Recent CEI Stock 8-K filing shows $100 Million Investment, but how does it Impact Camber Energy?

CEI (Camber Energy) released an 8-k filing showing that they have received $100 million investment from an institutional investor, to be paid in cash and through promissory notes. Let's dive into the CEI Stock 8-k filing and see what this means for Camber Energy. Being able to understand 8-k filings is extremely important as an investor since it shed a great deal of light on the business and financial impacts.

What is an 8-K and Why is it Important?

(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.

CEI Stock 8-K Filing

I provide my thoughts on the 8-k filing, seen italicized. Here is a link to the original 8-k filing found on Camber Energy's website source

Item 8.01 Other Events.

As disclosed by Camber Energy, Inc. (the “Company”) in its Current Report Filed on Form 8-K filed with the Securities and Exchange Commission on January 5, 2022:

1. The Company and an accredited institutional investor (the “Investor”) entered into a stock purchase agreement on December 30, 2021 pursuant to which the Investor purchased from the Company 10,544 shares of newly designated Series G redeemable convertible preferred stock (the “Series G Preferred Stock”), having a face value of $10,000 per share, for an aggregate price of $100,000,000 (the “Purchase Price”), representing at a 5% original issue discount;

100M aggregate price / 10,544 shares, series G equivalent of $9,484 per share - which represents the 5% discount

1. The Purchase Price was paid by the Investor via payment of $5,000,000 in cash on December 31, 2021, and the execution and delivery of four Promissory Notes (each a “Note” and collectively, the “Notes”) from the Investor in favor of Company, each in the amount of $23,750,000 and payable by the Investor to the Company on March 31, 2022 (the “March Note”), June 30, 2022, September 30, 2022 and December 31, 2022, respectively;

The investor paid 5M in cash and 4 notes at 23.75M (which is 95M in total) and paid over 4 dates the rest of the year.

Promissory note: In terms of their legal enforceability, promissory notes lie somewhere between the informality of an IOU and the rigidity of a loan contract.

1. There are 2,636 shares of Series G Preferred Stock associated with each Note;

1 Series G preferred share is $10,000, with a discount of 5% on the original note. The institutional investor received 1 Series G share for $9,484

1. The Investor may not convert the shares of preferred stock associated with each Note into shares of common stock or sell any of the underlying shares of common stock unless that Note is paid in full by the Investor; and

This makes sense, CEI needs to receive the full cash payment before the Series G shares convert to common stock

1. The Company may in its sole discretion redeem the 2,636 shares of Series G Preferred Stock associated with each Note by paying the Investor $1,375,000 as full consideration for such redemption.

Camber can “buy back” 2,636 series G shares by paying the investor $1.375M. If we do the math that means that CEI would pay $521 per Series G share.

On March 10, 2022, the Company paid the Investor $1,375,000 and redeemed the 2,636 shares of Series G Preferred Stock associated with the March Note, thereby canceling the March Note and reducing the number of shares of Series G Preferred Stock outstanding from 10,544 to 7,908. As mentioned above, the Investor may not convert any of the remaining shares of preferred stock associated with any remaining Note into shares of common stock or sell any of the underlying shares of common stock unless that Note is paid in full by the Investor, and the Company may redeem the shares of Series G Preferred Stock associated with each Note by paying the Investor $1,375,000 as full consideration for such redemption.

So, Camber went ahead and bought back the 2,636 Series G shares from the investor.

The biggest thing we are missing is what the conversion of the Series G share to commons shares is - this would in effect tell us the price per share for common shares. For example, if 1 series G shares converted into 10,000 common shares, then the investors would have paid $0.95 per share. But since we don't know, the investor could be getting a better discount on the common shares through the structure of the series G share

There are 2 aspects that stand out

1. Why is Camber buying back some of these series G shares? I would assume this is because the structure of the Series G shares is very beneficial for the institutional investors, and CEI is better off redeeming these shares so they do not convert to common shares
2. There is no clarity into the structure of the Series G shares. WE might get this insight once the 10K is released. Looking back at old filings there were a number of different share classes (series C, Series F, etc.) but no Series G

What does the 8-K Filing mean for Camber Energy?

We won't know until we see the series G share structure. Overall this is a good sign that Camber is receiving additional institutional investment and support, but we need to be cautious because we don't know what the conversion price is for series G to common stock. With the 10-k coming out soon this will shed some light on the structure and conversion price.