CEI (Camber Energy) released an 8-k filing showing that they settled a lawsuit from 2 investors. This lawsuit alleges that CEI breached the stock purchase agreement by failing to file all reports required by the SEC. They are likely referring to the 10-Q and 10-K that has been delayed.
(If you already know what an 8-k is, just ignore this part)
Form 8-K is used to update investors and the SEC about a significant event affecting a company. The stock price of the company is often affected by 8-K triggering events, but whether the price goes up or down depends on whether the form contains good or bad news. Naturally, less significant news will have less of a significant impact on stock prices.
I provide my thoughts on the 8-k filing, Here is a link to the original 8-k filing found on Camber Energy's website source (note the italicized paragraphs are direct excerpts from the 8-k filing). I break down the recent 8-k filing, and provide my thoughts on what it means, and how it might impact Camber moving forward.
Effective as of April 18, 2022, Camber Energy, Inc. (the “Company”) entered into a Settlement Agreement (the “Settlement Agreement”) with Discover Growth Fund, LLC, and Antilles Family Office, LLC (collectively the “Investors”), pursuant to which the Company agreed to settle claims asserted by the Investors in the Verified Complaint filed by the Investors against the Company in the United States District Court (the “Court”) for the Southern District of Texas (Case No. 4:22-cv-755) on or about March 9, 2022, which complaint alleged that the Company breached its Stock Purchase Agreements with the Investors, pursuant to which the Investors had purchased shares of Series C Redeemable Convertible Preferred Stock and Series G Redeemable Convertible Preferred Stock of the Company (collectively the “Preferred Stock”), by failing to timely file all reports required to be filed by the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Essentially 2 investors sued CEI for breaching the stock purchase agreement by failing to file all reports required by the SEC. They are likely referring to the 10-Q and 10-K that has been delayed. This is not a good sign for CEI, because the CEO should be able to have a chat with these investors and provide them with updates to feel confident about their investment.
If James Doris spent the time to explain they are cleaning up the filings, they will be delayed but filed, these investors might not have brought this to court. Even with these conversations, the investors might not have accepted what the CEO was saying and still brought this to court. We don't know, maybe James Doris has tried talking to these investors. Either way, it got to this point, which isn't good.
Conditioned upon the Court approving the Settlement Agreement, the Company and its transfer agent are required to issue “free-trading” shares of Company common stock to the Investors without restrictive legend pursuant to the conversion terms in the Certificates of the Designation governing the Preferred Stock. The Investors and the Company are required to jointly request a stipulated order
(a) finding that (i) under Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”) that the exchange of Preferred Stock for shares of Company common stock provided for in the Settlement Agreement is fair, (ii) the shares of Company common stock issued upon conversion of the shares of Preferred Stock previously purchased by the Investors are not required to be registered under the Securities Act, and (iii) the Investors are not required to register as dealers pursuant to Section 15(b) of the Exchange Act;
(b) requiring 500,000,000 shares of Company common stock to be reserved for issuance on conversion of all shares Preferred Stock currently held by the Investors, or which the Investors are entitled to acquire under their purchase agreements; and
(c) requiring the immediate issuance of free-trading shares of Company common stock on delivery of a conversion request regarding shares of Preferred Stock. On April 18, 2022, the parties submitted that stipulated order to the Court for approval. No payments are due to the Investors pursuant to the Settlement Agreement, and the number of shares of common stock to be issued to the Investors upon conversion of the Preferred Stock will be calculated pursuant to the terms of the applicable Certificate of Designation, the terms of which have not been modified by the Settlement Agreement.
CEI needs to reserve 500 million shares of common stock to be issued on conversion of the preferred stock held by investors. This is a substantial number of common shares to be issued, especially when there are only 360 million shares outstanding. I see this as potentially a big risk to current CEI shareholders.
Let's say in the near future the preferrable share are converted and the common shares are issued. This will represent a 138% dilution of existing shareholders - which is substantial. Again, we need to dive in and see the price these investor “purchased” the preferable shares at to understand the actual price per share of the conversion. Even if it is a $1/per common share price conversion the money of these investors goes to CEI, and existing shareholders get diluted.
I've been covering CEI for a while now, here are a few other writeups I did
Recent CEI 8-k Filing - Delisting Deadline - What Investors Should Know
Recent CEI Stock 8-K filing Shows $100 Million Investment, How Does it Impact Camber Energy Price?
I understand the changes Camber is going through to ensure their financials are updated so they can remain listed on the NASDAQ. I understand this isn't an easy task and there will be bumps along the way.
The lawsuit isn't that big of an issue, since we see this happen quite a bit from investors who are unhappy with a company. The biggest red flag here is the 500 million shares of common stock that will likely be issued and dilute existing shareholders substantially. If you are a CEI shareholder, it is a risk you need to understand. Hopefully, you found this informative because if you understand what you own, you will be a better investor.