PROP Prairie Operating Company

 

 

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): September 30, 2024

 

 

Prairie Operating Co.

(Exact name of registrant as specified in its charter)

 

 

Delaware		001-41895		98-0357690
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

55 Waugh Drive, Suite 400 Houston, TX		77007
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (713) 424-4247

 

N/A

(Former Name or Former Address, If Changed Since Last Report)

 

 

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 (see General Instruction A.2. below):

 

☐	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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		PROP		The Nasdaq Stock Market LLC

 

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) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).

 

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.

 

Standby Equity Purchase Agreement

 

On September 30, 2024, Prairie Operating Co. (the “Company”) entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD. (the “Investor”), a Cayman Islands exempt limited company, whereby, subject to certain conditions, the Company has the right, not the obligation, to sell to the Investor shares of common stock, par value $0.01 per share, of the Company (“Common Stock”), for a value of up to $40.0 million of Common Stock, at the Company’s request (an “Advance Notice”), during the commitment period commencing on September 30, 2024 (the “SEPA Effective Date”) and terminating on September 30, 2026. Each issuance and sale by the Company under the SEPA (an “Advance”) is subject to a maximum limit equal to 100% of the aggregate volume traded of the Company’s Common Stock on the Nasdaq Stock Market during the five trading days immediately prior to the date of the Advance Notice. The shares will be issued and sold to the Investor at a per share price equal to 97% of the lowest daily volume weighted average price of the Common Stock for three consecutive trading days commencing on the trading day immediately following the Investor’s receipt of an Advance notice. The Company paid the Investor a structuring fee of $25,000 and a commitment fee of 100,000 shares of Common Stock (the “Commitment Fee”).

 

Any purchases under an Advance will be subject to certain limitations, including that the Investor cannot acquire (i) any shares that would result in the Investor, including its affiliates, beneficially owning more than 4.99% of the Company’s outstanding Common Stock at the time of an Advance or (ii) more than 19.99% of the Company’s issued and outstanding Common Stock as of the SEPA Effective Date (the “Exchange Cap”), subject to limited exceptions.

 

Additionally, on September 30, 2024, the Investor advanced an initial $15.0 million (the “Pre-Paid Advance”) to the Company and the Company issued a convertible promissory note (the “Senior Convertible Note”), with an interest rate of 8.00% and a maturity date of September 30, 2025. The Company’s obligations with respect to the Pre-Paid Advance and under the Senior Convertible Note are guaranteed by Prairie Operating Co., LLC (“Prairie LLC”), a subsidiary of the Company, and Prairie Operating Holding Co., LLC (“Prairie Holdco”), a subsidiary of the Company, pursuant to a global guaranty agreement (the “SEPA Guaranty”) entered into by Prairie LLC and Prairie Holdco in favor of the Investor on September 30, 2024. The Investor may convert the Pre-Paid Advance into shares of Common Stock at any time at the Conversion Price (as defined in the SEPA). The Company may, at any time, redeem all or a portion or the amounts outstanding under the Senior Convertible Note at 105% of the principal amount thereof, plus accrued and unpaid interest.

 

In connection with the SEPA, the Company entered into a registration rights agreement (the “SEPA Registration Rights Agreement”) with the Investor pursuant to which the Company agreed to file a registration statement registering the resale of the Common Stock underlying the SEPA, the Pre-Paid Advance and the Commitment Fee.

 

The foregoing description of (i) the SEPA, (ii) the Senior Convertible Note, (iii) the SEPA Guaranty, and (iv) the SEPA Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of (a) the SEPA, which is attached hereto as Exhibit 10.1, (b) the Senior Convertible Note, which is attached hereto as Exhibit 10.2, (c) the SEPA Guaranty, which is attached hereto as Exhibit 10.3 and (d) the SEPA Registration Rights Agreement, which is attached hereto as Exhibit 10.4, respectively, and each are incorporated herein by reference into this Item 1.01.

 

 

Subordinated Promissory Note

 

On September 30, 2024 (the “Subordinated Note Effective Date”), the Company entered into a subordinated promissory note (the “Subordinated Note”) with First Idea Ventures LLC and The Hideaway Entertainment LLC (together, the “Noteholders”), in a principal amount of $5,000,000, with a maturity of September 30, 2025. The Subordinated Note has an interest rate of 10.00% and the Noteholders are entitled to a minimum return on capital of up to 2.0x upon the repayment, prepayment or acceleration of the obligations, or the occurrence of certain other triggering events under the Subordinated Note. The Subordinated Note is guaranteed by Prairie LLC pursuant to a global guaranty agreement (the “Note Guaranty”) entered into by Prairie LLC in favor of the Noteholders on the Subordinated Note Effective Date. The Noteholders are entities controlled by Jonathan H. Gray, a director of the Company. The Subordinated Note is subordinated to the prior payment in full in cash to the Senior Convertible Note and any future senior secured revolving credit facility of the Company entered into after the Subordinated Note Effective Date.

 

Pursuant to the terms of the Subordinated Note, the Company issued to the Noteholders warrants (the “Warrants”) to purchase up to 1,141,552 shares of Common Stock, vesting in tranches based on the date of repayment of the Subordinated Note. Upon vesting, the Warrants will be exercisable at any time until September 30, 2029, at an exercise price of $8.89, subject to adjustments as provided under the terms of the Warrants.

 

In connection with the Securities Purchase Agreement (as defined below) and the Subordinated Note, the Company entered into a registration rights agreement (the “SPA Registration Rights Agreement”) with the Purchaser (as defined below) and the Noteholders pursuant to which the Company agreed to file a registration statement registering the resale of the Acquired Shares and the Common Stock underlying the Warrants.

 

The foregoing description of (i) the Subordinated Note, (ii) the Warrants, (iii) the SPA Registration Rights Agreement and (iv) the Note Guaranty is a summary only, does not purport to be complete, and is qualified in its entirety by reference to the full text of (a) the Subordinated Note, which is attached hereto as Exhibit 10.5, (b) the form of the Warrant, which is attached hereto as Exhibit 4.1, (c) the SPA Registration Rights Agreement, which is attached hereto as Exhibit 10.6 and (d) the Note Guaranty, which is attached hereto as Exhibit 10.7, respectively, and each is incorporated by reference into this Item 1.01.

 

Non-Compensatory Option Purchase Agreement

 

Effective September 30, 2024, the Company, BOKA Energy LP (“BOKA”), Rose Hill Holdings Limited (“Rose Hill”), Anchorman Holdings Inc. (“Anchorman”) and Blackstem Forest, LLC (“Blackstem”) entered into an Assignment and Assumption Agreement, pursuant to which BOKA assigned and transferred the right and non-compensatory option (the “Option”) to purchase an aggregate of 800,000 shares of Common Stock to Rose Hill, Anchorman and Blackstem (the “Option Transfers”), under which the Company did not receive any proceeds from the Option Transfers. In connection with the Option Transfers, the Company entered into a non-compensatory option purchase agreement (the “Current Option Purchase Agreements”) with each of Rose Hill, Anchorman and Blackstem. The Options are only exercisable if specific production hurdles are achieved.

 

The foregoing description of the Current Option Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Current Option Purchase Agreement for Rose Hill, Anchorman and Blackstem, respectively, which are each attached hereto as Exhibits 10.8, 10.9 and 10.10, respectively, and are each incorporated herein by reference into this Item 1.01.

 

Relationships

 

The Noteholders are entities controlled by Jonathan Gray, a director of the Company. The shares of Common Stock to be issued upon exercise of the Warrants issued to the Noteholders is equal to approximately 4.98% of the Common Stock outstanding as of September 30, 2024, after giving effect to the issuance of the Acquired Shares and the Commitment Fee.

 

Blackstem is an entity controlled by Erik Thoresen, a director of the Company. As of the date of the Securities Purchase Agreement and the date of this Current Report on Form 8-K, except as disclosed in this Current Report on Form 8-K and the Company’s other filings with the SEC, there are no other material relationships between the Company or any of the Company’s affiliates and the Purchaser.

 

 

Item 2.01

Completion of Acquisition or Disposition of Assets.

 

On October 1, 2024 (the “Closing Date”), the Company closed its previously announced acquisition of the oil and gas properties, rights and related assets of Nickel Road Development LLC (“NRD”), Nickel Road Operating LLC (“NRO” and, together with NRD, collectively, the “Sellers”). On the Closing Date, the Company paid $49.6 million to the Sellers in cash, sourced from the consideration from the Securities Purchase Agreement, the Pre-Paid Advance under the SEPA and cash on hand. The Company had previously paid $6.0 million in cash to the Sellers.

 

Item 2.03

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

 

The disclosure set forth above in the Item 1.01 of this Current Report on Form 8-K with respect to the Senior Convertible Note and the SEPA Guaranty, and the Subordinated Note and Note Guaranty are incorporated by reference herein.

 

Item 3.02

Unregistered Sales of Equity Securities.

 

The disclosure set forth above in the Item 1.01 of this Current Report on Form 8-K with respect to (i) the SEPA; (ii) the Senior Convertible Note; and (iii) the Warrants are incorporated by reference herein. Pursuant to the SEPA, the Company issued 100,000 shares of Common Stock to the Investor as the Commitment Fee on September 30, 2024 and may issue up to a total of 4,198,343 shares of Common Stock through Advances under the SEPA program, upon conversion of the Senior Convertible Note within the Exchange Cap or through any other issuances of Common Stock thereunder. Pursuant to the Warrants, the Company may issue up to a total of 1,141,552 shares of Common Stock. In addition, on September 30, 2024, the Company entered into securities purchase agreements (the “Securities Purchase Agreement”) to sell 1,827,040 shares of Common Stock (“Acquired Shares”) to an investor (the “Purchaser”) for $8.21 per share.

 

The Acquired Shares, Warrants and Commitment Fee were issued, and the shares issuable pursuant to the SEPA program will be issued, pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

 

The foregoing description of the Securities Purchase Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of Securities Purchase Agreement, which is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K.

 

Item 7.01

Regulation FD Disclosure.

 

NRO Acquisition Closing Press Release

 

On October 2, 2024, the Company issued a press release announcing the closing of the NRO Acquisition (the “Press Release”).

 

The full text of the press release is included as Exhibit 99.2 and is incorporated herein by reference into this Item 7.01.

 

Private Placement Presentation

 

In connection with confidential discussions and negotiations with certain parties regarding the proposed private placement of securities (the “Proposed Transaction”), the Company provided to such recipients, pursuant to confidentiality agreements, certain information (the “Private Placement Presentation”) that the Company agreed to publicly disclose upon the announcement of the Proposed Transaction. The Private Placement Presentation is included as Exhibit 99.3 and incorporated by reference into this Item 7.01.

 

In accordance with General Instruction B.2 of Form 8-K, the information furnished pursuant to Item 7.01, the press release attached hereto as exhibit 99.2 and the presentation attached hereto as Exhibit 99.3 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 8.01

Other Events.

 

The Company is filing (i) an updated development plan, as set forth as Exhibit 99.4, which is incorporated by reference into this Item 8.01, (ii) the unaudited financial statements of NRO as of and for the six months ended June 30, 2024, as set forth as Exhibit 99.5, which is incorporated by reference into this Item 8.01, (iii) the report of Cawley, Gillespie & Associates, Inc., independent petroleum engineers, relating to the combined reserves of the Company as of June 30, 2024, as set forth as Exhibit 99.6, which is incorporated by reference into this Item 8.01, (iv) the unaudited pro forma condensed combined financial information of the Company as of and for the six months ended June 30, 2024, as set forth as Exhibit 99.7, which is incorporated by reference into this Item 8.01 and (v) certain financial, reserves and operational information regarding NRO, as set forth as Exhibit 99.8, which is incorporated by reference into this Item 8.01.

 

 

Item 9.01

Financial Statements and Exhibits.

 

(a)

Financial Statements of Business Acquired

 

The audited financial statements of NRO as of and for the year ended December 31, 2023 were filed as Exhibit 99.1 to the Company’s Form 8-K/A filed on February 9, 2024 and are incorporated herein by reference.

 

The unaudited financial statements of NRO as of and for the six months ended June 30, 2024, are filed as Exhibit 99.5 hereto and are incorporated herein by reference.

 

(b)

Pro Forma Financial Information

 

The unaudited pro forma condensed combined financial information of the Company as of and for the six months ended June 30, 2024, are filed as Exhibit 99.7 hereto and are incorporated herein by reference.

 

Exhibit Number		Description
4.1		Form of Common Stock Purchase Warrant issued by Prairie Operating Co. to the Noteholders.
10.1		Standby Equity Purchase Agreement, dated as of September 30, 2024, by and among Prairie Operating Co. and YA II PN, LTD.
10.2		Convertible Promissory Note, dated September 30, 2024, in favor of YA II PN, LTD.
10.3		Global Guaranty Agreement, dated September 30, 2024, by Prairie Operating Co., LLC and Prairie Operating Holding Co., LLC, in favor of YA II PN, LTD.
10.4		Registration Rights Agreement, dated as of September 30, 2024, by and between Prairie Operating Co. and YA II PN, LTD.
10.5		Prairie Operating Company Subordinated Note, dated September 30, 2024, by and among Prairie Operating Co., First Idea Ventures LLC and The Hideaway Entertainment LLC.
10.6		Registration Rights Agreement, dated as of September 30, 2024, by and between Prairie Operating Co. and the holders party thereto.
10.7		Global Guaranty Agreement, dated September 30, 2024, by Prairie Operating Co., LLC, in favor of First Idea Ventures LLC and The Hideaway Entertainment LLC.
10.8		Non-Compensatory Option Purchase Agreement, dated as of September 30, 2024, by and among Prairie Operating Co. and Rose Hill Holdings Limited.
10.9		Non-Compensatory Option Purchase Agreement, dated as of September 30, 2024, by and among Prairie Operating Co. and Anchorman Holdings Inc.
10.10		Non-Compensatory Option Purchase Agreement, dated as of September 30, 2024, by and among Prairie Operating Co. and Blackstem Forest, LLC.
23.1		Consent of Cawley, Gillespie & Associates, Inc.
99.1		Securities Purchase Agreement, dated as of September 30, 2024, by and among Prairie Operating Co. and the Purchasers thereto.
99.2		Press Release, dated October 2, 2024.
99.3		Private Placement Presentation, July 2024.
99.4		Updated Development Plan of Prairie Operating Co.
99.5		Unaudited financial statements of Nickel Road Operating LLC, as of and for the six months ended June 30, 2024.
99.6		Report of Cawley, Gillespie & Associates Inc., dated October 2, 2024, as to the combined reserves of Prairie Operating Co., as of June 30, 2024.
99.7		Unaudited Pro Forma Condensed Combined Financial Information as of and for the six months ended June 30, 2024.
99.8		Information About NRO.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

 

SIGNATURES

 

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.

 

	PRAIRIE OPERATING CO.
Date: October 4, 2024
	By:	/s/ Daniel T. Sweeney
		Daniel T. Sweeney
		Executive Vice President and General Counsel

 

 

 

 

 

Exhibit 4.1

 

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

COMMON STOCK PURCHASE WARRANT

 

PRAIRIE OPERATING CO.

 

Warrant Shares: ________________

Initial Exercise Date: September 30, 2024

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ________________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on September 30, 2029 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Prairie Operating Co., a Delaware corporation (the “Company”), up to ________________shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price (as defined herein).

 

Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary of the Company or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign).

 

“Affiliate” means any Person (as defined herein) that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

 

“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market (as defined herein), the bid price of a share of Common Stock for the time in question (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted on a Trading Market but is listed or quoted on the OTCQB Venture Market (“OTCQB”) or the OTCQX Best Market (“OTCQX”), the volume weighted average per share price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on a Trading Market, OTCQB or OTCQX and if prices for the Common Stock are then reported in the Pink Open Market operated by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder of this Warrant and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

“Capital Stock” of any Person means any and all shares, interests, participations or other equivalents, however designated, of corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person and any rights (other than debt securities convertible or exchangeable into an equity interest), warrants or options to acquire an entity interest in such Person.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the Company’s common stock, par value $0.01 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or its Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“EBITDA” means, for the Company and its Subsidiaries for the relevant period, an amount equal to the sum of (i) consolidated net income (loss) for such quarter determined on a consolidated basis in accordance with GAAP for such period plus (ii) to the extent deducted in determining consolidated net income for such period, and without duplication, (A) interest expense for such period, (B) income tax expense determined on a consolidated basis in accordance with GAAP for such period, (C) depreciation, depletion and amortization determined on a consolidated basis in accordance with GAAP for such period, and (D) non-cash charges resulting from the requirements of Accounting Standards Codifications 410, 718 and 815 in respect of any provision for the reduction in the carrying value of assets recorded in accordance with GAAP.

 

 

“Equity Conditions” means, during the period in question, (a) the Company shall have effected all exercises required to occur by virtue of one or more Notices of Exercise of the applicable Holder on or prior to the dates so requested or required, if any, (b) the Company shall have paid all liquidated damages and Distributions (as defined in Section 3(c)) owing to the applicable Holder in respect of the Warrants, (c) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder, (d) the Common Stock is trading on a Trading Market and all of the Warrant Shares issuable upon exercise of this Warrant, when exercised, will be listed or quoted for trading on such Trading Market (and the Company has no reason to believe, in good faith, that trading of the Common Stock on a Trading Market will be interrupted for the foreseeable future), and (e) subject to Section 5(c), the shares issuable upon exercise in full to the applicable Holder would not violate the limitations set forth in Section 2(d) herein.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exempt Issuance” means the issuance of (a) securities issued pursuant to any merger, acquisition (including any asset acquisition), consolidation or other strategic transaction (i) approved by a majority of the disinterested directors of the Company or (ii) in an arms’-length transaction, (b) securities in connection with any split, dividend or reorganization of the Company, (c) shares of Common Stock issuable upon the conversion or exercise of any preferred shares or warrants issued and outstanding as of the Initial Exercise Date, or (d) shares of Common Stock pursuant to a SEPA Program.

 

“GAAP” means United States generally accepted accounting principles.

 

“Note” means the Company’s promissory note, dated September 30, 2024, by and between the Company and each lender party thereto.

 

“Note Payoff” means the payment by the Company, in full, of the Note.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Reference Price” means $8.89.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“SEPA Program” means a commitment by one or more investors to purchase up to $40,000,000 of Common Stock of the Company on terms to be set forth in a standby equity purchase agreement or similar agreement between the Company and one or more investors setting forth the terms for an advance commitment to purchase Common Stock.

 

 

“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

“Trading Day” means a day on which the principal Trading Market is open for business.

 

“Trading Market” means the Nasdaq Capital Market or any of the following markets or exchanges on which the Common Stock may be listed or quoted for trading at such future date in question: the NYSE American, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

“Transfer Agent” means Vstock Transfer, LLC, the current transfer agent of the Company and any successor transfer agent of the Company.

 

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted on a Trading Market but is listed or quoted on the OTCQB or the OTCQX, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on a Trading Market, OTCQB or OTCQX and if prices for the Common Stock are then reported in the Pink Open Market operated by OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent Bid Price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder of this Warrant and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

Section 2. Vesting Terms; Exercise.

 

(a) Vesting Terms. This Warrant shall be exercisable at the option of the Holder, at any time or from time to time, in whole or in part, on or before the Termination Date, for an aggregate number of Warrant Shares equal to (in each case, as subject to adjustment hereunder):

 

(i) as of the Initial Exercise Date first set forth above, _________ initial Warrant Shares (the “Initial Warrant Shares”), plus

 

(ii) if the Note Payoff has not occurred on or prior to December 29, 2024, on December 29, 2024, a number of additional Warrant Shares equal to _________ Warrant Shares, plus

 

 

(iii) if (A) the Note Payoff occurs after December 29, 2024 and on or prior to March 30, 2025, on the date of the Note Payoff, or (B) if the Note Payoff has not occurred on or prior to March 30, 2025, on March 30, 2025, a number of additional Warrant Shares equal to _________ Warrant Shares, plus

 

(iv) if (A) the Note Payoff occurs after March 30, 2025 and on or prior to June 27, 2025, on the date of the Note Payoff, or (D) if the Note Payoff has not occurred on or prior to June 27, 2025, on June 27, 2025, a number of additional Warrant Shares equal to _________ Warrant Shares.

 

(b) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed PDF copy submitted by email (or email attachment) of the Notice of Exercise in the form attached hereto as Annex 1 (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(c)(i)) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder (or the Company has redeemed all of the Warrant Shares available hereunder) and the Warrant has been exercised in full or redeemed by the Company in full, in which case, if an original of this Warrant was delivered to the Holder, the Holder shall surrender this Warrant to the Company for cancellation as soon as reasonably practicable after the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased, except as otherwise provided in Section 2(c)(ii). The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

(c) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be an amount equal to the Reference Price, subject to adjustment hereunder (the “Exercise Price”); provided, however, that the Exercise Price shall not be, or be adjusted to be, an amount below the Minimum Price.

 

 

(d) Mechanics of Exercise.

 

(i) Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by (1) crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit/Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) the Warrant Shares are otherwise eligible to be freely tradable with no restriction by the Holder pursuant to another exemption from registration, in each case of clauses (A) and (B), which Warrant Shares or book-entry positions evidencing the Warrant Shares shall not contain any legend or restrictive notation thereon, or (2) if the Common Stock is not then on the system of The Depository Trust Company or if none of the conditions in (1)(A) through (1)(B) above are satisfied, by physical delivery of a certificate or evidence of a book-entry position, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (A) the earlier of (i) two (2) Trading Days and (ii) the number of days comprising the Standard Settlement Period, in each case after the delivery to the Company of the Notice of Exercise, and (B) one (1) Trading Day after delivery of the aggregate Exercise Price to the Company (such date, the “Warrant Share Delivery Date”). Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that the Company shall have received payment of the aggregate Exercise Price by the Warrant Share Delivery Date. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after the Warrant Share Delivery Date) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise; provided, however, that no liquidated damages shall be payable hereunder if such failure to deliver such Warrant Shares by the Warrant Share Delivery Date is not due to any action or inaction of or attributable to the Company of any of its Subsidiaries. The Company agrees to maintain a transfer agent (which may be the Transfer Agent) that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.

 

(ii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares remaining available under this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

 

(iii) Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(c)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

(iv) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails for any reason to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(c)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such Warrant Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and, (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case, such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price (including any brokerage commissions) giving rise to such purchase obligation of a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver the Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.

 

(v) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

 

 

(vi) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the assignment form attached hereto as Annex 2 (the “Assignment Form”) duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.

 

(vii) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

(e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to this Section 2 or otherwise, to the extent, that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Common Stock Equivalents) beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 61^st day after such notice is delivered to the Company. The provisions of this Section 2(d) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. This provision shall not restrict the number of shares of Common Stock which the Holder of this Warrant may receive or beneficially own in order to determine the amount of securities or other consideration that the Holder may receive in the event of a Fundamental Transaction. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. Except as otherwise provided herein, if any consideration otherwise due upon the proposed exercise of this Warrant pursuant to an exercise is not delivered as a result of the Beneficial Ownership Limitation, then the Company’s obligation to deliver such consideration will not be extinguished, and the Company will deliver such consideration (and the relevant Warrant Shares shall be deemed exercised) on or as promptly as practicable after the date the Holder provides evidence that its beneficial ownership is such that additional shares of Common Stock issuable upon exercise of the Warrants may be delivered without causing the Holder’s beneficial ownership to exceed the Beneficial Ownership Limitation.

 

 

Section 3. Certain Adjustments.

 

(a) Stock Dividends and Stock Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock, Common Stock Equivalents, or any other equity or equity equivalent securities payable in shares of Common Stock (which shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides its outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of Capital Stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares of the Company, if any) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. If the Company, at any time while this Warrant is outstanding, authorizes and issues an additional class of common or special stock, with dividend and voting rights at a ratio different than the existing class of Common Stock (the “New Common Stock”), then this Warrant shall automatically become exercisable, at the election of the Holder, for shares of the New Common Stock at an adjusted Exercise Price proportional to the then-current Exercise Price multiplied by a fraction, the numerator of which shall be the number of votes per share of the class of New Common Stock and the denominator of which shall be the number of votes per share of the existing class of Common Stock.

 

(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record was taken for the grant, issuance or sale of such Purchase Rights, or, if no such record was taken, the date as of which the record holders of shares of Common Stock were determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). Notwithstanding the foregoing, no adjustment will be made under this Section 3(b) in respect of an Exempt Issuance.

 

 

(c) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, provision shall be made so that the Holder shall thereafter be entitled to receive, upon exercise of this Warrant, for no additional consideration, such dividend or other distribution of such cash, stock or other securities, property or options in an amount equal to the amount of such cash, stock or other securities, property or options as the Holder would have received if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record was taken for such Distribution, or, if no such record was taken, the date as of which the record holders of shares of Common Stock were determined for the participation in such Distribution (provided, however, that to the extent that the Holder’s right to, upon exercise, receive such dividend or other distribution of such cash, stock or other securities, property would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to receive such dividend or other distribution of such cash, stock or other securities, property or options to such extent (or in the beneficial ownership of any shares of Common Stock as a result thereof to such extent) and the portion of such dividend or other distribution of such cash, stock or other securities, property or options shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

(d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company (and all of its Subsidiaries, taken as a whole), directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock or 50% or more of the voting power of the common equity of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person, whereby such other Person acquires 50% or more of the outstanding shares of Common Stock or 50% or more of the voting power of the common equity of the Company (each, a “Fundamental Transaction”), then the Company shall deliver written notice of such Fundamental Transaction to the Holder promptly upon the signing of such Fundamental Transaction, and in any event, at least twenty (20) calendar days prior to the consummation of such Fundamental Transaction (the “Fundamental Transaction Notice Date”), which notice shall include the high-level terms of such Fundamental Transaction, including the expected size and type of consideration to be payable to the securityholders of the Company. By the deadline set forth in such notice, which shall be at least ten (10) calendar days following the date of the Fundamental Transaction Notice Date, the Holder shall inform the Company in writing of its election to either (A) effective immediately prior to, and contingent upon, the closing of such Fundamental Transaction, exercise this Warrant into Common Stock at the Exercise Price, and thereafter the Holder shall be entitled to participate in the Fundamental Transaction on the same terms as other holders of the Common Stock, provided, however, that the exercise must be for all, and not less than all, of the Warrant Shares or (B) upon any subsequent exercise of this Warrant, receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant, including without limitation, the Beneficial Ownership Limitation), the number of securities of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitations on the exercise of this Warrant, including without limitation, the Beneficial Ownership Limitation). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue a new warrant with the same terms and conditions consistent with the foregoing provisions. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to a written agreement in form and substance reasonably satisfactory to the Holder (without unreasonable delay) prior to such Fundamental Transaction. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.

 

 

Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) calendar days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, the Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction (in each case, without regard to any limitations on the exercise of this Warrant, including without limitation, the Beneficial Ownership Limitation), whether that consideration be in the form of cash, shares or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction.

 

“Black Scholes Value” means the value of this Warrant (without regard to any limitations on the exercise of this Warrant, including without limitation, the Beneficial Ownership Limitation) based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date, (ii) an expected volatility equal to the greater of (A) the 30 day volatility, (B) the 100 day volatility or (C) the 365 day volatility, each of sub-clauses (a)-(c) as obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable contemplated Fundamental Transaction, (iii) the underlying price per share used in such calculation shall be the highest VWAP during the period beginning on the Trading Day immediately preceding the public announcement of the applicable contemplated Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(d) and (iv) a remaining option time equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date and (v) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (y) five (5) Business Days of the Holder’s election and (z) the date of consummation of the Fundamental Transaction.

 

 

(e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(f) Notice to Holder.

 

(i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 

(ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of Capital Stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company (and all of its Subsidiaries, taken as a whole), or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by email to the Holder at its last email address as it shall appear upon the Warrant Register (as defined herein) of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

 

(iii) Notice of Redemption. The Company shall provide the Holder with a written Redemption Notice (as defined below) in accordance with Section 5(b).

 

(iv) Notice of Expiration. The Company shall give the Holder written notice of the Holder’s right to exercise this Warrant in the form attached as Annex 3 not more than ninety (90) calendar days and not less than fifteen (15) calendar days before the Expiration Date and, in the case of a Fundamental Transaction to which the proviso of Section 3(e) shall be applicable, fifteen (15) calendar days’ notice of such Fundamental Transaction. If the notice is not so given, the Expiration Date shall automatically be extended until fifteen (15) calendar days after the date the Company delivers the notice to the Holder.

 

(g) Exercise Minimum Price. No adjustment pursuant to this Section 3 shall cause the Exercise Price to be less than $8.89 (the “Minimum Price”), or, subject to the rules and regulations of the Trading Market, such lower price as the Company and the Holder may agree, from time to time; provided that, if any such adjustment would cause the Exercise Price to be less than the Minimum Price (prior to giving effect to this Section 3), the Exercise Price shall be adjusted to the Minimum Price.

 

Section 4. Transfer of Warrant.

 

(a) Transferability. Subject to compliance with any applicable securities laws, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together the Assignment Form substantially in the form attached hereto as Annex 2 duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers the Assignment Form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

 

(b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the principal office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

(c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

Section 5. Redemption.

 

(a) Redemption of Warrants for Cash. Notwithstanding anything herein to the contrary, if after six months from the Initial Exercise Date, (i) (A) the average of the VWAPs exceeds 180% of the Exercise Price on each Trading Day of the Threshold Period (the “Reference Value”) and (B) the average trading volume of the Common Stock is equal to or greater than $5 million on the corresponding Trading Days of the Threshold Period, with (A) and (B) occurring during any twenty (20) Trading Days in a consecutive thirty (30) Trading Day period (“Threshold Period”) and (ii) the Company’s EBITDA is greater than $50 million for two of the last three quarters completed immediately prior to the applicable Threshold Period (with the calculation to be set forth in an officer’s certificate of the Company to be provided to the Holders together with the Redemption Notice (as defined below)) (the conditions set forth in clauses (i) through (ii), collectively, the “Redemption Conditions”), the Company may, within two (2) Trading Days after the end of any such Threshold Period, deliver a written notice to all Holders (a “Redemption Notice” and the date such notice is delivered to all Holders, the “Redemption Notice Date”) notifying the Holders that the Company has elected, at its option, to redeem all of the outstanding Warrants, at a redemption price of $4.00 per Warrant (the “Redemption Price”), provided that the Company may not deliver a Redemption Notice, and any Redemption Notice delivered by the Company shall not be effective, unless each of the Equity Conditions have been met as of the Redemption Notice Date through and including the later of the Redemption Notice Date and the Trading Day on which the Redemption Price to be paid for the Warrants pursuant to such redemption is actually paid to the Holders pursuant to the Redemption Notice (the “Redemption Date”). For purposes of clarification, a redemption effected by this Section 5(a) shall be subject to all of the provisions of Section 2, including, without limitation, the provisions requiring payment of liquidated damages and amounts payable to the Holder in respect of any Buy-In.

 

 

(b) Date Fixed for, and Notice of, Redemption. In the event that the Company elects to redeem the Warrants pursuant to Section 6(a), the Company shall fix the Redemption Date. The Redemption Notice shall be mailed by first class mail, postage prepaid, by the Company not less than 30 calendar days prior to the Redemption Date (the “30-day Redemption Period”) to the Registered Holders of the Warrants to be redeemed at the address in effect for notices to such Holders under this Warrant. Any notice mailed in the manner herein provided shall be conclusively presumed to have been deemed given and effective on the earliest of: (i) the time of transmission, if the Redemption Notice is delivered via email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the time of transmission, if such Redemption Note is delivered via email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second (2nd) Trading Day following the date of mailing, if sent the Redemption Notice is sent by U.S. nationally recognized overnight courier service and (iv) upon actual receipt by the party to whom such notice is required to be given.

 

(c) Exercise After Redemption Notice. The Warrants may be exercised for cash at any time after the Redemption Notice Date and prior to the Redemption Date. On and after the Redemption Date, the record holder of the Warrants shall have no further rights except to receive, upon surrender of the Warrants, the Redemption Price; provided, however, that if the exercise of the Warrant Shares would violate the limitations set forth in Section 2(d) herein with respect to any Holder, the Company shall be able to redeem only such amount of such Holder’s unexercised Warrant Shares that would be permitted by Section 2(d) and the remaining amount of the Warrant will remain outstanding until the earlier of the (i) exercise by the Holder, (ii) Termination Date or (iii) redemption of such Holder’s Warrant Shares by the Company, once permitted by Section 2(d), pursuant to and subject to the conditions of this Section 5(a).

 

Section 6. Miscellaneous.

 

(a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(c)(i), except as expressly set forth in Section 3. In no event shall the Company be required to net cash settle an exercise of this Warrant.

 

(b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

(c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

 

(d) Authorized Shares.

 

The Company covenants that, during the period the Warrant is outstanding, it will reserve and keep available out of its authorized and unissued Common Stock a sufficient number of shares, free from all preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

 

 

(e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal Proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Warrant), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such New York court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. If any party shall commence an Action or Proceeding to enforce any provisions of this Warrant, then, in addition to any obligations of the Company under any other agreement between the Company and the Holder, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

 

(f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

 

(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate Proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

(h) Notices. Any and all notices or other communications or deliveries required or permitted to be provided by the Holder hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by email, or sent by a nationally recognized overnight courier service, addressed to the Company, at 55 Waugh Dr., Suite 400, Houston, Texas, Attention: Daniel T. Sweeney, email address: ds@prairieopco.com, or such other telephone number, email address or address as the Company may specify for such purposes by written notice to the Holder. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email, or sent by a nationally recognized overnight courier service addressed to the Holder at the address for such notices and communications set forth on the signature page of the Holder attached hereto or such other telephone number, email address or address as the Holder may specify for such purposes by written notice to the Company. Any notice or other communications or deliveries hereunder shall be deemed given and effective on the earliest of: (i) the time of transmission, if such notice or communication is delivered via email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service and (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.

 

 

(i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

(j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any Action for specific performance that a remedy at law would be adequate.

 

(k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of the Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

(l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

(m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

(n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

(o) Electronic Signatures. Electronically scanned and transmitted signatures, including by email attachment, shall be deemed originals for all purposes of this Warrant. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.

 

********************

 

(Signature Page Follows)

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

	PRAIRIE OPERATING CO.
	By:
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

Signature Page to

Common Stock Purchase Warrant

 

 

Annex 1

 

NOTICE OF EXERCISE

 

To: PRAIRIE OPERATING CO.

 

(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

 

(2) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

_______________________________

 

The Warrant Shares shall be delivered to the following DWAC Account Number:

 

_______________________________

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity: ___________________________________________________________________________

 

Signature of Authorized Signatory of Investing Entity: _____________________________________________________

 

Name of Authorized Signatory: _______________________________________________________________________

 

Title of Authorized Signatory: ________________________________________________________________________

 

Date: ______________________________

 

Annex 1

 

 

Annex 2

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:
	(Please Print)
Address:
	(Please Print)
Phone Number:
Email Address:
Dated: _______________ ___, ______
Holder’s Signature: ________________________
Holder’s Address: _________________________

 

Annex 2

 

 

Annex 3

 

Notice that Warrant Is About to Expire

 

[Insert Date of Notice]

 

To: __________________________

 

The Warrant issued to you described below will expire on _________________.

 

Issuer:	PRAIRIE OPERATING CO.
Issuer Date:	September [●], 2024
Class of Security Issuable:
Number of Shares Issuable:
Procedure for Exercise:

 

Please contact [●] at [●] with any questions you may have concerning exercise of the Warrant. This is your only notice of pending expiration.

 

	PRAIRIE OPERATING CO.
	By:
	Its:

 

Annex 3

 

 

 

Exhibit 10.1

 

STANDBY EQUITY PURCHASE AGREEMENT

 

THIS STANDBY EQUITY PURCHASE AGREEMENT (this “Agreement”) dated as of September 30, 2024 is made by and between YA II PN, LTD., a Cayman Islands exempt limited company (the “Investor”), and PRAIRIE OPERATING CO., a company incorporated under the laws of the State of Delaware (the “Company”). The Investor and the Company may be referred to herein individually as a “Party” and collectively as the “Parties.”

 

WHEREAS, the Parties desire that, upon the terms and subject to the conditions contained herein, the Company shall have the right to issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company, up to $40 million in aggregate gross purchase price of newly issued fully paid shares of the Company’s common stock, par value $0.01 per share (the “Common Shares”);

 

WHEREAS, the Common Shares are listed for trading on the Nasdaq Stock Market under the symbol “PROP;”

 

WHEREAS, the offer and sale of the Common Shares issuable hereunder and the issuance of the Promissory Note hereunder will be made in reliance upon Section 4(a)(2) under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the transactions to be made hereunder;

 

WHEREAS, the Parties are concurrently entering into a Registration Rights Agreement in the form attached as Exhibit A hereto (the “Registration Rights Agreement”), pursuant to which the Company shall register the resale of the Registrable Securities (as defined in the Registration Rights Agreement), upon the terms and subject to the conditions set forth therein;

 

WHEREAS, on or before the Pre-Advance Closing, each wholly owned subsidiary of the Company having significant assets or financial activity (which is Prairie Operating Co., LLC and Prairie Operating Holding Co., LLC) shall enter into a Global Guaranty Agreement in favor of the Investor; and

 

WHEREAS, in consideration of the Investor’s execution and delivery of this Agreement, the Company shall issue to the Investor the Commitment Shares pursuant to and in accordance with Section 11.04.

 

NOW, THEREFORE, the Parties hereto agree as follows:

 

Article I. Certain Definitions

 

Capitalized terms used in this Agreement shall have the meanings ascribed to such terms in Annex I hereto, and hereby made a part hereof, or as otherwise set forth in this Agreement.

 

 

Article II. Pre-Paid Advances

 

Section 2.01 Pre-Paid Advances. Subject to the satisfaction of the conditions set forth in Annex II attached hereto, the Investor shall advance to the Company the principal amount of $15,000,000 (the “Pre-Paid Advance”), which shall be evidenced by convertible promissory notes in the form attached hereto as Exhibit B (the “Promissory Note”).

 

Section 2.02 Pre-Advance Closing. The closing of the Pre-Paid Advance (the “Pre-Advance Closing”) shall occur remotely by conference call and electronic delivery of documentation and shall take place on the Effective Date, provided that the conditions set forth in Annex II have been satisfied (or such other date as is mutually agreed to by the Company and the Investor). At the Pre-Advance Closing, the Investor shall advance to the Company the principal amount of the Pre-Paid Advance, less a discount in the amount equal to 5% of the principal amount of the Pre-Paid Advance netted from the purchase price due and structured as an original issue discount (the “Original Issue Discount”), in immediately available funds to an account designated by the Company in writing, and the Company shall deliver the Promissory Note with a principal amount equal to the full amount of the Pre-Paid Advance, duly executed on behalf of the Company. The Company acknowledges and agrees that the Original Issue Discount (i) shall not be funded but shall be deemed to be fully earned at the Pre-Advance Closing, and (ii) shall not reduce the principal amount of each Promissory Note.

 

Article III. Advances

 

Section 3.01 Advances; Mechanics. Upon the terms and subject to the conditions of this Agreement, during the Commitment Period, the Company, at its sole discretion, shall have the right, but not the obligation, to issue and sell to the Investor, and the Investor shall subscribe for and purchase from the Company, Advance Shares by the delivery to the Investor of Advance Notices on the following terms:

 

(a)

Advance Notice. At any time during the Commitment Period, the Company may require the Investor to purchase Shares by delivering an Advance Notice to the Investor, subject to the satisfaction or waiver by the Investor of the conditions set forth in Annex III, and in accordance with the following provisions:

 

(i)

The Company shall, in its sole discretion, select the number of Advance Shares, not to exceed the Maximum Advance Amount (unless otherwise agreed to in writing by the Company and the Investor) it desires to issue and sell to the Investor in each Advance Notice, the time it desires to deliver each Advance Notice.

 

(ii)

There shall be no mandatory minimum Advances and there shall be no non-usage fee for not utilizing the Commitment Amount or any part thereof.

 

(iii)

For so long as any amount remains outstanding under the Promissory Note, without the prior written consent of the Investor, the Company may submit an Advance Notice and the aggregate purchase price owed to the Company from such Advances (“Advance Proceeds”) shall be paid by the Investor by offsetting the amount of the Advance Proceeds against an equal amount outstanding under the Promissory Note (first towards accrued and unpaid interest, and then towards outstanding principal).

 

 

(b)

Date of Delivery of Advance Notice. Advance Notices shall be delivered in accordance with the instructions set forth on the bottom of Exhibit C attached hereto. An Advance Notice shall be deemed delivered on (i) the day it is received by the Investor if such notice is received by e-mail at or before 9:00 a.m. New York City time (or at such later time if agreed to by the Investor in its sole discretion), or (ii) the immediately succeeding day if it is received by e-mail after 9:00 a.m. New York City time.

 

Section 3.02 Advance Limitations, Regulatory. Regardless of the Advance requested in an Advance Notice, and notwithstanding any provision to the contrary herein, the final number of Shares to be issued and sold pursuant to such Advance Notice shall be reduced (if at all) in accordance with each of the following limitations:

 

(a)

Ownership Limitation; Commitment Amount. At the request of the Company, the Investor will inform the Company in writing of the number of Common Shares the Investor currently beneficially owns. At the request of the Investor, the Company shall promptly confirm orally or in writing to the Investor the number of Common Shares then outstanding. Notwithstanding anything to the contrary contained in this Agreement, the Investor shall not be obligated to purchase or acquire, and shall not purchase or acquire, any Common Shares under this Agreement which, when aggregated with all other Common Shares beneficially owned by the Investor and its affiliates (as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder), would result in the beneficial ownership by the Investor and its affiliates (on an aggregated basis) of a number of Common Shares exceeding 4.99% of the then outstanding voting power or number of Common Shares (the “Ownership Limitation”). In connection with each Advance Notice, any portion of an Advance that would (i) cause the Investor to exceed the Ownership Limitation or (ii) cause the aggregate number of Shares issued and sold to the Investor hereunder to exceed the Commitment Amount shall automatically be withdrawn with no further action required by the Company, and such Advance Notice shall be deemed automatically modified to reduce the Advance by an amount equal to such withdrawn portion; provided that in the event of any such automatic withdrawal and automatic modification, the Investor will promptly notify the Company of such event.

 

(b)

Registration Limitation. In no event shall an Advance exceed the number of Common Shares registered in respect of the transactions contemplated hereby under the Registration Statement then in effect (the “Registration Limitation”). In connection with each Advance Notice, any portion of an Advance that would exceed the Registration Limitation shall automatically be withdrawn with no further action required by the Company and such Advance Notice shall be deemed automatically modified to reduce the aggregate amount of the requested Advance by an amount equal to such withdrawn portion; provided that in the event of any such automatic withdrawal and automatic modification, the Investor will promptly notify the Company of such event.

 

 

(c)

Compliance with Rules of Principal Market. Notwithstanding anything in this Agreement to the contrary, the Company shall not issue any Common Shares pursuant to the transactions contemplated hereby or any other Transaction Documents and the Investor shall not have the obligation to purchase Common Shares under this Agreement to the extent (but only to the extent) that after giving effect to such issuance the aggregate number of Common Shares issued under any of the Transaction Documents would exceed 4,196,245 (representing 19.99% of the aggregate number of Common Shares issued and outstanding as of the Effective Date of this Agreement), subject to adjustment for any stock splits, combinations or the like, calculated in accordance with the rules of the Principal Market, which number shall be reduced, on a share-for-share basis, by the number of Common Shares issued or issuable pursuant to any transaction or series of transactions that may be aggregated with the transactions contemplated by this Agreement under the applicable rules of the Principal Market (such maximum number of shares, the “Exchange Cap”) provided that, the Exchange Cap will not apply if (a) the Company’s stockholders have approved issuances in excess of the Exchange Cap in accordance with the rules of the Principal Market, or (b) the Average Price of all applicable sales of Common Shares hereunder (including any sales covered by an Advance Notice that has been delivered prior to the determination of whether this clause (b) applies) equals or exceed $8.76 per share (the “Nasdaq Minimum Price”) (which represents the lower of (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the Effective Date; or (ii) the average Nasdaq Official Closing Price for the five Trading Days immediately preceding the Effective Date). In connection with each Advance Notice, any portion of an Advance that would exceed the Exchange Cap shall automatically be withdrawn with no further action required by the Company and such Advance Notice shall be deemed automatically modified to reduce the aggregate amount of the requested Advance by an amount equal to such withdrawn portion in respect of each Advance Notice.

 

Section 3.03 Advance Limitations, Minimum Acceptable Price.

 

(a)

With respect to each Advance Notice the Company may notify the Investor of the Minimum Acceptable Price with respect to such Advance by indicating a Minimum Acceptable Price on such Advance Notice. If no Minimum Acceptable Price is specified in an Advance Notice, then no Minimum Acceptable Price shall be in effect in connection with such Advance. Each Trading Day during a Pricing Period for which (A) with respect to each Advance Notice with a Minimum Acceptable Price, the VWAP of the Common Shares is below the Minimum Acceptable Price in effect with respect to such Advance Notice, or (B) there is no VWAP (each such day, an “Excluded Day”), shall result in an automatic reduction to the number of Advance Shares set forth in such Advance Notice by one third (1/3) (the resulting amount of each Advance being the “Adjusted Advance Amount”), and each Excluded Day shall be excluded from the Pricing Period for purposes of determining the Market Price.

 

(b)

The total Advance Shares in respect of each Advance with any Excluded Day(s) (after reductions have been made to arrive at the Adjusted Advance Amount, if any) shall be automatically increased by such number of Common Shares (the “Additional Shares”) equal to the greater of (a) the number of Common Shares sold by the Investor on such Excluded Day(s), if any, or (b) such number of Common Shares elected to be subscribed for by the Investor, and the subscription price per share for each Additional Share shall be equal to the Minimum Acceptable Price in effect with respect to such Advance Notice multiplied by 97%, provided that this increase shall not cause the total Advance Shares to exceed the amount set forth in the applicable Advance Notice or any limitations set forth in Section 3.02.

 

 

Section 3.04 Unconditional Contract. Notwithstanding any other provision in this Agreement, the Company and the Investor acknowledge and agree that upon the Investor’s receipt of a valid Advance Notice from the Company the Parties shall be deemed to have entered into an unconditional contract binding on both Parties for the purchase and sale of the applicable number of Advance Shares pursuant to such Advance Notice in accordance with the terms of this Agreement and (i) subject to Applicable Laws and (ii) subject to Section 7.21, the Investor may sell Common Shares after receipt of an Advance Notice, including during a Pricing Period.

 

Section 3.05 Closings. The closing of each Advance and each sale and purchase of Advance Shares (each, a “Closing”) shall take place as soon as practicable on or after each applicable Advance Date in accordance with the procedures set forth below. The Company acknowledges that the Purchase Price is not known at the time an Advance Notice is delivered (at which time the Investor is irrevocably bound) but shall be determined on each Closing based on the daily prices of the Common Shares that are the inputs to the determination of the Purchase Price. In connection with each Closing, the Company and the Investor shall fulfill each of its obligations as set forth below:

 

(a)

On or prior to each Advance Date, the Investor shall deliver to the Company a Settlement Document along with a report by Bloomberg, L.P. (or, if not reported on Bloomberg, L.P., another reporting service reasonably agreed to by the parties) indicating the VWAP for each of the Trading Days during the Pricing Period in accordance with the terms and conditions of this Agreement.

 

(b)

Promptly after receipt of the Settlement Document with respect to each Advance (and, in any event, not later than one Trading Day after such receipt), the Company will, or will cause its transfer agent to, electronically transfer such number of Advance Shares to be purchased by the Investor (as set forth in the Settlement Document) by crediting the Investor’s account or its designee’s account at the Depository Trust Company through its Deposit Withdrawal at Custodian System or by such other means of delivery as may be mutually agreed upon by the parties hereto, and transmit notification to the Investor that such share transfer has been requested. Promptly upon receipt of such notification, the Investor shall pay to the Company the aggregate purchase price of the Shares (as set forth in the Settlement Document) either, (i) in cash in immediately available funds to an account designated by the Company in writing and transmit notification to the Company that such funds transfer has been requested, or (ii) in the case of an Advance Notice submitted while the Promissory Note is outstanding, as an offset of amounts owed under the Promissory Note as described Section 3.01(b). No fractional shares shall be issued, and any fractional shares that would otherwise be issued in connection with an Advance shall be rounded to the next higher whole number of shares. To facilitate the transfer of the Common Shares by the Investor, the Common Shares will not bear any restrictive legends so long as there is an effective Registration Statement covering the resale of such Common Shares (it being understood and agreed by the Investor that notwithstanding the lack of restrictive legends, the Investor may only sell such Common Shares pursuant to the Plan of Distribution set forth in the Prospectus included in the applicable Registration Statement and otherwise in compliance with the requirements of the Securities Act (including any applicable prospectus delivery requirements) or pursuant to an available exemption).

 

 

(c)

On or prior to the Advance Date, each of the Company and the Investor shall deliver to the other all documents, instruments and writings expressly required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.

 

(d)

Notwithstanding anything to the contrary in this Agreement, if on any day during the Pricing Period (i) the Company notifies the Investor that a Material Outside Event has occurred, or (ii) the Company notifies the Investor of a Black Out Period, the parties agree that any pending Advance shall end and the final number of Advance Shares to be purchased by the Investor at the Closing for such Advance shall be equal to the number of Common Shares sold by the Investor during the applicable Pricing Period prior to the notification from the Company of a Material Outside Event or Black Out Period.

 

Section 3.06 Hardship.

 

(a)

In the event the Investor sells Common Shares after receipt, or deemed receipt of an Advance Notice and the Company fails to perform its obligations as mandated in this Agreement, the Company agrees that in addition to and in no way limiting the rights and obligations set forth in Article VI hereto and in addition to any other remedy to which the Investor is entitled at law or in equity, including, without limitation, specific performance, it will hold the Investor harmless against any loss, claim, damage, or expense (including reasonable legal fees and expenses), as incurred, arising out of or in connection with such default by the Company and acknowledges that irreparable damage may occur in the event of any such default. It is accordingly agreed that the Investor shall be entitled to an injunction or injunctions to prevent such breaches of this Agreement and to specifically enforce (subject to Applicable Laws and the rules of the Principal Market), without the posting of a bond or other security, the terms and provisions of this Agreement.

 

Article IV. Representations and Warranties of the Investor

 

The Investor represents, warrants, and covenants to the Company, as of the date hereof, that:

 

Section 4.01 Organization and Authorization. The Investor is duly organized, validly existing and in good standing under the laws of the Cayman Islands and has the requisite corporate power and authority to enter into and perform its obligations under the Transaction Documents to which it is a party and to purchase or acquire the Shares in accordance with the terms hereof. The decision to invest and the execution and delivery of the Transaction Documents to which it is a party by the Investor, the performance by the Investor of its obligations hereunder and the consummation by the Investor of the transactions contemplated hereby have been duly authorized and require no other proceedings on the part of the Investor. The undersigned has the right, power and authority to execute and deliver the Transaction Documents to which it is a party and all other instruments on behalf of the Investor or its shareholders. This Agreement and the Transaction Documents to which it is a party have been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

 

 

Section 4.02 Evaluation of Risks. The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Shares and of protecting its interests in connection with the transactions contemplated hereby. The Investor acknowledges and agrees that its investment in the Company involves a high degree of risk, and that the Investor may lose all or a part of its investment.

 

Section 4.03 No Legal, Investment or Tax Advice from the Company. The Investor acknowledges that it had the opportunity to review the Transaction Documents and the transactions contemplated by the Transaction Documents with its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of the Company’s representatives or agents for legal, tax, investment or other advice with respect to the Investor’s acquisition of Shares hereunder, the transactions contemplated by this Agreement or the laws of any jurisdiction, and the Investor acknowledges that the Investor may lose all or a part of its investment.

 

Section 4.04 Investment Purpose. The Investor is acquiring the Shares and any Promissory Note for its own account, for investment purposes and not with a view towards, or for resale in connection with, the public sale or distribution thereof, in violation of the Securities Act; provided, however, that by making the representations herein, the Investor does not agree, or make any representation or warranty, to hold any of the Shares for any minimum or other specific term and reserves the right to dispose of the Shares at any time in accordance with, or pursuant to, a registration statement filed pursuant to this Agreement or an applicable exemption under the Securities Act. The Investor does not presently have any agreement or understanding, directly or indirectly, with any Person to sell or distribute any of the Shares. This Investor is acquiring the Shares and the Promissory Note hereunder in the ordinary course of its business.

 

Section 4.05 Accredited Investor. The Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D.

 

Section 4.06 Information. The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information the Investor deemed material to making an informed investment decision. The Investor and its advisors (and its counsel), if any, have been afforded the opportunity to ask questions of the Company and its management and have received answers to such questions. Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors (and its counsel), if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement. The Investor acknowledges and agrees that the Company has not made to the Investor, and the Investor acknowledges and agrees it has not relied upon, any representations and warranties of the Company, its employees or any third party other than the representations and warranties of the Company contained in this Agreement. The Investor understands that its investment involves a high degree of risk. The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to the transactions contemplated hereby.

 

 

Section 4.07 Not an Affiliate. The Investor is not an officer, director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any affiliate of the Company (as that term is defined in Rule 405 promulgated under the Securities Act).

 

Section 4.08 General Solicitation. Neither the Investor, nor any of its affiliates, nor any person acting on its or their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Shares by the Investor.

 

Section 4.09 Trading Activities. The Investor has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with the Investor, engaged in any transactions in the securities of the Company (including, without limitation, any Short Sales (as defined below) involving the Company’s securities) during the period commencing as of the time that the Investor first contacted the Company or the Company’s agents regarding the specific investment in the Company contemplated by this Agreement and ending immediately prior to the execution of this Agreement by the Investor.

 

Article V. Representations and Warranties of the Company

 

Except as set forth in the disclosure schedule delivered by the Company to the Investor concurrently with this Agreement (which is hereby incorporated by reference in, and constitutes an integral part of, this Agreement) (the “Disclosure Schedule”), or where specifically set forth below with respect to certain specified representations and warranties, the SEC Documents, the Company hereby makes the following representations, warranties and covenants to the Investor as of the date hereof and as of each Advance Notice Date (other than representations and warranties which address matters only as of a certain date, which shall be true and correct as written as of such certain date):

 

Section 5.01 Organization and Qualification. The Company and each of its Subsidiaries are entities duly formed, validly existing and in good standing under the laws of the jurisdiction in which they are formed and have the requisite power and authority to own their properties and to carry on their business as now being conducted. The Company and each of its Subsidiaries is duly qualified to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

 

 

Section 5.02 Authorization, Enforcement, Compliance with Other Instruments. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to issue the Shares in accordance with the terms hereof and thereof. The execution and delivery by the Company of this Agreement and the other Transaction Documents, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Shares) have been or (with respect to consummation) will be duly authorized by the Company’s board of directors and no further consent or authorization will be required by the Company or its board of directors except for the approval of the Company’s shareholders. This Agreement and the other Transaction Documents to which the Company is a party have been (or, when executed and delivered, will be) duly executed and delivered by the Company and, assuming the execution and delivery thereof and acceptance by the Investor, constitute (or, when duly executed and delivered, will be) the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or other laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies and except as rights to indemnification and to contribution may be limited by federal or state securities law.

 

Section 5.03 Authorization of the Shares. The Shares to be issued under this Agreement have been, or with respect to Shares to be purchased by the Investor pursuant to an Advance Notice, will be, when issued and delivered pursuant to the terms approved by the board of directors of the Company or a duly authorized committee thereof, or a duly authorized executive committee, against payment therefor as provided herein, duly and validly authorized and issued and fully paid and nonassessable, free and clear of any pledge, lien, encumbrance, security interest or other claim, including any statutory or contractual preemptive rights, resale rights, rights of first refusal or other similar rights, and will be registered pursuant to Section 12 of the Exchange Act. The Shares, when issued, will conform to the description thereof set forth in or incorporated into the Prospectus. As of the date of the Pre-Advance Closing, and at all times thereafter, the Company shall have reserved from its duly authorized capital stock not less than the number of shares of Common Shares issuable upon conversion of all Promissory Notes (assuming for purposes hereof that any such conversion shall not take into account any limitations on the conversion of the Promissory Note set forth therein).

 

Section 5.04 No Conflict. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Shares) will not (i) result in a violation of the articles of incorporation or other organizational documents of the Company or its Subsidiaries (with respect to consummation, as the same may be amended prior to the date on which any of the transactions contemplated hereby are consummated), (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or its Subsidiaries or by which any property or asset of the Company or its Subsidiaries is bound or affected except, in the case of clause (ii) or (iii) above, to the extent such violations that would not reasonably be expected to have a Material Adverse Effect.

 

 

Section 5.05 The Company understands and acknowledges that the number of Common Shares issuable upon conversion of the Promissory Note may increase in certain circumstances. The Company further acknowledges its obligation to issue the Common Shares upon conversion of the Promissory Note in accordance with the terms thereof or upon delivery of an Advance Notice is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

 

Section 5.06 SEC Documents; Financial Statements. For the past two years the Company has timely filed, except for the Company’s Quarterly Report Form 10-Q for the quarter ended March 31, 2023, (giving effect to permissible extensions in accordance with Rule 12b-25 under the Exchange Act) all SEC Documents. The Company has delivered or made available to the Investor through the SEC’s website at http://www.sec.gov, true and complete copies of the SEC Documents, as applicable. Except as disclosed in amendments or subsequent filings to the SEC Documents, as of its filing date (or, if amended or superseded by a filing prior to the date hereof, on the date of such amended or superseded filing), each of the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as applicable, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and did not contain any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

Section 5.07 Financial Statements. The consolidated financial statements of the Company included or incorporated by reference in the SEC Documents, together with the related notes and schedules, present fairly, in all material respects, the consolidated financial position of the Company and the Subsidiaries as of the dates indicated and the consolidated results of operations, cash flows and changes in stockholders’ equity of the Company for the periods specified and have been prepared in compliance with the requirements of the Securities Act and Exchange Act and in conformity with generally accepted accounting principles in the United States (“GAAP”) applied on a consistent basis (except for (i) such adjustments to accounting standards and practices as are noted therein, (ii) in the case of unaudited interim financial statements, to the extent such financial statements may not include footnotes required by GAAP or may be condensed or summary statements and (iii) such adjustments which are not material, either individually or in the aggregate) during the periods involved; the other financial and statistical data with respect to the Company and the Subsidiaries contained or incorporated by reference in the SEC Documents are accurately and fairly presented and prepared on a basis consistent with the financial statements and books and records of the Company; there are no financial statements (historical or pro forma) that are required to be included or incorporated by reference in the SEC Documents that are not included or incorporated by reference as required; the Company and the Subsidiaries do not have any material liabilities or obligations, direct or contingent (including any off-balance sheet obligations), not described in the SEC Documents (excluding the exhibits thereto); and all disclosures contained or incorporated by reference in the SEC Documents regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the SEC) comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K under the Securities Act, to the extent applicable. The interactive data in eXtensible Business Reporting Language included or incorporated by reference in the SEC Documents fairly presents the information called for in all material respects and has been prepared in accordance with the SEC’s rules and guidelines applicable thereto.

 

 

Section 5.08 Registration Statement and Prospectus. The Company and the transactions contemplated by this Agreement meet the requirements for and comply with the conditions for the use of Form S-1 or Form S-3 under the Securities Act. Each Registration Statement and the offer and sale of Shares as contemplated hereby, if and when filed, will meet the requirements of Rule 415 under the Securities Act and comply in all material respects with said rule. Any statutes, regulations, contracts or other documents that are required to be described in a Registration Statement or a Prospectus, or any amendment or supplement thereto, or to be filed as exhibits to a Registration Statement have been, or will be, so described or filed. Copies of each Registration Statement, any Prospectus, and any such amendments or supplements thereto and all documents incorporated by reference therein that were filed with the SEC on or prior to the date of this Agreement have been delivered, or are available through EDGAR, to the Investor and its counsel. The Company has not distributed and, prior to the later to occur of each Advance Notice Date and completion of the distribution of the Shares, will not distribute any offering material in connection with the offering or sale of the Shares other than a Registration Statement and the Prospectus to which the Investor has consented.

 

Section 5.09 No Misstatement or Omission. Each Registration Statement, when it became or becomes effective, and any Prospectus, on the date of such Prospectus or amendment or supplement thereto, conformed and will conform in all material respects with the requirements of the Securities Act. At each Advance Notice Date, the Registration Statement, and the Prospectus, as of such date, will conform in all material respects with the requirements of the Securities Act. Each Registration Statement, when it became or becomes effective, did not, and will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Each Prospectus did not, or will not, include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The documents incorporated by reference in a Prospectus or any Prospectus Supplement did not, and any further documents filed and incorporated by reference therein will not, when filed with the SEC, contain an untrue statement of a material fact or omit to state a material fact required to be stated in such document or necessary to make the statements in such document, in light of the circumstances under which they were made, not misleading. The foregoing shall not apply to statements in, or omissions from, any such document made in reliance upon, and in conformity with, information furnished to the Company by the Investor specifically for use in the preparation thereof.

 

Section 5.10 Conformity with Securities Act and Exchange Act. Each Registration Statement, each Prospectus, or any amendment or supplement thereto, and the documents incorporated by reference in each Registration Statement, Prospectus or any amendment or supplement thereto, when such documents were or are filed with the SEC under the Securities Act or the Exchange Act or became or become effective under the Securities Act, as the case may be, conformed or will conform in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable.

 

 

Section 5.11 Equity Capitalization.

 

(a) Authorized and Outstanding Capital Stock. As of the date hereof, the authorized capital stock of the Company consists of 500,000,000 shares of common stock, $0.01 par value, and 50,000,000 shares of preferred stock, par value $0.01, of which 50,000 shares are designated as Series D convertible preferred stock. As of the date hereof 20,991,723 shares of Common Stock, 16,507 shares of Series D convertible preferred stock.

 

(b) Valid Issuance; Available Shares. All of such outstanding shares are duly authorized and have been validly issued and are fully paid and nonassessable.

 

(C) Existing Securities; Obligations. Except as disclosed in the SEC Documents or in connection with securities issued or agreements entered into substantially concurrently with this Agreement and set forth on the Disclosure Schedule to this Agreement (the “Concurrent Issuances”) (provided that any such Concurrent Issuances, if entered into prior to the date hereof would not, if entered into on or after the date hereof, violate the terms of Section 7.23): (A) none of the Company’s or any Subsidiary’s shares, interests or capital stock is subject to preemptive rights or any other similar rights or liens suffered or permitted by the Company or any Subsidiary; (B) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares, interests or capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares, interests or capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares, interests or capital stock of the Company or any of its Subsidiaries; (C) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to this Agreement); (D) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (E) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Shares; and (G) neither the Company nor any Subsidiary has entered into any Variable Rate Transaction.

 

(D) The Common Shares are registered pursuant to Section 12(b) of the Exchange Act and are currently listed on a Principal Market under the trading symbol “PROP.” The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Shares under the Exchange Act, delisting the Common Shares from the Principal Market, nor has the Company received any notification that the SEC or the Principal Market is contemplating terminating such registration or listing. To the Company’s knowledge, it is in compliance with all applicable listing requirements of the Principal Market.

 

 

Section 5.12 Indebtedness and Other Contracts. Except as set forth in a Disclosure Schedule to this Agreement, neither the Company nor any of its Subsidiaries, (i) has any outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound, (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument could reasonably be expected to result in a Material Adverse Effect, (iii) has any financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries; (iv) is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Material Adverse Effect, or (v) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate, do not or could not have a Material Adverse Effect.

 

Section 5.13 Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights, if any, necessary to conduct their respective businesses as now conducted, except as would not cause a Material Adverse Effect. The Company and its Subsidiaries have not received written notice of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, or trade secrets, except as would not cause a Material Adverse Effect. To the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against the Company or its Subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and, except as would not cause a Material Adverse Effect, the Company is not aware of any facts or circumstances which might give rise to any of the foregoing.

 

Section 5.14 Employee Relations. Neither the Company nor any of its Subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened, in each case which would be reasonably expected to have a Material Adverse Effect.

 

Section 5.15 Environmental Laws. The Company and its Subsidiaries (i) have not received written notice alleging any failure to comply in all material respects with all Environmental Laws (as defined below), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) have not received written notice alleging any failure to comply with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply would be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term “Environmental Laws” means all applicable federal, state and local laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

 

Section 5.16 Title. Except as would not cause a Material Adverse Effect, the Company (or its Subsidiaries) has indefeasible fee simple or leasehold title to its properties and material assets owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

 

Section 5.17 Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

Section 5.18 Regulatory Permits. Except as would not cause a Material Adverse Effect, the Company and its Subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to own their respective businesses, and neither the Company nor any such Subsidiary has received any written notice of proceedings relating to the revocation or modification of any such certificate, authorization or permits.

 

Section 5.19 Internal Accounting Controls. The Company and each of its Subsidiaries maintains internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, including that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, as applicable, is accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant, Governmental Entity or other Person relating to any potential material weakness or significant deficiency in any part of the internal controls over financial reporting of the Company or any of its Subsidiaries.

 

 

Section 5.20 Investment Company Status. The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” an affiliate of an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

 

Section 5.21 Litigation. Except as set forth in a Disclosure Schedule to this Agreement, there is no action, suit, arbitration, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, other Governmental Entity, self regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Shares or any of the Company’s or its Subsidiaries’ officers or directors, whether of a civil or criminal nature or otherwise, in their capacities as such, which would reasonably be expected to result in a Material Adverse Effect. After reasonable inquiry of its employees, the Company is not aware of any event which might result in or form the basis for any such action, suit, arbitration, investigation, inquiry or other proceeding. Without limitation of the foregoing, there has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or officer of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is the subject of any order, writ, judgment, injunction, decree, determination or award of any Governmental Entity that would reasonably be expected to result in a Material Adverse Effect.

 

Section 5.22 Absence of Certain Changes. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K except as disclosed in the SEC Documents, there has been no Material Adverse Effect, nor any event or occurrence specifically affecting the Company or its Subsidiaries that would be reasonably expected to result in a Material Adverse Effect. Since the date of the Company’s most recent audited financial statements contained in a Form 10-K, except as disclosed in the SEC Documents, neither the Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any material assets, individually or in the aggregate, outside of the ordinary course of business, or (iii) made any material capital expenditures, individually or in the aggregate, outside of the ordinary course of business. Neither the Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company or any Subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings. The Company is Solvent.

 

Section 5.23 Subsidiaries. Except as set forth in the Disclosure Schedule, the Company does not own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity. The Company shall not form, create, or acquire any Subsidiary, unless such Subsidiary joins the Global Guaranty Agreement, and the Company shall not cause any current Subsidiary to obtain significant assets or commence significant financial activity unless such Subsidiary joins the Global Guaranty Agreement.

 

 

Section 5.24 Tax Status. Each of the Company and its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. The Company has not received written notification of any unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim where failure to pay would cause a Material Adverse Effect.

 

Section 5.25 Certain Transactions. Except as disclosed in the SEC Documents, as not required to be disclosed pursuant to Applicable Laws, and except for the promissory note(s) entered into, and warrants issued thereto, in connection with Concurrent Issuances, none of the officers or directors of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer or director, or to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer or director has a substantial interest or is an officer, director, trustee or partner.

 

Section 5.26 Rights of First Refusal. The Company is not obligated to offer the Common Shares, or the Promissory Note offered hereunder on a right of first refusal basis to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

 

Section 5.27 Dilution. The Company is aware and acknowledges that issuance of Common Shares hereunder could cause dilution to existing shareholders and could significantly increase the outstanding number of Common Shares.

 

Section 5.28 Acknowledgment Regarding Investor’s Purchase of Shares. The Company acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length investor with respect to this Agreement and the transactions contemplated hereunder. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereunder and any advice given by the Investor or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereunder is merely incidental to the Investor’s purchase of the Shares hereunder or the Promissory Note. The Company is aware and acknowledges that it shall not be able to request Advances under this Agreement if the Registration Statement is not effective or if any issuances of Common Shares pursuant to any Advances would violate any rules of the Principal Market. The Company acknowledges and agrees that it is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated by this Agreement.

 

Section 5.29 Finder’s Fees. Except as set forth on the Disclosure Schedule to this Agreement, neither the Company nor any of the Subsidiaries has incurred any liability for any finder’s fees, brokerage commissions or similar payments in connection with the transactions herein contemplated.

 

 

Section 5.30 Relationship of the Parties. Neither the Company, nor any of its subsidiaries, affiliates, nor any person acting on its or their behalf is a client or customer of the Investor or any of its affiliates and neither the Investor nor any of its affiliates has provided, or will provide, any services to the Company or any of its affiliates, its subsidiaries, or any person acting on its or their behalf. The Investor’s relationship to Company is solely as investor as provided for in the Transaction Documents.

 

Section 5.31 Operations. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with the Applicable Laws and neither the Company nor the Subsidiaries, nor any director, officer, or employee of the Company or any Subsidiary nor, to the Company’s knowledge, any agent, affiliate or other person acting on behalf of the Company or any Subsidiary has, not complied with Applicable Law; and no action, suit or proceeding by or before any governmental authority involving the Company or any of its Subsidiaries with respect to Applicable Laws is pending or, to the knowledge of the Company, threatened.

 

Section 5.32 Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Registration Statement or a Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.

 

Section 5.33 Compliance with Laws. The Company and each of its Subsidiaries are in compliance in all material respects with Applicable Laws; the Company has not received a notice of non-compliance, nor knows of, nor has reasonable grounds to know of, any facts that any director, officer, or employee of the Company or any Subsidiary nor, to the Company’s knowledge, any agent, affiliate or other person acting on behalf of the Company or any Subsidiary has, has not complied with Applicable Laws, or could give rise to a notice of non-compliance with Applicable Laws, and is not aware of any pending change or contemplated change to any applicable law or regulation or governmental position; in each case that would have a Material Adverse Effect.

 

Section 5.34 Sanctions Matters. Neither the Company nor any of its Subsidiaries or, to the knowledge of the Company, any director, officer or controlled affiliate of the Company or any director or officer of any Subsidiary, is a Person that is, or is owned or controlled by a Person that is (i) the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Asset Control (“OFAC”), the United Nations Security Council, the European Union, His Majesty’s Treasury, or other relevant sanctions authorities, including, without limitation, designation on OFAC’s Specially Designated Nationals and Blocked Persons List or OFAC’s Foreign Sanctions Evaders List or other relevant sanctions authority (collectively, “Sanctions”), or (ii) located, organized or resident in a country or territory that is the subject of Sanctions that broadly prohibit dealings with that country or territory (including, without limitation, the Crimea, Zaporizhzhia and Kherson regions, the Donetsk People’s Republic and Luhansk People’s Republic in Ukraine, Cuba, Iran, North Korea, Russia, Sudan and Syria (the “Sanctioned Countries”)). Neither the Company nor any of its Subsidiaries will, directly or indirectly, use the proceeds from the sale of Advance Shares or any Pre-Paid Advance, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person (a) for the purpose of funding or facilitating any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions or is a Sanctioned Country, or (b) in any other manner that will result in a violation of Sanctions or Applicable Laws by any Person (including any Person participating in the transactions contemplated by this Agreement, whether as underwriter, advisor, investor or otherwise). For the past five years, neither the Company nor any of its Subsidiaries has engaged in, and is now not engaged in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions or was a Sanctioned Country. Neither the Company nor any of its Subsidiaries nor any director, officer or controlled affiliate of the Company or any of its Subsidiaries, has ever had funds blocked by a United States bank or financial institution, temporarily or otherwise, as a result of OFAC concerns.

 

 

Section 5.35 Acquisition. The Company represents and warrants that upon the closing of the NRO Acquisition, and as a result of such closing, the Company will not incur or assume any liabilities, notes payable, accrued liabilities from NRO, Nickel Road Development LLC, or any other Person in connection with the NRO Acquisition, except as set forth in a Disclosure Schedule to this Agreement.

 

Article VI. Indemnification

 

The Investor and the Company represent to the other the following with respect to itself:

 

Section 6.01 Indemnification by the Company. In consideration of the Investor’s execution and delivery of this Agreement and acquiring the Shares hereunder, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor and its investment manager, Yorkville Advisors Global, LP, and each of their respective officers, directors, managers, members, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) and each person who controls the Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Investor Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and reasonable and documented expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Shares as originally filed or in any amendment thereof, or in any related prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Investor specifically for inclusion therein; (b) any material misrepresentation or breach of any material representation or material warranty made by the Company in this Agreement or any other certificate, instrument or document contemplated hereby or thereby; or (c) any material breach of any material covenant, material agreement or material obligation of the Company contained in this Agreement or any other certificate, instrument or document contemplated hereby or thereby. To the extent that the foregoing undertaking by the Company may be unenforceable under Applicable Law, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under Applicable Law.

 

Section 6.02 Indemnification by the Investor. In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company, its Subsidiaries and all of its and their officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) and each person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement for the registration of the Shares as originally filed or in any amendment thereof, or in any related prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Investor will only be liable for written information relating to the Investor furnished to the Company by or on behalf of the Investor specifically for inclusion in the documents referred to in the foregoing indemnity, and will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Investor by or on behalf of the Company specifically for inclusion therein; (b) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement or any instrument or document contemplated hereby or thereby executed by the Investor; or (c) any breach of any covenant, agreement or obligation of the Investor contained in this Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor. To the extent that the foregoing undertaking by the Investor may be unenforceable under Applicable Laws, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under Applicable Laws.

 

 

Section 6.03 Notice of Claim. Promptly after receipt by an Investor Indemnitee or Company Indemnitee of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving an Indemnified Liability, such Investor Indemnitee or Company Indemnitee, as applicable, shall, if a claim for an Indemnified Liability in respect thereof is to be made against any indemnifying party under this Article VI, deliver to the indemnifying party a written notice of the commencement thereof; but the failure to so notify the indemnifying party will not relieve it of liability under this Article VI except to the extent the indemnifying party is prejudiced by such failure. The indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually reasonably satisfactory to the indemnifying party and the Investor Indemnitee or Company Indemnitee, as the case may be; provided, however, that an Investor Indemnitee or Company Indemnitee shall have the right to retain its own counsel with the actual and reasonable third party fees and expenses of not more than one counsel for such Investor Indemnitee or Company Indemnitee to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Investor Indemnitee or Company Indemnitee and the indemnifying party would be inappropriate due to actual or potential differing interests between such Investor Indemnitee or Company Indemnitee and any other party represented by such counsel in such proceeding. The Investor Indemnitee or Company Indemnitee shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Investor Indemnitee or Company Indemnitee which relates to such action or claim. The indemnifying party shall keep the Investor Indemnitee or Company Indemnitee reasonably apprised as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Investor Indemnitee or Company Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Investor Indemnitee or Company Indemnitee of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Investor Indemnitee or Company Indemnitee with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The indemnification required by this Article VI shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received and payment therefor is due.

 

Section 6.04 Remedies. The remedies provided for in this Article VI are not exclusive and shall not limit any right or remedy which may be available to any indemnified person at law or equity. The obligations of the parties to indemnify or make contribution under this Article VI shall survive expiration or termination of this Agreement.

 

Section 6.05 Limitation of liability. Notwithstanding the foregoing, no party shall seek, nor shall any be entitled to recover from the other party be liable for, special, incidental, indirect, consequential, punitive or exemplary damages.

 

Article VII.
Covenants

 

The Company covenants with the Investor, and the Investor covenants with the Company, as follows, which covenants of one party are for the benefit of the other party, during the Commitment Period:

 

Section 7.01 Effective Registration Statement. During the Commitment Period, the Company shall maintain the continuous effectiveness of each Registration Statement filed with the SEC under the Securities Act pursuant to and in accordance with the Registration Rights Agreement; provided, however, that in the event there is no Pre-Paid Advance outstanding, the Company shall only be required to use its commercially reasonable efforts to maintain the continuous effectiveness of the Registration Statement and each subsequent Registration Statement filed with the SEC under the Securities Act pursuant to and in accordance with the Registration Rights Agreement.

 

 

Section 7.02 Registration and Listing. The Company shall cause the Common Shares to continue to be registered as a class of securities under Section 12(b) of the Exchange Act, and to comply with its reporting and filing obligations under the Exchange Act, and shall not take any action or file any document (whether or not permitted by the Securities Act or the Exchange Act) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein. The Company shall continue the listing and trading of its Common Shares, and the listing of the Shares purchased by the Investor hereunder on the Principal Market and to comply with the Company’s reporting, filing and other obligations under the rules and regulations of the Principal Market. If the Company receives any final and non-appealable notice that the listing or quotation of the Common Shares on the Principal Market shall be terminated on a date certain, the Company shall promptly (and in any case within 24 hours) notify the Investor of such fact in writing and shall use its commercially reasonable efforts to cause the Common Shares to be listed or quoted on another Principal Market.

 

Section 7.03 Blue Sky. The Company shall take such action, if any, as is necessary by the Company in order to obtain an exemption for or to qualify the Shares for sale by the Company to the Investor pursuant to the Transaction Documents, and at the request of the Investor, the subsequent resale of Registrable Securities by the Investor, in each case, under applicable state securities or “Blue Sky” laws and shall provide evidence of any such action so taken to the Investor from time to time during the Commitment Period; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify, (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.

 

Section 7.04 Suspension of Registration Statement.

 

(a)

Establishment of a Black Out Period. During the Commitment Period, the Company from time to time may suspend the use of a Registration Statement by written notice to the Investor in the event that the Company determines in good faith that such suspension is necessary to amend or supplement the Registration Statement or Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (a “Black Out Period”).

 

(b)

No Sales by Investor During the Black Out Period. During such Black Out Period, the Investor agrees not to sell any Common Shares of the Company pursuant to such Registration Statement, but may sell shares pursuant to an exemption from registration, if available, subject to the Investor’s compliance with Applicable Laws.

 

 

(c)

Limitations on the Black Out Period. The Company shall not impose any Black Out Period that is longer than 15 days or in a manner that is more restrictive (including, without limitation, as to duration) than the comparable restrictions that the Company may impose on transfers of the Company’s equity securities by its directors and senior executive officers. In addition, the Company shall not deliver any Advance Notice during any Black Out Period. If the public announcement of such material, nonpublic information is made during a Black Out Period, the Black Out Period shall terminate immediately after such announcement, and the Company shall immediately notify the Investor of the termination of the Black Out Period.

 

Section 7.05 Listing of Common Shares. As of each Advance Notice Date, the Shares to be sold by the Company from time to time hereunder will have been registered under Section 12(b) of the Exchange Act and approved for listing on the Principal Market, subject to official notice of issuance.

 

Section 7.06 Opinion of Counsel. Prior to Pre-Advance Closing and prior to the date of the delivery by the Company of the first Advance Notice, the Investor shall have received opinion letters from counsel to the Company in form and substance reasonably satisfactory to the Investor.

 

Section 7.07 Exchange Act Registration. The Company will file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and, during the Commitment Period, will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend its reporting and filing obligations under the Exchange Act.

 

Section 7.08 Transfer Agent Instructions. During the Commitment Period and subject to Applicable Laws, the Company shall cause (including, if necessary, by causing legal counsel for the Company to deliver an opinion) the transfer agent for the Common Shares to remove restrictive legends from Common Shares purchased by the Investor pursuant to this Agreement (including Common Shares issued to the Investor upon conversion of the Promissory Note), provided that counsel for the Company shall have been furnished with such documents as they may require for the purpose of enabling them to render the opinions or make the statements requested by the transfer agent, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the covenants, obligations or conditions, contained herein.

 

Section 7.09 Corporate Existence. The Company will use commercially reasonable efforts to preserve and continue the corporate existence of the Company during the Commitment Period.

 

 

Section 7.10 Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance. The Company will promptly notify the Investor, and confirm in writing, upon its becoming aware of the occurrence of any of the following events in respect of a Registration Statement or related Prospectus: (i) receipt of any request for amendments or supplements to the Registration Statement or related Prospectus; (ii) the issuance by the SEC or any other Federal governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Common Shares for sale in any jurisdiction or the initiation or written threat of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or of the necessity to amend the Registration Statement or supplement a related Prospectus to comply with the Securities Act or any other law (and the Company will promptly make available to the Investor any such supplement or amendment to the related Prospectus). The Company shall not deliver to the Investor any Advance Notice, and the Company shall not sell any Shares pursuant to any pending Advance Notice (other than as required pursuant to Section 3.05(d)), during the continuation of any of the foregoing events (each of the events described in the immediately preceding clauses (i) through (iv), inclusive, a “Material Outside Event”).

 

Section 7.11 Consolidation. If an Advance Notice has been delivered to the Investor, then the Company shall not effect any consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity before the transaction contemplated in such Advance Notice has been closed in accordance with Section 2.02 hereof, and all Shares in connection with such Advance have been received by the Investor.

 

Section 7.12 Issuance of the Company’s Common Shares. The issuance of the Promissory Note hereunder and sale of the Common Shares to the Investor hereunder shall be made in accordance with the provisions and requirements of Section 4(a)(2) of the Securities Act and any applicable state securities law.

 

Section 7.13 Reservation of Shares. On or before the date of the Pre-Advance Closing, and at all times thereafter, the Company shall have reserved from its duly authorized capital stock not less 1,713,000¹ Common Shares for issuance to the Investor, whether upon conversions of the Promissory Note or pursuant to Advances hereunder. Unless shareholder approval has previously been obtained, if at any time the number of Common Shares that remain available for issuance under the Exchange Cap have an aggregate market value (based on a price per Common Share equal to the average VWAP over the prior five (5) Trading Day period) of less than 150% of the outstanding principal balance of the Promissory Note then outstanding, the Company will use commercially reasonable efforts to promptly call and hold a special meeting of stockholders for the purpose of seeking the approval of its stockholders as required by the applicable rules of the Principal Market, for issuances of shares in excess of the Exchange Cap.

 

¹ To insert such number of shares that is equal to 150% of the principal amount of the Pre-Paid Advance based on the closing price prior to the execution of this Agreement. Calculation based on closing price of Sept 27 of $8.76.

 

 

Section 7.14 Expenses. The Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will pay all expenses incident to the performance of its obligations hereunder, including but not limited to (i) the preparation, printing and filing of the Registration Statement and each amendment and supplement thereto, of each Prospectus and of each amendment and supplement thereto; (ii) the preparation, issuance and delivery of any Shares issued pursuant to this Agreement, (iii) all fees and disbursements of the Company’s counsel, accountants and other advisors (but not, for the avoidance doubt, the fees and disbursements of Investor’s counsel, accountants and other advisors), (iv) the qualification of the Shares under securities laws in accordance with the provisions of this Agreement, including filing fees in connection therewith, (v) the printing and delivery of copies of any Prospectus and any amendments or supplements thereto requested by the Investor, (vi) the fees and expenses incurred in connection with the listing or qualification of the Shares for trading on the Principal Market, and (vii) filing fees of the SEC and the Principal Market.

 

Section 7.15 Current Report. The Company shall, not later than 9:00 a.m., New York City time, on the fourth business day after the date of this Agreement, file with the SEC a current report on Form 8-K describing (i) all the material terms of the transactions contemplated by the Transaction Documents and attaching all the material Transaction Documents, and (ii) all material terms of the NRO Acquistion, including without limitation audited financial statements of NRO and pro forma financial statements of the combined entity, prepared in accordance with the rules and regulations of the SEC, and attaching all material agreements, in each case in the form required by the Exchange Act (including any exhibits thereto, the “Current Report”). The Company shall provide the Investor and its legal counsel a reasonable opportunity to comment on a draft of the Current Report including any exhibits to be filed related thereto, as applicable, prior to filing the Current Report with the SEC and shall give due consideration to all such comments. Notwithstanding anything contained in this Agreement to the contrary, the Company expressly agrees that from and after the filing of the Current Report with the SEC, the Company shall have publicly disclosed all material, non-public information provided to the Investor (or the Investor’s representatives or agents) by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees, agents or representatives in connection with the transactions contemplated by the Transaction Documents and the NRO Acquisition. In addition, effective upon the filing of the Current Report, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and the Investor or any of its respective officers, directors, affiliates, employees or agents, on the other hand shall terminate. The Company shall not, and the Company shall cause each of its Subsidiaries and each of its and their respective officers, directors, employees and agents not to, provide the Investor with any material, non-public information regarding the Company or any of its Subsidiaries without the express prior written consent of the Investor (which may be granted or withheld in the Investor’s sole discretion). The Company understands and confirms that the Investor will rely on the foregoing representations in effecting resales of Shares.

 

Section 7.16 Advance Notice Limitation. The Company shall not deliver an Advance Notice if a shareholder meeting or corporate action, or the record date for any shareholder meeting or any corporate action, would fall during the period beginning two Trading Days prior to the date of delivery of such Advance Notice and ending two Trading Days following the Closing of such Advance.

 

 

Section 7.17 Use of Proceeds. Neither the Company nor any Subsidiary will, directly or indirectly, use the proceeds of the transactions contemplated herein to repay any advances or loans to any executives, directors, or employees of the Company or any Subsidiary or to make any payments in respect of any related party obligations, including without limitation any payables or notes payable to related parties of the Company or any Subsidiary whether or not such amounts are described on the balance sheets of the Company in any SEC Documents and any Subsidiary or described in any “Related Party Transactions” section of any SEC Documents. Neither the Company nor any of its Subsidiaries will, directly or indirectly, use the proceeds from the transactions contemplated herein, or lend, contribute, facilitate, or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person (a) for the purpose of funding or facilitating, directly or indirectly, any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is or whose government is, the subject of Sanctions or is a Sanctioned Country, or (b) in any other manner that will result in a violation of Sanctions or Applicable Laws by any Person (including any Person participating in the transactions contemplated by this Agreement, whether as underwriter, advisor, investor or otherwise). The Company shall not without the prior written consent of the Investor loan, invest, transfer or “downstream” any cash proceeds, or assets or property acquired with cash proceeds from the issuance and sale of the Promissory Note to any Subsidiary, unless the Investor and the Subsidiary enter into a subsidiary guaranty in the form of the Global Guaranty Agreement.

 

Section 7.18 Compliance with Laws. The Company shall comply in all material respects with all Applicable Laws.

 

Section 7.19 Market Activities. Neither the Company, nor any Subsidiary, nor any of their respective officers, directors or controlling persons will, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of Common Shares or (ii) sell, bid for, or purchase Common Shares in violation of Regulation M, or pay anyone any compensation for soliciting purchases of the Shares.

 

Section 7.20 Trading Information. During the Commitment Period, on each Trading Day during a Pricing Period or on which the Investor has sold any Advance Shares, and otherwise upon the Company’s reasonable request, the Investor agrees to provide the Company with trading reports setting forth the number and average sales prices of shares of Common Shares sold by the Investor during such Trading Day.

 

Section 7.21 Selling Restrictions. Except as expressly set forth below, the Investor covenants that from and after the date hereof through and including the Trading Day next following the expiration or termination of this Agreement as provided in Section 10.01 (the “Restricted Period”), none of the Investor any of its officers, or any entity managed or controlled by the Investor (collectively, the “Restricted Persons” and each of the foregoing is referred to herein as a “Restricted Person”) shall, directly or indirectly, engage in any “short sale” (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of the Common Shares, either for its own principal account or for the principal account of any other Restricted Person. Notwithstanding the foregoing, it is expressly understood and agreed that nothing contained herein shall (without implication that the contrary would otherwise be true) prohibit any Restricted Person during the Restricted Period from: (1) selling “long” (as defined under Rule 200 promulgated under Regulation SHO) any Common Shares; or (2) selling a number of Common Shares equal to the number of Advance Shares that such Restricted Person is unconditionally obligated to purchase under a pending Advance Notice but has not yet received from the Company or the transfer agent pursuant to this Agreement; or (3) selling a number of shares of Common Shares equal to the number of Common Shares that the Investor is entitled to receive, but has not yet received from the Company or the transfer agent, upon the completion of a pending conversion of the Promissory Note for which a valid Conversion Notice (as defined in the Promissory Note) has been submitted to the Company.

 

 

Section 7.22 Assignment. Neither this Agreement nor any rights or obligations of the parties hereto may be assigned to any other Person, except for assignments by the Investor to any of its affiliates. Without the consent of the Investor, the Company shall not have the right to assign or transfer any of its rights, or provide any third party the right to bind or obligate the Company, to deliver Advance Notices or effect Advances hereunder.

 

Section 7.23 No Frustration; No Variable Rate Transactions, Etc.

 

(a)

No Frustration. As of the date hereof, the Company is not party to any agreement, plan, arrangement, or transaction (including without limitation the certificate of designations for any preferred stock), and during the Commitment Period the Company shall not enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction in which the terms thereof would restrict, materially delay, conflict with or impair the ability or right of the Company to perform its obligations under the Transaction Documents to which it is a party, including, without limitation, the ability of the Company to submit Advance Notices, the obligation of the Company to deliver the Shares to the Investor in respect of an Advance Notice, or its ability to meet its obligations under the Promissory Note, including payment obligations therein.

 

(b)

From the date hereof until the Promissory Note to be issued hereunder has been repaid in full, without the prior written consent of the Investor, the Company shall not, and shall not permit any of its Subsidiaries (whether or not a subsidiary on the date hereof) to, directly or indirectly (i) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness, (ii) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Lien on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, (iii) amend its charter documents, including, without limitation, its certificate of incorporation, bylaws, or any certificate of designations in any manner that materially and adversely affects any rights of the Investor, (iv) make any cash payments on, or related to, any equity securities of the Company, including, without limitation, any existing preferred stock or any preferred stock issued in the future, or (v) repay any loans to any executives or employees of the Company or to make any payments in respect of any related party debt, except for the promissory notes set forth on Schedule 5.12.

 

(c)

No Variable Rate Transactions. From the date hereof until the date upon which the Promissory Notes to be issued hereunder has been repaid in full, the Company shall not effect or enter into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Shares or any security which entitles the holder to acquire Common Shares (or a combination of units thereof), in each case, involving a Variable Rate Transaction, other than involving a Variable Rate Transaction with the Investor. The Investor shall be entitled to seek injunctive relief against the Company and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages, without the necessity of showing economic loss and without any bond or other security being required.

 

 

(d)

During the period beginning on the date hereof and ending on the date upon which the Promissory Note(s) to be issued hereunder have been repaid in full, the Company shall not effect any reverse stock split or share consolidation.

 

Section 7.24 Right of First Refusal. For the period beginning on the date hereof and expiring on the one-year anniversary of the date of the Pre-Advance Closing, Company shall not effect enter into or effect any Notification Transaction, without first giving to the Investor prior written notice of its intention to effect, or enter into an agreement to effect, any Notification Transaction. Upon receipt of a notice the Investor shall have five (5) Business Days to confirm it wishes to provide such Notification Transaction in line with such notice and ten (10) Business Days from acceptance to enter into binding documentation for such Notification Transaction. However, nothing shall restrict the Company from entering into a Notification Transaction subsequently with any third party, should the Investor decline the offer or fail to close the proposed transaction in the time periods set forth herein, provided that such Notification Transaction does not violate any terms and conditions set forth herein.

 

Article VIII.
Choice of Law/Jurisdiction

 

Section 8.01 This Agreement, and any and all claims, proceedings or causes of action relating to this Agreement or arising from this Agreement or the transactions contemplated herein, including, without limitation, tort claims, statutory claims and contract claims, shall be interpreted, construed, governed and enforced under and solely in accordance with the substantive and procedural laws of the State of New York, in each case as in effect from time to time and as the same may be amended from time to time, and as applied to agreements performed wholly within the State of New York. The Parties further agree that any action between them shall be heard in New York County, New York, and expressly consent to the jurisdiction and venue of the Supreme Court of New York, sitting in New York County, New York and the United States District Court of the Southern District of New York, sitting in New York, New York, for the adjudication of any civil action asserted pursuant to this Agreement.

 

EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN, THE PERFORMANCE THEREOF OR THE FINANCINGS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.

 

 

Article IX. Termination

 

Section 9.01 Termination.

 

(a)

In the event that the Pre-Advance Closing shall not have occurred within fifteen (15) days of the date hereof, then the Investor shall have the right to terminate its obligations under this Agreement with respect to the funding of the Pre-Paid Advance at any time on or after the close of business on such date without liability of such Investor to any other party; provided, however, the right to terminate its obligation with respect to the funding of the Pre-Paid Advance shall not be available to the Investor if the failure of the transactions contemplated by this Agreement to have been consummated by such date is the result of such Investor’s breach of this Agreement.

 

(b)

Unless earlier terminated as provided hereunder, this Agreement shall terminate automatically on the earliest of (i) the 24-month anniversary of the Effective Date, provided that if the Promissory Note is then outstanding, such termination shall be delayed until such date that the Promissory Note has been fully repaid, or (ii) the date on which the Investor shall have made payment of Advances pursuant to this Agreement for Common Shares equal to the Commitment Amount.

 

(c)

The Company may terminate this Agreement effective upon five Trading Days’ prior written notice to the Investor; provided that (i) there are no outstanding Advance Notices under which Common Shares have yet to be issued, (ii) there is not an outstanding Promissory Note, and (iii) the Company has paid all amounts owed to the Investor pursuant to this Agreement. This Agreement may be terminated at any time by the mutual written consent of the parties, effective as of the date of such mutual written consent unless otherwise provided in such written consent.

 

(d)

Nothing in this Section 9.01 shall be deemed to release the Company or the Investor from any liability for any breach under this Agreement prior to the valid termination hereof, or to impair the rights of the Company and the Investor to compel specific performance by the other party of its obligations under this Agreement. The indemnification provisions contained in Article VI shall survive the termination of this Agreement.

 

Article X. Notices

 

Other than with respect to Advance Notices, which must be in writing delivered in accordance with Section 3.01 and will be deemed delivered on the day set forth in Section 2.01(b), any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by e-mail if sent on a Trading Day, or, if not sent on a Trading Day, on the immediately following Trading Day; (iii) 5 days after being sent by U.S. certified mail, return receipt requested, or (iv) 1 day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications (except for Advance Notices which shall be delivered in accordance with Exhibit C hereof) shall be:

 

If to the Company, to:

Prairie Operating Co. 55 Waugh Drive, Suite 400 Houston, TX 77007 Attn: Craig Owen, EVP and CFO E-mail: co@prairieopco.com; ds@prairieopco.com

 

 

With copies (which shall not constitute notice or delivery of process) to:	Prairie Operating Co. 55 Waugh Drive, Suite 400 Houston, TX 77007 Attn: Daniel T. Sweeney, EVP and General Counsel E-mail: ds@prairieopco.com
If to the Investor:	YA II PN, Ltd. 1012 Springfield Avenue Mountainside, NJ 07092 Attn: Mark Angelo E-mail:mangelo@yorkvilleadvisors.com
With a Copy (which shall not constitute notice or delivery of process) to:	David Fine, Esq. 1012 Springfield Avenue Mountainside, NJ 07092 E-mail: legal@yorkvilleadvisors.com

 

or at such other address and/or e-mail and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three Business Days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) electronically generated by the sender’s email service provider containing the time, date, and recipient email address or (iii) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of delivery in accordance with clause (i), (ii) or (iii) above, respectively.

 

Article XI. Miscellaneous

 

Section 11.01 Counterparts. This Agreement may be executed in identical counterparts, both which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. Facsimile or other electronically scanned and delivered signatures (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com), including by e-mail attachment, shall be deemed to have been duly and validly delivered and be valid as originals and effective for all purposes of this Agreement.

 

 

Section 11.02 Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their respective affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement contains the entire understanding of the parties with respect to the matters covered herein and, except as specifically set forth herein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the parties to this Agreement.

 

Section 11.03 Reporting Entity for Common Shares. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Shares on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity.

 

Section 11.04 Commitment and Structuring Fee. Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, except that the Company shall pay to the Investor, a structuring fee in the amount of $25,000, which has been paid prior to the date hereof. The Company shall pay a commitment fee in an amount equal to 2.25% of the Commitment Amount (the “Commitment Fee”) on the Effective Date, at its option, in cash, or by the issuance to the Investor of 100,000 Common Shares (the “Commitment Shares”). The Commitment Shares issuable hereunder shall be included on the initial Registration Statement.

 

Section 11.05 Brokerage. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder’s fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Purchase Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

 

	COMPANY:
	PRAIRIE OPERATING CO.
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

	INVESTOR:
	YA II PN, Ltd.
	By:	Yorkville Advisors Global, LP
	Its:	Investment Manager
	By:	Yorkville Advisors Global II, LLC
	Its:	General Partner

 

	By:	/s/ Matt Beckman
	Name:	Matt Beckman
	Title:	Authorized Signatory

 

 

ANNEX I TO THE

STANDBY EQUITY PURCHASE AGREEMENT

DEFINITIONS

 

“Additional Shares” shall have the meaning set forth in Section 3.03.

 

“Adjusted Advance Amount” shall have the meaning set forth in Section 3.03

 

“Advance” shall mean any issuance and sale of Advance Shares by the Company to the Investor pursuant to this Agreement.

 

“Advance Date” shall mean the first Trading Day after expiration of the applicable Pricing Period for each Advance.

 

“Advance Notice” shall mean a written notice in the form of Exhibit C attached hereto to the Investor executed by an officer of the Company and setting forth the number of Advance Shares that the Company desires to issue and sell to the Investor.

 

“Advance Notice Date” shall mean each date the Company is deemed to have delivered (in accordance with Section 3.01(c) of this Agreement) an Advance Notice to the Investor, subject to the terms of this Agreement.

 

“Advance Shares” shall mean the Common Shares that the Company shall issue and sell to the Investor pursuant to the terms of this Agreement.

 

“Average Price” shall mean a price per Common Share equal to the quotient obtained by dividing (i) the aggregate gross purchase price paid by the Investor for all Shares purchased pursuant to this Agreement, by (ii) the aggregate number of Shares issued pursuant to this Agreement.

 

“Agreement” shall have the meaning set forth in the preamble of this Agreement.

 

“Applicable Laws” shall mean all applicable laws, statutes, rules, regulations, orders, executive orders, directives, policies, guidelines and codes having the force of law, whether local, national, or international, as amended from time to time, including without limitation (i) all applicable laws that relate to money laundering, terrorist financing, financial record keeping and reporting, (ii) all applicable laws that relate to anti-bribery, anti-corruption, books and records and internal controls, including the United States Foreign Corrupt Practices Act of 1977, and (iii) any Sanctions laws.

 

“Black Out Period” shall have the meaning set forth in Section 7.04

 

“Closing” shall have the meaning set forth in Section 3.05.

 

“Commitment Amount” shall mean $40,000,000 of Common Shares.

 

“Commitment Fee” shall have the meaning set forth in Section 12.04.

 

“Commitment Shares” shall have the meaning set forth in Section 12.04.

 

 

“Commitment Period” shall mean the period commencing on the Effective Date and expiring upon the date of termination of this Agreement in accordance with Section 10.01.

 

“Common Share Equivalents” shall mean any securities of the Company or its Subsidiaries which entitle the holder thereof to acquire at any time Common Shares, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Shares.

 

“Common Shares” shall have the meaning set forth in the recitals of this Agreement.

 

“Company” shall have the meaning set forth in the preamble of this Agreement.

 

“Company Indemnitees” shall have the meaning set forth in Section 6.02.

 

“Concurrent Issuances” shall have the meaning set forth in Section 5.11.

 

“Condition Satisfaction Date” shall have the meaning set forth in Annex III.

 

“Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

“Daily Traded Amount” shall mean the daily trading volume of the Company’s Common Shares on the Principal Market during regular trading hours as reported by Bloomberg L.P.

 

“Disclosure Schedule” shall have the meaning set forth in Article V.

 

“Effective Date” shall mean the date hereof.

 

“Environmental Laws” shall have the meaning set forth in Section 5.14.

 

“Event of Default” shall have the meaning set forth in the Promissory Note.

 

“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Exchange Cap” shall have the meaning set forth in Section 3.02(c).

 

“Excluded Day” shall have the meaning set forth in Section 3.03.

 

“Global Guaranty Agreement” shall mean the global guaranty agreement in the form attached hereto as Exhibit E.

 

 

“Governmental Entity” means any nation, state, county, city, town, village, district, or other political jurisdiction of any nature, federal, state, local, municipal, foreign, or other government, governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal), multi-national organization or body; or body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature or instrumentality of any of the foregoing, including any entity or enterprise owned or controlled by a government or a public international organization or any of the foregoing.

 

“Hazardous Materials” shall have the meaning set forth in Section 5.14.

 

“Indebtedness” means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with GAAP) (other than trade payables entered into in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above.

 

“Indemnified Liabilities” shall have the meaning set forth in Section 6.01.

 

“Investor” shall have the meaning set forth in the preamble of this Agreement.

 

“Investor Indemnitees” shall have the meaning set forth in Section 6.01.

 

“Market Price” shall mean the lowest daily VWAP of the Common Shares during the Pricing Period, other than the daily VWAP on an Excluded Day.

 

“Material Adverse Effect” shall mean any event, occurrence or condition that has had or would reasonably be expected to have (i) a material adverse effect on the legality, validity or enforceability of this Agreement or the transactions contemplated herein, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under this Agreement.

 

 

“Material Outside Event” shall have the meaning set forth in Section 7.10.

 

“Maximum Advance Amount” means in respect of each Advance Notice delivered by the Company pursuant to Section 3.01(a) of this Agreement, an amount equal to one hundred percent (100%) of the aggregate of the Daily Traded Amount during the five consecutive Trading Day immediately preceding an Advance Notice.

 

“Minimum Acceptable Price” shall mean the minimum price notified by the Company to the Investor in each Advance Notice, if applicable.

 

“Nasdaq Minimum Price” shall have the meaning set forth in Section 3.02(c).

 

“Notification Transaction” means any financing transaction pursuant to which the Company proposes to issue and sell any securities of the Company, including any debt, equity or equity-linked securities that are convertible into, exchangeable or exercisable for, or include the right to receive Common Shares, or the insurance of any notes, debentures, or other forms of indebtedness.

 

“NRO Agreement” means the asset purchase agreement entered into on January 11, 2024, and amended on August 15, 2024, by and among the Company, Nickel Road Development LLC, Nickel Road Operating LLC (“NRO”), and Prairie Operating Co., LLC for the acquisition by the Company of the assets of NRO (such acquisition, the “NRO Acquisition”).

 

“OFAC” shall have the meaning set forth in Section 5.32.

 

“Original Issue Discount” shall have the meaning set forth in Section 2.02.

 

“Ownership Limitation” shall have the meaning set forth in Section 3.02(a).

 

“Permitted Indebtedness” shall mean: (i) indebtedness incurred pursuant to this Agreement or any other Transaction Document; (ii) indebtedness described on a Disclosure Schedule attached hereto; (iii) indebtedness incurred solely for the purpose of financing the acquisition or lease of any equipment, including capital lease obligations with no recourse other than to such equipment; (iv) indebtedness (A) the repayment of which has been subordinated to the payment of the Promissory Note on terms and conditions acceptable to the Investor, including with regard to interest payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the 91st day after the maturity date of the Promissory Note then outstanding; and (C) which is not secured by any assets of the Company or its subsidiaries; (v) indebtedness associated with acquiring new intellectual property assets and licenses, so long as the proceeds are going to the party(ies) from which the Company is acquiring the assets, licenses, and other properties and (vi) any indebtedness (other than the indebtedness set out in (i) – (v) above) incurred after the date hereof, provided that such indebtedness does not exceed $20,000 at any given time.

 

 

“Permitted Liens” shall mean (1) any security interest granted to the Investor to secure the obligations incurred pursuant to this Agreement or any other Transaction Document, (2) any prior security interest granted to the Investor, (3) existing Liens disclosed by the Company on a Disclosure Schedule attached hereto; (4) inchoate Liens for taxes, assessments or governmental charges or levies not yet due, as to which the grace period, if any, related thereto has not yet expired, or being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (5) Liens of carriers, materialmen, warehousemen, mechanics and landlords and other similar Liens which secure amounts which are not yet overdue by more than 60 days or which are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP; (6) licenses, sublicenses, leases or subleases granted to other persons not materially interfering with the conduct of the business of the Company; (7) Liens securing capitalized lease obligations and purchase money indebtedness incurred solely for the purpose of financing an acquisition or lease; (8) easements, rights-of-way, restrictions, encroachments, municipal zoning ordinances and other similar charges or encumbrances, and minor title deficiencies, in each case not securing debt and not materially interfering with the conduct of the business of the Company and not materially detracting from the value of the property subject thereto; (9) Liens arising out of the existence of judgments or awards which judgments or awards do not constitute an Event of Default; (10) Liens incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance, pension liabilities and social security benefits and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature (other than appeal bonds) incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); (11) Liens in favor of a banking institution arising by operation of law encumbering deposits (including the right of set-off) and contractual set-off rights held by such banking institution and which are within the general parameters customary in the banking industry and only burdening deposit accounts or other funds maintained with a creditor depository institution; (12) usual and customary set-off rights in leases and other contracts; (13) escrows in connection with acquisitions and dispositions; and (14) royalties and other rights to revenue derived from the sale of the Company’s products that are granted in the ordinary course of business.

 

“Person” shall mean an individual, a corporation, a partnership, a limited liability company, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

 

“Plan of Distribution” shall mean the section of a Registration Statement disclosing the plan of distribution of the Shares.

 

“Pre-Advance Closing” shall have the meaning set forth in Section 2.01.

 

“Pre-Paid Advance” shall mean have the meaning set forth in Section 2.01.

 

“Pricing Period” shall mean the three consecutive Trading Days commencing on the Advance Notice Date.

 

“Principal Market” shall mean the Nasdaq Stock Market; provided however, that in the event the Common Shares are ever listed or traded on the New York Stock Exchange, or the NYSE American, then the “Principal Market” shall mean such other market or exchange on which the Common Shares are then listed or traded to the extent such other market or exchange is the principal trading market or exchange for the Common Shares.

 

 

“Promissory Note” shall have the meaning set forth in Section 2.01.

 

“Prospectus” shall mean any prospectus (including, without limitation, all amendments and supplements thereto) used by the Company in connection with a Registration Statement, including documents incorporated by reference therein.

 

“Prospectus Supplement” shall mean any prospectus supplement to a Prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act, including documents incorporated by reference therein.

 

“Purchase Price” shall mean (i) the price per Advance Share obtained by multiplying the Market Price by 97% in respect of an Advance Notice delivered by the Company.

 

“Registration Limitation” shall have the meaning set forth in Section 3.02(b).

 

“Registration Statement” shall have the meaning set forth in the Registration Rights Agreement.

 

“Registrable Securities” shall have the meaning set forth in the Registration Rights Agreement.

 

“Regulation D” shall mean the provisions of Regulation D promulgated under the Securities Act.

 

“Sanctions” shall have the meaning set forth in Section 5.32.

 

“Sanctioned Countries” shall have the meaning set forth in Section 5.32.

 

“SEC” shall mean the U.S. Securities and Exchange Commission.

 

“SEC Documents” shall mean (1) any registration statement filed by the Company with the SEC, including the financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of the effective date of such registration statement under the Securities Act, (2) any proxy statement or prospectus filed by the Company with the SEC, including all documents incorporated or deemed incorporated therein by reference, whether or not included in a registration statement on Form S-4 or otherwise, in the form in which such proxy statement or prospectus has most recently been filed with the SEC pursuant to Rule 424(b) under the Securities Act, (3) all reports, schedules, registrations, forms, statements, information and other documents filed with or furnished to the SEC by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act during the two years prior to the date hereof, including, without limitation, the Current Report, (4) each Registration Statement, as the same may be amended from time to time, the Prospectus contained therein and each Prospectus Supplement thereto and (5) all information contained in such filings and all documents and disclosures that have been and heretofore shall be incorporated by reference therein.

 

“Securities Act” shall have the meaning set forth in the recitals of this Agreement.

 

“Settlement Document” in respect of an Advance Notice delivered by the Company, shall mean a settlement document in the form set out on Exhibit D.

 

 

“Shares” shall mean the Commitment Shares and the Common Shares to be issued from time to time hereunder pursuant to an Advance.

 

“Solvent” shall mean, as to any Person as of any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

“Subsidiaries” shall mean any Person in which the Company, directly or indirectly, (x) owns a majority of the outstanding capital stock or holds a majority of the equity or similar interest of such Person or (y) controls or operates all or substantially all of the business, operations or administration of such Person, and the foregoing are collectively referred to herein as “Subsidiaries.”

 

“Trading Day” shall mean any day during which the Principal Market shall be open for business.

 

“Transaction Documents” means, collectively, this Agreement, the Registration Rights Agreement, the Global Guaranty Agreement, any Promissory Notes issued by the Company hereunder, and each of the other agreements and instruments entered into or delivered by any of the parties hereto in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.

 

“Variable Rate Transaction” shall mean a transaction in which the Company (i) issues or sells any Common Shares or Common Share Equivalents, in each case, that are convertible into, exchangeable or exercisable for, or include the right to receive additional Common Shares either (A) at a conversion price, exercise price, exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Common Shares at any time after the initial issuance of Common Shares or Common Share Equivalents, except if such variation is subject to a permanent adjustment floor that is set at or above the Nasdaq Minimum Price, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such equity or debt security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Shares (but not including any “price ratchet,” or “weighted average” anti-dilution provisions that solely relates to a conversion price, exercise price, or exchange rate (and does not include the right to receive additional Common Shares), and any standard anti-dilution protection for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction), except if such variation is subject to a permanent adjustment floor that is set at or above the Nasdaq Minimum Price, (ii) enters into, or effects a transaction under, any agreement, including but not limited to an “equity line of credit” or other continuous offering or similar offering of Common Shares or Common Share Equivalents, or (iii) enters into or effects any forward purchase agreement, equity pre-paid forward transaction or other similar offering of securities where the purchaser of securities of the Company receives an upfront or periodic payment of all, or a portion of, the value of the securities so purchased, and the Company receives proceeds from such purchaser based on a price or value that varies with the trading prices of the Common Shares.

 

“VWAP” shall mean for any Trading Day or specified period, the daily volume weighted average price of the Common Shares for such Trading Day on the Principal Market during regular trading hours, or such specified period, as reported by Bloomberg L.P through its “AQR” function. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.

 

 

ANNEX II TO THE

STANDBY EQUITY PURCHASE AGREEMENT

 

CONDITIONS PRECEDENT TO THE INVESTOR’S OBLIGATION TO FUND A PRE-PAID ADVANCE

 

The obligation of the Investor to advance to the Company a Pre-Paid Advance hereunder at the Pre-Advance Closing is subject to the satisfaction, as of the date of the Pre-Advance Closing, of each of the following conditions, provided that these conditions are for the Investor’s sole benefit and may be waived by the Investor at any time in its sole discretion by providing the Company with prior written notice thereof:

 

(a)

The Company shall have duly executed and delivered to the Investor each of the Transaction Documents to which it is a party and the Company shall have duly executed and delivered to the Investor a Promissory Note with a principal amount corresponding to the amount of the Pre-Paid Advance (before any deductions made thereto).

 

(b)

The Company shall have delivered to the Investor a compliance certificate executed by the chief executive officer of the Company certifying that Company has complied with all of the conditions precedent to the Pre-Advance Closing set forth herein and which may be relied upon by the Investor as evidence of satisfaction of such conditions without any obligation to independently verify.

 

(c)

The Investor shall have received an opinion of counsel to the Company, dated on or before the date of the Pre-Advance Closing, in a form reasonably acceptable to the Investor.

 

(d)

The Investor shall have received a closing statement in a form to be agreed by the parties, duly executed by an officer of the Company, setting forth wire transfer instructions of the Company for the payment of the amount of the Pre-Paid Advance, the amount to be paid by the Investor, which shall be the full principal amount of the Pre-Paid Advance, less the Original Issue Discount, and any other deductions that may be agreed by the parties.

 

(e)

The Company shall have delivered to the Investor copies of its and each Subsidiaries certified copies of its charter, as well as any shareholder or operating agreements by or among the shareholders or members of any of the Company’s Subsidiaries.

 

(f)

The Company shall have delivered to the Investor a certificate evidencing the incorporation and good standing of the Company as of a date within ten (10) days of the date of the Pre-Advance Closing.

 

 

(g)

The board of directors of the Company and each party to the Global Guaranty Agreement have approved the transactions contemplated by the Transaction Documents to which it is a party; said approval has not been amended, rescinded or modified and remains in full force and effect as of the date hereof, and a true, correct and complete copy of such resolutions duly adopted by the board of directors of the Company and each Subsidiary shall have been provided to the Investor.

 

(h)

Each and every representation and warranty of the Company shall be true and correct in all material respects (other than representations and warranties qualified by materiality, which shall be true and correct in all respects) as of the date when made and as of the date of the Pre-Advance Closing as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions set forth in each Transaction Document required to be performed, satisfied or complied with by the Company at or prior to the Pre-Advance Closing date.

 

(i)

No Suspension of Trading in or Delisting of Common Shares. Trading in the Common Shares shall not have been suspended by the SEC, the Principal Market or FINRA, the Company shall not have received any final and non-appealable notice that the listing or quotation of the Common Shares on the Principal Market shall be terminated on a date certain (unless, prior to such date certain, the Common Shares is listed or quoted on any subsequent Principal Market), nor shall there have been imposed any suspension of, or restriction on, accepting additional deposits of the Common Shares, electronic trading or book-entry services by DTC with respect to the Common Shares that is continuing, the Company shall not have received any notice from DTC to the effect that a suspension of, or restriction on, accepting additional deposits of the Common Shares, electronic trading or book-entry services by DTC with respect to the Common Shares is being imposed or is contemplated (unless, prior to such suspension or restriction, DTC shall have notified the Company in writing that DTC has determined not to impose any such suspension or restriction).

 

(j)

The Company shall have obtained all governmental, regulatory or third-party consents and approvals (including the consent of the holders of any series of preferred stock), necessary for the Company to consummate the transactions contemplated by the Transaction Documents, including, without limitation, the issuance and sale of the Promissory Note (including the Common Shares issuable upon conversion thereof), and the issuance and sale of the Common Shares hereunder.

 

(k)

No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or Governmental Entity of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

 

(l)

Since the date of execution of this Agreement, no event or series of events shall have occurred that has resulted in or would reasonably be expected to result in a Material Adverse Effect, or an Event of Default.

 

 

(m)

No material breach of this Agreement or any Transaction Document shall have occurred (with the passage of time or the giving of notice, or both, would constitute a material breach of this Agreement or any Transaction Document) and no Event of Default shall have occurred (assuming that the Promissory Note had been outstanding as of the Pre-Advance Closing (with the passage of time or the giving of notice, of both, would constitute an Event of Default).

 

(n)

The Company shall have notified the Principal Market of the issuance of all of the Shares hereunder and shall have submitted the related Listing of Additional Share form to list or designate for quotation (as the case may be) the maximum number of Common Shares issuable pursuant to the Promissory Note to be issued at the Pre-Advance Closing.

 

(o)

The Company and its Subsidiaries shall have delivered to the Investor such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as the Investor or its counsel may reasonably request.

 

(p)

The number of Common Shares available for issuance under the Exchange Cap shall have an aggregate market value (based on a price per Common Share equal to the average VWAP over the prior five (5) Trading Day period) of no less than 150% of the outstanding principal amount of the Pre-Paid Advance to be funded at the Pre-Advance Closing.

 

(q)

The Investor shall have received confirmation from the Company that it has closed, or received binding commitments to close concurrently with the closing of the Pre-Paid Advance, Concurrent Issuances with gross proceeds to the Company of at least $20 million.

 

(r)

The Investor shall have received confirmation from the Company and NRO that other than the payment to NRO of the net proceeds from the closing of the $15,000,000 Pre-Paid Advance contemplated herein, all conditions precedent to the closing of the NRO Acquisition shall have been satisfied or waived and that the consummation of the NRO Acquisition shall automatically occur upon the receipt by the Company, and transfer to NRO, of the net proceeds of the closing of the $15,000,000 Pre-Paid Advance contemplated herein.

 

 

ANNEX III TO THE

STANDBY EQUITY PURCHASE AGREEMENT

 

CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER AN ADVANCE NOTICE

 

The right of the Company to deliver an Advance Notice and the obligations of the Investor hereunder with respect to an Advance are subject to the satisfaction or waiver, on each Advance Notice Date (a “Condition Satisfaction Date”), of each of the following conditions:

 

(a)

Accuracy of the Company’s Representations and Warranties. The representations and warranties of the Company in this Agreement shall be true and correct in all material respects as of the Advance Notice Date, except to the extend such representations and warranties are as of another date, such representations and warranties shall be true and correct as of such other date.

 

(b)

Issuance of Commitment Shares. The Company shall have paid the Commitment Fee or issued the Commitment Shares to an account designated by the Investor on or prior to the Effective Date, in accordance with Section 12.04, all of which Commitment Fee shall be fully earned and non-refundable, regardless of whether any Advance Notices are made or settled hereunder or any subsequent termination of this Agreement.

 

(c)

Registration of the Common Shares with the SEC. There is an effective Registration Statement pursuant to which the Investor is permitted to utilize the prospectus thereunder to resell all of the Common Shares issuable pursuant to such Advance Notice. The Current Report shall have been filed with the SEC and the Company shall have filed with the SEC in a timely manner all reports, notices and other documents required under the Exchange Act and applicable SEC regulations during the twelve-month period immediately preceding the applicable Condition Satisfaction Date.

 

(d)

Authority. The Company shall have obtained all permits and qualifications required by any applicable state for the offer and sale of all the Common Shares issuable pursuant to such Advance Notice, or shall have the availability of exemptions therefrom. The sale and issuance of such Common Shares shall be legally permitted by all laws and regulations to which the Company is subject.

 

(e)

Board. The board of directors of the Company has approved the transactions contemplated by the Transaction Documents; said approval has not been amended, rescinded or modified and remains in full force and effect as of the date hereof, and a true, correct and complete copy of such resolutions duly adopted by the board of directors of the Company shall have been provided to the Investor.

 

(f)

No Material Outside Event. No Material Outside Event shall have occurred and be continuing.

 

(g)

Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior the applicable Condition Satisfaction Date.

 

 

(h)

No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly, materially and adversely affects any of the transactions contemplated by this Agreement.

 

(i)

No Suspension of Trading in or Delisting of Common Shares. Trading in the Common Shares shall not have been suspended by the SEC, the Principal Market or FINRA, the Company shall not have received any final and non-appealable notice that the listing or quotation of the Common Shares on the Principal Market shall be terminated on a date certain (unless, prior to such date certain, the Common Shares is listed or quoted on any subsequent Principal Market), nor shall there have been imposed any suspension of, or restriction on, accepting additional deposits of the Common Shares, electronic trading or book-entry services by DTC with respect to the Common Shares that is continuing, the Company shall not have received any notice from DTC to the effect that a suspension of, or restriction on, accepting additional deposits of the Common Shares, electronic trading or book-entry services by DTC with respect to the Common Shares is being imposed or is contemplated (unless, prior to such suspension or restriction, DTC shall have notified the Company in writing that DTC has determined not to impose any such suspension or restriction).

 

(j)

Authorized. All of the Shares issuable pursuant to the applicable Advance Notice shall have been duly authorized by all necessary corporate action of the Company. All Shares relating to all prior Advance Notices required to have been received by the Investor under this Agreement shall have been delivered to the Investor in accordance with this Agreement.

 

(k)

Executed Advance Notice. The representations contained in the applicable Advance Notice shall be true and correct in all material respects as of the applicable Condition Satisfaction Date.

 

 

EXHIBIT A

REGISTRATION RIGHTS AGREEMENT

 

 

EXHIBIT B

CONVERTIBLE PROMISSORY NOTE

 

 

EXHIBIT C
ADVANCE NOTICE

 

Dated: ______________

Advance Notice Number: ____

 

The undersigned, _______________________, hereby certifies, with respect to the sale of Common Shares of PRAIRIE OPERATING CO. (the “Company”) issuable in connection with this Advance Notice, delivered pursuant to that certain Standby Equity Purchase Agreement, dated as of [____________] (the “Agreement”), as follows (with capitalized terms used herein without definition having the same meanings as given to them in the Agreement):

 

1. The undersigned is the duly elected ______________ of the Company.

 

2. There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post-effective amendment to the Registration Statement.

 

3. The Company has performed in all material respects all covenants and agreements to be performed by the Company contained in this Agreement on or prior to the Advance Notice Date. All conditions to the delivery of this Advance Notice are satisfied as of the date hereof.

 

4. The number of Advance Shares the Company is requesting is _____________________.

 

5. The Minimum Acceptable Price with respect to this Advance Notice is____________ (if left blank then no Minimum Acceptable Price will be applicable to this Advance).]

 

6. The number of Common Shares of the Company outstanding as of the date hereof is ___________.

 

The undersigned has executed this Advance Notice as of the date first set forth above.

 

	PRAIRIE OPERATING CO.
	By:

 

Please deliver this Advance Notice by email to:

Email: Trading@yorkvilleadvisors.com

Attention: Trading Department and Compliance Officer

Confirmation Telephone Number: (201) 985-8300.

 

 

EXHIBIT D

SETTLEMENT DOCUMENT

 

VIA EMAIL

 

PRAIRIE OPERATING CO.

 

Attn:

Email:

 

	Below please find the settlement information with respect to the Advance Notice Date of:
1.	Number of Common Shares requested in the Advance Notice
2.	Minimum Acceptable Price for this Advance (if any)
3.	Number of Excluded Days (if any)
4.	Adjusted Advance Amount (if applicable)
5.	Market Price
6.	Purchase Price (Market Price x 97%) per share
7.	Number of Advance Shares due to the Investor
8.	Total Purchase Price due to Company (row 6 x row 7)

 

If there were any Excluded Days then add the following

 

9.	Number of Additional Shares to be issued to the Investor
10.	Additional amount to be paid to the Company by the Investor (Additional Shares in row 9 x Minimum Acceptable Price x 97%)
11.	Total Amount to be paid to the Company (Purchase Price in row 8 + additional amount in row 10)
12.	Total Advance Shares to be issued to the Investor (Advance Shares due to the Investor in row 7 + Additional Shares in row 9)

 

 

Please issue the number of Advance Shares due to the Investor to the account of the Investor as follows:

 

Investor’s DTC participant #:

 

ACCOUNT NAME:

ACCOUNT NUMBER:

ADDRESS:

CITY:

COUNTRY:

Contact person:

Number and/or email:

 

	Sincerely,
	YA II PN, LTD.

 

 

Agreed and approved By: PRAIRIE OPERATING CO.:
Name:
Title:

 

 

EXHIBIT E

FORM OF GLOBAL GUARANTY AGREEMENT

 

 

 

Exhibit 10.2

 

NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

PRAIRIE OPERATING CO.

 

CONVERTIBLE PROMISSORY NOTE

 

Original Principal Amount: $15,000,000
Issuance Date: September 30, 2024
Number: PROP-1

 

FOR VALUE RECEIVED, PRAIRIE OPERATING CO., an entity organized under the laws of the State of Delaware (the “Company”), hereby promises to pay to the order of YA II PN, LTD., or its registered assigns (the “Holder”), the amount set out above as the Original Principal Amount (or such lesser amount as reduced pursuant to the terms hereof pursuant to repayment, redemption, conversion or otherwise, the “Principal”) and the Payment Premium or the Redemption Premium, as applicable, in each case when due, and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). Certain capitalized terms used herein are defined in Section (13). The Issuance Date is the date of the first issuance of this Convertible Promissory Note (as amended, amended and restated, extended, supplemented or otherwise modified in writing from time to time, this “Note”) regardless of the number of transfers and regardless of the number of instruments, which may be issued to evidence such Note. This Note was issued with a 5% original issue discount. The Company and the Holder are referred to herein at times, collectively, as the “Parties,” and each, a “Party.”

 

This Note is being issued pursuant to Section 2.01 of the Standby Equity Purchase Agreement, dated September 30, 2024 (as may be amended, amended and restated, extended, supplemented or otherwise modified in writing from time to time, the “SEPA”), by and between the Company and YA II PN, Ltd., as the Investor.

 

 

(1) GENERAL TERMS

 

(a) Maturity Date. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest, and any other amounts outstanding pursuant to the terms of this Note. The “Maturity Date” shall be September 30, 2025, as may be extended at the option of the Holder. Other than as specifically permitted by this Note, the Company may not prepay or redeem any portion of the outstanding Principal and accrued and unpaid Interest.

 

(b) Interest Rate and Payment of Interest. Interest shall accrue on the outstanding Principal balance hereof at an annual rate equal to 8% (“Interest Rate”), which Interest Rate shall increase to an annual rate of 18% upon the occurrence of an Event of Default (for so long as such event remains uncured). Interest shall be calculated based on a 365-day year and the actual number of days elapsed, to the extent permitted by applicable law.

 

(c) Monthly Payments. If, any time after the 60^th day following the Issuance Date set forth above, and from time to time thereafter, an Amortization Event has occurred, then the Company shall make monthly payments beginning on the 5th Trading Day after the Amortization Event Date and continuing on the same day of each successive Calendar Month until the entire outstanding principal amount shall have been repaid. Each monthly payment shall be in an amount equal to the sum of (i) $1,500,000 of Principal (or the outstanding Principal if less than such amount) (the “Amortization Principal Amount”), plus (ii) the Payment Premium (as defined below) in respect of such Amortization Principal Amount, and (iii) accrued and unpaid interest hereunder as of each payment date. The obligation of the Company to make monthly prepayments related to an Amortization Event shall cease (with respect to any payment that has not yet come due) if at any time after the Amortization Event Date (A) in the event of a Floor Price Event, either (i) on the date that is the 10th consecutive Trading Day that the daily VWAP is greater than the Floor Price then in effect, or (ii) the Company provides the Holder with a reset notice (“Reset Notice”) setting forth a reduced Floor Price which shall be equal to no more than 75% of the closing price on the Trading Day immediately prior to such Reset Notice (and in no event greater than the initial Floor Price), or (B) in the event of an Exchange Cap Event, the date the Company has obtained stockholder approval to increase the number of Common Shares under the Exchange Cap and/or the Exchange Cap no longer applies, (C) in the event of a Registration Event, the condition or event causing the Registration Event has been cured or the Holder is able to resell the Common Shares issuable upon conversion of this Note in accordance with Rule 144 under the Securities Act, unless a subsequent Amortization Event occurs.

 

(d) Optional Redemption. The Company at its option shall have the right, but not the obligation, to redeem (“Optional Redemption”) early a portion or all amounts outstanding under this Note as described in this Section; provided, that the Company provides the Holder with written notice (each, a “Redemption Notice”) of its desire to exercise an Optional Redemption, which Redemption Notice (i) shall be delivered to the Holder after the close of regular trading hours on a Trading Day, and (ii) may only be given if the VWAP of the Common Shares was less than the Fixed Price on the date such Redemption Notice is delivered, unless otherwise agreed by the Holder. Each Redemption Notice shall be irrevocable and shall specify the outstanding balance of the Note to be redeemed and the Redemption Amount. The “Redemption Amount” shall be an amount equal to (a) the outstanding Principal balance being redeemed by the Company plus (b) the Payment Premium in respect of such Principal amount plus (c) all accrued and unpaid interest, if any on such Principal amount. After receipt of a Redemption Notice, the Holder shall have ten (10) Trading Days (beginning with the Trading Day immediately following the date such Redemption Notice is delivered to the Holder in accordance with this term of this Section 5) to elect to convert all or any portion of this Note. On the eleventh (11^th) Trading Day following the delivery of the applicable Redemption Notice, the Company shall deliver to the Holder the Redemption Amount with respect to the Principal amount redeemed to the extent not converted and otherwise after giving effect to conversions or other payments made during such ten (10) Trading Day period.

 

 

(e) Payment Dates. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

(f) Prepayment. Other than as specifically set forth in this Note, the Company shall not have the ability to make any early repayments without the consent or at the request of the Holder.

 

(2) EVENTS OF DEFAULT.

 

(a) An “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body) shall have occurred:

 

(i) The Company’s failure to pay to the Holder any amount of Principal, Redemption Amount, Payment Premium, Interest, or other amounts when and as due under this Note or any other Transaction Document within five (5) Trading Days after such payment is due;

 

(ii) (A) The Company or any Subsidiary of the Company shall commence, or there shall be commenced against the Company or any Subsidiary of the Company any proceeding under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary of the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction, whether now or hereafter in effect relating to the Company or any Subsidiary of the Company, in any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of sixty one (61) days; (B) the Company or any Subsidiary of the Company is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; (C) or the Company or any Subsidiary of the Company suffers any appointment of any custodian, private or court appointed receiver or the like for it or all or substantially all of its property which continues undischarged or unstayed for a period of sixty one (61) days; (D) the Company or any Subsidiary of the Company makes a general assignment of all or substantially all of its assets for the benefit of creditors; (E) the Company or any Subsidiary of the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (F) the Company or any Subsidiary of the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; (G) the Company or any Subsidiary of the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (H) any corporate or other action is taken by the Company or any Subsidiary of the Company for the purpose of effecting any of the foregoing;

 

 

(iii) The Company or any Subsidiary of the Company shall default, in any of its obligations under any note debenture, mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any Subsidiary of the Company in an amount exceeding $500,000, whether such indebtedness now exists or shall hereafter be created, and such default is not cured within the time prescribed by the documents governing such indebtedness or if no time is prescribed, within ten (10) Trading Days, and as a result, such indebtedness becomes or is declared due and payable;

 

(iv) A final judgment or judgments for the payment of money in excess of $500,000 in the aggregate are rendered against the Company and/or any of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged, settled or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay; provided, however, any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $500,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment;

 

(v) The Common Shares shall cease to be quoted or listed for trading, as applicable, on any Primary Market for a period of ten (10) consecutive Trading Days;

 

(vi) The Company or any Subsidiary of the Company shall be a party to any Change of Control Transaction (as defined in Section (13)) unless in connection with such Change of Control Transaction this Note is retired;

 

(vii) The Company’s (A) failure to deliver the required number of Common Shares to the Holder within two (2) Trading Days after the applicable Share Delivery Date or (B) notice, written or oral, to any holder of this Note, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of all or a portion of this Note into Common Shares that is tendered in accordance with the provisions of this Note;

 

(viii) The Company shall fail for any reason to deliver the payment in cash pursuant to a Buy-In (as defined below) within five (5) Business Days after such payment is due;

 

 

(ix) The Company’s failure to timely file with the Commission any Periodic Report on or before the due date of such filing as established by the Commission, it being understood, for the avoidance of doubt, that due date includes any permitted filing deadline extension under Rule 12b-25 under the Exchange Act;

 

(x) Any representation or warranty made or deemed to be made by or on behalf of the Company in or in connection with any Transaction Document, or any waiver hereunder or thereunder, shall prove to have been incorrect in any material respect (or, in the case of any such representation or warranty already qualified by materiality, such representation or warranty shall prove to have been incorrect) when made or deemed made;

 

(xi) (A) Any material provision of any Transaction Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder, ceases to be in full force and effect; (B) the Company or any other Person contests in writing the validity or enforceability of any provision of any Transaction Document; or (C) the Company denies in writing that it has any further liability or obligation under any Transaction Document, or purports in writing to revoke, terminate (other than in accordance with the relevant termination provisions) or rescind any Transaction Document;

 

(xii) The Company uses the proceeds of the issuance of this Note, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulations T, U and X of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof), or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose; or

 

(xiii) Any breach of any material term of any other debenture, note, or instrument held by the Holder in the Company or any agreement between or among the Company and the Holder; or

 

(xiv) The Company shall fail to observe or perform any material covenant, agreement or warranty contained in, or otherwise commit any material breach or default of any provision of this Note (except as may be otherwise covered by Sections (2)(a)(i) through (2)(a)(xiii) hereof) or any other Transaction Document, which is not cured or remedied within the time prescribed or if no time is prescribed within ten (10) Business Days.

 

(b) During the time that any portion of this Note is outstanding, if any Event of Default has occurred (other than an event with respect to the Company described in Section (2)(a)(ii)), the full unpaid Principal amount of this Note, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become at the Holder’s election given by notice pursuant to Section (5), immediately due and payable in cash; provided that, in the case of any event with respect to the Company described in Section (2)(a)(ii), the full unpaid Principal amount of this Note, together with accrued and unpaid interest and other amounts owing in respect thereof to the date of acceleration, shall automatically become due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company. Furthermore, in addition to any other remedies, the Holder shall have the right (but not the obligation) to convert, on one or more occasions all or part of the Note in accordance with Section (3) (and subject to the limitations set out in Section (3)(c)(i) and Section (3)(c)(ii)) at any time after an Event of Default has occurred and is continuing until all amounts outstanding under this Note have been repaid in full. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, (other than required notice of conversion) and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by the Holder in writing at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

 

(3) CONVERSION OF NOTE. This Note shall be convertible into Common Shares, on the terms and conditions set forth in this Section (3).

 

(a) Conversion Right. Subject to the limitations of Section (3)(c), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable Common Shares in accordance with Section (3)(b), at the Conversion Price. The number of Common Shares issuable upon conversion of any Conversion Amount pursuant to this Section (3)(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price. The Company shall not issue any fraction of a Common Share upon any conversion. All calculations under this Section (3) shall be rounded to the nearest $0.0001. If the issuance would result in the issuance of a fraction of a Common Share, the Company shall round such fraction of a Common Share up to the nearest whole share. The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Shares upon conversion of any Conversion Amount.

 

(b) Mechanics of Conversion.

 

(i) Optional Conversion. To convert any Conversion Amount into Common Shares on any date (a “Conversion Date”), the Holder shall (A) transmit by email (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by Section (3)(b)(iii), surrender this Note to a nationally recognized overnight delivery service for delivery to the Company (or an indemnification undertaking reasonably satisfactory to the Company with respect to this Note in the case of its loss, theft or destruction). On or before the third (3^rd) Trading Day following the date of receipt of a Conversion Notice (or such earlier date as required pursuant to the Exchange Act or other applicable law, rule or regulation for the settlement of a trade initiated on the applicable Conversion Date of such Common Shares issuable pursuant to such Conversion Notice) (the “Share Delivery Date”), the Company shall (X) if legends are not required to be placed on certificates or the book-entry position of the Common Shares and provided that the Transfer Agent is participating in the Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program, instruct such transfer agent to credit such aggregate number of Common Shares to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate or book-entry position, registered in the name of the Holder or its designee, for the number of Common Shares to which the Holder shall be entitled which certificates shall not bear any restrictive legends unless required pursuant to rules and regulations of the Commission. If this Note is physically surrendered for conversion and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note representing the outstanding Principal not converted. The Person or Persons entitled to receive the Common Shares issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such Common Shares upon the transmission of a Conversion Notice.

 

 

(ii) Company’s Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, on or prior to the applicable Share Delivery Date to issue and deliver a certificate to the Holder or credit the Holder’s balance account with DTC for the number of Common Shares to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount (a “Conversion Failure”), and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Shares to deliver in satisfaction of a sale by the Holder of Common Shares issuable upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the Common Shares so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Common Shares) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Shares to which the Holder is entitled with respect to such Conversion Notice and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of Common Shares multiplied by (B) the Closing Price on the Conversion Date.

 

(iii) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal and Interest converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

 

(c) Limitations on Conversions.

 

(i) Beneficial Ownership. The Holder shall not have the right to convert any portion of this Note to the extent that after giving effect to such conversion, the Holder, together with any affiliate thereof, would beneficially own (as determined in accordance with Section 13(d) of the Exchange Act and the rules promulgated thereunder) in excess of 4.99% of the number of Common Shares outstanding immediately after giving effect to such conversion. Since the Holder will not be obligated to report to the Company the number of Common Shares it may hold at the time of a conversion hereunder, unless the conversion at issue would result in the issuance of Common Shares in excess of 4.99% of the then outstanding Common Shares without regard to any other shares which may be beneficially owned by the Holder or an affiliate thereof, the Holder shall have the authority and obligation to determine whether the restriction contained in this Section will limit any particular conversion hereunder and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which portion of the Principal amount of this Note is convertible shall be the responsibility and obligation of the Holder. If the Holder has delivered a Conversion Notice for a Principal amount of this Note that, without regard to any other shares that the Holder or its affiliates may beneficially own, would result in the issuance in excess of the permitted amount hereunder, the Company shall notify the Holder of this fact and shall honor the conversion for the maximum Principal amount permitted to be converted on such Conversion Date in accordance with Section (3)(a) and, any Principal amount tendered for conversion in excess of the permitted amount hereunder shall remain outstanding under this Note. The provisions of this Section may be waived by a Holder (but only as to itself and not to any other Holder) upon not less than 65 days prior notice to the Company. Other Holders shall be unaffected by any such waiver.

 

 

(ii) Principal Market Limitation. Notwithstanding anything in this Note to the contrary, the Company shall not issue any Common Shares upon conversion of this Note, or otherwise, if the issuance of such Common Shares, together with any Common Shares issued in connection the SEPA and any other related transactions that may be considered part of the same series of transactions, would exceed the aggregate number Common Shares that the Company may issue in a transaction in compliance with the Company’s obligations under the rules or regulations of The Nasdaq Stock Market LLC (“Nasdaq”) and shall be referred to as the “Exchange Cap,” except that such limitation shall not apply if the Company’s stockholders have approved such issuances on such terms in excess of the Exchange Cap in accordance with the rules and regulations of Nasdaq.

 

(d) Other Provisions.

 

(i) All calculations under this Section (3) shall be rounded to the nearest $0.0001 or whole share.

 

(ii) So long as this Note remain outstanding, the Company shall have reserved from its duly authorized share capital, and shall have instructed the Transfer Agent to irrevocably reserve, the maximum number of Common Shares issuable upon conversion of this Note (assuming for purposes hereof that (x) this Note is convertible at the Floor Price as of the date of determination, and (y) any such conversion shall not take into account any limitations on the conversion of the Note set forth herein or therein (the “Required Reserve Amount”)), provided that at no time shall the number of Common Shares reserved pursuant to this Section (3)(d)(ii) be reduced other than pursuant to the conversion of this Note in accordance with its terms, and/or cancellation, or reverse stock split. If at any time while this Note remain outstanding, the Company does not have a sufficient number of authorized and unreserved Common Shares to satisfy the obligation to reserve for the issuance the Required Reserve Amount, the Company will promptly take all corporate action necessary to propose to a meeting of its shareholders an increase of its authorized share capital necessary to meet the Company’s obligations pursuant to this Note, and cause its board of directors to recommend to the shareholders that they approve such proposal. If at any time the number of Common Shares that remain available for issuance under the Exchange Cap is less than 100% of the maximum number of shares issuable upon conversion of this Note (assuming for purposes hereof that (x) the Note is convertible at the Conversion Price then in effect, and (y) any such conversion shall not take into account any limitations on the conversion of the Note), the Company will use commercially reasonable efforts to promptly call and hold a shareholder meeting for the purpose of seeking the approval of its shareholders as required by the applicable rules of the Principal Market, for issuances of shares in excess of the Exchange Cap. The Company covenants that, upon issuance in accordance with conversion of this Note in accordance with its terms, the Common Shares, when issued, will be validly issued, fully paid and nonassessable.

 

 

(iii) Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section (2) herein for the Company’s failure to deliver certificates representing Common Shares upon conversion within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief, in each case without the need to post a bond or provide other security. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

(iv) Legal Opinions. The Company is obligated to cause its legal counsel to deliver legal opinions to the Company’s transfer agent in connection with any legend removal upon the expiration of any holding period or other requirement for which the Underlying Shares may bear legends restricting the transfer thereof. To the extent that a legal opinion is not provided (either timely or at all), then, in addition to being an Event of Default hereunder, the Company agrees to reimburse the Holder for all reasonable costs incurred by the Holder in connection with any legal opinions paid for by the Holder in connection with the sale or transfer of the Underlying Common Shares. The Holder shall notify the Company of any such costs and expenses it incurs that are referred to in this section from time to time and all amounts owed hereunder shall be paid by the Company with reasonable promptness.

 

(e) Adjustment of Conversion Price upon Subdivision or Combination of Common Shares. If the Company, at any time while this Note is outstanding, shall (i) pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Shares or any other equity or equity equivalent securities payable in Common Shares, (ii) subdivide outstanding Common Shares into a larger number of shares, (iii) combine (including by way of reverse stock split) outstanding Common Shares into a smaller number of shares, or (iv) issue by reclassification of Common Shares any shares of capital stock of the Company, then the each of the Fixed Price and the Floor Price shall be multiplied by a fraction of which the numerator shall be the number of Common Shares (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of Common Shares outstanding after such event. Any adjustment made pursuant to this Section shall become effective, in the case of a dividend distribution, immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution or, in the case of a subdivision, combination or re-classification, and shall become effective immediately after the effective date of such subdivision, combination or re-classification.

 

 

(f) Adjustment of Conversion Price upon Issuance of Common Stock. If the Company, at any time while this Note is outstanding, issues or sells any Common Shares or Convertible Securities, including any issuances in connection with a Concurrent Issuance (as defined in the SEPA, even if such issuance was made prior to the issuance of this Note) (other than shares issued or sold by the Company in connection with any Excluded Securities), for a consideration per share (the “New Issuance Price”) less than a price equal to the Fixed Price in effect immediately prior to such issue or sale (such price the “Applicable Price”) (the foregoing, a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Fixed Price then in effect shall be reduced to an amount equal to the New Issuance Price. For the purposes hereof, if the Company in any manner issues or sells any Convertible Securities (other than shares issued or sold by the Company in connection with any Excluded Securities) and the lowest price per share for which one Common Share is issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price, then such Common Share shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. No further adjustment of the Conversion Price shall be made upon the actual issuance of such Common Share upon conversion or exchange or exercise of such Convertible Securities. If any Concurrent Issuances contain conversion price adjustments that are more favorable to the provisions of this Note, including the determination of the Variable Price, or if the price per share for which one Common Share is issuable upon conversion or exchange or exercise of any Concurrent Issuance is subsequently reduced to a price that is less than the Applicable Price, then such change shall be considered a Dilutive Issuance for the purposes of this Section 3(f), and the Holder, at its option, shall be entitled to the same adjustment to the Fixed Price or shall be entitled to an adjustment to the Variable Price to match such Dilutive Issuance.

 

(g) Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of Common Shares are entitled to receive securities or other assets with respect to or in exchange for Common Shares (a “Corporate Event”), the Company shall make appropriate provision to ensure that the Holder will thereafter have the right to receive upon a conversion of this Note, at the Holder’s option, (i) in addition to the Common Shares receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such Common Shares had such Common Shares been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the Common Shares otherwise receivable upon such conversion, such securities or other assets received by the holders of Common Shares in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to Common Shares) at a conversion rate for such consideration commensurate with the Conversion Price. Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required Holders. The provisions of this Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.

 

(h) Whenever the Conversion Price is adjusted pursuant to Section (3) hereof, the Company shall promptly provide the Holder with a written notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

 

(i) In case of any (1) merger or consolidation of the Company or any Subsidiary of the Company with or into another Person, or (2) sale by the Company or any Subsidiary of the Company of more than one-half of the assets of the Company in one or a series of related transactions, a Holder shall have the right to (A) exercise any rights under Section (3)(b), (B) convert the aggregate amount of this Note then outstanding into the shares of stock and other securities, cash and property receivable upon or deemed to be held by holders of Common Shares following such merger, consolidation or sale, and such Holder shall be entitled upon such event or series of related events to receive such amount of securities, cash and property as the Common Shares into which such aggregate Principal amount of this Note could have been converted immediately prior to such merger, consolidation or sales would have been entitled, or (C) in the case of a merger or consolidation, require the surviving entity to issue to the Holder a convertible Note with a Principal amount equal to the aggregate Principal amount of this Note then held by such Holder, plus all accrued and unpaid interest and other amounts owing thereon, which such newly issued convertible Note shall have terms identical (including with respect to conversion) to the terms of this Note, and shall be entitled to all of the rights and privileges of the Holder of this Note set forth herein and the agreements pursuant to which this Note was issued. In the case of clause (C), the conversion price applicable for the newly issued shares of convertible preferred stock or convertible debentures shall be based upon the amount of securities, cash and property that each Common Shares would receive in such transaction and the Conversion Price in effect immediately prior to the effectiveness or closing date for such transaction. The terms of any such merger, sale or consolidation shall include such terms so as to continue to give the Holder the right to receive the securities, cash and property set forth in this Section upon any conversion or redemption following such event. This provision shall similarly apply to successive such events.

 

(4) REISSUANCE OF THIS NOTE.

 

(a) Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section (4)(d)), registered in the name of the registered transferee or assignee, representing the outstanding Principal being transferred by the Holder (along with any accrued and unpaid interest thereof) and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section (4)(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section (3)(b)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.

 

(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and substance and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section (4)(d)) representing the outstanding Principal.

 

(c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section (4)(d)) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender.

 

 

(d) Issuance of New Notes. Whenever the Company is required to issue a new Note pursuant to the terms hereof, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section (4)(a) or Section (4)(c), the Principal designated by the Holder which, when added to the Principal represented by the other new Note(s) issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of such new Note), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest from the Issuance Date.

 

(5) NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing by letter or electronic mail (“e-mail”) and will be deemed to have been delivered: upon the later of (A) either (i) receipt, when delivered personally or (ii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, as applicable and in each case, properly addressed to the party to receive the same and (B) receipt, when sent by e-mail. The addresses and e-mail addresses for such communications shall be:

 

If to the Company, to:	Prairie Operating Co. 55 Waugh Drive Suite 400 Houston, Texas 77007 Attn: Craig Owen, Chief Financial Officer Email: co@prairieopco.com
with a copy (which shall not constitute notice) to:	Prairie Operating Co. 55 Waugh Drive Suite 400 Houston, Texas 77007 Attn: Daniel T. Sweeney E-mail: ds@prairieopco.com
If to the Holder:	YA II PN, Ltd c/o Yorkville Advisors Global, LLC 1012 Springfield Avenue Mountainside, NJ 07092 Attention: Mark Angelo Telephone: 201-985-8300 Email: Legal@yorkvilleadvisors.com

 

 

or at such other address and/or e-mail address and/or to the attention of such other person as the recipient party has specified by written notice given to each other party in accordance with this Section at least three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (a) given by the recipient of such notice, consent, waiver or other communication, (b) electronically generated by the sender’s email service provider containing the time, date, recipient email address or (c) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by e-mail or receipt from a nationally recognized overnight delivery service in accordance with clause (A)(i), (A)(ii) or (B) above, respectively.

 

(6) Except as expressly provided herein, no provision of this Note shall alter or impair the obligations of the Company, which are absolute and unconditional, to pay the Principal of, and interest and other charges (if any) on, this Note at the time, place, and rate, and in the currency, herein prescribed. This Note is a direct obligation of the Company. As long as this Note is outstanding, the Company shall not and shall cause each of its Subsidiaries not to, without the consent of the Holder, (i) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise acquire shares of its Common Shares or other equity securities; (iii) enter into any agreement with respect to any of the foregoing, or (iv) enter into any agreement, arrangement or transaction in or of which the terms thereof would restrict, materially delay, conflict with or impair the ability of the Company to perform its obligations under the this Note, including, without limitation, the obligation of the Company to make cash payments hereunder.

 

(7) This Note shall not entitle the Holder to any of the rights of a stockholder of the Company, including without limitation, the right to vote, to receive dividends and other distributions, or to receive any notice of, or to attend, meetings of stockholders or any other proceedings of the Company, unless and to the extent converted into Common Shares in accordance with the terms hereof.

 

(8) CHOICE OF LAW; VENUE; WAIVER OF JURY TRIAL

 

(a) Governing Law. This Note and the rights and obligations of the Parties hereunder shall, in all respects, be governed by, and construed in accordance with, the laws (excluding the principles of conflict of laws) of the State of New York (the “Governing Jurisdiction”) (including Section 5-1401 and Section 5-1402 of the General Obligations Law of the State of New York), including all matters of construction, validity and performance.

 

(b) Jurisdiction; Venue; Service.

 

(i) The Company hereby irrevocably consents to the non-exclusive personal jurisdiction of the state courts of the Governing Jurisdiction and, if a basis for federal jurisdiction exists, the non-exclusive personal jurisdiction of any United States District Court for the Governing Jurisdiction.

 

(ii) The Company agrees that venue shall be proper in any court of the Governing Jurisdiction selected by the Holder or, if a basis for federal jurisdiction exists, in any United States District Court in the Governing Jurisdiction selected by the Holder. The Company waives any right to object to the maintenance of any suit, claim, action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, in any of the state or federal courts of the Governing Jurisdiction on the basis of improper venue or inconvenience of forum.

 

 

(iii) Any suit, claim, action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or tort or otherwise, brought by the Company against the Holder arising out of or based upon this Note or any matter relating to this Note, or any other Transaction Document, or any contemplated transaction, shall be brought in a court only in the Governing Jurisdiction. The Company shall not file any counterclaim against the Holder in any suit, claim, action, litigation or proceeding brought by the Holder against the Company in a jurisdiction outside of the Governing Jurisdiction unless under the rules of the court in which the Holder brought such suit, claim, action, litigation or proceeding the counterclaim is mandatory, and not permissive, and would be considered waived unless filed as a counterclaim in the suit, claim, action, litigation or proceeding instituted by the Holder against the Company. The Company agrees that any forum outside the Governing Jurisdiction is an inconvenient forum and that any suit, claim, action, litigation or proceeding brought by the Company against the Holder in any court outside the Governing Jurisdiction should be dismissed or transferred to a court located in the Governing Jurisdiction. Furthermore, the Company irrevocably and unconditionally agrees that it will not bring or commence any suit, claim, action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Holder arising out of or based upon this Note or any matter relating to this Note, or any other Transaction Document, or any contemplated transaction, in any forum other than the courts of the State of New York sitting in New York County, and the United States District Court of the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such suit, claim, action, litigation or proceeding may be heard and determined in such New York State Court or, to the fullest extent permitted by applicable law, in such federal court. The Company and the Holder agree that a final judgment in any such suit, claim, action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(iv) The Company and the Holder irrevocably consent to the service of process out of any of the aforementioned courts in any such suit, claim, action, litigation or proceeding by the mailing of copies thereof by registered or certified mail postage prepaid, to it at the address provided for notices in this Note, such service to become effective thirty (30) days after the date of mailing.

 

(v) Nothing herein shall affect the right of the Holder to serve process in any other manner permitted by law or to commence legal proceedings or to otherwise proceed against the Company or any other Person in the Governing Jurisdiction or in any other jurisdiction.

 

(c) THE PARTIES MUTUALLY WAIVE ALL RIGHT TO TRIAL BY JURY OF ALL CLAIMS OF ANY KIND ARISING OUT OF OR BASED UPON THIS NOTE OR ANY MATTER RELATING TO THIS NOTE, OR ANY OTHER TRANSACTION DOCUMENT, OR ANY CONTEMPLATED TRANSACTION. THE PARTIES ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THE PARTIES EACH MAKE THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH COUNSEL OF THEIR RESPECTIVE CHOICE. THE PARTIES AGREE THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE OF A COURT HAVING JURISDICTION, WITHOUT A JURY.

 

 

(9) If the Company fails to strictly comply with the terms of this Note, then the Company shall reimburse the Holder promptly for all fees, costs and expenses, including, without limitation, attorneys’ fees and expenses incurred by the Holder in any action in connection with this Note, including, without limitation, those incurred: (i) during any workout, attempted workout, and/or in connection with the rendering of legal advice as to the Holder’s rights, remedies and obligations, (ii) collecting any sums which become due to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim to any proceeding or appeal; or (iv) the protection, preservation or enforcement of any rights or remedies of the Holder.

 

(10) Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.

 

(11) If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the Principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or imped the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such power as though no such law has been enacted.

 

(12) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:

 

(a) Amortization Event” shall mean (i) the daily VWAP is less than the Floor Price then in effect for five Trading Days during a period of three consecutive Trading Days (a “Floor Price Event”), (ii) the Company has issued to the Investor, pursuant to the transactions contemplated in this Note and the SEPA, in excess of 99% of the Common Shares available under the Exchange Cap, where applicable (an “Exchange Cap Event”), or (iii) any time after the Effectiveness Deadline, the Investor is unable to utilize a Registration Statement to resell Underlying Shares for a period of ten (10) consecutive Trading Days (a “Registration Event”)] (the last day of each such occurrence, an “Amortization Event Date”).

 

 

(b) “Amortization Principal Amount” shall have the meaning set forth in Section (1)(c).

 

(c) “Applicable Price” shall have the meaning set forth in Section (3)(f).

 

(d) “Approved Stock Plan” means any employee benefit plan or share incentive plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company.

 

(e) “Bloomberg” means Bloomberg Financial Markets.

 

(f) “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions are authorized or required by law or other government action to close.

 

(g) “Buy-In” shall have the meaning set forth in Section (3)(b)(ii).

 

(h) “Buy-In Price” shall have the meaning set forth in Section (3)(b)(ii).

 

(i) “Calendar Month” means one of the twelve months of the year.

 

(j) “Change of Control Transaction” means the occurrence of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of fifty percent (50%) of the voting power of the Company (except that the acquisition of voting securities by the Holder or any other current holder of convertible securities of the Company shall not constitute a Change of Control Transaction for purposes hereof), (b) a replacement at one time or over time of more than one-half of the members of the board of directors of the Company (other than as due to the death or disability of a member of the board of directors) which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of the assets of the Company or any Subsidiary of the Company in one or a series of related transactions with or into another entity, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (a), (b) or (c). No transfer to a wholly-owned Subsidiary shall be deemed a Change of Control Transaction under this provision.

 

(k) “Closing Price” means the price per share in the last reported trade of the Common Shares on a Primary Market or on the exchange which the Common Shares are then listed as quoted by Bloomberg.

 

 

(l) “Commission” means the Securities and Exchange Commission.

 

(m) “Common Shares” means the shares of common stock, par value $0.0001, of the Company and stock of any other class into which such shares may hereafter be changed or reclassified.

 

(n) “Conversion Amount” means the portion of the Principal, Interest, or other amounts outstanding under this Note to be converted, redeemed or otherwise with respect to which this determination is being made.

 

(o) “Conversion Date” shall have the meaning set forth in Section (3)(b)(i).

 

(p) “Conversion Failure” shall have the meaning set forth in Section (3)(b)(ii).

 

(q) “Conversion Notice” shall have the meaning set forth in Section (3)(b)(i).

 

(r) “Conversion Price” means, as of any Conversion Date or other date of determination the lower of $11.19 per Common Share (the “Fixed Price”), or (ii) 95% of the lowest daily VWAP during the 5 consecutive Trading Days immediately preceding the Conversion Date or other date of determination (the “Variable Price”), but which Variable Price shall not be lower than the Floor Price then in effect. The Conversion Price shall be adjusted from time to time pursuant to the other terms and conditions of this Note.

 

(s) “Convertible Securities” means any stock or securities directly or indirectly convertible into or exercisable or exchangeable for Common Shares.

 

(t) “Dilutive Issuance” shall have the meaning set forth in Section (3)(f).

 

(u) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(v) “Excluded Securities” means any Common Shares issued or issuable or deemed to be issued by the Company: (i) under any Approved Stock Plan, (ii) upon issuance of any Common Shares pursuant to the SEPA (including Common Shares issued in connection with this Note); (iii) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day immediately preceding the date of the SEPA, other than any securities or agreements that are issued or agreed as part of any Concurrent Insurance (as defined in the SEPA); provided, that such issuance of Common Shares upon exercise of such Options or Convertible Securities is made pursuant to the terms of such Options or Convertible Securities in effect on such date and such Options or Convertible Securities are not amended, modified or changed on or after such date, or (iv) upon a stock split, reverse stock split, distribution of bonus shares, combination or other recapitalization events.

 

 

(w) “Floor Price” solely with respect to the Variable Price, shall mean $2.00 per Common Share. Notwithstanding the foregoing, the Company may reduce the Floor Price to any amounts set forth in a written notice to the Holder; provided that such reduction shall be irrevocable and shall not be subject to increase thereafter.

 

(x) “Fundamental Transaction” means any of the following: (1) the Company effects any merger or consolidation of the Company with or into another Person and the Company is the non-surviving company (other than a merger or consolidation with a wholly owned Subsidiary of the Company for the purpose of redomiciling the Company), (2) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Shares are permitted to tender or exchange their shares for other securities, cash or property, or (4) the Company effects any reclassification of the Common Shares or any compulsory share exchange pursuant to which the Common Shares is effectively converted into or exchanged for other securities, cash or property.

 

(y) “New Issuance Price” shall have the meaning set forth in Section (3)(f).

 

(z) “Payment Premium” means 5% of the Principal amount being paid.

 

(aa) “Periodic Reports” shall mean all of the Company’s reports required to be filed by the Company with the Commission under applicable laws and regulations (including, without limitation, Regulation S-K), including annual reports (on Form 10-K), quarterly reports (on Form 10-Q), and current reports (on Form 8-K), for so long as any amounts are outstanding under this Note; provided that all such Periodic Reports shall include, when filed, all information, financial statements, audit reports (when applicable) and other information required to be included in such Periodic Reports in compliance with all applicable laws and regulations.

 

(bb) “Person” means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

 

(cc) “Primary Market” means any of The New York Stock Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, and any successor to any of the foregoing markets or exchanges.

 

(dd) “Registration Rights Agreement” means the registration rights agreement entered into between the Company and the Holder on the date hereof.

 

(ee) “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement, covering among other things the resale of the Underlying Shares and naming the Holder as a “selling stockholder” thereunder.

 

(ff) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

 

(gg) “Share Delivery Date” shall have the meaning set forth in Section (3)(b)(i).

 

(hh) “Subsidiary” shall mean any Person in which the Company, directly or indirectly, (x) owns a majority of the outstanding capital stock or holds a majority of the equity or similar interest of such Person or (y) controls or operates all or substantially all of the business, operations or administration of such Person, and the foregoing are collectively referred to herein as “Subsidiaries.”

 

(ii) “Trading Day” means a day on which the Common Shares are quoted or traded on a Primary Market on which the Common Shares are then quoted or listed; provided, that in the event that the Common Shares are not listed or quoted, then Trading Day shall mean a Business Day.

 

(jj) “Transaction Document” means this Note, the SEPA, the Registration Rights Agreement, the Global Guaranty Agreement and any and all other documents, agreements, instruments or other items executed or delivered in connection with this Note or any of the foregoing.

 

(kk) “Underlying Shares” means the Common Shares issuable upon conversion of this Note in accordance with the terms hereof.

 

(ll) “VWAP” means, for any Trading Day, the daily volume weighted average price of the Common Shares for such Trading Day on the Primary Market during regular trading hours as reported by Bloomberg L.P.

 

[Signature Page Follows]

 

 

IN WITNESS WHEREOF, the Company has caused this Convertible Promissory Note to be duly executed by a duly authorized officer as of the date set forth above.

 

	COMPANY:
	PRAIRIE OPERATING CO.
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

 

EXHIBIT I

CONVERSION NOTICE

 

(To be executed by the Holder in order to Convert the Note)

 

TO: PRAIRIE OPERATING CO.

 

Via Email:

 

The undersigned hereby irrevocably elects to convert a portion of the outstanding and unpaid Conversion Amount of Note No. PROP-1 into Common Shares of PRAIRIE OPERATING CO., according to the conditions stated therein, as of the Conversion Date written below.

 

Conversion Date:

 

Principal Amount to be Converted:

 

Accrued Interest to be Converted:

 

Total Conversion Amount to be converted:

 

Fixed Price:

 

Variable Price:

 

Applicable Conversion Price:

 

Number of Common Shares to be issued:

 

Please issue the Common Shares in the following name and deliver them to the following account:

 

Issue to:

 

Broker DTC Participant Code:

 

Account Number:

 

Authorized Signature:
Name:
Title:

 

 

 

Exhibit 10.3

 

GLOBAL GUARANTY AGREEMENT

 

This Guaranty (as amended, amended and restated, supplemented or otherwise modified from time to time, this “Guaranty”) is made as of September 30, 2024, by Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), and Prairie Operating Holding Co., LLC a Delaware limited liability company (“Prairie Holding,” and collectively with Prairie and any subsequent party that may join in this Guaranty, the “Guarantors”) in favor of YA II PN, LTD. (“YA II” or the “Creditor”), with respect to all obligations of PRAIRIE OPERATING CO, a company incorporated under the laws of the State of Delaware (the “Debtor”) owed to the Creditor.

 

RECITALS

 

WHEREAS, the Creditor and the Debtor have entered into a Standby Equity Distribution Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Agreement”) dated as of September 30, 2024, pursuant to which the Creditor shall provide an advance to the Debtor (the “Pre-Paid Advance”) to be evidenced by a promissory note issued to the Creditor (the “Promissory Note”), pursuant to and upon the terms and conditions of the Agreement, in the amount of $15,000,000;

 

WHEREAS, it is a condition precedent to the Creditor’s obligation to provide the Pre-Paid Advances to the Debtor that each Guarantor guarantees all of the Debtor’s obligations under the Agreement, the Pre-Paid Advances issued thereunder, the Promissory Note evidencing the Pre-Paid Advances, and all other instruments, agreements or other items executed or delivered (collectively, the “Transaction Documents”) by the Debtor to the Creditor in connection with or related to the Agreement. The Creditor is only willing to enter into the Agreement and provide the Pre-Paid Advances to the Creditor if each Guarantor agrees to execute and deliver to the Creditor this Guaranty; and

 

WHEREAS, the Guarantors are, or will be at the time of making the Pre-Paid Advances, wholly-owned, or majority-owned subsidiaries of the Creditor and will benefit, directly or indirectly, from the Debtor entering into the Agreement, the making of the Pre-Paid Advances, and other Transaction Documents and extensions of credit the Creditor will make to Debtor;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Guarantor covenants and agrees as follows:

 

1. Guaranty of Payment and Performance. Each Guarantor, jointly and severally, hereby guarantees to the Creditor the full, prompt and unconditional payment when due (whether at maturity, by acceleration or otherwise), and the performance, of all liabilities, agreements and other obligations of the Debtor to the Creditor contained in the Transaction Documents (all the foregoing, collectively, the “Obligations”). This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of the Obligations and not of their collectability only and is in no way conditioned upon any requirement that the Creditor first attempt to collect or require the performance of any of the Obligations from the Debtor or resort to any security or other means of obtaining their payment. Should the Debtor default in the payment or performance of any of the Obligations, the obligations of the Guarantors hereunder shall become immediately due and payable to the Creditor, without demand or notice of any nature, all of which are expressly waived by the Guarantors.

 

 

2. Limited Guaranty. The liability of the Guarantors hereunder shall be limited to the amount of the Obligations due to the Creditor.

 

3. Waivers by Guarantors; Creditor’s Freedom to Act. Each Guarantor hereby agrees that the Obligations will be paid and performed strictly in accordance with their terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Creditor with respect thereto. Each Guarantor waives presentment, demand, protest, notice of acceptance, notice of Obligations incurred and all other notices of any kind, all defenses that may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect (other than payment in full of the Obligations), any right to require the marshalling of assets of the Debtor, and all suretyship defenses generally. Without limiting the generality of the foregoing, each Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of such Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Creditor to assert any claim or demand or to enforce any right or remedy against the Debtor; (ii) any extensions or renewals of, or alteration of the terms of, any Obligation or any portion thereof unless entered into by the Creditor; (iii) any rescissions, waivers, amendments or modifications of any of the terms or provisions of any agreement evidencing, securing or otherwise executed in connection with any Obligation unless entered into by the Creditor; (iv) the substitution or release of any entity primarily or secondarily liable for any Obligation; (v) the adequacy of any rights the Creditor may have against any collateral or other means of obtaining payment or performance of the Obligations; (vi) the impairment of any collateral securing the Obligations, including without limitation the failure to perfect or preserve any rights the Creditor might have in such collateral or the substitution, exchange, surrender, release, loss or destruction of any such collateral; (vii) failure to obtain or maintain a right of contribution for the benefit of such Guarantor; (viii) errors or omissions in connection with the Creditor’s administration of the Obligations (except behavior constituting bad faith); or (ix) any other act or omission that might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a release or discharge of any Guarantor, all of which may be done without notice to any Guarantor.

 

4. Unenforceability of Obligations Against Debtor. If for any reason the Debtor is under no legal obligation to discharge or perform any of the Obligations, or if any of the Obligations have become irrecoverable from the Debtor by operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantors to the same extent as if the Guarantors at all times had been the principal obligors on all such Obligations. In the event that acceleration of the time for payment of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Debtor, or for any other reason, all such amounts otherwise subject to acceleration under the terms of any agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantors.

 

 

5. Subrogation; Subordination. Until the payment and performance in full of all Obligations, the Guarantors shall not exercise any rights against the Debtor arising as a result of payment by the Guarantors hereunder, by way of subrogation or otherwise, and will not prove any claim in competition with the Creditor in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature; the Guarantors will not claim any set-off or counterclaim against the Debtor in respect of any liability of the Guarantors to the Debtor; and the Guarantors waive any benefit of and any right to participate in any collateral that may be held by the Creditor. The payment of any amounts due with respect to any indebtedness of the Debtor now or hereafter held by the Guarantor is hereby subordinated to the prior payment in full of the Obligations. The Guarantor agrees that after the occurrence of any default in the payment or performance of the Obligations, the Guarantors will not demand, sue for or otherwise attempt to collect any such indebtedness of the Debtor to the Guarantors until the Obligations shall have been paid or performed in full. If, notwithstanding the foregoing sentence, the Guarantors shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by the Guarantor as trustee for the Creditor and be paid over to the Creditor on account of the Obligations without affecting in any manner the liability of the Guarantors under the other provisions of this Guaranty.

 

7. Termination; Reinstatement. This Guaranty is irrevocable and shall continue until such time as the Obligations have been indefeasibly paid or performed in full. This Guaranty shall be reinstated if at any time any payment made or value received with respect to an Obligation is rescinded or must otherwise be returned by the Creditor upon the insolvency, bankruptcy or reorganization of the Debtor, or otherwise, all as though such payment had not been made or value received.

 

8. Successors and Assigns. This Guaranty shall be binding upon each Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by the Creditor and the Creditor’s shareholders, officers, directors, agents, successors and assigns.

 

9. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Creditor. No failure on the part of the Creditor to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

 

10. Notices. All notices and other communications called for hereunder to the Creditor or the Debtor shall be made in writing as provided in the Agreement. All notices and other communications called for hereunder to the Guarantors shall be made in writing as provided on Schedule I attached hereto or as the Guarantors may otherwise notify the Creditor.

 

 

11. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Guaranty is intended to take effect as a sealed instrument and shall be governed by, and construed in accordance with, the laws of the State of New York (excluding the laws applicable to conflicts or choice of law). The Guarantor agrees that any suit for the enforcement of this Guaranty may be brought in the courts of the State of New York, New York County and consents to the non-exclusive jurisdiction of such court and to service of process in any such suit’s being made upon any Guarantor by mail at the address set forth at the head of this Guaranty. The Guarantor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient court. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREIN, THE PERFORMANCE THEREOF OR THE FINANCINGS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HERETO HAVE BEEN INDUCED TO ENTER INTO THIS GUARANTY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.

 

12. Counterparts; Effectiveness. This Guaranty may be executed in identical counterparts, both which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. Facsimile or other electronically scanned and delivered signatures (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com), including by e-mail attachment, shall be deemed to have been duly and validly delivered and be valid and effective for all purposes of this Guaranty.

 

[Rest of page intentionally left blank. Signature page follows.]

 

 

IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as a sealed instrument as of the date appearing on page one.

 

	Prairie Operating Co., LLC
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

	Prairie Operating Co., LLC
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

 

Schedule I

The Guarantors

 

Prairie Operating Co., LLC

 

Contact Info:

55 Waugh Drive

Suite 400

Houston, Texas 77007

Attention: Craig Owen

Email: co@prairieopco.com

 

Prairie Operating Holding Co., LLC

 

Contact Info:

55 Waugh Drive

Suite 400

Houston, Texas 77007

Attention: Craig Owen

Email: co@prairieopco.com

 

 

Exhibit 10.4

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) dated as of September 30, 2024 is made by and between YA II PN, LTD., a Cayman Islands exempt limited company (the “Investor”), and PRAIRIE OPERATING CO., a company incorporated under the laws of the State of Delaware (the “Company”). The Investor and the Company may be referred to herein individually as a “Party” and collectively as the “Parties.”

 

WHEREAS, the Company and the Investor have entered into that certain Standby Equity Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”), pursuant to which the Company may issue, from time to time, to the Investor up to $40 million of newly issued shares of the Company’s shares of Common Stock, par value $0.01 per share (the “Common Shares”);

 

WHEREAS, pursuant to the Purchase Agreement the Investor shall provide an advance to the Company to be evidenced by a convertible promissory note (the “Promissory Note”) to be issued to the Investor in the amount of $15 million, which shall be convertible into shares of Common Stock in accordance with the terms and conditions of the Promissory Note; and

 

WHEREAS, pursuant to the terms of, and in consideration for the Investor entering into, the Purchase Agreement, and to induce the Investor to execute and deliver the Purchase Agreement, the Company has agreed to provide the Investor with certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”).

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

 

1. DEFINITIONS.

 

Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

(a) “Business Day” shall mean any day on which the New York Stock Exchange is open for trading, other than any day on which commercial banks are authorized or required to be closed in New York City.

 

(b) “Effectiveness Deadline” means, with respect to the initial Registration Statement filed hereunder, the 60th calendar day following the initial filing hereof, provided, however, in the event the Company is notified by the U.S. Securities and Exchange Commission (“SEC”) that the Registration Statement will not be reviewed or is no longer subject to further review and comments, the Effectiveness Deadline as to such Registration Statement shall be the fifth Business Day following the date on which the Company is so notified if such date precedes the date required above.

 

 

(c) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

(d) “Filing Deadline” means, with respect to the initial Registration Statement required hereunder, the 21st calendar day following date hereof.

 

(e) “Person” means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.

 

(f) “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

(g) “Registrable Securities” means all of (i) the Shares (as defined in the Purchase Agreement, and including the Commitment Shares (as defined in the Purchase Agreement)), (ii) the shares of Common Stock issuable upon the conversion of the Promissory Note, (iii) any capital stock issued or issuable with respect to the foregoing Common Shares, including, without limitation, (1) as a result of any stock split, stock dividend or other distribution, recapitalization or similar event or otherwise, and (2) shares of capital stock of the Company into which the Common Shares are converted or exchanged and shares of capital stock of a successor entity into which the Common Shares are converted or exchanged.

 

(h) “Registration Statement” means any registration statement of the Company filed pursuant to this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

(i) “Required Registration Amount” means (i) with respect to the initial Registration Statement at least 4,196,245 Common Shares issued or to be issued upon pursuant to the Purchase Agreement (including the Commitment Shares), and the maximum number of Common Shares issuable upon the conversion of the Promissory Note (without taking into account any limitations on the conversion of the Promissory Notes set forth therein), and (ii) with respect to subsequent Registration Statements such number of Common Shares as requested by the Investor not to exceed the maximum number of Common Shares issuable upon the full conversion of the Promissory Note then outstanding (without taking into account any limitations on the conversion of the Promissory Notes set forth therein), in each case subject to any cutback set forth in Section 2(e).

 

(j) “Rule 144” means Rule 144 under the Securities Act or any successor rule thereto.

 

 

(k) “Rule 415” means Rule 415 promulgated by the SEC pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC having substantially the same purpose and effect as such Rule.

 

(l) “SEC” means the Securities and Exchange Commission or any other federal agency administering the Securities Act and the Exchange Act at the time.

 

(m) “Securities Act” shall have the meaning set forth in the Recitals above.

 

2. REGISTRATION.

 

(a) The Company’s registration obligations set forth in this Section 2 including its obligations to file Registration Statements, obtain effectiveness of Registration Statements, and maintain the continuous effectiveness of any Registration Statement that has been declared effective shall begin on the date hereof and continue until all the earlier of (i) the date on which the Investor has sold all of the Registrable Securities and (ii) the date of termination of the Purchase Agreement if as of such termination date the Investor holds no Registrable Securities (the “Registration Period”).

 

(b) Subject to the terms and conditions of this Agreement, the Company shall (i) as soon as practicable, but in no case later than the Filing Deadline, prepare and file with the SEC an initial Registration Statement on Form S-3 (or, if the Company is not then eligible, on Form S-1) or any successor form thereto covering the resale by the Investor of the Required Registration Amount in accordance with applicable SEC rules, regulations and interpretations so as to permit the resale of such Registrable Securities by the Investor under Rule 415 at then prevailing market prices (and not fixed prices). The Registration Statement shall contain “Selling Stockholders” and “Plan of Distribution” sections. The Company shall use its commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Effectiveness Deadline. By 9:30 am on the business day following the date of effectiveness, the Company shall file with the SEC in accordance with Rule 424 under the Securities Act the final Prospectus to be used in connection with sales pursuant to such Registration Statement. Prior to the filing of the Registration Statement with the SEC, the Company shall furnish a draft of the Registration Statement to the Investor for their review and comment. The Investor shall furnish comments on the Registration Statement to the Company reasonably promptly following of the receipt thereof from the Company.

 

(c) Sufficient Number of Shares Registered. If at any time all Registrable Securities are not covered by a Registration Statement filed pursuant to Section 2(a) as a result of Section 2(e) or otherwise, the Company shall use its commercially reasonable efforts to file with the SEC one or more additional Registration Statements so as to cover all of the Registrable Securities not covered by such initial Registration Statement, in each case as soon as practicable (taking into account any position of the staff of the SEC with respect to the date on which the Staff will permit such additional Registration Statement(s) to be filed with the SEC and the rules and regulations of the SEC). The Company shall use its commercially reasonable efforts to cause each such new Registration Statement to become effective as soon as reasonably practicable following the filling thereof with the SEC.

 

 

(d) During the Registration Period, the Company shall (i) promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the Prospectus used in connection with a Registration Statement, which Prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, (ii) prepare and file with the SEC additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (iii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iv) respond as promptly as reasonably possible to any comments received from the SEC with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Investor true and complete copies of all correspondence from and to the SEC relating to a Registration Statement (provided that the Company may excise any information contained therein which would constitute material non-public information as to any Investor which has not executed a confidentiality agreement with the Company); and (v) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 2(c)) by reason of the Company’s filing a report on Form 10-K, Form 10-Q, or Form 8-K or any analogous report under the Exchange Act, the Company shall incorporate such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC as promptly as reasonably practicable after the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.

 

(e) Reduction of Registrable Securities Included in a Registration Statement. Notwithstanding anything contained herein, in the event that the SEC requires the Company to reduce the number of Registrable Securities to be included in a Registration Statement in order to allow the Company to rely on Rule 415 with respect to a Registration Statement, then the Company shall reduce the number of Registrable Securities to be included in such Registration Statement (after consultation with the Investor as to the specific Registrable Securities to be removed therefrom) to the maximum number of securities as is permitted to be registered by the SEC. In the event of any reduction in Registrable Securities pursuant to this paragraph, the Company shall use its commercially reasonable efforts to file one or more New Registration Statements with the Commission in accordance with Section 2(c) until such time as all Registrable Securities have been included in Registration Statements that have been declared effective and the Prospectuses contained therein are available for use by the Investor.

 

 

(f) Failure to File or Obtain Effectiveness of the Registration Statement or Remain Current. If: (i) a Registration Statement is not filed on or prior to its Filing Date, or (ii) a Registration Statement is not declared effective on or prior to the Effectiveness Deadline, or the Company fails to file with the SEC a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five business days of the date that the Company is notified (orally or in writing, whichever is earlier) by the SEC that a Registration Statement will not be “reviewed,” or not subject to further review, or (iii) after the effectiveness, a Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or (iv) the Investor is not permitted to utilize the Prospectus therein to resell such Registrable Securities for more than 315 consecutive calendar days or more than an aggregate of 30 calendar days during any 12-month period (which need not be consecutive calendar days), or (v) if after the date that is six months from the date hereof, the Company does not have available adequate current public information as set forth in Rule 144(c) (any such failure or breach being referred to as an “Event”), then in addition to any other rights the Investor may have hereunder or under applicable law, the Company shall be in breach of the term and conditions of this Agreement and such Event shall be deemed an event of default for so long as such Event remains uncured. During the period of the existence of an uncured Event, the Investor shall have no obligation to accept an Advance Notice or accept or purchase any Advance Shares (other than any Advance Shares purchased by the Investor prior to the occurrence of the Event).

 

(g) Piggy-Back Registrations. If at any time there is not an effective Registration Statement covering all of the Registrable Securities and the Company proposes to register the offer and sale of any Common Shares under the Securities Act (other than a registration (i) pursuant to a Registration Statement on Form S-8 ((or other registration solely relating to an offering or sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit arrangement), (ii) pursuant to a Registration Statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the Securities Act or any successor rule thereto), or (iii) in connection with any dividend or distribution reinvestment or similar plan), whether for its own account or for the account of one or more stockholders of the Company and the form of Registration Statement to be used may be used for any registration of Registrable Securities, the Company shall give prompt written notice (in any event no later than five days prior to the filing of such Registration Statement) to the holders of Registrable Securities of its intention to effect such a registration and, shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion from the holders of Registrable Securities; provided, however, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 2(g) that have been sold or may permanently be sold without any restrictions pursuant to Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent.

 

(h) No Inclusion of Other Securities. Except as set forth on the Disclosure Schedule attached to the Purchase Agreement, the Company shall not include any securities other than Registrable Securities on any Registration Statement pursuant to Section 2(a) or Section 2(c) without the prior consent of the Investor.

 

3. RELATED OBLIGATIONS.

 

(a) The Company shall, not less than three business days prior to the filing of each Registration Statement and not less than one business day prior to the filing of any related amendments and supplements to all Registration Statements (except for annual reports on Form 10-K, supplements and amendments to update the Registration Statement solely for information reflected in the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q or current reports on Form 8-K), furnish to each Investor copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the reasonable and prompt review of such Investor. The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Investor shall reasonably object in good faith; provided that, the Company is notified of such objection in writing no later than two (2) Trading Days after the Investors have been so furnished copies of a Registration Statement.

 

 

(b) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge (i) at least one copy (which may be in electronic form) of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) at least one copy (which may be in electronic form) of the final prospectus included in such Registration Statement and all amendments and supplements thereto, and (iii) any documents, which are not publicly available through EDGAR, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.

 

(c) The Company shall use its commercially reasonable efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the United States as any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its articles of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(c), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

 

(d) As promptly as practicable after becoming aware of such event or development, the Company shall notify each Investor in writing of the happening of any event as a result of which the Prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission and deliver one electronic copy of such supplement or amendment to the Investor. The Company shall also promptly notify each Investor in writing (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each Investor by email on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. The Company shall respond as promptly as reasonably practicable to any comments received from the SEC with respect to a Registration Statement or any amendment thereto.

 

 

(e) The Company shall use its commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

 

(f) Without limiting any obligation of the Company under the Purchase Agreement, the Company shall use commercially reasonable efforts either to cause all of the Registrable Securities covered by each Registration Statement to be listed on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(f).

 

(g) The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

 

(h) The Company shall cooperate with the holders of the Registrable Securities to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold pursuant to such Registration Statement or Rule 144 free of any restrictive legends and representing such number of Common Shares and registered in such names as the holders of the Registrable Securities may reasonably request a reasonable period of time prior to sales of Registrable Securities pursuant to such Registration Statement or Rule; provided, that the Company may satisfy its obligations hereunder without issuing physical stock certificates through the use of The Depository Trust Company’s Direct Registration System.

 

(i) The Company shall use its commercially reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

 

 

(j) The Company shall otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

 

(k) Within two business days after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC.

 

(l) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by each Investor of Registrable Securities pursuant to a Registration Statement.

 

4. OBLIGATIONS OF THE INVESTOR.

 

(a) The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(d) such Investor shall as soon as reasonably practicable discontinue disposition of Registrable Securities pursuant to any Registration Statement covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(d) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, subject to compliance with the securities laws, the Company shall cause its transfer agent to deliver unlegended certificates for Common Shares to a transferee of an Investor in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(d) and for which the Investor has not yet settled.

 

(b) The Investor covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.

 

(c) The Investor, by its acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of each Registration Statement hereunder, unless the Investor has notified the Company in writing of the Investor’s election to exclude all of the Investor’s Registrable Securities from such Registration Statement.

 

5. EXPENSES OF REGISTRATION.

 

All expenses incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities shall be paid by the Company, including, without limitation, all registration, listing and qualifications fees, printers, fees and expenses of the Company’s counsel and accountants (except legal fees of Investor’s counsel associated with the review of the Registration Statement).

 

 

6. INDEMNIFICATION.

 

With respect to Registrable Securities which are included in a Registration Statement under this Agreement:

 

(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall reimburse the Investors and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements that are reasonably incurred by them or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person.

 

 

(b) In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers, employees, representatives, or agents and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs (i) in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement or (ii) from the Investor’s violation of any prospecuts delivery requirements under the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld, conditioned or delayed; provided, further, however, that, absent fraud or gross negligence, the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new prospectus was delivered to each Investor prior to such Investor’s use of the prospectus to which the Claim relates.

 

(c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel reasonably mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one (1) counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, which consent shall not be unreasonably withheld, conditioned or delayed, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

 

 

(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

 

(e) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

 

7. CONTRIBUTION.

 

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.

 

8. REPORTS UNDER THE EXCHANGE ACT.

 

With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration, and as a material inducement to the Investor’s purchase of the Promissory Notes, the Company represents, warrants, and covenants to the following:

 

(a) The Company is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act and has filed all required reports under section 13 or 15(d) of the Exchange Act during the 12 months prior to the date hereof (or for such shorter period that the issuer was required to file such reports), other than Form 8-K reports.

 

 

(b) During the Registration Period, the Company shall file with the SEC in a timely manner all required reports under section 13 or 15(d) of the Exchange Act (it being understood that nothing herein shall limit the Company’s obligations under the Purchase Agreement) and such reports shall conform to the requirement of the Exchange Act and the SEC for filing thereunder.

 

(c) The Company shall furnish to the Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration.

 

9. AMENDMENT OF REGISTRATION RIGHTS.

 

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each of the Investor and the Company. No such amendment shall be effective to the extent that it applies to fewer than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

10. MISCELLANEOUS.

 

(a) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities or owns the right to receive the Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.

 

(b) Reserved.

 

(c) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered pursuant to the notice provisions of the Purchase Agreement or to such other address and/or electronic mail address and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) electronically generated by the sender’s email service provider containing the time, date, and recipient email or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by email or receipt from a nationally recognized overnight delivery service in accordance with this section.

 

 

(d) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

 

(e) The laws of the State of New York shall govern all issues concerning the relative rights of the Company and the Investor as its stockholder. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York, sitting in New York County, New York and federal courts for the Southern District of New York sitting New York, New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(f) This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

 

(g) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

 

(h) This Agreement may be executed in identical counterparts, both of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. Electronically scanned and delivered signatures (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com), including by e-mail attachment, shall be deemed to have been duly and validly delivered and be valid and effective for all purposes of this Agreement.

 

(i) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

(j) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

 

(k) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, the Investor and the Company have caused their signature page to this Registration Rights Agreement to be duly executed as of the date first above written.

 

	COMPANY:
	PRAIRIE OPERATING CO.
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

	INVESTOR:
	YA II PN, Ltd.
	By:	Yorkville Advisors Global, LP
	Its:	Investment Manager
	By:	Yorkville Advisors Global II, LLC
	Its:	General Partner
	By:	/s/ Matt Beckman
	Name:	Matt Beckman
	Title:	Member

 

 

 

Exhibit 10.5

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS.

 

THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBORDINATED TO THE PRIOR PAYMENT IN FULL IN CASH OF THE “SENIOR DEBT” (AS DEFINED BELOW) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE SUBORDINATION PROVISIONS SET FORTH IN THIS NOTE.

 

SUBORDINATED NOTE

 

This Subordinated Note (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Note”) is entered into as of September 30, 2024 (the “Closing Date”) by and among Prairie Operating Co., a Delaware corporation (the “Borrower”) and each Person named as a “Noteholder” signatory hereto (together with their successors and permitted assigns in such capacity, individually and collectively, the “Noteholders”).

 

FOR VALUE RECEIVED, and subject to the terms and conditions set forth herein, the Borrower hereby unconditionally promises to pay, to the Noteholder, the initial principal amount of $5,000,000, as may be decreased by any applicable prepayment of principal (such principal amount at any time outstanding, as decreased from time to time, the “Outstanding Principal Amount”), ‎together with all accrued and unpaid interest thereon as provided in this Note.

 

1. DEFINITIONS; INTERPRETATION.

 

1.1 Definitions. Capitalized terms used herein shall have the meanings set forth in Annex A attached hereto.

 

1.2 Interpretation. For purposes of this Note (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation;” (b) the word “or” is not exclusive; (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Note as a whole; (d) the Borrower will be deemed to have “knowledge” of a particular fact or matter if any board member, officer or key employee of the Borrower or any Subsidiary has actual knowledge of such fact or matter or could have acquired actual knowledge of such fact or matter in the ordinary course of performance of such Person’s duties in such role or after reasonable investigation with respect to such fact or matter, and (e) unless otherwise expressly provided, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments, restatements and other modifications thereto, but only to the extent such amendments, restatements and other modifications are entered into in accordance with any applicable restrictions set forth in this Note. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Unless the context otherwise requires, references herein to Schedules, Exhibits, and Sections mean the Schedules, Exhibits, and Sections of this Note. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

 

2. PAYMENTS OF PRINCIPAL.

 

2.1 Payment at Maturity. The aggregate Outstanding Principal Amount, all accrued and unpaid interest, and all other Obligations payable under this Note shall be due and payable on the Maturity Date. No amount repaid or prepaid under this Note may be reborrowed.

 

2.2 Voluntary Prepayments. The Borrower may voluntarily prepay the Obligations in full or in part. Any voluntary prepayment pursuant to this Section 2.2 shall be subject to the payment of the Minimum Return Premium as provided in Section 2.4 below.

 

2.3 Mandatory Prepayments. Upon the occurrence of any Prepayment Event, at the option of the Majority Noteholders exercisable at any time after such Prepayment Event, the Borrower shall prepay (a) in the case of any Prepayment Event described in clause (a) of the definition thereof, an amount equal to the net cash proceeds received in excess of $250,000 in respect thereof, solely to the extent such net cash proceeds are not reinvested in a manner otherwise permitted under this Agreement within 180 days after the receipt thereof, (b) in the case of any Prepayment Event described in clause (b) of the definition thereof, an amount equal to the fifty percent (50%) of the net cash proceeds received from the incurrence thereof, and (c) in the case of any Prepayment Event described in clause (e), clause (f) or clause (g) of the definition thereof, the Outstanding Principal Amount of the Loan, all accrued and unpaid interest, and all other amounts in cash such that Payment in Full shall have occurred with respect to the Obligations.

 

2.4 Minimum Return.

 

(a) On the same date as any Minimum Return Triggering Event, the Borrower shall pay the applicable Minimum Return Premium; provided, that, in the event of any Minimum Return Triggering Event consisting solely of one or more mandatory prepayments required to be made in an amount determined based on the amount of specific cash proceeds received by the Borrower pursuant to a Prepayment Event, the total cash payment owing by the Borrower in connection therewith shall not be increased as a result of the Minimum Return Premium, and instead such cash payment obligation shall remain fixed as the amount of proceeds required to be repaid pursuant to such Prepayment Event and such proceeds shall be applied and allocated in such a manner as between a repayment of outstanding principal of the Loans and a payment of the applicable Minimum Return Premium in order to achieve that result.

 

 

(b) Liquidated Damages. The parties hereto agree that the payment of any Minimum Return Premium hereunder constitutes liquidated damages and not a penalty and the actual amount of damages to the Noteholders as a result of any Minimum Return Triggering Event would be impracticable and extremely difficult to ascertain. Accordingly, the Minimum Return Premium hereunder is provided by mutual agreement of the Borrower and the Noteholders as a reasonable estimation and calculation of such actual lost profits and other actual damages of the Noteholders as a result of such Minimum Return Triggering Event. Without limiting the generality of the foregoing, it is understood and agreed by the Borrower that upon the occurrence of any Minimum Return Triggering Event, any applicable Minimum Return Premium, as the case may be, shall automatically become due and payable as though the relevant principal amount and/or commitment reduction amount of the Loans were voluntarily accelerated, terminated, reduced, repaid, refinanced or replaced as of such date, as applicable, and shall automatically constitute part of the Obligations, including, without limitation, in the case of any mandatory prepayment or commitment reduction, springing maturity, and/or automatic or optional acceleration of the Obligations under the Note Documents, in each case whether before, after, or as a direct result of any Event of Default. THE BORROWER HEREBY WAIVES THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR OTHER LAW THAT PROHIBITS OR MAY PROHIBIT THE COLLECTION OF ANY APPLICABLE MINIMUM RETURN PREMIUM IN CONNECTION WITH ANY SUCH MINIMUM RETURN TRIGGERING EVENT. The Borrower expressly agrees that with respect to any applicable Minimum Return Premium payable under the terms of this Note: (A) such Minimum Return Premium is reasonable and is the product of an arm’s-length transaction between sophisticated business parties, ably represented by counsel; (B) such Minimum Return Premium shall be payable notwithstanding the prevailing market rates as of the date hereof, at the time of the relevant Minimum Return Triggering Event or at the time payment of such Minimum Return Premium; (C) there has been a course of conduct between Noteholders and the Note Parties giving specific consideration in this transaction for the foregoing agreement by the Borrower to pay any applicable Minimum Return Premium; and (D) the Note Parties and their Affiliates shall be estopped from hereafter asserting any defense to the obligation to pay any applicable Minimum Return Premium upon the occurrence of any Minimum Return Triggering Event. The Borrower expressly acknowledges that its agreement to pay any applicable Minimum Return Premium as herein described is a material inducement to the Noteholders to make the Loans contemplated under this Note.

 

3. INTEREST.

 

3.1 Interest Rate. The Outstanding Principal Amount ‎shall accrue interest daily at the Applicable Rate, subject to Section 3.3.

 

3.2 Interest Payments. All accrued and unpaid interest shall be due and payable in arrears on the last day of each calendar month, commencing with the last day of the first calendar month following the Closing Date and continuing until Payment in Full occurs in accordance with the terms of this Note.

 

3.3 Default Interest. After the occurrence of any Event of Default, all overdue Obligations under this Note shall thereafter bear interest at the Default Rate.

 

3.4 Computation of Interest. All computations of interest shall be made on the basis of a three hundred sixty (360) day year, and the actual number of days elapsed. Interest shall accrue on the Outstanding Principal Amount of the Loan on the day on which the Loan is made, and shall not accrue on the Outstanding Principal Amount of the Loan for the day that Payment in Full occurs.

 

3.5 Interest Rate Limitation. If at any time and for any reason whatsoever, the interest rate payable on the Loan shall exceed the maximum rate of interest permitted to be charged by the Noteholders to the Borrower under applicable Law, such interest rate shall be reduced automatically to the maximum rate of interest permitted to be charged under applicable Law.

 

 

4. PAYMENT MECHANICS.

 

4.1 Manner of Payments. All cash payments of interest and principal shall be made in lawful money of the United States of America no later than 12:00 PM New York time on the date on which such payment is due by wire transfer of immediately available funds to each Noteholder’s account specified on such Noteholder’s signature page or such other account as is specified by each Noteholder in writing to the Borrower from time to time.

 

4.2 Application of Payments. All payments made under this Note shall be applied first to the payment of any reimbursements outstanding hereunder on a pro rata basis, second to accrued and unpaid interest under this Note on a pro rata basis, third for the payment of the Minimum Return Premium, and fourth to the payment of the Outstanding Principal Amount under this Note on a pro rata basis.

 

4.3 Business Day Convention. Whenever any payment to be made hereunder shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension will be taken into account in calculating the amount of interest payable under this Note.

 

4.4 Rescission of Payments. If at any time any payment made by the Borrower under this Note is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise, the Borrower’s obligation to make such payment shall be reinstated as though such payment had not been made.

 

4.5 Pro Rata Sharing. If any Noteholder shall obtain any payment or other recovery (whether voluntary, mandatory, involuntary, by application of set-off or otherwise) on account of principal of or interest on the Note in excess of such Noteholder’s Pro Rata Share prior to giving effect to such payment or recovery, then such Noteholder shall purchase from the other Noteholders such participations in the principal and interest Obligations on the Note owed to them as shall be necessary to cause such purchasing Noteholder to share the excess payment or other recovery ratably with each of them; provided that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Noteholder, the purchase shall be rescinded and the purchase price restored to the extent of such recovery.

 

5. CONDITIONS PRECEDENT. The obligations of the Noteholders to purchase this Note and pay the respective purchase price therefor on the Closing Date are subject to the satisfaction of the following conditions:

 

5.1 Note Documents. The Noteholders shall have received a duly executed copy of each applicable Note Document required to be delivered by the Borrower and the Guarantors on the Closing Date, in each case, in form and substance satisfactory to the Majority Noteholders, together with any other documents reasonably requested by the Majority Noteholders.

 

5.2 Corporate Approvals. The Note Parties shall have obtained all corporate approvals and consents from the Note Parties, the Board of Directors of such Note Party and such Note Party’s stockholders as may be required to approve the execution and delivery of this Note and each of the other Note Documents by the Note Parties and the consummation by it of the transactions contemplated hereby and thereby.

 

 

5.3 Representations and Warranties. The representations and warranties contained herein shall be true and correct in all material respects (or, to the extent representations or warranties are qualified by materiality, in all respects) on the Closing Date.

 

5.4 NRO Acquisition. The Borrower shall have consummated, or shall substantially concurrently consummate, the NRO Acquisition.

 

5.5 Warrants; Registration Rights Agreement. The Noteholders shall have received warrants, in the form of Exhibit A (the “Warrants”) and a duly executed copy of the Registration Rights Agreement, in the form of Exhibit B (the “Registration Rights Agreement”).

 

Upon the satisfaction or waiver by the Majority Noteholders of the conditions set forth in this Section 5, the Noteholders severally, and not jointly, agree to fund the respective principal amounts of Loans to the Borrower set forth on Annex B for each such Noteholder.

 

6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Noteholders on the date hereof as follows:

 

6.1 Existence; Power and Authority; Compliance with Laws.

 

(a) The Borrower and each Guarantor (i) is a duly organized, validly existing, and in good standing (to the extent that such concept applies) under the laws of the state of its jurisdiction of organization, (ii) has the requisite power and authority, and the legal right, to own, lease, and operate its properties and assets and to conduct its business as it is now being conducted, and (iii) has the requisite power and authority to execute and deliver this Note and the other Note Documents, and to perform its obligations hereunder and thereunder, in each case, except as would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(b) Except as disclosed in the SEC Reports, the Borrower and the Guarantors, taken as a whole are in compliance with all applicable Laws except as would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

6.2 Authorization; Execution and Delivery. The execution and delivery of this Note and the and the other Note Documents by each Note Party and the performance of its obligations hereunder and thereunder have been duly authorized by all necessary organizational action in accordance with all applicable Laws. Each Note Party has duly executed and delivered each Note Documents to which it is a party.

 

6.3 No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any Governmental Authority or any other Person is required in order for the Borrower and each Guarantor to execute, deliver, or perform any of its obligations under this Note or the other Note Documents to which it is a party except (a) such as have been obtained or made and are in full force and effect, (b) compliance with any applicable requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or the Securities Act, (c) the appropriate filings and approvals under the rules of any Trading Market, (d) compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (e) other actions or filings the absence or omission of which would not, individually or in the aggregate be reasonably expected to materially and adversely affect or to prevent or materially delay the Borrower and each Guarantor’s ability to consummate the transactions contemplated hereunder.

 

 

6.4 No Violations. The execution and delivery of this Note and the other Note Documents and the consummation by the Note Parties of the transactions contemplated hereby and thereby do not and will not (a) violate any Law applicable to such Note Party or by which any of their respective properties or assets may be bound; (b) contravene the terms of the charter, bylaws, or other organizational documents of such Note Party; or (c) violate, conflict with or result in any breach, default or contravention of, or the creation of any Lien under, any Material Agreement, in the cases of clause (a) and clause (c), except as would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect.

 

6.5 Enforceability. Each of the Note and the other Note Documents is a valid, legal, and binding obligation of each Note Party, enforceable against such Note Party in accordance with its terms, except (a) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (c) insofar as indemnification and contribution provisions may be limited by applicable law.

 

6.6 SEC Reports; Financial Statements. Since December 31, 2023, the Borrower has filed all SEC Reports. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed (except to the extent corrected by a subsequently filed SEC Report filed prior to the date hereof), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Borrower has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Borrower included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Borrower and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

7. AFFIRMATIVE COVENANTS. Until Payment in Full, the Borrower shall:

 

7.1 Exchange Act Registration. File in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and, until Payment in Full, will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend its reporting and filing obligations under the Exchange Act.

 

 

7.2 Notices. Promptly, and in any event within five (5) Business Days, give notice to the Noteholders of:

 

(a) any event of default or material breach under, or any material modification of or amendment to, any Material Agreement;

 

(b) any litigation, investigation, or proceeding that may exist at any time between the Borrower or any Guarantor and any governmental authority or other Person;

 

(c) any Prepayment Event; and

 

(d) any development or event that has had or would reasonably be ‎expected to have a Material Adverse Effect.

 

7.3 Maintenance of Existence and Property. (a) Preserve, renew, and maintain in full force and effect the Borrower’s and each Guarantor’s respective corporate or organizational existence and (b) take all reasonable action to maintain all rights, privileges, and franchises necessary or desirable in the normal conduct of the Borrower’s and each Guarantor’s respective business, except, in each case, where the failure to do so would not reasonably be expected to have a Material Adverse Effect. Maintain and preserve all of the Borrower’s and each Guarantor’s respective property useful and necessary in their respective business in good working order and condition, ordinary wear and tear and casualty events excepted.

 

7.4 Compliance. (a) Comply in all material respects with all Laws applicable to the Note Parties and their respective business and its obligations under its Material Agreements and (b) maintain in effect and enforce policies and procedures designed to achieve compliance in all material respects by the Note Parties and their respective directors, officers, employees and agents with all Anti-Corruption Laws and applicable Sanctions.

 

7.5 Notices of Events of Default. As soon as possible and in any event within one (1) Business Day after it becomes aware that an Event of Default has occurred, notify the Noteholders in writing of the nature and extent of such Event of Default and the action, if any, it has taken or proposes to take with respect to such Event of Default.

 

7.6 Material Agreements. (a) Perform and observe, and cause each other Note Party to perform and observe, all the terms and provisions of each Material Agreement to be performed or observed by the Borrower and such Note Party, (b) maintain each such Material Agreement in full force and effect and (c) enforce each such Material Agreement in accordance with its terms.

 

7.7 Further Assurances. Upon the request of the Majority Noteholders, promptly execute and deliver such further instruments and do or cause to be done such further acts as may be necessary or advisable to (i) carry out the intent and purposes of this Note and the other Note Documents and (ii) correct any material defect or error that may be discovered in any Note Document or in the execution, acknowledgement, filing, or recordation thereof.

 

 

7.8 Reservation and Listing of Securities.

 

(a) Maintain a reserve of the Required Minimum from its duly authorized shares of Common Stock for issuance pursuant to the Warrants in such amount as may then be required to fulfill its obligations in full under the Warrants.

 

(b) If applicable: (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter, and (iii) use commercially reasonable efforts to maintain the listing or quotation of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market. The Borrower agrees to use commercially reasonable efforts to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

7.9 Use of Proceeds. Use the proceeds from the Loan to be used for general corporate purposes and shall not be used to fund any portion of the NRO Acquisition. For the avoidance of doubt, no proceeds of any exercise of the Warrants shall be used to pay any portion of this Note.

 

8. NEGATIVE COVENANTS. Until Payment in Full, the Borrower shall not, and shall not permit any Subsidiary to:

 

8.1 Debt. Incur, create, or assume any Debt, except:

 

(a) Debt existing under this Note;

 

(b) Debt incurred by the Borrower pursuant to the Senior Debt Documents;

 

(c) unsecured intercompany Debt (i) owed by the Borrower to any Subsidiary (provided that such Debt shall be subordinated to the Obligations in a manner reasonably satisfactory to the Majority Noteholders), (iii) owed by any Subsidiary to any other Subsidiary, and (iv) owed by any Subsidiary to the Borrower;

 

(d) Debt secured by purchase money security interests and capital lease obligations; and

 

(e) other unsecured Debt, not to exceed an amount in excess of the Threshold Amount in the aggregate at any time outstanding.

 

8.2 Liens. Incur, create, assume, or suffer to exist any Lien on any of its property or assets, whether now owned or hereafter acquired, except:

 

(a) Liens securing the Senior Debt;

 

 

(b) Liens for Taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the Borrower or its applicable Subsidiary in conformity with GAAP;

 

(c) non-consensual Liens arising by operation of law, arising in the ordinary course of business, and for amounts which are not overdue for a period of more than thirty (30) days or that are being contested in good faith by appropriate proceedings diligently conducted;

 

(d) Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens rights or set-off or similar rights;

 

(e) carriers’, warehouseman’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrower or any Subsidiary in conformity with GAAP;

 

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any Debt and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;

 

(g) judgment Liens to the extent not resulting in an Event of Default;

 

(h) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

 

(i) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;

 

(j) purported Liens evidenced by the filing of precautionary UCC financing statements or similar filings relating solely to Debt permitted under Section 8.1(d);

 

(k) Liens arising under oil and gas leases or subleases, assignments, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of hydrocarbons, unitizations and pooling designations, declarations, orders, and agreements, operating agreements, joint interest billing arrangements, production sales contracts, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, licenses, sublicenses and other similar agreements which are customary in the oil and gas business; provided, however, in all instances that such Liens are limited to the assets that are the subject of the relevant agreement, program, order or contract; provided, further, that such Liens shall not include any Liens relating to Debt for borrowed money; and

 

(l) licenses of software and other intangible property licensed by licensors to the Borrower or any Subsidiary, including restrictions and prohibitions on encumbrances and transferability with respect to such property and the Borrower or such Subsidiary’s interests therein imposed by such licenses, and Liens encumbering such licensors’ titles and interests in such property and to which the Borrower or Subsidiary’s license interests may be subject or subordinate.

 

 

8.3 Dispositions. Dispose of any of its property, whether now owned or hereafter acquired, except:

 

(a) the sale or disposition of idle, obsolete or worn-out property in the ordinary course of business;

 

(b) the sale of inventory (including but not limited to hydrocarbons) in the ordinary course of business;

 

(c) sales or dispositions to the Borrower or any Subsidiary; provided, that any such sales or dispositions involving a Subsidiary shall be made in compliance with Section 8.4;

 

(d) the lapse or abandonment in the ordinary course of business of any registrations or applications for registration of any intellectual property rights;

 

(e) non-exclusive licenses or sublicenses of intellectual property rights in the ordinary course of business;

 

(f) the swap, exchange, sale, abandonment, farm-out, lease, sub-lease or other disposition of hydrocarbons, crude oil, natural gas, other mineral products, and oil and gas properties of the Borrower or any of its Subsidiaries, in each case in the ordinary course of business;

 

(g) the early termination or unwinding of any hedging obligations; and

 

(h) other sales or dispositions (including casualty and condemnation events) not in the ordinary course of business, including but not limited to, the Borrower or any of its Subsidiaries receive cash proceeds or payments (i) under any casualty, business interruption or “key man” insurance policies in respect of any covered loss thereunder, (ii) as a result of the taking of any assets of the Borrower or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, or (iii) for the account of the Borrower or any of its Subsidiaries outside of the ordinary course of such Person’s business, including tax refunds.

 

8.4 Transactions with Affiliates. Enter into, cause, suffer or permit to exist any transaction, contract or other arrangement, including any purchase, sale, lease, or exchange of property, the rendering of any service, or the payment of any management, advisory, or similar fees, with any Affiliate (each, an “Affiliate Transaction”), except (a) the transactions contemplated under this Note and the other Note Documents, (b) payment of director, salary or consulting fees for services rendered, (c) reimbursement for expenses incurred on behalf of the Borrower, (d) other employee benefits, including benefits under the 2024 Amended & Restated Prairie Operating Co. Long-Term Incentive Plan, effective as of June 5, 2024; (e) transactions disclosed in SEC Reports or in connection with the issuance of securities and (f) transactions not in excess of $120,000.

 

 

8.5 Amendments of Organization Documents. Amend, supplement, or otherwise modify (pursuant to a waiver or otherwise) its articles of incorporation, certificate of designation, operating agreement, bylaws, or other organizational document in a manner materially adverse to the interests of the Noteholders.

 

9. EVENTS OF DEFAULT. The occurrence and continuance of any of the following shall constitute an Event of Default hereunder:

 

9.1 Failure to Pay. The Borrower fails to pay (a) any principal amount of the Loan when due or (b) interest or any other amount when due and such failure continues for five (5) Business Days.

 

9.2 Breach of Representations and Warranties. Any representation or warranty made by the Borrower or any Guarantor to the Noteholders herein or in the other Note Documents is incorrect in any material respect on the date as of which such representation or warranty was made.

 

9.3 Breach of Covenants. The Borrower or any Guarantor fails to observe or perform (a) any covenant, condition, or agreement contained in Section 7 or Section 8 or (b) any other covenant, obligation, condition, or agreement contained in this Note or the other Note Documents, other than that specified in clause (a) of Section 9.1, and such failure continues for ten (10) calendar days.

 

9.4 Cross-Defaults. Any (i) “event of default” or similar event occurs under any agreement evidencing or relating to the Debt of the Borrower or any Subsidiary (including any Senior Debt, but excluding the Debt hereunder), which Debt has an outstanding principal amount in excess of the Threshold Amount or (ii) event or condition occurs (A) that results in any such Debt becoming due prior to its scheduled maturity or (B) that enables or permits (with or without the giving of notice, but subject to any applicable grace periods) the holder or holders of such Debt or any trustee or agent on its or their behalf to cause such Debt to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity which in any of these events remains an event of default for more than sixty (60) days.

 

9.5 Bankruptcy.

 

(a) Any Note Party commences any case, proceeding, or other action (i) under any existing or future Law relating to bankruptcy, insolvency, reorganization, or other relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition, or other relief with respect to it or its debts or (ii) seeking appointment of a receiver, trustee, custodian, conservator, or other similar official for it or for all or any substantial part of its assets, or any Note Party makes a general assignment for the benefit of its creditors;

 

(b) There is commenced against any Note Party any case, proceeding, or other action of a nature referred to in Section 9.5(a) which (i) results in the entry of an order for relief or any such adjudication or appointment or (ii) remains undismissed, undischarged, or unbonded for a period of sixty (60) days;

 

 

(c) There is commenced against any Note Party any case, proceeding, or other action seeking issuance of a warrant of attachment, execution, or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which has not been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof;

 

(d) Any Note Party takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in Section 9.5(a), Section 9.5(b), or Section 9.5(c) above; or

 

(e) The Borrower shall be unable to, or admits in writing its inability to, pay its debts as they become due.

 

9.6 Judgments. One or more judgments or decrees shall be entered against any Note Party in excess of the Threshold Amount and all of such judgments or decrees shall not have been vacated, discharged, or stayed or bonded pending appeal within thirty (30) days from the entry thereof.

 

9.7 Change of Control. A Change of Control shall occur without the consent of the Majority Noteholders.

 

9.8 Note Documents. If (a) any material provision of any Note Document ceases for any reason to be valid, binding, and in full force and effect, other than as expressly permitted hereunder or thereunder; (b) a Note Party contests in any manner the validity or enforceability of any provision of any Note Document; or (c) a Note Party denies that it has any or further liability or obligation under any provision of any Note Document or purports to revoke, terminate, or rescind any provision of any Note Document.

 

10. REMEDIES. Upon the occurrence of any Event of Default and at any time thereafter during the continuance of such Event of Default, the Majority Noteholders may, at in their respective sole discretion, (a) by written notice to the Borrower declare the Outstanding Principal Amount of the Loan, together with all accrued interest thereon and all other Obligations payable under this Note, immediately due and payable; and/or (b) exercise any or all of its rights, powers or remedies under any Note Document or applicable Law; provided, however, that if an Event of Default described in Section 9.5 shall occur, the Outstanding Principal Amount of and accrued interest on the Loan shall become immediately due and payable without any notice, declaration, or other act on the part of any Noteholder.

 

 

11. Subordination: Restrictions on Payment. This Note is unsecured and may not be secured by any assets of the Borrower, any of its affiliates, or any Credit Party (as defined below). Notwithstanding anything to the contrary herein, the obligations of the Borrower and each other obligor of Subordinated Debt in respect of the principal, interest, fees and charges on this Note and any other Subordinated Debt shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full in cash of all Senior Debt. By its acceptance hereof, each Noteholder (and each beneficial owner, if any, of any interest in this Note) irrevocably agrees, for the directly intended and enforceable benefit of each present and future holder of any Senior Debt and any agent, trustee or other representative of such holders or of one or more groups of such holders (each a “Senior Lender” and, collectively, the “Senior Lenders”), that the Subordinated Debt is hereby subordinated to the Senior Debt on the following terms:

 

(a) In the event that the Borrower or any other obligor of Subordinated Debt makes a general assignment for the benefit of creditors; or an order, judgment or decree is entered adjudicating the Borrower or such other obligor of Subordinated Debt bankrupt or insolvent; or any order for relief with respect to the Borrower or such other obligor of Subordinated Debt is entered under the United States Bankruptcy Code; or the Borrower or such other obligor of Subordinated Debt petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Borrower or such other obligor of Subordinated Debt or of any substantial part of the assets of the Borrower or such other obligor of Subordinated Debt, or commences any proceeding relating to the Borrower or such other obligor of Subordinated Debt under any bankruptcy, reorganization, arrangement, insolvency, conservatorship, receivership, moratorium, readjustment of debt, dissolution, liquidation or other debtor relief law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Borrower or such other obligor of Subordinated Debt (collectively referred to as an “Insolvency Event”), or upon any acceleration of Senior Debt, or during the continuance of any Event of Senior Debt Default, or if any payment of the Subordinated Debt would result in an Event of Senior Debt Default (each of the foregoing events described under this clause (a), a “Trigger Event”), then:

 

(i) the Senior Lenders shall be entitled to receive payment in full of all principal, premium, interest, fees, charges and other amounts then due on all Senior Debt (including interest, fees, charges and other amounts accruing thereon after the commencement of any such Insolvency Event) at the rate provided in the documentation for such Senior Debt (irrespective of whether such interest, fees, charges or other amounts are allowed as a claim in such proceedings) before the Noteholders are entitled to receive any payment of any kind or character on account of principal, interest or other amounts due (or past due) upon this Note or other Subordinated Debt, and the Senior Lenders shall be entitled to receive for application in payment thereof all payments and distributions of any kind or character, whether in cash, property or securities or by set-off or otherwise, which may be payable or deliverable in any such proceedings in respect of this Note or other Subordinated Debt; and

 

(ii) any payment or distribution of assets of the Borrower or any other obligor of Subordinated Debt, of any kind or character, whether in cash, property or securities, to which the Noteholders would be entitled except for the provisions of this Section 11(a) shall be paid or delivered by the Borrower or such other obligor of Subordinated Debt (or any receiver or trustee in such proceedings) directly to the Senior Lenders for application of such payment according to the priorities of such debt, until all Senior Debt (including interest, fees, charges and other amounts accrued thereon after the date of commencement of such proceedings) at the rate provided in the documentation for such Senior Debt (irrespective of whether such interest, fees, charges or other amounts are allowed as a claim in such proceedings) shall have been indefeasibly paid in full in cash.

 

 

(b) In any proceedings with respect to any Insolvency Event, or the application of the assets of the Borrower or any other obligor of Subordinated Debt to the payment or liquidation thereof, or upon the dissolution or other winding up of the business of the Borrower or such other obligor of Subordinated Debt or upon the sale of all or substantially all of the assets of the Borrower or such other obligor of Subordinated Debt, then, and in any such event, (i) the Senior Lenders shall be entitled to receive full and indefeasible payment and satisfaction in cash of the Senior Debt prior to the payment of all or any part of the Subordinated Debt by the Borrower or other obligor of Subordinated Debt, and (ii) any payment or distribution of any kind or character from the Borrower or such other obligor of Subordinated Debt of its assets, whether in cash, securities or other property, which shall be payable or deliverable upon or with respect to any or all of the Subordinated Debt, shall be paid or delivered directly to the Senior Lenders for application to the Senior Debt in accordance with the priorities thereof, due or not due, until such Senior Debt shall have first been fully and indefeasibly paid in cash and satisfied and all financing arrangements and commitments thereunder terminated. Each Noteholder irrevocably authorizes, empowers and directs all receivers, trustees, liquidators, custodians, conservators and others having authority in the premises to effect all such payments and distributions, and each Noteholder also irrevocably authorizes, empowers and directs the Senior Lenders to demand, sue for, collect and receive every such payment or distribution for the benefit of the Senior Lenders. Any amounts collected or received by the Senior Lenders pursuant to the authority granted hereby, shall be applied to the Senior Debt in accordance with the priorities thereof, due or not due, until such Senior Debt shall have first been fully and indefeasibly paid in cash and satisfied and all financing arrangements terminated. Each Noteholder agrees to execute and deliver to the Senior Lenders all such further instruments confirming the authorization referred to in the foregoing clause and agrees not to initiate or prosecute or encourage any other person to initiate or prosecute any claim, action or other proceeding challenging the enforceability of the Senior Debt or any liens and security interests securing the Senior Debt. Each Noteholder agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Debt requested by the Senior Lenders in connection with any such proceeding and hereby irrevocably authorizes, empowers and appoints the Senior Lenders its agent and attorney-in-fact to (x) execute, verify, deliver and file such proofs of claim upon the failure of any Noteholder promptly to do so (and, in any event, prior to 30 days before the expiration of the time to file any such proof) and (y) vote such claim in any such proceeding upon the failure of any Noteholder to do so prior to 15 days before the expiration of the time to vote any such claim; provided that the Senior Lenders shall not have any obligation to execute, verify, deliver, file and/or vote any such proof of claim. The Senior Debt shall continue to be treated as Senior Debt and the provisions of this Note shall continue to cover the relative rights and priorities of the Senior Lenders, on the one hand, and the Noteholders, on the other hand, even if all or part of the Senior Debt or the security interests securing the Senior Debt are subordinated, set aside, avoided or disallowed in connection with any such proceeding and each Senior Lender’s rights under this Section 11 shall be reinstated if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by the Senior Lenders.

 

(c) Except for (i) payments of interest as set forth in Section 3 and (ii) reductions to the principal of this Note on account of any voluntary or mandatory prepayment as set forth in Section 2 (including any Minimum Return Premium) while a Trigger Event is not in effect, no holder of the Subordinated Debt (including the Noteholders) will, except as otherwise expressly agreed to by the Senior Lenders in writing, ask, demand, sue for or otherwise act to collect (including without limitation by commencing or joining any litigation or any proceeding relating to any Insolvency Event), take, accept or receive from the Borrower or other obligor of Subordinated Debt, by set off or in any other manner, the whole or any part of the Subordinated Debt (whether such amounts represent principal or interest, or obligations which are due or not due, including costs, fees and expenses with respect to the Subordinated Debt, direct or indirect, absolute or contingent), including, without limitation, the taking of any negotiable instruments evidencing such Subordinated Debt or any security for any Subordinated Debt, unless and until all Senior Debt, whether now existing or hereafter arising directly between the Borrower (or other obligor of Subordinated Debt) and any Senior Lenders, or acquired outright, conditionally or as collateral security from another by any Senior Lenders, shall have been fully and indefeasibly paid in full in cash and satisfied and all financing arrangements and commitments between the Borrower and all holders of the Senior Debt have been terminated.

 

 

(d) The holders of Senior Debt may, at any time, in their discretion, renew, amend, extend, increase, restate, refinance or otherwise modify the terms and provisions of the Senior Debt so held or exercise or release any of their rights under the Senior Debt including, without limitation, the waiver of defaults thereunder and the amendment of any of the terms or provisions thereof (or any notice evidencing or creating the same), or the release, exchange or substitution of collateral securing, or guarantees or guarantors supporting, all or any portion of the Senior Debt, all without notice to or assent from the Noteholders.

 

(e) No compromise, alteration, amendment, renewal, restatement, refinancing or other change of, or waiver, consent or other action in respect of any liability or obligation under or in respect of, any terms, covenants or conditions of the Senior Debt (or any instrument evidencing or creating the same), whether or not such release is in accordance with the provisions of the Senior Debt (or any instrument evidencing or creating the same), shall in any way alter or affect the enforceability of the subordination provisions of this Note against the Noteholders.

 

(f) If, notwithstanding the provisions of this Section 11, any payment or distribution of any kind or character (whether in cash, securities or other property) or any security shall be received by the Noteholders in contravention of this Section 11 and before all the Senior Debt shall have been indefeasibly paid in full in cash and all financing arrangements and commitments under the Senior Debt Documents have been terminated, such payment, distribution or security shall be held in trust for the benefit of, and shall be immediately paid over or delivered or transferred to the Senior Lenders for application of such payment, distribution or security among the holders of Senior Debt pursuant to the terms thereof. Any such payments received by the Noteholder and delivered to the Senior Lenders shall be deemed not to be a payment on this Note for any reason whatsoever and the Subordinated Debt shall remain as if such erroneous payment had never been paid by the Borrower or received by the Noteholders. In the event of the failure of any Noteholder to endorse or assign any such payment, distribution or security, the Senior Lenders are hereby irrevocably authorized to endorse or assign the same.

 

(g) Except as contemplated by Section 11(l) of this Note, the Noteholders (and any other holder of the Subordinated Debt) shall not take or continue any action, or exercise or continue to exercise any rights, remedies or powers under the terms of this Note (other than acceleration upon the occurrence of an Event of Default of the due date for the payment of the principal balance of this Note, together with all accrued and unpaid interest and all other sums payable hereunder (including any Minimum Return Premium), in accordance with Section 10 below), or exercise or continue to exercise any other right or remedy at law or equity that such holder might otherwise possess, to collect any amount due and payable in respect of this Note or other Subordinated Debt or obtain a lien on any assets of the Borrower or any other Credit Party or otherwise receive the benefit of any lien on any assets of the Borrower or any other Credit Party, including, without limitation, the enforcement of any liens in, foreclosure, levy, or execution upon, or collection or attachment of any assets of the Borrower or any Credit Party, whether by judicial action or otherwise, the filing of any petition in bankruptcy or the taking advantage of any other insolvency law of any jurisdiction. In the event that any Noteholder obtains any liens in violation of the provisions of this Section 11, any and all of such liens shall in each case be subordinate to the liens on the collateral securing the applicable Senior Debt, and the Senior Lenders are hereby authorized to release any such lien on behalf of such Noteholder.

 

 

(h) Subject to the indefeasible payment in full in cash of all Senior Debt and the termination of all financing arrangements and commitments under the Senior Debt Documents, each Noteholder shall be subrogated to the rights of the Senior Lenders to receive payments and distributions with respect to the Senior Debt until Payment in Full. Each Noteholder agrees that in the event that all or any part of a payment made with respect to the Senior Debt is recovered from the holders of the Senior Debt in a proceeding with respect to an Insolvency Event or otherwise, any payment or distribution received by the Noteholders with respect to this Note or other Subordinated Debt at any time after the date of the payment that is so recovered, whether pursuant to the right of subrogation provided for in this Note or otherwise, shall be deemed to have been received by such Noteholder in trust as property of the Senior Lenders and such Noteholder shall forthwith deliver the same to the Senior Lenders for application to the Senior Debt until the Senior Debt is indefeasibly paid in full in cash.

 

(i) Each Noteholder, in its capacity as a creditor, and by its acceptance of this Note, covenants and agrees that it will not, and will not encourage any other individual or entity to, at any time, contest the validity, attachment, perfection, priority or enforceability of any Senior Debt and the promissory notes issued pursuant thereto or any guarantees thereof or any of the other Senior Debt Documents, or the liens and security interests granted pursuant thereto. the Borrower and each Noteholder acknowledge and agree that the Senior Lenders and each of their respective successors and assigns are third party beneficiaries of the provisions of this Section 11, and the provisions of this Section 11 shall inure to the benefit of and be enforceable by the Senior Lenders and their respective successors and assigns. Notwithstanding anything to the contrary contained in this Note, the Borrower and Noteholders agree that, until the indefeasible payment in full in cash of all Senior Debt and the termination of all financing arrangements and commitments under the Senior Debt Documents, this Note shall not be amended, replaced, supplemented or otherwise modified in any manner that is adverse to the interests of the Senior Lenders without the prior written consent of the Requisite Senior Lenders.

 

(j) Each Noteholder covenants and agrees that the entirety of such Noteholder’s Subordinated Debt shall continue to be owing only to it; provided that such Noteholder may assign some or all of its interest in the Subordinated Debt after the assignee has executed and delivered an agreement subordinating, in the manner set forth herein, all rights, remedies and interests with respect to the assigned Subordinated Debt.

 

(k) the Borrower will provide the Noteholders with written notice describing in reasonable detail the occurrence of any event which has resulted in a prohibition or suspension of payments of principal or interest under this Note; which written notice shall be provided promptly following the occurrence thereof.

 

 

(l) Each Noteholder will provide the Borrower with written notice describing in reasonable detail the occurrence of any Event of Default under this Note (a “Default Notice”), and the Borrower will, promptly (and, in any event, within two Business Days) following receipt of any Default Notice, provide a copy of such Default Notice to each Senior Lender. Notwithstanding anything to the contrary in this Note, so long as an Insolvency Event has not commenced, each Noteholder (and any other holder of the Subordinated Debt) may commence an Enforcement Action against the Borrower or any other obligor of Subordinated Debt if (i) 180 days have elapsed since the delivery of the Default Notice to the Borrower, and (ii) any Event of Default described therein has not been cured.

 

For purposes of this Section 11 and this Note, the following capitalized terms have the following meaning.

 

“Credit Party” has the meaning ascribed to the term “Credit Party”, “Borrower”, “Guarantor” and/or any other similar term set forth in the applicable Senior Debt Documents.

 

“Enforcement Action” means an action under applicable law to enforce the Noteholders’ rights under this Note; provided that the term “Enforcement Action” will not be deemed to include the commencement of an Insolvency Event unless such Insolvency Event is initiated by a Noteholder or one of its Affiliates.

 

“Requisite Senior Lenders” means, collectively, (a) the “Holder” under the Senior Convertible Note and (b) the “Required Lenders” or any other similar term set forth under any Senior Revolving Loan Agreement.

 

“Senior Convertible Note” means that certain Convertible Promissory Note, dated as of September 30, 2024, by the Borrower in favor of YA II PN, LTD., or its registered assigns, as in effect on the date hereof and as may be further amended, restated, replaced, refinanced, supplemented or otherwise modified from time to time.

 

“Senior Debt” means (a) all obligations of the Borrower, the Borrower’s Affiliates and each Credit Party under and as described in the Senior Debt Documents and the promissory notes issued pursuant thereto, including, without limitation, principal, premium, interest and other liabilities payable from time to time and similar obligations, interest accruing before and after any event of insolvency at the rate provided in the documentation with respect thereto (irrespective of whether such principal, premium, interest or other liabilities are allowed as a claim in any such proceeding), premiums, penalties, fees, indemnities or expenses, and regardless of whether direct or indirect, now existing or hereafter arising, absolute or contingent, secured or unsecured, or long or short term (including, without limitation, all “Obligations” or similar term defined in the applicable Senior Debt Documents), (b) all obligations arising under guarantees executed by the Borrower or any of its Affiliates of items described in clause (a) above, and (c) all renewals, extensions, refundings, refinancings, deferrals, restructurings, amendments and modifications of the items described in clause (a) and/or clause (b) above.

 

 

“Senior Debt Documents” means the Senior Convertible Note and all other related loan and collateral documents (if any), and any Senior Revolving Loan Agreement, and all other related loan and collateral documents (if any), in each case as amended, restated, replaced, refinanced, supplemented or otherwise modified from time to time.

 

“Senior Revolving Loan Agreement” means any definitive documentation in respect of any senior secured revolving credit facility of the Borrower entered into after the Closing Date that is designed as “Senior Debt” or an equivalent pursuant to the terms thereof.

 

12. MISCELLANEOUS.

 

12.1 Notices.

 

(a) All notices, requests, or other communications required or permitted to be delivered hereunder shall be delivered in writing, in each case to the address specified below or to such other address as such Person may from time to time specify in writing in compliance with this provision:

 

If to the Borrower:

Prairie Operating Co.
55 Waugh Drive, Suite 400

Houston, Texas 77007

Email: ek@prairieopco.com
Attention: Edward Kovalik, Chief Executive Officer

 

with a copy to:

 

Prairie Operating Co.
55 Waugh Drive, Suite 400

Houston, Texas 77007

Email: da@prairieopco.com
Attention: Daniel T. Sweeney, Executive Vice President, General Counsel and Corporate Secretary

 

If to any Noteholder, to the address specified on such Noteholder’s signature page hereto or to the instrument by which such Noteholder becomes party to this Note.

 

(b) Notices if (i) mailed by certified or registered mail or sent by hand or overnight courier service shall be deemed to have been given when received; and (ii) sent by email shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return email, or other written acknowledgment).

 

 

12.2 Indemnification. Each Note Party agrees to jointly and severally defend, protect, indemnify and hold harmless each Noteholder and all of their respective officers, directors, partners, employees, attorneys, advisors, representatives, agents and controlling persons (collectively, the “Indemnitees”) from and against any losses, costs, liabilities, claims, damages or other expenses incurred by such Indemnitee, other than those resulting from (a) the gross negligence, bad faith, or willful misconduct of such Indemnitee as determined by a final non-appealable judgment of a court of competent jurisdiction or (b) a claim not involving an act or omission of the Borrower or any other Note Party that is brought by an Indemnitee against another Indemnitee, in each case, arising from or in connection with the performance by such Indemnitee of the duties and obligations of such Indemnitee pursuant hereto or any of the other Note Documents.

 

12.3 Expenses. The Borrower shall reimburse each Noteholder within ten (10) Business Days of written demand therefor, for all reasonable documented out-of-pocket costs, expenses and fees (including documented expenses and fees of its outside counsel and any third party) incurred by such Noteholder relating to the Note Documents, including in connection with the enforcement of such Noteholder’s rights under this Note and the other Note Documents; provided, that legal fees and expenses shall be limited to the reasonable and documented out of pocket fees, disbursements and changes of one counsel to the Noteholders, taken as a whole in each relevant jurisdiction and, solely in the case of a conflict of interest, on additional counsel in each relevant jurisdiction that is material to each group of similarly situated Noteholders.

 

12.4 Governing Law. This Note, the other Note Documents, and any claim, controversy, dispute, or cause of action (whether in contract or tort or otherwise) based upon, arising out of, or relating to this Note, the other Note Documents, and the transactions contemplated hereby and thereby shall be governed by the laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or of any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

 

12.5 Submission to Jurisdiction.

 

(a) Each party hereto hereby irrevocably and unconditionally (i) agrees that any legal action, suit, or proceeding arising out of or relating to this Note or the other Note Documents may be brought in any of the state or federal courts located in the Borough of Manhattan in New York City, New York, or if no such court shall have jurisdiction, any federal court of the United States or other state court in each case located in the State of New York, and (ii) submits to the jurisdiction of any such court in any such action, suit, or proceeding. Final judgment against any such Person in any action, suit, or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment.

 

(b) Nothing in this Section 12.5 shall affect the right of any party hereto to (i) commence legal proceedings or otherwise sue any other party hereto in any other court having jurisdiction over such Person or (ii) serve process upon any such Person in any manner authorized by the laws of any such jurisdiction.

 

12.6 Venue. Each party hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Note or the other Note Documents in any court referred to in Section 12.4 and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

 

12.7 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE, THE OTHER NOTE DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY. EACH PARTY HERETO (A) CERTIFIES THAT NO AGENT, ATTORNEY, REPRESENTATIVE OR ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF LITIGATION, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS NOTE AND THE OTHER NOTE DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.7.

 

12.8 Integration. This Note and the other Note Documents constitute the entire contract between the parties hereto with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto.

 

12.9 Successors and Assigns. Any Noteholder’s rights under this Note may be assigned or transferred by such Noteholder to any Person. The Borrower may not assign or transfer this Note or any of its rights hereunder without the prior written consent of the Majority Noteholders. This Note shall inure to the benefit of, and be binding upon, the parties hereto and their permitted assigns. The Borrower shall maintain at one of its offices within the continental United States, a register, in a manner that complies with the “registered form” requirements of U.S. Treasury Regulations Section 5f.103-1(c), on which it will record the name and address of each Noteholder and each assignee of any rights hereunder, and the percentage or portion of the rights assigned to such assignee and principal amounts (and stated interest) of this Note owing to, each Noteholder and each assignee. The entries in this register shall be conclusive and binding for all purposes, absent manifest error.

 

12.10 Waiver of Notice. The Borrower hereby waives demand for payment, presentment for payment, protest, notice of payment, notice of dishonor, notice of nonpayment, notice of acceleration of maturity, and diligence in taking any action to collect sums owing hereunder.

 

12.11 PATRIOT Act. Each Noteholder hereby notifies the Borrower that pursuant to the requirements of the PATRIOT Act and 31 C.F.R. § 1010.230, it may be required to obtain, verify, and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Noteholder to identify the Borrower in accordance with applicable Law, and the Borrower agrees to provide such information from time to time to each Noteholder.

 

12.12 Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Note or the other Note Documents, and no consent to any departure by the Note Parties from the terms of this Note or any other Note Documents, shall be effective except by an instrument in writing signed by the Borrower and the Majority Noteholders. Any waiver of the terms hereof shall be effective only in the specific instance and for the specific purpose given.

 

 

12.13 Headings. The headings of the various Sections and subsections herein are for reference only and shall not define, modify, expand, or limit any of the terms or provisions hereof.

 

12.14 No Waiver; Cumulative Remedies. No failure to exercise, and no delay in exercising on the part of any Noteholder, of any right, remedy, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. The rights, remedies, powers, and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers, and privileges provided by law.

 

12.15 Electronic Execution. The words “execution,” “signed,” “signature,” and words of similar import in the Note shall be deemed to include electronic or digital signatures or electronic records (including images of signatures exchanged by electronic transmission), each of which shall be of the same effect, validity, and enforceability as manually executed signatures or a paper-based record-keeping system, as the case may be, to the extent and as provided for under applicable law, including the Electronic Signatures in Global and National Commerce Act of 2000 (15 U.S.C. §§ 7001 to 7031), the Uniform Electronic Transactions Act (UETA), or any state law based on the UETA.

 

12.16 Severability. If any term or provision of this Note or any other Note Document is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Note or the other Note Documents or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the parties hereto shall negotiate in good faith to modify this Note so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

[SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, each party hereto has executed this Note as of the date first written above.

 

	BORROWER:
	PRAIRIE OPERATING CO.
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

[Signature Page to Subordinated Note]

 

 

FIRST IDEA VENTURES LLC,
a Noteholder
By:	/s/ Jonathan Gray
Name:	Jonathan Gray
Title:	Manager

 

WIRE INSTRUCTIONS:

 

Bank Name:
ABA # (Wires / US$ Only):
Account Name:
Account #:
Attention:
Reference:
Email:
Address:

 

NOTICE ADDRESS:

 

[Signature Page to Subordinated Note]

 

 

THE HIDEAWAY ENTERTAINMENT LLC,
a Noteholder
By:	/s/ Jonathan Gray
Name:	Jonathan Gray
Title:	Manager

 

WIRE INSTRUCTIONS:

 

Bank Name:
ABA # (Wires / US$ Only):
Account Name:
Account #:
Attention:
Reference:
Email:
Address:

 

NOTICE ADDRESS:

 

[Signature Page to Subordinated Note]

 

 

Annex A

Defined Terms

 

“Affiliate” as to any Person, means any other Person that, directly or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Affiliate Transaction” has the meaning set forth in Section 8.4.

 

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower from time to time concerning or relating to bribery or corruption, including the United States Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder.

 

“Applicable MOIC” means, as of any applicable time of determination upon the occurrence of any Minimum Return Triggering Event, (a) at any time on or prior to December 29, 2024, 1.25x, and (b) at any time after December 29, 2024 and on or prior to March 29, 2025, 1.50x, (c) at any time after March 29, 2025 and on or prior to June 27, 2025, 1.75x, (d) at any time after June 27, 2025 and on or prior to September 25, 2025, 2.00x. Notwithstanding anything to the contrary, the Applicable MOIC will in no event exceed 2.00x.

 

“Applicable Principal Amount” means, as of any applicable time of determination upon the occurrence of any Minimum Return Triggering Event, (a) with respect to any Minimum Return Triggering Event consisting solely of a repayment of Loans, the aggregate amount of such principal repayment and/or commitment reduction, and (b) with respect to any other Minimum Return Triggering Event, the Outstanding Principal Amount as determined immediately prior to the occurrence of such Minimum Return Triggering Event.

 

“Applicable Rate” means a rate of ten percent (10.00%) per annum.

 

“Borrower” has the meaning set forth in the introductory paragraph.

 

“Business Day” means a day other than a Saturday, Sunday, or other day on which commercial banks in New York, New York are authorized or required by law to close.

 

“Change of Control” means the occurrence of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Borrower, by contract or otherwise) of in excess of fifty percent (50%) of the voting power of the Company (except that the acquisition of voting securities by the Noteholders or any other current holder of convertible securities of the Borrower shall not constitute a Change of Control for purposes hereof), (b) a replacement at one time or over time of more than one-half of the members of the board of directors of the Borrower (other than as due to the death or disability of a member of the board of directors) which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of the assets of the Borrower or any Subsidiary of the Borrower in one or a series of related transactions with or into another entity, or (d) the execution by the Borrower of an agreement to which the Borrower is a party or by which it is bound, providing for any of the events set forth above in clause (a), clause (b) or clause (c). No transfer to a wholly-owned Subsidiary shall be deemed a Change of Control under this definition.

 

 

‎“Closing Date” has the meaning set forth in the introductory paragraph hereof.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time.‎

 

“Common Stock” means the common stock of the Borrower, par value $0.01 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.

 

“Debt” means, with respect to any Person, all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services, except trade payables arising in the ordinary course of business; (c) obligations evidenced by notes, bonds, debentures, or other similar instruments; (d) obligations as lessee under capital leases; provided, that for purposes of calculations of Debt made pursuant to the terms of this Note or compliance with any covenant, GAAP will be deemed to treat operating leases in a manner consistent with its treatment under GAAP without giving effect to FASB ASC Topic 842, notwithstanding any modifications or interpretive changes thereto that may occur thereafter; (e) obligations under acceptance facilities and letters of credit; (f) guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any other Person, or otherwise to assure a creditor against loss, in each case, in respect of indebtedness set out in clause (a) through clause (e) of any other Person; and (g) indebtedness of the type set out in clauses (a) through clause (f) secured by any lien on any asset of such Person, whether or not such indebtedness has been assumed by such Person.

 

“Default” means any of the events specified in Section 9 that constitutes an Event of Default or that, upon the giving of notice, the lapse of time, or both, pursuant to Section 9, would, unless cured or waived, become an Event of Default.

 

“Default Rate” means the Applicable Rate plus two percent (2.00%) per annum.

 

‎“Equity Interests” means, with respect to any Person, all shares, interests, participations or ‎other equivalents (however designated, whether voting or non-voting) of that Person’s equity ‎capital, whether now outstanding or issued or acquired after the Closing Date, including common ‎shares, preferred shares, membership interests in a limited liability company, limited or general ‎partnership interests in a partnership, interests in a trust, interests in other unincorporated ‎organizations, or any other equivalent of any such ownership interest.‎

 

 

“Event of Default” has the meaning set forth in Section 9.

 

“Event of Senior Debt Default” has the meaning ascribed to the term “Event of Default” and/or any other similar term set forth in the applicable Senior Debt Documents.

 

“Governmental Authority” means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.

 

“Guarantors” means Prairie Operating Co., LLC, Delaware limited liability company and any other guarantor of this Note from time to time.

 

“Guaranty Agreement” means that certain Guaranty Agreement dated on or about the date hereof executed and delivered by the Guarantor in favor of the Noteholders.

 

“Indemnitees” has the meaning set forth in Section 13.2.

 

“Law” as to any Person, means any law (including common law), statute, ordinance, treaty, rule, regulation, order, decree, judgment, writ, injunction, requirement or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Lien” means any mortgage, pledge, hypothecation, encumbrance, lien (statutory or other), charge, or other security interest.

 

“Loan” means any loan made to the Borrower under the terms of this Note.

 

“Majority Noteholders” means any Noteholder or Noteholders having Pro Rata Shares the aggregate amount of which exceeds fifty percent (50%).

 

“Margin Stock” has the meaning specified in Regulation U of the Board of Governors of the Federal Reserve System of the United States (or any successor thereto) as in effect from time to time.

 

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, properties, liabilities, operations, or financial condition of the Borrower and its Subsidiaries, taken as a whole, (b) the validity or enforceability of any Note Document, (c) the rights or remedies of any Noteholder under any Note Document, or (d) the ability of the Borrower to perform its obligations under the Note Documents.

 

“Material Agreement” means (a) each written contract or agreement to which the Borrower or any of its Subsidiaries is a party or is bound (i) that contemplates or requires annual payments by or to the Borrower or its Subsidiaries in excess of the Threshold Amount, or (ii) as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would reasonably be expected to result in a Material Adverse Effect; and (b) each written contract or agreement evidencing or relating to Debt of the Borrower and its Subsidiaries with an aggregate outstanding principal amount equal to or exceeding the Threshold Amount.

 

 

“Maturity Date” September 30, 2025.

 

“Minimum Return Premium” means, at any time of determination, upon the occurrence of a Minimum Return Triggering Event, the difference (if positive, otherwise such difference shall be deemed to be zero) of:

 

(a) the product of (x) the Applicable Principal Amount multiplied by (y) the Applicable MOIC; minus

 

(b) the Applicable Principal Amount; minus

 

(c) the aggregate amount of interest earned and paid in cash prior to such time in respect of the Applicable Principal Amount; minus

 

(d) the aggregate amount of accrued and unpaid interest in respect of the Applicable Principal Amount as determined immediately prior to the occurrence of such Minimum Return Triggering Event.

 

“Minimum Return Triggering Event” means the occurrence of any of the following: (a) the Outstanding Principal Amount of the Loans is repaid, prepaid (whether voluntary or mandatory), refinanced or replaced, for any reason, in whole or in part, including on the Maturity Date; (b) the Obligations are accelerated for any reason, including, without limitation, as a result of any Event of Default or as a result of any event triggering early maturity of the Obligations; (c) an Event of Default has occurred under Section 9.5; and/or (d) there is a restructuring, reorganization or compromise of the Obligations by the confirmation of any plan of reorganization or any other plan of compromise, restructure, or arrangement in any case under the Title 11 of the United States Code.

 

“Note” has the meaning set forth in the introductory paragraph.

 

“Note Documents” means this Note, the Guaranty Agreement, and all other agreements, documents, certificates, and instruments executed and delivered to any Noteholder by the Borrower or any Guarantor in connection therewith.

 

“Note Party” means, individually and collectively, the Borrower and each Guarantor.

 

“Noteholders” has the meaning set forth in the introductory paragraph.

 

“NRO” means Nickel Road Operating LLC.

 

“NRO Acquisition” means the acquisition by the Borrower of certain oil and gas properties, rights, and related assets pursuant to the NRO Purchase Agreement.

 

 

“NRO Purchase Agreement” means that certain Asset Purchase Agreement, dated as of January 11, 2024, by and among Nickel Road Development LLC, NRO, the Borrower, and Prairie Operating Co., LLC, as amended by that certain Amendment to Asset Purchase Agreement, dated as of August 15, 2024.

 

“Obligations” means all amounts, obligations, liabilities, covenants and duties of every type and description owing by the Borrower to any Noteholder or any other indemnitee hereunder, arising out of, under, or in connection with, any Note Document, whether direct or indirect, absolute or contingent, due or to become due, whether liquidated or not, now existing or hereafter arising and however acquired, and whether or not evidenced by any instrument or for the payment of money, including, without duplication, the Loan, all interest thereon (whether or not accruing after the filing of any petition in bankruptcy or after the commencement of any insolvency, reorganization or similar proceeding, and whether or not a claim for post-filing or post-petition interest is allowed in any such proceeding), and all other fees, expenses, indemnities and reimbursement of amounts required to be paid by the Borrower under any Note Document.

 

“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

 

“Outstanding Principal Amount” has the meaning set forth in the introductory paragraph hereof.

 

“PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56, signed into law October 26, 2001).

 

“Payment in Full” means the payment in full in cash of all Obligations.

 

“Person” means any individual, corporation, limited liability company, trust, joint venture, association, company, limited or general partnership, unincorporated organization, Governmental Authority, or other entity.

 

“Prepayment Event” means the occurrence of any of the following: (a) the Borrower or any of its Subsidiaries disposes of any assets in reliance on Section 8.3(g) or Section 8.3(h), (b) the Borrower or any of its Subsidiaries incurs Debt permitted under this Note (excluding Debt permitted under Section 8.1(a), Section 8.1(b) (solely in respect of the Senior Convertible Note), or Section 8.1(c)) (c) a Change in Control, (d) the Borrower or any of its Subsidiaries incurs Debt in violation of this Note, or (e) an Event of Default occurs under Section 9.5.

 

“Pro Rata Share” means, at any time of determination, (i) with respect to any Noteholder, a percentage equal to a fraction the numerator of which is the aggregate Outstanding Principal Amount owing to such Noteholder in respect of s Note and the denominator of which is the aggregate Outstanding Principal Amount owing to all Noteholders in respect of this Note, and (ii) with respect to any group of Noteholders, a percentage equal to a fraction the numerator of which is the aggregate Outstanding Principal Amount owing to such Noteholders in respect of this Note and the denominator of which is the aggregate Outstanding Principal Amount owing to all Noteholders in respect of this Note.

 

“Registration Rights Agreement” has the meaning set forth in Section 5.5.

 

 

“Required Minimum” has the meaning set forth in the Securities Purchase Agreement.

 

“Sanctioned Country” means, at any time, a country or territory that is the subject or target of any Sanctions (including, as of the Closing Date, the so-called Donetsk People’s Republic, the so-called Luhansk People’s Republic, the Crimea Region of Ukraine, Cuba, Iran, North Korea and Syria).

 

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by a Sanctions Authority; (b) any Person operating, located, organized, or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clause (a) or clause (b), or (d) any Person that is the subject or target of any Sanctions.

 

“Sanctions” mean all economic or financial sanctions or trade embargoes imposed, administered, or enforced from time to time by a Sanctions Authority.

 

“Sanctions Authority” means OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, any EU member state, His Majesty’s Treasury of the United Kingdom or other relevant sanctions authority.

 

“SEC Reports” means all reports, schedules, forms, statements and other documents required to be filed by the Borrower under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof.

 

“Securities Act” has the meaning set forth in the legend hereof.

 

“Securities Purchase Agreement” means that certain Securities Purchase Agreement, dated as of the date hereof, between the Borrower and each “Purchaser” identified on the signature pages thereto as amended or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

“Subordinated Debt” means (a) all Debt under this Note, including, without limitation, principal, premium, interest and other liabilities payable from time to time and similar obligations, premiums, penalties, fees, indemnities or expenses under this Note, including any Minimum Return Premium and regardless of whether direct or indirect, now existing or hereafter arising, absolute or contingent, secured or unsecured, or long or short term, (b) all obligations arising under guarantees executed by any Note Party of items described in clause (a) above, and (c) all renewals, extensions, refundings, refinancings, deferrals, restructurings, amendments and modifications of the items described in clause (a) and/or clause (b) above.

 

“Subsidiary” means, with respect to any Person, a corporation, partnership, limited liability company, unlimited liability company or other entity of which that Person owns, directly or indirectly, outstanding Equity Interests having more than fifty percent (50%) of the ordinary voting power for the election of directors or other managers of that corporation, partnership, limited liability company, or other entity. Unless the context otherwise requires, each reference to Subsidiaries in this Note refers to Subsidiaries of Borrower.

 

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, charges, fees, assessments, or withholdings (including backup withholding) imposed, levied, withheld, or assessed by any Governmental Authority, including any interest, additions to tax, or penalties imposed thereon and with respect thereto.

 

“Threshold Amount” means $5,000,000.

 

“Trading Market” means the Nasdaq Capital Market or any of the following markets or exchanges on which the Common Stock may be listed or quoted for trading at such future date in question: the NYSE American, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

“United States” and “U.S.” mean the United States of America.

 

 

Annex B

 

Noteholder Commitments

 

Noteholder		Commitment
First Idea Ventures LLC		$4,000,000.00
The Hideaway Entertainment LLC		$1,000,000.00
Total		$5,000,000.00

 

 

Exhibit A

 

Form of Warrant

 

[See attached.]

 

EXHIBIT A

 

 

Exhibit B

 

Form of Registration Rights Agreement

 

[See attached.]

 

EXHIBIT B

 

 

 

Exhibit 10.6

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into as of September 30, 2024, between Prairie Operating Co., a Delaware corporation (the “Company”), and each of the signatories hereto (each such party, a “Holder” and, collectively, the “Holders”). The initial Holders and any other party that may become a party hereto pursuant to Section 6(e) are referred to collectively as the “Holders” and individually each as a “Holder.”

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated September 30, 2024, between the Company and each purchaser party thereto (the “Purchase Agreement”) and the promissory note, dated September 30, 2024, between the Company and each lender party thereto (“Promissory Note”).

 

The Company and each Holder hereby agrees as follows:

 

1. Definitions.

 

Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

 

“Advice” shall have the meaning set forth in Section 6(b).

 

“Effectiveness Date” means, with respect to the Initial Registration Statement required to be filed hereunder, the 60th calendar day following the applicable Filing Date (90th day in the case of a review of the Registration Statement by the Commission); provided, however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates otherwise required above, provided, further, if such Effectiveness Date falls on a day that is not a Trading Day, then the Effectiveness Date shall be the next succeeding Trading Day.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Filing Date” means, with respect to the Initial Registration Statement required hereunder, the earlier of the 21st calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Section 2(b), the earliest practical date on which the Company is permitted by SEC Guidance to file such additional Registration Statement related to the Registrable Securities.

 

“Holder Warrants” means, the Warrants issued pursuant to the Promissory Note.

 

“Initial Registration Statement” means the initial Registration Statement filed pursuant to this Agreement.

 

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated by the Commission pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

 

 

“Registrable Securities” means, as of any date of determination, (i) all the Acquired Common Stock pursuant to the Purchase Agreement, (ii) all of the shares of Common Stock then issued and issuable upon exercise of any Holder Warrants (assuming on such date the Holder Warrants are exercised in full without regard to any exercise limitations therein), and (iii) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing; provided, however, that any such Registrable Securities shall cease to be Registrable Securities (and the Company shall not be required to maintain the effectiveness of any, or file another, Registration Statement hereunder with respect thereto) for so long as (a) a Registration Statement with respect to the sale of such Registrable Securities is declared effective by the Commission under the Securities Act and such Registrable Securities have been disposed of by the Holder in accordance with such effective Registration Statement, (b) such Registrable Securities have been previously sold in accordance with Rule 144, or (c) such securities become eligible for resale without volume or manner-of-sale restrictions and without current public information pursuant to Rule 144 (assuming that such securities and any securities issuable upon exercise, conversion or exchange of which, or as a dividend upon which, such securities were issued or are issuable, were at no time held by any Affiliate of the Company), as reasonably determined by the Company, upon the advice of counsel to the Company.

 

“Registration Statement” means any registration statement required to be filed hereunder pursuant to Section 2(a) and any additional registration statements contemplated by Section 2(b) or Section 3(c), including (in each case) the Prospectus, amendments and supplements to any such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in any such registration statement.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“SEC Guidance” means (i) any publicly-available written or oral guidance of the Commission staff, or any comments, requirements or requests of the Commission staff and (ii) the Securities Act.

 

 

“Selling Stockholder Questionnaire” shall have the meaning set forth in Section 3(a).

 

2. Shelf Registration.

 

(a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith, subject to the provisions of Section 2(c)) and shall in each case be substantially complete at the time of filing thereof; provided, however, that no Holder shall be required to be named as an “underwriter” without such Holder’s express prior written consent. Subject to the terms of this Agreement, the Company shall use its reasonable best efforts to cause a Registration Statement filed under this Agreement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such Registration Statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144 (the “Effectiveness Period”). The Company shall notify the Holders of the effectiveness of a Registration Statement promptly after the Company confirms effectiveness with the Commission.

 

(b) Notwithstanding any other provision of this Agreement, if the Commission or any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering, unless otherwise directed in writing by a Holder as to its Registrable Securities, the Company shall include on such Registration Statement only such limited portion of the Registrable Securities as the Commission shall permit. In the event the Company amends the Initial Registration Statement in accordance with the foregoing, the Company will use its best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended.

 

(c) If Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the Commission.

 

(d) Notwithstanding anything to the contrary contained herein, in no event shall the Company be permitted to name any Holder or affiliate of a Holder as an “underwriter” without the prior written consent of such Holder.

 

 

3. Registration Procedures.

 

In connection with the Company’s registration obligations hereunder, the Company shall:

 

(a) Not less than five (5) Trading Days prior to the filing of each Registration Statement and not less than one (1) Trading Day prior to the filing of any related Prospectus that includes new or updated information with respect to a Holder or any amendment or supplement thereto, the Company shall furnish to each affected Holder copies of all such documents proposed to be filed. Each Holder agrees to furnish to the Company a completed questionnaire (a “Selling Stockholder Questionnaire”) or such applicable information in respect of such Purchaser as is required to be included in such Registration Statement or Prospectus on a date that is not less than two (2) Trading Days prior to the filing date of such Registration Statement or Prospectus; provided that the Company requests such Selling Stockholder Questionnaire or applicable information not less than five (5) Trading Days prior to the filing of such Registration Statement or Prospectus.

 

(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities, (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424, (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and upon written request by a Holder, provide as promptly as reasonably possible to the Holders thereof true and complete copies of all correspondence from and to the Commission relating to a Registration Statement to the extent such correspondence relates to Holders and does not contain any information which would constitute material non-public information regarding the Company or any of its Subsidiaries, and (iv) comply in all material respects with the applicable provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

 

(c) If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall file as soon as reasonably practicable, but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than the number of such Registrable Securities.

 

 

(d) Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one (1) Trading Day prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Trading Day following the date (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed, (B) when the Commission notifies the Company that it will “review” such Registration Statement and whenever the Commission comments in writing on such Registration Statement, and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; provided, that the Company will not have any obligation to provide any document pursuant to this clause that is available on the EDGAR system (or successor thereto), (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information, (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose, (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided, however, that in no event shall any such notice contain any information which would constitute material, non-public information regarding the Company or any of its Subsidiaries.

 

(e) Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order stopping or suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f) Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission, provided that any such item which is available on the EDGAR system (or successor thereto) need not be furnished in physical form.

 

(g) Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving of any notice pursuant to Section 3(d).

 

 

(h) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

 

(i) If requested by a Holder, cooperate with such Holder to facilitate the timely preparation and delivery of a book-entry statement representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which book-entry statement representing Registrable Securities shall be free, to the extent permitted by the Securities Act, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

 

(j) Upon the occurrence of any event contemplated by Section 3(d), as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Holders in accordance with clauses (iii) through (vi) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus, for a period not to exceed 60 calendar days (which need not be consecutive days) in any 12-month period.

 

(k) Otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission under the Securities Act and the Exchange Act, including, without limitation, Rule 172 under the Securities Act, file any final Prospectus, including any supplement or amendment thereof, with the Commission pursuant to Rule 424 under the Securities Act, promptly inform the Holders in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Holders are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.

 

 

(l) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the natural persons thereof that have voting and dispositive control over the shares.

 

4. Registration Expenses. All fees and expenses incident to the performance of or compliance with, this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (a) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (i) with respect to filings made with the Commission, (ii) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, and (iii) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities), (b) printing expenses, (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company, (e) Securities Act liability insurance, if the Company so desires such insurance, and (f) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

 

5. Indemnification. Section 4.7 of the Purchase Agreement is hereby incorporated by reference herein, mutatis mutandis. Such indemnity shall remain in full force and effect notwithstanding any termination of this Agreement and regardless of any investigation made by or on behalf of such indemnified person and shall survive the transfer of any Registrable Securities by any of the Holders in accordance with Section 6(e).

 

6. Miscellaneous.

 

(a) Remedies. In the event of a breach by the Company or by a Holder of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement. Each of the Company and each Holder agrees that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall not assert or shall waive the defense that a remedy at law would be adequate.

 

 

(b) Discontinued Disposition. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in clauses (iii) through (vi) of Section 3(d), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.

 

(c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of 50% or more of the then outstanding Registrable Securities (for purposes of clarification, this includes any Registrable Securities issuable upon conversion or exercise of any Security), provided that, if any amendment, modification or waiver disproportionately and adversely impacts a Holder (or group of Holders), the consent of such disproportionately impacted Holder (or group of Holders) shall be required. If a Registration Statement does not register all of the Registrable Securities pursuant to a waiver or amendment done in compliance with the previous sentence, then the number of Registrable Securities to be registered for each Holder shall be reduced pro rata among all the Holders and each Holder shall have the right to designate which of its Registrable Securities shall be omitted from such Registration Statement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of a Holder or some Holders and that does not directly or indirectly affect the rights of other Holders may be given only by such Holder or Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the first sentence of this Section 6(c). No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

 

(d) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

 

(e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. Any subsequent purchaser of shares of newly issued Common Stock from the Company on terms consistent with the Purchase Agreement may become a “Holder” hereunder by delivering a joinder to the Company and upon such delivery, such Holder’s Acquired Common Stock and shares of Common Stock underlying Holder Warrants issued to such purchaser shall become “Registrable Securities” hereunder and such Holder shall be subject to the benefits and obligations of a “Holder” hereunder. The Company may not assign (except by merger) its rights or obligations hereunder without the prior written consent of all of the Holders of the then outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under Section 5.7 of the Purchase Agreement.

 

 

(f) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof without the consent of Holders of 50% or more of the then outstanding Registrable Securities.

 

(g) Execution and Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file or any electronic signature complying with the U.S. federal ESIGN Act of 2000 (e.g., www.docusign.com), such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.

 

(h) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

 

(i) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

 

(j) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(k) Headings. The headings in this Agreement are for convenience only, do not constitute a part of the Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

(l) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Holders are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Holders are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceedings for such purpose. The use of a single agreement with respect to the obligations of the Company contained was solely in the control of the Company, not the action or decision of any Holder, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Holder. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Holder, solely, and not between the Company and the Holders collectively and not between and among Holders.

 

********************

 

(Signature Pages Follow)

 

 

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

 

	PRAIRIE OPERATING CO.
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

[Signature Page to Registration Rights Agreement]

 

 

HOLDERS:

 

THRC HOLDINGS LP
By:	/s/ Matt Wilks
Name:	Matt Wilks
Title:	Vice President of Investments

 

[Signature Page to Registration Rights Agreement]

 

 

HOLDERS:

 

FIRST IDEA VENTURES LLC
By:	/s/ Jonathan Gray
Name:	Jonathan Gray
Title:	Manager

 

[Signature Page to Registration Rights Agreement]

 

 

HOLDERS:

 

THE HIDEAWAY ENTERTAINMENT LLC
By:	/s/ Jonathan Gray
Name:	Jonathan Gray
Title:	Manager

 

[Signature Page to Registration Rights Agreement]

 

 

 

 

Exhibit 10.7

 

GLOBAL GUARANTY AGREEMENT

 

This Global Guaranty Agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Guaranty”) is made as of September 30, 2024, by Prairie Operating Co., LLC a Delaware corporation (“Prairie LLC”, together with any subsequent party that may join in this Guaranty, the “Guarantors”) in favor of each “Noteholder” signatory to the Subordinated Note referred to below (each Noteholder, individually and collectively, the “Creditors”), with respect to all Obligations (as defined below) owed to the Creditor.

 

RECITALS

 

WHEREAS, the Creditors and Prairie Operating Co., a Delaware corporation (the “Debtor”) have entered into a Subordinated Note (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Subordinated Note”; capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the Subordinated Note) dated as of the date hereof, pursuant to which the Creditors have agreed to make Loans to the Debtor in the amount of $15,000,000, upon the terms and conditions therein;

 

WHEREAS, it is a condition precedent to the Creditors’ obligations to make the Loans to the Debtor that each Guarantor guarantees the Obligations of the Debtor. The Creditors are only willing to enter into the Subordinated Note and make the Loans to the Debtor if each Guarantor agrees to execute and deliver to the Creditors this Guaranty; and

 

WHEREAS, each Guarantor is, or will be at the time of entering this Guaranty, a wholly-owned, or majority-owned subsidiary of the Debtor and will benefit, directly or indirectly, from the Debtor and the other Note Parties entering into the Subordinated Note and the other Note Documents and the making of the Loans and other extensions of credit to the Debtor thereunder;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Guarantor covenants and agrees as follows:

 

1. Guaranty of Payment and Performance. Each Guarantor, jointly and severally, hereby guarantees to the Creditors the full, prompt and unconditional payment when due (whether at maturity, by acceleration or otherwise), and the performance, of all liabilities, agreements and other obligations of the Debtor to the Creditors contained in the Note Documents (all the foregoing, collectively, the “Obligations”). This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance of the Obligations and not of their collectability only and is in no way conditioned upon any requirement that the Creditors first attempt to collect or require the performance of any of the Obligations from the Debtor or resort to any security or other means of obtaining their payment. Should the Debtor default in the payment or performance of any of the Obligations, the obligations of the Guarantors hereunder shall become immediately due and payable to the Creditors, without demand or notice of any nature, all of which are expressly waived by the Guarantors.

 

 

2. Limited Guaranty. The liability of the Guarantors hereunder shall be limited to the amount of the Obligations due to the Creditors.

 

3. Waivers by Guarantors; Creditors’ Freedom to Act. Each Guarantor hereby agrees that the Obligations will be paid and performed strictly in accordance with their terms regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Creditors with respect thereto. Each Guarantor waives presentment, demand, protest, notice of acceptance, notice of Obligations incurred and all other notices of any kind, all defenses that may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect (other than payment in full of the Obligations), any right to require the marshalling of assets of the Debtor, and all suretyship defenses generally. Without limiting the generality of the foregoing, each Guarantor agrees to the provisions of any instrument evidencing, securing or otherwise executed in connection with any Obligation and agrees that the obligations of such Guarantor hereunder shall not be released or discharged, in whole or in part, or otherwise affected by (i) the failure of the Creditors to assert any claim or demand or to enforce any right or remedy against the Debtor; (ii) any extensions or renewals of, or alteration of the terms of, any Obligation or any portion thereof unless entered into by the Creditors; (iii) any rescissions, waivers, amendments or modifications of any of the terms or provisions of any agreement evidencing, securing or otherwise executed in connection with any Obligation unless entered into by the Creditors; (iv) the substitution or release of any entity primarily or secondarily liable for any Obligation; (v) failure to obtain or maintain a right of contribution for the benefit of such Guarantor; (viii) errors or omissions in connection with the Creditors’ administration of the Obligations (except behavior constituting gross negligence, bad faith, or willful misconduct); or (ix) any other act or omission that might in any manner or to any extent vary the risk of any Guarantor or otherwise operate as a release or discharge of any Guarantor, all of which may be done without notice to any Guarantor.

 

4. Unenforceability of Obligations Against Debtor. If for any reason the Debtor is under no legal obligation to discharge or perform any of the Obligations, or if any of the Obligations have become irrecoverable from the Debtor by operation of law or for any other reason, this Guaranty shall nevertheless be binding on the Guarantors to the same extent as if the Guarantors at all times had been the principal obligors on all such Obligations. In the event that acceleration of the time for payment of the Obligations is stayed upon the insolvency, bankruptcy or reorganization of the Debtor, or for any other reason, all such amounts otherwise subject to acceleration under the terms of any agreement evidencing, securing or otherwise executed in connection with any Obligation shall be immediately due and payable by the Guarantors.

 

5. Subrogation; Subordination. Until the payment and performance in full of all Obligations, the Guarantors shall not exercise any rights against the Debtor arising as a result of payment by the Guarantors hereunder, by way of subrogation or otherwise, and will not prove any claim in competition with the Creditors in respect of any payment hereunder in bankruptcy or insolvency proceedings of any nature; the Guarantors will not claim any set-off or counterclaim against the Debtor in respect of any liability of the Guarantors to the Debtor; and the Guarantors waive any benefit of and any right to participate in any collateral that may be held by the Creditors. The payment of any amounts due with respect to any indebtedness of the Debtor now or hereafter held by the Guarantor is hereby subordinated to the prior payment in full of the Obligations. The Guarantor agrees that after the occurrence of any default in the payment or performance of the Obligations, the Guarantors will not demand, sue for or otherwise attempt to collect any such indebtedness of the Debtor to the Guarantors until the Obligations shall have been paid or performed in full. If, notwithstanding the foregoing sentence, the Guarantors shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by the Guarantor as trustee for the Creditors and be paid over to the Creditors on account of the Obligations without affecting in any manner the liability of the Guarantors under the other provisions of this Guaranty.

 

 

6. Termination; Reinstatement. This Guaranty is irrevocable and shall continue until such time as the Obligations have been paid or performed in full. This Guaranty shall be reinstated if at any time any payment made or value received with respect to an Obligation is rescinded or must otherwise be returned by the Creditors upon the insolvency, bankruptcy or reorganization of the Debtor, or otherwise, all as though such payment had not been made or value received.

 

7. Successors and Assigns. This Guaranty shall be binding upon each Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by the Creditors and the Creditors respective shareholders, officers, directors, agents, successors and assigns.

 

8. Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom shall be effective unless the same shall be in writing and signed by the Creditors and each Guarantor. No failure on the part of the Creditors to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.

 

9. Notices. All notices and other communications called for hereunder to the Creditors or the Debtor shall be made in writing as provided in the Subordinated Note. All notices and other communications called for hereunder to the Guarantors shall be made in writing as provided on Schedule I attached hereto or as the Guarantors may otherwise notify the Creditors.

 

10. Interpretation, Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. Section 1.2 (Interpretation), Section 13.4 (Governing Law), Section 13.5 (Submission to Jurisdiction), Section 13.6 (Venue) and Section 13.7 (Waiver of Jury Trial) of the Subordinated Note are in each case incorporated herein by reference, mutatis mutandis.

 

11. Counterparts; Effectiveness. This Guaranty may be executed in identical counterparts, both which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. Facsimile or other electronically scanned and delivered signatures (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com), including by e-mail attachment, shall be deemed to have been duly and validly delivered and be valid and effective for all purposes of this Guaranty.

 

[Rest of page intentionally left blank. Signature page follows.]

 

 

IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed and delivered as a sealed instrument as of the date first set forth above.

 

	Prairie Operating Co., LLC
	By:	/s/ Edward Kovalik
	Name:	Edward Kovalik
	Title:	Chief Executive Officer

 

 [Signature Page to Global Guaranty Agreement]

 

 

Schedule I

 

The Guarantors

 

Prairie Operating Co., LLC

Contact Info:

55 Waugh Drive

Suite 400

Houston, Texas 77007

Attention: Craig Owen

Email: co@prairieopco.com

 

[Schedule 1]

 

 

Exhibit 10.8

 

PRAIRIE OPERATING CO.

NON-COMPENSATORY OPTION AGREEMENT

 

To:	Rose Hill Holdings Limited
Date of Grant:	September 30, 2024
Purchase Price:	$3,000
Number of Shares:	300,000
Exercise Price per Share:	$0.25
Expiration Date:	August 31, 2027

 

This Prairie Operating Co. Non-Compensatory Option Agreement (this “Agreement” or this “Amendment”) is entered into between Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), and Rose Hill Holdings Limited on September 30, 2024.

 

This Agreement governs your right and non-compensatory option to purchase Shares of the Company (the “Option”), in exchange for your payment of the Fair Market Value of such Option on the Date of Grant (the “Purchase Price”), subject to the terms and conditions set forth in this Agreement. The grant of the Option pursuant to the this Agreement was specifically conditioned upon the payment by you of the Purchase Price and the execution by you of this Agreement, agreeing to all of the terms and conditions set forth herein. The Date of the Grant of the Option, the Purchase Price paid to receive the Option, the number of shares issuable upon exercise of the Option, and the Exercise Price per share for the Option are stated above. The Option is not governed by any equity compensation plan of the Company (or of any of its affiliates) and is non-compensatory. Your right to purchase this Option was provided to you as in investor in the Company and is not related to any services you may perform for the Company. The purchase of this Option occurred simultaneously with the acceptance of this Agreement by the parties, or on such other date as the Company and you agreed. Payment of the Purchase Price was required to be made by you by a check made payable to the Company or by wire transfer of immediately available funds to an account specified by the Company.

 

This Agreement sets forth the terms of the agreement between you and the Company with respect to the Option. By accepting this Agreement, you agreed to be bound by all of the terms hereof.

 

 

1. Definitions

 

As used in this Agreement, the following terms have the meanings set forth below:

 

(a) “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close.

 

(b) “Change in Control” means the occurrence of any of the following events:

 

(i) The Company is not the surviving entity in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly owned Subsidiary of the Company) and as a result of such merger or consolidation, stockholders of the Company immediately prior to such merger cease to own more than 50% of the outstanding capital stock or other class of securities of the surviving Company determined on a fully diluted basis.

 

(ii) The Company sells, leases, or exchanges or agrees to sell, lease, or exchange all or substantially all of its assets to any other person or entity (other than a wholly owned Subsidiary of the Company).

 

(iii) The Company is to be dissolved and liquidated.

 

(iv) Any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power) and as a result of such acquisition, the stockholders holding a majority of the capital stock of the Company receive cash or marketable securities for their shares of capital stock.

 

(c) “Company” means Prairie Operating Co., a Delaware corporation.

 

(d) “Date of Grant” means the date designated as such on the first page of this Agreement.

 

(e) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(f) “Exercise Price” means the exercise price per share designated as such on the first page of this Agreement.

 

(g) “Expiration Date” means the expiration date designated as such on the first page of this Agreement.

 

(h) “Fair Market Value” means, as of any specified date, (a) if the Shares or any successor’s class of securities (or the Option, for purposes of determining the Fair Market Value of the Option) (the “Securities”) are listed on a national securities exchange, the closing per share sales price of such securities, as reported on the stock exchange composite tape on the last date on which such sales of securities have been reported immediately preceding the date of determination; (b) if the Securities are not traded on a national securities exchange but are traded over the counter at the time a determination of its fair market value is required to be made, the average between the per share reported high and low bid and asked prices of such Securities on the most recent date on which such Securities were publicly traded; or (c) in the event the Securities are not publicly traded at the time a determination of its value is required to be made, the amount determined by the Company in its discretion in such manner as it deems appropriate, taking into account all factors the Company deems appropriate, which determination shall be conclusive for all purposes.

 

 

(i) “Merger Agreement” means that certain Agreement and Plan of Merger, dated as of October 24, 2022, by and among Prairie, the Company and Creek Road Merger Sub, LLC, a Delaware limited liability company, as amended, restated, supplemented or otherwise modified from time to time.

 

(j) “Option” means the Option governed by this Agreement.

 

(k) “Securities Act” means the Securities Act of 1933, as amended.

 

(l) “Shares” means shares of the Company’s common stock, par value $0.01 per share.

 

(m) “Subsidiary” means any entity (other than the Company) in an unbroken chain of entities beginning with the Company, provided each entity (other than the last company) in the unbroken chain owns, at the time of the determination, equity securities possessing fifty percent (50%) or more of the total combined voting power of the equity securities of one of the other companies in such chain.

 

2. Vesting; Exercisability. The Option shall be fully vested on the Date of Grant. However, it will be deemed non-exercisable unless and until it has become exercisable in accordance with the schedule below.

 

(a) The Option shall become exercisable in the percentages listed below upon the Company’s achievement of production of the following barrels of oil equivalent per day (each, a “BOE/D Hurdle”).

 

BOE/D Hurdle		Percentage of Option Becoming Exercisable
2,500 BOE/D		25%
5,000 BOE/D		25%
7,500 BOE/D		25%
10,000 BOE/D		25%

 

The percentage of the Option associated with such BOE/D Hurdle will become exercisable if, at any time prior to the Expiration Date, the Company has determined, in its sole discretion, that the BOE/D Hurdle has been achieved. Such determination shall be measured as BOE/D achieved on any day and need not be sustained for a period of time. For the avoidance of doubt, the BOE/D Hurdle shall include any barrels of oil equivalent added to the Company upon an acquisition of assets or another company.

 

(b) Notwithstanding anything to the contrary in Section (a), in the event that a Change in Control occurs on or prior to the Expiration Date, all unexercisable Options will immediately become exercisable upon the Change in Control.

 

 

(c) Notwithstanding anything to the contrary in this Section 2, promptly following the Closing Date, as such term is defined in that certain Securities Purchase Agreement entered into as of May 3, 2023, between the Company and each purchaser identified on the signature pages attached thereto (such purchasers, the “Purchasers,” and such agreement, the “Securities Purchase Agreement”), a portion of this Option exercisable for 50,000 Shares shall be delivered to the Company for the benefit of the Purchasers. From time to time following the effective date of the entry into the Securities Purchase Agreement until the Measurement Date, the CVR Options subject to Section 4.17 of the Securities Purchase Agreement (the “Available CVR Options”) shall be reduced, and such CVR Options shall be ratably released back to you (who, for the avoidance of doubt, shall be a “Holder” for all purposes under the Securities Purchase Agreement notwithstanding anything therein to the contrary) and the other Holders and no longer available for distribution to the Purchasers, as set forth on Annex A attached to the Securities Purchase Agreement. Within 20 days of the Measurement Date, to the extent that the Available CVR Options then exceed zero, such remaining Available CVR Options will be released to the Purchasers as of the Closing Date, ratably based on their then ownership of Preferred Stock to the aggregate Preferred Stock then outstanding and held by all Purchasers as of the Closing Date (such that if a Purchaser no longer holds Preferred Stock (or was not a Purchaser as of the Closing Date) on such date, such Purchaser shall not participate in Section 4.17 of the Securities Purchase Agreement).

 

Capitalized terms used in this Section 2(c) but not otherwise defined in this Agreement shall have the meaning given to such terms in the Securities Purchase Agreement.

 

3. Exercise.

 

(a) The Exercise Price per share of the Option is $0.25. The Option may only be exercised if it becomes exercisable pursuant to Section 2.

 

(b) The Option may be exercised by (i) providing written notice to the Company in the form prescribed by the stockholders from time to time at any time and from time to time after the Option becomes exercisable in accordance with Section 2 (the “Notice of Exercise”), which Notice of Exercise shall be delivered to the Company in the form, and in the manner, designated by the Company from time to time, and (ii) paying the Exercise Price per share. If permitted by the Company, this Option may be exercised in fractions by paying the percentage of the Exercise Price per share represented by the fractional purchase.

 

(c) Payment of the Exercise Price per share may be made, at your election, with the approval of the Company, (i) if the Shares are readily tradable on a national securities market, through a “cashless exercise” in accordance with a Company-established policy or program for the same, or (ii) if the Shares are not readily tradable on a national securities market, by any method pre-approved by the Company.

 

(d) As soon as practicable but not later than five Business Days after the Company shall have received such Notice of Exercise and payment, the Company shall issue or cause to be issued, in accordance with such Notice of Exercise, the number of Shares specified in such Notice of Exercise, issued in your name or in such other name or names of any immediate family member designated in such Notice of Exercise. The Option shall be deemed to have been exercised and such Shares shall be deemed to have been issued, and you or other family member(s) designated in such Notice of Exercise shall be deemed for all purposes to have become a holder of record of such Shares as of the date that such Notice of Exercise and payment shall have been received by the Company.

 

 

4. Change in Control and Other Events; Adjustment Provisions This Option and the Shares that may be acquired under the Option shall be subject to equitable adjustment by the Company, or its successor, in its good faith discretion, to reflect a Change in Control or other change in the Company or the outstanding Shares by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change occurring after the Effective Time (as defined in the Merger Agreement) (including in the event of a substitution, assumption, or continuation of this Option by a successor company or a parent or subsidiary thereof), and which equitable adjustment may include (a) the number or kind of shares or other property subject to this Option, and (b) the terms and conditions of the Option, including the Exercise Price per share and performance goals, as applicable. This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

5. Compliance with Securities Law. Notwithstanding any provision of this Agreement to the contrary, the grant of the Option and the issuance of Shares will be subject to compliance with all applicable requirements of federal, state, and foreign securities laws and with the requirements of any stock exchange or market system upon which the Shares may then be listed. The Option may not be exercised if the issuance of Shares upon exercise would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Shares may then be listed. YOU ARE CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, YOU MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Shares subject to the Option will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority has not been obtained. As a condition to the exercise of the Option, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make the Option and Shares available for issuance.

 

6. Extension if Exercise Prevented by Law. Notwithstanding anything herein to the contrary, if the exercise of the Option within the applicable time periods set forth in Section 3 is prevented by the provisions of Section 5, the Option will remain exercisable for the entirety of the original exercise period and will be extended for a period of up to thirty (30) days if necessary to provide you with a minimum thirty (30) day exercise period following the date that that you are notified by the Company that the Option has become exercisable. The Company makes no representation as to the tax consequences of any such delayed exercise. You should consult with your own tax advisor as to the tax consequences of any such delayed exercise.

 

 

7. Remedies. Each of the parties to this Agreement and any such person granted rights hereunder whether or not such person is a signatory hereto shall be entitled to enforce its rights under this Agreement specifically to recover damages and costs (including reasonable attorney’s fees) for any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party and any such person granted rights hereunder whether or not such person is a signatory hereto may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or other injunctive relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Agreement.

 

8. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Shares or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefore in such form as it shall determine.

 

9. Notice. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via facsimile, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via facsimile, five (5) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service.

 

If to the Company, to:

 

Prairie Operating Co.

55 Waugh Drive

Suite 400

Houston, Texas 77007

Attn: Edward Kovalik; Gary C. Hanna

 

If to you, at your address on the books and records of the Company.

 

10. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by you, the Company, and the respective successors, assigns, heirs, representative and estate, as the case may be, of you and the Company; provided that your rights and obligations under this Agreement shall not be transferable except in connection with a transfer approved by the Company.

 

 

11. Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

12. Entire Agreement. This Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

13. Counterparts. This Agreement may be executed in separate counterparts, including by facsimile, portable document format (.pdf) or other forms of electronic signature delivery, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

 

14. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

 

15. Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the state of Delaware, without giving effect to any choice of law or conflicts provision or rule (whether of the state of Delaware, or any other jurisdiction), that would cause the laws of any jurisdiction other than the state of Delaware to be applied. In furtherance of the foregoing, the internal law of the state of Delaware will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. The obligation of the Company to sell and deliver this Option and the Shares hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of this Option and such Shares. Any legal action or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby shall be brought exclusively in the courts of the state of Delaware or the United States District Court for the District of Delaware, and the Company and you expressly submit to the personal jurisdiction and venue of such courts for the purposes of thereof and expressly waive and claim of improper venue and any claim that such courts are an inconvenient forum.

 

16. Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of you and the Company and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof. For purposes of clarity, any adjustment made to the Option pursuant to this Agreement will be deemed not to materially and adversely affect your rights under this Agreement and does not need the mutual consent of you and the Company.

 

 

17. Rights as Stockholder. With respect to the Shares purchased pursuant to this Agreement, you shall have all the rights afforded to such holders of Shares generally. Prior to exercise of the Option, however, you shall not be entitled to any rights of a holder of Shares solely by virtue of this Agreement.

 

18. Continued Effect. Rights and benefits conferred on the holders of securities pursuant to this Agreement shall continue to inure to the benefit of, and shall be enforceable by, such holders, notwithstanding the surrender of the Agreement to, and its cancellation by, the Company upon the full or partial exercise of the Option, except as provided in the introductory paragraph of this Agreement.

 

19. Investment Representations. You hereby represent and agree that the following representations are true and correct and/or that you fully understand the implications of such statements:

 

(a) This Option, as well as the Shares issuable upon exercise of the Option, and any securities issued with respect thereto by way of a dividend, split or in connection with a reorganization, merger, consolidation, sale or transfer of the Company’s assets may be “restricted securities” as such term is used in the rules and regulations under the Securities Act and such securities may not be registered under the Securities Act or any state securities laws, and such securities must be held indefinitely unless registration is effected or transfer can be made pursuant to appropriate exemptions;

 

(b) You have read and fully understands the terms of the Agreement set forth on its face and the attachments hereto, including the restrictions on transfer contained herein;

 

(c) You have purchased this Option (and if you exercise this Option, you are purchasing the Shares) for your own account, solely for investment and without a view to the distribution or resale thereof. You have no intention of selling any of such securities in a public distribution in violation of the Federal securities laws or any applicable state securities laws; provided, that nothing contained herein will prevent you from transferring any such securities in compliance with the terms of this Agreement and applicable Federal and state securities laws. Upon exercise of this Option, you shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Option are being acquired for investment and not with a view toward distribution or resale;

 

(d) You are an “accredited investor” within the meaning of Rule 501 under the Securities Act, as amended, and have such knowledge, sophistication, and experience in financial, business, and investment matters that you are capable of evaluating the merits and risks of the purchase of this Option, and the Shares purchasable pursuant to the terms of this Option, and of protecting your interests in connection therewith, and of making an informed decision to purchase this Option and later exercise the Option to purchase the underlying securities;

 

(e) You are able to bear the economic risk of the purchase of this Option and upon exercise, the purchase of the Shares pursuant to the terms of this Option, for an indefinite period of time and able to afford the complete loss of such investments;

 

 

(f) In making the decision to purchase this Option on the Date of Grant and to exercise the Option on the date of exercise, (i) you have relied upon your own independent investigations or those made by your representatives, if any (including professional, financial, tax, legal, and other advisors); and (ii) you (and your representatives, if any) have had an opportunity to request and review information, ask and have your questions answered with respect to the Company, desire no further additional information concerning the Company or its operations, and deem such information received and reviewed adequate to evaluate the merits and risks of your investment in the Company; and

 

(g) In reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and in the laws of such jurisdictions, neither this Option, nor the securities underlying this Option, have been registered under the Securities Act, nor registered pursuant to the provisions of the securities laws or other laws of any other applicable jurisdictions. You further understand that the Company has no intention and is under no obligation to register this Option or the securities underlying this Option under the Securities Act or to comply with the requirements for any exemption that might otherwise be available, or to supply you with any information necessary to enable you to make routine sales of this Option or the securities underlying this Option under Rule 144 or any other rule of the Securities and Exchange Commission. Furthermore, the Company may place legends on any equity certificate representing this Option or the securities underlying this Option, with the securities laws and contractual restrictions thereon, and issue related stop transfer instructions.

 

20. Company Representations.

 

(a) The Company represents and warrants that this Agreement and the Option has been duly authorized, is validly issued, fully paid and non-assessable, free and clear of all security interests, claims, liens, equities, and other encumbrances, and constitutes the valid and binding obligation of the Company.

 

(b) The Company further represents and warrants that on the date hereof it has duly authorized and reserved, and the Company hereby agrees that it will at all times until the Expiration Date have duly authorized and reserved, such number of Shares as will be sufficient to permit the purchase of the Shares and the exercise of the Option, and that all such Shares are and will be duly authorized and, when issued upon exercise of the Option, will be validly issued, fully paid and non-assessable, and free and clear of all security interests, claims, liens, equities and other encumbrances.

 

21. Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive the consummation of the transactions contemplated hereby and the termination of this Agreement indefinitely.

 

22. Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

 

23. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this agreement.

 

24. Limitations. This Agreement is intended to encompass the rights and obligations of you and the Company with respect to the specific transactions noted herein; any additional purchases of Shares by you, if any, will be evidenced by a separate agreement by and between you and the Company, upon the terms and conditions noted within such agreement.

 

[Signature Page to Follow]

 

 

IN WITNESS WHEREOF, the Company and you have caused this Agreement to be duly executed as of September 30, 2024.

 

	Prairie Operating Co.
	By:	/s/ Craig Owen
	Name:	Craig Owen
	Title:	Executive Vice President and Chief Financial Officer
	GRANTEE:
	ROSE HILL HOLDINGS LIMITED
	By:	/s/ Diane Dentith
	Name:	Diane Dentith
	Title:	In her capacity as director of Sovereign Directors Ltd, as corporate director of the Company

 

SIGNATURE PAGE TO

NON-COMPENSATORY OPTION AGREEMENT

 

 

 

Exhibit 10.9

 

Execution Version

 

PRAIRIE OPERATING CO.

NON-COMPENSATORY OPTION AGREEMENT

 

To:	Anchorman Holdings Inc.
Date of Grant:	September 30, 2024
Purchase Price:	$2,000
Number of Shares:	200,000
Exercise Price per Share:	$0.25
Expiration Date:	August 31, 2027

 

This Prairie Operating Co. Non-Compensatory Option Agreement (this “Agreement” or this “Amendment”) is entered into between Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), and Anchorman Holdings Inc. on September 30, 2024.

 

This Agreement governs your right and non-compensatory option to purchase Shares of the Company (the “Option”), in exchange for your payment of the Fair Market Value of such Option on the Date of Grant (the “Purchase Price”), subject to the terms and conditions set forth in this Agreement. The grant of the Option pursuant to the this Agreement was specifically conditioned upon the payment by you of the Purchase Price and the execution by you of this Agreement, agreeing to all of the terms and conditions set forth herein. The Date of the Grant of the Option, the Purchase Price paid to receive the Option, the number of shares issuable upon exercise of the Option, and the Exercise Price per share for the Option are stated above. The Option is not governed by any equity compensation plan of the Company (or of any of its affiliates) and is non-compensatory. Your right to purchase this Option was provided to you as in investor in the Company and is not related to any services you may perform for the Company. The purchase of this Option occurred simultaneously with the acceptance of this Agreement by the parties, or on such other date as the Company and you agreed. Payment of the Purchase Price was required to be made by you by a check made payable to the Company or by wire transfer of immediately available funds to an account specified by the Company.

 

This Agreement sets forth the terms of the agreement between you and the Company with respect to the Option. By accepting this Agreement, you agreed to be bound by all of the terms hereof.

 

 

1. Definitions

 

As used in this Agreement, the following terms have the meanings set forth below:

 

(a) “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close.

 

(b) “Change in Control” means the occurrence of any of the following events:

 

(i) The Company is not the surviving entity in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly owned Subsidiary of the Company) and as a result of such merger or consolidation, stockholders of the Company immediately prior to such merger cease to own more than 50% of the outstanding capital stock or other class of securities of the surviving Company determined on a fully diluted basis.

 

(ii) The Company sells, leases, or exchanges or agrees to sell, lease, or exchange all or substantially all of its assets to any other person or entity (other than a wholly owned Subsidiary of the Company).

 

(iii) The Company is to be dissolved and liquidated.

 

(iv) Any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power) and as a result of such acquisition, the stockholders holding a majority of the capital stock of the Company receive cash or marketable securities for their shares of capital stock.

 

(c) “Company” means Prairie Operating Co., a Delaware corporation.

 

(d) “Date of Grant” means the date designated as such on the first page of this Agreement.

 

(e) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(f) “Exercise Price” means the exercise price per share designated as such on the first page of this Agreement.

 

(g) “Expiration Date” means the expiration date designated as such on the first page of this Agreement.

 

(h) “Fair Market Value” means, as of any specified date, (a) if the Shares or any successor’s class of securities (or the Option, for purposes of determining the Fair Market Value of the Option) (the “Securities”) are listed on a national securities exchange, the closing per share sales price of such securities, as reported on the stock exchange composite tape on the last date on which such sales of securities have been reported immediately preceding the date of determination; (b) if the Securities are not traded on a national securities exchange but are traded over the counter at the time a determination of its fair market value is required to be made, the average between the per share reported high and low bid and asked prices of such Securities on the most recent date on which such Securities were publicly traded; or (c) in the event the Securities are not publicly traded at the time a determination of its value is required to be made, the amount determined by the Company in its discretion in such manner as it deems appropriate, taking into account all factors the Company deems appropriate, which determination shall be conclusive for all purposes.

 

 

(i) “Merger Agreement” means that certain Agreement and Plan of Merger, dated as of October 24, 2022, by and among Prairie, the Company and Creek Road Merger Sub, LLC, a Delaware limited liability company, as amended, restated, supplemented or otherwise modified from time to time.

 

(j) “Option” means the Option governed by this Agreement.

 

(k) “Securities Act” means the Securities Act of 1933, as amended.

 

(l) “Shares” means shares of the Company’s common stock, par value $0.01 per share.

 

(m) “Subsidiary” means any entity (other than the Company) in an unbroken chain of entities beginning with the Company, provided each entity (other than the last company) in the unbroken chain owns, at the time of the determination, equity securities possessing fifty percent (50%) or more of the total combined voting power of the equity securities of one of the other companies in such chain.

 

2. Vesting; Exercisability. The Option shall be fully vested on the Date of Grant. However, it will be deemed non-exercisable unless and until it has become exercisable in accordance with the schedule below.

 

(a) The Option shall become exercisable in the percentages listed below upon the Company’s achievement of production of the following barrels of oil equivalent per day (each, a “BOE/D Hurdle”).

 

BOE/D Hurdle		Percentage of Option Becoming Exercisable
2,500 BOE/D		25%
5,000 BOE/D		25%
7,500 BOE/D		25%
10,000 BOE/D		25%

 

The percentage of the Option associated with such BOE/D Hurdle will become exercisable if, at any time prior to the Expiration Date, the Company has determined, in its sole discretion, that the BOE/D Hurdle has been achieved. Such determination shall be measured as BOE/D achieved on any day and need not be sustained for a period of time. For the avoidance of doubt, the BOE/D Hurdle shall include any barrels of oil equivalent added to the Company upon an acquisition of assets or another company.

 

(b) Notwithstanding anything to the contrary in Section (a), in the event that a Change in Control occurs on or prior to the Expiration Date, all unexercisable Options will immediately become exercisable upon the Change in Control.

 

 

(c) Notwithstanding anything to the contrary in this Section 2, promptly following the Closing Date, as such term is defined in that certain Securities Purchase Agreement entered into as of May 3, 2023, between the Company and each purchaser identified on the signature pages attached thereto (such purchasers, the “Purchasers,” and such agreement, the “Securities Purchase Agreement”), a portion of this Option exercisable for 37,500 Shares shall be delivered to the Company for the benefit of the Purchasers. From time to time following the effective date of the entry into the Securities Purchase Agreement until the Measurement Date, the CVR Options subject to Section 4.17 of the Securities Purchase Agreement (the “Available CVR Options”) shall be reduced, and such CVR Options shall be ratably released back to you (who, for the avoidance of doubt, shall be a “Holder” for all purposes under the Securities Purchase Agreement notwithstanding anything therein to the contrary) and the other Holders and no longer available for distribution to the Purchasers, as set forth on Annex A attached to the Securities Purchase Agreement. Within 20 days of the Measurement Date, to the extent that the Available CVR Options then exceed zero, such remaining Available CVR Options will be released to the Purchasers as of the Closing Date, ratably based on their then ownership of Preferred Stock to the aggregate Preferred Stock then outstanding and held by all Purchasers as of the Closing Date (such that if a Purchaser no longer holds Preferred Stock (or was not a Purchaser as of the Closing Date) on such date, such Purchaser shall not participate in Section 4.17 of the Securities Purchase Agreement).

 

Capitalized terms used in this Section 2(c) but not otherwise defined in this Agreement shall have the meaning given to such terms in the Securities Purchase Agreement.

 

3. Exercise.

 

(a) The Exercise Price per share of the Option is $0.25. The Option may only be exercised if it becomes exercisable pursuant to Section 2.

 

(b) The Option may be exercised by (i) providing written notice to the Company in the form prescribed by the stockholders from time to time at any time and from time to time after the Option becomes exercisable in accordance with Section 2 (the “Notice of Exercise”), which Notice of Exercise shall be delivered to the Company in the form, and in the manner, designated by the Company from time to time, and (ii) paying the Exercise Price per share. If permitted by the Company, this Option may be exercised in fractions by paying the percentage of the Exercise Price per share represented by the fractional purchase.

 

(c) Payment of the Exercise Price per share may be made, at your election, with the approval of the Company, (i) if the Shares are readily tradable on a national securities market, through a “cashless exercise” in accordance with a Company-established policy or program for the same, or (ii) if the Shares are not readily tradable on a national securities market, by any method pre-approved by the Company.

 

(d) As soon as practicable but not later than five Business Days after the Company shall have received such Notice of Exercise and payment, the Company shall issue or cause to be issued, in accordance with such Notice of Exercise, the number of Shares specified in such Notice of Exercise, issued in your name or in such other name or names of any immediate family member designated in such Notice of Exercise. The Option shall be deemed to have been exercised and such Shares shall be deemed to have been issued, and you or other family member(s) designated in such Notice of Exercise shall be deemed for all purposes to have become a holder of record of such Shares as of the date that such Notice of Exercise and payment shall have been received by the Company.

 

 

4. Change in Control and Other Events; Adjustment Provisions This Option and the Shares that may be acquired under the Option shall be subject to equitable adjustment by the Company, or its successor, in its good faith discretion, to reflect a Change in Control or other change in the Company or the outstanding Shares by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change occurring after the Effective Time (as defined in the Merger Agreement) (including in the event of a substitution, assumption, or continuation of this Option by a successor company or a parent or subsidiary thereof), and which equitable adjustment may include (a) the number or kind of shares or other property subject to this Option, and (b) the terms and conditions of the Option, including the Exercise Price per share and performance goals, as applicable. This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

5. Compliance with Securities Law. Notwithstanding any provision of this Agreement to the contrary, the grant of the Option and the issuance of Shares will be subject to compliance with all applicable requirements of federal, state, and foreign securities laws and with the requirements of any stock exchange or market system upon which the Shares may then be listed. The Option may not be exercised if the issuance of Shares upon exercise would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Shares may then be listed. YOU ARE CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, YOU MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Shares subject to the Option will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority has not been obtained. As a condition to the exercise of the Option, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make the Option and Shares available for issuance.

 

6. Extension if Exercise Prevented by Law. Notwithstanding anything herein to the contrary, if the exercise of the Option within the applicable time periods set forth in Section 3 is prevented by the provisions of Section 5, the Option will remain exercisable for the entirety of the original exercise period and will be extended for a period of up to thirty (30) days if necessary to provide you with a minimum thirty (30) day exercise period following the date that that you are notified by the Company that the Option has become exercisable. The Company makes no representation as to the tax consequences of any such delayed exercise. You should consult with your own tax advisor as to the tax consequences of any such delayed exercise.

 

 

7. Remedies. Each of the parties to this Agreement and any such person granted rights hereunder whether or not such person is a signatory hereto shall be entitled to enforce its rights under this Agreement specifically to recover damages and costs (including reasonable attorney’s fees) for any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party and any such person granted rights hereunder whether or not such person is a signatory hereto may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or other injunctive relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Agreement.

 

8. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Shares or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefore in such form as it shall determine.

 

9. Notice. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via facsimile, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via facsimile, five (5) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service.

 

If to the Company, to:

 

Prairie Operating Co.

55 Waugh Drive

Suite 400

Houston, Texas 77007

Attn: Edward Kovalik; Gary C. Hanna

 

If to you, at your address on the books and records of the Company.

 

10. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by you, the Company, and the respective successors, assigns, heirs, representative and estate, as the case may be, of you and the Company; provided that your rights and obligations under this Agreement shall not be transferable except in connection with a transfer approved by the Company.

 

 

11. Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

12. Entire Agreement. This Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

13. Counterparts. This Agreement may be executed in separate counterparts, including by facsimile, portable document format (.pdf) or other forms of electronic signature delivery, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

 

14. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

 

15. Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the state of Delaware, without giving effect to any choice of law or conflicts provision or rule (whether of the state of Delaware, or any other jurisdiction), that would cause the laws of any jurisdiction other than the state of Delaware to be applied. In furtherance of the foregoing, the internal law of the state of Delaware will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. The obligation of the Company to sell and deliver this Option and the Shares hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of this Option and such Shares. Any legal action or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby shall be brought exclusively in the courts of the state of Delaware or the United States District Court for the District of Delaware, and the Company and you expressly submit to the personal jurisdiction and venue of such courts for the purposes of thereof and expressly waive and claim of improper venue and any claim that such courts are an inconvenient forum.

 

16. Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of you and the Company and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof. For purposes of clarity, any adjustment made to the Option pursuant to this Agreement will be deemed not to materially and adversely affect your rights under this Agreement and does not need the mutual consent of you and the Company.

 

 

17. Rights as Stockholder. With respect to the Shares purchased pursuant to this Agreement, you shall have all the rights afforded to such holders of Shares generally. Prior to exercise of the Option, however, you shall not be entitled to any rights of a holder of Shares solely by virtue of this Agreement.

 

18. Continued Effect. Rights and benefits conferred on the holders of securities pursuant to this Agreement shall continue to inure to the benefit of, and shall be enforceable by, such holders, notwithstanding the surrender of the Agreement to, and its cancellation by, the Company upon the full or partial exercise of the Option, except as provided in the introductory paragraph of this Agreement.

 

19. Investment Representations. You hereby represent and agree that the following representations are true and correct and/or that you fully understand the implications of such statements:

 

(a) This Option, as well as the Shares issuable upon exercise of the Option, and any securities issued with respect thereto by way of a dividend, split or in connection with a reorganization, merger, consolidation, sale or transfer of the Company’s assets may be “restricted securities” as such term is used in the rules and regulations under the Securities Act and such securities may not be registered under the Securities Act or any state securities laws, and such securities must be held indefinitely unless registration is effected or transfer can be made pursuant to appropriate exemptions;

 

(b) You have read and fully understands the terms of the Agreement set forth on its face and the attachments hereto, including the restrictions on transfer contained herein;

 

(c) You have purchased this Option (and if you exercise this Option, you are purchasing the Shares) for your own account, solely for investment and without a view to the distribution or resale thereof. You have no intention of selling any of such securities in a public distribution in violation of the Federal securities laws or any applicable state securities laws; provided, that nothing contained herein will prevent you from transferring any such securities in compliance with the terms of this Agreement and applicable Federal and state securities laws. Upon exercise of this Option, you shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Option are being acquired for investment and not with a view toward distribution or resale;

 

(d) You are an “accredited investor” within the meaning of Rule 501 under the Securities Act, as amended, and have such knowledge, sophistication, and experience in financial, business, and investment matters that you are capable of evaluating the merits and risks of the purchase of this Option, and the Shares purchasable pursuant to the terms of this Option, and of protecting your interests in connection therewith, and of making an informed decision to purchase this Option and later exercise the Option to purchase the underlying securities;

 

(e) You are able to bear the economic risk of the purchase of this Option and upon exercise, the purchase of the Shares pursuant to the terms of this Option, for an indefinite period of time and able to afford the complete loss of such investments;

 

 

(f) In making the decision to purchase this Option on the Date of Grant and to exercise the Option on the date of exercise, (i) you have relied upon your own independent investigations or those made by your representatives, if any (including professional, financial, tax, legal, and other advisors); and (ii) you (and your representatives, if any) have had an opportunity to request and review information, ask and have your questions answered with respect to the Company, desire no further additional information concerning the Company or its operations, and deem such information received and reviewed adequate to evaluate the merits and risks of your investment in the Company; and

 

(g) In reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and in the laws of such jurisdictions, neither this Option, nor the securities underlying this Option, have been registered under the Securities Act, nor registered pursuant to the provisions of the securities laws or other laws of any other applicable jurisdictions. You further understand that the Company has no intention and is under no obligation to register this Option or the securities underlying this Option under the Securities Act or to comply with the requirements for any exemption that might otherwise be available, or to supply you with any information necessary to enable you to make routine sales of this Option or the securities underlying this Option under Rule 144 or any other rule of the Securities and Exchange Commission. Furthermore, the Company may place legends on any equity certificate representing this Option or the securities underlying this Option, with the securities laws and contractual restrictions thereon, and issue related stop transfer instructions.

 

20. Company Representations.

 

(a) The Company represents and warrants that this Agreement and the Option has been duly authorized, is validly issued, fully paid and non-assessable, free and clear of all security interests, claims, liens, equities, and other encumbrances, and constitutes the valid and binding obligation of the Company.

 

(b) The Company further represents and warrants that on the date hereof it has duly authorized and reserved, and the Company hereby agrees that it will at all times until the Expiration Date have duly authorized and reserved, such number of Shares as will be sufficient to permit the purchase of the Shares and the exercise of the Option, and that all such Shares are and will be duly authorized and, when issued upon exercise of the Option, will be validly issued, fully paid and non-assessable, and free and clear of all security interests, claims, liens, equities and other encumbrances.

 

21. Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive the consummation of the transactions contemplated hereby and the termination of this Agreement indefinitely.

 

22. Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

 

23. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this agreement.

 

24. Limitations. This Agreement is intended to encompass the rights and obligations of you and the Company with respect to the specific transactions noted herein; any additional purchases of Shares by you, if any, will be evidenced by a separate agreement by and between you and the Company, upon the terms and conditions noted within such agreement.

 

[Signature Page to Follow]

 

 

IN WITNESS WHEREOF, the Company and you have caused this Agreement to be duly executed as of September 30, 2024.

 

	Prairie Operating Co.
	By:	/s/ Craig Owen
	Name:	Craig Owen
	Title:	Executive Vice President and Chief Financial Officer
	GRANTEE:
	Anchorman holdings inc.
	By:	/s/ Diane Dentith
	Name:	Diane Dentith
	Title:	In her capacity as director of Sovereign Directors Ltd, as corporate director of the Company

 

SIGNATURE PAGE TO

NON-COMPENSATORY OPTION AGREEMENT

 

 

 

Exhibit 10.10

 

PRAIRIE OPERATING CO.
NON-COMPENSATORY OPTION AGREEMENT

 

To:	Blackstem Forest, LLC
Date of Grant:	September 30, 2024
Purchase Price:	$3,000
Number of Shares:	300,000
Exercise Price per Share:	$0.25
Expiration Date:	August 31, 2027

 

This Prairie Operating Co. Non-Compensatory Option Agreement (this “Agreement” or this “Amendment”) is entered into between Prairie Operating Co., LLC, a Delaware limited liability company (“Prairie”), and Blackstem Forest, LLC on September 30, 2024.

 

This Agreement governs your right and non-compensatory option to purchase Shares of the Company (the “Option”), in exchange for your payment of the Fair Market Value of such Option on the Date of Grant (the “Purchase Price”), subject to the terms and conditions set forth in this Agreement. The grant of the Option pursuant to the this Agreement was specifically conditioned upon the payment by you of the Purchase Price and the execution by you of this Agreement, agreeing to all of the terms and conditions set forth herein. The Date of the Grant of the Option, the Purchase Price paid to receive the Option, the number of shares issuable upon exercise of the Option, and the Exercise Price per share for the Option are stated above. The Option is not governed by any equity compensation plan of the Company (or of any of its affiliates) and is non-compensatory. Your right to purchase this Option was provided to you as in investor in the Company and is not related to any services you may perform for the Company. The purchase of this Option occurred simultaneously with the acceptance of this Agreement by the parties, or on such other date as the Company and you agreed. Payment of the Purchase Price was required to be made by you by a check made payable to the Company or by wire transfer of immediately available funds to an account specified by the Company.

 

This Agreement sets forth the terms of the agreement between you and the Company with respect to the Option. By accepting this Agreement, you agreed to be bound by all of the terms hereof.

 

 

1. Definitions

 

As used in this Agreement, the following terms have the meanings set forth below:

 

(a) “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close.

 

(b) “Change in Control” means the occurrence of any of the following events:

 

(i) The Company is not the surviving entity in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly owned Subsidiary of the Company) and as a result of such merger or consolidation, stockholders of the Company immediately prior to such merger cease to own more than 50% of the outstanding capital stock or other class of securities of the surviving Company determined on a fully diluted basis.

 

(ii) The Company sells, leases, or exchanges or agrees to sell, lease, or exchange all or substantially all of its assets to any other person or entity (other than a wholly owned Subsidiary of the Company).

 

(iii) The Company is to be dissolved and liquidated.

 

(iv) Any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Exchange Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company’s voting stock (based upon voting power) and as a result of such acquisition, the stockholders holding a majority of the capital stock of the Company receive cash or marketable securities for their shares of capital stock.

 

(c) “Company” means Prairie Operating Co., a Delaware corporation.

 

(d) “Date of Grant” means the date designated as such on the first page of this Agreement.

 

(e) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(f) “Exercise Price” means the exercise price per share designated as such on the first page of this Agreement.

 

(g) “Expiration Date” means the expiration date designated as such on the first page of this Agreement.

 

(h) “Fair Market Value” means, as of any specified date, (a) if the Shares or any successor’s class of securities (or the Option, for purposes of determining the Fair Market Value of the Option) (the “Securities”) are listed on a national securities exchange, the closing per share sales price of such securities, as reported on the stock exchange composite tape on the last date on which such sales of securities have been reported immediately preceding the date of determination; (b) if the Securities are not traded on a national securities exchange but are traded over the counter at the time a determination of its fair market value is required to be made, the average between the per share reported high and low bid and asked prices of such Securities on the most recent date on which such Securities were publicly traded; or (c) in the event the Securities are not publicly traded at the time a determination of its value is required to be made, the amount determined by the Company in its discretion in such manner as it deems appropriate, taking into account all factors the Company deems appropriate, which determination shall be conclusive for all purposes.

 

 

(i) “Merger Agreement” means that certain Agreement and Plan of Merger, dated as of October 24, 2022, by and among Prairie, the Company and Creek Road Merger Sub, LLC, a Delaware limited liability company, as amended, restated, supplemented or otherwise modified from time to time.

 

(j) “Option” means the Option governed by this Agreement.

 

(k) “Securities Act” means the Securities Act of 1933, as amended.

 

(l) “Shares” means shares of the Company’s common stock, par value $0.01 per share.

 

(m) “Subsidiary” means any entity (other than the Company) in an unbroken chain of entities beginning with the Company, provided each entity (other than the last company) in the unbroken chain owns, at the time of the determination, equity securities possessing fifty percent (50%) or more of the total combined voting power of the equity securities of one of the other companies in such chain.

 

2. Vesting; Exercisability. The Option shall be fully vested on the Date of Grant. However, it will be deemed non-exercisable unless and until it has become exercisable in accordance with the schedule below.

 

(a) The Option shall become exercisable in the percentages listed below upon the Company’s achievement of production of the following barrels of oil equivalent per day (each, a “BOE/D Hurdle”).

 

BOE/D Hurdle		Percentage of Option Becoming Exercisable
2,500 BOE/D		25%
5,000 BOE/D		25%
7,500 BOE/D		25%
10,000 BOE/D		25%

 

The percentage of the Option associated with such BOE/D Hurdle will become exercisable if, at any time prior to the Expiration Date, the Company has determined, in its sole discretion, that the BOE/D Hurdle has been achieved. Such determination shall be measured as BOE/D achieved on any day and need not be sustained for a period of time. For the avoidance of doubt, the BOE/D Hurdle shall include any barrels of oil equivalent added to the Company upon an acquisition of assets or another company.

 

 

(b) Notwithstanding anything to the contrary in Section (a), in the event that a Change in Control occurs on or prior to the Expiration Date, all unexercisable Options will immediately become exercisable upon the Change in Control.

 

(c) Notwithstanding anything to the contrary in this Section 2, promptly following the Closing Date, as such term is defined in that certain Securities Purchase Agreement entered into as of May 3, 2023, between the Company and each purchaser identified on the signature pages attached thereto (such purchasers, the “Purchasers,” and such agreement, the “Securities Purchase Agreement”), a portion of this Option exercisable for 50,000 Shares shall be delivered to the Company for the benefit of the Purchasers. From time to time following the effective date of the entry into the Securities Purchase Agreement until the Measurement Date, the CVR Options subject to Section 4.17 of the Securities Purchase Agreement (the “Available CVR Options”) shall be reduced, and such CVR Options shall be ratably released back to you (who, for the avoidance of doubt, shall be a “Holder” for all purposes under the Securities Purchase Agreement notwithstanding anything therein to the contrary) and the other Holders and no longer available for distribution to the Purchasers, as set forth on Annex A attached to the Securities Purchase Agreement. Within 20 days of the Measurement Date, to the extent that the Available CVR Options then exceed zero, such remaining Available CVR Options will be released to the Purchasers as of the Closing Date, ratably based on their then ownership of Preferred Stock to the aggregate Preferred Stock then outstanding and held by all Purchasers as of the Closing Date (such that if a Purchaser no longer holds Preferred Stock (or was not a Purchaser as of the Closing Date) on such date, such Purchaser shall not participate in Section 4.17 of the Securities Purchase Agreement).

 

Capitalized terms used in this Section 2(c) but not otherwise defined in this Agreement shall have the meaning given to such terms in the Securities Purchase Agreement.

 

3. Exercise.

 

(a) The Exercise Price per share of the Option is $0.25. The Option may only be exercised if it becomes exercisable pursuant to Section 2.

 

(b) The Option may be exercised by (i) providing written notice to the Company in the form prescribed by the stockholders from time to time at any time and from time to time after the Option becomes exercisable in accordance with Section 2 (the “Notice of Exercise”), which Notice of Exercise shall be delivered to the Company in the form, and in the manner, designated by the Company from time to time, and (ii) paying the Exercise Price per share. If permitted by the Company, this Option may be exercised in fractions by paying the percentage of the Exercise Price per share represented by the fractional purchase.

 

(c) Payment of the Exercise Price per share may be made, at your election, with the approval of the Company, (i) if the Shares are readily tradable on a national securities market, through a “cashless exercise” in accordance with a Company-established policy or program for the same, or (ii) if the Shares are not readily tradable on a national securities market, by any method pre-approved by the Company.

 

(d) As soon as practicable but not later than five Business Days after the Company shall have received such Notice of Exercise and payment, the Company shall issue or cause to be issued, in accordance with such Notice of Exercise, the number of Shares specified in such Notice of Exercise, issued in your name or in such other name or names of any immediate family member designated in such Notice of Exercise. The Option shall be deemed to have been exercised and such Shares shall be deemed to have been issued, and you or other family member(s) designated in such Notice of Exercise shall be deemed for all purposes to have become a holder of record of such Shares as of the date that such Notice of Exercise and payment shall have been received by the Company.

 

 

4. Change in Control and Other Events; Adjustment Provisions This Option and the Shares that may be acquired under the Option shall be subject to equitable adjustment by the Company, or its successor, in its good faith discretion, to reflect a Change in Control or other change in the Company or the outstanding Shares by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change occurring after the Effective Time (as defined in the Merger Agreement) (including in the event of a substitution, assumption, or continuation of this Option by a successor company or a parent or subsidiary thereof), and which equitable adjustment may include (a) the number or kind of shares or other property subject to this Option, and (b) the terms and conditions of the Option, including the Exercise Price per share and performance goals, as applicable. This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

5. Compliance with Securities Law. Notwithstanding any provision of this Agreement to the contrary, the grant of the Option and the issuance of Shares will be subject to compliance with all applicable requirements of federal, state, and foreign securities laws and with the requirements of any stock exchange or market system upon which the Shares may then be listed. The Option may not be exercised if the issuance of Shares upon exercise would constitute a violation of any applicable federal, state, or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Shares may then be listed. YOU ARE CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, YOU MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the lawful issuance and sale of any Shares subject to the Option will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority has not been obtained. As a condition to the exercise of the Option, the Company may require you to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect to such compliance as may be requested by the Company. From time to time, appropriate officers of the Company are authorized to take the actions necessary and appropriate to file required documents with governmental authorities, stock exchanges, and other appropriate persons to make the Option and Shares available for issuance.

 

6. Extension if Exercise Prevented by Law. Notwithstanding anything herein to the contrary, if the exercise of the Option within the applicable time periods set forth in Section 3 is prevented by the provisions of Section 5, the Option will remain exercisable for the entirety of the original exercise period and will be extended for a period of up to thirty (30) days if necessary to provide you with a minimum thirty (30) day exercise period following the date that that you are notified by the Company that the Option has become exercisable. The Company makes no representation as to the tax consequences of any such delayed exercise. You should consult with your own tax advisor as to the tax consequences of any such delayed exercise.

 

 

7. Remedies. Each of the parties to this Agreement and any such person granted rights hereunder whether or not such person is a signatory hereto shall be entitled to enforce its rights under this Agreement specifically to recover damages and costs (including reasonable attorney’s fees) for any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party and any such person granted rights hereunder whether or not such person is a signatory hereto may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or other injunctive relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Agreement.

 

8. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of Shares or other property to you, or to your legal representative, heir, legatee or distributee, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder. The Company may require you or your legal representative, heir, legatee or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefore in such form as it shall determine.

 

9. Notice. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via facsimile, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via facsimile, five (5) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service.

 

If to the Company, to:

 

Prairie Operating Co.

55 Waugh Drive

Suite 400

Houston, Texas 77007

Attn: Edward Kovalik; Gary C. Hanna

 

If to you, at your address on the books and records of the Company.

 

10. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by you, the Company, and the respective successors, assigns, heirs, representative and estate, as the case may be, of you and the Company; provided that your rights and obligations under this Agreement shall not be transferable except in connection with a transfer approved by the Company.

 

 

11. Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

12. Entire Agreement. This Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

 

13. Counterparts. This Agreement may be executed in separate counterparts, including by facsimile, portable document format (.pdf) or other forms of electronic signature delivery, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

 

14. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

 

15. Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the state of Delaware, without giving effect to any choice of law or conflicts provision or rule (whether of the state of Delaware, or any other jurisdiction), that would cause the laws of any jurisdiction other than the state of Delaware to be applied. In furtherance of the foregoing, the internal law of the state of Delaware will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. The obligation of the Company to sell and deliver this Option and the Shares hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of this Option and such Shares. Any legal action or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby shall be brought exclusively in the courts of the state of Delaware or the United States District Court for the District of Delaware, and the Company and you expressly submit to the personal jurisdiction and venue of such courts for the purposes of thereof and expressly waive and claim of improper venue and any claim that such courts are an inconvenient forum.

 

16. Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of you and the Company and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Agreement or any provision hereof. For purposes of clarity, any adjustment made to the Option pursuant to this Agreement will be deemed not to materially and adversely affect your rights under this Agreement and does not need the mutual consent of you and the Company.

 

 

17. Rights as Stockholder. With respect to the Shares purchased pursuant to this Agreement, you shall have all the rights afforded to such holders of Shares generally. Prior to exercise of the Option, however, you shall not be entitled to any rights of a holder of Shares solely by virtue of this Agreement.

 

18. Continued Effect. Rights and benefits conferred on the holders of securities pursuant to this Agreement shall continue to inure to the benefit of, and shall be enforceable by, such holders, notwithstanding the surrender of the Agreement to, and its cancellation by, the Company upon the full or partial exercise of the Option, except as provided in the introductory paragraph of this Agreement.

 

19. Investment Representations. You hereby represent and agree that the following representations are true and correct and/or that you fully understand the implications of such statements:

 

(a) This Option, as well as the Shares issuable upon exercise of the Option, and any securities issued with respect thereto by way of a dividend, split or in connection with a reorganization, merger, consolidation, sale or transfer of the Company’s assets may be “restricted securities” as such term is used in the rules and regulations under the Securities Act and such securities may not be registered under the Securities Act or any state securities laws, and such securities must be held indefinitely unless registration is effected or transfer can be made pursuant to appropriate exemptions;

 

(b) You have read and fully understands the terms of the Agreement set forth on its face and the attachments hereto, including the restrictions on transfer contained herein;

 

(c) You have purchased this Option (and if you exercise this Option, you are purchasing the Shares) for your own account, solely for investment and without a view to the distribution or resale thereof. You have no intention of selling any of such securities in a public distribution in violation of the Federal securities laws or any applicable state securities laws; provided, that nothing contained herein will prevent you from transferring any such securities in compliance with the terms of this Agreement and applicable Federal and state securities laws. Upon exercise of this Option, you shall, if so requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities issuable upon exercise of this Option are being acquired for investment and not with a view toward distribution or resale;

 

(d) You are an “accredited investor” within the meaning of Rule 501 under the Securities Act, as amended, and have such knowledge, sophistication, and experience in financial, business, and investment matters that you are capable of evaluating the merits and risks of the purchase of this Option, and the Shares purchasable pursuant to the terms of this Option, and of protecting your interests in connection therewith, and of making an informed decision to purchase this Option and later exercise the Option to purchase the underlying securities;

 

(e) You are able to bear the economic risk of the purchase of this Option and upon exercise, the purchase of the Shares pursuant to the terms of this Option, for an indefinite period of time and able to afford the complete loss of such investments;

 

 

(f) In making the decision to purchase this Option on the Date of Grant and to exercise the Option on the date of exercise, (i) you have relied upon your own independent investigations or those made by your representatives, if any (including professional, financial, tax, legal, and other advisors); and (ii) you (and your representatives, if any) have had an opportunity to request and review information, ask and have your questions answered with respect to the Company, desire no further additional information concerning the Company or its operations, and deem such information received and reviewed adequate to evaluate the merits and risks of your investment in the Company; and

 

(g) In reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and in the laws of such jurisdictions, neither this Option, nor the securities underlying this Option, have been registered under the Securities Act, nor registered pursuant to the provisions of the securities laws or other laws of any other applicable jurisdictions. You further understand that the Company has no intention and is under no obligation to register this Option or the securities underlying this Option under the Securities Act or to comply with the requirements for any exemption that might otherwise be available, or to supply you with any information necessary to enable you to make routine sales of this Option or the securities underlying this Option under Rule 144 or any other rule of the Securities and Exchange Commission. Furthermore, the Company may place legends on any equity certificate representing this Option or the securities underlying this Option, with the securities laws and contractual restrictions thereon, and issue related stop transfer instructions.

 

20. Company Representations.

 

(a) The Company represents and warrants that this Agreement and the Option has been duly authorized, is validly issued, fully paid and non-assessable, free and clear of all security interests, claims, liens, equities, and other encumbrances, and constitutes the valid and binding obligation of the Company.

 

(b) The Company further represents and warrants that on the date hereof it has duly authorized and reserved, and the Company hereby agrees that it will at all times until the Expiration Date have duly authorized and reserved, such number of Shares as will be sufficient to permit the purchase of the Shares and the exercise of the Option, and that all such Shares are and will be duly authorized and, when issued upon exercise of the Option, will be validly issued, fully paid and non-assessable, and free and clear of all security interests, claims, liens, equities and other encumbrances.

 

21. Survival of Representations, Warranties and Agreements. All representations, warranties and agreements contained herein shall survive the consummation of the transactions contemplated hereby and the termination of this Agreement indefinitely.

 

22. Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

 

23. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this agreement.

 

24. Limitations. This Agreement is intended to encompass the rights and obligations of you and the Company with respect to the specific transactions noted herein; any additional purchases of Shares by you, if any, will be evidenced by a separate agreement by and between you and the Company, upon the terms and conditions noted within such agreement.

 

[Signature Page to Follow]

 

 

IN WITNESS WHEREOF, the Company and you have caused this Agreement to be duly executed as of September 30, 2024.

 

	Prairie Operating Co.
	By:	/s/ Craig Owen
	Name:	Craig Owen
	Title:	Executive Vice President and Chief Financial Officer
	GRANTEE:
	BLACKSTEM FOREST, LLC
	By:	/s/ Erik Thoresen
	Name:	Erik Thoresen
	Title:	Manager

 

SIGNATURE PAGE TO

NON-COMPENSATORY OPTION AGREEMENT

 

 

 

Exhibit 23.1

 

 

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

 

As independent petroleum engineers, we hereby consent to the reference to our firm, in the context in which they appear, and to the references to, and to the inclusion of, our reserve report, dated October 2nd, 2024, with respect to the estimates of combined reserves of Prairie Operating Co., as of June 30, 2024, included in or made part of this Current Report on Form 8-K, of the Company, and to the incorporation by reference of such report in the Registration Statement on Form S-1 (No. 333- 272743) and the Registration Statement on Form S-8 (No. 333- 278889) of the Company, filed with the U.S. Securities and Exchange Commission.

 

	CAWLEY, GILLESPIE & ASSOCIATES, INC.
	Texas Registered Engineering Firm F-693
	By:	/s/ W. Todd Brooker
		W. Todd Brooker, P.E.
		President

 

Austin, Texas

October 4, 2024

 

 

 

Exhibit 99.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of September 30, 2024 between Prairie Operating Co., a Delaware corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

WHEREAS the Company intends to use the proceeds of the Securities issued pursuant to this Agreement to consummate the acquisition by the Company of the assets of Nickel Road Operating LLC (“NRO”) pursuant to that certain Asset Purchase Agreement, dated as of January 11, 2024, by and among Nickel Road Development LLC, NRO, the Company, and Prairie Operating Co., LLC, as amended by that certain Amendment to Asset Purchase Agreement, dated as of August 15, 2024 (the “NRO Purchase Agreement”).

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

Article I
DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings set forth in this Section 1.1:

 

“Acquired Common Stock” shall have the meaning ascribed to such term in Section 2.1.

 

“Action” means any action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary of the Company or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign).

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

“Anti-Corruption Laws” shall have the meaning ascribed to such term in Section 3.1(aa).

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

 

“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Acquired Common Stock, in each case, have been satisfied or waived.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.01 per share.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Disclosure Time” means, (i) if this Agreement is signed on a day that is not a Trading Day or after 9:00 a.m. (New York City time) and before midnight (New York City time) on any Trading Day, 9:01 a.m. (New York City time) on the Trading Day immediately following the date hereof, and (ii) if this Agreement is signed between midnight (New York City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m. (New York City time) on the date hereof.

 

“Engagement Letter” means the Engagement Letter, by and among the Company and the Placement Agents, dated as of May 29, 2024.

 

“Environmental Laws” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Government Official” means (a) an executive, official, employee or agent of a governmental department, agency or instrumentality, (b) a director, officer, employee or agent of a wholly or partially government-owned or -controlled company or business, (c) a political party or official thereof, or candidate for political office or (d) an executive, official, employee or agent of a public international organization (e.g., the International Monetary Fund or the World Bank).

 

“Investment Company Act” shall have the meaning ascribed to such term in Section 3.1(v).

 

“IT Systems and Data” shall have the meaning ascribed to such term in Section 3.1(ee).

 

 

“Lien” means a lien, mortgage, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Money Laundering Laws” shall have the meaning ascribed to such term in Section 3.1(gg).

 

“Net Short Position” shall have the meaning ascribed to such term in Section 4.1.

 

“NRO” shall have the meaning ascribed to such term in the recitals.

 

“NRO Acquisition” means the acquisition by the Company of certain oil and gas properties, rights, and related assets pursuant to the NRO Purchase Agreement.

 

“NRO Purchase Agreement” shall have the meaning ascribed to such term in the recitals.

 

“OFAC” shall have the meaning ascribed to such term in Section 3.1(ff).

 

“Permits” shall have the meaning ascribed to such term in Section 3.1(n).

 

“Person” means, except for as used in Section 3.1(ff), an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Placement Agents” means Piper Sandler, Clear Street, Johnson Rice & Company, LLC, and Pickering Energy Partners, together with any other bookrunner and co-managing placement agents.

 

“Placement Agent Parties” shall have the meaning ascribed to such term in Section 5.18(a).

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.6.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated on or about the date hereof, among the Company and the Purchasers, in the form of Exhibit A attached hereto.

 

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Acquired Common Stock by each Purchaser as provided for in the Registration Rights Agreement.

 

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

“Sanctioned Country” shall have the meaning ascribed to such term in Section 3.1(ff).

 

“Sanctions” shall have the meaning ascribed to such term in Section 3.1(ff).

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Acquired Common Stock.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“SEPA Purchase Agreement” means a standby equity purchase agreement or similar agreement between the Company and one or more investors setting forth the terms for an advance commitment to purchase Common Stock.

 

“SEPA Program” means a commitment by one or more investors to purchase up to $40,000,000 of Common Stock of the Company on terms to be set forth in a SEPA Purchase Agreement.

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for the Acquired Common Stock purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsidiary” means a “significant subsidiary” as defined in Rule 405 under the Securities Act.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means the Nasdaq Capital Market or any of the following markets or exchanges on which the Common Stock may be listed or quoted for trading at such future date in question: the NYSE American, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

“Transaction Documents” means this Agreement, and the Registration Rights Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Vstock Transfer, LLC, the current transfer agent of the Company, and any successor transfer agent of the Company.

 

 

Article II
PURCHASE AND SALE

 

2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, (a) substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, in consideration for the payment of the Subscription Amount set forth on the signature page hereto executed by such Purchaser, the number of shares of Common Stock set forth on the signature page hereto, at a price per share equal to $8.21 (the “Acquired Common Stock”), (b) each Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount, (c) the Company shall deliver to each Purchaser its respective Acquired Common Stock as determined pursuant to Section 2.2(a), and (d) the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall take place remotely by electronic transfer of the Closing documentation.

 

2.2 Deliveries.

 

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i) this Agreement duly executed by the Company;

 

(ii) evidence in book-entry form of the Acquired Common Stock registered in the name of such Purchaser;

 

(iii) the Company’s wire instructions, on Company letterhead and executed by the Chief Executive Officer or Chief Financial Officer of the Company;

 

(iv) the Registration Rights Agreement duly executed by the Company;

 

(v) a certificate, dated the Closing Date and executed by the Chief Executive Officer or Chief Financial Officer of the Company, confirming compliance with the conditions set forth in clauses (i), (ii), (iii), (iv), (v) and (vi) of Section 2.3(b);

 

(vi) a certificate, dated the Closing Date and executed by the Chief Executive Officer or Chief Financial Officer of the Company, certifying (i) the Certificate of Incorporation and Bylaws of the Company, (ii) resolutions of the Board of Directors of the Company approving the Transaction Documents and the transactions contemplated under the Transaction Documents and (iii) the resolutions or written consent of the stockholders of the Company required to approve the Transaction Documents and the transactions contemplated thereunder; and

 

(vii) the written opinion of Vinson & Elkins L.L.P., counsel for the Company, dated as of the Closing Date, in a form reasonably acceptable to the Purchasers and the Placement Agents.

 

 

(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, the following:

 

(i) this Agreement duly executed by such Purchaser;

 

(ii) such Purchaser’s Subscription Amount by wire transfer to the account specified in the Company’s wire instructions delivered pursuant to Section 2.2(a)(iii); and

 

(iii) the Registration Rights Agreement duly executed by such Purchaser.

 

2.3 Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality, in all respects) on the Closing Date of the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they shall be accurate in all material respects (or, to the extent representations or warranties are qualified by materiality, in all respects) as of such date);

 

(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

(iii) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case they shall be accurate in all material respects or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) as of such date;

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv) there shall have been no Material Adverse Effect with respect to the Company;

 

 

(v) the Company shall have obtained all corporate approvals and consents from the Company, the Board of Directors of the Company and the Company’s stockholders as may be required to approve the execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby;

 

(vi) the Company shall have consummated, or shall substantially concurrently consummate, the NRO Acquisition; and

 

(vii) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

Article III
REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser as of the date hereof:

 

(a) Subsidiaries. All of the “significant subsidiaries” (as defined in Rule 405 of the Securities Act) of the Company are set forth in the SEC Reports. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to have a material adverse effect on (i) the condition (financial or otherwise), results of operations, stockholders’ equity, properties, business or prospects of the Company and its Subsidiaries taken as a whole or (ii) the ability of the Company to consummate the transactions contemplated hereby (any of (i) or (ii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

 

(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission pursuant to the Registration Rights Agreement, (iii) the notice and/or application(s) to the Trading Market for the issuance and sale of the Securities and the listing of the Acquired Common Stock for trading thereon in the time and manner required thereby; (iv) such filings as are required to be made under applicable state or federal securities laws; and (v) such consents or waivers as have been obtained (collectively, the “Required Approvals”).

 

 

(f) Issuance of the Securities. The Acquired Common Stock is duly authorized and, when issued and paid for in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company.

 

(g) Capitalization. The capitalization of the Company as of the date hereof is as set forth in the SEC Reports. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise or conversion of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth in the SEC Reports and except for the SEPA Program, if any, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers). There are no outstanding securities or instruments of the Company or any Subsidiary with any provision that would adjust the exercise, conversion, exchange or reset price of such security or instrument upon the issuance of the Acquired Common Stock. Except as described in the SEC Reports, there are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. As of the date hereof, the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. Except as described in the SEC Reports, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

 

(h) SEC Reports; Financial Statements. Since December 31, 2023, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof (the foregoing materials being collectively referred to herein as the “SEC Reports”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed (except to the extent corrected by a subsequently filed SEC Report filed prior to the date hereof), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the Company’s most recently filed periodic report under the Exchange Act, except as disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to the existing Company Amended and Restated Long-Term Incentive Plan or upon conversion or exercise of existing Common Stock Equivalents. The Company does not have pending before the Commission any request for confidential treatment of information.

 

(j) Litigation. There are no legal or governmental actions, suits or proceedings pending (including any written inquiries or investigations) to which the Company or any of its Subsidiaries is a party or of which any property or assets of the Company or any of its Subsidiaries is the subject that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or would, materially and adversely affect the performance of this Agreement or the consummation of the transactions contemplated hereby; and, to the knowledge of the Company, no such proceedings are threatened in writing by governmental authorities or others.

 

(k) Labor Relations. No labor disturbance by the employees of the Company or its Subsidiaries exists or, to the knowledge of the Company, is imminent that could reasonably be expected to have a Material Adverse Effect.

 

 

(l) Compliance. Neither the Company nor any Subsidiary: (i) except as disclosed in the SEC Reports, is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m) Environmental Laws. The Company and its Subsidiaries (i) are in compliance with all applicable laws, regulations, ordinances, rules, orders, judgments, decrees, permits or other legal requirements of any governmental authority, including without limitation any international, national, state, provincial, regional, or local authority, relating to the protection of human health or safety, the environment, or natural resources, or to hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”) applicable to such entity, which compliance includes, without limitation, obtaining, maintaining and complying with all permits, authorizations and approvals required by Environmental Laws to conduct their respective businesses, and; (ii) have not received notice of any actual or alleged violation of Environmental Laws, or of any potential liability for or other obligation concerning the presence, disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, except in the case of clause (i) or (ii) where such non-compliance, violation, liability, or other obligation could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Except as described in the SEC Reports, (A) there are no proceedings that are pending, or known to be contemplated, against the Company or any of its Subsidiaries under Environmental Laws in which a governmental authority is also a party, other than such proceedings regarding which it is reasonably believed no monetary sanctions of $300,000 or more will be imposed, and (B) none of the Company and its Subsidiaries anticipates material capital expenditures relating to Environmental Laws.

 

(n) Regulatory Permits. The Company and the Subsidiaries have and are in compliance with such permits, licenses, patents, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities (“Permits”) as are necessary under applicable law to own their properties and conduct their businesses in the manner described in the SEC Reports, except for any of the foregoing that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that could not reasonably be expected to have a Material Adverse Effect. Neither the Company nor the Subsidiaries has received written notice of any revocation or modification of any Permits that would reasonably be expected to, individually or in the aggregate, result in a Material Adverse Effect.

 

 

(o) Title to Assets. Except as disclosed in the SEC Reports, the Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(p) Intellectual Property. The Company and the Subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, know-how, software, systems and technology (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others, except as would not reasonably be expected to have a Material Adverse Effect.

 

(q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(r) Transactions with Affiliates and Employees. Except as disclosed in SEC Reports or in connection with the issuance of the Securities, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including benefits under the Amended & Restated Long-Term Incentive Plan of the Company.

 

 

(s) Sarbanes-Oxley; Internal Accounting Controls. There is not and has not been any failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith. Since the date of the most recent balance sheet of the Company as included in the SEC Reports, (i) the Company has not been advised of (A) any significant deficiencies in the design or operation of internal controls that are reasonably likely to adversely affect the ability of the Company and the Subsidiaries to record, process, summarize and report financial data, or any material weaknesses in internal controls and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the internal controls of the Company and the Subsidiaries, and (ii) since that date, there have been no significant changes in internal controls or in other factors that are reasonably likely to materially significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. The Company is not reviewing or investigating, and neither the Company’s independent auditors nor its internal auditors have recommended that the Company review or investigate (1) adding to, deleting, changing the application of, or changing the Company’s disclosure with respect to, any of the Company’s material accounting policies, or (2) any matter which could result in a restatement of the Company’s financial statements for any annual or interim period during the current or prior three fiscal years.

 

(t) Certain Fees. Except for the fees payable to the Placement Agents pursuant to the Engagement Letter, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section 3.1(t) that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(u) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market or any applicable Federal or state securities laws. No “bad actor” disqualifying event described in Rule 506(d)(1)(i)(viii) of the Securities Act is applicable to the Company or, to the Company’s knowledge, any Issuer Covered Person, except for an event as to which Rule 506(d)(2)(ii)–(iv) or (d)(3) is applicable.

 

(v) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act.

 

(w) Registration Rights. Other than in connection with the SEPA Program, no Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary, except the holders of the securities, the resale of which was registered on the Company’s registration statement on Form S-1 that was declared effective by the Commission on December 6, 2023.

 

 

(x) Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.

 

(y) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated, except with respect to this clause (ii), the SEPA Program.

 

(z) No General Solicitation. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the shares of the Acquired Common Stock by any form of general solicitation or general advertising.

 

(aa) Foreign Corrupt Practices. None of the Company, any Subsidiary or any of the Company’s or any Subsidiary’s directors, officers, employees, or to the knowledge of the Company or any Subsidiary, any consultant, agent or other person acting on behalf of the Company or any Subsidiary, (i) is in violation of any provision of the FCPA or any other applicable anti-bribery or anticorruption law or regulation, including the Bribery Act 2010 of the United Kingdom (collectively, with the FCPA, the “Anti-Corruption Laws”) or (ii) has made, offered, promised or authorized, or will make, offer, promise or authorize, whether directly or indirectly, any unlawful payment, of anything of value to a Government Official while knowing or having a reasonable belief that all or some portion will be used for the purpose of: (A) influencing any act, decision or failure to act by a Government Official in his or her official capacity, (B) inducing a Government Official to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity or (C) securing an improper advantage, in each case in order to obtain, retain or direct business. To the Company’s knowledge, none of the Company or any Subsidiary is the subject of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action by any governmental authority related to the Anti-Corruption Laws.

 

(bb) Accountants. The Company’s accounting firm is Ham, Langston & Brezina, L.L.P. To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act.

 

 

(cc) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

(dd) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.

 

(ee) Cybersecurity. (i) (x) There has been no security breach or attack or other compromise of or relating to any of the Company’s or the Subsidiaries’ information technology and computer systems, networks, hardware, software, data (including any personal, personally identifiable, sensitive, confidential or regulated date or the data of their respective customers, employees, suppliers, vendors and any third party data maintained by or on behalf of them), equipment or technology (“IT Systems and Data”), and (y) the Company and the Subsidiaries have not been notified of, and have no knowledge of any event or condition that would reasonably be expected to result in any security breach, attack or compromise to their IT Systems and Data, (ii) the Company and the Subsidiaries have complied, and are presently in compliance with, all applicable laws, statutes or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority and all industry guidelines, standards, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection such IT Systems and Data from unauthorized use, access, misappropriation or modification and (iii) the Company and the Subsidiaries IT Systems and Data are reasonably adequate for, and operate and perform as required in connection with the operation of the business of the Company and the Subsidiaries as currently conducted, free and clear of all material bugs, errors, defects, Trojan horses, time bombs, malware and other corruptants, and the Company and the Subsidiaries have implemented and maintained commercially reasonable controls, policies, procedures, and safeguards to maintain and protect their confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data used in connection with their businesses, including the implementation of backup and disaster recovery technology consistent with industry standards and practice, except, with respect to the events specified in clauses (i) through (iii), as would not, individually or in the aggregate, have a Material Adverse Effect.

 

 

(ff) Office of Foreign Assets Control.

 

(i) None of the Company or any Subsidiary or, to the knowledge of the Company or any Subsidiary, any director, officer, agent, employee, affiliate or representative of the Company or any Subsidiary is a government, individual, or entity (in this paragraph, “Person”) that is, or is owned or controlled by a Person that is:

 

(A) the subject of any sanctions administered or enforced by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”), the United Nations Security Council, the European Union, His Majesty’s Treasury, or other relevant sanctions authority (collectively, “Sanctions”), or

 

(B) located, organized or resident in a country or territory that is the subject of comprehensive Sanctions (currently, Cuba, Iran, North Korea, Syria, and certain regions of Ukraine, each a “Sanctioned Country”).

 

(ii) The Company and each Subsidiary represent and covenant that, for the past 5 years, it has not knowingly engaged in and is not now knowingly engaged in any dealing or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.

 

(gg) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions to which the Company and its Subsidiaries are subject, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency having jurisdiction over the Company and its Subsidiaries (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

 

(hh) NRO Purchase Agreement. None of the Company or any of its Subsidiaries or, to the knowledge of the Company, any other Person party thereto is in default in the performance or compliance with any material representations, warranties, covenants or other provisions of the NRO Purchase Agreement. The NRO Purchase Agreement complies in all material respects with all applicable laws.

 

3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):

 

(a) Organization; Authority. Such Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

 

(b) No Breach. The execution, delivery and performance of the Transaction Documents by such Purchaser and the consummation by such Purchaser of the transactions contemplated hereby or thereby will not (a) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material agreement to which such Purchaser is a party or by which such Purchaser is bound or to which any of the property or assets of such Purchaser is subject, (b) if such Person is a non-natural Person, conflict with or result in any violation of the provisions of the organizational documents of such Purchaser or (c) violate any statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over such Purchaser or the property or assets of such Purchaser, except in the case of clauses (a) and (c), for such conflicts, breaches, violations or defaults as would not have a material adverse effect on the ability to consummate the transactions contemplated by the Transaction Documents.

 

(c) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by such Purchaser to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents.

 

(d) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law.

 

(e) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, a “qualified institutional buyer” (as defined in Rule 144A under the Securities Act) or an institutional “accredited investor” (within the meaning of Rule 501(a)(1), (2), (3), (7) or (8) under the Securities Act).

 

(f) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters and has sought such accounting, legal and tax advice as such Purchaser has considered necessary so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser acknowledges that it is aware that there are substantial risks incident to the purchase and ownership of the Securities. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

 

(g) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

(h) Access to Information. Such Purchaser acknowledges that it has had the opportunity to review each of the Transaction Documents and the proposed terms of the SEPA Program and the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the SEPA Program and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.

 

Article IV
OTHER AGREEMENTS OF THE PARTIES

 

4.1 No Net Short Position. Each Purchaser hereby agrees solely with the Company, severally and not jointly, and not with any other Purchaser, for so long as such Purchaser owns any Acquired Common Stock, such Purchaser shall not maintain a Net Short Position (as defined below). For purposes hereof, a “Net Short Position” by a person means a position whereby such person has executed one or more sales of Common Stock that is marked as a short sale (but not including any sale marked “short exempt”) and that is executed at a time when such Purchaser has no equivalent offsetting long position in the Common Stock (or is deemed to have a long position hereunder or otherwise in accordance with Regulation SHO of the Exchange Act). For purposes of determining whether a Purchaser has an equivalent offsetting “long” position in the Common Stock, all Common Stock that is owned by such Purchaser shall be deemed held “long” by such Purchaser.

 

4.2 Transfer Restrictions.

 

(a) The Securities may only be transferred or disposed of in compliance with state and federal securities laws. The consent of the Company shall not be required for any such transfer or disposition; provided that, any transfer of the rights and obligations of a Purchaser under this Agreement and the Registration Rights Agreement to a transferee except as set forth in Section 5.7, shall require the consent of the Company, and such transferee shall agree in writing to be bound by the terms of this Agreement and the Registration Rights Agreement.

 

(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.2, of a legend on any of the Acquired Common Stock in the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

 

(c) Each Purchaser may request the Company to remove the legend described in this Section 4.2 from the certificates evidencing the Securities by submitting to the Company such certificates. The Company shall (i) promptly cooperate with reasonable requests of such Purchaser to effect the removal of such legend and (ii) on or after the earlier of (A) the six month anniversary of the Closing Date and (B) the date on which the Registration Statement or any other registration statement covering the resale of the Acquired Common Stock by each Purchaser is first declared effective by the Commission, at the Company’s sole expense, deliver, or cause its outside counsel to deliver, to the Transfer Agent an opinion of counsel in a form reasonably acceptable to the Transfer Agent and such other documentation as the Transfer Agent may request to effect the removal of such legend, in each case subject to receipt of customary representations and warranties from the Purchasers or the brokers thereof as may be reasonably requested by such counsel to the Company, on which such counsel and the Transfer Agent may conclusively rely.

 

(d) Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates or book-entry evidence representing Securities as set forth in this Section 4.2 is predicated upon the Company’s reliance upon this understanding.

 

4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.4 Securities Laws Disclosure; Publicity. The Company shall (a) by the Disclosure Time, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K with the Commission within the time required by the Exchange Act. From and after the filing of such Current Report on Form 8-K, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors, employees, Affiliates or agents in connection with the transactions contemplated by the Transaction Documents. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby in which such Purchaser is named, and neither the Company nor any Purchaser shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company in which such Purchaser is named, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. In furtherance of the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations; provided, however, that each Purchaser agrees and acknowledges that if it does not provide such consent with respect to any registration statement to be filed pursuant to the Registration Rights Agreement, it will not be named in such registration.

 

4.5 Use of Proceeds. The Company shall use the proceeds from the sale of the Securities hereunder to pay a portion of the purchase price for the NRO Acquisition; provided that (i) no part of the proceeds of the issuance of the Acquired Common Stock will be used, directly or indirectly, or otherwise made available to any Person, to finance any activities or business of or with any Person, or in any country or territory, that, at the time of such financing, is a Sanctioned Person or a Sanctioned Country, in each case in violation of Sanctions, or in any other manner that would result in a violation of Sanctions by any Person, and (ii) no part of the proceeds of the issuance of the Acquired Common Stock will be used, directly or indirectly, in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or Anti-Money Laundering Laws.

 

 

4.6 Indemnification of the Purchasers. Subject to the provisions of this Section 4.6, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees, administrators, managers, counsel, advisors, other representatives and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, members, partners, employees, administrators, managers, and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from and against any and all losses, liabilities, obligations, demands, claims, contingencies, damages, penalties, costs and expenses, including all actions, judgments, suits, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of, arising out of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company or any Subsidiary in this Agreement or in the other Transaction Documents, (b) the execution, delivery, enforcement, performance or administration of this Agreement, the other Transaction Documents or any other agreement, letter or instrument delivered in connection with the transactions contemplated by the Transaction Documents and the performance by the parties thereto of their obligations thereunder or the Transactions or the consummation thereof or (c) any action instituted against the Purchaser Parties in any capacity (including a Purchaser Party’s status as an investor), or any of them or their respective Affiliates, by any Person who is not an Affiliate of such Purchaser Party (provided that, in no event shall the Company or any Affiliate thereof be deemed to be an Affiliate of any Purchaser Party), arising out of or relating to any of the transactions contemplated by the Transaction Documents (other than with respect to any conduct by such Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct). Notwithstanding any other provision of this Agreement, (x) the Company shall not settle any third-party claim under which indemnification may be sought hereunder without the consent of the applicable indemnified Purchaser Parties, unless the settlement thereof imposes no liability or obligation on, and includes a complete, unconditional and irrevocable release from liability of, and does not include any statement or admission of fault, culpability, wrongdoing or malfeasance by, the indemnified Purchaser Parties and (y) the Company will not be liable to any Purchaser Party under this Agreement for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. The indemnification required by this Section 4.6 shall be made by periodic payments of the amount thereof, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law. This Section 4.6 shall survive, remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the Closing or the consummation of the transactions contemplated hereby or under the other Transaction Documents (or the failure to consummate the transactions contemplated hereby or under the other Transaction Documents), the transfer of any of the Securities, the enforcement, amendment or waiver of any provision of this Agreement or any other Transaction Document or the termination of this Agreement or any other Transaction Document, the invalidity or unenforceability of any term or provision of this Agreement or any other Transaction Document, or any investigation made by or on behalf of the Company or any Purchaser.

 

4.7 Listing of Securities.

 

The Company shall prepare and file with the Trading Market an additional shares listing application covering the Acquired Common Stock, and take all steps necessary to cause such shares of Acquired Common Stock to be approved for listing or quotation on such Trading Market as soon as possible thereafter. The Company agrees to use commercially reasonable efforts to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.

 

4.8 Equal Treatment of Purchasers. No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

 

Article V
MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof or; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).

 

5.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via email attachment at the e-mail address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the e-mail address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service and (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

 

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser. Each Purchaser may assign any or all of its rights under this Agreement to any Affiliate of such Purchaser without the prior consent of the Company, provided that such transferee executes and delivers to the Company a Joinder Agreement in the form attached hereto as Exhibit C. No assignment shall relieve the assigning party of any of its obligations hereunder, including any assignment to any of the Persons set forth in the immediately preceding sentence.

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.6, this Section 5.8 and Section 5.18.

 

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.6, the prevailing party in such Action or Proceeding shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Action or Proceeding.

 

 

5.10 Survival. The representations, warranties and covenants contained herein, including, without limitation, those representations and warranties in Section 3.1 and the terms and provisions of Section 4.6, shall survive the Closing and the delivery of the Securities.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.

 

5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.14 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

 

 

5.15 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.16 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

5.17 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

5.18 Placement Agents

 

(a) The Company and each Purchaser acknowledges and agrees that (i) each representation and warranty contained in this Agreement and any certificate, instrument, notice, letter or any other document or security delivered to any Placement Agent Party (as defined herein) by or on behalf of the Company, are for the benefit of, and have been and will be relied upon by, the Placement Agents and their respective affiliates, controlling persons (within the meaning of the U.S. federal securities laws) and agents (collectively, the “Placement Agent Parties”), (ii) each Placement Agent Party shall be an express third-party beneficiary of this Agreement with respect to this Section 5.18, (iii) copies of this Agreement, each certificate or other deliverable provided in accordance with this Agreement and any information contained or otherwise referenced herein may be provided to the Placement Agent Parties, and (iv) each Placement Agent shall be an addressee of any opinion of counsel provided to the Purchasers.

 

(b) In connection with its purchase of the Securities, each Purchaser acknowledges and agrees that: (i) no Placement Agent Party has acted as a fiduciary or financial or investment adviser for it; (ii) such Purchaser is not relying (for purposes of making any investment decision or otherwise) upon any advice, counsel or representations (whether written or oral) of any Placement Agent Party or any of their respective agents; (iii) such Purchaser has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent it has deemed necessary and has made its own investment decisions (including decisions based on suitability) based upon its own judgment and upon any advice from such advisers as it has deemed necessary and not upon any view expressed by any Placement Agent Party (directly or indirectly through any other person); and (iv) such Purchaser has received no assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (including legal, regulatory, tax, financial, accounting, or otherwise) of the Securities or the agreements and documentation with respect to the Securities from any Placement Agent Party (directly or indirectly through any other person).

 

 

(c) Each Purchaser acknowledges and agrees that: (i) it is voluntarily assuming all risks associated with the purchase of the Securities and expressly represents, warrants and agrees that (x) no Placement Agent Party has made, and such Purchaser disclaims the existence of or its reliance on, any representation by any Placement Agent Party concerning the Securities and (y) with respect to the Placement Agent Parties, such Purchaser is not relying on any disclosure or non-disclosure made or not made, or the completeness thereof, in connection with or arising out of the purchase of the Securities, and therefore has no claims against any Placement Agent Party with respect thereto; (ii) if any such claim may exist, such Purchaser, recognizing its disclaimer of reliance as a condition to entering into the purchase of the Securities, covenants and agrees not to assert any such claim against any Placement Agent Party or any of its officers, directors, employees, shareholders, partners, agents, representatives or affiliates; and (iii) no Placement Agent Party has any liability to such Purchaser and such Purchaser expressly waives and releases any claim that it (or any account with respect to which it acts as fiduciary or agent) might have against such Placement Agent Party or its officers, directors, employees, shareholders, partners, agents, representatives or affiliates, directly or indirectly relating to its purchase of the Securities, whether under applicable securities law or otherwise.

 

(d) Each Purchaser acknowledges and agrees that the sale of the Securities to the Purchaser is not a recommendation by any Placement Agent Party to purchase the Securities. Each Purchaser acknowledges and agrees that each Placement Agent Party (or any of their respective affiliates) may currently or from time to time engage in business, directly or indirectly, with the Company and its affiliates, including extending loans to, or making equity investments in, the Company or its affiliates, or providing investment banking or advisory services to the Company and its affiliates. Each Placement Agent Party (or any of their respective affiliates) may publish research reports with respect to the Company and its affiliates. These research reports may currently, or may in the future, contain negative views on the Company or its affiliates, may not recommend new investments in securities issued by the Company and its affiliates, and may recommend that investors sell securities of the Company and its affiliates held by them. No Placement Agent Party undertakes any obligation to, and no Placement Agent Party will, take into consideration any Purchaser’s interests as a holder of the Securities in the course of its business dealings with the Company and its affiliates or in connection with the issuance of research reports.

 

(Signature Pages Follow)

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

PRAIRIE OPERATING CO.			Address for Notice:
By:	/s/ Edward Kovalik		55 Waugh Drive
Name:	Edward Kovalik		Suite 400
Title:	Chief Executive Officer		Houston, Texas 77007
			Email: ek@prairieopco.com
With a copy to (which shall not constitute notice):			Daniel T. Sweeney
			Executive Vice President, General Counsel and Corporate Secretary
			Email: ds@prairieopco.com

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

[Signature Page to Securities Purchase Agreement]

 

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:
Signature of Authorized Signatory of Purchaser:
Name of Authorized Signatory:
Title of Authorized Signatory:
Email Address of Authorized Signatory:

 

Address for Notice to Purchaser:

 

Address for Delivery of Securities to Purchaser (if not same as address for notice):

 

Subscription Amount:	$
Shares of Acquired Common Stock:

 

EIN:_____________________________________________________________________

 

[Signature Page to Securities Purchase Agreement]

 

 

Exhibit A

FORM OF REGISTRATION RIGHTS AGREEMENT

 

[Attached.]

 

 

Exhibit B

 

FORM OF JOINDER AGREEMENT

 

This Joinder Agreement is executed by the undersigned pursuant to the Securities Purchase Agreement, dated as of September 30, 2024 (the “Agreement”), between Prairie Operating Co. (the “Company”) and the purchasers party thereto (the “Purchasers”), which is incorporated herein by reference. Capitalized terms used but not defined herein shall have the meaning given to such terms in the Agreement. By the execution of this Joinder Agreement, the undersigned agrees as follows:

 

1. The undersigned acknowledges that the undersigned is acquiring __________ Acquired Common Stock (the “Assigned Securities”), subject to the terms and conditions of the Agreement (including the Exhibits thereto).

 

2. The undersigned hereby joins in, and agrees to be bound by and subject to, the Agreement, with the same force and effect as if the undersigned were originally a Purchaser party thereto. The undersigned hereby expressly makes the representations and warranties in Section 3.2 of the Agreement with respect to the Assigned Securities.

 

3. Any notice required or permitted by the Agreement shall be given to the undersigned at the address listed below.

 

[Signature page follows.]

 

 

EXECUTED AND DATED as of this [●] day of [●], 20[●].

 

	JOINING PARTY
	By:
	Name
	Title:

Notice Address:

 

 

Exhibit 99.2

 

Prairie Operating Co. Completes Acquisition of Oil-Weighted DJ Basin Assets from Nickel Road Operating

 

HOUSTON, Texas, October 2, 2024 (GLOBE NEWSWIRE) -- Prairie Operating Co. (Nasdaq: PROP) (the “Company” or “Prairie”) today announced the closing of its previously announced $84.5 million acquisition of the oil-weighted assets of Nickel Road Operating, LLC (“NRO”), a portfolio company of Vortus Investment Advisors, LLC. The NRO acquisition was funded with the proceeds from a private placement of Common Stock, an Equity Facility, and cash on hand.

 

Located in Weld County, Colorado, the newly acquired assets will add 5,592 net leasehold acres, 89 approved well permits, and 26 operated horizontal wells providing accretive cashflow to Prairie’s existing DJ Basin operations.

 

“This transaction is a major step forward in our growth strategy and an example of delivering long-term value for our shareholders,” stated Edward Kovalik, Chairman and CEO of the Company. “With our Shelduck South development now drilling well four of the eight-well pad, we expect the production from both these assets, combined with our permitted Genesis locations, to provide a significant cashflow engine for growth through 2025 and beyond.”

 

As previously stated, the Company remains committed to aggressively expanding production and well inventory, through both organic drilling and accretive strategic acquisitions. Prairie plans to integrate the newly acquired assets into its existing operations and focus on developing its extensive inventory of drilling locations across its DJ Basin acreage position.

 

ADVISORS

 

Piper Sandler and Clear Street LLC acted as Co-lead placement agent with Pickering Energy Partners and Johnson Rice & Company LLC. acting as placement agents. Vinson & Elkins LLP is serving as legal counsel to the Company.

 

About Prairie Operating Co.

 

Prairie Operating Co. is a Houston-based publicly traded independent energy company engaged in the development and acquisition of oil and natural gas resources in the United States. The Company’s assets and operations are concentrated in the oil and liquids-rich regions of the Denver-Julesburg (DJ) Basin, with a primary focus on the Niobrara and Codell formations. The Company is committed to the responsible development of its oil and natural gas resources and is focused on maximizing returns through consistent growth, capital discipline, and sustainable cash flow generation. More information about the Company can be found at www.prairieopco.com.

 

No Offer or Solicitation

 

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of the Company’s securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction.

 

 

Forward-Looking Statement

 

The information included herein and in any oral statements made in connection herewith include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of present or historical fact included herein, are forward-looking statements. When used herein, including any oral statements made in connection herewith, the words “could,” “should,” “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on the Company’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, the Company disclaims any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date hereof. The Company cautions you that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company. There may be additional risks not currently known by the Company or that the Company currently believes are immaterial that could cause actual results to differ from those contained in the forward-looking statements. Additional information concerning these and other factors that may impact the Company’s expectations can be found in the Company’s periodic filings with the Securities and Exchange Commission (the “SEC”), including the Company’s Annual Report on Form 10-K/A filed with the SEC on March 20, 2024, and any subsequently filed Quarterly Report and Current Report on Form 8-K. The Company’s SEC filings are available publicly on the SEC’s website at www.sec.gov.

 

Investor Relations Contact:

 

Wobbe Ploegsma

wp@prairieopco.com

832.274.3449

 

 

 

Exhibit 99.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.4

 

Prairie Operating Co. (the “Company”) is providing an update to its previously described development plan in connection with the closing of the NRO Acquisition and the preparation of the combined reserve report as of June 30, 2024 (the “Combined Reserve Report”). This disclosure should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), the Combined Reserve Report and the Company’s other filings with the Securities and Exchange Commission (“SEC”). The information included herein includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to risks and warnings set forth under the titles “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in the 2023 Form 10-K and subsequent updates to such information in the Company’s filings with the SEC. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the 2023 Form 10-K or the Company’s Form 8-K, filed on October 4, 2024 (the “Form 8-K”).

 

Our Development Plan

 

The Company believes that it is well positioned to execute on the development plan of the Initial Genesis Assets, Genesis Bolt-on Assets, and the Central Weld Assets (“Assets”) after the closing of the NRO Acquisition. The current development plan contemplates drilling up to 8 gross wells in calendar year 2024 and up to 25 gross wells in calendar year 2025. The estimated capital costs of the initial drilling program for 2024-2025 is $156 million to execute the development plan, which we expect to fund using proceeds from the SEPA program and Promissory Notes described in the Form 8-K, cash flows from the producing Central Weld Assets and from new wells drilled as they begin to produce, supplemented as needed with proceeds from the exercise of outstanding warrants, a revolving credit facility or additional equity offerings. As cash flows increase from these early development activities, the development plan contemplates increasing drilling activity in years 3-5, drilling up to 192 gross wells per calendar year, with all proved undeveloped reserves and undeveloped possible reserves converted to developed status in five years. The estimated capital costs for the remainder of the approved development plan are $1,873 million through 2029. Consistent with our commitment to operating with limited leverage, the development plan contemplates drilling wells using primarily cash flows from operations, as well as proceeds from the exercise of outstanding warrants and possible financing through public or private equity markets. As a result, the timing of the development plan may vary based on the success of the early development plan, increases or decreases in commodity prices or operating costs, and other funds that may be raised through the equity markets or otherwise. In addition, funds may be used that are available from a revolving credit facility on a short-term basis from time to time to support the development plan. The development plan has been adopted and approved by management and the Board and is based on an investment decision that includes a future drilling and capital cost schedule with budgeted funds sufficient to convert the 73 proved undeveloped locations and the 420 undrilled possible locations to developed status within five years.

 

The Company believes it is likely that it will be able to obtain sufficient capital to execute the development plan from these sources outlined above. However, our ability to generate or obtain capital to support our development plan is subject to a variety of risks, including those described in the section entitled “Risk Factors” in the 2023 Form 10-K. If the Company is unable to fully fund our development plan, The Company may be forced to adjust the scope and/or timing of the development plan and development schedule and may not be able to drill a sufficient number of wells to extend the terms of our existing leasehold acreage before the associated leases expire. The foregoing may hinder the ability to further develop the leasehold acreage, acquire additional leasehold acreage, generate sufficient cash flows and execute upon our vision for growth.

 

There is no guarantee that the development plan will result in the successful production of economic quantities of oil and gas. The Company has limited operating history related to the exploration and production of oil and gas assets or drilling producing oil and gas wells. The development plan is based, in part, on assumptions from management’s prior experience and such experience may not be indicative of the success of the Company’s development plans. The Company has historically incurred significant losses and experienced negative cash flow and have not generated any revenue related to the exploration and production of oil and gas assets to date. A failure to successfully develop and produce the Assets may result in the loss of our investment in the Assets and affect our ability to execute our development plan. Critical to the development plan is an effective approach to ensuring well permits are received in a timely manner.

 

 

Our Permitting Process

 

With respect to our Initial Genesis Assets, on November 27, 2023, The Company announced that the Company had submitted a Weld Oil and Gas Location Assessment (“WOGLA”) application for sites within the Oil & Gas Development Plan (“OGDP”) of the Initial Genesis Assets (“Genesis I”) and had begun the application process for our second OGDP (“Genesis II”). On February 1, 2024, the Burnett and Oasis locations within Genesis I were approved by the Weld County hearings officer for the Genesis I WOGLA permits. Genesis I and Genesis II encompass up to 72 wells and 42 wells, respectively, from two pads each, with each pad developing nine-square miles of subsurface minerals. The two pads in Genesis I are designed to develop up to 18 three-mile lateral wells and 54 two-mile lateral wells, respectively. In Genesis II, the two pads are designed to develop up to 42 three-mile lateral wells. Following the September 15, 2023 submission of Genesis I with the Colorado Energy and Carbon Management Commission (“CECMC”) for the Burnett and Oasis locations, a hearing before the CECMC was held on March 13, 2024, in which the Genesis I OGDP received unanimous approval of the commissioners. The Company received approved wellbore permits related to the Genesis I OGDP on June 16, 2024.

 

The Genesis Bolt-on Assets also have eight approved permits, and the Company is currently drilling these locations.

 

With respect to the Central Weld Assets, currently 71 wells on four pads have been fully permitted across seven operated DSUs and there are 18 wells currently submitted to the CECMC awaiting approval.

 

There is no assurance that we will be able to obtain the requisite permits within the timing as contemplated within our development plan or as described herein, or at all. Our ability to obtain the requisite permits is subject to risks outside the control of management. If we are unable to secure the requisite permits upon the timing consistent with our development plan, the future development of our assets and potential related cash flows may be significantly delayed or fail to occur at all. If we are unable to secure the requisite permits, we may lose a portion or all of our investments in our current and future assets.

 

The Company’s development plan for 2024 and 2025 currently contemplates drilling proved undeveloped locations, but plans may be revised to strategically hold any expiring leasehold acreage of the Company prior to the expiration of any leaseholds. To the extent the Company is unable to hold some or all of the existing leaseholds prior to the primary term expiration of such leases, the terms of the leases with respect to the Initial Genesis Assets would allow the Company to extend all expiring leases for an aggregate payment of less than $1,000,000. The Company expects to be able to make such payment to the extent any such leases will not be held by production by the expiration date.

 

 

 

Exhibit 99.5

 

Nickel Road Operating LLC and Subsidiaries

 

As of June 30, 2024 and December 31, 2023 and for the Six Months

Ended June 30, 2024 and 2023

 

 

Table of Contents

 

	Page
Consolidated Financial Statements
Consolidated Balance Sheets	1
Consolidated Statements of Income	3
Consolidated Statements of Changes in Members’ Capital	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

 

 

Consolidated Financial Statements

 

Nickel Road Operating LLC and Subsidiaries

Consolidated Balance Sheets

June 30, 2024 and December 31, 2023

 

		June 30, 2024				December 31, 2023
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	792,717			$	336,115
Joint interest receivable			470,287				897,804
Accrued oil and gas sales			4,800,319				5,658,034
Derivative asset, current			-				270,925
Prepaid expenses			510,644				426,404
Total current assets			6,573,967				7,589,282
OIL AND GAS PROPERTIES, at cost (successful efforts method)
Proved properties, net of impairment			138,942,119				137,855,719
Unproved properties, net of impairment			1,932,242				1,690,690
Accumulated depletion			(48,070,257	)			(41,010,449	)
Total oil and gas properties			92,804,104				98,535,960
OTHER NON-CURRENT ASSETS
Right-of-use asset, net			230,910				325,933
TOTAL ASSETS		$	99,608,981			$	106,451,175

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Nickel Road Operating LLC and Subsidiaries

Consolidated Balance Sheets

June 30, 2024 and December 31, 2023

 

		June 30, 2024				December 31, 2023
LIABILITIES AND MEMBERS’ CAPITAL
CURRENT LIABILITIES
Accounts payable		$	776,716			$	1,801,926
Accrued liabilities			9,702,916				12,293,167
Current maturities of long-term debt			-				3,800,000
Short-term lease liability			197,116				192,384
Total current liabilities			10,676,748				18,087,477
NON-CURRENT LIABILITIES
Long-term debt, net of current portion and deferred financing costs			10,942,143				16,660,116
Asset retirement obligations			1,380,706				1,347,493
Long-term lease liability			33,794				133,550
Total non-current liabilities			12,356,643				18,141,159
Total liabilities			23,033,391				36,228,636
COMMITMENTS AND CONTINGENCIES (Note 7)
MEMBERS’ CAPITAL
Contributed capital			64,025,830				64,025,830
Distributed capital			(64,300,000	)			(64,300,000	)
Retained earnings			76,849,760				70,496,709
Total members’ capital			76,575,590				70,222,539
TOTAL LIABILITIES AND MEMBERS’ CAPITAL		$	99,608,981			$	106,451,175

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Income

Periods Ended June 30, 2024 and 2023

 

		2024				2023
REVENUES
Oil and gas sales			21,665,888			$	22,473,667
Total revenues			21,665,888				22,473,667
OPERATING EXPENSES
Production taxes			1,663,238				1,723,041
Lease operating			2,936,033				2,359,390
Depreciation, depletion, and amortization			7,093,021				9,187,210
General and administrative			2,203,368				2,238,576
Total operating expenses			13,895,660				15,508,217
INCOME FROM OPERATIONS			7,770,228				6,965,450
OTHER INCOME (EXPENSE)
Interest expense, net			(903,475	)			(1,126,850	)
Realized gain (loss) on derivative instruments			223,485				(288,438	)
Unrealized gain (loss) on derivative instruments			(270,925	)			2,578,523
Other income (expense)			(466,262	)			(35,206	)
Total other income (expense)			(1,417,177	)			1,128,029
NET INCOME		$	6,353,051			$	8,093,479

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Changes in Members’ Capital

Periods Ended June 30, 2024 and 2023

 

		Class A				Class B				Retained				Total Members’
		Capital				Capital				Earnings				Equity
BALANCE, January 1, 2023		$	6,025,830			$	-			$	50,736,104			$	56,761,934
Net income			-				-				8,093,479				8,093,479
BALANCE, June 30, 2023		$	6,025,830			$	-			$	58,829,583			$	64,855,413
BALANCE, January 1, 2024		$	(274,170	)		$	-			$	70,496,709			$	70,222,539
Net income			-				-				6,353,051				6,353,051
BALANCE, June 30, 2024		$	(274,170	)		$	-			$	76,849,760			$	76,575,590

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Cash Flows

Periods Ended June 30, 2024 and 2023

 

		2024				2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	6,353,051			$	8,093,479
Adjustments to reconcile net income to net cash from operating activities
Depreciation, depletion, and amortization			7,093,021				9,187,210
Amortization of debt issuance costs			32,706				45,677
Unrealized (gain) loss on derivative instruments			270,925				(2,578,523	)
Change in operating assets and liabilities
Accounts receivable			1,285,232				(1,002,336	)
Prepaid expenses			(84,241	)			408,481
Accounts payables			(1,025,210	)			(497,080	)
Due from/(Due to) related party			26,208				(1,022	)
Accrued liabilities			(2,616,460	)			4,105,052
Net cash from operating activities			11,335,232				17,760,938
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of oil and gas properties			(1,327,952	)			(12,394,208	)
Net cash from investing activities			(1,327,952	)			(12,394,208	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term and long-term debt			26,700,000				26,050,000
Repayment of short-term and long-term debt			(36,250,000	)			(30,250,000	)
Debt issuance costs			(678	)			(158,641	)
Net cash from financing activities			(9,550,678	)			(4,358,641	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			456,602				1,008,089
CASH AND CASH EQUIVALENTS, beginning of period			336,115				3,476,039
CASH AND CASH EQUIVALENTS, end of period		$	792,717			$	4,484,128
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		$	845,735			$	1,135,336

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Note 1 – Organization and Summary of Significant Accounting Policies

 

Organization – Nickel Road Operating LLC, a Delaware limited liability company (the “Company”), was formed on July 25, 2017, for the purpose of engaging in the evaluation, acquisition, exploration, drilling, development, and production of oil and gas in the United States of America. The Company shall continue in existence until it is liquidated or dissolved under the terms of the Amended Limited Liability Company Agreement (the LLC Agreement).

 

As a Limited Liability Company (LLC), the amount of loss at risk for each individual member is limited to the amount of capital contributed to the LLC, and unless otherwise noted, the individual member’s liability for indebtedness of an LLC is limited to the member’s capital contributions.

 

Basis of presentation – The Company follows accounting standards established by the Financial Accounting Standards Board (FASB). The FASB sets accounting principles generally accepted in the United States of America (GAAP) to ensure consistent reporting of the Company’s financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards Codification (ASC) or “Codification.” The consolidated interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements.

 

Use of estimates in the preparation of financial statements – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Depreciation, depletion, and amortization of oil and gas properties and the impairment of proved oil and gas properties are determined using estimates of oil and gas reserves. There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose, and restore the Company’s properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way.

 

Fair value of financial instruments – The Company’s financial instruments consist of cash and cash equivalents, restricted cash, trade receivables, trade payables, accrued liabilities, and derivative financial instruments. The carrying value of cash and cash equivalents, restricted cash, trade payables, accrued liabilities, and derivative financial instruments are considered to be representative of their fair market value due to the short maturity of these instruments or by reference to active markets. The carrying amount of debt reflected on the consolidated balance sheets approximates fair value as this debt has a variable interest rate that approximates a market interest rate.

 

Principles of consolidation – The accompanying consolidated financial statements are consolidated and include the accounts of the Company and its wholly owned subsidiaries, Source Rock Royalty LLC, Nickel Road Development LLC, and Peak Stone Properties LLC. All significant intercompany amounts have been eliminated in consolidation.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Cash and cash equivalents – The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents. Cash and cash equivalents are maintained at financial institutions, and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to such balances, and management believes that the Company is not exposed to any significant risks on the balances.

 

Accounts receivable – Accounts receivable consist of uncollateralized joint interest owner obligations due within 30 days of the invoice date, uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 days of production, and other miscellaneous receivables. All receivables are reviewed periodically, and appropriate actions are taken on past-due amounts and those deemed uncollectible, if any. No allowance for credit losses has been recorded as of June 30, 2024 and December 31, 2023. The accounts receivable and joint interest receivable balance on January 1, 2024 and 2023 was approximately $6,556,000 and $4,059,000, respectively.

 

Significant customers – As of and for the period ended June 30, 2024, the Company’s largest customer generated approximately 90% of sales, and one customer accounted for approximately 96% of accrued oil and gas sales.

 

As of and for the period ended June 30, 2023, the Company’s largest customers generated approximately 90% of sales, and one customer accounted for approximately 96% of accrued oil and gas sales.

 

Oil and gas properties – The Company accounts for its oil and gas operations using the successful efforts method of accounting. Under this method, all costs associated with property acquisitions, successful exploratory wells, and development wells are capitalized. Items charged to expense generally include geological and geophysical costs, costs of unsuccessful exploratory wells, delay rentals, and oil and gas production costs. Capitalized costs of proved leasehold costs are depleted on a well-by-well basis using the units-of-production method based on total proved developed producing oil and gas reserves. Other capitalized costs of producing properties are also depleted based on total proved developed producing reserves. Depletion expense for the periods ended June 30, 2024 and 2023 was approximately $7,060,000 and $9,158,000, respectively.

 

The Company assesses its proved oil and gas properties for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable, but at least annually. The impairment test compares undiscounted future net cash flows to the assets’ net book value. If the net capitalized costs exceed future net cash flows, then the cost of the property is written down to the estimated fair value. Fair value for oil and natural gas properties is generally determined based on an analysis of discounted future net cash flows adjusted for certain risk factors. There were no impairments of proved oil and gas properties during the six-months ended June 30, 2024 and 2023.

 

Unproved properties are assessed periodically on a project-by-project basis to determine whether an impairment has occurred. Management’s assessment includes consideration of the results of exploration activities, commodity price predictions or forecasts, planned future sales, or expiration of all or a portion of such projects. During the six-months ended June 30, 2024 and 2023, management determined there was no impairment of unproved properties.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Gains and losses arising from sales of oil and gas properties are included in other income. However, a partial sale of proved properties within an existing field that does not significantly affect the unit-of-production depletion rate will be accounted for as a normal retirement with no gain or loss recognized. The sale of a partial interest within a property is accounted for as a recovery of cost when there is uncertainty of the ultimate recovery of the cost applicable to the interest retained.

 

On March 1, 2023, the Company entered into an Asset Purchase Agreement with a third party to sell the Company’s royalty interests in oil and gas properties for $7,000,000. The transaction was closed on August 31, 2023.

 

On January 11, 2024, the Company entered into an Asset Purchase Agreement with Prairie Operating Co., LLC (Prairie) to sell all of the Company’s interests in its oil and gas properties effective February 1, 2024, for cash proceeds of $83.0 million, subject to customary closing adjustments, and additional cash consideration of $11.5 million for existing permitted locations drilled by Prairie.

 

On August 15, 2024, the Company signed an amendment to the Asset Purchase Agreement (the Transaction) with Prairie. The amendment increased the cash proceeds for all of the Company’s oil and gas properties to $84.5 million and changed the effective date to January 1, 2024, subject to customary closing adjustments. Additionally, of the $9 million currently held in an escrow account, Nickel Road Operating, LLC will receive $6 million and Prairie will receive $3 million.

 

The transaction has not closed as of the date the consolidated financial statements were available to be issued.

 

Derivative financial instruments – The Company enters into derivative contracts, primarily swaps, and collars to hedge future crude oil and natural gas production in order to mitigate the risk of market price fluctuations. All derivative instruments are recorded on the consolidated balance sheets at fair value. The Company has elected not to apply hedge accounting to any of its derivative transactions; consequently, the Company recognizes mark-to-market gains and losses in earnings currently, rather than deferring such amounts in other comprehensive income for those commodity derivatives that qualify as cash flow hedges.

 

Asset retirement obligations – An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the period incurred, with an associated increase in the carrying amount of the related long-lived asset and oil and natural gas properties. The cost of the tangible asset, including the asset retirement cost, is depleted over the useful life of the asset. The asset retirement obligation is recorded at its estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at our credit-adjusted risk-free interest rate. Accretion expense is recognized over time, as the discounted liability is accreted to its expected settlement value. Accretion expense is recorded within “Depletion, depreciation, and amortization” in the consolidated statements of income. If the estimated future cost of the asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the long-lived asset. Revisions to estimated asset retirement obligations can result from changes in retirement cost estimates, revisions to estimated inflation rates, and changes in the estimated timing of abandonment.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Deferred financing costs – Deferred financing costs are capitalized and amortized over the contractual term of the related obligations. Debt issuance costs of approximately $444,000 was recognized within long-term debt as a reduction of the outstanding balance as of June 30, 2024 and December 31, 2023, respectively. During the periods ended June 30, 2024 and 2023 approximately $33,000 and $46,000 of associated amortization expense was recorded as interest expense. See Note 8 for further details.

 

Revenue recognition – The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Revenue from the sale of oil, natural gas liquids (NGLs), and natural gas is recognized as the product is delivered to the customers’ custody transfer points, and collectability is reasonably assured. The Company fulfills the performance obligations under the customer contracts through daily delivery of oil, NGLs, and natural gas to the customers’ custody transfer points, and revenues are recorded on a monthly basis. The prices received for oil, NGLs, and natural gas sales under the Company’s contracts are generally derived from stated market prices, which are then adjusted to reflect deductions, including transportation, fractionation, and processing. As a result, the revenues from the sale of oil, NGLs and natural gas, will decrease if market prices decline. The sales of oil, NGLs, and natural gas, as presented on the condensed consolidated statements of income, represent the Company’s share of revenues, net of royalties and excluding revenue interests owned by others. When selling oil, NGLs, and natural gas on behalf of royalty owners or working interest owners, the Company is acting as an agent and, thus, reports the revenue on a net basis. To the extent actual volumes and prices of oil, NGLs, and natural gas sales are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and prices for those properties are estimated and recorded.

 

Income taxes – The Company is an LLC, which is not subject to U.S. federal income taxes. Rather, the Company’s taxable income flows through to the owners, who are responsible for paying the applicable income taxes on the income allocated to them. For tax years beginning on or after January 1, 2018, the Company is subject to audit rules enacted as part of the Bipartisan Budget Act of 2015 (the Centralized Partnership Audit Regime). Under the Centralized Partnership Audit Regime, any Internal Revenue Service (IRS) audit of the Company would be conducted at the Company level, and if the IRS determines an adjustment, the default rule is that the Company would pay an “imputed underpayment,” including interest and penalties, if applicable. The Company may, instead, elect to make a “push-out” election, in which case the partners for the period that is under audit would be required to take into account the adjustments on their own personal income tax returns.

 

The LLC Agreement does not stipulate how the Company will address imputed underpayments. If the Company receives an imputed underpayment, a determination will be made based on the relevant facts and circumstances that exist at that time. Any payments that the Company ultimately makes on behalf of its current partners will be reflected as a dividend, rather than as a tax expense, at the time that such dividend is declared.

 

The Company has not recorded any liabilities as of June 30, 2024 or December 31, 2023 related to uncertain tax provisions. As of June 30, 2024 and December 31, 2023, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and in various states. There are currently no federal or state income tax examinations underway for these jurisdictions.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Leases – The Company accounts for leases in accordance with ASC Topic 842, Leases, (Topic 842), which requires lessees to recognize operating and finance leases with terms greater than 12 months on the consolidated balance sheet. The Company evaluates a contractual arrangement at its inception to determine if it is a lease or contains an identifiable lease component. Certain leases may contain both lease and non-lease components. The Company’s policy for all asset classes is to combine lease and non-lease components together and account for the arrangement as a single lease.

 

Certain assumptions and judgments made by the Company when evaluating a contract that meets the definition of a lease under Topic 842 include those to determine the discount rate and lease term. Unless implicitly defined, the Company determines the present value of future lease payments using an estimated incremental borrowing rate based on a yield curve analysis that factors in certain assumptions, including the term of the lease and credit rating of the Company at lease inception. The Company evaluates each contract containing a lease arrangement at inception to determine the length of the lease term when recognizing a right-of-use (ROU) asset and corresponding lease liability. When determining the lease term, options available to extend or early terminate the arrangement are evaluated and included when it is reasonably certain an option will be exercised. Exercising an early termination option may result in an early termination penalty depending on the terms of the underlying agreement. The Company excludes from the balance sheet leases with terms that are less than one year.

 

An ROU asset represents a lessee’s right to use an underlying asset for the lease term, while the associated lease liability represents the lessee’s obligations to make lease payments. At the commencement date, which is the date on which a lessor makes an underlying asset available for use by a lessee, a lease ROU asset and corresponding lease liability is recognized based on the present value of the future lease payments. The initial measurement of lease payments may also be adjusted for certain items, including options that are reasonably certain to be exercised, such as options to purchase the asset at the end of the lease term, or options to extend or early terminate the lease. Excluded from the initial measurement of an ROU asset and corresponding lease liability are certain variable lease payments, such as payments made that vary depending on actual usage or performance.

 

Subsequent to initial measurement, costs associated with the Company’s operating leases are either expensed or capitalized depending on how the underlying ROU asset is utilized and in accordance with GAAP requirements. When calculating the Company’s ROU asset and liability for a contractual arrangement that qualifies as an operating lease, the Company considers all of the necessary payments made or that are expected to be made upon commencement of the lease. As discussed above, excluded from the initial measurement are certain variable lease payments. Please refer to Note 6 – Leases for additional discussion.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Note 2 – Members’ Capital

 

The Company is a limited liability company with membership interests issued and held by various members. The LLC Agreement authorizes Class A units and Class B units. Class A members are eligible to receive distributions. As of June 30, 2024 and December 31, 2023, approximately 64.7 Class A units were outstanding to members.

 

Upon formation, 100 Class B units were granted to certain executives. Class B units are intended to provide compensation to the Class B member upon a liquidation event, subject to returns as described in the LLC Agreement. The requirements to provide compensation to the Class B members had not been met under the arrangement, nor was it considered probable the requirements would be met. Therefore, the grant-date fair values were inconsequential, and no amounts were recorded as of June 30, 2024 and December 31, 2023 in the accompanying consolidated financial statements.

 

By the terms of the LLC Agreement, distributions occur according to their respective equity interests, as defined. For the periods ending June 30, 2024 and 2023 the Company made no distributions to members.

 

Note 3 – Asset Retirement Obligations

 

Asset retirement obligations represent the estimated present value of the amount to plug, abandon, and remediate producing properties at the end of their productive lives in accordance with applicable laws. The following table summarizes the Company’s asset retirement obligation transactions for the periods ending June 30, 2024 and 2023:

 

		2024				2023
Asset retirement obligations, beginning of period		$	1,347,493			$	1,167,701
Accretion of discount			33,213				28,750
Asset retirement obligation, end of period		$	1,380,706			$	1,196,451

 

Note 4 – Hedging and Derivative Financial Instruments

 

Commodity derivative agreements – The Company utilizes swap and collar contracts to hedge the effect of price changes on a portion of its future oil and natural gas production. The objective of the Company’s hedging activities and the use of derivative financial instruments is to achieve more predictable cash flows. The use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts. The derivative contracts may be terminated by a non-defaulting party in the event of default by one of the parties to the agreement.

 

The Company has elected not to apply hedge accounting to any of its derivative transactions, and, consequently, the Company recognizes mark-to-market gains and losses in earnings currently, rather than deferring such amounts in accumulated other comprehensive income for those commodity derivatives that would otherwise qualify as cash flow hedges. All derivative instruments are recorded on the consolidated balance sheet at fair value.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

The Company had no commodity derivative instruments outstanding as of June 30, 2024. As of December 31, 2023, the Company had the following commodity derivative instruments outstanding:

 

Collars

Weighted Average Contract Price

Commodity/Index/Maturity Period

Quantity

Units

Floor

Ceiling

Crude Oil

NYMEX

2024

247,100

BBL

$

66.55

$

79.15

 

Derivative assets fair value – The fair value of the derivative commodity contracts was a net asset of approximately $0 and $270,925 at June 30, 2024 and December 31, 2023, respectively. The following table details the fair value of derivatives recorded in the accompanying consolidated balance sheets, by category:

 

		Fair Value				Fair Value
		June 30,				December 31,
		2024				2023
Derivative asset - current		$	-			$	270,925
Total derivative assets		$	-			$	270,925

 

Derivative gain (loss) – The following table summarizes the components of the net derivative gain (loss) line item presented in the accompanying consolidated statements of income during the periods ended June 30, 2024 and 2023:

 

		2024				2023
Unrealized gain (loss) on derivatives		$	(270,925	)		$	2,578,523
Realized gain (loss) on derivatives			223,485				(288,438	)
Net gain (loss) on derivatives		$	(47,440	)		$	2,290,085

 

Note 5 – Fair Value Measurements

 

The Company follows ASC 820, Fair Value Measurements and Disclosures, which establishes a hierarchy for the inputs utilized in measuring fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

 

Level 1 – Quoted prices for identical assets or liabilities in active markets;

 

Level 2 – Quoted prices for similar assets or liabilities in active markets; and

 

Level 3 – Unobservable inputs for the asset or liability, such as discounted cash models.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

The Company did not have any assets or liabilities measured at fair value on a recurring basis as of June 30, 2024. The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2023:

 

		Fair Value Measurement at December 31, 2023
		Level 1				Level 2				Level 3				Total
Derivative instruments		$	-			$	270,925			$	-			$	270,925
Total assets and liabilities
measured at fair value		$	-			$	270,925			$	-			$	270,925

 

The inputs used to determine such fair value are primarily based upon observable market data for similar instruments, including the forward curve for commodity prices based on quoted market prices and would be classified within Level 2.

 

Note 6 – Leases

 

The Company leases a compressor under a non-cancellable operating lease agreement. It has been determined that the lease does not constitute a finance lease. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company believes any option to terminate is not reasonably certain for the operating lease agreement.

 

For the period ended June 30, 2024, components of lease expense were as follows:

 

Total lease costs (operating and short-term)

$

588,190

 

For the period ended June 30, 2023, components of lease expense were as follows:

 

Total lease costs (operating and short-term)

$

504,034

 

All components of lease costs are expensed within lease operating expenses on the consolidated statement of income.

 

There was not any lease expense under ASC 842 during the period ended June 30, 2023.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

For the period ended June 30, 2024, supplemental cash flow information related to leases was as follows:

 

Cash paid for amounts included in measurement of lease liabilities
Operating cash flows used for operating leases (including short-term)		$	102,000
Right-of-use assets obtained in exchange for lease obligations (non-cash)
Operating leases		$	388,011
Weighted-average remaining lease term (years)
Operating leases			1.2
Weighted-average discount rate
Operating leases			4.9	%

 

The following is the future maturities of the annual undiscounted cash flows of the operating lease liability as of June 30, 2024:

 

Twelve Month Period Ending June 30,
2025		$	204,000
2026			34,000
Total minimum lease payments			238,000
Less imputed interest			(7,090	)
Present value of lease liability		$	230,910

 

Note 7 – Commitments and Contingencies

 

Government regulation – Many aspects of the oil and gas industry are extensively regulated by federal, state, and local governments in all areas in which the Company has operations. Regulations govern such things as drilling permits, environmental protection and pollution control, spacing of wells, the unitization and pooling of properties, reports concerning operations, royalty rates, and various other matters, including taxation. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. As of June 30, 2024 and December 31, 2023, the Company has not been fined or cited for any violations of governmental regulations that would have a material adverse effect upon the financial condition, capital expenditures, earnings, or competitive position of the Company in the oil and gas industry.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

Litigation – From time to time, the Company may be involved in litigation related to claims arising out of its operations in the normal course of business. As of the date of this report, no legal proceedings are ongoing or pending that management believes could have a materially adverse effect upon the Company’s financial condition or results of operations.

 

Note 8 – Long-term Debt

 

Revolving loan – On February 22, 2021, the Company entered into a revolving loan agreement (the Loan Agreement) with a maturity of February 22, 2024. The Loan Agreement provides for a maximum revolving loan (the Revolving Loan) of $35,000,000 with an initial borrowing base of $10,000,000. In October 2022, the Loan Agreement was amended. The total borrowing base and sublimit increased to $30,000,000 for the Revolving Loan.

 

All sums advanced under the Revolving Loan, together with all accrued but unpaid interest thereon, are due in full at maturity. The Loan Agreement requires the Company to maintain certain affirmative and negative covenants, including certain financial ratios defined in the Loan Agreement, and provides the lender with a first security interest in substantially all of the Company assets. The interest rate of the Revolving Loan is the lesser of the (1) Wall Street Journal prime rate, plus the applicable margin, or (2) the Maximum Rate as defined per the Loan Agreement. The interest rate as of June 30, 2024, was 9.25%. Commitment fees equal to 0.5% of the undrawn amount are payable quarterly under this agreement. The outstanding balance on the Revolving Loan as of June 30, 2024, was approximately $10,942,000, net of debt issuance cost of approximately $91,000. The outstanding balance of approximately $11,033,000 is due in full on the maturity date of February 22, 2026.

 

On March 31, 2023, the Company amended its Loan Agreement to provide for a maximum Revolving Loan of $50,000,000 which matures on February 22, 2026. As of the date of the amendment the borrowing base was increased to $35,000,000, with a sublimit of $25,000,000, and continues to be subject to regular redeterminations by the lender. Permitted distributions are subject to limitations defined within the amendment and required hedge transactions are amended such that as of September 30, 2023, and thereafter, so long as the borrowing base utilization exceeds 60%, the Company is required to maintain crude oil hedges of at least 60% of the Company’s anticipated crude oil production for a period of not less than 12 months, to be complied with on a quarterly basis.

 

On August 31, 2023, the Company amended its Loan Agreement to decrease the borrowing base to $33,000,000.

 

On January 31, 2024, the Company received a waiver of the minimum hedge transaction requirement from the lender through July 1, 2024. The Revolving Loan is reflected as a long-term debt on the Company’s consolidated balance sheet as of June 30, 2024, as the Company’s borrowing base utilization is below the 60% requirement which would require hedge transactions, as described above. However, should the Company increase their utilization above 60%, then they will need to reapply required hedges, receive another waiver from the lender, or repay the loan in full.

 

 

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

 

March 2023 Term Loan – The March 2023 amended Loan Agreement also allows for a new Term Loan (March 2023 Term Loan) in the amount of $10,000,000 which commences on the date of the amendment and continues through July 31, 2023, after which the Lender shall have no further commitment to make an advance on the March 2023 Term Loan, so long as the aggregate advances do not exceed $10,000,000. The March 2023 Term Loan shall be payable in monthly principal installments commencing on August 1, 2023, plus all accrued interest, and matures on July 1, 2024. The March 2023 Term Loan bears interest at a rate equal to the sum of the Prime Rate, plus the Applicable Margin (as defined in the Loan Agreement); provided, however, that the interest rate on the March 2023 Term Loan shall never fall below 3.75%. The outstanding balance on the March 2023 Term Loan as of June 30, 2024, was $0. The full outstanding balance is due in full on the maturity date of July 1, 2024.

 

Interest expense related to the Revolving Loan and the Term Loans for the periods ended June 30, 2024 and 2023, was approximately $1,131,000 and $911,000, respectively.

 

Note 9 – Related Parties

 

Management fees – The Company receives management services from Nickel Road Management LLC under the Management Services Agreement dated March 31, 2018 (the Services Agreement). In accordance with the Service Agreement, Nickel Road Management LLC provides management services, including office space and employment of all employees. The Company pays Nickel Road Management LLC a monthly amount equal to the allocated costs for monthly general and administrative expenses approved by the managers (the Development Plan and Budget). The Services Agreement will remain in effect for three years and will automatically extend for successive one-year terms coinciding with the period covered by the Development Plan and Budget unless terminated under the terms of the Services Agreement. For the periods ended June 30, 2024 and 2023, the Company incurred service agreement reimbursement costs of approximately $2,152,000 and $2,111,000, respectively. For the periods ending June 30, 2024 and 2023, the Company had approximately $140,000 and $1,000 in management fees due to Nickel Road Management LLC, respectively. These balances are included accrued liabilities on the consolidated balance sheets.

 

Note 10 – Subsequent Events

 

As further disclosed in Note 1, on August 15, 2024, the Company signed an amendment to the Asset Purchase Agreement (the Transaction) with Prairie.

 

The Company has reviewed all subsequent events through August 29, 2024, the date the consolidated financial statements were available to be issued.

 

 

 

Exhibit 99.6

 

 

October 2, 2024

 

Mr. Bryan Freeman – Executive Vice President

Prairie Operating Co.

55 Waugh Drive, Suite 400

Houston, TX 77007

 

	Re:	Evaluation Summary
		Prairie Operating Co. Interests
		Total Proved and Possible
		Undeveloped Reserves
		Certain Properties in Weld Co., CO
		As of June 30, 2024
		Pursuant to the Guidelines of the Securities and Exchange for Reporting Corporate Reserves and Future Net Revenue

 

Dear Mr. Freeman:

 

As requested, this report was prepared on October 2, 2024 for Prairie Operating Co. (“Prairie”) for the purpose of public disclosure by Prairie in filings made with the Securities and Exchange Commission (“SEC”) in accordance with the disclosure requirements set forth in the SEC regulations. We evaluated 100% of the Prairie total proved and possible undeveloped reserves in Weld County, as per information from Prairie. This evaluation utilized an effective date of June 30, 2024, was prepared using constant prices and costs, and conforms to Item 1202(a)(8) of Regulation S-K and other rules of the SEC. The results of this evaluation presented below:

 

				Proved
				Developed				Proved				Total				Possible
				Producing				Undeveloped				Proved				Undeveloped
Net Reserves
Oil		- Mbbl			2,251.0				10,829.3				13,080.3				92,612.5
Gas		- MMcf			6,774.2				28,191.5				34,965.7				180,512.2
NGL		- Mbbl			1,175.5				4,828.0				6,003.6				28,670.9
Net Revenue
Oil		- M$			175,778.2				845,662.8				1,021,441.1				7,232,112.1
Gas		- M$			13,067.0				54,379.1				67,446.1				348,193.6
NGL		- M$			24,516.7				100,693.5				125,210.2				597,961.0
Severance Taxes		- M$			810.8				9,987.5				10,798.3				408,913.3
Ad Valorem Taxes		- M$			14,124.6				59,796.2				73,920.8				122,674.0
Operating Expenses		- M$			63,439.8				232,611.6				296,051.4				1,641,784.2
Future Development Costs		- M$			0.0				291,513.9				291,513.9				1,710,428.3
Abandonment Costs		- M$			1,265.0				2,969.5				4,234.5				24,416.7
Net Operating Income (BFIT)		- M$			133,721.8				403,856.6				537,578.5				4,270,050.4
Discounted @ 10%		- M$			80,601.3				190,559.4				271,160.7				1,870,216.7

 

 

Net Revenue is prior to deducting state production taxes and ad valorem taxes. Future net cash flow (net operating income) is after deducting these taxes, future capital costs and operating expenses, but before consideration of federal income taxes. In accordance with SEC guidelines, the future net cash flow has been discounted at an annual rate of ten (10) percent to determine present worth. The present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties by Cawley, Gillespie & Associates, Inc. (“CG&A”).

 

The oil reserves include oil and condensate. Oil and natural gas liquid (NGL) volumes are expressed in barrels (42 U.S. gallons). Gas volumes are expressed in thousands of standard cubic feet (Mcf) at contract temperature and pressure base.

 

Hydrocarbon Pricing

 

The base SEC oil and gas prices calculated for June 30, 2024 were $79.00/bbl and $2.324/MMBTU, respectively. As specified by the SEC, a company must use a 12-month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period. The SEC base oil price is based upon WTI-Cushing spot prices (EIA) and the SEC base gas price is based upon Henry Hub spot prices (Platts Gas Daily) from July 2023 through June 2024. Furthermore, NGL prices were adjusted on a per-property basis and averaged 26.7% of the proved net oil price on a composite basis.

 

Adjustments to oil and gas prices were made based upon data provided by your office and include adjustments for treating costs and/or crude quality and gravity corrections. After these adjustments, the net realized prices over the life of the proved properties were estimated to be $78.090 per barrel of oil, $1.929 per MCF of gas and $20.856 per barrel for NGL. All economic factors were held constant in accordance with SEC guidelines.

 

Economic Parameters

 

Future development costs (capital investments) and future production costs (lease operating expenses) were forecast as provided by your office and reviewed in detail for reasonableness. As you explained, the capital costs were based on the most current estimates, while lease operating expenses (LOE) were based on the analysis of regional average expenses. LOE includes fixed and variable components. Future development costs and future production costs were held constant in accordance with SEC guidelines.

 

Severance tax rates were applied at normal state percentages of oil and gas revenue, ad valorem taxes were based on historic data as provided by Prairie and both were applied on a well-by-well basis.

 

SEC Conformance and Regulations

 

The reserve classifications and the economic considerations used herein conform to the criteria of the SEC, as outlined in the definitions immediately following this letter. The reserves and economics are predicated on regulatory agency classifications, rules, policies, laws, taxes and royalties currently in effect except as noted herein. The possible effects of changes in legislation or other Federal or State restrictive actions which could affect the reserves and economics have not been considered. However, we do not anticipate nor are we aware of any legislative changes or restrictive regulatory actions that may impact the recovery of reserves.

 

CG&A evaluated 70 PUD and 420 POSS locations which are proposed as part of Prairie’s development plans. The development schedule was provided by Prairie based upon their go forward plan and accepted as furnished. In our opinion, Prairie and other working interest operators have indicated that they have every intent to complete this development plan as scheduled. Furthermore, Prairie and other working interest operators have demonstrated that they have the proper company staffing, financial backing and prior development success to ensure this development plan will be fully executed.

 

 

Reserve Estimation Methods

 

All reserve estimates involve an assessment of the uncertainty relating to the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends mainly on the amount of the reliable geologic and engineering data available at the time of the estimate and the interpretation of such data, as well as the inherent uncertainties attributable to variations in reservoir and rock quality, offset drainage, mechanical wellbore integrity among others. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability.

 

Non-producing reserve estimates, for developed and undeveloped properties, were forecast using either volumetric or analogy methods, or a combination of both. These methods provide a relatively high degree of accuracy for predicting PUD and POSS reserves for Prairie’s properties, due to the mature nature of their properties targeted for development and an abundance of subsurface control data. The assumptions, data, methods and procedures used herein are appropriate for the purpose served by this report.

 

General Discussion

 

The estimates and forecasts were based upon interpretations of data furnished by your office and available from our files. To some extent information from public records has been used to check and/or supplement these data. The basic engineering and geological data were subject to third party reservations and qualifications. Nothing has come to our attention, however, that would cause us to believe that we are not justified in relying on such data. All estimates represent our best judgment based on the data available at the time of preparation. Due to inherent uncertainties in future production rates, commodity prices and geologic conditions, it should be realized that the reserve estimates, the reserves actually recovered, the revenue derived therefrom and the actual cost incurred could be more or less than the estimated amounts.

 

An on-site field inspection of the properties has not been performed nor has the mechanical operation or condition of the wells and their related facilities been examined, nor have the wells been tested by Cawley, Gillespie & Associates, Inc. Possible environmental liability related to the properties has not been investigated nor considered. The cost of plugging and the salvage value of equipment at abandonment have been considered in this evaluation as directed.

 

Cawley, Gillespie & Associates, Inc. is a Texas Registered Engineering Firm (F-693), made up of independent registered professional engineers and geologists that have provided petroleum consulting services to the oil and gas industry for over 60 years. We do not own an interest in the properties or Prairie Operating Co. and are not employed on a contingent basis. We have used all methods and procedures that we consider necessary under the circumstances to prepare this report. Our work-papers and related data utilized in the preparation of these estimates are available in our office.

 

Yours very truly,

 

CAWLEY, GILLESPIE & ASSOCIATES, INC.

Texas Registered Engineering Firm F-693

 

By:	/s/ W. Todd Brooker		By:	/s/ Augustin Presas Jr.		By:	/s/ Thomas M. Barr
	W. Todd Brooker, P. E.			Augustin Presas Jr.			Thomas M. Barr
	President			Vice President			Sr. Reservoir Engineer

 

 

APPENDIX

 

Reserve Definitions and Classifications

 

 

The Securities and Exchange Commission, in SX Reg. 210.4-10 dated November 18, 1981, as amended on September 19, 1989 and January 1, 2010, requires adherence to the following definitions of oil and gas reserves:

 

“(22) Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations— prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

 

“(i) The area of a reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

 

“(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

 

“(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

 

“(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

 

“(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

 

“(6) Developed oil and gas reserves. Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

 

“(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

 

“(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

 

“(31) Undeveloped oil and gas reserves. Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

 

“(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

 

“(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

 

“(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

 

 

“(18) Probable reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

 

“(i) When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.

 

“(ii) Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.

 

“(iii) Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

 

“(iv) See also guidelines in paragraphs (17)(iv) and (17)(vi) of this section (below).

 

“(17) Possible reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.

 

“(i) When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.

 

“(ii) Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.

 

“(iii) Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.

 

“(iv) The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.

 

“(v) Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.

 

“(vi) Pursuant to paragraph (22)(iii) of this section (above), where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.”

 

Instruction 4 of Item 2(b) of Securities and Exchange Commission Regulation S-K was revised January 1, 2010 to state that “a registrant engaged in oil and gas producing activities shall provide the information required by Subpart 1200 of Regulation S–K.” This is relevant in that Instruction 2 to paragraph (a)(2) states: “The registrant is permitted, but not required, to disclose probable or possible reserves pursuant to paragraphs (a)(2)(iv) through (a)(2)(vii) of this Item.”

 

“(26) Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

 

“Note to paragraph (26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).”

 

 

 

Exhibit 99.7

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

As previously disclosed, Prairie Operating Co. (the “Company”) entered into an asset purchase agreement, dated January 11, 2024 (the “NRO Agreement”), by and among the Company, Nickel Road Development LLC, Nickel Road Operating LLC (“NRO”), and Prairie Operating Co., LLC (“Prairie LLC”), to acquire certain assets of NRO for total consideration of $94.5 million (the “Purchase Price”), subject to certain closing price adjustments and other customary closing conditions (the “NRO Acquisition”). The Purchase Price consisted of $83.0 million in cash and $11.5 million in deferred cash payments. The Company deposited $9.0 million of the Purchase Price into an escrow account on January 11, 2024 (the “Deposit”).

 

On August 15, 2024, the Company and NRO agreed to amend certain terms of the NRO Agreement, (the “Amended NRO Agreement”). As a result, the total consideration was reduced to $84.5 million cash, subject to certain closing price adjustments and other customary closing conditions, and the deferred cash payments were removed (the “Amended Purchase Price”). Additionally on August 15, 2024, $6.0 million of the Deposit was released to NRO and $3.0 million was returned to the Company.

 

On October 1, 2024, the Company closed the NRO Acquisition and paid $49.6 million to the Sellers in cash.

 

The Company is providing the following unaudited pro forma condensed combined financial information to aid in the analysis of the financial aspects of the following:

 

	(i)	the issuance and private placement of common stock, par value $0.01 per share, of the Company (“Common Stock”) (the “Private Placement”);
	(ii)	the issuance of a $15.0 million convertible promissory note (the “Senior Convertible Note”), with an interest rate of 8.00% and a maturity date of September 30, 2025;
	(iii)	the issuance of a subordinated promissory note (the “Subordinated Note”) in a principal amount of $5,000,000, with a maturity of September 30, 2025 and an interest rate of 10.00%. Pursuant to the terms of the Subordinated Note, the Company issued to each Noteholder warrants (the “Warrants”) to purchase up to 1,141,552 shares of Common Stock, vesting in tranches based on the date of repayment of the Subordinated Note;
	(iv)	the closing of the NRO Acquisition;
	(v)	the sale of all of the Company’s cryptocurrency miners (the “Mining Equipment”) and the assignment of all of the Company’s rights and obligations under the Master Services Agreement, dated February 16, 2023, by and between Atlas Power Hosting, LLC and the Company, to a private purchaser pursuant to an asset purchase agreement, dated January 23, 2024 (the “Crypto Sale”); and
	(vi)	the merger of Creek Road Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Merger Sub”), with and into Prairie LLC, with Prairie LLC surviving and continuing to exist as a Delaware limited liability company and a wholly owned subsidiary of the Company pursuant to that certain Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2023, by and among the Company, Merger Sub and Prairie LLC (the “Merger” and collectively, with the Private Placement, the Senior Convertible Note issuance, the Subordinated Note and Warrants issuance, the closing of the NRO Acquisition, and the Crypto Sale, the “Transactions”).

 

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” and presents the combination of historical financial information of the Company and Prairie LLC, adjusted to give effect to the Transactions and subsequent events thereto (the “Subsequent Events”) as described in Note 4– Subsequent Events below.

 

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2024 combines the historical balance sheet of the Company and the historical consolidated balance sheet of NRO as of June 30, 2024 on a pro forma basis as if the Transactions and the Subsequent Events, described in Note 4 – Subsequent Events below, had been consummated on June 30, 2024.

 

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 and the year ended December 31, 2023 combine the historical statements of operations of the Company, the historical statements of operations of Creek Road Miners, Inc., and the historical consolidated statements of operations of NRO, as applicable, on a pro forma as if the Transactions and Subsequent Events, described in Note 4 – Subsequent Events below, had been consummated on January 1, 2023.

 

The unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with:

 

	(a)	the Company’s audited historical consolidated financial statements and related notes included in its Annual Report on Form 10-K/A for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2024;
	(b)	the Company’s unaudited historical condensed consolidated financial statements and related notes for the six months ended June 30, 2024 included in its Quarterly Report on Form 10-Q for the period ended June 30, 2024, filed with the SEC on August 9, 2024;
	(c)	the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.” included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2023, filed with the SEC on March 20, 2024;
	(d)	NRO’s unaudited consolidated financial statements for the six months ended June 30, 2024, included in the Company’s Current Report on Form 8-K, filed with the SEC on October 4, 2024;
	(e)	NRO’s audited consolidated financial statements for the year ended December 31, 2023, included in the Company’s Amendment to its Current Report on Form 8-K/A, filed with the SEC on March 19, 2024; and
	(f)	the exhibit entitled “Information About NRO” included in the Company’s Current Report on Form 8-K, filed with the SEC on October 4, 2024.

 

The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the Company’s financial condition or results of operations would have been had the Transactions or Subsequent Events, described in Note 4 – Subsequent Events below, occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information do not project the Company’s future financial condition and results of operations. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of this filing and certain assumptions that management believes are factually supportable and are expected to have a continuing impact on the Company’s results of operations, and are subject to change as additional information becomes available and analyses are performed.

 

 

Description of the Merger and Related Transactions

 

On May 3, 2023 (the “Merger Closing Date”), the Company completed the Merger, and upon consummation thereof, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.” (the “Merger Closing”). Prior to the consummation of the Merger, the Company effectuated certain restructuring transactions in the following order and issued an aggregate of 3,375,288 shares of Common Stock (excluding shares reserved for issuance and unissued subject to certain beneficial ownership limitations) and 4,423 shares of Series D preferred stock, par value $0.01 per share (“Series D Preferred Stock”):

 

	(i)	the Company’s Series A preferred stock, par value $0.0001 per share (“Series A Preferred Stock”), Series B preferred stock, par value $0.0001 per share (“Series B Preferred Stock”), and Series C preferred stock, par value $0.0001 per share (“Series C Preferred Stock”), plus accrued dividends, were converted, in the aggregate, into shares of Common Stock;
	(ii)	the Company’s 12% senior secured convertible debentures (the “Original Debentures”), plus accrued but unpaid interest and a 30% premium, were exchanged, in the aggregate, for (a) the 12% amended and restated senior secured convertible debentures (collectively, the “AR Debentures”) in the principal amount of $1,000,000 in substantially the same form as their respective Original Debentures, (b) shares of Common Stock and (c) shares of Series D Preferred Stock;
	(iii)	accrued fees payable to the certain members of the board of directors of the Company in the amount of $110,250 were converted into shares of Common Stock;
	(iv)	accrued consulting fees of the Company in the amount of $318,750 payable to Bristol Capital, LLC (“Bristol Capital”) were converted into shares of Common Stock; and
	(v)	all amounts payable pursuant to certain convertible promissory notes were converted into shares of Common Stock.

 

At the effective time of the Merger, all membership interests in Prairie LLC were converted into the right to receive each member’s pro rata share of 2,297,668 shares of Common Stock.

 

The Merger was accounted for as a reverse asset acquisition under existing GAAP. For accounting purposes, Prairie LLC was treated as acquiring Merger Sub in the Merger. See Note 1 - Basis of Pro Forma Presentation for further discussion. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Prairie LLC with the acquisition being treated as the equivalent of Prairie LLC issuing stock for the net assets of the Company. On the Merger Closing Date, the assets and liabilities of the Company were recorded based upon relative fair values, with no goodwill or other intangible assets recorded.

 

The assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information. The pro forma adjustments do not consider borrowings, financings and other transactions that may have occurred subsequent to December 31, 2023 other than the Subsequent Events described in Note 4 – Subsequent Events below and reflected in the pro forma financial information, nor do they reflect anticipated financings or other transactions that may occur in the future, other than the Series F Preferred Stock and the issuance of convertible debt.

 

 

NRO Acquisition

 

On January 11, 2024, the Company entered into the NRO Agreement to acquire the assets of NRO for the Purchase Price, subject to certain closing price adjustments and other customary closing conditions. The Purchase Price consisted of $83.0 million in cash and $11.5 million in deferred cash payments. The Company deposited $9.0 million of the Purchase Price into an escrow account.

 

The NRO Acquisition will be accounted for as an asset acquisition in accordance with Accounting Standards Codification Topic 805 - Accounting for Business Combinations (“ASC 805”). The estimated fair value of the consideration to be paid by the Company and the allocation of that amount to the underlying assets acquired, on a relative fair value basis, will be recorded on the Company’s books as of the date of October 1, 2024, (the “Acquisition Closing Date”) of the NRO Acquisition. Additionally, costs directly related to the NRO Acquisition are capitalized as a component of the Purchase Price.

 

Sale of Cryptocurrency Mining Equipment

 

On January 23, 2024, the Company completed the Crypto Sale, for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million (plus accrued interest) in deferred cash payments to be made out of a portion of the future net revenues associated with the Mining Equipment. See “Description of the Crypto Sale.”

 

Subsequent Events

 

NRO Asset Purchase Agreement Amendment

 

On August 15, 2024, the Company and NRO entered into the Amended NRO Agreement. As a result, the purchase price was amended to $84.5 million cash, subject to certain closing price adjustments and other customary closing conditions, and the deferred cash payments were removed. Additionally on August 15, 2024, $6.0 million of the Deposit was released to NRO and $3.0 million was returned to the Company.

 

Warrant Exercise and Preferred Stock Conversion

 

On August 15, 2024, the Company received $24.0 million from the exercise of all of its outstanding Series E preferred stock with a par value of $0.01 and a stated value of $1,000 per share, which are convertible into shares of common stock at a price of $5.00 per share (“Series E Preferred Stock”) B warrants, resulting in the issuance of 4,000,000 shares of its Common Stock. In addition and in connection with this warrant exercise, 20,000 shares of Series E Preferred Stock were converted into 4,000,000 shares of Common Stock and 2,000 shares of Series D preferred stock with a par value of $0.01 and a stated value of $1,000 per share, which are convertible into shares of common stock at a price of $5.00 per share (“Series D Preferred Stock”) were converted into 400,000 shares of Common Stock.

 

Financing Activity

 

As part of the Transactions described herein, and as discussed in Note 7 - Financing, the Company also completed several financing transactions to fund the NRO Acquisition

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2024

 

		Prairie Operating Co. (Historical)				Nickel Road (Historical)				Nickel Road Transaction Accounting Adjustments				Subsequent Event Adjustments				Financing				Combined Pro Forma
										(See Note 6)				(See Notes 4 and 6)				(See Notes 6 and 7)
Assets
Current assets:
Cash and cash equivalents		$	2,226,478			$	792,717			$	(49,616,448	)(a)		$	24,000,000	(i)		$	13,800,000	(k)		$	12,060,030
											(792,717	)(h)			3,000,000	(j)			13,750,000	(l)
																			4,900,000	(m)
Note receivable			503,500				—				—				—				—				503,500
Joint interest receivable			—				470,287				(470,287	)(h)			—				—				—
Accrued oil and gas sales			—				4,800,319				(4,800,319	)(h)			—				—				909,742
											909,742	(a)
Prepaid expenses and other current assets			249,145				510,644				(510,644	)(h)			—				—				249,145
Deferred financing costs			1,625,233				—				—				—				(1,625,233	)(k)			—
Total current assets			4,604,356				6,573,967				(55,280,673	)			27,000,000				30,824,767				13,722,417
Long-term assets:
Property and equipment
Oil and natural gas properties, successful efforts method of accounting			33,370,317				—				64,819,114	(a)			—				—				98,189,431
Proved properties			—				138,942,119				(138,942,119	)(a)			—				—				—
Unproved properties			—				1,932,242				(1,932,242	)(a)			—				—				—
Accumulated depletion			—				(48,070,257	)			48,070,257	(a)			—				—				—
Total property and equipment, net			33,370,317				92,804,104				(27,984,990	)			—				—				98,189,431
Deposits on oil and natural gas property purchases			9,382,314				—				(6,000,000	)(a)			(3,000,000	)(j)			—				382,314
Operating lease assets			356,450				230,910				(230,910	)(h)			—				—				356,450
Note receivable – non-current			310,493				—				—				—				—				310,493
Deferred transaction costs			209,013				—				(209,013	)(a)			—				—				—
Total assets		$	48,232,943			$	99,608,981			$	(89,705,586	)		$	24,000,000			$	30,824,767			$	112,961,105
Liabilities, Members’ Capital and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	12,338,555			$	—			$	8,626,600	(a)		$	—			$	—			$	20,965,155
Accounts payable			—				776,716				(776,716	)(h)			—				—				—
Accrued liabilities			—				9,702,916				(9,702,916	)(h)			—				—				—
Senior convertible note			—				—				—				—				12,874,000	(l)			12,874,000
Subordinated promissory note – related party			—				—				—				—				3,316,662	(m)			3,316,662
Operating lease liabilities, current			167,842				197,116				(197,116	)(h)			—				—				167,842
Total current liabilities			12,506,397				10,676,748				(2,050,148	)			—				16,190,662				37,323,659
Long-term liabilities:
Long-term debt, net of current portion and deferred financing costs			—				10,942,143				(10,942,143	)(h)			—				—				—
Asset retirement obligations			—				1,380,706				(1,380,706	)(h)			—				—				1,276,795
											1,276,795	(a)
Operating lease liabilities, long-term			175,509				33,794				(33,794	)(h)			—				—				175,509
Warrant liabilities – related party			—				—				—				—				1,583,338	(m)			1,583,338
Total long-term liabilities			175,509				12,356,643				(11,079,848	)			—				1,583,338				3,035,642
Total liabilities		$	12,681,906			$	23,033,391			$	(13,129,996	)		$	—			$	17,774,000			$	40,359,301
Commitments and contingencies
Members’ capital		$	—			$	76,575,590			$	(76,575,590	)(h)		$	—			$	—			$	—
Stockholders’ equity:
Preferred stock; 50,000,000 shares authorized:
Series D convertible preferred stock; $0.01 par value; 16,507 shares issued and outstanding (actual) and 14,467 shares issued and outstanding (as adjusted)			165				—				—				(20	)(i)			—				145
Series E convertible preferred stock; $0.01 par value; 20,000 shares issued and outstanding (actual) and zero shares issued and outstanding (as adjusted)			200				—				—				(200	)(i)			—				—
Common stock; $0.01 par value; 500,000,000 shares authorized and 12,564,861 shares issued and outstanding (actual) and 22,891,901shares issued and outstanding (as adjusted)			125,649				—				—				84,000	(i)			18,025	(k)			228,674
																			1,000	(l)
Additional paid-in capital			131,829,643				—				—				23,916,220	(i)			12,156,742	(k)			168,777,605
																			875,000	(l)
Accumulated deficit			(96,404,620	)			—				—				—				—				(96,404,620	)
Total stockholders’ equity			35,551,037				—				—				24,000,000				13,050,767				72,601,804
Total liabilities, members’ capital and stockholders’ equity		$	48,232,943			$	99,608,981			$	(89,705,586	)		$	24,000,000			$	30,824,767			$	112,961,105

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

Six Months Ended June 30, 2024

 

		Prairie Operating Co. (Historical)				Nickel Road (Historical)				Nickel Road Transaction Accounting Adjustments				Subsequent Events Adjustments				Financing				Combined Pro Forma
										(See Note 6)				(See Notes 4 and 6)				(See Notes 6 and 7)
Revenue:
Oil and gas sales		$	—			$	21,665,888			$	—			$	—			$	—			$	21,665,888
Total revenues			—				21,665,888				—				—				—				21,665,888
Operating costs and expenses:
Depreciation, depletion and amortization			—				7,093,021				(5,434,113	)(f)			—				—				1,658,908
Production taxes			—				1,663,238				—				—				—				1,663,238
Lease operating expense			—				2,936,033				—				—				—				2,936,033
General and administrative expenses			16,114,973				2,203,368				—				—				—				18,318,341
Exploration expenses			498,465				—				—				—				—				498,465
Total operating costs and expenses			16,613,438				13,895,660				(5,434,113	)			—				—				25,074,985
(Loss) income from operations			(16,613,438	)			7,770,228				5,434,113				—				—				(3,409,097	)
Other income (expense):
Interest income			107,240				—				—				—				—				107,240
Interest expense			—				(903,475	)			903,475	(h)			—				—				—
Loss on adjustment to fair value – Warrant Liabilities			—				—				—				—				(339,328	)(p)			(339,328	)
Realized gain on derivative instruments			—				223,485				(223,485	)(h)			—				—				—
Unrealized loss on derivative instruments			—				(270,925	)			270,925	(h)			—				—				—
Other expenses			—				(466,262	)			466,262	(h)			—				—				—
Total other income (expense)			107,240				(1,417,177	)			1,417,177				—				(339,328	)			(232,088	)
(Loss) income from operations before provision for income taxes			(16,506,198	)			6,353,051				6,851,290				—				(339,328	)			(3,641,184	)
Provision for income taxes			—				—				—				—				—				—
Net (loss) income from continuing operations		$	(16,506,198	)		$	6,353,051			$	6,851,290			$	—			$	(339,328	)		$	(3,641,184	)
Earnings (loss) per common share:
Loss per share, basic and diluted		$	(1.50	)		$	—			$	—			$	—			$	—			$	(0.17	)
Weighted average common shares outstanding, basic and diluted			11,002,778				—				—				8,400,000	(i)			1,902,451	(r)			21,305,229

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2023

 

		Prairie Operating Co. (Historical)				Creek Road Miners, Inc. (As Adjusted)				Nickel Road (Historical)				Creek Road Miners, Inc. Acquisition Adjustments				Nickel Road Transaction Accounting Adjustments				Cryptocurrency Asset Sale Adjustments				Subsequent Events Adjustments				Financing				Combined Pro Forma
						(See Note 2)								(See Note 6)				(See Note 6)				(See Notes 3 and 6)				(See Notes 4 and 6)				(See Notes 6 and 7)
Revenue:
Cryptocurrency mining		$	1,545,792			$	73,584			$	—			$	—			$	—			$	(1,619,376	)(b)		$	—			$	—			$	—
Oil and gas sales			—				—				48,169,114				—				(899,352	)(g)			—				—				—				47,269,762
Total revenues			1,545,792				73,584				48,169,114				—				(899,352	)			(1,619,376	)							—				47,269,762
Operating costs and expenses:
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)			548,617				80,140				—				—				—				(628,757	)(b)							—				—
Depreciation, depletion and amortization			983,788				116,724				16,115,889				141,885	(c)			(12,750,623	)(f)			(1,242,397	)(b)			—				—				3,365,266
Production taxes			—				—				4,408,520				—				(438,939	)(g)			—				—				—				3,969,582
Lease operating expenses			—				—				4,616,425				—				—				—				—				—				4,616,425
General and administrative expenses			16,269,045				1,119,277				4,068,463				170,120	(d)			—				—				—				—				21,626,905
Stock based compensation			—				170,120				—				(170,120	)(d)			—				—								—				—
Impairment of cryptocurrency mining equipment			17,072,015				—				—				—				—				(17,072,015	)(b)							—				—
Impairment of oil and natural gas properties			—				—				5,077,697				—				—				—								—				5,077,697
Exploration expenses			263,757				—				—				—				—				—								—				263,757
Total operating costs and expenses			35,137,222				1,486,261				34,286,994				141,885				(13,189,561	)			(18,943,169	)			—				—				38,919,632
(Loss) income from operations			(33,591,430	)			(1,412,677	)			13,882,120				(141,885	)			12,290,209				17,323,793				—				—				8,350,130
Other (expenses) income:
Interest income			248,073				—				15,267				—				—				—				—				—				263,340
Interest expense			(121,834	)			(214,344	)			(2,025,960	)			120,076	(e)			2,025,960	(h)			—				—				(3,326,000	)(n)			(10,225,440	)
Gain on sale of oil and gas properties			—				—				5,925,755				—				(5,925,755	)(h)			—								(6,683,338	)(o)			—
Realized loss on derivative instruments			—				—				(1,021,596	)			—				1,021,596	(h)			—				—				—				—
Unrealized gain on derivative instruments			—				—				2,998,792				—				(2,998,792	)(h)			—				—				—				—
Other income			—				—				4,227				—				(4,227	)(h)			—								—				—
Loss on adjustment to fair value - Warrant Liabilities			(39,797,994	)			—				—				—				—				—								(1,539,959	)(p)			(41,337,953	)
Loss on adjustment to fair value - AR Debentures			(3,790,428	)			—				—				—				—				—								—				(3,790,428	)
Loss on adjustment to fair value - Obligation Shares			(1,477,103	)			—				—				—				—				—								—				(1,477,103	)
Liquidated damages			(548,144	)			—				—				—				—				—								—				(548,144	)
Total other (expenses) income			(45,487,430	)			(214,344	)			5,896,485				120,076				(5,881,218	)			—				—				(11,549,297	)			(57,115,728	)
(Loss) income from operations before provision for income taxes			(79,078,860	)			(1,627,021	)			19,778,605				(21,809	)			6,408,991				17,323,793				—				(11,549,297	)			(48,765,598	)
Provision for income taxes			—				—				(18,000	)			—				18,000	(h)			—				—				—				—
(Loss) income from continuing operations		$	(79,078,860	)		$	(1,627,021	)		$	19,760,605			$	(21,809	)		$	6,426,991			$	17,323,793			$	—			$	(11,549,297	)		$	(48,765,598	)
Earnings (loss) per common share:
Loss per share, basic and diluted		$	(16.51	)		$	(4.02	)		$	—			$	—			$	—			$	—			$	—			$	—			$	(2.84	)
Weighted average common shares outstanding, basic and diluted			4,788,412				428,611	(q)			—				1,646,741	(q)			—				—				8,400,000	(i)			1,902,451	(r)			17,166,216

  

 

Note 1 - Basis of Pro Forma Presentation

 

The NRO Acquisition will be accounted for as an asset acquisition in accordance with ASC 805. The estimated fair value of the consideration to be paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, will be recorded on the Company’s books as of the Acquisition Closing Date. Additionally, costs directly related to the NRO Acquisition are capitalized as a component of the Amended Purchase Price.

 

The Crypto Sale requires presentation as discontinued operations upon the issuance of future financial statements in accordance with GAAP. Pursuant to the requirements of Article 3 of Regulation S-X, the Crypto Sale is considered a significant disposition and requires pro forma presentation in accordance with Article 11 of Regulation S-X.

 

The Merger was accounted for as a reverse asset acquisition under existing GAAP. For accounting purposes, Prairie LLC was treated as acquiring Merger Sub in the Merger.

 

Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Prairie LLC with the acquisition being treated as the equivalent of Prairie LLC issuing stock for the net assets of the Company. On the Merger Closing Date, the assets and liabilities of the Company were recorded based upon relative fair values, with no goodwill or other intangible assets recorded.

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2024 combines the historical balance sheet of the Company and the historical consolidated balance sheet of NRO as of June 30, 2024 on a pro forma basis in accordance with Article 11 of Regulation S-X, as amended, as if the Transactions and the Subsequent Events, described in Note 4 – Subsequent Events below, had been consummated on June 30, 2024.

 

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 and for the year ended December 31, 2023 combine the historical statements of operations of the Company, the historical statements of operations of Creek Road Miners, Inc., and the historical consolidated statements of operations of NRO, as applicable, on a pro forma basis as if the Transactions and Subsequent Events, described in Note 4 – Subsequent Events below, had been consummated on January 1, 2023.

 

The pro forma basic and diluted earnings (loss) per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of shares of Common Stock outstanding, assuming the Transactions and Subsequent Events, described in Note 4 – Subsequent Events below, occurred on January 1, 2023.

 

The unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with, (i) the audited historical financial statements of the Company as of and for the year ended December 31, 2023 and the notes thereto, as well as the disclosures contained in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.” included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the SEC on March 20, 2024, (ii) the unaudited historical financial statements of the Company as of and for the six months ended June 30, 2024 and the notes thereto, as well as the disclosures contained in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.” included in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2024, filed with the SEC on August 9, 2024, (iii) NRO’s audited consolidated financial statements for the year ended December 31, 2023, included in the Company’s Amendment to its Current Report on Form 8-K/A, filed with the SEC on March 19, 2024; (iv) NRO’s unaudited consolidated financial statements for the six months ended June 30, 2024, included in the Company’s Current Report on Form 8-K, filed with the SEC on October 4, 2024; and (v) the exhibit entitled “Information About NRO.” included in the Company’s Current Report on Form 8-K, filed with the SEC on October 4, 2024.

 

 

The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the Company’s financial condition or results of operations would have been had the Transactions or Subsequent Events, described in Note 4 – Subsequent Events below, occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information do not project the Company’s future financial condition and results of operations. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of this filing and certain assumptions that management believes are factually supportable and are expected to have a continuing impact on the Company’s results of operations and are subject to change as additional information becomes available and analyses are performed.

 

Note 2 - Creek Road Miners, Inc. As Adjusted Historical Financial Statement Information

 

The historical financial statements of Creek Road Miners, Inc. (“Creek Road”) included in the Company’s Quarterly Report on Form 10-Q/A filed with the SEC on June 16, 2023 include the historical statement of operations of Creek Road for the three months ended March 31, 2023. Given the Merger was not completed until May 3, 2023, for pro forma purposes herein in order to determine the Creek Road, As Adjusted amounts, Creek Road’s results of operations for the three months ended March 31, 2023, have been added to Creek Road’s results of operations for the period from April 1, 2023, through May 2, 2023, as reflected in the Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2023.

 

		Creek Road
		For the Three Months Ended March 31, 2023				For the Period from April 1, 2023 through May 2, 2023				As Adjusted
Revenue:
Cryptocurrency mining		$	—			$	73,584			$	73,584
Total revenues			—				73,584				73,584
Operating costs and expenses:
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)			6,305				73,835				80,140
Depreciation, depletion and amortization			64,576				52,148				116,724
General and administrative			576,289				542,988				1,119,277
Stock based compensation			170,120				—				170,120
Total operating expenses			817,290				668,971				1,486,261
(Loss) income from operations			(817,290	)			(595,387	)			(1,412,677	)
Other expenses:
Interest expense			(154,076	)			(60,268	)			(214,344	)
Total other expenses			(154,076	)			(60,268	)			(214,344	)
(Loss) income from operations before provision for income taxes			(971,366	)			(655,655	)			(1,627,021	)
Provision for income taxes			—				—				—
(Loss) income from continuing operations		$	(971,366	)		$	(655,655	)		$	(1,627,021	)
Earnings (loss) per common share:
Loss per share, basic and diluted		$	(2.49	)		$	(1.53	)		$	(4.02	)
Weighted average common shares outstanding, basic and diluted			428,611				428,611				428,611

 

Note 3 - Cryptocurrency Asset Sale

 

On January 23, 2024, the Company completed the sale of all of the Mining Equipment for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million (plus accrued interest) in deferred cash payments to be made out of a portion of the future net revenues associated with the Mining Equipment. This sale requires presentation within discontinued operations upon the issuance of financial statements and, as such, requires an adjustment in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2023.

 

 

Note 4 - Subsequent Events

 

NRO Asset Purchase Agreement Amendment

 

On August 15, 2024, the Company and NRO entered into the Amended NRO Agreement. As a result, the purchase price was amended to $84.5 million cash, subject to certain closing price adjustments and other customary closing conditions, and the deferred cash payments were removed. Additionally on August 15, 2024, $6.0 million of the Deposit was released to NRO and $3.0 million was returned to the Company.

 

Warrant Exercises and Preferred Stock Conversion

 

On August 15, 2024, the Company received $24.0 million from the exercise of all of its outstanding Series E Preferred Stock B warrants, resulting in the issuance of 4,000,000 shares of its Common Stock. In addition, and in connection with this warrant exercise, 20,000 shares of Series E Preferred Stock were converted into 4,000,000 shares of Common Stock and 2,000 shares of Series D Preferred Stock were converted into 400,000 shares of Common Stock.

 

Financing Activity

 

As part of the Transactions described herein, and as discussed in Note 7 - Financing, the Company also completed several financing transactions to fund the NRO Acquisition.

 

Note 5 - Preliminary Purchase Price

 

The preliminary allocation of the total Amended Purchase Price in the NRO Acquisition, on a relative fair value basis, is based upon management’s estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of the Acquisition Closing Date using currently available information. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on our financial position and results of operations may differ significantly from the pro forma amounts included herein.

 

The preliminary purchase price allocation is subject to change due to several factors, including but not limited to changes in the estimated fair value of assets acquired and liabilities assumed as of the Acquisition Closing Date, which could result from changes in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors.

 

The consideration transferred, assets acquired and liabilities assumed by the Company are expected to be initially recorded as follows:

 

Consideration:
Cash consideration (1)		$	49,616,448
Deposit on oil and gas properties (2)			6,000,000
Direct transaction costs (3)			209,013
Total consideration		$	55,825,461
Assets acquired:
Oil and gas properties		$	64,819,114
Accrued oil and gas sales			909,742
		$	65,728,856
Liabilities assumed:
Accounts payable and accrued expenses (4)		$	8,626,600
Asset retirement obligation, long-term			1,276,795
		$	9,903,395

 

(1)	Includes preliminary customary purchase price adjustments.
(2)	Represents the Deposit paid by the Company to NRO.
(3)	Represents estimated transaction costs associated with the NRO Acquisition which have been capitalized in accordance with ASC 805-50.
(4)	Represents the amounts associated with the assets acquired in the NRO Acquisition unpaid at the closing date and primarily relates to ad valorem tax liabilities of $6.7 million and suspended revenues of $1.1 million.

 

The consideration is allocated to the assets acquired and liabilities assumed on a relative fair value basis. The fair value measurements of assets acquired and liabilities assumed, on a relative fair value basis, are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using the discounted cash flow technique of valuation.

 

Significant inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii) future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change.

 

 

Note 6 - Unaudited Pro Forma Adjustments

 

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of June 30, 2024 and in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 and the year ended December 31, 2023 are as follows:

 

(a)	Reflects the adjustment to record the assets acquired and liabilities assumed, on a relative fair value basis, in the NRO Acquisition along with transfer of consideration (see Note 5 – Preliminary Purchase Price).
(b)	Reflects the adjustment to record the Crypto Sale (see Note 3 – Cryptocurrency Asset Sale).
(c)	Reflects the adjustment to depreciation expense required to reflect a decrease in the estimated useful life of acquired cryptocurrency mining assets of approximately one year (see Note 2 – Creek Road Miners, Inc. As Adjusted Historical Financial Statement Information).
(d)	Reflects the reclassification of stock based compensation to conform to the Company’s financial statement presentation (see Note 2 – Creek Road Miners, Inc. As Adjusted Historical Financial Statement Information).
(e)	Reflects the adjustment to interest expense from the conversion of notes payable and the Original Debentures.
(f)	Reflects the adjustment for depreciation, depletion and amortization expense associated with the assets acquired in the NRO Acquisition reflecting a decrease in depreciable asset base after the purchase price allocation along with a decrease in the units of production depletion rate primarily due to the depletion of the $64.8 million acquisition costs over total proved reserves.
(g)	Reflects the adjustment required to remove the impact of assets not acquired using the information provided by NRO.
(h)	Reflects the adjustment to remove the financial statement effect of amounts related to assets that were not acquired and liabilities that were not assumed in the NRO Acquisition.
(i)	Reflects the exercise of the Series E Preferred Stock B warrants and the conversion of the Series E Preferred Stock (see Note 4 – Subsequent Events).
(j)	Reflects the release of a portion of the Deposit to the Company in conjunction with the Amended NRO Agreement (see Note 4 – Subsequent Events).
(k)	Reflects the net proceeds of Private Placement after deducting fees and expenses (see Note 7 - Financing).
(l)	Reflects the net proceeds from the Senior Convertible Note issuance after deducting issuance discount of 5% and expenses (see Note 7 - Financing).
(m)	Reflects the net proceeds of the Subordinated Note and Warrant issuance after deducting expenses (see Note 7 - Financing). The Warrants meet the definition of a liability under ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), because they embody an obligation to transfer cash equal to the Black Scholes Value upon the occurrence of certain fundamental transactions. As such, the Company has presented the Warrants at their fair value as of the issuance date, September 30, 2024, and will record a market-to-market adjustment at each reporting period going forward.

 

The following table presents the assumptions used in the Black-Scholes valuation model to determine the fair value of the Warrants on the corresponding dates:

 

		September 30, 2024				June 30, 2024				December 31, 2023				December 31, 2022
Expected term (in years)			5				5				5				5
Risk-free interest rate			3.55	%			4.33	%			3.84	%			3.99	%
Expected volatility			75	%			75	%			75	%			75	%
Expected dividend rate			0	%			0	%			0	%			0	%
Stock price		$	8.76			$	10.85			$	9.51			$	2.25
Exercise price		$	8.89			$	8.89			$	8.89			$	8.89

 

(n)	Reflects the adjustment to recognize interest expense and amortization of the issuance discount and expenses on the Senior Convertible Note for the year ended December 31, 2023 as if the issuances had occurred on January 1, 2023 (see Note 7 - Financing).
(o)	Reflects the adjustment to recognize interest cost ($0.5 million), amortization of the issuance discount and expenses ($1.7 million) and the minimum return premium ($4.5 million) on the Subordinated Note for the year ended December 31, 2023 as if the issuance had occurred on January 1, 2023 (see Note 7 - Financing).
(p)	Reflects the adjustment to recognize the change in fair value of the Warrant liabilities issued with the Subordinated Note pursuant to ASC 480 as if the issuance had occurred on January 1, 2023 (see Note 7 – Financing).
(q)	The Combined Pro Forma weighted average shares outstanding include the historical shares of Creek Road Miners, Inc. and Creek Road Miners, Inc. acquisition adjustment pursuant to the requirements of accounting for the Merger as a reverse asset acquisition and as required to properly reflect the Merger as consummated on January 1, 2023.
(r)	Reflects the Common Stock shares issued upon the NRO Acquisition in the Private Placement and commitment fee, described below, under the Senior Convertible issuance. Diluted shares exclude 1,802,451 shares associated with the Senior Convertible Note and 285,033 shares associated with the Warrants issued with the Subordinated Note due to anti-dilution effect (see Note 7 - Financing).

 

 

Note 7 – Financing

 

Common Stock Issuance

 

On September 30, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) to sell 1,827,040 shares of Common Stock (“Acquired Shares”) to an investor for $8.21 per share.

 

Standby Equity Purchase Agreement

 

On September 30, 2024, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD. (the “Investor”), a Cayman Islands exempt limited company, whereby, subject to certain conditions, the Company has the right, not the obligation, to sell to the Investor shares of Common Stock, for a value of up to $40.0 million of Common Stock, at the Company’s request (an “Advance Notice”), during the commitment period commencing on September 30, 2024 (the “SEPA Effective Date”) and terminating on September 30, 2026. The Company paid the Investor a structuring fee of $25,000 and a commitment fee of 100,000 shares of Common Stock (the “Commitment Fee”).

 

Additionally, on September 30, 2024, the Investor advanced an initial $15.0 million (the “Pre-Paid Advance”) to the Company and the Company issued the Senior Convertible Note, with an interest rate of 8.00% and a maturity date of September 30, 2025. The Company’s obligations with respect to the Pre-Paid Advance and under the Senior Convertible Note are guaranteed by Prairie LLC and Prairie Operating Holding Co., LLC.

 

Subordinated Promissory Note and Warrant Issuance

 

On September 30, 2024 (the “Subordinated Note Effective Date”), the Company entered into the Subordinated Note with First Idea Ventures LLC and The Hideaway Entertainment LLC (together, the “Noteholders”), in a principal amount of $5,000,000, with a maturity of September 30, 2025. The Subordinated Note has an interest rate of 10.00% and the Noteholders are entitled to a minimum return on capital of up to 2.0x upon the repayment, prepayment or acceleration of the obligations, or the occurrence of certain other triggering events under the Subordinated Note. The Subordinated Note is guaranteed by Prairie LLC pursuant to a global guaranty agreement entered into between by Prairie LLC in favor of the Noteholders on the Subordinated Note Effective Date. The Subordinated Note is subordinated to the prior payment in full in cash to the Senior Convertible Note and any future senior secured revolving credit facility of the Company entered into after the Subordinated Note Effective Date.

 

Pursuant to the terms of the Subordinated Note, the Company issued to each Noteholder the Warrants to purchase up to 1,141,552 shares of Common Stock, vesting in tranches based on the date of repayment of the Subordinated Note. Upon vesting, the Warrants will be exercisable at any time until September 30, 2029, at an exercise price of $8.89, subject to adjustments as provided under the terms of the Warrants.

 

Total Financing

 

The Company generated gross proceeds of $15.0 million from the Private Placement, $15.0 million (before the issuance discount of 5.00%, expenses, and the commitment fee) from the issuance of the Senior Convertible Note, and $5.0 million from the issuance of the Subordinated Note and Warrants. The Company used proceeds from the Private Placement and issuance of the Senior Convertible Note, along with cash on hand, to fund the remaining consideration in the NRO Acquisition. The proceeds of the Subordinated Note and Warrants will be used for operating expenses.

 

 

 

Exhibit 99.8

 

INFORMATION ABOUT NRO

 

Description of the Business

 

Certain aspects of the presentation of NRO’s results of operations have been conformed for purposes of presenting comparable results. For full historical financial statements of NRO for the periods presented, please see the financial statements of NRO for the six months ended June 30, 2024 filed herewith, and for the year ended December 31, 2023 previously filed.

 

Nickel Road Operating LLC, a Delaware limited liability company, and its subsidiaries, (herein referred to collectively as “NRO”) is a private, independent, and private equity backed exploration and production company founded in 2017. NRO focuses on the acquisition, development, and production of oil and natural gas reserves in Weld County, Colorado, in the Greater Wattenberg Field of Colorado’s Denver-Julesburg Basin (the “DJ Basin”). NRO has developed its acreage by drilling horizontal wells targeting the Codell and Niobrara formations. As of December 31, 2023, NRO operated 26 wells in the DJ Basin and maintained 90 operated well permits issued by the Colorado Energy and Carbon Management Commission (“CECMC”) to drill undeveloped locations. Net production from NRO’s properties for the six months ended June 30, 2024, was approximately 2,300 Boe per day, of which 66% was oil. According to a report prepared by CG&A, total proved reserves associated with NRO’s properties were 16.4 MMboe as of December 31, 2023, of which 31% were proved developed. NRO’s operations are all conducted onshore in the United States. On October 1, 2024, Prairie Operating Co. (“Prairie”), completed the previously announced $84.5 million acquisition of NRO’s oil-weighted assets (the “NRO Acquisition).

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Nickel Road Operating LLC

 

General and Basis of Presentation

 

NRO derived substantially all of its revenue from the sale of oil, natural gas and NGLs that are produced from interests in its properties. Oil, natural gas and NGL prices are inherently volatile and are influenced by many factors outside of NRO’s control. To achieve more predictable cash flows and to reduce its exposure to downward price fluctuations, NRO has historically used derivative instruments to hedge future sales prices and basis differentials on a portion of its oil, natural gas and NGL production. In January 2024, in connection with the NRO Agreement, NRO liquidated all of its outstanding hedges. NRO’s historical commodity derivative instruments include swaps and costless collars. NRO’s derivative strategy, including the volumes and commodities covered and the relevant fixed and market prices, was based in part on NRO’s management’s view of expected future market conditions, capital spending plans, and analysis of well-level economic return potential.

 

NRO focused its efforts on increasing oil, natural gas and NGLs production and reserves while controlling costs at a level that is appropriate for long-term sustainable operations. NRO’s future earnings and cash flows are dependent on its ability to manage revenues and overall cost structure at a level that allows for profitable production.

 

Divestiture of assets and acreage in 2022 and 2023

 

In July 2022, NRO closed on the divestiture of upstream assets including 2,752 net acres, 321 net royalty acres, and 17 producing horizontal wells (5 operated and 12 non-operated, royalty or overriding royalty) for $64 million (the “2022 NRO Divestiture”). The divested assets produced 672 Boe per day for the six months ended June 30, 2022, with total proved reserves of 3,024 Mboe as of December 31, 2021. This transaction is described further in NRO’s financial statements and footnotes.

 

In August 2023, NRO closed on the divestiture of upstream assets including 896 net royalty acres for $7 million (the “2023 NRO Divestiture” and, together with the 2022 NRO Divestiture, the “NRO Divestitures”). The divested assets produced 86 Boe per day in the seven months ended July 31, 2023, with 253 Mboe of proved reserves as of December 31, 2022. This transaction is described further in NRO’s financial statements and footnotes.

 

 

Overview

 

The following table presents NRO’s production volumes and financial highlights, inclusive of assets sold in the NRO Divestitures through the date of sale, for the six months ended June 30, 2024 and 2023:

 

		Six Months Ended June 30,
		2024								2023
		Period Total				Per Day				Period Total				Per Day
Production Sales Volume Data:
Oil (Mbbls)			278				1.5				298				1.6
Gas (MMcf)			471				2.6				354				2.0
NGLs (Mbbls)			62				0.3				68				0.4
Financial Data (thousands):
Revenue		$	21,666							$	22,474
Income from operations		$	7,770							$	6,965

 

NRO’s revenues for the six months ended June 30, 2024 decreased by $0.8 million compared to the six months ended June 30, 2023 primarily due to a slight decrease in commodity prices and production volumes. NRO’s income from operations for the six months ended June 30, 2024 increased by $0.8 million compared to the six months ended June 30, 2023 mostly due to a decrease in operating expenses partially offset with the decrease in revenue.

 

Results of Operations

 

Six Months Ended June 30, 2024, vs. Six Months Ended June 30, 2023

 

		Six Months Ended June 30,
		2024				2023				$ Change				% Change
		(Thousands)
Revenues:
Oil revenue		$	21,016			$	21,569			$	(553	)			(3	)%
Gas revenue			246				326				(80	)			(25	)%
NGL revenue			404				579				(175	)			(30	)%
Total revenues		$	21,666			$	22,474			$	(808	)			(4	)%

 

Oil Revenue

 

Oil revenues for the six months ended June 30, 2024 decreased $0.6 million, or 3%, from the six months ended June 30, 2023, related to lower oil production. The following table reflects oil prices, the price impact of NRO’s derivative settlements and oil production volumes for the six months ended June 30, 2024 and 2023.

 

		Six Months Ended June 30,
		2024				2023
Oil revenue (per barrel)		$	75.60			$	72.38
Impact of net cash (paid) received related to settlement of derivatives (per barrel)(1)			—				(0.40	)
Oil net price including all derivative settlements (per barrel)		$	75.72			$	71.98
Oil production volumes (Mbbls)			278				298
Per day oil production volumes (Mbbls/d)			1.5				1.6

 

(1)	Included in net gain (loss) on derivatives on the Condensed Consolidated Statements of Operations.

 

 

Gas Revenue

 

Natural gas revenue for the six months ended June 30, 2024 decreased $0.1 million, or 25%, from the six months ended June 30, 2023, related to lower natural gas sales prices, partially offset by higher production. The following table reflects natural gas prices, the price impact of NRO’s derivative settlements and natural gas production volumes for the six months ended June 30, 2024 and 2023.

 

		Six Months Ended June 30,
		2024				2023
Natural gas revenue (per Mcf)		$	0.52			$	0.92
Impact of net cash (paid) received related to settlement of derivatives (per Mcf)(1)			—				(0.48	)
Natural gas net price including all derivative settlements (per Mcf)		$	0.52			$	0.44
Natural gas production volumes (MMcf)			471				354
Per day natural gas production volumes (MMcf/d)			2.6				2.0

 

(1)	Included in net gain (loss) on derivatives on the Condensed Consolidated Statements of Operations.

 

NGL revenue:

 

NGL revenue for the six months ended June 30, 2024 decreased $0.2 million, or 30%, from the six months ended June 30, 2023, related to lower sales prices and lower production. The following table reflects NGL prices and NGL production volumes for the six months ended June 30, 2024 and 2023. NRO did not have any derivative settlements related to its NGL volumes for the six months ended June 30, 2024 and 2023.

 

		Six Months Ended June 30,
		2024				2023
NGL revenue (per barrel)		$	6.52			$	8.51
NGL production volumes (Mbbls)			62				68
Per day NGL production volumes (Mbbls/d)			0.3				0.4

 

Operating expenses and income from operations analysis:

 

		Six Months Ended June 30,																Per Boe Expense
		2024				2023				$ Change				% Change				2024				2023
		(Thousands)																(Thousands)
Operating Expenses:
Lease operating expenses		$	2,936			$	2,359			$	577				24	%		$	7.01			$	5.55
Production taxes			1,663				1,723				(60	)			(3	)%			3.97				4.05
Depletion, depreciation, and amortization			7,093				9,187				(2,094	)			(23	)%			16.93				21.62
General and administrative			2,204				2,239				(35	)			(2	)%			5.25				5.27
Total operating expenses		$	13,896			$	15,508			$	(1,612	)			(10	)%		$	33.16			$	36.49
Income from operations		$	7,770			$	6,965			$	805				12	%		$	18.54			$	16.39

 

Lease operating expenses increased $0.6 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, related to increased operating activity, well counts and service cost inflation.

 

Production taxes decreased $0.1 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, due to lower revenue from lower commodity prices and lower sales volumes.

 

 

Depletion, depreciation and amortization decreased $2.1 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily related to lower proved reserves resulting from lower commodity prices.

 

General and administrative expenses decreased $0.04 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, related to lower expenses incurred on labor-related costs.

 

Results below include income from operations:

 

		Six Months Ended June 30,
		2024				2023				$ Change				% Change
		(Thousands)
Income from operations		$	7,770			$	6,965			$	805				12	%
(Loss) gain on commodity derivatives			(48	)			2,290				(2,338	)			(102	)%
Net interest expense			(903	)			(1,127	)			224				(20	)%
Other expense			(466	)			(35	)			(431	)			NM
Net income		$	6,353			$	8,093			$	(1,740	)			(22	)%

 

NM:	A percentage calculation is not meaningful due to change in signs, a zero-value denominator, or a percentage change greater than 200.

 

NRO had a $2.3 million decrease in derivative instruments for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 due to having no outstanding hedges as of June 30, 2024.

 

The $0.2 million decrease in interest expense for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 relates to lower average debt outstanding.

 

The $0.4 million increase in other expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 is due to transaction related expenses of the NRO Acquisition.

 

Year ended December 31, 2023, vs. Year ended December 31, 2022

 

		Year ended December 31,
		2023				2022				$ Change				% Change
		(Thousands)
Revenues:
Oil revenue		$	46,309			$	57,744			$	(11,435	)			(20	)%
Gas revenue			702				3,977				(3,275	)			(82	)%
NGL revenue			1,158				4,339				(3,181	)			(73	)%
Total revenues		$	48,169			$	66,060			$	(17,891	)			(27	)%

 

Oil Revenue

 

Oil revenues for 2023 decreased $11.4 million, or 20%, from 2022, related to lower oil sales prices and the 2022 NRO Divestiture. The following table reflects oil prices, the price impact of NRO’s derivative settlements and oil production volumes for the year ended December 31, 2023 and 2022.

 

		Year ended December 31,
		2023				2022
Oil revenue (per barrel)		$	75.06			$	93.29
Impact of net cash (paid) received related to settlement of derivatives (per barrel)(1)			(1.60	)			(32.15	)
Oil net price including all derivative settlements (per barrel)		$	73.46			$	61.14
Oil production volumes (Mbbls)			617				619
Per day oil production volumes (Mbbls/d)			1.7				1.7

 

(1)	Included in net gain (loss) on derivatives on the Condensed Consolidated Statements of Operations.

 

 

Gas Revenue

 

Natural gas revenue for 2023 decreased $3.3 million, or 82%, from 2022, related to lower natural gas sales prices and lower production. The following table reflects natural gas prices, the price impact of NRO’s derivative settlements and natural gas production volumes for the years ended December 31, 2023 and 2022.

 

		Year ended December 31,
		2023				2022
Natural gas revenue (per Mcf)		$	0.79			$	4.32
Impact of net cash (paid) received related to settlement of derivatives (per Mcf)(1)			(0.04	)			(2.02	)
Natural gas net price including all derivative settlements (per Mcf)		$	0.75			$	2.30
Natural gas production volumes (MMcf)			888				920
Per day natural gas production volumes (MMcf/d)			2.4				2.5

 

(1)	Included in net gain (loss) on derivatives on the Condensed Consolidated Statements of Operations.

 

NGL revenue:

 

NGL revenue for 2023 decreased $3.2 million, or 73%, from 2022, related to lower sales prices and lower production. The following table reflects NGL prices and NGL production volumes for the years ended December 31, 2023 and 2022. NRO did not have any derivative settlements related to its NGL volumes for the years ended December 31, 2023 and 2022.

 

		Year ended December 31,
		2023				2022
NGL revenue (per barrel)		$	7.77			$	26.78
NGL net price including all derivative settlements (per barrel)		$	7.77			$	26.78
NGL production volumes (Mbbls)			149				162
Per day NGL production volumes (Mbbls/d)			0.4				0.4

 

Operating expenses and income (loss) from operations analysis:

 

		Year ended December 31,																Per Boe Expense
		2023				2022				$ Change				% Change				2023				2022
		(Thousands)																(Thousands)
Operating Expenses:
Lease operating expenses		$	4,616			$	3,942			$	674				17	%		$	5.05			$	4.22
Production taxes			4,409				4,975				(566	)			(11	)%			4.82				5.33
Depletion, depreciation, and amortization			16,116				17,760				(1,644	)			(9	)%			17.63				19.01
Impairment			5,078				330				4,748				NM				5.56				0.35
General and administrative			4,068				4,260				(192	)			(5	)%			4.45				4.56
Total operating expenses		$	34,287			$	31,267			$	3,020				10	%		$	37.51			$	33.48
Income from operations		$	13,882			$	34,792			$	(20,910	)			(60	)%		$	15.19			$	37.25

 

NM:	A percentage calculation is not meaningful due to change in signs, a zero-value denominator, or a percentage change greater than 200.

 

 

Lease operating expenses increased $0.7 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, related to increased operating activity, well counts and service cost inflation.

 

Production taxes decreased $0.6 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to lower revenue from lower commodity prices and lower sales volumes.

 

Depletion, depreciation and amortization decreased $1.6 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily related to lower proved reserves resulting from lower commodity prices.

 

Impairment increased $4.7 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, related to the NRO Agreement.

 

General and administrative expenses decreased $0.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, related to lower expenses incurred on labor-related costs.

 

Results below include income from operations:

 

		Year ended December 31,
		2023				2022				$ Change				% Change
		(Thousands)
Income from operations		$	13,882			$	34,792			$	(20,910	)			60	%
Gain on sales of oil and gas properties			5,926				25,331				(19,405	)			(77	)%
Gain (loss) on commodity derivatives			1,977				(18,464	)			20,441				NM
Net interest expense			(2,011	)			(895	)			(1,116	)			125	%
Other income (expense)			(13	)			15				(28	)			NM
Net income		$	19,761			$	40,779			$	(21,018	)			(52	)%

 

NM:	A percentage calculation is not meaningful due to change in signs, a zero-value denominator, or a percentage change greater than 200.

 

NRO recorded a $5.9 million gain on the sale of oil and gas properties for the year ended December 31, 2023, resulting from the 2023 NRO Divestiture. For the year ended December 31, 2022, NRO recorded a $25.3 million gain on the sale of oil and gas properties resulting from the 2022 NRO Divestiture.

 

NRO had a $20.4 million increase in the gain on derivative instruments for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to decreasing commodity prices.

 

The $1.1 million increase in interest expense for the year ended December 31, 2023 compared to the year ended December 31, 2022, relates to higher average debt outstanding and an increase in interest rates.

 

Management’s Discussion and Analysis of Financial Condition and Liquidity

 

Overview and Liquidity

 

NRO’s primary sources of liquidity have historically been cash on hand, cash flows from operations, borrowings under its credit facilities and equity provided from investors. NRO expects that a combination of these sources will be sufficient to fund its working capital needs into the future.

 

 

Due to the NRO Acquisition, NRO did not drill any wells during the six months of 2024. In 2023, NRO drilled and completed five wells, and in 2022, also drilled and completed five wells. For the years ended December 31, 2023 and 2022, NRO’s aggregate development, drilling and completion capital expenditures, excluding leasehold and acquisitions and divestitures, were approximately $31.9 million and $34.7 million, respectively.

 

Credit Facility

 

Revolving Loan – On February 22, 2021, NRO entered into a revolving loan agreement (the “Loan Agreement”) with UMB Bank, N.A. (“UMB” or the “Lender”) a maturity of February 22, 2024. The Loan Agreement provides for a maximum revolving loan (the “Revolving Loan”) of $35,000,000 with an initial borrowing base of $10,000,000. In October 2022, the Loan Agreement was amended. The total borrowing base and sublimit increased to $30,000,000 for the Revolving Loan.

 

On March 31, 2023, NRO amended its Loan Agreement to provide for a maximum Revolving Loan of $50,000,000 which matures on February 22, 2026. As of the date of the amendment the borrowing base was increased to $35,000,000, with a sublimit of $25,000,000, and is subject to regular redeterminations by the Lender. Permitted distributions are subject to limitations defined within the amendment and required hedge transactions are amended such that as of September 30, 2023, and thereafter, so long as the borrowing base utilization exceeds 60%, NRO is required to maintain crude oil hedges of at least 60% of NRO’s anticipated crude oil production for a period of not less than 12 months, to be complied with on a quarterly basis.

 

All sums advanced under the Revolving Loan, together with all accrued but unpaid interest thereon, are due in full at maturity. The Loan Agreement requires NRO to maintain certain affirmative and negative covenants, including certain financial ratios defined in the Loan Agreement and second amendment, and provides the Lender with a first security interest in substantially all of NRO’s assets. The interest rate of the Revolving Loan is the lesser of the (1) Wall Street Journal prime rate, plus the applicable margin, or (2) the Maximum Rate as defined per the Loan Agreement. The interest rate as of December 31, 2023, was 9.50%. Commitment fees equal to 0.5% of the undrawn amount are payable quarterly under this agreement. The outstanding balance on the Revolving Loan as of June 30, 2024, was $11,033,000, due in full on the maturity date of February 22, 2026. Debt issuance cost was approximately $91,000.

 

On August 31, 2023, NRO amended its Loan Agreement to decrease the borrowing base to $33,000,000.

 

In conjunction with the NRO Acquisition, NRO liquidated its open hedge positions in January 2024 resulting in net cash proceeds of approximately $223,000. On January 31, 2024, NRO received a waiver of the minimum hedge transaction requirement from the Lender through July 1, 2024. The Revolving Loan is reflected as a long-term debt on NRO’s balance sheet as of June 30, 2024. Should NRO fail to repay the loan in full and the borrowing base utilization exceeds 60%, it would need to reapply the required hedges, or receive another such waiver from the Lender, or the Revolving Loan could become due on July 1, 2024. NRO repaid the Revolving Loan in full using the proceeds of the NRO Acquisition pursuant to the terms of the NRO Agreement.

 

March 2023 Term Loan – The March 2023 amended Loan Agreement also allows for a new Term Loan (“March 2023 Term Loan”) in the amount of $10,000,000. The March 2023 Term Loan shall be payable in monthly principal installments commencing on August 1, 2023, plus all accrued interest, and matures on July 1, 2024. The March 2023 Term Loan bears interest at a rate equal to the sum of the Prime Rate (as defined in the Loan Agreement), plus the Applicable Margin (as defined in the Loan Agreement); provided, however, that the interest rate on the March 2023 Term Loan shall never fall below 3.75%. The outstanding balance on the March 2023 Term Loan as of June 30, 2024, was $0. As of July 1, 2024, this loan matured and was paid off in full.

 

September 2021 Term Loan – On September 1, 2021, the Loan Agreement was amended to establish a term loan (“September 2021 Term Loan”) in the amount of $12,000,000 that matured on August 31, 2022. The September 2021 Term Loan was payable in monthly principal installments commencing January 31, 2022, plus all accrued interest. Interest for the September 2021 Term Loan was fixed at 5.25%. The September 2021 Term Loan also provides the lender with a first security interest in substantially all of NRO’s assets. As of December 31, 2023, this loan matured and was paid off in full.

 

 

Interest expense related to the Revolving Loan and the March 2023 Term Loan for the six months ended June 30, 2024 and 2023, was approximately $1,131,000 and $911,000, respectively.

 

Commodity Price Risk Management

 

NRO has historically entered into derivative contracts, primarily swaps and collars to hedge future crude oil and natural gas production in order to mitigate the risk of market price fluctuations. All derivative instruments are recorded on the consolidated balance sheets at fair value. NRO has elected not to apply hedge accounting to any of its derivative transactions; consequently, NRO recognizes mark-to-market gains and losses in earnings currently, rather than deferring such amounts in other comprehensive income for those commodity derivatives that qualify as cash flow hedges.

 

In January 2024, in connection with the NRO Agreement, NRO received a waiver of the minimum hedge and liquidated all of its open hedge positions, resulting in net cash proceeds of approximately $223,000. Therefore, NRO did not have any commodity derivative instruments outstanding as of June 30, 2024.

 

Sources (Uses) of Cash

 

		Six Months Ended June 30,
		2024				2023
		(Thousands)
Net cash provided by (used in):
Operating activities		$	11,335			$	17,761
Investing activities			(1,328	)			(12,394	)
Financing activities			(9,550	)			(4,359	)
Increase in cash, cash equivalents and restricted cash		$	457			$	1,008

 

Operating activities:

 

Net cash provided by operating activities decreased $6.4 million in for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to lower commodity prices and production taxes, partially offset by higher lease operating expense.

 

Investing activities:

 

During the six months ended June 30, 2024, net cash used in investing activities was $1.3 million related to leasehold and development expenses of proved and unproved properties. During the six months ended June 30, 2023, net cash used in investing activities was $12.4 million related to the drilling of five wells during the first half of the year and flowback expenses from five wells that were turned-inline at the end of 2022.

 

Financing activities:

 

Net cash used in financing activities during the six months ended June 30, 2024 includes $9.6 million in net cash repayments on the Revolving Loan related to core business activities borrowings. Net cash used in financing activities during the six months ended June 30, 2023 includes $4.2 million in net cash repayments on the Revolving Loan related to core business activities.

 

Critical Accounting Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

Depreciation, depletion, and amortization of oil and gas properties and the impairment of proved oil and gas properties are determined using estimates of oil and gas reserves. There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of production and timing of development expenditures, including future costs to dismantle, dispose, and restore NRO’s properties. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way.

 

The more significant reporting areas impacted by management’s judgments and estimates are as follows:

 

Oil and Gas Properties

 

NRO accounts for its oil and gas operations using the successful efforts method of accounting. Under this method, all costs associated with property acquisitions, successful exploratory wells, and development wells are capitalized. Items charged to expense generally include geological and geophysical costs, costs of unsuccessful exploratory wells, delay rentals, and oil and gas production costs. Capitalized costs of proved leasehold costs are depleted on a well-by-well basis using the units-of-production method based on total proved developed producing oil and gas reserves. Other capitalized costs of producing properties are also depleted based on total proved developed producing reserves. Depletion expense for the six months ended June 30, 2024 and 2023 was approximately $7.1 million and $9.2 million, respectively.

 

NRO assesses its proved oil and gas properties for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable, but at least annually. The impairment test compares undiscounted future net cash flows to the assets’ net book value. If the net capitalized costs exceed future net cash flows, then the cost of the property is written down to the estimated fair value. Fair value for oil and natural gas properties is generally determined based on an analysis of discounted future net cash flows adjusted for certain risk factors.

 

Unproved properties are assessed periodically on a project-by-project basis to determine whether an impairment has occurred. NRO’s management’s assessment includes consideration of the results of exploration activities, commodity price predictions or forecasts, planned future sales, or expiration of all or a portion of such projects.

 

At December 31, 2023, NRO’s management determined there was an impairment of $5.1 million related to the NRO Acquisition. At December 31, 2022, NRO’s management determined there was an impairment of $0.3 million related to the expiration of non-core undeveloped leases. There was no impairment booked for the six months ended June 30, 2024.

 

Gains and losses arising from sales of oil and gas properties are included in other income. However, a partial sale of proved properties within an existing field that does not significantly affect the unit-of-production depletion rate will be accounted for as a normal retirement with no gain or loss recognized. The sale of a partial interest within a proved property is accounted for as a recovery of cost. The partial sale of unproved property is accounted for as a recovery of cost when there is uncertainty of the ultimate recovery of the cost applicable to the interest retained.

 

Derivative Instruments

 

Prior to signing the NRO Agreement, NRO entered into derivative contracts, primarily swaps and collars, to hedge future crude oil and natural gas production in order to mitigate the risk of market price fluctuations. All derivative instruments are recorded on the consolidated balance sheets at fair value. NRO has elected not to apply hedge accounting to any of its derivative transactions; consequently, NRO recognizes mark-to-market gains and losses in earnings currently, rather than deferring such amounts in other comprehensive income for those commodity derivatives that qualify as cash flow hedges.

 

Revenue Recognition

 

NRO recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. Revenue from the sale of oil, natural gas and NGLs is recognized when the product is delivered to the customers’ custody transfer points, and collectability is reasonably assured. NRO fulfills the performance obligations under the customer contracts through daily delivery of oil, natural gas and NGLs to the customers’ custody transfer points, and revenues are recorded on a monthly basis. The prices received for oil, natural gas and NGLs sales under NRO’s contracts are generally derived from stated market prices, which are then adjusted to reflect deductions, including transportation, fractionation, and processing. As a result, the revenues from the sale of oil, natural gas and NGLs will decrease if market prices decline. The sales of oil, natural gas and NGLs as presented on the condensed consolidated statements of income represent NRO’s share of revenues, net of royalties and excluding revenue interests owned by others. When selling oil, natural gas and NGLs on behalf of royalty owners or working interest owners, NRO acts as an agent and, thus, reports the revenue on a net basis. To the extent actual volumes and prices of oil, natural gas and NGLs sales are unavailable for a given reporting period because of timing or information not received from third parties, the expected sales volumes and prices for those properties are estimated and recorded.

 

 

Oil and Gas Data

 

Costs Incurred

 

The following table sets forth the costs incurred for property acquisitions, exploration, and development activities:

 

		Year ended December 31,
		2023				2022
Acquisition Costs:
Proved		$	134,895			$	1,028,411
Unproved			720,003				1,213,079
Exploration Costs
Geological and geophysical			—				—
Development costs			31,918,742				34,719,791
Total costs incurred		$	32,773,640			$	36,961,281

 

Oil and Natural Gas Reserves

 

The reserve estimates presented below were made in accordance with GAAP requirements for disclosures about oil and gas producing activities and SEC rules for oil and gas reporting of reserve estimation and disclosure.

 

Proved reserves are the estimated quantities of oil, gas, and NGLs which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined, and the price to be used is the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

 

The tables below present a summary of changes in the NRO’s estimated net proved reserves for each of the years ended December 31, 2023, 2022, and 2021. All of NRO’s proved reserves are located in the state of Colorado in the United States of America. NRO engaged CG&A to audit internal engineering estimates of NRO’s total calculated proved reserves volumes and net PV-10 for each year presented. NRO emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available.

 

		Oil (bbl)				Gas (Mcf)				Liquids (bbl)				BOE
Proved Developed and Undeveloped Reserves
As of December 31, 2021			9,150,124				16,386,179				4,126,059				16,007,213
Revisions			(1,806,746	)			875,476				(850,846	)			(2,511,680	)
Extensions			2,238,184				5,752,187				1,031,821				4,228,703
Divestiture of reserves			(1,705,171	)			(3,197,920	)			(785,350	)			(3,023,508	)
Acquisition of reserves			—				—				—				—
Production			(618,787	)			(919,804	)			(161,585	)			(933,673	)
As of December 31, 2022			7,257,604				18,896,118				3,360,099				13,767,056
Revisions			177,709				485,626				(40,027	)			218,620
Extensions			1,992,949				4,513,455				786,530				3,531,722
Divestiture of reserves			(155,373	)			(286,151	)			(49,733	)			(252,798	)
Acquisition of reserves			—				—				—				—
Production			(616,616	)			(887,881	)			(149,000	)			(913,596	)
As of December 31, 2023			8,656,273				22,721,167				3,907,869				16,351,003
Proved developed reserves as of:
December 31, 2021			3,731,662				6,669,807				1,182,570				6,025,867
December 31, 2022			2,599,724				6,452,542				1,103,821				4,778,969
December 31, 2023			2,481,059				7,689,981				1,287,231				5,049,954
Proved undeveloped reserves as of:
December 31, 2021			5,418,462				9,716,372				2,943,489				9,981,346
December 31, 2022			4,657,880				12,443,576				2,256,278				8,988,087
December 31, 2023			6,175,214				15,031,186				2,620,638				11,301,050

 

 

During the year ended December 31, 2023, NRO’s total proved positive revisions of 219 Mboe were comprised of an increase of 333 Mboe from improved results from development, an increase of 58 Mboe due to the delayed reversionary interest and increased net volumes as a result of a decrease in commodity prices, and a decrease of 172 Mboe due to accelerated reversionary interests as a result of lower capital costs. NRO’s total proved extensions totaled 3,532 Mboe, comprised of the addition of 3,160 Mboe from nine net (nine gross) proved undeveloped locations and 372 Mboe from one net (one gross) proved developed well. NRO spent $22.1 million in development costs drilling four net (four gross) proved undeveloped locations, representing 1,496 Mboe of proved developed reserves as of December 31, 2023, a decrease of 191 Mboe from their respective proved undeveloped reserves at the beginning of 2023. NRO’s forecast shows all proved undeveloped reserves will be drilled within five years. NRO divested 253 Mboe of proved reserves related to the 2023 NRO Divestiture.

 

During the year ended December 31, 2022, NRO’s total proved negative revisions of 2,512 Mboe were comprised of 2,541 of negative changes to decline curve estimates based on reservoir engineering analysis and well performance, a decrease of 406 Mboe due to accelerated reversionary interests as a result of higher commodity prices and decreased net volumes, and an increase of 435 Mboe due to delayed reversionary interests and increased net volumes as a result of lower capital costs. NRO’s extensions totaled 4,229 Mboe, comprised of the addition of 3,811 Mboe from 13 net (16 gross) proved undeveloped locations and 418 Mboe from one net (one gross) proved developed well. NRO spent $22.9 million in development costs drilling four net (four gross) proved undeveloped locations, representing 1,568 Mboe of proved developed reserves as of December 31, 2022, a decrease of 280 Mboe from their respective proved undeveloped reserves at the beginning of 2022. NRO’s forecast shows all proved undeveloped reserves will be drilled within five years. NRO divested 3,024 Mboe of proved reserves related to the 2022 NRO Divestiture.

 

Proved Undeveloped Reserves (PUDs)

 

At December 31, 2023, NRO’s estimated PUD reserves were approximately 11,301 Mboe, an increase of 2,313 Mboe over the reserve estimate at December 31, 2022 of 8,988 Mboe.

 

		Oil (bbl)				Gas (Mcf)				Liquids (bbl)				BOE
Proved undeveloped reserves at December 31, 2021			5,418,465				9,716,371				2,943,486				9,981,346
Revisions			(767,075	)			1,143,414				(533,752	)			(1,110,258	)
Extensions			2,044,569				5,109,608				914,658				3,810,828
Divestiture of reserves			(1,061,102	)			(1,672,018	)			(506,523	)			(1,846,295	)
Acquisition of reserves			—				—				—				—
Conversions into proved developed reserves (prior year balance)			(976,977	)			(1,853,798	)			(561,591	)			(1,847,534	)
Proved undeveloped reserves at December 31, 2022			4,657,880				12,443,577				2,256,278				8,988,088
Revisions			545,132				1,207,503				145,810				892,193
Extensions			1,818,434				3,932,001				686,258				3,160,026
Divestiture of reserves			(27,183	)			(72,494	)			(13,048	)			(52,314	)
Acquisition of reserves			—				—				—				—
Conversions into proved developed reserves (prior year balance)			(819,049	)			(2,479,401	)			(454,660	)			(1,686,943	)
Proved undeveloped reserves at December 31, 2023			6,175,214				15,031,186				2,620,638				11,301,050

 

 

During the year ended December 31, 2023, the increase in PUD reserves was primarily attributable to extensions of 3,160 Mboe from nine net (nine gross) PUD locations. NRO’s PUD positive revisions of 892 Mboe were comprised of an increase of 720 Mboe attributable to improved results from development, an increase of 247 Mboe due to the delayed reversionary interest and increased net volumes as a result of a decrease in commodity prices, and a decrease of 75 Mboe due to accelerated reversionary interests as a result of lower capital costs. NRO converted into proved developed reserves 1,687 Mboe related to locations that were successfully drilled and completed. NRO divested 52 Mboe of PUD reserves related to the 2023 NRO Divesture.

 

At December 31, 2022, NRO’s estimated PUD reserves were approximately 8,988 Mboe, a decrease of 993 Mboe over the reserve estimate at December 31, 2021 of 9,981 Mboe. The decrease was primarily due to divestiture of 1,848 Mboe of PUD reserves related to the 2022 NRO Divestiture and conversion of 1,847 Mboe into proved developed reserves related to locations that were successfully drilled and completed. NRO’s negative revisions of 1,110 Mboe of PUD reserves were comprised of a decrease of 978 Mboe from recent well results for development well spacing patterns, a decrease of 345 Mboe due to the accelerated reversionary interest and decreased net volumes as a result of an increase in commodity prices, and an increase of 213 Mboe due to delayed reversionary interests as a result of higher capital costs. NRO’s extensions of 3,811 Mboe were from 13 net (16 gross) PUD locations.

 

Revisions represent changes in previous reserves estimates, either upward or downward, resulting from new information normally obtained from development drilling and production history or resulting from a change in economic factors, such as commodity prices, operating costs or development costs.

 

Oil, natural gas and NGLs reserve engineering is an estimation of accumulations of oil, natural gas and NGLs that cannot be measured exactly. The accuracy of any reserves estimate is a function of the quality of available data and engineering and geological interpretation and judgment. Accordingly, reserves estimates may vary from the quantities of oil, natural gas and NGLs that are ultimately recovered.

 

Capitalized Costs

 

The following table sets forth the capitalized costs relating to oil and gas properties and accumulated depletion:

 

		Year ended December 31,
		2023				2022
Proved oil and gas properties		$	137,855,719			$	113,415,744
Unproved oil and gas properties			1,690,690				1,068,954
Accumulated depletion			(41,010,449	)			(25,691,574	)
Net capitalized costs		$	98,535,960			$	88,793,124

 

 

Standardized Measure of Discounted Future Net Cash Flows

 

NRO computes a standardized measure of discounted future net cash flows and changes therein relating to estimated proved reserves in accordance with authoritative accounting guidance. Future cash inflows and production and development costs are determined by applying prices and costs, including transportation, quality, and basis differentials, to the year-end estimated future reserve quantities. Estimated future income taxes are computed using the current statutory income tax rates, including consideration for estimated future statutory depletion. The resulting future net cash flows are reduced to present value amounts by applying a 10 percent annual discount factor.

 

Future operating costs and production taxes are determined based on estimates of expenditures to be incurred in developing and producing the estimated proved reserves at the end of the period using year end costs and assuming continuation of existing economic conditions, plus estimated abandonment costs.

 

The assumptions used to compute the Standardized Measure of discounted future net cash flows are those prescribed by the FASB and the SEC. These assumptions do not necessarily reflect NRO’s expectations of actual revenues to be derived from those reserves, nor their present value amount. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure of discounted future net cash flows computations since these reserve quantity estimates are the basis for the valuation process. The following prices used in the calculation of proved reserve estimates reflect the unweighted arithmetic average of the first-day-of-the-month price of each month within the trailing 12-month period in accordance with SEC rules. We then adjust these prices to reflect transportation, quality and location differentials over the period in estimating our net proved reserves.

 

		Year ended December 31,
		2023				2022
Oil ($/bbl)		$	78.22			$	93.67
Gas ($/mmbtu)		$	2.64			$	6.36

 

The Standardized Measure of discounted future net cash flows from NRO’s proved oil and gas reserves is presented in the following table:

 

		Year ended December 31,
		2023				2022
Future cash inflows		$	797,665,069			$	883,016,626
Future production costs and taxes			(304,141,326	)			(293,548,055	)
Future development costs			(170,282,285	)			(147,621,778	)
Future income tax expense			—				—
Future net cash flows			323,241,458				441,846,793
10% annual discount for estimated timing of cash flows			(149,312,372	)			(197,175,725	)
Standardized Measure of discounted future net cash flows		$	173,929,086			$	244,671,068

 

The following are the principal sources of changes in the standardized measure of discounted future net cash flows from the Company’s proved oil and gas reserves:

 

		Year ended December 31,
		2023				2022
Balance, beginning of year		$	244,671,068			$	259,924,928
Net change in prices and production costs			(98,531,959	)			66,158,782
Net change in future development costs			3,286,634				(18,682,942	)
Oil & Gas net revenue			(39,144,165	)			(57,149,450	)
Extensions			31,061,825				52,216,906
Acquisition of reserves			—				—
Divestiture of reserves			(8,286,790	)			(48,657,637	)
Revisions of previous quantity estimates			3,822,640				(49,945,233	)
Previously estimated development costs incurred			21,453,129				15,239,276
Net change in taxes			—				—
Accretion of discount			24,467,107				25,992,493
Changes in timing and other			(8,870,403	)			(426,055	)
Balance, end of year		$	173,929,086			$	244,671,068

 

 

Internal Controls and Qualifications of Technical Persons

 

In accordance with the Reserve Standards and guidelines established by the SEC, CG&A estimated 100% of NRO’s proved reserve information as of December 31, 2023. The technical persons responsible for preparing the reserves estimates presented herein meet the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the Reserve Standards.

 

NRO maintains an internal staff of petroleum engineers and geoscience professionals who work closely with its independent reserve engineers to ensure the integrity, accuracy and timeliness of the data used to calculate its proved reserves relating to its assets. NRO’s internal technical team members met with independent reserve engineers periodically during the period covered by the reserve report to discuss the assumptions and methods used in the proved reserve estimation process. NRO provides historical information to the independent reserve engineers for its properties such as ownership interest, oil and natural gas production, well data, commodity prices and operating and development costs.

 

The preparation of NRO’s proved reserve estimates is completed in accordance with NRO’s internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following:

 

	●	review and verification of historical production data, working interest, net revenue interest, lease operating statements, capital costs, severance and ad valorem taxes, which data is based on actual production as reported by NRO;
	●	verification of property ownership by NRO’s land department;
	●	preparation of reserve estimates by NRO’s Co-President;
	●	review by NRO’s Co-President of all of NRO’s reported proved reserves, including the review of all significant reserve changes and all new proved undeveloped reserves additions; and
	●	direct reporting responsibilities and final approval by NRO’s Co-President to NRO’s Management Committee.

 

Andrew Haney, Co-President, is the technical person primarily responsible for overseeing the preparation of NRO’s reserves estimates. He has over 20 years of experience in the oil and gas industry with experience in reservoir engineering, production operations, drilling and planning for multiple public and private companies. He has a Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines and a Master of Science in Global Energy Management from the University of Colorado. He is a member of the Society of Petroleum Engineers.

 

Drilling Activity

 

The following table sets forth the exploratory and development wells completed (operated and non-operated) during the years ended December 31, 2023 and 2022:

 

		Year Ended December 31
		2023								2022
		Gross				Net				Gross				Net
Exploratory
Productive Wells			—				—				—				—
Dry Wells			—				—				—				—
Total Exploratory Wells			—				—				—				—
Development
Productive Wells			5				5				5				5
Dry Wells			—				—				—				—
Total Development Wells			5				5				5				5
Total			5				5				5				5

 

 

At December 31, 2023, NRO did not have any wells that were in the process of being drilled, completed, awaiting completion, or any other related material activities.

 

As a result of the NRO Acquisition, NRO did not drill and complete any wells during the six months ended June 30, 2024.

 

Production and Cost History

 

The following tables set forth information regarding net production of oil, natural gas and NGLs and certain price and cost information for each of the periods indicated. The information set forth below related to NRO consists of the historical results for the six months ended June 30, 2024 and 2023 and years ended December 31, 2023 and 2022:

 

		Six Months Ended June 30,								Year Ended December 31,
		2024				2023				2023				2022
Oil:
Total production (Mbbls)			278				298				617				619
Average sales price ($ per Bbl), including derivatives		$	75.60			$	71.98			$	73.46			$	61.14
Average sales price ($ per Bbl), excluding derivatives		$	75.60			$	72.38			$	75.06			$	93.29
Natural Gas:
Total production (MMcf)			471				354				888				920
Average sales price ($ per Mcf), including derivatives		$	0.52			$	0.44			$	0.75			$	2.30
Average sales price ($ per Mcf), excluding derivatives		$	0.52			$	0.92			$	0.79			$	4.32
Natural Gas Liquids:
Total production (Mbbls)			62				68				149				162
Average sales price ($ per Bbl), including derivatives		$	6.52			$	8.51			$	7.77			$	26.78
Average sales price ($ per Bbl), excluding derivatives		$	6.52			$	8.51			$	7.77			$	26.78
Oil Equivalents:
Total production (MBoe)			419				425				914				934
Average daily production (Boe/d)			2,300				2,348				2,504				2,559
Average production costs ($ per Boe)(1)(2)		$	11.64			$	9.38			$	9.29			$	8.33

 

(1)	Excludes ad valorem and severance taxes
(2)	Represents lease operating expense and gathering, transportation, and processing per Boe using total production volumes.

 

 

Wells

 

The following table sets forth the number wells in which NRO owned a working interest, all of which are operated as of December 31, 2023:

 

		Total
		Gross				Net
DJ Basin			26				25

 

Developed and Undeveloped Acreage

 

The following table sets forth NRO’s leasehold acreage as of December 31, 2023.

 

		Developed Acres								Undeveloped Acres								Total Acres
		Gross				Net				Gross				Net				Gross				Net
DJ Basin			5,035				4,707				90	1			819				5,938				5,525

 

All of the leases comprising the undeveloped acreage set forth in the table above will expire at the end of their primary terms unless an extension provision within the lease is executed or production has been established, in which event the lease will remain in effect until the cessation of production. The following table sets forth, as of December 31, 2023, the extension provisions of the undeveloped acres subject to leases summarized in the above table of developed and undeveloped acreage.

 

		2024								2025								2026
		Gross				Net				Gross				Net				Gross				Net
Extension Acres			234				234				—				—				3				3

 

All of the leases comprising the undeveloped acreage set forth in the acreage tables above will expire at the end of their respective primary terms unless production from the leasehold acreage has been established prior to such date, in which event the lease will remain in effect until the cessation of production. The following table sets forth, as of March 31, 2024, the expiration periods of the undeveloped acres that are subject to leases summarized in the above acreage tables.

 

		2024								2025								2026
		Gross				Net				Gross				Net				Gross				Net
Expiration			180				180				80				80				373				304

 

Operations

 

General

 

NRO is the operator of substantially all of its acreage. As operator, NRO obtains regulatory authorizations, designs and manages the development of a well and supervises operation and maintenance activities on a day-to-day basis. NRO does not own drilling rigs or the majority of the other oil field service equipment used for drilling or maintaining wells on the properties it operates. Independent contractors engaged by NRO provide a majority of the equipment and personnel associated with these activities. NRO utilizes the services of drilling, production and reservoir engineers and geologists and other specialists who work to improve production rates, increase reserves and lower the cost of operating NRO’s oil and natural gas properties.

 

 

Marketing

 

NRO markets all of the oil, natural gas and NGL production from its operated properties. For the six months ended June 30, 2024, NRO sold all of its oil, natural gas and NGL production to four purchasers, one of which accounted for 90% of NRO’s sales and one customer accounted for approximately 96% of accrued oil and gas sales. For the six months ended June 30, 2023, NRO’s largest customers accounted for 90% of NRO’s sales and one customer accounted for approximately 96% of accrued oil and gas sales.

 

As of and for the year ended December 31, 2023, NRO’s largest customer generated approximately 90% of sales, and one customer accounted for approximately 95% of accrued oil and gas sales. As of and for the year ended December 31, 2022, NRO’s two largest customers generated approximately 82% and 15% of sales, and one customer accounted for approximately 88% of accrued oil and gas sales. The loss of any single purchaser could materially and adversely affect NRO’s revenues in the short-term; however, NRO believes that the loss of any of its purchasers would not have a long-term material adverse effect on its results of operations as oil, natural gas and NGLs are fungible products with well-established markets and numerous purchasers.

 

The majority of NRO’s production is party to crude oil purchase contracts, pursuant to which the counterparty is required to receive and purchase all crude oil produced from wells operated by NRO delivered to a terminal located in Weld County. NRO predominantly utilizes trucking to deliver its crude oil to the purchasers.

 

NRO is a party to various gas gathering agreements pursuant to which it has dedicated acreage, which the counterparty is required to receive and purchase all natural gas produced from wells operated by NRO located within the dedicated area through the term of the contracts. In exchange for NRO’s land dedication, NRO receives certain gathering and delivery rights.

 

NRO is party to produced water agreements where it has dedicated its acreage to deliver produced water to certain water disposal facilities located throughout Weld County.

 

Title to Properties

 

NRO has obtained title opinions on substantially all of its producing properties and believes that it utilizes methods consistent with practices customary in the oil and gas industry and that its practices are adequately designed to enable it to acquire satisfactory title to its producing properties. Prior to completing an acquisition of producing oil and gas leases, NRO performs title reviews on the most significant leases and, depending on the materiality of the properties, NRO may obtain a title opinion or review previously obtained title opinions. NRO’s oil, natural gas and NGL producing properties are subject to customary royalty and other interests, liens for current taxes, liens under its existing credit facility and other burdens, none of which materially interfere with NRO’s use of its properties.

 

Employees

 

NRO does not have, and never has had, any employees. NRO’s key personnel are employees of an affiliated management company to which NRO pays a monthly service fee. NRO also contracts for the services of independent consultants involved in field operations, land, regulatory, accounting, financial and other disciplines as needed.

 

Offices

 

Since its inception, NRO has leased, or subleased, sufficient office space to support its business operations. Since October 1, 2023, NRO’s offices have been located at 3773 Cherry Creek North Drive, Suite 670, Denver, Colorado 80209.

 

Legal Proceedings

 

NRO is not a party to any lawsuits and, since its inception, has not been a party to any material lawsuits. NRO cannot predict whether it will in the future be subject to lawsuits in the normal course of its business. NRO’s management, however, believes that there are no facts surrounding its operations that would support any such lawsuits or lead to damages that could have a material adverse effect on its operations or its financial condition.

 

 

v3.24.3

Cover	Sep. 30, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Sep. 30, 2024
Entity File Number	001-41895
Entity Registrant Name	Prairie Operating Co.
Entity Central Index Key	0001162896
Entity Tax Identification Number	98-0357690
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	55 Waugh Drive
Entity Address, Address Line Two	Suite 400
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77007
City Area Code	(713)
Local Phone Number	424-4247
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	PROP
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false

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