Item
1.01 Entry into a Material Definitive Agreement.
On
August 25, 2016, and effective on August 15, 2016, Lucas Energy, Inc.’s (“
our
” or the “
Company’s
”)
wholly-owned subsidiary, CATI Operating, LLC (“
CATI
”) borrowed $1 million from the Company’s senior lender,
Louise H. Rogers (“
Rogers
”). The amount borrowed accrues interest at the rate of 12% per annum (18% upon the
occurrence of an event of default) and is due and payable on or before November 9, 2016. The amount borrowed is evidenced by a
promissory note (the “
August 2016 Note
”), which is subject to the same terms and conditions as the August 13,
2013, Letter Loan Agreement between the Company and Rogers, as amended to date (the “
Letter Loan
”) and the
security agreement and security interests provided to Rogers in connection therewith, both of which were previously assigned by
the Company to CATI.
Pursuant
to the terms of the note, a total of 80% of all cash flow generated by CATI is required to first be paid to satisfy amounts owed
under the August 2016 Note, and then to amounts owed under the Letter Loan, with the remaining 20% of such cash flow used by CATI
for lease and other operating expenses and capital expenditures approved by Rogers’ designated representatives. The Note
can be prepaid at any time without penalty and includes standard and customary events of default. In connection with our entry
into the August 2016 Note, we agreed to pay a loan origination fee of $50,000 and to pay all fees of Rogers’ counsel in
connection with the preparation and negotiation of the note.
The
repayment of the August 2016 Note is secured by (a) an Ownership Interest Pledge Agreement (the “
Pledge Agreement
”),
whereby we agreed to pledge our ownership in CATI as security for the repayment of the August 2016 Note; and (b) a Loan Guaranty
Agreement, which becomes effective at such time as we raise at least $5 million of equity funding subsequent to the date of the
August 2016 Note (the “
Funding Date
”), pursuant to which we agreed to guaranty the repayment of the August
2016 Note (the “
Guaranty
”). We have no obligations under the Guaranty until or unless the Funding Date occurs,
provided that we agreed to use our best efforts to ensure the Funding Date occurs as soon as possible.
As
additional consideration in connection with the loan, CATI issued Robertson Global Credit, LLC (“
Robertson
”),
the administrator of the Letter Loan, a 2% overriding royalty interest in the wellbores of the Cyclone #9H and Cyclone #10H wells,
pursuant to an Assignment of Overriding Royalty Interest (the “
Assignment
”).
We
plan to use the funds raised in connection with the August 2016 Note, for drilling and completion of certain Eagle Ford wells
under a joint operating agreement with Lonestar Resources, Inc. and maintenance capital expenditures on the existing assets of
CATI.
The
foregoing descriptions of the August 2016 Note, Pledge Agreement, Guaranty and Assignment, do not purport to be complete and are
qualified in their entirety by reference to the August 2016 Note, Pledge Agreement, Guaranty and Assignment, copies of which are
attached as
Exhibit 10.1
,
Exhibit 10.2
,
Exhibit 10.3
and
Exhibit 10.4
, respectively, to this Current
Report on Form 8-K and incorporated herein by reference.