,735,132 | |||||||||
| 2025 | 744,038 | 9,529 | 734,509 | |||||||||
| Thereafter | 179,432 | 2,983 | 176,449 | |||||||||
| $ | 142,038,946 | $ | 8,862,506 | $ | 133,176,440 | |||||||
| F-86 |
Note 8. Commitments and contingencies
Office lease
In April 2018, the Company’s subsidiary, Petrodome Energy, LLC entered into a 66-month lease for 4,147 square feet of office space for the Company’s corporate office in Houston, Texas. The annual base rent commenced at $22.00 per square foot, and escalates at $0.50 per foot each year through expiration of the lease term. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $24,096 for the three months ended March 31, 2020 and 2019.
Pending Merger
On February 3, 2020, the Company entered into an Agreement and Plan of Merger with Camber Energy, Inc. The Merger Agreement provides that a newly-formed wholly-owned subsidiary of Camber will merge with and into Viking, with Viking surviving the merger as a wholly-owned subsidiary of Camber. The proposed merger contemplates Camber issuing newly-issued shares of common stock, with the equity holders of Viking having an 80% interest in the post-closing entity. The merger, if completed, will provide the opportunity for our common stock to be listed on the NYSE American.
The Merger Agreement provides, among other things, that the board of directors of the combined company will be comprised of five directors, one to be appointed by Camber and four to be appointed by Viking. The Merger Agreement also provides that James A. Doris, the Chief Executive Officer of Viking, shall serve as the Chief Executive Officer of the combined company. The combined company will have its headquarters in Houston, Texas.
The completion of the Merger is subject to numerous conditions including (i) the effectiveness of a registration statement registering the shares of Camber common stock to be issued to Viking’s shareholders in the merger and (ii) shareholder approval of the merger transactions by Camber’s shareholders and Viking’s shareholders. Additional closing conditions include (i) that in the event the NYSE American determines that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, and (ii) that the only loan obligations with a maturity date in 2020 that Viking shall have at closing shall be the $13.5 million of convertible debt issued in December of 2018.
The Merger can be terminated under various conditions or circumstances. The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties. Upon consummation of the merger, Viking will be deemed the acquirer for accounting purposes.
Legal matters
From time to time the Company may be a party to litigation involving commercial claims against the Company. Management believes that the ultimate resolution of these matters will not have a material effect on the Company’s financial position or results of operations.
The staff (the “Staff”) of the SEC’s Division of Enforcement has notified the Company, that the Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company, as well as against its CEO and it CFO, for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company is in dialogue with the Staff regarding its preliminary determination. The Company believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC.
| F-87 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Viking Energy Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Viking Energy Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations since inception and has a significant working capital deficiency both of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
March 30, 2020
We have served as the Company’s auditor since 2016.
| F-88 |
VIKING ENERGY GROUP, INC.
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,761,495 | $ | 4,009,892 | ||||
| Restricted cash | 3,877,229 | - | ||||||
| Accounts receivable – oil and gas | 2,864,114 | 258,300 | ||||||
| Prepaid expenses | 168,994 | 124,443 | ||||||
| Total current assets | 8,671,832 | 4,392,635 | ||||||
| Oil and gas properties, full cost method | ||||||||
| Proved developed producing oil and gas properties, net | 68,924,441 | 81,331,986 | ||||||
| Proved undeveloped and non-producing oil and gas properties, net | 50,817,675 | 50,492,906 | ||||||
| Total Oil and gas properties, net | 119,742,116 | 131,824,892 | ||||||
| Fixed assets, net | 509,934 | 200,243 | ||||||
| Derivative asset | - | 681,776 | ||||||
| Deposits | 2,821,594 | 110,194 | ||||||
| TOTAL ASSETS | $ | 131,745,476 | $ | 137,209,740 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,791,894 | $ | 2,549,280 | ||||
| Accrued expenses and other current liabilities | 3,229,594 | 1,014,661 | ||||||
| Undistributed revenues and royalties | 2,247,678 | 1,207,605 | ||||||
| Derivative liability | 5,158,822 | 2,531,718 | ||||||
| Amount due to director | 590,555 | 395,555 | ||||||
| Current portion of long-term debt - net of debt discount | 19,225,045 | 11,805,582 | ||||||
| Total current liabilities | 34,243,588 | 19,504,401 | ||||||
| Long term debt – net of current portion and debt discount | 84,988,117 | 92,076,857 | ||||||
| Operating lease liability | 308,279 | - | ||||||
| Asset retirement obligation | 3,538,637 | 4,413,465 | ||||||
| TOTAL LIABILITIES | 123,078,621 | 115,994,723 | ||||||
| Commitments and contingencies (Note 8) | - | - | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 Shares issued and outstanding as of December 31, 2019 and 2018 | 28 | 28 | ||||||
| Common stock, $0.001 par value, 500,000,000 shares authorized, 124,198,309 and 90,989,025 shares issued and outstanding as of December 31, 2019 and 2018, respectively | 124,198 | 90,989 | ||||||
| Additional Paid-In Capital | 38,825,392 | 32,015,913 | ||||||
| Retained Earnings (Accumulated deficit) | (30,282,763 | ) | (10,891,913 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 8,666,855 | 21,215,017 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 131,745,476 | $ | 137,209,740 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-89 |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Operations
|
For the Years Ended December 31, |
||||||||
| 2019 | 2018 | |||||||
| Revenue | ||||||||
| Oil and gas sales | $ | 34,592,850 | $ | 7,967,972 | ||||
| Operating expenses | ||||||||
| Lease operating costs | 12,203,777 | 3,835,549 | ||||||
| General and administrative | 5,233,027 | 7,265,639 | ||||||
| Stock based compensation | 951,533 | 2,303,213 | ||||||
| Accretion – asset retirement obligations | 391,482 | 86,023 | ||||||
| Depreciation, depletion & amortization | 10,936,446 | 1,644,693 | ||||||
| Total operating expenses | 29,716,265 | 15,135,117 | ||||||
| Income (Loss) from operations | 4,876,585 | (7,167,145 | ) | |||||
| Other income (expenses) | ||||||||
| Interest expense | (12,988,695 | ) | (1,910,387 | ) | ||||
| Amortization of debt discount | (7,975,244 | ) | (5,969,886 | ) | ||||
| Change in fair value of derivatives | (3,308,880 | ) | (1,604,916 | ) | ||||
| Gain on disposal of assets | - | 623,960 | ||||||
| Interest and other income | 5,384 | - | ||||||
| Total other income (expenses) | (24,267,435 | ) | (8,861,229 | ) | ||||
| Net loss before income taxes | (19,390,850 | ) | (16,028,374 | ) | ||||
| Income tax benefit (expense) | - | 910,827 | ||||||
| Net loss | $ | (19,390,850 | ) | $ | (15,117,547 | ) | ||
| Loss per weighted average number of common shares outstanding – basic and diluted | $ | (0.20 | ) | $ | (0.18 | ) | ||
| Weighted average number of common shares outstanding – basic and diluted | 96,379,785 | 81,950,037 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-90 |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Cash Flows
|
For the Years Ended December 31, |
||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (19,390,850 | ) | $ | (15,117,547 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Change in fair value of derivative liability | 3,308,880 | 1,604,916 | ||||||
| Stock based compensation | 951,533 | 2,303,212 | ||||||
| Gain on disposal of assets | - | (613,589 | ) | |||||
| Depreciation, depletion and amortization | 10,936,446 | 1,644,693 | ||||||
| Accretion - Asset retirement obligation | 391,482 | 86,023 | ||||||
| Amortization of right-of-use assets | 3,766 | |||||||
| Allowance for bad debt | - | 217,057 | ||||||
| Amortization of debt discount | 7,975,244 | 5,969,886 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (2,517,727 | ) | 131,343 | |||||
| Other receivables | - | 548,714 | ||||||
| Prepaid expenses and other assets | (2,755,951 | ) | (159,791 | ) | ||||
| Accounts payable | 1,247,148 | (336,903 | ) | |||||
| Accrued expenses and other current liabilities | 2,837,595 | 614,773 | ||||||
| Undistributed revenues and royalties | 1,040,073 | 32,405 | ||||||
| Deferred tax liability | - | (910,827 | ) | |||||
| Amounts due to director | - | 59,200 | ||||||
| Net cash provided by (used) in operating activities | 4,027,639 | (3,926,435 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Investment in and acquisition of oil and gas properties | (5,196,576 | ) | (7,995,476 | ) | ||||
| Acquisition of fixed assets | (11,115 | ) | (130,000 | ) | ||||
| Proceeds from sale of fixed assets | 45,000 | |||||||
| Proceeds from sale of oil and gas interests | 552,966 | 1,565,540 | ||||||
| Net cash used in investing activities | (4,654,725 | ) | (6,514,936 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from long-term debt | 10,258,123 | 19,182,768 | ||||||
| Repayment of long-term debt | (9,131,911 | ) | (8,567,657 | ) | ||||
| Debt issuance costs | - | (1,042,492 | ) | |||||
| Short term advance | 693,706 | - | ||||||
| Proceeds from amount due to director | 195,000 | 583,000 | ||||||
| Repayment of amount due to director | - | (1,439,615 | ) | |||||
| Proceeds from exercise of warrants | 241,000 | - | ||||||
| Net cash provided by financing activities | 2,255,918 | 8,716,004 | ||||||
| Net increase (decrease) in cash | 1,628,832 | ) | (1,725,367 | ) | ||||
| Cash, beginning of year | 4,009,892 | 5,735,259 | ||||||
| Cash, end of year | $ | 5,638,724 | $ | 4,009,892 | ||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | 10,034,325 | $ | 644,000 | ||||
| Income taxes | $ | - | $ | - | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
| Recognition of asset retirement obligation | $ | 94,796 | $ | 1,901,019 | ||||
| Recognition of right-of-use asset and lease liability | $ | 367,365 | $ | - | ||||
| Amortization of right-of-use asset and lease liability | $ | 59,086 | $ | - | ||||
| Purchase of transportation equipment through direct financing | $ | 56,760 | $ | - | ||||
| Proceeds from sale of oil and gas properties paid directly to reduce debt | $ | 3,800,000 | $ | - | ||||
| Elimination of asset retirement obligation associated with sale of assets | $ | 1,361,106 | $ | - | ||||
| Issuance of shares as payment of interest on debt | $ | 620,508 | $ | - | ||||
| Issuance of warrants for services | $ | 167,151 | $ | - | ||||
| Warrants exercised to reduce debt | $ | 1,900,635 | $ | - | ||||
| Financing associated with oil and gas property acquisition | $ | - | $ | 81,957,150 | ||||
| Issuance of shares and warrants as discount on debt | $ | 3,129,012 | $ | 8,263,789 | ||||
| Debt refinanced through new credit facility | $ | 3,310,000 | $ | 7,633,389 | ||||
| Purchase price adjustment of short-term advance | $ | 693,706 | $ | - | ||||
| Private placement debt exchanged for new private placement debt | $ | - | $ | 5,583,311 | ||||
| Purchase of working interest through new debt | $ | - | $ | 165,000 | ||||
| Issuance of shares and warrants for services | $ | - | $ | 2,303,212 | ||||
| Accrued expenses exchanged for long term debt | $ | - | $ | (866,743 | ) | |||
| Conversion of debt | $ | - | $ | (15,000 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
| F-91 |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Changes in Stockholders’ Equity
| Prepaid | Retained | |||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock |
Additional Paid-in |
Equity- Based |
Earnings(Accumulated |
Total Stockholders' |
|||||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Compensation | Deficit) | Equity | |||||||||||||||||||||||||
| Balances at December 31, 2017 | 28,092 | $ | 28 | 72,347,990 | $ | 72,348 | $ | 19,029,892 | $ | (11,827 | ) | $ | 3,417,872 | $ | 22,508,313 | |||||||||||||||||
| Accounting principle change relative to certain derivative liabilities - Note 2. | 807,762 | 807,762 | ||||||||||||||||||||||||||||||
| Shares issued as debt discount | 11,447,000 | 11,447 | 2,467,086 | 2,478,533 | ||||||||||||||||||||||||||||
| Shares issued as prepaid equity-based compensation | 250,000 | 250 | 54,750 | (55,000 | ) | - | ||||||||||||||||||||||||||
| Amortization of prepaid equity-based compensation | 66,827 | 66,827 | ||||||||||||||||||||||||||||||
| Shares issued for services | 6,305,297 | 6,306 | 1,456,691 | 1,462,997 | ||||||||||||||||||||||||||||
| Shares issued in debt conversion | 75,000 | 75 | 14,925 | 15,000 | ||||||||||||||||||||||||||||
| Warrants issued for services | 773,388 | 773,388 | ||||||||||||||||||||||||||||||
| Shares issued in cashless exercise of warrants | 563,738 | 563 | (563 | ) | - | |||||||||||||||||||||||||||
| Warrants issued as debt discount | 5,226,855 | 5,226,855 | ||||||||||||||||||||||||||||||
| Beneficial conversion feature of debt as debt discount | 2,812,145 | 2,812,145 | ||||||||||||||||||||||||||||||
| Warrants issued for subsidiary equity in acquisition of oil and gas properties | 180,744 | 180,744 | ||||||||||||||||||||||||||||||
| Net loss | (15,117,547 | ) | (15,117,547 | ) | ||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 28,092 | $ | 28 | 90,989,025 | $ | 90,989 | $ | 32,015,913 | $ | - | $ | (10,891,913 | ) | $ | 21,215,017 | |||||||||||||||||
| Shares issued for services | 6,181,133 | 6,181 | 777,601 | 783,782 | ||||||||||||||||||||||||||||
| Shares issued for interest | 3,650,046 | 3,650 | 616,858 | 620,508 | ||||||||||||||||||||||||||||
| Warrants issued for services | 167,751 | 167,751 | ||||||||||||||||||||||||||||||
| Warrants issued as debt discount | 3,129,012 | 3,129,012 | ||||||||||||||||||||||||||||||
| Warrants exercised through reduction of debt | 19,006,350 | 19,006 | 1,881,629 | 1,900,635 | ||||||||||||||||||||||||||||
| Warrants exercised for cash | 2,410,000 | 2,410 | 238,590 | 241,000 | ||||||||||||||||||||||||||||
| Shares issued in cashless exercise of warrants | 1,961,755 | 1,962 | (1,962 | ) | - | |||||||||||||||||||||||||||
| Net loss | (19,390,850 | ) | (19,390,850 | ) | ||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 28,092 | $ | 28 | 124,198,309 | $ | 124,198 | $ | 38,825,392 | $ | - | $ | (30,282,763 | ) | $ | 8,666,855 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-92 |
VIKING ENERGY GROUP, INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Going Concern
Viking Energy Group, Inc. (“Viking” or the “Company”) is incorporated under the laws of the State of Nevada. In March 2017, the Company changed its name from Viking Investments Group, Inc. to Viking Energy Group, Inc.
The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Since the beginning of 2018 the Company has had the following related activities:
| ● | On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas. | |
| ● | Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. | |
| ● | On December 28, 2018, the Company, through its subsidiary Ichor Energy, LLC (“Ichor Energy”) completed an acquisition of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet. | |
| ● | On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres. | |
| ● | On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres. |
These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company generated a net loss of $19,390,850 and $15,117,547 for the years ended December 31, 2019 and 2018 respectively. As of December 31, 2019, the Company has a working capital deficiency in excess of $25.5 million. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $13.2 million due in August of 2020 and (b) other debtor obligations requiring principal payments of approximately $9 million in 2020.
Management has evaluated these conditions and has developed a plan which, in part, address these obligations as follows:
| ● | The acquisition of Petrodome Energy LLC in 2017 and the oil and gas expertise retained by Petrodome at the end of 2017 provided an internal lease operating company to efficiently evaluate development opportunities. | |
| ● | The Ichor Energy Acquisition at the end of 2018 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a work over program to increase this purchased production beyond its current average daily production of 2,300 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, and distributions to Viking of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. On a quarterly basis after appropriate distributions to the Company, any cash in excess of $2,000,000 plus unfunded approved development projects is swept by the term loan lender as an additional principal payment on the debt. | |
| ● | The Company has a revolving credit facility with CrossFirst Bank, which was approved for $30,000,000. The balance outstanding at December 31, 2019 is approximately $7,690,000 with an amended maturity date of May 10, 2021. Additional funds could be made available to the Company for projects reviewed and approved by the lender. | |
| ● | The Elysium Energy Acquisition on February 3, 2020 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a development program to increase this purchased production beyond its current average daily production of 2,700 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, certain oil and gas development projects approved by the lender, and a cost allocation for general and administrative expenses of $150,000 per month. Additionally, to the extent that Elysium has Excess Cash Flow (as defined in the loan agreement), the Company is required to make mandatory prepayments, without penalty or premium, equal to seventy-five percent (75%) of such Excess Cash Flow. | |
| ● | With respect to the $13.2 million notes payable due in August of 2020, the Company has invited holders of the promissory notes to exchange all or a portion of their principal and/or accrued interest into a new subordinated, secured, convertible debt offering (see Note 10, Subsequent Events). The new offering commenced on February 18, 2020, and includes equity incentives, a conversion entitlement, additional security and a maturity date of February 11, 2022. There is no obligation for holders to exchange into the New Offering. |
Furthermore, the global COVID-19 pandemic could have a negative impact on our financial position and results of operations. Negative impacts could include but are not limited to: our ability to sell our oil and gas production, reduction in the selling price of our oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, our ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital.
| F-93 |
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities, and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
Note 2. Summary of Significant Accounting Policies
a) Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for consolidated financial information and with the instructions to Form 10-K as promulgated by the Securities and Exchange Commission (the "SEC"). Accordingly, these consolidated financial statements include all of the disclosures required by generally accepted accounting principles for complete consolidated financial statements.
Certain prior year amounts have been reclassified for consistency with the current year presentation. An adjustment has been made to the Consolidated Statement of Operations for the year ended December 31, 2018 to separately identify amortization of debt discount of $5,969,886 previously included in interest expense. This reclassification had no effect on the previously reported net loss.
b) Basis of Consolidation
The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiaries, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed to provide a base of operations for properties in Canada; Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC, which were all formed to provide a base of operations for properties in the Central United States, and Petrodome Energy, LLC, Ichor Holdings, LLC, Ichor Energy, LLC, Ichor Energy (TX), LLC, and Ichor Energy (LA), LLC, all based in Houston, Texas which provides a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi. All significant intercompany transactions and balances have been eliminated.
c) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to impairment of long-lived assets, stock-based compensation, asset retirement obligations, and the determination of expected tax rates for future income tax recoveries.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
d) Financial Instruments
Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for deposits, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to director, and convertible notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| • | Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| • | Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| • | Level 3: inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
| F-94 |
Assets and liabilities measured at fair value as of December 31, 2019 are classified below based on the three fair value hierarchy described above:
| Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total Gains (Losses) | ||||||||||||
| Financial Assets | ||||||||||||||||
| Commodity Derivative | $ | - | $ | - | $ | - | $ | - | ||||||||
| Financial liabilities | ||||||||||||||||
| Commodity Derivative | $ | - | $ | 5,158,822 | $ | - | $ | (3,308,880 | ) | |||||||
| $ | - | $ | 5,158,822 | $ | - | $ | (3,308,880 | ) | ||||||||
Assets and liabilities measured at fair value as of December 31, 2018, are classified below based on the three-level fair value hierarchy described above:
| Description |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total Gains (Losses) |
||||||||||||
| Financial Assets | ||||||||||||||||
| Commodity Derivative | $ | - | $ | 681,776 | $ | - | $ | 926,802 | ||||||||
| $ | - | $ | 681,776 | $ | - | $ | 926,802 | |||||||||
| Financial liabilities | ||||||||||||||||
| Commodity Derivative | $ | - | $ | 2,531,718 | $ | - | $ | (2,531,718 | ) | |||||||
| $ | - | $ | 2,531,718 | $ | - | $ | (2,531,718 | ) | ||||||||
The Company has entered into certain commodity derivative instruments containing swaps and collars, which management believes are effective in mitigating commodity price risk associated with a portion of its future monthly natural gas and crude oil production and related cash flows. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
In a commodities swap agreement, the Company trades the fluctuating market prices of oil or natural gas at specific delivery points over a specified period, for fixed prices. As a producer of oil and natural gas, the Company holds these commodity derivatives to protect the operating revenues and cash flows related to a portion of its future natural gas and crude oil sales from the risk of significant declines in commodity prices, which helps reduce exposure to price risk and improves the likelihood of funding its capital budget. If the price of a commodity rises above what the Company has agreed to receive in the swap agreement, the amount that it agreed to pay the counterparty is expected to be offset by the increased amount it received for its production.
| F-95 |
The Company has also entered into collar agreements related to oil and gas production with established floors and ceilings. Upon settlement, if the current market price of the commodity is below the floor, the Company receives the difference. Conversely, if the current market price of the commodity is above the ceiling at settlement, the Company pays the excess over the ceiling price.
Although the Company is exposed to credit risk to the extent of nonperformance by the counterparties to these derivative contracts, the Company does not anticipate such nonperformance and monitors the credit worthiness of its counterparties on an ongoing basis.
The derivative assets were $1,402,543 and $681,776 as of December 31, 2019 and 2018 respectively, and the derivative liabilities were $6,561,364 and $2,531,718 as of December 31, 2019 and 2018 respectively. The change in the fair value of the derivative assets and liabilities for the year ended December 31, 2019 consisted of a decrease of $4,512,598 associated with existing commodity derivatives and an increase of $1,203,719 associated with the new commodity derivative related to the acquisition accomplished on December 28, 2018, and a loss recognized in the consolidated statement of operations in the amount of $3,308,880.
The table below is a summary of the Company’s commodity derivatives as of December 31, 2019:
| Natural Gas | Period | Average MMBTU per Month | Fixed Price per MMBTU | |||||||
| Swap | Dec-18 to Dec-22 | 118,936 | $ | 2.715 | ||||||
| Crude Oil | Period | Average BBL per Month | Price per BBL | |||||||
| Swap | Dec-18 to Dec- 22 | 24,600 | $ | 50.85 | ||||||
| Swap | Jan-20 to Jun-20 | 1,400 | $ | 52.71 | ||||||
| Collar | Dec-17 to Jun-20 | 4,000 | $ | 55.00/$72.00 | ||||||
e) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At December 31, 2019 and 2018, the Company has cash deposits in excess of FDIC insured limits in the amounts of $4,163,360 and $3,045,695.
Restricted cash in the amount of $3,877,229 as of December 31, 2019 represents the balance of cash held by Ichor Energy, LLC (the “Borrower”) and/or its subsidiaries, generated through the operations of those subsidiaries. Pursuant to the Term Loan Credit Agreement to which the Borrower and its subsidiaries are parties, following March 31, 2019 the Borrower is required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the Borrower is required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six month period by an approved plan of development (“APOD Capex Amount”). At December 31, 2019, the restricted cash did not exceed the MLR and the APOD Capex Amount.
| F-96 |
f) Accounts receivable
Accounts receivable consist of oil and gas receivables. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $217,057 at December 31, 2019 and 2018, respectively.
g) Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
Depreciation, depletion and amortization expense utilizing the unit-of-production method for the Company’s oil and gas properties for the years ended December 31, 2019 and 2018 were as follows:
| Oil and Gas Properties by Geographical Cost Center | ||||||||
| Years ended, | ||||||||
| December 31, | ||||||||
| Cost Center | 2019 | 2018 | ||||||
| Canada | $ | - | $ | 21,387 | ||||
| United States | 10,936,446 | 1,623,306 | ||||||
| $ | 10,936,446 | $ | 1,644,693 | |||||
h) Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting date, to perform a test to determine the limit on the book value of our oil and natural gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:
| (a) | the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus | |
| (b) | the cost of properties not being amortized; plus | |
| (c) | the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of | |
| (d) | the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties. |
The Company did not recognize an impairment loss on oil and gas properties for the years ended December 31, 2019 and 2018, respectively.
| F-97 |
i) Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
j) Income (loss) per Share
Basic income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares and, adjusted by any effects of warrants and options outstanding, if dilutive, that may add to the number of common shares during the period. At December 31, 2019 there were approximately 84,554,939 common stock equivalents that were anti-dilutive. At December 31, 2018, there were 183,313,800 common stock equivalents that were not dilutive due to the market price being at or lower than the corresponding exercise price.
k) Revenue Recognition
Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.
The following table disaggregates the Company’s revenue by source for the years ended December 31, 2019 and 2018:
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Oil | $ | 28,572,971 | $ | 7,777,100 | ||||
| Natural gas and Natural gas liquids | 6,019,879 | 190,872 | ||||||
| $ | 34,592,850 | $ | 7,967,972 | |||||
l) Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.
| F-98 |
The Company recognizes deferred tax assets and liabilities to the extent that we believe that these assets and/or liabilities are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.
The Company has estimated net operating losses in excess of $20,000,000 at December 31, 2019. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. In December 2017, tax legislation was enacted limiting the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income and eliminating net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017 (though any such tax losses may be carried forward indefinitely). Net operating losses originating in taxable years beginning prior to January 1, 2018 are still subject to former carryover rules. The net operating loss carryforwards generated prior to this date of approximately $11,000,000, will expire between 2019 through 2038.
m) Stock-Based Compensation
The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. The cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
The fair value of stock options and warrants is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
The following table represents stock warrant activity as of and for the year ended December 31, 2019:
|
Number of Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life |
Aggregate Intrinsic Value |
|||||||||||||
| Warrants Outstanding – December 31, 2018 | 54,821,690 | 0.26 | 6.0 years | - | ||||||||||||
| Granted | 18,922,500 | 0.30 | 4.9 years | - | ||||||||||||
| Exercised | 29,114,251 | - | - | - | ||||||||||||
| Forfeited/expired/cancelled | - | - | - | - | ||||||||||||
| Warrants Outstanding – December 31, 2019 | 44,629,939 | $ | 0.26 | 5.6 years | $ | - | ||||||||||
| Outstanding Exercisable – December 31, 2018 | 54,821,690 | $ | 0.27 | 6.0 years | $ | - | ||||||||||
| Outstanding Exercisable – December 31, 2019 | 44,629,939 | $ | 0.26 | 5.6 years | $ | - | ||||||||||
| F-99 |
n) Impairment of long-lived assets
The Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the years ended December 31, 2019 and 2018.
t) Accounting for Asset Retirement Obligations
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
The following table describes the changes in the Company’s asset retirement obligations for the years ended December 31, 2019 and 2018:
|
Year ended December 31, 2019 |
Year ended December 31, 2018 |
|||||||
| Asset retirement obligation – beginning | $ | 4,413,465 | $ | 3,096,263 | ||||
| Oil and gas purchases | 94,796 | 1,898,019 | ||||||
| Adjustments through disposals and settlements | (1,361,106 | ) | (666,840 | ) | ||||
| Accretion expense | 391,482 | 86,023 | ||||||
| Asset retirement obligation – ending | $ | 3,538,637 | $ | 4,413,465 | ||||
u) Undistributed Revenues and Royalties
The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.
v) Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 “Leases” (ASU 2016-02) and subsequently issued supplemental adoption guidance and clarification (collectively, Topic 842). Topic 842 amends a number of aspects of lease accounting, including requiring lessees to recognize right-of-use assets and lease liabilities for operating leases with a lease term greater than one year. Topic 842 supersedes Topic 840 “Leases.” On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 840. We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward the historical lease classification, retain the initial direct costs for any leases that existed prior to the adoption of the standard and not reassess whether any contracts entered into prior to the adoption are leases. We also elected to account for lease and non-lease components in our lease agreements as a single lease component in determining lease assets and liabilities. In addition, we elected not to recognize the right-of-use assets and liabilities for leases with lease terms of one year or less. Upon adoption of Topic 842, we recorded $367,365 of right-of-use assets and operating lease liabilities as of January 1, 2019. The adoption did not have a material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows
| F-100 |
w) Subsequent events
The Company has evaluated all subsequent events from December 31, 2019, through the date of filing this report, and determined there are no additional items to disclose other than those described in Note 10.
Note 3. Business Acquisition
Certain Working Interests in Texas and Louisiana
As discussed in Note 1, on December 28, 2018, the Company, through its subsidiary Ichor Energy, LLC (“Ichor Energy”) completed an acquisition of working interests in certain oil and gas leases in Texas and Louisiana.
The total consideration given, representing the full purchase price of the working interests in these certain oil and gas leases in Texas and Louisiana, is calculated as follows:
| Total Consideration Given | ||||
| Cash consideration | $ | 3,701,698 | ||
| Term loan - net | 61,528,602 | |||
| Fair value of Ichor Energy Warrants | 180,744 | |||
| Accrued obligation | 330,314 | |||
| Note payable Seller | 23,777,948 | |||
| $ | 89,519,306 | |||
| Provisional Fair Value of Assets and Liabilities | ||||
| Oil and Gas Properties | $ | 91,189,272 | ||
| Asset retirement obligations assumed | (1,669,966 | ) | ||
| $ | 89,519,306 | |||
The accrued obligation of $330,314 is included in accrued expenses at December 31, 2018.
| F-101 |
Proforma unaudited condensed selected financial data for the year ended December 31, 2018 as though this acquisition had taken place at January 1, 2018 are as follows:
|
Year Ended December 31, 2018 |
||||
| Revenues | $ | 49,664,112 | ||
| Net Loss (excludes unrealized gains / losses) | $ | 1,441,930 | ||
| Loss per share | $ | 0.02 | ||
Note 4. Oil and Gas Properties
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the year ended December 31, 2019:
| December 31, 2018 | Adjustments | Impairments | December 31, 2019 | |||||||||||||
| Proved developed producing oil and gas properties | ||||||||||||||||
| Canada cost center | $ | - | $ | - | $ | - | $ | - | ||||||||
| United States cost center | 81,936,721 | (5,403,736 | ) | - | 76,532,985 | |||||||||||
| Accumulated depreciation, depletion and amortization | (604,735 | ) | (7,003,809 | ) | - | (7,608,544 | ) | |||||||||
| Proved developed producing oil and gas properties, net | $ | 81,331,986 | $ | (12,407,545 | ) | $ | - | $ | 68,924,441 | |||||||
| Undeveloped and non-producing oil and gas properties | ||||||||||||||||
| Canada cost center | $ | - | $ | - | $ | - | $ | - | ||||||||
| United States cost center | 51,973,719 | 4,194,709 | - | 56,168,428 | ||||||||||||
| Accumulated depreciation, depletion and amortization | (1,480,813 | ) | (3,869,940 | ) | - | (5,350,753 | ) | |||||||||
| Undeveloped and non-producing oil and gas properties, net | $ | 50,492,906 | $ | 324,769 | $ | - | $ | 50,817,675 | ||||||||
| Total Oil and Gas Properties, Net | $ | 131,824,892 | $ | (12,082,776 | ) | $ | - | $ | 119,742,116 | |||||||
| F-102 |
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the year ended December 31, 2018:
| December 31, 2017 | Adjustments | Impairments | December 31, 2018 | |||||||||||||
| Proved developed producing oil and gas properties | ||||||||||||||||
| Canada cost center | $ | 23,279 | $ | (23,279 | ) | $ | - | $ | - | |||||||
| United States cost center | 12,513,088 | 69,423,633 | - | 81,936,721 | ||||||||||||
| Accumulated depreciation, depletion and amortization | (235,226 | ) | (369,509 | ) | - | (604,735 | ) | |||||||||
| Proved developed producing oil and gas properties, net | $ | 12,301,141 | $ | 69,030,845 | $ | - | $ | 81,331,986 | ||||||||
| Undeveloped and non-producing oil and gas properties | ||||||||||||||||
| Canada cost center | $ | 382,935 | $ | (382,935 | ) | $ | - | $ | - | |||||||
| United States cost center | 26,851,244 | 25,122,475 | - | 51,973,719 | ||||||||||||
| Accumulated depreciation, depletion and amortization | (374,545 | ) | (1,106,268 | ) | - | (1,480,813 | ) | |||||||||
| Undeveloped and non-producing oil and gas properties, net | $ | 26,859,634 | $ | 23,633,272 | $ | - | $ | 50,492,906 | ||||||||
| Total Oil and Gas Properties, Net | $ | 39,160,775 | $ | 92,664,117 | $ | - | $ | 131,824,892 | ||||||||
On January 12, 2018, the Company, through Mid-Con Drilling, closed on an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Kansas. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties. To facilitate this transaction, the Company, through Mid-Con Drilling, executed a Promissory Note, dated January 12, 2018, in favor of Cornerstone Bank in the amount of $366,000. The acquisition price for this acquisition was $480,000.
Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. The acquisition price was $50,000.
During November, 2018, the Company created, Ichor Energy Holdings, LLC, (a Nevada Limited Liability Company), Ichor Energy, LLC (a Nevada Limited Liability Company), Ichor Energy (TX), LLC (a Texas Limited Liability company), and Ichor Energy (LA), LLC (a Louisiana Limited Liability Company) to facilitate the acquisition and ownership of certain oil and gas leases in Texas and Louisiana. The acquisition closed on December 28, 2018, and in connection therewith: (i) Ichor Energy (LA), LLC, a wholly-owned subsidiary of Ichor Energy, acquired all of the purchased assets located in Louisiana; and (ii) Ichor Energy (TX), LLC, a wholly-owned subsidiary of Ichor Energy, acquired all of the purchased assets located in Texas.
To facilitate the above-noted acquisition, the Company executed a Security and Pledge Agreement along with a $23,777,948 Promissory Note in favor of the seller, and caused Ichor Energy Holdings and Ichor Energy Holdings’ wholly-owned subsidiary, Ichor Energy, to enter into a Term Loan Credit Agreement dated December 28, 2018, with ABC Funding LLC, as administrative agent for various lenders the “Term Loan”).
| F-103 |
On December 28, 2018, the Company, through one of its subsidiaries, Ichor Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by ABC Funding, LLC as administrative agent. The agreement provides for a total loan amount of $63,592,000, bearing interest at a rate per annum equal to the greater of (i) a floating rate of interest equal to 10% plus LIBOR, and (ii) a fixed rate of interest equal to 12%, payable monthly on the last day of each calendar month, commencing January 31, 2019. Principal payments shall be made quarterly at 1.25% of the initial loan amount, commencing on the last business day of the fiscal quarter ending June 30, 2019. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, approximately $12,000,000 of oil and gas development projects approved by the lender, and distributions to the Company of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. On a quarterly basis, commencing with the quarter ended June 30, 2019, after appropriate distributions to the Company, any cash in excess of $2,000,000 plus unfunded approved development projects will be swept by the lender as an additional principal payment on the debt. To the extent not previously paid, all loans under the Loan Agreement shall be due and payable on the December 28, 2023 (the Maturity Date).
Note 5. Related Party Transactions
The Company’s CEO and director, James Doris has incurred expenses on behalf of, and made advances to, the Company in order to provide the Company with funds to carry on its operations. Additionally, Mr. Doris has made several loans through promissory notes to the Company, all accruing interest at 12%, and payable on demand. As of December 31, 2019 and 2018, the total amount due to Mr. Doris for these loans is $590,555 and $395,555, respectively. Accrued interest of $102,505 and $78,116 is included in accrued expenses and other current liabilities at December 31, 2019 and 2018, respectively,
The Company’s CFO, Frank W. Barker, Jr., renders professional services to the Company through FWB Consulting, Inc., an affiliate of Mr. Barker’s. As of December 31, 2019, and 2018, the total amount due to FWB Consulting, Inc. is $184,468 and $114,468, respectively, and is included in accounts payable.
Note 6. Capital Stock and Additional Paid-in Capital
(a) Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”), of which 50,000 have been designated as Series C Preferred Stock (the “Series C Preferred Stock”). Pursuant to the amended Certification of Designation of the Series C Preferred Stock filed on September 5, 2019, each share of Series C Preferred Stock entitles the holder thereof to 32,500 votes on all matters submitted to the vote of the stockholders of the Company. Each share of Series C Preferred Stock is convertible, at the option of the holder, at any time after the date of issuance of such share, at the office of the Company or any transfer agent for such stock, into one share of fully paid and non-assessable common stock.
(b) Common Stock
On November 5, 2018, the Company amended its Articles of Incorporation to increase the number of shares of common stock the Company is authorized to issue from 100,000,000 to 500,000,000.
During the year ended December 31, 2018, the Company issued the shares of its common stock as follow:
| • | 11,447,000 shares of common stock issued as debt discount valued at fair market value on the date of each transaction totaling $2,478,533. | |
| • | 250,000 shares of common stock issued as prepaid equity-based compensation valued at fair market value at the date of the transaction, totaling $55,000. | |
| • | 6,305,297 shares of common stock issued for services valued at the fair market value on the date of each transaction totaling $1,462,997 | |
| • | 75,000 shares of common stock issued in a debt conversion valued at $0.20 per share, or $15,000. | |
| • | 563,738 shares of common stock issued pursuant to a cashless exercise of warrants valued at fair market value on the date of exercise. |
During the year ended December 31, 2019, the Company issued the shares of its common stock as follow:
| • | 6,181,133 shares of common stock issued for services valued at the fair market value on the date of each transaction totaling $783,782. | |
| • | 3,650,046 shares of common stock issued to satisfy accrued interest valued at fair market value at the date of the transaction, totaling $620,508. | |
| • | 19,006,350 shares of common stock issued pursuant to a warrant exercise for the reduction of debt in the amount of $1,900,635. | |
| • | 2,410,000 shares of common stock issued pursuant to the exercise of warrants in the amount of $241,000. | |
| • | 1,961,755 shares of common stock issued pursuant to cashless exercise of warrants. |
| F-104 |
Note 7. Long Term Debt and other short-term borrowings
Long term debt and other short-term borrowings consisted of the following at December 31, 2019 and December 31, 2018:
|
December 31, 2019 |
December 31, 2018 |
|||||||
| Long-term debt: | ||||||||
| During June through December of 2018, the Company borrowed $9,459,750 from private lenders, and exchanged $5,514,000 of amounts due lenders from prior borrowings as well as $191,250 in accrued interest, pursuant to a 10% Secured Promissory Note with 50% of the principal convertible into the Company’s common stock at $0.20 per share, all principal and accrued interest payable on the initial maturity date of August 31, 2019. Concurrently, the Company issued the Note holders 11,373,750 warrants (5-year term and an exercise price of $0.20 per share). On August 31, 2019, the Company, pursuant to the terms of the notes, elected to extend the maturity date to August 31, 2020, by increasing the interest rate to 12%, and issuing the Note holders an additional 115,000 warrants (5-year term and an exercise price of $0.20 per share) for every $100,000 invested, resulting in an additional 17,422,500 new warrants. The fair value of all these warrants was recorded as a debt discount and amortized over the life of the notes. The balance shown is net of unamortized discount of $2,086,008 at December 31, 2019 and $5,981,012 at December 31, 2018. A majority of these lenders are also Viking shareholders. | 11,163,357 | 9,168,988 | ||||||
| On June 13, 2018, the Company borrowed $12,400,000 pursuant to a revolving line of credit facility with a maximum principal amount of $30,000,000 from Crossfirst Bank, bearing interest 1.5% above a base rate equal to the prime rate of interest published by the Wall Street Journal, interest only for June and July of 2018, at which time Principal is payable at $100,000 monthly through the maturity date of May 10, 2021, at which time all remaining unpaid principal and accrued interest shall be due. The balance shown is net of unamortized discount of $34,411 at December 31, 2019 and $103,421 at December 31, 2018. | 7,655,589 | 11,728,911 | ||||||
| On December 28, 2018, to facilitate the acquisition of certain oil and gas assets, the Company, through one of its subsidiaries, Ichor Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by ABC Funding, LLC as administrative agent. The agreement provides for a total loan amount of $63,592,000, bearing interest at a rate per annum equal to the greater of (i) a floating rate of interest equal to 10% plus LIBOR, and (ii) a fixed rate of interest equal to 12%, payable monthly on the last day of each calendar month, commencing January 31, 2019. Principal payments are made quarterly at 1.25% of the initial loan amount, commencing on the last business day of the fiscal quarter ending June 30, 2019. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, approximately $12,000,000 of oil and gas development projects approved by the lender, and distributions to the Company of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, Ichor Energy, LLC is required to pay, as an additional principal payment on the debt, any cash in excess of the MLR and the APOD Capex Amount. To the extent not previously paid, all loans under the Loan Agreement shall be due and payable on the December 28, 2023 (the Maturity Date). The loan agreement contains prepayment penalties through December 28, 2021 and “make-whole” obligations through December 28, 2020. In addition, at maturity (or sooner under certain circumstances which include prepayment of the loan or sale of Ichor Energy, LLC) the lenders will receive a payment approximating 5% of the fair value of Ichor Energy, LLC at that time; such amount is not estimable. The balance shown is net of unamortized discount of $3,507,364 at December 31, 2019 and $4,385,408 at December 31, 2018. | 53,699,940 | 59,206,592 | ||||||
| On December 28, 2018, the Company issued a 10% secured promissory note in the amount of $23,777,948, payable to RPM Investments, secured by 100% of the membership interests of Ichor Energy Holdings, LLC. All accrued interest and unpaid principal are due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020. As described in Note 10, Subsequent Events, this note was extinguished on February 3, 2020 in connection with an acquisition of oil and gas interests and exchanged for a new note in the amount of approximately $20.869 million with a maturity date of June 1, 2021. As a result, the balance of this note at December 31, 2019 has been classified as non-current. | 23,777,948 | 23,777,948 | ||||||
| On February14, 2019, the Company executed a promissory note payable to CrossFirst Bank in the amount of $56,760 for the purchase of transportation equipment, bearing interest at 7.15%, payable in 60 installments of $1,130, with a maturity date of February 14, 2024. | 48,658 | - | ||||||
| On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Petroleum, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $2,241,758, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $43,438, with a final payment due on a maturity date of July 24, 2025. The balance shown is net of unamortized discount of $26,538 at December 31, 2019. | 2,215,221 | - | ||||||
| On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Drilling, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $1,109,341, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $21,495, with a final payment due on a maturity date of July 24, 2025. The balance shown is net of unamortized discount of $26,464 at December 31, 2019. | 1,032,215 | - | ||||||
| 99,592,928 | 103,882,439 | |||||||
| Other short-term borrowings: | ||||||||
| On September 30, 2019, the Company received $910,000 under an agreement that requires the Company to make 28 weekly payments aggregating $1,237,600 through April 13, 2020. On December 23, 2019, the Company received an additional $242,750 under a replacement agreement that requires the Company to make 25 weekly payments aggregating $1,620,000 through June 15, 2020. The agreement provides discounts for early payment. The balance shown is net of the maximum discount of $413,445 at December 31, 2019. | 1,141,755 | - | ||||||
| On October 3, 2019, the Company received $480,200 under an agreement that requires the Company to make 28 weekly payments aggregating $666,400 through April 20, 2020. The agreement provides discounts for early payment. The balance shown is net of the maximum discount of $132,289 at December 31, 2019. | 423,111 | - | ||||||
| On December 23, 2019, the Company received $2,939,970 under an agreement that requires the Company to make 25 weekly payments aggregating $4,050,000 through June 15, 2020. The agreement provides discounts for early payment. The balance shown is net of the maximum discount of $1,110,030 at December 31, 2019. | 2,855,368 | - | ||||||
| On November 26, 2019, the Company received $200,000 from an individual. The advance is non-interest bearing and payable on demand. | 200,000 | - |
| Total long-term debt and other short-term borrowings | 104,213,162 | 103,882,439 | ||||||
| Less current portion | (19,225,045 | ) | (11,805,582 | ) | ||||
| $ | 84,988,117 | $ | 92,076,857 |
| F-105 |
Principal maturities of long-term debt for the next five years and thereafter are as follows:
| Period ended December 31, | ||||||||||||
| Principal | Unamortized Discount | Net | ||||||||||
| 2020 | $ | 22,233,521 | $ | 3,008,476 | $ | 19,225,045 | ||||||
| 2021 | 33,800,583 | 888,057 | 32,912,526 | |||||||||
| 2022 | 3,571,250 | 888,057 | 2,683,193 | |||||||||
| 2023 | 49,183,721 | 881,309 | 48,302,412 | |||||||||
| 2024 | 735,234 | 9,529 | 725,705 | |||||||||
| Thereafter | 369,637 | 5,356 | 364,281 | |||||||||
| $ | 109,893,946 | $ | 5,680,784 | $ | 104,213,162 | |||||||
Loan Covenants
Pursuant to the terms of the Revolving Line of Credit Facility executed on June 13, 2018 with CrossFirst Bank for a maximum principal amount of $30,000,000, the Company is required to provide on a quarterly basis, certain information to the Bank relative to operational performance of the Borrowers, to include internally prepared consolidated financial statements, hedge reports, and a compliance certificate.
Pursuant to the terms of the Term Loan Credit Agreement executed on December 28, 2018 with various lenders in the initial amount of $63,592,000, the Company is required to provide, periodically to the lenders, certain information relative to financial and operational performance of the related assets , accompanied by a compliance certificate.
At December 31, 2019, the Company is not in default of any loan covenants.
Note 8. Commitments and contingencies
In April 2018, the Company’s subsidiary, Petrodome Energy, LLC entered into a 66-month lease for 4,147 square feet of office space for the Company’s corporate office in Houston, Texas. The annual base rent commenced at $22.00 per square foot, and escalates at $0.50 per foot each year through expiration of the lease term. A right-of-use asset and operating lease liability has been recorded with the adoption of Topic 842, pertaining to this office lease. As this lease does not provide an implicit interest rate, we used a portfolio approach to determine a collateralized incremental borrowing rate of 10% based on the information available at the date of adoption of Topic 842 to determine the lease liability. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $96,304 for the year ended December 31, 2019.
The Company's commitment for minimum lease payments under this operating lease for the next five years and thereafter as of December 31, 2019 are as follows:
| Period ended December 31, | ||||
| 2020 | $ | 94,690 | ||
| 2021 | 96,763 | |||
| 2022 | 98,837 | |||
| 2023 | 82,940 | |||
| $ | 373,230 | |||
From time to time the Company may be a party to litigation involving commercial claims against the Company. Management believes that the ultimate resolution of these matters will not have a material effect on the Company’s financial position or results of operations.
| F-106 |
The staff (the “Staff”) of the SEC’s Division of Enforcement has notified the Company, that the Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company, as well as against its CEO and it CFO, for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company is in dialogue with the Staff regarding its preliminary determination. The Company believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC.
Note 9. Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.
The Company recognizes deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.
The Company has estimated net operating loss carry forwards of approximately $35,800,000 and $20,700,000 (revised from prior year estimate) as of December 31, 2019 and 2018 respectively. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. The net operating loss carryforwards generated prior to the January 1, 2018 effective date of the “Tax Cuts and Jobs Act of 2017” will expire in 2027 through 2037. Net operating losses arising in taxable years beginning after December 31, 2017 are carried forward indefinitely and are limited to 80 percent of taxable income.
The current and deferred income tax expense (benefit) consists of the following for the years ending December 31, 2019 and 2018:
|
December 31, 2019 |
December 31, 2018 |
|||||||
| Current | ||||||||
| Federal | $ | (3,174,242 | ) | $ | (2,496,519 | ) | ||
| State | - | - | ||||||
| Total current tax expense (benefit) | (3,174,242 | ) | (2,496,519 | ) | ||||
| Deferred tax timing differences | ||||||||
| Federal | (894,687 | ) | (866,288 | ) | ||||
| State | - | - | ||||||
| Increase (decrease) in valuation allowance | 4,068,929 | 2,451,980 | ||||||
| Income tax expense (benefit) | $ | - | $ | (910,827 | ) | |||
| F-107 |
The components of deferred tax assets and liabilities as of December 31, 2019, and 2018 is as follows:
|
December 31, 2019 |
December 31, 2018 |
|||||||
| Deferred tax assets: | ||||||||
| NOL carry forwards | $ | 8,077,099 | $ | 4,902,857 | ||||
| Bad debt reserves | 77,896 | 77,896 | ||||||
| Impairment of oil and gas assets | 403,289 | 403,289 | ||||||
| Unrealized loss | 695 | 695 | ||||||
| Derivative losses | 1,301,952 | 607,087 | ||||||
| Share based compensation | 2,456,423 | 2,256,601 | ||||||
| Total deferred tax assets | 12,317,354 | 8,248,425 | ||||||
| Deferred tax liabilities: | ||||||||
| Derivative gains | (121,947 | ) | (121,947 | ) | ||||
| Bargain purchase gain | (5,674,498 | ) | (5,674,498 | ) | ||||
| Total deferred tax liabilities | (5,796,445 | ) | (5,796,445 | ) | ||||
| Deferred tax asset (liability) - before valuation allowance | 6,520,909 | 2,451,980 | ||||||
| Less valuation allowance | (6,520,909 | ) | (2,451,980 | ) | ||||
| Deferred tax asset (liability) - net | $ | - | $ | - | ||||
A reconciliation of the federal and state statutory income tax rates to the Company’s effective income tax rate applicable to income before income tax benefit from continuing operations is as follows for the years ended December 31, 2019 and 2018:
|
December 31, 2019 |
December 31, 2018 |
|||||||
| Continuing operations | ||||||||
| Expected provision at US statutory rate | 21.00 | % | 21.00 | % | ||||
| State income tax net of federal benefit | 0.00 | % | 0.00 | % | ||||
| Other items effecting timing differences | -4.6 | % | -5.4 | % | ||||
| Valuation allowance | 0.00 | % | - | % | ||||
| Effective income tax rate | 16.4 | % | 15.6 | % | ||||
| F-108 |
The Company files income tax returns on a consolidated basis in the United States federal jurisdiction. As of December 31, 2019, the tax returns for the Company for the years ending 2016 through 2018 remain open to examination by the Internal Revenue Service. The Company and its subsidiaries are not currently under examination for any period.
Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company’s tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.
Note 10. Subsequent Events
Acquisition of Oil and Gas Properties
Purchase and Sale Agreement
On February 3, 2020, Elysium Energy, LLC (“Elysium”), a wholly-owned subsidiary of Viking’s subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”), acquired interests in certain oil and gas properties located in Texas and Louisiana (the “Acquisition”). The purchase price was approximately $46.3 million (subject to adjustment) which was substantially accomplished through cash on hand (which included the proceeds provided by the Camber Energy, Inc. (“Camber”) promissory note described below), a term loan, and settlement of a promissory note previously issued to certain of the sellers. The assets purchased included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells) and Louisiana (approximately 55 wells), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January, 2022 to July, 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56 for oil, and a floor of $2 and a ceiling of $2.425 for natural gas
Supplemental pro forma financial information has not been provided as the initial accounting for the acquired interests has not been completed.
Term Loan
In connection with the Acquisition, Elysium Holdings (Elysium’s parent), Elysium, and Elysium’s subsidiaries (collectively the “Borrowers”) entered into a $35.0 million term loan at a 4.0% original issue discount. The loan matures on August 3, 2022, unless accelerated sooner pursuant to the loan agreement. The loan bears interest at the prime rate plus seven and three quarters percent (7.75%) payable monthly. Principal payments are due beginning on May 1, 2020, and on each month thereafter at one percent (1%) of the then-outstanding balance and, to the extent not previously paid, on the maturity date.
The Borrowers have the right to prepay the term loan, subject to a prepayment fee of 5% for prepayments prior to February 3, 2021, 3% for prepayments from February 3, 2021 to February 3, 2022, and 0% for prepayments thereafter.
Additionally, to the extent that the Borrowers have Excess Cash Flow (as defined in the loan agreement), the Borrowers are required to make mandatory prepayments, without penalty or premium, equal to seventy-five percent (75%) of such Excess Cash Flow.
The Loan Agreement contains various customary covenants, some of which limit the ability of Elysium to, among other things, incur additional indebtedness; grant certain liens; engage in certain asset acquisitions and dispositions; make certain loans; make or declare certain dividends or distributions; issue additional equity interests; engage in certain changes in their organizational structure; engage in certain transactions with affiliates; make certain capital expenditures; amend their organizational documents or form or acquire additional subsidiaries. The loan agreement also contains covenants that require the maintenance of specified financial ratios or conditions.
Obligations under the loan agreement are secured by mortgages on the oil and gas leases of the Elysium and its subsidiaries, a security agreement covering all assets of Elysium and its subsidiaries, and a pledge of all of Elysium’s membership interests.
Promissory Notes
Certain of the selling entities were holders of the Company’s $23.7 million secured promissory note dated December 31, 2018. This note (and all unpaid accrued interest) was extinguished in connection with this acquisition. In exchange, the Company issued a new promissory note dated February 3, 2020, for approximately $20.869 million, which is secured by a pledge of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. The note bears interest at a rate of 10% per annum, payable at maturity (June 1, 2021). The note also requires that if following Viking’s merger with Camber (as described below) or Viking’s direct up-listing to a national stock exchange, it completes an equity raise through the issuance of its common stock, then seventy-five percent (75%) of such proceeds are to be applied to reduce the amount outstanding under the promissory note. Further, to the extent the Borrowers are due any post-closing adjustment payments in connection with the Acquisition, such payments are to be applied to reduce the balance owing under the promissory note.
| F-109 |
Merger Agreement and Promissory Note with Camber Energy, Inc.
Merger Agreement
On February 3, 2020, Viking entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Camber. The Merger Agreement provides that a newly-formed wholly-owned subsidiary of Camber will merge with and into Viking, with Viking surviving the merger as a wholly-owned subsidiary of Camber.
Upon the terms of the Merger Agreement, Viking shareholders will own approximately 80% of Camber at the time of the merger, subject to adjustment in certain circumstances.
The Merger Agreement provides, among other things, that the board of directors of the combined company will be comprised of five directors, one to be appointed by Camber and four to be appointed by Viking. The Merger Agreement also provides that James A. Doris, the Chief Executive Officer of Viking, shall serve as the Chief Executive Officer of the combined company. The combined company will have its headquarters in Houston, Texas.
The completion of the Merger is subject to numerous conditions including (i) the effectiveness of a registration statement registering the shares of Camber common stock to be issued to Viking’s shareholders in the merger and (ii) shareholder approval of the merger transactions by Camber’s shareholders and Viking’s shareholders. Additional closing conditions include (i) that in the event the NYSE American determines that the merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, and (ii) that the only loan obligations with a maturity date in 2020 that Viking shall have at closing shall be the $13.5 million of convertible debt issued in December of 2018.
The Merger can be terminated under various conditions or circumstances. The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties. Upon consummation of the merger, Viking will be deemed the acquirer for accounting purposes.
Promissory Note
As a condition of the merger, Camber loaned Viking $5 million pursuant to the terms of a Securities Purchase Agreement and 10.5% Secured Promissory Note dated February 3, 2020 (the “Camber Note”). This Camber note accrues interest at the rate of 10.5% per annum, payable quarterly, and is due on February 3, 2022. The note includes customary events of default and can be prepaid at any time together with a prepayment penalty of 10.5%. The note is generally convertible into common shares of Viking at a conversion price of $0.24 per share subject to certain restrictions.
As additional consideration for Camber making the loan to Viking and entering into the Merger Agreement, Viking assigned Camber 25% of the membership interests in Elysium Holdings. All or a portion of the assigned interests will be retained by Camber or returned to Viking under different circumstances relating to the possible termination of the Merger Agreement and the Camber Note repayment.
The terms of the Securities Purchase Agreement and accompanying security agreement provide Camber a security interest (subject to certain prerequisites) in Viking’s 75% ownership of Elysium Holdings and 100% ownership of Ichor Energy Holdings, LLC. Additionally, Viking provided Camber a junior security interest in the membership, common stock or ownership interests of all of Viking’s other existing and future, directly-owned or majority-owned subsidiaries.
The Merger Agreement provides that the Camber Note will be forgiven in the event the merger closes, or will be payable in full 90 days after the date that the Merger Agreement is terminated by any party for any reason, at which time an additional payment will also be due to Camber in an amount equal to (i) the amount owed by Camber to its Series C Preferred Stock holder in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock minus (ii) the Camber Note repayment amount.
New Debt Offering
On or about February 18, 2020, the Company commenced an offering of securities consisting of a subordinated, secured, convertible debt instrument with equity features (the “New Offering”), the summary terms of which are as follows: (i) Maturity Date: Feb. 11, 2022; (ii) Interest Rate: 12% per annum (payable quarterly or monthly at the Company’s option; (iii) Conversion Entitlement: the holder may convert all or a portion of the amount outstanding into common shares in the capital stock of the Company at a price of $0.175 per share; (iv) Equity Kicker: for every $100,000 exchanged or advanced into the new offering, the holder will receive 60,000 common shares in the capital stock of the Company; and (v) Security: holders will receive, pari passu with all other holders, including Camber Energy, Inc. (which is further described in this Subsequent Events section), a pledge of the membership interests of the Company’s interest in Elysium Energy Holdings, LLC, and, as soon as the Company’s obligations to EMC Capital Partners, LLC are satisfied, a pledge of the membership interests of the Company’s interest in Ichor Energy Holdings, LLC.
With respect to the $13.2 million of promissory notes due in August of 2020, the Company has invited the holders of these notes to exchange all or a portion of their principal and/or accrued interest into the new offering, however. there is no obligation for the holders to do so. As of March 23, 2020, 5 of the 2018 Note Holders have agreed to exchange into and/or contribute additional cash to the New Offering, representing an aggregate investment amount of $980,000, and 1 new participant invested in the New Offering, representing an aggregate investment amount of $100,000.
| F-110 |
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES – (unaudited)
The following supplemental unaudited information regarding Viking’s oil and gas activities is presented pursuant to the disclosure requirements of ASC 932. Viking’s oil and gas activities are located in the United States and Canada.
Results of Operations
| United States | Canada | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Results of operations | ||||||||||||||||
| Sales | $ | 35,465,093 | $ | 7,878,714 | $ | - | $ | 89,258 | ||||||||
| Lease operating costs | (13,076,020 | ) | (3,787,016 | ) | - | (48,533 | ) | |||||||||
| Depletion, accretion and impairment | (11,327,928 | ) | (1,697,977 | ) | - | (32,739 | ) | |||||||||
| Net | $ | 11,061,145 | $ | 2,393,721 | $ | - | $ | 7,986 | ||||||||
Oil and Gas Production and Sales by geographic area for the years ended December 31, 2019 and 2018:
Reserve Quantity Information
The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available.
Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.
Estimated Quantities of Proved Reserves
| United States | Canada | |||||||||||||||
| 2019 | 2018 | 2018 | 2018 | |||||||||||||
| Proved Developed, Producing | 7,672,566 | 9,174,854 | - | - | ||||||||||||
| Proved Developed, Non Producing | 1,980,157 | 1,336,184 | - | - | ||||||||||||
| Total Proved Developed | 9,652,723 | 10,511,038 | - | - | ||||||||||||
| Proved Undeveloped | 4,172,167 | 6,013,197 | - | - | ||||||||||||
| Total Proved | 13,824,890 | 16,524,235 | - | - | ||||||||||||
| F-111 |
Petroleum and Natural Gas Reserves
Reserves are estimated remaining quantities of oil and natural gas and related substances, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations – prior to the time at which contracts providing the right to operate expire.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with provisions of ASC 932 - Extractive Activities - Oil and Gas. Future cash inflows at December 31, 2019 and 2018 were computed by applying the unweighted, arithmetic average of the closing price on the first day of each month for the 12-month period prior to December 31, 2019 and 2018 to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions.
Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves, less the tax basis of properties involved. Future income tax expenses give effect to permanent differences, tax credits and loss carry forwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value of the Company’s oil and natural gas properties.
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the year ended December 31, 2019 and 2018 are as follows:
| United States | Canada | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Future cash inflows | $ | 541,243,657 | $ | 812,837,838 | $ | - | $ | - | ||||||||
| Future production costs | (156,167,716 | ) | (221,055,038 | ) | - | - | ||||||||||
| Future development costs | (42,539,780 | ) | (45,417,745 | ) | - | - | ||||||||||
| Future income tax expense | (38,772,674 | ) | (82,150,578 | ) | - | - | ||||||||||
| Future net cash flows | 303,763,487 | 464,214,477 | - | - | ||||||||||||
| 10% annual discount for estimated timing of cash flows | (135,523,587 | ) | (219,657,382 | ) | - | - | ||||||||||
| Standardized measure of DFNCF | $ | 168,239,900 | $ | 244,557,095 | $ | - | $ | - | ||||||||
| F-112 |
Changes in Standardized Measure of Discounted Future Net Cash Flows
The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2019 and 2018 are as follows:
| United States | Canada | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Balance - beginning | $ | 244,557,095 | $ | 70,760,702 | $ | - | $ | 573,095 | ) | |||||||
| Net changes in prices and production costs | (49,623,771 | ) | 663,233 | - | - | |||||||||||
| Net changes in future development costs | 502,197 | 16,523,269 | - | - | ||||||||||||
| Sales of oil and gas produced, net | (22,389,073 | ) | (4,132,423 | ) | - | - | ||||||||||
| Extensions, discoveries and improved recovery | - | - | - | - | ||||||||||||
| Purchases of reserves | 25,556,000 | 180,681,000 | - | - | ||||||||||||
| Sales of reserves | (12,106,298 | ) | - | - | (573,095 | ) | ||||||||||
| Revisions of previous quantity estimates | (67,757,693 | ) | 7,399,086 | - | - | |||||||||||
| Previously estimated development costs incurred | 3,636,007 | 3,813,777 | - | - | ||||||||||||
| Net change in income taxes | 24,288,680 | (44,289,094 | ) | - | - | |||||||||||
| Accretion of discount | 28,884,619 | 7,076,070 | - | - | ||||||||||||
| Other | (7,307,863 | ) | 6,061,475 | - | - | |||||||||||
| Balance - ending | $ | 168,239,900 | $ | 244,557,095 | $ | - | $ | - | ||||||||
In accordance with SEC requirements, the pricing used in the Company’s standardized measure of future net revenues is based on the 12-month un-weighted arithmetic average of the first-day-of-the-month price for the period January through December for each period presented and adjusted by lease for transportation fees and regional price differentials. The use of SEC pricing rules may not be indicative of actual prices realized by the Company in the future.
| F-113 |
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Viking Energy Group, Inc.
We have audited the accompanying combined statements of revenues and direct operating expenses (the “financial statements”) of those certain properties acquired by Elysium Energy, L.L.C., a subsidiary of Viking Energy Group, Inc., from 5Jabor, LLC, Bass Petroleum, L.L.C., Bodel Holdings, LLC, Delbo Holdings, L.L.C., James III Investments, L.L.C., JamSam Energy, LLC, Lake Boeuf Investments, LLC, Oakley Holdings, L.L.C., and Plaquemines Holdings, L.L.C., (the Sellers) for the years ended December 31, 2019 and 2018, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Viking Energy Group, Inc, and the Sellers management are responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of those certain properties acquired by Elysium Energy LLC, a subsidiary of Viking Energy Group, Inc., from 5Jabor, LLC, Bass Petroleum, L.L.C., Bodel Holdings, LLC, Delbo Holdings, L.L.C., James III Investments, L.L.C., JamSam Energy, LLC, Lake Boeuf Investments, LLC, Oakley Holdings, L.L.C., and Plaquemines Holdings, L.L.C., for the years ended December 31, 2019 and 2018, in conformity with U.S. generally accepted accounting principles.
Basis of Presentation
The accompanying financial statements were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as described in Note 1. The presentation is not intended to be a complete financial statement presentation of the assets acquired as described above.
/s/ Turner Stone & Company L.L.P.
April 20, 2020
Dallas, Texas
| F-114 |
COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY ELYSIUYM ENERGY, L.L.C., A SUBSIDIARY OF VIKING
ENERGY GROUP, INC., FROM 5JABOR, LLC, BASS PETROLEUM, L.L.C., BODEL HOLDINGS, L.L.C., DELBO HOLDINGS,
L.L.C., JAMES III INVESTMENTS, L.L.C., JAMSAM ENERGY, LLC,
LAKE BOEUF INVESTMENTS, LLC, OAKLEY HOLDINGS, L.L.C., AND PLAQUEMINES
HOLDINGS, L.L.C. UNDER AGREEMENT DATED FEBRUARY 3, 2020
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues - oil and natural gas | $ | 22,334,846 | $ | 10,010,548 | ||||
| Direct operating expenses | 9,798,319 | 6,806,785 | ||||||
| Revenues in excess of direct operating expenses | $ | 12,536,527 | $ | 3,203,763 | ||||
See Notes to Combined Statements of Revenues and Direct Operating Expenses
| F-115 |
NOTES TO COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF PROPERTIES ACQUIRED BY ELYSIUM ENERGY, L.L.C., A SUBSIDIARY OF VIKING
ENERGY GROUP, INC. FROM 5JABOR, LLC, BASS PETROLEUM, L.L.C., BODEL HOLDINGS, L.L.C., DELBO HOLDINGS,
L.L.C., JAMES III INVESTMENTS, L.L.C., JAMSAM ENERGY, LLC,
LAKE BOEUF INVESTMENTS, LLC, OAKLEY HOLDINGS, L.L.C., AND PLAQUEMINES
HOLDINGS, L.L.C. UNDER AGREEMENT DATED FEBRUARY 3, 2020
Years ended December 31, 2019 and 2018
Note 1. Basis of Presentation
Elysium Energy, L.L.C. (the “Company”) is a limited liability company formed on November 13, 2019 for the purpose of acquiring the producing and non-producing oil and natural gas properties of the Sellers (as defined below). The Company is a wholly-owned subsidiary of Viking Energy Group, Inc. (“Viking”), a company engaged in the exploration, acquisition, development and production of onshore oil and natural gas properties in the United States.
On October 10, 2019, the Company entered into a Purchase and Sale Agreement with 5Jabor, LLC, Bass Petroleum, L.L.C., Bodel Holdings, LLC, Delbo Holdings, L.L.C., James III Investments, L.L.C., JamSam Energy, LLC, Lake Boeuf Investments, LLC, Oakley Holdings, L.L.C., and Plaquemines Holdings, L.L.C. (collectively the “Sellers”) to purchase (the “Acquisition”) all of the Sellers’ right, title, interest and estate, real or personal, recorded or unrecorded, movable or immovable, tangible or intangible, in and to certain oil and gas leases in Texas and Louisiana (the “Properties”). The purchase agreement was amended as of December 23, 2019, February 2, 2020 and the Acquisition closed on February 3, 2020.
The accompanying combined statements of revenues and direct operating expenses were derived from Sellers’ historical accounting records prior to the purchase of the assets by the Company. The combined statements of revenues and direct operating expenses represent the revenues and direct operating expenses for the Properties during the ownership of the Sellers.
The combined statements of revenues and direct operating expenses vary from a complete income statement in accordance with accounting principles generally accepted in the United States of America in that they do not reflect certain indirect expenses that were incurred in connection with the ownership and operation of the Properties including, but not limited to, general and administrative expenses and interest expense. These costs were not separately allocated to the Properties in the accounting records of the Sellers. In addition, these allocations, if made using historical general and administrative and debt structures, would not produce allocations that would be indicative of the historical performance of the Properties had it been a Company property due to the differing size, structure, operations and accounting policies of the Company and its subsidiaries. The accompanying financial statements also do not include provisions for depreciation, depletion, amortization and accretion, as such amounts would not be indicative of the costs that the Company will incur upon the allocation of the purchase price paid for the Properties. The accompanying statements also do not include provisions for federal or state income taxes.
Furthermore, no balance sheet has been presented for the Properties because the acquired properties were not accounted for as a separate subsidiary or division of the Sellers and complete financial statements are not available, nor has information about the Properties’ operating, investing and financing cash flows been provided for similar reasons. Accordingly, the combined statements of revenues and direct operating expenses of the Properties are presented in lieu of the full financial statements required under Item 3-05 of Securities and Exchange Commission (‘‘SEC’’) Regulation S-X.
These statements of revenues and direct operating expenses are not indicative of the results of operations for the Properties on a go forward basis.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The combined statements of revenues and direct operating expenses are derived from the historical operating statements of the operators of the Properties for the Sellers. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts of revenues and direct operating expenses during the respective reporting periods. Actual results could be different from those estimates.
| F-116 |
Revenue Recognition
Total revenues in the accompanying financial statements include the sale of crude oil and natural gas, net of royalties. Sales are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.
Direct Operating Expenses
Direct operating expenses are recognized when incurred and consist of direct expenses of operating the Properties. The direct operating expenses include lease operating, production and ad valorem taxes, exploration costs, and processing and transportation expenses. Lease operating expenses include lifting costs, well repair expenses, facility maintenance expenses, well workover costs and other field-related expenses. Lease operating expenses also include expenses directly associated with support personnel, support services, equipment and facilities directly related to oil and gas production activities.
Note 3. Contingencies
The activities of the Properties may become subject to potential claims and litigation in the normal course of operations. The Company is not aware of any liability related to any pending or threatened litigation that could have a material adverse effect on the operations or financial results of the Properties.
Note 4. Subsequent Events
Management has evaluated subsequent events through April 20, 2020, the date the accompanying combined statements of revenue and direct operating expenses were available to be issued, and is not aware of any events that have occurred that require adjustments to or disclosure in these financial statements.
Note 5. Supplemental Oil and Natural Gas Reserve Information (Unaudited)
Estimated Net Quantities of Oil and Natural Gas Reserves
The following are estimates of the net proved oil and natural gas reserves of the properties located entirely within the United States of America. Reserve volumes and values were determined under definitions and guidelines of the U.S. Securities and Exchange Commission and, with the exception of the exclusion of future income taxes, conform to the Financial Accounting Standards Board (FASB) Codification Topic 932, Extractive Activities-Oil and Gas. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise that those of producing oil and gas properties. Accordingly, reserve estimates are expected to change as additional performance data becomes available.
Reserve Quantity Information
Below are the estimated quantities of domestic proved developed and undeveloped reserves of the Properties:
| F-117 |
| Years Ended December 31, | ||||||||||||||||
| 2019 | 2018 | |||||||||||||||
| Oil (Mbbls) | Gas (Mmcf) | Oil (Mbbls) | Gas (Mmcf) | |||||||||||||
| Proved developed and undeveloped reserves: | ||||||||||||||||
| Beginning of period | 2,746.48 | 31,950.78 | 2,122.56 | 17,088.69 | ||||||||||||
| Purchases | 566.85 | 14,308.34 | 739.66 | 15,556.06 | ||||||||||||
| Production | (266.03 | ) | (3,886.90 | ) | (115.74 | ) | (693.97 | ) | ||||||||
| End of period | 3,047.30 | 42,372.22 | 2,746.48 | 31,950.78 | ||||||||||||
Standardized Measure of Discounted Future Net Cash Flows
Accounting standards prescribe guidelines for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. Future cash inflows and future production and development costs are determined by applying the trailing unweighted 12-month arithmetic average of the first-day-of-the-month individual product prices and year-end costs to the estimated quantities of oil, natural gas and NGL to be produced. Actual future prices and costs may be materially higher or lower than the unweighted 12-month arithmetic average of the first-day-of-the-month individual product prices and year-end costs used. For each year, estimates are made of quantities of proved reserves and the future periods during which they are expected to be produced based on continuation of the economic conditions applied for such year.
The resulting future net cash flows are reduced to present value amounts by applying a 10% annual discount factor. The assumptions used to compute the standardized measure are those prescribed by the FASB and the SEC, and as such, do not necessarily reflect expectations of actual revenue to be derived from those reserves nor their present worth. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these estimates affect the valuation process.
| Discounted Future Net Cash Flows - Twelve Months Ended December 31, 2019 - Proved Reserves | ||||
| Future cash inflows | $ | 290,355,200 | ||
| Future production costs and taxes | (91,186,800 | ) | ||
| Future development costs and abandonments | (13,003,700 | ) | ||
| Future net cash flows | 186,164,700 | |||
| 10% annual discount for estimated timing of cash flows | (81,279,900 | ) | ||
| Standardized measure of discounted future net cash flows | $ | 104,884,800 | ||
| Changes in Standardized Measure of Discounted Future Net Cash Flows | ||||
| Standardized measure at beginning of period | $ | 112,153,412 | ||
| Changes resulting from: | ||||
| Acquisition of reserves | 2,027,576 | |||
| Sale of oil and natural gas | (10,531,332 | ) | ||
| Net changes in prices and production costs | 1,235,144 | |||
| Standardized measure of discounted future net cash flows | $ | 104,884,800 | ||
| F-118 |
AGREEMENT AND PLAN OF MERGER
by and between
VIKING ENERGY GROUP, INC.,
and
CAMBER ENERGY, INC.
Dated as of February 3, 2020
| A-1 |
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 3, 2020 (this “Agreement”), is by and between Viking Energy Group, Inc., a Nevada corporation (“Viking”), and Camber Energy, Inc., a Nevada corporation (“Camber”).
W I T N E S S E T H:
WHEREAS, the parties intend that, on the terms and subject to the conditions set forth in this Agreement, a wholly-owned Nevada subsidiary of Camber (“Merger Sub”) will merge with and into Viking (the “Merger”), with Viking surviving the Merger, pursuant to and in accordance with the provisions of Chapter 92A of the Nevada Revised Statutes of the State of Nevada (the “NRS”);
WHEREAS, in furtherance thereof, the respective Boards of Directors of Viking and Camber have approved the Merger and this Agreement;
WHEREAS, the Board of Directors of Camber has (a) determined that this Agreement and the transactions contemplated hereby, including the Charter Amendment (as defined below), the Share Issuance (as defined below) and the Merger, are fair to, and in the best interests of, Camber and the holders of shares of common stock, par value $0.001 per share, of Camber (the “Camber Common Stock”), (b) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Charter Amendment, the Share Issuance and the Merger, on the terms and subject to the conditions set forth in this Agreement, (c) directed that the Share Issuance and the Charter Amendment be submitted to the holders of shares of Camber Common Stock for their approval, and (d) resolved to recommend that the holders of shares of Camber Common Stock vote in favor of the approval of the Share Issuance and the Charter Amendment on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of Viking has (a) determined that this Agreement and the transactions contemplated hereby, including the Merger, are fair to, and in the best interests of, Viking and the holders of shares of common stock, par value $0.001 per share, of Viking (the “Viking Common Stock”), (b) approved and declared advisable this Agreement and the transactions contemplated by this Agreement, including the Merger, on the terms and subject to the conditions set forth in this Agreement, (c) directed that this Agreement be submitted to the holders of shares of Viking Common Stock and preferred stock for their adoption, and (d) resolved to recommend that the holders of shares of Viking Common Stock and preferred stock vote in favor of the adoption of this Agreement;
WHEREAS, for U.S. federal income tax purposes, Camber and Viking intend that the Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder (“Treasury Regulations”), and this Agreement is intended to be and is adopted as a “plan of reorganization” within the meaning of Sections 354 and 361 of the Code; and
WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.
| A-2 |
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. On the terms and subject to the conditions set forth in this Agreement, (a) at the Effective Time (as defined below), Merger Sub shall be merged with and into Viking in accordance with the NRS, and the separate corporate existence of Merger Sub shall thereupon cease, and (b) Viking shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the “Surviving Entity”) and from and after the Effective Time (as defined below), shall be a wholly-owned Subsidiary of Camber (sometimes hereinafter referred to as the “Combined Company,” including in its capacity as the sole stockholder of the Surviving Entity following the Effective Time), and the separate corporate existence of Viking with all of its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger as provided in the NRS.
1.2 Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the “Closing”) will take place at 10:00 a.m., Central Standard Time, at the office of Viking, on a date which shall be no later than three (3) business days after the satisfaction or waiver (to the extent permitted under applicable Law (as defined below)) of all of the conditions set forth in ARTICLE VII hereof (other than those conditions that by their nature can only be satisfied at the Closing, but subject to the satisfaction or permitted waiver thereof), unless another date, time or place is agreed to in writing by Viking and Camber. The date on which the Closing occurs is referred to as the “Closing Date.”
1.3 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on the Closing Date, the parties shall file with the Secretary of State of the State of Nevada (the “Nevada Secretary”) articles of merger relating to the Merger (the “Articles of Merger”), executed in accordance with, and in such form as is required by, the relevant provisions of the NRS, and, as soon as practicable on or after the Closing Date, shall make all other filings required under the NRS or by the Nevada Secretary in connection with the Merger. The Merger shall become effective at the time that the Articles of Merger have been duly filed with the Nevada Secretary, or at such later time as Viking and Camber shall agree and specify in the Articles of Merger (such time hereinafter referred to as the “Effective Time”).
1.4 Effects of the Merger. The Merger shall have the effects set forth in this Agreement and the applicable provisions of the NRS.
1.5 Conversion of Viking Common Stock and Merger Sub Common Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Viking, Camber, Merger Sub or the holders of any securities of Viking, Camber or Merger Sub:
(a) Each share of the common stock, par value $0.001 per share, of Merger Sub (the “Merger Sub Common Stock”) issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and nonassessable share of common stock, par value
| A-3 |
$0.001 per share, of the Surviving Entity, with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Entity. From and after the Effective Time, all certificates or book-entry notations representing shares of Merger Sub Common Stock shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Entity into which such shares of Merger Sub Common Stock were converted in accordance with the immediately preceding sentence.
(b) Subject to Section 2.2(e), each share of Viking Common Stock issued and outstanding immediately prior to the Effective Time, except for shares of Viking Common Stock that are owned by Camber, Viking or Merger Sub (the “Cancelled Shares”), shall be converted into the right to receive a number of shares (the “Merger Consideration”) of Camber Common Stock equal to the following (the “Exchange Ratio”): the number of shares of Camber Common Stock considered outstanding on a fully diluted basis immediately prior to Closing, excluding any shares into which the Series C Preferred Stock may be convertible, multiplied by the difference between 100 and the Camber Percentage (as defined below), divided by the Camber Percentage, divided by the number of shares of Viking Common Stock considered outstanding on a fully diluted basis immediately prior to Closing, rounded up to the nearest one-hundred thousandth (1/100,000th). The “Camber Percentage” shall initially equal 20, and the Camber Percentage shall be subject to adjustment as follows: (i) for each (A) additional $500,000 in Camber unencumbered cash (without any associated debt) available for use by the Combined Company after the Effective Time (“Camber Unencumbered Cash”) in excess of $4,000,000 at Closing (the “Camber Surplus Cash”), or (B) $500,000 in other unencumbered assets acquired by Camber after the date hereof and prior to Closing without increasing Camber’s liabilities (the “Other Camber Surplus Assets”), the Camber Percentage shall be increase by 0.5, or subject to the written agreement of both parties, such Camber Surplus Cash or Other Camber Surplus Assets, as applicable, shall be distributed to the Camber Common Stock holders subject to applicable Law; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) outside of Viking’s Ichor division or Elysium division (“Viking Unencumbered Cash”) in excess of $500,000 at Closing (the “Viking Surplus Cash”), the Camber Percentage shall decrease by 0.5.
(c) All of the shares of Viking Common Stock converted into the right to receive the Merger Consideration pursuant to this ARTICLE I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate (each, an “Old Certificate,” it being understood that any reference herein to “Old Certificate” shall be deemed to include reference to book-entry account statements relating to the ownership of shares of Viking Common Stock) previously representing any such shares of Viking Common Stock shall thereafter represent only the right to receive (i) a New Certificate representing the number of whole shares of Camber Common Stock which such shares of Viking Common Stock have been converted into the right to receive pursuant to this Section 1.5 (rounded up to the nearest whole share of Camber Common Stock), and (ii) any dividends or distributions which the holder thereof has the right to receive pursuant to Section 2.2, without any interest thereon. If, after the Closing but prior to the Effective Time, the outstanding shares of Viking Common Stock or Camber Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, or there shall be any extraordinary dividend or distribution, an appropriate and proportionate adjustment shall be made to the Exchange Ratio to give Camber and the holders of shares of Viking Common Stock the same
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economic effect as contemplated by this Agreement prior to such event; provided that nothing contained in this sentence shall be construed to permit Viking or Camber to take any action with respect to its securities or otherwise that is prohibited by the terms of this Agreement.
(d) Notwithstanding anything in this Agreement to the contrary, at the Effective Time, all Cancelled Shares shall be cancelled and shall cease to exist and no Camber Common Stock or other consideration shall be delivered in exchange therefor.
1.6 Treatment of Viking Convertible Securities.
(a) At the Effective Time, each warrant or option to purchase shares of Viking Common Stock (a “Viking Stock Option”) that, as of immediately prior to the Effective Time, is outstanding and unexercised shall be converted into a warrant or option, as applicable, to purchase shares of Camber Common Stock (an “Assumed Option”) having the same terms and conditions as applied to the corresponding Viking Stock Option as of immediately prior to the Effective Time (including, for the avoidance of doubt, any extended post-termination exercise period that applies following consummation of the Merger), except that (i) all Assumed Options corresponding to Viking Stock Options that are outstanding on the date of this Agreement shall be fully vested, (ii) the number of shares of Camber Common Stock (rounded down to the nearest whole share) subject to the Assumed Option will be equal to the product of (A) the number of shares of Viking Common Stock subject to the corresponding Viking Stock Option immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio, (iii) the exercise price per share of Camber Common Stock (rounded up to the nearest whole cent) subject to the Assumed Option will be equal to the quotient of (A) the exercise price per share of Viking Common Stock of such corresponding Viking Stock Option as of immediately prior to the Effective Time, divided by (B) the Exchange Ratio, and (iv) all references to the “Company” in the Viking Stock Option agreements will be references to Camber.
(b) At the Effective Time, each Viking promissory note convertible into Viking Common Stock (a “Viking Convertible Note”) that, as of immediately prior to the Effective Time, is outstanding and unconverted shall be converted into a promissory note convertible into Camber Common Stock (an “Assumed Convertible Note”) having the same terms and conditions as applied to the corresponding Viking Convertible Note as of immediately prior to the Effective Time (including, for the avoidance of doubt, any extended post-termination conversion period that applies following consummation of the Merger), except that (i) the number of shares of Camber Common Stock (rounded down to the nearest whole share) subject to the Assumed Convertible Note will be equal to the product of (A) the number of shares of Viking Common Stock subject to the corresponding Viking Convertible Note immediately prior to the Effective Time, multiplied by (B) the Exchange Ratio, (iii) the exercise price per share of Camber Common Stock (rounded up to the nearest whole cent) subject to the Assumed Convertible Note will be equal to the quotient of (A) the exercise price per share of Viking Common Stock of such corresponding Viking Convertible Note as of immediately prior to the Effective Time, divided by (B) the Exchange Ratio, and (iv) all references to the “Company” in the Viking Convertible Note agreements will be references to Camber.
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(c) Prior to the Effective Time, the Board of Directors of Viking shall adopt any resolutions and take any actions that are necessary or appropriate to effectuate the provisions of this Section 1.6.
(d) Notwithstanding anything to the contrary herein, if the application of Section 1.6(a) is subject to the Laws of a non-U.S. jurisdiction, then, to the extent that the manner in which such equity award would otherwise be treated pursuant to this Agreement would result in materially adverse Tax consequence to the individual holding such equity award, Viking and Camber shall work in good faith to adjust the treatment of such equity award as commercially reasonable to avoid such adverse Tax consequence in such a manner as to yield to the holder of such equity award the economic benefit intended by Sections 1.6(a).
(e) Camber shall take all corporate actions that are necessary for the assumption of the Viking Stock Options and Viking Convertible Notes pursuant to this Section 1.6, including the reservation, issuance and listing of Camber Common Stock as necessary to effect the transactions contemplated by this Section 1.6.
1.7 Articles of Incorporation of the Combined Company. Subject to the approval of the Charter Amendment by the holders of at least a majority of the outstanding shares of Camber Common Stock (the “Charter Amendment Vote”) and the occurrence of the Closing, Camber shall cause the Articles of Incorporation of Camber (the “Camber Articles of Incorporation”), as in effect immediately prior to the Effective Time, to be amended to increase the number of authorized shares of Camber Common Stock to a number of shares mutually agreed to by Camber and Viking (the “Increase In Authorized Shares”), in the form set forth in Exhibit A (collectively, the “Charter Amendment”) effective concurrently with the Effective Time, until thereafter amended in accordance with its terms and applicable Law. In the event that the Charter Amendment (other than the Increase in Authorized Shares, which is required for Closing) is not approved, the Camber Articles of Incorporation as in effect immediately prior to the Effective Time shall continue as the Articles of Incorporation of the Combined Company from and after the Effective Time, until thereafter amended in accordance with its terms and applicable Law.
1.8 [Intentionally Deleted.]
1.9 Articles of Incorporation and Bylaws of Surviving Entity. At the Effective Time, the Articles of Incorporation of the Surviving Entity and the Bylaws of the Surviving Entity shall be amended and restated in their entirety to be in the form of the Articles of Incorporation of Merger Sub and the Bylaws of Merger Sub, respectively, as in effect immediately prior to the Effective Time (except that (i) the name of the Surviving Entity shall be “Viking Energy Group, Inc.” and (ii) the reference to the incorporator will be removed), in each case until thereafter amended in accordance with their respective terms and with applicable Law.
1.10 Directors and Officers of Surviving Entity. The directors of Viking immediately prior to the Effective Time shall be the directors of the Surviving Entity, in each case until such director’s successor is elected and qualified or such director’s earlier death, resignation or removal, in each case in accordance with the Bylaws of the Surviving Entity. The officers of Viking immediately prior to the Effective Time shall be the officers of the Surviving Entity, in each case until such officer’s successor is elected and qualified or such officer’s earlier death, resignation,
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retirement, disqualification or removal, in each case in accordance with the Bylaws of the Surviving Entity.
1.11 Plan of Reorganization. This Agreement is adopted as a “plan of reorganization” within the meaning of Sections 354 and 361 of the Code and the Treasury Regulations promulgated thereunder, pursuant to which, for such purposes, the Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
ARTICLE II
EXCHANGE OF SHARES
2.1 Camber to Make Consideration Available. At or prior to the Effective Time, Camber shall deposit, or shall cause to be deposited, with Camber’s transfer agent, or with a bank or trust company designated by Camber and reasonably acceptable to Viking (the “Exchange Agent”), for exchange in accordance with this ARTICLE II for the benefit of the holders of Old Certificates, certificates or, at Camber’s option, evidence in book-entry form, representing shares of Camber Common Stock to be issued pursuant to Section 1.5 (referred to herein, as applicable, as “New Certificates”) (such New Certificates, together with any dividends or distributions with respect to shares of Camber Common Stock payable in accordance with Section 2.2(b), being hereinafter referred to as the “Exchange Fund”).
2.2 Exchange of Shares.
(a) As promptly as practicable after the Effective Time, but in no event later than ten (10) days thereafter, Camber shall cause the Exchange Agent to mail to each holder of record of one or more Old Certificates representing shares of Viking Common Stock immediately prior to the Effective Time that have been converted at the Effective Time into the right to receive Camber Common Stock pursuant to ARTICLE I, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Old Certificates shall pass, only upon proper delivery of the Old Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Old Certificates in exchange for New Certificates representing the number of shares of Camber Common Stock (rounded up to the nearest whole share of Camber Common Stock) which the shares of Viking Common Stock represented by such Old Certificate or Old Certificates shall have been converted into the right to receive pursuant to this Agreement as well as any dividends or distributions to be paid pursuant to Section 2.2(b). Upon proper surrender of an Old Certificate or Old Certificates for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Old Certificate or Old Certificates shall be entitled to receive in exchange therefor, as applicable, (i) a New Certificate representing that number of shares of Camber Common Stock to which such holder of shares of Viking Common Stock shall have become entitled pursuant to the provisions of ARTICLE I (rounded up to the nearest whole share of Camber Common Stock), and (ii) a check representing the amount of any dividends or distributions which the holder thereof has the right to receive pursuant to Section 2.2(b), and the Old Certificate or Old Certificates so surrendered shall forthwith be cancelled. No interest will be paid or accrued on any dividends or distributions payable to holders of Old Certificates. Until surrendered as contemplated by this Section 2.2, each Old Certificate shall be deemed at any time after the Effective Time to represent only the right to receive, upon surrender, the number of whole shares of Camber Common Stock which the shares
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of Viking Common Stock represented by such Old Certificate have been converted into the right to receive and any cash in respect of dividends or distributions as contemplated by this Section 2.2.
(b) No dividends or other distributions declared with respect to Camber Common Stock shall be paid to the holder of any unsurrendered Old Certificate until the holder thereof shall surrender such Old Certificate in accordance with this ARTICLE II. After the surrender of an Old Certificate in accordance with this ARTICLE II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to the whole shares of Camber Common Stock that the shares of Viking Common Stock represented by such Old Certificate have been converted into the right to receive.
(c) If any New Certificate representing shares of Camber Common Stock is to be issued in a name other than that in which the Old Certificate or Old Certificates surrendered in exchange therefor is or are registered, it shall be a condition of the issuance thereof that the Old Certificate or Old Certificates so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other similar Taxes required by reason of the issuance of a New Certificate representing shares of Camber Common Stock in any name other than that of the registered holder of the Old Certificate or Old Certificates surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock transfer books of Viking of the shares of Viking Common Stock that were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Old Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for New Certificates representing shares of Camber Common Stock as provided in this ARTICLE II.
(e) [Intentionally Deleted.]
(f) Any portion of the Exchange Fund that remains unclaimed by the stockholders of Viking for twelve (12) months after the Effective Time shall be paid to the Combined Company. Any former holders of shares of Viking Common Stock who have not theretofore complied with this ARTICLE II shall thereafter look only to the Combined Company for payment of the shares of Camber Common Stock and any unpaid dividends and distributions on the Camber Common Stock deliverable in respect of each former share of Viking Common Stock such holder holds as determined pursuant to this Agreement, without any interest thereon. Notwithstanding the foregoing, none of Viking, Camber, Merger Sub, the Surviving Entity, the Combined Company, the Exchange Agent or any other person shall be liable to any former holder of shares of Viking Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar Laws.
(g) Each of Viking, Camber, Merger Sub, the Surviving Entity and the Combined Company, and any other person that has any withholding obligation with respect to any payment made pursuant to this Agreement shall be entitled to deduct and withhold, or cause the Exchange Agent to deduct and withhold, from any payment made pursuant to this Agreement such amounts
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as it is required to deduct and withhold with respect to the making of such payment under applicable Law. To the extent that amounts are so withheld and paid over to the appropriate governmental authority, such amounts shall be treated for all purposes of this Agreement as having been paid to the person in respect of which such deduction and withholding was made.
(h) In the event any Old Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Old Certificate to be lost, stolen or destroyed and, if required by Camber, the Combined Company or the Exchange Agent, the posting by such person of a bond in such amount as Camber, the Combined Company or the Exchange Agent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Old Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Old Certificate the shares of Camber Common Stock and any cash in respect thereof pursuant to this Agreement.
2.3 Appraisal Rights. Notwithstanding anything in this Agreement to the contrary, each Viking Common Stock share as to which written notice of objection to the Merger in accordance with the NRS (“Dissenting Shares”) has been received by Viking will not be converted into the right to receive a portion of the Merger Consideration as provided by this Agreement, and Viking and Camber will therefore have no obligation to pay the portion of the Merger Consideration in respect of any such Viking Common Stock share, unless and until the holder of such Viking Common Stock share withdraws his or her demand for appraisal rights or becomes ineligible for appraisal rights. Each Person holding of record or beneficially owning Dissenting Shares who becomes entitled under the applicable sections of the NRS to payment of the fair value of such Dissenting Shares (and any other payments required by the NRS) or to payment of any other amount under any other legal theory as a result of their capacity as a shareholder of Viking prior to the Merger, will receive payment therefor from Camber and the Combined Company in the same manner as the Merger Consideration is being paid to holders of Viking Common Stock hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CAMBER
Except (a) as disclosed in the disclosure schedule delivered by Camber to Viking, which shall be provided no later than ten (10) business days after the date of this Agreement (the “Camber Disclosure Schedule”); provided, that (i) the mere inclusion of an item in the Camber Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by Camber that such item represents a material exception or fact, event or circumstance or that such item would reasonably be expected to have a Material Adverse Effect, and (ii) any disclosures made with respect to a section of ARTICLE III shall be deemed to qualify (1) any other section of ARTICLE III specifically referenced or cross-referenced and (2) other sections of ARTICLE III to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections, or (b) as disclosed in any Camber SEC Reports filed by Camber prior to the date hereof (but disregarding risk factor disclosures contained under the heading “Risk Factors,” or disclosures of risks set forth in any “forward-looking statements” disclaimer or any other statements that are similarly non-specific or cautionary, predictive or forward-looking in nature), Camber hereby represent and warrant to Viking as follows:
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3.1 Corporate Organization.
(a) Camber is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Camber has the corporate power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted. Camber is duly licensed or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such licensing, qualification or standing necessary, except where the failure to be so licensed or qualified or to be in good standing would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber. As used in this Agreement, the term “Material Adverse Effect” means, with respect to Viking, Camber, Merger Sub, the Surviving Entity or the Combined Company, as the case may be, any effect, change, event, circumstance, condition, occurrence or development that, either individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, properties, results of operations or financial condition of such Person and its Subsidiaries taken as a whole (provided, however, that Material Adverse Effect shall not be deemed to include the impact of (A) changes, after the date hereof, in U.S. generally accepted accounting principles (“GAAP”) or applicable regulatory accounting requirements or official interpretations thereof, (B) changes, after the date hereof, in Laws, rules or regulations of general applicability to companies in the industries in which such party and its Subsidiaries operate, or interpretations thereof by courts or Governmental Entities, (C) changes, after the date hereof, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic, market (including equity, credit and debt markets, as well as changes in interest rates) or other general industry-wide conditions affecting the industries in which such party and its Subsidiaries operates, (D) the announcement or the existence of, compliance with, pendency of or performance under, this Agreement or the transactions contemplated hereby or the identity of the parties to this Agreement or any of their affiliates (including the impact thereof on the relationships, contractual or otherwise, of a party or any of its Subsidiaries with officers and employees, financing sources, customers, suppliers, vendors, service providers or other partners) (provided that this clause (D) shall not apply to any representation or warranty to the extent the purpose of such representation or warranty is to address the consequences resulting from the execution of or performance under this Agreement or the consummation of the transactions contemplated hereby), (E) a decline in the trading price of a party’s common stock or any change in the credit ratings or ratings outlook for, or the availability or cost of equity, debt or other financing to, such party or any of its Subsidiaries, or the failure, in and of itself, to meet earnings projections, earnings guidance, budgets, expectations, estimates or internal financial forecasts, but not, in either case, including any underlying causes thereof to the extent not otherwise excluded pursuant to subclauses (A) through (H), (F) weather conditions or other acts of God, (G) any action required to be taken by a party or any of its Subsidiaries at the written request of the other party and (H) any actions or claims made or brought by any of the current or former stockholders of a party (or on their behalf or on behalf of such party) against another party or any of its directors, officers or employees arising out of this Agreement or the transactions contemplated hereby; except, with respect to subclause (A), (B), (C) or (F) to the extent that the effects of such change are materially disproportionately adverse to the business, properties, results of operations or financial condition of such party and its Subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its Subsidiaries operate). As used in this Agreement, the word “Subsidiary” when used with respect to any person, means any corporation,
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partnership, limited liability company, or other organization, whether incorporated or unincorporated, or person of which (x) such first person directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions or (y) such first person is or directly or indirectly has the power to appoint a general partner, manager or managing member or others performing similar functions, as of the date of this Agreement or the date of Closing, as applicable, and as contemplated hereby. True and complete copies of the Camber Articles of Incorporation and Camber Bylaws, in each case as in effect as of the date of this Agreement, have previously been made available by Camber to Viking.
(b) Each material Subsidiary of Camber (a “Camber Subsidiary”) (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly licensed or qualified to do business and, where such concept is recognized under applicable Law, in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership, leasing or operation of property or the conduct of its business requires it to be so licensed or qualified or in good standing and in which the failure to be so licensed or qualified or in good standing would reasonably be expected to have a Material Adverse Effect on Camber and (iii) has all requisite corporate power and authority to own, lease or operate its properties and assets and to carry on its business as now conducted. There are no restrictions on the ability of any Camber Subsidiary to pay dividends or distributions except for restrictions imposed by applicable Law or, in the case of non-wholly owned Subsidiary joint ventures, joint venture agreements in effect as of the date of this Agreement made available by Camber to Viking. Section 3.1(b) of the Camber Disclosure Schedule sets forth a true and complete list of all Camber Subsidiaries as of the date hereof. No Camber Subsidiary is in violation of any of the provisions of the articles of incorporation or bylaws (or comparable organizational documents) of such Camber Subsidiary. There is no person whose results of operations, cash flows, changes in stockholders’ equity or financial position are consolidated in the financial statements of Camber other than the Camber Subsidiaries. No Camber Subsidiary owns any capital stock of Camber.
3.2 Capitalization.
(a) As of January 31, 2020, the authorized capital stock of Camber consists of 5,000,000 shares of Camber Common Stock and 10,000,000 shares of preferred stock, par value $0.001 per share. As of January 31, 2020, there are (i) 5,000,000 shares of Camber Common Stock issued and outstanding; (ii) no shares of Camber Common Stock held in treasury; (iii) 38 shares of Camber Common Stock reserved for issuance upon the exercise of warrants or options to purchase shares of Camber Common Stock (“Camber Stock Options”); (iv) 2,294 shares of Series C Redeemable Convertible Preferred Stock (the “Series C Preferred Stock”) of Camber; and (v) no other shares of capital stock or other voting securities or equity interests of Camber issued, reserved for issuance or outstanding. All of the issued and outstanding shares of Camber Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. There are no bonds, debentures, notes or other indebtedness that have the right to vote on any matters on which stockholders of Camber may vote. Other than Camber Stock Options (collectively, “Camber Equity Awards”) issued prior to the date of this Agreement as described in this Section 3.2(a), as of the date of this Agreement or set forth in Section 3.2(a) of the Camber Disclosure Schedule, there are no outstanding subscriptions, options, warrants, stock appreciation
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rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts, calls, commitments or agreements of any character relating to, or securities or rights convertible or exchangeable into or exercisable for, shares of capital stock or other voting or equity securities of or ownership interest in Camber, or contracts, commitments, understandings or arrangements by which Camber may become bound to issue additional shares of its capital stock or other equity or voting securities of or ownership interests in Camber, or that otherwise obligate Camber to issue, transfer, sell, purchase, redeem or otherwise acquire, any of the foregoing (collectively, “Camber Securities”). Other than Camber Equity Awards, no equity-based awards (including any cash awards where the amount of payment is determined in whole or in part based on the price of any capital stock of Camber or any Camber Subsidiary) are outstanding as of the date of this Agreement. There are no voting trusts, stockholder agreements, proxies or other agreements in effect to which Camber or any Camber Subsidiary is a party with respect to the voting or transfer (including preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts or calls) of Camber Common Stock, capital stock or other voting or equity securities or ownership interests of Camber or granting any stockholder or other person any registration rights.
(b) All of the issued and outstanding capital stock of Merger Sub will be, when issued, duly authorized and validly issued and fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof, and at the Effective Time, will be, owned by Camber or a Camber Subsidiary. Merger Sub will be incorporated solely for the purpose of entering into the transactions contemplated by this Agreement and, since the date of its incorporation, will not have carried on any business, other than effecting the Merger contemplated by this Agreement and matters ancillary thereto.
(c) Camber owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of the Camber Subsidiaries, free and clear of any liens, claims, title defects, mortgages, pledges, charges, encumbrances and security interests whatsoever (“Liens”), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Other than the shares of capital stock or other equity ownership interests described in the previous sentence, there are no outstanding subscriptions, options, warrants, stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts, calls, commitments or agreements of any character relating to, or securities or rights convertible into or exchangeable or exercisable for, shares of capital stock or other voting or equity securities of or ownership interests in any Camber Subsidiary, or contracts, commitments, understandings or arrangements by which any Camber Subsidiary may become bound to issue additional shares of its capital stock or other equity or voting securities or ownership interests in such Camber Subsidiary, or otherwise obligating any Camber Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any of the foregoing (collectively, “Camber Subsidiary Securities”).
3.3 Authority; No Violation.
(a) Camber has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger have been duly and validly approved by
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the Board of Directors of Camber. The Board of Directors of Camber has determined that the Merger, on the terms and conditions set forth in this Agreement, is advisable and in the best interests of Camber and its stockholders, has adopted and approved this Agreement and the transactions contemplated hereby (including the Merger), and has directed that the Share Issuance (as defined below) and the Charter Amendment be submitted to Camber’s stockholders for approval at a meeting of such stockholders and has adopted a resolution to the foregoing effect. Except for (i) the approval of the issuance of shares of Camber Common Stock pursuant to this Agreement (the “Share Issuance”) by the holders of a majority of the outstanding shares of stock entitled to vote on the Share Issuance present in person or by proxy at a meeting of Camber stockholders duly called and held for such purpose (the “Requisite Camber Vote”), (ii) the receipt of the approval of the Camber stockholders of the Increase In Authorized Shares, (iii) corporate proceedings required to give effect to the matters and agreements contemplated by Section 6.12, and (iv) the approval of this Agreement by the sole stockholder of Merger Sub contemplated by Section 6.20, no other corporate proceedings on the part of Camber or Merger Sub are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Camber (assuming due authorization, execution and delivery by Viking) and constitutes a valid and binding obligation of Camber, enforceable against each of Camber in accordance with its terms (except in all cases as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws of general applicability affecting the rights of creditors generally and the availability of equitable remedies (the “Enforceability Exceptions”)). The shares of Camber Common Stock to be issued in the Merger have been validly authorized (subject to the receipt of the Requisite Camber Vote), and when issued, will be validly issued, fully paid and nonassessable, and no current or past stockholder of Camber will have any preemptive right or similar rights in respect thereof.
(b) Neither the execution and delivery of this Agreement by Camber, nor the consummation by Camber of the transactions contemplated hereby (including the Merger), nor compliance by Camber with any of the terms or provisions hereof, will (i) violate any provision of the Camber Articles of Incorporation, the Camber Bylaws, or the articles of incorporation or bylaws (or similar organizational documents) of Merger Sub, or (ii) assuming that the consents and approvals referred to in Section 3.4 are duly obtained, (x) violate in any material respect any Law, statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Camber, Merger Sub or any Camber Subsidiary or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Camber, Merger Sub or any Camber Subsidiary under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Camber, Merger Sub or any Camber Subsidiary is a party, or by which they or any of their respective properties or assets may be bound, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults that, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber.
3.4 Consents and Approvals.
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(a) Except for (i) the filing of any required applications, filings and notices, as applicable, with the NYSE, (ii) the filing of any required applications, filings and notices, as applicable, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”), and such other consents, approvals, filings or registrations as may be required under any antitrust or competition Laws of non-U.S. jurisdictions (together with the HSR Act, collectively, “Competition Laws”)1, (iii) the filing of any required applications, filings and notices, as applicable, for foreign investment clearance of any jurisdiction, (iv) the filing by Camber with the SEC of a joint proxy statement in definitive form (including any amendments or supplements thereto, the “Joint Proxy Statement”), and a registration statement on Form S-4 in which the Joint Proxy Statement will be included as a prospectus (the “S-4”), and the declaration of effectiveness of the S-4, (v) the filing of the Articles of Merger with the Nevada Secretary pursuant to the NRS, (vi) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of Camber Common Stock pursuant to this Agreement and the approval of the listing of such Camber Common Stock on the NYSE, as applicable; and (v) the consent of the holders of Camber’s Series C Preferred Stock, no material consents or approvals of, or filings or registrations with, any court, administrative agency or commission or other governmental or regulatory authority or instrumentality or self-regulatory organization (SRO) (each a “Governmental Entity”) are necessary in connection with (A) the execution and delivery by Camber of this Agreement, or (B) the consummation by Camber of the transactions contemplated hereby. As of the date hereof, Camber is not aware of any reason why the necessary regulatory approvals and consents will not be received by Camber or Merger Sub to permit consummation of the Merger on a timely basis. As of the date hereof, to the knowledge of Camber, there is no fact or circumstance existing that would require or reasonably be expected to require either party to invoke their right to change the structure of effecting the combination of Viking and Camber to a Direct Merger pursuant to Section 6.15 hereof.
(b) Except as set forth in Section 3.4(b) of the Camber Disclosure Schedule, the representations and warranties in Sections 3.3(b) and 3.4(a) are true and correct with respect to a combination of Viking and Camber structured as a merger of Viking with and into Camber (a “Direct Merger”).
3.5 Financial Statements.
(a) The financial statements of Camber and the Camber Subsidiaries included (or incorporated by reference) in the Camber SEC Reports (defined below)(including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of Camber and the Camber Subsidiaries, (ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders’ equity and consolidated financial position of Camber and the Camber Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (iii) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and (iv) have been prepared in accordance
1 To discuss. Antitrust thresholds may be triggered depending on Camber stock price.
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with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of Camber and the Camber Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.
(b) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber, neither Camber nor any Camber Subsidiary has any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Camber included in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019 (including any notes thereto), liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2019, or in connection with this Agreement and the transactions contemplated hereby, and liabilities related to the liquidation preference of Camber’s Series C Preferred Stock.
(c) The records, systems, controls, data and information of Camber and the Camber Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership of Camber or the Camber Subsidiaries or accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership that would not reasonably be expected to have a Material Adverse Effect on Camber. Camber (x) has not implemented and maintained disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) to ensure that material information relating to Camber, including the Camber Subsidiaries, is made known to the chief executive officer and the chief financial officer of Camber by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and (y) has disclosed, based on its most recent evaluation prior to the date hereof (i) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Camber’s ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in Camber’s internal controls over financial reporting. These disclosures were made in the Camber SEC Reports.
(d) Except as set forth in Section 4.5(d) of the Camber Disclosure Schedule, since January 1, 2017, (i) neither Camber nor any Camber Subsidiary, nor, to the knowledge of Camber, any director, officer, auditor, accountant or Representative of Camber or any Camber Subsidiary, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to reserves, write-downs, charge-offs and accruals) of Camber or any Camber Subsidiary or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Camber or any Camber Subsidiary has engaged in questionable accounting or auditing practices, and (ii) no employee of or attorney representing Camber or any Camber Subsidiary, whether or not employed by Camber or any Camber Subsidiary, has reported evidence of a material violation of securities
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laws, breach of fiduciary duty or similar violation by Camber or any Camber Subsidiary or any of their respective officers, directors, employees or agents to the Board of Directors of Camber or any committee thereof or the Board of Directors or similar governing body of any Camber Subsidiary or any committee thereof, or to the knowledge of Camber, to any director or officer of Camber or any Camber Subsidiary.
3.6 Broker’s Fees. Neither Camber nor any Camber Subsidiary nor any of their respective officers or directors has employed any broker, finder or financial advisor or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement.
3.7 Absence of Certain Changes or Events.
(a) Since September 30, 2019, through the date of this Agreement, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber, except as disclosed in the Camber SEC Reports.
(b) Since September 30, 2019, through the date of this Agreement, Camber and the Camber Subsidiaries have carried on their respective businesses in all material respects in the ordinary course, except as disclosed in the Camber SEC Reports.
3.8 Legal and Regulatory Proceedings.
(a) Except as set forth in Section 3.5(d) of the Camber Disclosure Schedule or as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Camber, neither Camber nor any Camber Subsidiary is a party to any, and there are no outstanding or pending or, to the knowledge of Camber, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against Camber or any Camber Subsidiary or any of their current or former directors or executive officers or challenging the validity or propriety of the transactions contemplated by this Agreement.
(b) Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Camber, there is no injunction, order, judgment, decree, or regulatory restriction imposed upon Camber, any Camber Subsidiary or the assets of Camber or any Camber Subsidiary (or that, upon the consummation of the Merger, would apply to the Surviving Entity, the Combined Company or any of their respective Subsidiaries).
3.9 Taxes and Tax Returns.
(a) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Camber:
(i) each of Camber and the Camber Subsidiaries has duly and timely filed with the appropriate taxing authority (taking into account all applicable extensions) all Tax Returns required by applicable Law to be filed with respect to each of Camber and the
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Camber Subsidiaries in all jurisdictions in which Tax Returns are required to be filed by it, and all such Tax Returns are true, correct, and complete in all respects;
(ii) neither Camber nor any Camber Subsidiary is the beneficiary of any extension of time within which to file any Tax Return (other than extensions to file Tax Returns obtained in the ordinary course) nor has Camber nor any Camber Subsidiary been granted any extension or waiver of the limitation period applicable to any Tax that remains in effect;
(iii) all Taxes of Camber and the Camber Subsidiaries (whether or not shown on any Tax Returns) that are due have been fully and timely paid (taking into account all applicable extensions);
(iv) each of Camber and the Camber Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, stockholder, independent contractor or other third party and has complied with all applicable information reporting requirements;
(v) neither Camber nor any Camber Subsidiary has received written notice of any Tax assessment or proposed Tax assessment, and there are no threatened in writing or pending disputes, actions, suits, claims, audits, investigations, examinations or other proceedings regarding any Tax of Camber and the Camber Subsidiaries or the assets of Camber and the Camber Subsidiaries, nor has any claim for additional Tax been asserted in writing by any taxing authority;
(vi) since January 1, 2017, no claim has been made in writing by any taxing authority in a jurisdiction where Camber or any Camber Subsidiary has not filed income or franchise Tax Returns that it is or may be subject to income or franchise Tax by such jurisdiction; and
(vii) neither Camber nor any Camber Subsidiary is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Camber and the Camber Subsidiaries).
(b) Neither Camber nor any Camber Subsidiary (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Camber), or (ii) has any liability for the Taxes of any person (other than Camber or any Camber Subsidiary) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor or by contract.
(c) Neither Camber nor any Camber Subsidiary has been, within the past three (3) years a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify for tax-free treatment under Section 355 of the Code.
(d) Neither Camber nor any Camber Subsidiary has participated in a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
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(e) [Intentionally Deleted.]
(f) There is no Lien on any of the assets or properties of Camber or any Camber Subsidiary as a result of a failure or alleged failure to pay any Tax.
(g) Camber and its Subsidiaries are not bound with respect to the current or any future taxable period by any closing agreement (within the meaning of Section 7121(a) of the Code) or other written agreement with a taxing authority.
(h) As used in this Agreement, the term “Tax” or “Taxes” means all federal, state, local, and foreign income, excise, gross receipts, ad valorem, profits, gains, property, capital, sales, transfer, use, license, payroll, employment, social security, severance, unemployment, withholding, duties, excise, windfall profits, intangibles, franchise, backup withholding, value added, alternative or add-on minimum, estimated and other taxes, charges, levies or like assessments (excluding tariffs and duties), together with all penalties and additions to tax and interest thereon.
(i) As used in this Agreement, the term “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, required to be supplied to a Governmental Entity.
3.10 Employees.
(a) Each Camber Benefit Plan (as defined below) has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable Laws, including the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code. For purposes of this Agreement, the term “Camber Benefit Plans” means any plan, program, policy, practice, contract, agreement or other arrangement constituting an employee benefit plan (as defined in Section 3(3) of ERISA), whether or not subject to ERISA, or providing for any compensation, equity, bonus or incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance, termination pay, change in control compensation, retention, employment, fringe benefits, welfare benefits, or other benefit or perquisite with respect to which Camber or any Subsidiary or any trade or business of Camber or any Camber Subsidiary, whether or not incorporated, all of which together with Camber would be deemed a “single employer” within the meaning of Section 4001 of ERISA (a “Camber ERISA Affiliate”), is a party or has any current or future obligation or that are maintained, contributed to or sponsored by Camber or any Camber Subsidiary or any Camber ERISA Affiliate for the benefit of any current or former employee, officer, director, independent contractor or other service provider of Camber or any Camber Subsidiary or any Camber ERISA Affiliate, excluding, in each case, any “multiemployer plan” within the meaning of Section 4001(a) of ERISA (a “Multiemployer Plan”). Except as would not reasonably be expected to result in any material Liability of Camber or any Camber Subsidiary or Camber ERISA Affiliate, no nonexempt “prohibited transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code) or “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA and Section 412 of the Code (whether or not waived)) has occurred with respect to any Camber Benefit Plan.
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(b) The IRS has issued a favorable determination letter with respect to each Camber Benefit Plan that is intended to be qualified under Section 401(a) of the Code (the “Camber Qualified Plans”) and the related trust, which letter has not been revoked (nor, to the knowledge of Camber, has revocation been threatened), and, to the knowledge of Camber, there are no existing circumstances and no events have occurred that would reasonably be expected to adversely affect the qualified status of any Camber Qualified Plan or the related trust. Neither the transactions contemplated by this Agreement (whether alone or together with any other event), nor the termination of any Camber Qualified Plans, would reasonably be expected to trigger any material liquidation charges, surrender charges or other fees or Liability as to Camber or any Camber Subsidiaries or ERISA Affiliates (other than customary administrative expenses in the ordinary course of business) or any participants of such Camber Qualified Plans, including without limitation pursuant to any investment Contracts with respect to a Camber Qualified Plan.
(c) With respect to any Camber Benefit Plan subject to Title IV of ERISA to which Camber, the Camber Subsidiaries or any of their respective Camber ERISA Affiliates has any liability or contributes: (i) no liability under Title IV of ERISA has been incurred that has not been satisfied in full and no condition exists that is likely to cause Camber, any Camber Subsidiaries or any of their respective Camber ERISA Affiliates to incur liability thereunder, other than liability for premiums due to the Pension Benefit Guaranty Corporation (“PBGC”) (which premiums have been paid when due), (ii) no failure to satisfy the “minimum funding standards” within the meaning of Section 302 of ERISA and Section 412 of the Code (whether or not waived) has occurred, (iii) no “reportable event” (as defined in Section 4043 of ERISA), whether or not waived, has occurred or is reasonably expected to result, (iv) all contributions required to be made to any such plan have been timely made, (v) there has been no determination that any such plan is, or is expected to be, in “at risk” status (within the meaning of Section 303 of ERISA), and (vi) no notice from the PBGC relating to the funded status of any such plan or any transfer of assets and liabilities from any such plan in connection with the transactions contemplated herein has been received.
(d) With respect to each Multiemployer Plan in which Camber participates or to which Camber contributes or has any Liability (a “Camber Multiemployer Plan”): (i) no such Camber Multiemployer Plan has been terminated or is insolvent under Section 4245 of ERISA, or has incurred a mass withdrawal under Section 4219 of ERISA, so as to result, directly or indirectly, in any Liability of Camber, any Camber Subsidiary or Camber ERISA Affiliate under Title IV of ERISA; (ii) no proceeding has been initiated by any person (including the PBGC) to terminate any such Camber Multiemployer Plan; (iii) Camber has no reason to believe that any such Camber Multiemployer Plan will be terminated or will become insolvent under Section 4245 of ERISA or will incur a mass withdrawal under Section 4219 of ERISA; (iv) neither Camber nor any Camber Subsidiaries expect to withdraw from any such Camber Multiemployer Plan (v) no such Camber Multiemployer Plan is in endangered, critical, or critical and declining status, within the meaning of Section 305 of ERISA or Section 432 of the Code; and (vi) to the knowledge of Camber, such Camber Multiemployer Plan has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable Laws, including ERISA and the Code. Neither Camber nor any Camber ERISA Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any “multiple employer plan” as defined in ERISA or the Code (a “Multiple Employer Plan”), or a “funded welfare plan” within the meaning of Section 419 of the Code. No Camber Benefit Plan provides health benefits that are not fully insured
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through an insurance contract, or is or has been funded by, associated with or related to a “voluntary employees’ beneficiary association” within the meaning of Section 501(c)(9) of the Code.
(e) No Camber Benefit Plan provides for any post-employment or post-retirement welfare benefits for retired, former or current employees or beneficiaries or dependents thereof, except as required by Section 4980B of the Code, other than subsidized COBRA under Camber Benefit Plans for not longer than two (2) years following termination of employment.
(f) Except as would not reasonably be expected to be material to Camber and the Camber Subsidiaries, taken as a whole, all contributions required to be made to any Camber Benefit Plan by applicable Law or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Camber Benefit Plan, for any period through the date hereof, have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the books and records of Camber.
(g) There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted, and, to Camber’s knowledge, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the Camber Benefit Plans, any fiduciaries thereof with respect to their duties to the Camber Benefit Plans or the assets of any of the trusts under any of the Camber Benefit Plans that would reasonably be expected to result in any material liability of Camber or any Camber Subsidiary to the PBGC, the IRS, the Department of Labor, any Multiple Employer Plan, any participant in a Camber Benefit Plan, or any other party.
(h) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other event) result in, cause the vesting, exercisability or delivery of, or increase in the amount or value of, or accelerate the timing of, any payment, right or other benefit to any employee, officer, director or other service provider of Camber or any Camber Subsidiary.
(i) Without limiting the generality of Section 3.10(h), no amount paid or payable (whether in cash, in property, or in the form of benefits) by Camber or any Camber Subsidiary in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other event) will be an “excess parachute payment” within the meaning of Section 280G of the Code.
(j) No Camber Benefit Plan provides for the gross-up or reimbursement of Taxes under Section 409A or 4999 of the Code, or otherwise (except for any routine gross-up or reimbursement of Taxes pursuant to any expatriate arrangements in the ordinary course of business that relate to Taxes other than under Sections 409A and 4999 of the Code).
(k) Except as would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, each Camber Benefit Plan that is mandated by applicable Law or by a Governmental Entity outside of the United States or that is subject to the laws of a jurisdiction outside of the United States (i) has been maintained in accordance with
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all applicable requirements, (ii) if intended to qualify for special Tax treatment, meets all the requirements for such treatment, and (iii) if required, to any extent, to be funded, book-reserved or secured by an insurance policy, is fully funded, book-reserved or secured by an insurance policy, as applicable, based on reasonable actuarial assumptions in accordance with applicable accounting principles.
(l) There are no pending or, to Camber’s knowledge, threatened material labor grievances or material unfair labor practice claims or charges against Camber or any Camber Subsidiary, or any strikes or other material labor disputes against Camber or any Camber Subsidiary. Neither Camber nor any Camber Subsidiary is party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Camber or any Camber Subsidiary and, to the knowledge of Camber, there are no organizing efforts by any union or other group seeking to represent any employees of Camber or any Camber Subsidiary. Camber and each Camber Subsidiary is, and have been at all times since January 1, 2017, in compliance in all material respects with all applicable Laws in respect of employment and employment practices, including terms and conditions of employment and wages and hours, employment discrimination, employee classification, workers’ compensation, family and medical leave, immigration and occupational safety and health requirements.
3.11 SEC Reports. Camber has filed or furnished all required registration statements, prospectuses, reports, schedules, forms, statements, certifications and other documents (including exhibits and all other information incorporated therein, regardless of when such exhibits and other information were filed) with the United States Securities and Exchange Commission (the “SEC”) since January 1, 2017 (the “Camber SEC Reports”). As of their respective dates, subject to amendments thereto which have been made to date, the Camber SEC Reports complied in all material respects with the requirements of the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the Camber SEC Reports, and none of the Camber SEC Reports when filed and at their respective effective times, if applicable, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that information filed or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. As of the date of this Agreement, there are no outstanding or unresolved comments received from the SEC with respect to any of the Camber SEC Reports, and, to the knowledge of Camber, none of the Camber SEC Reports is the subject of any outstanding SEC investigation. No Camber Subsidiary is required to file reports with the SEC pursuant to the requirements of the Exchange Act.
3.12 Compliance with Applicable Law.
(a) The businesses of Camber and the Camber Subsidiaries have not been since January 1, 2017, and are not being, conducted in violation of any applicable federal, state, local, foreign, international or transnational law, statute, ordinance, common law, rule, regulation, standard, judgment, determination, order, writ, injunction, decree, arbitration award, treaty, agency requirement, authorization, license or permit of any Governmental Entity (“Laws”), except as
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would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber.
(b) Except with respect to regulatory matters covered by Section 6.1 and except as set forth in Section 4.5(d) of the Camber Disclosure Schedule, no investigation or review by any Governmental Entity with respect Camber or any Camber Subsidiary is pending or, to the knowledge of Camber, threatened in writing, nor has Camber received any notice or communication of material noncompliance with any such Laws that has not been cured or is in the process of being cured as of the date of this Agreement, in each case, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber.
(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber and except as set forth in Section 4.5(c) of the Camber Disclosure Schedule, (i) Camber and each Camber Subsidiary has obtained and is in compliance with all licenses necessary for it to own, lease or operate its properties, rights and other assets and to conduct its business and operations as currently conducted in all material respects, (ii) all such licenses are in full force and effect in all material respects, and (iii) to Camber’s knowledge, there is not currently threatened any revocation, adverse modification or cancellation of any material license.
(d) Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, since January 1, 2017, Camber and each Camber Subsidiary has at all times conducted all export transactions in accordance with (i) all applicable U.S. export and re-export controls, including the United States Export Administration Act, Export Administration Regulations, the Arms Export Control Act and the International Traffic in Arms Regulations, (ii) statutes, executive orders and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the United States Department of State, (iii) import control statutes and regulations administered by the Department of Homeland Security, U.S. Customs and Border Protection, (iv) the anti-boycott regulations administered by the United States Department of Commerce and the U.S. Department of the Treasury, and (v) all applicable sanctions, export and import controls and anti-boycott Laws of all other countries in which the business of Camber or any Camber Subsidiary is conducted. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, neither Camber nor any Camber Subsidiary has been since January 1, 2017 or currently is the subject of a charging letter or penalty notice issued, or to the knowledge of Camber, an investigation conducted, by a Governmental Entity pertaining to the above statutes or regulations, nor are there any currently pending internal investigations by Camber pertaining to such matters. Neither Camber nor any Camber Subsidiary is currently designated as a sanctioned party under sanctions administered by OFAC, nor are they owned fifty percent (50%) or more by an individual or entity that is so designated. Neither Camber nor any Camber Subsidiary, or, to Camber’s knowledge, any directors, officers, employees, independent contractors, consultants, agents and other Representatives thereof, located, organized or resident in, or doing business in, a country or region that is the target of comprehensive OFAC sanctions (as of the date of this Agreement, including Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine).
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(e) Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, Camber, the Camber Subsidiaries and their respective officers, directors, employees, and to the knowledge of Camber, its agents, advisors and representatives (such persons, collectively, “Representatives”) are, and since January 1, 2017 have been, in compliance in all material respects with: (i) the provisions of the U.S. Foreign Corrupt Practices Act of 1977, as amended (15 U.S.C. §§ 78dd-1, et seq.) (“FCPA”), as if its foreign payments provisions were fully applicable to Camber, the Camber Subsidiaries and their respective Representatives, and (ii) the provisions of all anti-bribery, anti-corruption and anti-money laundering Laws of each jurisdiction in which Camber and the Camber Subsidiaries operate or have operated and in which any agent thereof is conducting or has conducted business involving Camber. No proceeding by or before any Governmental Entity involving Camber, any Camber Subsidiary or any of their respective officers, directors, employees, and to the knowledge of Camber, its agents, advisors and representatives, involving the FCPA or any anti-bribery, anti-corruption or anti-money laundering Law is pending or, to the knowledge of Camber, threatened, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, neither Camber nor the Camber Subsidiaries have ever received an allegation, whistleblower complaint, or conducted any audit or investigation regarding compliance or noncompliance with the FCPA or other applicable anti-corruption laws.
(f) Camber maintains an information privacy and security program that maintains reasonable measures to protect the privacy, confidentiality and security of all Personal Data against any (i) loss or misuse of Personal Data, (ii) unauthorized or unlawful operations performed upon Personal Data, or (iii) other act or omission that compromises the security or confidentiality of Personal Data (clauses (i) through (iii), a “Security Breach”). To the knowledge of Camber, Camber has not experienced any Security Breach that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber. There are no data security or other technological vulnerabilities with respect to its information technology systems or networks that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Camber. For purposes of this Agreement, “Personal Data” means a natural person’s name, street address, telephone number, e-mail address, photograph, identification number, social security number, government-issued identifier or tax identification number, driver’s license number, passport number, credit card number, bank information, Internet protocol address, device identifier or any other piece of information that, alone or together with other information held by a party and its Subsidiaries, allows the identification of a natural person.
3.13 Certain Contracts.
(a) Except as set forth in Section 3.13(a) of the Camber Disclosure Schedule, as of the date hereof, neither Camber nor any Camber Subsidiary is a party to or bound by any contract, arrangement, commitment or understanding (whether written or oral) (each, a “Contract”), including any Camber Lease (defined below) but excluding any Camber Benefit Plan, that has not expired or been terminated as of the date of this Agreement (such that none of its provisions remains in force or effect, other than provisions of the type that customarily survive pursuant to their terms and that are not expected to give rise to material liability or materially restrict the business of Camber) and:
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(i) that is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC);
(ii) that contains a non-compete or client, employee or customer non-solicit requirement or any other provision, in each case that materially restricts the conduct of any line of business by Camber or any of the Camber Subsidiaries or upon consummation of the Merger will materially restrict the ability of the Combined Company or any of its affiliates to engage in any line of business or in any geographic region;
(iii) that is material and obligates Camber or any Camber Subsidiary to conduct business with any third party on a preferential or exclusive basis or contains material “most favored nation” or similar provisions;
(iv) (A) that is an indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other agreement or commitment that provides for or relates to any indebtedness of Camber or any Camber Subsidiary, including any sale and leaseback transactions, capitalized leases and other similar financing arrangements, or (B) that provides for the guarantee, support, indemnification, assumption or endorsement by Camber or any Camber Subsidiary of, or any similar commitment by Camber or any Camber Subsidiary with respect to, the obligations, liabilities or indebtedness of any other person of the nature described in clause (A), in the case of each of clauses (A) and (B), in the principal amount of $500,000 or more, other than any Camber Lease;
(v) that is with any manufacturer, vendor, lessor or other supplier with respect to which manufacturer, vendor, lessor or other supplier the aggregate annual spend for the most recent fiscal year exceeded $500,000 for Camber and the Camber Subsidiaries, taken as a whole, pursuant to which Camber and the Camber Subsidiaries purchase or lease from such manufacturer, vendor, lessor, or other supplier (but excluding ordinary course ordering documents, quotes, purchase orders, and similar documents);
(vi) that is with any customer with respect to which customer the aggregate annual revenue for the most recent fiscal year exceeded $500,000 for Camber and the Camber Subsidiaries, taken as a whole, pursuant to which such customer purchases products and services from Camber and the Camber Subsidiaries (excluding ordinary course ordering documents, quotes, purchase orders, and similar documents);
(vii) that grants any right of first refusal, right of first offer, or right of first negotiation with respect to any material assets, rights or properties of Camber or the Camber Subsidiaries;
(viii) that is a consulting agreement involving the payment of more than $50,000 per annum (other than any such Contracts which are terminable by Camber or any Camber Subsidiary on sixty (60) days or less notice without any required payment or other conditions, other than the condition of notice);
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(ix) pursuant to which Camber or any Camber Subsidiary receives from any third party a license or similar right to any Intellectual Property (defined below) that is material to Camber, other than those that are received pursuant to Non-Scheduled Contracts (defined below);
(x) that is a settlement, consent or similar agreement and contains any material continuing obligations of Camber or any Camber Subsidiary, including without limitation any express patent license granted in settlement of any assertion or allegation of patent infringement;
(xi) that is a material joint venture, partnership or limited liability company agreement or other similar contract relating to the formation, creation, operation, management or control of any joint venture, partnership or limited liability company, other than any such contract solely between Camber and its wholly-owned Subsidiaries or among Camber’s wholly-owned Subsidiaries;
(xii) that relates to the acquisition or disposition of any person, business or asset and under which Camber or the Camber Subsidiaries have or may have a material obligation or liability.
“Non-Scheduled Contracts” means the following Contracts: (a) nonexclusive licenses granted with respect to commercially available technology granted in the ordinary course of business, (b) Contracts for open source technology, (c) Contracts with current and former employees or contractors entered into in the ordinary course of business, (d) non-disclosure agreements, (e) Contracts where the only out-licenses or rights to Intellectual Property granted are non-exclusive rights granted to contractors or vendors to use Intellectual Property for the sole benefit of licensor, (f) non-exclusive out-licenses to use the licensor’s products or services that have been entered into in the ordinary course of business, (g) privacy policies, and (h) Contracts where the only material licenses to Intellectual Property are with respect to feedback, suggestions, or either party’s trademark for inclusion on customer lists or use in the provision of services.
Each Contract of the type required to be set forth in Section 3.13(a) of the Camber Disclosure Schedule, whether or not set forth in the Camber Disclosure Schedule, is referred to herein as a “Camber Contract.” Camber has made available to Viking true, correct and complete copies of each Camber Contract in effect as of the date hereof, excluding any schedules, annexes, exhibits, work orders, statements of work or other ancillary documents with respect to any such Camber Contract that are no longer in force or effect or do not contain terms that are, individually or in the aggregate, material to Camber and the Camber Subsidiaries.
(b) (i) Each Camber Contract is valid and binding on Camber or one of the Camber Subsidiaries, as applicable, and is in full force and effect, except as, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, (ii) each of Camber and the Camber Subsidiaries have in all material respects complied with and performed all obligations required to be complied with or performed by any of them to date under each Camber Contract, except where such noncompliance or nonperformance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, (iii) to the knowledge of Camber, each third-party counterparty to each Camber Contract
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has in all material respects complied with and performed all obligations required to be complied with and performed by it to date under such Camber Contract, except where such noncompliance or nonperformance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, (iv) neither Camber nor any Camber Subsidiary has knowledge of, or has received notice of, any violation of any Camber Contract by any of the other parties thereto which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber, and (v) no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material breach or default on the part of Camber or any Camber Subsidiary, or to the knowledge of Camber, any other party thereto, of or under any such Camber Contract, except where such breach or default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber.
3.14 Government Contracts. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber, (a) each (i) material contract with any Governmental Entity, any prime contractor of a Governmental Entity in its capacity as a prime contractor or any higher-tier subcontractor with respect to any such contract or (ii) contract that requires access to classified information with a Governmental Entity, any prime contractor of a Governmental Entity in its capacity as a prime contractor or any subcontractor, in each case that is to be performed in whole or in part after the date of this Agreement (each, a “Government Contract”) to which Camber or the Camber Subsidiaries is a party was legally awarded, is binding on Camber or the applicable Camber Subsidiary, and is in full force and effect, (b) no such Government Contract or offer, quotation, bid or proposal to sell products or services made by Camber or any of the Camber Subsidiaries to any Governmental Entity or any prime contractor is currently the subject of bid or award protest proceedings, (c) Camber and the Camber Subsidiaries are in compliance with the terms and conditions of each such Government Contract or offer, quotation, bid or proposal, (d) since January 1, 2017, neither a Governmental Entity nor any prime contractor or subcontractor has notified Camber or any of the Camber Subsidiaries in writing that it has, or is alleged to have, breached or violated any applicable Law, representation, certification, disclosure, clause, provision or requirement pertaining to any such Government Contract or offer, quotation, bid or proposal, (e) since January 1, 2017, neither Camber nor any of the Camber Subsidiaries has made any voluntary disclosure (or mandatory disclosure pursuant to Federal Acquisition Regulation 52.203-13) to any Governmental Entity with respect to any alleged irregularity, misstatement, omission, fraud or price mischarging, or other violation of applicable Law, arising under or relating to a Government Contract, (f) none of Camber, any of the Camber Subsidiaries or any of their respective “Principals” (as defined in Federal Acquisition Regulation 52.209-5) has been debarred, suspended, declared nonresponsible or ineligible, or excluded, or to the knowledge of Camber, proposed for debarment, suspension or exclusion, from participation in or the award of contracts or subcontracts for or with any Governmental Entity or doing business with any Governmental Entity, and (g) neither Camber nor any of the Camber Subsidiaries, nor any of their respective directors or officers, nor to the knowledge of Camber, any other of their employees, is or has been under administrative, civil or criminal investigation, indictment or information by any Governmental Entity with respect to the award or performance of any Government Contract, the subject of any actual or to the knowledge of Camber, threatened, “whistleblower” or “qui tam” lawsuit, or audit (other than a routine contract audit) or investigation of Camber or any of the Camber Subsidiaries, in each case with respect to any Government Contract.
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3.15 Environmental Matters. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber, Camber and the Camber Subsidiaries are in compliance, and have complied, with all federal, state or local laws, regulations, orders, decrees, permits, authorizations, common law and agency requirements relating to: (a) the protection or restoration of the environment, health and safety as it relates to Hazardous Substance exposure or natural resource damages, (b) the handling, use, presence, disposal, release or threatened release of, or exposure to, any Hazardous Substance, or (c) noise, odor, wetlands, indoor air, pollution, contamination or any injury to persons or property from exposure to any Hazardous Substance (collectively, “Environmental Laws”). There are no legal, administrative, arbitral or other proceedings, claims or actions, or to the knowledge of Camber, any private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that could reasonably be expected to result in the imposition, on Camber or any Camber Subsidiary of any liability or obligation arising under any Environmental Law pending or, to the knowledge of Camber, threatened against Camber, which liability or obligation would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber. To the knowledge of Camber, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber. Neither Camber nor any Camber Subsidiary has treated, stored, disposed or arranged for disposal of, transported, handled, used, released, exposed any Person to, or owned or operated any property or facility contaminated by, any Hazardous Substance, in each case as has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber. To the knowledge of Camber, there have been no Hazardous Substances generated by Camber or any Camber Subsidiary that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any Governmental Entity in the United States and that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber. Camber is not subject to any agreement, order, judgment, decree, letter agreement or memorandum of agreement by or with any court, Governmental Entity or other third party imposing any liability or obligation, with respect to the foregoing that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber. As used in this Agreement, the term “Hazardous Substances” means any toxic or hazardous substance, waste, or material which is regulated or defined, or for which liability or standards of conduct may be imposed, under Environmental Law, including any such substance, waste or material identified under Environmental Law as toxic substances (including asbestos and asbestos containing materials), hazardous materials, hazardous substances, hazardous waste, radioactive materials, petroleum and petroleum products and polychlorinated biphenyls.
3.16 Real Property. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber, Camber and each Camber Subsidiary (a) have marketable and valid title to all the real property reflected in the latest audited balance sheet included in the Camber SEC Reports as being owned by Camber or a Camber Subsidiary or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business and/or sales or dispositions described in subsequent Camber SEC Reports through the date of this Agreement) (the “Camber Owned Properties”), free and clear of all material Liens, except (i) statutory Liens securing payments not
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yet due, (ii) Liens for real property Taxes not yet delinquent, (iii) materialmen’s or mechanic’s Liens and statutory or common law Liens or encumbrances to secure landlords, lessors or renters under leases or rental agreements, (iv) Liens, easements, rights of way, covenants, conditions, restrictions and other similar encumbrances that do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties and (v) such imperfections or irregularities of title or Liens as do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties (collectively, “Permitted Encumbrances”), and (b) are the lessee of all leasehold estates reflected in the latest audited financial statements included in such Camber SEC Reports or acquired after the date thereof (except for leases that have expired by their terms since the date thereof or have been terminated by Camber or a Camber Subsidiary) (such leasehold estates, collectively with the Camber Owned Properties, the “Camber Real Property”, and any leases with respect to such leasehold estates, the “Camber Leases”), free and clear of all material Liens, except for Permitted Encumbrances and each such lease is valid and no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material breach or default on the part of Camber or any Camber Subsidiary, or to the knowledge of Camber, any other party thereto, of or under any such lease, except where such breach or default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Camber. There are no pending or, to the knowledge of Camber, threatened condemnation proceedings against the Camber Real Property, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber.
3.17 Intellectual Property.
(a) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, (i) with respect to Intellectual Property that Camber and the Camber Subsidiaries, each as applicable, own or purport to own, Camber or a Camber Subsidiary exclusively owns all right, title and interest to that Intellectual Property free and clear of all Liens (except Permitted Encumbrances), and (ii) all Registered Intellectual Property that is owned by, or registered in the name of, Camber or a Camber Subsidiary that has not expired, lapsed, or been abandoned as of the date hereof (the “Camber Registered Intellectual Property”) is subsisting and, to the knowledge of Camber, is not invalid or unenforceable. Since January 1, 2017, other than office actions and oppositions received in the ordinary course of prosecution, Camber has not received any written claim or notice from any person alleging that the Camber Registered Intellectual Property is invalid or unenforceable, which claim or allegation if proven or established, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Camber. For purposes of this Agreement, “Registered Intellectual Property” means Intellectual Property that is registered, recorded or filed under the authority of, with or by any Governmental Entity or Internet domain name registrar in any jurisdiction, including pending applications for any of the foregoing. “Intellectual Property” means intellectual and industrial property rights anywhere in the world (whether foreign, state or domestic, registered or unregistered), including rights arising under or with respect to: (A) patents and utility models of any kind, patent applications, including provisional applications, statutory invention registrations, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions thereof, (B) trademarks, service marks, trade dress rights and similar rights in identifiers of origin, whether registered or unregistered, together with any registrations
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and applications for registration thereof, (C) copyrights, mask work rights, and analogous rights in, works of authorship (including computer software, applications, source code and object code, and databases, other compilations of information), whether registered or unregistered, and any registrations, renewals and applications for registration thereof, (D) trade secret rights and other analogous rights in know-how and confidential or proprietary information, and (E) all other intellectual and industrial property rights recognized by applicable Law.
(b) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, to Camber’s knowledge (i) the operation of the respective businesses of Camber or any of the Camber Subsidiaries and the development, manufacture, use, sale, commercialization or other exploitation of any product, service or other offering currently provided by Camber or the Camber Subsidiaries does not infringe, misappropriate or violate and has not since January 1, 2017, infringed, misappropriated, or otherwise violated any Intellectual Property of any other person, and neither Camber nor any of the Camber Subsidiaries has received any written allegation of same, and (ii) neither Camber nor any of the Camber Subsidiaries has, since January 1, 2017, sent any other person a written notice alleging that such person is infringing, misappropriating or otherwise violating Camber’s Intellectual Property in a manner that is material to Camber’s business, which allegation has not been resolved or would not reasonably be expected to be resolved in the ordinary course of business.
(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, each of Camber and the Camber Subsidiaries has taken commercially reasonable efforts to protect and maintain its Intellectual Property, including using commercially reasonable efforts and taking commercially necessary steps to maintain their material trade secrets in confidence.
(d) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, Camber does not distribute any Camber owned software, the confidential and proprietary nature of the source code to which is material to Camber’s business, taken as a whole, to third parties pursuant to any license that, based on the way that material proprietary software is distributed by Camber, requires Camber to also license or make available to such third party any material source code owned by Camber.
(e) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, each of Camber and the Camber Subsidiaries has taken commercially reasonable efforts to (i) protect and maintain the confidentiality, integrity and security of its computers, software, firmware, middleware, servers, workstations, routers, switches, networks, data communications lines and all other information technology equipment and all associated documentation (collectively, “IT Assets”) and the information stored or contained therein or transmitted thereby from any unauthorized use, access, interruption or modification by any person, including the implementation of reasonable backup and disaster recovery technology processes, and (ii) prevent the introduction of disabling codes or instructions, spyware, Trojan horses, worms, viruses or other software routines that permit or cause unauthorized access to, or disruption, impairment, disablement, or destruction of, software, data or other materials. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, no person has gained unauthorized access to any IT Assets owned, used, or held
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for use by Camber or any of the Camber Subsidiaries or the information stored or contained therein or transmitted thereby.
(f) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Camber, (i) each of Camber and the Camber Subsidiaries is in compliance, and has since January 1, 2017, complied, with all applicable Laws and its posted policies relating to the collection, storage, use, transfer and any other processing of any Personal Data collected or used by or on behalf of Camber or the Camber Subsidiaries; and (ii) each of Camber and the Camber Subsidiaries has, since January 1, 2017, taken commercially reasonable steps to ensure that all Personal Data is protected against loss and unauthorized access, use, modification or disclosure, and there has been no incident of same.
3.18 Related Party Transactions. As of the date of this Agreement, there are no transactions or series of related transactions, agreements, arrangements or understandings, nor are there any currently proposed transactions or series of related transactions, between Camber or any Camber Subsidiary, on the one hand, and any current or former director or “executive officer” (as defined in Rule 3b-7 under the Exchange Act) of Camber or any Camber Subsidiary or any person who beneficially owns (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) five percent (5%) or more of the outstanding Camber Common Stock (or any of such person’s immediate family members or affiliates) (other than the Camber Subsidiaries) on the other hand, of the type required to be reported in any Camber SEC Report pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act that have not been disclosed therein.
3.19 State Takeover Laws. The Board of Directors of Camber has approved this Agreement and the transactions contemplated hereby and have taken all such other necessary actions as required to render inapplicable to such agreements and transactions the provisions of any potentially applicable takeover laws of any state, including any “moratorium,” “control share,” “fair price,” “takeover” or “interested stockholder” law or any similar provisions of the Camber Articles of Incorporation or the Camber Bylaws, as applicable (collectively, with any similar provisions of the Viking Articles of Incorporation or the Viking Bylaws, the “Takeover Statutes”).
3.20 Reorganization. Neither Camber nor any of the Camber Subsidiaries (including Merger Sub) has taken any action or agreed to take any action, and is not aware of any fact or circumstance, that could reasonably be expected to impede or prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
3.21 Camber Board Recommendations. The Board of Directors of Camber has duly adopted resolutions (a) determining that this Agreement and transactions contemplated hereby, including the Share Issuance, the Charter Amendment and the Merger, are fair to, and in the best interests of, Camber and the holders of shares of Camber Common Stock, (b) approving and declaring advisable this Agreement and the transactions contemplated hereby, including the Share Issuance, the Charter Amendment and the Merger, on the terms and subject to the conditions set forth in this Agreement, (c) directing that the Share Issuance and the Charter Amendment be submitted to the holders of shares of Camber Common Stock for their approval and adoption, and (d) recommending that the holders of shares of Camber Common Stock vote in favor of the approval of the Share Issuance and the Charter Amendment on the terms and subject to the
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conditions set forth in this Agreement (the “Camber Board Recommendation”), which resolutions have not been subsequently rescinded, modified or withdrawn in any way, except as may be permitted by Section 6.3.
3.22 Camber Information. The information relating to Camber and the Camber Subsidiaries or that is provided by Camber or the Camber Subsidiaries or their respective Representatives for inclusion in the Joint Proxy Statement and the S-4, or in any other document filed with the SEC in connection with the transactions contemplated hereby, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Joint Proxy Statement (except for such portions thereof that relate only to Viking or any Viking Subsidiary) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. The S-4 (except for such portions thereof that relate only to Viking or any Viking Subsidiary) will comply in all material respects with the provisions of the Securities Act and the rules and regulations thereunder. Any information relating to Camber and the Camber Subsidiaries or that is provided by Camber or the Camber Subsidiaries or their respective Representatives for inclusion in any document, instrument or certificate filed with any Governmental Entity with respect to Competition Laws in connection with the transactions contemplated hereby will comply in all material respects with the Laws applicable thereto.
3.23 Customers and Suppliers. Since January 1, 2019, through the date of this Agreement, Camber and the Camber Subsidiaries have not received any written notice from any Camber Covered Customer or Camber Covered Supplier that such Camber Covered Customer or Camber Covered Supplier intends to discontinue or substantially reduce its relationship with Camber or any Camber Subsidiary, terminate or materially and adversely amend any existing material contract with Camber or any Camber Subsidiary, or not continue as a customer or supplier, as applicable, of Camber or any Camber Subsidiary. “Camber Covered Customer” means any of the top ten (10) customers by revenue derived by Camber and the Camber Subsidiaries (taken together) during the twelve (12) months ended September 30, 2019, pursuant to which Camber or any of the Camber Subsidiaries has sold goods and/or services, and “Camber Covered Supplier” means any of the top ten (10) suppliers by dollar amount paid to such suppliers by Camber and the Camber Subsidiaries (taken together) during the twelve (12) months ended September 30, 2019.
3.24 Insurance. Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Camber, (a) Camber and the Camber Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of Camber reasonably has determined to be prudent and consistent with industry practice, and Camber and the Camber Subsidiaries are in compliance in all material respects with their insurance policies and are not in default under any of the terms thereof, (b) each such policy is outstanding and in full force and effect and, except for policies insuring against potential liabilities of officers, directors and employees of Camber and the Camber Subsidiaries, Camber or the relevant Subsidiary thereof is the sole beneficiary of such policies, (c) all premiums and other payments due under any such policy have been paid, and all claims thereunder have been filed in due and timely fashion, (d) there is no claim for coverage by Camber or any Camber Subsidiary pending under any insurance policy as to which coverage has been questioned, denied or disputed by the underwriters of such insurance policy and (e) neither Camber nor any Camber Subsidiary
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has received notice of any threatened termination of, material premium increase with respect to, or material alteration of coverage under, any insurance policies.
3.25 No Other Representations or Warranties.
(a) Except for the representations and warranties made by Camber in this ARTICLE III, neither Camber nor any other person makes any express or implied representation or warranty with respect to Camber, Merger Sub, the Camber Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and Camber hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither Camber, nor any other person makes or has made any representation or warranty to Viking or any of its affiliates or Representatives with respect to (i) any financial projection, forecast, estimate, budget or prospective information relating to Camber, Merger Sub, any Camber Subsidiary or their respective businesses or (ii) except for the representations and warranties made by Camber in this ARTICLE III, any oral or written information presented to Viking or any of its affiliates or Representatives in the course of their due diligence investigation of Camber, the negotiation of this Agreement or in the course of the transactions contemplated hereby.
(b) Camber acknowledges and agrees that neither Viking nor any other person has made or is making any express or implied representation or warranty other than those contained in ARTICLE IV.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VIKING
Except (a) as disclosed in the disclosure schedule delivered by Viking to Camber, which shall be provided no later than ten (10) business days after the date of this Agreement (the “Viking Disclosure Schedule” and together with the Camber Disclosure Schedule, the “Disclosure Schedules”); provided, that (i) the mere inclusion of an item in the Viking Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by Viking that such item represents a material exception or fact, event or circumstance or that such item would reasonably be expected to have a Material Adverse Effect, and (ii) any disclosures made with respect to a section of ARTICLE IV shall be deemed to qualify (1) any other section of ARTICLE IV specifically referenced or cross-referenced and (2) other sections of ARTICLE IV to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such other sections, or (b) as disclosed in any Viking SEC Reports filed by Viking prior to the date hereof (but disregarding risk factor disclosures contained under the heading “Risk Factors,” or disclosures of risks set forth in any “forward-looking statements” disclaimer or any other statements that are similarly non-specific or cautionary, predictive or forward-looking in nature), Viking hereby represents and warrants to Camber as follows:
4.1 Corporate Organization.
(a) Viking is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Viking has the corporate power and authority to own, lease
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or operate all of its properties and assets and to carry on its business as it is now being conducted. Viking is duly licensed or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such licensing, qualification or standing necessary, except where the failure to be so licensed or qualified or to be in good standing would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking. True and complete copies of the Articles of Incorporation of Viking (the “Viking Articles of Incorporation”) and the Bylaws of Viking (the “Viking Bylaws”), in each case as in effect as of the date of this Agreement, have previously been made available by Viking to Camber.
(b) Each Subsidiary of Viking (a “Viking Subsidiary”) (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly licensed or qualified to do business and, where such concept is recognized under applicable Law, in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership, leasing or operation of property or the conduct of its business requires it to be so licensed or qualified or in good standing and in which the failure to be so licensed or qualified or in good standing would reasonably be expected to have a Material Adverse Effect on Viking, and (iii) has all requisite corporate power and authority to own, lease or operate its properties and assets and to carry on its business as now conducted. There are no restrictions on the ability of any Viking Subsidiary to pay dividends or distributions except for restrictions imposed by applicable Law or, in the case of non-wholly owned Subsidiary joint ventures, joint venture agreements in effect as of the date of this Agreement made available by Viking to Camber. Section 4.1(b) of the Viking Disclosure Schedule sets forth a true and complete list of all Viking Subsidiaries as of the date hereof. No Viking Subsidiary is in violation of any of the provisions of the articles of incorporation or bylaws (or comparable organizational documents) of such Viking Subsidiary. There is no person whose results of operations, cash flows, changes in stockholders’ equity or financial position are consolidated in the financial statements of Viking other than the Viking Subsidiaries. No Viking Subsidiary owns any capital stock of Viking.
4.2 Capitalization.
(a) As of February 3, 2020, the authorized capital stock of Viking consists of 500,000,000 shares of Viking Common Stock and 5,000,000 shares of preferred stock, par value $0.001 per share. As of the date hereof there are (i) approximately 124,418,236 shares of Viking Common Stock issued and outstanding; (ii) no shares of Viking Common Stock held in treasury; (iii) 84,278,031 shares of Viking Common Stock are reserved for issuance upon the exercise of outstanding Viking Stock Options and Viking Convertible Notes; (iv) 28,092 shares of Viking Series C Preferred Stock issued and outstanding; and (v) no other shares of capital stock or other voting securities or equity interests of Viking issued, reserved for issuance or outstanding. All of the issued and outstanding shares of Viking Common Stock and preferred stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Other than Viking Convertible Notes, there are no bonds, debentures, notes or other indebtedness that are convertible into Viking Common Stock or have the right to vote on any matters on which stockholders of Viking may vote. Other than Viking Stock Options or Viking Convertible Notes, as of the date of this Agreement there are no outstanding subscriptions, options, warrants, stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar rights,
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puts, calls, commitments or agreements of any character relating to, or securities or rights convertible or exchangeable into or exercisable for, shares of capital stock or other voting or equity securities of or ownership interest in Viking, or contracts, commitments, understandings or arrangements by which Viking may become bound to issue additional shares of its capital stock or other equity or voting securities of or ownership interests in Viking or that otherwise obligate Viking to issue, transfer, sell, purchase, redeem or otherwise acquire, any of the foregoing (collectively, “Viking Securities”). Other than the Viking Stock Options, no equity-based awards (including any cash awards where the amount of payment is determined in whole or in part based on the price of any capital stock of Viking or any Viking Subsidiary) are outstanding as of the date of this Agreement. There are no voting trusts, stockholder agreements, proxies or other agreements in effect to which Viking or any Viking Subsidiary is a party with respect to the voting or transfer (including preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts or calls) of Viking Common Stock, capital stock or other voting or equity securities or ownership interests of Viking or granting any stockholder or other person any registration rights.
(b) Viking owns, directly or indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of the Viking Subsidiaries, free and clear of any Liens, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. Other than the shares of capital stock or other equity ownership interests described in the previous sentence, there are no outstanding subscriptions, options, warrants, stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts, calls, commitments or agreements of any character relating to, or securities or rights convertible into or exchangeable or exercisable for, shares of capital stock or other voting or equity securities of or ownership interests in any Viking Subsidiary, or contracts, commitments, understandings or arrangements by which any Viking Subsidiary may become bound to issue additional shares of its capital stock or other equity or voting securities or ownership interests in such Viking Subsidiary, or otherwise obligating any Viking Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any of the foregoing (collectively, “Viking Subsidiary Securities”).
4.3 Authority; No Violation.
(a) Viking has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Merger have been duly and validly approved by the Board of Directors of Viking. The Board of Directors of Viking has determined that the Merger, on the terms and conditions set forth in this Agreement, is advisable and in the best interests of Viking and its stockholders, has adopted and approved this Agreement and the transactions contemplated hereby (including the Merger), and has directed that this Agreement be submitted to Viking’s stockholders for adoption at a meeting of such stockholders and has adopted a resolution to the foregoing effect. Except for the adoption of this Agreement by the holders of a majority of the outstanding shares of Viking Common Stock entitled to vote on such matter at a meeting of Viking stockholders duly called and held for such purpose (the “Requisite Viking Vote”), no other corporate proceedings on the part of Viking are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Viking and (assuming due authorization, execution and delivery by
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Camber) constitutes a valid and binding obligation of Viking, enforceable against Viking in accordance with its terms (except in all cases as such enforceability may be limited by the Enforceability Exceptions).
(b) Neither the execution and delivery of this Agreement by Viking, nor the consummation by Viking of the transactions contemplated hereby (including the Merger), nor compliance by Viking with any of the terms or provisions hereof, will (i) violate any provision of the Viking Articles of Incorporation or the Viking Bylaws, or (ii) assuming that the consents and approvals referred to in Section 4.4 are duly obtained, (x) violate in any material respect any Law, statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Viking or any Viking Subsidiary or any of their respective properties or assets, or (y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Viking or any Viking Subsidiary under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Viking or any Viking Subsidiary is a party, or by which they or any of their respective properties or assets may be bound, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults that, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking.
4.4 Consents and Approvals.
(a) Except for (i) the filing of any required applications, filings and notices, as applicable, with OTCMarkets.com, (ii) the filing of any required applications, filings and notices, as applicable, under the HSR Act and such other consents, approvals, filings or registrations as may be required under any Competition Laws, (iii) the filing of any required applications, filings and notices, as applicable, for foreign investment clearance of any jurisdiction, (iv) the filing with the SEC of the Joint Proxy Statement and the S-4 in which the Joint Proxy Statement will be included as a prospectus, and the declaration of effectiveness of the S-4, (v) the filing of the Articles of Merger with the Nevada Secretary pursuant to the NRS, and (vi) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of Camber Common Stock pursuant to this Agreement and the approval of the listing of such Camber Common Stock on the NYSE, no material consents or approvals of or filings or registrations with any Governmental Entity are necessary in connection with (A) the execution and delivery by Viking of this Agreement, or (B) the consummation by Viking of the Merger and the other transactions contemplated hereby. As of the date hereof, Viking is not aware of any reason why the necessary regulatory approvals and consents will not be received by Viking to permit consummation of the Merger on a timely basis. As of the date hereof, to the knowledge of Viking, there is no fact or circumstance existing that would require or reasonably be expected to require either party to invoke their right to change the structure of effecting the combination of Viking and Camber to a Direct Merger pursuant to Section 6.15 hereof.
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(b) Except as set forth in Section 4.4(b) of the Viking Disclosure Schedule, the representations and warranties in Sections 4.3(b) and 4.4(a) are true and correct with respect to a combination of Viking and Camber structured as a Direct Merger.
4.5 Financial Statements.
(a) The financial statements of Viking and the Viking Subsidiaries included (or incorporated by reference) in the Viking SEC Reports (including the related notes, where applicable) (i) have been prepared from, and are in accordance with, the books and records of Viking and the Viking Subsidiaries, (ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders’ equity and consolidated financial position of Viking and the Viking Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (iii) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of Viking and the Viking Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.
(b) Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking, neither Viking nor any Viking Subsidiary has any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Viking included in its Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019 (including any notes thereto) and for liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2019, or in connection with this Agreement and the transactions contemplated hereby.
(c) The records, systems, controls, data and information of Viking and the Viking Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership of Viking or the Viking Subsidiaries or accountants (including all means of access thereto and therefrom), except for any non-exclusive ownership that would not reasonably be expected to have a Material Adverse Effect on Viking. Viking (x) has not implemented and maintained disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to Viking, including the Viking Subsidiaries, is made known to the chief executive officer and the chief financial officer of Viking by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and (y) has disclosed, based on its most recent evaluation prior to the date hereof (i) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Camber’s ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not material, that
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involves management or other employees who have a significant role in Camber’s internal controls over financial reporting. These disclosures were made in the Viking SEC Reports.
(d) Except as set forth in Section 4.5(d) of the Viking Disclosure Schedule, since January 1, 2017, (i) neither Viking nor any Viking Subsidiary, nor, to the knowledge of Viking, any director, officer, auditor, accountant or Representative of Viking or any Viking Subsidiary, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to reserves, write-downs, charge-offs and accruals) of Viking or any Viking Subsidiary or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Viking or any Viking Subsidiary has engaged in questionable accounting or auditing practices, (ii) no employee of or attorney representing Viking or any Viking Subsidiary, whether or not employed by Viking or any Viking Subsidiary, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by Viking or any Viking Subsidiary or any of their respective officers, directors, employees or agents to the Board of Directors of Viking or any committee thereof or the Board of Directors or similar governing body of any Viking Subsidiary or any committee thereof, or to the knowledge of Viking, to any director or officer of Viking or any Viking Subsidiary; and (iii) neither Viking nor any Viking Subsidiary, nor, to the knowledge of Viking, any director, officer or Representative of Viking or any Viking Subsidiary, is under investigation by, or is subject to any action brought by or on behalf of, the Securities and Exchange Commission, FINRA, any state securities division or any self-regulatory agency.
4.6 Broker’s Fees. With the exception of the engagement of Advisory Group Equity Services, Ltd. d/b/a RHK Capital, neither Viking nor any Viking Subsidiary nor any of their respective officers or directors has employed any broker, finder or financial advisor or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement.
4.7 Absence of Certain Changes or Events.
(a) Since September 30, 2019, through the date of this Agreement, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking.
(b) Since September 30, 2019, through the date of this Agreement, Viking and the Viking Subsidiaries have carried on their respective businesses in all material respects in the ordinary course.
4.8 Legal and Regulatory Proceedings.
(a) Except as set forth in Section 4.5(d) of the Viking Disclosure Schedule or as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Viking, neither Viking nor any Viking Subsidiary is a party to any, and there are no outstanding or pending or, to the knowledge of Viking, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any
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nature against Viking or any Viking Subsidiary or any of their current or former directors or executive officers or challenging the validity or propriety of the transactions contemplated by this Agreement.
(b) Except as would not reasonably be expected to, either individually or in the aggregate, have a Material Adverse Effect on Viking, there is no injunction, order, judgment, decree, or regulatory restriction imposed upon Viking, any Viking Subsidiary or the assets of Viking or any Viking Subsidiary (or that, upon consummation of the Merger, would apply to the Surviving Entity, the Combined Company or any of their respective Subsidiaries).
4.9 Taxes and Tax Returns.
(a) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on Viking:
(i) each of Viking and the Viking Subsidiaries has duly and timely filed with the appropriate taxing authority (taking into account all applicable extensions) all Tax Returns required by applicable Law to be filed with respect to each of Viking and the Viking Subsidiaries in all jurisdictions in which Tax Returns are required to be filed by it, and all such Tax Returns are true, correct, and complete in all respects;
(ii) neither Viking nor any Viking Subsidiary is the beneficiary of any extension of time within which to file any Tax Return (other than extensions to file Tax Returns obtained in the ordinary course) nor has been granted any extension or waiver of the limitation period applicable to any Tax that remains in effect;
(iii) all Taxes of Viking and the Viking Subsidiaries (whether or not shown on any Tax Returns) that are due have been fully and timely paid (taking into account all applicable extensions);
(iv) each of Viking and the Viking Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, stockholder, independent contractor or other third party and has complied with all applicable information reporting requirements;
(v) neither Viking nor any Viking Subsidiary has received written notice of any Tax assessment or proposed Tax assessment, and there are no threatened in writing or pending disputes, actions, suits, claims, audits, investigations, examinations or other proceedings regarding any Tax of Viking and the Viking Subsidiaries or the assets of Viking and the Viking Subsidiaries, nor has any claim for additional Tax been asserted in writing by any taxing authority;
(vi) since January 1, 2017, no claim has been made in writing by any taxing authority in a jurisdiction where Viking or any Viking Subsidiary has not filed income or franchise Tax Returns that it is or may be subject to income or franchise Tax by such jurisdiction; and
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(vii) neither Viking nor any Viking Subsidiary is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Viking and the Viking Subsidiaries).
(b) Neither Viking nor any Viking Subsidiary (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Viking) or (ii) has any liability for the Taxes of any person (other than Viking or any Viking Subsidiary) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor or by contract.
(c) Neither Viking nor any Viking Subsidiary has been, within the past three (3) years a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intending to qualify for tax-free treatment under Section 355 of the Code.
(d) Neither Viking nor any Viking Subsidiary has participated in a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
(e) At no time during the past five (5) years has Viking been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.
(f) There is no Lien on any of the assets or properties of Viking or any Viking Subsidiary as a result of a failure or alleged failure to pay any Tax.
(g) Viking and its Subsidiaries are not bound with respect to the current or any future taxable period by any closing agreement (within the meaning of Section 7121(a) of the Code) or other written agreement with a taxing authority.
4.10 Employees.
(a) There is no Viking Benefit Plan (as defined below) currently in effect. For purposes of this Agreement, the term “Viking Benefit Plans” means any plan, program, policy, practice, contract, agreement or other arrangement constituting an employee benefit plan (as defined in Section 3(3) of ERISA), whether or not subject to ERISA, or providing for any compensation, equity, bonus or incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance, termination pay, change in control compensation, retention, employment, fringe benefits, welfare benefits, or other benefit or perquisite with respect to which Viking or any Subsidiary or any trade or business of Viking or any Viking Subsidiary, whether or not incorporated, all of which together with Viking would be deemed a “single employer” within the meaning of Section 4001 of ERISA (a “Viking ERISA Affiliate”), is a party or has any current or future obligation or that are maintained, contributed to or sponsored by Viking or any Viking Subsidiary or any Viking ERISA Affiliate for the benefit of any current or former employee, officer, director, independent contractor or other service provider of Viking or any Viking Subsidiary or any Viking ERISA Affiliate, excluding, in each case, any Multiemployer Plan.
(b) There are no pending or, to Viking’s knowledge, threatened material labor grievances or material unfair labor practice claims or charges against Viking or any Viking
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Subsidiary, or any strikes or other material labor disputes against Viking or any Viking Subsidiary. Neither Viking nor any Viking Subsidiary is party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Viking or any Viking Subsidiary and, to the knowledge of Viking, there are no organizing efforts by any union or other group seeking to represent any employees of Viking or any Viking Subsidiary. Each of Viking and the Viking Subsidiaries is, and have been at all times since January 1, 2017, in compliance in all material respects with all applicable Laws in respect of employment and employment practices, including terms and conditions of employment and wages and hours, employment discrimination, employee classification, workers’ compensation, family and medical leave, immigration and occupational safety and health requirements.
4.11 SEC Reports. Viking has filed or furnished all required registration statements, prospectuses, reports, schedules, forms, statements, certifications and other documents (including exhibits and all other information incorporated therein, regardless of when such exhibits and other information were filed) with the SEC since January 1, 2017 (the “Viking SEC Reports”). As of their respective dates, the Viking SEC Reports complied in all material respects with the requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the Viking SEC Reports, and none of the Viking SEC Reports when filed and at their respective effective times, if applicable, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that information filed or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. As of the date of this Agreement, there are no outstanding or unresolved comments received from the SEC with respect to any of the Viking SEC Reports, and, to the knowledge of Viking, none of the Viking SEC Reports is the subject of any outstanding SEC investigation except as set forth in Section 4.5(d) of the Viking Disclosure Schedule. No Viking Subsidiary is required to file reports with the SEC pursuant to the requirements of the Exchange Act.
4.12 Compliance with Applicable Law.
(a) The businesses of Viking and the Viking Subsidiaries have not been since January 1, 2017, and are not being, conducted in violation of any applicable Laws, except as would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking.
(b) Except with respect to regulatory matters covered by Section 6.1 and except as set forth in Section 4.5(d) of the Viking Disclosure Schedule, no investigation or review by any Governmental Entity with respect to Viking or any Viking Subsidiary is pending or, to the knowledge of Viking, threatened in writing, nor has Viking received any notice or communication of material noncompliance with any such Laws that has not been cured or is in the process of being cured as of the date of this Agreement, in each case, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking.
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(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, (i) each of Viking and the Viking Subsidiaries has obtained and is in compliance with all licenses necessary for it to own, lease or operate its properties, rights and other assets and to conduct its business and operations as currently conducted in all material respects, (ii) all such licenses are in full force and effect in all material respects, and (iii) to Viking’s knowledge, there is not currently threatened any revocation, adverse modification or cancellation of any material license.
(d) Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, since January 1, 2017, each of Viking and the Viking Subsidiaries has at all times conducted all export transactions in accordance with (i) all applicable U.S. export and re-export controls, including the United States Export Administration Act, Export Administration Regulations, the Arms Export Control Act and the International Traffic in Arms Regulations, (ii) statutes, executive orders and regulations administered by OFAC and the United States Department of State, (iii) import control statutes and regulations administered by the Department of Homeland Security, U.S. Customs and Border Protection, (iv) the anti-boycott regulations administered by the United States Department of Commerce and the U.S. Department of the Treasury, and (v) all applicable sanctions, export and import controls and anti-boycott Laws of all other countries in which the business of Viking or any Viking Subsidiary is conducted. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, neither Viking nor any Viking Subsidiary has been since January 1, 2017, or currently is the subject of a charging letter or penalty notice issued, or to the knowledge of Viking, an investigation conducted, by a Governmental Entity pertaining to the above statutes or regulations, nor are there any currently pending internal investigations by Viking pertaining to such matters. Neither Viking nor any Viking Subsidiary is currently designated as a sanctioned party under sanctions administered by OFAC, nor are they owned fifty percent (50%) or more by an individual or entity that is so designated. Neither Viking nor any Viking Subsidiary, or, to Viking’s knowledge, any directors, officers, employees, independent contractors, consultants, agents and other Representatives thereof, located, organized or resident in, or doing business in, a country or region that is the target of comprehensive OFAC sanctions (as of the date of this Agreement, including Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine).
(e) Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, the Viking Subsidiaries and their respective officers, directors, employees, and to the knowledge of Viking, its agents, advisors and representatives are, and since January 1, 2017 have been, in compliance in all material respects with: (i) the provisions of the FCPA, as if its foreign payments provisions were fully applicable to Viking, the Viking Subsidiaries and their respective Representatives, and (ii) the provisions of all anti-bribery, anti-corruption and anti-money laundering Laws of each jurisdiction in which Viking and the Viking Subsidiaries operate or have operated and in which any agent thereof is conducting or has conducted business involving Viking. No proceeding by or before any Governmental Entity involving Viking, any Viking Subsidiary or any of their respective officers, directors, employees, and to the knowledge of Viking, its agents, advisors and representatives involving the FCPA or any anti-bribery, anti-corruption or anti-money laundering Law is pending or, to the knowledge of Viking, threatened, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, neither Viking nor the
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Viking Subsidiaries have ever received an allegation, whistleblower complaint, or conducted any audit or investigation regarding compliance or noncompliance with the FCPA or other applicable anti-corruption laws.
(f) Viking maintains a written information privacy and security program that maintains reasonable measures to protect the privacy, confidentiality and security of all Personal Data against any Security Breach. To the knowledge of Viking, Viking has not experienced any Security Breach that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking. There are no data security or other technological vulnerabilities with respect to its information technology systems or networks that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Viking.
4.13 Certain Contracts.
(a) Except as set forth in Section 4.13(a) of the Viking Disclosure Schedule, as of the date hereof, neither Viking nor any Viking Subsidiary is a party to or bound by any Contract, including any Viking Lease but excluding any Viking Benefit Plan, that has not expired or been terminated as of the date of this Agreement (such that none of its provisions remains in force or effect, other than provisions of the type that customarily survive pursuant to their terms and that are not expected to give rise to material liability or materially restrict the business of Viking) and:
(i) that is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC);
(ii) that contains a non-compete or client, employee or customer non-solicit requirement or any other provision, in each case that materially restricts the conduct of any line of business by Viking or any of the Viking Subsidiaries or upon consummation of the Merger will materially restrict the ability of the Combined Company or any of its affiliates to engage in any line of business or in any geographic region;
(iii) that is material and obligates Viking or any Viking Subsidiary to conduct business with any third party on a preferential or exclusive basis or contains material “most favored nation” or similar provisions;
(iv) (A) that is an indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other agreement or commitment that provides for or relates to any indebtedness of Viking or any Viking Subsidiary, including any sale and leaseback transactions, capitalized leases and other similar financing arrangements, or (B) that provides for the guarantee, support, indemnification, assumption or endorsement by Viking or any Viking Subsidiary of, or any similar commitment by Viking or any Viking Subsidiary with respect to, the obligations, liabilities or indebtedness of any other person of the nature described in clause (A), in the case of each of clauses (A) and (B), in the principal amount of $500,000 or more, other than any Viking Lease;
(v) that is with any manufacturer, vendor, lessor or other supplier with respect to which manufacturer, vendor, lessor or other supplier the aggregate annual spend for the most recent fiscal year, exceeded $500,000 for Viking and the Viking Subsidiaries,
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taken as a whole, pursuant to which Viking and the Viking Subsidiaries purchase or lease from such manufacturer, vendor, lessor, or other supplier (but excluding ordinary course ordering documents, quotes, purchase orders, and similar documents);
(vi) that is with any customer with respect to which customer the aggregate annual revenue for the most recent fiscal year, exceeded $500,000 for Viking and the Viking Subsidiaries, taken as a whole, pursuant to which such customer purchases products and services from Viking and the Viking Subsidiaries (excluding ordinary course ordering documents, quotes, purchase orders, and similar documents);
(vii) that grants any right of first refusal, right of first offer, or right of first negotiation with respect to any material assets, rights or properties of Viking or the Viking Subsidiaries;
(viii) that is a consulting agreement involving the payment of more than $50,000 per annum (other than any such Contracts which are terminable by Viking or any Viking Subsidiary on sixty (60) days or less notice without any required payment or other conditions, other than the condition of notice);
(ix) pursuant to which Viking or any Viking Subsidiary receives from any third party a license or similar right to any Intellectual Property that is material to Viking, other than those that are received pursuant to Non-Scheduled Contracts;
(x) that is a settlement, consent or similar agreement and contains any material continuing obligations of Viking or any Viking Subsidiary, including without limitation any express patent license granted in settlement of any assertion or allegation of patent infringement;
(xi) that is a material joint venture, partnership or limited liability company agreement or other similar contract relating to the formation, creation, operation, management or control of any joint venture, partnership or limited liability company, other than any such contract solely between Viking and its wholly-owned Subsidiaries or among Viking’s wholly-owned Subsidiaries; or
(xii) that relates to the acquisition or disposition of any person, business or asset and under which Viking or the Viking Subsidiaries have or may have a material obligation or liability.
Each Contract of the type required to be set forth in Section 4.13(a) of the Viking Disclosure Schedule, whether or not set forth in the Viking Disclosure Schedule, is referred to herein as a “Viking Contract.” Viking has made available to Camber true, correct and complete copies of each Viking Contract in effect as of the date hereof, excluding any schedules, annexes, exhibits, work orders, statements of work or other ancillary documents with respect to any such Viking Contracts that are no longer in force or effect or do not contain terms that are, individually or in the aggregate, material to Viking and the Viking Subsidiaries.
(b) (i) Each Viking Contract is valid and binding on Viking or one of the Viking Subsidiaries, as applicable, and is in full force and effect, except as, either individually or in the
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aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, (ii) each of Viking and the Viking Subsidiaries have in all material respects complied with and performed all obligations required to be complied with or performed by any of them to date under each Viking Contract, except where such noncompliance or nonperformance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, (iii) to the knowledge of Viking, each third-party counterparty to each Viking Contract has in all material respects complied with and performed all obligations required to be complied with and performed by it to date under such Viking Contract, except where such noncompliance or nonperformance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, (iv) neither Viking nor any Viking Subsidiary has knowledge of, or has received notice of, any violation of any Viking Contract by any of the other parties thereto which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking and (v) no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material breach or default on the part of Viking or any Viking Subsidiary or, to the knowledge of Viking, any other party thereto, of or under any such Viking Contract, except where such breach or default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking.
4.14 Government Contracts. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking, (a) each Government Contract to which Viking or the Viking Subsidiaries is a party was legally awarded, is binding on Viking or the applicable Viking Subsidiary, and is in full force and effect, (b) no such Government Contract or offer, quotation, bid or proposal to sell products or services made by Viking or any of the Viking Subsidiaries to any Governmental Entity or any prime contractor is currently the subject of bid or award protest proceedings, (c) Viking and the Viking Subsidiaries are in compliance with the terms and conditions of each such Government Contract or offer, quotation, bid or proposal, (d) since January 1, 2017, neither a Governmental Entity nor any prime contractor or subcontractor has notified Viking or any of the Viking Subsidiaries in writing that it has, or is alleged to have, breached or violated any applicable Law, representation, certification, disclosure, clause, provision or requirement pertaining to any such Government Contract or offer, quotation, bid or proposal, (e) since January 1, 2017, neither Viking nor any of the Viking Subsidiaries has made any voluntary disclosure (or mandatory disclosure pursuant to Federal Acquisition Regulation 52.203-13) to any Governmental Entity with respect to any alleged irregularity, misstatement, omission, fraud or price mischarging, or other violation of applicable Law, arising under or relating to a Government Contract, (f) none of Viking, any of the Viking Subsidiaries or any of their respective “Principals” (as defined in Federal Acquisition Regulation 52.209-5) has been debarred, suspended, declared nonresponsible or ineligible, or excluded, or to the knowledge of Viking, proposed for debarment, suspension or exclusion, from participation in or the award of contracts or subcontracts for or with any Governmental Entity or doing business with any Governmental Entity and (g) neither Viking nor any of the Viking Subsidiaries, nor any of their respective directors or officers, nor to the knowledge of Viking, any other of their employees, is or has been under administrative, civil or criminal investigation, indictment or information by any Governmental Entity with respect to the award or performance of any Government Contract, the subject of any actual or to the knowledge of Viking, threatened, “whistleblower” or “qui tam” lawsuit, or audit (other than a routine contract audit) or investigation of Viking or any of the Viking Subsidiaries, with respect to any Government Contract.
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4.15 Environmental Matters. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking, Viking and the Viking Subsidiaries are in compliance, and have complied, with all Environmental Laws. There are no legal, administrative, arbitral or other proceedings, claims or actions, or to the knowledge of Viking, any private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that could reasonably be expected to result in the imposition, on Viking or any Viking Subsidiary of any liability or obligation arising under any Environmental Law pending or, to the knowledge of Viking, threatened against Viking, which liability or obligation would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking. To the knowledge of Viking, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking. Neither Viking nor any Viking Subsidiary has treated, stored, disposed or arranged for disposal of, transported, handled, used, released, exposed any Person to, or owned or operated any property or facility contaminated by, any Hazardous Substance, in each case as has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking. To the knowledge of Viking, there have been no Hazardous Substances generated by Viking or any Viking Subsidiary that have been disposed of or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any Governmental Entity in the United States and that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking. Viking is not subject to any agreement, order, judgment, decree, letter agreement or memorandum of agreement by or with any court, Governmental Entity or other third party imposing any liability or obligation, with respect to the foregoing that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking.
4.16 Real Property. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking, each of Viking and the Viking Subsidiaries (a) have marketable and valid title to all the real property reflected in the latest audited balance sheet included in the Viking SEC Reports as being owned by Viking or a Viking Subsidiary or acquired after the date thereof (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business) (the “Viking Owned Properties”), free and clear of all material Liens, except for Permitted Encumbrances, and (b) are the lessee of all leasehold estates reflected in the latest audited financial statements included in such Viking SEC Reports or acquired after the date thereof (except for leases that have expired by their terms since the date thereof or have been terminated by Viking or a Viking Subsidiary) (such leasehold estates, collectively with the Viking Owned Properties, the “Viking Real Property”, and any leases with respect to such leasehold estates, the “Viking Leases”), free and clear of all material Liens, except for Permitted Encumbrances, and each such lease is valid and no event or condition exists which constitutes or, after notice or lapse of time or both, will constitute, a material breach or default on the part of Viking or any Viking Subsidiary, or to the knowledge of Viking, any other party thereto, of or under any such lease, except where such breach or default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Viking. There are no pending or, to the knowledge of Viking, threatened condemnation proceedings against the Viking Real Property, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking.
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4.17 Intellectual Property.
(a) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, (i) with respect to Intellectual Property that Viking and the Viking Subsidiaries, each as applicable, own or purport to own, Viking or a Viking Subsidiary exclusively owns all right, title and interest to that Intellectual Property free and clear of all Liens (except Permitted Encumbrances), and (ii) all Registered Intellectual Property that is owned by, or registered in the name of, Viking or a Viking Subsidiary that has not expired, lapsed, or been abandoned as of the date hereof (the “Viking Registered Intellectual Property”) is subsisting and, to the knowledge of Viking, is not invalid or unenforceable. Since January 1, 2017, other than office actions and oppositions received in the ordinary course of prosecution, Viking has not received any written claim or notice from any person alleging that the Viking Registered Intellectual Property is invalid or unenforceable, which claim or allegation if proven or established, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on Viking.
(b) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, to Viking’s knowledge (i) the operation of the respective businesses of Viking or any of the Viking Subsidiaries and the development, manufacture, use, sale, commercialization or other exploitation of any product, service or other offering currently provided by Viking or the Viking Subsidiaries does not infringe, misappropriate or violate and has not since January 1, 2017, infringed, misappropriated, or otherwise violated any Intellectual Property of any other person, and neither Viking nor any of the Viking Subsidiaries has received any written allegation of same, and (ii) neither Viking nor any of the Viking Subsidiaries has, since January 1, 2017, sent any other person a written notice alleging that such person is infringing, misappropriating or otherwise violating Viking’s Intellectual Property in a manner that is material to Viking’s business, which allegation has not been resolved or would not reasonably be expected to be resolved in the ordinary course of business.
(c) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, each of Viking and the Viking Subsidiaries has taken commercially reasonable efforts to protect and maintain its Intellectual Property, including using commercially reasonable efforts and taking commercially necessary steps to maintain their material trade secrets in confidence.
(d) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, Viking does not distribute any Viking owned software, the confidential and proprietary nature of the source code to which is material to Viking’s business, taken as a whole, to third parties pursuant to any license that, based on the way that material proprietary software is distributed by Viking, requires Viking to also license or make available to such third party any material source code owned by Viking.
(e) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, each of Viking and the Viking Subsidiaries has taken commercially reasonable efforts to (i) protect and maintain the confidentiality, integrity and security of its IT Assets and the information stored or contained therein or transmitted thereby from any unauthorized use, access, interruption or modification by any person, including the
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implementation of reasonable backup and disaster recovery technology processes and (ii) prevent the introduction of disabling codes or instructions, spyware, Trojan horses, worms, viruses or other software routines that permit or cause unauthorized access to, or disruption, impairment, disablement, or destruction of, software, data or other materials. Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, no person has gained unauthorized access to any IT Assets owned, used, or held for use by Viking or any of the Viking Subsidiaries or the information stored or contained therein or transmitted thereby.
(f) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Viking, (i) each of Viking and the Viking Subsidiaries is in compliance, and has since January 1, 2017, complied, with all applicable Laws and its posted policies relating to the collection, storage, use, transfer and any other processing of any Personal Data collected or used by or on behalf of Viking or the Viking Subsidiaries; and (ii) each of Viking and the Viking Subsidiaries has, since January 1, 2017, taken commercially reasonable steps to ensure that all Personal Data is protected against loss and unauthorized access, use, modification or disclosure, and there has been no incident of same.
4.18 Related Party Transactions. As of the date of this Agreement, there are no transactions or series of related transactions, agreements, arrangements or understandings, nor are there any currently proposed transactions or series of related transactions, between Viking or any Viking Subsidiary, on the one hand, and any current or former director or “executive officer” (as defined in Rule 3b-7 under the Exchange Act) of Viking or any Viking Subsidiary or any person who beneficially owns (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) five percent (5%) or more of the outstanding Viking Common Stock (or any of such person’s immediate family members or affiliates) (other than the Viking Subsidiaries) on the other hand, of the type required to be reported in any Viking SEC Report pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act that have not been disclosed therein.
4.19 State Takeover Laws. The Board of Directors of Viking has approved this Agreement and the transactions contemplated hereby and has taken all such other necessary actions as required to render inapplicable to such agreements and transactions the provisions of any potentially applicable Takeover Statutes.
4.20 Reorganization. Neither Viking nor any of the Viking Subsidiaries has taken any action or agreed to take any action, or is aware of any fact or circumstance, that could reasonably be expected to impede or prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.
4.21 Viking Board Recommendation. The Board of Directors of Viking has duly adopted resolutions (a) determining that this Agreement and the transactions contemplated by this Agreement, including the Merger, are fair to, and in the best interests of, Viking and the holders of shares of Viking Common Stock, (b) approving and declaring advisable this Agreement and the transactions contemplated by this Agreement, including the Merger, on the terms and subject to the conditions set forth in this Agreement, (c) directing that this Agreement be submitted to the holders of shares of Viking Common Stock for their approval and adoption, (d) recommending that the holders of shares of Viking Common Stock vote in favor of the adoption of this Agreement on the terms and subject to the conditions set forth in this Agreement (the “Viking Board
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Recommendation”), which resolutions have not been subsequently rescinded, modified or withdrawn in any way, except as may be permitted by Section 6.3.
4.22 Viking Information. The information relating to Viking and the Viking Subsidiaries or that is provided by Viking or the Viking Subsidiaries or their respective Representatives for inclusion in the Joint Proxy Statement and the S-4, or in any other document filed with the SEC in connection with the transactions contemplated hereby, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Joint Proxy Statement (except for such portions thereof that relate only to Camber, Merger Sub or any Camber Subsidiary) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder. The S-4 (except for such portions thereof that relate only to Camber, Merger Sub or any Camber Subsidiary) will comply in all material respects with the provisions of the Securities Act and the rules and regulations thereunder. Any information relating to Viking and the Viking Subsidiaries or that is provided by Viking or the Viking Subsidiaries or their respective Representatives for inclusion in any document, instrument or certificate filed with any Governmental Entity with respect to Competition Laws in connection with the transactions contemplated hereby will comply in all material respects with the Laws applicable thereto.
4.23 Customers and Suppliers. Since January 1, 2019 through the date of this Agreement, Viking and the Viking Subsidiaries have not received any written notice from any Viking Covered Customer or Viking Covered Supplier that such Viking Covered Customer or Viking Covered Supplier intends to discontinue or substantially reduce its relationship with Viking or any Viking Subsidiary, terminate or materially and adversely amend any existing material contract with Viking or any Viking Subsidiary, or not continue as a customer or supplier, as applicable, of Viking or any Viking Subsidiary. “Viking Covered Customer” means any of the top ten (10) customers by revenue derived by Viking and the Viking Subsidiaries (taken together) during the twelve (12) months ended December 31, 2019, pursuant to which Viking or any of the Viking Subsidiaries has sold goods and/or services, and “Viking Covered Supplier” means any of the top ten (10) suppliers by dollar amount paid to such suppliers by Viking and the Viking Subsidiaries (taken together) during the twelve months ended December 31, 2019.
4.24 Insurance. Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Viking, (a) Viking and the Viking Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of Viking reasonably has determined to be prudent and consistent with industry practice, and Viking and the Viking Subsidiaries are in compliance in all material respects with their insurance policies and are not in default under any of the terms thereof, (b) each such policy is outstanding and in full force and effect and, except for policies insuring against potential liabilities of officers, directors and employees of Viking and the Viking Subsidiaries, Viking or the relevant Subsidiary thereof is the sole beneficiary of such policies, (c) all premiums and other payments due under any such policy have been paid, and all claims thereunder have been filed in due and timely fashion, (d) there is no claim for coverage by Viking or any Viking Subsidiary pending under any insurance policy as to which coverage has been questioned, denied or disputed by the underwriters of such insurance policy and (e) neither Viking nor any Viking Subsidiary has received notice of any threatened termination of, material premium increase with respect to, or material alteration of coverage under, any insurance policies.
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4.25 No Other Representations or Warranties.
(a) Except for the representations and warranties made by Viking in this ARTICLE IV, neither Viking nor any other person makes any express or implied representation or warranty with respect to Viking, the Viking Subsidiaries, or their respective businesses, operations, assets, liabilities, conditions (financial or otherwise) or prospects, and Viking hereby disclaims any such other representations or warranties. In particular, without limiting the foregoing disclaimer, neither Viking nor any other person makes or has made any representation or warranty to Camber or any of its affiliates or Representatives with respect to (i) any financial projection, forecast, estimate, budget or prospective information relating to Viking, any Viking Subsidiary or their respective businesses or (ii) except for the representations and warranties made by Viking in this ARTICLE IV, any oral or written information presented to Camber or any of their respective affiliates or Representatives in the course of their due diligence investigation of Viking, the negotiation of this Agreement or in the course of the transactions contemplated hereby.
(b) Viking acknowledges and agrees that neither Camber nor any other person has made or is making any express or implied representation or warranty other than those contained in ARTICLE III.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or expressly permitted by this Agreement (including as set forth in the Viking Disclosure Schedule or the Camber Disclosure Schedule) or as consented to in writing by the other party (such consent not to be unreasonably withheld, conditioned or delayed), each of Viking and Camber shall, and shall cause each of its respective Subsidiaries to, use reasonable best efforts to (a) conduct its business in the ordinary course in all material respects and (b) maintain and preserve intact its business organization, employees and advantageous business relationships, provided, that with respect to any action which is a subject matter of a subclause of Section 5.2, if such action is permitted by the express terms of such subclause of Section 5.2, such action shall not be a violation of this Section 5.1. Each of the parties shall amend the operating agreement of Elysium Energy Holdings, LLC (“Elysium”), a Nevada corporation, within 10 days of a reasonable request to do so by the other party.
5.2 Forbearances. During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or expressly permitted by this Agreement (including as set forth in the Viking Disclosure Schedule or the Camber Disclosure Schedule) neither Viking nor Camber shall, and neither Viking nor Camber shall permit any of their respective Subsidiaries to, without the prior written consent of the other party to this Agreement (such consent not to be unreasonably withheld, conditioned or delayed):2
(a) incur, assume, guarantee or become liable for any indebtedness for borrowed money, other than (i) intercompany indebtedness, (ii) borrowings in the ordinary course under any
2 To discuss.
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revolving credit facility, settlement facility, commercial paper program, corporate credit facility or other line of credit, in each case existing on the date of this Agreement up to the amount committed thereunder on the date of this Agreement (or any amendment or replacement thereof, in each case, so long as the amount of borrowings under such amended or replaced facility or program is not greater than the committed amount of such facility or program on the date of this Agreement and the amendment or replacement contains customary commercial terms consistent in all material respects with the existing facility, and that such facility or program does not delay or impair the ability of the applicable party from consummating the transactions contemplated hereby and is prepayable without additional interest or penalty), (iii) guarantees by Viking or any direct or indirect wholly-owned Viking Subsidiary of indebtedness of Viking or any other direct or indirect wholly-owned Viking Subsidiary, (iv) guarantees by Camber or any direct or indirect wholly-owned Camber Subsidiary of indebtedness of Camber or any other direct or indirect wholly-owned Camber Subsidiary, (v) any indebtedness incurred to refinance, roll-over, replace or renew any indebtedness existing on the date of this Agreement, so long as, in each case, (1) the principal amount of such refinancing, roll-over, replacement or renewed indebtedness is not greater than the principal amount of the indebtedness being refinanced, rolled-over, replaced or renewed (plus accrued interest, and a reasonable amount of premium, fees and expenses incurred in connection with such refinancing) and (2) such indebtedness is on customary commercial terms consistent in all material respects with the indebtedness being refinanced, rolled-over, replaced or renewed, including that such facility or program does not delay or impair the ability of the applicable party from consummating the transactions contemplated hereby and is prepayable without additional interest or penalty, (vi) indebtedness incurred in respect of letters of credit, performance bonds, surety bonds, appeal bonds or other similar arrangements in the ordinary course, (vii) capital lease, purchase money or equipment financing arrangements entered into in the ordinary course of business, (viii) indebtedness arising from customary cash management and treasury services and the honoring of checks, drafts or similar instruments against insufficient funds or from the endorsement of instruments for collection, in each case, in the ordinary course of business, (ix) interest, exchange rate and commodity swaps, options, futures, forward contracts and similar derivatives or other hedging contracts (1) not entered for speculative purposes and (2) entered into in the ordinary course consistent with past practice and in compliance with its risk management and hedging policies or practices in effect on the date of this Agreement and (x) other indebtedness incurred by mutual agreement of Viking and Camber in accordance with Section 6.17;
(b) (i) adjust, split, combine or reclassify any capital stock;
(ii) make, declare, pay or set a record date for any dividend, or any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, any shares of its capital stock or other equity or voting securities or any securities or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) or exchangeable into or exercisable for any shares of its capital stock or other equity or voting securities, including any Viking Securities or Viking Subsidiary Securities, in the case of Viking, or Camber Securities or Camber Subsidiary Securities, in the case of Camber, except, in each case, (A) subject to Section 6.10, quarterly cash dividends by Viking or Camber, (B) dividends paid by any of the Subsidiaries of each of Viking and Camber to Viking or Camber or any of their wholly-owned Subsidiaries, respectively, or dividends paid
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by any of their respective non-wholly owned Subsidiary joint ventures in the ordinary course of business as required by any joint venture agreements in effect as of the date of this Agreement and disclosed, in the case of joint ventures, in Section 5.2(b)(ii)(B) of the Viking Disclosure Schedule or the Camber Disclosure Schedule, as applicable, or (C) the acceptance of shares of Viking Common Stock or Camber Common Stock, as the case may be, as payment for the exercise price of stock options or for withholding Taxes incurred in connection with the exercise of stock options or the vesting or settlement of equity compensation awards, or the payment of dividend equivalents thereon, in each case, in accordance with past practice and the terms of the applicable award agreements;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its material properties or assets to any individual, corporation or other entity, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, in each case other than (i) to any wholly-owned Subsidiary or to Camber or Viking, as applicable, (ii) in the ordinary course of business, or (iii) pursuant to contracts or agreements in force at the date of this Agreement set forth on Section 5.2(c) of the Viking Disclosure Schedule or the Camber Disclosure Schedule, as applicable;
(d) make any material investment in or material acquisition of (whether by purchase of stock or securities, contributions to capital, property transfers, merger or consolidation, or formation of a joint venture or otherwise) any other person or business or the property or assets of any other person, in each case other than a wholly-owned Subsidiary of Viking or Camber, as applicable, in each case other than, with respect to acquisitions of properties and assets, in the ordinary course of business or pursuant to contracts or agreements in force at the date of this Agreement set forth on Section 5.2(d) of the Viking Disclosure Schedule or the Camber Disclosure Schedule, as applicable;
(e) except in the ordinary course of business consistent with past practice, (i) terminate, materially amend, or waive any material provision of, any Viking Contract or Camber Contract, as the case may be, or make any material change in any instrument or agreement governing any Viking Contract or Camber Contract as the case may be, other than normal renewals of contracts and leases without material adverse changes of terms with respect to Viking or Camber, as the case may be, or (ii) other than in the ordinary course of business consistent with past practice, enter into any contract that would constitute a Viking Contract or Camber Contract, as the case may be, if it were in effect on the date of this Agreement, provided, that with respect to any action which is a subject matter of another subclause of this Section 5.2, if such action is permitted by the express terms of such subclause of this Section 5.2, such action shall not be a violation of this Section 5.2(e);
(f) except as required under applicable Law or the terms of any Viking Benefit Plan or Camber Benefit Plan existing as of the date hereof, as applicable, (i) enter into, adopt or terminate any employee benefit or compensation plan, program, policy or arrangement for the benefit or welfare of any current or former employee, officer, director or individual consultant, other than in the ordinary course of business consistent with past practice, (ii) amend (whether in writing or through the interpretation of) any employee benefit or compensation plan, program, policy or arrangement for the benefit or welfare of any current or former employee, officer, director or
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individual consultant, other than in the ordinary course of business consistent with past practice, (iii) materially increase the compensation or benefits payable to any current or former employee, officer, director or individual consultant (other than in connection with a relocation of an employee in the ordinary course of business or a promotion or change in responsibilities), (iv) pay or award, or commit to pay or award, any bonuses or incentive compensation other than in the ordinary course of business consistent with past practice, (v) grant or accelerate the vesting of any equity-based awards or other compensation, (vi) enter into any new, or amend any existing, employment, severance, change in control, retention, bonus guarantee, collective bargaining agreement or similar agreement or arrangement, (vii) fund any rabbi trust or similar arrangement, (viii) terminate the employment or services of any officer or any employee whose target annual compensation (that is, base salary or wages plus annual bonus or other short-term cash incentive compensation) is greater than $1,000,000, other than for cause, or (ix) hire or promote any officer, employee or individual consultant who has (or, following such hire or promotion, would have) target annual compensation (that is, base salary or wages plus annual bonus or other short-term cash incentive compensation) greater than $1,000,000;
(g) settle any claim, suit, action or proceeding, except involving monetary remedies in an amount not in excess of $1,000,000 individually or $5,000,000 in the aggregate and that would not impose any material restriction on, or create any adverse precedent that would be material to, the business of it or its Subsidiaries, the Surviving Entity or the Combined Company;
(h) take any action or fail to take any action where such action or failure to act could reasonably be expected to impede or prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code;
(i) amend either party’s articles of incorporation, bylaws or comparable governing documents of its “Significant Subsidiaries” (as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Exchange Act);
(j) merge or consolidate either party or any of its Significant Subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its Significant Subsidiaries (other than mergers, consolidations, restructurings or reorganizations solely between or among its wholly-owned Subsidiaries, or as permitted under an exception set forth in Sections 5.2(c) or 5.2(d));
(k) enter into any new line of business or discontinue any existing line of business, other than in the ordinary course of business consistent with past practice;
(l) make, change or revoke any material Tax election, change an annual Tax accounting period, adopt or change any material Tax accounting method, file any material amended Tax Return, enter into any closing agreement with respect to a material amount of Taxes, or settle any material Tax claim, audit, assessment or dispute or surrender any material right to claim a refund of Taxes; or
(m) agree to take or make any commitment to take any of the actions prohibited by this Section 5.2.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.
(a) Promptly after the date of this Agreement, Viking and Camber shall prepare and file with the SEC the Joint Proxy Statement, and Camber shall prepare and file with the SEC the S-4, in which the Joint Proxy Statement will be included as a prospectus. Viking and Camber shall each use reasonable best efforts to make such filings within forty-five (45) days after the date of this Agreement. Each of Viking and Camber shall use its reasonable best efforts to have the S-4 declared effective under the Securities Act as promptly as practicable after such filings, and Viking and Camber shall thereafter mail or deliver the Joint Proxy Statement to their respective stockholders. Camber shall also use its reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by this Agreement, and Viking shall furnish all information concerning Viking and the holders of shares of Viking Common Stock as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use their reasonable best efforts to (i) take, or cause to be taken, all necessary actions, and do or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable following the date hereof; (ii) make, or cause to be made, the registrations, declarations and filings (A) required under the HSR Act and (B) required or advisable in connection with obtaining the other Requisite Regulatory Approvals, as promptly as reasonably practicable after the date of this Agreement (and in the case of any filings required under the HSR Act, no later than ten (10) business days after the date of this Agreement); (iii) prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals, clearances and authorizations of all third parties and Governmental Entities which are necessary or advisable to consummate the transactions contemplated by this Agreement, and to comply with the terms and conditions of all such permits, consents, approvals, clearances and authorizations of all such Governmental Entities, and (iv) seek to avoid or prevent the initiation of any investigation, claim, action, suit, arbitration, litigation or proceeding by or before any Governmental Entity challenging this Agreement or the consummation of the transactions contemplated by this Agreement. As used in this Agreement, the term “Requisite Regulatory Approvals” shall mean the expiration or termination of the applicable waiting period under the HSR Act and all regulatory authorizations, consents, clearances, orders and approvals set forth on Section 6.1(b) of the Camber Disclosure Schedule.
(c) Each party shall use its reasonable best efforts to resolve any objection that may be asserted by any Governmental Entity with respect to this Agreement or the transactions contemplated hereby. Without limiting the generality of the foregoing and notwithstanding anything in this Agreement to the contrary, in furtherance of the parties’ reasonable best efforts, each of Viking and the Viking Subsidiaries and Camber and the Camber Subsidiaries, as applicable, to the extent required in order to obtain the Requisite Regulatory Approvals or any necessary approvals of any other Governmental Entity required for the transactions contemplated hereby as promptly as reasonably practicable or to avoid the consequences in Section 6.1(b)(iv) or
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otherwise in connection with the Requisite Regulatory Approvals required pursuant to any Competition Law, shall (i) propose, negotiate or offer to effect, or consent or commit to, any sale, leasing, licensing, transfer, disposal, divestiture or other encumbrance, or holding separate, of any assets, licenses, operations, rights, product lines, businesses or interest therein (collectively, a “Divestiture”); and (ii) take or agree to take any other action, agree or consent to, make any concession in respect of, or permit or suffer to exist any condition or requirement setting forth, any limitations or restrictions on freedom of actions with respect to, or its ability to retain, or make changes in, any assets, licenses, operations, rights, product lines, businesses or interest therein (collectively, a “Remedy”), provided that neither party nor its Subsidiaries shall be required to take any of the actions referred to above with respect to a Divestiture or Remedy unless the effectiveness thereof is conditioned on the occurrence of the Effective Time, and provided, further, that nothing shall require either party to, and neither party shall without the consent of the other party, agree or consent to a Divestiture or Remedy that would result in or would reasonably be expected to result in a material adverse effect on the business of the Combined Company and its Subsidiaries, taken as a whole, after giving effect to the Merger. Viking and Camber agree to use reasonable best efforts to: (1) oppose or defend against any investigation, claim, action, suit, arbitration, litigation or proceeding by any Governmental Entity to prevent or enjoin the consummation of the Merger, or (2) overturn any regulatory order by any such Governmental Entity to prevent consummation of the Merger, including by defending any investigation, claim, action, suit, arbitration, litigation or proceeding brought by any such Governmental Entity in order to avoid the entry of, or to have vacated, overturned, terminated or appealed any order that would otherwise have the effect of preventing or materially delaying the consummation of the Merger.
(d) If Viking or Camber or any of their respective Subsidiaries or affiliates receives a request for information or documentary material from any Governmental Entity with respect to this Agreement or any of the transactions contemplated hereby, then such party shall make, or cause to be made, as soon as reasonably practicable and after consultation with the other party (to the extent permitted under applicable Law), an appropriate response in substantial compliance with such request. If Viking or Camber receives a formal request for additional information or documentary material from the Federal Trade Commission (“FTC”) or the Antitrust Division of the U.S. Department of Justice (“Antitrust Division”), then Viking and Camber will substantially comply with such formal request as soon as reasonably practicable, unless otherwise agreed between Viking and Camber. Viking and Camber shall consult with each other in good faith prior to agreeing, directly or indirectly, to extend any waiting period under the HSR Act or other applicable Law or to any timing agreement with the FTC, the Antitrust Division or any other Governmental Entity.
(e) Each party shall promptly notify the other party of any communication it or any of its affiliates receives from any Governmental Entity relating to the matters that are the subject of this Agreement and, to the extent permitted under applicable Law, furnish the other party promptly with all communications received from any Governmental Entity and permit the other party to review in advance, and consider in good faith the other party’s comments to, any proposed communication, filing or submission by such party to any Governmental Entity. The parties will coordinate and reasonably cooperate with each other in exchanging information and providing reasonable assistance as the other party may reasonably request in writing in connection with the foregoing or in connection with any filing or submission to be made to any Governmental Entity; provided, however, that materials exchanged pursuant to this Section 6.1 may be redacted or
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withheld as necessary to address reasonable privilege or confidentiality concerns, and to remove references concerning the valuation of Viking’s or Camber’s consideration of the transactions contemplated by this Agreement or other competitively sensitive material; provided, further that the parties hereto may, as they deem advisable and necessary, designate any materials provided to the other pursuant to this Section 6.1 as “outside counsel only.” Such materials and the information contained therein shall be given only to outside counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient without the advance written consent of the party providing such materials. Viking and Camber shall (to the extent permitted under applicable Law) consult with the other party in advance of any meeting, discussion or teleconference with any Governmental Entity or, in connection with any proceeding by a private party in connection with the transactions contemplated by this Agreement, with any other person, and, to the extent not prohibited by the Governmental Entity or such other person, give the other party the opportunity to attend and participate in such meetings, discussions and teleconferences. The parties shall discuss in advance the strategy and timing for obtaining any clearances required or advisable under any applicable Law in connection with this Agreement or the transactions contemplated by this Agreement.
(f) Viking shall not, and shall cause the Viking Subsidiaries not to, and Camber shall not, and shall cause the Camber Subsidiaries not to, acquire or agree to acquire, by merging with or into or consolidating with, or by purchasing part or all of the assets of or equity of, in any business or any corporation, partnership, association or other business organization or division thereof, or take any other similar action, if the entering into of a definitive agreement relating to, or the consummation of such acquisition, merger or consolidation, or the taking of any other similar action, would reasonably be expected to (i) impose any material delay in the obtaining of, or materially increase the risk of not obtaining, any authorizations, consents, orders, clearances or approvals of any Governmental Entity necessary to consummate the transactions contemplated hereby or the expiration or termination of any applicable waiting period; (ii) increase, in any material respect, the risk of any Governmental Entity entering an order prohibiting the consummation of the transactions contemplated hereby; (iii) increase the risk, in any material respect, of not being able to remove any such order on appeal or otherwise; or (iv) prevent or materially delay the consummation of the transactions contemplated hereby.
(g) Viking and Camber shall, upon request, promptly furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Joint Proxy Statement, the S-4 or any other statement, filing, notice or application made by or on behalf of Viking, Camber or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement.
6.2 Access to Information; Confidentiality.
(a) Upon reasonable notice and subject to applicable Laws, each of Viking and Camber, for the purposes of performing its respective obligations under this Agreement and enforcing its respective rights under this Agreement, shall, and shall cause each of their respective Subsidiaries to, afford to the officers, employees, accountants, counsel, advisors and other Representatives of the other party, access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments, personnel, information technology systems,
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and records, and, during such period, each of Viking and Camber shall, and shall cause its respective Subsidiaries to, make available to the other party all information concerning its business, properties and personnel as such party may reasonably request. Neither Viking nor Camber nor any of their respective Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of the institution in possession or control of such information (after giving due consideration to the existence of any common interest, joint defense or similar agreement between the parties) or contravene any Law or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(b) Each of Viking and Camber shall hold all information furnished by or on behalf of the other party or any of such party’s Subsidiaries or Representatives pursuant to Section 6.2(a) in confidence to the extent required by, and in accordance with, the provisions of the non-disclosure agreement between Viking and Camber (the “Confidentiality Agreement”).
(c) No investigation by either of the parties or their respective Representatives shall affect or be deemed to modify or waive the representations and warranties of the other set forth herein. Nothing contained in this Agreement shall give Camber, directly or indirectly, the right to control or direct the operations of Viking or the Viking Subsidiaries prior to the Effective Time, and nothing contained in this Agreement shall give Viking, directly or indirectly, the right to control or direct the operations of Camber or the Camber Subsidiaries prior to the Effective Time. Prior to the Effective Time, each of Camber and Viking shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations.
6.3 Stockholder Meetings.
(a) Each of Viking and Camber shall call a meeting of its stockholders (the “Viking Meeting” and the “Camber Meeting,” respectively) to be held as soon as reasonably practicable after the S-4 is declared effective, for the purpose of obtaining (a) the Requisite Camber Vote, the Charter Amendment Vote and the Requisite Viking Vote required in connection with this Agreement and the Merger, and (b) if so desired and mutually agreed, a vote upon other matters of the type customarily brought before a meeting of stockholders in connection with the approval of a merger agreement or the transactions contemplated thereby, and each of Viking and Camber shall use its reasonable best efforts to cause such meetings to occur on the same date. Subject to Section 6.3(b), each of Viking and Camber and their respective Boards of Directors shall use its reasonable best efforts to obtain from the stockholders of Viking and Camber, as applicable, the Requisite Viking Vote, the Requisite Camber Vote and the Charter Amendment Vote, as applicable, including by communicating to the respective stockholders of Viking and Camber the Viking Board Recommendation and the Camber Board Recommendation, respectively (and including the respective recommendation in the Joint Proxy Statement), and each of Viking and Camber and their respective Boards of Directors shall not (i) withhold, withdraw, modify or qualify in a manner adverse to the other party the Viking Board Recommendation, in the case of Viking, or the Camber Board Recommendation, in the case of Camber, (ii) fail to make the Viking Board Recommendation, in the case of Viking, or the Camber Board Recommendation, in the case of Camber, in the Joint Proxy Statement, (iii) adopt, approve, recommend or endorse an
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Acquisition Proposal (defined below) or publicly announce an intention to adopt, approve, recommend or endorse an Acquisition Proposal, (iv) fail to publicly and without qualification (A) recommend against any Acquisition Proposal or (B) reaffirm the Viking Board Recommendation, in the case of Viking, or the Camber Board Recommendation, in the case of Camber, in each case within ten (10) business days (or such fewer number of days as remains prior to that date that is two (2) business days prior to the Viking Meeting or the Camber Meeting, as applicable) after an Acquisition Proposal is made public (upon a request by the other party to do so), or (v) publicly propose to do any of the foregoing (any of the foregoing a “Recommendation Change”).
(b) Notwithstanding the foregoing, subject to Section 8.1 and Section 8.2, if the Board of Directors of Viking or Camber, after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisors, determines in good faith that taking such action would be required to comply with its fiduciary duties under applicable Law, such Board of Directors may, in the case of Viking, prior to the receipt of the Requisite Viking Vote, and in the case of Camber, prior to the receipt of the Requisite Camber Vote, make a Recommendation Change and submit this Agreement to its stockholders without recommendation (although the resolutions approving this Agreement as of the date hereof may not be rescinded or amended), in which event such Board of Directors may communicate the basis for its lack of a recommendation to its stockholders in the Joint Proxy Statement or an appropriate amendment or supplement thereto to the extent required by Law; provided that such Board of Directors may not take any actions under this sentence unless it (A) gives the other party at least five (5) business days’ prior written notice of its intention to take such action and a reasonable description of the event or circumstances giving rise to its determination to take such action (including, in the event such action is taken in response to an Acquisition Proposal, the latest material terms and conditions and the identity of the third party in any such Acquisition Proposal, or any amendment or modification thereof, or describe in reasonable detail such other event or circumstances) and (B) at the end of such notice period, takes into account any amendment or modification to this Agreement proposed by the other party and, after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisors, determines in good faith that taking such action would nevertheless be required to comply with its fiduciary duties under applicable Law. No Recommendation Change may be made with respect to an Acquisition Proposal if such Acquisition Proposal was solicited in violation of Section 6.13. Any change in the economic terms of or any other material amendment to any Acquisition Proposal will be deemed to be a new Acquisition Proposal for purposes of this Section 6.3 and will require a new notice period as referred to in this Section 6.3 (except that the notice period shall be shortened to three (3) business days).
(c) Except as required by Law or as Viking and Camber may mutually agree, neither Viking nor Camber shall adjourn or postpone the Viking Meeting or the Camber Meeting beyond the date on which the Viking Meeting or the Camber Meeting, as the case may be, was (or was required to be) originally scheduled; provided that Viking and Camber shall:
(i) be permitted to adjourn or postpone its own stockholder meeting (i.e., the Viking Meeting or the Camber Meeting, as the case may be), if (A) as of the time for which such meeting is originally scheduled there are insufficient shares of Viking Common Stock or Camber Common Stock, as the case may be, represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such
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meeting, (B) in the case of the Viking Meeting, the Board of Directors of Viking has made a Recommendation Change and, in the case of the Camber Meeting, Board of Directors of Camber has made a Recommendation Change, or (C) a change to the method or structure of effecting the combination of Viking and Camber is to be effected pursuant to Section 6.15, provided, further, that in no event shall Viking or Camber adjourn or postpone the Viking Meeting or the Camber Meeting, as applicable, pursuant to this clause (i) more than two (2) times and by more than forty-five (45) calendar days in the aggregate with respect to all such adjournments or proposals; and
(ii) at Viking’s request, cause to be adjourned or postponed the Camber Meeting, or at Camber’s request, cause to be adjourned or postponed the Viking Meeting, if (A) the Board of Directors of the non-requesting party has made a Recommendation Change or (B) a change to the method or structure of effecting the combination of Viking and Camber is to be effected pursuant to Section 6.15, provided, further, that in no event shall Viking or Camber be obligated to adjourn or postpone the Viking Meeting or the Camber Meeting, as applicable, pursuant to this clause (ii) more than two (2) times and by more than forty-five (45) calendar days, in the aggregate with respect to all such adjournments or proposals;
provided, however, that, if either the Viking Meeting or the Camber Meeting, as the case may be, is adjourned or postponed pursuant to either the foregoing clause (i) or (ii), the other of the Viking Meeting or the Camber Meeting, as the case may be, may be correspondingly adjourned or postponed and such adjournment or postponement shall not affect the aggregate time limits contemplated by the foregoing clause (i) or (ii).
(d) Notwithstanding anything to the contrary herein, unless this Agreement has been terminated in accordance with its terms, (x) the Viking Meeting shall be convened and this Agreement shall be submitted for adoption by the stockholders of Viking at the Viking Meeting, and (y) the Camber Meeting shall be convened and the Share Issuance and Charter Amendment shall be submitted to the stockholders of Camber at the Camber Meeting, and nothing contained herein shall be deemed to relieve either Viking or Camber of such obligation.
6.4 Legal Conditions to Merger. Subject in all respects to Section 6.1 of this Agreement, each of Viking and Camber shall, and shall cause their respective Subsidiaries to, use their reasonable best efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its Subsidiaries with respect to the Merger and, subject to the conditions set forth in ARTICLE VII hereof, to consummate the transactions contemplated by this Agreement, and (b) to obtain (and to cooperate with the other party to obtain) any material consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party that is required to be obtained by Viking or Camber or any of their respective Subsidiaries in connection with the Merger and the other transactions contemplated by this Agreement.
6.5 Stock Exchange Listing and Delisting. Camber shall use its reasonable best efforts to cause the shares of Camber Common Stock to be issued in the Merger to be approved for listing on the NYSE, subject to official notice of issuance, prior to the Effective Time. In the event the
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NYSE determines that the Merger constitutes, or will constitute, a “back-door listing”/“reverse merger”, Camber and Viking shall cooperate in good faith to ensure that the Combined Company (and its common stock) qualifies for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Closing. Viking shall cooperate with Camber and use reasonable best efforts to take, or cause to be taken, all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under applicable Laws and rules and policies of OTCMarkets.com to enable the delisting by the Surviving Entity of the shares of Viking Common Stock from the OTC Link Alternative Trading System and the deregistration of the shares of Viking Common Stock under the Exchange Act as promptly as practicable after the Effective Time.
6.6 Employee Matters. Viking and Camber acknowledge and agree that (i) for purposes of [●] Severance Agreements3 (or substantially similarly titled agreement) entered into with certain employees of Camber, Viking or any of their Subsidiaries, the completion of the transactions contemplated herein will constitute a “Change in Control” as defined therein.
6.7 Disclosure Schedules. The parties shall deliver to each other true, accurate and complete copies of their respective Disclosure Schedules as required pursuant to the introductory paragraphs of Article III and Article IV above. Within five (5) business days following such delivery, Camber shall provide Viking with written notice (the “Initial Disclosure Objection Notice”) of any reasonable concerns or objections to any matters disclosed in Viking’s Disclosure Schedule which could reasonably result in a Material Adverse Effect on Viking. The parties will negotiate in good faith to resolve those matters raised in the Initial Disclosure Objection Notice, including amendments to this Agreement as agreed to. If, after good faith negotiations, the parties are unable to resolve those matters raised in the Initial Disclosure Objection Notice no later than twenty (20) days from the Initial Disclosure Objection Notice, this Agreement may be terminated by Camber during the following three (3) business day period. If Camber does not provide an Initial Disclosure Objection Notice within five (5) business days of the receipt of the Disclosure Schedule from Viking, or fails to raise an objection to any disclosures made in Viking’s Disclosure Schedule in an Initial Disclosure Objection Notice, Camber will be deemed to have waived any objection to that specific matter disclosed in the Viking Disclosure Schedule, unless such disclosure is discovered or uncovered later to be false or misleading in any material respect, effective as of such date (such applicable date or the date that Camber has any outstanding objections or concerns regarding Viking’s Disclosure Schedule, as applicable). Viking shall have reciprocal disclosure objection rights if the matters disclosed in Camber’s Disclosure Schedule could reasonably result in a Material Adverse Effect on Camber in excess of $500,000, and such matters were not disclosed in the Camber SEC Reports (each, as applicable, a “Camber Material Adverse Item”).
6.8 Indemnification.
(a) From and after the Effective Time, the Combined Company shall indemnify and hold harmless and shall advance expenses as incurred, in each case to the maximum extent permitted by applicable Law, such persons that are indemnified as of the date of this Agreement
3 To be finalized.
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by Viking pursuant to the Viking Articles of Incorporation, the Viking Bylaws, the governing or organizational documents of any Viking Subsidiary and any indemnification agreements in existence as of the date hereof and disclosed in Section 6.8(a) of the Viking Disclosure Schedule (in each case, when acting in such capacity) (collectively, the “Viking Indemnified Parties”) and such persons that are indemnified as of the date of this Agreement by Camber pursuant to the Camber Articles of Incorporation, the Camber Bylaws, the governing or organizational documents of any Camber Subsidiary and any indemnification agreements in existence as of the date hereof and disclosed in Section 6.8(a) of the Camber Disclosure Schedule (in each case, when acting in such capacity) (collectively, the “Camber Indemnified Parties”) against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, damages or liabilities incurred in connection with any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, whether arising before or after the Effective Time, arising out of the fact that such person is or was a director, officer or employee of Viking or any Viking Subsidiary, or of Camber or any Camber Subsidiary, and pertaining to matters existing or occurring at or prior to the Effective Time, including the transactions contemplated by this Agreement; provided, that in the case of advancement of expenses, any Viking Indemnified Party or Camber Indemnified Party, to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
(b) The provisions of this Section 6.8 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Viking Indemnified Party and each Camber Indemnified Party and his or her heirs and Representatives. If the Combined Company, the Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving entity of such consolidation or merger, or (ii) transfers all or substantially all of its assets to any other person or engages in any similar transaction, then in each such case, the Combined Company or the Surviving Entity will cause proper provision to be made so that the successors and assigns of the Combined Company or the Surviving Entity, as applicable, will expressly assume the obligations set forth in this Section 6.8.
6.9 Advice of Changes.
(a) Viking and Camber shall each, on or before the Closing Date, promptly advise the other party of any effect, change, event, circumstance, condition, occurrence or development (i) that has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on it or (ii) that it believes would or would reasonably be expected to cause or constitute a material breach of any of its representations, warranties, obligations, covenants or agreements contained herein that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition in ARTICLE VII; provided, that any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute a violation of this Section 6.9 or the failure of any condition set forth in Sections 7.2 or 7.3 to be satisfied, or otherwise constitute a breach of this Agreement by the party failing to give such notice, in each case unless the underlying breach would independently result in a failure of the conditions set forth in Sections 7.2 or 7.3 to be satisfied; and provided, further, that the delivery of any notice pursuant to this Section 6.9 shall not cure any breach of, or noncompliance with, any other provision of this Agreement or limit the remedies available to the party receiving such notice.
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(b) Each of Viking and Camber shall provide the other with prompt written notice of (a) any failure to comply with or satisfy, in any material respect, any covenant, condition or agreement hereunder, or (b) any event, fact or circumstance that (i) would reasonably be expected to cause any of such party’s representations and warranties to become untrue or misleading or which would affect its ability to consummate the Merger, (ii) would have been required to be disclosed under this Agreement had it existed or been known on the date hereof, (iii) gives such party any reason to believe that any of the conditions set forth in ARTICLE VII would reasonably be expected not to be satisfied, or (iv) is of a nature that is or would reasonably be expected to result in a Material Adverse Effect on Viking or Camber. Each of Viking and Camber shall have the right and obligation to supplement or amend its respective Disclosure Schedule with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described therein; provided, that to the extent such supplement or amendment relates to any matter that occurred or existed prior to the date of this Agreement, then such supplement or amendment shall not be deemed to have cured any inaccuracy in or breach of any representation or warranty with respect to such matter contained in this Agreement; provided, further, that to the extent such supplement or amendment relates to any matter occurring or arising on or after the date of this Agreement, then such supplement or amendment shall not in and of itself form the basis of a claim for a breach hereunder (except to the extent caused by or resulting from a breach of Section 5.2), but may be considered for purposes of determining the satisfaction of the conditions in ARTICLE VII. Such rights and obligations of such parties to amend or supplement their respective Disclosure Schedules shall terminate on the earlier to occur of (i) the termination of this Agreement and (ii) the Closing Date.
6.10 Dividends. After the date of this Agreement, each of Viking and Camber shall coordinate with the other the declaration of any dividends in respect of Viking Common Stock or Camber Common Stock and the record dates and payment dates relating thereto.
6.11 Stockholder Litigation. Viking and Camber shall give each other prompt notice of any stockholder litigation against such party or its directors or officers relating to the transactions contemplated by this Agreement, and shall give the other party the opportunity to participate (at such other’s party’s expense) in the defense or settlement of any such litigation. Viking and Camber shall give each other the right to review and comment on all filings or responses to be made by such party in connection with any such litigation and will in good faith take such comments into account. Neither Viking nor Camber shall agree to settle any such litigation without the other party’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed; provided, that, without limiting the foregoing, each party shall use reasonable best efforts so that any settlement of any such litigation includes a full release of the other party and its affiliates and does not impose any material injunction or other material equitable relief after the Effective Time upon the Combined Company, the Surviving Entity or any of their respective affiliates.
6.12 Corporate Governance; Headquarters; Other Matters.
(a) Prior to the Effective Time, Camber shall take all action necessary to cause the Board of Directors of the Combined Company to consist, as of the Effective Time, of five
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(5) directors (i) four (4) of whom shall be persons designated by Viking (each a “Viking Director Designee”), and (ii) one (1) of whom shall be a person designated by Camber (each a “Camber Director Designee” and together with the Viking Director Designees, the “Director Designees”). Three of the Director Designees, shall meet the independence standards of the NYSE, in each case as may be applicable to the Combined Company as of the Effective Time. The Director Designees shall initially be allocated in the classes as mutually agreed by Viking and Camber prior to the Effective Time.
(b) The initial composition of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee of the Board of Directors of the Combined Company, respectively, shall be mutually agreed by Viking and Camber prior to the Effective Time.
(c) Effective as of the Effective Time, James A. Doris shall serve as President and Chief Executive Officer of the Combined Company. The Lead Director of the Combined Company shall be mutually agreed by Viking and Camber prior to the Effective Time.
(d) The name of the Combined Company as of the Effective Time shall be “Camber Energy, Inc.”.
(e) As of the Effective Time, the headquarters of the Combined Company shall be located in Houston, Texas.
6.13 Acquisition Proposals.
(a) Each party agrees that it will not, and will cause each of its Subsidiaries and its and their respective directors and officers not to, and shall not permit its and their other respective Representatives to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals with respect to any Acquisition Proposal, (ii) engage or participate in any negotiations with any person concerning any Acquisition Proposal, (iii) provide any confidential or nonpublic information or data to, or have or participate in any discussions with any person relating to any Acquisition Proposal or (iv) unless this Agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement or other agreement (whether written or oral, binding or nonbinding) (other than a confidentiality agreement referred to and entered into in accordance with this Section 6.13) in connection with or relating to any Acquisition Proposal. Notwithstanding the foregoing, in the event that after the date of this Agreement and prior to the receipt of the Requisite Viking Vote, in the case of Viking, or the Requisite Camber Vote, in the case of Camber, a party receives a bona fide written Acquisition Proposal not solicited in violation of this Section 6.13, such party may, and may permit its Subsidiaries and its and its Subsidiaries’ Representatives to, furnish or cause to be furnished confidential or nonpublic information or data and participate in such negotiations or discussions with the person making the Acquisition Proposal and such person’s Representatives if the Board of Directors of such party concludes in good faith (after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisors) that taking such actions would be required to comply with its fiduciary duties under applicable Law; provided, that, prior to furnishing any confidential or nonpublic information permitted to be provided pursuant to this sentence, such party shall have entered into a confidentiality agreement with the person making
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such Acquisition Proposal on terms no less favorable to it than the Confidentiality Agreement, which confidentiality agreement shall not provide such person with any exclusive right to negotiate with such party, and shall otherwise permit such party to comply with its obligations herein. Each party will, and will cause its Representatives to, immediately cease and cause to be terminated any activities, discussions or negotiations conducted before the date of this Agreement with any person other than Viking or Camber, as applicable, with respect to any Acquisition Proposal, and request the return or destruction of any confidential information previously delivered to any such person pursuant to the terms of any confidentiality agreement to the extent provided by such agreement.
(b) Each party will promptly (within twenty-four (24) hours) advise the other party following receipt of any Acquisition Proposal or any inquiry which could reasonably be expected to lead to an Acquisition Proposal, and the substance thereof (including the terms and conditions of and the identity of the person making such inquiry or Acquisition Proposal), will provide the other party with an unredacted copy of any such Acquisition Proposal and any draft agreements, proposals or other materials received in connection with any such inquiry or Acquisition Proposal, and will keep the other party apprised of any related material developments, discussions and negotiations on a current basis, including any amendments to or revisions of the terms of such inquiry or Acquisition Proposal (other than amendments or revisions that are immaterial in all respects). Each party shall use its reasonable best efforts to enforce any confidentiality agreements (other than “standstill” provisions therein) to which it or any of its Subsidiaries is or becomes a party in accordance with the terms thereof. As used in this Agreement, “Acquisition Proposal” shall mean, with respect to Viking or Camber, as applicable, other than the Merger, any offer, proposal or inquiry, or any third-party indication of interest, by or on behalf of any third party, relating to (i) any acquisition or purchase, direct or indirect, of twenty-five percent (25%) or more of the consolidated assets of a party and its Subsidiaries or twenty-five percent (25%) or more of any class of equity or voting securities of a party or its Subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of the party, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in such third party (or its affiliates) beneficially owning twenty-five percent (25%) or more of any class of equity or voting securities of a party or its Subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of the party, or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving a party or its Subsidiaries whose assets, individually or in the aggregate, constitute twenty-five percent (25%) or more of the consolidated assets of the party, which would, in the case of this clause (iii), result in the stockholders of such party prior to such transaction ceasing to own at least seventy-five percent (75%), directly or indirectly, of such party or its applicable Subsidiaries.
(c) Nothing contained in this Agreement shall prevent a party or its Board of Directors from complying with Rule 14d-9 and Rule 14e-2 under the Exchange Act with respect to an Acquisition Proposal; provided, that such rules will in no way eliminate or modify the effect that any action pursuant to such rules would otherwise have under this Agreement.
6.14 Public Announcements. Viking and Camber agree that the initial press release with respect to the execution and delivery of this Agreement shall be a release mutually agreed to by the parties. Thereafter, each of the parties agrees that, without limiting Section 6.3, no public release or announcement or other public statement concerning this Agreement or the transactions
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contemplated hereby shall be issued by any party without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed), except (a) as required by applicable Law or the rules or regulations of any stock exchange to which the relevant party is subject, in which case the party required to make the release or announcement shall consult with the other party about, and allow the other party reasonable time to comment on, such release or announcement in advance of such issuance, (b) for such releases, announcements or statements that are consistent with other such releases, announcements or statements made after the date of this Agreement in compliance with this Section 6.14, or (c) for releases, announcements or statements made in connection with a Recommendation Change or in connection with litigation between the parties.
6.15 Change of Method. Without limiting the terms of this Agreement (a) Viking and Camber shall be empowered, upon their mutual agreement, at any time prior to the Effective Time, to change the method or structure of effecting the combination of Viking and Camber (including the provisions of ARTICLE I), if and to the extent they both deem such change to be necessary, appropriate or desirable or (b) if, at any time during the period beginning on the date that is forty (40) days after the date of this Agreement and ending on the later of (x) the time that the S-4 shall have become effective under the Securities Act and (y) the date that is sixty (60) days after the date of this Agreement, either of the Boards of Directors of Camber or Viking determines in good faith that a change in the structure of effecting the combination of Viking and Camber to a Direct Merger would be in the best interests of the Combined Company following the Merger, upon written notice to the other party of such determination, Camber and Viking shall take all action necessary, and cooperate in good faith, to effect such change in structure, including by making effective amendments to this Agreement (including the provisions of ARTICLE I) and to the S-4 to the extent necessary in connection therewith, provided that such notice may only be delivered following good faith consultation with the other party; provided, however, that no such change shall (i) alter or change the Exchange Ratio or the number of shares of Camber Common Stock received by holders of shares of Viking Common Stock in exchange for each share of Viking Common Stock, unless, in connection with any change effected pursuant to the foregoing clause (b), the economic benefits that are intended to accrue to Camber’s stockholders and Viking’s stockholders pursuant to the terms of this Agreement and the transactions contemplated hereby are identical in all but de minimis respects, (ii) adversely affect the Tax treatment of Camber’s stockholders or Viking’s stockholders pursuant to this Agreement, (iii) adversely affect the Tax treatment of Viking, Camber, the Combined Company and/or their respective Subsidiaries pursuant to this Agreement, or (iv) would reasonably be expected to prevent the consummation of the transactions contemplated by this Agreement or delay the consummation of such transactions beyond the Termination Date. The parties agree to reflect any such change in an appropriate amendment to this Agreement executed by both parties in accordance with Section 9.1.
6.16 Takeover Statutes. None of Viking, Camber, or their respective Boards of Directors shall take any action that would cause any Takeover Statute to become applicable to this Agreement or the Merger, and each shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger from any applicable Takeover Statute now or hereafter in effect. If any Takeover Statute may become, or may purport to be, applicable to the Merger, each party and the members of their respective Boards of Directors will grant such approvals and take such actions as are necessary so that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby
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and otherwise act to eliminate or minimize the effects of any Takeover Statute on the Merger, including, if necessary, challenging the validity or applicability of any such Takeover Statute.
6.17 Financing and Indebtedness. During the period from the date of this Agreement to the Effective Time, the parties hereto shall cooperate in good faith to mutually determine and use reasonable best efforts to implement any necessary, appropriate or desirable arrangements, in anticipation of the consummation of the Merger and the other transactions contemplated by this Agreement, regarding each party’s and its Subsidiaries’ credit agreements, indentures or other documents governing or relating to indebtedness of the parties and their Subsidiaries, including arrangements by way of amendments, consents, redemption, payoff, new financing or otherwise, with respect to refinancing or retaining a party’s or its Subsidiaries’ credit agreements or senior notes.
6.18 Exemption from Liability Under Section 16(b). Viking and Camber agree that, in order to most effectively compensate and retain the officers and directors of Viking subject to the reporting requirements of Section 16(a) of the Exchange Act (the “Viking Insiders”), both prior to and after the Effective Time, it is desirable that Viking Insiders not be subject to a risk of liability under Section 16(b) of the Exchange Act to the fullest extent permitted by applicable Law in connection with the conversion of shares of Viking Common Stock into shares of Camber Common Stock in the Merger and the conversion of Viking Equity Awards into corresponding Camber Equity Awards in the Merger, and for that compensatory and retentive purpose agree to the provisions of this Section 6.18. Viking shall deliver to Camber in a reasonably timely fashion prior to the Effective Time accurate information regarding the Viking Insiders, and the Boards of Directors of Viking, Camber, and the Combined Company, as applicable, or a committee of non-employee directors thereof (as such term is defined for purposes of Rule 16b-3(d) under the Exchange Act), shall reasonably promptly thereafter, and in any event prior to the Effective Time, take all such steps as may be required to cause (in the case of Viking) any dispositions of Viking Common Stock or Viking Equity Awards by the Viking Insiders, and (in the case of Camber) any acquisitions of Camber Common Stock or Camber Equity Awards by any Viking Insiders who, immediately following the Merger, will be officers or directors of the Combined Company subject to the reporting requirements of Section 16(a) of the Exchange Act, in each case pursuant to the transactions contemplated by this Agreement, to be exempt from liability pursuant to Rule 16b-3 under the Exchange Act to the fullest extent permitted by applicable Law.
6.19 Transition. As promptly as reasonably practicable after the date hereof, and in all cases subject to applicable Law and Section 6.2, each of Viking and Camber shall, and shall cause its Subsidiaries to, during normal business hours, reasonably cooperate with the other party and its Subsidiaries to facilitate the integration of the parties and their respective businesses effective as of the Closing Date or such later date as may be determined by Viking and Camber. Neither Viking, Camber nor any of their respective Subsidiaries shall be required to take any action under this Section 6.19 if such action would unduly disrupt its business.
6.20 Merger Sub Approval. Following the execution of this Agreement, Camber shall take all action necessary to cause this Agreement and the transactions contemplated by this Agreement, including the Merger, to be adopted and approved by Merger Sub and Camber as its sole stockholder, once Merger Sub has been formed.
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ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of the parties to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approvals. This Agreement shall have been adopted by the stockholders of Viking by the Requisite Viking Vote and the Share Issuance and Charter Amendment relating to the Increase In Authorized Shares shall have been approved by the stockholders of Camber by the Requisite Camber Vote.
(b) Listing; NYSE Approval. The shares of Camber Common Stock that shall be issuable pursuant to this Agreement shall have been authorized for listing on the NYSE, subject to official notice of issuance. In the event the NYSE determines that the Merger constitutes, or will constitute, a “back-door listing”/“reverse merger”, the Combined Company (and its common stock) shall qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Closing.
(c) Regulatory Approvals. (i) Any waiting period applicable to the Merger under the HSR Act shall have expired or been terminated; and (ii) all other Requisite Regulatory Approvals shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired or been terminated.
(d) S-4. The S-4 shall have become effective under the Securities Act, no stop order suspending the effectiveness of the S-4 shall have been issued, and no proceedings for such purpose shall have been initiated or threatened by the SEC and not withdrawn.
(e) No Injunctions or Restraints; Illegality. No order, injunction or decree issued by any court or Governmental Entity of competent jurisdiction or other legal restraint or prohibition enjoining or preventing the consummation of the Merger shall be in effect. No Law, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity of competent jurisdiction which prohibits or makes illegal consummation of the Merger.
(f) Fairness Opinions. Each of Camber and Viking shall have received an opinion, in writing, to the effect that as of the date thereof and based upon and subject to the matters set forth therein, the Exchange Ratio in the Merger is fair, from a financial point of view, to Camber or Viking, as applicable, and their shareholders. Such opinion shall not have been materially amended or rescinded immediately as of the Closing.
(g) Oil and Gas Acquisition. Viking, Elysium, or one of Elysium’s Subsidiaries, shall have completed the acquisition of oil and gas assets described in Viking’s Current Report on Form 8-K filed with the SEC on October 11, 2019 (the “Elysium Acquisition”).
(h) Promissory Note Maturity Date Extension. Viking shall have arranged to extend the maturity date to June 1, 2021, or later, of the promissory note executed and delivered by Viking
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in connection with Viking’s oil and gas acquisition closed on or about December 28, 2018, or any promissory note(s) issued in replacement thereof.
(i) [Intentionally Deleted.]
(j) Camber Series C Preferred Stock. Camber shall have (A) obtained the consent of the holders of its Series C Preferred Stock for the Merger, which consent shall be still be valid and enforceable as of the Closing; and (B) Camber shall not be in breach of any of its agreements with the Series C Preferred Stock holder.
(k) Merger Approval from ABC Funding, LLC. Viking shall have received the consent for the Merger from ABC Funding, LLC.
(l) Viking Broker Agreement Amendments. Viking shall have negotiated a new remuneration arrangement with Network 1 Financial Securities, Inc. with respect to such broker-dealer’s role in and compensation associated with the Merger, on terms and conditions satisfactory to Viking and Camber. Viking shall have negotiated a new remuneration arrangement with RHK Capital with respect to such broker-dealer’s role in and compensation associated with Viking’s merger with Camber, on terms and conditions satisfactory to Viking and Camber.
(m) Existing Management of Camber. Members of the existing management team of Camber shall execute agreements as to their role with and compensation from the Combined Company, for a transitional period post-Closing, of six (6) months.
(n) Debt of Viking. At Closing, the only loan obligations with a maturity date in 2020 that Viking shall have shall be the series of $13.5 million of convertible debt issued in connection with Viking’s offering completed in December of 2018.
(o) Purchase of Interest In Elysium Acquisition. Camber shall, subject to approval of Camber’s Series C Preferred Stock holders, have acquired 25% of Elysium as part of a $5,000,000 investment in Viking’s Rule 506(c) offering (the “Pre-Merger Acquisition”), and in connection therewith shall have received a $5,000,000 promissory note by Viking, accruing interest at 10.5% per annum (the “Acquisition Note”). The Acquisition Note shall be forgiven in the event the Merger closes, and the Acquisition Note shall be due 90 days after the date that this Agreement is terminated by any party for any reason, at which time an additional payment shall also be due to Camber and payable by Viking in an amount equal to (i) the amount owed by Camber to the Series C Preferred Stock holder in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock, minus (ii) the amount due to Camber pursuant to the Acquisition Note. As an example for clarity, if this Agreement were terminated, $5,525,000 were due to Camber under the Acquisition Note, and Camber owed its Series C Preferred Stock holder $5,775,000 in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock, Viking would owe an additional $250,000 to Camber along with the amount due under the Acquisition Note. In the event that Camber’s Series C Preferred Stock holders do not approve the Pre-Merger Acquisition, such requirement to repay the Acquisition Note (and make the additional payment in connection therewith) shall be deemed waived and terminated.
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7.2 Conditions to Obligations of Viking. The obligation of Viking to effect the Merger is also subject to the satisfaction, or waiver by Viking, at or prior to the Effective Time, of the following conditions:
(a) Representations and Warranties. The representations and warranties of Camber set forth in Section 3.2(a), Section 3.3(a) and Section 3.7(a) (in each case after giving effect to the lead-in to ARTICLE III) shall be true and correct (other than, in the case of Section 3.2(a) and Section 3.3(a), such failures to be true and correct as are de minimis) in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date), and the representations and warranties of Camber set forth in Section 3.1(a), and Section 3.6 (in each case, after giving effect to the lead-in to ARTICLE III) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date). All other representations and warranties of Camber set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead-in to ARTICLE III) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date); provided, however, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber. Viking shall have received a certificate dated as of the Closing Date and signed on behalf of Camber by the Chief Executive Officer or the Chief Financial Officer of Camber to the foregoing effect.
(b) Performance of Obligations of Camber. Camber shall have performed in all material respects the obligations, covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Viking shall have received a certificate dated as of the Closing Date and signed on behalf of Camber by the Chief Executive Officer or the Chief Financial Officer of Camber to such effect.
(c) No Material Adverse Effect. Since the date of this Agreement, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Camber.
7.3 Conditions to Obligations of Camber. The obligation of Camber to effect the Merger is also subject to the satisfaction, or waiver by Camber, at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of Viking set forth in Section 4.2(a), Section 4.3(a) and Section 4.7(a) (in each case, after giving effect to the lead-in to ARTICLE IV) shall be true and correct (other than, in the case of Section 4.2(a) and
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Section 4.3(a), such failures to be true and correct as are de minimis) in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date), and the representations and warranties of Viking set forth in Section 4.1(a), and Section 4.6 (in each case, after giving effect to the lead-in to ARTICLE IV) shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date). All other representations and warranties of Viking set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead-in to ARTICLE IV) shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date), provided, however, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking. Camber shall have received a certificate dated as of the Closing Date and signed on behalf of Viking by the Chief Executive Officer or the Chief Financial Officer of Viking to the foregoing effect.
(b) Performance of Obligations of Viking. Viking shall have performed in all material respects the obligations, covenants and agreements required to be performed by it under this Agreement at or prior to the Closing Date, and Camber shall have received a certificate dated as of the Closing Date and signed on behalf of Viking by the Chief Executive Officer or the Chief Financial Officer of Viking to such effect.
(c) No Material Adverse Effect. Since the date of this Agreement, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Viking.
(d) Due Diligence on Elysium Acquisition. Camber shall, in its reasonable determination, be satisfied with its due diligence on the Elysium Acquisition and the title and contracts relating thereto, the reserves relating thereto and with Phase 1 environmental results on the Elysium Acquisition.
(e) No Viking Preferred Stock. There shall be no preferred stock of Viking outstanding at Closing.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or (except in the case of Section 8.1(f) or Section 8.1(g)) after receipt of the Requisite Viking Vote or the Requisite Camber Vote:
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(a) by mutual written consent of Viking and Camber;
(b) by either Viking or Camber if (i) any Governmental Entity that must grant a Requisite Regulatory Approval has denied approval of the Merger and such denial has become final and nonappealable or (ii) any court or Governmental Entity of competent jurisdiction shall have issued a final and nonappealable order, injunction or decree or other legal restraint or prohibition permanently enjoining or preventing the consummation of the Merger, unless the failure to obtain a Requisite Regulatory Approval or the issuance of such order, injunction, decree or other legal restraint, as applicable, shall be principally due to the failure of the party seeking to terminate this Agreement to perform or observe the obligations, covenants and agreements of such party set forth herein;
(c) by either Viking or Camber if the Merger shall not have been consummated on or before June 30, 2020, provided that Camber or Viking shall have the right to extend such date from time to time, until up to December 31, 2020, in the event that Camber has not fully resolved SEC comments on the S-4 or other SEC filings related to the Merger, and Camber is responding to such comments in a reasonable fashion (as extended, the “Termination Date”), unless the failure of the Closing to occur by such date shall be principally due to the failure of the party seeking to terminate this Agreement to perform or observe the obligations, covenants and agreements of such party set forth herein;
(d) by either Viking or Camber (provided, that the terminating party is not then in material breach of any obligation, covenant or other agreement contained herein) if there shall have been a breach of any of the obligations, covenants or agreements or any of the representations or warranties (or any such representation or warranty shall cease to be true) set forth in this Agreement on the part of Camber, in the case of a termination by Viking, or Viking, in the case of a termination by Camber, which breach or failure to be true, either individually or in the aggregate with all other breaches by such party (or failures of such representations or warranties to be true), would constitute, if occurring or continuing on the Closing Date, the failure of a condition set forth in Section 7.2, in the case of a termination by Viking, or Section 7.3, in the case of a termination by Camber, and which is not cured within thirty (30) days (or such fewer days as remain prior to the Termination Date) following written notice to Camber, in the case of a termination by Viking, or Viking, in the case of a termination by Camber, or by its nature or timing cannot be cured during such period (or such fewer days as remain prior to the Termination Date);
(e) by either Viking or Camber if (i) the Requisite Viking Vote shall not have been obtained following a vote taken at the Viking Meeting (unless such Viking Meeting has been validly adjourned or postponed, or validly requested by Camber to be adjourned or postponed, in accordance with Section 6.3, in which case at the final adjournment or postponement thereof) upon the adoption of this Agreement by the stockholders of Viking or (ii) the Requisite Camber Vote shall not have been obtained following a vote taken at the Camber Meeting (unless such Camber Meeting has been validly adjourned or postponed, or validly requested by Viking to be adjourned or postponed, in accordance with Section 6.3, in which case at the final adjournment or postponement thereof) upon the approval of the Share Issuance by the stockholders of Viking;
(f) by Camber, at any time prior to obtaining the Requisite Viking Vote, if (i) Viking or the Board of Directors of Viking shall have made a Recommendation Change or (ii) there has
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been a Willful Breach (defined below) by Viking (including by the Board of Directors of Viking) of its obligations under Sections 6.3 or 6.13(a); or
(g) by Viking, at any time prior to obtaining the Requisite Camber Vote, if (i) Camber or the Board of Directors of Camber shall have made a Recommendation Change or (ii) there has been a Willful Breach by Camber (including by the Board of Directors of Camber) of its obligations under Sections 6.3 or 6.13(a) in any material respect.
8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either Viking or Camber as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, and none of Viking, Camber, any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated hereby, except that (i) Section 6.2(b), Section 6.14, this Section 8.2 and ARTICLE IX shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, neither Viking nor Camber shall be relieved or released from any liabilities or damages arising out of its Actual Fraud or Willful Breach of any provision of this Agreement. For purposes of this Agreement, “Actual Fraud” means (i) a person or party made a representation in connection with entering into this Agreement that was false; (ii) such person or party knew at the time the representation was made that such representation was false; (iii) such person or party intended another party to this Agreement to rely on the representation; and (iv) such other party to this Agreement reasonably or justifiably actually relied upon the misrepresentation to such party’s detriment; and “Willful Breach” means, with respect to any party, a material breach or failure to perform that is the consequence of an act or omission of such party with the knowledge that such act or omission would, or would be reasonably expected to, cause a material breach of this Agreement.
(b) In the event of termination of this Agreement through no fault of Viking, due to the failure of the Camber stockholders to approve the Charter Amendment and the terms of this Agreement, including the Merger, Camber shall issue Viking 300,000 restricted shares of Camber Common Stock, subject to Viking confirming its status as an ‘accredited investor’ and making certain other customary representations to Camber in order to allow Camber to claim an exemption from registration for such issuance, and subject to NYSE American additional listing approval of such shares. No shares of Camber shall be due to Viking upon the termination of this Agreement by either party for any reason, other than as specifically set forth in the first sentence of this paragraph.
(c) Notwithstanding anything to the contrary herein, in the event of termination of this Agreement by mutual agreement of the parties because the conditions in Sections 7.1(b)-(d) have a reasonable likelihood of not being satisfied, through no fault of Camber or Viking, Camber will retain a 15% interest in Elysium if the Acquisition Note is repaid on or prior to the 90th day following the termination of this Agreement (and the additional payment is made in connection therewith as described in Section 7.1(o)), and it will return a 10% interest in Elysium to Viking.
(d) Except as otherwise set forth in Section 8.2(c) above or Section 8.2(e) or Section 8.2(f) below, in the event of termination of this Agreement by either party, pursuant to the termination provisions of this Agreement as set forth above, through no fault of Camber, Camber
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will retain a 20% interest in Elysium if the Acquisition Note is repaid on or prior to the 90th day following the termination of this Agreement (and the additional payment is made in connection therewith as described in Section 7.1(o)), and it will return a 5% interest in Elysium to Viking.
(e) Notwithstanding anything to the contrary herein, in the event of termination of this Agreement due to either (i) a Camber Material Adverse Item, or (ii) Camber’s determination not to proceed with the Merger even though Viking has substantially performed its obligations pursuant to this Agreement, and if the Acquisition Note is repaid on or prior to the 90th day following the termination of this Agreement (and the additional payment is made in connection therewith as described in Section 7.1(o)), Camber will return the 25% interest in Elysium to Viking.
(f) Notwithstanding anything to the contrary herein, if the Acquisition Note is not repaid on or prior to the 90th day following the termination of this Agreement (or the additional payment is not made in connection therewith as described in Section 7.1(o)), Camber will retain the entire 25% interest in Elysium.
ARTICLE IX
GENERAL PROVISIONS
9.1 Amendment. Subject to compliance with applicable Law, this Agreement may be amended by the parties hereto at any time before or after the receipt of the Requisite Viking Vote or the Requisite Camber Vote; provided, however, that after the receipt of the Requisite Viking Vote or the Requisite Camber Vote, there may not be, without further approval of the stockholders of Viking or Camber, as applicable, any amendment of this Agreement that requires such further approvals under applicable Law. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto and duly approved by the parties’ respective Boards of Directors or a duly authorized committee thereof.
9.2 Extension; Waiver. At any time prior to the Effective Time, each of the parties hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by such other party pursuant hereto, and (c) waive compliance with any of the agreements or satisfaction of any conditions for its benefit contained herein; provided, however, that after the receipt of the Requisite Viking Vote or the Requisite Camber Vote, there may not be, without further approval of the stockholders of Viking or Camber, as applicable, any extension or waiver of this Agreement or any portion thereof that requires such further approval under applicable Law. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
9.3 Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties, obligations, covenants and agreements in this Agreement (or in any certificate delivered pursuant to this Agreement) shall survive the Effective Time, except for Section 6.8 and for those other obligations, covenants and agreements contained herein which by their terms apply in whole or in part after the Effective Time.
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9.4 Expenses. Except as otherwise expressly provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense; provided, however, all filing and other fees paid to Governmental Entities in connection with the Merger and the other transactions contemplated hereby shall be borne equally by Camber and Viking. Except as set forth in Section 2.2(c), subject to the occurrence of the Closing, the Combined Company will pay or cause to be paid all transfer (including real estate transfer), stamp and documentary Taxes imposed on Camber, Viking, the Combined Company or their respective subsidiaries as a result of the consummation of the Merger.
9.5 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, by e-mail transmission (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to Camber to:
Camber Energy, Inc.
1415 Louisiana, Suite 3500
Houston, TX 77002
Attn: Louis Schott; and Robert Schleizer
Email: louisgschott@gmail.com; and bschleizer@blackbriaradvisors.com
with copies that shall not constitute notice to:
Dickinson
Wright PLLC
350 East Las Olas Blvd
Suite 1750
Ft. Lauderdale FL 33301
Attn: Joel Mayersohn
Email: JMayersohn@dickinsonwright.com
If to Viking to:
Viking Energy Group, Inc.
15915 Katy Freeway
Suite 450
Houston, TX 77094
Attn: James A. Doris
Email: jdoris@vikingenergygroup.com
with copies that shall not constitute notice to:
Brunson Chandler & Jones, PLLC
Walker Center
14th Floor
175 S. Main Street, Suite 1410
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Salt Lake City, UT 84111
Attn: Lance Brunson, Esq.
Email: lance@bcjlaw.com
and
If to the Combined Company or the Surviving Entity, to:
Viking Energy Group, Inc.
15915 Katy Freeway
Suite 450
Houston, TX 77094
Attn: James A. Doris
Email: jdoris@vikingenergygroup.com
with copies that shall not constitute notice to:
Brunson Chandler & Jones, PLLC
Walker Center
14th Floor
175 S. Main Street, Suite 1410
Salt Lake City, UT 84111
Attn: Lance Brunson, Esq.
Email: lance@bcjlaw.com
Dickinson
Wright PLLC
350 East Las Olas Blvd
Suite 1750
Ft. Lauderdale FL 33301
Attn: Joel Mayersohn
Email: JMayersohn@dickinsonwright.com
9.6 Interpretation. The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement. When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference shall be to an Article or Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The word “or” shall not be exclusive. References to “the date hereof” shall mean the date of this Agreement. As used in this Agreement, the “knowledge” of Camber means the actual knowledge of any of the persons listed on Section 9.6 of the Camber Disclosure Schedule, and the
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“knowledge” of Viking means the actual knowledge of any of the persons listed on Section 9.6 of the Viking Disclosure Schedule. As used herein, (i) the term “person” means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature, (ii) an “affiliate” of a specified person is any person that directly or indirectly controls, is controlled by, or is under common control with, such specified person and (iii) the term “made available” means any document or other information that was (a) provided in writing by one party or its Representatives to the other party and its Representatives at least one (1) day prior to the date hereof, (b) included in the virtual data room of a party at least one (1) day prior to the date hereof, or (c) filed by a party with the SEC and publicly available on EDGAR at least one (1) day prior to the date hereof. The Camber Disclosure Schedule and the Viking Disclosure Schedule, as well as all other schedules and all exhibits hereto, shall be deemed part of this Agreement and included in any reference to this Agreement.
9.7 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
9.8 Entire Agreement. This Agreement (including the schedules, documents and instruments referred to herein) together with the Confidentiality Agreement constitutes the entire agreement among the parties and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.
9.9 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to any applicable conflicts of law principles.
(b) Each party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby exclusively in the state courts of Nevada and any state appellate court therefrom within the State of Nevada (the “Chosen Courts”), and, solely in connection with claims arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any party, and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance with Section 9.5.
9.10 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE EXTENT PERMITTED BY LAW AT THE TIME OF INSTITUTION OF THE APPLICABLE LITIGATION, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
| A-75 |
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10.
9.11 Assignment; Third-Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party (which may be withheld by such other party in its sole discretion). Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 6.8, this Agreement (including the documents and instruments referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set forth herein. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance herewith without notice or liability to any other person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
9.12 Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and, accordingly, that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof (including the parties’ obligation to consummate the Merger), in addition to any other remedy to which they are entitled at Law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at Law would be adequate, and (b) any requirement under any Law to post security or a bond as a prerequisite to obtaining equitable relief.
9.13 Severability. Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction such that the invalid, illegal or unenforceable provision or portion thereof shall be interpreted to be only so broad as is enforceable.
| A-76 |
9.14 Delivery by Facsimile or Electronic Transmission. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments or waivers hereto or thereto, to the extent signed and delivered by means of a facsimile machine or by e-mail delivery of a “.pdf” format data file, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a signature to this Agreement or any amendment hereto or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or e-mail delivery of a “.pdf” format data file as a defense to the formation of a contract and each party hereto forever waives any such defense.
9.15 Further Actions. Except as otherwise expressly provided in this Agreement, the parties shall, and shall cause their respective affiliates to, use their respective reasonable best efforts to take, or cause to be taken, all appropriate action, to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable Law to consummate and make effective the Merger and the other transactions contemplated herein as promptly as practicable (and in any event no later than the Termination Date).
[Signature Page Follows]
| A-77 |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
| CAMBER ENERGY, INC. | ||
| /s/ Louis G. Schott | ||
| Name: | Louis G. Schott | |
| Title: | Interim Chief Executive Officer | |
| VIKING ENERGY GROUP, INC. | ||
| /s/ James A. Doris | ||
| Name: | James A. Doris | |
| Title: | Chief Executive Officer | |
[Signature Page to Agreement and Plan of Merger]
| A-78 |
Exhibit A
Amended and Restated Combined Company Charter*
* Page/exhibit left blank in actual merger agreement.
| A-79 |
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This First Amendment to Agreement and Plan of Merger (this “Agreement”), dated and effective as of May [ ], 2020 (the “Effective Date”), amends that certain Agreement and Plan of Merger dated February 3, 20201 (the “Plan of Merger”), by and between Viking Energy Group, Inc., a Nevada corporation (“Viking”), and Camber Energy, Inc., a Nevada corporation (“Camber”). Certain capitalized terms used below but not otherwise defined shall have the meanings given to such terms in the Plan of Merger.
WHEREAS, Camber and Viking desire to amend the Plan of Merger on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants, agreements, and considerations herein contained, and other good and valuable consideration, which consideration the parties hereby acknowledge and confirm the receipt and sufficiency thereof, the parties hereto agree as follows:
1. Amendments to Plan of Merger. Effective as of the Effective Date, Section 1.5(b) of the Plan of Merger is amended and restated to provide as follows:
“(b) Subject to Section 2.2(e), each share of Viking Common Stock issued and outstanding immediately prior to the Effective Time, except for shares of Viking Common Stock that are owned by Camber, Viking or Merger Sub (the “Cancelled Shares”), shall be converted into the right to receive a number of shares (the “Merger Consideration”) of Camber Common Stock equal to the following (the “Exchange Ratio”): the number of shares of Camber Common Stock considered outstanding on a fully diluted basis immediately prior to Closing, excluding any shares into which the Series C Preferred Stock may be convertible, multiplied by the difference between 100 and the Camber Percentage (as defined below), divided by the Camber Percentage, divided by the number of shares of Viking Common Stock considered outstanding on a fully diluted basis immediately prior to Closing, rounded up to the nearest one-hundred thousandth (1/100,000th). The “Camber Percentage” shall initially equal 20, and the Camber Percentage shall be subject to adjustment as follows: (i) for each (A) additional $500,000 of unencumbered cash (without any associated debt) available for use by the Combined Company after the Effective Time, with a permitted use being to, among other things, pay debt obligations of Viking outside of Viking’s Ichor division or Elysium division, which comes from equity sold by Camber for cash from February 3, 2020 through the Effective Time which is not contingent or conditional upon the closing of the Plan of Merger (the “Camber Surplus Cash”), or (B) $500,000 in other unencumbered assets acquired by Camber after the date hereof and prior to Closing without increasing Camber’s liabilities (the “Other Camber Surplus Assets”), the Camber Percentage shall be increased by 0.5 (a “Camber Percentage Increase”), or subject to the written agreement of both parties, such Camber Surplus Cash or Other Camber Surplus Assets, as applicable, shall be distributed to the Camber Common Stock holders subject to applicable Law; and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) available for use by the Combined Company after the Effective Time which is not contingent or conditional upon the closing of the Plan of Merger, with a permitted use being to, among other things, pay debt obligations of Viking outside of Viking’s Ichor division or Elysium division (“Viking Unencumbered Cash”) in excess of $500,000 at Closing, which comes from equity sold by Viking for cash from February 3, 2020 through the Effective Time (the “Viking Surplus Cash”), the Camber Percentage shall decrease by 0.5 (a “Camber Percentage Decrease”). It is understood and agreed by each of Camber and Viking that neither party will raise capital from the other party’s existing shareholders without the prior written consent of such other party, including, but not limited to Viking contacting Discover Growth Fund for such purpose. Notwithstanding the above, the aggregate Camber Percentage Increase shall not exceed 5% and the aggregate Camber Percentage Decrease shall not exceed 5% pursuant to adjustments made to the Camber Percentage pursuant to this Section 1.5(b).”
1 https://www.sec.gov/Archives/edgar/data/1309082/000158069520000068/ex2-1.htm
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2. Consideration. Each of the parties agrees and confirms by signing below that they have received valid consideration in connection with this Agreement and the transactions contemplated herein.
3. Mutual Representations, Covenants and Warranties. Each of the parties, for themselves and for the benefit of each of the other parties hereto, represents, covenants and warranties that:
(a) Such party has all requisite power and authority, corporate or otherwise, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement constitutes the legal, valid and binding obligation of such party enforceable against such party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and general equitable principles;
(b) The execution and delivery by such party and the consummation of the transactions contemplated hereby and thereby do not and shall not, by the lapse of time, the giving of notice or otherwise: (i) constitute a violation of any law; or (ii) constitute a breach of any provision contained in, or a default under, any governmental approval, any writ, injunction, order, judgment or decree of any governmental authority or any contract to which such party is bound or affected; and
(c) Any individual executing this Agreement on behalf of an entity has authority to act on behalf of such entity and has been duly and properly authorized to sign this Agreement on behalf of such entity.
4. Further Assurances. The parties agree that, from time to time, each of them will take such other action and to execute, acknowledge and deliver such contracts, deeds, or other documents as may be reasonably requested and necessary or appropriate to carry out the purposes and intent of this Agreement and the transactions contemplated herein.
5. Effect of Agreement. Upon the effectiveness of this Agreement, each reference in the Plan of Merger to “Agreement,” “hereunder,” “hereof,” “herein” or words of like import shall mean and be a reference to such Plan of Merger as modified or amended hereby.
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6. Plan of Merger to Continue in Full Force and Effect. Except as specifically modified or amended herein, the Plan of Merger and the terms and conditions thereof shall remain in full force and effect.
7. Entire Agreement. This Agreement sets forth all of the promises, agreements, conditions, understandings, warranties and representations among the parties with respect to the transactions contemplated hereby and thereby, and supersedes all prior agreements, arrangements and understandings between the parties, whether written, oral or otherwise.
8. Construction. In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders.
9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without reference to conflicts of law principles except to the extent that United States federal law preempts Nevada law, in which case United States federal law (including, without limitation, copyright, patent and federal trademark law) shall apply, without reference to conflicts of law principles.
10. Heirs, Successors and Assigns. This Agreement shall bind and inure to the benefit of the parties and their respective successors and permitted assigns. Neither party shall be able to assign this Agreement without the prior written consent of the other party; provided, that, either party can assign this Agreement to a successor to all or substantially all of its business to which this Agreement relates, whether by asset sale, merger, reorganization or otherwise.
11. Counterparts and Signatures. This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments hereto or thereto, may be executed in one or more counterparts, all of which shall constitute one and the same instrument. Any such counterpart, to the extent delivered by means of a facsimile machine or by .pdf, .tif, .gif, .jpeg or similar attachment to electronic mail (any such delivery, an “Electronic Delivery”) shall be treated in all manner and respects as an original executed counterpart and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No party shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense relates to lack of authenticity.
[Remainder of page left intentionally blank. Signature page follows.]
| A-82 |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written to be effective as of the Effective Date.
| “Camber” | |
| CAMBER ENERGY, INC. | |
| /s/ Louis G. Schott | |
| Name: Louis G. Schott | |
| Title: Interim Chief Executive Officer | |
| “Viking” | |
| VIKING ENERGY GROUP, INC. | |
| /s/ James A. Doris | |
| Name: James A. Doris | |
| Title: Chief Executive Officer |
| A-83 |
 | |
| *090204* |
 |
BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov |
| Certificate of Amendment | |
| (PURSUANT TO NRS 78.385 AND 78.390) | |
| USE BLACK INK ONLY - DO NOT HIGHLIGHT | ABOVE SPACE IS FOR OFFICE USE ONLY |
Certificate of Amendment to Articles
of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
| 1. Name of corporation: |
| Camber Energy, Inc. |
| 2. The articles have been amended as follows: (provide article numbers, if available) |
| Article Four Capital Stock is deleted and replaced in its entirety with Article Four set forth on the attachment hereto (which shall have no effect on any previously designated series of preferred stock) |
3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* have voted in favor of the amendment is:
| 4. Effective date and time of filing: (optional) | Date: | Time: | |||
| (must not be later than 90 days after the certificate is filed) | |||||
B-1
5. Signature: (required)
| X | |
| Signature of Officer |
*lf any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
| This form must be accompanied by appropriate fees. | Nevada Secretary of State Amend Profit-After Revised: 1-5-15 |
ARTICLE FOUR. CAPITAL STOCK
A. General Authorization.
The Corporation has the authority to issue Two Hundred and Sixty Million (260,000,000) shares of stock consisting of:
| (1) | Common Stock. Two Hundred and Fifty Million (250,000,000) shares of common stock, having a par value of $0.001 per share (the “Common Stock”); and | |
| (2) | Preferred Stock. Ten Million (10,000,000) shares of Preferred Stock having a par value of $0.001 per share (the “Preferred Stock”). |
All capital stock when issued shall be fully paid and nonassessable. No holder of shares of stock of this Corporation is entitled as such to any pre-emptive or preferential rights to subscribe to any unissued stock or any other securities which the Corporation may now or hereafter issue.
B. Common Stock.
| (1) | Number of Shares. The Common Stock shall consist of Two Hundred and Fifty Million (250,000,000) shares. |
| (2) | Voting. Except as provided in these Articles of Incorporation or by applicable law, each holder of Common Stock is entitled to one vote for each share of Common Stock held of record on all matters as to which Common Stockholders are entitled to vote, which voting rights shall not be cumulative in any election of Directors. |
| (3) | Other Rights. Each share of Common Stock issued and outstanding shall be identical in all respects with each other such share, and no dividends shall be paid on any shares of Common Stock unless the same dividend is paid on all shares of Common Stock outstanding at the time of such payment. Except for and subject to those rights expressly granted to the holders of Preferred Stock and except as may be provided by the laws of the State of Nevada, the Common Stockholders shall have all other rights of stockholders. |
B-2
C. Preferred Stock.
Subject to the terms contained in any designation of a series of Preferred Stock, the Board of Directors is expressly authorized, at any time and from time to time, to fix, by resolution or resolutions, the following provisions for shares of any class or classes of Preferred Stock of the Corporation:
| (1) | The designation of such class or series, the number of shares to constitute such class or series which may be increased (but not below the number of shares of that class or series then outstanding) by a resolution of the Board of Directors; |
| (2) | Whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; |
| (3) | The dividends, if any, payable on such class or series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any share of stock of any other class or any other shares of the same class; |
| (4) | Whether the shares of such class or series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption or a formula to determine the times, prices and such other conditions; |
| (5) | The amount or amounts payable upon shares of such series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; |
| (6) | Whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund, and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; |
| (7) | Whether the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of the same class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchanges; |
| (8) | The limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of the Common Stock or shares of stock of any other class or any other series of the same class; |
| (9) | The conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issuance of any additional stock, including additional shares of such class or series or of any other series of the same class or of any other class; |
| (10) | The ranking (be it pari passu, junior or senior) of each class or series vis-à-vis any other class or series of any class of Preferred Stock as to the payment of dividends, the distribution of assets and all other matters; |
| (11) | Facts or events to be ascertained outside the articles of incorporation of the Corporation, or the resolution establishing the class or series of stock, upon which any rate, condition or time for payment of distributions on any class or series of stock is dependent and the manner by which the fact or event operates upon the rate, condition or time of payment; |
| (12) | Any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of the Articles of Incorporation of this Corporation, to the full extent permitted by the laws of the State of Nevada. |
The powers, preferences and relative, participating, optional and other special rights of each class or series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
B-3
 | |
| *090204* |
 |
BARBARA K. CEGAVSKE Secretary of State 202 North Carson Street Carson City, Nevada 89701-4201 (775) 684-5708 Website: www.nvsos.gov |
| Certificate of Amendment | |
| (PURSUANT TO NRS 78.385 AND 78.390) | |
| USE BLACK INK ONLY - DO NOT HIGHLIGHT | ABOVE SPACE IS FOR OFFICE USE ONLY |
Certificate of Amendment to Articles
of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
| 1. Name of corporation: |
| Camber Energy, Inc. |
| 2. The articles have been amended as follows: (provide article numbers, if available) |
| Article Four Capital Stock is deleted and replaced in its entirety with Article Four set forth on the attachment hereto (which shall have no effect on any previously designated series of preferred stock) |
3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation* have voted in favor of the amendment is:
| 4. Effective date and time of filing: (optional) | Date: | Time: | |||
| (must not be later than 90 days after the certificate is filed) | |||||
C-1
5. Signature: (required)
| X | |
| Signature of Officer |
*lf any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless to limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
| This form must be accompanied by appropriate fees. | Nevada Secretary of State Amend Profit-After Revised: 1-5-15 |
ARTICLE FOUR. CAPITAL STOCK
A. General Authorization.
The Corporation has the authority to issue Two Hundred and Sixty Million (260,000,000)1 shares of stock consisting of:
| (1) | Common Stock. Two Hundred and Fifty Million (250,000,000)1 shares of common stock, having a par value of $0.001 per share (the “Common Stock”); and | |
| (2) | Preferred Stock. Ten Million (10,000,000) shares of Preferred Stock having a par value of $0.001 per share (the “Preferred Stock”). |
All capital stock when issued shall be fully paid and nonassessable. No holder of shares of stock of this Corporation is entitled as such to any pre-emptive or preferential rights to subscribe to any unissued stock or any other securities which the Corporation may now or hereafter issue.
B. Common Stock.
| (1) | Number of Shares. The Common Stock shall consist of Two Hundred and Fifty Million (250,000,000)1 shares. | |
| (2) | Voting. Except as provided in these Articles of Incorporation or by applicable law, each holder of Common Stock is entitled to one vote for each share of Common Stock held of record on all matters as to which Common Stockholders are entitled to vote, which voting rights shall not be cumulative in any election of Directors. | |
| (3) | Other Rights. Each share of Common Stock issued and outstanding shall be identical in all respects with each other such share, and no dividends shall be paid on any shares of Common Stock unless the same dividend is paid on all shares of Common Stock outstanding at the time of such payment. Except for and subject to those rights expressly granted to the holders of Preferred Stock and except as may be provided by the laws of the State of Nevada, the Common Stockholders shall have all other rights of stockholders. |
1 Assuming that the Camber charter amendment proposal is approved.
C-2
C. Preferred Stock.
Subject to the terms contained in any designation of a series of Preferred Stock, the Board of Directors is expressly authorized, at any time and from time to time, to fix, by resolution or resolutions, the following provisions for shares of any class or classes of Preferred Stock of the Corporation:
| (1) | The designation of such class or series, the number of shares to constitute such class or series which may be increased (but not below the number of shares of that class or series then outstanding) by a resolution of the Board of Directors; |
| (2) | Whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; |
| (3) | The dividends, if any, payable on such class or series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any share of stock of any other class or any other shares of the same class; |
| (4) | Whether the shares of such class or series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption or a formula to determine the times, prices and such other conditions; |
| (5) | The amount or amounts payable upon shares of such series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; |
| (6) | Whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund, and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; |
| (7) | Whether the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of the same class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchanges; |
| (8) | The limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of the Common Stock or shares of stock of any other class or any other series of the same class; |
| (9) | The conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issuance of any additional stock, including additional shares of such class or series or of any other series of the same class or of any other class; |
| (10) | The ranking (be it pari passu, junior or senior) of each class or series vis-à-vis any other class or series of any class of Preferred Stock as to the payment of dividends, the distribution of assets and all other matters; |
| (11) | Facts or events to be ascertained outside the articles of incorporation of the Corporation, or the resolution establishing the class or series of stock, upon which any rate, condition or time for payment of distributions on any class or series of stock is dependent and the manner by which the fact or event operates upon the rate, condition or time of payment; |
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| (12) | Any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of the Articles of Incorporation of this Corporation, to the full extent permitted by the laws of the State of Nevada. |
The powers, preferences and relative, participating, optional and other special rights of each class or series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
Reverse Stock Split of Outstanding Common Stock
Effective as of the effective date set forth under “Effective date and time of filing” on this Certificate of Amendment to Articles of Incorporation (or in the absence of such date, on the date such Amendment to the Articles of Incorporation is filed with the Secretary of State of Nevada)(the “Effective Time”), every [5 to 25, depending on the final ratio approved by the Board of Directors] shares of the Corporation’s common stock (but not any shares of Preferred Stock), issued and outstanding immediately prior to the Effective Time, or held in treasury prior to the Effective Time (collectively the “Old Capital Stock”), shall be automatically reclassified and combined into One (1) share of common stock (the “Reverse Stock Split”). Any stock certificate that, immediately prior to the Effective Time, represented shares of Old Capital Stock will, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the number of shares as equals the quotient obtained by dividing the number of shares of Old Capital Stock represented by such certificate immediately prior to the Effective Time by [5 to 25, depending on the final ratio approved by the Board of Directors], subject to any adjustments for fractional shares as set forth below; provided, however, that each person holding of record a stock certificate or certificates that represented shares of Old Capital Stock shall receive, upon surrender of such certificate or certificates, a new certificate or certificates evidencing and representing the number of shares of capital stock to which such person is entitled under the foregoing reclassification. No fractional shares of capital stock shall be issued as a result of the Reverse Stock Split. In lieu of any fractional share of capital stock to which a stockholder would otherwise be entitled, the Corporation shall issue that number of shares of capital stock as rounded up to the nearest whole share. The Reverse Stock Split shall have no effect on the number of authorized shares of capital stock, previously designated series of preferred stock (except to the extent such split adjusts the conversion ratio thereof) or the par value thereof as set forth above in the preceding paragraphs.
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CAMBER ENERGY, INC.
2020 EQUITY INCENTIVE PLAN
TABLE OF CONTENTS
2020 Equity Incentive Plan
Camber Energy, Inc.
CAMBER ENERGY, INC.
2020 EQUITY INCENTIVE PLAN
1.1. This 2020 Equity Incentive Plan of Camber Energy, Inc. (the “Company”) is intended to secure for the Company and its Affiliates the benefits arising from ownership of the Company’s Common Stock by the Employees, Officers, Directors and Consultants of the Company and its Affiliates, all of whom are and will be responsible for the Company’s future growth. The Plan is designed to help attract and retain for the Company and its Affiliates personnel of superior ability for positions of exceptional responsibility, to reward Employees, Officers, Directors and Consultants for their services and to motivate such individuals through added incentives to further contribute to the success of the Company and its Affiliates. With respect to persons subject to Section 16 of the Act, transactions under this Plan are intended to satisfy the requirements of Rule 16b-3 of the Act.
1.2. Awards under the Plan may be made to an Eligible Person in the form of (i) Incentive Stock Options (to Eligible Employees only); (ii) Nonqualified Stock Options; (iii) Restricted Stock; (iv) Stock Awards; (v) Performance Shares; or (vi) any combination of the foregoing.
1.3. The Company’s Board of Directors adopted the Plan on [●], 2020, subject to stockholder approval (the “Adoption Date”). This Plan shall be subject to stockholder approval and shall not become effective until approved by stockholders. The date of such stockholder approval shall be defined as the “Effective Date”. Stockholder approval is to be obtained in accordance with the Company’s Articles of Incorporation and Bylaws, each as amended, and Applicable Laws. Unless sooner terminated as provided elsewhere in this Plan, this Plan shall terminate upon the close of business on the day next preceding the tenth (10th) anniversary of the Adoption Date. Award Agreements outstanding on such date shall continue to have force and effect in accordance with the provisions thereof.
1.4. The Plan shall be governed by, and construed in accordance with, the laws of the State of Nevada (except its choice-of-law provisions).
1.5. Capitalized terms shall have the meaning provided in ARTICLE II unless otherwise provided in this Plan or any related Award Agreement.
DEFINITIONS. Except where the context otherwise indicates, the following definitions apply:
2.1. “Act” means the Securities Exchange Act of 1934, as now in effect or as hereafter amended.
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2.2. “Adoption Date” has the meaning given to such term in Section 1.3.
2.3. “Administrator” means the Board or a Committee.
2.4. “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereinafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
2.5. “Applicable Laws” means all applicable laws, rules, regulations and requirements, including, but not limited to, all applicable U.S. federal, state or local laws, any Stock Exchange rules or regulations and the applicable laws, rules or regulations of any other country or jurisdiction where Awards are granted under the Plan or Participants reside or provide services, as such laws, rules and regulations shall be in effect from time to time.
2.6. “Available Shares” means the sum of (i) [●] ([●]) shares of Common Stock, and (ii) an annual increase on April 1st of each calendar year, beginning in 2021 and ending in 2030 (each a “Date of Determination”), in each case subject to the approval and determination of the Administrator on or prior to the applicable Date of Determination, equal to the lesser of (A) four percent (4%) of the total shares of Common Stock of the Company outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the Administrator (the “Share Limit”). Notwithstanding the foregoing, shares added to the Available Shares by the Share Limit are available for issuance as Incentive Stock Options only to the extent that making such shares available for issuance as Incentive Stock Options would not cause any Incentive Stock Option to cease to qualify as such. In the event that the Administrator shall not take action to affirmatively approve an increase in the Share Limit on or prior to the applicable Date of Determination, the Share Limit and Available Shares, shall remain at such level as they were prior to such applicable Date of Determination. For clarity, the Available Shares is a limitation on the number of shares of Common Stock that may be issued pursuant to the Plan.
2.7. “Award” means an award granted to a Participant in accordance with the provisions of the Plan, including, but not limited to, Stock Options, Restricted Stock, Stock Awards, Performance Shares, or any combination of the foregoing.
2.8. “Award Agreement” means the separate written agreement evidencing each Award granted to a Participant under the Plan.
2.9. “Board of Directors” or “Board” means the Board of Directors of the Company, as constituted from time to time.
2.10. “Bylaws” means the Company’s Bylaws as amended and restated from time to time.
2.11. “Change of Control” means (i) the adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation; (ii) the approval by the Board of Directors of an agreement providing for the sale or transfer (other than as security for obligations of the Company) of substantially all the assets of the Company; or (iii) in the absence of a prior expression of approval by the Board of Directors, the acquisition of more than 20% of the Company’s voting capital stock by any person within the meaning of Rule 13d-3 under the Act (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company).
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2.12. “Code” means the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder.
2.13. “Committee” means a committee of two or more members of the Board appointed by the Board in accordance with Section 3.2 of the Plan. In the event the Company has not designated a Committee pursuant to Section 3.2 of the Plan, “Committee” shall refer to the Compensation Committee of the Company (in the event the Compensation Committee has authority to administer the Plan), if any, or the Board of Directors of the Company.
2.14. “Common Stock” means the Company’s common stock.
2.15. “Company” means Camber Energy, Inc., a Nevada corporation.
2.16. “Consultant” means any person, including an advisor engaged by the Company or an Affiliate to render bona fide consulting or advisory services to the Company or an Affiliate, other than as an Employee, Director or Non-Employee Director.
2.17. “Continuous Service Status” means the absence of any interruption or termination of service as an Employee or Consultant (unless otherwise provided for in the applicable Award Agreement), as determined by the Administrator in good faith and subject to Applicable Laws. Subject to Applicable Laws, the Administrator shall determine whether a leave of absence, or absence in military or government service, shall constitute an interruption of Continuous Service Status; provided, however, that, (i) if an Employee is holding an Incentive Stock Option and such leave exceeds 3 months, then, for purposes of Incentive Stock Option status only, such Employee’s service as an Employee shall be deemed terminated on the 1st day following such 3-month period, and the Incentive Stock Option shall thereafter automatically become a Nonqualified Stock Option in accordance with Applicable Laws, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to a written Company policy, and (ii) the Administrator shall not have any such discretion to the extent that the grant of such discretion would cause any tax to become due under Section 409A of the Code. Also, Continuous Service Status as an Employee or Consultant shall not be considered interrupted or terminated in the case of a transfer between locations of the Company or between the Company, its subsidiaries or Affiliates, or their respective successors.
2.18. “Director” means a member of the Board of Directors of the Company.
2.19. “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.
2.20. “Effective Date” shall be the date set forth in Section 1.3 of the Plan.
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2.21. “Eligible Employee” means an Eligible Person who is an Employee of the Company or any Affiliate.
2.22. “Eligible Person” means any Employee, Officer, Director, Non-Employee Director or Consultant of the Company or any Affiliate, except for instances where services are in connection with the offer or sale of securities in a capital-raising transaction, or they directly or indirectly promote or maintain a market for the Company’s securities, subject to any other limitations as may be provided by the Code, the Act, or the Administrator. In making such determinations, the Administrator may take into account the nature of the services rendered by such person, his or her present and potential contribution to the Company’s success, and such other factors as the Administrator in its discretion shall deem relevant.
2.23. “Employee” means an individual who is a common-law employee of the Company or an Affiliate including employment as an Officer. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.
2.24. “ERISA” means the Employee Retirement Income Security Act of 1974, as now in effect or as hereafter amended.
2.25. “Fair Market Value” means, as of any date and unless the Administrator determines otherwise, the value of Common Stock determined as follows:
2.25.1 If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the NYSE American, Nasdaq National Market or The Nasdaq Capital Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
2.25.2 If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported for the date in question, or the Common Stock is quoted on an over-the-counter market, the Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock for the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
2.25.3 In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.
2.25.4 The Administrator also may adopt a different methodology for determining Fair Market Value with respect to one or more Awards if a different methodology is necessary or advisable to secure any intended favorable tax, legal or other treatment for the particular Award(s) (for example, and without limitation, the Administrator may provide that Fair Market Value for purposes of one or more Awards will be based on an average of closing prices (or the average of high and low daily trading prices) for a specified period preceding the relevant date).
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2.26. “Grant Date” means, as to any Award, the latest of:
2.26.1 the date on which the Administrator authorizes the grant of the Award; or
2.26.2 the date the Participant receiving the Award becomes an Employee or a Director of the Company or its Affiliate, to the extent employment status is a condition of the grant or a requirement of the Code or the Act; or
2.26.3 such other date (later than the dates described in 2.25.1 and 2.25.2 above) as the Administrator may designate and as set forth in the Participant’s Award Agreement.
2.27. “Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.
2.28. “Incentive Stock Option” means a Stock Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and is granted under ARTICLE IV of the Plan and designated as an Incentive Stock Option in a Participant’s Award Agreement.
2.29. “Non-Employee Director” shall have the meaning set forth in Rule 16b-3 under the Act.
2.30. “Nonqualified Stock Option” means a Stock Option not intended to qualify as an Incentive Stock Option and is not so designated in the Participant’s Award Agreement.
2.31. “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Act.
2.32. “Option Period” means the period during which a Stock Option may be exercised from time to time, as established by the Administrator and set forth in the Award Agreement for each Participant who is granted a Stock Option.
2.33. “Option Price” means the purchase price for a share of Common Stock subject to purchase pursuant to a Stock Option, as established by the Administrator and set forth in the Award Agreement for each Participant who is granted a Stock Option.
2.34. “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.
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2.35. “Participant” means an Eligible Person to whom an Award has been granted and who has entered into an Award Agreement evidencing the Award or, if applicable, such other person who holds an outstanding Award.
2.36. “Performance Objectives” shall have the meaning set forth in ARTICLE IX of the Plan.
2.37. “Performance Period” shall have the meaning set forth in ARTICLE IX of the Plan.
2.38. “Performance Share” means an Award under ARTICLE IX of the Plan of a unit valued by reference to the Common Stock, the payout of which is subject to achievement of such Performance Objectives, measured during one or more Performance Periods, as the Administrator, in its sole discretion, shall establish at the time of such Award and set forth in a Participant’s Award Agreement.
2.39. “Plan” means this Camber Energy, Inc. 2020 Equity Incentive Plan, as it may be amended from time to time.
2.40. “Reporting Person” means a person required to file reports under Section 16(a) of the Act.
2.41. “Restricted Stock” means an Award under ARTICLE VII of the Plan of shares of Common Stock that are at the time of the Award subject to restrictions or limitations as to the Participant’s ability to sell, transfer, pledge or assign such shares, which restrictions or limitations may lapse separately or in combination at such time or times, in installments or otherwise, as the Administrator, in its sole discretion, shall determine at the time of such Award and set forth in a Participant’s Award Agreement.
2.42. “Restriction Period” means the period commencing on the Grant Date with respect to such shares of Restricted Stock and ending on such date as the Administrator, in its sole discretion, shall establish and set forth in a Participant’s Award Agreement.
2.43. “Retirement” means retirement as determined under procedures established by the Administrator or in any Award, as set forth in a Participant’s Award Agreement.
2.44. “Rule 16b-3” means Rule 16b-3 promulgated under the Act or any successor to Rule 16b-3, as in effect from time to time. Those provisions of the Plan which make express reference to Rule 16b-3, or which are required in order for certain option transactions to qualify for exemption under Rule 16b-3, shall apply only to a Reporting Person.
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2.45. “Shares” means shares of Common Stock issued in connection with Awards granted under this Plan, including, where applicable, upon exercise of Stock Options granted under this Plan.
2.46. “Share Limit” has the meaning given to such term under the definition of Available Shares, above.
2.47. “Stock Exchange” means any stock exchange or consolidated stock price reporting system on which prices for the Common Stock are quoted at any given time, and shall initially mean the NYSE American.
2.48. “Stock Award” means an Award of shares of Common Stock under ARTICLE VIII of the Plan.
2.49. “Stock Option” means an Award under ARTICLE IV or ARTICLE V of the Plan of an option to purchase Common Stock. A Stock Option may be either an Incentive Stock Option or a Nonqualified Stock Option.
2.50. “Ten Percent Stockholder” means an individual who owns (or is deemed to own pursuant to Section 424(d) of the Code), at the time of grant, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any of its Affiliates.
2.51. “Termination of Service” means (i) in the case of an Eligible Employee, the discontinuance of employment of such Participant with the Company or its Subsidiaries for any reason other than a transfer to another member of the group consisting of the Company and its Affiliates and (ii) in the case of a Director who is not an Employee of the Company or any Affiliate, the date such Participant ceases to serve as a Director. The determination of whether a Participant has discontinued service shall be made by the Administrator in its sole discretion. In determining whether a Termination of Service has occurred, the Administrator may provide that service as a Consultant or service with a business enterprise in which the Company has a significant ownership interest shall be treated as employment with the Company.
3.1. The Plan shall be administered by the Administrator and shall be administered, to the extent applicable, in accordance with Rule 16b-3. The Administrator shall have the exclusive right to interpret and construe the Plan, to select the Eligible Persons who shall receive an Award, and to act in all matters pertaining to the grant of an Award and the determination and interpretation of the provisions of the related Award Agreement, including, without limitation, the determination of the number of shares subject to Stock Options and the Option Period(s) and Option Price(s) thereof, the number of shares of Restricted Stock or shares subject to Stock Awards or Performance Shares subject to an Award, the vesting periods (if any) and the form, terms, conditions and duration of each Award, and any amendment thereof consistent with the provisions of the Plan. The Administrator may adopt, establish, amend and rescind such rules, regulations and procedures as it may deem appropriate for the proper administration of the Plan, make all other determinations which are, in the Administrator’s judgment, necessary or desirable for the proper administration of the Plan, amend the Plan or a Stock Award as provided in ARTICLE XI, and terminate or suspend the Plan as provided in ARTICLE XI. All acts, determinations and decisions of the Administrator made or taken pursuant to the Plan or with respect to any questions arising in connection with the administration and interpretation of the Plan or any Award Agreement, including the severability of any and all of the provisions thereof, shall be conclusive, final and binding upon all persons. On or after the date of grant of an Award under the Plan, the Administrator may (i) accelerate the date on which any such Award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such Award, including, without limitation, extending the period following a termination of a Participant’s employment during which any such Award may remain outstanding, or (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of any such Award; provided, that the Administrator shall not have any such authority to the extent that the grant of such authority would cause any tax to become due under Section 409A of the Code.
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3.2. The Administrator may, to the full extent permitted by and consistent with Applicable Law and the Company’s Bylaws, and subject to Subparagraph 3.2.1 herein below, delegate any or all of its powers with respect to the administration of the Plan to the Company’s Compensation Committee or another Committee of the Company consisting of not fewer than two members of the Board each of whom shall qualify (at the time of appointment to the Committee and during all periods of service on the Committee) in all respects as a Non-Employee Director and as an Outside Director.
3.2.1 If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Administrator as set forth herein, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in the Plan to the Administrator shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not consistent with the provisions of the Plan, as may be adopted from time to time by the Board.
3.2.2 The Board may abolish the Committee at any time and reassume all powers and authority previously delegated to the Committee.
3.2.3 In addition to, and not in limitation of, the right of Administrator, the full Board of Directors and/or the Company’s Compensation Committee may from time to time grant Awards to Eligible Persons pursuant to the terms and conditions of this Plan, subject to the requirements of the Code, Rule 16b-3 under the Act or any other Applicable Law, rule or regulation. In connection with any such grants, the Board of Directors and/or the Company’s Compensation Committee shall have all of the power and authority of the Administrator to determine the Eligible Persons to whom such Awards shall be granted and the other terms and conditions of such Awards.
3.3. Without limiting the provisions of this ARTICLE I, and subject to the provisions of ARTICLE X, the Administrator is authorized to take such action as it determines to be necessary or advisable, and fair and equitable to Participants and to the Company, with respect to an outstanding Award in the event of a Change of Control as described in ARTICLE X or other similar event. Such action may include, but shall not be limited to, establishing, amending or waiving the form, terms, conditions and duration of an Award and the related Award Agreement, so as to provide for earlier, later, extended or additional times for exercise or payments, differing methods for calculating payments, alternate forms and amounts of payment, an accelerated release of restrictions or other modifications. The Administrator may take such actions pursuant to this Section 3.3 by adopting rules and regulations of general applicability to all Participants or to certain categories of Participants, by including, amending or waiving terms and conditions in an Award and the related Award Agreement, or by taking action with respect to individual Participants from time to time. In the event any Award is not evidenced by a written Award Agreement, such Award shall be governed by the terms of this Plan and the terms and conditions of the grant of the Award as evidenced by the minutes of the Board (or any authorized Committee thereof). For the sake of clarity, the failure of the Company to document an Award by way of a written Award Agreement shall not affect the validity of such Award.
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3.4. Subject to the provisions of Section 3.9 and this Section 3.4, the maximum aggregate number of shares of Common Stock which may be issued pursuant to Awards under the Plan shall be the Available Shares. Such shares of Common Stock shall be made available from authorized and unissued shares of the Company.
3.4.1 For all purposes under the Plan, each Performance Share awarded shall be counted as one share of Common Stock subject to an Award.
3.4.2 If, for any reason, any shares of Common Stock (including shares of Common Stock subject to Performance Shares) that have been awarded or are subject to issuance or purchase pursuant to Awards outstanding under the Plan are not delivered or purchased, or are reacquired by the Company, for any reason, including but not limited to a forfeiture of Restricted Stock or failure to earn Performance Shares or the termination, expiration or cancellation of a Stock Option, or any other termination of an Award without payment being made in the form of shares of Common Stock (whether or not Restricted Stock), such shares of Common Stock shall not be charged against the aggregate number of shares of Common Stock available for Award under the Plan and shall again be available for Awards under the Plan. In no event, however, may Common Stock that is surrendered or withheld to pay the exercise price of a Stock Option or to satisfy tax withholding requirements be available for future grants under the Plan.
3.4.3 For purposes of clarifying the preceding paragraph, shares of Common Stock covered by Awards shall only be counted as used to the extent they are actually issued and delivered to a Participant (or such Participant’s permitted transferees as described in the Plan) pursuant to the Plan. In addition, shares of Common Stock related to Awards that expire, are forfeited or cancelled or terminate for any reason without the issuance of shares shall not be treated as issued pursuant to the Plan.
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3.4.4 The foregoing subsections 3.4.1 and 3.4.2 of this Section 3.4 shall be subject to any limitations provided by the Code or by Rule 16b-3 under the Act or by any other Applicable Law, rule or regulation.
3.5. Each Award granted under the Plan shall be evidenced by a written Award Agreement, which shall be subject to and shall incorporate (by reference or otherwise) the applicable terms and conditions of the Plan and shall include any other terms and conditions (not inconsistent with the Plan) required by the Administrator. In the event any Award is not evidenced by a written Award Agreement, such Award shall be governed by the terms of this Plan and the terms and conditions of the grant of the Award as evidenced by the minutes of the Administrator (or any authorized Committee thereof). For the sake of clarity, the failure of the Company to document an Award by way of a written Award Agreement shall not affect the validity of such Award.
3.6. In the event the Plan and/or the Common Stock issuable in connection with Awards hereunder are registered with the Securities Exchange Commission (the “SEC”) under the Act, no free-trading shares of Common Stock shall be issuable by the Company under the Plan and pursuant to such registration statement, (a) except to natural persons (as such term is interpreted by the SEC); (b) in connection with services associated with the offer or sale of securities in a capital-raising transaction; or (c) where the services directly or indirectly promote or maintain a market for the Company’s securities.
3.7. The Administrator may require any Participant acquiring shares of Common Stock pursuant to any Award under the Plan to represent to and agree with the Company in writing that such person is acquiring the shares of Common Stock for investment purposes and without a view to resale or distribution thereof. Shares of Common Stock issued and delivered under the Plan shall also be subject to such stop-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any Stock Exchange upon which the Common Stock is then listed and any applicable federal or state laws, and the Administrator may cause a legend or legends to be placed on the certificate or certificates representing any such shares to make appropriate reference to any such restrictions. In making such determination, the Administrator may rely upon an opinion of counsel for the Company.
3.8. Except as otherwise expressly provided in the Plan or in an Award Agreement with respect to an Award, no Participant shall have any right as a stockholder of the Company with respect to any shares of Common Stock subject to such Participant’s Award except to the extent that, and until, one or more certificates representing such shares of Common Stock shall have been delivered to the Participant. No shares shall be required to be issued, and no certificates shall be required to be delivered, under the Plan unless and until all of the terms and conditions applicable to such Award shall have, in the sole discretion of the Administrator, been satisfied in full and any restrictions shall have lapsed in full, and unless and until all of the requirements of law and of all regulatory bodies having jurisdiction over the offer and sale, or issuance and delivery, of the shares shall have been fully complied with.
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3.9. The total amount of shares with respect to which Awards may be granted under the Plan, the Share Limit, the ISO Limit and rights of outstanding Awards (both as to the number of shares subject to the outstanding Awards and the Option Price(s) or other purchase price(s) of such shares, as applicable) shall be appropriately adjusted for any increase or decrease in the number of outstanding shares of Common Stock of the Company resulting from payment of a stock dividend on the Common Stock, a stock split or subdivision or combination of shares of the Common Stock, or a reorganization or reclassification of the Common Stock, or any other change in the structure of shares of the Common Stock. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Administrator in its sole discretion. Any such adjustment may provide for the elimination of any fractional shares which might otherwise become subject to an Award. All adjustments made as a result of the foregoing in respect of each Incentive Stock Option shall be made so that such Incentive Stock Option shall continue to be an Incentive Stock Option, as defined in Section 422 of the Code.
3.10. No director or person acting pursuant to authority delegated by the Administrator shall be liable for any action or determination under the Plan made in good faith. The members of the Administrator shall be entitled to indemnification by the Company in the manner and to the extent set forth in the Company’s Articles of Incorporation, as amended, Bylaws or as otherwise provided from time to time regarding indemnification of Directors.
3.11. The Administrator shall be authorized to make adjustments in any performance based criteria or in the other terms and conditions of outstanding Awards in recognition of unusual or nonrecurring events affecting the Company (or any Affiliate, if applicable) or its financial statements or changes in Applicable Laws, regulations or accounting principles. The Administrator may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement in the manner and to the extent it shall deem necessary or desirable to reflect any such adjustment. In the event the Company (or any Affiliate, if applicable) shall assume outstanding employee benefit awards or the right or obligation to make future such awards in connection with the acquisition of another corporation or business entity, the Administrator may, in its sole discretion, make such adjustments in the terms of outstanding Awards under the Plan as it shall deem appropriate.
3.12. Subject to the express provisions of the Plan, the Administrator shall have full power and authority to determine whether, to what extent and under what circumstances any outstanding Award shall be terminated, canceled, forfeited or suspended. Notwithstanding the foregoing or any other provision of the Plan or an Award Agreement, all Awards to any Participant that are subject to any restriction or have not been earned or exercised in full by the Participant shall be terminated and canceled if the Participant is terminated for cause, as determined by the Administrator in its sole discretion.
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ARTICLE
IV.
INCENTIVE STOCK OPTIONS
4.1. The Administrator, in its sole discretion, may from time to time on or after the Effective Date grant Incentive Stock Options to Eligible Employees, subject to the provisions of this ARTICLE IV and ARTICLE I and ARTICLE VI and subject to the following conditions:
4.1.1 Incentive Stock Options shall be granted only to Eligible Employees, each of whom may be granted one or more of such Incentive Stock Options at such time or times determined by the Administrator.
4.1.2 The Option Price per share of Common Stock for an Incentive Stock Option shall be set in the Award Agreement, but shall not be less than (i) one hundred percent (100%) of the Fair Market Value of the Common Stock at the Grant Date, or (ii) in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the Grant Date.
4.1.3 An Incentive Stock Option may be exercised in full or in part from time to time within ten (10) years from the Grant Date, or such shorter period as may be specified by the Administrator as the Option Period and set forth in the Award Agreement; provided, however, that, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, such period shall not exceed five (5) years from the Grant Date; and further, provided that, in any event, the Incentive Stock Option shall lapse and cease to be exercisable upon a Termination of Service or within such period following a Termination of Service as shall have been determined by the Administrator and set forth in the related Award Agreement; and provided, further, that such period shall not exceed the period of time ending on the date three (3) months following a Termination of Service (except as otherwise provided in any employment agreement approved by the Administrator), unless employment shall have terminated:
(i) as a result of Disability, in which event such period shall not exceed the period of time ending on the date twelve (12) months following a Termination of Service; or
(ii) as a result of death, or if death shall have occurred following a Termination of Service (other than as a result of Disability) and during the period that the Incentive Stock Option was still exercisable, in which event such period may not exceed the period of time ending on the earlier of the date twelve (12) months after the date of death;
(iii) and provided, further, that such period following a Termination of Service or death shall in no event extend beyond the original Option Period of the Incentive Stock Option.
4.1.4 The aggregate Fair Market Value of the shares of Common Stock with respect to which any Incentive Stock Options (whether under this Plan or any other plan established by the Company) are first exercisable during any calendar year by any Eligible Employee shall not exceed one hundred thousand dollars ($100,000), determined based on the Fair Market Value(s) of such shares as of their respective Grant Dates; provided, however, that to the extent permitted under Section 422 of the Code, if the aggregate Fair Market Values of the shares of Common Stock with respect to which Stock Options intended to be Incentive Stock Options are first exercisable by any Eligible Employee during any calendar year (whether such Stock Options are granted under this Plan or any other plan established by the Company) exceed one hundred thousand dollars ($100,000), the Stock Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonqualified Stock Options.
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4.1.5 No Incentive Stock Options may be granted more than ten (10) years from the Adoption Date.
4.1.6 The Award Agreement for each Incentive Stock Option shall provide that the Participant shall notify the Company if such Participant sells or otherwise transfers any shares of Common Stock acquired upon exercise of the Incentive Stock Option within two (2) years of the Grant Date of such Incentive Stock Option or within one (1) year of the date such shares were acquired upon the exercise of such Incentive Stock Option.
4.2. Subject to the limitations of Section 3.4, the maximum aggregate number of shares of Common Stock subject to Incentive Stock Option Awards shall be the maximum aggregate number of shares available for Awards under the Plan.
4.3. The Administrator may provide for any other terms and conditions which it determines should be imposed for an Incentive Stock Option to qualify under Section 422 of the Code, as well as any other terms and conditions not inconsistent with this ARTICLE IV or ARTICLE I or ARTICLE VI, as determined in its sole discretion and set forth in the Award Agreement for such Incentive Stock Option.
4.4. Each provision of this ARTICLE IV and of each Incentive Stock Option granted hereunder shall be construed in accordance with the provisions of Section 422 of the Code, and any provision hereof that cannot be so construed shall be disregarded.
4.5. Notwithstanding the Share Limit, and subject to adjustment in accordance with Section 3.9 hereof, the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan is [●] shares (the “ISO Limit”).
ARTICLE
V.
NONQUALIFIED STOCK OPTIONS
5.1. The Administrator, in its sole discretion, may from time to time on or after the Effective Date grant Nonqualified Stock Options to Eligible Persons, subject to the provisions of this ARTICLE V and ARTICLE I or ARTICLE VI and subject to the following conditions:
5.1.1 Nonqualified Stock Options may be granted to any Eligible Person, each of whom may be granted one or more of such Nonqualified Stock Options, at such time or times determined by the Administrator.
5.1.2 The Option Price per share of Common Stock for a Nonqualified Stock Option shall be set in the Award Agreement and may be less than one hundred percent (100%) of the Fair Market Value of the Common Stock at the Grant Date; provided, however, that the exercise price of each Nonqualified Stock Option granted under the Plan shall in no event be less than the par value per share of the Company’s Common Stock.
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5.1.3 A Nonqualified Stock Option may be exercised in full or in part from time to time within the Option Period specified by the Administrator and set forth in the Award Agreement; provided, however, that, in any event, the Nonqualified Stock Option shall lapse and cease to be exercisable upon a Termination of Service or within such period following a Termination of Service as shall have been determined by the Administrator and set forth in the related Award Agreement.
5.2. The Administrator may provide for any other terms and conditions for a Nonqualified Stock Option not inconsistent with this ARTICLE V or ARTICLE I or ARTICLE VI, as determined in its sole discretion and set forth in the Award Agreement for such Nonqualified Stock Option.
ARTICLE
VI.
INCIDENTS OF STOCK OPTIONS
6.1. Each Stock Option shall be granted subject to such terms and conditions, if any, not inconsistent with this Plan, as shall be determined by the Administrator and set forth in the related Award Agreement, including any provisions as to continued employment as consideration for the grant or exercise of such Stock Option and any provisions which may be advisable to comply with Applicable Laws, regulations or rulings of any governmental authority.
6.2. Except as hereinafter described, a Stock Option shall not be transferable by the Participant other than by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the Participant only by the Participant or the Participant’s guardian or legal representative. In the event of the death of a Participant, any unexercised Stock Options may be exercised to the extent otherwise provided herein or in such Participant’s Award Agreement by the executor or personal representative of such Participant’s estate or by any person who acquired the right to exercise such Stock Options by bequest under the Participant’s will or by inheritance. The Administrator, in its sole discretion, may at any time permit a Participant to transfer a Nonqualified Stock Option for no consideration to or for the benefit of one or more members of the Participant’s Immediate Family (including, without limitation, to a trust for the benefit of the Participant and/or one or more members of such Participant’s Immediate Family or a corporation, partnership or limited liability company established and controlled by the Participant and/or one or more members of such Participant’s Immediate Family), subject to such limits as the Administrator may establish. The transferee of such Nonqualified Stock Option shall remain subject to all terms and conditions applicable to such Nonqualified Stock Option prior to such transfer. The foregoing right to transfer the Nonqualified Stock Option, if granted by the Administrator shall apply to the right to consent to amendments to the Award Agreement.
6.3. Shares of Common Stock purchased upon exercise of a Stock Option shall be paid for in such amounts, at such times and upon such terms as shall be determined by the Administrator, subject to limitations set forth in the Stock Option Award Agreement. The Administrator may, in its sole discretion, permit the exercise of a Stock Option by payment in cash or by tendering shares of Common Stock (either by actual delivery of such shares or by attestation), or any combination thereof, as determined by the Administrator. In the sole discretion of the Administrator, payment in shares of Common Stock also may be made with shares received upon the exercise or partial exercise of the Stock Option, whether or not involving a series of exercises or partial exercises and whether or not share certificates for such shares surrendered have been delivered to the Participant. The Administrator also may, in its sole discretion, permit the payment of the exercise price of a Stock Option by the voluntary surrender of all or a portion of the Stock Option. Shares of Common Stock previously held by the Participant and surrendered in payment of the Option Price of a Stock Option shall be valued for such purpose at the Fair Market Value thereof on the date the Stock Option is exercised.
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6.4. The holder of a Stock Option shall have no rights as a stockholder with respect to any shares covered by the Stock Option (including, without limitation, any voting rights, the right to inspect or receive the Company’s balance sheets or financial statements or any rights to receive dividends or non-cash distributions with respect to such shares) until such time as the holder has exercised the Stock Option and then only with respect to the number of shares which are the subject of the exercise. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued.
6.5. The Administrator may permit the voluntary surrender of all or a portion of any Stock Option granted under the Plan to be conditioned upon the granting to the Participant of a new Stock Option for the same or a different number of shares of Common Stock as the Stock Option surrendered, or may require such voluntary surrender as a condition precedent to a grant of a new Stock Option to such Participant. Subject to the provisions of the Plan, such new Stock Option shall be exercisable at such Option Price, during such Option Period and on such other terms and conditions as are specified by the Administrator at the time the new Stock Option is granted. Upon surrender, the Stock Options surrendered shall be canceled and the shares of Common Stock previously subject to them shall be available for the grant of other Stock Options.
6.6. The Administrator may at any time offer to purchase a Participant’s outstanding Stock Option for a payment equal to the value of such Stock Option payable in cash, shares of Common Stock or Restricted Stock or other property upon surrender of the Participant’s Stock Option, based on such terms and conditions as the Administrator shall establish and communicate to the Participant at the time that such offer is made.
6.7. The Administrator shall have the discretion, exercisable either at the time the Award is granted or at the time the Participant discontinues employment, to establish as a provision applicable to the exercise of one or more Stock Options that, during a limited period of exercisability following a Termination of Service, the Stock Option may be exercised not only with respect to the number of shares of Common Stock for which it is exercisable at the time of the Termination of Service but also with respect to one or more subsequent installments for which the Stock Option would have become exercisable had the Termination of Service not occurred.
6.8. Notwithstanding anything to the contrary herein, the Company may reprice any Stock Option without the approval of the stockholders of the Company. For this purpose, “reprice” means (i) any of the following or any other action that has the same effect: (A) lowering the exercise price of a Stock Option after it is granted, (B) any other action that is treated as a repricing under U.S. generally accepted accounting principles (“GAAP”), or (C) cancelling a Stock Option at a time when its exercise price exceeds the Fair Market Value of the underlying Common Stock, in exchange for another Stock Option, restricted stock or other equity, unless the cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other similar corporate transaction; and (ii) any other action that is considered to be a repricing under formal or informal guidance issued by exchange or market on which the Company’s Common Stock then trades or is quoted.
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6.9. In addition to, and without limiting the above Section 6.8, the Administrator may permit the voluntary surrender of all or a portion of any Stock Option granted under the Plan to be conditioned upon the granting to the Participant of a new Stock Option for the same or a different number of shares of Common Stock as the Stock Option surrendered, or may require such voluntary surrender as a condition precedent to a grant of a new Stock Option to such Participant. Subject to the provisions of the Plan, such new Stock Option shall be exercisable at such Option Price, during such Option Period and on such other terms and conditions as are specified by the Administrator at the time the new Stock Option is granted. Upon surrender, the Stock Options surrendered shall be canceled and the shares of Common Stock previously subject to them shall be available for the grant of other Stock Options.
7.1. The Administrator, in its sole discretion, may from time to time on or after the Effective Date award shares of Restricted Stock to Eligible Persons as a reward for past service and an incentive for the performance of future services that will contribute materially to the successful operation of the Company and its Affiliates, subject to the terms and conditions set forth in this ARTICLE VII.
7.2. The Administrator shall determine the terms and conditions of any Award of Restricted Stock, which shall be set forth in the related Award Agreement, including without limitation:
7.2.1 the purchase price, if any, to be paid for such Restricted Stock, which may be zero, subject to such minimum consideration as may be required by Applicable Law;
7.2.2 the duration of the Restriction Period or Restriction Periods with respect to such Restricted Stock and whether any events may accelerate or delay the end of such Restriction Period(s);
7.2.3 the circumstances upon which the restrictions or limitations shall lapse, and whether such restrictions or limitations shall lapse as to all shares of Restricted Stock at the end of the Restriction Period or as to a portion of the shares of Restricted Stock in installments during the Restriction Period by means of one or more vesting schedules;
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7.2.4 whether such Restricted Stock is subject to repurchase by the Company or to a right of first refusal at a predetermined price or if the Restricted Stock may be forfeited entirely under certain conditions;
7.2.5 whether any performance goals may apply to a Restriction Period to shorten or lengthen such period; and
7.2.6 whether dividends and other distributions with respect to such Restricted Stock are to be paid currently to the Participant or withheld by the Company for the account of the Participant.
7.3. Awards of Restricted Stock must be accepted within a period of thirty (30) days after the Grant Date (or such shorter or longer period as the Administrator may specify at such time) by executing an Award Agreement with respect to such Restricted Stock and tendering the purchase price, if any. A prospective recipient of an Award of Restricted Stock shall not have any rights with respect to such Award, unless such recipient has executed an Award Agreement with respect to such Restricted Stock, has delivered a fully executed copy thereof to the Administrator and has otherwise complied with the applicable terms and conditions of such Award.
7.4. In the sole discretion of the Administrator and as set forth in the Award Agreement for an Award of Restricted Stock, all shares of Restricted Stock held by a Participant and still subject to restrictions shall be forfeited by the Participant upon the Participant’s Termination of Service and shall be reacquired, canceled and retired by the Company. Notwithstanding the foregoing, unless otherwise provided in an Award Agreement with respect to an Award of Restricted Stock, in the event of the death, Disability or Retirement of a Participant during the Restriction Period, or in other cases of special circumstances (including hardship or other special circumstances of a Participant whose employment is involuntarily terminated), the Administrator may elect to waive in whole or in part any remaining restrictions with respect to all or any part of such Participant’s Restricted Stock, if it finds that a waiver would be appropriate.
7.5. Except as otherwise provided in this ARTICLE VII, no shares of Restricted Stock received by a Participant shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Restriction Period.
7.6. Upon an Award of Restricted Stock to a Participant, a certificate or certificates representing the shares of such Restricted Stock will be issued to and registered in the name of the Participant. Unless otherwise determined by the Administrator, such certificate or certificates will be held in custody by the Company until (i) the Restriction Period expires and the restrictions or limitations lapse, in which case one or more certificates representing such shares of Restricted Stock that do not bear a restrictive legend (other than any legend as required under applicable federal or state securities laws) shall be delivered to the Participant, or (ii) a prior forfeiture by the Participant of the shares of Restricted Stock subject to such Restriction Period, in which case the Company shall cause such certificate or certificates to be canceled and the shares represented thereby to be retired, all as set forth in the Participant’s Award Agreement. It shall be a condition of an Award of Restricted Stock that the Participant deliver to the Company a stock power endorsed in blank relating to the shares of Restricted Stock to be held in custody by the Company.
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7.7. Except as provided in this ARTICLE VII or in the related Award Agreement, a Participant receiving an Award of shares of Restricted Stock Award shall have, with respect to such shares, all rights of a stockholder of the Company, including the right to vote the shares and the right to receive any distributions, unless and until such shares are otherwise forfeited by such Participant; provided, however, the Administrator may require that any cash dividends with respect to such shares of Restricted Stock be automatically reinvested in additional shares of Restricted Stock subject to the same restrictions as the underlying Award, or may require that cash dividends and other distributions on Restricted Stock be withheld by the Company or its Affiliates for the account of the Participant. The Administrator shall determine whether interest shall be paid on amounts withheld, the rate of any such interest, and the other terms applicable to such withheld amounts.
8.1. The Administrator, in its sole discretion, may from time to time on or after the Effective Date grant Stock Awards to Eligible Persons in payment of compensation that has been earned or as compensation to be earned, including without limitation compensation awarded or earned concurrently with or prior to the grant of the Stock Award, subject to the terms and conditions set forth in this ARTICLE VIII.
8.2. For the purposes of this Plan, in determining the value of a Stock Award, all shares of Common Stock subject to such Stock Award shall be set in the Award Agreement and may be less than one hundred percent (100%) of the Fair Market Value of the Common Stock at the Grant Date.
8.3. Unless otherwise determined by the Administrator and set forth in the related Award Agreement, shares of Common Stock subject to a Stock Award will be issued, and one or more certificates representing such shares will be delivered, to the Participant as soon as practicable following the Grant Date of such Stock Award. Upon the issuance of such shares and the delivery of one or more certificates representing such shares to the Participant, such Participant shall be and become a stockholder of the Company fully entitled to receive dividends, to vote and to exercise all other rights of a stockholder of the Company. Notwithstanding any other provision of this Plan, unless the Administrator expressly provides otherwise with respect to a Stock Award, as set forth in the related Award Agreement, no Stock Award shall be deemed to be an outstanding Award for purposes of the Plan.
ARTICLE
IX.
PERFORMANCE SHARES
9.1. The Administrator, in its sole discretion, may from time to time on or after the Effective Date award Performance Shares to Eligible Persons as an incentive for the performance of future services that will contribute materially to the successful operation of the Company and its Affiliates, subject to the terms and conditions set forth in this ARTICLE IX.
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9.2. The Administrator shall determine the terms and conditions of any Award of Performance Shares, which shall be set forth in the related Award Agreement, including without limitation:
9.2.1 the purchase price, if any, to be paid for such Performance Shares, which may be zero, subject to such minimum consideration as may be required by Applicable Law;
9.2.2 the performance period (the “Performance Period”) and/or performance objectives (the “Performance Objectives”) applicable to such Awards;
9.2.3 the number of Performance Shares that shall be paid to the Participant if the applicable Performance Objectives are exceeded or met in whole or in part; and
9.2.4 the form of settlement of a Performance Share.
9.3. At any date, each Performance Share shall have a value equal to the Fair Market Value of a share of Common Stock.
9.4. Performance Periods may overlap, and Participants may participate simultaneously with respect to Performance Shares for which different Performance Periods are prescribed.
9.5. Performance Objectives may vary from Participant to Participant and between Awards and shall be based upon such performance criteria or combination of factors as the Administrator may deem appropriate, including, but not limited to, minimum earnings per share or return on equity. If during the course of a Performance Period there shall occur significant events which the Administrator expects to have a substantial effect on the applicable Performance Objectives during such period, the Administrator may revise such Performance Objectives.
9.6. In the sole discretion of the Administrator and as set forth in the Award Agreement for an Award of Performance Shares, all Performance Shares held by a Participant and not earned shall be forfeited by the Participant upon the Participant’s Termination of Service. Notwithstanding the foregoing, unless otherwise provided in an Award Agreement with respect to an Award of Performance Shares, in the event of the death, Disability or Retirement of a Participant during the applicable Performance Period, or in other cases of special circumstances (including hardship or other special circumstances of a Participant whose employment is involuntarily terminated), the Administrator may determine to make a payment in settlement of such Performance Shares at the end of the Performance Period, based upon the extent to which the Performance Objectives were satisfied at the end of such period and pro-rated for the portion of the Performance Period during which the Participant was employed by the Company or an Affiliate; provided, however, that the Administrator may provide for an earlier payment in settlement of such Performance Shares in such amount and under such terms and conditions as the Administrator deems appropriate or desirable.
9.7. The settlement of a Performance Share shall be made in cash, whole shares of Common Stock or a combination thereof and shall be made as soon as practicable after the end of the applicable Performance Period. Notwithstanding the foregoing, the Administrator in its sole discretion may allow a Participant to defer payment in settlement of Performance Shares on terms and conditions approved by the Administrator and set forth in the related Award Agreement entered into in advance of the time of receipt or constructive receipt of payment by the Participant.
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9.8. Performance Shares shall not be transferable by the Participant. The Administrator shall have the authority to place additional restrictions on the Performance Shares including, but not limited to, restrictions on transfer of any shares of Common Stock that are delivered to a Participant in settlement of any Performance Shares.
ARTICLE
X.
CHANGES OF CONTROL OR OTHER FUNDAMENTAL CHANGES
10.1. Upon the occurrence of a Change of Control and unless otherwise provided in the Award Agreement with respect to a particular Award:
10.1.1 all outstanding Stock Options shall become immediately exercisable in full, subject to any appropriate adjustments in the number of shares subject to the Stock Option and the Option Price, and shall remain exercisable for the remaining Option Period, regardless of any provision in the related Award Agreement limiting the exercisability of such Stock Option or any portion thereof for any length of time;
10.1.2 all outstanding Performance Shares with respect to which the applicable Performance Period has not been completed shall be paid out as soon as practicable as follows:
(i) all Performance Objectives applicable to the Award of Performance Shares shall be deemed to have been satisfied to the extent necessary to earn one hundred percent (100%) of the Performance Shares covered by the Award;
(ii) the applicable Performance Period shall be deemed to have been completed upon occurrence of the Change of Control;
(iii) the payment to the Participant in settlement of the Performance Shares shall be the amount determined by the Administrator, in its sole discretion, or in the manner stated in the Award Agreement, as multiplied by a fraction, the numerator of which is the number of full calendar months of the applicable Performance Period that have elapsed prior to occurrence of the Change of Control, and the denominator of which is the total number of months in the original Performance Period; and
(iv) upon the making of any such payment, the Award Agreement as to which it relates shall be deemed terminated and of no further force and effect; and
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10.1.3 all outstanding shares of Restricted Stock with respect to which the restrictions have not lapsed shall be deemed vested, and all such restrictions shall be deemed lapsed and the Restriction Period ended.
10.2. Anything contained herein to the contrary notwithstanding, upon the dissolution or liquidation of the Company, each Award granted under the Plan and then outstanding shall terminate; provided, however, that following the adoption of a plan of dissolution or liquidation, and in any event prior to the effective date of such dissolution or liquidation, each such outstanding Award granted hereunder shall be exercisable in full and all restrictions shall lapse, to the extent set forth in Section 10.1.1, 10.1.2 and 10.1.3 above.
10.3. After the merger of one or more corporations into the Company or any Affiliate, any merger of the Company into another corporation, any consolidation of the Company or any Affiliate of the Company and one or more corporations, or any other corporate reorganization of any form involving the Company as a party thereto and involving any exchange, conversion, adjustment or other modification of the outstanding shares of the Common Stock, each Participant shall, at no additional cost, be entitled, upon any exercise of such Participant’s Stock Option, to receive, in lieu of the number of shares as to which such Stock Option shall then be so exercised, the number and class of shares of stock or other securities or such other property to which such Participant would have been entitled to pursuant to the terms of the agreement of merger or consolidation or reorganization, if at the time of such merger or consolidation or reorganization, such Participant had been a holder of record of a number of shares of Common Stock equal to the number of shares as to which such Stock Option shall then be so exercised. Comparable rights shall accrue to each Participant in the event of successive mergers, consolidations or reorganizations of the character described above. The Administrator may, in its sole discretion, provide for similar adjustments upon the occurrence of such events with regard to other outstanding Awards under this Plan. The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Administrator in its sole discretion. Any such adjustment may provide for the elimination of any fractional shares which might otherwise become subject to an Award. All adjustments made as the result of the foregoing in respect of each Incentive Stock Option shall be made so that such Incentive Stock Option shall continue to be an Incentive Stock Option, as defined in Section 422 of the Code.
ARTICLE
XI.
AMENDMENT AND TERMINATION
11.1. Subject to the provisions of Section 11.2, the Board of Directors at any time and from time to time may amend or terminate the Plan as may be necessary or desirable to implement or discontinue the Plan or any provision hereof, to the extent required by the Act or the Code, or rules and regulations of the Stock Exchange and/or such other securities exchanges, if any, which the Company’s Common Stock is then subject to, however, no amendment, without approval by the Company’s stockholders, shall:
11.1.1 materially alter the group of persons eligible to participate in the Plan;
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11.1.2 except as provided in Section 3.4, change the maximum aggregate number of shares of Common Stock that are available for Awards under the Plan; or
11.1.3 alter the class of individuals eligible to receive an Incentive Stock Option or increase the limit on Incentive Stock Options set forth in Section 4.1.4 or the value of shares of Common Stock for which an Eligible Employee may be granted an Incentive Stock Option.
11.2. No amendment to or discontinuance of the Plan or any provision hereof by the Board of Directors or the stockholders of the Company shall, without the written consent of the Participant, adversely affect (in the sole discretion of the Administrator) any Award theretofore granted to such Participant under this Plan; provided, however, that the Administrator retains the right and power to:
11.2.1 annul any Award if the Participant is terminated for cause as determined by the Administrator; and
11.2.2 convert any outstanding Incentive Stock Option to a Nonqualified Stock Option.
11.3. If a Change of Control has occurred, no amendment or termination shall impair the rights of any person with respect to an outstanding Award as provided in ARTICLE X.
ARTICLE
XII.
SECURITIES MATTERS AND REGULATIONS
12.1. Notwithstanding anything herein to the contrary, the obligation of the Company to sell or deliver Shares with respect to any Award granted under the Plan shall be subject to all Applicable Laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Administrator. The Administrator may require, as a condition of the issuance and delivery of certificates evidencing shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such agreements and representations, and that such certificates bear such legends, as the Administrator, in its sole discretion, deems necessary or advisable.
12.2. Each Award is subject to the requirement that, if at any time the Administrator determines that the listing, registration or qualification of Shares is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Shares, no such Award shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Administrator.
12.3. In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Administrator may require a Participant receiving Common Stock pursuant to the Plan, as a condition precedent to receipt of such Common Stock, to represent to the Company in writing that the Common Stock acquired by such Participant is acquired for investment only and not with a view to distribution.
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ARTICLE
XIII.
SECTION 409A OF THE CODE
13.1. Unless otherwise expressly provided for in an Award Agreement, the Plan and each Award Agreement will be interpreted to the greatest extent possible in a manner that makes the Plan and the Awards granted hereunder exempt from Section 409A of the Code, and, to the extent not so exempt, in compliance with Section 409A of the Code. If the Administrator determines that any Award granted hereunder is not exempt from and is therefore subject to Section 409A of the Code, the Award Agreement evidencing such Award will incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code, and to the extent an Award Agreement is silent on terms necessary for compliance, such terms are hereby incorporated by reference into the Award Agreement. Notwithstanding anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the Shares are publicly traded, and if a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of Section 409A of the Code, no distribution or payment of any amount that is due because of a “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six months following the date of such Participant’s “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions thereunder) or, if earlier, the date of the Participant’s death, unless such distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so deferred will be paid in a lump sum on the day after such six month period elapses, with the balance paid thereafter on the original schedule.
13.2. With respect to any Award that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code, termination of a Participant’s Continuous Service Status shall mean a separation from service within the meaning of Section 409A of the Code, unless the Participant was an Employee immediately prior to such termination and is then contemporaneously retained as a Consultant pursuant to a written agreement and such agreement provides otherwise. The Continuous Service Status of a Participant shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to Subsidiary and such Subsidiary ceases to be a Subsidiary, unless the Administrator determines otherwise. To the extent permitted by Section 409A of the Code, a Participant who ceases to be an Employee of the Company but continues, or simultaneously commences, services as a Director of the Company shall be deemed to have had a termination of Continuous Service Status for purposes of the Plan.
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ARTICLE
XIV.
MISCELLANEOUS PROVISIONS
14.1. Nothing in the Plan or any Award granted hereunder shall confer upon any Participant any right to continue in the employ of the Company or its Affiliates or to serve as a Director or shall interfere in any way with the right of the Company or its Affiliates or the stockholders of the Company, as applicable, to terminate the employment of a Participant or to release or remove a Director at any time. Unless specifically provided otherwise, no Award granted under the Plan shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of the Company or its Affiliates for the benefit of their respective employees unless the Company shall determine otherwise. No Participant shall have any claim to an Award until it is actually granted under the Plan and an Award Agreement has been executed and delivered to the Company. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall, except as otherwise provided by the Administrator, be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts, except as provided in ARTICLE VII with respect to Restricted Stock and except as otherwise provided by the Administrator.
14.2. The Plan and the grant of Awards shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. Any provision herein relating to compliance with Rule 16b-3 under the Act shall not be applicable with respect to participation in the Plan by Participants who are not subject to Section 16 of the Act.
14.3. The terms of the Plan shall be binding upon the Company, its successors and assigns.
14.4. Neither a Stock Option nor any other type of equity-based compensation provided for hereunder shall be transferable except as provided for in Section 6.2. In addition to the transfer restrictions otherwise contained herein, additional transfer restrictions shall apply to the extent required by federal or state securities laws. If any Participant makes such a transfer in violation hereof, any obligation hereunder of the Company to such Participant shall terminate immediately.
14.5. This Plan and all actions taken hereunder shall be governed by the laws of the State of Nevada.
14.6. Each Participant exercising an Award hereunder agrees to give the Administrator prompt written notice of any election made by such Participant under Section 83(b) of the Code, or any similar provision thereof, as applicable.
14.7. If any provision of this Plan or an Award Agreement is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award Agreement under any law deemed applicable by the Administrator, such provision shall be construed or deemed amended to conform to Applicable Laws, or if it cannot be construed or deemed amended without, in the determination of the Administrator, materially altering the intent of the Plan or the Award Agreement, it shall be stricken, and the remainder of the Plan or the Award Agreement shall remain in full force and effect.
2020 Equity Incentive Plan Camber Energy, Inc. 24 of 27
| D-24 |
14.8. The grant of an Award pursuant to this Plan shall not affect in any way the right or power of the Company or any of its Affiliates to make adjustments, reclassification, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate or sell, or to transfer all or part of its business or assets.
14.9. The Plan is not subject to the provisions of ERISA or qualified under Section 401(a) of the Code.
14.10. If a Participant is required to pay to the Company an amount with respect to income and employment tax withholding obligations in connection with (i) the exercise of a Nonqualified Stock Option, (ii) certain dispositions of Common Stock acquired upon the exercise of an Incentive Stock Option, or (iii) the receipt of Common Stock pursuant to any other Award, then the issuance of Common Stock to such Participant shall not be made (or the transfer of shares by such Participant shall not be required to be effected, as applicable) unless such withholding tax or other withholding liabilities shall have been satisfied in a manner acceptable to the Company. To the extent provided by the terms of an Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock.
14.11. Compliance with other laws.
14.11.1 For Reporting Persons:
(i) the Plan is intended to satisfy the provisions of Rule 16b-3;
(ii) all transactions involving Participants who are subject to Section 16(b) of the Act are subject to the provisions of Rule 16b-3 regardless of whether they are set forth in the Plan; and
(iii) any provision of the Plan that conflicts with Rule 16b-3 does not apply to the extent of the conflict.
14.11.2 If any provision of the Plan, any Award, or Award Agreement conflicts with the requirements of Code Section 162(m) or 422 for Awards subject to these requirements, then that provision does not apply to the extent of the conflict.
14.11.3 Notwithstanding any other provision of the Plan, if, for an Employee of a parent company, the conversion of an Incentive Stock Option to a Nonqualified Stock Option or the treatment of an Incentive Stock Option as a Nonqualified Stock Option would not satisfy the requirements of Code Section 409A or an exemption thereto, as determined by the Administrator in its exclusive discretion, then the Incentive Stock Option shall terminate on the date that it would no longer qualify as an Incentive Stock Option as determined by the Administrator in its exclusive discretion.
2020 Equity Incentive Plan Camber Energy, Inc. 25 of 27
| D-25 |
14.12. In addition to the remedies of the Company elsewhere provided for herein, failure by a Participant to comply with any of the terms and conditions of the Plan or any Award Agreement, unless such failure is remedied by such Participant within ten days after having been notified of such failure by the Administrator, shall be grounds for the cancellation and forfeiture of such Award, in whole or in part, as the Administrator, in its sole discretion, may determine.
14.13. Any reference in the Plan to a written document includes any document delivered electronically or posted on the Company’s intranet.
14.14. The headings and captions in the Plan are inserted as a matter of convenience for organizational purposes, and do not construe, define, extend, interpret, or limit any provision of the Plan.
14.15. Whenever the context may require, any pronoun includes the corresponding masculine, feminine, or neuter form, and the singular includes the plural and vice versa.
14.16. Any reference in the Plan to a statutory or regulatory provision includes corresponding successor provisions.
14.17. The proceeds from the sale of shares pursuant to Awards granted under the Plan shall constitute general funds of the Company.
14.18. A Participant’s electronic signature of an Award Agreement shall have the same validity and effect as a signature affixed by hand.
14.19. Notwithstanding anything in the Plan or in any Award Agreement to the contrary, the Company will be entitled to the extent permitted or required by Applicable Law, Company policy and/or the requirements of a Stock Exchange on which the Shares are listed for trading, in each case, as in effect from time to time, to recoup compensation of whatever kind paid by the Company at any time to a Participant under this Plan. No such recoupment of compensation will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement between any Participant and the Company.
14.20. Corporate action constituting a grant by the Company of an Award to any Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Administrator, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of Shares) that are inconsistent with those in the Award Agreement or related grant documents as a result of a clerical error in the preparation of the Award Agreement or related grant documentation, the corporate records will control, and the Participant will have no legally binding right to the incorrect term in the Award Agreement or related grant documentation.
2020 Equity Incentive Plan Camber Energy, Inc. 26 of 27
| D-26 |
14.21. Nothing contained in the Plan or in any Award agreement executed pursuant hereto shall be deemed to confer upon any individual or entity to whom an Award is or may be granted hereunder any right to remain in the employ or service of the Company or a parent or subsidiary of the Company or any entitlement to any remuneration or other benefit pursuant to any consulting or advisory arrangement.
2020 Equity Incentive Plan Camber Energy, Inc. 27 of 27
| D-27 |
April 23, 2020
The Special Committee of the Board of Directors of Camber Energy, Inc.
1415 Louisiana Street, Suite 3500
Houston, Texas 77002
Dear Special Committee:
You have retained Mercer Capital Management, Inc. (“Mercer Capital”) to provide an opinion as to the fairness of the proposed transaction (“Transaction”) and the exchange ratio described below from the financial point of view to Camber Energy, Inc., a Nevada corporation (“Camber”, or “the Company”) and shareholders of the Company.
Mercer Capital, as part of its financial advisory and general valuation practice, is engaged to assist financial institutions and businesses in merging with and/or acquiring other entities and to analyze businesses and their securities in connection with mergers and acquisitions, private placements, corporate reorganizations, employee stock ownership plans, income and estate tax matters, and other corporate financial planning and advisory activities.
OVERVIEW OF THE TRANSACTION
It is our understanding that the Company entered into that certain Agreement and Plan of Merger (the “Agreement”) on February 3, 2020, whereby a wholly-owned subsidiary of Camber (“Merger Sub”) will be merged into Viking Energy Group, Inc. (“Viking”), with Viking continuing as the surviving entity (the “Surviving Entity”), and the Surviving Entity will be a wholly-owned subsidiary of Camber (the “Transaction”, or the “Merger”). As a result of the Transaction, Camber’s equity holders prior to the Transaction will own approximately 20% of Camber’s issued and outstanding common stock, without taking into account any shares of common stock which the holder of Camber’s Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock, (the “Camber Percentage”) immediately after the Transaction, subject to certain adjustment provisions as detailed in the Agreement.
At the effective time of the Transaction (the “Effective Time”):
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1. |
Each share of the common stock of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into one fully paid and nonassessable share of common stock of the Surviving Entity, with the same rights, powers and privileges as the shares so converted and will constitute the only outstanding shares of capital stock of the Surviving Entity. |
MERCER CAPITAL |
20333 State Highway 249, Suite 200 Houston, Texas 77070 |
832.432.1011 (P) |
www.mercercapital.com |
| E-1 |
The Special Committee of the Board of Directors
of Camber Energy, Inc.
April 23, 2020
PAGE 2
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2. |
Each share of Viking common stock issued and outstanding immediately prior to the Effective Time, except for shares of Viking common stock that are owned by Camber, Viking or Merger Sub, will be converted into the right to receive a number of shares (the “Merger Consideration”) of Camber Common Stock equal to the number of shares of Camber common stock considered outstanding on a fully-diluted basis immediately prior to the Effective Time, excluding any shares into which the Series C Preferred Stock may be convertible, multiplied by the difference between 100 and the Camber Percentage, divided by the Camber Percentage, divided by the number of shares of Viking common stock considered outstanding on a fully diluted basis immediately prior to the Effective Time, rounded up to the nearest one-hundred thousandth (1/100,000th)(the “Exchange Ratio”). |
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3. |
All of the shares of Viking common stock converted into the right to receive the Merger Consideration will no longer be outstanding and will automatically be cancelled and will cease to exist. |
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4. |
Each warrant or option to purchase shares of Viking common stock (a “Viking Stock Option”) that, as of immediately prior to the Effective Time, is outstanding and unexercised will be converted into a warrant or option, as applicable, to purchase shares of Camber common stock having the same terms and conditions as applied to the corresponding Viking Stock Option as of immediately prior to the Effective Time, except for adjustments to such number of shares and such exercise prices to reflect the Exchange Ratio. |
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5. |
Each Viking promissory note convertible into Viking common stock that, as of immediately prior to the Effective Time, is outstanding and unconverted will be converted into a promissory note convertible into Camber common stock having the same terms and conditions as applied to the corresponding Viking Convertible Note as of immediately prior to the Effective Time (including any extended post-termination conversion period that applies following consummation of the Merger), except as provided in the Agreement, and except for adjustments to such number of shares and such conversion prices to reflect the Exchange Ratio. |
The respective obligations of the parties to effect the Merger will be subject to the satisfaction at or prior to the Effective Time of the following conditions:
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1. |
This Agreement will have been adopted by the stockholders of Viking by the requisite Viking vote and an increase in authorized but unissued shares of Camber common stock sufficient to allow the issuance of the Merger Consideration and the approval of the shares of Camber common stock issuable pursuant to the Transaction pursuant to the rules of the NYSE American, will have been approved by the stockholders of Camber by the requisite Camber vote. |
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2. |
Viking will have arranged to extend the maturity date to June 1, 2021, or later, of the promissory note executed and delivered by Viking in connection with Viking’s oil and gas acquisition closed on or about December 28, 2018, or any promissory note(s) issued in replacement thereof. |
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3. |
Camber will have (i) obtained the consent of the holders of its Series C Preferred Stock for the Merger, which consent will be still be valid and enforceable as of the Closing; and (ii) Camber will not be in breach of any of its agreements with the Series C Preferred Stock holder. |
| E-2 |
The Special Committee of the Board of Directors
of Camber Energy, Inc.
April 23, 2020
PAGE 3
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4. |
Viking will have received the consent for the Merger from ABC Funding, LLC. |
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5. |
Viking will have negotiated a new remuneration arrangement with Network 1 Financial Securities, Inc. with respect to such broker-dealer’s role in and compensation associated with the Merger, on terms and conditions satisfactory to Viking and Camber. Viking will have negotiated a new remuneration arrangement with RHK Capital with respect to such broker-dealer’s role in and compensation associated with Viking’s merger with Camber, on terms and conditions satisfactory to Viking and Camber. |
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6. |
At Closing, the only loan obligations with a maturity date in 2020 that Viking will have will be the series of $13.5 million of convertible debt issued in connection with Viking’s offering completed in December of 2018. |
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7. |
Camber will, subject to approval of Camber’s Series C Preferred Stock holders, have acquired 25% of Elysium as part of a $5,000,000 investment in Viking’s Rule 506(c) offering, and in connection therewith will have received a $5,000,000 promissory note by Viking, accruing interest at 10.5% per annum (the “Acquisition Note”). The Acquisition Note will be forgiven in the event the Merger closes, and the Acquisition Note will be due 90 days after the date that this Agreement is terminated by any party for any reason, at which time an additional payment will also be due to Camber and payable by Viking in an amount equal to (i) the amount owed by Camber to the Series C Preferred Stock holder in connection with the redemption of 525 shares of Camber’s Series C Preferred Stock, minus (ii) the amount due to Camber pursuant to the Acquisition Note. |
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8. |
Camber will, in its reasonable determination, be satisfied with its due diligence on the Elysium acquisition and the title and contracts relating thereto, the reserves relating thereto and with Phase 1 environmental results on the Elysium acquisition. |
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9. |
There will be no preferred stock of Viking outstanding at closing. |
MATERIALS EXAMINED & DUE DILIGENCE PERFORMED
As part of our analysis, Mercer Capital visited with management to gain insight into the Company’s and Viking’s historical financial performance, prospective performance, and other factors that led to the decision to enter into the Agreement.
Documents reviewed include:
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1. |
Agreement and Plan of Merger by and between Viking Energy Group, Inc., and Camber Energy, Inc., dated as of February 3, 2020. |
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2. |
Assignment of Membership Interest, dated effective as of February 3, 2020, entered into by and between Viking Energy Group, Inc., and Camber Energy, Inc. |
| E-3 |
The Special Committee of the Board of Directors
of Camber Energy, Inc.
April 23, 2020
PAGE 4
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3. |
Viking Energy Group, Inc. Confidential Subscription Package dated as of February 11, 2020. |
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4. |
Various third-party reserve reports for certain oil & gas properties owned by Viking Energy Group, Inc., including: |
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a. |
Estimates of Reserves and Future Revenue to the Viking Energy Group, Inc. Interest in Certain Oil and Gas Properties located in Louisiana and Texas, as of December 31, 2019 (“Ichor Assets”) based on price and cost parameters specified by Viking Energy Group, Inc. Prepared by Netherland, Sewell & Associates, Inc., in a report dated February 20, 2020. |
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b. |
Estimates of Reserves and Future Revenue to the Five J.A.B., Inc. Royalty and Overriding Royalty Interest in Certain Oil and Gas Properties located in Louisiana and Texas, as of September 1, 2019, based on price and cost parameters specified by Five J.A.B., Inc. Prepared by Netherland, Sewell & Associates, Inc., in a report dated September 13, 2019. |
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c. |
Estimates of Reserves and Future Revenue to the Five J.A.B., Inc. Interest in Certain Oil and Gas Properties located in Louisiana and Texas, as of September 1, 2019, based on price and cost parameters specified by Five J.A.B., Inc. Prepared by Netherland, Sewell & Associates, Inc., in a report dated September 13, 2019. |
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d. |
Forecast of Production and Revenue in and related to the East Mud Lake Field located in Cameron Parish, Louisiana, for Viking Energy Group, Inc. as of July 1, 2019. Prepared by Collarini Associates in a report dated July 17, 2019. |
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e. |
Reserve Estimate and Economic Analysis for Petrodome Energy, LLC. properties in Texas, Louisiana, and Mississippi as of July 1, 2019. Prepared by Yeager Engineering in a report dated August 13, 2019. |
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5. |
Excel file named “Viking Proforma Cash Model - February 3rd, 2020 (v2.1).xlsx” provided by management. |
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6. |
Executive Summary Presentation, “Financing Scenarios (Confidential),” dated April 2020. |
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7. |
Organizational charts, management biographies, and personnel details for Viking Energy Group, Inc., provided by management. |
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8. |
Various documents filed by Camber Energy, Inc. with the U.S. Securities and Exchange Commission, including: |
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a. |
Form 10-Q for the quarterly period ended December 31, 2019, filed February 14, 2020. |
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b. |
Form 10-K for the fiscal year ended March 31, 2019, filed July 1, 2019. |
| E-4 |
The Special Committee of the Board of Directors
of Camber Energy, Inc.
April 23, 2020
PAGE 5
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c. |
Form 8-K filed February 5, 2020, including associated Exhibits: |
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i. |
Agreement and Plan of Merger by and Between Viking Energy Group, Inc., and Camber Energy, Inc. dated as of February 3, 2020 |
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ii. |
Camber Energy, Inc. Amended and Restated Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on July 8, 2019 (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 9, 2020, and incorporated herein by reference)(File No. 001-32508) |
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iii. |
Form of Stock Purchase Agreement relating to the purchase of $5 million in shares of Series C Redeemable Convertible Preferred Stock dated February 3, 2020 |
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iv. |
Form of Waivers and Amendments to Stock Purchase Agreements dated February 3, 2020, by and between Camber Energy, Inc. and the Investor Named Therein |
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v. |
Securities Purchase Agreement dated as of February 3, 2020 by and between Camber Energy, Inc. (Purchaser) and Viking Energy Group, Inc. |
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vi. |
$5,000,000 10.5% Secured Promissory Note Issued by Viking Energy Group, Inc. to Camber Energy, Inc. Dated February 3, 3020 |
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vii. |
Security and Pledge Agreement, dated as of February 3, 2020 by and among Viking Energy Group, Inc. and Camber Energy, Inc. |
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viii. |
Security and Pledge Agreement, dated as of February 3, 2020 by and among Viking Energy Group, Inc. and Camber Energy, Inc. |
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ix. |
Assignment of Membership Interests by Viking Energy Group, Inc. in favor of Camber Energy, Inc. dated February 3, 2020 |
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Press release dated February 5, 2020 |
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d. |
Other various documents and press releases filed by Camber Energy, Inc. |
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9. |
Various documents filed by Viking Energy Group, Inc. with the U.S. Securities and Exchange Commission, including: |
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a. |
Form 10-K for the fiscal year ended December 31, 2019, filed March 30, 2020. |
| E-5 |
The Special Committee of the Board of Directors
of Camber Energy, Inc.
April 23, 2020
PAGE 6
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b. |
Form 10-Q for the quarterly period ended September 30, 2019, filed November 1, 2019. |
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c. |
Form 8-K filed February 5, 2020, including associated Exhibits: |
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i. |
Agreement and Plan of Merger, dated as of February 3, 2020, by and between Viking Energy Group, Inc. and Camber Energy, Inc. |
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ii. |
Securities Purchase Agreement, dated as of February 3, 2020, by and between Viking Energy Group, Inc. and Camber Energy, Inc. |
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iii. |
$5,000,000 10.5% Secured Promissory Note, dated as of February 3, 2020, Issued by Viking Energy Group, Inc. to Camber Energy, Inc. |
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iv. |
Security and Pledge Agreement, dated as of February 3, 2020, by and between Viking Energy Group, Inc. and Camber Energy, Inc. |
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v. |
Security and Pledge Agreement, dated as of February 3, 2020, by and between Viking Energy Group, Inc. and Camber Energy, Inc. |
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vi. |
Assignment of Membership Interests by Viking Energy Group, Inc. in favor of Camber Energy, Inc. dated February 3, 2020 |
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vii. |
Press release dated February 5, 2020 |
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d. |
Other various documents and press releases filed by Viking Energy Group, Inc. |
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10. |
Certain other materials provided by management or otherwise obtained by Mercer Capital deemed relevant to prepare this opinion. |
In all cases, we relied upon the referenced information without independent verification. This opinion is, therefore, dependent upon the information provided. A material change in critical information relied upon and the underlying analysis performed would necessitate a reassessment to determine the effect, if any, upon our opinion.
We have furthermore assumed that the reserve reports provided to us by management reflect a reasonable assessment of Camber’s and Viking’s future operating and financial performance. Mercer Capital does not express any opinion as to the assumptions underlying such forecasts, nor do we represent or warrant that the projections will be achieved.
| E-6 |
The Special Committee of the Board of Directors
of Camber Energy, Inc.
April 23, 2020
PAGE 7
OPINION OF FAIRNESS
Consistent with Mercer Capital’s engagement letter with you, Mercer Capital is providing this fairness opinion in connection with the Transaction and will receive a fee for such services, which is not contingent upon the conclusion of our analysis.
Mercer Capital has been retained by Camber within the past three years to provide certain valuation and transaction advisory services. Mercer Capital has not been retained by Viking within the past three years to provide any services.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs and based upon such matters as we considered relevant, it is our opinion as of the date hereof that the Transaction and the Exchange Ratio are fair, from a financial point of view, to the Company’s shareholders.
Mercer Capital has not expressed an opinion as to the price at which any security may trade in the future; nor have we expressed an opinion regarding any compensation that may be paid to management as part of the Transaction. The opinion is necessarily based upon economic, market, financial, and other conditions as they exist, and the information made available to us, as of the date of this letter.
Sincerely,
MERCER CAPITAL
| E-7 |
[To be provided by amendment]
F-1
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 “Beneficial stockholder” defined. “Beneficial stockholder” means a person who is a beneficial owner of shares held in a voting trust or by a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 “Corporate action” defined. “Corporate action” means the action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 “Dissenter” defined. “Dissenter” means a stockholder who is entitled to dissent from a domestic corporation’s action under NRS 92A.380 and who exercises that right when and in the manner required by NRS 92A.400 to 92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 “Fair value” defined. “Fair value,” with respect to a dissenter’s shares, means the value of the shares determined:
1. Immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable;
2. Using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and
3. Without discounting for lack of marketability or minority status.
(Added to NRS by 1995, 2087; A 2009, 1720)
NRS 92A.325 “Stockholder” defined. “Stockholder” means a stockholder of record or a beneficial stockholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 “Stockholder of record” defined. “Stockholder of record” means the person in whose name shares are registered in the records of a domestic corporation or the beneficial owner of shares to the extent of the rights granted by a nominee’s certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 “Subject corporation” defined. “Subject corporation” means the domestic corporation which is the issuer of the shares held by a dissenter before the corporate action creating the dissenter’s rights becomes effective or the surviving or acquiring entity of that issuer after the corporate action becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be computed from the effective date of the action until the date of payment, at the rate of interest most recently established pursuant to NRS 99.040.
(Added to NRS by 1995, 2087; A 2009, 1721)
NRS 92A.350 Rights of dissenting partner of domestic limited partnership. A partnership agreement of a domestic limited partnership or, unless otherwise provided in the partnership agreement, an agreement of merger or exchange, may provide that contractual rights with respect to the partnership interest of a dissenting general or limited partner of a domestic limited partnership are available for any class or group of partnership interests in connection with any merger or exchange in which the domestic limited partnership is a constituent entity.
(Added to NRS by 1995, 2088)
G-1
NRS 92A.360 Rights of dissenting member of domestic limited-liability company. The articles of organization or operating agreement of a domestic limited-liability company or, unless otherwise provided in the articles of organization or operating agreement, an agreement of merger or exchange, may provide that contractual rights with respect to the interest of a dissenting member are available in connection with any merger or exchange in which the domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise provided in the articles or bylaws, any member of any constituent domestic nonprofit corporation who voted against the merger may, without prior notice, but within 30 days after the effective date of the merger, resign from membership and is thereby excused from all contractual obligations to the constituent or surviving corporations which did not occur before the member’s resignation and is thereby entitled to those rights, if any, which would have existed if there had been no merger and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no member of a domestic nonprofit corporation, including, but not limited to, a cooperative corporation, which supplies services described in chapter 704 of NRS to its members only, and no person who is a member of a domestic nonprofit corporation as a condition of or by reason of the ownership of an interest in real property, may resign and dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain corporate actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390 and subject to the limitation in paragraph (f), any stockholder is entitled to dissent from, and obtain payment of the fair value of the stockholder’s shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation is a constituent entity:
(1) If approval by the stockholders is required for the merger by NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation, regardless of whether the stockholder is entitled to vote on the plan of merger;
(2) If the domestic corporation is a subsidiary and is merged with its parent pursuant to NRS 92A.180; or
(3) If the domestic corporation is a constituent entity in a merger pursuant to NRS 92A.133.
(b) Consummation of a plan of conversion to which the domestic corporation is a constituent entity as the corporation whose subject owner’s interests will be converted.
(c) Consummation of a plan of exchange to which the domestic corporation is a constituent entity as the corporation whose subject owner’s interests will be acquired, if the stockholder’s shares are to be acquired in the plan of exchange.
(d) Any corporate action taken pursuant to a vote of the stockholders to the extent that the articles of incorporation, bylaws or a resolution of the board of directors provides that voting or nonvoting stockholders are entitled to dissent and obtain payment for their shares.
(e) Accordance of full voting rights to control shares, as defined in NRS 78.3784, only to the extent provided for pursuant to NRS 78.3793.
(f) Any corporate action not described in this subsection pursuant to which the stockholder would be obligated, as a result of the corporate action, to accept money or scrip rather than receive a fraction of a share in exchange for the cancellation of all the stockholder’s outstanding shares, except where the stockholder would not be entitled to receive such payment pursuant to NRS 78.205, 78.2055 or 78.207. A dissent pursuant to this paragraph applies only to the fraction of a share, and the stockholder is entitled only to obtain payment of the fair value of the fraction of a share.
2. A stockholder who is entitled to dissent and obtain payment pursuant to NRS 92A.300 to 92A.500, inclusive, must not challenge the corporate action creating the entitlement unless the action is unlawful or constitutes or is the result of actual fraud against the stockholder or the domestic corporation.
3. Subject to the limitations in this subsection, from and after the effective date of any corporate action described in subsection 1, no stockholder who has exercised the right to dissent pursuant to NRS 92A.300 to 92A.500, inclusive, is entitled to vote his or her shares for any purpose or to receive payment of dividends or any other distributions on shares. This subsection does not apply to dividends or other distributions payable to stockholders on a date before the effective date of any corporate action from which the stockholder has dissented. If a stockholder exercises the right to dissent with respect to a corporate action described in paragraph (f) of subsection 1, the restrictions of this subsection apply only to the shares to be converted into a fraction of a share and the dividends and distributions to those shares.
(Added to NRS by 1995, 2087; A 2001, 1414, 3199; 2003, 3189; 2005, 2204; 2007, 2438; 2009, 1721; 2011, 2814; 2019, 109)
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NRS 92A.390 Limitations on right of dissent: Stockholders of certain classes or series; action of stockholders not required for plan of merger; shares of stock not issued and outstanding on date of first announcement of proposed action.
1. There is no right of dissent pursuant to paragraph (a), (b), (c) or (f) of subsection 1 of NRS 92A.380 in favor of stockholders of any class or series which is:
(a) A covered security under section 18(b)(1)(A) or (B) of the Securities Act of 1933, 15 U.S.C. § 77r(b)(1)(A) or (B), as amended;
(b) Traded in an organized market and has at least 2,000 stockholders and a market value of at least $20,000,000, exclusive of the value of such shares held by the corporation’s subsidiaries, senior executives, directors and beneficial stockholders owning more than 10 percent of such shares; or
(c) Issued by an open end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940, 15 U.S.C. §§ 80a-1 et seq., as amended, and which may be redeemed at the option of the holder at net asset value,
unless
the articles of incorporation of the corporation issuing the class or series or the resolution of the board of directors approving
the plan of merger, conversion or exchange expressly provide otherwise.
2. The applicability of subsection 1 must be determined as of:
(a) The record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the corporate action requiring dissenter’s rights; or
(b) The day before the effective date of such corporate action if there is no meeting of stockholders.
3. Subsection 1 is not applicable and dissenter’s rights are available pursuant to NRS 92A.380 for the holders of any class or series of shares who are required by the terms of the corporate action to accept for such shares anything other than:
(a) Cash;
(b) Any security or other proprietary interest of any other entity, including, without limitation, shares, equity interests or contingent value rights, that satisfies the standards set forth in subsection 1 at the time the corporate action becomes effective; or
(c) Any combination of paragraphs (a) and (b).
4. There is no right of dissent for any holders of stock of the surviving domestic corporation if the plan of merger does not require action of the stockholders of the surviving domestic corporation under NRS 92A.130.
5. There is no right of dissent for any holders of stock of the parent domestic corporation if the plan of merger does not require action of the stockholders of the parent domestic corporation under NRS 92A.180.
6. There is no right of dissent with respect to any share of stock that was not issued and outstanding on the date of the first announcement to the news media or to the stockholders of the terms of the proposed action requiring dissenter’s rights.
(Added to NRS by 1995, 2088; A 2009, 1722; 2013, 1285; 2019, 110, 2495)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions only to shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter’s rights as to fewer than all of the shares registered in his or her name only if the stockholder of record dissents with respect to all shares of the class or series beneficially owned by any one person and notifies the subject corporation in writing of the name and address of each person on whose behalf the stockholder of record asserts dissenter’s rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which the partial dissenter dissents and his or her other shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter’s rights as to shares held on his or her behalf only if the beneficial stockholder:
(a) Submits to the subject corporation the written consent of the stockholder of record to the dissent not later than the time the beneficial stockholder asserts dissenter’s rights; and
(b) Does so with respect to all shares of which he or she is the beneficial stockholder or over which he or she has power to direct the vote.
(Added to NRS by 1995, 2089; A 2009, 1723)
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NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenter’s rights is submitted to a vote at a stockholders’ meeting, the notice of the meeting must state that stockholders are, are not or may be entitled to assert dissenter’s rights under NRS 92A.300 to 92A.500, inclusive. If the domestic corporation concludes that dissenter’s rights are or may be available, a copy of NRS 92A.300 to 92A.500, inclusive, must accompany the meeting notice sent to those stockholders of record entitled to exercise dissenter’s rights.
2. If the corporate action creating dissenter’s rights is taken by written consent of the stockholders or without a vote of the stockholders, the domestic corporation shall notify in writing all stockholders of record entitled to assert dissenter’s rights that the action was taken and send them the dissenter’s notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730; 2009, 1723; 2013, 1286; 2019, 111)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenter’s rights is submitted to a vote at a stockholders’ meeting, a stockholder who wishes to assert dissenter’s rights with respect to any class or series of shares:
(a) Must deliver to the subject corporation, before the vote is taken, written notice of the stockholder’s intent to demand payment for his or her shares if the proposed action is effectuated; and
(b) Must not vote, or cause or permit to be voted, any of his or her shares of such class or series in favor of the proposed action.
2. If a proposed corporate action creating dissenter’s rights is taken by written consent of the stockholders, a stockholder who wishes to assert dissenter’s rights with respect to any class or series of shares must not consent to or approve the proposed corporate action with respect to such class or series.
3. A stockholder who does not satisfy the requirements of subsection 1 or 2 and NRS 92A.400 is not entitled to payment for his or her shares under this chapter.
(Added to NRS by 1995, 2089; A 1999, 1631; 2005, 2204; 2009, 1723; 2013, 1286)
NRS 92A.430 Dissenter’s notice: Delivery to stockholders entitled to assert rights; contents.
1. The subject corporation shall deliver a written dissenter’s notice to all stockholders of record entitled to assert dissenter’s rights in whole or in part, and any beneficial stockholder who has previously asserted dissenter’s rights pursuant to NRS 92A.400.
2. The dissenter’s notice must be sent no later than 10 days after the effective date of the corporate action specified in NRS 92A.380, and must:
(a) State where the demand for payment must be sent and where and when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what extent the transfer of the shares will be restricted after the demand for payment is received;
(c) Supply a form for demanding payment that includes the date of the first announcement to the news media or to the stockholders of the terms of the proposed action and requires that the person asserting dissenter’s rights certify whether or not the person acquired beneficial ownership of the shares before that date;
(d) Set a date by which the subject corporation must receive the demand for payment, which may not be less than 30 nor more than 60 days after the date the notice is delivered and state that the stockholder shall be deemed to have waived the right to demand payment with respect to the shares unless the form is received by the subject corporation by such specified date; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089; A 2005, 2205; 2009, 1724; 2013, 1286)
NRS 92A.440 Demand for payment and deposit of certificates; loss of rights of stockholder; withdrawal from appraisal process.
1. A stockholder who receives a dissenter’s notice pursuant to NRS 92A.430 and who wishes to exercise dissenter’s rights must:
(a) Demand payment;
(b) Certify whether the stockholder or the beneficial owner on whose behalf he or she is dissenting, as the case may be, acquired beneficial ownership of the shares before the date required to be set forth in the dissenter’s notice for this certification; and
(c) Deposit the stockholder’s certificates, if any, in accordance with the terms of the notice.
2. If a stockholder fails to make the certification required by paragraph (b) of subsection 1, the subject corporation may elect to treat the stockholder’s shares as after-acquired shares under NRS 92A.470.
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3. Once a stockholder deposits that stockholder’s certificates or, in the case of uncertified shares makes demand for payment, that stockholder loses all rights as a stockholder, unless the stockholder withdraws pursuant to subsection 4.
4. A stockholder who has complied with subsection 1 may nevertheless decline to exercise dissenter’s rights and withdraw from the appraisal process by so notifying the subject corporation in writing by the date set forth in the dissenter’s notice pursuant to NRS 92A.430. A stockholder who fails to so withdraw from the appraisal process may not thereafter withdraw without the subject corporation’s written consent.
5. The stockholder who does not demand payment or deposit his or her certificates where required, each by the date set forth in the dissenter’s notice, is not entitled to payment for his or her shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730; 2003, 3189; 2009, 1724)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after demand for payment. The subject corporation may restrict the transfer of shares not represented by a certificate from the date the demand for their payment is received.
(Added to NRS by 1995, 2090; A 2009, 1725)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after receipt of a demand for payment pursuant to NRS 92A.440, the subject corporation shall pay in cash to each dissenter who complied with NRS 92A.440 the amount the subject corporation estimates to be the fair value of the dissenter’s shares, plus accrued interest. The obligation of the subject corporation under this subsection may be enforced by the district court:
(a) Of the county where the subject corporation’s principal office is located;
(b) If the subject corporation’s principal office is not located in this State, in the county in which the corporation’s registered office is located; or
(c) At the election of any dissenter residing or having its principal or registered office in this State, of the county where the dissenter resides or has its principal or registered office.
The
court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation’s balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, a statement of income for that year, a statement of changes in the stockholders’ equity for that year or, where such financial statements are not reasonably available, then such reasonably equivalent financial information and the latest available quarterly financial statements, if any;
(b) A statement of the subject corporation’s estimate of the fair value of the shares; and
(c) A statement of the dissenter’s rights to demand payment under NRS 92A.480 and that if any such stockholder does not do so within the period specified, such stockholder shall be deemed to have accepted such payment in full satisfaction of the corporation’s obligations under this chapter.
(Added to NRS by 1995, 2090; A 2007, 2704; 2009, 1725; 2013, 1287)
NRS 92A.470 Withholding payment for shares acquired on or after date of dissenter’s notice: General requirements.
1. A subject corporation may elect to withhold payment from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenter’s notice as the first date of any announcement to the news media or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, within 30 days after receipt of a demand for payment pursuant to NRS 92A.440, the subject corporation shall notify the dissenters described in subsection 1:
(a) Of the information required by paragraph (a) of subsection 2 of NRS 92A.460;
(b) Of the subject corporation’s estimate of fair value pursuant to paragraph (b) of subsection 2 of NRS 92A.460;
(c) That they may accept the subject corporation’s estimate of fair value, plus interest, in full satisfaction of their demands or demand appraisal under NRS 92A.480;
(d) That those stockholders who wish to accept such an offer must so notify the subject corporation of their acceptance of the offer within 30 days after receipt of such offer; and
(e) That those stockholders who do not satisfy the requirements for demanding appraisal under NRS 92A.480 shall be deemed to have accepted the subject corporation’s offer.
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3. Within 10 days after receiving the stockholder’s acceptance pursuant to subsection 2, the subject corporation shall pay in cash the amount offered under paragraph (b) of subsection 2 to each stockholder who agreed to accept the subject corporation’s offer in full satisfaction of the stockholder’s demand.
4. Within 40 days after sending the notice described in subsection 2, the subject corporation shall pay in cash the amount offered under paragraph (b) of subsection 2 to each stockholder described in paragraph (e) of subsection 2.
(Added to NRS by 1995, 2091; A 2009, 1725; 2013, 1287)
NRS 92A.480 Dissenter’s estimate of fair value: Notification of subject corporation; demand for payment of estimate.
1. A dissenter paid pursuant to NRS 92A.460 who is dissatisfied with the amount of the payment may notify the subject corporation in writing of the dissenter’s own estimate of the fair value of his or her shares and the amount of interest due, and demand payment of such estimate, less any payment pursuant to NRS 92A.460. A dissenter offered payment pursuant to NRS 92A.470 who is dissatisfied with the offer may reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of his or her shares and interest due.
2. A dissenter waives the right to demand payment pursuant to this section unless the dissenter notifies the subject corporation of his or her demand to be paid the dissenter’s stated estimate of fair value plus interest under subsection 1 in writing within 30 days after receiving the subject corporation’s payment or offer of payment under NRS 92A.460 or 92A.470 and is entitled only to the payment made or offered.
(Added to NRS by 1995, 2091; A 2009, 1726)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject corporation; powers of court; rights of dissenter.
1. If a demand for payment pursuant to NRS 92A.480 remains unsettled, the subject corporation shall commence a proceeding within 60 days after receiving the demand and petition the court to determine the fair value of the shares and accrued interest. If the subject corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded by each dissenter pursuant to NRS 92A.480 plus interest.
2. A subject corporation shall commence the proceeding in the district court of the county where its principal office is located in this State. If the principal office of the subject corporation is not located in this State, the right to dissent arose from a merger, conversion or exchange and the principal office of the surviving entity, resulting entity or the entity whose shares were acquired, whichever is applicable, is located in this State, it shall commence the proceeding in the county where the principal office of the surviving entity, resulting entity or the entity whose shares were acquired is located. In all other cases, if the principal office of the subject corporation is not located in this State, the subject corporation shall commence the proceeding in the district court in the county in which the corporation’s registered office is located.
3. The subject corporation shall make all dissenters, whether or not residents of Nevada, whose demands remain unsettled, parties to the proceeding as in an action against their shares. All parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under subsection 2 is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers have the powers described in the order appointing them, or any amendment thereto. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a judgment:
(a) For the amount, if any, by which the court finds the fair value of the dissenter’s shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of the dissenter’s after-acquired shares for which the subject corporation elected to withhold payment pursuant to NRS 92A.470.
(Added to NRS by 1995, 2091; A 2007, 2705; 2009, 1727; 2011, 2815; 2013, 1288)
NRS 92A.500 Assessment of costs and fees in certain legal proceedings.
1. The court in a proceeding to determine fair value shall determine all of the costs of the proceeding, including the reasonable compensation and expenses of any appraisers appointed by the court. The court shall assess the costs against the subject corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment.
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2. The court may also assess the fees and expenses of the counsel and experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the court finds the subject corporation did not substantially comply with the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the subject corporation, the court may award to those counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess the costs against the subject corporation, except that the court may assess costs against all or some of the dissenters who are parties to the proceeding, in amounts the court finds equitable, to the extent the court finds that such parties did not act in good faith in instituting the proceeding.
5. To the extent the subject corporation fails to make a required payment pursuant to NRS 92A.460, 92A.470 or 92A.480, the dissenter may bring a cause of action directly for the amount owed and, to the extent the dissenter prevails, is entitled to recover all expenses of the suit.
6. This section does not preclude any party in a proceeding commenced pursuant to NRS 92A.460 or 92A.490 from applying the provisions of NRS 17.117 or N.R.C.P. 68.
(Added to NRS by 1995, 2092; A 2009, 1727; 2015, 2566; 2019, 276)
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INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As authorized by Section 78.751 of the NRS, Camber may indemnify its officers and directors against expenses incurred by such persons in connection with any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, involving such persons in their capacities as officers and directors, so long as such persons (1) are not liable pursuant to Section 78.138 of the NRS or (2) acted in good faith and in a manner which they reasonably believed to be in or not opposed to Camber’s best interests, or that, with respect to any criminal action or proceeding, he or she had reasonable cause to believe that the conduct was unlawful. If the legal proceeding, however, is by or in Camber’s right, the director or officer may not be indemnified in respect of any claim, issue or matter as to which he is adjudged to be liable for negligence or misconduct in the performance of his duty to us unless a court determines otherwise.
Under Nevada law, corporations may also purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director or officer (or is serving at our request as a director or officer of another corporation) for any liability asserted against such person and any expenses incurred by him in his capacity as a director or officer. These financial arrangements may include trust funds, self-insurance programs and guaranties.
Camber’s amended articles of incorporation provide that Camber’s directors and officers shall not be personally liable to Camber or Camber’s stockholders for damages for breach of such directors’ or officers’ fiduciary duty, but do not eliminate liability for acts or omissions which involve intentional misconduct, fraud or a knowing violation of law, or the payment of dividends in violation of the NRS. The effect of this provision of Camber’s articles of incorporation, as amended, is to eliminate our rights and those of our stockholders (through stockholders’ derivative suits on behalf of Camber) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations described above or defined by statute.
Camber’s bylaws, as amended, provide that Camber shall indemnify every (i) present or former director, advisory director or officer of Camber, (ii) any person who while serving in any of the capacities referred to in clause (i) served at Camber’s request as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and (iii) any person nominated or designated by (or pursuant to authority granted by) the Board of Directors or any committee thereof to serve in any of the capacities referred to in clauses (i) or (ii) (each, an “Indemnitee”). Camber’s bylaws provide that Camber shall indemnify each Indemnitee against all judgments, penalties (including excise and similar taxes), fines, amounts paid in settlement and reasonable expenses actually incurred by the Indemnitee in connection with any proceeding in which Camber was, is or is threatened to be named as a defendant or respondent, or in which he was or is a witness without being named a defendant or respondent, by reason, in whole or in part, of his serving or having served, or having been nominated or designated to serve, if it is determined that the Indemnitee (a) conducted himself in good faith, (b) reasonably believed, in the case of conduct in his official capacity, that his conduct was in Camber’s best interests and, in all other cases, that his conduct was at least not opposed to Camber’s best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe that his conduct was unlawful; provided, however, that in the event that an Indemnitee is found liable to Camber or is found liable on the basis that personal benefit was improperly received by the Indemnitee, the indemnification (i) is limited to reasonable expenses actually incurred by the Indemnitee in connection with the proceeding and (ii) shall not be made in respect of any proceeding in which the Indemnitee shall have been found liable for willful or intentional misconduct in the performance of his duty to Camber. Camber believes that the indemnification provisions in its articles of incorporation, as amended, and bylaws, as amended, are necessary to attract and retain qualified persons as directors and officers.
Camber’s bylaws provide that no indemnification shall be made in respect to any proceeding in which such Indemnitee has been (i) found liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the Indemnitee’s official capacity, or (ii) found liable to Camber. The termination of any proceeding by judgment, order, settlement or conviction, or on a plea of nolo contendere or its equivalent, is not of itself determinative that the Indemnitee did not meet the requirements set forth in clauses (a), (b) or (c) in the preceding paragraph. An Indemnitee shall be deemed to have been found liable in respect of any claim, issue or matter only after the Indemnitee shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses shall, include, without limitation, all court costs and all fees and disbursements of attorneys’ fees for the Indemnitee. The indemnification provided shall be applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven.
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Neither Camber’s bylaws nor its articles of incorporation include any specific indemnification provisions for Camber’s officers or directors against liability under the Securities Act. Additionally, insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Camber pursuant to the foregoing provisions, or otherwise, Camber has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Camber maintains directors’ and officers’ liability insurance that, in general, insures: (i) Camber’s directors and officers against loss by reason of any of their wrongful acts; and (ii) Camber against loss arising from claims against the directors and officers by reason of their wrongful acts, all subject to the terms and conditions contained in the policy.
Item 21. Exhibits and Financial Statement Schedules
The following exhibits are filled herewith or incorporated herein by reference:
EXHIBIT INDEX
|
Exhibit No. |
Description |
| 2.1+ | Agreement and Plan of Merger by and Between Viking Energy Group, Inc., and Camber Energy, Inc. dated as of February 3, 2020 (Filed as Exhibit 2.1 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 2.2 | First Amendment to Agreement and Plan of Merger by and Between Viking Energy Group, Inc., and Camber Energy, Inc. dated as of May 27, 2020 (Filed as Exhibit 2.2 to Camber’s Report on Form 8-K, filed with the Commission on June 1, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 3.1 | Articles of Incorporation (Filed as Exhibit 3.1 to Camber’s Annual Report on Form 10-KSB for the fiscal year ended November 30, 2005 filed with the SEC on February 14, 2006, and incorporated herein by reference)(File No. 000-51414) |
| 3.2 | Certificate of Amendment to Articles of Incorporation (Incorporated by reference herein to Exhibit B to Camber’s Information Statement on Schedule 14C filed with the SEC on June 1, 2006) (File No. 000-51414) |
| 3.3 | Certificate of Amendment to Articles of Incorporation (Incorporated by reference herein to Exhibit B to Camber’s Information Statement on Schedule 14C filed with the SEC on February 20, 2007)(File No. 000-51414) |
| 3.4 | Certificate of Amendment to Articles of Incorporation (Incorporated by reference herein to Exhibit B to Camber’s Proxy Statement on Schedule 14A filed with the SEC on March 11, 2010) (File No. 001-32508) |
| 3.5 | Certificate of Amendment to Articles of Incorporation (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on January 11, 2011, and incorporated herein by reference)(File No. 001-32508) |
| 3.6 | Certificate of Amendment to Articles of Incorporation (1-for-25 Reverse Stock Split of Common Stock) (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on July 2, 2015, and incorporated herein by reference)(File No. 001-32508) |
| 3.7 | Certificate of Amendment to the Articles of Incorporation, amending Camber’s name to “Camber Energy, Inc.”, filed with the Secretary of State of Nevada on January 3, 2017 (Filed as Exhibit 3.1 to Camber’s Quarterly Report on Form 10-Q, filed with the Commission on February 14, 2017, and incorporated herein by reference)(File No. 001-32508) |
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| 3.8 | Certificate of Amendment to Camber’s Articles of Incorporation to increase the number of our authorized shares of common stock from 200,000,000 to 500,000,000, as filed with the Secretary of State of Nevada on January 10, 2018 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on January 12, 2018 and incorporated herein by reference) (File No. 001-32508) |
| 3.9 | Certificate of Amendment to Articles of Incorporation (1-for-25 Reverse Stock Split of Common Stock) filed with the Nevada Secretary of State on March 1, 2018, and effective March 5, 2018 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on March 2, 2018 and incorporated herein by reference) (File No. 001-32508) |
| 3.10 | Certificate of Change Pursuant to Nevada Revised Statutes Section 78.209, as filed by Camber Energy, Inc. with the Secretary of State of the State of Nevada on December 20, 2018 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on December 26, 2018 and incorporated herein by reference)(File No. 001-32508) |
| 3.11 | Certificate of Amendment to Camber’s Articles of Incorporation to increase the number of our authorized shares of common stock from 20,000,000 to 250,000,000, as filed with the Secretary of State of Nevada on April 10, 2019 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on April 11, 2019, and incorporated herein by reference)(File No. 001-32508) |
| 3.12 | Certificate of Amendment to Articles of Incorporation (1-for-25 Reverse Stock Split of Common Stock) filed with the Nevada Secretary of State on July 3, 2019, and effective July 8, 2019 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on July 8, 2019 and incorporated herein by reference) (File No. 001-32508) |
| 3.13 | Camber Energy, Inc. Amended and Restated Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock as filed with the Secretary of State of Nevada on July 8, 2019 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on July 9, 2019 and incorporated herein by reference) (File No. 001-32508) |
| 3.14 | State of Delaware Certificate of Merger of Domestic Corporation Into Domestic Limited Liability Company, filed with the Secretary of State of Delaware on July 10, 2019, and effective July 9, 2019, merging Camber Energy Merger Sub 2, Inc. into Lineal Star Holdings LLC (Filed as Exhibit 3.8 to Camber’s Quarterly Report on Form 10-Q, filed with the Commission on August 14, 2019 and incorporated herein by reference) (File No. 001-32508) |
| 3.15 | Certificate of Change Pursuant to Nevada Revised Statutes Section 78.209, filed by Camber Energy, Inc. with the Secretary of State of Nevada on October 25, 2019 and effective on October 29, 2019 (Filed as Exhibit 3.1 to Camber’s Current Report on Form 8-K, filed with the Commission on October 29, 2019 and incorporated herein by reference) (File No. 001-32508) |
| 3.16 | Certificate of Amendment to Articles of Incorporation (Increase in Authorized Common Stock to 25 Million Shares) filed with the Nevada Secretary of State on April 16, 2020, and effective April 16, 2020 |
| 3.17 | Certificate of Withdrawal of Certificate of Designation of Series A Convertible Preferred Stock filed with the Secretary of State of Nevada on May 15, 2020 (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on May 19, 2020, and incorporated herein by reference)(File No. 001-32508) |
| 3.18 | Certificate of Withdrawal of Certificate of Designation of Series B Redeemable Convertible Preferred Stock filed with the Secretary of State of Nevada on May 15, 2020 (Filed as Exhibit 3.2 to Camber’s Report on Form 8-K, filed with the Commission on May 19, 2020, and incorporated herein by reference)(File No. 001-32508) |
| 3.19 | Certificate of Withdrawal of Certificate of Designation of Series D Convertible Preferred Stock filed with the Secretary of State of Nevada on May 15, 2020 (Filed as Exhibit 3.3 to Camber’s Report on Form 8-K, filed with the Commission on May 19, 2020, and incorporated herein by reference)(File No. 001-32508) |
| 3.20 | Certificate of Withdrawal of Certificate of Designation of Series E Redeemable Convertible Preferred Stock filed with the Secretary of State of Nevada on May 15, 2020 (Filed as Exhibit 3.4 to Camber’s Report on Form 8-K, filed with the Commission on May 19, 2020, and incorporated herein by reference)(File No. 001-32508) |
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| 3.21 | Certificate of Withdrawal of Certificate of Designation of Series F Redeemable Preferred Stock filed with the Secretary of State of Nevada on May 15, 2020 (Filed as Exhibit 3.5 to Camber’s Report on Form 8-K, filed with the Commission on May 19, 2020, and incorporated herein by reference)(File No. 001-32508) |
| 3.22 | Amended and Restated Bylaws (effective March 29, 2016) (Filed as Exhibit 3.1 to Camber’s Report on Form 8-K, filed with the Commission on April 1, 2016, and incorporated herein by reference)(File No. 001-32508) |
| 4.1% | Description of Securities of the Registrant |
| 5.1% | Opinion of The McGeary Law Firm, P.C. as to the validity of Camber’s common stock being registered. |
| 10.1 | Form of Indemnification Agreement of Officers and Directors (Filed as Exhibit 10.5 to Camber’s Report on Form 8-K, filed with the Commission on July 9, 2019 and incorporated herein by reference) (File No. 001-32508) |
| 10.2+ | Form of Stock Purchase Agreement relating to the purchase of $5 million in shares of Series C Redeemable Convertible Preferred Stock dated February 3, 2020 (Filed as Exhibit 10.1 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 10.3 | Form of Waivers and Amendments to Stock Purchase Agreements dated February 3, 2020, by and between Camber Energy, Inc. and the Investor Named Therein (Filed as Exhibit 10.2 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 10.4+ | Securities Purchase Agreement dated as of February 3, 2020 by and Between Camber Energy, Inc. (Purchaser) and Viking Energy Group, Inc. (Filed as Exhibit 10.3 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 10.5 | $5,000,000 10.5% Secured Promissory Note Issued by Viking Energy Group, Inc. to Camber Energy, Inc. Dated February 3, 3020 (Filed as Exhibit 10.4 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 10.6 | Security and Pledge Agreement, dated as of February 3, 2020 by and among Viking Energy Group, Inc. and Camber Energy, Inc. (Filed as Exhibit 10.5 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 10.7 | Security and Pledge Agreement, dated as of February 3, 2020 by and among Viking Energy Group, Inc. and Camber Energy, Inc. (Filed as Exhibit 10.6 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 10.8 | Assignment of Membership Interests by Viking Energy Group, Inc. in favor of Camber Energy, Inc. dated February 3, 2020 (Filed as Exhibit 10.7 to Camber’s Report on Form 8-K, filed with the Commission on February 5, 2020 and incorporated herein by reference) (File No. 001-32508) |
| 16.1 | Letter dated August 2, 2018 from GBH CPAs, PC to the Securities and Exchange Commission (Filed as Exhibit 16.1 to Camber’s Report on Form 8-K, filed with the Commission on August 2, 2018 and incorporated herein by reference) (File No. 001-32508) |
| 21.1% | Subsidiaries |
| 23.1* | Consent of Marcum LLP |
| 23.2* | Consent of GBH CPAs, PC |
| 23.3* | Consent of Turner, Stone & Company, L.L.P. |
| 23.4* | Consent of Graves & Co. Consulting LLC |
| 24.1* | Power of Attorney (included on the signature page of this Form S-4) |
| 99.1 | Report of Graves & Co. Consulting LLC (Filed as Exhibit 99.1 to Camber’s Annual Report on Form 10-K, filed with the Commission on July 1, 2019 and incorporated herein by reference) (File No. 001-32508) |
| 99.2* | Consent of Mercer Capital Management, Inc. |
| 99.3% | Consent of ______ |
| 99.4% | Form of Camber Energy, Inc. proxy card for the Camber special meeting |
| 99.5% | Form of Viking Energy Group, Inc. proxy card for the Viking special meeting |
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* Exhibits filed herewith.
** Exhibits furnished herewith.
*** Management contract or compensatory plan.
+ Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) and/or Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Commission upon request; provided, however that Camber may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act, for any schedule or exhibit so furnished.
% To be filed by amendment.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities, in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; (iii) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and (iv) any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
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(6) That every prospectus (i) that is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by reference into this prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one (1) business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means; this includes information contained in documents filed subsequent to the effective date of this registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective.
(9) Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. In the event a claim of indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in a successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on June 3, 2020.
| Camber Energy, Inc. | |
| By: |
/s/ Louis G. Schott |
| Name: | Louis G. Schott |
| Title: |
Interim Chief Executive Officer (Principal Executive Officer) |
| By: |
/s/ Robert Schleizer |
| Name: | Robert Schleizer |
| Title: |
Chief Financial Officer and Director (Principal Financial/Accounting Officer) |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Louis G. Schott and Robert Schleizer his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and any registration statement relating to the offering covered by this registration statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his/her name.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Louis G. Schott | June 3, 2020 | |||
| Louis G. Schott | Interim Chief Executive Officer (Principal Executive Officer) | |||
| /s/ Robert Schleizer | June 3, 2020 | |||
| Robert Schleizer | Chief Financial Officer (Principal Financial and Accounting Officer) and Director | |||
| /s/ Fred S. Zeidman | June 3, 2020 | |||
| Fred S. Zeidman | Director | |||
| /s/ James Miller | June 3, 2020 | |||
| James Miller | Director |
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