PETROSHARE CORP. (OTCMKTS:PRHR) Files An 8-K Entry into a Material Definitive AgreementItem 1.01 Entry into a Material Definitive Agreement.
On December21, 2017, PetroShare Corp. (the “Company”) entered into a letter agreement (“Agreement”) with Providence Energy Ltd., a Texas limited partnership (“PEC”), and Fifth Partners, LLC, a Texas limited liability company (“Fifth,” and together with PEC, the “Lenders”) to which the Company borrowed $5 million from PEC (“Initial Funding”). In connection with the Initial Funding, the Company and the Lenders agreed to negotiate a second debt financing by the Lenders of $20 million (“Second Funding”), which is expected to close on January28, 2018. PEC is an affiliate of Providence Energy Operators, LLC (“PEO”), the beneficial owner of approximately 13% of the Company’s common stock, by virtue of common management. Closing of the Second Funding is subject to customary conditions, including the negotiation and execution of definitive agreements and completion of satisfactory diligence by the Lenders.
Interest on the outstanding principal balance of the Initial Funding will accrue at the greater of three-month LIBOR or 1%, plus 14%. Repayment of the Initial Funding is secured by a lien on all of the Company’s assets, which lien is equal in priority to the liens securing the existing indebtedness owed to PEO and Providence Energy Partners III, LP (“PEP III”).
Repayment of the Initial Funding will be due two years from the closing date, if the Second Funding is completed, or not later than February16, 2018, if the Second Funding is not completed. In addition to repayment of the Initial Funding with accrued interest, the Company agreed to pay the Lenders $250,000 if the Second Funding is not completed due to no fault of Lenders. The Company also agreed to issue warrants to the Lenders entitling them to purchase 1,500,000 shares of common stock at a price of $0.01 per share until two years from closing the date. The Lenders would retain these warrants whether or not the Second Funding is completed.
In addition to the foregoing, the Company agreed so long as any indebtedness is outstanding:
· not to incur any additional debt without the Lenders’ consent; and
· not to engage in certain transactions, such as sale of all or substantially all of its assets, mergers, acquisitions, or the engagement or termination of key employees without Lenders’ consent.
The Company used the proceeds of the Initial Funding to satisfy certain of its outstanding accounts payable. If the Second Funding is completed, the Company expects to use the proceeds to repay all or a portion of the outstanding indebtedness owed to PEO and PEP III, and for capital investment.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant
The information under Item 1.01 above is incorporated into this Item 2.03 by reference.