PEDEVCO CORP. Form 8-K Summary
Business Context and Reporting Period
Company: PEDEVCO CORP.
Filing Date: August 18, 2017
Event Date: August 17, 2017
Reporting Period: Current Report (8-K) regarding a material definitive agreement.
PEDEVCO Corp. entered into a Series B Convertible Preferred Stock and Warrant Subscription Agreement with Dragon Gem Limited and Absolute Frontier Limited. The transaction is contingent upon shareholder and exchange approvals, with a target closing date no later than September 30, 2017.
Key Financial Metrics and Transaction Terms
- Investment Amount: $12 million in cash from Investors.
- Equity Issuance: 542,790 shares of Series B Convertible Preferred Stock, representing approximately 53.86% of issued and outstanding shares on an as-converted basis.
- Warrants: Issued to Absolute Frontier Limited to purchase an additional 10% of issued and outstanding shares. Warrants have a 3-year term with an exercise price based on the 5-day trailing average closing price.
- Existing Debt: Approximately $5.8 million in senior secured debt (Tranche A) and $475,000 in secured bridge notes must be restructured or satisfied as a closing condition.
- Transaction Costs: A 7.0% cash commission payable to the placement agent, Somerley International (Beijing) Limited.
- Debt Repayment: Up to $500,000 of existing debt may be repaid using offering proceeds; an additional $1 million in debt discharge is anticipated using company cash and proceeds.
Material Changes and Capitalization Structure
The transaction represents a significant restructuring of the company's capitalization. Upon closing and subsequent shareholder approval, the projected ownership structure (excluding options and warrants) is:
- Investors: 51.0%
- Converting Debtholders: 33.0%
- Current Common Stockholders: 11.0%
- Management: 5.0% (fully-vested restricted stock)
Existing management will remain in place, but the Board of Directors will expand to six members, including up to three designees from the Investors.
Guidance, Outlook, and Risks
Use of Proceeds: Funds will be used for oil and gas asset development, additional acquisitions, general working capital, transaction expenses, and debt repayment.
Future Actions: The Company plans to file for a registered public offering (Secondary Offering) following closing, which may include shares issuable to converting lenders.
Risks and Contingencies:
- Closing Conditions: The deal is subject to forfeiture of Series A Preferred, restructuring of existing debt, shareholder approval, and NYSE American approval.
- Dilution: The transaction may result in significant dilution to existing shareholders.
- Uncertainty: There is no assurance the transaction will close on favorable terms or in a timely manner.
- Forward-Looking Statements: Actual results may differ materially due to regulatory delays, failure to obtain approvals, or termination of the agreement.
Investor Verification Checklist
- Verify the status of the required Shareholder Approval and NYSE American Approval.
- Confirm the terms of the restructuring for the $5.8 million Tranche A Debt and $475,000 bridge notes.
- Review the full text of the Subscription Agreement (Exhibit 10.1) for specific adjustment mechanisms regarding the Series B Preferred share count.
- Monitor the timeline for the filing of the Secondary Offering registration statement.
- Assess the impact of the 7.0% placement agent fee on net proceeds available for operations.