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AUDIT
COMMITTEE REPORT
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14
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EXECUTIVE
OFFICERS
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15
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EXECUTIVE
COMPENSATION
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16
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Summary
Compensation Table
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16
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Outstanding Equity Awards at
December 31, 2015
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17
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Recent Issuances of Equity to
Executive Officers and Directors
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18
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Compensation of
Directors
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18
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Securities Authorized for
Issuance under Equity Compensation Plans
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22
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Equity
Compensation Plan Information
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22
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2014
Say on Pay Vote
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23
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Executive
Employment Agreements
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23
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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25
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SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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34
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PROPOSAL
1 - ELECTION OF DIRECTORS
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35
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PROPOSAL
2 - APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK EXCEEDING
19.9% OF OUR OUTSTANDING COMMON STOCK UPON CONVERSION OF THE MIEJ
CONVERTIBLE PROMISSORY NOTE
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40
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PROPOSAL
3 - AMENDMENT TO THE PEDEVCO CORP. 2012 EQUITY INCENTIVE
PLAN
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45
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PROPOSAL
4 – AUTHORIZATION FOR THE BOARD OF DIRECTORS OF THE COMPANY
TO EFFECT A REVERSE STOCK SPLIT OF OUR OUTSTANDING COMMON STOCK IN
A RATIO OF BETWEEN ONE-FOR-TWO AND ONE-FOR-TEN
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51
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PROPOSAL
5 - RATIFICATION OF APPOINTMENT OF AUDITORS
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58
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PROPOSAL
6 - ADJOURNMENT OF THE ANNUAL MEETING
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59
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Stockholder
Proposals for 2017 Annual Meeting of Stockholders and 2017 Proxy
Materials
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60
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Additional
Filings
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60
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Other
Matters
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61
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Interest of Certain
Persons in or Opposition to Matters to Be Acted Upon
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61
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Company Contact
Information
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61
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DOCUMENTS
INCORPORATED BY REFERENCE
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61
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TABLE
OF APPENDIXES
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Appendix A
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Amended and
Restated Secured Subordinated Promissory Note, dated February 19,
2015, and effective January 1, 2015, issued by PEDEVCO Corp. to MIE
Jurassic Energy Corporation (see proposal 2)
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Appendix B
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Amended and
Restated PEDEVCO Corp. 2012 Equity Incentive Plan (see proposal
3)
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Appendix C
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Form of Certificate
of Amendment (see proposal 4)
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PEDEVCO
CORP.
PROXY
STATEMENT
FOR AN ANNUAL MEETING OF SHAREHOLDERS
GENERAL
INFORMATION
PEDEVCO Corp.
(“
PEDEVCO,
”
“
we,
”
“
us
”,
“
our
”
or the “
Company
”) has made these
materials available to you on the Internet or, upon your request,
has delivered printed versions of these materials to you by mail,
in connection with the Companyís solicitation of proxies for
use at our 2016 annual meeting of stockholders, which we refer to
as our annual meeting, to be held on December 28, 2016 at 8:00
a.m., local time at PEDEVCO Corp.ís corporate office
located at 4125 Blackhawk Plaza Circle, Suite 201, Danville,
California 94506, and at any postponement(s) or adjournment(s)
thereof. These materials were first sent or given to stockholders
on November 10, 2016. You are invited to attend the
annual meeting and are requested to vote on the proposals described
in this Proxy Statement.
Information Contained In This Proxy Statement
The information in
this proxy statement relates to the proposals to be voted on at the
annual meeting, the voting process, the compensation of our
directors and executive officers, corporate governance, and certain
other required information. Included with this proxy statement is a
copy of the Companyís Annual Report on Form 10-K for the year
ended December 31, 2015, as filed with the SEC on March 29, 2016,
which we refer to as the annual report. If you requested printed
versions of these materials by mail, these materials also include
the proxy card or vote instruction form for the annual
meeting.
Important Notice Regarding the Availability of Proxy
Materials
Pursuant to rules
adopted by the Securities and Exchange Commission, the Company uses
the Internet as the primary means of furnishing proxy materials to
stockholders. Accordingly, the Company is sending a Notice of
Internet Availability of Proxy Materials, which we refer to as the
notice, to the Companyís stockholders. All stockholders will
have the ability to access the proxy materials (including the
Companyís Form 10-K, which does not constitute a part of, and
shall not be deemed incorporated by reference into, this proxy
statement or the enclosed form of proxy) via the Internet
at
https://www.iproxydirect.com/PED
or
request a printed set of the proxy materials. Instructions on how
to access the proxy materials over the Internet or to request a
printed copy may be found in the notice. The notice contains a
control number that you will need to vote your shares. Please keep
the notice for your reference through the meeting date. In
addition, stockholders may request to receive proxy materials in
printed form by mail or electronically by email on an ongoing
basis. The Company encourages stockholders to take advantage of the
availability of the proxy materials on the Internet to help reduce
the environmental impact of its annual meetings.
Record Date and Shares Entitled to Vote
Our board of
directors has fixed the close of business on November 8, 2016 as
the record date for determining the holders of shares of our voting
stock entitled to receive notice of and to vote at our annual
meeting and any adjournments or postponements thereof. Only holders
of record of shares of common stock and Series A Preferred Stock at
the close of business on that date will be entitled to vote at our
annual meeting and at any adjournment or postponement of that
meeting. As of the record date, there were 49,849,297 shares of
common stock outstanding and entitled to vote at our annual
meeting, held by approximately 910 holders of record
and 66,625 shares of Series A Preferred Stock outstanding and
entitled to vote at our annual meeting, held by one holder of
record.
Each share of
common stock and each share of Series A Preferred Stock is entitled
to one vote on each proposal presented at our annual meeting and at
any adjournment or postponement thereof, for 49,915,922 total
voting shares, provided that the Series A Preferred Stock holder is
the only stockholder who has a right to appoint the Series A
Nominee, as defined and described in greater detail under
“
Proposal 1 -
Election of Directors
”, beginning on page 35.
Stockholders do not have the right to cumulate their votes in the
election of directors.
In order for us to
satisfy our quorum requirements, the holders of at least 33 1/3% of
our total number of outstanding voting shares entitled to vote at
the meeting must be present. You will be deemed to be present if
you attend the meeting or if you submit a proxy (including through
the mail, by fax or by telephone or the Internet) that is received
at or prior to the meeting (and not revoked).
If your proxy is
properly executed and received by us in time to be voted at our
annual meeting, the shares represented by your proxy (including
those given through the mail, by fax or by telephone or the
Internet) will be voted in accordance with your instructions. If
you execute your proxy but do not provide us with any instructions,
your shares will be voted “
FOR
” the proposals set
forth in the notice of annual meeting.
The only matters
that we expect to be presented at our annual meeting are set forth
in the notice of annual meeting. If any other matters properly come
before our annual meeting, the persons named in the proxy card will
vote the shares represented by all properly executed proxies on
such matters in their best judgment.
Voting Process
If you are a
stockholder of record, there are five ways to vote:
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In person
. You may vote in person at
the annual meeting. The Company will give you a ballot when you
arrive.
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Via the Internet
. You may vote by proxy
via the Internet by following the instructions provided in the
notice.
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By Telephone
. If you request printed
copies of the proxy materials by mail, you may vote by proxy by
calling the toll free number found on the proxy card.
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By Fax
. If you request printed copies
of the proxy materials by mail, you may vote by proxy by faxing
your proxy to the number found on the proxy card.
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By Mail
. If you request printed copies
of the proxy materials by mail, you may vote by proxy by filling
out the proxy card and returning it in the envelope
provided.
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Revocability of Proxies
The presence of a
stockholder at our annual meeting will not automatically revoke
that stockholderís proxy. However, a stockholder may revoke a
proxy at any time prior to its exercise by:
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submitting a
written revocation prior to the annual meeting to the Corporate
Secretary, PEDEVCO Corp., 4125 Blackhawk Plaza Circle, Suite 201,
Danville, California 94506;
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submitting another
signed and later dated proxy card and returning it by mail in time
to be received before our annual meeting or by submitting a later
dated proxy by the Internet or telephone prior to the annual
meeting; or
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attending our
annual meeting and voting in person.
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Attendance at the Annual Meeting
Attendance at the
annual meeting is limited to holders of record of our common stock
and Series A Preferred Stock at the close of business on the record
date, November 8, 2016 and our guests. Admission will be on a
first-come, first-served basis. You will be asked to present valid
government-issued picture identification, such as a driverís
license or passport, in order to be admitted into the annual
meeting. If your shares are held in the name of a bank, broker or
other nominee and you plan to attend the annual meeting, you must
present proof of your ownership of common or preferred stock, such
as a bank or brokerage account statement indicating that you owned
shares of common or preferred stock at the close of business on the
record date, in order to be admitted. For safety and security
reasons, no cameras, recording equipment or other electronic
devices will be permitted in the annual meeting.
Conduct at the Meeting
The Chairman of the
meeting has broad responsibility and legal authority to conduct the
annual meeting in an orderly and timely manner. This authority
includes establishing rules for stockholders who wish to address
the meeting. Only stockholders or their valid proxy holders may
address the meeting. The Chairman may exercise broad discretion in
recognizing stockholders who wish to speak and in determining the
extent of discussion on each item of business. In light of the
number of business items on this yearís agenda and the need to
conclude the meeting within a reasonable period of time, we cannot
ensure you that every stockholder who wishes to speak on an item of
business will be able to do so.
Quorum
If you vote in
person or by proxy at our annual meeting, you will be counted for
purposes of determining whether there is a quorum at the meeting.
Shares of our capital stock present in person or by proxy at our
annual meeting that are entitled to vote will be counted for the
purpose of determining whether there is a quorum for the
transaction of business at our annual meeting. Our bylaws, as
amended, provide that 33 1/3% of the outstanding shares of our
capital stock entitled to vote at the meeting, represented in
person or by proxy, constitutes a quorum at a meeting of our
stockholders.
Votes Required To Approve Each Proposal
Appointment of
directors
. With respect to the election of directors
(proposal 1), under plurality voting, the three non-Series A
Nominees (defined below under “
Proposal 1 - Election of
Directors
”, beginning on page 35) receiving the
highest number of affirmative votes of our common stock and the one
Series A Nominee (defined below under “
Proposal 1 - Election of
Directors
”, beginning on page 35), receiving the
highest number of affirmative votes of our Series A Preferred
Stock, will be elected as directors to serve until the next annual
meeting of stockholders and until their successors are duly elected
and qualified.
Approval of issuance of
shares of common stock exceeding 19.9% of our outstanding common
stock upon conversion of the MIEJ Note (defined below).
With
respect to the proposal to approve and ratify, for purposes of
Section 713 of the Company Guide of the NYSE MKT, the issuance of
shares of common stock exceeding 19.9% of our outstanding common
stock upon conversion of principal and interest owed under an
Amended and Restated Secured Subordinated Promissory Note, dated
February 19, 2015 and with an effective date of January 1, 2015
(the “
MIEJ
Note
”), provided by us to MIE Jurassic Energy
Corporation (“
MIEJ
”)(proposal 2), a
majority of the shares present in person or represented by proxy at
the annual meeting and entitled to vote on, and who voted for,
against, or expressly abstained with respect to, the proposal, must
be voted “
FOR
” approval and
adoption of such proposal in order for such proposal to be approved
and adopted.
Amendment of 2012 Equity
Incentive Plan
. The approval of the amendment to our 2012
Equity Incentive Plan to increase by 5 million shares the total
number of shares available for awards under such plan (proposal 3),
requires the affirmative vote of a majority of the shares
present in person or represented by proxy at the annual meeting and
entitled to vote on, and who voted for, against, or expressly
abstained with respect to, the proposal, assuming a quorum is
present at the annual meeting.
Authorization for the Board
of Directors of the Company to effect a reverse stock split of our
outstanding common stock in a ratio of between one-for-two and
one-for-ten.
The approval and authorization of our board of
directors of the Company to effect a reverse stock split of our
outstanding common stock in a ratio of between one-for-two and
one-for-ten (proposal 4) requires the affirmative vote of a
majority of the shares of common stock and shares of Series A
Convertible Preferred Stock entitled to vote at the annual
meeting.
Ratification of independent
auditor
. For the approval of the proposal to ratify the
appointment of GBH CPAs, PC as our independent auditors for the
fiscal year ended December 31, 2016 (proposal 5), a majority of the
shares present in person or represented by proxy at the annual
meeting and entitled to vote on, and who voted for, against, or
expressly abstained with respect to, the proposal, must be voted
“
FOR
”
approval and adoption of such proposal in order for such proposal
to be approved and adopted, assuming a quorum is present at the
annual meeting.
Approval to adjoin the
annual meeting
. Authority to adjourn the annual meeting
(proposal 6) to another place, or a later date or dates, if deemed
necessary or appropriate, in the discretion of the board of
directors, to solicit additional proxies in favor of the proposals
listed above at the time of the annual meeting, requires the vote
of a majority of the shares of stock entitled to vote which are
present, in person or by proxy at the annual meeting.
Broker Non-Votes and Abstentions
A broker
“
non-vote
” occurs when a
nominee holding shares for a beneficial owner does not vote on a
particular proposal because the nominee does not have discretionary
voting power with respect to that item, and the broker has not
received voting instructions from the beneficial owner. If a broker
indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter,
those shares will not be considered as present and entitled to vote
with respect to that matter or proposal.
A broker is
entitled to vote shares held for a beneficial owner on
“
routine
” matters, such as
the ratification of the appointment of GBH CPAs, PC as our
independent registered public accounting firm (proposal 5), without
instructions from the beneficial owner of those shares. On the
other hand, absent instructions from the beneficial owner of such
shares, a broker is not entitled to vote shares held for a
beneficial owner on certain “
non-routine
” matters,
which include all of the other proposals up for vote at the annual
meeting.
With respect to the
election of directors (proposal 1), under plurality voting, broker
non-votes and abstentions have no effect on determining the
nominees elected, except to the extent that they affect the total
votes received by any particular candidate. In the past, if you
held your shares in street name and you did not indicate how you
wanted your shares voted in the election of directors, your broker
was allowed to vote those shares on your behalf in the election of
directors as they felt appropriate. Recent regulatory changes were
made to take away the ability of your broker to vote your
uninstructed shares in the election of directors on a discretionary
basis. Thus, if you hold your shares in street name and you do not
instruct your broker how to vote in the election of directors, the
broker will not vote your shares in the director
election.
With respect to the
proposal to approve and adopt the MIEJ Note proposal (proposal 2),
the proposal to approve an amendment to our 2012 Equity Incentive
Plan (proposal 3), and the proposal to authorize our board of
directors, in its discretion, to adjourn the annual meeting to
another place, or a later date or dates, if necessary or
appropriate, to solicit additional proxies in favor of the
proposals listed above (proposal 6), broker non-votes and
abstentions could prevent the proposals from receiving the required
affirmative vote of a majority of the shares present in person or
represented by proxy at the annual meeting and entitled to vote on,
and who voted for, against, or expressly abstained with respect to,
each proposal. Similarly, with respect to the reverse split
proposal (proposal 4), broker non-votes and abstentions could
prevent the proposal from receiving the required affirmative vote
of a majority of the shares of common stock and Series A
Convertible Preferred Stock entitled to vote at the annual
meeting.
Abstaining shares
will be considered present at the annual meeting and
“
entitled to
vote
” on the applicable provisions so that the effect
of abstentions will be the equivalent of a vote “
AGAINST
” each applicable
proposal. With respect to broker non-votes, the shares subject to a
broker non-vote will not be considered present at the annual
meeting for each proposal, since they are not “
entitled to vote
” on such
proposals, so broker non-votes will have the practical effect of
reducing the number of affirmative votes required to achieve a
majority vote of the shares present in person or represented by
proxy at the annual meeting and entitled to vote on such applicable
proposals, by reducing the total number of shares from which the
majority is calculated. Broker non-votes will have the same effect
as a vote “
AGAINST
” the reverse
stock split proposal.
Board of Directors Voting Recommendations
Our board of
directors recommends that you vote your shares:
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“
FOR
” election of all four
director nominees to the board of directors, each to serve a term
of one year and until their respective successors have been elected
and qualified, or until their earlier resignation or removal
(proposal 1);
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“
FOR
” Approval and
ratification, for purposes of Section 713 of the Company Guide of
the NYSE MKT, of the issuance of shares of common stock exceeding
19.9% of our outstanding common stock upon conversion of the MIEJ
Note (proposal 2);
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“
FOR
” approval of an
amendment to our 2012 Equity Incentive Plan, to increase by 5
million shares the number of shares of common stock reserved for
issuance under the plan (proposal 3);
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“
FOR
” approval of the
board of directors of the Company to effect a reverse stock split
of our outstanding common stock in a ratio of between one-for-two
and one-for-ten (proposal 4);
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“
FOR
” ratification of the
appointment of GBH CPAs, PC, as our independent auditors for the
fiscal year ending December 31, 2016 (proposal 5); and
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“
FOR
” authorization of our
board of directors, in its discretion, to adjourn the annual
meeting to another place, or a later date or dates, if necessary or
appropriate, to solicit additional proxies in favor of the
proposals listed above at the time of the annual meeting (proposal
6).
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Mailing Costs and Solicitation of Proxies
In addition to
solicitation by use of the mails, certain of our officers and
employees may solicit the return of proxies personally or by
telephone, electronic mail or facsimile. We have not and do not
anticipate retaining a third-party proxy solicitation firm to
solicit proxies on behalf of the board of directors. The cost of
any solicitation of proxies will be borne by us. Arrangements may
also be made with brokerage firms and other custodians, nominees
and fiduciaries for the forwarding of material to, and solicitation
of proxies from, the beneficial owners of our securities held of
record at the close of business on the record date by such persons.
We will reimburse such brokerage firms, custodians, nominees and
fiduciaries for the reasonable out-of-pocket expenses incurred by
them in connection with any such activities.
Inspector of Voting
Representatives of
Issuer Direct Corporation will tabulate the votes and act as
inspector of election at the annual meeting.
Stockholders Entitled to Vote at the Meeting
A complete list of
stockholders entitled to vote at the annual meeting will be
available to view during the annual meeting. You may also access
this list at our principal executive offices, for any purpose
germane to the annual meeting, during ordinary business hours, for
a period of ten days prior to the annual meeting.
Voting Instructions
Your vote is very
important. Whether or not you plan to attend the annual meeting, we
encourage you to read this proxy statement and submit your proxy or
voting instructions as soon as possible. For specific instructions
on how to vote your shares, please refer to the instructions on the
Notice of Internet Availability of Proxy Materials you received in
the mail, or, if you requested to receive printed proxy materials,
your enclosed proxy card.
Stockholder of Record and Shares Held in Brokerage
Accounts
If on the record
date your shares were registered in your name with our transfer
agent, then you are a stockholder of record and you may vote in
person at the meeting, by proxy or by any other means supported by
us. If on the record date your shares were held in an account at a
brokerage firm, bank, dealer, or other similar organization, then
you are the beneficial owner of shares held in “
street name
” and the
proxy statement is required to be forwarded to you by that
organization. The organization holding your account is considered
the stockholder of record for purposes of voting at the annual
meeting. As a beneficial owner, you have the right to direct your
broker or other agent on how to vote the shares in your account.
You are also invited to attend the annual meeting. However, since
you are not the stockholder of record, you may not vote your shares
in person at the meeting unless you request and obtain a valid
proxy from your broker or other agent.
Multiple Stockholders Sharing the Same Address
In some cases, one
copy of this proxy statement and the accompanying notice of annual
meeting of stockholders, and 2015 annual report, is being delivered
to multiple stockholders sharing an address, at the request of such
stockholders. We will deliver promptly, upon written or oral
request, a separate copy of this proxy statement or the
accompanying notice of annual meeting of stockholders, and 2015
annual report, to such a stockholder at a shared address to which a
single copy of the document was delivered. Stockholders sharing an
address may also submit requests for delivery of a single copy of
this proxy statement or the accompanying notice of annual meeting
of stockholders, and 2015 annual report, but in such event will
still receive separate forms of proxy for each account. To request
separate or single delivery of these materials now or in the
future, a stockholder may submit a written request to our Corporate
Secretary, Clark R. Moore, at our principal executive offices at
4125 Blackhawk Plaza Circle, Suite 201, Danville, California 94506,
or a stockholder may make a request by calling our Corporate
Secretary, Clark R. Moore at (855) 733-3826.
If you receive more
than one notice, it means that your shares are registered
differently and are held in more than one account. To ensure that
all shares are voted, please either vote each account as discussed
above under “
Voting
Process
”, or sign and return by mail all proxy cards
or voting instruction forms.
Voting Results
The final voting
results will be tallied by the inspector of voting and published in
our Current Report on Form 8-K, which we are required to file with
the SEC within four business days following the annual
meeting.
Company Mailing Address
The mailing address
of our principal executive offices is 4125 Blackhawk Plaza Circle,
Suite 201, Danville, California 94506.
VOTING
RIGHTS AND PRINCIPAL STOCKHOLDERS
Holders of record
of our common stock and Series A Preferred Stock at the close of
business on the record date, November 8, 2016, will be entitled to
one vote per share on all matters properly presented at the annual
meeting and at any adjournment or postponement thereof (provided
that the Series A Preferred Stock holder is the only stockholder
who has a right to appoint the Series A Nominee, as defined and
described in greater detail under “
Proposal 1 - Election of
Directors
”, beginning on page 35). As of the record
date, there were 49,849,297 shares of common stock outstanding and
entitled to vote at the annual meeting and at any adjournment or
postponement thereof, held by approximately 910
holders of record and 66,625 shares of Series A Preferred Stock
outstanding and entitled to vote at our annual meeting, held by one
holder of record. Each share of common stock and each share of
Series A Preferred Stock is entitled to one vote on each proposal
presented at our annual meeting, for 49,915,922 total voting
shares, provided that the Series A Preferred Stock holder is the
only stockholder who has a right to appoint the Series A
Nominee.
Our stockholders do
not have dissentersí rights or similar rights of appraisal
with respect to the proposals described herein and, moreover, do
not have cumulative voting rights with respect to the election of
directors.
Security
Ownership of Management and Certain Beneficial Owners and
Management
The following table
sets forth, as of the record date, November 8, 2016, the number and
percentage of outstanding shares of our common stock beneficially
owned by: (a) each person who is known by us to be the beneficial
owner of more than 5% of our outstanding shares of common stock;
(b) each of our directors and our director nominee; (c) our
executive officers; and (d) all current directors, our director
nominee and executive officers, as a group. As of the record date,
there were 49,849,297 shares of common stock and
66,625 shares of Series A Convertible Preferred Stock issued
and outstanding.
Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act of 1934, as amended, which we refer to as the
Exchange Act. Under this rule, certain shares may be deemed to be
beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the
shares). In addition, shares are deemed to be beneficially owned by
a person if the person has the right to acquire shares (for
example, upon exercise of an option or warrant or upon conversion
of a convertible security) within 60 days of the date as of which
the information is provided. In computing the percentage ownership
of any person, the amount of shares is deemed to include the amount
of shares beneficially owned by such person by reason of such
acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in the following table does not
necessarily reflect the personís actual voting power at any
particular date.
To
our 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.
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Number of Common Stock Shares
(1)
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Percent of Common Stock
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Number of Series A Convertible Preferred Stock Shares
(2)
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Percent of Series A Convertible Preferred Stock
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Total Voting Shares
|
|
Percent of Total Voting Shares (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Named Executive Officers and Directors (including Director
Nominees)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank C.
Ingriselli
|
|
3,143,856
|
(4)
|
6.2%
|
|
--
|
|
--
|
|
3,143,856
|
|
6.2%
|
|
|
Michael L.
Peterson
|
|
2,134,663
|
(5)
|
4.2%
|
|
--
|
|
--
|
|
2,134,663
|
|
4.2%
|
|
|
Clark R.
Moore
|
|
1,809,576
|
(6)
|
3.6%
|
|
--
|
|
--
|
|
1,809,576
|
|
3.6%
|
|
|
Elizabeth P.
Smith
|
|
391,062
|
(7)
|
*
|
|
--
|
|
--
|
|
391,062
|
|
*
|
|
|
David C.
Crikelair#
|
|
324,395
|
(8)
|
*
|
|
--
|
|
--
|
|
324,395
|
|
*
|
|
|
David Z.
Steinberg
|
|
214,286
|
(9)
|
*
|
|
--
|
|
--
|
|
214,286
|
|
*
|
|
|
Adam
McAfee#
|
|
313
|
(10)
|
*
|
|
--
|
|
--
|
|
313
|
|
*
|
|
|
Gregory
Overholtzer
|
|
383,583
|
(11)
|
*
|
|
--
|
|
--
|
|
383,583
|
|
*
|
|
|
All Named Executive Officers and Directors (including Director
Nominees) as a group (eight persons)
|
|
8,401,734
|
|
16.0%
|
|
--
|
|
--
|
|
8,401,734
|
|
15.9%
|
|
|
Greater than 5% Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B Asset Manager,
LP (12)
|
|
5,530,000
|
(13)
|
9.9%
|
|
--
|
|
--
|
|
5,530,000
|
|
9.9%
|
|
|
Golden Globe
Energy (US), LLC (14)
|
|
5,009,445
|
(15)
|
9.7%
|
|
66,625
|
(16)
|
100%
|
|
5,074,470
|
(17)
|
9.9%
|
|
|
Yao Hang Finance
(Hong Kong) Limited (18)
|
|
3,333,334
|
(19)
|
6.7%
|
|
--
|
|
--
|
|
3,333,334
|
|
6.7%
|
|
|
RBC Dominion
Securities Inc. (20)
|
|
2,571,200
|
|
5.2 %
|
|
--
|
|
--
|
|
2,571,200
|
|
5.2%
|
|
* Less
than 1%.
# David
C. Crikelair, a current member of the board of directors, is not
standing for re-election at the annual meeting. Adam McAfee is
not currently a member of the board of directors, but is a director
nominee at the annual meeting.
_____________________________
The
address of each executive officer, director and director nominee,
is c/o PEDEVCO Corp., 4125 Blackhawk Plaza Circle, Suite 201,
Danville, CA 94506
(1)
Ownership voting
percentages are based on 49,849,297 total shares of common stock
which were outstanding as of the record date, November 8, 2016.
Beneficial ownership is determined in accordance with the rules of
the SEC and includes voting and/or investing power with respect to
securities. We believe that, except as otherwise noted and subject
to applicable community property laws, each person named in the
following table has sole investment and voting power with respect
to the securities shown as beneficially owned by such person.
Additionally, 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
applicable date below, 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.
(2)
Ownership voting
percentages are based on 66,625 total shares of Series A preferred
stock which were outstanding as of the record date. Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting and/or investing power with respect to securities.
The holders of our Series A preferred stock vote together with the
holders of our common stock, with one (1) vote per share of Series
A preferred stock.
(3)
Ownership voting
percentages are based on 49,915,922 total voting shares, including
(i) 49,849,297 total shares of common stock outstanding as of
November 8, 2016, and (ii) 66,625 total shares of Series A
preferred stock which vote on a one-for-one basis on all
stockholder matters, provided that shares of common stock subject
to options, warrants or other convertible securities (including the
Series A preferred stock) that are currently exercisable or
convertible, or exercisable or convertible within 60 days of the
applicable 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.
(4)
Representing: (a)
429,412 fully-vested shares of common stock held by Mr. Ingriselli;
(b) 400,000 fully-vested shares of common stock held by Mr.
Ingriselli’s spouse, which securities Mr. Ingriselli is
deemed to beneficially own; (c) 1,496,500 fully-vested shares of
common stock held by Global Venture Investments LLC, a limited
liability company owned and controlled by Mr. Ingriselli
(“
GVEST
”), which securities
Mr. Ingriselli is deemed to beneficially own; (d) options to
purchase 390,800 shares of common stock exercisable by Mr.
Ingriselli at an exercise price of $0.51 per share; (e) options to
purchase 370,000 shares of common stock exercisable by Mr.
Ingriselli at an exercise price of $0.37 per share; (f) warrants
exercisable for 38,096 shares of common stock at $2.34 per share
held by GVEST, which expire on December 16, 2017, and which
securities Mr. Ingriselli is deemed to beneficially own; and (g)
warrants exercisable for 19,048 shares of common stock at $5.25 per
share held by GVEST which expire on March 22, 2017, which
securities Mr. Ingriselli is deemed to beneficially
own.
(5)
Consisting of the
following: (a) 36,668 fully-vested shares of common stock held by
Mr. Peterson’s minor children, which securities Mr. Peterson
is deemed to beneficially own; (b) 624,737 fully-vested shares of
common stock (including shares held by a family trust which Mr.
Peterson is deemed to beneficially own); (c) 504,000 unvested
shares of common stock held by Mr. Peterson, which vest on various
dates through October 8, 2017, provided that Mr. Peterson remains
employed by us, or is a consultant to us, on such vesting dates;
(d) options to purchase 100,000 shares of common stock exercisable
by Mr. Peterson at an exercise price of $0.24 per share; (e)
options to purchase 333,334 shares of common stock exercisable by
Mr. Peterson at an exercise price of $0.51 per share; (f) 3,424
shares of common stock underlying currently exercisable options, of
which options to purchase 2,977 shares are exercisable at $30.24
per share and options to purchase 447 shares are exercisable at
$67.20 per share; (g) options to purchase 292,500 shares of common
stock exercisable by Mr. Peterson at an exercise price of $0.37 per
share; and (h) options to purchase 240,000 shares of common stock
at $0.22 per share. Does not include (i) options to purchase 32,500
shares of common stock at an exercise price of $0.37 per share, and
(ii) options to purchase 60,000 shares of common stock at an
exercise price of $0.22 per share, which have not vested as of the
record date and do not vest within 60 days of the record date. Mr.
Peterson has voting control over his unvested shares of common
stock.
(6)
Representing: (a)
650,049 fully-vested shares of common stock; (b) 28,667
fully-vested shares of common stock held by each of Mr.
Moore’s two minor children, which he is deemed to
beneficially own; (c) 399,000 unvested shares of common stock held
by Mr. Moore, which vest on various dates through July 7, 2017,
provided that Mr. Moore remains employed by us, or is a consultant
to us, on such vesting dates; (d) options to purchase 233,334
shares of common stock exercisable by Mr. Moore at an exercise
price of $0.51 per share; (e) options to purchase 243,000 shares of
common stock exercisable by Mr. Moore at an exercise price of $0.37
per share; (f) options to purchase 224,000 shares of common stock
exercisable by Mr. Moore at an exercise price of $0.22 per share;
(g) warrants exercisable for 1,906 shares of common stock at $2.34
per share held by Mr. Moore which expire on December 16, 2017; and
(h) warrants exercisable for 953 shares of common stock at $5.25
per share held by Mr. Moore which expire on March 22, 2017. Does
not include (i) options to purchase 27,000 shares of common stock
at an exercise price of $0.37 per share, and (ii) options to
purchase 56,000 shares of common stock at an exercise price of
$0.22 per share, which have not vested as of the record date and do
not vest within 60 days of the record date. Mr. Moore has voting
control over his unvested shares of common stock.
(7)
Representing: (i)
66,667 shares of common stock held by Ms. Smith; (ii) 13,334 shares
of restricted stock held by Ms. Smith which vested in full on
September 10, 2014; (iii) 96,775 shares of restricted stock held by
Ms. Smith which vested in full on September 10, 2015; and (iv)
214,286 shares of restricted stock held by Ms. Smith which vested
in full on September 10, 2016.
(8)
Representing: (i)
13,334 shares of restricted stock held by Mr. Crikelair which
vested in full on September 10, 2014; (ii) 96,775 shares of
restricted stock held by Mr. Crikelair which vested in full on
September 10, 2015; and (iii) 214,286 shares of restricted stock
held by Mr. Crikelair which vested in full on September 10,
2016.
(9)
Representing
214,286 shares of restricted stock held by Mr. Steinberg which vest
in full on July 15, 2017. Mr. Steinberg has voting control over his
unvested shares of common stock.
(10)
Representing: (i)
298 shares of common stock held jointly by Mr. McAfee and his
spouse; and (ii) 15 shares of common stock held by Park Capital
Management LLC, an entity owned and controlled by Mr. McAfee, which
shares he is deemed to beneficially own.
(11)
Representing: (a)
65,416 fully-vested shares of common stock; (b) 25,500 unvested
shares of common stock held by Mr. Overholtzer, which vest on
various dates through July 1, 2017, provided that Mr. Overholtzer
remains employed by us, or is a consultant to us, on such vesting
dates; (c) options to purchase 116,667 shares of common stock
exercisable by Mr. Overholtzer at an exercise price of $0.51 per
share; (d) options to purchase 45,000 shares of common stock
exercisable by Mr. Overholtzer at an exercise price of $0.37 per
share; (e) options to purchase 120,000 shares of common stock
exercisable by Mr. Overholtzer at an exercise price of $0.22 per
share; and (f) options to purchase 11,000 shares of common stock
exercisable by Mr. Overholtzer at an exercise price of $0.30 per
share. Does not include (i) options to purchase 45,000 shares of
common stock at an exercise price of $0.37 per share, and (ii)
options to purchase 30,000 shares of common stock at an exercise
price of $0.22 per share, which have not vested as of the record
date and do not vest within 60 days of the record date. Mr.
Overholtzer has voting control over his unvested shares of common
stock.
(12)
Address: 1370
Avenue of the Americas, 32
nd
Floor, New York,
New York 10019. Includes beneficial holdings of Senior Health
Insurance Company of Pennsylvania (“
SHIP
”), 550 Congressional
Blvd., Suite 200, Carmel, IN 46032, and BRE BCLIC Sub, BRE WNIC
2013 LTC Primary, BRE WNIC 2013 Sub, BBLN-PEDCO Corp., BHLN-PEDCO
Corp., and B Asset Manager, LP (the “
BAM Parties
”), 1370
Avenue of the Americas, 32
nd
Floor, New York,
New York 10019. B Asset Manager, LP (“
BAM
”) is the investment
manager, directly or indirectly, of the securities owned by SHIP
and the BAM Parties. Mark Feuer and Dhruv Narain, through other
entities, are the controlling principals of BAM, and share sole
voting and investment power over such securities. Each of BAM, Mark
Feuer and Dhruv Narain disclaims beneficial ownership of the
securities held by SHIP and the BAM Parties. The information set
forth in this footnote is based solely on information filed with
the Securities and Exchange Commission on Schedule 13G by SHIP and
the BAM Parties on May 12, 2016. SHIP and the BAM Parties reported
in the Schedule 13G that SHIP and the BAM Parties share voting and
dispositive power of 4,971,824 shares of common stock. We make no
representation as to the accuracy or completeness of the
information reported.
(13)
Representing shares
of common stock issuable upon the exercise of warrants to purchase
common stock of the Company held by SHIP and the BAM Parties. SHIP
and the BAM Parties hold warrants exercisable for an aggregate of
6,822,242 shares of common stock as follows: (i) warrants
exercisable for 52,378 shares of common stock at $1.50 per share
and warrants exercisable for 348,964 shares of common stock at
$0.75 per share held by SHIP, each expiring on September 10, 2018;
and (ii) warrants exercisable for 59,786 shares of common stock at
$1.50 per share and warrants exercisable for 398,314 shares of
common stock at $0.75 per share, each expiring on September 10,
2018, and warrants exercisable for 5,962,800 shares of common stock
at $0.25 per share, expiring on May 12, 2019, all held by the BAM
Parties. The warrants held by SHIP and the BAM Parties contain an
issuance limitation prohibiting each holder from exercising or
converting those securities to the extent that such exercise would
result in beneficial ownership by such holder and its affiliates of
more than 9.99% of the Company’s shares then issued and
outstanding (the “
Issuance Limitation
”).
The Issuance Limitation for the warrants may be revoked by the
holder upon at least 61 days prior written notice to the Company
which notice shall only be effective if delivered at a time when no
indebtedness of the Company is outstanding, of which the holder or
any of its affiliates was, at any time, the owner, directly or
indirectly. The “Number of Voting Shares Beneficially
Owned” figure presented assumes exercise of approximately
such number of warrants which would provide SHIP and the BAM
Parties with shares of common stock only up to the Issuance
Limitation.
(14)
Address: c/o
Platinum Partners, 250 West 55th Street, 14th Floor, New York, New
York 10019. Includes beneficial holdings of Golden Globe Energy
(US), LLC, a Delaware limited liability company
(“
GGE
”),
Platinum Partners Value Arbitrage Fund L.P., a Cayman Islands
exempted limited partnership (“
PPVA
”), Platinum
Management (NY) LLC, a Delaware limited liability company
(“
Platinum
Management
”), Platinum Partners Credit Opportunities
Fund LLC, a Delaware limited liability company
(“PPCO”), Platinum Credit Holdings LLC, a Delaware
limited liability company (“
Credit Holdings
”), and
Mark Nordlicht (collectively, the “GGE Parties”). GGE
is a wholly-owned subsidiary of PPVA. Platinum Management is the
investment manager and general partner of PPVA. Credit Holdings is
the managing member of PPCO. Mark Nordlicht is the Chief Investment
Officer of each of Platinum Management and Credit Holdings. By
virtue of these relationships, each of PPVA, Platinum Management
and Mark Nordlicht may be deemed to beneficially own the shares
owned directly and beneficially by GGE. By virtue of these
relationships, each of Credit Holdings and Mark Nordlicht may be
deemed to beneficially own the shares owned directly by PPCO. The
information set forth in this footnote and footnotes 15 and 16
below is based solely on information filed with the Securities and
Exchange Commission on Schedule 13D by the GGE Parties on March 6,
2015. The GGE Parties reported in the Schedule 13D that GGE, PPVA
and Platinum Management, share voting and dispositive power of
3,375,000 shares of common stock and 66,625 shares of Series A
Preferred, and PPCO and Credit Holdings share voting and
dispositive power over 34,445 shares of common stock, and Mr.
Nordlicht shares voting power over 3,409,445 shares of common stock
and 66,625 shares of Series A Preferred. Pursuant to the terms of
the Amended NPA, described below under “
Certain Relationships and Related
Party Transactions
” - “
Agreements with Related
Persons
” – “
Senior Debt
Restructuring
”, beginning on page 30, the Company is
entitled to cancel and forfeit 7,500 shares of the Company’s
Series A Convertible Preferred Stock held by GGE (convertible into
7,500,000 shares of Company common stock) pursuant to the terms of
the GGE Pledge Agreement (described below under “
Certain Relationships and Related
Party Transactions
” - “
Agreements with Related
Persons
” – “
Senior Debt
Restructuring
”, beginning on page 30), which shares
have not been cancelled as of the date of this proxy and are still
eligible to be voted by GGE at the annual meeting and included in
its beneficial ownership.
(
15)
Representing: (i)
3,375,000 shares of common stock held by GGE; (ii) 34,445 shares of
common stock held by Platinum Partners Credit Opportunities Fund
LLC; and (iii) 1,600,000 shares of common stock which could be
issuable upon conversion of 1,600 shares of Series A preferred
stock, conversion of which shares, together with GGE’s
current holdings of common stock, would give GGE ownership of 9.9%
of our outstanding voting stock on an as-converted to common stock
basis. See footnotes 14 and 16.
(16)
Representing 66,625
shares of Series A preferred stock held by GGE. See footnote 14
above. The Series A preferred stock are convertible into common
stock subject to certain requirements and
restrictions.
(17)
Representing: (i)
3,375,000 shares of common stock held by GGE; (ii) 34,445 shares of
common stock held by Platinum Partners Credit Opportunities Fund
LLC; (iii) 1,600,000 shares of common stock which could be issuable
upon conversion of 1,600 shares of Series A preferred stock,
conversion of which shares, together with GGE’s current
holdings of common stock, would give GGE ownership of 9.9% of our
outstanding common stock or voting stock on an as-converted to
common stock basis; and (iv) 65,025 shares of Series A preferred
stock remaining outstanding following conversion of 1,600 shares of
Series A preferred stock into 1,600,000 shares of common stock. See
footnotes 14 and 15 above. Each share of Series A preferred stock
is currently convertible into shares of common stock on a 1,000:1
basis, provided that no conversion is allowed in the event the
holder thereof would beneficially own more than 9.9% of our
outstanding common stock or voting stock (the “
Beneficial Ownership
Limitation
”). Accordingly, based on GGE’s
current beneficial holdings of common stock (excluding shares
issuable upon conversion of Series A preferred stock), GGE is
deemed to beneficially own an additional approximately 1,600,000
shares of common stock which could be issuable upon conversion of
1,600 shares of Series A preferred stock, subject to the Beneficial
Ownership Limitation.
(18)
Address: Room 5,
27/F, Richmond Comm. Bldg., 109 Argyle Street, Mongkok, Kowloon
Hong Kong. Beneficial ownership information has not been provided
to the Company despite multiple requests and the Company is not
aware of the beneficial owners of the shares held by Yao Hang
Finance (Hong Kong) Limited.
(
19)
Representing
3,333,334 shares of common stock.
(20)
Address: 277 Front
St W., 5th Floor, Toronto A6 M5V2X4. Includes beneficial holdings
of RBC Dominion Securities Inc. (“
RBCD
”) and RBC Private
Counsel (USA) Inc., 155 Wellington Street West, 17th Floor, Toronto
A6 M5V 3K7 (“
RBCP
,” and together with
RBCD, the “
RBC
Parties
”). The information set forth in this footnote
is based solely on information filed with the Securities and
Exchange Commission on Schedule 13G by the RBC Parties on February
16, 2016. The RBC Parties reported in the Schedule 13G that RBCD
and RBCP share voting and dispositive power of 2,571,200 shares of
common stock. We make no representation as to the accuracy or
completeness of the information reported.
Changes
in Control
Except as
contemplated by the GOM Merger defined, discussed and described in
greater detail below under “
Certain Relationships and Related
Party Transactions
” - “
Agreements with Related
Persons
” - “
GOM Holdings Reorganization
Agreement
”, beginning on page 25, the Company is not
aware of any arrangements which may at a subsequent date result in
a change of control of the Company. The GOM Merger contemplates us
acquiring 100% of the limited liability company membership units of
GOM Holdings, LLC (“
GOM
”), in exchange for
(a) the issuance to the owners of GOM of an aggregate of 1,551,552
shares of the Companyís restricted common stock and 698,448
restricted shares of the Companyís to-be-designated Series B
Convertible Preferred Stock (the “
Series B Preferred
”), and
(b) our assumption of approximately $125 million of subordinated
debt from GOMís existing lenders and a $30 million undrawn
letter of credit backing certain offshore asset retirement
obligations. If closed, the GOM Merger will constitute a change in
control of the Company. The closing of the GOM Merger is subject to
various closing conditions, described in greater detail below under
“
Certain
Relationships and Related Party Transactions
” -
“
Agreements with
Related Persons
” - “
GOM Holdings Reorganization
Agreement
”, beginning on page 25.
CORPORATE
GOVERNANCE
We promote
accountability for adherence to honest and ethical conduct;
endeavor to provide full, fair, accurate, timely and understandable
disclosure in reports and documents that we file with the SEC and
in other public communications made by us; and strive to be
compliant with applicable governmental laws, rules and
regulations.
Information
regarding the members of and biographical information of our board
of directors is provided below under “
Proposal 1- Election of
Directors
”, beginning on page 35.
Board
Leadership Structure
Our board of
directors has the responsibility for selecting our appropriate
leadership structure. In making leadership structure
determinations, the board of directors considers many factors,
including the specific needs of our business and what is in the
best interests of our stockholders. Our current leadership
structure is comprised of a separate Chairman of the board of
directors and Chief Executive Officer (CEO).
Mr. Frank C. Ingriselli serves as Chairman and Mr.
Michael L. Peterson serves as Chief Executive Officer. The board of
directors does not have a policy as to whether the Chairman should
be an independent director, an affiliated director, or a member of
management. Our board of directors believes that the
Company’s current leadership structure is appropriate because
it effectively allocates authority, responsibility, and oversight
between management (the Company’s Chief Executive Officer,
Mr. Peterson) and the members of our board of directors. It does
this by giving primary responsibility for the operational
leadership and strategic direction of the Company to its Chief
Executive Officer, while enabling our Chairman to facilitate our
board of directors’ oversight of management, promote
communication between management and our board of directors, and
support our board of directors’ consideration of key
governance matters. The board of directors believes that its
programs for overseeing risk, as described below, would be
effective under a variety of leadership frameworks and therefore do
not materially affect its choice of structure.
Risk
Oversight
Effective risk
oversight is an important priority of the board of directors.
Because risks are considered in virtually every business decision,
the board of directors discusses risk throughout the year generally
or in connection with specific proposed actions. The board of
directorsí approach to risk oversight includes understanding
the critical risks in the Company's business and strategy,
evaluating the Companyís risk management processes, allocating
responsibilities for risk oversight among the full board of
directors, and fostering an appropriate culture of integrity and
compliance with legal responsibilities.
The board of
directors exercises direct oversight of strategic risks to us. Our
Audit Committee reviews and assesses our processes to manage
business and financial risk and financial reporting risk. It also
reviews our policies for risk assessment and assesses steps
management has taken to control significant risks. Our Compensation
Committee oversees risks relating to compensation programs and
policies. In each case management periodically reports to our board
of directors or the relevant committee, which provides the relevant
oversight on risk assessment and mitigation (the Company's
committees are described in greater detail below (beginning on page
12)).
Family
Relationships
None of our
directors are related by blood, marriage, or adoption to any other
director, executive officer, or other key employees.
Arrangements
Between Officers and Directors
There is no
arrangement or understanding between our directors and executive
officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer, except
as described below under “
Series A Preferred Stock Appointment
Rights
”, and there is no arrangement, plan or
understanding as to whether non-management stockholders will
exercise their voting rights to continue to elect the current board
of directors. There are also no arrangements, agreements or
understandings to our knowledge between non-management stockholders
that may directly or indirectly participate in or influence the
management of our affairs.
Series
A Preferred Stock Appointment Rights
Golden Globe Energy
(US), LLC, which we refer to as GGE, the sole holder of our Series
A Preferred stock, has the right pursuant to the purchase agreement
with GGE and the certificate of designation designating the Series
A Preferred (each described in greater detail below under
“
Certain
Relationships and Related Party Transactions
” -
“
Agreements with
Related Persons
” - “
Golden Globe Energy (US),
LLC
”, beginning on page 25), upon notice to us, voting
separately as a single class, to appoint designees to fill two (2)
seats on our board of directors, one of which must be an
independent director as defined by applicable rules and the
exclusive right, voting the Series A Preferred Stock as sole
stockholder thereof, separately as a single class, to elect such
two (2) nominees to the board of directors. On July 15, 2015, at
the request of GGE the board of directors of the Company increased
the number of members of the board of directors from three to four,
pursuant to the power provided to the board of directors in the
Company's Bylaws, and appointed David Z. Steinberg as a member of
the board of directors to fill the newly created vacancy, also
pursuant to the power provided to the board of directors in the
Company's Bylaws. At the time of appointment, the board of
directors made the affirmative determination that Mr. Steinberg was
independent pursuant to applicable NYSE MKT and Securities and
Exchange Commission rules and regulations. Mr. Steinberg serves as
one of GGE's representatives on the Company's board of directors.
The board of directors appointment rights continue until GGE no
longer holds any of the Tranche One Shares (defined and described
in greater detail below under “
Certain Relationships and Related
Party Transactions
” - “
Agreements with Related
Persons
” - “
Golden Globe Energy (US),
LLC
”, beginning on page 25). To date, GGE has not
provided notice to PEDEVCO regarding the appointment of the second
member to the board of directors, other than Mr.
Steinberg.
As described below
under “
Proposal 1 -
Election of Directors
” beginning on page 35, Mr.
Steinberg is the Series A Preferred Stock holder's nominee for
appointment on the board of directors at the annual meeting and GGE
has the sole right to appoint Mr. Steinberg to the board of
directors at the annual meeting.
All Series A
Preferred Stock nominee members on our board of directors are
required to immediately resign at the option of the other members
of our board of directors upon such time as the rights of the
Series A Preferred Stock holder to appoint members to our board of
directors expires. For so long as the board appointment rights
remain in effect, if for any reason a Series A Preferred Stock
nominee on our board of directors resigns or is otherwise removed
from the board of directors, then his or her replacement shall be a
person elected by the remaining Series A Preferred Stock nominee or
the holder of the Series A Preferred Stock.
Other
Directorships
No directors of the
Company are also directors of issuers with a class of securities
registered under Section 12 of the Exchange Act (or which otherwise
are required to file periodic reports under the Exchange
Act).
Involvement
in Certain Legal Proceedings
To the best of our
knowledge, during the past ten years, none of our directors or
executive officers were involved in any of the following: (1) any
bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time; (2)
any conviction in a criminal proceeding or being a named subject to
a pending criminal proceeding (excluding traffic violations and
other minor offenses); (3) being subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking
activities; (4) being found by a court of competent jurisdiction
(in a civil action), the SEC or the Commodities Futures Trading
Commission to have violated a federal or state securities or
commodities law; (5) being the subject of, or a party to, any
Federal or State judicial or administrative order, judgment,
decree, or finding, not subsequently reversed, suspended or
vacated, relating to an alleged violation of (i) any Federal or
State securities or commodities law or regulation; (ii) any law or
regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or
prohibition order; or (iii) any law or regulation prohibiting mail
or wire fraud or fraud in connection with any business entity; or
(6) being the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act),
any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act), or any equivalent exchange, association,
entity or organization that has disciplinary authority over its
members or persons associated with a member.
Board
of Directors Meetings
During the fiscal
year that ended on December 31, 2015, the Board held five meetings
and took various other actions via the unanimous written consent of
the Board of Directors and the various committees described above.
All directors attended all of the Board of Directors meetings and
committee meetings relating to the committees on which each
director served during fiscal year 2015. The Company did not hold
an annual shareholders meeting in 2012 or 2013, but did hold an
annual shareholders meeting on June 26, 2014 and October 7, 2015,
at which meetings all directors were present. Each director of the
Company is expected to be present at annual meetings of
shareholders, absent exigent circumstances that prevent their
attendance. Where a director is unable to attend an annual meeting
in person but is able to do so by electronic conferencing, the
Company will arrange for the director's participation by means
where the director can hear, and be heard, by those present at the
meeting.
COMMITTEES
OF THE BOARD
Board
Committee Membership
We currently
maintain a Nominating and Corporate Governance Committee,
Compensation Committee and Audit Committee which have the following
committee members:
|
Director
|
|
Audit Committee
|
|
Compensation Committee
|
|
Nominating and Corporate Governance Committee
|
|
Independent
|
|
|
|
|
|
|
|
|
|
|
|
David C. Crikelair (2)
|
|
C
|
|
M
|
|
M
|
|
X
|
|
Elizabeth P. Smith
|
|
M
|
|
C
|
|
C
|
|
X
|
|
David Z. Steinberg (3)
|
|
|
|
|
|
|
|
X
|
C - Chairman of Committee.
M - Member.
(1) Chairman of the board of directors.
(2) Mr. Crikelair is not standing for re-election at the annual
meeting. Instead Mr. Adam McAfee has been nominated by the board of
directors to fill the vacancy left by Mr. Crikelair's decision not
to stand for re-election. It is also anticipated that the board of
directors will appoint Mr. McAfee to each committee that Mr.
Crikelair served on, and as Chairman of the Audit Committee,
provided that he is appointed as a member of the board of directors
at the annual meeting.
(3) Series A Preferred Stock holder nominee.
Each of these
committees has the duties described below and operates under a
charter that has been approved by our board of directors and is
posted on our website. Our website address is
http://www.pacificenergydevelopment.com
.
Information contained on our website is expressly not incorporated
by reference into this proxy statement.
Audit Committee
The audit committee
selects, on behalf of our board of directors, an independent public
accounting firm to audit our financial statements, discusses with
the independent auditors their independence, reviews and discusses
the audited financial statements with the independent auditors and
management, and recommends to the board of directors whether the
audited financial statements should be included in our annual
reports to be filed with the SEC. Mr. Crikelair serves as Chair of
the Audit Committee and our board of directors has determined that
Mr. Crikelair is an “
audit committee financial
expert
” as defined under Item 407(d)(5) of Regulation
S-K of the Exchange Act, provided that Mr. Crikelair is not
standing for re-election at the annual meeting, and the Company
contemplates Mr. McAfee being the “
audit committee financial
expert
” following the annual meeting and providing
that he is appointed as a member of the board of directors at the
annual meeting.
During the year
ended December 31, 2015 the audit committee held four
meetings.
Compensation Committee
The compensation
committee reviews and approves (a) the annual salaries and other
compensation of our executive officers, and (b) individual stock
and stock option grants. The compensation committee also provides
assistance and recommendations with respect to our compensation
policies and practices and assists with the administration of our
compensation plans. Ms. Smith serves as Chair of the compensation
committee.
During the year
ended December 31, 2015, the compensation committee held three
meetings.
Nominating and Corporate Governance Committee
The nominating and
corporate governance committee assists our board of directors in
fulfilling its responsibilities by: identifying and approving
individuals qualified to serve as members of our board of
directors, selecting director nominees for our annual meetings of
stockholders, evaluating the performance of our board of directors,
and developing and recommending to our board of directors corporate
governance guidelines and oversight procedures with respect to
corporate governance and ethical conduct. Ms. Smith serves as Chair
of the nominating and corporate governance committee.
The nominating and
governance committee of the board of directors considers nominees
for director based upon a number of qualifications, including
their personal and professional integrity, ability, judgment, and
effectiveness in serving the long-term interests of our
stockholders. There are no specific, minimum or absolute criteria
for membership on the board of directors. The committee makes every
effort to ensure that the board of directors and its committees
include at least the required number of independent directors, as
that term is defined by applicable standards promulgated by the
NYSE MKT and/or the SEC.
The nominating and
governance committee may use its network of contacts to compile a
list of potential candidates. The nominating and governance
committee has not in the past relied upon professional search firms
to identify director nominees, but may engage such firms if so
desired. The nominating and governance committee may meet to
discuss and consider candidates' qualifications and then choose a
candidate by majority vote.
The nominating and
governance committee will consider qualified director candidates
recommended in good faith by stockholders, provided those nominees
meet the requirements of NYSE MKT and applicable federal securities
law. The nominating and governance committee's evaluation of
candidates recommended by stockholders does not differ materially
from its evaluation of candidates recommended from other
sources. The Committee will consider candidates recommended by
stockholders if the information relating to such candidates are
properly submitted in writing to the Secretary of the Company in
accordance with the manner described for stockholder proposals
under “
Stockholders
Proposals
” on page 60 below. Individuals recommended
by stockholders in accordance with these procedures will receive
the same consideration received by individuals identified to the
Committee through other means.
During the year
ended December 31, 2015, the nominating and corporate governance
committee held two meetings.
Stockholder
Communications with the Board of Directors
Our stockholders
and other interested parties may communicate with members of the
board of directors by submitting such communications in writing to
our Corporate Secretary, 4125 Blackhawk Plaza Circle, Suite 201,
Danville, California 94506, who, upon receipt of any communication
other than one that is clearly marked “
Confidential,
” will note
the date the communication was received, open the communication,
make a copy of it for our files and promptly forward the
communication to the director(s) to whom it is addressed. Upon
receipt of any communication that is clearly marked
“
Confidential,
” our
Corporate Secretary will not open the communication, but will note
the date the communication was received and promptly forward the
communication to the director(s) to whom it is addressed. If the
correspondence is not addressed to any particular board member or
members, the communication will be forwarded to a board member to
bring to the attention of the board of
directors.
Executive
Sessions of the Board of Directors
The independent
members of our board of directors meet in executive session (with
no management directors or management present) from time to time.
The executive sessions include whatever topics the independent
directors deem appropriate.
Director
Independence
Our board of directors has determined that each of Ms. Smith, Mr.
Crikelair and Mr. Steinberg is an independent director as defined
in the NYSE MKT rules governing members of boards of directors or
as defined under Rule 10A-3 of the Exchange Act and that our
director nominee, Mr. Adam McAfee, will be deemed independent.
Accordingly, a majority of the members of our board of directors
are independent as defined in the NYSE MKT rules governing members
of boards of directors and as defined under Rule 10A-3 of the
Exchange Act and will continue to be independent assuming Mr.
McAfee is appointed as a director to fill the vacancy left by Mr.
Crikelair's decision not to stand for re-election.
In 2012, in
accordance with SEC rules, our board of directors adopted a Code of
Business Conduct and Ethics for our directors, officers and
employees. Our board of directors believes that these individuals
must set an exemplary standard of conduct. This code sets forth
ethical standards to which these persons must adhere and other
aspects of accounting, auditing and financial compliance, as
applicable. The Code of Business Conduct and Ethics is available on
our website at
www.pacificenergydevelopment.com
.
Please note that the information contained on our website is not
incorporated by reference in, or considered to be a part of, this
proxy statement.
Additionally, the
Code of
Business Conduct and Ethics
was filed as an exhibit to our Form
8-K/A filed with the SEC on
August 8, 2012
as Exhibit 14.1
thereto.
We intend to
disclose any amendments to our Code of Business Conduct and Ethics
and any waivers with respect to our Code of Business Conduct and
Ethics granted to our principal executive officer, our principal
financial officer, or any of our other employees performing similar
functions on our website at
www.pacificenergydevelopment.com
,
within four business days after the amendment or waiver. In such
case, the disclosure regarding the amendment or waiver will remain
available on our website for at least 12 months after the
initial disclosure. There have been no waivers granted with respect
to our Code of Business Conduct and Ethics to any such officers or
employees to date.
Report
of Audit Committee
The following report of the Audit Committee does not constitute
soliciting materials and should not be deemed filed or incorporated
by reference into any other Company filing under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent we
specifically incorporate such report by reference
therein.
AUDIT COMMITTEE REPORT
The Audit Committee
represents and assists the Board of Directors in fulfilling its
responsibilities for general oversight of the integrity of the
Companyís financial statements, the Company's compliance with
legal and regulatory requirements, the independent registered
public accounting firm's qualifications and independence, the
performance of the Company's internal audit function and
independent registered public accounting firm, and risk assessment
and risk management. The Audit Committee manages the Company's
relationship with its independent registered public accounting firm
(which reports directly to the Audit Committee). The Audit
Committee has the authority to obtain advice and assistance from
outside legal, accounting or other advisors as the Audit Committee
deems necessary to carry out its duties and receives appropriate
funding, as determined by the Audit Committee, from the Company for
such advice and assistance.
In connection with
the audited financial statements of the Company for the year ended
December 31, 2015, the Audit Committee of the Board of Directors of
the Company (1) reviewed and discussed the audited financial
statements with the Company's management; (2) discussed with the
Company's independent auditors the matters required to be discussed
by the Statement on Auditing Standards No. 61, as amended
(Codification of Statements on Auditing Standards, AU 380), as
adopted by the Public Company Accounting Oversight Board
(“
PCAOB
”) in Rule 3200T and
Exchange Act Regulation S-X, Rule 2-07; (3) received the written
disclosures and the letter from the independent auditors required
by the applicable requirements of the PCAOB regarding the
independent auditors' communications with the Audit Committee
concerning independence; (4) discussed with the independent
auditors the independent auditors' independence; and (5) considered
whether the provision of non-audit services by the Company's
principal auditors is compatible with maintaining auditor
independence.
Based upon these
reviews and discussions, the Audit Committee recommended to the
Board of Directors, and the Board of Directors approved, that the
audited financial statements for the year ended December 31, 2015
be included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2015 for filing with the Securities and
Exchange Commission.
The undersigned
members of the Audit Committee have submitted this Report to the
Board of Directors.
Audit Committee
/s/
David C.
Crikelair
(Chairman)
/s/
Elizabeth P.
Smith
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
our executive officers (ages are as of the record
date).
|
Name
|
|
Age
|
|
Executive
Position
|
|
Michael L.
Peterson
|
|
54
|
|
Chief Executive
Officer and President
|
|
Gregory
Overholtzer
|
|
60
|
|
Chief Financial
Officer, Vice President, Finance and Controller
|
|
Clark R.
Moore
|
|
43
|
|
Executive Vice
President, General Counsel and Secretary
|
Michael L. Peterson, Chief Executive Officer and
President
Mr. Peterson has
served as our Chief Executive Officer since May 2016, served as our
Chief Financial Officer from our acquisition of Pacific Energy
Development in July 2012 to May 2016, as our Executive Vice
President from our acquisition of Pacific Energy Development in
July 2012 to October 2014, and has served as our President since
October 2014. Mr. Peterson joined Pacific Energy Development as its
Executive Vice President in September 2011, assumed the additional
office of Chief Financial Officer in June 2012, and served as a
member of our board of directors from July 2012 to September 2013.
Mr. Peterson formerly served as Interim President and CEO (from
June 2009 to December 2011) and as director (from May 2008 to
December 2011) of us, as a director (from May 2006 to July 2012) of
Aemetis, Inc. (formerly AE Biofuels Inc.), a Cupertino,
California-based global advanced biofuels and renewable commodity
chemicals company (AMTX), and as Chairman and Chief Executive
Officer of Nevo Energy, Inc. (NEVE) (formerly Solargen Energy,
Inc.), a Cupertino, California-based developer of utility-scale
solar farms which he helped form in December 2008 (from December
2008 to July 2012). In addition, since February 2006, Mr. Peterson
has served as founder and managing partner of California-based
Pascal Management, a manager of hedge and private equity
investments, and since August 2016, Mr. Peterson has served as an
independent director on the board of TrxAde Group, Inc. (OTCQB:
TRXD), a web-based pharmaceutical market platform headquartered in
Florida, each of which we believe requires only an immaterial
amount of Mr. Peterson’s time and does not conflict with his
roles or responsibilities with us. From 2005 to 2006, Mr.
Peterson co-founded and became a managing partner of American
Institutional Partners, a venture investment fund based in Salt
Lake City. From 2000 to 2004, he served as a First Vice President
at Merrill Lynch, where he helped establish a new private client
services division to work exclusively with high net worth
investors. From September 1989 to January 2000, Mr. Peterson was
employed by Goldman Sachs & Co. in a variety of positions and
roles, including as a Vice President with the responsibility for a
team of professionals that advised and managed over $7 billion in
assets. Mr. Peterson speaks Mandarin Chinese.
Mr. Peterson
received his MBA at the Marriott School of Management and a BS in
statistics/computer science from Brigham Young
University.
Gregory Overholtzer, Chief Financial Officer, Vice President,
Finance and Controller
Mr. Overholtzer has
served as the Chief Financial Officer of the Company since May
2016, as the Company’s Corporate Controller since January
2012, and has served as the Company’s Vice President, Finance
and Corporate Controller since June of 2012. Mr. Overholtzer began
his career in 1982 as a senior financial analyst at British Oxygen
Corporation located in Fairfield, California. In 1994, Mr.
Overholtzer joined Giga-tronics as their Chief Financial Officer.
Between 1997 and 2011, Mr. Overholtzer served as the Chief
Financial Officer or Corporate Controller for five different
companies engaged in various hi-tech and bio-tech industries,
including Accretive Solutions, Omni ID and Genitope Corp., all
located in the San Francisco Bay Area.
Mr.
Overholtzer received his MBA in Finance from the University of
California at Berkeley and his B.A. from UC Berkeley.
Clark R. Moore, Executive Vice President, General Counsel and
Secretary
Mr. Moore has
served as our Executive Vice President, General Counsel, and
Secretary since our acquisition of Pacific Energy Development in
July 2012 and has served as the Executive Vice President, General
Counsel, and Secretary of Pacific Energy Development since its
inception in February 2011. Mr. Moore began his career in 2000 as a
corporate attorney at the law firm of Venture Law Group located in
Menlo Park, California, which later merged into Heller Ehrman LLP
in 2003. In 2004, Mr. Moore left Heller Ehrman LLP and launched a
legal consulting practice focused on representation of private and
public company clients in the energy and high-tech industries. In
September 2006, Mr. Moore joined Erin Energy Corporation (NYSE:
ERN) (formerly CAMAC Energy, Inc.), an independent energy company
headquartered in Houston, Texas, as its acting General Counsel and
continued to serve in that role through June 2011.
Mr. Moore received
his J.D. with Distinction from Stanford Law School and his B.A.
with Honors from the University of Washington.
EXECUTIVE
COMPENSATION
The following table sets forth the compensation
for services paid in all capacities for the two fiscal years ended
December 31, 2015 and 2014 to (a) Frank C. Ingriselli, our Chairman
and former Chief Executive Officer (Mr. Ingriselli stepped down as
Chief Executive Officer in May 2016), and (b) Michael L. Peterson
and Clark R. Moore, who were the next two most highly compensated
executive officers at fiscal year-end 2015 and 2014 (collectively,
the “
Named Executive
Officers
”). There were no
other executive officers who received compensation in excess of
$100,000 in either 2015 or 2014.
Summary Compensation Table
|
Name and
Principal Position
|
Fiscal Year
Ended
December
31
|
|
|
|
|
|
All
Other
Compensation
($)
|
|
|
Frank C.
Ingriselli*
|
2015
|
338,000
|
25,000
|
-
|
136,900
|
(3
)
|
-
|
499,900
|
|
Former Chief
Executive Officer and Chairman of the Board (#)
|
2014
|
370,000
|
28,000
|
-
|
1,048,000
|
(2
)
|
-
|
1,446,000
|
|
|
|
|
|
|
|
|
|
|
Michael L.
Peterson
|
2015
|
303,000
|
25,000
|
-
|
120,250
|
(5
)
|
-
|
448,250
|
|
Chief Executive
Officer and President, Former Chief Financial Officer
(#)
|
2014
|
303,000
|
22,000
|
-
|
1,048,000
|
(4
)
|
-
|
1,373,000
|
|
|
|
|
|
|
|
|
|
|
Clark R.
Moore
|
2015
|
253,000
|
25,000
|
-
|
99,900
|
(7
)
|
-
|
377,900
|
|
Executive Vice
President, General Counsel and Secretary
|
2014
|
270,000
|
20,000
|
-
|
679,000
|
(6
)
|
-
|
969,000
|
Does
not include perquisites and other personal benefits or property,
unless the aggregate amount of such compensation is more than
$10,000. No executive officer earned any non-equity incentive
plan compensation or nonqualified deferred compensation during the
periods reported above.
*
Mr. Ingriselli stepped down as Chief Executive Officer in May 2016,
at which time Mr. Peterson was appointed as Chief Executive Officer
and stepped down as Chief Financial Officer, and Mr. Overholtzer
was appointed as Chief Financial Officer.
|
(1)
|
Amounts in this
column represent the aggregate grant date fair value of awards
computed in accordance with Financial Accounting Standards Board
Accounting Standard Codification Topic 718. For additional
information on the valuation assumptions with respect to the option
grants, refer to Note 13 of our financial statements for
the year ended December 31, 2015 included in our 2015 Annual
Report, which is included herewith. These amounts do not correspond
to the actual value that will be recognized by the named
individuals from these awards.
|
|
(2)
|
Consists of the
value of 540,000 shares of restricted common stock granted in July
2014 at $1.94 per share.
|
|
(3)
|
Consists of the
value of 370,000 shares of restricted common stock granted in
January 2015 at $0.37 per share.
|
|
(4)
|
Consists of the
value of 395,000 shares of restricted common stock granted in July
2014 at $1.94 per share and 200,000 shares of restricted common
stock granted in October 2014 at $1.41 per share.
|
|
(5)
|
Consists of the
value of 325,000 shares of restricted common stock granted in
January 2015 at $0.37 per share.
|
|
(6)
|
Consists of the
value of 350,000 shares of restricted common stock granted in July
2014 at $1.94 per share.
|
|
(7)
|
Consists of the
value of 270,000 shares of restricted common stock granted in
January 2015 at $0.37 per share.
|
Outstanding Equity Awards at Year Ended December 31,
2015
The
following table sets forth information as of December 31, 2015
concerning outstanding equity awards for the executive officers
named in the Summary Compensation Table.
Outstanding Equity Awards at Fiscal Year-End
|
|
|
|
|
|
Number
of securities underlying unexercised options (#)
exercisable
|
Number of
securities underlying unexercised options (#)
unexercisable
|
|
|
Number of shares
or units of stock that have not vested (#)
|
|
Market value of
shares or units of stock that have not vested ($)
|
|
Frank C.
Ingriselli
|
348,267
|
-
|
$
0.51
|
6/18/2022
|
202,500
|
(1
)
|
$
58,725
|
|
|
42,534
|
-
|
$
0.51
|
6/18/2022
|
324,000
|
(2
)
|
$
93,960
|
|
|
259,000
|
111,000
|
$
0.37
|
1/7/2020
|
370,000
|
(3
)
|
$
107,300
|
|
|
|
|
|
|
|
|
|
|
Michael L.
Peterson
|
447
|
-
|
$
67.20
|
5/28/2018
|
146,250
|
(1
)
|
$
42,412
|
|
|
2,977
|
-
|
$
30.24
|
2/2/2021
|
237,000
|
(2
)
|
$
68,730
|
|
|
100,000
|
-
|
$
0.24
|
10/7/2021
|
160,000
|
(4
)
|
$
46,400
|
|
|
269,534
|
-
|
$
0.51
|
6/18/2022
|
325,000
|
(3
)
|
$
94,250
|
|
|
63,800
|
-
|
$
0.51
|
6/18/2022
|
|
|
|
|
|
227,500
|
97,500
|
$
0.37
|
1/7/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clark
Moore
|
188,867
|
-
|
$
0.51
|
6/18/2022
|
130,500
|
(1
)
|
$
37,845
|
|
|
44,467
|
-
|
$
0.51
|
6/18/2022
|
210,000
|
(2
)
|
$
60,900
|
|
|
189,000
|
81,000
|
$
0.37
|
1/7/2020
|
270,000
|
(3
)
|
$
78,300
|
|
(1)
|
Vesting of 2/3 of
shares delayed pursuant to Vesting Agreement, dated December 29,
2015 as amended January 6, 2016, until the 2nd trading day
following the Company’s public announcement of the
“Vesting Event” as defined therein, upon which Vesting
Event all vesting with respect to such shares shall be accelerated
and all such shares shall be fully vested. Balance 1/3 of the stock
award vests on August 8, 2016, subject to the holder remaining an
employee of or consultant to the Company on such vesting
date.
|
|
(2)
|
Vesting of 2/3 of
shares delayed pursuant to Vesting Agreement, dated December
29,2015 as amended January 6, 2016, until the 2nd trading day
following the Company’s public announcement of the
“Vesting Event” as defined therein, upon which Vesting
Event all vesting with respect to such shares shall be accelerated
and all such shares shall be fully vested. Balance 1/3 of the
stocks award vests on January 1, 2017 and 50% on July 1, 2017,
subject to the holder remaining an employee of or consultant to the
Company on such vesting date.
|
|
(3)
|
Vesting of 2/3 of
shares delayed pursuant to Vesting Agreement, dated December 29,
2015, as amended January 6, 2016, until the 2nd trading day
following the Company’s public announcement of the
“Vesting Event,” as defined therein, upon which Vesting
Event all vesting with respect to such shares shall be accelerated
and all such shares shall be fully vested. Balance 1/3 of the stock
award vests 50% on January 1, 2017 and 50% on July 1, 2017, subject
to the holder remaining an employee of or consultant to the Company
on such vesting date.
|
|
(4)
|
Vesting of 60%
shares delayed pursuant to Vesting Agreement, dated December 29,
2105, as amended January 6, 2016, until the 2nd trading day
following the Company’s public announcement of the
“Vesting Event,” as defined therein, upon which
Vesting Event all vesting with respect to such shares shall be
accelerated and all such shares shall be fully vested. Balance 40%
of the stock award vests 50% on July 7, 2016 and 50% on January 7,
2017, subject to the holder remaining an employee of or consultant
to the Company on such vesting date.
|
Recent
Issuances of Equity to Executive Officers and
Directors
On
January 7, 2016, the Company granted options to purchase shares of
common stock to its executive officers at an exercise price of
$0.22 per share, pursuant to the Company’s 2012 Amended and
Restated Equity Incentive Plan and in connection with the
Company’s 2015 annual equity incentive compensation review
process, as follows: (i) an option to purchase 280,000 shares to
Chairman and Chief Executive Officer Frank C. Ingriselli; (ii) an
option to purchase 300,000 shares to President and Chief Financial
Officer Michael L. Peterson; and (iii) an option to purchase
280,000 shares to Executive Vice President and General Counsel
Clark R. Moore. The options have terms of five years and fully vest
in July 2017. 50% vest six months from the date of grant, 30% vest
one year from the date of grant, and 20% vest eighteen months
from the date of grant, all contingent upon the
recipient’s continued service with the Company.
On
January 7, 2016, the Company granted shares of its restricted
common stock to its executive officers pursuant to the
Company’s 2012 Amended and Restated Equity Incentive Plan and
in connection with the Company’s 2015 annual equity incentive
compensation review process as follows: (i) 600,000 shares to
Chairman and Chief Executive Officer Frank C. Ingriselli; (ii)
600,000 shares to President and Chief Financial Officer Michael L.
Peterson; and (iii) 550,000 shares to Executive Vice President and
General Counsel Clark R. Moore. 50% of the shares vest on the six
month anniversary of the grant date, 30% vest on the twelve month
anniversary of the grant date, and 20% vest on the eighteen month
anniversary of the grant date, all contingent upon the
recipient’s continued service with the Company.
Compensation of Directors
The
following table sets forth compensation information with respect to
our non-executive directors during our fiscal year ended December
31, 2015.
|
Name
|
Fees Earned
or
Paid in
Cash
($)*
|
|
All
Other
Compensation
($)
|
|
|
David C.
Crikelair
|
$
20,000
|
$
30,968
|
$
-
|
$
50,968
|
|
Elizabeth P.
Smith
|
$
20,000
|
$
30,968
|
$
-
|
$
50,968
|
|
David Z.
Steinberg
|
$
5,000
|
$
-
|
$
-
|
$
5,000
|
*
The table above does not include the amount of any expense
reimbursements paid to the above directors. No directors received
any Non-Equity Incentive Plan Compensation or Nonqualified Deferred
Compensation Earnings during the period presented. Includes
quarterly cash compensation earned, but not yet paid, in the amount
of $5,000 each. Does not include perquisites and other personal
benefits, or property, unless the aggregate amount of such
compensation is more than $10,000.
|
(1)
|
Amounts in this
column represent the aggregate grant date fair value of awards
computed in accordance with Financial Accounting Standards Board
Accounting Standard Codification Topic 718. For additional
information on the valuation assumptions with respect to the
restricted stock grants, refer to Note 12 of our
financial statements for the year ended December 31, 2015 included
in our 2015 Annual Report, which is included herewith. These
amounts do not correspond to the actual value that will be
recognized by the named individuals from these awards. Mr.
Crikelair and Ms. Smith each received a grant of 96,775 shares of
restricted stock on February 6, 2015, which vested in full on
September 10, 2015 (at a fair market value of $0.32 per share for
total value of $30,968). Mr. Crikelair and Ms. Smith also each
received a grant of 214,286 shares of restricted stock on October
7, 2015, each with an aggregate grant date fair value as computed
in accordance with Financial Accounting Standards Board Accounting
Standard Codification Topic 718 of approximately $60,000, which
vested in full on September 10, 2016. Mr. Steinberg also received a
grant of 214,286 shares of restricted stock on October 7, 2015,
with an aggregate grant date fair value as computed in accordance
with Financial Accounting Standards Board Accounting Standard
Codification Topic 718 of approximately $60,000, which vested in
full on July 15, 2016. All shares vesting in 2016 have not been
included in the table above as there was no compensation recognized
in the year ended December 31, 2015.
|
Our board has adopted a compensation program
that, effective for periods after 2012, provides each of our
“
independent
”
directors as defined in NYSE MKT rules or under Rule 10A-3 of the
Exchange Act with compensation consisting of (a) a quarterly cash
payment of $5,000, and (b) an annual equity award consisting of
shares of restricted stock valued at $60,000, vesting on the date
that is one year following the date of grant.
Equity
Compensation Plan Information
2012 Plan
General.
On June 26, 2012, our
board of directors adopted the Blast Energy Services, Inc. 2012
Equity Incentive Plan, which was approved by our stockholders on
July 30, 2012 and subsequently renamed the PEDEVCO Corp. 2012
Equity Incentive Plan in connection with our name change from Blast
Energy Services, Inc. to PEDEVCO Corp. The 2012 Equity Incentive
Plan provides for awards of incentive stock options, non-statutory
stock options, rights to acquire restricted stock, stock
appreciation rights, or SARs, and performance units and performance
shares. Subject to the provisions of the 2012 Equity Incentive Plan
relating to adjustments upon changes in our common stock, an
aggregate of two million shares of common stock were reserved for
issuance under the 2012 Equity Incentive Plan. On April 23, 2014,
the board of directors adopted an amended and restated 2012 Equity
Incentive Plan, to increase by five million shares, the number of
awards available for issuance under the plan, which was approved by
stockholders on June 27, 2014. On July 27, 2015, the board of
directors adopted an amended and restated 2012 Equity Incentive
Plan, to increase by three million shares, the number of awards
available for issuance under the plan, which was approved by
stockholders on October 7, 2015. We refer to the 2012 Amended and
Restated Incentive Plan as the 2012 Plan. Pursuant to proposal 3,
beginning on page 45, we are seeking stockholder approval at the
annual meeting to increase by five million shares the number of
awards available for issuance under the 2012 Plan.
Purpose.
Our board of directors adopted the
2012 Plan to provide a means by which our employees, directors and
consultants may be given an opportunity to benefit from increases
in the value of our common stock, to assist in attracting and
retaining the services of such persons, to bind the interests of
eligible recipients more closely to our interests by offering them
opportunities to acquire shares of our common stock and to afford
such persons stock-based compensation opportunities that are
competitive with those afforded by similar businesses.
Administration.
Unless it
delegates administration to a committee, our board of directors
administers the 2012 Plan. Subject to the provisions of the 2012
Plan, our board of directors has the power to construe and
interpret the 2012 Plan, and to determine: (a) the fair value of
common stock subject to awards issued under the 2012 Plan; (b) the
persons to whom and the dates on which awards will be granted; (c)
what types or combinations of types of awards will be granted; (d)
the number of shares of common stock to be subject to each award;
(e) the time or times during the term of each award within which
all or a portion of such award may be exercised; (f) the exercise
price or purchase price of each award; and (g) the types of
consideration permitted to exercise or purchase each award and
other terms of the awards.
Eligibility.
Incentive stock options may be
granted under the 2012 Plan only to employees of us and our
affiliates. Employees, directors and consultants of us and our
affiliates are eligible to receive all other types of awards under
the 2012 Plan.
Terms of Options and SARs.
The
exercise price of incentive stock options may not be less than the
fair market value of the common stock subject to the option on the
date of the grant and, in some cases, may not be less than 110% of
such fair market value. The exercise price of nonstatutory options
also may not be less than the fair market value of the common stock
on the date of grant.
Options granted
under the 2012 Plan may be exercisable in cumulative increments, or
“
vest
,”
as determined by our board of directors. Our board of directors has
the power to accelerate the time as of which an option may vest or
be exercised. The maximum term of options, SARs and performance
shares and units under the 2012 Plan is ten years, except that in
certain cases, the maximum term is five years. Options, SARs
and performance shares and units awarded under the 2012 Plan
generally will terminate three months after termination of the
participant’s service, subject to certain
exceptions.
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, SAR or
performance share or unit. Our board of directors may grant
nonstatutory stock options, SARs and performance shares and units
that are transferable to the extent provided in the applicable
written agreement.
Terms of Restricted Stock
Awards.
Our board of directors may issue shares of
restricted stock under the 2012 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.
Shares of
restricted stock acquired under a restricted stock purchase or
grant agreement may, but need not, be subject to forfeiture to us
or other restrictions that will lapse in accordance with a vesting
schedule to be determined by our board of directors. In the event a
recipient’s employment or service with us 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 us in accordance
with such restricted stock agreement.
Rights to acquire
shares of common stock under the restricted stock purchase or grant
agreement shall be transferable by the recipient only upon such
terms and conditions as are set forth in the restricted stock
agreement, as our board of directors shall 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.
Adjustment Provisions.
If any change is made to our
outstanding shares of common stock without our receipt of
consideration (whether through reorganization, stock dividend or
stock split, or other specified change in our capital structure),
appropriate adjustments may be made in the class and maximum number
of shares of common stock subject to the 2012 Plan and outstanding
awards. In that event, the 2012 Plan will be appropriately adjusted
in the class and maximum number of shares of common stock subject
to the 2012 Plan, and outstanding awards may be adjusted in the
class, number of shares and price per share of common stock subject
to such awards.
Effect of Certain Corporate
Events.
In the
event of (a) a liquidation or dissolution of the Company; (b) a
merger or consolidation of the Company with or into another
corporation or entity (other than a merger with a wholly-owned
subsidiary); (c) a sale of all or substantially all of the assets
of the Company; or (d) a purchase or other acquisition of more than
50% of the outstanding stock of the Company by one person or by
more than one person acting in concert, any surviving or acquiring
corporation may assume awards outstanding under the 2012 Plan or
may substitute similar awards. Unless the stock award agreement
otherwise provides, in the event any surviving or acquiring
corporation does not assume such awards or substitute similar
awards, then the awards will terminate if not exercised at or prior
to such event.
Duration, Amendment and
Termination.
Our board of directors may suspend or
terminate the 2012 Plan without stockholder approval or
ratification at any time or from time to time. Unless sooner
terminated, the 2012 Plan will terminate ten years from the date of
its adoption by our board of directors, i.e., in March
2022.
Our board of
directors may also amend the 2012 Plan at any time, and from time
to time. However, except as it relates to adjustments upon changes
in common stock, no amendment will be effective unless approved by
our stockholders to the extent stockholder approval is necessary to
preserve incentive stock option treatment for federal income tax
purposes. Our board of directors may submit any other amendment to
the 2012 Plan for stockholder approval if it concludes that
stockholder approval is otherwise advisable, such as the amendment
described in proposal 3, beginning on page 45.
As of the date of
this proxy statement, options to purchase 3,067,000 shares of
common stock and 6,139,170 shares of restricted stock have been
issued under the 2012 Plan, with 793,830 shares of common stock
remaining available for issuance under the 2012 Plan. The options
have a weighted average exercise price of $0.57 per share, and have
expiration dates ranging from 2018 to 2022.
2012 Pacific Energy Development (Pre-Merger) Plan
On February 9,
2012, prior to the Pacific Energy Development merger, Pacific
Energy Development adopted the Pacific Energy Development 2012
Equity Incentive Plan, which we refer to as the 2012 Pre-Merger
Plan. We assumed the obligations of the 2012 Pre-Merger Plan
pursuant to the Pacific Energy Development merger, though the 2012
Pre-Merger Plan has been superseded by the 2012 Plan (described
above).
The 2012 Pre-Merger
Plan provides for awards of incentive stock options, non-statutory
stock options, rights to acquire restricted stock, stock
appreciation rights, or SARs, and performance units and performance
shares. Subject to the provisions of the 2012 Pre-Merger Plan
relating to adjustments upon changes in our common stock, an
aggregate of 1,000,000 shares of common stock have been reserved
for issuance under the 2012 Pre-Merger Plan.
The board of
directors of Pacific Energy Development adopted the 2012 Pre-Merger
Plan to provide a means by which its employees, directors and
consultants may be given an opportunity to benefit from increases
in the value of its common stock, to assist in attracting and
retaining the services of such persons, to bind the interests of
eligible recipients more closely to our interests by offering them
opportunities to acquire shares of our common stock and to afford
such persons stock-based compensation opportunities that are
competitive with those afforded by similar businesses.
The exercise price
of incentive stock options may not be less than the fair market
value of the common stock subject to the option on the date of the
grant and, in some cases, may not be less than 110% of such fair
market value. The exercise price of nonstatutory options also may
not be less than the fair market value of the common stock on the
date of grant. Options granted under the 2012 Pre-Merger Plan may
be exercisable in cumulative increments, or “
vest
,” as determined by
the board of directors of Pacific Energy Development at the time of
grant.
Shares of
restricted stock could be issued under the 2012 Pre-Merger
Plan as a grant or for such consideration, including services, and,
subject to the Sarbanes-Oxley Act of 2002, promissory notes, as
determined in the sole discretion of the Pacific Energy Development
board of directors. Shares of restricted stock acquired under a
restricted stock purchase or grant agreement could, but need not,
be subject to forfeiture or other restrictions that will lapse in
accordance with a vesting schedule determined by the board of
directors of Pacific Energy Development at the time of grant. In
the event a recipient’s employment or service with the
Company 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 the Company in accordance with such restricted
stock agreement.
Appropriate
adjustments may be made to outstanding awards in the event of
changes in our outstanding shares of common stock, whether through
reorganization, stock dividend or stock split, or other specified
change in capital structure of the Company. In the event of
liquidation, merger or consolidation, sale of all or substantially
all of the assets of the Company, or other change in control, any
surviving or acquiring corporation may assume awards outstanding
under the 2012 Pre-Merger Plan or may substitute similar awards.
Unless the stock award agreement otherwise provides, in the event
any surviving or acquiring corporation does not assume such awards
or substitute similar awards, then the awards will terminate if not
exercised at or prior to such event.
As of the date of
this proxy statement, 310,137 options and
551,670 shares of restricted stock
remain outstanding under the 2012 Pre-Merger Plan. These options
have a weighted average exercise price of $0.49 per share, and have
expiration dates ranging from February 8, 2022 to June 18,
2022.
2009 Stock Incentive Plan
Effective July 30,
2012, our 2009 Stock Incentive Plan, which we refer to as the
2009 Plan was replaced by the 2012 Plan. The 2009 Plan was intended
to secure for us the benefits arising from ownership of our common
stock by the employees, officers, directors and consultants
of the Company. The 2009 Plan was 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.
Pursuant to the
2009 Plan, our board of directors (or a committee thereof) had the
ability to award grants of incentive or non-qualified options,
restricted stock awards, performance shares and other securities as
described in greater detail in the 2009 Plan to our employees,
officers, directors and consultants. The number of securities
issuable pursuant to the 2009 Plan was initially 14,881, provided
that the number of shares available for issuance under the 2009
Plan would be increased on the first day of each fiscal year
beginning with our 2011 fiscal year, in an amount equal to the
greater of (a) 5,953 shares; or (b) three percent (3%) of the
number of issued and outstanding shares of the Company on the first
day of such fiscal year. The 2009 Plan was to expire in April
2019.
As of the date of
this proxy statement, 3,422 options remain outstanding under the
2009 Plan. These options have a weighted average exercise price of
$35.07 per share, and have an expiration date ranging from May 28,
2018 to February 2, 2021.
2003 Stock Option Plan
Effective April 1,
2009, our 2003 Stock Option Plan was replaced by the 2009 Plan. The
number of securities originally grantable pursuant to the 2003
Stock Option Plan was 23,810. Any options granted pursuant to the
2003 Stock Option Plan remain in effect until they otherwise expire
or are terminated according to their terms. As of the date of this
proxy statement, no options remain outstanding under the 2003
Plan.
Securities
Authorized for Issuance under Equity Compensation
Plans
The
following table sets forth information, as of December 31, 2015,
with respect to our compensation plans under which common stock is
authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
|
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
(A)
|
Weighted-average
exercise price of outstanding options, warrants and
rights
(B)
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in Column
A)
(C)
|
|
|
|
|
|
|
Equity compensation
plans approved by shareholders (1)
|
2,130,560
|
$
0.94
|
3,425,340
(2)
|
|
Equity compensation
plans not approved by shareholders (3)
|
8,731,617
|
$
1.64
|
-
|
|
Total
|
10,862,177
|
$
1.50
|
3,425,340
|
|
(1)
|
Consists of (i)
options to purchase 310,136 shares of common stock issued and
outstanding under the Pacific Energy Development Corp. 2012 Amended
and Restated Equity Incentive Plan, (ii) options to purchase 3,424
shares of common stock issued and outstanding under the Blast
Energy Services, Inc. 2009 Incentive Plan, and (iii) options to
purchase 1,817,000 shares of common stock issued and outstanding
under the PEDEVCO Corp. 2012 Amended and Restated Equity Incentive
Plan.
|
|
(2)
|
Consists of
3,425,340 shares of common stock reserved and available for
issuance under the PEDEVCO Corp. 2012 Amended and Restated Equity
Incentive Plan.
|
|
(3)
|
Consists of (i)
options to purchase 928,335 shares of common stock granted by
Pacific Energy Development Corp. to employees and consultants of
the company in October 2011 and June 2012, and (ii) warrants to
purchase 7,803,282 shares of common stock granted by PEDEVCO Corp.
to placement agents, investors and consultants between March 2013
and September 2015.
|
2014
Say on Pay Vote
At the annual
meeting of our stockowners held on June 27, 2014, stockholders
holding 39.7% of the total shares eligible to be voted at the
annual meeting, 67.3% of the shares voted at the annual meeting and
85.4% of the total votes cast on the proposal, voted in favor of
our named executive officers’ 2013 compensation. The board of
directors and the Compensation Committee considered these favorable
results and did not make significant changes to our executive
compensation program because it believes this advisory stockholder
vote indicates strong support for our current compensation
policies. The board of directors currently plans to hold the next
non-binding, advisory vote on executive compensation at our 2017
annual meeting of stockholders.
Executive
Employment Agreements
Michael L.
Peterson.
On September 1,
2011, Pacific Energy Development, our wholly-owned subsidiary,
entered into a Consulting Agreement engaging Michael L. Peterson to
serve as Executive Vice President of Pacific Energy Development.
This Consulting Agreement was superseded by an employment offer
letter dated February 1, 2012, which employment offer letter was
later amended and restated in full on June 16, 2012 and further
amended on April 25, 2016 in connection with his promotion to the
office of Chief Executive Officer of the Company. Pursuant to Mr.
Peterson’s current employment offer letter, Mr. Peterson
serves as our company’s Chief Executive Officer and President
at a current annual base salary of $300,000, and a target
annual cash bonus of between 20% and 40% of his base salary,
awardable by the board of directors in its discretion. Mr. Peterson
previously served as a member of the board of directors and as the
Interim President and Chief Executive Officer of Blast, and
formerly as the Executive Vice President of the Company until his
promotion to the office of President in October 2014. Prior to
April 30, 2016, Mr. Peterson served as the Chief Financial Officer
of the Company.
In addition, on January 11, 2013, Mr.
Peterson’s employment offer letter was amended to revise the
termination and severance provisions to parallel those of Mr. Clark
Moore, our Executive Vice President, Secretary and General Counsel,
as described below. Mr. Peterson’s employment offer letter
amendment provides for, among other things, severance payment
provisions that would require the Company to make lump sum payments
equal to 18 months’ salary and target bonus to Mr. Peterson
in the event his employment is terminated due to his death or
disability, terminated without “
Cause
”
or if he voluntarily resigns for “
Good
Reason
” (36 months in
connection with a “
Change of
Control
”), and
continuation of benefits for up to 36 months (48 months in
connection with a “
Change of
Control
”), as such terms
are defined in the employment offer letter
amendment.
For purposes of Mr. Peterson’s employment
agreement, the term “
Cause
”
means his (1) conviction of, or plea of nolo contendere to, a
felony or any other crime involving moral turpitude; (2) fraud on
or misappropriation of any funds or property of our company or any
of its affiliates, customers or vendors; (3) act of material
dishonesty, willful misconduct, willful violation of any law, rule
or regulation, or breach of fiduciary duty involving personal
profit, in each case made in connection with his responsibilities
as an employee, officer or director of our company and which has,
or could reasonably be deemed to result in, a Material Adverse
Effect upon our company; (4) illegal use or distribution of drugs;
(5) material violation of any policy or code of conduct of our
company; or (6) material breach of any provision of the employment
agreement or any other employment, non-disclosure, non-competition,
non-solicitation or other similar agreement executed by him for the
benefit of our company or any of its affiliates, all as reasonably
determined in good faith by the board of directors of our company.
However, an event that is or would constitute
“
Cause
”
shall cease to be “
Cause
”
if he reverses the action or cures the default that constitutes
“
Cause
”
within 10 days after our company notifies him in writing that Cause
exists. No act or failure to act on Mr. Peterson’s part will
be considered “
willful
”
unless it is done, or omitted to be done, by him in bad faith or
without reasonable belief that such action or omission was in the
best interests of our company. Any act or failure to act that is
based on authority given pursuant to a resolution duly passed by
the board of directors, or the advice of counsel to our company,
shall be conclusively presumed to be done, or omitted to be done,
in good faith and in the best interests of our
company.
For purposes of the employment agreement,
“
Material Adverse
Effect
” means any event,
change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets, liabilities,
business, operations or results of operations of our company or its
subsidiaries, taken as a whole.
For purposes of Mr. Peterson’s employment
agreement, “
Good
Reason
” means the
occurrence of any of the following without his written consent: (a)
the assignment to him of duties substantially inconsistent with
this employment agreement or a material adverse change in his
titles or authority; (b) any failure by our company to comply with
the compensation provisions of the agreement in any material way;
(c) any material breach of the employment agreement by our company;
or (d) the relocation of him by more than fifty (50) miles from the
location of our company’s principal office located in
Danville, California. However, an event that is or would constitute
“
Good
Reason
” shall cease to be
“
Good
Reason
” if: (i) he does
not terminate employment within 45 days after the event occurs;
(ii) before he terminates employment, we reverse the action or cure
the default that constitutes “
Good
Reason
” within 10 days
after he notifies us in writing that Good Reason exists; or (iii)
he was a primary instigator of the “
Good
Reason
” event and the
circumstances make it inappropriate for him to receive
“
Good
Reason
” termination
benefits under the employment agreement (e.g., he agrees
temporarily to relinquish his position on the occurrence of a
merger transaction he assists in negotiating).
For purposes of Mr. Peterson’s employment
agreement, “
Change of
Control
” means: (i) a
merger, consolidation or sale of capital stock by existing holders
of capital stock of our company that results in more than 50% of
the combined voting power of the then outstanding capital stock of
our company or its successor changing ownership; (ii) the sale, or
exclusive license, of all or substantially all of our
company’s assets; or (iii) the individuals constituting our
company’s board of directors as of the date of the employment
agreement (the “
Incumbent Board of
Directors
”) cease for any
reason to constitute at least 1/2 of the members of the board of
directors; provided, however, that if the election, or nomination
for election by our stockholders, of any new director was approved
by a vote of the Incumbent Board of Directors, such new director
shall be considered a member of the Incumbent Board of Directors.
Notwithstanding the foregoing and for purposes of clarity, a
transaction shall not constitute a Change in Control if: (w) its
sole purpose is to change the state of our company’s
incorporation; (x) its sole purpose is to create a holding company
that will be owned in substantially the same proportions by the
persons who held our company’s securities immediately before
such transaction; or (y) it is a transaction effected primarily for
the purpose of financing our company with cash (as determined by
the board of directors in its discretion and without regard to
whether such transaction is effectuated by a merger, equity
financing or otherwise).
Gregory Overholtzer.
Effective May 1, 2016, in connection
with Mr. Overholtzer’s appointment as Chief Financial Officer
of the Company, the Company entered into an Amendment No. 1 to
Employment Agreement on April 25, 2016 with Mr. Overholtzer (the
“
Amended Overholtzer
Employment Agreement
”),
which amended that certain Employment Letter Agreement dated June
16, 2012, entered into by and between the Company as
successor-in-interest to Pacific Energy Development Corp. and Mr.
Overholtzer in connection with his original employment with the
Company (the “
Overholtzer Employment
Agreement
”). Mr.
Overholtzer has a current annual base salary of $190,000, and is
eligible for a discretionary cash performance bonus each year of up
to 30% of his then-current annual base salary. In addition, the
Company may not terminate Mr. Overholtzer’s employment other
than for “
Cause
”
(defined below) prior to November 1, 2016, and thereafter for any
reason with thirty (30) days prior written notice. In the event the
Company terminates his employment without
“
Cause
”
prior to November 1, 2016, the Company must continue to pay his
then-current base salary through October 31, 2016, and immediately
accelerate by six (6) months the vesting of all outstanding Company
restricted stock and options exercisable for Company capital stock
held by Mr. Overholtzer, with all vested Company options remaining
exercisable for a period of twelve (12) months, in exchange for a
full and complete release of claims against the Company in a form
reasonably acceptable to the Company.
For purposes of Mr. Overholtzer’s employment
agreement, “
Cause
”
means Mr. Overholtzer’s: (1) conviction of, or plea of nolo
contendere to, a felony or any other crime involving moral
turpitude; (2) fraud on or misappropriation of any funds or
property of the Company or any of its affiliates, customers or
vendors; (3) act of material dishonesty, willful misconduct,
willful violation of any law, rule or regulation, or breach of
fiduciary duty involving personal profit, in each case made in
connection with his responsibilities as an employee, officer or
director of the Company and which has, or could reasonably be
deemed to result in, a Material Adverse Effect upon the Company
(defined below); (4) illegal use or distribution of drugs; (5)
willful material violation of any policy or code of conduct of the
Company; or (6) material breach of any provision of his employment
agreement or any other employment, non-disclosure, non-competition,
non-solicitation or other similar agreement executed by him for the
benefit of the Company or any of its affiliates, all as reasonably
determined in good faith by the Board of Directors of the Company.
However, an event that is or would constitute
“
Cause
”
shall cease to be “
Cause
”
if Mr. Overholtzer reverses the action or cures the default that
constitutes “
Cause
”
within 10 days after the Company notifies him in writing that Cause
exists. No act or failure to act on Mr. Overholtzer’s part
will be considered “
willful
”
unless it is done, or omitted to be done, by him in bad faith or
without reasonable belief that such action or omission was in the
best interests of the Company. Any act or failure to act that is
based on authority given pursuant to a resolution duly passed by
the Board, or the advice of counsel to the Company, shall be
conclusively presumed to be done, or omitted to be done, in good
faith and in the best interests of the Company. For purposes of his
employment agreement, “
Material Adverse
Effect
” means any event,
change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets, liabilities,
business, operations or results of operations of the Company or its
subsidiaries, taken as a whole.
Clark
Moore.
Pacific Energy
Development, our wholly-owned subsidiary, has entered into an
employment agreement, dated June 10, 2011, as amended January 11,
2013, with Clark Moore, its Executive Vice President, Secretary and
General Counsel, pursuant to which, effective June 1, 2011, Mr.
Moore has been employed by Pacific Energy Development, and since
the Pacific Energy Development merger, with a current annual
base salary of $250,000, and a target annual cash bonus of
between 20% and 40% of his base salary, awardable by the board of
directors in its discretion. In addition, Mr. Moore’s
employment agreement includes, among other things, severance
payment provisions that would require the Company to make lump sum
payments equal to 18 months’ salary and target bonus to Mr.
Moore in the event his employment is terminated due to his death or
disability, terminated without “
Cause
”
or if he voluntarily resigns for “
Good
Reason
” (36 months in
connection with a “
Change of
Control
”), and
continuation of benefits for up to 36 months (48 months in
connection with a “
Change of
Control
”), as such terms
are defined in the employment agreement. The employment agreement
also prohibits Mr. Moore from engaging in competitive activities
during and following termination of his employment that would
result in disclosure of our confidential information, but does not
contain a general restriction on engaging in competitive
activities.
The definitions of “
Cause
”
(including the applicable cure provisions associated therewith),
“
Material Adverse
Effect
”,
“
Good
Reason
” and
“
Change of
Control
” in Mr.
Moore’s employment agreement are substantially the same as in
Mr. Peterson’s employment agreement as discussed
above.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except as discussed
below, referenced below, or otherwise disclosed above under
“
Executive
Compensation
” and “
Executive Employment
Agreements
”, beginning on pages 16 and 23,
respectively, and as described in proposal 2, relating to the MIEJ
Settlement Agreement and related transactions, beginning on page
40, there have been no transactions since January 1, 2013, and
there is not currently any proposed transaction, in which the
Company was or is to be a participant, where the amount involved
exceeds $120,000, and in which any officer, director, or any
stockholder owning greater than five percent (5%) of our
outstanding voting shares, nor any member of the above referenced
individual’s immediate family, had or will have a direct or
indirect material interest.
Agreements with Related Persons
MIE Holdings Corporation
MIE
Holdings Corporation, which we refer to as MIE Holdings, an
independent upstream onshore oil company operating in China and
abroad, may have formerly been deemed to be an affiliate of us due
to its 80% interest held in Condor Energy Technology, LLC, which we
refer to as Condor, a limited liability company in which we
held a 20% interest until we divested our full interest in Condor
to MIE Holdings in February 2015, and because MIE Holdings
previously held a 50% interest in White Hawk Petroleum, LLC, which
we refer to as White Hawk, which we acquired from MIE Holdings in
December 2013 and then divested in full in February 2014. MIE
Holdings also currently holds 1,333,334 shares of our common
stock.
MIEJ Warrants
On June 30, 2014, we re-issued two warrants to MIE
Jurassic Energy Corporation (“
MIEJ
”),
which we refer to as MIEJ (a subsidiary of MIE Holdings), in order
to extend their exercise terms through June 30, 2015 (the
“
Warrants
”).
The Warrants were originally issued on May 23, 2012 to MIEJ and
expired unexercised pursuant to their terms on May 23, 2014. These
two re-issued Warrants had the same terms and conditions as the
originally issued warrants, including being exercisable on a
cash-only basis for 166,667 shares of common stock of the Company
at $3.75 per share and for 166,667 shares of common stock of the
Company at $4.50 per share. The Warrants were re-issued in
consideration of the Company’s continued relationship with,
and financial support from, MIEJ, and had no net effect on the
Company’s fully-diluted capital stock (after taking into
account the extension) as they simply extended the exercise term of
the previously issued warrants. These Warrants expired unexercised
on June 30, 2015.
MIEJ Settlement Agreement
As described below in greater detail under
proposal 2, beginning on page 40, on February 19, 2015, we and
Pacific Energy Development Corp., which we refer to as PEDCO,
entered into a Settlement Agreement and related agreements with
MIEJ, and undertook various transactions, which, in summary, had
the net effect of reducing approximately $9.4 million in aggregate
liabilities due from PEDCO to MIEJ and Condor to $4.925
million.
Golden Globe Energy (US), LLC
On
February 23, 2015, we entered into several transactions with Golden
Globe Energy (US), LLC, which we refer to as GGE, which
beneficially owns more than 5% of our outstanding voting stock due
to its beneficial ownership of 3,409,445 shares of our common stock
and 66,625 shares of our Series A Convertible Preferred Stock, as
described below.
On March 7, 2014, in connection with our
acquisition of certain oil and gas interests in the Wattenberg and
Wattenberg Extension in the Denver-Julesberg Basin
(“
D-J
Basin
”), which we
acquired from Continental Resources, Inc., which we refer to as
Continental and the Continental Acquisition, we entered into a $50
million 3-year term debt facility with and issued those certain
promissory notes in favor of BRe BcLIC Primary, Bre BCLIC Sub, BRe
WINIC 2013 LTC Primary, BRe WNIC 2013 LTC Sub, and RJC, as
investors (the “
Senior Loan
Investors
”), and BAM
Administrative Services LLC, as agent for the investors, and any
related collateral documents (collectively, the
“
Senior
Loan
”). On March 19,
2015, BRe WNIC 2013 LTC Primary transferred a portion of its Senior
Loan to HEARTLAND Bank, and effective April 1, 2015, BRe BCLIC
Primary transferred its Senior Loan to Senior Health Insurance
Company of Pennsylvania (“
SHIP
”),
with each of HEARTLAND Bank and SHIP becoming a
“
Senior Loan
Investor
” upon such
dates. As part of the transaction, GGE (formerly Golden Globe
Energy Corp.) (an affiliate of RJ Credit LLC) acquired an equal
13,995 net acre position in the assets the Company acquired from
Continental (the “
GGE
Assets
”), thereby making
GGE an equal working interest partner with us in the development of
these newly acquired assets, and allowing us to undertake a more
aggressive drilling and development program. On February 23, 2015,
we completed the acquisition of the GGE Assets from GGE pursuant to
the GGE Acquisition, thereby reunifying the assets we originally
acquired in the Continental Acquisition, and we assumed
approximately $8.35 million of junior subordinated debt from GGE
that GGE incurred to develop the GGE Assets subsequent to
GGE’s acquisition of them from us in March 2014 and owed to
RJ Credit LLC
.
On February 23, 2015, we entered into and closed
the transactions contemplated by a Purchase and Sale Agreement (the
“
Purchase
Agreement
”) with GGE,
pursuant to which the Company, through Red Hawk, acquired from GGE
all of its rights, title and interest in approximately 12,977 net
acres in the D-J Basin located almost entirely within Weld County,
Colorado, including acreage located in the prolific Wattenberg core
area, and interests in 53 gross (7.8 net) wells with an estimated
current net daily production of approximately 500 barrels of oil
equivalent per day as of February 7, 2015, which we refer to as the
GGE Assets, and which acquisition we refer to as the GGE
Acquisition. All of GGE’s leases and related rights, oil and
gas and other wells, equipment, easements, contract rights, and
production are included in the purchase, the majority of which
assets were originally conveyed to GGE’s
predecessor-in-interest, RJ Resources Corp., by us in March 2014 in
connection with the Continental Acquisition.
As consideration for the acquisition of the GGE
Assets, the Company (i) issued to GGE 3,375,000 restricted shares
of common stock and 66,625 restricted shares of the Company’s
then newly-designated Amended and Restated Series A Convertible
Preferred Stock (the “
Series A
Preferred
”), (ii) assumed
approximately $8.35 million of junior subordinated debt from GGE
(the “
Junior
Debt
”) pursuant to an
Assumption and Consent Agreement and an Amendment to Note and
Security Agreement, and (iii) provided GGE with a one-year option
to acquire the Company’s interest in its Kazakhstan
opportunity for $100,000 pursuant to a Call Option Agreement, which
expired unexercised.
The
Purchase Agreement contained customary representations, warranties,
covenants and indemnities by the parties thereto. In addition, the
Company provided GGE, as the sole stockholder of our Series A
Preferred Stock, the right pursuant to the Purchase Agreement and
the certificate of designation designating the Series A Preferred,
upon notice to the Company, to appoint designees to fill two (2)
seats on the board of directors, one of which must be an
independent director as defined by applicable rules, and the
exclusive right, voting the Series A Preferred Stock as sole
stockholder thereof, separately as a single class, to elect such
two (2) nominees to the board of directors. On July 15, 2015, at
the request of GGE the board of directors of the Company increased
the number of members of the board of directors from three to four,
pursuant to the power provided to the board of directors in the
Company’s Bylaws, and appointed David Z. Steinberg as a
member of the board of directors to fill the newly created vacancy,
also pursuant to the power provided to the board of directors in
the Company’s Bylaws. At the time of appointment, the board
of directors made the affirmative determination that Mr. Steinberg
was ‘independent’ pursuant to applicable NYSE MKT and
Securities and Exchange Commission rules and regulations. The board
of directors appointment rights continue until GGE no longer holds
any of the Tranche One Shares.
The Series A Preferred stock can be converted into
shares of the Company’s common stock on a 1,000:1 basis,
subject to a 9.9% ownership blocker. GGE, as the sole holder of the
Company’s Series A Preferred, has the right to appoint two
designees to the Company’s board of directors for as long as
GGE continues to hold 15,000 shares of Series A Preferred
designated as “
Tranche One
Shares
” under the
Company’s Amended and Restated Certificate of Designations of
PEDEVCO Corp. Establishing the Designations, Preferences,
Limitations, and Relative Rights of its Series A Convertible
Preferred Stock. Mr. Steinberg is one of the Series A Preferred
shareholder designees to the board of directors in connection with
such right, provided that GGE has not designated any further
members of the board of directors at this time.
The Assumption and Consent Agreement provides
that, as of the effective date of the acquisition, the Company
assumed all of GGE’s rights, obligations and liabilities
under that certain Note and Security Agreement, dated April 10,
2014 (the “
GGE
Note
”), as amended by
that certain Amendment to Note and Security Agreement, dated as of
the Effective Date (the GGE Note, as amended, the
“
Amended GGE
Note
”). The lender under
the Amended GGE Note is RJ Credit LLC (“
RJC
”), and the Amended GGE Note has an
aggregate principal balance of $8,353,000. The Amended GGE Note is
due and payable on December 31, 2017, and bears interest at the per
annum rate of twelve percent (12%) (24% upon an event of default),
which interest is payable monthly in cash by the Company. The
Amended GGE Note is subordinate and subject to the terms and
conditions of the Senior Loan, as well as any future secured
indebtedness of the Company from a lender with an aggregate
principal amount of at least $20,000,000
(“
Future
PEDEVCO Loan
”). Should
the Company repay the Senior Loan and replace such indebtedness
with a Future PEDEVCO Loan, then, upon the reasonable request of
such senior lender, RJC agreed to further amend the Amended GGE
Note to adjust the frequency of interest payments or to eliminate
such payments and replace the same with the accrued interest to be
paid at maturity.
The
GGE Note contains customary representations, warranties, covenants
and requirements for the Company to indemnify RJC and its
affiliates, related parties and assigns. The GGE Note also includes
various covenants (positive and negative) binding the Company,
including requiring that the Company provide RJC with quarterly
(unaudited) and annual (audited) financial statements, restricting
the Company’s creation of liens and encumbrances, or sell or
otherwise disposing, the Collateral (as defined therein). RJC is
one of the lenders under the Senior Loan, and is an affiliate of
GGE.
On April 7, 2016, we entered into a Letter
Agreement, dated April 1, 2016 (the “
Letter
Agreement
”), with the
Senior Loan Investors. The Letter Agreement extended by one (1)
month, through April 30, 2016, the deferral of the payment of
interest and principal due under the promissory notes evidencing
the Senior Loan (the “
Senior
Notes
”) and the Note and
Security Agreement, dated April 10, 2014, as amended on February
23, 2015, issued by the Company to RJ Credit LLC (the
“
RJC Junior
Note
,” and together with the Senior Notes, the
“
Notes
”)(the
“
Deferral
Extension
”), entered into
with the Lenders on August 28, 2015, as amended on January 29, 2016
and March 7, 2016 (the “
Original Deferral
Agreements
”).
Specifically, pursuant to the Letter Agreement,
all the Lenders agreed to: (i) further defer until the maturity
date of their Senior Notes the mandatory principal payments that
would otherwise be due and payable by the Company to them on
payment dates occurring through April 30, 2016; (ii) defer until
the maturity date of their Senior Notes and the RJC Junior Note all
of the interest payments that would otherwise be due and payable by
the Company to them in April 2016, with all interest amounts
deferred being added to principal on the first business day of the
month following the month in which such deferred interest is
accrued; and (iii) delay the issuance of any
“
Subsequent
Warrants
” (as defined in
the Original Deferral Agreements) issuable pursuant thereto to
within 30 days of May 1, 2016, subject to NYSE MKT additional
listing approval.
Vesting Agreements with Management
In connection with our entry into a reorganization
agreement with Dome Energy AB and a subsidiary thereto (together,
“
Dome
Energy
”), which
reorganization agreement and related transaction were terminated on
December 29, 2015, each of Mr. Ingriselli, Mr. Peterson, and Mr.
Moore, our then executive officers, entered into Vesting Agreements
on May 21, 2015 (the “
2015 Vesting
Agreements
”) which
delayed the vesting of all of our restricted common stock they held
which was subject to vesting prior to the Dome Energy
reorganization being consummated (the “
2015 Delayed
Vesting
”) until the
earlier of (A) the 2nd business day following either (x)
the closing of the transactions contemplated by the reorganization
agreement with Dome, or (y) our public disclosure of the
termination of the reorganization, or, (B) if the Dome Energy
reorganization did not close on or before December 29, 2015, then
January 7, 2016. Because the contemplated merger with Dome Energy
did not close on or before December 29, 2015, the vesting of shares
of restricted common stock held by Messrs. Ingriselli, Peterson and
Moore subject to the 2015 Delayed Vesting was scheduled to occur on
January 7, 2016 in accordance with the terms of such 2015 Vesting
Agreements. However, in connection with our entry into the GOM
Merger Agreement (defined below), on December 29, 2015, as amended
on January 6, 2016, each of Messrs. Ingriselli, Peterson and Moore
entered into new Vesting Agreements with the Company (as amended,
the “
Vesting
Agreements
”), pursuant to
which they each individually agreed that the future vesting of
restricted common stock held by such officers from January 1, 2016
through June 1, 2016 (the “
Delay
Period
”), including all
restricted common stock that was subject to vesting on January 7,
2016 pursuant to the terms of Prior Vesting Agreements, shall be
delayed until the 2nd trading day following the Company’s
public announcement of the “
Vesting Event
,” defined
as the later to occur of the receipt of (x) shareholder approval
for the issuance of the securities issuable to Dome Energy pursuant
to the Dome Energy reorganization and (y) the approval by the NYSE
MKT of the listing of our common stock on the NYSE MKT following
the closing of the Dome Energy reorganization, upon which Vesting
Event all vesting with respect to such shares shall be accelerated
and all such shares shall be fully vested (the
“
Acceleration
”)
(each as defined in the Vesting Agreements). The aggregate number
of shares of restricted common stock subject to the Delay Period is
1,354,000 shares, 519,000 of which are held by Mr. Ingriselli,
481,000 of which are held by Mr. Peterson, and 354,000 of which are
held by Mr. Moore (collectively, the “
Subject
Shares
”). The
Acceleration will occur even if the executives are not then
employees or directors of the Company on such date. Notwithstanding
the above, in the event the GOM Merger Agreement is terminated or
the GOM Merger is not consummated by June 1, 2016 (unless otherwise
agreed upon in writing by the parties to the GOM Merger Agreement),
all the Subject Shares wil
l
vest on the 2nd trading day following the
Company’s public disclosure of the termination of the GOM
Merger (in the event the GOM Merger Agreement is terminated prior
to June 1, 2016), or, in the event the GOM Merger is not terminated
by, or consummated by, June 1, 2016, on June 1, 2016, and the
original vesting terms for all future unvested stock will be
reinstated to the terms in effect prior to the parties’ entry
into the Vesting Agreements. Notwithstanding the above, nothing in
the Vesting Agreements amends or waives any acceleration of vesting
of unvested restricted stock or options currently provided under
any executive officer’s current employment agreement with the
Company, which provides for acceleration upon termination of such
executive’s employment under certain circumstances detailed
therein.
On April 25, 2016 the
Company and each of Mr. Peterson and Mr. Moore, entered into
Amended and Restated Vesting Agreements (the
“
Amended
Vesting Agreements
”), which amend
and restate in their entirety those certain Vesting Agreements
entered into by the Company and each of Messrs. Peterson and Moore
on December 29, 2015, as amended January 6, 2016 (the
“
December
Vesting Agreements
”). Pursuant to
the Amended Vesting Agreements, the Company agreed, effective April
28, 2016, to fully accelerate the vesting of all unvested
restricted Company common stock which each of Messrs. Peterson and
Moore had delayed pursuant to the December Vesting Agreements,
which vesting had been voluntarily delayed for the benefit of the
Company by each executive since May 2015, and reinstate the
original remaining vesting schedules with respect to all other
stock grants received by the Company going forward. As a result of
the Amended Vesting Agreements, on April 28, 2016, Mr. Peterson
vested an aggregate of 481,000 shares of restricted Company common
stock, and Mr. Moore vested an aggregate of 354,000 shares of
restricted Company common stock, the vesting of which had
previously been voluntarily delayed pursuant to the December
Vesting Agreements.
On
August 9, 2016, the Company entered into a Vesting Agreement with
David Z. Steinberg, a member of the Company’s Board of
Directors, pursuant to which, effective July 15, 2016, the Company
and Mr. Steinberg agreed to delay the vesting with respect to
214,286 shares of unvested Company restricted common stock held by
Mr. Steinberg for a period of one year, with the new vesting date
being July 15, 2017.
GOM Holdings Reorganization Agreement
On December 29, 2015, the Company entered into an
Agreement and Plan of Reorganization (as amended to date, the
“
GOM Merger
Agreement
”) with White
Hawk Energy, LLC (“
White
Hawk
”) and GOM Holdings,
LLC (“
GOM
”), a Delaware limited liability company.
The GOM Merger Agreement provides for the
Company’s
acquisition of GOM
through an exchange of certain of the shares of the Company’s
common and preferred stock (the “
Consideration
Shares
”), for 100% of
the limited liability company membership units of GOM (the
“
GOM
Units
”), with the GOM
Units being received by White Hawk and GOM receiving the
Consideration Shares from the Company (the
“
GOM
Merger
” or
“
Merger
”).
The Merger is subject
to various closing conditions as described below and as set forth
in greater detail in the GOM Merger Agreement. At the closing of
the Merger, (i) GOM will transfer the GOM Units to White Hawk,
solely in exchange for the Consideration Shares, and (ii) White
Hawk will continue as a wholly-owned subsidiary of the Company and
will continue to carry on the business of GOM. In exchange for the
transfer of GOM Units to White Hawk, the Company will issue to the
members of GOM, the Consideration Shares as follows: (x) an
aggregate of 1,551,552 shares of the Company’s restricted
common stock (the “
Common
Stock
”) and 698,448
restricted shares of the Company’s to-be-designated Series B
Convertible Preferred Stock (the “
Series
B Preferred
” (described in
greater detail below)), and (y) will assume approximately $125
million of subordinated debt from GOM’s existing lenders and
a $30 million undrawn letter of credit backing certain offshore
asset retirement obligations (the “
GOM
Debt
”), which GOM
Debt is anticipated to be restructured on terms and conditions
mutually acceptable to the Company and GOM prior to the closing of
the Merger.
At or prior to the closing of the Merger, we will
file and cause to be effective a new Certificate of Designations of
PEDEVCO Corp. Establishing the Designations, Preferences,
Limitations, and Relative Rights of its Series B Convertible
Preferred Stock (the “
Certificate of
Designation
”), which will
create 698,448 shares of newly-designated Series B Preferred, all
of which will be issued to the members of GOM at closing pro rata
with their ownership of GOM. The Series B Preferred will (i) have a
liquidation preference senior to all of the Company’s common
stock and Series A Convertible Preferred Stock equal to $250 per
share (the “
Liquidation
Preference
”), (ii) accrue
an annual dividend equal to 10% of the Liquidation Preference,
payable annually from the date of issuance (the
“
Dividend
”),
(iii) vote together with the common stock on all shareholder
matters, with each share having one (1) vote, and (iv) not be
convertible into common stock of the Company until both the
shareholder approval for the issuances (“
Shareholder
Approval
”) and NYSE MKT
approval for the continued listing of our common stock on the NYSE
MKT following the closing are received (“
NYSE MKT
Approval
”). Upon the
Company’s receipt of the Shareholder Approval and NYSE MKT
Approval, (x) the Series B Preferred shall automatically cease
accruing Dividends and all accrued and unpaid Dividends are
automatically forfeited and forgiven in their entirety, (y) the
Liquidation Preference of the Series B Preferred is reduced to
$0.001 per share from $250 per share, and (z) each share of Series
B Preferred shall be convertible into common stock on a 1,000:1
basis (the “
Series B
Conversion
”), either (A)
automatically upon the determination of the Company’s Board
of Directors in its sole discretion (“
Company
Conversion
”), or (B) at
the option of the holder at any time (“
Holder
Conversion
”), provided
that no Holder Conversion is allowed to the extent the holder
thereof would beneficially own more than 9.99% of the
Company’s Common Stock or voting stock.
The
Merger is subject to customary closing conditions, including (1)
approval of the Agreement by the Board of Directors of the Company,
the sole Manager and member of White Hawk, the Board of Managers of
GOM, and the members of GOM, (2) receipt of required regulatory
approvals, (3) the absence of any law or order prohibiting the
consummation of the Merger, (4) approval of the NYSE MKT for the
issuance of the common stock and shares of common stock issuable
upon conversion of the Series B Preferred to the members of GOM at
closing, and (5) the effectiveness of the Certificate of
Designation. Each party’s obligation to complete the Exchange
is also subject to certain additional customary conditions,
including (a) subject to certain exceptions, the accuracy of the
representations and warranties of the other party, (b) performance
in all material respects by the other party of its obligations
under the GOM Merger Agreement, (c) completion of the restructuring
of each of the Company’s and GOM’s existing debt,
respectively, to the other party’s satisfaction, and (d) each
of the Company and GOM furnishing the other with evidence that each
has entered into amended employment agreements with certain of each
party’s employees as required and in forms acceptable to the
other party. In addition, each of the Company and GOM agreed to pay
all costs and expenses incurred by them in connection with the GOM
Merger Agreement.
The
GOM Merger Agreement also includes customary termination provisions
for both the Company and GOM. Specifically, and subject to the
terms of the GOM Merger Agreement, the agreement can be terminated
by
either
party in the event the Closing has not occurred by February 29,
2016, or if any representation or warranty of the other party
contained in the GOM Merger Agreement shall not be true in all
material respects, subject to a right to cure by the breaching
party.
GOM is majority owned and controlled by Platinum
Partners, an affiliate of Platinum Management (NY) LLC
(“
PM
LLC
”), a New York based
investment firm which is the employer of Mr. David Z. Steinberg,
who serves as one of the members of the Company’s Board of
Directors and is nominated to be re-appointed as a member of the
Board of Directors at the annual meeting. PM LLC is also an advisor
to the entity which owns RJ Credit LLC (“
RJC
”), who has loaned the Company approximately
$5.9 million to date in principal in connection with the
Company’s March 2014 senior note funding. In connection with
the March 2014 funding the Company also has the right, from time to
time, subject to the terms and conditions of the Note Purchase
Agreement relating to the March 2014 senior funding, to request
additional loans from RJC, of up to an additional $13.5 million in
funding.
PM LLC is also an advisor to the entity that
owns
GGE
, a greater than 5% stockholder of the Company,
from whom the Company acquired approximately 12,977 net acres of
oil and gas properties and interests in 53 gross wells located in
the Denver-Julesburg Basin, Colorado in February 2015, in
connection with which the Company assumed approximately $8.35
million of subordinated notes payable owed by GGE to RJC, issued to
GGE 3,375,000 restricted shares of the Company’s common stock
(representing approximately 9.9% of our then outstanding shares of
common stock), and issued to GGE 66,625 restricted shares of the
Company’s then newly-designated Amended and Restated Series A
Convertible Preferred Stock (the “
Series A
Preferred
”), which can be
converted into shares of the Company’s common stock on a
1,000:1 basis, subject to a 9.99% ownership blocker. GGE, as the
sole holder of the Company’s Series A Preferred, has the
right to appoint two designees to the Company’s Board of
Directors for as long as GGE continues to hold 15,000 shares of
Series A Preferred designated as “
Tranche One
Shares
” under the
Company’s Amended and Restated Certificate of Designations of
PEDEVCO Corp. Establishing the Designations, Preferences,
Limitations, and Relative Rights of its Series A Convertible
Preferred Stock. Mr. Steinberg is one of the Series A
Preferred’s designees to the Board of Directors in connection
with such right, provided that GGE has not designated any further
members of the Board of Directors at this time.
On
February 29, 2016, the parties entered into an amendment to the GOM
Merger Agreement, which amended the merger agreement in order to
provide GOM additional time to meet certain closing conditions
contemplated by the GOM Merger Agreement. The parties entered into
the Amendment to extend the deadline for closing the merger and the
date after which either party could terminate the GOM Merger
Agreement if the merger had not yet been consummated, from February
29, 2016 to no later than April 15, 2016. On April 25, 2016, the
parties further amended the GOM Merger Agreement to eliminate the
April 15, 2016, closing deadline.
Senior Debt Restructuring
On May 12, 2016, we entered into an Amended and
Restated Note Purchase Agreement (the “
Amended
NPA
”), with SHIP (as
successor-in-interest to BRe BCLIC Primary), BRe BCLIC Sub, BRe
WINIC 2013 LTC Primary, BRe WNIC 2013 LTC Sub, Heartland Bank,
BHLN-Pedco Corp. (“
BHLN
”),
BBLN-Pedco Corp. (“
BBLN
”),
and RJ Credit LLC (“
RJC
” and together with BHLN and BBLN, the
“
Tranche A
Investors
”)
(collectively, the “
Lenders
”),
and BAM Administrative Services LLC (the “
Agent
”),
as agent for the Lenders. The Amended APA amended and restated that
certain Note Purchase Agreement, dated March 7, 2014 (as amended
and modified to date, the “
Original
NPA
”), pursuant to which
the Company issued Senior Secured Promissory Notes to each of the
Lenders (collectively, the “
Tranche B
Notes
”). RJC is also a
party to that certain Note and Security Agreement, dated April 10,
2014, as amended on February 23, 2015, issued by the Company to RJC
(the “
RJC Junior
Note
”).
Pursuant
to the Amended NPA, the Lenders and the Agent agreed to amend and
restate the Original NPA to, among other things:
●
Create
new “
Tranche A
Notes
,” in substantially the same form and with
similar terms as the Tranche B Notes, except as discussed below
consisting of a term loan issuable in tranches with a maximum
aggregate principal amount of $25,960,000, with borrowed funds
accruing interest at 15% per annum, and maturing May 11, 2019 (the
“
Tranche A Maturity
Date
”) (the “
Tranche A Notes
,” and
together with the Tranche B Notes, the “Senior
Notes”);
●
Capitalize all
accrued and unpaid interest under the Tranche B Notes as a term
loan with a current aggregate outstanding principal balance of
$39,064,530.36, maturing June 11, 2019 (July 11, 2019, with respect
to the Tranche B Note issued to RJC) (the “
New Tranche B Maturity Date
”), compared to the original maturity dates of the notes sold
under the Original NPA being March 7, 2017;
●
Remove
the provisions of the notes issued in connection with the Original
NPA (which were amended and restated in the form of the Tranche B
Notes) which required us to make mandatory prepayments from our
revenues, replacing them with a Net Revenue Sweep as described
below; and
●
Provide
that interest on the Tranche B Notes will continue to accrue at the
rate of fifteen percent (15%) per annum, but through December 31,
2017 shall be deferred, due and payable on the New Tranche B
Maturity Date, with all interest amounts deferred being added to
principal on the first business day of the month following the
month in which such deferred interest is accrued on the Tranche B
Notes and added to principal, provided that following December 31,
2017, all interest accrues and is paid monthly in arrears in cash
under the Tranche B Notes.
The
Tranche A Notes are substantially similar to the Tranche B Notes,
except that such notes are senior to the Tranche B Notes, accrue
interest until maturity (compared to the Tranche B Notes which
provide for interest to be paid monthly beginning on January 1,
2018), and have priority to the payment of Monthly Net Revenues as
defined and discussed below.
On the Closing Date, the Tranche A Investors
loaned the Company their pro rata share of an aggregate of
$6,422,124 (the “
Initial Tranche A
Funding
”). The Initial
Tranche A Funding net proceeds are to be used by the Company to (i)
fund up to $5.1 million due to a third party operator for drilling
and completion expenses related to interests in eight (8) wells
acquired by the Company in the Wattenberg Area of Weld County,
Colorado, (ii) pay up to $750,000 of the Company’s past due
payables, (iii) pay $444,681 of unpaid interest payments due to
Heartland Bank under its Tranche B Note through February 29, 2016,
and (iv) pay fees and expenses incurred in connection with the
transactions contemplated by the Amended NPA and related
documents.
Subject to the terms and conditions of the Amended
NPA, the Company may request each Tranche A Investor, from time to
time prior to the Tranche A Maturity Date, to advance to the
Company additional amounts of funding (each such advance, a
“
Subsequent Tranche A
Funding
”; the Initial
Tranche A Funding and the Subsequent Tranche A Fundings,
collectively, the “
Investor Tranche A
Fundings
” and each,
individually, an “
Investor Tranche A
Funding
”), provided that:
(i) the Company may not request a Subsequent Tranche A Funding more
than one time in any calendar month; (ii) Agent shall have received
a written request from the Company at least fifteen (15) business
days prior to the requested date of such advance (the
“
Advance
Request
”); (iii) no Event
of Default (as defined in the Senior Notes) or event that with the
passage of time or the giving of notice, or both, would become an
Event of Default (a “
Default
”)
shall have occurred and be continuing or would result therefrom;
and (iv) the Company shall provide to Agent such documents,
instruments, certificates and other writings as Agent shall
reasonably require in its sole and absolute discretion. The
advancement of all or any portion of the Subsequent Tranche A
Funding is in the sole and absolute discretion of Agent and the
Investors and no Investor is obligated to fund all or any part of
the Subsequent Tranche A Funding. Each Subsequent Tranche A Funding
shall be in a minimum amount of $500,000 and integral multiples of
$100,000 in excess thereof. The aggregate amount of Subsequent
Tranche A Fundings made by the Investors under the Amended NPA
shall not exceed $18,577,876 and any Subsequent Tranche A Funding
repaid may not be reborrowed.
In addition, subject to the terms and conditions
of the Amended NPA, RJC has agreed to loan to the Company $240,000,
within thirty (30) days of the Closing Date and within thirty (30)
days of each of July 1, 2016, October 1, 2016 and January 1, 2017
(collectively, the “
RJC
Fundings
” and each,
individually, an “
RJC
Funding
” and collectively
with the Investor Tranche A Fundings, the
“
Fundings
”),
provided that no Event of Default or Default shall have occurred
and be continuing or would result therefrom. The aggregate amount
of the RJC Fundings made by RJC under the Amended NPA shall not
exceed $960,000 and any Funding repaid may not be reborrowed. To
guarantee RJC’s obligation in connection with the RJC
Fundings as required under the Amended NPA, Golden Globe Energy
(US), LLC (“
GGE
”), an affiliate of RJC, entered into a
Share Pledge Agreement with the Company, dated May 12, 2016 (the
“
GGE Pledge
Agreement
”), pursuant to
which GGE agreed to pledge an aggregate of 10,000 shares of Company
Series A Convertible Preferred Stock held by GGE (convertible into
10,000,000 shares of Company common stock), which pledged shares
are subject to automatic cancellation and forfeiture based on a
schedule set forth in the GGE Share Pledge Agreement, in the event
RJC fails to meet each of its RJC Funding obligations pursuant to
the Amended NPA, subject to the terms and conditions of the GGE
Pledge Agreement. To date, RJC has not met its RJC Funding
obligations under the Amended NPA and the Company is entitled to
cancel and forfeit 7,500 shares of the Company’s Series A
Convertible Preferred Stock held by GGE (convertible into 7,500,000
shares of Company common stock) pursuant to the terms of the GGE
Pledge Agreement, which shares have not been cancelled as of the
date of this proxy and are still eligible to be voted by GGE at the
annual meeting. GGE also currently holds approximately 9.9% of our
issued and outstanding common stock, all of our issued and
outstanding Series A Convertible Preferred Stock (which is
convertible into 66.6 million shares of our common stock in
aggregate, subject to certain restrictions and beneficial ownership
limitations), and has the right to appoint two (2) designees to our
Board of Directors, one of which must be an independent director as
defined by applicable rules, and one of which directors, David Z.
Steinberg, was appointed to the Board of Directors in July 2015, as
GGE’s designee.
As additional consideration for the entry into the
Amended NPA and transactions related thereto, the Company has
granted to BHLN and BBLN, warrants exercisable for an aggregate of
5,962,800 shares of common stock of the Company (warrants
exercisable for 2,981,400 shares of common stock each)(the
“
Investor
Warrants
”), which
warrants have a three (3) year term, are transferrable, and are
exercisable on a cashless basis at any time for cash at $0.25 per
share, subject to receipt of additional listing approval of such
underlying shares of common stock from the NYSE MKT. The Investor
Warrants include a beneficial ownership limitation that prohibits
the exercise of the Investor Warrants to the extent such exercise
would result in the holder thereof, together with its affiliates,
holding more than 9.9% of the Company’s outstanding voting
stock (the “
Blocker
Provision
”). Other than
the Investor Warrants, no additional warrants exercisable for
common stock of the Company are due, owing, or shall be granted to
the Lenders pursuant to the Original NPA, as amended to date. In
addition, warrants exercisable for an aggregate of 349,111 shares
of the Company’s common stock at an exercise price of $1.50
per share and warrants exercisable for an aggregate of 1,201,004
shares of the Company’s common stock at an exercise price of
$0.75 per share previously granted by the Company to certain of the
Lenders on September 10, 2015 in connection with prior interest
payment deferrals have been amended and restated to provide that
all such warrants are exercisable on a cashless basis and to
include a Blocker Provision (the “
Amended and Restated
Warrants
”).
Pursuant to the terms of the Amended NPA, the
Company also agreed to (A) provide to the Agent and the Investors a
monthly projected general and administrative expense report (the
“
Projected
G&A
”) and a monthly
comparison report of the Projected G&A provided for the
preceding month, with an explanation of any variances, provided
that in no event shall such variances exceed $150,000, and (B) pay
to the Agent within two (2) business days following the end of each
calendar month all of the Company’s oil and gas revenue
received by the Company during such month (the
“
Net Revenue
Sweep
”), less (i) lease
operating expenses, (ii) interest payments due to Investors under
the Senior Notes, (iii) general and administrative expenses not to
exceed $150,000 per month unless preapproved by the Agent (the
“
G&A
Cap
”), and (iv)
preapproved extraordinary expenses (“
Monthly Net
Revenues
”). Revenues paid
to the Agent through the Net Revenue Sweep are applied first to the
repayment of amounts due under the Tranche A Notes until such notes
are paid in full and then to the repayment of amounts due under the
Tranche B Notes.
The amount outstanding under the Senior Notes is
secured by a first priority security interest in all of the
Company’s and its subsidiaries’ assets, property, real
property, intellectual property, securities and proceeds therefrom,
granted in favor of the Agent for the benefit of the Lenders,
pursuant to a Security Agreement and a Patent Security Agreement,
each entered into as of March 7, 2014, as subsequently amended on
May 12, 2016 through entry into a First Amendment to Security
Agreement and First Amendment to Patent Security Agreement (the
“
First Amendment to
Security Agreement
” and
“
First Amendment to
Patent Security Agreement
,” respectively).
Additionally, the Agent, for the benefit of the Lenders, was
granted a mortgage and security interest in all of the
Company’s and its subsidiaries real property as located in
the State of Colorado and the State of Texas pursuant to (i) a
Leasehold Deed of Trust, Fixture Filing, Assignment of Rents and
Leases, and Security Agreements, dated March 7, 2014, as amended
May 12, 2016, filed in Weld County and Morgan County, Colorado; and
(ii) a Mortgage, Deed of Trust, Security Agreement, Financing
Statement and Assignment of Production to be filed in Matagorda
County, Texas (collectively, the “
Amended
Mortgages
”).
Additionally, the Company’s obligations
under the Notes, Amended NPA and related agreements were guaranteed
by the Company’s direct and indirect subsidiaries, Pacific
Energy Development Corp., White Hawk Petroleum, LLC
(“
White
Hawk
”), Pacific Energy
& Rare Earth Limited, Blackhawk Energy Limited, Pacific Energy
Development MSL, LLC and Red Hawk Petroleum, LLC pursuant to a
Guaranty Agreement, entered into on March 7, 2014, as subsequently
amended on May 12, 2016 through entry into a First Amendment to
Guaranty Agreement (the “
First Amendment to
Guaranty Agreement
”).
Other
than as described above, the terms of the Amended NPA (including
the covenants and obligations thereunder) are substantially the
same as the Original NPA, and the terms of the Tranche A Notes and
Tranche B Notes (including the events of default, interest rates
and conditions associated therewith) are substantially the same as
the original notes sold pursuant to the terms of the Original
NPA.
Junior Debt Restructuring
On May 12, 2016, the Company entered into an
Amendment No. 2 to Note and Security Agreement with RJC (the
“
Second
Amendment
”), pursuant to
which the Company and RJC agreed to amend the RJC Junior Note to
(i) capitalize all accrued and unpaid interest under the RJC Junior
Note as of the date of the parties entry into the Second Amendment,
and add it to note principal, making the current outstanding
principal amount of the RJC Junior Note $9,379,432, (ii) extend the
“
Termination
Date
” thereunder (i.e.,
the maturity date) from December 31, 2017 to July 11, 2019, (iii)
provide that all future interest accruing under the RJC Junior Note
is deferred, due and payable on the Termination Date, with all
future interest amounts deferred being added to principal on the
first business day of the month following the month in which such
deferred interest is accrued, and (iv) subordinate the RJC Junior
Note to the Senior Notes.
As additional consideration for RJC’s
agreement to enter into the Second Amendment, the Company entered
into a Call Option Agreement with GGE, an affiliate of RJC, dated
May 12, 2016 (the “
GGE Option
Agreement
”), pursuant to
which the Company provided GGE an option to purchase 23,182,880
common shares of Caspian Energy Inc., a British Columbia
corporation, held by the Company, upon payment of $100,000 by GGE
to the Company, which option expires on the
“
Termination
Date
” of the RJC Junior
Note, as amended, as described above, currently July 11, 2019. The
Company originally issued an option to GGE in February 2015 to
acquire the Company’s interest in these shares in connection
with the Company’s acquisition of certain producing oil and
gas assets from GGE, which option expired unexercised in February
2016, as more fully described above under
“
Certain
Relationships and Related Party Transactions
” -
“
Agreements with
Related Persons
” – “
Golden Globe Energy (US),
LLC
”, beginning on page
25.
Consulting Agreement and Separation Agreement
In connection with the Company’s pending
merger with GOM as described above, and the Company’s efforts
to reduce its general and administrative expenses, the
Company’s Chairman and Chief Executive Officer, Frank C.
Ingriselli, agreed to retire from the Company and step down from
the offices of Chief Executive Officer and Executive Chairman of
the Company and all of its subsidiaries, effective April 30, 2016.
Mr. Ingriselli continued as the non-executive Chairman of the
Company’s Board of Directors, and continued to work with the
Company in a transitional consulting capacity for a period of three
(3) months commencing May 1, 2016 (the “
Transition
Period
”) through his
wholly-owned consulting firm, Global Ventures Investments Inc.
(“
GVEST
”),
pursuant to a Consulting Agreement dated April 25, 2016, entered
into by and between the Company and GVEST (the
“
GVEST Consulting
Agreement
”). Pursuant to
the Consulting Agreement, through GVEST Mr. Ingriselli provided the
Company with oil and gas development and strategic consulting
services through the Transition Period in exchange for a lump sum
payment of $150,000. In addition, the Company and Mr. Ingriselli
entered into an Employee Separation and Release dated April 25,
2016 (the “
Separation
Agreement
”), pursuant to
which Mr. Ingriselli agreed to (i) waive all severance benefits to
which he is entitled under his Executive Employment Agreement dated
June 10, 2011, as amended to date (the “
Ingriselli Employment
Agreement
”), including,
but not limited to, waiver of any payments by the Company to Mr.
Ingriselli of a lump sum payment equal to up to four (4)
years’ salary and 30% bonus, and continued medical benefits
for up to four (4) years, in the event of Mr. Ingriselli’s
termination under certain circumstances, (ii) waive any and all
accrued and unpaid vacation time, sick time and paid time off,
equal in value to approximately $58,000, and (iii) fully-release
the Company from all claims, in exchange for the Company agreeing
to (x) fully accelerate the vesting of all of Mr.
Ingriselli’s unvested options exercisable for 391,000 shares
of Company common stock, (y) allow Mr. Ingriselli to transfer all
1,496,500 shares of his unvested restricted Company common stock to
GVEST and then fully accelerate the vesting of the same, and (z)
extend the exercise period for all of Mr. Ingriselli’s
options to purchase Company common stock for a period of five (5)
years from the date of Mr. Ingriselli’s termination of
employment with the Company.
Review and Approval of Related Party Transactions
We have not adopted
formal policies and procedures for the review, approval or
ratification of transactions, such as those described above, with
our executive officer(s), director(s) and significant stockholders,
provided that it is our policy that any and all such transactions
are presented and approved by the board and future material
transactions between us and members of management or their
affiliates shall be on terms no less favorable than those available
from unaffiliated third parties.
In addition, our
Code of Ethics (described above under “
Code of Ethics
” on page
13), which is applicable to all of our employees, officers and
directors, requires that all employees, officers and directors
avoid any conflict, or the appearance of a conflict, between an
individual’s personal interests and our
interests.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of
the Exchange Act requires our executive officers and directors and
persons who own more than 10% of a registered class of our equity
securities to file with the SEC initial statements of beneficial
ownership, reports of changes in ownership and annual reports
concerning their ownership in our common stock and other equity
securities, on Form 3, 4 and 5 respectively. Executive officers,
directors and greater than 10% stockholders are required by the SEC
regulations to furnish us with copies of all Section 16(a) reports
they file.
Based solely on our
review of the copies of such reports received by us and on written
representation by our officers and directors regarding their
compliance with the applicable reporting requirements under Section
16(a) of the Exchange Act, we believe that with respect to the
fiscal year ended December 31, 2015, our directors, executive
officers and 10% stockholders complied with all Section 16(a)
filing requirements.
Pursuant to SEC
rules, we are not required to disclose in this proxy statement any
failure to timely file a Section 16(a) report that has been
disclosed by us in a prior proxy statement.
PROPOSAL
1
ELECTION
OF DIRECTORS
At the annual
meeting, four directors are to be elected to hold office until the
2017 annual meeting of stockholders and until their respective
successors are duly elected and qualified. The Nominating and
Governance Committee has recommended, and the board of directors
has selected, the following nominees for election: Frank C.
Ingriselli, Adam McAfee and Elizabeth P. Smith, collectively,
the “
non-Series A
Nominees
” and David Z. Steinberg, who has been
nominated by the holder of our Series A Preferred Stock (the
“
Series A
Nominee
”), all of whom, other than Mr. McAfee, are
current members of the board of directors of the Company. David C.
Crikelair, a current member of the board of directors, is not
standing for re-election at the annual meeting. Instead Mr. Adam
McAfee has been nominated by the board of directors to fill the
vacancy left by Mr. Crikelair’s decision not to stand for
re-election. It is also anticipated that the board of directors
will appoint Mr. McAfee to each committee that Mr. Crikelair served
on, and as Chairman of the Audit Committee, provided that he is
appointed as a member of the board of directors at the annual
meeting.
If any nominee for
any reason is unable to serve or for good cause will not serve, the
proxies may be voted for such substitute nominee as the proxy
holder may determine. We are not aware of any nominee who will be
unable to, or for good cause will not, serve as a director. The
Series A Nominee was nominated by GGE, as the sole stockholder of
our Series A Preferred Stock, who has the right pursuant to the
Purchase Agreement and the certificate of designation designating
the Series A Preferred Stock (as described in greater detail above
under “
Certain
Relationships and Related Party Transactions
” -
“
Agreements with
Related Persons
” – “
Golden Globe Energy (US),
LLC
”, beginning on page 25), upon notice to the
Company, to appoint designees to fill two (2) seats on the board of
directors, one of which must be an independent director as defined
by applicable rules, and the exclusive right, voting the Series A
Preferred Stock as sole stockholder thereof, separately as a single
class, to elect such two (2) nominees to the board of directors. To
date, GGE has nominated Mr. Steinberg as its sole nominee on the
board of directors.
The Series A
Nominee is required to immediately resign at the option of the
other members of our board of directors upon such time as the
rights of the Series A Preferred Stock holder to appoint members to
our board of directors expires. For so long as the Series A
Preferred Stock board appointment rights remain in effect, if for
any reason the Series A Nominee resigns or is otherwise removed
from the board of directors, then his or her replacement shall be a
person elected by any remaining Series A Preferred Stock nominee or
the holder of the Series A Preferred Stock.
The Company’s
Nominating Committee has reviewed the qualifications of the
director nominees and has recommended each of the nominees for
election to the Board.
We believe that
each of our directors possesses high standards of personal and
professional ethics, character, integrity and values; an
inquisitive and objective perspective; practical wisdom; mature
judgment; diversity in professional experience, skills and
background and a proven record of success in their respective
fields; and valuable knowledge of our business and industry.
Moreover, each of our directors is willing to devote sufficient
time to carrying out his or her duties and responsibilities
effectively and is committed to serving us and our stockholders.
Set forth below is a brief description of the specific experiences,
qualifications and skills attributable to each of our directors
that led the board of directors, as of the date of this proxy
statement, to its conclusion that such director should serve as a
director of the Company. Director nominee ages set forth below are
as of the record date.
THE
BOARD OF DIRECTORS RECOMMENDS
VOTING
“
FOR
”
EACH OF THE NOMINEES LISTED BELOW.
|
FRANK C. INGRISELLI (Age 61)
CHAIRMAN
Director since July 2012
|
|
|
|
|
|
Mr. Ingriselli has
served as the Chairman of the board of directors since our
acquisition of Pacific Energy Development in July 2012, as our
Chief Executive Officer from July 2012 to May 2016 and as our
President from July 2012 to October 2014. Mr. Ingriselli also
served as the President, Chief Executive Officer, and Director of
Pacific Energy Development since its inception in February 2011
through its July 2012 acquisition by the Company. Mr. Ingriselli
began his career at Texaco, Inc. in 1979 and held management
positions in Texaco's Producing-Eastern Hemisphere Department,
Middle East/Far East Division, and Texaco's International
Exploration Company. While at Texaco, Mr. Ingriselli negotiated a
successful foreign oil development investment contract in China in
1983. In 1992, Mr. Ingriselli was named President of Texaco
International Operations Inc. and over the next several years
directed Texaco's global initiatives in exploration and
development. In 1996, he was appointed President and CEO of the
Timan Pechora Company, a Houston, Texas headquartered company owned
by affiliates of Texaco, Exxon, Amoco and Norsk Hydro, which was
developing an investment in Russia. In 1998, Mr. Ingriselli
returned to Texaco's Executive Department with responsibilities for
Texaco's power and natural gas operations, merger and acquisition
activities, pipeline operations and corporate development. In
August 2000, Mr. Ingriselli was appointed President of Texaco
Technology Ventures, which was responsible for all of Texaco's
global technology initiatives and investments. In 2001, Mr.
Ingriselli retired from Texaco after its merger with Chevron, and
founded Global Venture Investments LLC, which we refer to as GVEST,
an energy consulting firm, for which Mr. Ingriselli continues to
serve as the President and Chief Executive Officer. In February
2016, Mr. Ingriselli founded Blackhawk Energy Ventures Inc., which
we refer to as BEV, an energy consulting firm wholly-owned by him
for which Mr. Ingriselli currently serves as President and Chief
Executive Officer. We believe Mr. Ingriselli's positions with GVEST
and BEV require only an immaterial amount of Mr. Ingriselli's
time and do not conflict with his roles or responsibilities
with our company. In 2005, Mr. Ingriselli co-founded Erin
Energy Corporation (NYSE: ERN) (formerly CAMAC Energy, Inc.) an
independent energy company headquartered in Houston, Texas, and
served as its President, Chief Executive Officer and a member of
its board of directors from 2005 to July 2010.
From 2000 to 2006,
Mr. Ingriselli sat on the board of directors of the Electric Drive
Transportation Association (where he was also Treasurer) and the
Angelino Group, and was an officer of several subsidiaries of
Energy Conversion Devices Inc., a U.S. public corporation engaged
in the development and commercialization of environmental energy
technologies. From 2001 to 2006, he was a Director and Officer of
General Energy Technologies Inc., a “
technology facilitator
”
to Chinese industry serving the need for advanced energy technology
and the demand for low-cost high quality components, and Eletra
Ltd, a Brazilian hybrid electric bus developer. Mr. Ingriselli
currently sits on the Advisory Board of Directors of the Eurasia
Foundation, a Washington D.C.-based non-profit that funds programs
that build democratic and free market institutions in the new
independent states of the former Soviet Union, and since May 2015,
as a non-executive director and Chairman of the Board of Caspian
Energy Inc., an oil and gas exploration company operating in
Kazakhstan.
Mr. Ingriselli
graduated from Boston University in 1975 with a Bachelor of Science
degree in Business Administration. He also earned a Master of
Business Administration degree from New York University in both
Finance and International Finance in 1977 and a Juris Doctor degree
from Fordham University School of Law in 1979.
Mr. Ingriselli
brings to the board of directors over 37 year's experience in the
energy industry. The board of directors believes that Mr.
Ingriselli's experience with our acquired subsidiary Pacific Energy
Development and the insights he has gained from these experiences
will benefit our future plans to evaluate and acquire additional
oil producing properties and that they qualify him to serve as our
director.
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ELIZABETH P. SMITH (Age 65)
CHAIRWOMAN OF THE COMPENSATION COMMITTEE
CHAIRWOMAN OF THE NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE
Director since September 2013
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Ms. Smith joined
our board of directors on September 10, 2013, immediately prior to
the listing of our common stock on the NYSE MKT. Ms. Smith retired
from Texaco Inc. as Vice President-Investor Relations and
Shareholder Services in late 2001 following its merger with Chevron
Corp. Ms. Smith was also the Corporate Compliance Officer for
Texaco and was a member of the Board of Directors of The Texaco
Foundation. Ms. Smith joined Texaco’s Legal Department in
1976. As an attorney in the Legal Department, Ms. Smith handled
administrative law matters and litigation. She served as Chairman
of the American Petroleum Institute’s Subcommittee on
Department of Energy Law for the 1983-1985 term. Ms. Smith was
appointed Director of Investor Relations for Texaco, Inc. in 1984,
and was named Vice President of the Corporate Communications
division in 1989. In 1992, Ms. Smith was elected a Vice President
of Texaco Inc. and assumed additional responsibilities as head of
that company’s Shareholder Services Group. In 1999, Ms. Smith
was named Corporate Compliance Officer for Texaco. Ms. Smith served
as a Director of Pacific Asia Petroleum, Inc. until its merger with
Erin Energy Corporation (formerly CAMAC Energy, Inc.) in April of
2010.
Ms. Smith was
elected to the Board of Directors of Finance of Darien,
Connecticut, in November 2007, and since November 2010, has been
serving as the Chairman. In June of 2012, Ms. Smith was elected a
Trustee of St. Luke’s School in New Canaan, Connecticut, and
in 2013, Ms. Smith was elected as Treasurer of the Board of
Directors of Trustees. Ms. Smith also serves on the Financial
Affairs Committee and the Investment Committee. From 2007 through
2010, Ms. Smith has also served as a Board of Directors Member of
the Community Fund of Darien, Connecticut, and from 1996 through
2006, Ms. Smith served on the Board of directors of
INROADS/Fairfield Westchester Counties, Inc. From 2002 through
2005, Ms. Smith served as a member of the Board of Directors of
Families With Children From China-Greater New York, and from 2004
through 2005, she served as a member of the Board of Directors of
The Chinese Language School of Connecticut. While at Texaco, Ms.
Smith was an active member in NIRI (National Investor Relations
Institute) and the NIRI Senior Roundtable. She has been a member
and past President of both the Investor Relations Association and
the Petroleum Investor Relations Association. Ms. Smith was a
member of the Board of Directors of Trustees of Marymount College
Tarrytown from 1993 until 2001. She was also a member of the Board
of Directors of The Education and Learning Foundation of
Westchester and Putnam Counties from 1993 to 2002.
Ms. Smith graduated
from Bucknell University in 1971 with a Bachelor of Arts degree,
cum laude, and received a Doctor of Jurisprudence degree from
Georgetown University Law Center in 1976.
The board of
directors believes that Ms. Smith’s over 30 years’
experience in corporate compliance, investor relations, and law in
the energy industry working at a major U.S. oil and gas company,
and the insights she has gained from these experiences, will
provide crucial guidance for our future operations and compliance
efforts.
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DAVID Z. STEINBERG (Age 33)
Director since July 2015
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Mr. Steinberg
joined our board of directors on July 15, 2015. Mr. Steinberg
joined Platinum Management (NY) LLC (“
PM LLC
”), a New York
based investment management firm, in May 2009, and currently serves
as a portfolio manager at PM LLC and heads its structured products
credit group. Mr. Steinberg received his Masters of Business
Administration degree, with a concentration in finance, cum laude,
from The New York Institute of Technology in 2009.
Mr. Steinberg
serves on the board of directors as a designee appointed by GGE.
The board of directors believes that Mr. Steinberg’s
extensive knowledge and experience in corporate debt finance and
banking in the energy industry, and the insights he has gained from
these experiences, will provide crucial guidance for our future
corporate finance efforts.
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ADAM MCAFEE (Age 52)
Director Nominee
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Mr.
McAfee has over 30 years of experience as a financial analyst,
controller and executive with leadership roles in mergers and
acquisitions, financial planning and analysis, project finance,
operations, audit and enterprise system implementations. Since
August 2012, Mr. McAfee has served as Chief Executive Officer of,
and between December 2008 and July 2012, Mr. McAfee served as Chief
Financial Officer of, Nevo Energy, Inc., a solar utility and
development company. Since October 2013, Mr. McAfee has served as
the Vice President of Finance of, and between August 2011 and
October 2013, Mr. McAfee served as Controller of, Aemetis, Inc.
(NASDAQ: AMTX), a renewable fuels processing company. Since
September 2005, he has served as Chief Executive Officer and
Director of Navitas Corporation, an energy company, which merged
with publicly traded Pacific Asia Petroleum (PAP) in July 2008 and
then as Managing Director of Navitas Capital LLC, a spin-off
company from Navitas Corporation, managing debt and equity
investments in public and private companies. In 2003 Mr. McAfee
founded Park Capital Management, LLC, a fund that manages assets
acquired through PIPE and private equity investments in technology
and renewable energy companies, which he has served as Managing
Director of since November 2003. Mr. McAfee has served as the
Managing General Partner of Orchard Yield Funds, which funds the
investing in developing organic almonds in the Central Valley of
California, since March 2016 and as the Managing Member of Organic
Pastures Dairy Company, an organic raw milk dairy and creamery
since June 1983.
Mr.
McAfee spent more than eleven years in significant corporate
finance roles at Apple Computer in the Worldwide Financial Planning
and Analysis, Sales, Research and Development and Operations
divisions. Mr. McAfee currently serves as the President and
Chairman of McAfee Charitable Ventures, a private non-profit
charitable organization, a position he has held since August 2006.
Mr. McAfee is also the Managing Member of the California and
Missouri Registered Investment Advisory Firm, Tilted Funds Group
LLC, a position he has held since 2007.
Mr.
McAfee is a Certified Management Accountant. He graduated with
honors from California State University, Fresno with a
Bachelor’s of Science in business administration and finance,
and earned a Masters of Business Administration from the University
of California, Irvine. He also completed the Harvard Business
School Private Equity and Venture Capital Program. Mr. McAfee has
been a Registered Investment Advisor in California since May 2007
and passed his Series 7 exam in March 1989, Series 63 exam in May
1991, and his Series 65 exam in May 2007.
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Director
Qualifications
The board of
directors believes that each of our director nominees is highly
qualified to serve as a member of the board of directors. Each of
the director nominees has contributed to the mix of skills, core
competencies and qualifications of the board of directors. When
evaluating candidates for election to the board of directors, the
board of directors seeks candidates with certain qualities that it
believes are important, including integrity, an objective
perspective, good judgment, and leadership skills. Our director
nominees are highly educated and have diverse backgrounds and
talents and extensive track records of success in what we believe
are highly relevant positions.
Vote
Required to Elect the Director Nominees
A plurality of the
votes cast in person or by proxy by the holders of our common stock
entitled to vote at the annual meeting are required to elect the
three non-Series A Nominees. A plurality of the votes cast means
(1) the director nominee with the most votes for a particular seat
is elected for that seat; and (2) votes cast shall include
votes to “
withhold
authority
” (shown as “
AGAINST
” on the enclosed
form of proxy) and exclude abstentions and broker non-votes with
respect to that director’s election. Therefore, abstentions
and broker non-votes (which occur if a broker or other nominee does
not have discretionary authority and has not received instructions
with respect to a particular director nominee within ten days of
the annual meeting) will not be counted in determining the number
of votes cast with respect to that director’s election. A
plurality of the votes cast by the holder of our Series A Preferred
Stock, in person or by proxy is required to elect the Series A
Nominee. Votes cast by our common stock holders on the appointment
of the Series A Nominee will be disregarded for purposes of
determining whether such Series A Nominee has received the
affirmative vote of a plurality of the Series A Preferred Stock
shares outstanding as of the record date.
Properly executed
proxies will be voted at the annual meeting in accordance with the
instructions specified on the proxy; if no such instructions are
given, the persons named as agents and proxies in the enclosed form
of proxy will vote such proxy “
FOR
” the election of the
nominees named herein. Should any nominee become unavailable for
election, discretionary authority is conferred to the persons named
as agents and proxies in the enclosed form of proxy to vote for a
substitute.
Pursuant to the
power provided to the board of directors in our Bylaws, the board
of directors has set the number of directors that shall constitute
the board of directors at four, with three non-Series A Nominees
and one Series A Nominee, as described above. Proxies cannot be
voted for a greater number of persons than the number of nominees
named on the enclosed form of proxy, and stockholders may not
cumulate their votes in the election of directors.
THE
BOARD OF DIRECTORS RECOMMENDS
VOTING
“
FOR
”
EACH OF THE NOMINEES LISTED ABOVE.
PROPOSAL
2
APPROVAL
OF THE ISSUANCE OF SHARES OF COMMON STOCK EXCEEDING 19.9% OF
OUR
OUTSTANDING
COMMON STOCK UPON CONVERSION OF THE MIEJ CONVERTIBLE
PROMISSORY
NOTE
Background
Settlement Agreement
On February 19, 2015 (the
“
Closing
Date
”), we and Pacific
Energy Development Corp., our wholly-owned subsidiary
(“
PEDCO
”)
entered into a Settlement Agreement (the “
Settlement
Agreement
”) with MIE
Jurassic Energy Corp. (“
MIEJ
”).
MIEJ was PEDCO’s 80% partner in Condor Energy Technology, LLC
(“
Condor
”),
and was the lender to PEDCO under that certain Amended and Restated
Secured Subordinated Promissory Note, dated March 25, 2013, in the
principal amount of $6,170,065, entered into by PEDCO and MIEJ (the
“
MIEJ-PEDCO
Note
”). Pursuant to the
Settlement Agreement, among other things, (i) MIEJ and PEDCO agreed
to restructure the MIEJ-PEDCO Note through the entry into a new
Amended and Restated Secured Subordinated Promissory Note, dated
February 19, 2015 and with an effective date of January 1, 2015
(the “
MIEJ
Note
”), (ii) PEDCO sold
its (x) full 20% interest in Condor to MIEJ (the
“
Condor
Interests
”)
pursuant to a Membership Interest
Purchase Agreement entered into by and between PEDCO and MIEJ (the
“
Condor Purchase
Agreement
”); and (y)
interests in approximately 945 net acres and interests in three (3)
wells located in PEDCO’s legacy non-core Niobrara acreage
located in Weld County, Colorado, that were directly held by PEDCO
(the “
PEDCO Direct
Interests
”) to Condor
pursuant to an Assignment entered into by and between PEDCO and
Condor (the “
PEDCO Direct Interests
Assignment
”), effective
January 1, 2015, and (iii) Condor forgave approximately $1.8
million in previous working interest expenses related to the
drilling and completion of certain wells operated by Condor that
was due from PEDCO, which, in summary, had the net effect of
reducing approximately $9.4 million in aggregate liabilities due
from PEDCO to MIEJ and Condor to $4.925 million, which was the
principal amount of the MIEJ Note. In addition, pursuant to the
Settlement Agreement, (a) in consideration for the Senior Loan
Investors (defined above) releasing their security interest on the
Condor Interests and PEDCO Direct Interests, MIEJ paid $500,000 to
the investors who had loaned us funds under the Senior Loan
(described and defined above
under “
Certain Relationships and Related
Party Transactions
” - “
Agreements with Related
Persons
” – “
Golden Globe Energy (US),
LLC
”, beginning on page
25), as a principal reduction on the Senior Loan,
which directly benefited the Company, (b) PEDCO paid $100,000 as a
principal reduction under the MIEJ-PEDCO Note, (c) each of MIEJ,
Condor and the Company fully released each other, and their
respective predecessors and successors in interest, parents,
subsidiaries, affiliates and assigns, and their respective
officers, directors, managers, members, agents, representatives,
servants, employees and attorneys, from every claim, demand or
cause of action arising on or before the Closing Date, and (d) MIEJ
confirmed that the MIEJ-PEDCO Note was paid in full and that PEDCO
owed no amounts to MIEJ or Condor other than the principal amount
due as reflected in the MIEJ Note.
MIEJ Note
The MIEJ Note is effective January 1, 2015, bears
an interest rate of 10.0% per annum with no interest due until
Maturity (defined below) or except as detailed below, is secured by
all of our current and after-acquired assets, and is subordinated
in every way to the Senior Loan as well as to New Senior Lending
(defined below); however, MIEJ has no control over the cash flow of
the Company, nor is MIEJ’s consent required in connection
with any disposition, sale, or use of any assets of the Company or
any of its subsidiaries at any time in the future, provided that
the provisions of the MIEJ Note requiring the prepayment of
interest, where applicable, as described below are followed. After
the Closing Date, the Company may enter into a loan, or a series of
new loans or any other new non-equity investment or assumption of
indebtedness (a “
New Senior
Lending
”) which will be
senior to the MIEJ Note, without the prior consent of MIEJ,
provided that, in addition to the approximately $35 million
principal balance of the Senior Loan, the New Senior Lending is
subject to a cap of an additional $60 million in the aggregate,
such that the total lending, debt or similar investment under such
cap shall not exceed $95 million in the aggregate (the
“
Senior Debt
Cap
”), with any portion
of New Senior Lending in excess of the Senior Debt Cap advanced
first to MIEJ until the MIEJ Note is paid in full. The MIEJ Note
shall automatically, and without further consent from MIEJ, be
subordinated in every way to any such New Senior Lending. Should
the Company enter into any new financing transaction that results
in raising New Senior Lending of at least $20 million in excess of
the balance of the Senior Loan, then MIEJ has a right to be paid
all interest and fees that have accrued on the MIEJ Note each and
every time that a new financing transaction reaches or exceeds the
$20 million threshold. The MIEJ Note is due and payable on March 8,
2017, subject to automatic extensions upon the occurrence of a
Long-Term Financing or Senior Lending Restructuring (each as
defined below) (the “
Maturity
”).
After the Closing Date, on a one-time basis, the Senior Loan may be
refinanced by a new loan (“
Long-Term
Financing
”) by one or
more third party replacement lenders (“
Replacement
Lenders
”), and in such
event the Company shall undertake commercially reasonable best
efforts to cause the Replacement Lenders to simultaneously
refinance both the Senior Loan and the MIEJ Note as part of such
Long-Term Financing. Despite such efforts, should the Replacement
Lenders be unable or unwilling to include the MIEJ Note in such
financing, then the Long-Term Financing may proceed without
including the MIEJ Note, and the MIEJ Note shall remain in place
and shall be automatically subordinated, without further consent of
MIEJ, to such Long-Term Financing. Furthermore, upon the occurrence
of a Long-Term Financing, the Maturity of the MIEJ Note is
automatically extended, without further consent of MIEJ, to the
same maturity date of the Long-Term Financing (the
“
Extended Maturity
Date
”), provided that the
Extended Maturity Date may not exceed March 8, 2020. Additionally,
upon the closing of such Long-Term Financing: (a) the Long-Term
Financing is required to be subject to the Senior Debt Cap, (b) we
are required to make commercially reasonable best efforts for the
Long-Term Financing to include adequate reserves or other payment
provisions whereby MIEJ is paid all interest and fees accrued on
the MIEJ Note commencing as of March 8, 2017 (and annually
thereafter, until such time as the MIEJ Note is paid in full), but
in any event the Replacement Lenders are required to agree to allow
for quarterly interest payments (starting March 31, 2017) of not
less than 5% per annum on the outstanding balance of the MIEJ Note,
plus a one-time payment of accrued interest (not to exceed
$500,000) as of March 31, 2017 (the “
Subordinated Interest
Payments
”), and the
remaining 5% interest shall continue to accrue, and (c) MIEJ has
the Right of Conversion (defined below) commencing as of March 8,
2017, the original maturity date of the MIEJ Note. If the Senior
Loan and/or New Senior Lending is not refinanced by Replacement
Lenders, but is instead refinanced, restructured or extended by the
existing Senior Loan Investors (a “
Senior Lending
Restructuring
”), the
maturity of both the MIEJ Note and the Senior Loan may be extended
to no later than March 8, 2019, without requiring the consent of
MIEJ, provided that (i) any such extension of the maturity date of
the MIEJ Note past March 8, 2017 shall give MIEJ the Right of
Conversion (described below) commencing on March 8, 2017, and (ii)
such extension agreement shall include payment provisions whereby
MIEJ shall be paid all interest and fees accrued on the MIEJ Note
as of March 8, 2018. The MIEJ Note may be prepaid any time without
penalty. As a result of the Company’s May 2016 senior debt
restructuring pursuant to the Amended NPA, the maturity date of the
MIEJ Note has automatically been extended to March 8, 2019 and MIEJ
has the Right of Conversion (described below) beginning on March 8,
2017.
The MIEJ Note has a conversion feature that
provides, in the event that the final maturity of the MIEJ Note is
extended beyond March 8, 2017 for whatever reason, MIEJ has the
right, at its discretion, to have the outstanding balance of the
MIEJ Note plus any accrued and unpaid interest thereon converted in
whole or in part into common stock of the Company at a price (the
“
Conversion
Price
”) equal to 80% of
the average closing price per share of common stock over the then
previous 60 days from the date MIEJ exercises its conversion right
(subject to adjustment for stock splits, recapitalizations and the
like)(such event, a “
Right of
Conversion
”); provided,
however, that in no event shall the Conversion Price be less than
$0.30 per share of common stock (as adjusted for any stock
splits)(the “
Floor
Price
”). Additionally,
the MIEJ Note contains a provision preventing the conversion of the
MIEJ Note to the extent that such conversion would result in more
than 19.9% of our outstanding common stock or voting stock being
issued in aggregate upon the conversion of such note, or otherwise
require stockholder approval under the NYSE MKT rules.
Notwithstanding that, the Company agreed to include a proposal in
its proxy statement for its 2016 annual meeting of its stockholders
(the “
2016 Annual
Meeting
”) for the
approval of the issuance of the maximum number of shares of common
stock issuable in connection with conversion of the MIEJ Note,
assuming conversion at the Floor Price (the
“
Maximum Conversion
Shares
”), which proposal
is set forth in this proposal 2. In the event that a vote in favor
of the issuance by the Company of the Maximum Conversion Shares
fails at the annual meeting, the Company is required to take all
commercially reasonable action to procure such approval no later
than the 2017 annual meeting of stockholders. We are also required
to take all reasonable actions as may be necessary to procure any
associated approvals from the NYSE MKT for the issuance of the
shares.
Sale of Condor to MIE Holdings
Pursuant
to the Condor Purchase Agreement and PEDCO Direct Interests
Assignment, as described above, the Condor Interests and the PEDCO
Direct Interests were conveyed to MIEJ and Condor, respectively,
effective as of January 1, 2015, subject to customary adjustments
for allocation of income, revenue, cost and expense attributable to
the properties as of the Closing Date. In addition, under the
Condor Purchase Agreement, effective January 1, 2015, PEDCO ceased
to be a member of Condor, Mr. Frank C. Ingriselli was removed as a
manager and officer of Condor, and all other employees of PEDCO who
were officers of Condor were removed as officers and employees of
Condor. PEDCO further agreed to provide assistance in the orderly
transfer of the operational management, finance and accounting
matters involving Condor to MIEJ, and upon the request of MIEJ,
PEDCO agreed for a period of up to six (6) months (terminable upon
fifteen (15) days’ prior written notice from MIEJ to PEDCO),
PEDCO shall continue to assist with Condor’s accounting and
audits and perform joint interest billing accounting on behalf of
Condor for a monthly fee of $55,000 for January 2015, $0 for
February 2015, $10,000 for March 2015 and $30,000 per month through
August of 2015.
The
description of the MIEJ Note above is only a summary of the actual
terms of the MIEJ Note and is qualified in all respects to the
actual MIEJ Note, a copy of which is attached hereto
as
Appendix A
.
You should carefully read and review the MIEJ Note prior to making
any voting decision in connection with this proposal
2.
Shares
Issuable Upon Conversion of MIEJ Note
As of the date of
this proxy statement, the total principal balance of the MIEJ Note
is $4.925 million and a total of approximately $902,916 of interest
has accrued under the MIEJ Note through October 2016. As such, upon
complete conversion thereof, subject to the terms thereof, which
provide that such note is only convertible if we fail to repay the
note by March 8, 2017, MIEJ could receive an aggregate of
19,426,387 shares of common stock based on the Floor Price (we note
that the current trading price of the Company’s common stock
is below the Floor Price and as such, the Floor Price would apply
to any conversions). The 19,426,387 shares of common stock would
represent approximately 39.0% of our then outstanding common stock
and approximately 28.0% of our outstanding common stock following
their issuance, based on 49,849,297 shares of outstanding common
stock as of the date of this proxy statement and without taking
into account any shares of common stock issuable upon conversion of
the Series A Convertible Preferred Stock.
Risks
Related to the MIEJ Note
We owe certain obligations to MIEJ under the MIEJ Note, which is
secured by a subordinated security interest in substantially all of
our assets and is convertible into shares of our common stock in
the event we are unable to repay such note at
maturity.
The
MIEJ Note is subordinated in every way to the senior credit
facility as well as to New Senior Lending (defined above); however,
MIEJ has no control over our cash flow, nor is MIEJ’s consent
required in connection with any disposition, sale, or use of any of
our assets, provided that the requirements of the MIEJ Note
requiring the prepayment of interest, where applicable, as
described below are followed. The MIEJ Note shall automatically,
and without further consent from MIEJ, be subordinated in every way
to any such New Senior Lending. Should we enter into any new
financing transaction that results in raising New Senior Lending of
at least $20 million in excess of the balance of the Senior Loan,
then MIEJ has a right to be paid all interest and fees that have
accrued on the MIEJ Note each and every time that a new financing
transaction reaches or exceeds the $20 million
threshold.
The
MIEJ Note may be prepaid any time without penalty, and should we
repay the MIEJ Note on or before December 31, 2015, 20% of the
principal of the MIEJ Note amount is required to be forgiven by
MIEJ, and should we repay the MIEJ Note on or before December 31,
2016, 15% of the principal of the MIEJ Note amount is required to
be forgiven by MIEJ.
The
MIEJ Note has a conversion feature that provides, in the event that
the final maturity of the MIEJ Note is extended beyond March 8,
2017 for whatever reason, MIEJ has the right, at its discretion, to
have the outstanding balance of the MIEJ Note plus any accrued and
unpaid interest thereon converted in whole or in part into our
common stock at a price equal to 80% of the average closing price
per share of our common stock over the then previous 60 days from
the date MIEJ exercises its conversion right (subject to adjustment
for stock splits, recapitalizations and the like); provided,
however, that in no event shall the Conversion Price be less than
$0.30 per share. Additionally, the MIEJ Note contains a provision
preventing the conversion of the MIEJ Note to the extent that such
conversion would result in more than 19.9% of our outstanding
common stock or voting stock being issued in aggregate upon the
conversion of such note, or otherwise require shareholder approval
under the NYSE MKT rules. Notwithstanding that, we agreed to
include a proposal in this proxy statement for the approval of the
issuance of the maximum number of shares of common stock issuable
in connection with conversion of the MIEJ Note, assuming conversion
at the Floor Price. In the event the vote fails at the annual
meeting, we are required to take all commercially reasonable
actions to procure such approval no later than the 2017 annual
meeting of shareholders.
If
an event of default occurs under the MIEJ Note, MIEJ may enforce
their security interests over our assets (subject to the
subordination rights in such note) which secure the repayment of
such obligations, and we could be forced to curtail or abandon our
current business plans and operations. If that were to happen, any
investment in us could become worthless.
The
required interest and principal payments due under the MIEJ Note
may make it harder for us to refinance the MIEJ Note or raise
funding in the future, or could materially decrease the amount of
cash we receive for our operations upon any refinancing or
funding.
If
we are unable to repay the MIEJ Note prior to maturity, the
issuance of common stock pursuant to the terms of the MIEJ Note
could result in immediate and substantial dilution to the interests
of other stockholders.
The issuance of common stock upon conversion of the MIEJ Note will
cause immediate and substantial dilution.
If
we do not repay the MIEJ Note in full on or before March 8, 2017,
MIEJ has the right to convert the outstanding balance plus accrued
and unpaid interest, into common stock of the Company at a price
equal to 80% of the average closing price per share of common stock
over the then previous 60 days from the date MIEJ exercises its
conversion right, subject to a floor price of $0.30 per share of
common stock, receipt of additional listing approval for the shares
of common stock to be issued from the NYSE MKT, and the requirement
that the Company obtain shareholder approval of any issuances of
common stock that would result in more than 19.9% of the
Company’s outstanding common stock or voting stock being
issued in aggregate upon the conversion of such note which is being
requested in connection with this proposal 2. Any such issuances of
common stock will result in immediate and substantial dilution to
the interests of other stockholders.
The issuance and sale of common stock upon conversion of the MIEJ
Note may depress the market price of our common stock.
If sequential conversions of the MIEJ Note and sales of such
converted shares take place, the price of our common stock may
decline. The MIEJ Note may not be converted until or unless the
stockholder approval is received and thereafter, only if we
don’t repay the MIEJ Note by March 8, 2017.
In addition, the common stock issuable upon conversion of the MIEJ
Note may represent overhang that may also adversely affect the
market price of our common stock. Overhang occurs when there is a
greater supply of a company’s stock in the market than there
is demand for that stock. When this happens the price of the
company’s stock will decrease, and any additional shares
which stockholders attempt to sell in the market will only further
decrease the share price. If the share volume of our common stock
cannot absorb converted shares sold by the MIEJ Note holder, then
the value of our common stock will likely decrease.
If the MIEJ Note is converted in full, the holder thereof will
become a significant shareholder, and may, therefore, take actions
that are not in the interest of other shareholders.
As of the date of
this proxy statement, the total principal balance of the MIEJ Note
is $4.925 million and a total of approximately $902,916 of interest
has accrued under the MIEJ Note through October 2016. As such, upon
complete conversion thereof, subject to the terms thereof, which
provide that such note is only convertible if we fail to repay the
note by March 8, 2017, MIEJ could receive an aggregate of
19,426,387 shares of common stock based on the Floor Price (we note
that the current trading price of the Company’s common stock
is below the Floor Price and as such, the Floor Price would apply
to any conversions). The 19,426,387 shares of common stock would
represent approximately 39.0% of our then outstanding common stock
and approximately 28.0% of our outstanding common stock following
their issuance, based on 49,849,297 shares of outstanding common
stock as of the date of this proxy statement and without taking
into account any shares of common stock issuable upon conversion of
the Series A Convertible Preferred Stock. A
s such, if converted
in full, the MIEJ Note holder will exercise significant control in
determining the outcome of corporate transactions or other matters,
including the election of directors, mergers, consolidations, the
sale of all or substantially all of our assets, and also the power
to prevent or cause a change in control. The interests of the MIEJ
Note holder may differ from the interests of the other stockholders
and thus result in corporate decisions that are adverse to other
shareholders.
Reasons
for Stockholder Approval
Our
common stock is listed on the NYSE MKT. Section 713(a) of the NYSE
MKT rules requires stockholder approval in connection with a
transaction involving the sale, issuance, or potential issuance by
an issuer of common stock (or securities convertible into common
stock) equal to 20% or more of the presently outstanding shares of
common stock at a price less than the greater of book value or
market value. Section 713(b) of the NYSE MKT rules requires
stockholder approval in connection with a transaction involving the
issuance or potential issuance of additional shares which would
result in a change of control of the issuer.
Because
the shares of our common stock issuable upon conversion of
principal and interest under the MIEJ Note represent greater than
20% of our outstanding common stock shares and may constitute a
change in control (as defined by NYSE MKT), we are asking our
stockholders to approve the issuance of such number of shares of
common stock exceeding 19.9% of our outstanding common stock,
issuable upon conversion of principal and interest under the MIEJ
Note.
Stockholder
approval of this proposal is being sought solely to comply with
Section 713 of the NYSE MKT rules governing the issuance of
securities when any such issuances in the aggregate would exceed
20% of an issuer’s outstanding capital stock or might be
considered a change of control (as defined by NYSE MKT). Our
stockholders are not being asked to approve or ratify the MIEJ
Note.
What
Are Stockholders Being Asked to Approve?
Pursuant to this
proposal 2, stockholders are being asked to consider and vote upon
a proposal to approve and ratify, for purposes of Section 713 of
the Company Guide of the NYSE MKT, the issuance of shares of common
stock to MIEJ (and its assigns) upon conversion of the MIEJ Note
exceeding 20% of our outstanding common stock, which we refer to as
the Convertible Note proposal. While 19,426,387 shares of common
stock are currently issuable upon the conversion of the MIEJ Note
when including principal and accrued interest thereon, the MIEJ
Note will continue to accrue interest until paid in full or
converted into common stock pursuant to its terms. As such, by
approving this proposal 2, stockholders approve the issuance of all
shares of common stock issuable upon the conversion of the MIEJ
Note when including principal and accrued interest thereon, whether
such shares are currently issuable upon conversion of the MIEJ Note
or upon conversion of additional accrued interest on the MIEJ Note
pursuant to the terms of the MIEJ Note, summarized
above.
What
Will Happen if the Convertible Note proposal Is
Approved?
In the event
stockholders approve the Convertible Note proposal, MIEJ may, in
the event we fail to repay the MIEJ Note by March 8, 2017 and
subject to the Company’s approval for the additional listing
of the shares of common stock issuable upon conversion of the MIEJ
Note with the NYSE MKT, immediately convert the full balance of the
MIEJ Note into common stock after March 8, 2017.
What
Will Happen if the Convertible Note proposal Is Not
Approved?
In the event we do
not repay the MIEJ Note by March 8, 2017, the MIEJ Note is
convertible into not more than 19.9% of our outstanding shares of
common stock as of the date of our entry into the MIEJ Note,
February 19, 2015, or 6,590,385 shares of common stock, based on
approximately 33,117,516 shares of common stock outstanding on such
date, subject to the Company’s approval for the additional
listing of the shares of common stock issuable upon conversion of
the MIEJ Note with the NYSE MKT. Additionally, we are required to
take all commercially reasonable action to procure such approval no
later than the 2017 annual meeting of stockholders.
Vote
Required
Approval of this
proposal to approve and ratify, for purposes of Section 713 of the
Company Guide of the NYSE MKT, the issuance of shares of common
stock exceeding 19.9% of our outstanding common stock upon
conversion of the MIEJ Note requires the affirmative vote by our
stockholders of a majority of the shares present in person or
represented by proxy at the annual meeting and entitled to vote on,
and who voted for, against, or expressly abstained with respect to,
this proposal 2, assuming a quorum is present at the annual
meeting.
Abstentions will
represent the equivalent of a vote “
AGAINST
” the proposal.
Broker non-votes will have the practical effect of reducing the
number of affirmative votes required to achieve a majority vote by
reducing the total number of shares from which the majority is
calculated.
Properly executed
proxies will be voted at the annual meeting in accordance with the
instructions specified on the proxy; if no such instructions are
given, the persons named as agents and proxies in the enclosed form
of proxy will vote such proxy “
FOR
” the approval of this
proposal 2.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE
“
FOR
”
THE APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK UPON
THE
CONVERSION
OF THE MIEJ NOTE EXCEEDING 19.9% OF OUR OUTSTANDING
COMMON
STOCK.
PROPOSAL
3
AMENDMENT
TO THE PEDEVCO CORP. 2012 EQUITY INCENTIVE PLAN
At the annual
meeting, stockholders are requested to approve an amendment to the
Amended and Restated 2012 Equity Incentive Plan, which we refer to
as the 2012 Plan, to increase by 5 million, the number of shares
reserved for issuance under such plan. The amendment to the 2012
Plan has previously been approved by the board of
directors
. If this proposal
3 is not approved by our stockholders, we will continue to operate
the 2012 Plan pursuant to its current
provisions.
As of the date of
this proxy statement filing, options to purchase 3,067,000 shares
of restricted stock and 6,139,170 shares of restricted stock have
been issued under the 2012 Plan, with 793,830 shares of common
stock remaining available for issuance under the 2012 Plan. In the
event proposal 3 is approved at the annual meeting, the 2012 Plan
will have 5,793,830 shares available for future
issuance.
The following is a
summary of the principal features of the 2012 Plan. This summary
does not purport to be a complete description of all of the
provisions of the 2012 Plan. It is qualified in its entirety by
reference to the full text of the 2012 Plan, as proposed to be
amended, which has been filed with the SEC with this proxy
statement as
Appendix
B
.
General
On June 26, 2012,
our board of directors adopted the 2012
Plan, and recommended that the
adoption of the 2012 Plan be submitted for approval by our
stockholders, who approved the adoption of the 2012 Plan on July
27, 2012. Our board of directors adopted the 2012 Plan because
there were a limited number of shares available for grants of
awards under our prior stock option plan, the 2009 Stock Incentive
Plan (the “
Prior
Plan
”). In addition, the Prior Plan was to expire in
April 2019. Our
board
of directors adopted the 2012 Plan to continue to provide a means
by which employees, directors and consultants of us may be given an
opportunity to benefit from increases in the value of our common
stock, and to attract and retain the services of
such
persons. All of our employees, directors and
consultants are eligible to participate in the 2012 Plan. On April
23, 2014, the board adopted an amended and restated 2012 Equity
Incentive Plan, to increase by 5 million shares (i.e., to 7 million
shares from 2 million shares pursuant to the terms of the original
plan), the number of awards available for issuance under the plan,
which was approved by shareholders on June 27, 2014.
On July 27, 2015, the
board of directors adopted an amended and restated 2012 Equity
Incentive Plan, to increase by three million shares, the number of
awards available for issuance under the plan, which was approved by
stockholders on October 7, 2015
(i.e., to 10 million shares
from 7 million shares pursuant to the terms of the plan as amended
prior thereto)
.
The 2012 Plan
provides for awards of incentive stock options, non-statutory stock
options, rights to acquire restricted stock, stock appreciation
rights, or SARs, and performance units and performance shares.
Incentive stock options granted under the 2012 Plan are intended to
qualify as “
incentive stock options
”
within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the “
Code
”). Non-statutory
stock options granted under the 2012 Plan are not intended to
qualify as incentive stock options under the Code. See
“
Federal Income Tax
Consequences
” below beginning on page 48, for a
discussion of the principal federal income tax consequences of
awards under the 2012 Plan.
Purpose
Our board of
directors adopted the 2012 Plan to provide a means by which our
employees, directors and consultants may be given an opportunity to
benefit from increases in the value of our common stock, to assist
in attracting and retaining the services of such persons, to bind
the interests of eligible recipients more closely to our interests
by offering them opportunities to acquire shares of our common
stock and to afford such persons stock-based compensation
opportunities that are competitive with those afforded by similar
businesses. All of our employees, directors and consultants are
eligible to participate in the 2012 Plan.
Administration
Unless it delegates
administration to a committee as described below, our board of
directors will administer the 2012 Plan. Subject to the provisions
of the 2012 Plan, our board of directors has the power to construe
and interpret the 2012 Plan, and to determine: (i) the fair value
of common stock subject to awards issued under the 2012 Plan; (ii)
the persons to whom and the dates on which awards will be granted;
(iii) what types or combinations of types of awards will be
granted; (iv) the number of shares of common stock to be subject to
each award; (v) the time or times during the term of each award
within which all or a portion of such award may be exercised; (vi)
the exercise price or purchase price of each award; and (vii) the
types of consideration permitted to exercise or purchase each award
and other terms of the awards.
Our board of
directors has the power to delegate administration of the 2012 Plan
to a committee composed of one or more directors. In the discretion
of our board of directors, a committee may consist solely of two or
more “
independent
directors
” or two or more “
non-employee directors
”
(as such terms are defined in the 2012 Plan).
Stock
Subject to the 2012 Plan
Subject to the
provisions of the 2012 Plan relating to adjustments upon changes in
our common stock, an aggregate of 10,000,000 shares of common stock
are currently reserved for issuance under the 2012 Plan (provided
we are seeking stockholder approval for the increase in such number
of shares of common stock by 5 million shares pursuant to this
proposal 3), with 793,830 shares of common stock remaining
available for issuance under the 2012 Plan as of the date of this
proxy statement.
If shares of common
stock subject to an option, SAR or performance share or unit
granted under the 2012 Plan expire or otherwise terminate without
being exercised (or exercised in full), such shares shall become
available again for grants under the 2012 Plan. If shares of
restricted stock awarded under the 2012 Plan are forfeited to us or
repurchased by us, the number of shares forfeited or repurchased
shall again be available under the 2012 Plan. Where the exercise
price of an option granted under the 2012 Plan is paid by means of
the optionee’s surrender of previously owned shares of common
stock, or our withholding of shares otherwise issuable upon
exercise of the option as may be permitted under the 2012 Plan,
only the net number of shares issued and which remain outstanding
in connection with such exercise shall be deemed
“
issued
”
and no longer available for issuance under the 2012
Plan.
Eligibility
Incentive stock
options may be granted under the 2012 Plan only to employees of our
company and its affiliates. Employees, directors and consultants of
our company and its affiliates are eligible to receive all other
types of awards under the 2012 Plan.
No incentive stock
option may be granted under the 2012 Plan to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of our company or any
affiliate of our company, unless the exercise price is at least
110% of the fair market value of the stock subject to the option on
the date of grant and the term of the option does not exceed five
years from the date of grant. In addition, no employee may be
granted options under the 2012 Plan exercisable for more than four
million shares of common stock during any twelve-month
period.
Terms
of Options and SARs
Options, SARs and
performance shares and units may be granted under the 2012 Plan
pursuant to stock option agreements, stock appreciation rights
agreements and performance award agreements, respectively. The
following is a description of the permissible terms of options,
SARs and performance units under the 2012 Plan. Individual grants
of options, SARs and performance shares and units may be more
restrictive as to any or all of the permissible terms described
below.
Exercise Price; Payment
The exercise price
of incentive stock options may not be less than the fair market
value of the common stock subject to the option on the date of the
grant and, in some cases (see “
Eligibility
” above), may
not be less than 110% of such fair market value. The exercise price
of nonstatutory options also may not be less than the fair market
value of the common stock on the date of grant. The base value of
an SAR or performance share or unit may not be less than the fair
market value of the common stock on the date of grant. The exercise
price of options granted under the 2012 Plan must be paid either in
cash at the time the option is exercised or, at the discretion of
our board of directors, (i) by delivery of already-owned
shares of our common stock, (ii) pursuant to a deferred
payment arrangement, (iii) pursuant to a net exercise
arrangement, or (iv) pursuant to a cashless exercise as permitted
under applicable rules and regulations of the Securities and
Exchange Commission.
In addition, the
holder of an SAR is entitled to receive upon exercise of such SAR
only shares of our common stock at a fair market value equal to the
benefit to be received by the exercise.
Vesting
Options granted
under the 2012 Plan may be exercisable in cumulative increments, or
“
vest,
”
as determined by our board of directors. Our board of directors has
the power to accelerate the time as of which an option may vest or
be exercised.
Tax Withholding
To the extent
provided by the terms of an option, SAR or performance share or
unit, a participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option, SAR
or performance share or unit by a cash payment upon exercise, or in
the discretion of our board of directors, by authorizing us to
withhold a portion of the stock otherwise issuable to the
participant, by delivering already-owned shares of our common stock
or by a combination of these means.
Term
The maximum term of
options, SARs and performance shares and units under the 2012 Plan
is ten years, except that in certain cases (see “
Eligibility
” above) the
maximum term is five years. Options, SARs and performance shares
and units awarded under the 2012 Plan generally will terminate
three months after termination of the participant’s service;
however, pursuant to the terms of the 2012 Plan, a grantee’s
employment shall not be deemed to terminate by reason of such
grantee’s transfer from us to an affiliate of us, or vice
versa, or sick leave, military leave or other leave of absence
approved by our board of directors, if the period of any such leave
does not exceed ninety (90) days or, if longer, if the
grantee’s right to reemployment by us or any of our
affiliates is guaranteed either contractually or by
statute.
Restrictions on Transfer
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, SAR or
performance share or unit. Our board of directors may grant
nonstatutory stock options, SARs and performance shares and units
that are transferable to the extent provided in the applicable
written agreement.
Terms
of Restricted Stock Awards
Restricted stock
awards may be granted under the 2012 Plan pursuant to restricted
stock purchase or grant agreements. No awards of restricted stock
may be granted under the 2012 Plan after ten (10) years from our
board of directors’ adoption of the 2012 Plan (March
2022).
Payment
Our board of
directors may issue shares of restricted stock under the 2012 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. If restricted stock under the
2012 Plan is issued pursuant to a purchase agreement, the purchase
price must be paid either in cash at the time of purchase or, at
the discretion of our board of directors, pursuant to any other
form of legal consideration acceptable to our board of
directors.
Vesting
Shares of
restricted stock acquired under a restricted stock purchase or
grant agreement may, but need not, be subject to forfeiture to us
or other restrictions that will lapse in accordance with a vesting
schedule to be determined by our board of directors. In the event a
recipient’s employment or service with us 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 us in accordance
with such restricted stock agreement.
Tax Withholding
Our board of
directors may require any recipient of restricted stock to pay to
us in cash upon demand amounts necessary to satisfy any applicable
federal, state or local tax withholding requirements. If the
recipient fails to pay the amount demanded, our board of directors
may withhold that amount from other amounts payable by us to the
recipient, including salary, subject to applicable law. With the
consent of our board of directors in its sole discretion, a
recipient may deliver shares of our common stock to us to satisfy
this withholding obligation.
Restrictions on Transfer
Rights to acquire
shares of common stock under the restricted stock purchase or grant
agreement shall be transferable by the recipient only upon such
terms and conditions as are set forth in the restricted stock
agreement, as our board of directors shall 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.
Adjustment
Provisions
If any change is
made to our outstanding shares of common stock without our receipt
of consideration (whether through reorganization, stock dividend or
stock split, or other specified change in our capital structure),
appropriate adjustments may be made in the class and maximum number
of shares of common stock subject to the 2012 Plan and outstanding
awards. In that event, the 2012 Plan will be appropriately adjusted
in the class and maximum number of shares of common stock subject
to the 2012 Plan, and outstanding awards may be adjusted in the
class, number of shares and price per share of common stock subject
to such awards.
Effect
of Certain Corporate Events
In the event of (i)
a liquidation or dissolution of the Company; (ii) a merger or
consolidation of the Company with or into another corporation or
entity (other than a merger with a wholly-owned subsidiary); (iii)
a sale of all or substantially all of the assets of the Company; or
(iv) a purchase or other acquisition of more than 50% of the
outstanding stock of the Company by one person or by more than one
person acting in concert, any surviving or acquiring corporation
may assume awards outstanding under the 2012 Plan or may substitute
similar awards. Unless the stock award agreement otherwise
provides, in the event any surviving or acquiring corporation does
not assume such awards or substitute similar awards, then the
awards will terminate if not exercised at or prior to such
event.
Duration,
Amendment and Termination
Our board of
directors may suspend or terminate the 2012 Plan without
stockholder approval or ratification at any time or from time to
time. Unless sooner terminated, the 2012 Plan will terminate ten
years from the date of its adoption by our board of directors,
i.e., in March 2022.
Our board of
directors may also amend the 2012 Plan at any time, and from time
to time. However, except as it relates to adjustments upon changes
in common stock, no amendment will be effective unless approved by
our stockholders to the extent stockholder approval is necessary to
preserve incentive stock option treatment for federal income tax
purposes. Our board of directors may submit any other amendment to
the 2012 Plan for stockholder approval if it concludes that
stockholder approval is otherwise advisable.
Federal
Income Tax Consequences
The following is a
summary of the principal United States federal income tax
consequences to the recipient and us with respect to participation
in the 2012 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 us 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 we 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 we will not be entitled to a federal income tax
deduction.
Non-statutory Stock Options and Restricted Stock
Awards
Non-statutory stock
options and restricted stock awards granted under the 2012 Plan
generally have the following federal income tax
consequences.
There are no tax
consequences to the participant or us 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.
With respect to
employees, we are generally required to withhold from regular wages
or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness,
the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, we will generally be
entitled to a business expense deduction equal to the taxable
ordinary income realized by the participant.
Upon disposition of
the stock, the recipient will recognize a capital gain or loss
equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as
ordinary income with respect to the stock. Such gain or loss will
be long-term or short-term depending on whether the stock has been
held for more than one year.
Stock Appreciation Rights or SARs
A recipient
receiving a stock appreciation right will not recognize income, and
we will not be allowed a tax deduction, at the time the award is
granted. When a recipient exercises the stock appreciation right,
the fair market value of any shares of common stock received will
be ordinary income to the recipient and will be allowed as a
deduction to us for federal income tax purposes.
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 the Company (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 the
Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of
compensation, including qualified “
performance-based
compensation
,” are disregarded for purposes of the
deduction limitation. In accordance with Treasury Regulations
issued under Section 162(m), compensation attributable to
stock options will qualify as performance-based compensation if the
award is granted by a committee
solely comprising
“
outside
directors
” (as defined in the 2012 Plan) and, among
other things, the plan contains a per-employee limitation on the
number of shares for which such awards may be granted during a
specified period, the per-employee limitation is approved by the
stockholders, and the exercise price of the award is no less than
the fair market value of the stock on the date of grant. Awards to
purchase restricted stock under the 2012 Plan will not qualify as
performance-based compensation under the Treasury Regulations
issued under Section 162(m).
Securities
Issued and Granted Under 2012 Plan
As of the date of
this proxy filing, options to purchase 3,067,000 shares of
restricted stock and 6,139,170 shares of restricted stock have been
issued under the 2012 Plan, with 793,830 shares of common stock
remaining available for issuance under the 2012 Plan. Information
regarding all of our equity compensation plans can be found above
under “
Equity
Compensation Plan Information
”, on page
22.
Reasons
for and Purpose of the Amendment to the 2012 Plan
The reason for the
amendment is solely to increase the shares available for issuances
under the 2012 Plan in order for us to be able to issue additional
equity incentive compensation awards under the 2012 Plan for the
purpose of attracting and retaining the best available personnel
for positions of substantial responsibility, providing additional
incentive to employees, directors and consultants, and promoting
the success of our business.
The amendment would
increase the number of shares that may be granted during the life
of the 2012 Plan from 10,000,000 to 15,000,000 shares, which amount
will be decreased by any reverse stock split approved by our
stockholders at the annual meeting and implemented by our board of
directors as described in proposal 4 herein.
We are asking
stockholders to increase the number of shares available for grants
under the 2012 Plan to a level that we believe will, on the basis
of current assumptions, ensure that enough shares remain available
for anticipated issuances under the 2012 Plan through
2017.
Amendment
of the 2012 Plan
Specifically, under
this proposal 3, our stockholders are being asked to approve an
amendment to clause (a) of Section 3 of the 2012 Plan
such that the paragraph would provide in its entirety as
follows:
“Stock
Subject to the Plan. Subject to the provisions
of Section 13, the maximum aggregate number of Shares
that may be issued under the Plan is 15 million
(15,000,000) Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.”
The other
paragraphs of Section 3 and all other sections of the 2012
Plan would remain unchanged, other than (a) Section 15(a)(i), which
relates to the maximum number of incentive stock options which may
be issued under the 2012 Plan, (b) Section 15(b)(ii)(1), which
relates to the maximum number of shares issuable to any participant
under the 2012 Plan in any one fiscal year, (c) Section
15(b)(ii)(2), which relates to the maximum fair market value of
shares relating to awards denominated in shares and satisfied in
cash under the 2012 Plan in any one fiscal year, and (d) Section
15(b)(ii)(3), which relates to the maximum fair market value of
shares relating to cash awards, payable in any one fiscal year
under the 2012 Plan, which will each be increased to 15 million
(15,000,000) shares after the amendment of the 2012 Plan, compared
to ten million (10,000,000) shares prior to such amendment, to
reflect the corresponding increase in the maximum aggregate number
of shares which may be issued under the 2012 Plan as described
above.
Vote Required
Although
Section 710 of the NYSE MKT Company Guide, requires the
affirmative vote of the holders of voting stock representing a
majority of the votes cast at a stockholders meeting held by a NYSE
MKT listed company on a proposal to approve a stock plan or
amendment thereto such as the amendment to our 2012 Plan, our
bylaws and the Texas Business Organizations Code, which supersede
the NYSE MKT Company Guide requirements, require the affirmative
vote by our stockholders of a majority of the shares present in
person or represented by proxy at the annual meeting and entitled
to vote on, and who voted for, against, or expressly abstained with
respect to, this proposal 3, in order to approve the proposal
relating to the amendment of the 2012 Plan as set forth in this
proposal 3, assuming a quorum is present at the annual
meeting.
Our board of
directors has approved the amendment to the 2012 Plan described in
proposal 3.
If
proposal 3 is not approved by our stockholders at the annual
meeting, we will continue to operate the 2012 Plan pursuant to its
current provisions.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
“
FOR
”
THE PROPOSAL TO
APPROVE
THE AMENDMENT TO THE 2012 PLAN.
PROPOSAL 4
TO AUTHORIZE THE BOARD OF DIRECTORS OF THE COMPANY TO EFFECT A
REVERSE
STOCK SPLIT OF OUR OUTSTANDING COMMON STOCK IN A RATIO OF BETWEEN
ONE-FOR-
TWO AND ONE-FOR-TEN
Our board of directors has approved and has
recommended that our stockholders approve a proposal to amend our
Certificate of Formation to authorize our board of directors to
effect a reverse stock split of all of our outstanding common stock
at a ratio of between one-for-two and one-for-ten (the
“
Exchange
Ratio
”), with our 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 our board of directors in its sole discretion,
provided that all fractional shares as a result of the split shall
be automatically rounded up to the next whole share (the
“
Reverse Stock
Split
”). The proposal
provides that our board of directors will have sole discretion to
elect, at any time before the earlier of (a) the one year
anniversary of this annual meeting; and (b) the date of our 2017
annual meeting of stockholders, as it determines to be in our best
interest, whether or not to effect the Reverse Stock Split, and, if
so, the number of our shares of common stock within the Exchange
Ratio which will be combined into one share of our common
stock.
The
determination as to whether the Reverse Stock Split will be
effected and, if so, pursuant to which Exchange Ratio, will be
based upon those market or business factors deemed relevant by the
board of directors at that time, including, but not limited
to:
●
listing
standards under the NYSE MKT;
●
existing and
expected marketability and liquidity of the Company’s common
stock;
●
prevailing stock
market conditions;
●
the
historical trading price and trading volume of our common
stock;
●
the
then prevailing trading price and trading volume of our common
stock and the anticipated impact of the reverse split on the
trading market for our common stock;
●
the
anticipated impact of the reverse split on our ability to raise
additional financing;
●
business
developments affecting the Company;
●
the
Company’s actual or forecasted results of operations;
and
●
the
likely effect on the market price of the Company’s common
stock.
Our
board of directors believes that stockholder approval granting us
discretion to set the actual exchange ratio within the range of the
Exchange Ratio, rather than stockholder approval of a specified
exchange ratio, provides us with maximum flexibility to react to
then-current market conditions and volatility in the market price
of our common stock in order to set an exchange ratio that is
intended to result in a stock price in excess of $0.20 per share to
avoid being considered a low priced stock by the NYSE MKT, and
therefore, is in the best interests of the Company and its
stockholders. However, there can be no assurance that the Reverse
Stock Split will result in our common stock trading above $0.20 for
any significant period of time. If the board of directors
determines to implement the Reverse Stock Split, we intend to issue
a press release announcing the terms and effective date of the
Reverse Stock Split before we file the Amendment with the Secretary
of State of the State of Texas.
If our board of directors determines that
effecting the Reverse Stock Split is in our best interest, the
Reverse Stock Split will become effective upon the filing of an
amendment to our Certificate of Formation with the Secretary of
State of the State of Texas. The form of the proposed amendment to
our Certificate of Formation to effect the Reverse Stock Split will
be in substantially the form as attached to this proxy statement
as
Appendix
C
(the
“
Amendment
”).
The Amendment filed thereby will set forth the number of shares to
be combined into one share of our 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 currently
authorized, the ability of our board of directors to designate
preferred stock, the par value of our 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 the
Series A Convertible Preferred Stock).
Purpose of the Reverse Stock Split
The primary purpose of the Reverse Stock Split is
to increase proportionately the per share trading price of our
common stock. Our common stock is listed on the NYSE MKT under the
symbol “
PED
”. Under the NYSE MKT’s listing
standards, if the exchange considers our common stock to be a
low-priced stock (generally trading below $0.20 per share for an
extended period of time), our common stock could be subject to a
delisting notification. Additionally, if at any time our common
stock trades below $0.06 per share, we will be automatically
delisted from the NYSE MKT. Our common stock has not traded above
$1 per share since October 2014 and has not traded above $0.30
per share since July 2016, and our price per share has ranged from
a low of $0.10 per share to a high of $0.41 per share for the
twelve month period ended November 8, 2016. If we were
to receive a formal delisting notification letter from the NYSE MKT
relating to the trading value of our common stock, to regain
compliance we would need to effect a reverse stock split, which
would require us to convene a special meeting of stockholders.
Given the time and expense associated with convening a special
meeting of stockholders, the board of directors has determined that
it is most efficient to seek stockholder approval of a potential
future Reverse Stock Split at this annual meeting to avoid having
to convene a special meeting at a later date.
As noted above, if we were to receive a delisting
notice and we were unable to regain compliance in the appropriate
time, we could be subject to delisting. Delisting could have a
material adverse effect on our business, liquidity and on the
trading of our common stock. If our common stock were delisted, our
common stock could be quoted on the OTCQB market or on the
“
pink
sheets
” maintained by the
OTC Markets Group. However, such alternatives are generally
considered to be less efficient markets. Further, delisting from
the NYSE MKT could also have other negative effects, including
potential loss of confidence by partners, lenders, suppliers and
employees and could also trigger various defaults under our lending
agreements and other outstanding agreements. Finally, delisting
could make it harder for us to raise capital and sell securities as
we would no longer be eligible to use Form S-3 short form
registration statements for such purposes.
We
also believe that the increased market price of our common stock
expected as a result of implementing the Reverse Stock Split may
improve the marketability and liquidity of our common stock and
encourage interest and trading in our common stock. Because of the
trading volatility often associated with low-priced stocks, many
brokerage houses and institutional investors have internal policies
and practices that either prohibit them from investing in
low-priced stocks or tend to discourage individual brokers from
recommending low-priced stocks to their customers. Some of those
policies and practices may function to make the processing of
trades in low-priced stocks economically unattractive to brokers.
Moreover, because brokers’ commissions on low-priced stocks
generally represent a higher percentage of the stock price than
commissions on higher-priced stocks, the current average price per
share of common stock can result in individual stockholders paying
transaction costs representing a higher percentage of their total
share value than would be the case if the share price were
substantially higher. Although it should be noted that the
liquidity of our common stock may be harmed by the Reverse Stock
Split given the reduced number of shares that would be outstanding
after the Reverse Stock Split, our board of directors is hopeful
that the anticipated higher market price will offset, to some
extent, the negative effects on the liquidity and marketability of
our common stock inherent in some of the policies and practices of
institutional investors and brokerage houses described
above.
Board of Directors Discretion to Implement the Reverse Stock
Split
If
proposal 4 is approved by our stockholders, the Reverse Stock Split
will be effected, if at all, only upon a determination by the board
of directors that the Reverse Stock Split is in the best interests
of the Company and its stockholders. The board of directors’
determination as to whether the Reverse Stock Split will be
effected and, if so, at which Exchange Ratio, will be based upon
certain factors, including existing and expected marketability and
liquidity of our common stock, prevailing stock market conditions,
business developments affecting us, actual or forecasted results of
operations and the likely effect on the market price of our common
stock, and the listing standards of the NYSE MKT. If the board of
directors does not act to implement the Reverse Stock Split prior
to the earlier of (a) the one year anniversary of this annual
meeting; and (b) the date of our 2017 annual meeting of
stockholders, the authorization granted by stockholders pursuant to
this proposal 4 would be deemed abandoned and without any further
effect. In that case, the board of directors may again seek
stockholder approval at a future date for the Reverse Stock Split
if it deems it to be advisable.
Effect of the Reverse Stock Split
If
approved by our stockholders and implemented by the board of
directors, as of the effective time of the Amendment, each issued
and outstanding share of our common stock would immediately and
automatically be reclassified and reduced into a fewer number of
shares of our common stock, depending upon the Exchange Ratio
selected by the board of directors, which could range between
one-for-two and one-for-ten, provided that all fractional shares as
a result of the split shall be automatically rounded up to the next
whole share.
Except
to the extent that the Reverse Stock Split would result in any
stockholder receiving an additional whole share of common stock in
connection with the rounding of fractional shares or any dilution
to other shareholder in connection therewith, as described below,
the Reverse Stock Split will not:
●
affect
any stockholder’s percentage ownership interest in
us;
●
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 two and ten, notwithstanding
any rounding;
●
the per
share exercise price will be increased by a factor between two and
ten, 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 our common stock;
●
the
number of shares authorized and reserved for issuance under our
existing equity compensation plans will be reduced proportionately;
and
●
the
conversion rates for holders of our Convertible Preferred Stock and
outstanding convertible promissory notes will be adjusted
proportionately.
The
following table contains approximate information relating to our
common stock, Series A Convertible Preferred Stock (which converts
into common stock prior to the Reverse Stock Split in a ratio of
1-for-1), the MIEJ Note, our outstanding warrants and outstanding
options under our Plans, under various proposed exchange ratio
options:*
|
|
|
Assuming a
Reverse Split of:
|
|
|
|
|
|
|
|
|
|
Authorized
Common Stock
|
200,000,000
|
200,000,000
|
200,000,000
|
200,000,000
|
200,000,000
|
200,000,000
|
|
Outstanding
Common Stock
|
49,849,297
|
24,924,649
|
12,462,325
|
8,308,217
|
6,231,163
|
4,984,930
|
|
Reserved
for issuance in connection with the exercise of outstanding
warrants to purchase shares of common stock
|
12,566,079
|
6,283,040
|
3,141,520
|
2,094,347
|
1,570,760
|
1,256,608
|
|
Reserved
for issuance in connection with the exercise of outstanding options
to purchase shares of common stock
|
4,308,896
|
2,154,448
|
1,077,224
|
718,150
|
538,612
|
430,890
|
|
Reserved
for issuance in connection with the conversion of our outstanding
Series A Convertible Preferred Stock
|
66,625,000
|
33,312,500
|
16,656,250
|
11,104,167
|
8,328,125
|
6,662,500
|
|
Issuable
upon conversion, subject to the terms thereof, of the MIEJ
Note
|
19,426,387
|
9,713,194
|
4,856,597
|
3,237,732
|
2,428,299
|
1,942,639
|
|
Reserved
for issuance under Equity Incentive Plans (not including shares
already included in the rows above, and assuming the increase to
the 2012 Plan is approved (proposal 3))(described under
“Equity Compensation Plan Information”, beginning on
page 45)
|
5,793,830
|
2,896,915
|
1,448,458
|
965,639
|
724,229
|
579,383
|
|
Shares
available for future issuance
|
41,430,511
|
120,715,254
|
160,357,626
|
173,571,748
|
180,178,812
|
184,143,050
|
* Does not take into account the
rounding of fractional shares described below under
“
Fractional
Shares
”.
Additionally,
the below table sets forth the weighted average exercise price of
(i) outstanding options; and (ii) outstanding
warrants:
|
|
|
|
|
|
|
|
|
Weighted
Average Exercise Price of Outstanding Warrants
|
$
0.80
|
$
1.59
|
$
3.18
|
$
4.77
|
$
6.37
|
$
7.96
|
|
Weighted
Average Exercise Price of Outstanding Options
|
$
0.57
|
$
1.15
|
$
2.30
|
$
3.45
|
$
4.60
|
$
5.74
|
If
the Reverse Stock Split is implemented, the Amendment will not
reduce the number of shares of our common stock or preferred stock
authorized under our Certificate of Formation, as amended, the
right of our board of directors to designate preferred stock, the
par value of our common or preferred stock, or otherwise effect our
designated series of preferred stock, except to affect the exchange
ratio thereof (as shown in the table above).
Our
common stock is currently registered under
Section 12(b) of the Exchange Act, and we are subject to
the periodic reporting and other requirements thereof. We presently
do not have any intent to seek any change in our status as a
reporting company under the Exchange Act either before or after the
Reverse Stock Split.
Additionally,
as of the date of this proxy statement, we do not have any current
plans, agreements, or understandings with respect to the additional
authorized shares that will become available for issuance after the
Reverse Stock Split has been implemented.
Fractional Shares
Stockholders
will not receive fractional shares in connection with the Reverse
Stock Split. Instead, stockholders otherwise entitled to fractional
shares will receive an additional whole share of our common stock.
For example, if the board of directors effects a one-for-ten split,
and you held nine shares of our common stock immediately prior to
the effective date of the Amendment, you would hold one share of
the Company’s common stock following the Reverse Stock
Split.
Effective Time and Implementation of the Reverse Stock
Split
The
effective time for the Reverse Stock Split will be the date on
which we file the Amendment with the office of the Secretary of
State of the State of Texas or such later date and time as
specified in the Amendment, provided that the effective date must
occur prior to the earlier of (a) the one year anniversary of this
annual meeting; and (b) the date of our 2017 annual meeting of
stockholders.
Holders of pre-reverse split shares
(“
Old
Shares
”), after the
effective date, may, but are not required to, contact our transfer
agent regarding the procedure for surrendering to our transfer
agent, certificates representing pre-reverse split shares in
exchange for certificates representing post-reverse split shares
(“
New
Shares
”). No new
certificates will be issued to a stockholder until or unless such
stockholder has surrendered such stockholder’s outstanding
certificate(s) together with such information, fees and
documentation as the transfer agent may require, to the transfer
agent for reissuance. Stockholders should not destroy any stock
certificate. We and the transfer agent will adjust record
stockholder’s shareholdings in our records regardless of
whether any certificates evidencing Old Shares are returned for
reissuance in order to evidence New Shares and therefore,
stockholders are not required to return their certificates for
reissuance unless they want to. In the event stockholders do not
have their certificates representing Old Shares reissued for
certificates evidencing New Shares, such certificates will still
only provide rights and ownership of the adjusted number of New
Shares in connection with the Reverse Stock Split, when presented
for voting or transfer, even if the certificates still list the
number of Old Shares prior to the Reverse Stock
Split.
Stockholders
whose shares are held in book-entry form or by their stockbroker do
not need to submit old share certificates for exchange. These
stockholders’ book-entry records or brokerage accounts will
automatically reflect the new quantity of shares based on the
selected Reverse Stock Split ratio.
Beginning
on the effective date of the Reverse Stock Split, each certificate
or other share ownership record representing pre-split shares will
be deemed for all corporate purposes to evidence ownership of
post-split shares, subject to the rounding up of fractional shares
to the next whole share.
STOCKHOLDERS 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, our board or 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. In fact, since all fractional shares of
common stock resulting from the Reverse Stock Split will be rounded
up to the nearest whole share, there will be no reduction in the
number of stockholders of record that could provide the basis for a
going-private transaction.
Accounting Matters
The
Reverse Stock Split will not affect the par value of our common
stock ($0.001 per share). However, at the effective time of the
Reverse Stock Split, the stated capital attributable to common
stock on our 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 our
common stock outstanding.
No Appraisal Rights
Under
the Texas Business Organizations Code, our stockholders are not
entitled to appraisal rights with respect to the Reverse Stock
Split.
Certain Risks Associated with the Reverse Stock Split
Before
voting on this proposal 4, you should consider the following risks
associated with the implementation of the Reverse Stock
Split:
●
The
price per share of our common stock after the Reverse Stock Split
may not reflect the Exchange Ratio implemented by the board of
directors 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 our common stock on November 8, 2016
of $0.15 per share, if the Reverse Stock Split was
implemented at an Exchange Ratio of 1-for-5, there can be no
assurance that the post-split trading price of the Company’s
common stock would be $0.75, or even that it would
remain above the pre-split trading price. Accordingly, the total
market capitalization of our common stock following a Reverse Stock
Split may be lower than before the Reverse Stock
Split.
●
Following the
Reverse Stock Split, we may still run the risk of being considered
a low priced stock under the listing standards of the NYSE MKT,
which could cause the Company to be delisted or subject to
delisting.
●
Effecting the
Reverse Stock Split may not attract institutional or other
potential investors, or result in a sustained market price that is
high enough to overcome the investor policies and practices, and
other issues relating to investing in lower priced stock described
in “
Purpose of the
Reverse Stock Split
” above.
●
The
trading liquidity of our 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 our
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 the Company’s common
stock.
●
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. The Company
believes such tax event will be minimal or insignificant for most
stockholders.
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 our board of directors or contemplating a tender offer or other
transaction for our 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 our common
stock or obtain control of our Company, nor is it part of a plan by
management to recommend a series of similar amendments to our board
of directors and stockholders.
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 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, we have 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
.
●
We
believe 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. The Company believes such tax event
will be minimal or insignificant for most
stockholders.
●
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.
Recommendation of the Board of Directors
The board of directors recommends that you vote
“
FOR
”
the amendment to our Certificate of Formation and the authorization
of the board of directors of the Company, without further
stockholder approval, to amend the Company’s Certificate of
Formation, at any time prior to the earlier of (a) the one year
anniversary of this annual meeting; and (b) the date of our 2017
annual meeting of stockholders, to effect a reverse stock split of
our outstanding common stock in a ratio of between one-for-two and
one-for-ten, provided that all fractional shares as a result of the
split shall be automatically rounded up to the next whole share, in
accordance with this proposal 4. Unless you specify otherwise, the
board of directors intends the accompanying proxy to be voted for
this proposal 4.
Vote Required
Approval
of the amendment to our Certificate of Formation and the
authorization of the board of directors of the Company, without
further stockholder approval, to amend the Company’s
Certificate of Formation, at any time prior to the earlier of (a)
the one year anniversary of this annual meeting; and (b) the date
of our 2017 annual meeting of stockholders, to effect a reverse
stock split of our outstanding common stock in a ratio of between
one-for-two and one-for-ten requires the affirmative vote of (i) a
majority of the shares of the Company’s common stock; and
(ii) Series A Convertible Preferred Stock issued and outstanding as
of the record date.
Properly executed proxies will be voted at the
annual meeting in accordance with the instructions specified on the
proxy; if no such instructions are given, the persons named as
agents and proxies in the enclosed form of proxy will vote such
proxy “
FOR
” the approval of amendment as set forth in
this proposal 4.
THE BOARD RECOMMENDS A VOTE “
FOR
” AUTHORIZATION OF THE AMENDMENT TO
OUR
CERTIFICATE OF FORMATION TO EFFECT A REVERSE STOCK SPLIT IN A RATIO
BETWEEN
ONE-FOR-TWO AND ONE-FOR-TEN.
PROPOSAL
5
RATIFICATION
OF APPOINTMENT OF AUDITORS
The board of
directors has selected GBH CPAs, PC (“
GBH
”), as our independent
auditors for the fiscal year ended December 31, 2016, and
recommends that the stockholders vote to ratify such
appointment.
We do not
anticipate a representative from GBH to be present at the annual
stockholders meeting. In the event that a representative of GBH is
present at the annual meeting, the representative will have the
opportunity to make a statement if he/she desires to do so and we
will allow such representative to be available to respond to
appropriate questions.
AUDIT
FEES
We previously
appointed GBH as our independent auditors to audit the consolidated
financial statements of the Company for the fiscal years ended
December 31, 2015 and December 31, 2014.
The
following table presents fees for professional audit services
performed by GBH CPAs, PC for the audit of our annual financial
statements for the fiscal years ended December 31, 2015 and 2014
(in thousands).
|
|
|
|
|
GBH CPAs, PC:
|
|
|
|
Audit
Fees(1)
|
$
235
|
$
272
|
|
Audit-Related
Fees(2)
|
20
|
31
|
|
Tax
Fees(3)
|
26
|
63
|
|
All Other
Fees(4)
|
37
|
3
|
|
Total
|
$
318
|
$
369
|
|
(1)
|
Audit fees include
professional services rendered for (1) the audit of our annual
financial statements for the fiscal years ended December 31, 2015
and 2014 and (ii) the reviews of the financial statements included
in our quarterly reports on Form 10-Q for such years.
|
|
(2)
|
Audit-related fees
consist of fees billed for professional services that are
reasonably related to the performance of the audit or review of our
consolidated financial statements, but are not reported under
“Audit fees.”
|
|
(3)
|
Tax fees include
professional services relating to preparation of the annual tax
return.
|
|
(4)
|
Other fees include
professional services for review of various filings and issuance of
consents.
|
Pre-Approval Policies
It
is the policy of our board of directors that all services to be
provided by our independent registered public accounting firm,
including audit services and permitted audit-related and non-audit
services, must be pre-approved by our board of directors. Our board
of directors pre-approved all services, audit and non-audit,
provided to us by GBH CPAs, PC for 2015 and 2014.
In order to assure
continuing auditor independence, the Audit Committee periodically
considers the independent auditor’s qualifications,
performance and independence and whether there should be a regular
rotation of our independent external audit firm. We believe the
continued retention of GBH to serve as our independent auditor is
in the best interests of the Company and its stockholders, and we
are asking our stockholders to ratify the appointment of GBH as our
independent auditor for the year ended December 31, 2016. While the
Audit Committee is responsible for the appointment, compensation,
retention, termination and oversight of the independent registered
public accounting firm, the Audit Committee and our board of
directors are requesting, as a matter of policy, that the
stockholders ratify the appointment of GBH as our independent
registered public accounting firm.
Ratification of
this appointment shall be effective upon the affirmative vote of a
majority of the shares present in person or represented by proxy at
the annual meeting and entitled to vote on, and who voted for,
against, or expressly abstained with respect to, this proposal,
provided that a quorum exists at the annual meeting. Abstentions
with respect to the ratification of this appointment will have the
effect of a vote “
AGAINST
” ratification of
this appointment. Properly executed proxies will be voted at the
annual meeting in accordance with the instructions specified on the
proxy; if no such instructions are given, the persons named as
agents and proxies in the enclosed form of proxy will vote such
proxy “
FOR
” the ratification of
the appointment of GBH.
The Audit Committee
is not required to take any action as a result of the outcome of
the vote on this proposal. In the event stockholders fail to ratify
the appointment, the Audit Committee may reconsider this
appointment. Even if the appointment is ratified, the Audit
Committee, in its discretion, may direct the appointment of a
different independent accounting firm at any time during the year
if the committee determines that such a change would be in our and
the stockholders’ best interests.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “
FOR
”
THE
APPOINTMENT OF GBH CPAS, PC AS OUR INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2016.
PROPOSAL
6 ADJOURNMENT OF THE ANNUAL MEETING
Our stockholders
may be asked to consider and act upon one or more adjournments of
the annual meeting, if necessary or appropriate, to solicit
additional proxies in favor of any or all of the other proposals
set forth in this proxy statement.
If a quorum is not
present at the annual meeting, our stockholders may be asked to
vote on the proposal to adjourn the annual meeting to solicit
additional proxies. If a quorum is present at the annual meeting,
but there are not sufficient votes at the time of the annual
meeting to approve one or more of the proposals, our stockholders
may also be asked to vote on the proposal to approve the
adjournment of the annual meeting to permit further solicitation of
proxies in favor of the other proposals. However, a stockholder
vote may be taken on one of the proposals in this proxy statement
prior to any such adjournment if there are sufficient votes for
approval on such proposal.
If the adjournment
proposal is submitted for a vote at the annual meeting, and if our
stockholders vote to approve the adjournment proposal, the meeting
will be adjourned to enable the board of directors to solicit
additional proxies in favor of one or more proposals. If the
adjournment proposal is approved, and the annual meeting is
adjourned, the board of directors will use the additional time to
solicit additional proxies in favor of any of the proposals to be
presented at the annual meeting, including the solicitation of
proxies from stockholders that have previously voted against the
relevant proposal.
The board of
directors believes that, if the number of shares of our common
stock and Series A Preferred Stock voting in favor of any of the
proposals presented at the annual meeting is insufficient to
approve a proposal, it is in the best interests of our stockholders
to enable the board of directors, for a limited period of time, to
continue to seek to obtain a sufficient number of additional votes
in favor of the proposal. Any signed proxies received by us in
which no voting instructions are provided on such matter will be
voted in favor of an adjournment in these circumstances. The time
and place of the adjourned meeting will be announced at the time
the adjournment is taken. Any adjournment of the annual meeting for
the purpose of soliciting additional proxies will allow our
stockholders who have already sent in their proxies to revoke them
at any time prior to their use at the annual meeting as adjourned
or postponed.
Vote
Required
Authority to
adjourn the annual meeting pursuant to this proposal 6, to another
place, date or time, if deemed necessary or appropriate, in the
discretion of the board of directors, requires the vote of a
majority of the shares of stock entitled to vote which are present,
in person or by proxy at the annual meeting.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “
FOR
”
THE
ADJOURNMENT OF THE ANNUAL MEETING,
IF
NECESSARY OR APPROPRIATE, TO SOLICIT ADDITIONAL
PROXIES.
Stockholder
Proposals for 2017 Annual Meeting of Stockholders and 2016 Proxy
Materials
Proposals of
holders of our voting securities intended to be presented at our
2017 annual meeting of stockholders and included in our proxy
statement and form of proxy relating to such meeting pursuant to
Rule 14a-8 of Regulation 14A must be received by us, addressed to
our Corporate Secretary, at our principal executive offices at 4125
Blackhawk Plaza Circle, Suite 201, Danville, California 94506, not
earlier than the close of business on August 30, 2017, and not
later than the close of business on September 29, 2017, together
with written notice of the stockholder’s intention to present
a proposal for action at the fiscal 2017 annual meeting of
stockholders, unless our annual meeting date occurs more than 30
days before or 30 days after December 28, 2017. In that case, we
must receive proposals not earlier than the close of business on
the 120th day prior to the date of the fiscal 2017 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 we first make a public announcement of the date of the
meeting.
Stockholder
proposals must be in writing and must include (a) the name and
record address of the stockholder who intends to propose the
business and the class or series and number of shares of capital
stock of us which are owned beneficially or of record by such
stockholder; (b) a representation that the stockholder is a holder
of record of stock of us entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to introduce
the business specified in the notice; (c) a brief description of
the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (d)
any material interest of the stockholder in such business; and (e)
any other information that is required to be provided by the
stockholder pursuant to Regulation 14A under the Exchange Act. The
board of directors reserves the right to refuse to submit any
proposal to stockholders at an annual meeting if, in its judgment,
the information provided in the notice is inaccurate or incomplete,
or does not comply with the requirements for stockholder proposals
set forth in our Bylaws.
Additionally, the
Nominating and Governance Committee will consider director
candidates recommended by stockholders, provided stockholders
include (a) as to each person whom the stockholder proposes for the
Nominating and Governance Committee to consider for nomination for
election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class or series and number of
shares of capital stock of us which are owned beneficially or of
record by the person and (iv) any other information relating to the
person that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act, and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii)
the class or series and number of shares of capital stock of us
which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s)
are to be made by such stockholder, (iv) a representation that such
stockholder intends to appear in person or by proxy at the meeting
to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to
be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder. Such notice must be
accompanied by a written consent of each proposed nominee to being
named as a nominee and to serve as a director if elected.
Individuals recommended by stockholders in accordance with these
procedures will receive the same consideration received by
individuals identified to the Nominating and Governance Committee
through other means.
Additional
Filings
Our Forms 10-K, 10-Q, 8-K and
all amendments to those reports are available without charge
through our website (
www.pacificenergydevelopment.com
)
as soon as reasonably practicable after they are electronically
filed with, or furnished to, the Securities and Exchange
Commission. Information on our website does not constitute part of
this proxy statement.
We will provide,
without charge, to each person to whom a proxy statement is
delivered, upon written or oral request of such person and by first
class mail or other equally prompt means within one business day of
receipt of such request, a copy of any of the filings described
above. Individuals may request a copy of such information by
sending a request to us, Attn: Corporate Secretary, PEDEVCO
Corp.,
4125 Blackhawk
Plaza Circle, Suite 201, Danville, California
94506
.
Other
Matters
As of the date of
this proxy statement, our management has no knowledge of any
business to be presented for consideration at the annual meeting
other than that described above. If any other business should
properly come before the annual meeting or any adjournment thereof,
it is intended that the shares represented by properly executed
proxies will be voted with respect thereto in accordance with the
judgment of the persons named as agents and proxies in the enclosed
form of proxy.
The board of
directors does not intend to bring any other matters before the
annual meeting of stockholders and has not been informed that any
other matters are to be presented by others.
Interest
of Certain Persons in or Opposition to Matters to Be Acted
Upon:
|
(a)
|
No officer or
director of us has any substantial interest in the matters to be
acted upon, other than his or her role as an officer or director of
us, or as a stockholder of us.
|
|
(b)
|
No director of us
has informed us that he or she intends to oppose the action taken
by us set forth in this proxy statement.
|
Company
Contact Information
All inquiries
regarding our Company should be addressed to our Company’s
principal executive office:
PEDEVCO
Corp.
4125
Blackhawk Plaza Circle, Suite 201
Danville,
California 94506
DOCUMENTS INCORPORATED BY REFERENCE
In accordance with
Item 13(b)(2) of the SEC’s Schedule 14A, certain financial
and other information required to be disclosed in connection with
“
Proposal 2 -
Approval of the Issuance of Shares of Common Stock Exceeding 19.9%
of Our Outstanding Common Stock Upon Conversion of the MIEJ
Convertible Promissory Note
”, beginning on page 40, of
this proxy statement are incorporated by reference to the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2015, as filed with the SEC on March 29, 2016, a copy
of which has been included with this proxy statement, and
specifically to the sections included therein entitled as follows:
(i) “
Selected
Financial Data
”; (ii) “
Financial Statements and Supplementary
Data
”; (iii) “
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
”; (iv) “
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
”; and (v) “
Quantitative and Qualitative
Disclosures About Market Risk
”. We are delivering to
security holders with this proxy statement the aforementioned
information incorporated by reference in accordance with Item
13(b)(2) of Schedule 14A.
|
|
By Order of the
Board of Directors,
|
|
|
|
|
|
Frank C.
Ingriselli, Chairman
|
APPENDIX
A
AMENDED
AND RESTATED SECURED SUBORDINATED PROMISSORY NOTE, DATED
FEBRUARY
19,
2015, AND EFFECTIVE JANUARY 1, 2015, ISSUED BY PEDEVCO CORP. TO MIE
JURASSIC
ENERGY
CORPORATION
THIS
NOTE, AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE (THE “
SECURITIES
”) HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED
UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “
ACT
” OR THE
“
SECURITIES
ACT
”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO
OR (II) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER
THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER
NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS
LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS
NOTE AND ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE
(EXCEPT AS OTHERWISE PROVIDED BELOW).
AMENDED
AND RESTATED
SECURED
SUBORDINATED PROMISSORY NOTE
Danville,
California
Effective
Date: January 1, 2015
This
AMENDED AND RESTATED SECURED SUBORDINATED
PROMISSORY NOTE
(this “
Note
”)
is made and entered into on February 19, 2015, to be effective as
of January 1, 2015 (the “
Effective
Date
”), and amends, restates and supersedes in its
entirety that certain Amended and Restated Secured Subordinated
Promissory Note, dated March 25, 2013, with an effective date of
November 1, 2012, as amended by that First Amendment dated July 19,
2013, by Pacific Energy Development Corp., a Nevada corporation
(“
PEDCO
”)
in favor of MIE Jurassic Energy Corporation (the
“
Holder
”);
and such note and all obligations thereunder shall be referred to
herein as the “
Prior
Obligations
”). This Amended and Restated Secured
Subordinated Promissory Note (this “
Note
”,
“
Promissory
Note
” or “
Agreement
”),
evidences
Four Million Nine Hundred
Twenty Five Thousand U.S. Dollars
(the “
Principal
”)
owed to the Holder by PEDEVCO Corp. (the “
Company
”)
a Texas corporation, and the parent corporation of
PEDCO.
1.
Definitions
.
In addition to other terms defined throughout this Note, the
following terms have the following meanings when used
herein:
(a) “
Affiliate
”
means any other Person that (at the time when the determination is
made) directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such specified Person. As used in the foregoing sentence, the term
“
control
”
(including, with correlative meaning, the terms “
controlling,
”
“
controlled
by
” and “
under common
control with
”) means the power to direct the
management and/or the policies of a Person, directly or indirectly,
whether through the ownership of voting securities, by contract or
otherwise.
(b) “
Agreed
Interest Rate
” means ten percent per
annum.
Page
1 of 25
Amended
and Restated Secured Subordinated Promissory Note
PEDEVCO
Corp. and MIE Jurassic Energy Corporation
Effective
January 1, 2015
(c) “
Business
Day
” shall mean any day banking transactions can be
conducted in New York City, New York and does not include any day
which is a federal or state holiday in such location.
(d) “
Cash
Shortfall
” shall mean that at the time a Subordinated
Interest Payment is due hereunder, the Company does not have
sufficient cash on hand to meet all of its current obligations set
forth in the waterfall or similar provisions of the Senior Note (if
such Senior Note shall then be still outstanding) and the New
Senior Lending instruments, if any.
(e) “
Closing
”
means the closing of the Settlement Agreement.
(f) “
Closing
Date
” means the date of Closing of the transactions
contemplated by the Settlement Agreement.
(g) “
Closing
Price
” means, with respect to each share of Common
Stock for any day, (a) the last reported sale price regular way or,
in case no such sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case as
reported on the Principal Market or (b) if the Common Stock is not
listed or admitted for trading on, and the Principal Market is not,
any national securities exchange, the last reported sale price or,
in case no such sale takes place on such day, the average of the
highest reported bid and the lowest reported asked quotation for
the Common Stock, in either case as reported on the NASDAQ Capital
Market or NASDAQ National Market, or if applicable, the OTCQB
market or the OTC Pink Sheet market, as applicable.
(h) “
Common
Stock
” means the common stock, $0.001 par value per
share, of the Company.
(i) “
Conversion
Price
” means the
greater
of (a) $0.30 (subject
to adjustment for Recapitalizations as defined in
Section 10(g)
) (the
“
Floor
Price
”); and (b) eighty percent of the average Closing
Price over the prior sixty Trading Days from the date of any
determination of such Conversion Price (subject to adjustment for
Recapitalizations (which for the sake of clarity shall be
calculated by totaling the Closing Prices for each Trading Day
during the prior sixty Trading Day period and dividing such
aggregate sum by the total number of Trading Days in such
applicable sixty day period).
(j) “
Conversion
Right Triggering Event
” shall mean the extension of
the Original Maturity Date of this Note past March 8,
2017.
(k) “
Exchange
Act
” means the Securities Exchange Act of 1934, as
amended.
(l) “
Extension
Conditions
” means that (a) the amount of the
Replacement Lender Refinancing (as defined in
Section 3(c)
) shall not be
greater than the Maximum New Senior Lending Amount, and (b)(i) the
Company shall have undertaken commercially reasonable best efforts
to provide for the Replacement Lender Refinancing to include
adequate provisions to permit the payment to the Holder of all
Interest accrued under this Note commencing as of March 8, 2017
(and quarterly thereafter, until such time as this Note is paid in
full or otherwise satisfied), provided that notwithstanding (b)(i)
of this definition and at a minimum (ii) the Replacement Lenders
shall agree to the Company (or its Subsidiaries) making the
Subordinated Interest Payments, provided that any amount of accrued
Interest owed on this Note through the date of the payment of the
Subordinated Interest Payments, not paid in connection with the
Subordinated Interest Payments, and the remaining 5% of annual
Interest due hereunder in excess of the Subordinated Interest
Payments, or such other remaining amounts left after the Company
(or its Subsidiaries) have paid the amount of Subordinated Interest
Payments which the Company has sufficient cash flow to pay shall
continue to remain outstanding and accrue until the Maturity Date
of this Note.
Page 2
of 25
Amended
and Restated Secured Subordinated Promissory Note
PEDEVCO
Corp. and MIE Jurassic Energy Corporation
Effective
January 1, 2015
(m) “
Financing
”
means any and all Indebtedness incurred by the Company or any
Subsidiary of the Company, regardless of its form, other than a
pure equity investment, and including without limitation, all
principal and interest (including such interest as may accrue after
the initiation of bankruptcy proceedings), and all premiums, fees
and expenses owing by the Company or any Subsidiary, to any such
parties in respect of such Indebtedness. For the sake of clarity,
Indebtedness incurred in connection with a merger, acquisition or
combination transaction may also qualify as a “
Financing
”.
(n) “
Indebtedness
”
means, with respect to any Person, without duplication: (a)
indebtedness for borrowed money, whether current or funded,
short-term or long-term, secured or unsecured and whether or not
contingent; (b) obligations evidenced by bonds, notes, debentures,
letters of credit, guarantees or similar instruments; (c) all
obligations, contingent or otherwise, of that Person under
acceptance, letter of credit or similar facilities, (d) any
investment into the Company other than a pure equity investment,
and (e) all accrued interest, premiums, penalties, fees, costs and
other obligations relating to the foregoing items described in (a)
through (d) above.
(o) “
Investor
Restructuring
” means the refinancing, restructuring or
extension of the Senior Note by the Investors.
(p) “
Investors
”
means BRe BCLIC Primary, BRe BCLIC Sub, BRe WNIC 2013 LTC Primary,
BRe WNIC 2013 LTC Sub and RJ Credit LLC and/or any one or more of
their Affiliates, provided that where and if applicable, references
to the approval or consent of the Investors below shall also, or
alternatively, require where and as applicable, the consent of BAM
Administrative Services LLC, as agent for the
Investors.
(q) “
Liens
”
mean all mortgages, liens (statutory or otherwise), pledges,
security interests, charges, claims, restrictions, limitations,
options, easements, encroachments, rights of first refusal,
preemptive rights, conditional sale agreements, or other right to
purchase, adverse claims or restrictions or reservations of any
kind, including restrictions on transfer or other assignment, as
security or otherwise, of or relating to use, quiet enjoyment,
voting transfer or any other encumbrance of any kind
whatsoever.
(r) “
Material
Adverse Effect
” means any effect, change, event,
occurrence, circumstance or state of facts that would reasonably be
expected to (i) be materially adverse to the business, condition
(financial or otherwise), assets, liabilities, prospects or results
of operations of the Company as a whole, or (ii) materially
adversely affect the ability of the Company to perform its
obligations hereunder and consummate the transactions contemplated
hereby in a timely manner.
Page 3 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(s) “
Maturity
Date
” means the applicable maturity date of this Note,
which shall initially be the Original Maturity Date (as defined in
Section 3(a)
) and
shall upon any Investor Restructuring, and subject to the terms and
conditions of
Section
3(b)
, be the first business day immediately following the
Investor Restructuring Extended Maturity Date, or shall upon a
Replacement Lender Refinancing and subject to the terms and
conditions of
Section
3(c)
, be the first business day immediately following the
Replacement Lender Extended Maturity Date (as defined in
Section 3(c)
), as
applicable.
(t) “
Maximum
New Senior Lending Amount
” means (a) the amount as of
the Closing Date of the principal balance of and any unpaid
interest due under the terms of the Senior Note and any refinancing
or replacement thereof; and (b) the New Senior Lending (provided
that if all or a portion of the New Senior Lending reduces the
amount of the Senior Note, (a) shall reflect such reduced Senior
Note balance), which in aggregate (a plus b) shall not exceed
$95,000,000, without the prior written consent of the Holder in its
sole discretion.
(u) “
New
Senior Lending
” means (i) any and all funds advanced
by one or more Replacement Lenders in connection with a Financing
separate from a Replacement Lender Refinancing and/or (ii) any and
all funds advanced or Indebtedness incurred from one or more
Investors in connection with a Financing separate from a
Replacement Lender Refinancing.
(v) “
Person
”
means any natural person, corporation, general partnership, limited
partnership, limited liability company, limited liability
partnership, proprietorship, business or statutory trust, trust,
union, association, instrumentality, governmental authority or
other entity, enterprise, authority or unincorporated
entity.
(w) “
Principal
Market
” means initially the NYSE MKT, and shall also
include the New York Stock Exchange, NASDAQ Capital Market, the
OTCQB market, the NASDAQ National Market, or the OTC Pink Sheet
market, whichever is at the time the principal trading exchange or
market for the Common Stock, based upon share volume.
(x) “
Recapitalization
”
has the meaning given to such term in
Section 10(g)
of this
Note.
(y) “
Replacement
Lender Extended Maturity Date
” means the automatic
extension of the Maturity Date of the Note in connection with a
Replacement Lender Refinancing as defined in
Section 3(c)
of this
Note.
(z) “
Replacement
Lenders
” means one or more third party replacement
lenders, other than the Investors or any Affiliates of the
Investors, who participate in any New Senior Lending or the
Replacement Lender Refinancing (as described in
Section 3(c)
).
(aa) “
Securities
Act
” means the Securities Act of 1933, as
amended.
(bb) “
Senior
Note
” means those certain Secured Promissory Notes
issued by the Company to each of the Investors, dated March 7,
2014, in the aggregate amount of $35,499,059.74, and includes such
Senior Note as refinanced, restructured or extended in connection
with an Investor Restructuring or Replacement Lender
Refinancing.
Page 4 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(cc) “
Settlement
Agreement
” means that certain Settlement Agreement
dated as of even date herewith by and between the Holder, PEDCO and
the Company.
(dd) “
Subordinated
Interest Payments
” means (i) quarterly interest
payments (starting March 31, 2017) of not less than 5% per annum of
the Interest accrued beginning March 31, 2017, under this Note;
plus (ii) a one-time payment of the amount of accrued Interest due
hereunder (which shall in no event exceed $500,000), which
requirement to make such quarterly interest payments and such
one-time payment shall be subject to the Company not having a Cash
Shortfall at the time such Subordinated Interest Payment becomes
due.
(ee) “
Subsidiary
”
means with respect to any Person, (i) any corporation at least a
majority of the outstanding voting stock of which is owned,
directly or indirectly, by such Person or by one or more of its
subsidiaries, or by such Person and one or more of its
subsidiaries, (ii) any general partnership, joint venture, limited
liability company, statutory trust, or other entity, at least a
majority of the outstanding partnership, membership, or other
similar equity interests of which shall at the time be owned by
such Person, or by one or more of its subsidiaries, or by such
Person and one or more of its subsidiaries, and (iii) any limited
partnership of which such Person or any of its subsidiaries is a
general partner. For the purposes of this definition,
“
voting
stock
” means shares, interests, participations, or
other equivalents in the equity interest (however designated) in
such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other
than shares, interests, participations, or other equivalents having
such power only by reason of the occurrence of a
contingency.
(ff) “
Trading
Day
” means any day on which the Principal Market on
which shares of Common Stock are listed, traded or quoted, as
applicable, is open for trading.
2.
Promise
to Pay; Principal and Interest
.
2.1
Promise
to Pay.
FOR VALUE
RECEIVED
, the Company, unconditionally promises and agrees
to pay, as herein provided, on the Maturity Date, to the order of
Holder, at such place in the United States of America as Holder may
hereinafter designate in writing to Company, in lawful money of the
United States of America, the principal sum of
FOUR MILLION NINE HUNDRED TWENTY FIVE THOUSAND
U.S. DOLLARS
, together with interest thereon as provided
below, less any amounts repaid by the Company prior to the Maturity
Date, or converted into Common Stock of the Company as provided
herein.
2.2
Principal
and Interest
.
Interest on the Principal
amount of this Note shall accrue quarterly in arrears, beginning on
the Effective Date, at the Agreed Interest Rate
(“
Interest
”),
provided that the Company shall not be required to pay any
Principal or Interest on this Note until the Maturity Date or
except as required in connection with the Note Prepayment
Requirements (defined in
Section 5
). Interest
on any unpaid balance of this Note, including accrued but unpaid,
interest, shall be calculated on the basis of 30-day months and a
360-day year.
Page 5 of
25
Amended and Restated
Secured Subordinated Promissory Note
PEDEVCO Corp. and MIE
Jurassic Energy Corporation
Effective January 1,
2015
3.
Maturity
Date; New Senior Lending; Refinancing; Automatic Extension of
Maturity Date
.
(a) The
unpaid Principal and all accrued and unpaid Interest on this Note
shall be due and payable on March 8, 2017 (the “
Original Maturity
Date
”).
(b)
Investor
Restructuring.
In connection with an Investor
Restructuring of the Senior Note (but not otherwise), the Original
Maturity Date of this Note shall automatically and without
requiring the consent or approval of the Holder, and without any
required action by any parties, be extended until the first
business day immediately following the maturity date of such
refinanced, restructured or extended Senior Note (or portion
thereof) (the “
Investor
Restructuring Extended Maturity Date
”), provided that
the Investor Restructuring Extended Maturity Date shall be no later
than March 8, 2019. Any Investor Restructuring shall include
payment provisions whereby the Holder shall be paid all Interest
and fees accrued on this Note as of March 8, 2018, no later than
March 8, 2018. The Investor Restructuring may take place as one
transaction or a series of transactions solely by any of the
Investors and the Company (or its Subsidiaries) and the Investor
Restructuring Extended Maturity Date shall be the latest such
maturity date of the securities issued in connection with such
Investor Restructuring and/or the revised, restructured or extended
maturity date of the Senior Note (subject to such Investor
Restructuring Extended Maturity Date being no later than March87,
2019). For the sake of clarity and in an abundance of caution, the
Holder hereby confirms, consents and acknowledges its approval of
the New Senior Lending, and that such New Senior Lending shall not
require the approval or consent of the Holder.
(c)
Long-Term
Financing
.
(i) In
addition to and separate from the right of the Company to obtain
New Senior Lending as described in (d) below, the Holder hereby
consents to and approves the refinancing, restructuring or
extension on a one-time only basis (in the form of an amended
Senior Note or notes, a new promissory note or notes or any other
form of Indebtedness), by the Company (and/or any of its
Subsidiaries) of the Senior Note with one or more Replacement
Lenders (collectively referred to herein as a “
Replacement
Lender
Refinancing
”).
In the event of any Replacement Lender Refinancing, the Company (on
its own behalf and on behalf of its Subsidiaries), shall undertake
commercially reasonable best efforts to cause the Replacement
Lenders to simultaneously refinance both the Senior Note and this
Note (together with any outstanding Interest or fees due hereon) as
part of such Replacement Lender Refinancing. Despite such efforts,
should the Replacement Lenders be unable or unwilling to include
the amount owed under this Note in such financing, then the
Replacement Lender Refinancing may proceed without including the
amount owed to the Holder under this Note, and this Note may remain
in place and shall be automatically subordinated, without further
consent or approval of the Holder, to such Replacement Lender
Refinancing, subject to the terms and limitations herein provided.
Furthermore, upon the occurrence of such Replacement Lender
Refinancing, the Original Maturity Date of this Note shall be
automatically extended, without further consent or approval of the
Holder, and without any required action by any parties, to the
latest maturity date of the Indebtedness associated with the
Replacement Lender Refinancing (the “
Replacement Lender
Extended Maturity Date
”), provided that the Extension
Conditions are met at the time of such Replacement Lender
Refinancing, and provided further that the Replacement Lender
Extended Maturity Date shall never exceed March 8, 2020, regardless
of whether the latest maturity date of such indebtedness associated
with the Replacement Lender Refinancing is later than March 8,
2020. In the event the Extension Conditions are not met at the time
of the closing of such Replacement Lender Refinancing, the Maturity
Date of this Note shall remain the Original Maturity Date, provided
that if in the future, such Extension Conditions are met, following
the closing date of such Replacement Lender Refinancing, the
Maturity Date of this Note shall automatically, and without any
required action by the Company or the Holder, and without any
required action by any parties, be extended until the Replacement
Lender Extended Maturity Date. For the avoidance of doubt, (i) the
Subordinated Interest Payments shall be subordinated to the
Replacement Lender Refinancing and any New Senior Lending, as well
as any amount outstanding under the Senior Note, including any
accrued and unpaid Interest thereon, and should there be any Cash
Shortfall at the time that any Subordinated Interest Payments are
due, the Company (or where applicable, one or more of its
Subsidiaries) shall first make payments scheduled under the Senior
Note (if such Senior Note remains outstanding) and the New Senior
Lending prior to making such Subordinated Interest Payments to the
Holder, and (ii) regardless of the Replacement Lender Extended
Maturity Date or the extended tenor of the Replacement Lender
Refinancing as agreed by the Replacement Lenders, the Maturity Date
of this Note shall in no event exceed March 8, 2020. If
any Subordinated Interest Payment is not made in full because of a
Cash Shortfall, the Company shall deliver a certificate to Holder
at least five Business Days in advance of the date such
Subordinated Interest Payment is due setting forth the calculation
of such Cash Shortfall, including cash on hand and required
payments under the waterfall, in detail.
Page 6
of 25
Amended
and Restated Secured Subordinated Promissory Note
PEDEVCO
Corp. and MIE Jurassic Energy Corporation
Effective
January 1, 2015
(ii) For
the sake of clarity and in an abundance of caution, the Holder
hereby confirms, consents and acknowledges its approval of the
Replacement Lender Refinancing, if any, and that such
Replacement Lender Refinancing shall not require the approval or
consent of the Holder.
(d) From
time to time after the Effective Date, any of the Investors and any
Replacement Lenders may provide New Senior Lending (in one or a
series of transactions) to the Company (or its
Subsidiaries).
(e) No
repayments on this Note shall occur or be made by the Company if
there exists any event of default under the Senior Note or New
Senior Lending. In the event any of the Investors agree
to accrue interest on a portion of the Senior Note or New Senior
Lending owed to the Investors in order to accommodate a Replacement
Lender that only wants to replace a portion of the outstanding
Senior Note or New Senior Lending owed to the Investors in
connection with a Replacement Lender Refinancing, this Note and the
terms and conditions hereof, shall automatically become subject to
the same interest accrual terms of such Senior Note or New Senior
Lending, as applicable, including, but not limited to the
Subordinated Interest Payments, in the event such interest accrual
terms are more favorable to the Company (or any of the
Company’s Subsidiaries) than the terms and conditions of this
Note.
(f) The
amount of Principal and accrued Interest owed under this Note shall
automatically, and without further consent from the Holder, be
subordinated in every way to the Senior Note and any New Senior
Lending, and such New Senior Lending shall have the same rights and
preferences as the Senior Note, subject to the Maximum New Senior
Lending Amount, as herein provided. This
Section 3(f)
shall not in any
way limit or reduce the terms and conditions of
Sections 6
and 7
hereof.
(g) The
Company will reimburse the Holder for any costs reasonably incurred
by the Holder in connection with any New Senior
Lending.
Page 7
of 25
Amended
and Restated Secured Subordinated Promissory Note
PEDEVCO
Corp. and MIE Jurassic Energy Corporation
Effective
January 1, 2015
4.
Optional
Prepayments;
Forgiveness of Principal
.
(a) This
Note may be repaid in whole or in part by the Company, from time to
time, at any time without penalty or premium (“
Optional
Prepayments
”). Any Optional Prepayments shall be
applied first to any accrued Interest and then to any Principal
amount outstanding.
(b) In
the event the Company repays this Note in full pursuant to an
Optional Prepayment or Optional Prepayments and/or pursuant to an
Excess Financing Amount Mandatory Prepayment (as defined in
Section
5(b)
)(provided that for the sake of clarity the amount
required to be repaid by the Company pursuant to this
Section 4(b)
shall be reduced
by the 2015 Forgiven Amount defined below) on or before December
31, 2015 (the “
2015 Early
Prepayment Date
”), twenty percent (20%) of the
original Principal amount of this Note shall be automatically
forgiven by the Holder, the result of which shall be that the
Company shall only be required to pay the Holder an aggregate of
(i) eighty percent (80%) of the original Principal amount of this
Note (such remaining twenty percent (20%) of the original Principal
amount of this Note shall be defined herein as the
“
2015 Forgiven
Amount
”); and (ii) any and all accrued Interest on
this Note through the date of repayment in full and complete
satisfaction of all amounts owed to Holder under this
Note.
(c) In
the event the Company repays this Note in full pursuant to an
Optional Prepayment or Optional Prepayments and/or pursuant to an
Excess Financing Amount Mandatory Prepayment (as defined in
Section
5(b)
)(provided that for the sake of clarity the amount
required to be repaid by the Company pursuant to this
Section 4(c)
shall be reduced
by the 2016 Forgiven Amount defined below) on or before December
31, 2016 (the “
2016 Early
Prepayment Date
” and collectively with the 2015 Early
Prepayment Date as applicable, each an “
Early Prepayment
Date
”), fifteen percent (15%) of the original
Principal amount of this Note shall be automatically forgiven by
the Holder, the result of which shall be that the Company shall
only be required to pay the Holder an aggregate of (i) eighty-five
percent (85%) of the original Principal amount of this Note (such
remaining fifteen percent (15%) of the original Principal amount of
this Note shall be defined herein as the “
2016 Forgiven
Amount
” and together with the 2015 Forgiven Amount,
each a “
Forgiven
Amount
”); and (ii) any and all accrued Interest on
this Note through the date of repayment in full and complete
satisfaction of all amounts owed to Holder under this Note (the
reduced amount of Principal owed to the Holder in connection with a
complete Optional Prepayment pursuant to the terms and conditions
of this
Section
4(c)
and
Section
4(b)
, above, each as applicable “
Reduced Payment
Amount
”).
Page 8
of 25
Amended
and Restated Secured Subordinated Promissory Note
PEDEVCO
Corp. and MIE Jurassic Energy Corporation
Effective
January 1, 2015
(d) The
Holder agrees that the payment by the Company of the applicable
Reduced Payment Amount pursuant to
Section 4(b) or 4(c)
above,
will completely satisfy the amount owed to Holder under and in
connection with this Note, and upon payment in full of such
applicable Reduced Payment Amount: (i) this Note shall be
considered paid in full; (ii) the applicable Forgiven Amount shall
be considered waived and forgiven by Holder in its entirety; (iii)
the Company shall be released from any further obligation under or
in connection with this Note, including, but not limited to in
connection with the applicable Forgiven Amount; and (iv) this Note
shall be considered terminated and cancelled (collectively, the
“
Note Satisfaction
Confirmations
”).
5.
Mandatory
Prepayments
.
(a) Should
the Company or any of its Subsidiaries enter into any single
Financing or acquisition or any series of Financings or
acquisitions (each an “
Additional
Transaction
”, whether one or more) that results in the
Company or any of its Subsidiaries raising New Senior Lending of at
least $20,000,000 in excess of the principal balance of the Senior
Note as of the date the parties enter into this Note (the
“
Original Senior
Note Balance
”), then, the Holder shall have the right
to be paid all Interest and fees that have accrued on this Note
each and every time, as applicable, that an Additional Transaction
or series of Additional Transactions reaches or exceeds the $20
million threshold (a “
Mandatory
Prepayment of Interest
”). This right shall repeat each
time a new Additional Transaction or series of Additional
Transactions results in the Company or its Subsidiaries raising $20
million in New Senior Lending in excess of (i) the Original Senior
Note Balance; or (ii) the amount previously raised which triggered
the prior Mandatory Prepayment of Interest, as
applicable.
(b) Should
the Company or any of its Subsidiaries obtain any Financing which
exceeds the Maximum New Senior Lending Amount, the amount of such
Financing which exceeds the Maximum New Senior Lending Amount shall
be paid (i) first to the Holder, as a mandatory pre-payment of this
Note, until the amount of this Note (both Principal and accrued
Interest due hereunder) is paid in full; and (ii) thereafter to
Company and/or its Affiliates (an “
Excess Financing
Amount Mandatory Prepayment
”). For the sake of
clarity, the receipt of Financing by the Company (or any
Subsidiary) in excess of the Maximum New Senior Lending Amount
shall not trigger an Event of Default or default hereunder, and the
Holder shall not have any rights to approve or consent to the terms
of any such Financing, provided that the requirements of the
Company to make the Excess Financing Amount Mandatory Prepayment
are complied with hereunder. To the extent the amount of
any Excess Financing Amount Mandatory Prepayment fully satisfies
the Reduced Payment Amount of this Note as described in
Section 4
, on or
prior to the applicable Early Prepayment Date, such repayment shall
be subject to the terms and conditions of
Sections 4(b)
or 4(c)
hereof as applicable,
and the Company shall only be required to repay the Reduced Payment
Amount of this Note.
Page 9 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(c) Except
for (a) the Mandatory Prepayment of Interest, if and as required
pursuant to
Section
5(a)
, above, (b) the Excess Financing Amount Mandatory
Prepayment requirement, if and as required pursuant to
Section 5(b)
, above, and (c)
the payment of Subordinated Interest Payments which come due and
are payable as provided in
Section 3(c)
, hereof in the
event of a Replacement Lender Refinancing (collectively, the
“
Note Prepayment
Requirements
”), no payments whatsoever of Principal or
Interest hereunder shall be required to be made by the Company
prior to the Maturity Date.
6.
Security
Interest
.
(a) The
Company and the Company’s Subsidiaries hereby grant to the
Holder a continuing second priority security interest in and Lien
on, second only to the Liens of Investors under the Senior Note and
any New Senior Lending and if applicable, the Replacement Lenders
in connection with any New Senior Lending or the Replacement Lender
Refinancing or in connection with a Replacement Lender Refinancing,
all of the properties, assets, and rights of the Company and its
Subsidiaries, wherever located and whether now owned or hereafter
acquired or arising, and all proceeds and products thereof, subject
to the requirements and terms and provisions of
Section 7
hereof (all such
properties, assets, rights, proceeds and products hereinafter
sometimes called, collectively, the “
Collateral
”
and such security interest defined herein as the
“
Security
Interest
”).
(b) At
the reasonable request of the Holder, the Company and if
applicable, its Subsidiaries, will join with the Holder in
executing one or more financing statements pursuant to the Uniform
Commercial Code (the “
Code
”)
in a form reasonably satisfactory to the Holder. The Company on its
behalf and on behalf of its Subsidiaries, hereby authorizes the
Holder to file a financing statement signed only by the Holder in
all places where necessary to perfect the Holder’s Security
Interest in the Collateral in all jurisdictions where such
authorization is permitted by the Code. Without limiting the
foregoing the Company agrees that whenever the Code requires the
Company or any of the Company’s Subsidiaries to sign a
financing statement for filing purposes, the Company (on its own
behalf and on behalf of each of its Subsidiaries) hereby appoints
the Holder or any of the Holder’s representatives as the
Company’s (and its Subsidiaries’) attorney and agent,
with full power of substitution, to sign or endorse the
Company’s (or any of the Company’s Subsidiaries’)
name on any such financing statement or other document and
authorizes the Holder to file such a financing statement in all
places where necessary to perfect the Holder’s Security
Interest in the Collateral; and the Company ratifies all acts of
the Holder and said representatives and agrees to hold the Holder
and said representatives harmless from all acts of commission or
omission or any error of judgment or mistake of fact or law
pertaining thereto. A carbon, photographic or other reproduction of
this Note or of a financing statement is sufficient as a financing
statement. Upon full payment or satisfaction of all obligations
under this Note, the Lien or charge created hereby or resulting
herefrom, shall cease to exist and the Holder shall promptly file
all termination statements requested by the Company necessary to
accomplish this purpose. Notwithstanding the above, the Holder
hereby authorizes the Company and each of its Subsidiaries to file
a termination statement under the Code in any and all jurisdictions
that the Company or any of its Subsidiaries deem necessary or
warranted, without the prior consent or approval of the Holder, at
such time as this Note has been satisfied in full.
Page 10 of
25
Amended and Restated Secured Subordinated
Promissory Note
PEDEVCO Corp. and MIE Jurassic Energy
Corporation
Effective January 1, 2015
(c) Upon
any disposition of any of the Collateral, the Holder hereby
authorizes the Company or any of its Subsidiaries to file
termination statements under the Code with respect to any financing
statements in favor of the Holder with respect to the Company, the
Company’s Subsidiaries and the Collateral, and the Holder
agrees, if requested by the Company, to execute and immediately
deliver any and all other releases, terminations and other
documents or agreements which the Company deems necessary to
accomplish a disposition of the Collateral free of the Security
Interest; provided that the Holder shall retain its Security
Interest in the proceeds of the Collateral so disposed of as
described above.
(d) Notwithstanding
Sections 6(a)
or 6(b)
, above, the
Holder has and shall have no control over the cash flow of the
Company or any of the Company’s Subsidiaries, nor shall the
Company, any of the Company’s Subsidiaries, the Investors, or
the Replacement Lenders, be required to obtain the consent of the
Holder regarding the disposition, sale, or use of any assets of the
Company or its Subsidiaries which form a part of the Collateral at
any time in the future.
(e) Holder
will not, without the prior written consent of the Investors and/or
the Replacement Lenders (a) transfer or assign, or attempt to
enforce or collect the amounts owed to Holder pursuant to the terms
of this Note, (b) take any additional collateral security from the
Company or any of the Company’s Subsidiaries for any amounts
owed to the Holder under this Note, it being agreed by Holder that
any security interest of Holder in any such collateral security
shall be subordinate and of junior priority to the
Investors’, and/or the Replacement Lenders’, security
interest therein, or (c) commence, or join with any other creditor
in commencing, any bankruptcy, reorganization or insolvency
proceedings with respect to the Company or any of its
Subsidiaries.
(f) Should
any such Additional Transactions or New Senior Lending result in
the acquisition of new assets after the Effective Date, the Holder
shall be granted a subordinate lien on all such acquired
assets.
7.
Subordination
of this Note
.
(a) Except
as expressly provided herein, Holder agrees that, until such time
as all amounts owing by the Company under the Senior Note and any
New Senior Lending have been paid and satisfied in full, (i) the
repayment of this Note (including Principal, Interest and any fees
or other amounts due hereunder), whether upon the occurrence of an
Event of Default (as defined in
Section 14
)
, or otherwise; and (ii) any
Lien it may acquire against any assets or property of the Company
to secure any obligations of the Company to Holder in connection
herewith, including, but not limited to the Security Interest,
shall be subordinate, junior and inferior to [A] the payment in
full by the Company (or any of its Subsidiaries) of all amounts
(including principal, interest, fees or other expenses due) to the
Investors and/or the Replacement Lenders under the terms of the
Senior Note and/or New Senior Lending; and [B] the Liens of the
Investors and/or any Replacement Lenders, under the Senior Note
and/or New Senior Lending. The priorities set forth in this section
are applicable irrespective of the order or time of attachment, or
the order, time or manner of perfection, or the order or time of
filing or recordation of any document or instrument, or other
method of perfecting the Holder’s Lien or Security Interest,
and notwithstanding any conflicting terms or conditions which may
be contained in the Senior Note or any New Senior Lending or any
other documents.
Page 11 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(b) The
Holder hereby waives notice of acceptance of the subordination
provisions and requirements of this
Section 7
(the
“
Subordination
Requirements
”) by the Investors and/or any Replacement
Lenders, and further waives notice of and consent to the making,
amount and terms of any Investor Restructuring of the Senior Note
and/or any New Senior Lending, which may exist or be created from
time to time and any renewal, extension, amendment or modification
thereof, and any other lawful action which the Investors and/or
Replacement Lenders in their sole and absolute discretion may take
or omit to take with respect thereto. Notwithstanding the above,
the Subordination Requirements shall not modify or affect the Note
Prepayment Requirements set forth herein. The Holder hereby also
waives notice of the existence or creation or non-payment of the
Senior Note or New Senior Lending or the occurrence of any events
of default thereunder.
(c) No
payments or other distributions whatsoever in respect of the
amounts owed to Holder under this Note, whether upon the occurrence
of an Event of Default (as defined in
Section 14
)
, or otherwise, shall be made,
nor shall any property or assets of the Company or any of the
Company’s Subsidiaries be applied, directly or indirectly, to
the purchase or other acquisition or retirement of any amounts owed
under this Note except as expressly set forth herein. Otherwise,
the Investors and/or the Replacement Lenders shall be entitled to
receive and retain all such payments. Until the amounts owed under
the Senior Note and any New Senior Lending shall have been paid in
full and satisfied, Holder shall not take any action to enforce the
Security Interest provided for hereunder.
(d)
In the event of any dissolution, winding-up, liquidation,
readjustment, reorganization or other similar proceedings relating
to the Company or any of its Subsidiaries, or to all or
substantially all its or any of its Subsidiary’s property
(whether voluntary or involuntary, partial or complete, and whether
in bankruptcy, insolvency or receivership, or upon an assignment
for the benefit of creditors, or any other marshaling of the assets
and liabilities of the Company, or any sale of all or substantially
all of the assets of the Company, or otherwise), the Senior Note
and if applicable, the New Senior Lending, shall first be paid in
full before Holder shall be entitled to receive and to retain any
further payment or distribution in respect of this Note, and, in
order to implement the foregoing, (a) all payments and
distributions of any kind or character in respect to this Note to
which Holder would be entitled if this Note were not subordinated,
or subordinated and pledged or assigned, pursuant to this Note
shall be made directly to the applicable Investors and/or the
Replacement Lenders, as applicable, (b) Holder shall promptly file
a claim or claims, in the form required in such proceedings, for
the full outstanding amount of this Note, and shall cause said
claim or claims to be approved and all payments and other
distributions in respect thereof to be made directly to the
applicable Investors and/or the Replacement Lenders, as applicable,
and (c) Holder hereby irrevocably agrees that the Investors and/or
the Replacement Lenders, as applicable, may, at their sole
discretion, during the continuance of an Event of Default, in the
name of Holder or otherwise, demand, sue for, collect and receive
any and all such payments or distributions, and file, prove, and
vote or consent in any such proceedings with respect to, any and
all claims of Holder relating to this Note. Any excess remaining
after the satisfaction in full of the amounts owed under the Senior
Note or New Senior Lending, as applicable, will be remitted to
Holder.
Page
12 of 25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO
Corp. and MIE Jurassic Energy Corporation
Effective
January 1, 2015
(e) The
Holder agrees to promptly enter into a subordination agreement or
subordination agreements from time to time to evidence and document
the requirements set forth in this
Section 7
, according to
standard industry terms and conditions and including those terms
and conditions that are reasonably requested by the Company, the
applicable Investors and/or any Replacement Lenders (as applicable,
“
Subordination
Agreements
”). The Holder shall not unreasonably delay,
condition or withhold its approval and execution of the
Subordination Agreements. The Holder agrees and confirms that the
terms and conditions of the Subordination Agreements will supersede
and take preference over the terms and conditions of this
Section
7
.
8.
Representations
and Warranties of the Company
. The Company represents and
warrants to the Holder as follows:
(a) The
execution and delivery by the Company of this Note (i) are within
the Company’s corporate power and authority, and (ii) have
been duly authorized by all necessary corporate action. Further,
the undersigned is a duly authorized representative of the Company
and has been authorized by a resolution of the Board of Directors
of the Company to exercise any and all documents necessary to
effectuate the transaction contemplated hereby.
(b) This
Note is a legally binding obligation of the Company, enforceable
against the Company in accordance with the terms hereof, except to
the extent that (i) such enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors’ rights, and
(ii) the availability of the remedy of specific performance or in
injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefore may be
brought.
(c) The
Company agrees to pay or reimburse the Holder for all reasonable
costs and expenses associated with the Exchange Act Filings (as
defined in
Section
9(l)
, below), upon receipt of documented evidence
thereof.
(d) If
at any time after the earlier of (a) the date of the
Company’s 2015 annual meeting of stockholders; and (b)
December 31, 2015, the maximum number of shares of Common Stock
issuable to the Holder hereunder, pursuant to the terms and
conditions of
Section
10
hereof, would, in the reasonable determination of the
Board of Directors of the Company, exceed the Share Cap (as defined
in
Section 10(k)
below), the Company shall seek Shareholder Approval (as defined in
Section 10(k)
,
below) at the Company’s next regularly scheduled annual
meeting of stockholders (the “
Annual
Meeting
”), pursuant to applicable rules and
regulations of the NYSE MKT and the Securities and Exchange
Commission (the “
Shareholder
Approval Requirement
”). For the sake of clarity and in
an abundance of caution, it shall not be deemed to be a default, or
Event of Default under this Note in the event the Company’s
stockholders do not provide the Shareholder Approval at the Annual
Meeting, provided that the Board of Directors of the Company shall
recommend that the stockholders approve such Shareholder Approval
and shall not take any action which in the reasonable determination
of the Holder, would discourage any stockholder from approving such
Shareholder Approval. In the event the Shareholder Approval is not
obtained at the Annual Meeting, the Company shall re-submit such
proposal for Shareholder Approval at each subsequent annual meeting
of stockholders of the Company until such time as this Note has
been repaid or satisfied in full. The Shareholder Approval
requirement may be waived by the Holder at any time in
writing.
Page 13 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
9.
Representations,
Warranties and Covenants of Holder
. Holder represents and
warrants to the Company, and agrees, as follows (collectively the
“
Representations
”):
(a) The
execution and delivery by the Holder of this Note (i) are within
the Holder’s corporate power and authority, and (ii) have
been duly authorized by all necessary corporate action. Further,
the undersigned is a duly authorized representative of the Holder
and has been authorized by a resolution of the Board of Directors
of the Holder to exercise any and all documents necessary to
effectuate the transaction contemplated hereby.
(b) This
Note is a legally binding obligation of the Holder, enforceable
against the Holder in accordance with the terms hereof, except to
the extent that (i) such enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors’ rights, and
(ii) the availability of the remedy of specific performance or in
injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefore may be
brought.
(c) This
Note and any Conversion Shares (as such term is defined in
Section 10(a)
hereof) issuable upon conversion of this Note are being acquired by
Holder for its own account for investment and not with a view to,
or for sale in connection with, a distribution, as that term is
used in Section 2(a)(11) of the Securities Act, in a manner which
would require registration under the Securities Act or any state
securities laws, or for sale in connection with, any distribution
thereof.
(d) Holder
is familiar with Regulation D of the Securities Act and confirms
and certifies that it is an “
accredited
investor
” as defined in Regulation D under the
Securities Act.
(e) Holder
recognizes that this Note and the Conversion Shares issuable upon
conversion hereof have not been registered under the Securities
Act, nor under the securities laws of any state and, therefore,
cannot be resold unless the resale of this Note and the Conversion
Shares issuable upon conversion hereof is registered under the
Securities Act or unless an exemption from registration is
available.
(f) Holder
has carefully considered and has, to the extent it believes such
discussion necessary, discussed with its professional, legal, tax
and financial advisors, the suitability of an investment in this
Note and the Conversion Shares issuable upon conversion hereof for
its particular tax and financial situation and its advisers, if
such advisors were deemed necessary, have determined that this Note
and the Conversion Shares issuable upon conversion hereof (as and
if applicable) is a suitable investment for it.
Page 14 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(g) Holder
has not been offered this Note and the Conversion Shares issuable
upon conversion hereof by any form of general solicitation or
advertising, including, but not limited to, advertisements,
articles, notices or other communications published in any
newspaper, magazine, or other similar media or television or radio
broadcast or any seminar or meeting where, to Holder’s
knowledge, those individuals that have attended have been invited
by any such or similar means of general solicitation or
advertising.
(h) Holder
has had an opportunity to ask questions of and receive satisfactory
answers from the Company, or persons acting on behalf of the
Company, concerning the terms and conditions of this Note, the
Conversion Shares issuable upon conversion hereof and the Company,
and all such questions have been answered to the full satisfaction
of Holder.
(i) Company
has not supplied Holder any information regarding this Note or the
Conversion Shares issuable upon conversion hereof or an investment
in this Note or the Conversion Shares issuable upon conversion
hereof other than as contained in this Note, and Holder is relying
on its own investigation and evaluation of the Company and this
Note and the Conversion Shares issuable upon conversion hereof and
not on any other information.
(j) Holder
understands that this Note and any Conversion Shares converted
pursuant hereto have not been registered under the Securities Act
or registered or qualified under any of the securities laws of any
state or other jurisdiction, are “
restricted
securities
”, and cannot be resold or otherwise
transferred unless they are registered under the Securities Act,
and registered or qualified under any other applicable securities
laws, or an exemption from such registration and qualification is
available. Except in cases in which such shares have become
unrestricted and freely tradable under Rule 144A, prior to any
proposed transfer of this Note or any Conversion Shares, Holder
shall, among other things, give written notice to the Company of
its intention to effect such transfer, identifying the transferee
and describing the manner of the proposed transfer and, if
requested by the Company, accompanied by (i) investment
representations by the transferee similar to those made by Holder
in this
Section 9
and (ii) an opinion of counsel satisfactory to the Company to the
effect that the proposed transfer may be effected without
registration under the Securities Act and without registration or
qualification under applicable state or other securities laws. Each
certificate issued to evidence any Conversion Shares shall bear a
legend as follows (subject, where and if applicable, to a Legend
Removal as described in
Section 10(j)
):
“The
securities represented by this certificate have not been registered
under the Securities Act of 1933 or any state securities act. The
securities have been acquired for investment and may not be sold,
transferred, pledged or hypothecated unless (i) they shall have
been registered under the Securities Act of 1933 and any applicable
state securities act, or (ii) the corporation shall have been
furnished with an opinion of counsel, satisfactory to counsel for
the corporation, that registration is not required under any such
acts.”
Page 15 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(k) The
Holder has read and reviewed, and been provided an opportunity to
ask questions regarding, the Company’s periodic and current
report filings (Form 10-Qs, Form 10-Ks and Form 8-Ks) on the
Securities and Exchange Commission’s EDGAR webpage at
www.sec.gov
,
including, but not limited to, the risk factors, results of
operations, description of business operations, executive
compensation information, plan of operations, management’s
discussion and analysis of results of operations and audited and
unaudited financial statements included therein.
(l) Holder
agrees to make any and all filings required by Holder under the
Exchange Act in connection with the receipt by the Holder of this
Note within the time period required for such filings, and its
right to receive the Conversion Shares issuable upon Conversion
hereof (each as defined in
Section 10
, below), upon the
occurrence of any Conversion Right Triggering Event (the
“
Exchange Act
Filings
”). Holder further agrees and confirms that all
Exchange Act Filings are the sole obligation of
Holder.
10.
Holder’s
Option to Convert this Note After A Conversion Right Triggering
Event
.
(a) At
any time after a Conversion Right Triggering Event has occurred,
prior to the payment in full by the Company of all Principal and
Interest due pursuant to the terms of this Note, and subject to the
Share Cap (as defined in
Section 10(k)
, below), the
Holder shall have the Option to convert all or a portion of the
unpaid Principal due under the terms of this Note, together with
all accrued Interest hereunder, into shares of Common Stock of the
Company (the “
Conversion
Shares
” and the “
Conversion
Option
” or the “
Option
”)
at the Conversion Price (a “
Conversion
”).
For the sake of clarity, Holder shall have no right to affect a
Conversion of this Note until or unless a Conversion Right
Triggering Event has occurred hereunder. Holder may
exercise this right as many times as it so elects, so long as some
portion of the outstanding Principal and Interest hereunder have
not been paid in full.
(b) In
order to exercise this Conversion Option, the Holder shall
surrender this Note to the Company, accompanied by written notice
of its intentions to exercise this Conversion Option, which notice
shall set forth the Principal amount and accrued Interest of this
Note to be converted, and the calculation of the applicable
Conversion Price, and shall be in the form of
Exhibit A
, attached hereto (the
“
Notice of
Conversion
”). Within five (5) business days of the
Company’s receipt of the Notice of Conversion and this Note,
the Company shall deliver or cause to be delivered to the Holder,
written confirmation that the Shares have been issued in the name
of the Holder (or the Holder’s assign, as permitted pursuant
to applicable law and as described in the Notice of
Conversion).
(c) In
the event of the exercise of the Conversion Option, the Holder
shall cooperate with the Company to promptly take any and all
additional actions required to make Holder a stockholder of the
Company including, without limitation, in connection with the
issuance of the Conversion Shares, such representations as to
financial condition, investment intent and sophisticated investor
status as are reasonably required by counsel for the
Company.
Page 16 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(d) The
Company shall at all times take any and all additional actions as
are necessary to maintain the required authority to issue the
Conversion Shares to the Holder, in the event the Holder exercises
its rights under the Conversion Option, subject in all cases to the
Share Cap (as defined in
Section 10(k)
, below and the
Shareholder Approval Requirements set forth in
Section 8(d)
.
(e) Payment
by the Company of the entire Principal and Interest owed pursuant
to the terns of this Note prior to Holder’s delivery of a
Notice of Conversion shall terminate Holder’s Option to
convert.
(f) Conversion
calculations pursuant to this
Section 10
shall be rounded to
the nearest whole share of Common Stock, and no fractional shares
shall be issuable by the Company upon conversion of this
Note.
(g) If
the Company at any time, from time to time, on or after the Closing
Date (i) effects a subdivision of its outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision
shall be proportionately decreased, and (ii) conversely, if the
Company at any time or from time to time on or after the Closing
Date combines its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price then in effect immediately
before the combination shall be proportionately increased, provided
that (iii) the Board of Directors of the Company shall also make
equitable adjustments in the Conversion Price upon the occurrence
of any other event which in their good faith reasonable
determination requires an adjustment of such Conversion Price to
maintain the purpose and intent of the Conversion Price as set
forth herein (each a “
Recapitalization
”).
(h) All
Conversion Shares of Common Stock which may be issued upon
Conversion of this Note will, upon issuance by the Company in
accordance with the terms of this Note, be validly issued, free
from all taxes and liens with respect to the issuance thereof
(other than those created by the holders), free from all
pre-emptive or similar rights and be fully paid and
non-assessable.
(i) On
the date of any Conversion, all rights of any Holder with respect
to the amount of this Note converted, will terminate, except only
for the rights of any such Holder to receive certificates (if
applicable) for the number of Conversion Shares which this Note has
been Converted.
(j) Upon
Conversion of any part of this Note by the Holder, the Company
shall promptly take any and all commercially reasonable action
necessary to ensure the removal of restrictive legends from the
Conversion Shares issuable upon such Conversion (or where and if
applicable, to issue such Conversion Shares without restrictive
legend) pursuant to the Company’s and the Holder’s
compliance with Rule 144 of the Securities Act and upon provision
to the Company or its legal counsel by the Holder of usual and
customary representations and warranties in connection therewith
(or, if the requisite holding period under Rule 144 of the
Securities Act has not yet lapsed with respect to the Conversion
Shares issuable upon a Conversion, then immediately after such
applicable holding period has been satisfied)(as applicable, a
“
Legend
Removal
”).
Page 17 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(k) The
maximum number of Conversion Shares to be issued upon Conversion of
this Note or otherwise hereunder, subject to NYSE MKT rules, shall
not (i) exceed 19.9% of the outstanding shares of Common Stock of
the Company on the date the transactions contemplated herein were
first binding on the parties hereto, calculated in accordance with
applicable NYSE MKT rules, or (ii) exceed 19.9% of the combined
voting power of the then outstanding voting securities of Common
Stock on the date the transactions contemplated herein were first
binding on the parties hereto, calculated in accordance with
applicable NYSE MKT rules, in each of subsections (i) and (ii)
before taking into account any Conversion Shares issuable upon
Conversion of this Note, or (iii) otherwise exceed such number of
shares of Common Stock that would violate applicable listing rules
of the NYSE MKT in the event the Company’s stockholders do
not approve the issuance of the Conversion Shares upon Conversion
hereof (the “
Share
Cap
”). In the event the number of Conversion Shares to
be issued to the Holder upon conversion of this Note exceeds the
Share Cap, then the Note shall cease being convertible until such
time, if ever, as the Company has received shareholder approval for
the issuance of the same in accordance with NYSE MKT rules
(“
Shareholder
Approval
”). Notwithstanding anything to the contrary
herein, issuance of any Common Stock upon conversion of the Note
shall be subject to NYSE MKT approval (where and as
applicable).
(l) The
Company shall bear all reasonable costs and expenses associated
with securities laws and stock market approvals regarding
conversion and Legend Removal of the Conversion
Shares.
(m) The
Company agrees that it will include a proposal in its proxy
materials for its 2016 Annual Meeting of Shareholders authorizing
the issuance of the maximum number of Conversion Shares issuable
upon exercise of the Conversion Option (assuming full Conversion by
the Holder at the Floor Price (the “
Conversion
Proposal
”) and use its best efforts to cause its
shareholders to authorize, approve and adopt the Conversion
Proposal. In the event the Conversion Proposal fails to pass at the
2016 Annual Meeting of Shareholders, the Company shall thereafter
take all commercially reasonable action (including, without
limitation, the engagement of a national proxy solicitor) to
procure approval of the Conversion Proposal no later than at its
2017 Annual Meeting of Shareholders. In all cases, and
notwithstanding anything contained in this
Section 10(m)
to the contrary,
(A) the Company shall take all reasonable actions as may be
necessary to procure any approvals of any Principal Market with
respect to the issuance of Conversion Shares (before the issuance
of such Conversion Shares) or the Conversion Proposal, and (B) if
the Company reasonably concludes that shareholder approval for the
issuance of some or all of the Conversion Shares would not be
required for purposes of its 2016 Annual Meeting of Shareholders,
it may request a waiver of such obligation from the Holder, which
may be granted, conditioned or denied by Holder in its sole and
absolute discretion.
11.
No
Usury
.
This Note is
hereby expressly limited so that in no event whatsoever, whether by
reason of deferment or advancement of loan proceeds, acceleration
of maturity of the loan evidenced hereby, or otherwise, shall the
amount paid or agreed to be paid to the Holder hereunder for the
loan, use, forbearance or detention of money exceed the maximum
interest rate permitted by the laws of any applicable jurisdiction.
If at any time the performance of any provision involves a payment
exceeding the limit of the price that may be validly charged for
the loan, use, forbearance or detention of money under applicable
law, then automatically and retroactively, ipso facto, the
obligation to be performed shall be reduced to such limit, it being
the specific intent of the Company and the Holder hereof that all
payments under this Note are to be credited first to interest as
permitted by law, but not in excess of (i) the agreed rate of
interest hereunder, or (ii) that permitted by law, whichever
is the lesser, and the balance toward the reduction of
principal.
Page 18 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
12.
Attorneys’
Fees
.
If the
indebtedness represented by this Note or any part hereof is
collected in bankruptcy, receivership or other judicial proceedings
or if this Note is placed in the hands of attorneys for collection
after default, the Company agrees to pay, in addition to the
principal and interest payable hereunder, reasonable
attorneys’ fees and costs incurred by the
Holder.
13.
Successors
and Assigns
.
The
rights and obligations of the Company and the Holder will be
binding upon and inure to the benefit of the successors, permitted
assigns, administrators and permitted transferees of the parties
hereto. Neither the Company nor the Holder may assign their rights
or obligations hereunder without the prior written consent of the
non-assigning party, whether by operation of law or otherwise, and
any such assignment shall be null and void, provided that no
consent shall be required in connection with the assignment of this
Note or the rights hereunder by the Holder or the Company to any
successor entity of the assets, operations or securities of such
assignor or the assignment of this Note from the Holder to any
Affiliate of the Holder. Upon any such permitted or approved
assignment, which shall be effective in the case of a permitted
assignment, upon notice thereof to the non-assigning party, and
upon any approved assignment, upon approval thereof by the
non-assigning party, all references herein to the
“
Company
”
and the “
Holder
”
as applicable, shall refer to the assignee of this Note, as
applicable.
14.
Events
of Default
.
(a)
General
.
If an Event of Default (as defined below) occurs, the Holder may
declare the principal amount then outstanding of, and the accrued
but unpaid Interest on, this Note to be immediately due and payable
by providing written notice to the Company.
(b)
Definition
.
For purposes of this Note, an “
Event of
Default
“ is any of the following
occurrences:
(i) The
Company shall fail to pay when due pursuant to the terms of this
Note (A) the outstanding Principal and all accrued but unpaid
Interest under this Note on the Maturity Date; and (B) any amounts
required to be paid pursuant to the applicable Note Prepayment
Requirements set forth herein;
(ii) The
failure of the Company to observe or perform any other covenant
under this Note if such failure continues for seven Business Days
without cure after the first to occur of (i) written notice of the
failure to observe or perform any such covenant has been provided
by the Holder to the Company or (ii) the Company having become
aware of such failure to observe or perform such
covenant;
Page 19 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(iii) Any
representation or warranty made by the Company herein shall prove
to have been untrue or misleading as of the time made and the fact,
event or circumstance that gave rise to such inaccuracy has had or
could reasonably be expected to result in a material adverse effect
on the Company’s ability to pay this Note on the Maturity
Date;
(iv) The
Company shall: (A) become insolvent or take any action which
constitutes its admission of inability to pay its debts as they
mature; (B) make an assignment for the benefit of creditors, file a
petition in bankruptcy, petition or apply to any tribunal for the
appointment of a custodian, receiver or a trustee for it or a
substantial portion of its assets; (C) commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation or statute of any jurisdiction,
whether now or hereafter in effect; (D) have filed against it any
such petition or application in which an order for relief is
entered or which remains undismissed for a period of ninety (90)
days or more; (E) indicate its consent to, approval of or
acquiescence in any such petition, application, proceeding or order
for relief or the appointment of a custodian, receiver or trustee
for it or a substantial portion of its assets; or (F) suffer any
such custodianship, receivership or trusteeship to continue
undischarged for a period of ninety (90) days or more;
or
(v) Any
event or series of events occurs which has or is reasonably likely
to have a Material Adverse Effect as reasonably determined by
Holder.
(c)
Remedies
on Default
. In case any one or more Events of Default shall
occur and be continuing, the Holder may proceed to protect and
enforce its rights by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein, or for an injunction against a
violation of any of the terms hereof, or in aid of the exercise of
any power granted hereby or by law or otherwise. In case of a
default in the payment of any principal of or interest on this
Note, or the failure by the Company to observe or perform any other
covenant under this Note (to the extent such failure constitutes an
Event of Default as defined above), the Company will pay to the
Holder such further amount as shall be sufficient to cover the cost
and expenses of collection, including, without limitation,
reasonable attorneys’ fees, expenses and disbursements. No
course of dealing and no delay on the part of the Holder in
exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice the Holder’s rights, powers or
remedies. No right, power or remedy conferred by this Note upon the
Holder shall be exclusive of any other right, power or remedy
referred to herein or now or hereafter available at law, in equity,
by statute or otherwise.
(d)
Subrogation
Upon Default
. Notwithstanding the terms and provisions of
this
Section 14
,
all rights of the Holder to enforce its rights hereunder in the
event of the occurrence of an Event of Default (including, but not
limited to pursuant to
Section 14(c)
), shall be
subject to and limited by, the subrogation requirements set forth
in
Section 7
,
above.
15.
Notices
.
Any notice, demand, request, waiver or other communication required
or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a Business Day
during normal business hours where such notice is to be received),
or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where
such notice is to be received) or (b) on the second Business Day
following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
Page 20 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
(a) If
to the Company:
Pacific Energy
Development Corp.
4125 Blackhawk
Plaza Circle, Suite 201
Danville,
California 94506
Tel: (855)
733-3826
Fax: (925)
403-0703
Attention: Clark R.
Moore, General Counsel and Chief Financial Officer
Email:
cmoore@pacificenergydevelopment.com
(b) With
a copy to:
The Loev Law Firm,
PC
Attn: David M.
Loev
6300 West Loop
South, Suite 280
Bellaire, Texas
77401
Tel: (713)
524-4110
Email:
dloev@loevlaw.com
(c) If
to Holder:
MIE Jurassic Energy
Corporation
Suite 1501, Block
C, Grand Palace
5 Hui Zhong Road,
Chaoyang District,
Beijing 100101 P.R.
China
Fax:
86-10-51238223
Email:
harper@mienergy.us
(d) With
a copy to:
Jones Walker,
LLP
Attn: Steve
Miller
10001 Woodloch Forest
Drive,
The Woodlands, TX
77
Tel: (281)
296-4400
Email:
smiller@joneswalker.com
Page 21 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
16.
Waivers
and Amendments
.
The
Company hereby waives presentment, demand for performance, notice
of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of the Holder in exercising any
right hereunder shall operate as a waiver of such right or any
other right. Any term of this Note may be amended or waived only
with the written consent of the Company and the
Holder.
17.
Construction
.
When used in this Note, unless a contrary intention appears: (i) a
term has the meaning assigned to it; (ii) “
or
” is
not exclusive; (iii) “
including
”
means including without limitation; (iv) words in the singular
include the plural and words in the plural include the singular,
and words importing the masculine gender include the feminine and
neuter genders; (v) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as
from time to time amended, modified or supplemented and includes
(in the case of agreements or instruments) references to all
attachments thereto and instruments incorporated therein; (vi) the
words “
hereof
”,
“
herein
”
and “
hereunder
”
and words of similar import when used in this Note shall refer to
this Note as a whole and not to any particular provision hereof;
(vii) references contained herein to Article, Section, Schedule and
Exhibit, as applicable, are references to Articles, Sections,
Schedules and Exhibits in this Note unless otherwise specified;
(viii) references to “
writing
”
include printing, typing, lithography and other means of
reproducing words in a visible form, including, but not limited to
email; (ix) references to “
dollars
”,
“
Dollars
”
or “
$
” in
this Note shall mean United States dollars; (x) reference to a
particular statute, regulation or Law means such statute,
regulation or Law as amended or otherwise modified from time to
time; (xi) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to
time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set
forth herein); (xii) unless otherwise stated in this Note, in the
computation of a period of time from a specified date to a later
specified date, the word “
from
”
means “
from and
including
” and the words “
to
”
and “
until
”
each mean “
to but
excluding
”; (xiii) references to “
days
”
shall mean calendar days; and (xiv) the paragraph headings
contained in this Note are for convenience only, and shall in no
manner be construed as part of this Note.
18.
Cooperation/Further
Assurances
. From and after the date hereof, the Holder and
the Company each hereby agree: i) to fully cooperate with the other
in preparing and filing any notices, applications, reports and
other instruments and documents and ii) to execute, acknowledge,
deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file
and/or record such other documents, which may be required by this
Note or which are desirable in the reasonable opinion of any of the
parties hereto, or their respective legal counsel, to consummate
the transactions contemplated by this Note, which shall include,
but not be limited to the Holder, where and when applicable,
executing any documents, agreements or confirmations necessary for
the Company to confirm the Note Satisfaction Confirmations, where
and if applicable, the Holder’s ability to rely on Rule 144
for the sale of the Conversion Shares, and the Subordination
Agreements.
Page 22 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
19.
Severability
.
If any term or other provision of this Note is invalid, illegal or
incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Note shall nevertheless
remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected
in any manner adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to
modify this Note so as to effect the original intent of the parties
as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the greatest
extent possible.
20.
Entire
Agreement
. This Note and the agreements referred to herein
constitute the entire agreement, and supersede all prior agreements
and undertakings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof and thereof,
including, but not limited to the Prior Obligations.
21.
Specific
Performance
. The Company and the Holder acknowledge and
agree that irreparable damage would occur in the event that any of
the provisions of this Note were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this
Note and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity, without the need to post any
bond.
22.
Review
of Note; Voluntarily Entering Into Note
. Each party herein
expressly represents and warrants to all other parties hereto that
(a) before executing this Note, said party has fully informed
itself of the terms, contents, conditions and effects of this Note;
(b) said party has relied solely and completely upon its own
judgment in executing this Note; (c) said party has had the
opportunity to seek and has obtained the advice of its own legal,
tax and business advisors before executing this Note; (d) said
party has acted voluntarily and of its own free will in executing
this Note; and (e) this Note is the result of arm’s length
negotiations conducted by and among the parties and their
respective counsel.
23.
No
Presumption from Drafting
. This Note has been negotiated at
arm’s-length between persons knowledgeable in the matters set
forth within this Note. Accordingly, given that all parties have
had the opportunity to draft, review and/or edit the language of
this Note, no presumption for or against any party arising out of
drafting all or any part of this Note will be applied in any action
relating to, connected with or involving this Note. In particular,
any rule of law, legal decisions, or common law principles of
similar effect that would require interpretation of any ambiguities
in this Note against the party that has drafted it, is of no
application and is hereby expressly waived.
24.
Counterparts
.
This Note and any signed agreement or instrument entered into in
connection with this Note, and any amendments hereto or thereto,
may be executed in one or more counterparts, all of which shall
constitute one and the same instrument.
Page 23 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
25.
Governing
Law; Jurisdiction
.
This Note is being delivered in, and shall be governed by and
construed in accordance with, the laws of the State of New York,
without regard to conflicts of laws provisions thereof. The parties
hereby consent and agree that, in any actions predicated upon this
Note, venue is properly laid in New York and that the Circuit Court
in and for New York, New York, shall have full subject matter and
personal jurisdiction over the parties to determine all issues
arising out of or in connection with the execution and enforcement
of this Note.
[Remainder of page
left intentionally blank. Signature page follows.]
Page 24 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
IN WITNESS WHEREOF
, the Company and the
Holder have executed this Amended and Restated Secured Subordinated
Promissory Note as of the date first set forth above.
|
|
THE
COMPANY
PEDEVCO
Corp.
/s/Frank C.
Ingriselli
Frank C.
Ingriselli
Chairman
and
Chief Executive
Officer
|
THE
HOLDER
MIE
Jurassic Energy Corporation
By:
/s/Andrew
Harper
Andrew
Harper
Chief
Executive Officer
Page 25 of
25
Amended and
Restated Secured Subordinated Promissory Note
PEDEVCO Corp. and
MIE Jurassic Energy Corporation
Effective January
1, 2015
EXHIBIT
A
|
Conversion Election
Form
|
____________, 20
_
|
PEDEVCO
Corp.
Re:
Conversion
of Amended and Restated Secured Subordinated Promissory
Note
Gentlemen:
You are hereby
notified that, 1) a Conversion Right Triggering Event has occurred
and 2) pursuant to, and upon the terms and conditions of that
certain Amended and Restated Secured Subordinated Promissory Note
of PEDEVCO Corp. (the “
Company
”),
in the original principal amount of $4,925,000 (the
“
Note
”),
held by me (us), I (we) hereby elect to exercise my (our)
Conversion Option (as such term is defined in
Section 10
of the Note), in
connection with $__________ of the amount currently owed under the
Note (including $___________ of Principal and $__________ of
accrued Interest), effective as of the date of this writing, which
amount will convert into ________________ shares of the
Company’s Common Stock (the “
Conversion
”)
based on the Conversion Price of $________ per share, the
calculation of which is described in the materials attached hereto.
In connection with the Conversion, I (we) hereby re-certify,
re-confirm and re-warrant the Representations, as such
Representations are defined in
Section 9
of the
Note.
Please issue
certificate(s) for the applicable shares of the Company’s
Common Stock issuable upon the Conversion, in the name of the
person provided below.
|
|
Very truly
yours,
|
|
|
|
|
|
___________________________
|
|
|
Name:
|
Please issue
certificate(s) for Common Stock as follows:
______________________________________________
Name
If
Entity:
Entity Name
___________________________
Signatory’s
Position With Entity ________________________
______________________________________________
Address
______________________________________________
Social Security No.
of Shareholder (if applicable)
Please send the
certificate(s) evidencing the Common Stock to:
Attn:______________________
Address:__________________________________
APPENDIX
B
PEDEVCO
CORP.
2012
EQUITY INCENTIVE PLAN
(As Amended)
1.
Purposes
of the Plan
.
PEDEVCO
Corp., a Texas corporation (the “
Company
”) hereby
establishes the PEDEVCO CORP. 2012 EQUITY INCENTIVE PLAN (the
“
Plan
”). The purposes of
this Plan is to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional
incentive to Employees, Directors and Consultants, and to promote
the long-term growth and profitability of the Company. The Plan
permits the grant of Incentive Stock Options, Nonstatutory Stock
Options, Restricted Stock, Restricted Stock Units, Stock
Appreciation Rights, Performance Units and Performance Shares as
the Administrator may determine.
2.
Definitions
.
The following definitions will apply to the terms in the
Plan:
“
Administrator
” means the
Board or any of its Committees as will be administering the Plan,
in accordance with Section 4.
“
Applicable Laws
” means
the requirements relating to the administration of equity-based
awards under U.S. state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system
on which the Common Stock is listed or quoted and the applicable
laws of any foreign country or jurisdiction where Awards are, or
will be, granted under the Plan.
“
Award
” means,
individually or collectively, a grant under the Plan of Options,
SARs, Restricted Stock, Restricted Stock Units, Performance Units
or Performance Shares.
“
Award Agreement
” means
the written or electronic agreement setting forth the terms and
provisions applicable to each Award granted under the Plan. The
Award Agreement is subject to the terms and conditions of the
Plan.
“
Board
” means the Board of
Directors of the Company.
“
Change in Control
” means
the occurrence of any of the following events:
(i) Any
“
person
” (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) becomes the
“
beneficial
owner
” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing
fifty percent (50%) or more of the total voting power represented
by the Company’s then outstanding voting securities; provided
however, that for purposes of this subsection (i) any acquisition
of securities directly from the Company shall not constitute a
Change in Control;
(ii) The
consummation of the sale or disposition by the Company of all or
substantially all of the Company’s assets;
(iii) A change
in the composition of the Board occurring within a two-year period,
as a result of which fewer than a majority of the directors are
Incumbent Directors. “
Incumbent Directors
”
means directors who either (A) are Directors as of the effective
date of the Plan, or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but
will not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to
the election of directors to the Company); or
(iv) The
consummation of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities
of the surviving entity or its parent) at least fifty percent (50%)
of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding
immediately after such merger or consolidation.
For avoidance of
doubt, a transaction will not constitute a Change in Control if:
(i) its sole purpose is to change the state of the Company’s
incorporation, or (ii) its sole purpose is to create a holding
company that will be owned in substantially the same proportions by
the persons who held the Company’s securities immediately
before such transaction.
“
Code
” means the Internal
Revenue Code of 1986, as amended. Any reference in the Plan to a
section of the Code will be a reference to any successor or amended
section of the Code.
“
Committee
” means a
committee of Directors or of other individuals satisfying
Applicable Laws appointed by the Board in accordance with Section 4
hereof.
“
Common Stock
” means the
common stock of the Company.
“
Company
” means PEDEVCO
Corp., a Texas corporation, or any successor thereto.
“
Consultant
” means any
person, including an advisor, engaged by the Company or a Parent or
Subsidiary to render services to such entity.
“
Director
” means a member
of the Board.
“
Disability
” means a
medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a
continuous period of not less than 12 months, and that either (1)
renders a Participant unable to engage in any substantial gainful
activity or (2) results in a Participant receiving income
replacement benefits for a period of not less than three months
under an employee accident and health plan covering the
Participant.
“
Employee
” means any
person, including Officers and Directors, employed by the Company
or any Parent or Subsidiary of the Company. Neither service as a
Director nor payment of a director’s fee by the Company will
be sufficient to constitute “
employment
” by the
Company.
“
Exchange Act
” means the
Securities Exchange Act of 1934, as amended.
“
Fair Market Value
” means,
as of any date, the value of Common Stock determined as
follows:
(i) If the
Common Stock is listed on any established stock exchange or a
national market system, including without limitation any division
or subdivision 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 on
the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the
Common Stock is regularly quoted by a recognized securities dealer
but selling prices are not reported, including without limitation
quotation through the over the counter bulletin board
(“
OTCQB®
”) quotation
service administered by the Financial Industry Regulatory Authority
(“
FINRA
”), the Fair Market
Value of a Share will be the closing price for the Common Stock on
the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
or
(iii) In
the absence of an established market for the Common Stock, the Fair
Market Value will be determined in good faith by the Administrator,
and to the extent
Section 15
applies (a)
with respect to ISOs, the Fair Market Value shall be determined in
a manner consistent with Code section 422 or (b) with respect to
NSOs or SARs, the Fair Market Value shall be determined in a manner
consistent with Code section 409A.
“
Fiscal Year
” means the
fiscal year of the Company.
“
Grant Date
” means, for
all purposes, the date on which the Administrator determines to
grant an Award, or such other later date as is determined by the
Administrator, provided that the Administrator cannot grant an
Award prior to the date the material terms of the Award are
established. Notice of the Administrator’s determination to
grant an Award will be provided to each Participant within a
reasonable time after the Grant Date.
“
Incentive Stock Option
”
or “
ISO
” means an Option that
by its terms qualifies and is otherwise intended to qualify as an
incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
“
Nonstatutory Stock
Option
” or “
NSO
” means an Option that
by its terms does not qualify or is not intended to qualify as an
ISO.
“
Officer
” means a person
who is an officer of the Company within the meaning of Section 16
of the Exchange Act and the rules and regulations promulgated
thereunder.
“
Option
” means a stock
option granted pursuant to the Plan.
“
Optioned Shares
” means
the Common Stock subject to an Option.
“
Optionee
” means the
holder of an outstanding Option.
“
Parent
” means a
“
parent
corporation,
” whether now or hereafter existing, as
defined in Section 424(e) of the Code.
“
Participant
” means the
holder of an outstanding Award.
“
Performance Share
” means
an Award denominated in Shares which may vest in whole or in part
upon attainment of performance goals or other vesting criteria as
the Administrator may determine pursuant to Section
10.
“
Performance Unit
” means
an Award which may vest in whole or in part upon attainment of
performance goals or other vesting criteria as the Administrator
may determine and which may be settled for cash, Shares or other
securities or a combination of the foregoing pursuant to Section
10.
“
Period of Restriction
”
means the period during which Shares of Restricted Stock are
subject to forfeiture or restrictions on transfer pursuant to
Section 7.
“
Plan
” means this 2012
Equity Incentive Plan.
“
Restricted Stock
” means
Shares awarded to a Participant which are subject to forfeiture and
restrictions on transferability in accordance with Section
7.
“
Restricted Stock Unit
”
means the right to receive one Share at the end of a specified
period of time, which right is subject to forfeiture in accordance
with Section 8 of the Plan.
“
Rule 16b-3
” means Rule
16b-3 of the Exchange Act or any successor to Rule
16b-3.
“
Section
” means a
paragraph or section of this Plan.
“
Section 16(b)
” means
Section 16(b) of the Exchange Act.
“
Service Provider
” means
an Employee, Director or Consultant.
“
Share
” means a share of
the Common Stock, as adjusted in accordance with Section
13.
“
Stock Appreciation Right
”
or “
SAR
” means the right to
receive payment from the Company in an amount no greater than the
excess of the Fair Market Value of a Share at the date the SAR is
exercised over a specified price fixed by the Administrator in the
Award Agreement, which shall not be less than the Fair Market Value
of a Share on the Grant Date. In the case of a SAR which is granted
in connection with an Option, the specified price shall be the
Option exercise price.
“
Subsidiary
” means a
“
subsidiary
corporation,
” whether now or hereafter existing, as
defined in Section 424(f) of the Code.
“
Ten Percent Owner
” means
any Service Provider who is, on the grant date of an ISO, the owner
of Shares (determined with application of ownership attribution
rules of Code Section 424(d)) possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any
of its Subsidiaries.
3.
Stock
Subject to the Plan
.
(a)
Stock
Subject to the Plan
. Subject to the provisions of Section
13, the maximum aggregate number of Shares that may be issued under
the Plan is fifteen million (15,000,000) Shares. The Shares may be
authorized but unissued, or reacquired Common Stock.
(b)
Lapsed
Awards
. If an Award expires or becomes unexercisable without
having been exercised in full or, with respect to Restricted Stock,
Restricted Stock Units, Performance Shares or Performance Units, is
forfeited in whole or in part to the Company, the unpurchased
Shares (or for Awards other than Options and SARs, the forfeited or
unissued Shares) which were subject to the Award will become
available for future grant or sale under the Plan (unless the Plan
has terminated). With respect to SARs, only Shares actually issued
pursuant to a SAR will cease to be available under the Plan; all
remaining Shares subject to the SARs will remain available for
future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan
under any Award will not be returned to the Plan and will not
become available for future distribution under the Plan; provided,
however, that if Shares issued pursuant to Awards of Restricted
Stock, Restricted Stock Units, Performance Shares or Performance
Units are forfeited to the Company, such Shares will become
available for future grant under the Plan. Shares withheld by the
Company to pay the exercise price of an Award or to satisfy tax
withholding obligations with respect to an Award will become
available for future grant or sale under the Plan. To the extent an
Award under the Plan is paid out in cash rather than Shares, such
cash payment will not result in reducing the number of Shares
available for issuance under the Plan.
(c)
Share
Reserve
. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as will
be sufficient to satisfy the requirements of the Plan.
4.
Administration
of the Plan
.
(a)
Procedure
.
The Plan shall be administered by the Board or a Committee (or
Committees) appointed by the Board, which Committee shall be
constituted to comply with Applicable Laws. If and so long as the
Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, the Board shall consider in selecting the
Administrator and the membership of any committee acting as
Administrator the requirements regarding: (i) “
nonemployee directors
”
within the meaning of Rule 16b-3 under the Exchange Act; (ii)
“
independent
directors
” as described in the listing requirements
for any stock exchange on which Shares are listed; and
(iii)
Section
15(b)(i)
of the Plan, if the Company pays salaries for
which it claims deductions that are subject to the Code section
162(m) limitation on its U.S. tax returns. The Board may delegate
the responsibility for administering the Plan with respect to
designated classes of eligible Participants to different committees
consisting of two or more members of the Board, subject to such
limitations as the Board or the Administrator deems appropriate.
Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any
time.
(b)
Powers
of the Administrator
. Subject to the provisions of the Plan
and the approval of any relevant authorities, and in the case of a
Committee, subject to the specific duties delegated by the Board to
such Committee, the Administrator will have the authority, in its
discretion:
(i) to
determine the Fair Market Value;
(ii) to select
the Service Providers to whom Awards may be granted
hereunder;
(iii) to
determine the number of Shares to be covered by each Award granted
hereunder;
(iv) to
approve forms of agreement for use under the Plan;
(v) to
determine the terms and conditions, not inconsistent with the terms
of the Plan, of any Award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the
time or times when Awards may be exercised (which may be based on
continued employment, continued service or performance criteria),
any vesting acceleration (whether by reason of a Change of Control
or otherwise) or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Award or the Shares
relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, will determine;
(vi) to
construe and interpret the terms of the Plan and Awards granted
pursuant to the Plan, including the right to construe disputed or
doubtful Plan and Award provisions;
(vii) to
prescribe, amend and rescind rules and regulations relating to the
Plan;
(viii) to
modify or amend each Award (subject to Section 19(c)) to the extent
any modification or amendment is consistent with the terms of the
Plan. The Administrator shall have the discretion to extend the
exercise period of Options generally provided the exercise period
is not extended beyond the earlier of the original term of the
Option or 10 years from the original grant date, or specifically
(1) if the exercise period of an Option is extended (but to no more
than 10 years from the original grant date) at a time when the
exercise price equals or exceeds the fair market value of the
Optioned Shares or (2) an Option cannot be exercised because such
exercise would violate Applicable Laws, provided that the exercise
period is not extended more than 30 days after the exercise of the
Option would no longer violate Applicable Laws.
(ix) to allow
Participants to satisfy withholding tax obligations in such manner
as prescribed in Section 14;
(x) to
authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Award previously
granted by the Administrator;
(xi) to delay
issuance of Shares or suspend Participant’s right to exercise
an Award as deemed necessary to comply with Applicable Laws;
and
(xii) to make
all other determinations deemed necessary or advisable for
administering the Plan.
(c)
Effect
of Administrator’s Decision
. The Administrator’s
decisions, determinations and interpretations will be final and
binding on all Participants and any other holders of Awards. Any
decision or action taken or to be taken by the Administrator,
arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its
rules and regulations, shall, to the maximum extent permitted by
Applicable Laws, be within its absolute discretion (except as
otherwise specifically provided in the Plan) and shall be final,
binding and conclusive upon the Company, all Participants and any
person claiming under or through any Participant.
5.
Eligibility
.
NSOs, Restricted Stock, Restricted Stock Units, SARs, Performance
Units and Performance Shares may be granted to Service Providers.
ISOs may be granted as specified in
Section 15(a)
.
6.
Stock
Options
.
(a)
Grant
of Options
. Subject to the terms and conditions of the Plan,
the Administrator, at any time and from time to time, may grant
Options to Service Providers in such amounts as the Administrator
will determine in its sole discretion. For purposes of the
foregoing sentence, Service Providers shall include prospective
employees or consultants to whom Options are granted in connection
with written offers of employment or engagement of services,
respectively, with the Company; provided that no Option granted to
a prospective employee or consultant may be exercised prior to the
commencement of employment or services with the Company. The
Administrator may grant NSOs, ISOs, or any combination of the two.
ISOs shall be granted in accordance with
Section 15(a)
of the
Plan.
(b)
Option
Award Agreement
. Each Option shall be evidenced by an Award
Agreement that shall specify the type of Option granted, the Option
price, the exercise date, the term of the Option, the number of
Shares to which the Option pertains, and such other terms and
conditions (which need not be identical among Participants) as the
Administrator shall determine in its sole discretion. If the Award
Agreement does not specify that the Option is to be treated as an
ISO, the Option shall be deemed a NSO.
(c)
Exercise
Price
. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option will be no less than the
Fair Market Value per Share on the Grant Date.
(d)
Term
of Options
. The term of each Option will be stated in the
Award Agreement. Unless terminated sooner in accordance with the
remaining provisions of this Section 6, each Option shall expire
either ten (10) years after the Grant Date, or after a shorter term
as may be fixed by the Board.
(e)
Time
and Form of Payment
.
(i)
Exercise
Date
. Each Award Agreement shall specify how and when Shares
covered by an Option may be purchased. The Award Agreement may
specify waiting periods, the dates on which Options become
exercisable or “
vested
” and, subject to
the termination provisions of this section, exercise periods. The
Administrator may accelerate the exercisability of any Option or
portion thereof.
(ii)
Exercise
of Option
. Any Option granted hereunder will be exercisable
according to the terms of the Plan and at such times and under such
conditions as determined by the Administrator and set forth in the
Award Agreement. An Option may not be exercised for a fraction of a
Share. An Option will be deemed exercised when the Company
receives: (1) notice of exercise (in such form as the Administrator
shall specify from time to time) from the person entitled to
exercise the Option, and (2) full payment for the Shares with
respect to which the Option is exercised (together with all
applicable withholding taxes). Full payment may consist of any
consideration and method of payment authorized by the Administrator
and permitted by the Award Agreement and the Plan (together with
all applicable withholding taxes). Shares issued upon exercise of
an Option will be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or
her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a stockholder will exist
with respect to the Optioned Shares, notwithstanding the exercise
of the Option. The Company will issue (or cause to be issued) such
Shares promptly after the Option is exercised. No adjustment will
be made for a dividend or other right for which the record date is
prior to the date the Shares are issued, except as provided in
Section 13.
(iii)
Payment
.
The Administrator will determine the acceptable form of
consideration for exercising an Option, including the method of
payment. Such consideration may consist entirely of:
(1) cash;
(2) check;
(3) to the
extent not prohibited by Section 402 of the Sarbanes-Oxley Act of
2002, a promissory note;
(4) other
Shares, provided Shares have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to
which said Option will be exercised;
(5) to the
extent not prohibited by Section 402 of the Sarbanes-Oxley Act of
2002, in accordance with any broker-assisted cashless exercise
procedures approved by the Company and as in effect from time to
time;
(6) by asking
the Company to withhold Shares from the total Shares to be
delivered upon exercise equal to the number of Shares having a
value equal to the aggregate Exercise Price of the Shares being
acquired;
(7) any
combination of the foregoing methods of payment; or
(8) such other
consideration and method of payment for the issuance of Shares to
the extent permitted by Applicable Laws.
(f)
Forfeiture
of Options
. All unexercised Options shall be forfeited to
the Company in accordance with the terms and conditions set forth
in the Award Agreement and again will become available for grant
under the Plan.
7.
Restricted
Stock
.
(a)
Grant
of Restricted Stock
. Subject to the terms and conditions of
the Plan, the Administrator, at any time and from time to time, may
grant Shares of Restricted Stock to Service Providers in such
amounts as the Administrator will determine in its sole
discretion.
(b)
Restricted
Stock Award Agreement
. Each Award of Restricted Stock will
be evidenced by an Award Agreement that will specify the Period of
Restriction, the number of Shares granted, and such other terms and
conditions (which need not be identical among Participants) as the
Administrator will determine in its sole discretion. Unless the
Administrator determines otherwise, the Company as escrow agent
will hold Shares of Restricted Stock until the restrictions on such
Shares have lapsed.
(c)
Vesting
Conditions and Other Terms
.
(i)
Vesting
Conditions
. The Administrator, in its sole discretion, may
impose such conditions on the vesting of Shares of Restricted Stock
as it may deem advisable or appropriate, including but not limited
to, achievement of Company-wide, business unit, or individual goals
(including, but not limited to, continued employment or service),
or any other basis determined by the Administrator in its
discretion. The Administrator, in its discretion, may accelerate
the time at which any restrictions will lapse or be removed. The
Administrator may, in its discretion, also provide for such
complete or partial exceptions to an employment or service
restriction as it deems equitable.
(ii)
Voting
Rights
. During the Period of Restriction, Service Providers
holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares, unless the
Administrator determines otherwise.
(iii)
Dividends
and Other Distributions
. During the Period of Restriction,
Service Providers holding Shares of Restricted Stock will be
entitled to receive all dividends and other distributions paid with
respect to such Shares, unless the Administrator determines
otherwise. If any such dividends or distributions are paid in
Shares, the Shares will be subject to the same restrictions on
transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
(iv)
Transferability
.
Except as provided in this Section, Shares of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated
or hypothecated until the end of the applicable Period of
Restriction.
(d)
Removal
of Restrictions
. All restrictions imposed on Shares of
Restricted Stock shall lapse and the Period of Restriction shall
end upon the satisfaction of the vesting conditions imposed by the
Administrator. Vested Shares of Restricted Stock will be released
from escrow as soon as practicable after the last day of the Period
of Restriction or at such other time as the Administrator may
determine, but in no event later than the 30th day following the
date on which vesting occurred.
(e)
Forfeiture
of Restricted Stock
. On the date set forth in the Award
Agreement, the Shares of Restricted Stock for which restrictions
have not lapsed will be forfeited and revert to the Company and
again will become available for grant under the Plan.
8.
Restricted
Stock Units
.
(a)
Grant
of Restricted Stock Units
. Subject to the terms and
conditions of the Plan, the Administrator, at any time and from
time to time, may grant Restricted Stock Units to Service Providers
in such amounts as the Administrator will determine in its sole
discretion.
(b)
Restricted
Stock Units Award Agreement
. Each Award of Restricted Stock
Units will be evidenced by an Award Agreement that will specify the
number of Restricted Stock Units granted, vesting criteria, form of
payout, and such other terms and conditions (which need not be
identical among Participants) as the Administrator will determine
in its sole discretion.
(c)
Vesting
Conditions
. The Administrator shall set vesting criteria in
its discretion, which, depending on the extent to which the
criteria are met, will determine the number of Restricted Stock
Units that will be paid out to the Participant. The Administrator
may set vesting criteria based upon the achievement of
Company-wide, business unit, or individual goals (including, but
not limited to, continued employment or service), or any other
basis determined by the Administrator in its discretion. At any
time after the grant of Restricted Stock Units, the Administrator,
in its sole discretion, may reduce or waive any vesting criteria
that must be met to receive a payout.
(d)
Time
and Form of Payment
. Upon satisfaction of the applicable
vesting conditions, payment of vested Restricted Stock Units shall
occur in the manner and at the time provided in the Award
Agreement, but in no event later than the 15th day of the third
month following the end of the year in which vesting occurred.
Except as otherwise provided in the Award Agreement, Restricted
Stock Units may be paid in cash, Shares, or a combination thereof
at the sole discretion of the Administrator. Restricted Stock Units
that are fully paid in cash will not reduce the number of Shares
available for issuance under the Plan.
(e)
Forfeiture
of Restricted Stock Units
. All unvested Restricted Stock
Units shall be forfeited to the Company on the date set forth in
the Award Agreement and again will become available for grant under
the Plan.
9.
Stock
Appreciation Rights
.
(a)
Grant
of SARs
. Subject to the terms and conditions of the Plan,
the Administrator, at any time and from time to time, may grant
SARs to Service Providers in such amounts as the Administrator will
determine in its sole discretion.
(b)
Award
Agreement
. Each SAR grant will be evidenced by an Award
Agreement that will specify the exercise price, the number of
Shares underlying the SAR grant, the term of the SAR, the
conditions of exercise, and such other terms and conditions (which
need not be identical among Participants) as the Administrator will
determine in its sole discretion.
(c)
Exercise
Price and Other Terms
. The per Share exercise price for the
exercise of an SAR will be no less than the Fair Market Value per
Share on the Grant Date.
(d)
Time
and Form of Payment of SAR Amount
. Upon exercise of a SAR, a
Participant will be entitled to receive payment from the Company in
an amount no greater than: (i) the difference between the Fair
Market Value of a Share on the date of exercise over the exercise
price; times (ii) the number of Shares with respect to which the
SAR is exercised. An Award Agreement may provide for a SAR to be
paid in cash, Shares of equivalent value, or a combination
thereof.
(e)
Forfeiture
of SARs
. All unexercised SARs shall be forfeited to the
Company in accordance with the terms and conditions set forth in
the Award Agreement and again will become available for grant under
the Plan.
10.
Performance
Units and Performance Shares
.
(a)
Grant
of Performance Units and Performance Shares
. Performance
Units or Performance Shares may be granted to Service Providers at
any time and from time to time, as will be determined by the
Administrator, in its sole discretion. The Administrator will have
complete discretion in determining the number of Performance Units
and Performance Shares granted to each Participant.
(b)
Award
Agreement
. Each Award of Performance Units and Shares will
be evidenced by an Award Agreement that will specify the initial
value, the Performance Period, the number of Performance Units or
Performance Shares granted, and such other terms and conditions
(which need not be identical among Participants) as the
Administrator will determine in its sole discretion.
(c)
Value
of Performance Units and Performance Shares
. Each
Performance Unit will have an initial value that is established by
the Administrator on or before the Grant Date. Each Performance
Share will have an initial value equal to the Fair Market Value of
a Share on the Grant Date.
(d)
Vesting
Conditions and Performance Period
. The Administrator will
set performance objectives or other vesting provisions (including,
without limitation, continued status as a Service Provider) in its
discretion which, depending on the extent to which they are met,
will determine the number or value of Performance Units or
Performance Shares that will be paid out to the Service Providers.
The time period during which the performance objectives or other
vesting provisions must be met will be called the
“
Performance
Period.
” The Administrator may set performance
objectives based upon the achievement of Company-wide, divisional,
or individual goals or any other basis determined by the
Administrator in its discretion.
(e)
Time
and Form of Payment
. After the applicable Performance Period
has ended, the holder of Performance Units or Performance Shares
will be entitled to receive a payout of the number of vested
Performance Units or Performance Shares by the Participant over the
Performance Period, to be determined as a function of the extent to
which the corresponding performance objectives or other vesting
provisions have been achieved. Vested Performance Units or
Performance Shares will be paid as soon as practicable after the
expiration of the applicable Performance Period, but in no event
later than the 15th day of the third month following the end of the
year the applicable Performance Period expired. An Award Agreement
may provide for the satisfaction of Performance Unit or Performance
Share Awards in cash or Shares (which have an aggregate Fair Market
Value equal to the value of the vested Performance Units or
Performance Shares at the close of the applicable Performance
Period) or in a combination thereof.
(f)
Forfeiture
of Performance Units and Performance Shares
. All unvested
Performance Units or Performance Shares will be forfeited to the
Company on the date set forth in the Award Agreement, and again
will become available for grant under the Plan.
11.
Leaves
of Absence/Transfer Between Locations
. Unless the
Administrator provides otherwise or as required by Applicable Laws,
vesting of Awards will be suspended during any unpaid leave of
absence. An Employee will not cease to be an Employee in the case
of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the Company,
its Parent, or any Subsidiary.
12.
Transferability
of Awards
. Unless determined otherwise by the Administrator,
an Award may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during
the lifetime of the Participant, only by the Participant. If the
Administrator makes an Award transferable, such Award will contain
such additional terms and conditions as the Administrator deems
appropriate.
13.
Adjustments;
Dissolution or Liquidation; Merger or Change in
Control
.
(a)
Adjustments
.
In the event that any dividend or other distribution (whether in
the form of cash, Shares, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase,
or exchange of Shares or other securities of the Company, or other
change in the corporate structure of the Company affecting the
Shares occurs, the Administrator, in order to prevent diminution or
enlargement of the benefits or potential benefits intended to be
made available under the Plan, shall appropriately adjust the
number and class of Shares that may be delivered under the Plan
and/or the number, class, and price of Shares covered by each
outstanding Award.
(b)
Dissolution
or Liquidation
. In the event of the proposed dissolution or
liquidation of the Company, the Administrator will notify each
Participant as soon as practicable prior to the effective date of
such proposed transaction. To the extent it has not been previously
exercised, an Award will terminate immediately prior to the
consummation of such proposed action.
(c)
Change
in Control
. In the event of a merger or Change in Control,
any or all outstanding Awards may be assumed by the successor
corporation, which assumption shall be binding on all Participants.
In the alternative, the successor corporation may substitute
equivalent Awards (after taking into account the existing
provisions of the Awards). The successor corporation may also
issue, in place of outstanding Shares of the Company held by the
Participant, substantially similar shares or other property subject
to vesting requirements and repurchase restrictions no less
favorable to the Participant than those in effect prior to the
merger or Change in Control.
In the event that
the successor corporation does not assume or substitute for the
Award, unless the Administrator provides otherwise, the Participant
will fully vest in and have the right to exercise all of his or her
outstanding Options and SARs, including Shares as to which such
Awards would not otherwise be vested or exercisable, all
restrictions on Restricted Stock and Restricted Stock Units will
lapse, and, with respect to Performance Shares and Performance
Units, all Performance Goals or other vesting criteria will be
deemed achieved at target levels and all other terms and conditions
met. In addition, if an Option or SAR is not assumed or substituted
in the event of a Change in Control, the Administrator will notify
the Participant in writing or electronically that the Option or SAR
will be exercisable for a period of time determined by the
Administrator in its sole discretion, and the Option or SAR will
terminate upon the expiration of such period.
For the purposes of
this Section 13(c), an Award will be considered assumed if,
following the Change in Control, the Award confers the right to
purchase or receive, for each Share subject to the Award
immediately prior to the Change in Control, the consideration
(whether stock, cash, or other securities or property) or, in the
case of a SAR upon the exercise of which the Administrator
determines to pay cash or a Performance Share or Performance Unit
which the Administrator can determine to pay in cash, the fair
market value of the consideration received in the merger or Change
in Control by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the Change in
Control is not solely common stock of the successor corporation or
its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received
upon the exercise of an Option or SAR or upon the payout of a
Restricted Stock Unit, Performance Share or Performance Unit, for
each Share subject to such Award (or in the case of Restricted
Stock Units and Performance Units, the number of implied shares
determined by dividing the value of the Restricted Stock Units and
Performance Units, as applicable, by the per share consideration
received by holders of Common Stock in the Change in Control), to
be solely common stock of the successor corporation or its Parent
equal in fair market value to the per share consideration received
by holders of Common Stock in the Change in Control.
Notwithstanding
anything in this Section 13(c) to the contrary, an Award that
vests, is earned or paid-out upon the satisfaction of one or more
performance goals will not be considered assumed if the Company or
its successor modifies any of such performance goals without the
Participant’s consent; provided, however, a modification to
such performance goals only to reflect the successor
corporation’s post-Change in Control corporate structure will
not be deemed to invalidate an otherwise valid Award
assumption.
14.
Tax
Withholding
.
(a)
Withholding
Requirements
. Prior to the delivery of any Shares or cash
pursuant to an Award (or exercise thereof), the Company will have
the power and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to
satisfy federal, state, local, foreign or other taxes required by
Applicable Laws to be withheld with respect to such Award (or
exercise thereof).
(b)
Withholding
Arrangements
. The Administrator, in its sole discretion and
pursuant to such procedures as it may specify from time to time,
may permit a Participant to satisfy such tax withholding
obligation, in whole or in part by (without limitation) (i) paying
cash, (ii) electing to have the Company withhold otherwise
deliverable Shares having a Fair Market Value equal to the amount
required to be withheld, or (iii) delivering to the Company
already-owned Shares having a Fair Market Value equal to the amount
required to be withheld. The amount of the withholding requirement
will be deemed to include any amount which the Administrator agrees
may be withheld at the time the election is made. The Fair Market
Value of the Shares to be withheld or delivered will be determined
as of the date that the taxes are required to be
withheld.
15.
Provisions
Applicable In the Event the Company or the Service Provider is
Subject to U.S. Taxation
.
(a)
Grant
of Incentive Stock Options
. If the Administrator grants
Options to Employees subject to U.S. taxation, the Administrator
may grant such Employee an ISO and the following terms shall also
apply:
(i)
Maximum
Amount
. Subject to the provisions of Section 13, to the
extent consistent with Section 422 of the Code, not more than an
aggregate of fifteen million (15,000,000) Shares may be issued as
ISOs under the Plan.
(ii)
General
Rule
. Only Employees shall be eligible for the grant of
ISOs.
(iii)
Continuous
Employment
. The Optionee must remain in the continuous
employ of the Company or its Subsidiaries from the date the ISO is
granted until not more than three months before the date on which
it is exercised. A leave of absence approved by the Company may
exceed ninety (90) days if reemployment upon expiration of such
leave is guaranteed by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company is not so
guaranteed, then three (3) months following the ninety-first (91st)
day of such leave any ISO held by the Optionee will cease to be
treated as an ISO.
(iv)
Award
Agreement
.
(1) The
Administrator shall designate Options granted as ISOs in the Award
Agreement. Notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which
ISOs are exercisable for the first time by the Optionee during any
calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds one hundred thousand dollars ($100,000),
Options will not qualify as an ISO. For purposes of this section,
ISOs will be taken into account in the order in which they were
granted. The Fair Market Value of the Shares will be determined as
of the time the Option with respect to such Shares is
granted.
(2) The Award
Agreement shall specify the term of the ISO. The term shall not
exceed ten (10) years from the Grant Date or five (5) years from
the Grant Date for Ten Percent Owners.
(3) The Award
Agreement shall specify an exercise price of not less than the Fair
Market Value per Share on the Grant Date or one hundred ten percent
(110%) of the Fair Market Value per Share on the Grant Date for Ten
Percent Owners.
(4) The Award
Agreement shall specify that an ISO is not transferable except by
will, beneficiary designation or the laws of descent and
distribution.
(v)
Form
of Payment
. The consideration to be paid for the Shares to
be issued upon exercise of an ISO, including the method of payment,
shall be determined by the Administrator at the time of grant in
accordance with Section 6(e)(iii).
(vi) “
Disability,
”
for purposes of an ISO, means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(vii)
Notice
.
In the event of any disposition of the Shares acquired pursuant to
the exercise of an ISO within two years from the Grant Date or one
year from the exercise date, the Optionee will notify the Company
thereof in writing within thirty (30) days after such disposition.
In addition, the Optionee shall provide the Company with such
information as the Company shall reasonably request in connection
with determining the amount and character of Optionee’s
income, the Company’s deduction, and the Company’s
obligation to withhold taxes or other amounts incurred by reason of
a disqualifying disposition, including the amount
thereof.
(b)
Performance-based
Compensation
. If the Company pays salaries for which it
claims deductions that are subject to the Code section 162(m)
limitation on its U.S. tax returns, then the following terms shall
be applied in a manner consistent with the requirements of, and
only to the extent required for compliance with, the exclusion from
the limitation on deductibility of compensation under Code Section
162(m):
(i)
Outside
Directors
. The Board shall consider in selecting the
Administrator and the membership of any committee acting as
Administrator the provisions regarding “
outside directors
” within
the meaning of Code Section 162(m).
(ii)
Maximum
Amount
.
(1) Subject to
the provisions of Section 13, the maximum number of Shares that can
be awarded to any individual Participant in the aggregate in any
one fiscal year of the Company is fifteen million (15,000,000)
Shares;
(2) For Awards
denominated in Shares and satisfied in cash, the maximum Award to
any individual Participant in the aggregate in any one fiscal year
of the Company is the Fair Market Value of fifteen million
(15,000,000) Shares on the Grant Date; and
(3) The
maximum amount payable pursuant to any cash Awards to any
individual Participant in the aggregate in any one fiscal year of
the Company is the Fair Market Value of fifteen million
(15,000,000) Shares on the Grant Date.
(iii)
Performance
Criteria
. All performance criteria must be objective and be
established in writing prior to the beginning of the performance
period or at later time as permitted by Code Section 162(m).
Performance criteria may include alternative and multiple
performance goals and may be based on one or more business and/or
financial criteria. In establishing the performance goals, the
Committee in its discretion may include one or any combination of
the following criteria in either absolute or relative terms, for
the Company or any Subsidiary:
(1) Increased
revenue;
(2) Net income
measures (including but not limited to income after capital costs
and income before or after taxes);
(3) Stock
price measures (including but not limited to growth measures and
total stockholder return);
(4) Market
share;
(5) Earnings
per Share (actual or targeted growth);
(6) Earnings
before interest, taxes, depreciation, and amortization
(“
EBITDA
”);
(7) Cash flow
measures (including but not limited to net cash flow and net cash
flow before financing activities);
(8) Return
measures (including but not limited to return on equity, return on
average assets, return on capital, risk-adjusted return on capital,
return on investors’ capital and return on average
equity);
(9) Operating
measures (including operating income, funds from operations, cash
from operations, after-tax operating income, sales volumes,
production volumes, and production efficiency);
(10) Expense
measures (including but not limited to overhead cost and general
and administrative expense);
(11) Margins;
(12) Stockholder
value;
(13) Total
stockholder return;
(14) Proceeds
from dispositions;
(15) Production
volumes;
(16) Total
market value; and
(17) Corporate
values measures (including but not limited to ethics compliance,
environmental, and safety).
(c)
Stock
Options and SARs Exempt from Code section 409A
. If the
Administrator grants Options or SARs to Employees subject to U.S.
taxation the Administrator may not modify or amend the Options or
SARs to the extent that the modification or amendment adds a
feature allowing for additional deferral within the meaning of Code
section 409A.
16.
No
Effect on Employment or Service
. Neither the Plan nor any
Award will confer upon any Participant any right with respect to
continuing the Participant’s relationship as a Service
Provider with the Company or any Parent or Subsidiary of the
Company, nor will they interfere in any way with the
Participant’s right or the Company’s or its
Parent’s or Subsidiary’s right to terminate such
relationship at any time, with or without cause, to the extent
permitted by Applicable Laws.
17.
Effective
Date
. The Plan’s effective date is the date on which
it is adopted by the Board, so long as it is approved by the
Company’s stockholders at any time within twelve (12) months
of such adoption. Upon approval of the Plan by the stockholders of
the Company, all Awards issued pursuant to the Plan on or after the
Effective Date shall be fully effective as if the stockholders of
the Company had approved the Plan on the Effective Date. If the
stockholders fail to approve the Plan within one year after the
Effective Date, any Awards made hereunder shall be null and void
and of no effect.
18.
Term
of Plan
. The Plan will terminate 10 years following the
earlier of (i) the date it was adopted by the Board or (ii) the
date it became effective upon approval by stockholders of the
Company, unless sooner terminated by the Board pursuant to Section
19.
19.
Amendment
and Termination of the Plan
.
(a)
Amendment
and Termination
. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b)
Stockholder
Approval
. The Company will obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c)
Effect
of Amendment or Termination
. No amendment, alteration,
suspension or termination of the Plan will impair the rights of any
Participant, unless mutually agreed otherwise between the
Participant and the Administrator, which agreement must be in
writing and signed by the Participant and the Company. Termination
of the Plan will not affect the Administrator’s ability to
exercise the powers granted to it hereunder with respect to Awards
granted under the Plan prior to the date of such
termination.
20.
Conditions
Upon Issuance of Shares
.
(a)
Legal
Compliance
. The Administrator may delay or suspend the
issuance and delivery of Shares, suspend the exercise of Options or
SARs, or suspend the Plan as necessary to comply with Applicable
Laws. Shares will not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and
delivery of such Shares will comply with Applicable Laws and will
be further subject to the approval of counsel for the Company with
respect to such compliance.
(b)
Investment
Representations
. As a condition to the exercise of an Award,
the Company may require the person exercising such Award to
represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is
required.
21.
Inability
to Obtain Authority
. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which
authority is deemed by the Company’s counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, will
relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority will
not have been obtained.
22.
Repricing
Prohibited; Exchange And Buyout of Awards
. The
repricing of Options or SARs is prohibited without prior
stockholder approval. The Administrator may authorize the Company,
with prior stockholder approval and the consent of the respective
Participants, to issue new Option or SAR Awards in exchange for the
surrender and cancellation of any or all outstanding Awards. The
Administrator may at any time repurchase Options with payment in
cash, Shares or other consideration, based on such terms and
conditions as the Administrator and the Participant shall
agree.
23.
Substitution
and Assumption of Awards
. The Administrator may make Awards
under the Plan by assumption, substitution or replacement of
performance shares, phantom shares, stock awards, stock options,
stock appreciation rights or similar awards granted by another
entity (including a Parent or Subsidiary), if such assumption,
substitution or replacement is in connection with an asset
acquisition, stock acquisition, merger, consolidation or similar
transaction involving the Company (and/or its Parent or Subsidiary)
and such other entity (and/or its affiliate). The Administrator may
also make Awards under the Plan by assumption, substitution or
replacement of a similar type of award granted by the Company prior
to the adoption and approval of the Plan. Notwithstanding any
provision of the Plan (other than the maximum number of shares of
Common Stock that may be issued under the Plan), the terms of such
assumed, substituted or replaced Awards shall be as the
Administrator, in its discretion, determines is
appropriate.
24.
Governing
Law
. The Plan and all Agreements shall be construed in
accordance with and governed by the laws of the State of
Texas.
Adopted by the
Board of Directors on June 26, 2012.
Amended by the
stockholders of the Company on June 27, 2014, October 7, 2015 and
________, 2016
APPENDIX
C
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Form
424
(Revised
05/11)
Submit in duplicate
to:
Secretary of
State
P.O. Box
13697
Austin, TX
78711-3697
512
463-5555
FAX:
512/463-5709
Filing
Fee: See instructions
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Certificate
of Amendment
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This space reserved
for office use.
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Entity
Information
The name of the
filing entity is:
PEDEVCO
Corp.
State the name of
the entity as currently shown in the records of the secretary of
state. If the amendment changes the name of the entity, state the
old name and not the new name.
The filing entity
is a: (Select the appropriate entity type below.)
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☒ For-profit
Corporation
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☐ Professional
Corporation
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☐ Nonprofit
Corporation
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☐ Professional Limited Liability
Company
|
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☐ Cooperative
Association
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☐ Professional
Association
|
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☐ Limited Liability
Company
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☐ Limited
Partnership
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The file number
issued to the filing entity by the secretary of state is:
0800949748
The date of
formation of the entity is:
03/11/2008
Amendments
1.
Amended Name
(If the purpose of
the certificate of amendment is to change the name of the entity,
use the following statement)
The amendment
changes the certificate of formation to change the article or
provision that names the filing entity. The article or provision is
amended to read as follows:
The name of the
filing entity is: (state the new name of the entity
below)
The name of the
entity must contain an organizational designation or accepted
abbreviation of such term, as applicable.
2.
Amended Registered Agent/Registered Office
The amendment
changes the certificate of formation to change the article or
provision stating the name of the registered agent and the
registered office address of the filing entity. The article or
provision is amended to read as follows:
Registered
Agent
(Complete either A
or B, but not both. Also complete C.)
A. The registered
agent is an organization (cannot be entity named above) by the name
of:
OR
B. The registered
agent is an individual resident of the state whose name
is:
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First
Name
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M.I.
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Last
Name
|
Suffix
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The person
executing this instrument affirms that the person designated as the
new registered agent has consented to serve as registered
agent.
C. The business
address of the registered agent and the registered office address
is:
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TX
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Street Address
(No P.O. Box)
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City
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State
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Zip
Code
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3.
Other Added, Altered, or Deleted Provisions
Other changes or
additions to the certificate of formation may be made in the space
provided below. If the space provided is insufficient, incorporate
the additional text by providing an attachment to this form. Please
read the instructions to this form for further information on
format.
Text Area (The
attached addendum, if any, is incorporated herein by
reference.)
☐
Add
each of the following
provisions to the certificate of formation. The identification or
reference of the added provision and the full text are as
follows:
☑
Alter
each of the following
provisions of the certificate of formation. The identification or
reference of the altered provisons and the full text of the
provision as amended are as follows:
Article IV of the
Amended and Restated Certificate of Formation shall be amended and
restated as follows:
"Effective as of
the effective date set forth under Effectiveness of Filing on this
Amendment to the Certificate of Formation (or in the absence of
such date, on the date such Amendment to the Certificate of
Formation is filed with the Secretary of State of Texas)
(“Effective Time”), the Corporation shall have three
hundred million (300,000,000) shares of capital stock authorized.
The Corporation is authorized to issue two (2) classes of shares,
designated “Common Stock” and “Preferred
Stock.” The total number of shares of Common Stock authorized
to be issued is two hundred million (200,000,000) shares, $0.001
par value per share. The total number of shares of Preferred Stock
authorized to be issued is one hundred million (100,000,000)
shares, $0.001 par value per share. Further, at the Effective Time,
every [two to ten, depending on the final ratio approved by the
Board of Directors] shares of the Corporation's Common Stock,
$0.001 par value per share, but not any other series of capital
stock of the Corporation, including any series 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 [two to ten, 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 factional shares of common stock shall be
issued as a result of the Reverse Stock Split. Instead all
fractional shares of common stock as a result of the Reverse Stock
Split shall be automatically rounded up to the next whole share of
common stock.
The undesignated
Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, subject to any
prohibitions set forth in any series of Preferred Stock of the
Corporation, to fix or alter the rights, preferences, privileges
and restrictions of any wholly unissued series of Preferred Stock,
and the number of shares constituting any such series or the
designation thereof and to increase or decrease the number of
shares of any such series subsequent to the issuance of shares of
that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall so be
decreased, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution
originally fixing the number of such series.
The corporation is
hereby prohibited from issuing any non-voting Common Stock or
Preferred
Stock."
☐
Delete
each of the
provisions identified below from the certificate of
formation.
Statement of Approval
The amendments to
the certificate of formation have been approved in the manner
required by the Texas Business Organizations Code and by the
governing documents of the entity.
Effectiveness of Filing
(Select either
A, B, or C)
A. ☑ This
document becomes effective when the document is filed by the
secretary of state.
B. ☐ This
document becomes effective at a later date, which is not more than
ninety (90) days from the date of signing. The delayed effective
date is: ________________
C. ☐ This
document takes effect upon the occurrence of a future event or
fact, other than the
passage of time.
The 90th day after the date of signing is:
_________________
The following event
or fact will cause the document to take effect in the manner
described below:
Execution
The undersigned
signs this document subject to the penalties imposed by law for the
submission of a materially false or fraudulent instrument and
certifies under penalty of perjury that the undersigned is
authorized under the provisions of law governing the entity to
execute the filing instrument.
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Date
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By:
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/s/
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Signature of
authorized person
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Printed or typed name of authorized person (see
instructions)
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FORM
OF PROXY
(SEE
ATTACHED)
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PEDEVCO
CORP.
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF
STOCKHOLDERS – December 28, 2016 AT 8:00 A.M.
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CONTROL
ID:
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REQUEST
ID:
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The undersigned
stockholder of PEDEVCO CORP., a Texas corporation (the
“Company”), hereby acknowledges receipt of the Notice
of Annual Meeting of Stockholders and Proxy Statement of the
Company, each dated on or around November 10, 2016,
and hereby appoints Michael L. Peterson and Clark R. Moore (the
“
Proxies
”) proxies and
attorneys-in-fact, each with full power of substitution, on behalf
and in the name of the undersigned, to represent the undersigned at
the 2016 Annual Meeting of Stockholders of the Company, to be held
on December 28, 2016, at 8:00 a.m. local time at
PEDEVCO Corp.’s corporate office located at 4125 Blackhawk
Plaza Circle, Suite 201, Danville, California 94506, and at any
adjournment or adjournments thereof, and to vote all shares of the
Company that the undersigned would be entitled to vote if then and
there personally present, on the matters set forth on the reverse
side, and all such other business as may properly come before the
meeting. You hereby revoke all proxies previously
given.
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(CONTINUED
AND TO BE SIGNED ON REVERSE SIDE.)
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VOTING
INSTRUCTIONS
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If
you vote by phone, fax or internet, please DO NOT mail your proxy
card.
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MAIL:
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Please mark, sign,
date, and return this Proxy Card promptly using the enclosed
envelope.
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FAX:
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Complete the
reverse portion of this Proxy Card and Fax to
202-521-3464.
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INTERNET:
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https://www.iproxydirect.com/PED
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PHONE:
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Call toll
free
1-866-752-VOTE
(8683)
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ANNUAL
MEETING OF THE STOCKHOLDERS OF
PEDEVCO
CORP.
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PLEASE
COMPLETE, DATE, SIGN AND RETURN
PROMPTLY
IN THE ENCLOSED ENVELOPE.
PLEASE
MARK YOUR VOTE IN BLUE
OR
BLACK INK AS SHOWN HERE: ☒
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PROXY SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
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Proposal
1
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FOR
ALL
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AGAINST
ALL
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FOR
ALL
EXCEPT
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Election of Directors:
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☐
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☐
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Frank C.
Ingriselli
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☐
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Adam
McAfee
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☐
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CONTROL
ID:
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Elizabeth P.
Smith
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☐
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REQUEST
ID:
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David Z. Steinberg
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☐
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Proposal
2
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FOR
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AGAINST
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ABSTAIN
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To approve the
issuance of such number of shares of common stock exceeding 19.9%
of our outstanding common stock, issuable upon conversion of the
MIEJ Convertible Promissory Note
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☐
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☐
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☐
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Proposal
3
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FOR
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AGAINST
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ABSTAIN
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To approve an
amendment to the company’s 2012 Equity Incentive Plan, to
increase by 5,000,000 the number of shares of common stock reserved
for issuance under the plan.
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☐
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☐
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☐
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Proposal
4
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FOR
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AGAINST
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ABSTAIN
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Authorization for
the Board of Directors to effect a reverse stock split of our
outstanding common stock in a ratio of between one-for-two and
one-for-ten
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☐
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☐
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☐
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Proposal
5
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FOR
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AGAINST
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ABSTAIN
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Ratification of the
appointment of GBH CPA’s, PC, as the company’s
independent auditors for the fiscal year ending December 31,
2016.
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☐
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☐
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☐
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Proposal
6
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FOR
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AGAINST
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ABSTAIN
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To approve the
adjournment of the annual meeting, if necessary or appropriate, to
solicit additional proxies.
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☐
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☐
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☐
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MARK HERE FOR
ADDRESS CHANGE ☐
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New Address (if
applicable):
________________________
________________________
________________________
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This
Proxy, when properly executed will be voted as provided above, or
if no contrary direction is indicated, it will be voted “For
All” In Proposal 1, “For” Proposals 2 Through 6,
and for all such other business as may properly come before the
meeting in the sole determination of the Proxies.
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IMPORTANT:
Please sign exactly as
your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full
corporate name by duly authorized officer, giving full title as
such. If signer is a partnership, please sign in partnership name
by authorized person.
Dated:
________________________, 2016
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(Print Name of
Stockholder and/or Joint Tenant)
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(Signature of
Stockholder)
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(Second Signature
if held jointly)
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