Filed Pursuant to Rule 424(b)(3)

Registration No. 333-213653

  

PROSPECTUS SUPPLEMENT NO. 2

TO THE PROSPECTUS DATED MARCH 29, 2017

 

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Lilis Energy, Inc.

 

Up to 40,993,017 Shares of Common Stock

 

This prospectus supplement No. 2 supplements the prospectus dated March 29, 2017 (as supplemented to date), covering the resale of shares of our common stock by selling stockholders as described therein, or the prospectus, included in Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (Registration No. 333- 213653). This prospectus supplement is being filed to update and supplement the information in the prospectus with the information contained in our Current Reports on Form 8-K as filed with the Securities and Exchange Commission on (i) June 26, 2017, (ii) July 14, 2017, (iii) August 2, 2017, (iv) August 4, 2017, (v) August 14, 2017, (vi) September 12, 2017, (vii) October 10, 2017, and (viii) October 24, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 as filed with the Securities and Exchange Commission on August 14, 2017 (each of which is attached to and a part of this prospectus supplement), only to the extent that any information contained in those documents is deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

The Prospectus and this prospectus supplement relates to the offer and sale from time to time by the selling stockholders identified in the Prospectus of up to an aggregate of 40,993,017 shares of common stock, par value $0.0001 per share, as set forth in the Prospectus.

 

This prospectus supplement should be read in conjunction with the Prospectus. This prospectus supplement updates and supplements the information in the Prospectus. If there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

This prospectus supplement is not complete without, and may not be delivered or utilized except in connection with, the Prospectus, including any supplements and amendments thereto.

 

Our common stock is currently listed on the NYSE American under the symbol “LLEX.” On November 2, 2017, the last reported sale price of shares of our common stock on the NYSE MKT was $5.11.

 

Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in “Risk Factors” beginning on page 5 of the Prospectus and page 20 of our annual report on Form 10-K for the year ended December 31, 2016.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is November 3, 2017.

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): June 26, 2017

 

 

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter) 

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd. Ste. 1220

   

San Antonio, Texas

  78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

  

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Effective June 26, 2017 (the “Effective Date”), Lilis Energy, Inc. (the “Company”) appointed James Linville as President of the Company. In connection with his appointment, Mr. Linville entered into an employment agreement with the Company. The initial term of the employment agreement is scheduled to end on December 31, 2018, and the employment agreement will renew automatically for additional one-year periods beginning on December 31, 2018, unless either party gives notice of non-renewal at least 180 days before the end of the then-current term.

 

Mr. Linville’s base salary will be $400,000 for the first year of the employment agreement and $450,000 for the second year of the employment agreement. This base salary will be reviewed periodically for increase by the Company’s Board of Directors (the “Board”). Mr. Linville will be paid a lump sum cash signing bonus of $100,000 on the first regular payroll date of the Company following the Effective Date. Mr. Linville will also be eligible to receive an additional cash bonus equal to no less than $200,000 upon the one-year anniversary of the Effective Date, subject to increase at the sole discretion of the Board, and subject to Mr. Linville’s continued employment with the Company through the payment date (the “2018 Bonus”). Mr. Linville will also be eligible to receive awards of equity and non-equity compensation and to participate in the Company’s annual and long-term incentive plans, in each case as determined by the Board in its discretion. He will also be eligible to participate in the Company’s general employee benefit and paid time off plans, and to receive reimbursement for the direct rental costs for an apartment or house in the San Antonio, Texas area.

 

On June 26, 2017, Mr. Linville received a conditional grant under the Company’s 2016 Omnibus Incentive Plan of (i) options to purchase 325,000 shares of common stock with an exercise price of $4.84 and (ii) 175,000 shares of restricted stock, which are in each case, subject to stockholder approval of additional shares under the 2016 Omnibus Incentive Plan at the Company’s 2017 annual meeting of stockholders. Both the options and the restricted stock are scheduled to vest over two years, with 34% vesting on the date of the grant, 33% vesting on the first anniversary of the date of the grant and 33% vesting on the second anniversary of the date of the grant, subject to continued service through each vesting date.

 

Under his employment agreement, Mr. Linville will be entitled to a lump sum severance payment equal to 12 months of base salary plus COBRA premiums upon a termination by the Company without cause or a termination by him for good reason (or 24 months if the termination occurs within 12 months following a change in control), in addition to any unpaid portion of his 2018 Bonus. If his employment agreement is terminated due to death or disability, he will be entitled to a lump sum severance payment equal to six months of COBRA premiums. All severance payments under Mr. Linville’s employment agreement are subject to his execution and non-revocation of a release of claims against the Company. The severance payments are also subject to reduction in order to avoid any excise tax associated with Section 280G of the Internal Revenue Code, but only if that reduction would result in Mr. Linville receiving a greater net after tax benefit as a result of the reduction.

 

All payments to Mr. Linville under his employment agreement will be subject to clawback to the extent required by applicable law. Further, Mr. Linville is subject to non-competition, non-solicitation, anti-raiding, and confidentiality provisions under his employment agreement.

 

 

 

 

The foregoing description of the Company’s employment agreement with Mr. Linville is not complete and is qualified in its entirety by reference to the terms of such employment agreement, a copy of which is attached as Exhibit 10.1 hereto.

 

Prior to his appointment as President of the Company, Mr. Linville, age 52, most recently held the position of Senior Director of Operations and Development for US Energy Development Corporation (“US Energy”) from January 2016 to June 2017, where he was a senior technical engineering, operational and resource development professional in the company. During his time at US Energy, Mr. Linville led a team of field and office staff consisting of drilling, completions, operations, engineering, reservoir, regulatory and environmental safety professionals. Additionally, Mr. Linville was a member of the Capital Committee at US Energy, tasked with deploying up to approximately $200 million annually in a portfolio of energy related investments, primarily within the Delaware Basin and Eagle Ford. Prior to US Energy, Mr. Linville was Director of Operations at American Energy Permian Basin (“AEPB”) from January 2015 to July 2015, where he managed field operations, completions, production and facilities engineering for a large Midland Basin Wolfcamp shale horizontal development program. Prior to moving into his position as Director of Operations at AEPB, Mr. Linville was Director of Acquisitions at American Energy Partners, LP (“AELP”) from February 2014 to January 2015, where he assembled and led the acquisitions team, consisting of numerous petro-professionals (Reservoir, Operations, Geoscience, Land), who were responsible for screening over 400 acquisition opportunities. While at AELP, Mr. Linville participated in and managed over 100 acquisition evaluations with aggregate value greater than $12 billion. Previously, Mr. Linville was employed at Devon Energy Corporation (“Devon”) from January 2001 to January 2014, where he held various engineering and management roles. Prior to Devon, Mr. Linville held various leadership and engineering (reservoir, production, drilling) and operational roles at Eastern American Energy, Consolidated Oil & Gas, Hallwood Petroleum, Unocal and his own firm Derrick Engineering Corporation. Mr. Linville earned his Bachelor of Science in Petroleum Engineering from New Mexico Tech and his Master of Science in Environmental Engineering from Marshall University. Throughout his career, he has held numerous leadership roles within the Society of Petroleum Engineers (SPE) and was an Industry Advisory Board member at New Mexico Tech and the Oklahoma City SPE Chapter. In addition, Mr. Linville is a Registered Professional Engineer.

  

Item 7.01Regulation FD Disclosure.

 

On June 26, 2017, the Company issued a press release announcing the appointment of Mr. Linville. A copy of that press release is attached hereto as Exhibit 99.1.

 

The information in this Item 7.01 is being furnished and shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Item 7.01 shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01Financial Statements & Exhibits.

 

(d) Exhibits

 

Exhibit
No.
 

Description

     
10.1  

Employment Agreement, dated June 26, 2017, between James Linville and Lilis Energy, Inc.

     
99.1  

Press Release of Lilis Energy, Inc. dated June 26, 2017. 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Date:  June 26, 2017 LILIS ENERGY, INC.  
       
  By: /s/ Joseph C. Daches  
    Chief Financial Officer  

 

 

 

   

EXHIBIT INDEX 

 

Exhibit
No.
 

Description

     
10.1  

Employment Agreement, dated June 26, 2017, between James Linville and Lilis Energy, Inc.

     
99.1  

Press Release of Lilis Energy, Inc. dated June 26, 2017. 

 

 

 

Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Executive Employment Agreement (“Agreement”) is entered into as of June 26, 2017 (the “Effective Date”), by and between Lilis Energy, Inc. (the “Company”) and Jim Linville (“Executive”). Executive and the Company are each referred to individually as a “Party” and collectively as the “Parties.”

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1.       Employment. Executive’s employment with the Company is subject to the terms set forth herein.

 

2.       Term. Subject to the remaining terms of this Section 2, this Agreement shall be for an initial term that begins on the Effective Date and continues in effect through December 31, 2018 (the “Initial Term”) and, unless terminated sooner as herein provided, shall continue on a year-to-year basis after the Initial Term (each year, a “Renewal Term,” and each Renewal Term together with the Initial Term, the “Term”). If either Party elects not to renew this Agreement for a Renewal Term, such Party must give a written Notice of Termination to the other Party at least 180 days before the expiration of the then-current Initial Term or Renewal Term, as applicable. In the event that one Party provides the other with a Notice of Termination pursuant to this Section 2, no further automatic extensions shall occur and this Agreement shall terminate at the end of the then-existing Initial Term or Renewal Term, as applicable, and such Termination shall not result in any entitlement to compensation pursuant to Section  6 or otherwise.

 

3.       Position. During the Term, Executive shall be employed as and hold the title of President of the Company, with such duties and responsibilities that are customary in that position for public companies. Executive’s principal place of employment shall be at the main business offices of Company in San Antonio, Texas.

 

4.       Scope of Services. During the Term, Executive shall devote substantially all of Executive’s business time, energy and best efforts to carry out Executive’s responsibilities with respect to the business and affairs of the Company and its affiliates. In addition, the Parties acknowledge that Executive may (i) engage in and manage Executive’s passive personal investments, (ii) engage in charitable and civic activities and (iii) engage in such other activities that the Parties mutually agree to; provided, however, that such activities shall be permitted so long as such activities do not conflict with the business and affairs of the Company or interfere with the performance of Executive’s duties hereunder.

 

5.       Compensation and Benefits. In each case during the Term:

 

5.1       Base Salary. The Company shall pay, or cause to be paid, to Executive a base salary (the “Base Salary”) as established by or pursuant to authority granted by the Company’s Board of Directors (the “Board”) at the following rates:

 

(a)       $400,000 for services rendered from the Effective Date to the one-year anniversary of the Effective Date; and

 

(b)       $450,000 for services rendered from the one-year anniversary of the Effective Date to the two-year anniversary of the Effective Date.

 

The Base Salary shall be reviewed annually by or pursuant to authority granted by the Board in connection with its annual review of executive compensation to determine if such Base Salary should be increased (but not decreased) for the following year in recognition of services to the Company. The Base Salary shall be payable at such intervals in conformity with the Company’s prevailing practice as such practice shall be established or modified from time to time.

 

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5.2       Signing Bonus. Executive shall be paid a lump sum cash signing bonus of $100,000 on the first regular payroll date of the Company following the Effective Date.

 

5.3       Performance Bonus. Executive shall receive a lump sum cash bonus payment equal to no less than $200,000 upon the one-year anniversary of the Effective Date (the “Performance Bonus”), subject to increase at the sole discretion of the Board, and subject to Executive’s continued employment with the Company through the payment date.

 

5.4       Annual Bonuses; Additional Compensation. Without limitation of Section 5.1, Executive shall be eligible to receive bonuses and awards of equity and non-equity compensation and to participate in annual and long-term compensation plans of the Company in accordance with any plan or decision that the Board, or any committee or other person authorized by the Board, may in its sole discretion determine from time to time.

 

5.5       Welfare and Benefit Plans. (i) Executive shall be entitled to participate in all savings and retirement plans, practices, policies and programs of the Company and (ii) Executive and Executive’s family, as the case may be, shall be eligible to participate in, and shall receive all benefits under, all welfare benefit plans, practices, policies and programs provided by the Company (including, to the extent provided, medical, prescription, dental, vision, disability, life, accidental death and travel accident insurance plans and programs) (all such plans, practices, policies and programs, the “Plans”), in each case pursuant to all terms and conditions of the Plans. Except as provided herein, the Company shall not be required to establish or continue the Plans or take any action to cause Executive to be eligible for any Plans on a basis more favorable than that applicable to its other executive-level employees generally.

 

5.6       Reimbursement. The Company shall reimburse Executive (or, in the Company’s sole discretion, shall pay directly), upon presentation of vouchers and other supporting documentation as the Company may reasonably require, for reasonable out-of-pocket expenses incurred by Executive relating to the business or affairs of the Company or the performance of Executive’s duties hereunder, including reasonable expenses with respect to mileage, entertainment, travel and similar items, dues for membership in professional organizations, and similar professional development expenses, provided that the incurring of such expenses shall have been approved in accordance with the Company’s regular reimbursement procedures and practices in effect from time to time.

 

5.7       Vacation. In addition to statutory holidays, Executive shall be entitled to no less than 20 days of paid vacation each calendar year during the Term. Vacation shall accrue pursuant to the Company’s vacation accrual policy applicable to all employees of the Company, provided that no more than 20 vacation days may be carried over from one calendar year to a subsequent calendar year.

 

5.8       Apartment. The Company shall reimburse Executive (or, in the Company’s sole discretion, shall pay directly), upon presentation of vouchers or other supporting documentation as the Company may reasonably require, for mutually agreed upon reasonable expenses incurred by Executive for the direct rental costs for an apartment or house in the San Antonio, Texas area.

 

5.9       Reservation of Rights. The Company reserves the right to modify, suspend or discontinue any and all of its employee benefit plans, practices, policies and programs at any time in its sole discretion without recourse by Executive so long as such changes are similarly applicable to executive employees at a similar level.

 

6.       Payments upon Termination.

 

6.1       Accrued but Unpaid Salary and Bonus. In the event of a Termination for any reason during the Term, the Company shall pay to Executive (or, in the event of Executive’s death, to Executive’s estate or named beneficiary) (a) any Base Salary, vacation pay and expense reimbursements that are accrued but unpaid as of the date of Termination and (b) (except upon a Termination by the Company for Cause) any earned but unpaid bonus for any prior or current year.

 

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6.2       Severance.

 

(a)       Upon an Involuntary Termination during the Term and either prior to a Change in Control or more than one year following a Change in Control, contingent upon Executive’s execution, delivery and non-revocation of a release in form and substance satisfactory to the Company and consistent with the Company’s standard release agreement, which contains a full release of all claims against the Company and certain other provisions, including a reaffirmation of the covenants in Section 12 and Section 13 (the “Release Agreement”), Executive shall be entitled to (1) a lump sum severance payment in an amount equal to 12 months of Base Salary in effect immediately prior to the date of Termination, (2) a lump sum payment equal to 12 months of COBRA premiums based on the terms of Company’s group health plan and Executive’s coverage under such plan as of the date of Termination (regardless of any COBRA election actually made by Executive or the actual COBRA coverage period under the Company’s group health plan) and (3) a lump sum payment equal to (i) $200,000 (representing an amount equal to the unpaid Performance Bonus) and (ii) any additional amounts due but unpaid under Sections 5.3 or 5.4, if the date of Termination is prior to the one-year anniversary of the Effective Date.

 

(b)       Upon an Involuntary Termination during the Term and within one year following a Change in Control, contingent upon Executive’s execution, delivery and non-revocation of the Release Agreement, Executive shall be entitled to (1) a lump sum severance payment in an amount equal to 24 months of Base Salary in effect immediately prior to the date of Termination, (2) a lump sum payment equal to 24 months of COBRA premiums based on the terms of Company’s group health plan and Executive’s coverage under such plan as of the date of Termination (regardless of any COBRA election actually made by Executive or the actual COBRA coverage period under the Company’s group health plan) and (3) a lump sum payment equal to (i) $200,000 (representing an amount equal to the unpaid Performance Bonus) and (ii) any additional amounts due but unpaid under Sections 5.3 or 5.4, if the date of Termination is prior to the one-year anniversary of the Effective Date.

 

(c)       Upon a Termination due to Disability during the Term, contingent upon Executive’s execution, delivery and non-revocation of the Release Agreement, Executive shall be entitled to a lump sum payment equal to six months of COBRA premiums based on the terms of the Company’s group health plan and Executive’s coverage under such plan as of the date of Termination (regardless of any COBRA election actually made by Executive or the actual COBRA coverage period under the Company’s group health plan).

 

(d)       The Company’s obligations under this Section 6.2 are subject to the requirements and time periods set forth in this Section 6.2 and in the Release Agreement. Prior to receiving the payments described in this Section 6.2, Executive shall execute the Release Agreement on or before the date 21 days (or such longer period to the extent required by law) after the date of Termination. If Executive fails to timely execute and remit the Release Agreement, Executive waives any right to the payments provided under this Section 6.2. Payments under this Section 6.2 shall be made within fifteen 15 days of Executive’s execution and delivery of the Release Agreement, provided that Executive does not revoke the Release Agreement.

 

(e)       Executive’s rights following a Termination under the terms of any Plan, whether tax-qualified or not, which are not specifically addressed in this Agreement, shall be subject to the terms of such Plan, and this Agreement shall have no effect upon such terms except as specifically provided herein.

 

(f)       Except as specifically provided under Section 6.1 and Section 6.2, the Company shall have no further obligations to Executive under this Agreement following a Termination. Without limitation of the foregoing, Executive shall not be entitled to any severance benefits under this Agreement in the event of a Termination other than an Involuntary Termination (except as provided in Section 6.1). The foregoing shall not limit any of Executive’s rights with regard to any rights to indemnification, advancement or payment of legal fees and costs, and coverage under directors and officers liability insurance.

 

(g)       Notwithstanding anything in this Agreement to the contrary, the Company shall have the right to terminate all payments and benefits owing to Executive pursuant to Section 6.2 upon the Company’s discovery of any material breach by Executive of Executive’s obligations under the Release Agreement or Section 12 or Section 13.

 

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7.       Definitions. Capitalized terms used in this Agreement but not otherwise defined herein shall have the meaning hereby assigned to them as follows:

 

7.1       Cause” means a determination by the Board that Executive has:

 

(a)       in the performance of Executive’s duties with respect to the Company or any of its affiliates, engaged in reckless or willful misconduct or has violated the law, provided that no act or failure to act shall be deemed “willful” unless done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive’s action or omission was in the best interest of the Company;

 

(b)       refused without proper legal reason to perform Executive’s duties and responsibilities to the Company or any of its affiliates, which continues after notice from the Company to perform such duties and responsibilities (for the purposes of this clause, the phrase “proper legal reason” shall include Executive’s delivery of a Notice of Termination for Good Reason where the assertion by Executive of Termination for Good Reason is for an event that constitutes Good Reason under the terms of this Agreement);

 

(c)       willfully and materially breached any material provision of this Agreement;

 

(d)       committed an act of fraud, embezzlement or breach of a fiduciary duty to the Company or an affiliate of the Company (including the unauthorized disclosure of material confidential or proprietary information of the Company or an affiliate of the Company);

 

(e)       been convicted of (or pleaded no contest to) a felony (other than a crime involving the operation of a motor vehicle not involving a serious injury or death to an individual); or

 

(f)       entered into a cease and desist order with the U.S. Securities and Exchange Commission alleging violation of U.S. or foreign securities laws.

 

Executive shall have 30 days from the date on which Executive receives the Company’s Notice of Termination for Cause under clause (a), (b) or (c) above to remedy any such occurrence otherwise constituting Cause under such clause.

 

In connection with a determination of Cause, a majority of the Board shall make such determination at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board).

 

A Termination for Cause shall be deemed to include a determination by the Board following a Termination that circumstances existing prior to the Termination would have entitled the Company to have terminated Executive’s service for Cause.

 

All rights Executive has or may have under this Agreement shall be suspended automatically during the pendency of any investigation by the Board, or during any negotiations between the Board and Executive, regarding any actual or alleged act or omission by Executive of the type described in this definition of Cause.

 

7.2       Change in Control” has the meaning given to such term in the Lilis Energy, Inc. 2016 Omnibus Incentive Plan or any successor plan thereto.

 

7.3       Disability” means, if, during the Term, Executive is unable to perform substantially and continuously the duties assigned to him due to a disability (as such term is defined or used for purposes of the Company’s long-term disability plan then in effect, or, if no such plan is in effect, by virtue of ill health or other disability for more than 180 consecutive or non-consecutive days out of any consecutive 12-month period).

 

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7.4       Good Reason” means the occurrence of any of the following events without Executive’s consent:

 

(a)       a material diminution in Executive’s Base Salary; or

 

(b)       a material diminution in Executive’s authority, duties or responsibilities as an officer, or the Board fails to re-nominate Executive for election to the Board if Executive is a Board member as of the Effective Date or becomes a Board member thereafter;

 

(c)       the relocation of Executive’s principal place of employment by more than 25 miles from the location of Executive’s principal place of employment as of the Effective Date; or

 

(d)       a material breach by the Company of a material provision of this Agreement.

 

Notwithstanding the foregoing provisions of this Section 7.4 or any other provision in this Agreement to the contrary, any assertion by Executive of a Termination for Good Reason shall not be effective unless all of the following conditions are satisfied: (1) Executive provides written notice to the Company of such condition within 45 days of Executive gaining knowledge of the initial existence of the condition, (2) the condition specified in the notice remains uncured for 30 days after receipt of the notice by the Company and (3) the date of Termination occurs within 30 days after the expiration of the cure period set forth in (2) immediately above.

 

7.5       Involuntary Termination” means a Termination by the Company without Cause or by Executive for Good Reason.

 

7.6       Notice of Termination” means a written notice delivered by either Party to the other Party indicating the specific Termination provision in this Agreement relied upon for Termination and the date of Termination, and that sets forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination under the provision so indicated.

 

7.7       Termination” means termination of Executive’s employment with the Company and all affiliates.

 

8.       Removal from any Boards and Positions. Unless otherwise agreed to in writing by the Parties at the time of Termination, upon a Termination, Executive shall be deemed to resign (i) if a member, from the Board and the board of directors of any affiliate and any other board to which Executive has been appointed or nominated by or on behalf of the Company or an affiliate, (ii) from each position with the Company and any affiliate, including as an officer of the Company or an affiliate and (iii) as a fiduciary of any employee benefit plan of the Company and any affiliate.

 

9.       Adjustments to Payments.

 

9.1       Notwithstanding anything in this Agreement to the contrary, in the event that any payment or distribution by the Company to Executive or for Executive's benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (the “Code”), or any interest or penalty is incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if Executive received all of the Payments. The Company shall reduce or eliminate the Payments, by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.

 

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9.2       All determinations required to be made under this Section 9, including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by the Company from among the four largest accounting firms in the United States or any nationally recognized financial planning and benefits consulting company (the “Accounting Firm”), which shall provide detailed supporting calculations to both Parties within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the relevant change in control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Parties.

 

10.       Clawback. Notwithstanding anything in this Agreement to the contrary, if any provision of this Agreement or any applicable statute, law, regulation or regulatory interpretation or other guidance legally requires the Company or any affiliate to seek or demand repayment or return of any payments made to Executive for any reason, Executive shall repay to the Company the aggregate amount of any such payments, with such repayment to occur no later than 30 days following Executive’s receipt of a written notice from the Company indicating that payments received by Executive are subject to repayment or return under this Section 10.

 

11.       Withholding. The Company may withhold from Executive’s compensation, under this Agreement or otherwise, all applicable amounts required by law.

 

12.       Non-Competition; Non-Solicitation; Anti-Raiding.

 

12.1       Executive hereby covenants that during the period of Executive’s employment by the Company, and for a period of six months following a Termination, Executive shall not, without the prior written consent of the Board, accept a position to perform duties similar to those performed by Executive while at the Company, directly or indirectly (whether as proprietor, stockholder, director, partner, employee, agent, independent contractor, consultant, trustee or in any other capacity), with respect to any property, drilling program, oil or gas leasehold, project or field, in which the Company participates, or has any investment or other business interest in, within five miles of the boundary of any existing Company leasehold in the United States in which the Company has conducted business at any time within the one-year period immediately preceding Termination (a “Competing Enterprise”); provided, however, that Executive shall not be deemed to be participating or engaging in a Competing Enterprise solely by virtue of Executive’s ownership of not more than 4.9% of any class of stock or other securities which are publicly traded on a national securities exchange or in a recognized over-the-counter market.

 

12.2       Executive may not avoid the purpose and intent of Section 12.1 by engaging in conduct within the geographically limited area from a remote location through means such as telecommunications, written correspondence, computer-generated or assisted communications or other similar methods.

 

6 

 

 

13.       Confidential Information.

 

13.1       For the purposes of this Agreement, “Confidential Information” means all proprietary information, data, knowledge and know-how relating, directly or indirectly, to the Company and its business, including: (a) business plans and strategies, prospect information, financial information, investment plans, marketing plans and strategies and financial plans and strategies; (b) confidential personnel or human resources data; (c) technical and business information, whether patentable or not, which is of a confidential, trade secret or proprietary character; (d) the identity of customers; (e) existing or prospective oil or gas properties, investors, participation agreements, working, royalty or other interests; (f) contract terms; (g) bidding information and strategies; (h) pricing methods or information; (i) computer software; (j) computer software methods and documentation; (k) hardware; (l) methods of operation; (m) procedures, forms and techniques used in servicing accounts or properties; (n) seismic, geophysical, petrophysical or geological data; (o) well logs and other well data; and (p) any other documents, information or data that the Company requires to be maintained in confidence for the Company’s business success or that constitutes material non-public information. The list set forth above is not intended by the Company to be a comprehensive list of Confidential Information. All Confidential Information shall be treated as Confidential Information regardless of whether it pertains to the Company or its customers and regardless of whether it is stamped as “confidential.”

 

13.2       Executive acknowledges that the success of the Company depends in large part on the protection of the Confidential Information. Executive further acknowledges that in the course of Executive’s employment with the Company, Executive will become familiar with the Company’s Confidential Information. Executive recognizes and acknowledges that the Confidential Information is a valuable, special and unique asset of the Company’s business, access to and knowledge of which are essential to the performance of Executive’s duties hereunder. Executive acknowledges that use or disclosure of the Confidential Information outside the performance of Executive’s job duties for the Company would cause harm and/or damage to the Company.

 

13.3       Both during and after the Term, Executive shall not, except in the ordinary course of Executive’s employment with the Company, disclose any Confidential Information to any person, firm, business, company, corporation, association or any other entity for any reason or purpose whatsoever. Executive shall not make use of any Confidential Information for Executive’s own purposes or for the benefit of any person, firm, business, company, corporation or any other entity (except the Company) under any circumstances during or after the Term. Executive shall consider and treat as confidential all Confidential Information in any way relating to the Company’s business and affairs, whether created by Executive or otherwise coming into Executive’s possession before, during, or after the Term. Executive shall secure and protect the Confidential Information in a manner designed to prevent all access and uses thereof contrary to the terms of this Agreement. Executive shall use Executive’s best efforts to assist the Company in identifying and preventing any use or disclosure of the Confidential Information contrary to this Agreement.

 

13.4       Executive represents and warrants that, upon Termination (whether during or after the Term), and without any request by the Company, Executive shall return to Company any and all property, documents and files (including all recorded media, such as papers, computer disks or other data storage devices, copies, photographs, maps, transparencies and microfiche) that contain Confidential Information or relate in any way to the Company or its business. To the extent Executive possesses any files, data or information relating in any way to the Company or its business on any personal computer, Executive shall delete such files, data or information (and shall retain no copies in any form). Executive also shall return any Company tools, equipment, calling cards, credit cards, access cards or keys, any keys to any filing cabinets or vehicles and all other Company property in any form prior to Termination (whether during or after the Term).

 

14.       Equitable Remedies. The services to be rendered by Executive and the Confidential Information entrusted to Executive as a result of Executive’s employment by the Company are of a unique and special character, and, notwithstanding anything in this Agreement to the contrary, any breach by Executive of this Agreement, including a breach of Section 12 or Section 13, will cause the Company immediate and irreparable injury and damage, for which monetary relief would be inadequate or difficult to quantify. The Company shall be entitled to, in addition to all other remedies available to it, injunctive relief, specific performance or any other equitable relief to prevent a breach and to secure the enforcement of the provisions of this Agreement. The provisions of Section 12 and Section 13 are separate from and independent of the remainder of this Agreement and these provisions are specifically enforceable by the Company notwithstanding any claim made by Executive against the Company. Injunctive relief may be granted immediately upon the commencement of any such action, and the Company need not post a bond to obtain temporary or permanent injunctive relief.

 

7 

 

 

15.       Business Opportunities. Executive shall promptly disclose to the Company all business ideas, prospects, proposals and other opportunities pertaining to any aspect of the Company’s business that are originated by any third parties and brought to the attention of Executive after the Effective Date and before Termination.

 

16.       Representations and Warranties. Executive hereby represents and warrants to the Company, and acknowledges, as follows.

 

16.1       The success of the Company’s business depends in large part on the protection of the Confidential Information and trade secrets.

 

16.2       Executive’s access to the Confidential Information, coupled with the personal relationships and goodwill between the Company and its customers, would enable Executive to compete unfairly against the Company.

 

16.3       Executive has full power, authority and capacity to enter into this Agreement and to perform Executive’s obligations hereunder.

 

16.4       This Agreement has been voluntarily executed by Executive and constitutes a valid and binding agreement of Executive.

 

16.5       Executive has read this Agreement and has had the opportunity to have this Agreement reviewed by Executive’s legal counsel.

 

16.6       Given the nature of the business in which the Company is engaged, the restrictions in Section 12 and Section 13, including their geographic scope and duration, are reasonable and necessary to protect the legitimate business interests of the Company.

 

16.7       Executive’s continued employment with the Company is sufficient consideration for this Agreement.

 

16.8       Executive is among the Company’s executive personnel, management personnel or officers and employees who constitute professional staff to executive and management personnel.

 

16.9       This Agreement is intended to protect the Company’s trade secrets and Confidential Information.

 

16.10       To the best of Executive’s knowledge, Executive’s employment with the Company will not (a) conflict with or result in a breach of, (b) constitute a default under, (c) result in the violation of, (d) give any third party the right to terminate or to accelerate any obligation under, or (e) require any authorization, consent, approval, execution or other action by or notice to any court or other governmental body under, the provisions of any other agreement or instrument to which Executive is a party.

 

16.11       Executive has not previously and shall not in the future disclose to the Company any proprietary information, trade secrets or other confidential information belonging to any previous employer.

 

16.12       Executive shall notify business partners and future employers of Executive’s obligations under this Agreement.

 

8 

 

 

17.       Waivers and Amendments. The respective rights and obligations of the Parties under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) or amended only with the written consent of a duly authorized representative of the Parties. The waiver by either Party of a breach of any provision of this Agreement by the other Party shall not operate or be construed as a waiver of any subsequent breach by such other Party. The failure of either Party to insist upon strict performance of any of the terms or conditions of this Agreement shall not constitute a waiver of any of such Party’s rights hereunder.

 

18.       Successors and Assigns. The provisions hereof shall inure to the benefit of, and be binding upon and assignable to, successors of the Company by way of merger, consolidation or sale. Executive may not assign or delegate to any third person Executive’s obligations under this Agreement. The rights and benefits of Executive under this Agreement are personal to Executive (or, in the event of Executive’s death or Disability, Executive’s personal representative, heirs or beneficiaries), and no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer.

 

19.       Entire Agreement. This Agreement constitutes the full and entire understanding and agreement of the Parties with regard to the subjects hereof and supersedes and cancels in its entirety all other or prior or contemporaneous agreements, whether oral or written, with respect thereto, including any prior employment agreements between Executive and the Company in their entirety.

 

20.       Notices. Any notices, consents or other communications required to be sent or given hereunder by either of the Parties shall in every case be in writing and shall be deemed properly served if (i) delivered personally, (ii) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, or (iii) delivered by a nationally recognized overnight courier service to the Parties at the following addresses: if to the Company, to its principal headquarters; and if to Executive, to Executive’s current address listed in the Company’s records.

 

21.       Governing Law; Consent to Jurisdiction; Consent to Venue; Service of Process. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of Texas without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of Texas. For purposes of resolving any dispute that arises directly or indirectly from the relationship of the Parties evidenced by this Agreement, the Parties hereby submit to and consent to the non-exclusive jurisdiction of the State of Texas and agree that any related litigation shall be conducted solely in the courts of Bexar County, Texas or the federal courts for the United States for the Western District of Texas, where this Agreement is made and/or to be performed, and no other courts. Each Party may be served with process in any manner permitted under State of Texas law, or by United States registered or certified mail, return receipt requested.

 

22.       Waiver of Jury Trial. EACH OF THE PARTIES HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION OR OTHER PROCEEDING BROUGHT IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

9 

 

 

23.       Code Section 409A. It is intended that this Agreement comply with Code Section 409A (“Section 409A”), to the extent applicable. This Agreement shall be administered in a manner consistent with this intent, and any provision that would cause this Agreement to fail to satisfy Section 409A shall have no force or effect until amended to comply with Section 409A. Notwithstanding anything in this Agreement to the contrary, in the event any payment or benefit hereunder is determined to constitute nonqualified deferred compensation subject to Section 409A, then to the extent necessary to comply with Section 409A, such payment or benefit shall not be made, provided or commenced until six months after Executive’s separation from service. Lump sum payments shall be made, without interest, as soon as administratively practicable following the six-month delay. Any installments otherwise due during the six-month delay shall be paid in a lump sum, without interest, as soon as administratively practicable following the six-month delay, and the remaining installments shall be paid in accordance with the original schedule. For purposes of Section 409A, the right to a series of installment payments shall be treated as a right to a series of separate payments. Each separate payment in the series of separate payments shall be analyzed separately for purposes of determining whether such payment is subject to, or exempt from compliance with, the requirements of Section 409A. Notwithstanding anything in this Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or additional taxes under Section 409A, amounts reimbursable to Executive under this Agreement shall be paid to Executive on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in-kind benefits provided to Executive) during any one year may not effect amounts reimbursable or provided in any subsequent year. The Company makes no representations or warranties that the payments provided under this Agreement comply with, or are exempt from, Section 409A, and in no event shall the Company be liable for any portion of any taxes, penalties, interest or other expenses that may be incurred by Executive on account of non-compliance with Section 409A.

 

24.       Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. In the event any provision is held invalid, illegal or unenforceable, such provision shall be limited or revised by a court of competent jurisdiction so as to give effect to the provision to the fullest extent permitted by applicable law. If any of the covenants in Section 12 are held to be unreasonable, arbitrary or against public policy, such covenants shall be considered divisible with respect to scope, time and geographic area, and in such lesser scope, time and geographic area, shall be effective, binding and enforceable against Executive to the greatest extent possible.

 

25.       Construction. In this Agreement, unless otherwise stated, the following uses apply: (i) references to a statute or law refer to the statute or law and any amendments and any successor statutes or laws, and to all valid and binding governmental regulations, court decisions and other regulatory and judicial authority issued or rendered thereunder, as amended, or their successors, as in effect at the relevant time; (ii) in computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until” and “ending on” (and the like) mean “to and including”; (iii) indications of time of day shall be based upon the time applicable to the location of the principal headquarters of the Company; (iv) the words “include,” “includes” and “including” (and the like) mean “include, without limitation,” “includes, without limitation” and “including, without limitation” (and the like), respectively; (v) all references to articles and sections are to articles and sections in this Agreement; (vi) all words used shall be construed to be of such gender or number as the circumstances and context require; (vii) the captions and headings of articles and sections have been inserted solely for convenience of reference and shall not be considered a part of this Agreement, nor shall any of them affect the meaning or interpretation of this Agreement or any of its provisions; (viii) any reference to an agreement, plan, policy, form, document or set of documents, and the rights and obligations of the parties under any such agreement, plan, policy, form, document or set of documents, shall mean such agreement, plan, policy, form, document or set of documents as amended from time to time, and any and all modifications, extensions, renewals, substitutions or replacements thereof; and (ix) all accounting terms not specifically defined shall be construed in accordance with generally accepted accounting principles.

 

26.       Survival. The provisions of Section 12 and Section 13 shall survive the termination of this Agreement.

 

27.       Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same Agreement.

 

10 

 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the date first above specified.

 

COMPANY   EXECUTIVE  
           
Sign Name: /s/ Abraham Mirman   Sign Name: /s/ James Linville  
           
Print Name: Abraham Mirman   Print Name: James Linville  
           
Title: Chief Executive Officer        

 

11 

 

 

Exhibit 99.1

 

 

LLEX:NYSE MKT

 

 

LILIS ENERGY NAMES JAMES LINVILLE PRESIDENT

 

 

SAN ANTONIO, TEXAS – June 26, 2017 – Lilis Energy, Inc. (NYSE MKT: LLEX), an exploration and development company operating in the Permian Basin of West Texas, today announced that James Linville has joined the company as its new President, effective today. He will report directly to the Chief Executive Officer, Avi Mirman.

 

Throughout his 30-year career, Mr. Linville, a petroleum engineer by background, has led and managed oil and gas development projects in the majority of the major unconventional U.S. basins for companies including U.S. Energy Development Corporation, American Energy Partners, and Devon Energy (NYSE:DVN). Amongst his key career accomplishments are evaluating over $12 billion of acquisitions, with over $5 billion completed; co-managing approximately $850 million multi-rig horizontal development programs, and overseeing drilling of over 500 wells.

 

“Lilis is one of the top performing and highest-growth upstream energy companies in 2017. To help achieve our goal of continued growth, we are continuing to expand our core management team to selectively add talented executives with experience in high growth companies. With over three decades of experience, Jim is the right man for the job. Not only has he built an impressive track record of oil and gas operational excellence, most recently in the Delaware and Midland basins of the Permian, but he also has substantial experience with growing companies through acquisitions and strategic divestitures,” said Mr. Mirman. “The weakening commodity climate, coupled with our strong financial position, provides an exceptional timing opportunity for us to continue to expand our position in the Permian and strengthen our foundation.”

 

Prior to joining Lilis, Mr. Linville was Senior Director, Operations and Development for U.S. Energy Development Corporation, where he also served as a member of the Capital Committee tasked with deploying up to $200 million annually primarily within the Delaware Basin and Eagle Ford. Previously, he served as Director-Acquisitions for American Energy Partners and subsequently as Director-Operations, for American Energy Partners’ Permian Basin affiliate. During his tenure, Mr. Linville was responsible for assembling and leading the technical team that screened over 400 acquisition opportunities. Two of Mr. Linville’s key evaluations resulted in the successful creation of $4.25 billion in Permian and Marcellus platform companies for American Energy Partners.

 

“I am very excited to join Lilis Energy and look forward to working with the management and technical teams to help take the Company to the next level. Lilis has first-class assets in the core of the Delaware Basin, and is well capitalized and positioned to benefit from opportunities caused by weak market conditions. I am confident that we will continue to maximize shareholder value through a disciplined growth and development strategy,” said Mr. Linville.

 

 

 

 

Mr. Linville’s career includes serving in various engineering and leadership roles at Devon Energy from January 2001 to January 2014. From 2007-2014, Mr. Linville was Devon’s Operations Manager-Rockies, where he managed a $300 million capital budget with 50 horizontal wells drilled per year; oversaw 2,700 producing wells, and supervised 200 employees. Prior positions with Devon included serving as Supervisor-Business Process Transformation Team, an 18-month special project; Senior Reservoir Engineering Advisor-Permian New Mexico, and Senior Operations Engineer-Permian New Mexico. Mr. Linville’s background also includes serving as New Zealand Drilling Manager and Senior District Petroleum Engineer-Appalachian Basin for Eastern American Energy & Westech International; Senior Production Operations Engineer for Consolidated Oil and Gas; Petroleum Engineer: Permian, Rockies, Midcontinent & Gulf Coast for Hallwood Petroleum, and Drilling Engineer and Rig Supervisor for UNOCAL.

 

Mr. Linville earned a Bachelor of Science in Petroleum Engineering from New Mexico Tech, and a Master of Environmental Management from Marshall University. He is a member of the Petroleum Advisory Board of New Mexico Tech, and has previously served as a board member, section chairman, and regional meeting chairman of the Society of Petroleum Engineers. Mr. Linville is a registered professional engineer with the State of Colorado.

 

About Lilis Energy, Inc.

 

Lilis Energy, Inc. is a San Antonio-based oil and gas exploration and production company that operates in the Permian’s Delaware Basin, considered among the leading resource plays in North America. Lilis’s total net acreage in the Permian Basin is over 10,000 acres. Lilis Energy's focus is to grow current reserves and production and pursue strategic acquisitions inthe Delaware Basin. For more information, please visit www.lilisenergy.com.

 

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These risks include, but are not limited to the ability to finance our continued exploration, drilling operations and working capital needs, all the other uncertainties, costs and risks involved in exploration and development activities; and the other risks identified in the Company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

 

Contact:

 

Wobbe Ploegsma

V.P. Investor Relations & Capital Markets

210-999-5400, ext. 31

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 13, 2017

 

 

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613
(State or other jurisdiction of incorporation)   (Commission File Number)   (IRS Employer Identification Number)

 

300 E. Sonterra Blvd. Ste. 1220

San Antonio, Texas

 

 
78258

(Address of Principal Executive Officer)    (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

(e)   2016 Omnibus Incentive Plan

 

At the 2017 Annual Meeting of Stockholders (the “Annual Meeting”) of Lilis Energy, Inc. (the “Company”) held on July 13, 2017, the Company’s stockholders approved the second amendment (the “Second Amendment”) to its 2016 Omnibus Incentive Plan (the “2016 Plan”) to increase the number of shares of common stock available for grant under the 2016 Plan from 10,000,000 to 13,000,000 shares. The Company’s Board of Directors (the “Board”) and the Compensation Committee of the Board previously approved the Second Amendment, subject to such stockholder approval.

 

A more detailed summary of the principal features of the 2016 Plan and the text of the Second Amendment can be found in the Company’s definitive proxy statement for the Annual Meeting, as filed with the Securities and Exchange Commission on June 19, 2017, as supplemented (the “Proxy”). The foregoing description does not purport to be complete and is qualified in its entirety by reference to such summary and the full text of the Second Amendment and the 2016 Plan filed as Annexes B and C to the Proxy, respectively, both of which are incorporated herein by reference. 

  

Item 5.07 Submission of Matters to a Vote of Security Holders

  

As described in Item 5.02(e) above, the Company held the Annual Meeting on July 13, 2017. Six proposals were voted upon at the Annual Meeting, each of which is described briefly below and in detail in the Proxy. The matters voted upon and the number of votes cast for or against (or withheld in the case of proposal 3), as well as the number of abstentions and broker non-votes (as applicable) as to such matters, were as follows:

 

Proposal 1: To approve (a) the potential issuance of 20% or more of the Company’s outstanding common stock pursuant to the Second Lien Credit Agreement and (b) any “change of control” that may result from the issuance of shares of common stock pursuant to the Second Lien Credit Agreement;

  

FOR AGAINST ABSTAINED
37,541,134 19,626 1,954

  

Proposal 2: To approve and adopt an amendment to the Company’s amended and restated articles of incorporation to increase the authorized number of shares of common stock;

  

FOR AGAINST ABSTAINED
41,809,804 221,544 1,925

  

 

 

 

Proposal 3: Election of Directors:

 

The following nominees, each of whom was nominated for election by the Board and included in the Proxy, were elected by the stockholders at the Annual Meeting to serve on the Board until the 2018 annual meeting of stockholders and their successors are elected and qualified:

 

  FOR WITHHELD  
Abraham Mirman 25,316,575 12,246,139  
Ronald D. Ormand   23,969,806 13,592,908  
Nuno Brandolini 21,170,344 16,392,370  
R. Glenn Dawson 23,609,173 13,953,541  
General Merrill McPeak 24,362,740 13,204,974  
Peter Benz 37,031,219 531,495  

   

Proposal 4: To approve, on an advisory basis, the compensation of the Company’s named executive officers;

  

FOR AGAINST ABSTAINED
37,295,307 206,320 61,087

  

Proposal 5: To ratify the selection of BDO USA, LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2017;

  

FOR AGAINST ABSTAINED
42,012,325 19,829 1,119

  

Proposal 6: To approve and adopt an amendment to the Company’s 2016 Omnibus Incentive Plan to increase the authorized number of shares of common stock available and reserved for issuance under such plan by 3,000,000 shares to an aggregate of 13,000,000 shares;

  

FOR AGAINST ABSTAINED
36,834,512 676,049 52,153

  

There were 4,470,559 broker non-votes cast with respect to each of proposals 1, 3, 4 and 6.

 

 

 

  

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  

 

Date: July 14, 2017

LILIS ENERGY, INC.
     
  By:  /s/ Joseph C. Daches
    Chief Financial Officer

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 1, 2017

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd, Suite #1220    
San Antonio, TX   78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

 

Item 8.01 Other Events

 

On August 1, 2017, the Securities and Exchange Commission (the “Commission”) filed a civil complaint against multiple parties, including our Chief Executive Officer Abraham Mirman.  The allegations in the complaint are unrelated to the business of Lilis Energy, Inc. (the “Company”), and predate Mr. Mirman’s tenure with the Company.  We understand that Mr. Mirman denies the Commission’s allegations, and intends to vigorously defend this matter. The Board of Directors of the Company will continue to evaluate this matter and any future developments as necessary.

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 2, 2017 LILIS ENERGY, INC.
     
  By: /s/ Joseph C. Daches
    Chief Financial Officer

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 3, 2017

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd., Suite No. 1220    
San Antonio, TX   78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

 

 

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Departure of Chief Executive Officer and Director

 

On August 3, 2017, Abraham Mirman notified Lilis Energy, Inc. (the “Company”) of his resignation as Chief Executive Officer, and as a member of the Company’s Board of Directors (the “Board”), effective as of August 4, 2017 (the “Separation Date”). Mr. Mirman also resigned from all positions held with the Company’s subsidiaries. Mr. Mirman’s decision to resign was not the result of any disagreement with the Company, the Board, or management, or any matter relating to the Company’s operations, policies or practices.

 

In connection with Mr. Mirman’s resignation, the Company entered into a Separation and Consulting Agreement with Mr. Mirman on August 3, 2017 (the “Agreement”), setting forth the terms of Mr. Mirman’s separation from the Company and his prospective consulting services.

 

Pursuant to the terms of the Agreement, in satisfaction of any and all obligations under his employment agreement, and provided that Mr. Mirman does not exercise his right to revoke the Agreement within eight days of its execution, Mr. Mirman will receive the following severance payments, subject to applicable employer and employee withholding by the Company: (1) accrued benefits (including base salary, vacation pay and reimbursements) that are unpaid as of the Separation Date, (2) a lump-sum cash payment of $1,000,000, (3) premium payments for continuing COBRA coverage for eighteen months or until Mr. Mirman obtains alternative coverage, whichever is earlier, and (4) reimbursement of reasonable attorneys’ fees incurred in connection with his separation. Any unvested shares of restricted stock or unvested stock options which were previously awarded to Mr. Mirman will vest on August 12, 2017.

 

In addition, the Company engaged Mr. Mirman as an independent consultant to provide services of a consulting or advisory nature as the Company may reasonably request with respect to its business. Mr. Mirman’s consultancy will commence on the day following the Separation Date and will terminate on August 5, 2018, unless terminated earlier or extended by mutual agreement in accordance with the terms of the Agreement. In consideration for his consulting services, the Company will pay Mr. Mirman a monthly consulting fee of $41,660.67.

 

The Agreement contains other standard provisions contained in agreements of this nature, including restrictive covenants concerning confidentiality, non-competition, non-solicitation and non-disparagement, and a general release of any and all claims Mr. Mirman may have against the Company, its directors, officers and associated persons. The foregoing description of the terms of the Agreement is not complete and is qualified in its entirety by reference to the full text thereof, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Appointment of Chief Executive Officer

 

Following Mr. Mirman’s resignation, the Board appointed Jim Linville, currently the Company’s President, to serve as Chief Executive Officer, effective as of August 4, 2017.

 

Mr. Linville, age 52, has been the Company’s President since June 26, 2017. Previously, he was the Senior Director of Operations and Development for US Energy Development Corporation (“US Energy”) from January 2016 to June 2017, where he was a senior technical engineering, operational and resource development professional in the company. During his time at US Energy, Mr. Linville led a team of field and office staff consisting of drilling, completions, operations, engineering, reservoir, regulatory and environmental safety professionals. Additionally, Mr. Linville was a member of the Capital Committee at US Energy, tasked with deploying up to approximately $200 million annually in a portfolio of energy related investments, primarily within the Delaware Basin and Eagle Ford. Prior to US Energy, Mr. Linville was Director of Operations at American Energy Permian Basin (“AEPB”) from January 2015 to July 2015, where he managed field operations, completions, production and facilities engineering for a large Midland Basin Wolfcamp shale horizontal development program. Prior to moving into his position as Director of Operations at AEPB, Mr. Linville was Director of Acquisitions at American Energy Partners, LP (“AELP”) from February 2014 to January 2015, where he assembled and led the acquisitions team, consisting of numerous petro-professionals (Reservoir, Operations, Geoscience, Land), who were responsible for screening over 400 acquisition opportunities. While at AELP, Mr. Linville participated in and managed over 100 acquisition evaluations with aggregate value greater than $12 billion. Previously, Mr. Linville was employed at Devon Energy Corporation (“Devon”) from January 2001 to January 2014, where he held various engineering and management roles. Prior to Devon, Mr. Linville held various leadership and engineering (reservoir, production, drilling) and operational roles at Eastern American Energy, Consolidated Oil & Gas, Hallwood Petroleum, Unocal and his own firm Derrick Engineering Corporation. Mr. Linville earned his Bachelor of Science in Petroleum Engineering from New Mexico Tech and his Master of Science in Environmental Engineering from Marshall University. Throughout his career, he has held numerous leadership roles within the Society of Petroleum Engineers (SPE) and was an Industry Advisory Board member at New Mexico Tech and the Oklahoma City SPE Chapter. In addition, Mr. Linville is a Registered Professional Engineer.

 

 

 

 

There are no arrangements or understandings between Mr. Linville and any other persons pursuant to which Mr. Linville was selected to be an officer of the Company. Mr. Linville does not have any family relationships subject to disclosure under Item 401(d) of Regulation S-K or any direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

 

In connection with Mr. Linville’s appointment as the Company’s Chief Executive Officer, the Company and Mr. Linville entered into an amendment to his employment agreement on August 4, 2017 (the “Amendment”), reflecting his appointment as the Company’s Chief Executive Officer. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text thereof, which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Item 7.01Regulation FD Disclosure.

 

On August 4, 2017, the Company issued a press release announcing certain of the matters described in Item 5.02 of this Current Report on Form 8-K. A copy of the press release is included as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information in this Item 7.01 is being furnished and shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Item 7.01 shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01Financial Statements and Exhibits.

 

(d)Exhibits.

 

Exhibit
No.
  Description
10.1   Separation and Consulting Agreement, dated August 3, 2017, by and between Lilis Energy, Inc. and Abraham Mirman.
     
10.2   First Amendment of Executive Employment Agreement, dated August 4, 2017, by and between Lilis Energy, Inc. and Jim Linville.
     
99.1   Press Release of Lilis Energy, Inc. dated August 4, 2017.

 

  

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 4, 2017 LILIS ENERGY, INC.
     
  By: /s/ Joseph Daches
    Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

EXHIBIT INDEX

 

Exhibit
No.
  Description
10.1   Separation and Consulting Agreement, dated August 3, 2017, by and between Lilis Energy, Inc. and Abraham Mirman.
     
10.2   First Amendment of Executive Employment Agreement, dated August 4, 2017, by and between Lilis Energy, Inc. and Jim Linville.
     
99.1   Press Release of Lilis Energy, Inc. dated August 4, 2017.

 

 

 

  

Exhibit 10.1

  

SEPARATION AND CONSULTING AGREEMENT

 

THIS SEPARATION AND CONSULTING AGREEMENT (the “Agreement”) is made and entered into effective as of August 3, 2017 (the “Effective Date”), by and between Lilis Energy, Inc., a Nevada corporation (the “Company”), and Abraham Mirman (the “Executive”).

 

WITNESSETH:

 

WHEREAS, the Executive and the Company are parties to that certain Employment Agreement effective as of July 5, 2016 and since amended effective as of March 8, 2017 and May 4, 2017 (the “Employment Agreement”); and

 

WHEREAS, the Executive intends to resign from the Company, and the parties mutually desire to arrange for a separation from the Company and its affiliates and subsidiaries under certain terms; and

 

WHEREAS, the Executive possesses business knowledge and expertise which may be of substantial assistance to the Company following his employment in a consulting role; and

 

WHEREAS, in consideration of the mutual promises contained herein, the parties hereto are willing to enter into this Agreement upon the terms and conditions herein set forth.

 

NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.               Resignation as Officer; Separation. As of August 4, 2017, the Executive shall resign all officer and director positions with the Company and its affiliates and shall resign from his position as an employee of the Company (the “Separation Date”). The Executive agrees to timely execute such further documentation as may be necessary to effectuate such resignations.

 

2.               Separation Benefits. The Company agrees to pay or provide, and the Executive agrees to accept, the benefits set forth in this Section 2 in consideration for the Executive’s service through the Separation Date, satisfaction of any and all obligations under the Employment Agreement, and the Executive’s execution (without revocation) of the Waiver and Release on or after the Separation Date as described in Section 5 below.

 

A.                      Accrued Benefits. The Company shall pay to the Executive all base salary, vacation pay and properly documented expense reimbursements that are accrued and unpaid as of the Separation Date within 15 days following the Separation Date.

 

B.                       Lump-sum Severance Payment. The Company shall pay to the Executive a lump-sum cash payment equal to $1,000,000 within three days following the Waiver Effective Date (as defined below).

 

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C.                       Equity Compensation. Any stock option previously granted to the Executive that is outstanding and unvested as of the Separation Date shall become fully vested and exercisable as of the Waiver Effective Date and shall, notwithstanding the Executive’s intervening separation, remain exercisable for the maximum original term as set forth in the applicable award agreement. Any shares of restricted stock previously granted to the Executive that are outstanding and unvested as of the Separation Date shall become fully vested as of the Waiver Effective Date.

 

D.                      Warrants. Any outstanding warrant held by the Executive, each of which was acquired in his capacity as an investor in the Company, shall be amended to the extent necessary to allow the Executive to exercise such warrant via a “cashless” net exercise procedure or the Company shall take such actions as may be necessary to provide an equivalent economic benefit to the Executive.

 

E.                       Medical Continuation Subsidy. The Company shall timely pay the Executive’s premiums for family medical, dental and vision continuation coverage under Section 4890B of the Internal Revenue Code (“COBRA”) for 18 months or until the Executive obtains alternative coverage, whichever is the shorter time period.

 

F.                        Reimbursement of Attorneys Fees. The Executive shall be entitled to the reimbursement of his reasonable attorneys fees incurred in connection with the review and preparation of the documents related to his separation. Such reimbursement shall be made no later than 15 days following receipt of appropriate documentation of such expenses.

 

G. Withholding. All payments in this Section 2 shall be subject to applicable withholdings and the Company shall issue to the Executive a Form W-2 as required by law.

 

3.               Engagement as Consultant: Following the Separation Date, the Company agrees to retain the Executive commencing on the day following his separation as an independent consultant, and the Executive agrees to render consulting services for the one year period commencing on the day following the Separation Date, unless such consulting arrangement is terminated earlier pursuant to Section 3(E) hereof or is extended by mutual agreement of the parties (the “Consulting Term”).

 

A.                      Terms and Responsibilities. During the Consulting Term, the Executive shall devote such of his time and his efforts as may be mutually agreed are required from time to time to perform his duties hereunder.

 

B.                       Duties. The Company hereby engages the Executive to provide during the Consulting Term such services of a consulting or advisory nature as the Company may reasonably request with respect to its business. The Executive will primarily provide consulting services with respect to the transition of leadership to a new Chief Executive Officer. The Executive shall act solely in a consulting capacity hereunder and shall not have authority to act for the Company or to give instructions or orders on behalf of the Company or otherwise to make commitments for or on behalf of the Company. The Executive shall not be an employee of the Company during the Consulting Term, but shall act in the capacity of an independent contractor. The Company shall not exercise control over the detail, manner or methods of the performance of the services by the Executive during the Consulting Term.

 

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C.                       Compensation and Benefits. As full and complete compensation for any and all services which the Executive may render during the Consulting Term:

 

i.                    The Company shall pay the Executive a monthly consulting fee at the rate of $41,660.67 per month, for which the Company shall issue the Executive a Form 1099, as required by law.

 

ii.                  The Company shall make available for the Executive’s use during the Consulting Term an office reasonably comparable to the offices of senior executives of the Company and shall make available for assistance to the Executive for Company business an administrative assistant with experience working with senior executive of the Company, which the parties expect to be the Executive’s currently assigned assistant.

 

iii.                The Executive shall not receive nor be entitled to participate in any benefits or benefit plans with respect to the work done during the Consulting Term, and Executive agrees to waive any claims to such benefits.

 

D.                      Reimbursement. The Executive shall be entitled to receive reimbursement for all reasonable and documented expenses incurred by the Executive during the Consulting Term in furtherance of Executive’s consulting duties. All reimbursable expenses shall be appropriately documented in reasonable detail by the Executive upon submission of any request for reimbursement and in a format and manner consistent with the Company’s expense reporting policy. Payment for said invoiced amounts shall be paid by the Company within 15 days after receipt of invoice by the Company. Should the Company dispute any portion of the Executive’s monthly invoice, the Company shall pay the undisputed portion of the invoice and advise the Executive in writing of the disputed portion. The parties will cooperate in good faith to resolve any disputed portions.

 

E.                       Termination of Service. The Executive’s engagement as a consultant will terminate automatically upon the Executive’s timely revocation of this Agreement as provided for in Section 5 hereof, Executive’s death, or upon the Executive’s disability rendering him unable to perform services hereunder for a period of 90 days and, except as otherwise provided in this Section 3(E), the Executive shall be entitled to no further compensation or benefits provided for in this Section 3. Either the Company or the Executive may terminate the Executive’s engagement as a consultant hereunder for any reason upon fourteen days written notice for any reason; provided, however, that if a Change in Control (as defined in the Lilis Energy, Inc. 2016 Omnibus Incentive Plan or any plan approved by the shareholders of the Company to replace such incentive plan) occurs, the Company terminates the Executive’s engagement as a consultant prior to the end of the full original Consulting Term without cause, or if the Executive’s services terminate due to death or disability, the Company shall pay to the Executive (or the Executive’s estate or representative, as applicable) within 10 days following such termination, a lump sum equal to all amounts that, notwithstanding such termination, would have been paid during the full original Consulting Term pursuant to Section 3(C)(i).

 

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4.               Restrictive Covenants.

 

A.                      The Executive’s Obligations.

 

i.                    The Executive agrees that for the period beginning on the Separation Date and extending through the Consulting Term (the “Restricted Period”) he shall not (a) criticize or disparage, publicly or privately, the Company or any affiliate in a manner intended or reasonably calculated to result in substantial public embarrassment to, or material injury to the reputation of, the Company or any affiliate in any community in which the Company or any affiliate is engaged in business or (b) intentionally commit damage to the property of the Company or any affiliate or otherwise engage in any misconduct which is intentionally injurious to the business or reputation of the Company or any affiliate; provided, however, that the Executive will not be in breach of the covenant contained in (a) above solely by reason of his testimony which is compelled by process of law or in taking any action to secure his rights under this Agreement as otherwise contemplated herein.

 

ii.                  The Executive agrees that during the Restricted Period, the Executive will not engage or employ, or solicit or contact with a view to the engagement or employment of, any person who is an officer or employee of the Company or any of its Affiliates.

 

iii.                During the Restricted Period, the Executive shall not, without prior consent of the Board of Directors of the Company, directly or indirectly (whether as proprietor, stockholder, director, partner, employee, independent contractor, consultant, trustee or in any other capacity), perform services or acquire an ownership interest in any area of interest in which the Company participates or is actively considering participating as of the Effective Date as identified on Exhibit B attached hereto (each an "Area of Interest"); provided, however, that the Executive shall not be deemed to violate this restriction solely by virtue of the Executive's ownership of not more than 4.9% of any class of stock or other securities which are publicly traded on a national securities exchange or in a recognized over-the-counter market. Any Area of Interest that the Company declines to pursue may be pursued by the Executive without violating this section.

 

iv.                The Company agrees that the restrictive covenants regarding competition set forth in Section 12.1 of the Employment Agreement shall be null and shall not apply on or after the Separation Date.

 

v.                  The covenants set forth in this Section 4(A) shall be null and shall not apply on or after the date on which occurs a “Change in Control” (as defined in the Lilis Energy, Inc. 2016 Omnibus Incentive Plan or any plan approved by the shareholders of the Company to replace such incentive plan).

 

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B.                       The Company’s Obligations.

 

i.                    The Company agrees, from and after the Separation Date, not to, and to take commercially reasonable efforts to cause its directors, officers, employees and agents not to, (a) criticize or disparage, publicly or privately, the Executive in a manner intended or reasonably calculated to result in substantial public embarrassment to, or material injury to the reputation of, the Executive in any community in which the Executive is engaged in business or (b) intentionally commit damage to the property of the Company or any affiliate or otherwise engage in any misconduct which is intentionally injurious to the business or reputation of the Company or any affiliate; provided, however, that the Company will not be in breach of the covenant contained in (a) above solely by reason of the testimony of an officer, director, employee or agent of the Company which is compelled by process of law or by reason of taking any action to secure the Company’s rights under this Agreement as otherwise contemplated herein.

 

ii.                  The Company agrees that during the Restricted Period, the Company will not, and will cause its directors, officers, employees and agents to not, engage or employ, or solicit or contact with a view to the engagement or employment of, any person who is an officer or employee of an entity controlled by the Executive.

 

C.                       Protected Disclosures. Notwithstanding any provision to the contrary in this Agreement, nothing in this Agreement prohibits the Executive from reporting possible violations of law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Additionally, the parties acknowledge and agree that Executive does not need the prior authorization of the Company to make any such reports or disclosures and Executive is not required to notify the Company that Executive has made such reports or disclosures.

 

5.               Waiver and Release. In consideration for the Executive’s execution of and compliance with this Agreement, including but not limited to the provisions of Section 4, and the execution of the Waiver and Release attached hereto as Exhibit A, the Company shall provide the consideration set forth above in Section 2(B) through (F). This consideration is provided subject to the binding execution, without revocation prior to the 8th day following execution (the “Waiver Effective Date”), by the Executive of the attached Waiver and Release agreement, no earlier than the Separation Date and no later than the date 21 days after the Separation Date. The Company’s obligation to make any payments otherwise due under Section 2(B) through (F) shall cease in the event the Executive fails to comply with the terms of this Agreement or the Waiver and Release, and no payment shall be made until the expiration of the seven-day revocation period following execution of the Waiver and Release agreement, provided that such payments shall accrue from the Separation Date.

 

In consideration of the premises and promises contained herein, the Company releases and discharges Executive from any and all causes of action, claims, liabilities, obligations, promises, agreements, controversies, damages, and expenses, whether in law or equity, arising prior to the Separation Date other than claims that cannot be released as a matter of law.

 

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The Company and the Executive hereby agree that at the conclusion of the Consulting Term they will enter into a mutual release of claims of the same breadth as the release contained in the Waiver and Release attached hereto as Exhibit A and this Section 5.

 

6.               Return of Company Property. All records, designs, patents, business plans, financial statements, manuals, memoranda, lists and other property delivered to or compiled by the Executive by or on behalf of the Company, or any of its affiliates or the representatives, vendors or customers thereof that pertain to the business of the Company or any of its affiliates shall be and remain the property of the Company or any such affiliate, as the case may be, and be subject at all times to the discretion and control thereof. Likewise, all correspondence, reports, records, charts, advertising materials and other similar data pertaining to the business, activities or future plans of the Company or its affiliates that are collected or held by the Executive shall be delivered promptly to the Company or its affiliate, as the case may be, on or prior to the Separation Date or such other date as the Company may indicate. Notwithstanding anything in this Section 6, the Executive shall be permitted to continue use of his Company email account throughout the Consulting Term.

 

7.               Indemnification. In the event that the Executive is made a party or threatened to be made a party to any action, suit, or proceeding (a “Proceeding”), other than any Proceeding initiated by the Executive or the Company related to any contest or dispute between Executive and the Company or any of its subsidiaries, by reason of the fact that the Executive is or was a director or officer of, an employee or consultant of, or was otherwise acting on behalf of, the Company, any affiliate of the Company, any employee benefit plan or any other entity at the request of the Company, the Executive shall be indemnified and held harmless by the Company, to the maximum extent permitted under applicable law, from and against any and all liabilities, costs, claims and expenses, including any and all costs and expenses incurred in defense of any Proceeding, and all amounts paid in settlement thereof after consultation with, and receipt of approval from, the Company, which approval shall not be unreasonably withheld, conditioned or delayed. Costs and expenses incurred by the Executive in defense of such Proceeding shall be paid by the Company in advance of the final disposition of such litigation upon receipt by the Company of: (i) a written request for payment; (ii) appropriate documentation evidencing the incurrence, amount and nature of the costs and expenses for which payment is being sought; and (iii) an undertaking adequate under applicable law made by or on behalf of the Executive to repay the amounts so paid if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Company under this Agreement. The rights to indemnification and advancement of costs and expenses provided in this Section 7 are not and will not be deemed exclusive of any other rights or remedies to which the Executive may at any time be entitled under applicable law, the organizational documents of the Company or any of its subsidiaries, any agreement or otherwise, and each such right under this Section 7 will be cumulative with all such other rights, if any. During the Consulting Period and for a period of six years thereafter, the Company or any successor to the Company hereunder shall maintain, at its own expense, liability insurance providing coverage to the Executive on terms that are no less favorable than the coverage provided to directors and senior officers of the Company as of the Effective Date.

 

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8.               Nonassignability. Except for those rights that may accrue to the Executive’s family or estate in the event of his death or disability, neither this Agreement nor any right or interest hereunder shall be subject, in any manner, to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or involuntary, by operation of law or otherwise, any attempt at such shall be void; provided, that any such benefit shall not in any way be subject to the debts, contract, liabilities, engagements or torts of the Executive, nor shall it be subject to attachment or legal process for or against the Executive.

 

9.               Entire Agreement; Modification. This Agreement, together with the agreements applicable to the Executive’s outstanding stock options and warrants, as amended pursuant to this Agreement, sets forth the entire agreement and understanding of the parties concerning the subject matter hereof, and supersedes all prior agreements, arrangements and understandings relative to that subject matter including, without limitation, the Employment Agreement, except to the extent of specific provisions thereof expressly incorporated into this Agreement. No term or provision hereof may be modified or extinguished, in whole or in part, except by a writing which is dated and signed by the parties to this Agreement. No waiver of any of the provisions or conditions of this Agreement or of any of the rights, powers or privileges of a party will be effective or binding unless in writing and signed by the party claimed to have given or consented to such waiver. No representation, promise or inducement has been made to or relied upon by or on behalf of either party concerning the subject matter hereof which is not set forth in this Agreement. In particular, the Executive acknowledges and agrees that he is not entitled to receive from the Company any incentive or other compensation or payment related to his services to the Company or the termination thereof, other than the consideration specifically set forth herein. Notwithstanding the foregoing, to the extent that any matter is not specifically addressed in this Agreement, then any terms of the Employment Agreement which address such matter shall remain in effect and be incorporated into this Agreement up to and until the Separation Date.

 

10.           Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be an estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel.

 

11.           Set-Off. The Company’s obligation to make payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense, mitigation or other claim, right or action which the Company may have against the Executive or others

 

12.           Notices. All notices or communications hereunder shall be in writing, addressed as follows:

 

To the Company:

Lilis Energy, Inc.

300 E. Sonterra Blvd.

Suite 1220

San Antonio, Texas 78258

Attn: General Counsel

 

To the Executive, at the address and fax number of record in the Company’s file.

 

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All such notices shall be conclusively deemed to be received and shall be effective; (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission, or (iii) if sent by registered or certified mail, on the fifth day after the day on which such notice is mailed.

 

13.           Source of Payments. All cash payments provided in this Agreement will be paid from the general funds of the Company. The Executive’s status with respect to amounts owed under this Agreement will be that of a general unsecured creditor of the Company.

 

14.           Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city or other income or employment taxes to the extent required pursuant to any law or governmental regulation or ruling. The parties agree that the amounts paid pursuant to Section 3 on account of the Executive’s consulting services shall not be subject to income or employment tax withholding, and the Executive will be responsible for all income and employment taxes associated with such payments.

 

15.           Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable, in whole or part, such invalidity will not affect any otherwise valid provision, and all other valid provisions will remain in full force and effect.

 

16.           Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, and all of which together will constitute one document.

 

17.           Titles. The titles and headings preceding the text of the paragraphs and subparagraphs of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation or effect.

 

18.           Section 409A Compliance.

 

A.                      Each payment under this Agreement, including each payment in a series of installment payments, is intended to be a separate payment for purposes of Treas. Reg. § 1.409A-2(b), and is intended to be: (i) exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the regulations and other binding guidance promulgated thereunder (“Section 409A”), including, but not limited to, by compliance with the short-term deferral exemption as specified in Treas. Reg. § 1.409A-1(b)(4) and the involuntary separation pay exception within the meaning of Treas. Reg. § 1.409A-1(b)(9)(iii), or (ii) in compliance with Section 409A, including, but not limited to, being paid pursuant to a fixed schedule or specified date pursuant to Treas. Reg. § 1.409A-3(a) and the provisions of this Agreement will be administered, interpreted and construed accordingly. Notwithstanding the foregoing provisions of this Agreement, if the payment of any compensation or benefits under this Agreement would be subject to additional taxes and interest under Section 409A because the timing of such payment is not delayed as provided in Section 409A(a)(2)(B)(i) of the Code, and Executive constitutes a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, then any such payments that Executive would otherwise be entitled to during the first six months following Executive’s separation from service within the meaning of Section 409A(a)(2)(A)(i) of the Code shall be accumulated and paid on the date that is six months after Executive’s separation from service (or if such payment date does not fall on a business day of the Company, the next following business day of the Company), or such earlier date upon which such amount can be paid under Section 409A without being subject to such additional taxes and interest.

 

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B.                       All reimbursements pursuant to this Agreement shall be made in accordance with Treas. Reg. § 1.409A-3(i)(1)(iv) such that the reimbursements will be deemed payable at a specified time or on a fixed schedule relative to a permissible payment event. Specifically, the amounts reimbursed under this Agreement during the Executive’s taxable year may not affect the amounts reimbursed in any other taxable year (except that total reimbursements may be limited by a lifetime maximum under a group health plan), the reimbursement of an eligible expense shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred, and the right to reimbursement is not subject to liquidation or exchange for another benefit.

 

19.           Governing Law; Venue. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction that could cause the application of the laws of any jurisdiction other than the State of New York. For purposes of resolving any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of New York and agree that any related litigation shall be conducted solely in the courts of New York County, New York or the federal courts for the United States for the Southern District of New York, where this Agreement is made and/or to be performed, and no other courts. Each Party may be served with process in any manner permitted under State of New York law, or by United States registered or certified mail, return receipt requested.

 

20.           Waiver of Jury Trial. EACH OF THE EXECUTIVE AND THE COMPANY HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION OR OTHER PROCEEDING BROUGHT IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

21.           Terms. The term “affiliate” means any subsidiary, any officer, director or employee of the Company or any subsidiary, and any former officer, director or employee of the Company or any subsidiary.

 

22.           Successor Obligations. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

[END OF PAGE]

 

 9 

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

  LILIS ENERGY, INC.
     
  By: /s/ Ronald D. Ormand
    Ronald D. Ormand
    Executive Chairman of the Board
     
  EXECUTIVE
     
    /s/ Abraham Mirman
    Abraham Mirman

  

 10 

 

 

Exhibit A

 

Dated: August 4, 2017

 

WAIVER AND RELEASE

 

In exchange for the consideration (the “Separation Benefits”) offered under Section 2(B) through (F) the Separation and Consulting Agreement between me and Lilis Energy, Inc., dated August 3, 2017 (the “Separation Agreement”), which were offered to me in exchange for my agreement, among other things, to waive all of my claims against and release Lilis Energy, Inc. and its predecessors, successors and assigns (collectively referred to as the “Company”), all of the affiliates (including parents and subsidiaries) of the Company (collectively referred to as the “Affiliates”) and the Company’s and Affiliates’ directors and officers, employees and agents, insurers, employee benefit plans and the fiduciaries and agents of said plans (collectively, with the Company and Affiliates, referred to as the “Corporate Group”) from any and all claims, demands, actions, liabilities and damages arising out of or relating in any way to my employment with or separation from the Company or the Affiliates; provided, however, that this Waiver and Release shall not apply to (1) any existing right I have to indemnification, contribution and a defense, (2) any directors and officers and general liability insurance coverage, (3) any rights I may have as a shareholder of the Company and (4) any rights which cannot be waived or released as a matter of law.

 

I understand that signing this Waiver and Release is an important legal act. I acknowledge that the Company has advised me in writing to consult an attorney before signing this Waiver and Release and has given me at least 21 days from the day I received a copy of this Waiver and Release to sign it.

 

In exchange for the payment to me of the Separation Benefits, I, among other things, (1) agree not to sue in any local, state and/or federal court regarding or relating in any way to my employment with or separation from the Company or the Affiliates, (2) knowingly and voluntarily waive all claims and release the Corporate Group from any and all claims, demands, actions, liabilities, and damages, whether known or unknown, arising out of or relating in any way to my employment with or separation from the Company or the Affiliates and (3) waive any rights that I may have under any of the Company’s involuntary severance benefit plans, except to the extent that my rights are vested under the terms of employee benefit plans sponsored by the Company or the Affiliates and except with respect to such rights or claims as may arise after the date this Waiver and Release is executed. This Waiver and Release includes, but is not limited to, claims and causes of action under: Title VII of the Civil Rights Act of 1964, as amended (“Title VII”); the Age Discrimination in Employment Act of 1967, as amended, including the Older Workers Benefit Protection Act of 1990 (“ADEA”); the Civil Rights Act of 1866, as amended; the Civil Rights Act of 1991; the Americans with Disabilities Act of 1990 (“ADA”); the Energy Reorganization Act, as amended, 42 U.S.C. §§ 5851; the Workers Adjustment and Retraining Notification Act of 1988; the Sarbanes-Oxley Act of 2002; the Employee Retirement Income Security Act of 1974, as amended; the Family and Medical Leave Act of 1993; the Fair Labor Standards Act; the Occupational Safety and Health Act; claims in connection with workers’ compensation or “whistle blower” statutes; and/or contract, tort, defamation, slander, wrongful termination or any other state or federal regulatory, statutory or common law. Further, I expressly represent that no promise or agreement which is not expressed in the Separation Agreement has been made to me in executing this Waiver and Release, and that I am relying on my own judgment in executing this Waiver and Release, and that I am not relying on any statement or representation of the Company, any of the Affiliates or any other member of the Corporate Group or any of their agents. I agree that this Waiver and Release is valid, fair, adequate and reasonable, is entered into with my full knowledge and consent, was not procured through fraud, duress or mistake and has not had the effect of misleading, misinforming or failing to inform me.

 

 A-1 

 

  

This release does not apply to any claims for unemployment compensation or any other claims or rights which, by law, cannot be waived, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however that I agree that I disclaim and waive any right to share or participate in any monetary award from the Company resulting from the prosecution of such charge or investigation or proceeding. Notwithstanding the foregoing or any other provision in this Waiver and Release or the Separation Agreement to the contrary, the Company and I further agree that nothing in this Waiver and Release or the Separation Agreement (i) limits my ability to file a charge or complaint with the EEOC, the NLRB, OSHA, the SEC or any other federal, state or local governmental agency or commission (each a “Government Agency” and collectively “Government Agencies”); (ii) limits my ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information and reporting possible violations of law or regulation or other disclosures protected under the whistleblower provisions of applicable law or regulation, without notice to the Company; or (iii) limits my right to receive an award for information provided to any Government Agencies.

 

Should any of the provisions set forth in this Waiver and Release be determined to be invalid by a court, agency or other tribunal of competent jurisdiction, it is agreed that such determination shall not affect the enforceability of other provisions of this Waiver and Release. I acknowledge that this Waiver and Release and the Agreement set forth the entire understanding and agreement between me and the Company or any other member of the Corporate Group concerning the subject matter of this Waiver and Release and supersede any prior or contemporaneous oral and/or written agreements or representations, if any, between me and the Company or any other member of the Corporate Group. I understand that for a period of 7 calendar days following the date that I sign this Waiver and Release, I may revoke my acceptance of the offer, provided that my written statement of revocation is received on or before that seventh day by the General Counsel, Lilis Energy, Inc., 300 E. Sonterra Blvd., Suite 1220, San Antonio, Texas 78258, email: afuchs@lilisenergy.com, in which case the Waiver and Release will not become effective. In the event I revoke my acceptance of this offer, the Company shall have no obligation to provide me the Separation Benefits. I understand that failure to revoke my acceptance of the offer within 7 calendar days from the date I sign this Waiver and Release will result in this Waiver and Release being permanent and irrevocable.

 

I acknowledge that I have read this Waiver and Release, have had an opportunity to ask questions and have it explained to me and that I understand that this Waiver and Release will have the effect of knowingly and voluntarily waiving any action I might pursue, including breach of contract, personal injury, retaliation, discrimination on the basis of race, age, sex, national origin, or disability and any other claims arising prior to the date of this Waiver and Release. By execution of this document, I do not waive or release or otherwise relinquish any legal rights I may have which are attributable to or arise out of acts, omissions, or events of the Company or any other member of the Corporate Group which occur after the date of the execution of this Waiver and Release.

 

 A-2 

 

  

 
Executive’s Signature   Ronald D. Ormand
Executive Chairman of the Board    
     
     
Executive’s Signature Date   Company’s Execution Date

  

 A-3 

 

  

Exhibit B

 

AREAS OF INTEREST

 

 

 

B-1

 

 

 

Exhibit 10.2

 

FIRST AMENDMENT OF EXECUTIVE EMPLOYMENT AGREEMENT

 

This amendment (“Amendment”) is entered into August 4, 2017 (the “Amendment Date”) by and between Lilis Energy, Inc. (“Lilis”) and Jim Linville (“Executive”).

 

A.       Lilis and Executive are parties to an Executive Employment Agreement dated June 26, 2017 (the “Employment Agreement”).

 

B.       Under Section 17 of the Employment Agreement, Lilis and Executive may amend the Employment Agreement.

 

C.       Lilis and Executive wish to amend the Employment Agreement as set forth below.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants, and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lilis and Executive, intending to be legally bound, hereby agree as follows:

 

1.       Amendment. Section 3 of the Employment Agreement is deleted in its entirety and replaced with the following:

 

“3. Position. Beginning effective August 4, 2017, during the Term, Executive shall be employed as and hold the title of Chief Executive Officer of the Company, with such duties and responsibilities that are customary in this position for public companies. Executive shall report directly to the Board in this position. Executive’s principal place of employment shall be at the main business offices of Company in San Antonio, Texas.”

 

2.       Effect on Employment Agreement. The Employment Agreement is not modified or amended other than as expressly indicated herein, and all other terms and conditions of the Employment Agreement shall remain unchanged and in full force and effect. Except as expressly set forth herein, the execution, delivery, and effectiveness of this Amendment shall not operate as a waiver of any right, power, or remedy of Lilis or Executive, nor constitute a waiver of any provision of the Employment Agreement (or an agreement to agree to any future amendment, waiver, or consent).

 

3.       Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall be considered one and the same agreement.

 

IN WITNESS WHEREOF, Lilis and Executive have executed this Amendment as of the Amendment Date.

 

LILIS ENERGY, INC.   JIM LINVILLE
         
By: /s/ Merrill McPeak   By: /s/ Jim Linville
Name: General Merrill McPeak      
Title: Chairman of the      
  Compensation Committee      

 

 

 

 

Exhibit 99.1

 

 

LLEX:NYSE American

 

 

LILIS ENERGY NAMES JAMES LINVILLE CHIEF EXECUTIVE OFFICER

 

SAN ANTONIO, TEXAS – August 4, 2017 – Lilis Energy, Inc. (NYSE American: LLEX), an exploration and development company operating in the Permian Basin of West Texas, today announced that its recently named President, James Linville, has been named Chief Executive Officer. Mr. Linville, a petroleum engineer by background, has led and managed oil and gas development projects in the majority of the major unconventional U.S. basins, including in the Delaware and Midland basins of the Permian, for companies including U.S. Energy Development Corporation, American Energy Partners, and Devon Energy (NYSE:DVN) throughout his 30-year career. Amongst his key career accomplishments are evaluating over $12 billion of acquisitions, with over $5 billion completed; co-managing approximately $850 million multi-rig horizontal development programs, and overseeing drilling of over 500 wells.

 

Abraham (Avi) Mirman has resigned from his posts as Chief Executive Officer and Director of the Company, effective immediately. Mr. Mirman commented: “I will miss the Lilis family dearly. I want to thank all stakeholders who believed in me and believed in the vision I set forth for the company. I sincerely hope that I have made you proud through what has been accomplished. It is with a heavy heart that I am leaving the company, but the interests of the company and its shareholders are, and have always been, my main priority.”

 

“The Board is extremely grateful for Avi’s years of dedication and leadership at Lilis. Avi has led an incredible transformation of Lilis into a leading Delaware Basin growth company. We sincerely thank him for his service," said Ronald D. Ormand, Executive Chairman of the Board. “The Board is enthusiastic about Jim Linville stepping into his new role as Chief Executive Officer. Jim’s impressive track record in oil and gas and substantial operational expertise will be a significant asset to the company.”

 

Mr. Linville commented: “I’d like to thank Avi, as well. The team that he assembled is tremendous, and among the most talented and dedicated I’ve had the pleasure to work with. We are well capitalized and our assets in the core of the Delaware Basin are consistently delivering strong well results. We are also actively reviewing acreage opportunites to continue to grow our leasehold.”

 

About Lilis Energy, Inc.

 

Lilis Energy, Inc. is a San Antonio-based independent oil and gas exploration and production company that operates in the Permian’s Delaware Basin, considered amongst the leading resource plays in North America. Lilis’s total net acreage in the Permian Basin is approximately 10,000 acres. Lilis Energy's near-term E&P focus is to grow current reserves and production and pursue strategic acquisitions in its core areas. For more information, please visit www.lilisenergy.com.

 

 

 

 

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These risks include, but are not limited to the ability to finance our continued exploration, drilling operations and working capital needs, all the other uncertainties, costs and risks involved in exploration and development activities; and the other risks identified in the Company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

 

Contact:

 

Wobbe Ploegsma

V.P. Investor Relations & Capital Markets

210-999-5400, ext. 31

 

 

 

 

 

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 10, 2017

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd., Suite No. 1220    
San Antonio, TX   78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

 

Item 1.01Entry into a Material Definitive Agreement.

 

Gas Gathering, Processing and Purchase Agreement

 

On August 10, 2017, Lilis Energy, Inc. (the “Company”) entered into a gas gathering, processing and purchase agreement (the “Gathering Agreement”) with Lucid Energy Delaware, LLC (“Lucid”), pursuant to which Lucid will receive, gather and process the Company’s committed gas production from certain production areas located in Lea County, New Mexico and in Loving and Winkler Counties, Texas. Subject to the Company’s take-in-kind rights set forth in the Gathering Agreement, Lucid will purchase the residue gas and plant products allocated to the Company pursuant to the terms and conditions of the Gathering Agreement. To the extent that the Company elects to take such residue gas and plant products in-kind, Lucid shall re-deliver such residue gas and plant products at certain delivery points for downstream transportation. The Gathering Agreement has a term of 10 years that automatically renews on a year-to-year basis until terminated by either party pursuant to the terms of the Gathering Agreement. The Company will pay Lucid fees for the gathering and processing of all committed gas and for such other services provided as set forth in the Gathering Agreement.

 

The foregoing description of the Gathering Agreement is qualified in its entirety by reference to the Gathering Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending September 30, 2017.

 

Item 2.02Results of Operations and Financial Condition

 

On August 14, 2017, the Company issued a press release announcing information regarding the Company’s continued results of its drilling and completion operations and a general operations update. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.

 

The information furnished under this Item 2.02, including the accompanying Exhibit 99.1, shall not be deemed to be “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Item 2.02 shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing.

 

Item 7.01Regulation FD Disclosure.

 

On August 14, 2017, the Company issued a press release announcing the entry into the Gathering Agreement described in Item 1.01 of this Current Report on Form 8-K. A copy of the press release is included as Exhibit 99.2 to this Current Report on Form 8-K.

 

The information furnished under this Item 7.01, including the accompanying Exhibit 99.2, shall not be deemed to be “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Item 7.01 shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit
No.
  Description
99.1   Press Release of Lilis Energy, Inc. dated August 14, 2017.
     

99.2

 

Press Release of Lilis Energy, Inc. dated August 14, 2017.

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 14, 2017 LILIS ENERGY, INC.
     
  By: /s/ Joseph Daches
    Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

EXHIBIT INDEX

 

Exhibit
No.
  Description
99.1   Press Release of Lilis Energy, Inc. dated August 14, 2017.
     

99.2

 

Press Release of Lilis Energy, Inc. dated August 14, 2017. 

 

 

 

  

Exhibit 99.1

 

 

LLEX:NYSE American

 

 

LILIS ENERGY PROVIDES SECOND QUARTER OPERATIONS AND CORPORATE UPDATE

 

·Delaware Basin production average rate of 1,916 net BOE/D (1) in June 2017 and increased to approximately 2,674 net BOE/D (2) as of August 7, 2017
·The Lion #1H recorded an IP24 hour rate of 1,530 BOE/D (69% Liquids) or 380 BOE/D per 1,000 lateral ft.
·Completed drilling of two wells on highly accretive farm-in to Lea County, NM acreage
·Entered into long-term gas gathering, processing, and purchase agreement with Lucid Energy Delaware, LLC. is expected to improve realizations and production efficiency
·Significantly increased Proved Reserves to 10.4 MMBOE at mid-year, a 767% increase since December 31, 2016
·Projected December 31, 2017 exit rate of 5,000 – 5,300 net BOE/D

 

SAN ANTONIO, TEXAS – August 14, 2017 – Lilis Energy, Inc. (NYSE American: LLEX), an exploration and development company operating in the Permian Basin of West Texas, today announced a second quarter operations and corporate update.

 

“The initial production rates on our Delaware Basin wells continue to yield results above our expectations and are among the best in the basin.  Our first three wells exceeded internal projections and we are confident that our fourth well, the Lion, is on track to repeat similar results,” said Jim Linville, Lilis’s Chief Executive Officer. “We are currently producing 2,674 net BOEPD (3) and have increased our proved reserves to 10.4 MMBOE over the past six months. In conjunction with this, we continue to expand our acreage footprint and have accumulated approximately 10,500 net acres. Additionally, we completed a new midstream contract.”

 

Financial Update

 

“The Company remains well capitalized and in a strong position to take advantage of accretive acquisition opportunities within our core area of focus in Winkler, Loving and Lea counties. Additionally, our midstream contract with Lucid Energy is expected to improve our realized production, minimize curtailment and assist in increasing operating cash flows on a go-forward basis. Over the last few months, we have undertaken significant strides to strengthen our balance sheet which will allow us to exploit and de-risk our strong acreage position, to maximize shareholder value,” said Joe Daches, Lilis’s Chief Financial Officer.

 

 

(1)Delaware Basin production curtailment of ~ 200 net BOE/D resulting in an adjusted average daily production of ~ 2,151 net BOE/D for June 2017
(2)Does not include ~250 net BOE/D of legacy gas shut in
(3)As of August 7, 2017

 

 

 

 

Statement of Operations for Six Months Ending June 30, 2017

 

As reported in the Company’s Form 10-Q filed on August 14, 2017, Lilis’s reported total revenue was approximately $8.6 million for the six months ended June 30, 2017 as compared to approximately $1.0 million for the six months ended June 30, 2016, representing an increase of approximately $7.6 million. The higher revenues were primarily driven by an increase in liquid heavy production from the Company’s Delaware Basin properties.

 

Production costs were approximately $2.3 million for the six months ended June 30, 2017, compared to approximately $0.4 million for the six months ended June 30, 2016, an increase of approximately $1.9 million. Production costs per BOE increased to $9.90 for the six months ended June 30, 2017 from $9.19 for the six months ended June 30, 2016, an increase of $0.71 per BOE, or 8%. The increase in production costs per BOE was primarily due to costs associated with the producing wells in the Delaware Basin.

 

Statement of Operations for Six Months Ended June 30, 2017

 

Description  June 30, 2017   June 30, 2016   Value incr (decr)   & Incr (decr) 
Production Volumes:                    
Oil Sale Volumes (Bbl)   145,391    22,819    122,572    537%
Gas and Product Sales - MCF   560,844    101,575    459,269    452%
BOE   238,865    39,748    199,117    501%
BOE/D   1,320    218    1,101    506%
                     
Revenue:                    
Oil  $6,662,293   $779,033   $5,883,260    755%
Natural Gas and Product Sales   1,726,219    243,012    1,483,206    610%
Other   269,332    9,769    259,563    2600%
Total Revenue  $8,657,844   $1,031,814   $7,626,030    739%
                     
Oil /Bbl  $45.82   $34.14   $11.68    34%
Nat Gas/Mcf  $3.08   $2.39   $0.69    28%
Total Revenue/BOE  $35.12   $25.72   $9.40    37%
                     
LOE  $2,363,804   $365,392   $1,998,412    548%
Production Tax   419,583    54,216    365,367    678%
LOE & production tax  $2,783,387   $419,608   $2,363,779    563%
LOE/BOE  $11.65   $10.56   $1.10    10%
                     
Operating income  $5,874,456   $612,206   $5,262,250    860%

 

 

 

 

Delaware Basin Well Results:

 

To date, Lilis has drilled and completed four operated horizontal Wolfcamp B wells, which are the Bison #1H, the Grizzly #1H, the Hippo #1H and the Lion #1H, all with IP rates exceeding initial internal projections. Lilis is currently completing its fifth operated Wolfcamp B horizontal well, the Wildhog #1H and is scheduled to complete its sixth operated Wolfcamp B horizontal well, the Prizehog #1H, in September 2017.

 

Highlights of Lilis’s well results are as follows:

 

Currently on Production (4):

*BOE/D based on three stream production to account for liquids rich gas uplift.

 

·The Bison #1H IP30 rate of 2,144 BOE/D – 74% Liquids
·The Bison #1H IP60 rate of 1,576 BOE/D – 74% Liquids
·The Bison #1H IP90 rate of 1,429 BOE/D – 78% Liquids

The Bison #1H was turned to sales on January 19, 2017 and had a 24-hour rate of 2,375 BOE/D (75% liquids) or 344 BOE/D per 1,000 lateral ft.

 

·The Grizzly #1H IP30 rate of 1,323 BOE/D – 63% Liquids
·The Grizzly #1H IP60 rate of 1,016 BOE/D – 63% Liquids
·The Grizzly #1H IP90 rate of 901 BOE/D – 67% Liquids

The Grizzly #1H was turned to sales on February 9, 2017 and had a 24-hour rate of 1,666 BOE/D (65% liquids) or 406 BOE/D per 1,000 lateral ft.

 

·The Hippo #1H IP30 rate 1,506 BOE/D – 76% Liquids
·The Hippo #1H IP60 rate 1,292 BOE/D – 75% Liquids

The Hippo #1H was turned to sales on April 14, 2017 and had a 24-hour rate of 1,917 BOE/D (74% liquids) or 367 BOE/D per 1,000 lateral ft.

 

·The Lion #1H IP24 hour rate 1,530 BOE/D (69% Liquids) or 380 BOE/D per 1,000 lateral ft.

The Lion #1H was turned to sales on June 26, 2017. This well’s treatable lateral length was 4,025 feet. The stimulation was 150-foot plug to plug spacing with 2,200 lbs. of sand per foot.

 

Currently Completing:

·The Wildhog BWX State Com #1H

Well was drilled to 17,244 ft. measured depth (MD). The 4,567-foot treated lateral was completed using 23 stages of 200-foot plug to plug spacing and 1,837 lbs. of sand per foot. The well is being prepared for flowback operations.

 

Currently Drilling:

·The Prizehog BWZ State Com #1H

The well has been drilled to a total depth of 17,421 ft. MD. Production casing has been run and cemented.

 

 

(4)Due to production curtailment in May and June 2017, IP90 rates do not reflect the wells full performance capabilities

 

 

 

 

Mid-Year Reserve Update (5)  

 

Lilis’s proved reserves were 10.4 MMBOE at mid-year 2017. This is a 767% increase since December 31, 2016. Increased reserves are attributable to the following:

 

Successful single rig program delivering 3 PDP wells and 2 DUC completions
15-PUD locations booked as offsets to existing PDP wells
Optimization of legacy production
Acquiring additional leasehold and non-consent well bore elections

 

    Net Reserves (SEC Pricing)
Mid-Year 2017          
    Oil Gas Total  % PV-10
  Category: (Mbbl) (MMcf) Mboe  of total  (M$)
             
  PDP        1,235        6,856        2,377 23% $32,282
  PNP            701        1,728            989 10% $14,288
  PUD        4,972      12,430        7,043 68% $42,905
  Total Proved Reserves         6,908      21,014      10,410 100% $89,475

 

(5)These reserves do not include the DJ Basin assets divested in the first quarter of 2017.

 

Gas Gathering, Processing, and Purchase Agreement

 

During the months of May and June, production was impacted by pipeline take-away limitations. The limitations were caused by operational downtime, mainly due to third party compressor issues. In response to these developments, management took immediate action to implement an improved midstream solution.

 

On August 10, 2017 we entered into a long-term gas gathering, processing and purchase agreement with Lucid Energy Delaware, LLC, to support Lilis’s active drilling program in the Delaware Basin. Lucid will receive, gather and process Lilis’s committed gas production from certain production areas located in Lea County, New Mexico and in Loving and Winkler counties, Texas. The agreement has an initial term of ten years.

 

Closing Note

 

Ronald Ormand, Executive Chairman of Lilis, said, “The Company is well positioned to continue delivering superior results with an established management and operations team. Our strategic goal remains to build shareholder value through continued execution of our developmental drilling program, delineation and de-risking of our acreage position, and selective accretive acquisitions. Further, as we mature and grow our production base and cashflow, we intend to focus more on managing expenses, especially cash G&A. We will focus on maximizing shareholder value through the most appropriate means possible in the future.”

 

 

 

 

About Lilis Energy, Inc.

 

Lilis Energy, Inc. is a San Antonio-based independent oil and gas exploration and production company that operates in the Permian’s Delaware Basin, considered amongst the leading resource plays in North America. Lilis’s total net acreage in the Permian Basin is approximately 10,500 acres. Lilis Energy's near-term E&P focus is to grow current reserves and production and pursue strategic acquisitions in its core areas. For more information, please visit www.lilisenergy.com.

 

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These risks include, but are not limited to our ability to replicate the results described in this release for future wells; the ability to finance our continued exploration, drilling operations and working capital needs, all the other uncertainties, costs and risks involved in exploration and development activities; and the other risks identified in the Company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

 

Contact:

 

Wobbe Ploegsma

V.P. Investor Relations & Capital Markets

210-999-5400, ext. 31

 

 

 

 

 

Exhibit 99.2

 

 

LLEX:NYSE American

 

 

LILIS ENERGY AND LUCID ENERGY GROUP ENTER INTO A LONG-TERM GAS GATHERING, PROCESSING AND PURCHASE AGREEMENT IN THE PERMIAN BASIN

 

SAN ANTONIO, TEXAS – August 14, 2017 – Lilis Energy, Inc. (NYSE American: LLEX) (“Lilis”or “the Company”), an exploration and development company operating in the Permian Basin of West Texas, today announced it has entered into a long-term gas gathering, processing and purchase agreement with an affiliate of Lucid Energy Group (“Lucid”) (www.lucid-energy.com) to support Lilis’s active drilling program in the Permian’s Delaware Basin. Lucid will receive, gather and process Lilis’s gas production from certain production areas located in Lea County, New Mexico and in Loving and Winkler counties, Texas. The agreement secures sufficient term and capacity for Lilis during its development and exploitation life cycle of the production areas committed to the new agreement.

 

"We are pleased to enter into this important, long-term agreement with Lucid in the Permian Basin where our wells are consistently delivering strong operational results. The new agreement positions Lilis with sufficient gathering and processing capacity as we execute our long-term development plans,” said Lilis Chief Executive Officer Jim Linville. "Lucid will be a great partner. They have an outstanding reputation for developing solutions unique to individual company needs and for relationship-focused customer service. We look forward to a successful, long-term partnership."

 

Lilis Chief Financial Officer Joe Daches added, “Our continued growth and well performance in the Delaware Basin is the primary reason we were able to gain very favorable gathering rates. This agreement will result in improved gathering rates and improved differentials for the Company.”

 

Republic Development Partners, LLC, based in Houston, Texas consulted the Company.

 

About Lilis Energy, Inc.

 

Lilis Energy, Inc. is a San Antonio-based independent oil and gas exploration and production company that operates in the Permian’s Delaware Basin, considered amongst the leading resource plays in North America. Lilis’s total net acreage in the Permian Basin is approximately 10,500 acres. Lilis Energy's near-term E&P focus is to grow current reserves and production and pursue strategic acquisitions in its core areas. For more information, please visit www.lilisenergy.com

 

About Republic Development Partners

 

Republic Development Partners, LLC (“Republic”) is a Houston-based midstream company that identifies and executes midstream infrastructure opportunities predominantly in conjunction with crude oil, natural gas, natural gas liquids and water projects. Republic’s wholly owned subsidiary, RDP Producer Services, LLC provides midstream services in cooperation with exploration and production companies. For more information, please visitwww.republicpartnersllc.com.  

 

 

 

 

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These risks include, but are not limited to our ability to replicate the results described in this release for future wells; the ability to finance our continued exploration, drilling operations and working capital needs, all the other uncertainties, costs and risks involved in exploration and development activities; and the other risks identified in the Company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

 

Contact:

 

Wobbe Ploegsma

V.P. Investor Relations & Capital Markets

210-999-5400, ext. 31

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): September 6, 2017

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd., Suite No. 1220    
San Antonio, TX   78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

 

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On September 6, 2017, the Board of Directors (the “Board”) of Lilis Energy, Inc. (the “Company”) appointed G. Tyler Runnels and Mark Christensen to serve as non-employee directors of the Board, effective immediately. As a result of these appointments, each of the two previously existing vacancies on the Board have now been filled.

 

Mr. Runnels previously served on the Board from November 21, 2014 through January 13, 2016. There are no arrangements or understandings between Mr. Runnels and any other persons pursuant to which Mr. Runnels was appointed a director of the Company.

 

Mr. Christensen was appointed pursuant to the terms of that certain letter agreement dated August 12, 2017 (the “Letter Agreement”), between the Company and Värde Partners, Inc. (“Värde”), the Company’s second lien lender, which provided Värde the right to appoint one member of the Board. The Letter Agreement was previously filed as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”) on August 14, 2017.

 

Since January 1, 2016, Mr. Runnels has engaged in various related party transactions with the Company, which are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 3, 2017 (the “Form 10-K”), under the heading “Certain Relationships and Related Transactions, and Director Independence — Related Party Transactions” and which is incorporated herein by reference. Subsequent to the filing of the Form 10-K, the Company entered into a conversion agreement dated April 25, 2017 (the “Conversion Agreement”) with holders of its Series B 6% Convertible Preferred Stock (“Series B Preferred Stock”), pursuant to which the Company agreed to pay dividends as if they accrued through December 31, 2017 by increasing the stated value prior to conversion in a total amount of approximately $1.3 million as consideration for the automatic conversion of outstanding shares of Series B Preferred Stock. Pursuant to the Conversion Agreement, TRW Capital Growth Fund, L.P., an entity for which Mr. Runnels serves as Managing Director, converted 200 shares of Series B Preferred Stock plus accrued dividends into an aggregate of 198,667 shares of the Company’s common stock (the “Common Stock”) (valued at approximately $846,321 based on the $4.26 closing trading price of the Common Stock on April 25, 2017) and the Runnels Family Trust DTD 1-11-2000, a family trust beneficially owned by Mr. Runnels, converted 276 shares of Series B Preferred Stock plus accrued dividends into an aggregate of 274,160 shares of Common Stock (valued at approximately $1,167,922 based on the $4.26 closing trading price of the Common Stock on April 25, 2017). T.R. Winston & Company LLC, where Mr. Runnels currently serves as Chairman and 76% owner, also acted as administrative and collateral agent on the Company’s first lien credit facility until it was amended on April 24, 2017.

 

 

 

 

Since January 1, 2016, Mr. Christensen has been involved in the following related party transactions with the Company, through Trace Capital Inc. (“Trace”), an entity owned by Mr. Christensen’s wife, and KES 7 Capital Inc. (“KES 7”) for which he serves as Chief Executive Officer and 100% owner. Trace has participated in the following transactions with the Company: (i) the offering of Series B Preferred Stock in June 2016 pursuant to which Trace purchased 500 shares of Series B Preferred Stock and warrants to purchase up to 227,274 shares of Common Stock with an exercise price of $2.50 (the “Series B Warrants”) for aggregate consideration of $500,000; (ii) the Company’s first lien credit facility entered into in September 2016, which had initial aggregate principal commitments of approximately $31 million and a maximum facility size of $50 million, and the upsize of that facility in February 2017, of which Trace held indebtedness in an aggregate amount of $2.6 million, and which resulted in the repricing of the Series B Warrants to $0.01 that were exercised in full on April 25, 2017; (iii) the Company’s March 2017 private placement of units comprised of Common Stock and warrants raising net proceeds of approximately $20 million pursuant to which Trace purchased units for an aggregate purchase price of approximately $1 million; (iv) the conversion of shares of Series B Preferred Stock that Trace held plus accrued dividends, which resulted in the issuance of 467,348 shares of the Common Stock to Trace (valued at approximately $1,495,514 based on the $3.20 closing trading price of the Common Stock on December 9, 2016); and (v) the amendment to the Company’s first lien credit facility on April 24, 2017 and related matters, in which the balance of the first lien credit facility in an aggregate amount of $38.1 million plus accrued and unpaid interest thereon was paid down (including the $2.6 million of indebtedness held by Trace) and in which $1.45 million was reinvested by Trace in the form of bridge loans with an aggregate amount of $15 million outstanding. Each of the initial lenders that participated in the first lien credit facility also waived their right to any prepayment premium, including Trace. Additionally, KES 7 has acted as an advisor and placement agent in connection with certain of the Company’s financing transactions resulting in aggregate fees paid by the Company of approximately $2.4 million in cash and the issuance of warrants to purchase 820,000 shares of Common Stock with an exercise price of $1.30 to KES 7.

 

Other than as described above, neither Mr. Runnels nor Mr. Christensen have any direct or indirect material interest in any transaction or proposed transaction required to be reported under Item 404(a) of Regulation S-K.

 

Each of Mr. Runnels and Mr. Christensen will receive compensation as a non-employee director consistent with the Company’s standard compensation practices for non-employee directors which includes the following: (i) an initial grant of 10,000 restricted shares of the Common Stock to be granted on the first business day on or after January 31 of each year (the “Annual Equity Date”), which Common Stock shall vest in three equal annual installments upon the anniversary of each Annual Equity Date, (ii) $60,000 in annual cash compensation as director's fees, paid quarterly, (iii) an annual grant of shares of Common Stock equal to $60,000 divided by the most recent per share closing price of the Common Stock on each Annual Equity Date and (iv) a grant on the Annual Equity Date of 45,000 options to purchase shares of Common Stock, of which 25,000 vest immediately and 20,000 vest in three equal annual installments upon the anniversary of the Annual Equity Date. 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: September 12, 2017 LILIS ENERGY, INC.
     
  By:   /s/ Joseph Daches
    Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 3, 2017

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd., Suite No. 1220    
San Antonio, TX   78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

 

  Item 1.01 Entry into a Material Definitive Agreement

 

Lease Acquisition Agreement

 

On October 3, 2017, Lilis Energy, Inc. (the “Company”) entered into a lease acquisition agreement (the “Acquisition Agreement”) with KEW Drilling, a Delaware limited partnership (the “Seller”), pursuant to which the Company will initially acquire from Seller approximately 4,051 undeveloped net acres in Winkler County, Texas and is committed, subject to the terms and conditions of the Agreement, to acquire additional undeveloped oil and gas leases in Winkler County, Texas for an aggregate purchase price of up to $45,600,000 initially with a commitment for up to $47,000,000 for additional oil and gas leases pursuant to the terms set forth in the Acquisition Agreement (collectively, the “Leases”). Once the value of the additional Leases to be acquired exceeds the $47,000,000 aggregate purchase price threshold (calculated on a per-net-acre basis), the Company has the option, but not the obligation, to acquire any additional oil and gas leases that are acquired by Seller and meet the specifications set forth in the Acquisition Agreement.

 

The Acquisition Agreement contains terms and conditions customary to transactions of the type including title due diligence provisions and representations and warranties regarding the Leases, including, but not limited to, those regarding taxes, liens, litigation, preferential rights to purchase and consents.

 

The Company expects to fund the purchase price for the Leases with borrowings under the delayed draw term loans available pursuant to its second lien credit agreement, dated as of April 26, 2017 (the “Credit Agreement”), by and among the Company, certain subsidiaries of the Company, as guarantors (the “Guarantors”), Wilmington Trust, National Association, as administrative agent (the “Agent”), and the lenders party thereto (the “Lenders”), including Värde Partners, Inc., as lead lender (the “Lead Lender”), and cash on hand. The delayed draw term loans and an amendment to the Credit Agreement are discussed in more detail below.

 

The foregoing description of the terms of the Acquisition Agreement is not complete and is qualified in its entirety by reference to the copy of the Acquisition Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017.

 

Amendment No. 1 to Credit Agreement and Delayed Draw Term Loans

 

On October 3, 2017, the Company, the Guarantors, the Agent and the Lenders entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement. The purpose of the Amendment is to waive certain conditions precedent to the drawing of the $45,000,000 delayed draw term loans under the Credit Agreement and to provide for the funding of such delayed draw term loans upon the signing of the Acquisition Agreement. The Company borrowed the full $45,000,000 of the delayed draw terms loans on October 4, 2017.

 

Under the Amendment, if the Company does not use any portion of the delayed draw term loans for the acquisitions contemplated by the Acquisition Agreement or such other acquisitions as may be approved by the Lead Lender within a specified time period ending not later than January 10, 2018, the Company will be required to prepay such unused portion of the delayed draw terms loans, together with accrued and unpaid interest and a prepayment premium equal to a 20% annualized rate on such amount (but without the make-whole amount otherwise payable on repayment of loans under the Credit Agreement), within two business days after the end of such specified period. Any portion of the delayed draw term loans so repaid may be later re-borrowed by the Company, subject to the terms of the Credit Agreement.

 

The foregoing description of the terms of the Amendment is not complete and is qualified in its entirety by reference to the copy of the Amendment, which is filed as exhibit 10.1 to this Current Report on Form 8-K.

 

Item 2.03Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.03.

 

 

 

 

Item 7.01Regulation FD Disclosure.

 

On October 4, 2017, the Company issued a press release announcing the transactions described above in addition to its continued results of its drilling and completion operations. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1, and is incorporated herein by reference.

 

The information furnished under this Item 7.01, including the accompanying Exhibit 99.1, shall not be deemed to be “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Item 7.01 shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d)Exhibits.

 

Exhibit
No.
  Description
     

10.1

 

Amendment No. 1 to Credit Agreement, dated October 3, 2017 by and among Lilis Energy, Inc., the Guarantors party thereto, the Lenders party thereto and Wilmington Trust, National Association, as administrative agent.

     
99.1   Press Release of Lilis Energy, Inc. dated October 4, 2017.

 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: October 10, 2017 LILIS ENERGY, INC.
     
  By:   /s/ Joseph Daches
    Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

 

EXHIBIT INDEX

 

 

Exhibit
No.
  Description
     

10.1

 

Amendment No. 1 to Credit Agreement, dated October 3, 2017 by and among Lilis Energy, Inc., the Guarantors party thereto, the Lenders party thereto and Wilmington Trust, National Association, as administrative agent.

     
99.1   Press Release of Lilis Energy, Inc. dated October 4, 2017.

 

 

 

 

 

 

Exhibit 10.1

 

Execution Version

 

AMENDMENT NO. 1 TO CREDIT AGREEMENT

 

This Amendment No. 1 to Credit Agreement (this “Amendment”) dated as of October 3, 2017 (the “Effective Date”) is among Lilis Energy, Inc. (the “Borrower”), certain subsidiaries of the Borrower party hereto (each, a “Guarantor” and collectively, the “Guarantors”), Wilmington Trust, National Association, as administrative agent (the “Administrative Agent”), Värde Partners, Inc., (“Värde”) in its capacity as the Lead Lender (as defined in the Credit Agreement (as defined below)) and the other Lenders (as defined below) party hereto.

 

INTRODUCTION

 

Whereas, the Borrower, the Guarantors, the Administrative Agent, Värde as the Lead Lender (as defined therein) and the other lenders party thereto from time to time (the “Lenders”) are parties to that certain Credit Agreement dated as of April 26, 2017 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).

 

Whereas, in order to request Delayed Draw Term Loans, Section 2.03(b) of the Credit Agreement requires that the Borrower deliver in writing to the Administrative Agent a duly completed Borrowing Request (the “Delayed Draw Term Loan Borrowing Request”), not later than 12:00 noon, New York City time, ten (10) Business Days prior to the proposed date of such Delayed Term Loan Draw (as defined in the Credit Agreement) (or such shorter period as agreed to by the Lead Lender in its sole discretion, but in any event not later than 12:00 noon, New York City time, one Business Day prior to the proposed date of such Delayed Term Loan Draw).

 

Whereas, subject to the terms and conditions set forth herein, the Lead Lender wishes to provide its consent to the delivery of the Delayed Draw Term Loan Borrowing Request in the form delivered by the Borrower on September 22, 2017 for purposes of the Delayed Draw Term Loan Draw (the “KEW Delayed Draw”) to be consummated on October 3, 2017 (or such later date as the Lead Lender may permit in its sole discretion) (the “Borrowing Request Deadline”) rather than by at least ten (10) Business Days prior to the proposed date of the KEW Delayed Draw in accordance with Section 2.03(b) of the Credit Agreement, and in the form required by Section 4.02(a) of the Credit Agreement, and to the waiver of certain conditions precedent required by Section 4.02 in connection with the KEW Delayed Draw.

 

Whereas, the Borrower has requested that Administrative Agent and the Lenders amend the Credit Agreement in certain respects as set forth herein, and the Administrative Agent and the Lenders have agreed to the foregoing, on the terms and conditions set forth herein.

 

NOW THEREFORE, in consideration of the premises and the mutual covenants, representations and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

Section 1.          Defined Terms; Other Definitional Provisions. As used in this Amendment, each of the terms defined in the opening paragraph and the Recitals above shall have the meanings assigned to such terms therein. Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Amendment, unless otherwise specified. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Amendment shall refer to this Amendment as a whole and not to any particular provision of this Amendment. The term “including” means “including, without limitation”. Paragraph headings have been inserted in this Amendment as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Amendment and shall not be used in the interpretation of any provision of this Amendment.

 

 

 

 

Section 2.          Consent and Waiver of Conditions Precedent.

 

(a)       Subject to the terms and conditions of this Amendment, the Lead Lender hereby consents to (i) the delivery of the Delayed Draw Term Loan Borrowing Request for the KEW Delayed Draw (the “KEW Borrowing Request”) on or prior to the Borrowing Request Deadline rather than by at least ten (10) Business Days prior to proposed date of the KEW Delayed Draw in accordance with Section 2.03(b) of the Credit Agreement, (ii) the waiver of the conditions and requirements set forth in Section 2.03(b) and Section 4.02(a) to the extent that the KEW Borrowing Request does not comply with the requirements thereof, and (iii) the waiver of the condition set forth in Section 4.02(e) of the Credit Agreement in connection with the KEW Delayed Draw (the consents and waivers set forth in this Section 2(a), collectively, the “Consent and Condition Precedent Waiver”).

 

(b)       The Consent and Condition Precedent Waiver is limited to the extent expressly described herein and shall not be construed to be a consent to or a waiver of any terms, provisions, covenants, warranties or agreements contained in the Credit Agreement or in any of the other Loan Documents except to the extent expressly described herein.

 

Section 3.         Amendments to the Credit Agreement. Subject to the satisfaction of the conditions set forth in Section 5 below, and in reliance on the representations and warranties contained in Section 4 below, the Credit Agreement is hereby amended as follows:

 

(a)          Section 1.01 of the Credit Agreement is hereby amended by inserting the following definitions in the appropriate alphabetical order:

 

Alternate Approved Acquisition” shall have the meaning set forth in Section 2.07(e).

 

Amendment No. 1” means that certain Amendment No. 1 to Credit Agreement, dated as of the Amendment No. 1 Effective Date, by and among the Borrower, the Lead Lender, the other Lenders party thereto and the Administrative Agent.

 

Amendment No. 1 Effective Date” means October 3, 2017.

 

Initial KEW Acquisition” means the Acquisitions contemplated by the KEW Acquisition Agreement to occur on the “Initial Closing Date” (as defined in the KEW Acquisition Agreement).

 

KEW Acquisitions” means the Acquisitions contemplated by the KEW Acquisition Agreement as in effect on the Amendment No. 1 Effective Date, after giving effect to any modifications, amendments, consents or waivers that, in the good faith determination of the Borrower, do not constitute a material modification, amendment, consent or waiver of the terms and conditions of the KEW Acquisition Agreement as in effect on the Amendment No. 1 Effective Date.

 

KEW Acquisition Agreement” means that certain Lease Acquisition Agreement, dated as of October 3, 2017, by and among the Borrower and KEW Drilling.

 

KEW Acquisition Prepayment Event” shall have the meaning set forth in Section 2.07(e).

 

KEW Acquisition Prepayment Premium” means if the KEW Acquisition Prepayment Event occurs during the Specified KEW Acquisition Period, a percentage such that the prepayment premium equals a 20% annualized rate multiplied by the amount of Delayed Draw Term Loans (if any) required to be repaid pursuant to Section 2.07(e).

 

 2 

 

 

Specified KEW Acquisition Period” means the period beginning on the Amendment No. 1 Effective Date and ending on the date scheduled for the “Subsequent Closing Date” as set forth in Section 12.4 of the KEW Acquisition Agreement as in effect on the Amendment No. 1 Effective Date, as such date may be extended by the parties to the KEW Acquisition Agreement; provided that such date shall in no event be extended to a date that is later than January 10, 2018 unless the prior written consent of the Lead Lender is obtained.

 

(b)          Section 1.01 of the Credit Agreement is hereby amended by amending and restating the following definitions in their entirety as set forth below:

 

Loan Documents” means this Agreement, Amendment No. 1, any promissory notes executed in connection herewith, the Security Documents, the Pre-Approved Acquisition Letter, any Approved Intercreditor Agreement, the Fee Letter, the Registration Rights Agreement and any other agreements executed by any Credit Party in connection with this Agreement and designated as a Loan Document therein.

 

Pre-Approved Acquisition Letter” means that certain letter agreement, dated as of October 3, 2017, from Borrower and acknowledged by the Administrative Agent and the Lead Lender.

 

(c)          Section 2.02(b) of the Credit Agreement is hereby amended and restated in its entirety as set forth below:

 

(b)          On the terms and subject to the conditions set forth herein, Lenders severally agree to make term loans to the Borrower, during the Delayed Draw Term Loan Funding Period, in multiple draws (each a “Delayed Term Loan Draw”) up to an aggregate principal amount of $45,000,000 (collectively, the “Delayed Draw Term Loans”). Each Lender’s obligation to fund a Delayed Term Loan Draw shall be limited to such Lender’s Delayed Draw Term Loan Commitment Percentage of such Delayed Term Loan Draw requested by the Borrower hereunder. No Lender shall have any obligation to fund any portion of the Delayed Draw Term Loans unless the proceeds of such Delayed Draw Term Loan are used for a Pre-Approved Acquisition or such other uses as are satisfactory to the Lenders providing such Delayed Draw Term Loan, in their sole discretion. The Delayed Draw Term Loan Commitment shall terminate at the end of the Delayed Draw Term Loan Funding Period, if not earlier pursuant to the terms of this Agreement. The Borrower shall not have any right to reborrow any portion of the Delayed Draw Term Loans which is repaid or prepaid from time to time; provided that in the event of any mandatory prepayment of the Delayed Draw Term Loans in part or in full after the occurrence of a KEW Acquisition Prepayment Event pursuant to Section 2.07(e), then the Borrower shall have the right to reborrow the full principal amount of Delayed Draw Term Loans mandatorily prepaid in accordance with Section 2.07(e). Delayed Term Loan Draws shall be made pursuant to a Borrowing Request to be delivered to the Administrative Agent pursuant to Section 2.03. Each such request for a Delayed Term Loan Draw shall be in a minimum amount of the lesser or (x) $5,000,000, and, if greater, in integral multiples of $1,000,000 thereon, and (y) the amount of the remaining Delayed Term Loan Draw Commitment as of such date.

 

(d)          Section 2.07 of the Credit Agreement is hereby amended by adding a new clause (e) immediately after clause (d) as set forth below:

 

 3 

 

 

(e)          Unless the Majority Lenders shall agree in writing that no prepayment of the Delayed Draw Term Loans is required pursuant to this Section 2.07, if the Borrower does not consummate the KEW Acquisitions or other Acquisitions acceptable to the Lead Lender in its sole discretion (as confirmed by the Lead Lender in writing) (each, an “Alternate Approved Acquisition”) within the Specified KEW Acquisition Period (such event, a “KEW Acquisition Prepayment Event”), then, not later than two (2) Business Days after such KEW Acquisition Prepayment Event, the Borrower shall provide written notice to the Administrative Agent in accordance with Section 2.07(c) and, subject to Section 2.07(d), repay the amount (if any) of any Delayed Draw Term Loans that have not been applied to the consummation of any KEW Acquisition or Alternate Approved Acquisition as of such date plus (i) all accrued and unpaid interest thereon and (ii) the applicable KEW Acquisition Prepayment Premium (as calculated by the Majority Lenders which, absent manifest error, shall be deemed conclusive).

 

(e)          Section 2.09(a) of the Credit Agreement is hereby amended and restated in its entirety as set forth below:

 

(a)          Whether voluntary or mandatory, and with respect to each repayment or prepayment of Loans under Section 2.06 or 2.07 (other than any mandatory prepayment made pursuant to Section 2.07(e)) or any acceleration of the Loans and other Obligations pursuant to Article VIII (including for the avoidance of doubt, as a result of clauses (g), (h) or (i) of Article VIII), the Borrower shall pay to the Administrative Agent, for the ratable benefit of the Lenders, with respect to the amount of the Loans repaid, prepaid or accelerated, in each case, concurrently with such repayment or prepayment, a premium equal to the Make-Whole Amount (determined by the Borrower and approved by the Lead Lender as if the Loans were repaid at the time of such acceleration at the option of the Borrower pursuant to Section 2.06) shall become immediately due and payable, and Borrower will pay such premium, as compensation to the Lenders for the loss of their investment opportunity and not as a penalty, whether or not a Bankruptcy Event has commenced, and (if a Bankruptcy Event has commenced) without regard to whether such Bankruptcy Event is voluntary or involuntary, or whether payment occurs pursuant to a motion, plan of reorganization, or otherwise, and without regard to whether the Loans and other Obligations are satisfied or released by foreclosure (whether or not by power of judicial proceeding), deed in lieu of foreclosure or by any other means. Without limiting the foregoing, any redemption, prepayment, repayment, or payment of the Obligations in or in connection with a Bankruptcy Event shall constitute an optional prepayment thereof under the terms of Section 2.05 and require the immediate payment of the Make-Whole Amount.

 

(f)          Section 11.02 of the Credit Agreement is hereby amended by adding a new sentence at the end of such Section 11.02 as set forth below:

 

Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Delayed Draw Term Loans (other than any Delayed Draw Term Loans which have been re-borrowed following a mandatory prepayment made pursuant to Section 2.07(e) after the occurrence of a KEW Acquisition Prepayment Event) shall not be convertible at the option of the Lenders during the Specified KEW Acquisition Period prior to the consummation of the KEW Acquisitions or Alternate Approved Acquisitions (it being understood and agreed that following the Specified KEW Acquisition Period, the Delayed Draw Term Loans shall be convertible at the option of the Lenders).

 

 4 

 

 

Section 4.          Representations and Warranties. Each Credit Party hereby represents and warrants that: (a) after giving effect to this Amendment, the representations and warranties contained in Article III of the Credit Agreement and in each other Loan Document are true and correct in all material respects, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects, on and as of the Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects, as of such earlier date; (b) after giving effect to this Amendment, no Default has occurred and is continuing; (c) the execution, delivery and performance of this Amendment are within the corporate or limited liability company power and authority of such Credit Party and have been duly authorized by appropriate corporate or limited liability company action and proceedings; (d) this Amendment constitutes the legal, valid, and binding obligation of such Credit Party enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity; (e) there are no governmental or other third party consents, licenses and approvals required in connection with the execution, delivery, performance, validity and enforceability of this Amendment; and (f) the Liens under the Loan Documents are valid and subsisting and secure the Credit Parties’ obligations under such Loan Documents.

 

Section 5.          Conditions to Effectiveness. This Amendment shall become effective on the Effective Date and enforceable against the parties hereto upon the satisfaction of the following conditions precedent:

 

(a)          the Administrative Agent and the Lead Lender shall have received this Amendment duly executed by the Borrower, the Guarantors, the Administrative Agent, the Lenders party hereto (which constitute all Lenders party to the Credit Agreement) and the Lead Lender;

 

(b)          the Borrower shall have paid on or about the Effective Date all costs and expenses which are payable pursuant to Section 10.03 of the Credit Agreement and which have been invoiced no later than one Business Days prior to the date hereof; and

 

(c)          the Administrative Agent and the Lead Lender shall have received a copy of the KEW Acquisition Agreement duly executed by the Borrower and KEW Drilling along with all schedules, exhibits and material documents ancillary thereto.

 

Section 6.          Covenants of the Credit Parties; Acknowledgements of Lenders.

 

(a)          The proceeds of the KEW Delayed Draw shall, at all times prior to the consummation of the KEW Acquisitions or any Alternate Approved Acquisition, be held in an account of the Borrower subject to a Control Agreement in accordance with the terms set forth in Section 5.16 of the Credit Agreement until such time as such proceeds are used to consummate the KEW Acquisitions or such Alternate Approved Acquisition or as otherwise set forth in this clause (a). The proceeds of the KEW Delayed Draw shall be used first, upon the consummation of the Initial KEW Acquisition, any other KEW Acquisition or any Alternate Approved Acquisition, for the payment of the purchase price of, and costs and expenses associated with, such Initial KEW Acquisition, any other KEW Acquisition or Alternate Approved Acquisition until such amounts are paid in full, and second, at any time upon or after the consummation of the Initial KEW Acquisition, any other KEW Acquisition or any Alternate Approved Acquisition, subject to the written consent of the Lead Lender for each of the following uses of proceeds, to finance the working capital needs of the Borrower, including capital expenditures, and for general corporate purposes of the Borrower and the Guarantors, including the exploration, acquisition and development of Oil and Gas Property. In accordance with Sections 2.02(b) and Section 5.09 of the Credit Agreement, each Lender hereby acknowledges and agrees that the use of the proceeds of the KEW Delayed Draw set forth in the preceding sentence is satisfactory to it and, subject to the terms and conditions thereof, consents to such use of proceeds.

 

 5 

 

 

(b)          Prior to the consummation of any KEW Acquisition or any Alternate Approved Acquisition (or a later date acceptable to the Lead Lender in its sole discretion), the Borrower shall deliver to the Lead Lender title information in form and substance reasonably acceptable to the Lead Lender with respect to any Oil and Gas Properties to be acquired pursuant to such KEW Acquisition or such Alternate Approved Acquisition as the Lead Lender shall deem reasonably necessary or appropriate to verify the title of the Credit Parties to not less than 70% of the PV9 of the Oil and Gas Properties to be acquired pursuant to such KEW Acquisition or such Alternate Approved Acquisition.

 

(c)          Within 60 days of the consummation of any KEW Acquisition or any Alternate Approved Acquisition (or a later date acceptable to the Lead Lender in its sole discretion), the Borrower shall deliver to the Lead Lender title information in form and substance reasonably acceptable to the Lead Lender with respect to any Oil and Gas Properties acquired pursuant to such KEW Acquisition or such Alternate Approved Acquisition as the Lead Lender shall deem reasonably necessary or appropriate to verify the title of the Credit Parties to not less than 90% of the PV9 of the Oil and Gas Properties acquired pursuant to such KEW Acquisition or such Alternate Approved Acquisition.

 

Section 7.          Acknowledgments and Agreements.

 

(a)          Each Credit Party acknowledges that on the date hereof, all outstanding Obligations are payable in accordance with their terms and each Credit Party waives any defense, offset, counterclaim or recoupment, in each case existing on the date hereof, with respect to such Obligations. Each Credit Party does hereby adopt, ratify, and confirm the Credit Agreement and acknowledges and agrees that the Credit Agreement is and remains in full force and effect, and each Credit Party acknowledges and agrees that its respective liabilities and obligations under the Credit Agreement are not impaired in any respect by this Amendment.

 

(b)          This Amendment is a Loan Document for the purposes of the provisions of the other Loan Documents. Without limiting the foregoing, any breach of representations, warranties, and covenants under this Amendment shall be a Default or Event of Default, as applicable, under the Credit Agreement.

 

Section 8.          Reaffirmation of Guaranty. Each Guarantor hereby ratifies, confirms, and acknowledges that its obligations under the Credit Agreement are in full force and effect and that each Guarantor continues to unconditionally and irrevocably, jointly and severally, guarantee the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or otherwise, of all of the Obligations, and its execution and delivery of this Amendment does not indicate or establish an approval or consent requirement by the Guarantors in connection with the execution and delivery of amendments, consents or waivers to the Credit Agreement or any of the other Loan Documents.

 

Section 9.          Reaffirmation of Liens. Each Credit Party (a) is party to certain Security Documents securing and supporting the Obligations under the Loan Documents, (b) represents and warrants that it has no defenses to the enforcement of the Security Documents and that according to their terms the Security Documents will continue in full force and effect to secure the Obligations under the Loan Documents, as the same may be amended, supplemented, or otherwise modified, and (c) acknowledges, represents, and warrants that the liens and security interests created by the Security Documents are valid and subsisting and create an acceptable security interest in the collateral to secure the Obligations under the Loan Documents, as the same may be amended, supplemented, or otherwise modified.

 

 6 

 

 

Section 10.        Counterparts. This Amendment may be signed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Transmission by facsimile or other electronic transmission of an executed counterpart of this Amendment shall be deemed to constitute due and sufficient delivery of such counterpart.

 

Section 11.        Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Credit Agreement.

 

Section 12.         Invalidity. In the event that any one or more of the provisions contained in this Amendment shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Amendment.

 

Section 13.         Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. Section 10.09 of the Credit Agreement is hereby incorporated by reference herein mutatis mutandis.

 

Section 14.        Instruction to Administrative Agent. The Lenders hereby (i) authorize and instruct the Administrative Agent to execute and deliver this Amendment and the Pre-Approved Acquisition Letter (as defined in the Credit Agreement after giving effect to the Amendment); and (ii) acknowledge and agree that the instruction set forth in this Section 14 constitutes an instruction from the Lenders under the Loan Documents, including Section 9.03 and Section 9.04 of the Credit Agreement.

 

Section 15.         RELEASE. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Credit Party hereby, for itself and its successors and assigns, fully and without reserve, releases, acquits, and forever discharges each Secured Party, its respective successors and assigns, officers, directors, employees, representatives, trustees, attorneys, agents and affiliates (collectively the “Released Parties” and individually a “Released Party”) from any and all actions, claims, demands, causes of action, judgments, executions, suits, debts, liabilities, costs, damages, expenses or other obligations of any kind and nature whatsoever, direct and/or indirect, at law or in equity, whether now existing or hereafter asserted, whether absolute or contingent, whether due or to become due, whether disputed or undisputed, whether known or unknown (INCLUDING, WITHOUT LIMITATION, ANY OFFSETS, REDUCTIONS, REBATEMENT, CLAIMS OF USURY OR CLAIMS WITH RESPECT TO THE NEGLIGENCE OF ANY RELEASED PARTY) (collectively, the “Released Claims”), for or because of any matters or things occurring, existing or actions done, omitted to be done, or suffered to be done by any of the Released Parties, in each case, on or prior to the Effective Date and are in any way directly or indirectly arising out of or in any way connected to any of this Amendment, the Credit Agreement, any other Loan Document, or any of the transactions contemplated hereby or thereby (collectively, the “Released Matters”). Each Credit Party, by execution hereof, hereby acknowledges and agrees that the agreements in this Section 15 are intended to cover and be in full satisfaction for all or any alleged injuries or damages arising in connection with the Released Matters herein compromised and settled. Each Credit Party hereby further agrees that it will not sue any Released Party on the basis of any Released Claim released, remised and discharged by the Loan Parties pursuant to this Section 15. In entering into this Amendment, each Credit Party consulted with, and has been represented by, legal counsel and expressly disclaim any reliance on any representations, acts or omissions by any of the Released Parties and hereby agrees and acknowledges that the validity and effectiveness of the releases set forth herein do not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity hereof. The provisions of this Section 15 shall survive the termination of this Amendment, the Credit Agreement and the other Loan Documents and payment in full of the Obligations.

 

 7 

 

 

Section 16.         Entire Agreement. This Amendment, the Credit Agreement and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto.

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

 

[The remainder of this page has been left blank intentionally.]

 

 8 

 

 

EXECUTED to be effective as of the date first above written.

 

  BORROWER:
   
  LILIS ENERGY, INC.
     
  By: /s/ Joseph C. Daches
  Name:  Joseph C. Daches
  Title: Chief Financial Officer
     
  GUARANTORS:
   
  BRUSHY RESOURCES, INC.
  HURRICANE RESOURCES LLC
  LILIS OPERATING COMPANY, LLC
  IMPETRO OPERATING, LLC
  IMPETRO RESOURCES, LLC
   
  By: /s/ Joseph C. Daches
  Name: Joseph C. Daches
  Title:

Chief Financial Officer

 

Signature Page to Amendment No. 1 to Credit Agreement

 

 

 

 

  ADMINISTRATIVE AGENT:
   
  WILMINGTON TRUST, NATIONAL ASSOCIATION,
  as Administrative Agent
     
  By: /s/ Joshua G. James
  Name: Joshua G. James
  Title: Vice President
     
  LEAD LENDER:
   
  VÄrde Partners, Inc.
     
  By: /s/ Markus Specks
  Name: Markus Specks
  Title: Managing Director

 

Signature Page to Amendment No. 1 to Credit Agreement

 

 

 

 

  SEVERALLY AND NOT JOINTLY FOR EACH ENTITY LISTED BELOW:
     
  By: /s/ Markus Specks
  Name: Markus Specks
  Title: Managing Director

 

  The Värde Fund VI-A, L.P.
  By Värde Investment Partners G.P., LLC, Its General Partner
  By Värde Partners, L.P., Its Managing Member
  By Värde Partners, Inc., Its General Partner
   
  Värde INVESTMENT PARTNERS, L.P.
  By Värde Investment Partners G.P., LLC, Its General Partner
  By Värde Partners, L.P., Its Managing Member
  By Värde Partners, Inc., Its General Partner
   
  THE Värde FUND XI (MASTER), L.P.
  By Värde Fund XI G.P., LLC, Its General Partner
  By Värde Partners, L.P., Its Managing Member
  By Värde Partners, Inc., Its General Partner
   
  Värde investment partners (offshore) master, L.p.
  By Värde Investment Partners G.P., LLC, Its General Partner
  By Värde Partners, L.P., Its Managing Member
  By Värde Partners, Inc., Its General Partner
   
  THE VÄRDE SKYWAY Master fund, L.P.
  By The Värde Skyway Fund G.P., LLC, Its General Partner
  By Värde Partners, L.P., Its Managing Member
  By Värde Partners, Inc., Its General Partner
   
  THE VÄRDE FUND XII (mASTER), L.P.
  By The Värde Fund XII G.P., L.P., Its General Partner
  By: The Värde Fund XII UGP, LLC, its General Partner
  By Värde Partners, L.P., Its Managing Member
  By Värde Partners, Inc., Its General Partner

 

Signature Page to Amendment No. 1 to Credit Agreement

 

 

 

 

Exhibit 99.1

 

 

 

LLEX:NYSE American

 

 

 

LILIS ENERGY ANNOUNCES DELAWARE BASIN ACQUISITION AND WILDHOG BWX STATE COM #1H IP24 RATE

 

Over 4,000 Net Contiguous & Overlapping Acres in Winkler County

YE 2017 Guidance of 15,000 Net Acres Exceeded

Wildhog BWX State Com #1H Reached 997 Boepd,

86% Liquids on 4,567 Foot Lateral

Provides Significant Delineation Data Point for Eastern Acreage

Existing Liquidity & Cash Flow Sufficient to Fund Acquisition and Development Program through 2018

 

SAN ANTONIO, TEXAS – October 4, 2017 – Lilis Energy, Inc. (NYSE American: LLEX), an exploration and development company operating in the Permian Basin of West Texas, today announced that it has entered into an agreement to acquire over 4,000 net contiguous / overlapping acres from a private seller for approximately $45.6MM in cash, subject to customary closing adjustments. The acquisition will increase the Company's acreage position in the Delaware Basin to over 15,000 net acres, exceeding the Company’s year end 2017 acreage guidance. The transaction is currently expected to close in November 2017 and the Company has posted an acquisition overview presentation and updated corporate presentation to its website.

 

Acquisition Highlights:

 

§Adds over 4,000 net contiguous / overlapping acres located in the core of the Delaware Basin

 

§Surpasses 15,000 acreage goal for year end 2017

 

§Highly contiguous / overlapping acreage position that is conducive for long-lateral development

 

§Multiple stacked pay zones

 

§Adds over 150 net potential locations to inventory

 

Combined Permian Acreage Highlights:

 

§Approximately 15,250 net Delaware Basin acres

 

§Approximately 2,952 Boepd of net current production on a three stream basis, 71% liquids – as of September 23, 2017

 

§Over 900 net potential locations

 

§One operated rig drilling with plans to add a second rig in October 2017

 

Wildhog Highlights:

 

§Provides substantial delineation data point to de-risking the eastern portion of acreage

 

 

 

 

§IP24 hour rate per 1,000’ lateral foot exceeds the average surrounding offset Delaware Basin activity, both on a Boepd and Bopd basis

 

§Currently producing at 72% oil and 86% liquids on a three-stream basis and has been online for 47 days

 

§Reached a 24-hour initial production rate of 997 Boepd on a three-stream basis, which equates to 219 Boepd per 1,000 ft, and a rate of 188 Bopd per 1,000 ft respectively

 

§4,567-foot treated lateral was completed using 23 stages of 200-foot plug to plug spacing and 1,837 lbs. of sand per foot, consistent with other completion designs the Company uses

 

§Fifth successful operated horizontal Wolfcamp B well in the Permian's Delaware Basin

 

“We are extremely pleased with this acreage acquisition transaction. This acquisition is not only contiguous and overlapping to our existing core properties but also increases our overall working interest and operatorship. The results from the Wildhog provide further evidence of the significant productivity and potential of our eastern acreage” said Ron Ormand, Executive Chairman of Lilis Energy.

 

WELL RESULTS, SORTED BY IP24/1000’ (BOE)

 

              IP24/   IP24/       Lateral     
#   Operator  Well Name  IP24 (boe)   1000’ (boe)   1000’ (bo)   % Liquid   Length   Zone 
 1   EOG  Hound 30 Federal 704H   4,528    647    498    77%    7,000    A 
 2   EOG  Neptune 10 St. Com 701H   5,327    628    465    74%    8,482    A 
 3   Matador  Totum #211H   2,247    514    401    78%    4,371    A 
 4   Lilis  Hippo #1H   1,917    467    346    74%    4,100    B 
 5   Lilis  Lion #1H   1,530    380    262    69%    4,025    B 
 6   EOG  Beowulf 33 St. Com 601H   2,765    379    330    87%    7,289    A 
 7   EOG  Noah Brunson 1H   3,124    334    n.a.    n.a.    9,340    B 
 8   Lilis  Grizzly #1H   1,323    322    209    65%    4,100    B 
 9   Felix  UL 4-21 #1H   1,302    307    n.a.    n.a.    4,200    B 
 10   Lilis  Bison #1H   2,014    292    219    75%    6,900    B 
 11   Felix  UL Sunshine Mesa 29-21 #1H   1,330    272    n.a.    n.a.    4,900    B 
 12   Jagged Peak  UL 28-27 #1H   2,272    236    n.a.    n.a.    9,600    B 
  13   Lilis  Wildhog BWX State Com #1H   997    219    188    86%    4,567    B 
 14   Felix  Falcon State 28-36 #1H   941    215    n.a.    n.a.    4,400    A 
 15   Jagged Peak  UL 4344-21 #1H   1,761    176    150    85%    10,000    B 
 16   Forge  UL 21 Pahaska #1H   748    174    150    86%    4,300    A 
 17   Jagged Peak  UL Beldin L J 1211-17 #2HX   1,978    173    151    87%    11,400    B 
 18   Forge  UL 21 Bighorn #1H   1,621    172    146    85%    9,400    A 
 19   Endurance  Talco 9 26 35 Fed 3H   1,257    170    146    86%    7,391    A 
 20   Felix  UL Elk Park 21-21 #1H   768    168    n.a.    n.a.    4,600    B 
 21   Jagged Peak  UL 3031A-17 #1H   1,548    162    139    86%    9,500    B 
 22   Jagged Peak  UL 3031B-17 #1H   1,439    143    120    84%    10,000    B 
 23   Felix  UL 20 #1311H   1,376    142    n.a.    n.a.    9,700    A 
 24   RSP Permian  Ludeman G #2603H   890    131    100    76%    6,813    XY 
 25   Jagged Peak  UL 2932-17 #1H   1,175    113    95    84%    10,400    B 
 26   Mewbourne  University B20 1 #W201PA   333    74    65    88%    4,499    C 

 

EASTERN DELAWARE BASIN ACTIVITY

 

  

 

Target   Median IP24/1000’ (boe)   Median IP24/1000’ (bo)
             A   215   329
             B (1)   175   107
             C   74   65
             XY   131   100
     Wildhog   219   188

 

Source: Company disclosure, DrillingInfo, Wood Mackenzie, RSP Permian investor presentation

1.   Wolfcamp B excludes LLEX.

 

 

 

 

Financing and Liquidity:

 

The Company believes its forecasted liquidity and future cash flows will be sufficient to fund the acquisition along with planned development through 2018. The acquisition will be funded in cash through the draw down of $45 million remaining under the Company’s second lien term loan with Varde Partners. The Company does not anticipate the need to access the capital markets to fund expansion in the foreseeable future. The Company believes that its additional sources of liquidity including projected EBITDAX, cash, debt financings, warrant proceeds, and potential asset sales are sufficient to fund its currently anticpated capex budget. In addition, the Company has entered into hedging arrangements with various third parties and intends to commence a hedging program in the near future.

 

“The acquired acreage is highly accretive and contiguous/overlapping our existing Delaware properties. With existing liquidity and cash flow sufficient to fund this acquisition and our development programs through 2018, the Company remains well capitalized to continue executing on its stated growth and development plans. Varde Partners has been incredibly supportive and we are appreciative of the partnership we continue to develop with them. We are also very excited about the significance of the Wildhog results and the delineation of our eastern acreage position,” said Joe Daches, Chief Financial Officer of Lilis Energy.

 

About Lilis Energy, Inc.

 

Lilis Energy, Inc. is a San Antonio-based independent oil and gas exploration and production company that operates in the Permian's Delaware Basin, considered amongst the leading resource plays in North America. Upon closing of the acquisiton, Lilis's total net acreage in the Permian Basin will be over 15,000 acres. Lilis Energy's near-term E&P focus is to grow current reserves and production and pursue strategic acquisitions in its core areas. For more information, please visit www.lilisenergy.com.

 

Forward-Looking Statements:

 

This press release contains forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company. These risks include, but are not limited to our ability to replicate the results described in this release for future wells; the ability to finance our continued exploration, drilling operations and working capital needs; our anticipated future cash flows and ability to access other sources of liquidity; all the other uncertainties, costs and risks involved in exploration and development activities; and the other risks identified in the Company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission (the “SEC”). Additionally, initial production rates are subject to decline over time and should not be regarded as reflective of sustained production levels. In particular, production from horizontal drilling in shale oil and natural gas resource plays and tight natural gas plays that are stimulated with extensive pressure fracturing are typically characterized by significant early declines in production rates.

 

Readers are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. The forward-looking statements in this press release are made as of the date hereof, and the Company does not undertake any obligation to update the forward-looking statements as a result of new information, future events or otherwise.

 

Contact:

Wobbe Ploegsma

V.P. Finance & Capital Markets

210-999-5400, ext. 31

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 8-K

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 19, 2017

 

LILIS ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   001-35330   74-3231613

(State or other jurisdiction of

incorporation)

  (Commission File Number)  

(IRS Employer Identification

Number)

 

300 E. Sonterra Blvd., Suite No. 1220    
San Antonio, TX   78258
(Address of Principal Executive Offices)   (Zip Code)

 

(210) 999-5400

(Registrant’s telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

First Lien Amendment

 

On October 19, 2017, Lilis Energy, Inc. (the “Company”) entered into a fourth amendment (the “First Lien Amendment”) to its existing first lien credit agreement, dated September 29, 2016 (as amended, the “First Lien Credit Agreement”), by and among the Company, certain subsidiaries of the Company, as guarantors (the “Guarantors”), the lenders party thereto (the “Existing Lenders”) and Deans Knight Capital Management, Ltd., as collateral agent. Pursuant to the First Lien Amendment, among other things, certain lenders identified therein joined the Existing Lenders as lenders under the First Lien Credit Agreement, and the lenders made further extensions of credit, in addition to the existing loans under the First Lien Credit Agreement (the “Existing Loans”), in the form of an additional, incremental bridge loan in an aggregate principal amount of $15,000,000 (the “Incremental Bridge Loan”, and together with the Existing Loans, the “First Lien Loans”). The First Lien Loans, including the Incremental Bridge Loan, were fully drawn as of October 19, 2017.

 

The First Lien Loans are secured by first priority liens on substantially all of the Company’s and the Guarantors’ assets, including their oil and gas properties located in the Permian Basin, and all of the obligations thereunder are unconditionally guaranteed by each of the Guarantors.

 

The First Lien Credit Agreement, as amended by the First Lien Amendment, (a) provides that, effective as of October 1, 2017, the unpaid principal of the First Lien Loans will bear (i) cash interest at a rate per annum of 10% and (ii) additional interest at a rate per annum of 6%, payable only in-kind by increasing the principal amount of the First Lien Loans by the amount of such interest due on each interest payment date and (b) permits the loans under the Second Lien Credit Agreement (as defined below) to equal an increased amount of up to $175,000,000. The First Lien Loans mature on October 21, 2018 and may be repaid in whole or part at any time at the option of the Company, subject to the payment of certain specified prepayment premiums. Additionally, the First Lien Loans are subject to mandatory prepayment with the net proceeds of certain asset sales and casualty events, subject to the right of the Company to reinvest the net proceeds of asset sales and casualty events within 180 days.

 

Second Lien Amendment

 

On October 19, 2017, the Company entered into a second amendment (the “Second Lien Amendment”) to its existing second lien credit agreement, dated April 26, 2017 (as amended, the “Second Lien Credit Agreement”), by and among the Company, the Guarantors, Wilmington Trust, National Association, as administrative agent, and the lenders party thereto, including Värde Partners, Inc., a Delaware corporation, as lead lender. The Second Lien Amendment permits the Company to incur the Incremental Bridge Loan under the First Lien Credit Agreement.

 

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.03.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit
No.
  Description
     
10.1   Amendment No. 4 and Joinder to Credit and Guarantee Agreement, dated October 19, 2017 by and among the Company, the Guarantors party thereto, the Lenders party thereto and Deans Knight Capital Management Ltd., as collateral agent.
     
10.2   Amendment No. 2 to Credit Agreement, dated October 19, 2017 by and among Lilis Energy, Inc., the Guarantors party thereto, the Lenders party thereto and Wilmington Trust, National Association, as administrative agent.

  

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: October 24, 2017 LILIS ENERGY, INC.
     
  By:   /s/ Joseph Daches
    Executive Vice President, Chief Financial Officer and Treasurer

 

 

 

 

 

 

 

Exhibit 10.1

  

Execution Version

 

AMENDMENT NO. 4 AND JOINDER TO CREDIT AND GUARANTY AGREEMENT

 

This Amendment No. 4 and Joinder to Credit and Guaranty Agreement (this “Agreement”) is effective as of October 19, 2017 (the “Effective Date”), by and among Lilis Energy, Inc., a Nevada corporation (the "Borrower"), the undersigned subsidiaries of the Borrower constituting the Guarantors (defined in the Credit Agreement (as defined below)), the undersigned Lenders constituting the Lenders required to be party hereto pursuant to the terms of Section 9.1 of the Credit Agreement referred to below, the undersigned New Lenders (as such term is defined below), and Deans Knight Capital Management Ltd, as collateral agent for the Lenders (together with its successors and assigns, the "Collateral Agent").

 

RECITALS

 

WHEREAS, the Borrower, the Guarantors, certain lenders (not including the New Lenders referred to below) (the “Existing Lenders”), and the Collateral Agent are party to that certain Credit and Guaranty Agreement dated as of September 29, 2016, as amended by Amendment No. 1 and Joinder to Credit and Guaranty Agreement dated as of April 24, 2017, Amendment No. 2 to Credit and Guaranty Agreement dated as of April 26, 2017 and Amendment No. 3 to Credit and Guaranty Agreement dated as of July 25, 2017 (as further amended, restated, supplemented or otherwise modified, the “Credit Agreement”); and

 

WHEREAS, the Borrower has requested that (i) the lenders party hereto identified on the signature pages hereto as “New Lenders” (the “New Lenders”, and together with the Existing Lenders, the “Lenders”) become Incremental Bridge Lenders under the Credit Agreement, each with an Incremental Bridge Loan Commitment in the amount set forth opposite such New Lender’s name on Schedule 2.3 to the Credit Agreement (as amended hereby) and (ii) the Lenders agree to amend certain provisions of the Credit Agreement, in each case subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows:

 

Section 1.          Defined Terms; Other Definitional Provisions. As used in this Agreement, each of the terms defined in the opening paragraph and the Recitals above shall have the meanings assigned to such terms therein. Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term "including" means "including, without limitation,". Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement.

 

Section 2.          Joinder of New Lenders.

 

(a)          Each New Lender hereby joins, becomes a party to, and agrees to comply with and be bound by the terms and conditions of the Credit Agreement as an Incremental Bridge Lender thereunder and under each and every other Loan Document to which any Incremental Bridge Lender is required to be bound by the Credit Agreement, in each case to the same extent as if such New Lender was an original signatory thereto.

 

 

 

 

(b)          Each New Lender hereby: (i) represents and warrants that (A) it has full power and authority, and has taken all action necessary, to execute and deliver this Agreement and to consummate the transactions contemplated hereby and to become an Incremental Bridge Lender under the Credit Agreement, (B) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to become an Incremental Bridge Lender under the Credit Agreement, (C) from and after the date hereof, it shall be bound by the provisions of the Credit Agreement as an Incremental Bridge Lender and shall have the obligations of an Incremental Bridge Lender, and (D) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered thereunder, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Agreement and to provide its Commitment on the basis of which it has made such analysis and decision independently and without reliance on the Collateral Agent or any other Lender; and (ii) agrees that (A) it will, independently and without reliance on the Collateral Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, and (B) it will perform in accordance with the terms of the Credit Agreement, all of the obligations which by the terms of the Credit Agreement are required to be performed by it as an Incremental Bridge Lender.

 

Section 3.          Amendments to Credit Agreement. The Credit Agreement and the Exhibits and Schedules thereto are hereby amended as reflected in Annex I attached hereto.

 

Section 4.          Conditions to Effectiveness. This Agreement shall become effective on the Effective Date and enforceable upon the Collateral Agent receiving counterparts of this Agreement, duly executed by the Borrower, the Guarantors, the Lenders constituting the Lenders required to be party hereto pursuant to the terms of Section 9.1 of the Credit Agreement, the New Lenders, and the Collateral Agent.

 

Section 5.          Payment of Fees. The Borrower acknowledges and agrees that it shall pay the fees and expenses required to be paid pursuant to, and in accordance with, Section 9.4 of the Credit Agreement.

 

Section 6.          Acknowledgments and Agreements.

 

(a)          The Borrower acknowledges that on the date hereof all outstanding Obligations are payable in accordance with their terms and the Borrower waives any defense, offset, counterclaim or recoupment with respect thereto.

 

(b)          Each party hereto agrees and acknowledges that the deadline for the Collateral Agent to receive a Control Agreement with respect to each of the Borrower’s deposit accounts ending in numbers 8180 and 8156 maintained at Wells Fargo Bank, National Association shall be 30 days from the Effective Date (or such later date as the Collateral Agent may agree in its sole discretion).

 

(c)          Each party hereto hereby represents and warrants on and as of the Effective Date that it is legally authorized to enter into and has duly executed and delivered this Agreement.

 

 2 

 

 

(d)          The Borrower, the Collateral Agent, and the Lenders party hereto do hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and together with each Guarantor acknowledge and agree that the Credit Agreement, as amended hereby, is and remains in full force and effect, and the Borrower and the Guarantors acknowledge and agree that their respective liabilities and obligations under the Credit Agreement, as amended hereby, are not impaired in any respect by this Agreement.

 

(e)          From and after the Effective Date, all references to the Credit Agreement and the Loan Documents shall mean the Credit Agreement and such Loan Documents as amended by this Agreement.

 

(f)          This Agreement is a Loan Document for the purposes of the provisions of the other Loan Documents.

 

Section 7.          Reaffirmation of the Guaranty. Each Guarantor hereby ratifies, confirms, acknowledges and agrees that its obligations under the Credit Agreement are in full force and effect and that such Guarantor continues to unconditionally and irrevocably guarantee the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or otherwise, of all the Guaranteed Obligations, as such Guaranteed Obligations may have been amended by this Agreement, and its execution and delivery of this Agreement does not indicate or establish an approval or consent requirement by such Guarantor in connection with the execution and delivery of amendments, consents or waivers to the Credit Agreement or any other Loan Documents.

 

Section 8.          Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original and all of which together shall constitute, one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by telecopy, e-mail, facsimile transmission, electronic mail in “portable document format” (“.pdf”) form or other electronic means intended to preserve the original graphic and pictorial appearance of the item being sent shall be effective as a delivery of a manually executed counterpart of this Agreement.

 

Section 9.          Successors and Assigns. This terms and provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Credit Agreement.

 

Section 10.         Invalidity; Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term hereof or thereof, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part thereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable.

 

Section 11.         Governing Law. This Agreement shall be governed by, construed in accordance with, and interpreted and enforced pursuant to the Laws of the State of New York (and the applicable federal Laws of the United States of America) without giving effect to its choice of law principles.

 

 3 

 

 

Section 12.         Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES.

 

[Signature page follows]

 

 4 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and made effective as of the date first written above.

 

BORROWER: LILIS ENERGY, INC.

 

  By: /s/ Joseph C. Daches
  Name: Joseph C. Daches
  Title: Chief Financial Officer
   
GUARANTORS: brushy resources, inc.
  impetro operating llc
  IMPETRO RESOURCES, LLC
  HURRICANE RESOURCES LLC
   
  By: /s/ Joseph C. Daches
  Name: Joseph C. Daches
  Title: Chief Financial Officer
   
  LILIS OPERATING COMPANY, LLC
   
  By: Lilis Energy, Inc., its sole member
   
  By: /s/ Joseph C. Daches
  Name: Joseph C. Daches
  Title: Chief Financial Officer

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  DEANS KNIGHT CAPITAL MANAGEMENT LTD.,
  as Collateral Agent
     
  By: /s/ Dillon Cameron
  Name: Dillon Cameron
  Title: Authorized Signatory

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  RBC INVESTOR SERVICES TRUST ITF 110952002,
  as a Lender
     
  By: /s/ Dillon Cameron
  Name: Dillon Cameron
  Title: Authorized Signatory

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  JAYVEE & CO. ITF YTCF6310002,
  as a Lender
     
  By: /s/ Dillon Cameron
  Name: Dillon Cameron
  Title: Authorized Signatory

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  NGPI CANADA INC.,
  as a Lender
     
  By: /s/ Philip Hampson
  Name: Philip Hampson
  Title: President

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  SPROTT RESOURCE LENDING CORP.,
  as a Lender
     
  By: /s/ Jim Grosdanis
  Name: Jim Grosdanis
  Title: Managing Partner and CFO

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  RESOURCE INCOME PARTNERS LIMITED PARTNERSHIP,
  as a Lender
     
  By: /s/ Gretchen Carter
  Name: Gretchen Carter
  Title: CFO, RCIC, General Partner

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  TRACE CAPITAL INC.,
  as a Lender
     
  By: /s/ Jennifer Nadj
  Name: Jennifer Nadj
  Title: President

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  PETER ELLIS,
  as a Lender
     
  By: /s/ Peter Ellis
  Name: Peter Ellis
  Title:  

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  THOMAS ROOTHAM,
  as a Lender
     
  By: /s/ Thomas Rootham
  Name: Thomas Rootham
  Title:  

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

 

INVESTOR COMPANY ITF 5J5505C,

  as a Lender
     
  By: /s/ John Thiessen
  Name: John Thiessen
  Title: Portfolio Manager

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

  

  MAC & CO. ITF YVRF 1001002,
  as a Lender
     
  By: /s/ Martin Lang
  Name: Martin Lang
  Title: Chief Compliance Officer

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  ONE E LP,
  as a Lender
     
  By: /s/ Gray Fowler
  Name: Gray Fowler
  Title: Signing Officer

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  SUGARMAN GM&P PARTNER CORPORATION,
  as a New Lender
     
  By: /s/ Lorne Sugarman
  Name: Lorne Sugarman
  Title: President

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  Sprott Credit Income Opportunities Fund,
  as a New Lender
     
  By: /s/ Warren Steinwall
  Name: Warren Steinwall
  Title: Managing Director, Fund and Trade Operations

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  Sprott Private Resource Lending (M), LP,
  as a Lender
     
  By: /s/ Jim Grosdanis
  Name: Jim Grosdanis
  Title: Managing Partner and CFO

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  SKYLAKE CAPITAL GROWTH LTD.,
  as a New Lender
     
  By: /s/ Fernando Elias
  Name: Fernando Elias
  Title: Director of WND Limited

 
     
  By: /s/ Ian McConnell
  Name: Ian McConnell
  Title: Director of WND Limited

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

  Earlston Investments Inc.,
  as a New Lender
     
  By: /s/ Michael Atkinson
  Name: Michael Atkinson
  Title: President and CEO

 

AMENDMENT NO. 4 TO CREDIT AND GUARANTY AGREEMENT

LILIS ENERGY, INC.

 

 

 

 

ANNEX I

 

[Attached.]

 

 

 

 

Execution Version

 

ANNEX I TO Amendment No. 4 to Credit and Guaranty Agreement

  

CREDIT AND GUARANTY AGREEMENT

 

dated

 

September 29, 2016

 

BETWEEN

 

LILIS ENERGY, INC.,

 

as Borrower,

 

The Guarantors Party Hereto,

 

as Guarantors,

 

The Lenders Party Hereto,

 

as Lenders, and

 

DEANS KNIGHT CAPITAL MANAGEMENT LTD.,

 

as Collateral Agent

 

As amended on July 25, 2017

 

 

 

  

TABLE OF CONTENTS

 

    Page
     
ARTICLE  I DEFINITIONS 1
     
1.1. Definitions 1
1.2. Accounting Terms and Determinations; Changes in Accounting 26
1.3. References 27
1.4. Amendment of Defined Instruments 28
1.5. Joint Preparation; Construction of Indemnities and Releases 28
1.6. Time References 28
     
ARTICLE  II TERMS OF FACILITY 28
     
2.1. [Reserved] 28
2.2. Bridge Loans 28
2.3. Notes 28
2.4. Reserved 29
2.5. Interest Rates; Payment of Interest 29
2.6. Conditions to Closing Date Loans 29
2.7. Maturity of Notes 31
2.8. Principal Payment 31
2.9. Conditions to Bridge Loans 31
2.10. Conditions to Incremental Bridge Loans 32
     
ARTICLE  III GENERAL PROVISIONS 32
     
3.1. General Provisions as to Payments 32
3.2. Taxes 33
3.3. Default Interest 35
3.4. Prepayments 35
3.5. Prepayment Premium 36
3.6. Additional Costs; Capital Adequacy 36
     
ARTICLE  IV APPOINTMENT OF COLLATERAL AGENT 37
     
4.1. [Reserved.] 37
4.2. [Reserved.] 37
4.3. Appointment and Authority 38
4.4. Exculpatory Provisions 38
4.5. Reliance by Collateral Agent 40
4.6. Delegation of Duties 40
4.7. Collateral and Guaranty Matters 41
4.8. Resignation and Removal of Collateral Agent 42
4.9. Non-Reliance on Collateral Agent and Other Lenders 42
4.10. Collateral Agent May File Proofs of Claim 43
4.11. Authorization to Execute other Loan Documents 44

 

i 

 

  

ARTICLE  V GUARANTY 45
     
5.1. Guaranty 45
5.2. Limitation of Guaranty 45
5.3. Contribution 45
5.4. Authorization; Other Agreements 45
5.5. Guaranty Absolute and Unconditional 46
5.6. Waivers 47
5.7. Reliance 47
     
ARTICLE  VI REPRESENTATIONS AND WARRANTIES 47
     
6.1. Existence and Power 47
6.2. Authorization; Contravention 48
6.3. Binding Effect 48
6.4. Subsidiaries 48
6.5. Disclosure 48
6.6. Financial Information 49
6.7. Litigation 49
6.8. ERISA Plans 49
6.9. Taxes and Filing of Tax Returns 49
6.10. Title to Properties; Liens; Environmental Liability 50
6.11. Business Compliance 51
6.12. Licenses, Permits, Etc 51
6.13. Compliance with Laws 51
6.14. Governmental Consent 51
6.15. Investment Company Act 52
6.16. State Utility; No Governmental Limitations on Liens 52
6.17. Refunds; Certain Contracts 52
6.18. No Default 53
6.19. Anti-Terrorism Laws 53
6.20. Flood Matters 53
6.21. Solvency 53
6.22. Eligible Contract Participant 53
6.23. Intellectual Property 54
6.24. Environmental Reports 54
     
ARTICLE  VII COVENANTS 54
     
7.1. Reserved 54
7.2. Financial Statements; Reserve and Other Reports; Certain Required Notices from Borrower; Additional Information 54
7.3. Inspection of Properties and Books 56
7.4. Maintenance of Security; Insurance; Authorization to File Financing Statements; Operating Accounts; Transfer Orders 57
7.5. Payment of Taxes and Claims 57
7.6. Payment of Debt; Additional Debt; Payment of Accounts; Restrictions on Payments on the SOS Note 58

 

ii 

 

  

7.7. Negative Pledge 59
7.8. Loans and Advances to Others; Investments; Restricted Payments; Subsidiaries 59
7.9. Consolidation, Merger, Maintenance, Change of Control; Disposition of Property; Restrictive Agreements; Hedging Agreements; Modification of Organizational Documents; Issuance of Equity Interests 60
7.10. Primary Business; Continuous Operations; Location of Borrower’s Office; Ownership of Assets 61
7.11. Operation of Properties and Equipment; Compliance with and Maintenance of Contracts; Duties as Nonoperator 62
7.12. Transactions with Affiliates 62
7.13. [Reserved] 62
7.14. Compliance with Laws and Documents 63
7.15. Certain Financial Covenants 63
7.16. Additional Documents; Quantity of Documents; Title Data; Additional Information 63
7.17. Environmental Indemnification 64
7.18. Anti-Terrorism Laws 64
7.19. Control Agreements 64
     
ARTICLE  VIII DEFAULTS; REMEDIES 65
     
8.1. Events of Default; Acceleration of Maturity 65
8.2. Remedies 67
8.3. Suits for Enforcement 67
8.4. Remedies Cumulative 67
8.5. Remedies Not Waived 67
     
ARTICLE  IX MISCELLANEOUS 67
     
9.1. Amendments, Waivers and Consents 67
9.2. Release of Guarantees and Liens 68
9.3. Indemnity 68
9.4. Expenses 69
9.5. Taxes 70
9.6. Survival 70
9.7. Applicable Law; Venue 70
9.8. WAIVER OF JURY TRIAL AND EXEMPLARY DAMAGES 70
9.9. Waiver of Deficiency Statute; Other Waivers 71
9.10. Headings 71
9.11. Counterparts 71
9.12. Invalid Provisions, Severability 71
9.13. Communications Via Internet 71
9.14. USA Patriot Act Notice 72
9.15. EXCULPATION PROVISIONS 72
9.16. [Reserved] 72
9.17. Interest Rate Limitation 72

 

iii 

 

  

ARTICLE  X SETOFF; TREATMENT OF PARTIAL PAYMENTS 73
     
10.1. Setoff 73
10.2. Adjustments 73
     
ARTICLE  XI BENEFIT OF AGREEMENT; ASSIGNMENTS 73
     
11.1. Successors and Assigns 73
11.2. Assignments; Effective Date; Participations; Register 73
11.3. Dissemination of Information 75
     
ARTICLE  XII NOTICES 75
     
12.1. Notices 75
12.2. Change of Address 75
     
ARTICLE  XIII ENTIRE AGREEMENT 75

 

iv 

 

  

CREDIT AND GUARANTY AGREEMENT

 

THIS CREDIT AND GUARANTY AGREEMENT is entered into as of September 29, 2016, by and among Lilis Energy, Inc., a Nevada corporation (together with its permitted successors and assigns, the “Borrower”), Brushy Resources, Inc., a Delaware Corporation (“Brushy”), ImPetro Operating, LLC, a Delaware limited liability company (“Operating”) and ImPetro Resources, LLC, a Delaware limited liability company (“Resources”, and together with Brushy and Operating, the “Initial Guarantors”), the lenders party hereto, and Deans Knight Capital Management Ltd., as Collateral Agent for the Lenders. Certain terms used herein are defined in Section 1.1.

 

RECITALS:

 

A.       The Borrower has requested, and the Lenders have agreed to make available to the Borrower, a multiple draw term loan facility subject to the terms and conditions set forth in this Agreement (a) to refinance certain existing indebtedness of the Borrower, (b) to fund the Borrower’s development programs, acquisitions and working capital and (c) for working capital purposes;

 

B.       The Borrower desires to secure the Obligations under this Agreement by granting to the Lender a security interest in and Lien on the Collateral; and

 

C.       Subject to the terms hereof, the Guarantors are willing to guarantee the Obligations of the Borrower;

 

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE  I
DEFINITIONS

 

1.1.     Definitions. The following terms, as used herein, have the following meanings:

 

Acceptable Hedging Transactions” means all Hedging Transactions entered into by the Borrower or any Guarantor in the ordinary course of its business, which if secured by Liens on any Collateral (other than Liens on cash margin collateral, deposits or securities) is subject to an intercreditor or collateral sharing agreement reasonably acceptable to the Required Lenders.

 

Additional Assets” means (a) the Capital Stock of a Person that becomes a Guarantor as a result of the acquisition of such Capital Stock by the Borrower or another Guarantor, and (b) other long-term assets that are used or useful in the Oil and Gas Business.

 

Advance Payment Contract” means any contract whereby any Loan Party either (a) receives or becomes entitled to receive (either directly or indirectly) any payment (an “Advance Payment”) to be applied toward payment of the purchase price of hydrocarbons produced or to be produced from Oil and Gas Property owned by any Loan Party and which Advance Payment is, or is to be, paid in advance of actual delivery of such production to or for the account of the purchaser regardless of such production, or (b) grants an option or right of refusal to the purchaser to take delivery of such production in lieu of payment, and, in either of the foregoing instances, the Advance Payment is, or is to be, applied as payment in full for such production when sold and delivered or is, or is to be, applied as payment for a portion only of the purchase price thereof or of a percentage or share of such production; provided that inclusion of the standard “take or pay” provision in any gas sales or purchase contract or any other similar contract in the ordinary course of business shall not, in and of itself, constitute such contract as an Advance Payment Contract for the purposes hereof.

 

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Affiliate” means, with respect to a Person, (a) any Person owning, Controlling or holding with power to vote ten percent (10%) or more of the outstanding voting interests of the referenced Person, (b) any Person ten percent (10%) or more of whose outstanding voting interests are directly or indirectly owned, Controlled or held with power to vote by the referenced Person, (c) any Person directly or indirectly Controlling, Controlled by or under common Control with the referenced Person, (d) any relative within the third degree of kindred of the referenced Person, or (e) any officer, director, limited liability company manager, trustee, beneficiary, employee or general partner of the referenced Person or of any Person referred to in clauses (a), (b), (c) or (d) of this definition. The term Affiliate shall include Affiliates of Affiliates (and so on).

 

Agreement” or “Credit Agreement” means this Credit Agreement, as the same may hereafter be modified or amended from time to time.

 

Anti-Terrorism Laws” mean any Laws relating to terrorism or money laundering, including Executive Order No. 13224 and the USA Patriot Act.

 

Approved Petroleum Engineer” means Cawley Gillispie & Associates, or any reputable firm of independent petroleum engineers selected by the Borrower and reasonably acceptable to the Required Lenders.

 

Asset Coverage Ratio” means, as of any date of determination, the ratio as of (a) the sum of (i) PV-9 Value of the Proved Reserves attributable to the Oil and Gas Properties of Loan Parties set forth in the most recently delivered Reserve Report plus (ii) 70% of the book value of the undeveloped acreage owned by the Loan Parties plus (iii) unrestricted cash and Cash Equivalents of the Borrower and its Subsidiaries to (b) the Funded Debt as of such date.

 

Asset Sale” means any Disposition by the Borrower or any Guarantor of any Property other than (a) Dispositions permitted by clauses (i), (ii), (iii), (iv), (vi) (only with respect to clause (i) thereof) and (ix) of the definition of Permitted Disposition, and (b) any single Disposition or series of related Dispositions that involves Properties having a Fair Market Value not exceeding $250,000 and when aggregated together with all other Dispositions under this clause (b) the total does not exceed $500,000.

 

Assignment Agreement” has the meaning given to such term in Section 11.2.1 hereof.

 

Board of Governors” means the Board of Governors of the Federal Reserve System.

 

Borrower” has the meaning given to such term in the preamble to this Agreement.

 

Borrowing Date” means a date on which a Loan is made hereunder.

 

Bridge Lender” means each lender with a Bridge Loan Commitment set forth on Schedule 2.2 and any Person that shall have become a party hereto pursuant to an Assignment Agreement in respect of a Bridge Loan, other than any such Person that ceases to be a party hereto pursuant to an Assignment Agreement in respect of a Bridge Loan.

 

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Bridge Loan” means a loan or advance made by the Bridge Lenders in accordance with Section 2.2.1, or the aggregate outstanding amount of all such loans or advances, as the context may require.

 

Bridge Loan Base Rate” means, effective as of October 1, 2017 and thereafter, so long as any Bridge Loan is outstanding, a rate per annum equal to ten percent (10.00%).

 

Bridge Loan Closing Date” means the date of initial funding of the Bridge Loans following satisfaction or waiver of the conditions set forth in Section 2.9.

 

Bridge Loan Commitment” has the meaning given in Section 2.2.1.

 

Bridge Loan Maturity Date” means October 21, 2018.

 

Bridge Loan Note” means one or more senior secured notes issued pursuant hereto, in substantially the form attached hereto entitled “Form of Bridge Loan Note”, duly executed by the Borrower and payable to the order of each Bridge Lender, including any amendment, modification, renewal or replacement of such promissory note.

 

Bridge PIK Rate” means, effective as of October 1, 2017 and thereafter, so long as any Bridge Loan is outstanding, a rate per annum equal to six percent (6.00%)).

 

Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Dallas, Texas, are authorized or required by Law to remain closed.

 

Capital Stock” means:

 

(i)       in the case of a corporation, corporate stock;

 

(ii)      in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

 

(iii)     in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and

 

(iv)     any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person;

 

but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

 

Capitalized Lease” of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with generally accepted accounting principles,

 

Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with generally accepted accounting principles.

 

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Cash Equivalents” means:

 

(i)       United States dollars;

 

(ii)      securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition;

 

(iii)     deposit accounts, certificates of deposit, money market accounts and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with the Lender or with any domestic commercial bank having capital and surplus in excess of $500,000,000 and whose senior unsecured debt either (a) is rated at least “A-l” by S&P and at least “P-I” by Moody’s, or (b) has a Thompson Bank Watch Rating of “B” or better;

 

(iv)     repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above;

 

(v)      commercial paper having the highest ratings categories obtainable from Moody’s or S&P and in each case maturing within six months after the date of acquisition;

 

(vi)     securities issued and fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, rated at least “A” by Moody’s or S&P and having maturities of not more than three hundred sixty-five (365) days from the date of acquisition; and

 

(vii)    money market funds at least ninety-five (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (i) through (vi) of this definition,

 

Cash Taxes” for any fiscal quarter of the Borrower and its Subsidiaries, means federal income taxes and state taxes actually paid by the Borrower and its Subsidiaries during such quarter.

 

Casualty Event” means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by condemnation or similar proceeding of, any Oil and Gas Property of the Borrower or any Subsidiary.

 

Change of Control Event” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group of Persons acting jointly or otherwise in concert of Capital Stock representing more than thirty-five (35%) of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of Borrower, or (b) during any period of twelve (12) consecutive calendar months, the occupation of a majority of the seats (other than vacant seats) on the board of directors of Borrower by Persons who were neither (i) nominated by the board of directors of Borrower, nor (ii) appointed by directors so nominated; in each case whether as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise.

 

Closing Date” means September 29, 2016.

 

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Closing Date Loans” means the loans made on the Closing Date pursuant to the terms of this Agreement in effect as of the Closing Date.

 

Collateral” means, until the Collateral Modification Date, the Property pledged as security for the Notes and the other Obligations, including all of the following of the Borrower and each Guarantor:

 

(i)       accounts receivable;

 

(ii)      equipment, goods, inventory and fixtures;

 

(iii)     documents, instruments and chattel paper;

 

(iv)     letter-of-credit rights;

 

(v)      securities collateral;

 

(vi)     investment property, including all Capital Stock owned by the Borrower and each Guarantor;

 

(vii)    intellectual property;

 

(viii)   commercial tort claims;

 

(ix)     general intangibles;

 

(x)      deposit accounts;

 

(xi)     money;

 

(xii)    supporting obligations;

 

(xiii)   books and records;

 

(xiv)   to the extent not covered by clauses (i) through (xiii) above, choses in action and all other personal property of the Borrower and each Guarantor, whether tangible or intangible;

 

(xv)    proceeds and products of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of, each of the foregoing, and any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Borrower or any Guarantor from time to time with respect to any of the foregoing;

 

(xvi)   Hedging Agreements and Hedging Transactions;

 

(xvii)  As-Extracted Collateral; and

 

(xviii) all other existing and future tangible and intangible personal assets of the Borrower or any Guarantor.

 

Notwithstanding the foregoing, the Collateral will not include any of the following assets or property (collectively, the “Excluded Assets”):

 

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(i)       any asset or property right of the Borrower or any Guarantor of any nature:

 

(a)       if the grant of a security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of such asset or property right of the Borrower or any Guarantor or loss of use of such asset or property right or (ii) a breach, termination or default under any lease, license, contract or agreement to which the Borrower or such Guarantor is party (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9 406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable Law (including the United States Bankruptcy Code)); and

 

(b)      to the extent that any applicable Law prohibits the creation of a security interest thereon (other than to the extent that any such Law would be rendered ineffective pursuant to any other applicable Law);

 

provided, however, that such lease, license, contract, property rights or other agreement will cease to be an Excluded Asset immediately and automatically at such time as the condition causing such abandonment, invalidation, unenforceability or prohibition is remedied or otherwise becomes ineffective and, to the extent severable, any portion of such lease, license, contract, property rights or other agreement that does not result in any of the consequences specified in clauses (a) and (b) above will not be an Excluded Asset; and

 

(ii)      deposit and securities accounts the balance of which consists exclusively of (a) withheld income taxes and federal, state or local employment taxes in such amounts as are required to be paid to the IRS or state or local government agencies within the following two months with respect to employees of the Borrower or any Guarantor, (b) amounts required to be paid over to an employee benefit plan pursuant to DOL Reg. Sec. 2510.3-102 on behalf of or for the benefit of employees of the Borrower or any Guarantor, and (c) all segregated deposit accounts constituting (and the balance of which consists solely of funds set aside in connection with) tax accounts and payroll accounts.

 

Notwithstanding the foregoing, upon the Collateral Modification Date, “Collateral” shall have the meaning set forth in the Replacement Security Documents, and the foregoing definition shall no longer be applicable.

 

Collateral Agent” has the meaning given to such term in Section 4.3 hereof.

 

Collateral Modification Date” means the date on which the Collateral Agent executes and delivers the Replacement Security Documents and the Intercreditor Agreement in connection with the consummation of a Second Lien Facility.

 

Commitment” means (a) for each Lender, the amount set forth opposite such Lender’s name on Schedule 2.2 or Schedule 2.3 hereto, as applicable, under the heading “Bridge Loan Commitment” and “Incremental Bridge Loan Commitment”, which amount may be modified from time to time pursuant to the terms of this Agreement and (b) as to all Lenders, the aggregate commitments of all Lenders to make Loans hereunder in accordance with the Lenders’ Commitments shown on Schedule 2.2 and Schedule 2.3 pursuant to Section 2.2 or Section 2.3, as applicable, as of the Bridge Loan Closing Date or the Incremental Bridge Loan Closing Date, as the context requires.

 

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Commitment Fee” means an amount equal to two percent (2%) of the initial principal amount of (i) for each Lender, such Lender’s Commitment as of the Closing Date and (ii) as to all Lenders, the total aggregate Commitments of all Lenders as of the Closing Date.

 

Commodity Hedging Transaction” means any swap transaction, cap, floor, collar, exchange transaction, forward transaction, or other exchange or protection transaction relating to hydrocarbons or any option with respect to any such transaction, including derivative financial instruments.

 

Compliance Certificate” means a certificate, substantially in the form attached hereto entitled “Form of Compliance Certificate”, executed by a Responsible Representative and furnished to the Lenders from time to time in accordance with Section 7.2.1.

 

Contingent Obligation” See Guarantee.

 

Control,” “Controlling” and “Controlled by” mean the ability (directly or indirectly through one or more intermediaries) to direct or cause the direction of the management or affairs of a Person, whether through the ownership of voting interests, by contract or otherwise.

 

Control Agreement” means a deposit account, securities or commodity account control agreement, as applicable, to be executed and delivered among Borrower or any Guarantor, the Collateral Agent and each bank at which the Borrower or such Guarantor maintains, any deposit, securities or commodity account, in each case, in form and substance reasonably acceptable to the Collateral Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

 

Core Assets” means the hydrocarbon interests of the Borrower and its Subsidiaries located in the Delaware Basin (including, any pipeline or salt water disposal assets).

 

CT”, with respect to any stated time of day, means such time of day generally in effect in the Central Time Zone as in effect in the State of Texas.

 

Debt” or “Indebtedness” of any Person means at any date, without duplication:

 

(i)       all obligations of such Person for money borrowed, including (a) the obligations of such Person for money borrowed by a partnership of which such Person is a general partner, (b) obligations, whether or not assumed, which are secured in whole or in part by the Property of such Person or payable out of the proceeds or production from Property of such Person, and (c) any obligations of such Person in respect of letters of credit and repurchase agreements;

 

(ii)      all obligations of such Person evidenced by notes, debentures, bonds or similar instruments;

 

(iii)      all obligations of such Person to pay the deferred purchase price of Property or services (except trade accounts arising in the ordinary course of business if interest is not paid or accrued thereon);

 

(iv)     all Capitalized Lease Obligations of such Person;

 

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(v)      all liabilities which in accordance with applicable accounting principles would be included in determining total liabilities as shown on the liability side of a balance sheet;

 

(vi)     all obligations of such Person under Hedging Agreements and Hedging Transactions;

 

(vii)    all Guarantees by such Person; and

 

(viii)   all Off-Balance Sheet Debt.

 

Default” means the occurrence of an Event of Default or any event which with notice, lapse of time or both would, unless cured or waived, become an Event of Default.

 

Default Rate” means a per annum interest rate equal to two percent (2.00%) per annum in excess of the rate of interest otherwise payable on the Notes.

 

Disposition” or “Dispose” means the sale, transfer, license, lease, exchange or other disposition (including any Sale and Leaseback Transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

 

Disqualified Stock” means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Capital Stock (which would not constitute Disqualified Stock), pursuant to a sinking fund obligation or otherwise, or is redeemable for any consideration other than other Capital Stock (which would not constitute Disqualified Stock) at the sole option of the holder thereof, in whole or in part, on or prior to the date that is ninety one (91) days after the Final Maturity Date.

 

Distributions” means dividends, distributions or other payments to Persons on account of their being the holders of Capital Stock or other Equity Interests in the Borrower.

 

Dollars” and “$” means dollars in lawful currency of the United States of America.

 

Environmental Complaint” means any written or oral complaint, order, directive, claim, citation, notice of environmental report or investigation, or other notice by any Governmental Authority or any other Person with respect to (a) air emissions, (b) spills, releases, or discharges to soils, any improvements located thereon, surface water, groundwater, or the sewer, septic, waste treatment, storage, or disposal systems servicing any Property of the Borrower or any Guarantor, (c) solid or liquid waste disposal, (d) the use, generation, storage, transportation, or disposal of any Hazardous Substance, or (e) other environmental, health, or safety matters affecting any Property of the Borrower or any Guarantor or the business conducted thereon.

 

Environmental Law” means (a) the following federal laws as they may be cited, referenced, and amended from time to time: the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Superfund Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b) any and all equivalent environmental statutes of any state in which Property of the Borrower or any Guarantor is situated, as they may be cited, referenced and amended from time to time; (c) any rules or regulations promulgated under or adopted pursuant to the above federal and state laws; and (d) any other equivalent federal, state, or local statute or any requirement, rule, regulation, code, ordinance, or order adopted pursuant thereto, including those relating to the generation, transportation, treatment, storage, recycling, disposal, handling, or Release of Hazardous Substances.

 

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Environmental Liability” means any claim, demand, obligation, cause of action, accusation, allegation, order, violation, damage, injury, judgment, penalty or fine, cost of enforcement, cost of remedial action or any other cost or expense whatsoever, including reasonable attorneys’ fees and disbursements, resulting from the violation or alleged violation of any Environmental Law or the imposition of any Environmental Lien.

 

Environmental Lien” means a Lien in favor of a Tribunal or other Person (i) for any liability under an Environmental Law or (ii) for damages arising from or costs incurred by such Tribunal or other Person in response to a release or threatened release of Hazardous Substances into the environment.

 

Equity Interest” means, with respect to any Person, an ownership and other equity interest, including Capital Stock and other Securities, in such Person and rights to convert into an ownership or other equity interest, including Capital Stock and other Securities, in such Person or to otherwise acquire an ownership or other equity interest, including Capital Stock and other Securities, in such Person and ownership of or rights to share in the revenues or profits of such Person.

 

ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all presently effective and future regulations issued pursuant thereto.

 

Event of Default” has the meaning given such term in Section 8.1 hereof.

 

Excluded Account” means (i) any accounts that are designated solely as accounts for, and are used solely for, employee benefits or taxes, in each case only to the extent that such amounts deposited in such accounts are used solely for such purposes listed above, (ii) any accounts that are designated solely as accounts for, and are used solely for, payroll funding obligations, to the extent that such amounts deposited in such accounts are used solely for payroll and otherwise in amounts that the Borrower reasonably anticipates in good faith that it will need to operate for fourteen (14) days thereafter, (iii) any escrow account, trust or other fiduciary account solely used for purposes of transactions that are permitted under this Agreement, (iv) any accounts designated solely as accounts for, and used solely for, working interest and royalty payments, and (v) any other accounts in which the average daily balance or fair market value, as applicable, does not exceed $150,000 in the aggregate; provided that, notwithstanding the foregoing, in no event shall any of the principal operating or disbursement accounts of the Borrower or its Subsidiaries constitute an “Excluded Account”.

 

Executive Order No. 13224” shall mean Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

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Fair Market Value” means, with respect to any asset or property, the sale value that would be obtained in an arm’s-length free-market transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Fair Market Value of an asset or property in excess of $1,000,000 shall be determined by the Board of Directors of the Borrower acting in good faith, in which event it shall be evidenced by a resolution of the Board of Directors, and any lesser Fair Market Value shall be determined by an officer of the Borrower acting in good faith.

 

FATCA” means current Sections 1471 through 1474 of the Internal Revenue Code (and any similar amended or successor versions that are substantively comparable) and any applicable Treasury Regulations promulgated thereunder or published administrative guidance implementing such Sections, whether in existence on the date hereof or promulgated or published thereafter.

 

Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Collateral Agent from three Federal funds brokers of recognized standing selected by it.

 

Final Maturity Date”, “Final Maturity” or “Maturity Date” means (a) with respect to the Bridge Loans under the Bridge Loan Notes, the earlier of (i) the Bridge Loan Maturity Date, or (ii) the date that the Obligations become due in accordance with Section 8.2.1, and (b) with respect to the Incremental Bridge Loans under the Incremental Bridge Loan Notes, the earlier of (i) the Incremental Bridge Loan Maturity Date, or (ii) the date that the Obligations become due in accordance with Section 8.2.1.

 

Financial Statements” has the meaning given to such term in Section 2.6.2 hereof. “Fraudulent Transfer Laws” has the meaning given to such term in Section 5.2 hereof.

 

Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For the purpose of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

 

Funded Debt” means the obligations of the Borrower and its consolidated subsidiaries described in clauses (i) and (ii) of the definition of Debt.

 

GAAP” means those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof. Any accounting principle or practice required to be changed by the Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of such Boards) in order to continue as a generally accepted accounting principle or practice may be so changed. In the event of a change in GAAP, the Loan Documents shall continue to be construed in accordance with GAAP as in existence on the date hereof.

 

Governmental Authority” means any nation, country, commonwealth, territory, government, state, county, parish, municipality, or other political subdivision and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government.

 

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Guarantee” or “Contingent Obligation” by or of any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing or in effect guaranteeing any Debt, leases, dividends or other obligations of any other Person (for purposes of this definition, a “primary obligation”) and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) any primary obligation or any Property constituting direct or indirect security therefor (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, to make reimbursement in connection with any letter of credit or to maintain financial statement conditions, by comfort letter or other similar undertaking of support or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of any primary obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) with the amount of any Guarantee or Contingent Obligation being deemed to be equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or Contingent Obligation is incurred or, if not stated or determinable, the maximum primary obligation which could reasonably be anticipated to arise in respect thereof. The term Guarantee (or Contingent Obligation) includes the pledging or other encumbrance of assets by a Person to secure the obligations of another Person and restrictions or limitations on a Person or its assets agreed to in connection with the obligations of another Person, but does not include endorsements for collection or deposit in the ordinary course of business; and “Guaranteed” by a Person or “incurring a Contingent Obligation” or words of similar import shall mean the act or condition of providing a Guarantee by such Person or such Person becoming contingently obligated or permitting a Guarantee or Contingent Obligation of such Person to exist or come into existence.

 

Guaranteed Obligations” has the meaning given to such term in Section 5.1 hereof.

 

Guarantor” means at any time the Initial Guarantors and any Person who has executed or does execute a Guaranty, which is in effect at such time.

 

Guaranty” means the guaranty of a Guarantor guarantying all or a portion of the Obligations as set forth in Article V hereof.

 

Hazardous Substance” means flammables, explosives, radioactive materials, hazardous wastes, asbestos, or any material containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum products, associated oil or natural gas exploration, production, and development wastes, or any substances defined as “hazardous substances,” “hazardous materials,” “hazardous wastes,” or “toxic substances” under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as amended, or any other Environmental Laws.

 

Hedge Termination Value” means, in respect of any one or more Hedging Transactions, after taking into account the effect of any legally enforceable netting agreement relating to such Hedging Transactions, (a) for any date on or after the date such Hedging Transactions have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause a preceding, the amount(s) determined as the mark-to-market value(s) for such Hedging Transactions, as determined by the counterparties to such Hedging Transactions.

 

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Hedging Agreement” means any International Swap Dealers Association, Inc. Master Agreement or other agreement and all schedules and exhibits attached thereto and incorporated therein that set forth set forth one or more Hedging Transactions or the general terms upon which a Person may enter into one or more Hedging Transactions.

 

Hedging Modification” means the amendment, modification, cancellation, monetization, sale, transfer, assignment, early termination or other disposition of any Hedge Agreement.

 

Hedging Transaction” means a Commodity Hedging Transaction or a Rate Management Transaction or any other transaction with respect to any swap, forward, future or derivative transaction or option or similar transaction, whether exchange traded, “over-the-counter” or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

 

Incremental Bridge Lender” means each lender with an Incremental Bridge Loan Commitment set forth on Schedule 2.3 and any Person that shall have become a party hereto pursuant to an Assignment Agreement in respect of an Incremental Bridge Loan, other than any such Person that ceases to be a party hereto pursuant to an Assignment Agreement in respect of an Incremental Bridge Loan.

 

Incremental Bridge Loan” means a loan or advance made by the Incremental Bridge Lenders in accordance with Section 2.2.2, or the aggregate outstanding amount of all such loans or advances, as the context may require.

 

Incremental Bridge Loan Base Rate” means, so long as any Incremental Bridge Loan is outstanding, a rate per annum equal to ten percent (10.00%).

 

Incremental Bridge Loan Closing Date” means the date of initial funding of the Incremental Bridge Loans following satisfaction or waiver of the conditions set forth in Section 2.10.

 

Incremental Bridge Loan Commitment” has the meaning given in Section 2.2.2.

 

Incremental Bridge Loan Maturity Date” means October 21, 2018.

 

Incremental Bridge Loan Note” means one or more senior secured notes issued pursuant hereto, in substantially the form attached hereto entitled “Form of Incremental Bridge Loan Note”, duly executed by the Borrower and payable to the order of each Incremental Bridge Lender, including any amendment, modification, renewal or replacement of such promissory note.

 

Incremental Bridge PIK Rate” means, so long as any Incremental Bridge Loan is outstanding, a rate per annum equal to six percent (6.00%)).

 

Indebtedness” See Debt.

 

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Indemnified Party” means (i) the Lenders and each of their shareholders, officers, directors, employees, agents, attorneys-in-fact, and Affiliates, (ii) each trustee for the benefit of the Lenders under any Security Document, and (iii) the Collateral Agent (including any sub-agent of the Collateral Agent) and each of its shareholders, officers, directors, employees, agents, attorneys-in-fact, and Affiliates.

 

Initial Guarantor” has the meaning given to such term in the preamble to this Agreement.

 

Insolvency Proceeding” of any Person means any application (whether voluntary or instituted by another Person) for or the consent to the appointment of a receiver, trustee, conservator, custodian, or liquidator of such Person or of all or a substantial part of the Property of such Person, or the filing of a petition (whether voluntary or instituted by another Person) commencing a case under Title 11 of the United States Code, seeking liquidation, reorganization, or rearrangement or taking advantage of any bankruptcy, insolvency, debtor’s relief, or other similar Law of the United States, the State of Texas, or any other jurisdiction.

 

Intercreditor Agreement” means an intercreditor agreement among the Collateral Agent and the collateral agent under a Second Lien Facility governing, among other things, the priority of Liens securing the Obligations and the Liens securing such Second Lien Facility, in form and substance reasonably satisfactory to the Collateral Agent, as the same may be amended, restated, supplemented or otherwise modified in accordance with its terms from time to time.

 

Interest Payment Date” means for the Loans made under the Notes, the first day of January, April, July and October of each year commencing with January 1, 2017, and upon maturity of the Notes (whether stated or upon acceleration).

 

Investment” means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person, the contribution of capital to any other Person, or any agreement to make any such acquisition (including, without limitation, any “short sale” or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale) or capital contribution; (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Debt of, purchase or other acquisition of any other Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days representing the purchase price of inventory, goods or services sold or provided by such Person in the ordinary course of business); (c) the purchase or acquisition (in one or a series of transactions) of Property of another Person that constitutes a business unit or (d) the entering into of any guarantee of, or other Contingent Obligation (including the deposit of any Equity Interests to be sold) with respect to, Debt or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person.

 

Law” means at any time with respect to any Person or its Property, any statute, law, executive order, treaty, ordinance, order, writ, injunction, judgment, ruling, decree, regulation, or determination of an arbitrator, court or other Governmental Authority, existing at such time which are applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

 

Lender” means the (i) the Bridge Lenders, (ii) the Incremental Bridge Lenders or (iii) all of such Persons, in each case, as the context requires.

 

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Lien” means, as to any Property of any Person, (a) any mortgage, deed of trust, lien, pledge, hypothecation, or security interest in, on or of such Property, or any other charge or encumbrance on any such asset to secure Debt or liabilities, but excluding any right to netting or setoff, (b) the interest of a vendor under any conditional sale agreement or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such Property, (c) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities and (d) the signing or filing of a financing statement which names the Person as debtor, or the signing of any security agreement authorizing any other Person as the secured party thereunder to file any financing statement which names such Person as debtor (in each case, other than precautionary filings).

 

Loan” means (i) the Bridge Loans, (ii) the Incremental Bridge Loans or (iii) the aggregate outstanding amount of all such loans or advances, in each case, as the context may require.

 

Loan Documents” shall mean this Agreement, the Notes, the Security Documents, any sub-agent agreement, and all other documents and instruments now or hereafter delivered pursuant to the terms of or in connection with this Agreement, the Notes or the Security Documents, and all renewals and extensions of, amendments and supplements to, and restatements of, any or all of the foregoing from time to time in effect (exclusive of term sheets and commitment letters).

 

Loan Party” means each of the Borrower and the Guarantors.

 

Margin Regulations” means Regulations T, U and X of the Board of Governors, as in effect from time to time.

 

Material Adverse Effect” shall mean (i) for any Loan Party, any material adverse effect on the business, operations, Properties, results of operations or condition (financial or otherwise) of such Loan Party, (ii) for any Loan Party, any material adverse effect upon such Loan Party’s ability to repay its material Obligations under the Loan Documents, (iii) any material adverse effect upon any Collateral or (iv) any material adverse effect on the priority or enforceability of the Liens securing the Note.

 

Material Agreement” means, with respect to any Person, any agreement, contract or commitment to which such Person is a party, by which such Person is bound, or to which any Property of such Person may be subject (and in any case, except for this Agreement and the other Loan Documents), which is not cancelable by such Person upon notice of ninety (90) days or less without (i) liability for further payment in excess of $1,000,000 or (ii) forfeiture of Property having an aggregate value in excess of $1,000,000.

 

Material Debt” means, as to any Person, Debt (other than, with respect to the Borrower, the Notes but including Hedging Transactions) of such Person in the principal amount aggregating in excess of $1,000,000. For purposes of determining Material Debt, the “principal amount” of the obligations of such Person in respect of any Hedging Transaction at any time shall be the Hedge Termination Value.

 

Mortgages” mean deeds of trust, mortgages, assignments of production, collateral mortgages, and acts of pledge (and security agreements included therein) in form and substance reasonably acceptable to the Lenders covering Oil and Gas Properties and the personality located thereon or primarily associated therewith, executed or to be executed by the appropriate Person as security for the Obligations and other indebtedness described therein.

 

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Net Cash Proceeds” means (A) with respect to any Casualty Event or any Disposition or series of related Dispositions of any assets (including any Oil and Gas Property and Capital Stock of any Subsidiary) by the Borrower or any Subsidiary, the excess, if any, of (a) the sum of cash and Cash Equivalents received in connection with such Casualty Event or such Disposition or Dispositions, but only as and when so received, over (b) the sum of (i) the principal amount of any Indebtedness that is secured by such asset or assets and that is required to be repaid in connection with such Casualty Event or such Disposition or Dispositions (other than the Loans), (ii) the reasonable and documented out-of-pocket expenses (including taxes, brokers fees, commissions and legal fees) incurred by the Borrower or such Subsidiary in connection with such Casualty Event or such Disposition or Dispositions, and (iii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under indemnification obligations or purchase price adjustments; provided that to the extent that, and at the time that, any such amounts are released from such reserves, such amounts shall constitute Net Cash Proceeds), and (B) with respect to any Hedge Modification by the Borrower or any Subsidiary, the excess, if any, of (a) the sum of cash and Cash Equivalents received in connection with such Hedge Modification (after giving effect to any netting arrangements), over (b) the out-of-pocket expenses (including taxes) incurred by the Borrower or such Subsidiary in connection with such Hedge Modification.

 

Note” means the collective reference to (i) each Bridge Loan Note, and (ii) each Incremental Bridge Loan Note.

 

Notice of Assignment” has the meaning given to such term in Section 11.2.2 hereof.

 

NYMEX” means the New York Mercantile Exchange.

 

Obligated Parties” mean the Borrower and any other Persons, including the Guarantors, from time to time obligated by Guarantee or otherwise to pay all or any portion of the Obligations.

 

Obligations” shall mean, without duplication, (i) all Debt evidenced by the Notes, (ii) the obligation of the Borrower for the payment of the fees, late charges and prepayment charges, if any, payable hereunder or under the other Loan Documents, (iii) all other obligations and liabilities of the Borrower to the Lenders or the Collateral Agent, now existing or hereafter incurred, under, arising out of or in connection with any Loan Document, including the reimbursement of attorneys’ fees incurred by the Lenders and the Collateral Agent from time to time in connection with waivers and amendments to or enforcement of the Loan Documents, and (iv) all other obligations and liabilities of the Borrower to the Lenders and the Collateral Agent, now existing or hereafter incurred; and to the extent that any of the foregoing includes or refers to the payment of amounts deemed or constituting interest, only so much thereof as shall have accrued, been earned and which remains unpaid at each relevant time of determination.

 

OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury, or any successor Governmental Authority.

 

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Off-Balance Sheet Debt” means, with respect to a Person, (a) any repurchase indebtedness, liability or obligation of such Person with respect to accounts or notes receivable sold by such Person, (b) any indebtedness, liability or obligation of such Person under any Sale and Leaseback Transaction which is not a Capitalized Lease Obligation, (c) any indebtedness, liability or obligation of such Person under any synthetic, off-balance sheet or tax retention lease, or (d) any indebtedness, liability or obligation of such Person arising with respect to any other transaction, or agreement for the use or possession of any Property, which is the functional equivalent, or takes the place, of borrowing but which does not constitute a liability on the balance sheet of such Person.

 

Oil and Gas Properties” means fee, leasehold, or other interests in or under mineral estates or oil, gas, and other liquid or gaseous hydrocarbon leases with respect to Properties situated in the United States or offshore from any State of the United States, including, without limitation, overriding royalty and royalty interests, leasehold estate interests, net profits interests, production payment interests, and mineral fee interests, together with contracts executed in connection therewith and all tenements, hereditaments, appurtenances and Properties appertaining, belonging, affixed, or incidental thereto.

 

Organizational Documents” means, as to any Person, the articles of incorporation, articles of limited partnership, articles of formation or similar organizational documents, as applicable, of such Person.

 

Participant” has the meaning given to such term in Section 11.2.1 hereof.

 

Permitted Disposition” means:

 

(i)       the sale of hydrocarbons in the ordinary course of business;

 

(ii)      the Disposition of equipment and other property in the ordinary course of business, that is obsolete or no longer necessary in the business of the Borrower or any of its Subsidiaries or that is being replaced by equipment of comparable value and utility;

 

(iii)     Dispositions of cash and Cash Equivalents in the ordinary course of business;

 

(iv)     the Borrower or any Guarantor may Dispose of its property to the Borrower or another Guarantor;

 

(v)      sales, discounts or factoring of overdue accounts receivable in the ordinary course of business, in connection with the compromise or collection thereof, and not in connection with any financing or receivables transaction;

 

(vi)     substantially contemporaneous (and in any event occurring within thirty (30) days of each other) Dispositions of Oil and Gas Properties as to which no Proved Reserves are attributable in exchange for other Oil and Gas Properties and, subject to the proviso of this clause (vi), cash; provided that (i) the Fair Market Value of the Oil and Gas Properties exchanged by the Borrower or its Subsidiary (together with any cash) is reasonably equivalent to the Fair Market Value of the Oil and Gas Properties (together with any cash) to be received by the Borrower or its Subsidiary, and (ii) any cash received must be applied in accordance with Section 3.4.2;

 

(vii)    Dispositions of seismic, geologic or other data and license rights in the ordinary course of business so long as such Disposition is not adverse to the Lenders and does not impair the Borrower’s or any Subsidiary’s operation of the Oil and Gas Properties;

 

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(viii)   Hedge Modifications; provided that the consideration received for such Hedge Modification is at least equal to Fair Market Value;

 

(ix)      solely to the extent constituting a Disposition, the incurrence of Liens, the making of Investments and the making of Restricted Payments, in each case as expressly permitted by this Agreement;

 

(x)       Dispositions of claims against customers, working interest owners, other industry partners or any other Person in connection with workouts or bankruptcy, insolvency or other similar proceedings with respect thereto; provided that the consideration received for such claim is at least equal to Fair Market Value; and

 

(xi)      other dispositions and sales of Properties (including any midstream assets or gathering systems) not otherwise permitted pursuant to Section 7.9.2 and this definition having a fair market value not to exceed $15,000,000 in the aggregate for all dispositions and sales of Properties pursuant to this clause (xi) for the term of this Agreement; provided that:

 

(a)       the consideration received shall be at least equal to the Fair Market Value of any Oil and Gas Property or other Properties subject to such Disposition (and the Borrower shall deliver to the Required Lenders a certificate of certifying that such Disposition was for Fair Market Value); and

 

(b)       at least 75% of the consideration received by the Borrower or any Subsidiary in respect of such Disposition is cash or Cash Equivalents and any consideration not received in the form of cash or Cash Equivalent shall solely be in the form of Oil and Gas Properties (excluding, for the avoidance of doubt, any Capital Stock); and

 

(c)       such Disposition shall not be a farm-out, drillco, or similar arrangement without the prior consent of the Required Lenders.

 

Permitted Indebtedness” means:

 

(i)       the Obligations;

 

(ii)      unsecured accounts payable incurred in the ordinary course of business;

 

(iii)     unsecured Debt incurred by the Borrower or any Guarantor on or after the Closing Date; provided, that the aggregate amount of interest on such Debt payable in cash shall not exceed $5,000,000 per annum;

 

(iv)     Debt arising under Acceptable Hedging Transactions and under the Hedging Agreement(s) governing such Acceptable Hedging Transactions (but only to the extent such Debt arises in connection with Acceptable Hedging Transactions);

 

(v)      the SOS Note;

 

(vi)     any Second Lien Obligations;

 

(vii)    intercompany Debt between the Borrower and any Subsidiary or between Subsidiaries; provided that any such Debt owed by either the Borrower or a Subsidiary shall be subordinated on terms reasonably acceptable to the Required Lenders;

 

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(viii)   Debt of the Borrower and the Subsidiaries incurred to finance the acquisition, construction or improvement of any fixed or capital assets (including office equipment, data processing equipment and motor vehicles), including any Capitalized Lease and any Debt assumed in connection with the acquisition of any assets or secured by a Lien on any assets prior to the acquisition thereof; provided that (A) with respect to the Debt incurred pursuant to this clause (viii), such Debt is incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement and (B) the aggregate principal amount of Debt permitted by this clause (viii) at any time outstanding shall not exceed $2,500,000;

 

(ix)     Debt (other than Debt for borrowed money) incurred or deposits made by the Borrower or any Subsidiary (i) under worker’s compensation laws, unemployment insurance laws or similar legislation, (ii) in connection with bids, tenders, contracts (other than for the payment of Debt) or leases to which the Borrower or any Subsidiary is a party, (iii) to secure public or statutory obligations of the Borrower or any Subsidiary, and (iv) of cash or U.S. Government Securities made to secure the performance of statutory obligations, surety, stay, customs and appeal bonds to which the Borrower or any Subsidiary is party in connection with the operation of the Oil and Gas Property, in each case in the ordinary course of business;

 

(x)       Guarantees in respect of Debt otherwise permitted pursuant to this Agreement;

 

(xi)      Debt in connection with the endorsement of negotiable instruments and other obligations in respect of cash management services, netting services, overdraft protection and similar arrangements, in each case incurred in the ordinary course of business;

 

(xii)     Debt in respect of insurance premium financing for insurance being acquired or maintained by the Borrower or any Subsidiary under customary terms and conditions in an aggregate amount not to exceed $2,000,000;

 

(xiii)    any obligation arising from agreements of the Borrower or any Subsidiary providing for indemnification, adjustment of purchase price, earn outs, or similar obligations, in each case, incurred or assumed in connection with the disposition or acquisition of any business, assets or Capital Stock of a Subsidiary in a transaction permitted under this Agreement, provided that such Debt incurred pursuant to this clause (xiii) shall not exceed, in the aggregate, $2,000,000;

 

(xiv)   Debt arising under gas balancing agreements which do not give rise to liability in the aggregate on a consolidated basis for the Borrower and its Subsidiaries in excess of $1,000,000 at any one time outstanding; and

 

(xv)    Debt arising under any Advance Payment Contracts; provided that the aggregate amount of all Advance Payments received by the Borrower or any Subsidiary that have not been satisfied by delivery of production at any time does not exceed, in the aggregate $1,000,000.

 

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Permitted Encumbrances” means:

 

(i)       Liens imposed by law for Taxes, assessments or other governmental charges or levies which are not yet delinquent or which (i) are not overdue for a period of more than thirty (30) days or are being contested in good faith by appropriate proceedings diligently conducted, (ii) the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect;

 

(ii)       carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, and contractual Liens granted to operators and non-operators under oil and gas operating agreements, in each case, arising in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Property and securing obligations that are not overdue by more than sixty (60) days or which (i) are being contested in good faith by appropriate proceedings, (ii) the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect;

 

(iii)     contractual Liens which arise in the ordinary course of business under oil and gas leases, operating agreements, partnership agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, marketing agreements, processing agreements, overriding royalty agreements, net profits agreements, deferred purchase agreements, development agreements, gas balancing, injection, repressuring and recycling agreements, salt water or other disposal agreements and seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Subsidiaries warranted in the Security Document or this Agreement which Liens are limited to the Oil and Gas Property and related property that is the subject of such agreement, arising out of or pertaining to the operation or the production or sale of hydrocarbons produced from the Oil and Gas Property, provided that any such Lien referred to in this clause does not materially impair the use of the property covered by such Lien for the purposes for which such property is held by the Borrower or any Subsidiary or materially impair the value of such property subject thereto; provided that any such Liens permitted pursuant to this clause (iii) shall not include any Liens in connection any farm-out, drillco, or similar arrangement;

 

(iv)     pledges and deposits in connection with workers’ compensation, unemployment insurance and other social security laws or regulations;

 

(v)      Liens on cash and securities, letters of credit and deposits to secure the performance of bids, trade contracts, leases, statutory obligations (excluding Liens arising under ERISA), surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, which are in the ordinary course of business and which are in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;

 

(vi)     Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies, or under general depositary agreements, and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board of Governors and no such deposit account is intended by Borrower or any of its Subsidiaries to provide collateral to the depository institution;

 

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(vii)    judgment liens in respect of judgments that do not constitute an Event of Default;

 

(viii)   easements, zoning restrictions, rights-of-way, servitudes, permits, surface leases, and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and that, in the aggregate, do not materially detract from the value of the affected property or materially impair the use of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;

 

(ix)     royalties, overriding royalties, reversionary interests and similar burdens granted by the Borrower or any Subsidiary with respect to the Oil and Gas Property owned by the Borrower or such Subsidiary, as the case may be, if the net cumulative effect of such burdens does not operate to deprive the Borrower or any Subsidiary of any material right in respect of its assets or properties (except for rights customarily granted with respect to such interests) and the net cumulative effect is deducted in the calculation of PV-9 Value;

 

(x)       Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Borrower or any Subsidiary in the ordinary course of business covering the property under the lease;

 

(xi)      unperfected Liens reserved in leases (other than oil and gas leases) or arising by operation of law for rent or compliance with the lease in the case of leasehold estates; and

 

(xii)     defects in or irregularities of title (other than defects or irregularities of title to Oil and Gas Property), if such defects or irregularities do not deprive the Borrower or any Subsidiary of any material right in respect of its assets or properties;

 

provided that the term “Permitted Encumbrances” shall not include any Lien securing indebtedness for borrowed money.

 

Permitted Investments” means:

 

(i)       any Investment (i) in the Borrower, (ii) made by any Loan Party in or to any Loan Party, and (iii) made by any Subsidiary in or to any Loan Party;

 

(ii)      any Investment in Cash Equivalents;

 

(iii)     any Investments received (A) in compromise of obligations with respect to trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer or (B) in compromise of obligations relating to or in resolution of litigation, arbitration or other disputes with Persons that are not Affiliates;

 

(iv)     Investments received in satisfaction of judgments, foreclosure of Liens or settlement of Debt;

 

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(v)       Acceptable Hedging Transactions;

 

(vi)       Investments in accounts receivable, prepaid expenses, trade credit, negotiable instruments held for collection and lease, utility and worker’s compensation, performance and other similar deposits provided to third parties and endorsements for collection or deposit arising in the ordinary course of business and not for speculative purposes;

 

(vii)       advances, deposits and prepayments for purchases of any assets;

 

(viii)      loans or advances in the ordinary course of business for bona fide business purposes of the Borrower and its Subsidiaries (including travel, entertainment and relocation expenses);

 

(ix)        in connection with any Property contributed or transferred to any Person as an Investment, such Property shall be equal to the Fair Market Value at the time of the Investment, without regard to subsequent changes in value. With respect to any Investment, the Borrower may, in its sole discretion, allocate or reallocate all or any portion of any Investment to one or more applicable clauses above so that the entire Investment is a Permitted Investment;

 

(x)        guarantees constituting Permitted Indebtedness (other than guarantees in respect of any Capitalized Lease) and performance guarantees incurred in the ordinary course of business;

 

(xi)        Investments by the Borrower and its Subsidiaries in Oil and Gas Properties that are customary in the oil and gas business and in the ordinary course of the Borrower’s or such Subsidiary’s business, and in the form of, or pursuant to, oil, gas and mineral leases, operating agreements, unitization agreements, joint bidding agreements, services contracts and other similar agreements that a reasonable and prudent oil and gas industry owner or operator would find acceptable; provided that Investments (i) in Capital Stock and (ii) made in the form of, or pursuant to, farm-outs, drillcos or other similar arrangements, in each case, shall not be permitted without the prior written consent of the Required Lenders;

 

(xii)       Investments consisting of any Acceptable Hedging Transactions;

 

(xiii)       Investments consisting of earnest money deposits in connection with an Investment otherwise permitted by this Agreement; and

 

(xiv)      other Investments not to exceed $2,000,000 in the aggregate.

 

Permitted Liens” means, with respect to any Property, each of the following:

 

(i)         Liens securing the Obligations;

 

(ii)        the following, if the validity and amount thereof are being contested in good faith and by appropriate legal proceedings and so long as (a) levy and execution thereon have been stayed and continue to be stayed, (b) they do not in the aggregate materially detract from or threaten the value of such Property, or materially impair the use thereof in the operation of the business of the owner of such Property, and (c) a reserve therefor, if appropriate, has been established: claims and Liens for Taxes due and payable; claims and Liens upon and defects of title to real and personal property; claims and Liens of landlords, repairmen, mechanics, materialmen, warehousemen, or carriers, or similar Liens; and adverse judgments on appeal;

 

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(iii)       any Permitted Encumbrances;

 

(iv)       Liens in favor of the lessor on the Property being leased under any Capitalized Lease permitted hereunder;

 

(v)        minor defects in title to an Oil and Gas Property not in any case materially detracting from the value of such Property;

 

(vi)       Liens securing a Second Lien Facility pursuant to the Second Lien Documents subject to the Intercreditor Agreement;

 

(vii)       any Lien existing on any Property prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any Property of any Person that becomes a Subsidiary after the Closing Date prior to the time such Person becomes a Subsidiary; provided that (i) such Lien secures Indebtedness permitted by clause (viii) of the definition of Permitted Indebtedness, (ii) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (iii) such Lien shall not apply to any other Property of the Borrower or any other Subsidiary and (iv) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof;

 

(viii)      Liens on fixed or capital assets (including office equipment, data processing equipment and motor vehicles) acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such Liens secure Indebtedness permitted by clause (viii) of the definition of Permitted Indebtedness, (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within 180 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such Liens shall not apply to any other property or assets of the Borrower or any other Subsidiaries (other than proceeds and accessions and additions to such property);

 

(ix)        Liens securing insurance premium financing permitted by clause (vii) of the definition of Permitted Indebtedness under customary terms and conditions, provided that no such Lien may extend to or cover any property other than the insurance being acquired with such financing, the proceeds thereof and any unearned or refunded insurance premiums related thereto; and

 

(x)         Liens on cash margin collateral, deposits or securities required by any Person with whom any Credit Party enters into an Acceptable Hedging Transaction securing obligations in any amount not to exceed $2,000,000 in the aggregate.

 

Person” means a natural person, a corporation, a partnership, a limited partnership, a limited liability company, an association, a joint venture, a trust or any other entity or organization including a government or political subdivision or any governmental agency or instrumentality thereof.

 

Plan” means any employee benefit plan which is covered by Title IV of ERISA.

 

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Property, property” or “asset” means any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

 

Proved Reserves” means “Proved Reserves” as defined in the Petroleum Resources Management System as in effect at the time in question prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers (or any generally recognized successor organizations).

 

Purchaser” has the meaning given to such term in Section 11.2.1 hereof.

 

PV-9 Value” means (a) in respect of the Proved Reserves of any Loan Party’s Oil and Gas Properties set forth in the most recently delivered Reserve Report, the aggregate net present value (discounted at 9% per annum) of such Oil and Gas Properties calculated before income taxes, but after reduction for royalties, lease operating expenses, severance and ad valorem taxes, capital expenditures and abandonment costs and with no escalation of capital expenditures or abandonment costs (a) calculated in accordance with SEC guidelines but using Strip Price for crude oil and natural gas liquids (WTI Cushing) and natural gas (Henry Hub), and (b) calculated (i) in the case of a Reserve Report prepared as of December 31 of any year, by an Approved Petroleum Engineer and (ii) in the case of each other Reserve Report or as otherwise required under this Agreement, at the Borrower’s option, by a petroleum engineer employed by the Borrower or an Approved Petroleum Engineer, in each case, in such person’s reasonable judgment after having reviewed the information from the most recently delivered Reserve Report, (iii) as set forth in the Reserve Report most recently delivered under Section 7.2, (iv) as adjusted to give effect to Hedging Agreements permitted by this Agreement as in effect on the date of such determination and (v) as adjusted to give pro forma effect to all dispositions or acquisitions of Oil and Gas Properties completed since the date of the Reserve Report.

 

Rate Management Transaction” means any transaction (including an agreement with respect thereto) now existing or hereafter entered into by the Borrower which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

 

Regulation U” means Regulation U of the Board of Governors, as in effect from time to time.

 

Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, managers, members, partners, employees, agents and advisors of such Person and such Person’s Affiliates.

 

Release of Hazardous Substances” means any emission, spill, release, disposal, or discharge, except in accordance with a valid permit, license, certificate, or approval of the relevant Governmental Authority, of any Hazardous Substance into or upon (a) the air, (b) soils or any improvements located thereon, (c) surface water or groundwater, or (d) the sewer or septic system, or the waste treatment, storage, or disposal system servicing any Property of the Borrower or any Guarantor, with respect to which the Borrower or any Guarantor is legally obligated to respond under applicable Environmental Laws, by notifying the relevant Governmental Authority, investigating or undertaking corrective action.

 

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“Removal Effective Date” has the meaning given to such term in Section 4.8 hereof.

 

Replacement Security Documents” means each security document or instrument granting a first priority Lien on the Collateral (as described therein), subject only to Permitted Liens, executed and delivered to secure all or a portion of the Obligations in connection with the consummation of the transactions contemplated by a Second Lien Facility, and all other documents and instruments at any time executed as security for all or any portion of the Obligations (including, without limitation, any Mortgages), as such instruments may be amended, restated, supplemented or otherwise modified from time to time; provided that such security document or instrument granting a first priority Lien on the Collateral shall be on substantially the same terms and conditions as any corresponding security document or instrument securing the Second Lien Obligations.

 

“Representatives Certificate” means a certificate signed by a Responsible Representative.

 

“Required Lenders” means Lenders holding Loans in excess of fifty percent (50%) of the Loans outstanding as of any date of determination.

 

“Requirement of Law” means, as to any Person, its Organizational Documents, and all applicable Laws.

 

Reserve Report” means an unsuperseded engineering analysis of the Loan Parties’ Oil and Gas Properties, in form and substance reasonably acceptable to the Required Lenders, which shall include (i) pricing assumptions based upon the Strip Price and (ii) projections of revenues attributable to all undrilled locations on the Loan Parties’ Oil and Gas Properties based on a development plan for a period no greater than 7 years from the date of such Reserve Report reasonably acceptable to the Required Lenders; provided that, for the avoidance of doubt, such projections need not be based on historical capital expenditures in such locations nor take into account potential financings of projected capital expenditures.

 

“Resignation Effective Date” has the meaning given to such term in Section 4.8 hereof.

 

“Responsible Representative” means the Chairman, President, Chief Executive Officer, Chief Financial Officer or Vice President of the Borrower, or any other officer of the Borrower duly authorized by the Borrowers board of directors.

 

“Restricted Payment” means the occurrence of any of the following:

 

(i)          any withdrawal from the Borrower or any Guarantor of cash by any owner of an Equity Interest in the Borrower or any such Guarantor or the declaration or payment of any cash dividend on, or the incurrence of any liability to make, or the making of, any other cash payment in respect of, any Equity Interests in the Borrower or any Guarantor;

 

(ii)         any cash payment on account of the purchase, redemption or other retirement of any Equity Interests in the Borrower or any Guarantor; or

 

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(iii)        the repayment by the Borrower or any Guarantor in cash of any Debt owed to an Affiliate (other than repayments to the Borrower), except as specifically permitted by the Loan Documents.

 

“ROFR Financing” shall have the meaning given to such term in Section 8.16.1.

 

“ROFR Initiation Notice” shall have the meaning given to such term in Section 8.16.1.

 

“FROFR Option” shall have the meaning given to such term in Section 8.16.2.

 

Sale and Leaseback Transaction” means any sale or other transfer of any property by any Person with the intent to lease such property as lessee.

 

“SEC” means the United States Securities Exchange Commission.

 

Second Lien Documents” means the “Loan Documents” or such analogous term under a Second Lien Facility.

 

Second Lien Facility” means a credit agreement or similar instrument among the Borrower and certain financial intuitions party thereto providing for loans or other Debt for borrowed money in an aggregate principal amount (excluding, for the avoidance of doubt any capitalized interest or interest that is paid in kind and any make-whole or other prepayment premium) not to exceed $175,000,000 which loans or other Debt are secured on a second priority basis by Liens on the Collateral and subject to the Intercreditor Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms.

 

Second Lien Obligations” means the “Obligations” or such analogous term under a Second Lien Facility.

 

“Security” means any stock, share, voting trust certificate, limited or general partnership interest, member interest, bond debenture, note, or other evidence of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instrument commonly known as a “Security” or any certificate of interest, share or participation in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing.

 

“Security Documents” means (i) before the occurrence of the Collateral Modification Date, the security instruments executed and delivered in satisfaction of the condition set forth in Section 4.1, the Mortgages, if any, and all other documents and instruments at any time executed as security for all or any portion of the Obligations, as such instruments may be amended, restated, or supplemented from time to time, and (ii) after the occurrence of the Collateral Modification Date, the Replacement Security Documents.

 

SOS Note” means that certain subordinated promissory note, dated June 23, 2016, issued by the Borrower to SOSV Investments LLC, as may be amended, supplemented, replaced, extended, renewed or modified from time to time.

 

Strip Price” shall mean, as of any date of determination, the forward month prices as of such date, for the most comparable hydrocarbon commodity applicable to such future production month for a five-year period (or such shorter period if forward month prices are not quoted for a reasonably comparable hydrocarbon commodity for the full five-year period), with such prices escalated at two percent (2)% each year thereafter based on the last quoted forward month price of such period, as such prices are (i) quoted on the NYMEX as of the determination date and (ii) adjusted by appropriate management adjustments for additions to reserves and depletion or sale of reserves since the date of such Reserve Report, adjusted for any basis differential as of the date of determination.

 

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Subsidiary” means for any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned, collectively, by such Person and any Subsidiaries of such Person. The term Subsidiary shall include Subsidiaries of Subsidiaries (and so on).

 

Taxes” means all taxes, assessments, filing or other fees, levies, imposts, duties, deductions, withholdings, stamp taxes, interest equalization taxes, capital transaction taxes, foreign exchange taxes or charges, or other charges of any nature whatsoever from time to time or at any time imposed by any Law or Tribunal.

 

Test Period” means, as the last day of any fiscal quarter of the Borrower, the four prior consecutive fiscal quarters of Borrower, the last of which ends on such date.

 

Transferee” means any Person to which a Lender has sold, assigned or transferred any of the Obligations, as authorized hereunder and including any Person acquiring, by purchase, assignment, transfer (including transfers by operation of law) or participation from any such purchaser, assignee or transferee, any part of such Obligations.

 

Tribunal” means any court, tribunal, governmental body, agency, arbitration panel, or instrumentality.

 

USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001), as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

1.2.Accounting Terms and Determinations; Changes in Accounting.

 

1.2.1.       Unless otherwise specified herein, all accounting terms used herein and all references to accounting matters shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the independent public accountants and with respect to which the Borrower shall have promptly notified the Lenders becoming aware thereof) with the most recent financial statements of the Borrower delivered to the Lenders. Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. Changes in the application of accounting principles which do not have a material impact on calculating the financial covenants herein shall be deemed comparable in all material respects to accounting principles applied in a preceding period.

 

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1.2.2.       The Borrower will not change its method of accounting, other than immaterial changes in methods, changes permitted by applicable accounting principles and changes required by a change in applicable accounting principles, without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld. To enable the ready and consistent determination of compliance by the Borrower with its obligations under this Agreement, neither the Borrower nor any of its Subsidiaries will change the manner in which either the last day of its fiscal year or the last day of the first three (3) fiscal quarters of its fiscal years is calculated without the prior written consent of the Required Lenders, which consent shall not be unreasonably withheld.

 

1.2.3.       The fiscal year of the Borrower shall end on December 31 of such year.

 

1.3.          References. References in this Agreement to Exhibits, Schedules, Annexes, Appendixes, Attachments, Articles, Sections, Recitals or clauses shall be to exhibits, schedules, annexes, appendixes, attachments, articles, sections, recitals or clauses of this Agreement, unless expressly stated to the contrary. References in this Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,” “herein below,” “hereof,” “hereunder” and words of similar import shall be to this Agreement in its entirety and not only to the particular Exhibit, Schedule, Annex, Appendix, Attachment, Article, or Section in which such reference appears. Exhibits and Schedules to any Loan Document shall be deemed incorporated by reference in such Loan Document. References to any document, instrument, or agreement (a) shall include all exhibits, schedules, and other attachments thereto, and (b) shall include all documents, instruments, or agreements issued or executed in replacement thereof. This Agreement, for convenience only, has been divided into Articles and Sections; and it is understood that the rights and other legal relations of the parties hereto shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and Sections and without regard to headings prefixed to such Articles or Sections. The phrases “this Section” and “this clause” and similar phrases refer only to the sections or clauses hereof in which such phrases occur. Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular. Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be, unless otherwise indicated. Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative; the word “or” is not exclusive; the word “including” (in its various forms) shall mean “including, without limitation”; in the computation of periods of time, the word “from” means “from and including” and the words “to” and “until” mean “to but excluding”; and all references to money refer to the legal currency of the United States of America. The Exhibits, Schedules, Annexes, Appendixes and Attachments attached to this Agreement and items referenced as being attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for all purposes. Except as otherwise indicated, references in this Agreement to statutes, sections, or regulations are to be construed as including all statutory or regulatory provisions consolidating, amending, replacing, succeeding, or supplementing the statute, section, or regulation referred to. References in this Agreement to “writing” include printing, typing, lithography, facsimile reproduction, and other means of reproducing words in a tangible visible form. References in this Agreement to agreements and other contractual instruments shall be deemed to include all exhibits and appendices attached thereto and all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement.

 

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1.4.         Amendment of Defined Instruments. Unless the context otherwise requires or unless otherwise provided herein, the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document, provided that nothing contained in this Section shall be construed to authorize any such renewal, extension, modification, amendment or restatement,

 

1.5.         Joint Preparation; Construction of Indemnities and Releases. This Agreement, the other Loan Documents have been reviewed and negotiated by sophisticated parties with access to legal counsel, and no rule of construction shall apply hereto or thereto which would require or allow any Loan Document to be construed against any party because of its role in drafting such Loan Document.

 

1.6.        Time References. Unless otherwise indicated, all references to a time of day refer to the time of day in the Central Time Zone for such day, as generally in effect in the state of Texas.

 

ARTICLE  II
TERMS OF FACILITY

 

2.1.[Reserved].

 

2.2.Bridge Loans.

 

2.2.1.        Subject to the terms and conditions of this Agreement and in reliance upon the representation and warranties of the Loan Parties hereto, each Lender agrees severally and not jointly to lend to the Borrower on the Bridge Loan Closing Date the amount set forth opposite such Lender’s name on Schedule 2.2 under the heading “Bridge Loan Commitment” (such amount being referred to as such Lender’s “Bridge Loan Commitment”).

 

2.2.2.       Subject to the terms and conditions of this Agreement and in reliance upon the representation and warranties of the Loan Parties hereto, each Lender agrees severally and not jointly to lend to the Borrower on the Incremental Bridge Loan Closing Date the amount set forth opposite such Lender’s name on Schedule 2.3 under the heading “Incremental Bridge Loan Commitment” (such amount being referred to as such Lender’s “Incremental Bridge Loan Commitment”).

 

2.3.Notes.

 

2.3.1.       The Loans shall be evidenced by one or more Notes issued by the Borrower, payable to the order of each Lender with a Commitment hereunder.

 

2.3.2.       The outstanding principal of the Notes reflected by the notations (whether handwritten, electronic or otherwise) by the Lenders on their records shall be deemed rebuttably presumptive evidence of the principal amount owing on the respective Note.

 

2.3.3.       Each Lender will record each payment of principal or interest made by the Borrower with respect thereto on its books, and may, if such Lender so elects in connection with any transfer or enforcement of its Note, endorse on the schedule (modified as such Lender shall deem advisable) forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the applicable Note. Each Lender is hereby irrevocably authorized by the Borrower so to endorse such Lender’s Note and to attach to and make a part of the Note a continuation of any such schedule (modified as the Lender shall deem advisable) as and when required.

 

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2.4.Reserved.

 

2.5.Interest Rates; Payment of Interest.

 

2.5.1.       [Reserved].

 

2.5.2.       Accrued interest on all Notes shall be payable in arrears on each Interest Payment Date; provided that, interest accrued pursuant to Section 3.3 shall be payable on demand.

 

2.5.3.       Each determination hereunder of interest on the Notes and fees hereunder based on per annum calculations shall be computed on the basis of a year of three hundred sixty (360) days and paid for the actual number of days elapsed (including the first day but excluding the last day).

 

2.5.4.       The unpaid principal of the Bridge Loan Notes shall bear interest from the Bridge Loan Closing Date at a rate equal to Bridge Loan Base Rate or such higher rate as is specified in Section 3.3. The unpaid principal of the Incremental Bridge Loan Notes shall bear interest from the Incremental Bridge Loan Closing Date at a rate equal to Incremental Bridge Loan Base Rate or such higher rate as is specified in Section 3.3.

 

2.5.5.       Additional interest shall accrue and be payable in kind on each Bridge Loan Note in an amount equal to the Bridge PIK Rate on the outstanding principal amount of such Bridge Loan Note. Such accrued additional interest shall be added to the principal of each Bridge Loan Note upon each Interest Payment Date, by increasing the then outstanding principal amount of the Bridge Loan Note by the amount of such additional interest paid in kind on such Interest Payment Date. Additional interest shall accrue and be payable in kind on each Incremental Bridge Loan Note in an amount equal to the Incremental Bridge PIK Rate on the outstanding principal amount of such Incremental Bridge Loan Note. Such accrued additional interest shall be added to the principal of each Incremental Bridge Loan Note upon each Interest Payment Date, by increasing the then outstanding principal amount of the Incremental Bridge Loan Note by the amount of such additional interest paid in kind on such Interest Payment Date.

 

2.6.        Conditions to Closing Date Loans. No Lender shall be obligated to make Closing Date Loans hereunder unless the following conditions shall have been satisfied or waived by the Required Lenders.

 

2.6.1.       Receipt of Loan Documents and Other Items. On or prior to the Closing Date, the Lenders shall have received the following, in each case in form and substance reasonably satisfactory to the Lenders:

 

(i)       the duly executed Notes for each Lender in the amount at least equal to its Available Commitment;

 

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(ii)         copies of the Organizational Documents, and all amendments thereto, of each Loan Party, accompanied by certificates that such copies are correct and complete, one issued by the Secretary of State of the state of incorporation or formation of each such Loan Party, dated a current date;

 

(iii)       certificates of incumbencies and signatures of all officers of each Loan Party who will be authorized to execute or attest any of the Loan Documents;

 

(iv)       copies of resolutions approving the Loan Documents and authorizing the transactions contemplated therein, duly adopted by the governing authority of each Loan Party accompanied by certificates of an authorized representative reasonably acceptable to the Required Lenders, that such copies are true and correct copies of resolutions duly adopted at the meeting of, or by the unanimous written consent of, the authorized body of each Loan Party and that such resolutions constitute all the resolutions adopted with respect to such transactions, have not been amended, modified or revoked in any respect and are in full force and effect as of the Closing Date;

 

(v)        certificates of good standing (or equivalent) for each Loan Party, dated a current date, to the effect that such Loan Party is in good standing with respect to the payment of franchise or other Taxes and, if required by Law, is duly qualified to transact business in such jurisdiction;

 

(vi)       confirmation, reasonably acceptable to the Required Lenders, of the title of the Borrower, free and clear of Liens, other than Permitted Liens, to Oil and Gas Properties that in the aggregate have value as Collateral of no less than eighty percent (80%) of the aggregate value as Collateral of all Proved Reserves from the Oil and Gas Properties;

 

(vii)      confirmation reasonably acceptable to the Required Lenders that the Oil and Gas Properties of the Borrower are in compliance in all material respects with applicable Environmental Laws;

 

(viii)     certificates of insurance from the insurance companies insuring the Borrower and each other Loan Party which will execute any Loan Documents, confirming insurance for the Borrower and each such other Loan Party meeting the standards of Section 7.1.4(iv);

 

(ix)        payment of (i) the Commitment Fee to each Lender and (ii) any reasonable legal fees and expenses or estimates thereof of one (1) legal counsel to the Lenders for which invoices or estimates have been presented on or before the Closing Date;

 

(x)         if requested by the Required Lenders, a certificate from an authorized representative reasonably acceptable to the Required Lenders certifying that to the best of such individual’s knowledge as to the truth and correctness in all material respects of each representation and warranty contained in Article VI hereof as of the Closing Date and that no Default or Event of Default exists as of the Closing Date;

 

(xi)        any consents, approvals, authorizations of a Governmental Authority or other third party required for the valid execution, delivery and the performance of this Agreement or any other Loan Documents by the Borrower or any other Loan Party; and

 

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(xii)       an amended and restated Warrant.

 

2.6.2.       Financial Statements. On the Closing Date, each Lender shall have received and reviewed: (i) the consolidated audited financial statements of Borrower and its Subsidiaries as of December 31, 2015 and (ii) the consolidated unaudited financial statements of Borrower and its Subsidiaries as of June 30, 2016 (together the “Financial Statements”).

 

2.6.3.       No Material Adverse Effect. No Material Adverse Effect shall have occurred since August 22, 2016.

 

2.7.Maturity of Notes.

 

2.7.1.       The Notes shall finally mature no later than the Final Maturity Date, and any unpaid principal of the Notes and accrued, unpaid interest thereon shall be due and payable on such date.

 

2.7.2.       The Bridge Loan Notes shall finally mature no later than the Bridge Loan Maturity Date, and any unpaid principal of the Bridge Loan Notes and accrued, unpaid interest thereon shall be due and payable on such date.

 

2.7.3.       The Incremental Bridge Loan Notes shall finally mature no later than the Incremental Bridge Loan Maturity Date, and any unpaid principal of the Incremental Bridge Loan Notes and accrued, unpaid interest thereon shall be due and payable on such date.

 

2.8.Principal Payment.

 

2.8.1.       The Borrower shall pay all principal of the Incremental Bridge Loans, all accrued and unpaid interest thereon, and all other Obligations with respect to the Incremental Bridge Loans to the Bridge Lenders on the Incremental Bridge Loan Maturity Date.

 

2.8.2.       The Borrower shall pay all principal of the Bridge Loans, all accrued and unpaid interest thereon, and all other Obligations with respect to the Bridge Loans to the Bridge Lenders on the Bridge Loan Maturity Date.

 

2.9.          Conditions to Bridge Loans. No Bridge Lender shall be obligated to make Bridge Loans hereunder unless the following conditions shall have been satisfied or waived by the Bridge Lenders:

 

2.9.1.       Receipt of Bridge Loan Notes. On or prior to the Bridge Loan Closing Date, the Bridge Lenders shall have received duly executed Bridge Loan Notes for each Bridge Lender in the amount at least equal to its Bridge Loan Commitment.

 

2.9.2.       Representations and Warranties. The representations and warranties contained in Article VI hereof shall be true and correct in all material respects as of the Bridge Loan Closing Date, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the Bridge Loan Closing Date, such representations and warranties shall continue to be true and correct in all material respects as of such specified earlier date.

 

2.9.3.       No Default or Event of Default. As of the Bridge Loan Closing Date, no Default or Event of Default shall be continuing.

 

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2.9.4.       No Material Adverse Effect. No Material Adverse Effect shall have occurred since December 31, 2016.

 

2.9.5.       Officer’s Certificate. The Bridge Lenders shall have received a certificate dated as of the Bridge Loan Closing Date and signed by an officer of the Borrower, confirming compliance with the conditions set forth in Section 2.9.2, Section 2.9.3 and Section 2.9.4 of this Agreement.

 

2.10.       Conditions to Incremental Bridge Loans. No Incremental Bridge Lender shall be obligated to make Incremental Bridge Loans hereunder unless the following conditions shall have been satisfied or waived by the Incremental Bridge Lenders:

 

2.10.1.       Receipt of Incremental Bridge Loan Notes. On or prior to the Incremental Bridge Loan Closing Date, the Incremental Bridge Lenders shall have received duly executed Incremental Bridge Loan Notes for each Incremental Bridge Lender in the amount at least equal to its Incremental Bridge Loan Commitment.

 

2.10.2.       Representations and Warranties. The representations and warranties contained in Article VI hereof shall be true and correct in all material respects as of the Incremental Bridge Loan Closing Date, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the Incremental Bridge Loan Closing Date, such representations and warranties shall continue to be true and correct in all material respects as of such specified earlier date.

 

2.10.3.       No Default or Event of Default. As of the Incremental Bridge Loan Closing Date, no Default or Event of Default shall be continuing.

 

2.10.4.       No Material Adverse Effect. No Material Adverse Effect shall have occurred since December 31, 2016.

 

2.10.5.       Officer’s Certificate. The Incremental Bridge Lenders shall have received a certificate dated as of the Incremental Bridge Loan Closing Date and signed by an officer of the Borrower, confirming compliance with the conditions set forth in Section 2.10.2, Section 2.10.3 and Section 2.10.4 of this Agreement.

 

ARTICLE  III
GENERAL PROVISIONS

 

3.1.General Provisions as to Payments.

 

3.1.1.       All payments of principal and interest on the Notes and of fees hereunder shall be made, without setoff, deduction or counterclaim, by 12:00 p.m. CT on the date such payments are due in federal or other funds immediately available at the office of the Lenders referred to in Article XII and, if not made by such time or in immediately available funds, then such payment shall be deemed made when such funds are available to the applicable Lender for its full and unrestricted use. Whenever any payment of principal of or interest on the Notes or of fees hereunder shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. If the date for any payment is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.

 

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3.1.2.       All payments made by the Borrower on the Notes shall be made free and clear of, and without reduction by reason of, any Taxes.

 

3.1.3.       All payments shall be denominated in Dollars.

 

3.2.Taxes.

 

3.2.1.       All payments by the Borrower hereunder and under the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein, unless the Borrower is required by law (as determined in the good faith discretion of the Borrower on the advice of counsel to the Borrower) to make such deduction or withholding. Subject to Section 3.2.2, if any Non-Excluded Taxes are required to be withheld with respect to any amount payable by the Borrower hereunder, the Borrower will pay to the applicable Lender, on the date on which such amount is due and payable hereunder, such additional amount in Dollars as shall be necessary to enable such Lender to receive the same net amount which such Lender would have received on such due date had no such Non-Excluded Taxes been required to be withheld. For purposes of this Agreement, “Non-Excluded Taxes” are any taxes, levies, imposts, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein other than (A) any United States federal withholding tax imposed pursuant to FATCA or (B) net income taxes (however denominated), franchise taxes (imposed in lieu of net income taxes), branch profits taxes and any other similar taxes imposed on any Lender by the jurisdiction under the laws of which such Lender is organized or in which its principal office is located or through which it holds the Notes or any political subdivision, taxing authority or other authority thereof or therein, or as a result of a present or former connection between such Lender and the jurisdiction imposing such tax other than a connection arising solely as a result of such Lender having executed, delivered or performed its obligations or received payments under, or enforced, this Agreement. The Borrower will deliver promptly to the applicable Lender certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder. If the Borrower reasonably believes that such Non-Excluded Taxes were not correctly or reasonably asserted, the applicable Lender will use reasonable efforts to cooperate with the Borrower to obtain a refund of such taxes (which shall be repaid to the Borrower so long as such efforts would not, in the good faith determination of such Lender, result in any material additional costs, expenses or risks or be otherwise disadvantageous to it).

 

3.2.2.       Notwithstanding anything to the contrary contained herein, the Borrower will not be required to make any additional payment to or for the account of any Lender with respect to any Non-Excluded Taxes under Section 3.2.3 by reason of (i) a breach by such Lender of any certification or representation set forth in any form furnished to the Borrower under Section 3.2.5 or such Lender’s failure or inability to furnish under Section 3.2.5 an original or an extension or renewal of any form required under Section 3.2.5, or (ii) if such Non-Excluded Taxes are taxes required to be withheld on amounts payable to such Lender at the time such Lender becomes a party to this Agreement (or changes its place of organization or principal office).

 

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3.2.3.       If a Lender determines, in its reasonable discretion, that it has received a refund of any taxes as to which it has been indemnified by a Borrower under Section 3.2.1 or with respect to which the Borrower has paid additional amounts pursuant to Section 3.2.1, it shall pay over such refund to the Borrower, net of all out-of-pocket expenses of such Lender and without interest (other than any interest paid by the relevant governmental authority with respect to such refund). Each Lender agrees, that upon the occurrence of any event giving rise to a tax as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to Section 3.2.1, it will use reasonable efforts to mitigate the effect of any such event, including by designating another lending office (if available) for any Note affected by such event and by completing and delivering or filing any tax-related forms which would reduce or eliminate such tax or additional amounts.

 

3.2.4.       Subject to Section 3.2.2, the Borrower will indemnify each Lender for the full amount of Non-Excluded Taxes imposed on or paid by such Lender and any liability (including penalties, interest and reasonable expenses) arising therefrom or with respect thereto, whether or not such Non-Excluded Taxes were correctly or legally asserted. Payments under any indemnification provided for in this Section 3.2.4 shall be made within thirty (30) days from the date such Lender makes written demand therefor describing such Non-Excluded Taxes in reasonable detail.

 

3.2.5.       Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or pursuant to any treaty to which such jurisdiction is a party, with respect to payments hereunder shall deliver to the Borrower, at the time or times prescribed by law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by law as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower, shall deliver such other documentation prescribed by law or reasonably requested by the Borrower as will enable the Borrower to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Without limiting the generality of the foregoing, each Foreign Lender shall deliver to the Borrower (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

 

(i)       duly completed copies of Internal Revenue Service Form W-8BEN

 

(ii)       claiming eligibility for benefits of an income tax treaty to which the United States is a party;

 

(iii)       duly completed copies of Internal Revenue Service Form W-8ECI;

 

(iv)       in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Internal Revenue Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Internal Revenue Code, (B) a “10 percent shareholder” of any Borrower within the meaning of section 881(c)(3)(B) of the Internal Revenue Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Internal Revenue Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN; or

 

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(v)       any other form prescribed by law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by law to permit the Borrower to determine the withholding or deduction required to be made.

 

3.3.         Default Interest. At the option of the Required Lenders, the principal of the Notes shall bear interest at the Default Rate during any time an Event of Default exists and continues, and, to the extent not prohibited by Law, overdue interest on the Notes shall bear interest at the Default Rate.

 

3.4.Prepayments.

 

3.4.1.       Borrower shall have the right at any time or from time to time to prepay, in whole or in part, the Loans; provided that Borrower shall (a) pay at the time of such prepayment (i) all accrued but unpaid interest due and owing hereunder with respect to such Loans so prepaid, and (ii) in the case of any prepayment of the Loans prior to January 19, 2018, an additional amount equal to the interest that would have accrued from the date of such prepayment to January 19, 2018 pursuant to the terms hereof with respect to such Loan so repaid,1 (b) have delivered a notice of payment as required pursuant to Section 3.4.3, and (c) pay any applicable prepayment premium due pursuant to Section 3.5.

 

3.4.2.       unless the Required Lenders shall agree in writing that no prepayment of the Loans is required pursuant to this Section 3.4.2, upon the consummation of each Disposition of all or any part of its assets outside the ordinary course of business Borrower shall (i) prepay the outstanding principal amount of the Loans in an amount equal to fifty percent (50%) of the amount by which the cash net proceeds (taking into account any underwriting discounts or commissions and other reasonable transaction costs, fees and expenses properly attributable to such transaction payable in connection therewith, excluding any of the foregoing payable to Borrower, any Guarantor, any Subsidiary or any Affiliate of any of the foregoing) of such Disposition exceeds $500,000 (such amount, the “Prepayment Amount”, and/or (ii) elect (by written notice to the Required Lenders) to reinvest all or any portion of such Prepayment Amount in Additional Assets; provided further that if all or any portion of such Prepayment Amount are not so used to reinvest in Additional Assets within 180 days, the Borrower shall apply the remaining portion of such Prepayment Amount on the last date of such period to the prepayment of the Loans.

 

3.4.3.       Borrower shall give the Lenders at least one (1) Business Day’s prior written notice of each prepayment proposed to be made by Borrower pursuant to Sections 3.4.1 or 3.4.2, specifying the principal amount thereof to be prepaid and the prepayment date. Notice of such prepayment having been given, the principal amount of the Loan specified in such notice, together with interest thereon to the date of prepayment, shall become due and payable on such prepayment date.

 

3.4.4.       Any prepayment of the Loans pursuant to Section 3.4.1 or Section 3.4.5 shall be applied to repay the Bridge Loans and the Incremental Bridge Loans, on a pro rata basis.

 

 

1 Insert date 3 months from incremental bridge closing date.

 

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3.4.5.       Unless the Required Lenders shall agree in writing that no prepayment of the Loans is required pursuant to this Section 3.4.5, if any Credit Party shall consummate any Asset Sale or receive any Net Cash Proceeds from a Casualty Event (each such event, a “Prepayment Event”), then, not later than two (2) Business Days after such Prepayment Event, the Borrower shall apply all or any portion of such Net Cash Proceeds to the repayment of the Loans and the payment of accrued and unpaid interest and any amount payable pursuant to Section 3.4.1(a)(ii), and/or (ii) elect (by written notice to the Lenders) to reinvest all or any portion of such Net Cash Proceeds in Additional Assets; provided further that if all or any portion of such Net Cash Proceeds are not so used to reinvest in Additional Assets within 180 days, the Borrower shall apply the remaining portion of such Net Cash Proceeds on the last date of such period to the prepayment of the Loans.

 

3.4.6.       The Borrower shall not have any right to reborrow any portion of any Loan which has been repaid or prepaid from time to time.

 

3.5.Prepayment Premium.

 

3.5.1.       Upon any prepayment pursuant to Section 3.4.1 or Section 3.4.5 with respect to the Loans, the Borrower shall pay a prepayment premium in an amount equal to 1.00% of the principal amount of Loans so prepaid.

 

3.6.Additional Costs; Capital Adequacy.

 

3.6.1.       If any new law, rule or regulation, or any change after the date hereof in the interpretation or administration of any applicable law, rule or regulation by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency in connection therewith issued, promulgated or enacted after the date hereof shall:

 

(i)       subject any Lender to any tax, duty or other charge with respect to its Loans, its Note or its Commitment, or shall change the basis of taxation of payments to any Lender of the principal of or interest on its Loans or any other amounts due under this Agreement or its Commitment, in each case except for any tax on, or changes in the rate of tax on the overall net income of, or franchise taxes payable by, such Lender or its Applicable Lending Office or any Non-Excluded Taxes covered by Section 3.2; or

 

(ii)       impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or shall impose on any Lender any other condition affecting its Loans, its Note or its Commitment; or

 

(iii)       impose on any Lender any other conditions or requirements with respect to this Agreement, the other Loan Documents, the Loans or such Lender’s Commitment; and the result of any of the foregoing is to increase the cost to such Lender of making, funding, issuing, renewing, extending or maintaining any Loan or such Lender’s Commitment, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under its Note with respect thereto, by an amount deemed by such Lender to be material, then, promptly upon demand by such Lender (and in any event within thirty (30) days after demand by such Lender) and delivery to the Borrower of the certificate required by clause (c) hereof, the Borrower shall pay to such Lender the additional amount or amounts as will compensate such Lender for such increased cost or reduction.

 

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3.6.2.       If any Lender shall determine that any change after the date hereof in any existing applicable law, rule or regulation or any new law, rule or regulation regarding capital adequacy, or any change therein, or any change after the date hereof in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any new request or directive of general applicability regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency issued, promulgated or enacted after the date hereof, has or would have the effect of reducing the rate of return on capital of such Lender (or its parent corporation) as a consequence of such Lender’s obligations hereunder to a level below that which such Lender (or its parent corporation) could have achieved but for such law, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, promptly upon demand by such Lender (and in any event within thirty (30) days after demand by such Lender) the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender (or its parent corporation) for such reduction; provided, however, that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and C