Item 1.01 Entry into a Material Definitive Agreement.
Effective August 15, 2014, Hydrocarb Energy Corporation ("we", "us", the
"Company" and "Hydrocarb") entered into a Credit Agreement (the "Credit
Agreement") as borrower, along with Shadow Tree Capital Management, LLC, as
agent (the "Agent"), and certain lenders party thereto (the "Lenders").
Pursuant to the Credit Agreement, the Lenders loaned us $4 million, which was
represented by Term Loan Notes in an aggregate amount of $4,545,454 (the
"Notes"), representing an original issue discount of 12%. We also paid the
Lenders a structuring fee of $90,909 equal to 2% of the principal amount of the
Notes (the "Structuring Fee") and agreed to reimburse the Lenders for all
reasonable and documented fees, costs and expenses associated with the Credit
Agreement, which totaled $172,824 in aggregate. Finally, we paid ROTH Capital
Partners, LLC, a placement fee of 5% of the total value of the Loans ($227,273),
as placement agent and Gary W. Vick, a consulting fee of 1% of the face value of
the Loans ($45,455) for consulting services rendered. As a result of the
payments above, the net amount of funding received from the Loans was
We plan to use the funds raised in connection with the Credit Agreement to repay
our existing senior note with Green Bank, pay administrative costs, lender fees
and legal costs and fund the cost of resuming, increasing and sustaining oil and
gas production, including well work and infrastructure improvements, at our
Galveston Bay Fields (the "Oil and Gas Activities").
Pursuant to the Credit Agreement, we have the right, at any time prior to the
one year anniversary of the Credit Agreement, to borrow up to an additional
$1,000,000 under the Credit Agreement (the "Additional Loan"), subject to
certain pre-requisites and requirements as set forth in the Credit Agreement,
including, but not limited to us raising $750,000 through the sale of equity
subsequent to the closing of the transactions contemplated by the Credit
Agreement (which we agreed to obtain within 150 days of the date of the Credit
Agreement). We also agreed to pay a 2% Structuring Fee on the Additional Loan.
The proceeds of the Additional Loan may only be used for the Oil and Gas
The amount owed pursuant to the Notes (and any amount borrowed pursuant to the
Additional Loan) is guaranteed by our wholly-owned subsidiary, Hydrocarb
Corporation ("HC") and its subsidiaries, and our other wholly-owned subsidiaries
and is secured by a first priority security interest in substantially all of our
assets (including, but not limited to the securities of our subsidiaries and HC
and its subsidiaries) evidenced by a Guarantee and Collateral Agreement, various
pledge agreements and a deed of trust providing the Agent, as agent for the
Lenders, a security interest over our oil and gas assets and rights.
The Notes do not accrue any interest for the first nine months after their
issuance date (August 15, 2014), provided thereafter they accrue interest at the
rate of (a) 16% per annum where the average net monthly oil and gas production
revenues of Galveston Bay Energy LLC, our wholly-owned subsidiary, for the
trailing three month period (the "Trailing Three Month Revenues") is less than
$900,000; or (b) 14% per annum, where the Trailing Three Month Revenues are
equal to or greater than $900,000, payable monthly in arrears through the
maturity date of such Notes, August 15, 2016. The Additional Loan, if any, will
bear interest at the rate of 14% per annum, payable monthly in arrears, and will
have the same maturity date as the Notes. Upon the occurrence of an event of
default, the Notes (and any amount outstanding under the Additional Loan) will
bear interest at the rate of 24% per annum until paid in full.
We have the right to repay the Notes (and any amount borrowed in connection with
the Additional Loan) at any time without penalty, provided that we provide the
Lenders 15 days prior written notice of such planned repayment and repay not
less than $250,000 of such obligations at a time.
Pursuant to the Credit Agreement, we agreed to issue the Lenders their pro rata
share of (a) 60,000 restricted shares of common stock on the effective date of
the Credit Agreement, August 15, 2014 (the "Effective Date"); (b) 32,500
restricted shares in the event any amount of the Loans (or other obligations
outstanding under agreements entered into in connection with the Loans, the
"Loan Documents") are outstanding on the 12 month anniversary of the Effective
Date; (c) 32,500 restricted shares in the event any amount is outstanding under
the Loan Documents on the 18 month anniversary of the Effective Date; and (d)
25,000 restricted shares in the event any amount is outstanding under the Loan
Documents on the 21 month anniversary of the Effective Date. The shares are to
be issued pursuant to the terms and conditions of a Stock Grant Agreement,
pursuant to which each of the Lenders made certain representations to the
Company regarding their financial condition and other items in order for the
Company to confirm that an exemption from registration existed and will exist
for such issuances.
The Credit Agreement contains customary representations, warranties, covenants
and requirements for the Company to indemnify the Lenders, Agent and their
affiliates. The Credit Agreement also includes various covenants (positive and
negative) binding upon the Company (and its subsidiaries), including but not
limited to, requiring that the Company comply with certain reporting
requirements, and provide notices of material corporate events and forecasts to
Agent, and prohibiting us from (i) incurring any additional debt; (ii) creating
any liens; (iii) making any investments; (iv) materially changing our business;
(v) repaying outstanding debt; (vi) affecting a business combination, sale or
transfer; (vii) undertaking transactions with affiliates; (viii) amending our
organizational documents; (ix) forming subsidiaries; or (x) taking any action
not in the usual course of business, in each case except as set forth in the
The Credit Agreement includes customary events of default for facilities of a
similar nature and size as the Credit Agreement, including, but not limited to,
if any breach or default occurs under the Loan Documents, the failure of the
Company to pay any amount when due under the Loan Documents, if the Company (or
its subsidiaries) is subject to any judgment in excess of $250,000 which is not
discharged or stayed within 30 days, or if a change in control of the Company,
any subsidiary or any guarantor should occur, defined for purposes of the Credit
Agreement as any transfer of 25% or more of the voting stock of such entity.
The foregoing descriptions of the Credit Agreement, Stock Grant Agreement,
Guarantee and Collateral Agreement and Notes do not purport to be complete and
are qualified in their entirety by reference to the Credit Agreement, Stock
Grant Agreement, Guarantee and Collateral Agreement and Notes, copies of which
are attached hereto as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5, respectively,
. . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of a Registrant.
The information provided in Item 1.01 of this Current Report on Form 8-K
regarding the Credit Agreement and Notes is incorporated herein by reference.
Item 3.02 Unregistered Sales Of Equity Securities.
As described above in Item 1.01 of this Current Report, we issued 60,000 shares
of restricted common stock of the Company to the Lenders pursuant to the Credit
Agreement on August 15, 2014.
The issuance was exempt from registration pursuant to Section 4(2) and/or Rule
506 of Regulation D of the Securities Act of 1933, as amended, since the
foregoing issuance did not involve a public offering, the recipients took the
securities for investment and not resale, we took take appropriate measures to
restrict transfer, and the recipients were "accredited investors".
Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
10.1* Credit Agreement dated as of August 15, 2014, by and among Hydrocarb
Energy Corporation, as borrower, Shadow Tree Capital Management, LLC,
as agent, and the Lenders thereto
10.2* Stock Grant Agreement between Hydrocarb Energy Corporation and the
Lenders dated August 15, 2014
10.3* Guarantee and Collateral Agreement by Hydrocarb Energy Corporation and
its subsidiaries in favor of the Lenders dated August 15, 2014
10.4* $1,136,363 Term Loan Note dated August 15, 2014 payable to Quintium
Private Opportunity Fund, LP
10.5* $3,409,091 Term Loan Note dated August 15, 2014 payable to Shadow Tree
Funding Vehicle A-Hydrocarb LLC
* Filed herewith.