Item
1.01. Entry into a Material Definitive Agreement
On May 15, 2019, Foothills Exploration, Inc.
(the “Company”), closed on a convertible redeemable loan transaction with an unaffiliated lending entity (“Holder”)
in the principal amount of $131,250 (the “Note”), before giving effect to certain transactional costs including legal
fees yielding a net of $125,000.
The
Holder is entitled, at its option, at any time after the 180
th
daily anniversary of the Note, to convert all or any
amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the “Common
Stock”) at a price (“Conversion Price”) for each share of Common Stock equal to 55% of the lowest trading price
of the Common Stock as reported on the National Quotations Bureau OTC Marketplace exchange which the Company’s shares are
traded or any exchange upon which the Common Stock may be traded in the future (“Exchange”), for the twenty (20) prior
trading days including the day upon which a Notice of Conversion is received by the Company or its transfer agent (provided such
Notice of Conversion is delivered by fax or other electronic method of communication to the Company or its transfer agent after
4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price).
Interest
on any unpaid principal balance of this Note shall be paid at the rate of 12% per annum. Interest shall be paid by the Company
in Common Stock (“Interest Shares”). Holder may, at any time, after the 180
th
daily anniversary of the
Note, send in a Notice of Conversion to the Company for Interest Shares based on the formula described above. The dollar amount
converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of
this Note to the date of such notice.
The
maturity date for this Note is May 15, 2020 (“Maturity Date”), and is the date upon which the principal sum, as well
as any accrued and unpaid interest, shall be due and payable. This Note may be prepaid or assigned with the following penalties/premiums:
(i) during the initial 60 calendar day period after the issuance of the Note, by making a payment to the Holder of an amount in
cash equal to 125% multiplied by the principal, plus accrued interest; (ii) during the 61
st
through 120
th
calendar day period after the issuance of the Note, by making a payment to the Holder of an amount in cash equal to 135% multiplied
by principal, plus accrued interest; (iii) during the 121
st
through 180
th
calendar day period after the
issuance of the Note, by making a payment to the Holder of an amount in cash equal to 145% multiplied by principal, plus accrued
interest.
The
Company may not prepay any amount outstanding under this Note after the 180
th
calendar day after the issuance of the
Note. Any amount of principal or interest due pursuant to this Note, which is not paid by the Maturity Date, shall bear interest
at the rate of the lesser of (i) twenty-four percent (24%) per annum or (ii) the maximum amount permitted by law from the due
date thereof until the same is paid (“Default Interest”). If this Note is not paid by the Maturity Date, the outstanding
principal due under this Note shall increase by 10%. Interest shall commence accruing on the date the Note is fully paid and shall
be computed on the basis of a 360-day year and the actual number of days elapsed. Net proceeds obtained in this transaction will
be used for general corporate and working capital purposes. No broker-dealer or placement agent was retained or involved in this
transaction.
Pursuant to terms of the Note, the Company
covenanted to the Holder to reserve with its transfer agent 1.4 million shares of its Common Stock for conversions (the “Share
Reserve”). The Company further covenanted that at all times it would reserve a minimum of four times the number of shares
required if the Note would be fully converted. On April 18, 2019, a majority of shareholders of the Company ratified the resolution
of the Board of Directors approving an amendment to the Certificate of Incorporation of the Company that would increase authorized
Common Stock of the Company from 100 million shares to 475 million shares (the “Certificate Amendment”). The Company
anticipates that the Certificate Amendment will be filed and become effective with the Secretary of State of Delaware within 30
days from the date of this Report. To accommodate the covenant of the Company in the interim, Kevin Sylla, our Executive Chairman,
delivered to the Company 1.4 million shares of common stock beneficially owned by him to permit the required reservation for the
benefit of the Holder. The Company will return 1.4 million shares of common stock to Mr. Sylla upon the increase in the Company’s
authorized shares being effected after the filing of the Certificate Amendment. Upon full conversion of the Note, any shares remaining
in the Share Reserve will be cancelled.
The
transaction documents contain additional terms and provisions, representations and warranties, including further provisions covering
conversions of debt, remedies on default, venue, and governing law. The summary of the transactions described in this Form 8-K
is qualified in its entirety by reference to the Securities Purchase Agreement, and the 12% Convertible Redeemable Note, which
are filed as Exhibits 10.1 and 10.2, to this report.