Item
1.01 Entry into a Material Definitive Agreement.
Extension
of Hazel Option Agreement
As
previously disclosed in our Form 8-K filed on August 13, 2020, on that date, our subsidiaries Torchlight Energy, Inc. and Torchlight
Hazel, LLC entered into an option agreement (the “Option Agreement”) with Masterson Hazel Partners, LP (“MHP”)
and McCabe Petroleum Corporation. On September 18, 2020, the parties entered into a First Amendment to Option Agreement, under
which, the date MHP must exercise its options under the Option Agreement was extended. MHP must now exercise the options no later
than February 3, 2021, subject to extension to the earlier of May 31, 2021 or the maturity date of the promissory notes held by
the David A. Straz, Jr. Foundation and David A. Straz, Jr. Irrevocable Trust DTD 11/11/1986, if MHP drills the well on the southern
half of the prospect, provides notice no later than February 3, 2021 of its intent to conduct operations on the northern half
of the prospect and on or before February 17, 2021, conducts operations sufficient to satisfy the drilling obligations regarding
the second well on the northern half of the prospect.
The
description of the First Amendment to Option Agreement set forth herein does not purport to be complete and is qualified in its
entirety by reference to the full text thereof, which will be attached as an exhibit to our Form 10-Q for the quarter ended September
30, 2020.
Loan
from McCabe Petroleum Corporation
On
September 18, 2020, McCabe Petroleum Corporation, a company owned by our chairman Gregory McCabe (“MPC”), loaned us
$1,500,000, evidenced by a 6% Secured Convertible Promissory Note (the “MPC Note”). The note bears interest at the
rate of 6% per annum and provides for payment of the principal amount along with all accrued and unpaid interest in one lump sum
payment on its maturity date of May 10, 2021. In connection with the proposed business combination transaction described below
in Item 8.01 of this current report, the note provides the following requirements on the use of proceeds of the loan as follows:
(i) we will lend $500,000 to Metamaterial pursuant to an 8% Unsecured Convertible Promissory Note (the “Metamaterial Note,”
which is described further under Item 8.01); (ii) we will retain and use $500,000 for general corporate purposes, including without
limitation, expenses incurred by us in connection with the proposed business combination transaction; and (iii) we will deposit
$500,000 into an escrow account, to be held in escrow. If we and Metamaterial enter into a definitive agreement by the later of
November 2, 2020 or such later date that is agreed to by us and Metamaterial in writing, the $500,000 from this escrow account will
be released to us, and we will lend this amount to Metamaterial pursuant to another convertible promissory note (the “Second
Metamaterial Note”). If we do not enter into a definitive agreement by the later of November 2, 2020 or such later date
that is agreed to in writing, the $500,000 from this escrow account will be released back to MPC and deducted from the principal
amount outstanding under the MPC Note.
The
MPC Note is secured by our pledge of the Metamaterial Note and the Second Metamaterial Note (if issued). If we and Metamaterial
do not enter into a definitive agreement by the later of November 2, 2020 or such later date that is agreed to in writing, then
promptly after that date, we will assign to MPC the Metamaterial Note in full repayment and discharge of $500,000 (plus accrued
and unpaid interested on the Metamaterial Note) of the principal amount of the MPC Note, and the remaining $500,000 (less accrued
and unpaid interested on the Metamaterial Note) of the principal amount, plus all unpaid interest accrued under the MPC Note,
will remain subject to the MPC Note. If a definitive agreement is entered into by the later of November 2, 2020 or such later
date that is agreed to in writing, but the proposed business combination transaction is terminated prior to closing or otherwise
does not close by the maturity date of the MPC Note, then we will assign to MPC both the Metamaterial Note and Second Metamaterial
Note in full repayment and discharge of $1,000,000 (plus accrued and unpaid interested on the Metamaterial Note and Second Metamaterial
Note) of the principal amount of the MPC Note, and the remaining $500,000 (less accrued and unpaid interested on the Metamaterial
Note and Second Metamaterial Note) of the principal amount, plus all unpaid interest accrued under the MPC Note, will remain subject
to the MPC Note.
The
MPC Note also provides that if (i) we and Metamaterial do not enter into a definitive agreement by the later of November 2, 2020
or such later date that is agreed to in writing, or (ii) we and Metamaterial enter into a definitive agreement but the proposed
transaction is terminated prior to closing or otherwise does not close by the maturity date of the MPC Note, then at such time
and until the maturity date, MPC will have the right, at its option, to convert up to $500,000 of the remaining principal amount
of the MPC Note, plus all unpaid interest accrued under the MPC Note, into shares of our common stock at a conversion price of
$0.375 per share. Additionally, if the proposed transaction with Metamaterial closes, all principal and interest under the MPC
Note will automatically convert into shares of our common stock at $0.375 per share.
The
description of the MPC Note set forth herein does not purport to be complete and is qualified in its entirety by reference to
the full text thereof, which will be attached as an exhibit to our Form 10-Q for the quarter ended September 30, 2020.