ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
General
Beginning in May 2016 and
since then, we have completed a series of placements of our Senior Secured Convertible Debenture due May 27, 2021 (singly a “
Debenture
”
and collectively the “
Debentures
”). The Debentures were issued pursuant to a securities purchase agreement
(the “
Securities Agreement
”) dated May 27, 2016 and related documentation. Prior to September 19, 2017,
the Securities Agreement had been amended twice. As discussed herein, it was amended a third time on September 19, 2017.
The first closing of the
Debenture placement involved the issuance to a single investor (the “
Original Investor
”) of a Debenture
having an original principal amount of $3,500,000. Subsequent to this first closing, we have conducted six additional closings
of additional Debenture issuances to the Original Investor or an additional investor (the “
New Investor
”)
or both. In addition to Debentures, the Original Investor has received warrants (the “
Warrants
”) to purchase
shares of our common stock (singly a “
Common Share
” and collectively the “
Common Shares
”).
We have disclosed each
of the first four closings in Current Reports on Form 8-K, and the effects of the fifth closing were reflected in our Annual Report
on Form 10-K for our fiscal year ended February 28, 2017 (the “
Annual Report
”). For additional information
about these earlier placements, the material terms, provisions and conditions of the Debentures and other securities issued in
the offering, and the security for the Debentures, see the Annual Report and the exhibits incorporated therein by reference.
This current report is
to disclose the details of the fifth, sixth and seventh closings. We believe that the effects of the fifth and sixth closings (which
occurred on March 31, 2017 and July 5, 2017, respectively) were not material to us. However, as a result of the seventh closing
(which occurred on September 19, 2017), we believe that that the effects of the fifth, sixth and seventh closings are material
to us, considered in the aggregate. The following table summarizes the Debenture issuances in the fifth, sixth and seventh closings:
Closing
|
|
Date
|
|
Principal
Amount of Debenture
|
|
|
Conversion
Price
|
|
|
Holder of
Debenture
|
Fifth
|
|
March 31, 2017
|
|
$
|
200,000
|
|
|
$
|
0.20
|
|
|
New Investor
|
Sixth
|
|
July 5, 2017
|
|
$
|
150,000
|
|
|
$
|
0.16
|
|
|
New Investor
|
Sixth
|
|
July 5, 2017
|
|
$
|
137,500
|
|
|
$
|
0.20
|
|
|
New Investor
|
Seventh
|
|
September 19, 2017
|
|
$
|
400,000
|
|
|
$
|
0.16
|
|
|
Original Investor
|
Seventh
|
|
September 19, 2017
|
|
$
|
100,000
|
|
|
$
|
0.16
|
|
|
New Investor
|
Each of the Debentures
listed in the table above features the initial conversion price set forth in the table for each Common Share acquired upon conversion.
(All initial conversion and exercise prices discussed herein are subject to adjustments believed to be customary, including so-called
“down round” financing adjustments.) In connection with the sale and issuance of the Debenture to the Original Investor
set forth in the table above, we also issued to the Original Investor three-year Warrants to purchase 1,500,000 Common Shares at
an exercise price of $0.20 per share, subject to aforementioned adjustments.
With the completion of
the seventh round of Debenture placements, we have issued the following securities pursuant to the Debenture financing:
|
*
|
Debentures having an aggregate original principal amount
of $6,225,000, and
|
|
*
|
Warrants to purchase up to a maximum of 19,125,000 Common
Shares at an initial per-share exercise price of $0.20.
|
The proceeds from the Debenture
placements have generally been used to fund our Nike 3D Seismic Survey, the interpretation of it, and the payment of our expenses
associated with it. Some of these proceeds have been used for the payment of our and the Debenture holders’ costs of the
transaction (including legal fees), general and administrative expenses, the retirement of all of our theretofore outstanding indebtedness
(including all amounts owed to Liberty Petroleum Corporation (“
Liberty
”) for allowing us to be issued
our petroleum exploration license in place of Liberty, and all amounts owed on loans made by management), the acquisition of a
2.9% royalty interest relating to and burdening our licensed prospect (the “
Prospect
”), and payments
of amounts that became owing to Rincon Energy, LLC (“
Rincon
”) pursuant to a geophysical consulting agreement
among Rincon, the New Investor, us and our subsidiary. The proceeds from the most recent Debenture issuances are expected to be
used for our and the investors’ costs of the Debenture placement transactions (including legal fees), and general working
capital purposes. We believe that the net proceeds from the most recent Debenture issuances will be sufficient to finance our general
business expenses during the next 5 months, although we have no assurance of this. In the view of the preceding and the drilling
commitment associated with the Prospect, we will need to raise more funds if the Original Investor does not exercise the 2018 Option
(defined and described herein, and formerly known as the 2017 Option), and we are continuing efforts to raise additional working
capital.
Moreover, pursuant to the
Securities Agreement as amended, the New Investor has the option but not the obligation to acquire additional Debentures through
September 30, 2018, provided that a cap is imposed on the aggregate principal amount of the additional Debentures that may be acquired
(the “
Principal Cap
”). The Principal Cap currently stands at $625,000, and it will be reduced further
by the aggregate principal amount of any additional Debentures acquired or (if greater) specified dollar amounts that increase
over time. The conversion price for any additional Debentures to be issued pursuant to the foregoing will be $0.20.
Effective September 19, 2017, the Securities
Agreement was amended for a third time in certain respects pursuant to a Third Amendment to Securities Purchase Agreement (the
"
Third Amendment
"), a copy of which is being filed as Exhibit 10.01 to this Report and is incorporated
herein by reference for all purposes hereof. Among other things, the Securities Agreement (as amended prior to the Third Amendment)
provided the following:
|
*
|
The Original Investor had the right (the “
2017
Option
”), through September 30, 2017, to purchase in a single closing additional Debentures having aggregate original
principal amount of up to $10,000,000 and featuring an initial conversion price of $0.20 for each Common Share acquired upon conversion,
provided, that if prior to the exercise date of the 2017 Option, we issue additional securities at a price or with an exercise
price or conversion price less than $0.20 per Common Share, then the conversion price for the Debentures issued pursuant to an
exercise of the 2017 Option shall be such lesser price.
|
|
*
|
In addition to the 2017 Option, the Original Investor had
the right (the “
Additional Option
”) to purchase in a single closing additional Debentures having aggregate
original principal amount of up to $10,000,000 and featuring an initial conversion price of $0.20 for each Common Share acquired
upon conversion, provided, that the conversion price for the Debentures issued pursuant to an exercise of the Additional Option
shall be adjusted downward from $0.20 per Common Share upon the conditions and in the manner set forth above with respect to the
Debentures issued pursuant to an exercise of the 2017 Option. The Additional Option could have been exercised after the exercise
of the 2017 Option and until the later of (a) three months after the date on which we have drilled and completed, or otherwise
suspended operations with respect to, the fourth well located on the Prospect, or (b) March 31, 2018.
|
The Third Amendment modified the Securities
Agreement in the following material respects:
|
*
|
The maximum amount of Debentures to be issued pursuant
to the Securities Agreement was increased to allow for the issuance of Debentures pursuant to the seventh closing.
|
|
*
|
The 2017 Option has been renamed the “
2018
Option
” and its exercise date has been extended until January 31, 2018. Otherwise, this right has not been changed.
|
|
*
|
The outside exercise date of the Additional Option has
been extended until July 31, 2018. Otherwise, this right has not been changed.
|
As discussed in the Annual
Report, the Debentures and Warrants held by the Original Investor, the 2018 Option and the Additional Option create a situation
in which a change in the control of us could occur in favor of the Original Investor. For more information about this situation,
see the Annual Report.
Both the Original Investor
and the New Investor have certain registration rights with respect to the Common Shares that they may acquire pursuant to the conversion
of the new Debentures and upon the Original Investor’s exercise of its new Warrants. These registration rights are described
in the Annual Report and are provided for in a registration rights agreement incorporated by reference into the Annual Report.
For more information about these registration rights, see the Annual Report.
Per Rule 135c under the
Securities Act of 1933, nothing contained herein shall be construed to be an offer to sell, or a solicitation of an offer to buy,
any securities. None of the securities the issuances of which are described in this Item 1.01 were registered under the Act, as
amended, and may not be offered or sold in the United States in the absence of an effective registration statement or exemption
from registration requirements.