form8-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________
FORM
8-K
____________
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): February 26, 2008
____________
Blast
Energy Services, Inc.
(Exact
name of registrant as specified in its charter)
____________
|
California
(State
or Other Jurisdiction of Incorporation)
|
|
333-64122
(Commission
File Number)
|
|
|
22-3755993
(I.R.S.
Employer Identification No.)
|
|
14550 Torrey Chase Boulevard, Suite 330
Houston,
Texas
(Address
of Principal Executive Offices)
|
|
|
77014-1022
(Zip
Code)
|
(281) 453-2888
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former
Name or Former Address, if Changed Since Last Report)
____________
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
Soliciting material pursuant to Rule 14a-12 under the exchange Act (17 CFR
250.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 250.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 250.13e-4(c))
ITEM
1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On
January 19, 2007, Blast Energy Services, Inc. and its wholly owned subsidiary
Eagle Domestic Drilling Operations LLC (collectively “Blast,” the “Company,”
“we” and “us”) filed voluntary petitions with the US Bankruptcy Court or the
Southern District of Texas – Houston Division, under Chapter 11 of Title 11 of
the US Code, as previously reported in our Form 8-K filings.
On
February 26, 2008, the Bankruptcy Court entered an order confirming our Second
Amended Plan of Reorganization (the “Plan”). This ruling allows the
Company to emerge from Chapter 11 bankruptcy.
The
overall impact of the confirmed Plan is for Blast to emerge with unsecured
creditors fully paid, have no debt service scheduled for at least two years, and
keep equity shareholders’ interests intact. The major components of
the Plan, which was overwhelmingly approved by creditors and shareholders, are
detailed in the following paragraphs.
Under the
terms of this confirmed Plan, the Company has raised $4.0 million in cash
proceeds from the sale of convertible preferred securities to Clyde Berg and
McAfee Capital, two parties related to the Company’s largest shareholder, Berg
McAfee Companies (as described in Item 3.02 below). The proceeds from
the sale of the securities were used to pay 100% of the unsecured creditor
claims, all administrative claims, and all statutory priority claims, for a
total amount of approximately $2.4 million. The remaining $1.6
million will be used to execute an operational plan, including but not limited
to, reinvesting in the Satellite Services and Down-hole Solutions businesses and
pursue an emerging Digital Oilfield Services business.
The sale
of the convertible preferred securities was conditioned on approval of the Plan
and as such, the securities will be issued after the Merger is affected, the
Company is redomiciled in the State of Texas (as described below in Item 5.03)
and the Preferred Stock is authorized, which are still in process.
This Plan
also preserves the equity interests of our existing shareholders. Furthermore,
the Company will continue to prosecute the litigation against Quicksilver
Resources and Hallwood Petroleum/Hallwood Energy. Blast has previously estimated
these legal recoveries to be in the range of $15 million to $45 million (gross).
Trial dates are currently expected to be May 20, 2008 and September 15, 2008 for
Hallwood and Quicksilver, respectively.
Under the
terms of the Plan, the Company will carry three secured
obligations:
|
·
|
A
$2.1 million interest-free senior obligation with Laurus Master Fund,
Ltd., which is secured by the assets of the Company and is payable only by
way of a 65% portion of the proceeds that may be received for the customer
litigation lawsuits or any asset sales that may occur in the
future;
|
|
·
|
A
$125,000 note to McClain County, Oklahoma for property taxes, which can
also be paid from the receipt of litigation proceeds, or if not paid, it
will convert into a six-percent interest bearing note commencing in
February 27, 2010; and
|
|
·
|
A
pre-existing secured $1.12 million note with Berg McAfee Companies has
been extended for an additional three years from the effective date of the
Plan, February 27, 2008 at eight-percent (8%) interest, and contains an
option to be convertible into Company stock at the rate of one share of
common stock for each $0.20 of the note
outstanding.
|
No other
claims exist on the future operating cash flows of the Company.
Laurus
Settlement Agreement
We
previously reached an agreement with Laurus Master Fund, Ltd. (“Laurus”), on the
terms of an asset purchase agreement intended to offset the full amount of the
$40.6 million senior note, accrued interest and default penalties owed to
Laurus. Under the terms of this agreement, only five land drilling rigs and
associated spare parts was sold to repay Laurus’ note, accrued interest and
default penalties on the note. We had previously requested authority
to consummate the agreement with Laurus from Thornton as defined below, which
proposed sale was originally objected to by Thornton Oilfield Holdings LLC and
various other entities controlled by Rodney D. Thornton (collectively “Thornton
Entities”), at the time a significant shareholder of the Company.
The
Settlement provided that Thornton Entities shall dismiss their lawsuits against
us in Oklahoma and New York, respectively, and they shall support the proposed
sale of our rigs to Laurus or its designee Boom Drilling LLC. The
Settlement also provides that we agreed to pay Laurus $2.1 million as a
reimbursement which payment is secured by all of our assets which Laurus had
security interests in at the time we entered bankruptcy (the “Bankruptcy
Assets”), and that we and Laurus shall split the proceeds 35%/65%, respectively,
from the sale of any Bankruptcy Assets, and; we have the right to purchase
900,000 shares of our common stock currently held by Second Bridge, a Thornton
Entity, for $900.
The
Settlement was heard by the Bankruptcy court on May 10, 2007, was approved by
the court at that time and the rig sale was completed shortly
thereafter.
Management
Conversions
The
Company’s Directors converted unsecured claims for unpaid directors fees
totaling approximately $164,000, into shares of the Company’s common stock at
the rate of one share of common stock for each $0.20 of the deferred amount
owed. Such conversions will result in the issuance of the following shares to
our current and former Directors, which issuances are still in
process:
|
John
Block
|
92,500
|
|
Roger
P. (Pat) Herbert
|
120,000
|
|
Scott
Johnson
|
72,500
|
|
Joseph
Penbera
|
202,500
|
|
Jeff
Pendergraft
|
55,000
|
|
Fred
Ruiz
|
100,000
|
|
O.
James Woodward III
|
177,500
|
Management
Warrants
Under the
Plan, the Company’s Board of Directors was given the authority to enter into
long-term warrant agreements with the Company’s senior management, and grant
such senior management the right to purchase up to 4,000,000 warrants to
purchase shares of the Company’s common stock at $0.20 per share, for a period
of five years. No warrant grants have been issued to
date.
Debtor-in-Possession
(DIP) Loan
The
Bankruptcy court approved the Company’s ability to draw $800,000 from Berg
McAfee and related entities to finance the Company on a temporary
basis. The Plan allows Berg McAfee to convert the outstanding balance
of the DIP loan into Company’s common stock on the effective date of the Plan at
the rate of one share of common stock for each $0.20 of the DIP loan
outstanding. No amount of this loan has been converted into stock to
date.
ITEM
2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
In
connection with the approval of the Plan, the Company currently has the three
outstanding secured Notes described above, and has sold an aggregate of
$4,000,000 in Series A Preferred Stock, as described in greater detail
below.
Item
3.02 Unregistered Sales of Equity Securities.
In
January 2008, the Company sold the rights to an aggregate of 1,000,000 units
each consisting of four shares of Series A Convertible Preferred Stock, which
Preferred Stock is explained in greater detail below under Item 5.03 and one
three year warrant with an exercise price of $0.10 per share (the “Units”), for
an aggregate of $2,000,000 or $2.00 per Unit, to Clyde Berg, an
individual. The sale of the Units was conditioned on approval of the
Plan and as such, the Units will be issued after the Merger is affected, the
Company is redomiciled (as described below) and the Preferred Stock is
authorized. The shares of common stock issuable in connection with
the exercise of the warrants and in connection with the conversion of the
Preferred Stock were granted registration rights in connection with the sale of
the Units. We claim an exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 for the above, since the foregoing
did not involve a public offering, the recipient took the securities for
investment and not resale and we took appropriate measures to restrict
transfer.
In
January 2008, the Company sold the rights to an aggregate of 1,000,000 Units,
for an aggregate of $2,000,000 or $2.00 per Unit, to McAfee Capital, LLC, a
limited liability company. The sale of the Units was conditioned on
approval of the Plan and as such, the Units will be issued after the Merger is
affected, the Company is redomiciled (as described below) and the Preferred
Stock is authorized. The shares of common stock issuable in
connection with the exercise of the warrants and in connection with the
conversion of the Preferred Stock were granted registration rights in connection
with the sale of the Units. We claim an exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 for the above, since the foregoing
did not involve a public offering, the recipient took the securities for
investment and not resale and we took appropriate measures to restrict
transfer.
ITEM
5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF DIRECTOR;
APPOINTMENT OF PRINCIPAL OFFICERS.
In
connection with the approval of the Plan, O. James Woodward III, Fred Ruiz and
Scott Johnson resigned from their positions as Directors of the Company on or
about February 26, 2008, and the Company’s current Vice Chairman, H. Roger “Pat”
Herbert became Chairman of the Board of Directors.
ITEM
5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
In
connection with the approval of the Plan, the Bankruptcy Court, and the Board of
Directors of the Company approved a change in domicile of the Company from
California to Texas. This will be effected by the Company creating a
wholly owned subsidiary, Blast Energy Services, Inc., in the State of Texas,
which the Company will merge with and into, the result of which will be that the
Company will become a Texas corporation (the “Merger”). Following the
Merger, the Company will have 200,000,000 authorized shares of stock, of which
180,000,000 shares will be common stock, $0.001 par value per share, and
20,000,000 shares will be preferred stock, $0.001 par value per
share. The Certificate of Formation of the resulting Texas
corporation will also allow the Company’s Board of Director to issue “blank
check” preferred stock with rights and privileges as it may decide in its sole
discretion, but which shares must have voting rights. The Company
also authorized 8,000,000 shares of Series A Convertible Preferred Stock in
connection with the Merger, which are described in greater detail
below. In connection with the Merger, the Company adopted new Bylaws
(attached hereto as Exhibit 3.3).
Series A Convertible
Preferred Stock
The
8,000,000 shares of Series A Preferred Stock of the Company (the “Preferred
Stock”) accrue interest at the rate of 8% per annum, in arrears for each month
that the Preferred Stock is outstanding. The Company has the right to
repay any or all of the accrued dividends at any time by providing the holders
of the Preferred Stock at least five days written notice of their intent to
repay such dividends. In the event the Company receives a “Cash
Settlement,” defined as an aggregate total cash settlement received by the
Company, net of legal fees and expenses, in connection with either (or both) of
the Company’s pending litigation proceedings with (i) Hallwood Petroleum, LLC
and Hallwood Energy, LP (Adversary Proceeding No. 07-03282 in the US Bankruptcy
Court in Houston); and/or (ii) Quicksilver Resources, Inc (Adversary Proceeding
No. 07-03292 in the US Bankruptcy Court in Houston), in excess of $4,000,000,
the Company is required to pay any and all outstanding dividends within thirty
days in cash or stock at the holder’s option. If the dividends are
not paid within thirty days of the date the Cash Settlement is received, a
“Dividend Default” occurs.
Additionally,
the Preferred Stock (and any accrued and unpaid dividends on such Preferred
Stock) have optional conversion rights, which provide the holders of the
Preferred Stock the right, at any time, to convert the Preferred Stock into
shares of the Company’s common stock at a conversion price of $0.50 per
share.
In
addition, the Preferred Stock automatically converts into shares of the
Company’s common stock at a conversion price of $0.50 per share, if the
Company’s common stock trades for a period of more than twenty consecutive
trading days at greater than $3.00 per share and the average trading volume of
the Company’s common stock exceeds 50,000 shares per day.
The
Preferred Stock has the right to vote at any shareholder vote, the number of
common shares of voting stock that the Preferred Stock is then convertible
into.
The
Preferred Stock may be redeemed at the sole option of the Company upon the
receipt by the Company of a Cash Settlement from the pending litigation in
excess of $7,500,000, provided that the holders, at their sole option, may have
six months from the date of the Company’s receipt of the Cash Settlement to
either accept the redemption of the Preferred Stock or convert such Preferred
Stock into shares of the Company’s common stock.
ITEM
9.01 FINANCIAL STATEMENTS AND EXHIBITS.
|
Exhibit Number
|
Description of Exhibit
|
|
2.1*
|
Plan
of Merger
|
|
2.2*(1)
|
Articles
of Merger (California and Texas)
|
|
3.1*(1)
|
Certificate
of Formation Texas
|
|
3.2*(1)
|
Certificate
of Designation of Series A Preferred Stock Texas
|
|
3.3*(1)
|
Bylaws
of Blast Energy Services, Inc., Texas
|
|
10.1*
|
Second
Amended Plan of Reorganization
|
|
10.2*
|
First
Amended Plan of Reorganization
|
|
10.3*
|
Subscription
Agreement and Related Exhibits with Clyde Berg
|
|
10.4*
|
Subscription
Agreement and Related Exhibits with McAfee Capital, LLC
|
|
10.5*
|
Laurus
Master Fund, Ltd. $2.1 million Security Agreement
|
|
10.6*
|
Berg
McAfee Companies $1.12 million Note
|
|
10.7(2)
|
Settlement
Agreement
|
* Filed
herewith
(1)
These filings have not been made as of the date of this report.
(2) Filed
as an exhibit to our report on Form 8-K, filed with the Commission on May 14,
2007, and incorporated herein by reference.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
|
|
|
|
|
|
|
BLAST ENERGY SERVICES,
INC.
(Registrant)
|
|
|
Dated:
March 6, 2008
|
By:
|
/s/
John MacDonald
|
|
|
|
|
John
MacDonald
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|