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Item
2.03
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
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Senior
Secured Convertible Note due December 31, 2021
On
May 14, 2021, Empire New Mexico LLC, a Delaware limited liability company and wholly owned subsidiary of Empire Petroleum Corporation
(“Empire New Mexico”), issued that certain Senior Secured Convertible Note due December 31, 2021 in the aggregate principal
amount of $16,250,000 (the “Secured Convertible Note”) to Energy Evolution Master Fund, Ltd. (“Energy Evolution Ltd”).
The funds received by Empire New Mexico in connection with the issuance of the Secured Convertible Note were used to pay the adjusted
purchase price under that purchase and sale agreement dated as of March 12, 2021, by and between Empire New Mexico and XTO Holdings,
LLC, a subsidiary of ExxonMobil (“Seller”), pursuant to which, among other things, Empire New Mexico agreed to acquire certain
oil and gas properties from Seller in New Mexico comprising of 702 gross wells and approximately 47,200 gross acres (40,580 net acres)
in Lea County (the “XTO Acquisition”). The XTO Acquisition was described in Current Report on Form 8-K of Empire Petroleum
Corporation (“Empire Petroleum”) filed on May 17, 2021.
The
Secured Convertible Note accrues interest at the rate of 3.8% per annum and all principal and accrued interest thereon is due on December
31, 2021. The repayment of the Secured Convertible Note shall be secured by a mortgage lien encumbering Empire New Mexico’s oil,
gas and other leasehold and mineral interests situated in the State of New Mexico. Under the Secured Convertible Note, 40% of the principal
amount outstanding together with accrued interest thereon (the “Maximum Convertible Amount”) may be converted at a conversion
price of $1.25 per share (the “Conversion Price”) into the common stock, par value $0.001 per share (the “Common Stock”)
of Empire Petroleum, or an aggregate of 5,200,000 shares of Common Stock (without giving effect to any interest that may be converted).
Pursuant to the Secured Convertible Note, Empire Petroleum agreed to use commercially reasonable best efforts to cause a registration
statement on Form S-3 to be filed with Securities Exchange Commission within 90 days for (a) all Common Stock owned by Energy Evolution
Ltd and all Common Stock underlying warrants owned by Energy Evolution Ltd and (b) the Common Stock and Common Stock underlying warrants
issued by Empire Petroleum in its private offering that closed on or about March 30, 2021 (the “Registration Statement”).
The Secured Convertible Note may be prepaid without penalty, but Empire New Mexico must provide at least 30 days’ prior written
notice so Energy Evolution Ltd may exercise its conversion rights. Empire New Mexico agreed to use commercially reasonable best efforts
to prepay the outstanding principal amount of the Secured Convertible Note on or before September 30, 2021. Empire Petroleum agreed to
use commercially reasonable best efforts to (i) cause the number of members serving on Empire Petroleum’s Board of Directors to
be increased to six, (ii) cause an additional designee of Energy Evolution Ltd or its affiliate to be appointed to Empire Petroleum’s
Board of Directors, and (c) cause one of the designated directors of Energy Evolution Ltd or its affiliate to be appointed the Chairman
of Empire Petroleum’s Board of Directors with the power to cast the deciding vote in case of a deadlocked board vote. The Conversion
Price is subject to customary downward adjustments, including in the event that Empire Petroleum conducts capital raises at a valuation
less than $1.25 per share of Common Stock. In the event the Registration Statement does not become effective within 120 days, the Conversion
Price shall be reduced by $0.25 and the Maximum Convertible Amount shall be increased to 50% of the principal amount outstanding together
with accrued interest thereon. In such event, the maximum number of shares into which the Secured Convertible Note may be converted increases
to 8,125,000 shares of Common Stock (without giving effect to any interest that may be converted). In addition, if any principal amount
of the Secured Convertible Note remains outstanding on October 1, 2021, the Conversion Price shall be reduced by $0.25, provided the
Conversion Price cannot be reduced by more than $0.25 if any principal amount of the Secured Convertible Note remains outstanding on
October 1, 2021 and the Registration Statement does not become effective within 120 days. The Secured Convertible Note also contains
various other terms and conditions that are customary for transactions similar to the transactions contemplated by the Secured Convertible
Note. The foregoing description of the Secured Convertible Note is only a summary, does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Secured Convertible Note, a copy of which is filed as Exhibit 4.1 attached hereto.
As
partial consideration for the issuance of the Secured Convertible Note, Empire Petroleum issued (I) 1,500,000 shares of Common Stock
along with (II) a warrant certificate (the “Warrant Certificate”) to purchase up to 3,000,000 shares of Common Stock (the
“Warrant Shares”) at an exercise price of $1.00 per Warrant Share, to Energy Evolution Ltd until May 14, 2022. Under the
Warrant Certificate, the exercise price is subject to customary downward adjustments, including in the event that Empire Petroleum conducts
capital raises at a valuation less than $1.00 per share of Common Stock. The Warrant Certificate also contains various other terms and
conditions that are customary for transactions similar to the transactions contemplated by the Warrant Certificate. The foregoing description
of the Warrant Certificate is only a summary, does not purport to be complete and is subject to, and qualified in its entirety by reference
to, the Warrant Certificate, a copy of which is filed as Exhibit 4.2 attached hereto.
Unsecured
Convertible Notes due May 9, 2022
On
May 14, 2021, Empire New Mexico closed an offering of Unsecured Convertible Notes due May 9, 2022 in the aggregate principal amount of
$3,243,000 (the “Unsecured Convertible Notes”) to sixteen accredited investors. The funds received by Empire New Mexico in
connection with the issuance of the Unsecured Convertible Notes were used to pay a performance bond required in connection with the XTO
Acquisition.
The
Unsecured Convertible Note accrues interest at the rate of 5% per annum and all principal and accrued interest thereon is due on May
9, 2022. Under the Unsecured Convertible Note, 100% of the principal amount outstanding together with accrued interest thereon may be
converted at a conversion price of $1.25 per share into Common Stock, or an aggregate of 2,594,400 shares of Common Stock (without giving
effect to any interest that may be converted). Pursuant to the Unsecured Convertible Note, Empire Petroleum agreed to use commercially
reasonable best efforts to cause a registration statement on Form S-3 to be filed with Securities Exchange Commission within 90 days
for all Common Stock underlying the Unsecured Convertible Notes. Empire New Mexico has the right to force conversion in the event that
(a) the 20-day weighted average price of the Common Stock trades above $3.50 per share on the OTCQB or any exchange and (b) the Registration
Statement has become effective. The Unsecured Convertible Notes may be prepaid without penalty, but Empire New Mexico must provide at
least 30 days’ prior written notice so the holders thereof may exercise their conversion rights.