Annual report pursuant to Section 13 and 15(d)

PLAN OF MERGER AND INVESTMENT IN UNCONSOLIDATED ENTITY

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PLAN OF MERGER AND INVESTMENT IN UNCONSOLIDATED ENTITY
12 Months Ended
Mar. 31, 2020
Equity Method Investments and Joint Ventures [Abstract]  
PLAN OF MERGER AND INVESTMENT IN UNCONSOLIDATED ENTITY

NOTE 5 – PLAN OF MERGER AND Investment in Unconsolidated ENTITY

 

Viking Plan of Merger and Related Transactions

 

On February 3, 2020, the Company and Viking entered into a merger agreement (the “Merger Agreement”). Pursuant to the Merger Agreement, at the effective time of the Merger, each share of common stock of Viking issued and outstanding, other than certain shares owned by the Company, Viking and the Company’s merger sub which will be merged with and into Viking, with Viking being the surviving entity in the merger (“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 (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company). 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 Merger Agreement can be terminated under certain circumstances, including by either Viking or the Company if the Merger has not been consummated on or before September 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 (a preliminary draft of which has previously been filed) or other SEC filings related to the Merger, and Camber is responding to such comments in a reasonable fashion, subject to certain exceptions.

 

A further requirement to the closing of the Merger was 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 and an additional 5% of Elysium as part of a $4,200,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on June 25, 2020 (as discussed below under “Note 19 – Subsequent Events”. 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:

 

Reason for Termination Percentage of Elysium Retained by Camber
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 20%*
Termination of the Merger Agreement by either party, through no fault of Camber 25%*
Termination of the Merger Agreement due to a material breach of the Merger Agreement by Camber or its disclosure schedules 0%*
Termination of the Merger Agreement for any reason and in the event the Secured Notes (defined below) are not repaid within 90 days of the date of termination and the Additional Payment (defined below) is not made. 30%

 

 *Assumes the payment of Secured Notes 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 Notes (defined below) will be forgiven in the event the Merger closes, and the Secured Notes 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) 115.5% of the original principal amount of the Secured Notes, minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment thereof (the “Additional Payment”) is due.

 

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”). On February 3, 2020, the Company 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. Pursuant to the SPA, the Company made a $5 million loan to Viking (using funds raised from the sale of the Series C Preferred Stock shares to Discover), 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 then 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC, which is wholly-owned by Viking. 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 after March 4, 2020, and before 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 (at which point the Secured Note is no longer convertible), 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, with 61 days prior written notice to Viking, provided that such percentage cannot under any circumstances be increased to greater than 9.99%).

 

As additional consideration for the Company making the loan to Viking, Viking assigned the Company a 25% interest in Elysium pursuant to the terms of an Assignment of Membership Interests dated February 3, 2020.

 

Subsequently, on June 25, 2020, as discussed in greater detail below under “Note 19 – Subsequent Events”, the Company loaned an additional $4.2 million to Viking evidenced by another Secured Note (such $9.2 million in aggregate outstanding Secured Notes, the “Secured Notes”).

 

Investment in Unconsolidated Entity

 

The Company accounts for its investment in unconsolidated entities under the equity method of accounting when it owns less than 51% of a controlling interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity. The Company owns 25% of Elysium as of March 31, 2020, as discussed above, and accounts for such ownership under the equity method of accounting. The investment is adjusted accordingly for dividends or distributions it receives and its proportionate share of earnings or losses of the entity. Elysium is involved in oil and gas exploration and production in the United States. The balance sheet of Elysium at March 31, 2020 included current assets of $4.0 million, total assets of $37.7 million, total liabilities of $34.0 million and net assets of $3.7 million. Additionally, the income statement for Elysium for the period from February 3, 2020 (the date acquired) through March 31, 2020 included total revenues of $4.0 million and net income of $3.8 million.

  

Table below shows the changes in the Investment in entities for the years ended March 31, 2020 and 2019, respectively:

 

    2020     2019  
Carrying amount at beginning of year   $     $  
Investment in Elysium            
Proportionate Share of Elysium Earnings     957,169        
Carrying amount at end of year   $ 957,169     $