A beneficial conversion feature arises when the calculation of the effective conversion
price is less than the Companys stock price on the date of issuance. Tranche 5 did not result in a BCF because the effective conversion price was greater than the companys stock price on the date of issuance.
The warrants fair values were calculated using Black-Scholes Merton (BSM). The aggregate fair value of the warrants totaled
$303,712. Since the warrants were issued as an inducement to Epsilon to issue additional debt, we recorded an inducement expense of $303,712.
Term Extension (March 21, 2017)
On March 21, 2017 we entered into an amendment to the Restated Note Purchase Agreement with Epsilon. In connection with the existing
$6.0 million loan agreement, the adjusted principal balance is due and payable in full upon the earlier of (i) written demand by Epsilon or (ii) such time as Odyssey or the guarantor pays any other indebtedness for borrowed money
prior to its stated maturity date. As such the Company amortized the notes up to their face value of $6,050,000 and they are classified as short-term. However, since Epsilon converted the first $3.0 million into 670,455 of our common shares and
assigned $2.0 million to MINOSA, the current principal indebtedness at June 30, 2020 is $1.0 million.
Promissory Note
On April 15, 2016, Odyssey Marine Exploration, Inc. (Odyssey) and its wholly owned subsidiaries Oceanica Marine Operations,
S.R.L. (OMO), Odyssey Marine Services, Inc. (OMS), and Odyssey Marine Enterprises, Ltd. (OME) executed a Loan and Security Agreement (the Loan Agreement) with Monaco Financial LLC
(Monaco) pursuant to which Odyssey borrowed $1,825,000 from Monaco. The current balance is now $1,175,000. Monaco advanced the entire amount to us in March 2016 upon execution of a Letter of Intent. The indebtedness is evidenced by a
Convertible Promissory Note (the Note) that provides for interest at the rate of 10.0% per annum on the outstanding amount of principal, with the entire unpaid principal sum outstanding, together with any unpaid interest thereon,
being due and payable on April 15, 2018. This note has matured, but Monaco has not demanded payment since we are in negotiations with Monaco to set a new maturity date. Odyssey has the right to prepay the indebtedness, in whole or in part, upon
30 days notice to Monaco.
Pursuant to the Loan Agreement and as security for the indebtedness, Monaco was granted a security
interest in (a) one-half of the indebtedness evidenced by the Amended and Restated Consolidated Note and Guaranty, dated September 25, 2015 (the ExO Note), in the original principal
amount of $18.0 million, issued by Exploraciones Oceanicas S. de R.L. de C.V. to OMO, and all rights associated therewith (the OMO Collateral); and (b) all marine technology and assets in OMSs possession or control used
for offshore exploration, including a deep-tow search systems, winches, multi-beam sonar, and other equipment. OME unconditionally and irrevocably guaranteed all obligations of Odyssey, OMO, and OMS to Monaco
under the Loan Agreement.
As further consideration for the loan, Monaco was granted an option (the Option) to purchase the
OMO Collateral. The Option is exercisable at any time before the earlier of (a) the date that is 30 days after the loan is paid in full or (b) the maturity date of the ExO Note, for aggregate consideration of $9.3 million,
$1.8 million of which would be paid at the closing of the exercise of the Option, with the balance paid in ten monthly installments of $750,000.
The Loan Agreement also contains customary representations and warranties of the parties, covenants, and events of default. Of the combined
total indebtedness of Monacos Note 1 of $2.8 million (NOTE I) and this agreement, Note 2, (see NOTE I), Monaco can convert this combined debt into 3,174,603 shares of Oceanica at a fixed conversion price of $1.00 per share, or $3,174,603.
Any remaining debt in excess of $3,174,603 is not convertible. The Note further provides that the maximum number of Oceanica cuotas that can be acquired by Monaco upon conversion is 3,174,603 cuotas. During the three-months ended June 30, 2017,
we sold a marine vessel to a related party of Monaco for $650,000. The consideration for this vessel was applied to our loan balance to Monaco in the amount of $650,000.
Promissory Note
On May 3, 2017, we
entered into a Loan and Security Agreement (Loan Agreement) with SMOM. Pursuant to the Loan Agreement, SMOM agreed to loan us up to $3.0 million as evidenced by a convertible promissory note. As a commitment fee, we assigned the
remaining 50% of our Neptune Minerals, LLC receivable to SMOM. This receivable had zero carrying value on our balance sheet and due to the age and collectability was deemed to have no fair value. The indebtedness bears interest at a rate of 10% per
annum and matures on the second anniversary of this Loan Agreement which was May 3, 2019. On April 20, 2018, the loan was amended, and the principal amount of the Loan was increased to $3,500,000. The loan balance at June 30, 2020 is
$3.5 million. The holder has the option to convert up to $2.0 million of any unpaid principal and interest into up to 50% of the equity interest held by Odyssey in Aldama Mining Company, S.de R.L. de C.V. which is a wholly owned subsidiary
of ours. The conversion value of $1.0 million equates to 10% of the equity interest in Aldama. If the holder elects to acquire the entire 50% of the equity interest, the Holder has to pay the deficiency in cash. As additional consideration for
the loan, the holder has the right to purchase from Odyssey all or a portion of the equity collateral (up to the 50% of the equity interest of Aldama) for the option consideration ($1.0 million for each 10% of equity interests) during the
period that is the later of (i) one year after the maturity date and (ii) one year after the loan is repaid in full, the expiration date. The lender may also choose to extend the expiration date annually by paying $500,000 for each year
extended.
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