Item 1.01 Entry Into a Material Definitive
Agreement.
Convertible Notes
On
August 1, 2018, PEDEVCO Corp. (the “
Company
”,
“
PEDEVCO
”,
“
we
”
and “
us
”) raised $23,600,000
through the sale of $23,600,000 in Convertible Promissory Notes
(the “
Convertible
Notes
”). A total of $22,000,000 in Convertible Notes
was purchased by SK Energy LLC (“
SK Energy
”), a company
wholly-owned by our Chief Executive Officer and director, Dr. Simon
Kukes; $200,000 in Convertible Notes was purchased by an executive
officer of SK Energy; $500,000 in Convertible Notes was purchased
by a trust affiliated with John J. Scelfo, a director of the
Company; and $500,000 in Convertible Notes was purchased by an
entity affiliated with Ivar Siem, our director, and J. Douglas
Schick, who was appointed as the President of the Company on August
1, 2018, as discussed below in
Item 5.02
; and $400,000 in
Convertible Notes were purchased by unaffiliated
parties.
The
Convertible Notes accrue interest monthly at 8.5% per annum, which
interest is payable on the maturity date unless otherwise converted
into our common stock as described below.
The
Convertible Notes and all accrued interest thereon are convertible
into shares of our common stock, from time to time following the
determination of the VWAP Price (as defined below), at the option
of the holders thereof, at a conversion price equal to the greater
of (x) $0.10 above the greater of the book value of the
Company’s common stock and the closing sales price of the
Company’s common stock on the date the Convertible Notes were
entered into (the “
Book/Market Price
”)
(which was
$2.03
per
share); (y) $1.63 per share; and (z) the VWAP Price, defined as the
volume weighted average price (calculated by aggregate trading
value on each trading day) of the Company’s common stock for
the 20 trading days subsequent to, but not including, the date that
this Current Report on Form 8-K is filed with the Securities and
Exchange Commission.
The
conversion of the SK Energy Convertible Note is subject to a 49.9%
conversion limitation (for so long as SK Energy or any of its
affiliates holds such note), which prevents the conversion of any
portion thereof into common stock of the Company if such conversion
would result in SK Energy beneficially owning (as such term is
defined in the Securities Exchange Act of 1934, as
amended)(“
Beneficially Owning
”)
more than 49.9% of the Company’s outstanding shares of common
stock.
The
conversion of the other Convertible Notes is subject to a 4.99%
conversion limitation, at any time such note is Beneficially Owned
by any party other than (i) SK Energy or any of its affiliates
(which is subject to the separate conversion limitation described
above); (ii) any officer of the Company; (iii) any director of the
Company; or (iv) any person which at the time of obtaining
Beneficial Ownership of the Convertible Note beneficially owns more
than 9.99% of the Company’s outstanding common stock or
voting stock (collectively (ii) through (iv), “
Borrower Affiliates
”).
The Convertible Notes are not subject to a conversion limitation at
any time they are owned or held by Borrower
Affiliates.
The
Convertible Notes are due and payable on August 1, 2021, but may be
prepaid at any time, without penalty. The Convertible Notes contain
standard and customary events of default and upon the occurrence of
an event of default, the amount owed under the Convertible Notes
accrues interest at 10% per annum.
The
terms of the Convertible Notes may be amended or waived and such
amendment or waiver shall be applicable to all of the Convertible
Notes with the written consent of Convertible Note holders holding
at least a majority in interest of the then aggregate dollar value
of Convertible Notes outstanding.
Hunter Oil Purchase and Sale Agreement and Stock Purchase
Agreement
On August 1, 2018, PEDCO entered into a Purchase
and Sale Agreement with Milnesand Minerals Inc., a Delaware
corporation, Chaveroo Minerals Inc., a Delaware corporation,
Ridgeway Arizona Oil Corp., an Arizona corporation
(“
RAOC
”),
and EOR Operating Company, a Texas corporation
(“
EOR
”)(collectively “
Seller
”)(the
“
Purchase
Agreement
”). Pursuant to
the Purchase Agreement, we (through our wholly-owned
subsidiary
Pacific Energy Development Corp.
(“
PEDCO
”)
) agreed to acquire certain oil and gas assets
described in greater detail below (the “
Assets
”)
from the Sellers in consideration for $18,500,000 (of which
$500,000 is to be held back to provide for potential
indemnification of PEDCO under the Purchase Agreement and Stock
Purchase Agreement (described below), with one-half ($250,000) to
be released to Seller 90 days after closing and the balance
($250,000) to be released 180 days after closing (provided that if
a court of competent jurisdiction determines that any part of the
amount withheld by PEDCO subsequent to 180 days after closing was
in fact due to the Seller, PEDCO is required to pay Seller 200%,
instead of 100%, of the amount so retained). The effective date of
the acquisition of the Assets is scheduled to be September 1, 2018.
The purchase price is subject to adjustment: (a) to reflect
expenditures by Seller which are attributable to the Assets after
the effective time of the transaction (upwards); (b) proceeds
attributable to the sale of hydrocarbons received by the Seller
that are attributable to the Assets after the effective time of the
transaction (downward if received by the Seller); (c) discrepancies
in the title of the Assets (downward); (d) the value of
hydrocarbons in tanks at the effective time of the transaction
(upward); and (e) certain other adjustments as described in greater
detail in the Stock Purchase Agreement (as defined below), subject
to a maximum aggregate downward adjustment of 15% of the aggregate
purchase price for adjustments relating to the title of the
Assets.
In connection with our entry into the Purchase
Agreement, we paid $500,000 into escrow as a deposit towards the
acquisition of the Assets (the “
Deposit
”).
The
Purchase Agreement contains customary representations and
warranties of the parties, and indemnification requirements
(subject to a $25,000 aggregate minimum threshold and a $1,000,000
cap as to each of buyer and seller).
The closing of the acquisition contemplated by the
Purchase Agreement is anticipated to occur on August 31, 2018, with
an effective date of September 1, 2018, subject to the closing
conditions set forth in the Purchase Agreement, including receipt
of Hunter Oil Corp. shareholder approval, the ultimate parent
company of each of the Sellers. Either party may terminate the
Purchase Agreement in the event the closing has not occurred by
August 31, 2018, and the failure to close was not a result of the
breach of the agreement by the terminating party. In the event the
Purchase Agreement is terminated for any reason other than the
material breach of the Purchase Agreement by PEDCO or PEDCO’s
failure to comply with its obligations under the Purchase
Agreement, the Deposit is required to be returned to PEDCO. The
Purchase Agreement allows PEDCO to audit the revenues and expenses
of the Seller attributable to the Assets for the period of three
years prior to the closing, among other things, and requires the
Seller to provide assistance to PEDCO in connection with such audit
for the first 180 days following closing (with such Seller’s
reasonable costs associated with such audit being reimbursed by
PEDCO at the rate of 150% of such costs).
The
Assets represent approximately 23,000 net leasehold acres, current
operated production, and all of Seller’s leases and related
rights, oil and gas and other wells, equipment, easements, contract
rights, and production (effective as of the effective date) as
described in the Purchase Agreement. The Assets are located in the
San Andres play in the Permian Basin situated in west Texas and
eastern New Mexico, with all acreage and production 100% operated
and substantially all acreage held by production.
Also on August 1, 2018, PEDCO entered into a Stock
Purchase Agreement with Hunter Oil Production Corp.
(“
Hunter
Oil
”). Pursuant to the
Stock Purchase Agreement, PEDCO agreed to acquire all of the stock
of RAOC and EOR (the “
Acquired
Companies
”) for a net of
$500,000 (an aggregate purchase price of $2,815,636, less
$2,315,636 in restricted cash which the Acquired Companies are
required to maintain as of the closing date). The Stock Purchase
Agreement contains customary representations and warranties of the
parties, post-closing adjustments, and indemnification requirements
requiring Hunter Oil to indemnify us for certain items (subject to
the $25,000 aggregate minimum threshold and $1,000,000 cap provided
for in the Purchase Agreement) and us to indemnify Hunter Oil for
certain items (which requirement does not include a threshold or
cap). The closing of the acquisition contemplated by the Stock
Purchase Agreement is anticipated to close on August 31, 2018,
subject to the closing of the transactions contemplated by the
Purchase Agreement (described above), and simultaneously
therewith.
Condor Acquisition
On August 1,
2018, Red Hawk Petroleum, LLC, our wholly-owned subsidiary
(“
Red
Hawk
”) entered into a Membership Interest Purchase
Agreement (the “
Membership Purchase
Agreement
”) with MIE Jurassic Energy Corporation
(“
MIEJ
”). Pursuant to the
Membership Purchase Agreement, MIEJ sold Red Hawk 100% of the
outstanding membership interests of Condor Energy Technology LLC
(“
Condor
”) in consideration
for $545,000. Condor owns approximately 2,340 net leasehold acres,
100% held by production (HBP), located in Weld and Morgan Counties,
Colorado, with four operated producing wells. The Membership
Purchase Agreement contains customary representations and
warranties and provides that, as of the August 1, 2018 effective
date, Red Hawk will assume responsibility for all costs, expenses
and obligations outstanding and unpaid that are attributable to the
properties as of the effective date and thereafter, and Red Hawk
will also be entitled to all income and revenues received by Condor
that are attributable to the properties, even if received by Condor
with respect to oil and gas production prior to the effective
date.
The
Company previously owned 20% of Condor through PEDCO, along with
MIEJ, which then held 80% of Condor, until February 19, 2015, when
we and PEDCO entered into a Settlement Agreement (the
“
MIEJ Settlement
Agreement
”) with MIEJ, whereby, among other things,
PEDCO sold its full 20% interest in Condor to MIEJ. Additionally,
until June 25, 2018, when such amount was repaid pursuant to a Debt
Repayment Agreement (described in greater detail in the Current
Report on Form 8-K which we filed with the Securities and Exchange
Commission on June 25, 2018), we owed approximately $6.4 million to
MIEJ pursuant to the terms of a Secured Subordinated Promissory
Note (the “
MIEJ
Note
”).
* * * *
* * * * *
The
foregoing description of the Convertible Notes, Purchase Agreement
and Stock Purchase Agreement and Membership Purchase Agreement does
not purport to be complete and is qualified in its entirety by
reference to the form of Convertible Notes, Purchase Agreement and
Stock Purchase Agreement, and Membership Purchase Agreement, copies
of which are attached as
Exhibit 10.1
,
2.1
,
10.2
and
10.3
, respectively, to this
Current Report on Form 8-K and incorporated herein by
reference.