CRKR Creek Road Miners Inc (QB)

 

As filed with the Securities and Exchange Commission on October 24, 2023

 

Registration No. 333-272743

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

AMENDMENT NO. 4

TO

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Prairie Operating Co.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware		6199		98-0357690
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

 

602 Sawyer Street, Suite 710

Houston, TX 77007

(713) 424-4247

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Edward Kovalik

Chief Executive Officer

602 Sawyer Street, Suite 710

Houston, TX 77007

(713) 424-4247

(Name, Address Including Zip Code, and Telephone Number Including Area Code, of Agent for Service)

 

 

COPIES TO:

T. Mark Kelly

Joanna D. Enns

Vinson & Elkins L.L.P.

845 Texas Avenue, Suite 4700

Houston, TX 77002

(713) 758-2222

 

 

Approximate date of commencement of proposed sale to the public:

From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		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 7(a)(2)(B) of the Securities Act. ☐

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

SUBJECT TO COMPLETION, DATED October 24, 2023

 

The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

Prairie Operating Co.

 

Up to 1,190,055 Shares of Common Stock

Up to 3,475,250 Shares of Common Stock Issuable Upon Conversion of Series D Preferred Stock

Up to 4,000,000 Shares of Common Stock Issuable Upon Conversion of Series E Preferred Stock 

Up to 15,620,999 Shares of Common Stock Issuable Upon Exercise of Warrants

 

 

This prospectus relates to the resale from time to time by the Selling Stockholders named in this prospectus (the “Selling Stockholders”) of up to an aggregate of 24,286,304 shares of common stock, par value $0.01 per share (“Common Stock”), of Prairie Operating Co. (formerly known as Creek Road Miners, Inc.; the “Company,” “we,” “our” or “us”), which consists of (i) up to 1,190,055 shares of Common Stock, (ii) up to 3,475,250 shares of Common Stock issuable upon the conversion of the Series D Preferred Stock, (iii) up to 6,950,500 shares of Common Stock issuable upon the exercise of the Series D PIPE Warrants, (iv) up to 4,000,000 shares of Common Stock issuable upon the conversion of the Series E Preferred Stock, (v) up to 8,000,000 shares of Common Stock issuable upon the exercise of the Series E PIPE Warrants, and (vi) up to 670,499 shares of Common Stock issuable upon the exercise of the Exok Warrants.

 

This prospectus provides you with a general description of such securities and the general manner in which the Selling Stockholders may offer or sell the securities. More specific terms of any securities that the Selling Stockholders may offer or sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the securities being offered and the terms of the offering. The prospectus supplement may also add, update or change information contained in this prospectus.

 

We will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders pursuant to this prospectus. However, we will pay the expenses, other than any underwriting discounts and commissions, associated with the sale of securities pursuant to this prospectus.

 

We are registering the securities for resale pursuant to the Selling Stockholders’ registration rights under certain agreements between us and the Selling Stockholders. Our registration of the securities covered by this prospectus does not mean that the Selling Stockholders will offer or sell, as applicable, any of the securities. The Selling Stockholders may offer and sell the securities covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the Selling Stockholders may sell the shares in the section entitled “Plan of Distribution.”

 

You should read this prospectus and any prospectus supplement or amendment carefully before you invest in our securities.

 

Our Common Stock is listed on the OTCQB under the symbol “CRKRD,” a transitionary ticker symbol. The Company expects to commence trading under “PROP” on or about November 14, 2023, following the 20 trading day transition period. On October 20, 2023, the closing price of our Common Stock was $17.00.

 

 

See the section entitled “Risk Factors” beginning on page 8 of this prospectus to read about factors you should consider before buying our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus is           , 2023.

 

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS	i
FREQUENTLY USED TERMS	ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	iv
SUMMARY	1
RISK FACTORS	8
USE OF PROCEEDS	38
DETERMINATION OF OFFERING PRICE	39
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION	41
BUSINESS	48
MANAGEMENT	56
EXECUTIVE COMPENSATION	63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	65
BENEFICIAL OWNERSHIP OF SECURITIES	76
SELLING STOCKHOLDERS	78
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS	82
DESCRIPTION OF SECURITIES	86
RESTRICTIONS ON RESALE OF SECURITIES	88
PLAN OF DISTRIBUTION	89
LEGAL MATTERS	91
EXPERTS	91
WHERE YOU CAN FIND MORE INFORMATION	91
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE	92

 

 

About This Prospectus

 

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission using the “shelf” registration process. Under this shelf registration process, the Selling Stockholders may, from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by such Selling Stockholders of the securities offered by them described in this prospectus. We will receive proceeds from any exercise of the Warrants for cash.

 

Neither we nor the Selling Stockholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the Selling Stockholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the Selling Stockholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

 

As permitted by the rules and regulations of the SEC, the registration statement filed by us includes additional information not contained in this prospectus. You may read the registration statement and the other reports we file with the SEC at the SEC’s website described below under the heading “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.” We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the sections of this prospectus entitled “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”

 

On October 12, 2023, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State to effect a reverse stock split of outstanding shares of the Company’s common stock, par value $0.01 per share at an exchange ratio of 1:28.5714286 (the “Reverse Stock Split”). The Reverse Stock Split became effective on October 16, 2023. Unless otherwise noted, all per share and share amounts presented herein have been retroactively adjusted for the effect of the Reverse Stock Split.

 

 

Frequently Used Terms

 

Unless the context indicates otherwise, the following terms have the following meanings when used in this prospectus:

 

“Board” means the board of directors of the Company.

 

“Charter” means the Company’s Second Amended and Restated Certificate of Incorporation, as amended.

 

“Closing” means the closing of the transactions contemplated by the Merger Agreement.

 

“Closing Date” means May 3, 2023.

 

“Common Stock” means the Company’s common stock, par value $0.01 per share.

 

“Company,” “we,” “our” or “us” means Prairie Operating Co., a Delaware corporation, and its consolidated subsidiaries following the Merger and Creek Road Miners, Inc. and its consolidated subsidiaries prior to the Merger.

 

“DGCL” means the General Corporation Law of the State of Delaware.

 

“Effective Time” means the effective time of the Merger.

 

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

 

“Exok” means Exok, Inc., an Oklahoma corporation.

 

“Exok Affiliates” means those certain affiliates of Exok that received equity consideration in connection with the Exok Option Purchase.

 

“Exok Agreement” means the Amended and Restated Purchase and Sale Agreement, dated as of May 3, 2023, by and among the Company, Prairie LLC and Exok.

 

“Exok Option Purchase” means the optional purchase of oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 20,328 net mineral acres in, on and under approximately 32,695 gross acres from Exok.

 

“Exok Transaction” means the purchase of oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 3,157 net mineral acres in, on and under approximately 4,494 gross acres from Exok for $3,000,000 by the Company pursuant to the Exok Agreement.

 

“Exok Warrants” means the warrants to purchase 670,499 shares of Common Stock at an exercise price of $6.00 per share issued to the Exok Affiliates on August 14, 2023.

 

“GAAP” means United States generally accepted accounting principles, consistently applied, as in effect from time to time.

 

“IRS” means the Internal Revenue Service.

 

“Merger” means the merger of 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 the Merger Agreement.

 

 

“Merger Agreement” means the Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2023, by and among the Company, Merger Sub and Prairie LLC.

 

“Merger Sub” means Creek Road Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company.

 

“Prairie LLC” means Prairie Operating Co., LLC, a Delaware limited liability company.

 

“Preferred Stock” means all series of the Company’s preferred stock, par value $0.01 per share.

 

“Reverse Stock Split” means the reverse stock split of the Company’s Common Stock, effected on October 16, 2023, at a ratio of 1:28.5714286.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Selling Stockholders” means the selling stockholders named in this prospectus.

 

“Series D A Warrants” means the Series A warrants to purchase 3,475,250 shares of Common Stock at an adjusted exercise price of $6.00 per share issued to Series D PIPE Investors in the Series D PIPE on May 3, 2023.

 

“Series D B Warrants” means the Series B warrants to purchase 3,475,250 shares of Common Stock at an adjusted exercise price of $6.00 per share issued to Series D PIPE Investors in the Series D PIPE on May 3, 2023.

 

“Series D PIPE” means the sale of an aggregate of approximately $17.38 million of Series D Preferred Stock and Series D PIPE Warrants in a private placement pursuant to the Securities Purchase Agreements in connection with the Merger.

 

“Series D PIPE Investors” means the investors in the Series D PIPE.

 

“Series D PIPE Warrants” means, collectively, the Series D A Warrants and the Series D B Warrants.

 

“Series D Preferred Stock” means the 17,376.25 shares of Series D Preferred Stock, par value $0.01 per share, with an adjusted conversion price of $5.00 per share, subject to certain adjustments, issued to the Series D PIPE Investors in the Series D PIPE on May 3, 2023.

 

“Series D Registration Rights Agreement” means the Registration Rights Agreement, dated May 3, 2023, by and among the Company and the Series D PIPE Investors.

 

“Series D Securities Purchase Agreements” means the Securities Purchase Agreements, dated May 3, 2023, by and between the Company and each of the Series D PIPE Investors.

 

“Series E A Warrants” means the Company’s Series A warrants to purchase 39,614 shares of Common Stock at an adjusted exercise price of $6.00 per share issued to the Series E PIPE Investor in the Series E PIPE on August 14, 2023.

 

“Series E B Warrants” means the Company’s Series B warrants to purchase 39,614 shares of Common Stock at an adjusted exercise price of $6.00 per share issued to the Series E PIPE Investor in the Series E PIPE on August 14, 2023.

 

“Series E PIPE” means the sale of an aggregate of approximately $20.0 million of Series E Preferred Stock and Series E PIPE Warrants in a private placement pursuant to the Series E Securities Purchase Agreement.

 

“Series E PIPE Investor” means Narrogal Nominees Pty Ltd ATF Gregory K. O’Neill Family Trust, as the sole investor in the Series E PIPE.

 

“Series E Preferred Stock” means the shares of Series E Preferred Stock issued to the Series E PIPE Investor in the Series E PIPE.

 

“Series E Registration Rights Agreement” means the Registration Rights Agreement, dated August 15, 2023, by and among the Company and the Series E PIPE Investor and the Exok Affiliates.

 

“Series E Securities Purchase Agreement” means the Securities Purchase Agreement, dated August 15, 2023, by and between the Company and the Series E PIPE Investor.

 

“Series E PIPE Warrants” means, collectively, the Series E A Warrants and the Series E A Warrants.

 

“Warrants” means, collectively, the Series D PIPE Warrants, the Series E PIPE Warrants and the Exok Warrants.

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

This prospectus, any accompanying prospectus supplement and the documents incorporated by reference herein or therein contain statements that are forward-looking and as such are not historical facts. These forward-looking statements include, without limitation, statements regarding future financial performance, business strategies, expansion plans, future results of operations, estimated revenues, losses, projected costs, prospects, plans and objectives of management. These forward-looking statements are based on our management’s current expectations, estimates, projections and beliefs, as well as a number of assumptions concerning future events, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this prospectus and any accompanying prospectus supplement, words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “continue,” “project” or the negative of such terms or other similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus and any accompanying prospectus supplement and in any document incorporated by reference in this prospectus may include, for example, statements about:

 

	●	the availability and adequacy of cash flow to meet our requirements;
	●	the availability of additional capital;
	●	changes in our business and growth strategy, including our ability to successfully operate and expand our business;
	●	changes or developments in applicable laws or regulations, including with respect to taxes;
	●	actions taken or not taken by third-parties, including our contractors and competitors;
	●	the lack of a market for our securities; and
	●	our future financial performance following the Merger.

 

The forward-looking statements contained in this prospectus, any accompanying prospectus supplement and any documents incorporated by reference herein or therein are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:

 

	●	our ability to successfully uplist to a national securities exchange;
	●	our ability to recognize the anticipated benefits of the Merger and the Exok Transaction, which may be affected by, among other things, competition and our ability to grow and manage growth profitably following the Merger;
	●	central bank policy actions, bank failures and associated liquidity risks;
	●	our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
	●	changes adversely affecting the business in which we are engaged;
	●	fluctuations in our revenue and operating results;
	●	unfavorable conditions or further disruptions in the capital and credit markets;
	●	our ability to generate cash and incur additional indebtedness;
	●	competition from existing and new competitors with greater resources and financial strength in the industries in which we operate;

 

 

	●	our ability to integrate any businesses we acquire;
	●	our ability to recruit and retain experienced personnel;
	●	risks related to legal proceedings or claims, including liability claims;
	●	our ability to obtain additional capital on commercially reasonable terms;
	●	safety and environmental requirements that may subject us to unanticipated liabilities;
	●	general economic or political conditions; and
	●	other factors detailed under the section entitled “Risk Factors” and in our periodic filings with the SEC.

 

Our SEC filings are available publicly on the SEC website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Accordingly, forward-looking statements in this prospectus and in any document incorporated herein by reference should not be relied upon as representing our views as of any subsequent date, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

All forward-looking statements, expressed or implied, included in this prospectus and the documents incorporated by reference herein are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Factors

 

Investing in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Statement Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein, the risks set forth in our Annual Report on Form 10-K, filed with SEC on March 31, 2023 under the heading “Risk Factors” and the risks set forth in our subsequent Quarterly Reports on Form 10-Q and other filings we make with the SEC from time to time, which are incorporated by reference herein, together with other information in this prospectus and the information incorporated by reference herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus or any prospectus supplement and any document incorporated by reference are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.

 

Risks Related to Our Company

 

We have historically incurred significant losses, and may be unable to generate profitability. If we continue to incur significant losses, we may have to curtail our operations, which may prevent us from successfully operating and expanding our business.

 

Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred significant losses and experienced negative cash flow. For the six months ended June 30, 2023, on a combined pro forma basis, we incurred a net loss of $21,271,307, and for the year ended December 31, 2022, we incurred a net loss of $13,384,255. We had stockholders’ equity of $16,526,997 and members’ deficit of $381,520 as of June 30, 2023 and December 31, 2022, respectively. We cannot predict if we will be profitable. We may continue to incur losses for an indeterminate period of time and may be unable to sustain profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to sustain or increase our profitability on a quarterly or annual basis.

 

We may not achieve the perceived benefits of the Merger and the market price of our Common Stock following the Merger may decline.

 

The market price of our Common Stock may decline as a result of the Merger for a number of reasons, including if: investors react negatively to the prospects of the Company’s business; the effect of the Merger on the Company’s business and prospects is not consistent with the expectations of our management or of financial or industry analysts; or the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by our management or financial or industry analysts.

 

Our stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

If the Company is unable to realize the strategic and financial benefits currently anticipated from the Merger, our pre-closing stockholders will have experienced substantial dilution of their ownership interests without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the Company is able to realize only part of the expected strategic and financial benefits currently anticipated from the Merger.

 

We may require significant additional capital to fund our growing operations; we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.

 

We may not have sufficient capital to fund our future operations without significant additional capital investments, including the planned drilling of oil and gas wells. If adequate additional financing is not available on reasonable terms or at all, we may not be able to carry out our corporate strategy and we would be forced to modify our business plans (e.g., limit our growth, and/or decrease or eliminate capital expenditures), any of which may adversely affect our financial condition, results of operations and cash flow. Such reduction could materially adversely affect our business and our ability to compete. There can be no assurance that financing will be available in a timely manner or in amounts or on terms acceptable to the Company, or at all.

 

 

The Company’s ability to obtain external financing in the future may be subject to a variety of uncertainties, including its future financial condition, results of operations, cash flows and the liquidity of international capital and lending markets. In light of conditions impacting the industry, it may be more difficult for the Company to obtain equity or debt financing currently and/or in the future. Specifically, the crypto assets industry has been negatively impacted by recent events such as the bankruptcies of Compute North LLC (“Compute North”), Core Scientific Inc. (“Core Scientific”), Alameda Research LLC (“Alameda Research”), BlockFi Inc. (“BlockFi”), Celsius Network LLC (“Celsius Network”), Voyager Digital Ltd. (“Voyager Digital”), Three Arrows Capital (“Three Arrows”) and FTX Trading Ltd. (“FTX”). In response to these events, the digital asset markets, including the market for Bitcoin specifically, have experienced extreme price volatility and several other entities in the digital asset industry have been, and may continue to be, negatively affected, further undermining confidence in the digital assets markets and in Bitcoin. We may need to undertake equity, equity-linked or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Common Stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to pursue business opportunities. A large amount of bank borrowings and other debt may result in a significant increase in interest expense while at the same time exposing the Company to increased interest rate risks.

 

We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and respond to business challenges could be significantly impaired, and our business may be adversely affected. Our capital needs will depend on numerous factors, including, without limitation, our profitability, and the amount of our capital expenditures, including acquisitions. Moreover, the costs involved may exceed those originally contemplated. Failure to obtain intended economic benefits could adversely affect our business, financial condition and operating performances.

 

The cost of obtaining new cryptocurrency mining equipment is capital intensive, and may increase.

 

The cost of obtaining new cryptocurrency mining equipment is capital intensive, and may increase in the future. If we are unable to obtain adequate numbers of new and replacement miners at scale, we may not be able to mine cryptocurrency as efficiently or in similar amounts as our competition and, as a result, our business and financial results could suffer. The price of new miners may be linked to the market price of Bitcoin and other cryptocurrencies, and, our costs of obtaining new and replacement miners may increase, which may have a material and adverse effect on our financial condition and results of operations.

 

Any disruption of service experienced by Atlas or our failure to manage and maintain existing relationships or identify and engage or hire other qualified third-party service providers or employees to perform similar functions could harm our business, financial condition, operating results, cash flows and prospects.

 

We depend upon outside service providers who may not be available on reasonable terms as needed. On March 2, 2023, we entered into a Master Services Agreement and the Order Form thereunder (the “Master Services Agreement”) with Atlas Power Hosting, LLC (“Atlas”). Pursuant to the Master Services Agreement, we engaged Atlas to provide cryptocurrency mining services for our miners at its facility in North Dakota. We are wholly reliant on Atlas to operate our miners on a daily basis. If Atlas experiences difficulty providing the services we require, or if they experience disruptions or financial distress or cease operations temporarily or permanently, it will negatively affect our ability to operate our Bitcoin mining operations. If we are unsuccessful in identifying or finding highly qualified third-party service providers or employees, if we fail to negotiate cost-effective relationships with them or if we are ineffective in managing and maintaining these relationships, it could materially and adversely affect our Bitcoin mining business and our financial condition, operating results, cash flows and prospects.

 

 

We may not have adequate sources of recovery if the cryptocurrencies held by Atlas are lost, stolen or destroyed due to third-party cryptocurrencies custodial services. Such incidents could have a material adverse effect on our business, financial condition and results of operations. 

 

All of the bitcoin mined by our miners at the Atlas’ facility in North Dakota (the “Atlas Facility”) are placed into a wallet under the custody and control of Atlas. Atlas will deduct a hosting service fee from the monthly total mined currency produced by our miners and remit the net mined currency to us in cash. We are reliant on Atlas’s security procedures and policies to safeguard its bitcoin. We cannot guarantee that Atlas’s security procedures will prevent any loss due to a security breach, software defect or act of God. In addition, Atlas may experience the loss of any cryptocurrencies stored in wallets under its custody and control. If such cryptocurrencies are lost, stolen or destroyed under circumstances rendering Atlas liable to a third party, it is possible that Atlas may not have the financial resources or insurance sufficient to satisfy any or all of a third party’s claims, or have the ability to retrieve, restore or replace the lost, stolen or destroyed cryptocurrencies due to governing network protocols and the strength of the cryptographic systems associated with such cryptocurrencies. To the extent that Atlas is unable to recover on any of its claims against any such third party, such loss could have a material adverse effect on Atlas’s ability to continue operations, which could materially affect our business, financial condition and results of operations.

 

Bitcoin is subject to halving; and will halve several times in the future and Bitcoin value may not adjust to compensate us for the reduction in the rewards we receive from our mining efforts.

 

The primary currency for which we mine, Bitcoin, is subject to “halving.” Halving is a process incorporated into many proof-of-work consensus algorithms that reduces the coin reward paid to miners over time according to a pre-determined schedule. This reduction in reward spreads out the release of crypto assets over a long period of time resulting in an ever smaller number of coins being mined, reducing the risk of coin-based inflation. At a predetermined block, the mining reward is cut in half, hence the term “halving.” For Bitcoin, the reward was initially set at 50 Bitcoin currency rewards per block and this was cut in half to 25 on November 28, 2012, at block 210,000, then again to 12.5 on July 9, 2016, at block 420,000. The most recent halving for Bitcoin happened on May 11, 2020, at block 630,000 and the reward reduced to 6.25. The next halving will likely occur in 2024. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million, which is expected around 2140. While Bitcoin prices have had a history of price fluctuations around the halving of their respective cryptocurrency rewards, there is no guarantee that the price change will be favorable or would compensate for the reduction in mining reward. We plan to keep our operating costs low by, among other means, acquiring our own energy-producing assets and more efficient mining machines, but there can be no assurance that the price of Bitcoin will sufficiently increase upon the next halving to justify the increasingly high costs of mining for Bitcoin. If a corresponding and proportionate increase in the trading price of these cryptocurrencies does not follow these anticipated halving events, the revenue we earn from our mining operations would see a corresponding decrease, which would have a material adverse effect on our business and operations.

 

We need to manage growth in operations to maximize our potential growth and achieve our expected revenues. Our failure to manage growth can cause a disruption of our operations that may result in the failure to generate revenues at levels we expect.

 

In order to maximize potential growth, we may have to expand our operations. Such expansion will place a significant strain on our management and our operations. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.

 

Our mining operating costs could outpace our mining revenues, which could materially impact our business.

 

Our mining operations expenses may increase in the future, and may not be offset by a corresponding increase in revenue. Our expenses may be greater than we anticipate, and our investments to make our business more efficient may not succeed and may outpace monetization efforts. Increases in our costs without a corresponding increase in our revenue would increase our losses and could have a material adverse effect on our business, results of operations and financial condition.

 

 

Insiders have substantial control over the Company, and they could delay or prevent a change in our corporate control even if our other stockholders want it to occur.

 

As of the date of this filing, our executive officers and directors, collectively beneficially own approximately 54.25% of our outstanding shares of Common Stock. These stockholders are able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with our Company even if our other stockholders want it to occur. This may also limit your ability to influence the Company in other ways. In addition, certain investors own significant numbers of convertible securities, that if exercised or converted, could result in ownership of a significant portion of the outstanding shares of Common Stock of the Company. For example, assuming full exercise or conversion, as applicable, of their respective convertible securities and no exercise or conversion by other security holders, certain holders could acquire a controlling position in the Company’s Common Stock. The exercise or conversion, as applicable, of the Series D Preferred Stock, Series D Warrants, Series E Preferred Stock and Series E Warrants are subject to a beneficial ownership limitation of 4.99% of the outstanding shares of Common Stock, which may be increased by the holder upon written notice to the Company, to any specified percentage not in excess of 9.99%. The 9.99% beneficial ownership limitation may only be modified, amended or waived with the written consent of both the Company and the security holder. If such beneficial ownership limitation were to be waived, certain holders would be able to convert their preferred shares or warrants for a significant portion of the outstanding shares of Common Stock of the Company, and such holders would be able to exercise significant control over all matters requiring stockholder approval. See the section entitled “Description of Securities” for more information regarding the beneficial ownership limitation provisions.

 

We rely on a small number of cryptocurrency mining equipment suppliers, and the loss of any supplier might significantly reduce our revenue and adversely affect our results of operations.

 

We rely on a small number of cryptocurrency mining equipment suppliers, which is essential to our cryptocurrency mining revenue. The loss of any or all of these suppliers would significantly reduce our revenue, which would have a material adverse effect on our results of operations. We can provide no assurance that these suppliers will continue to supply us cryptocurrency mining equipment in the future.

 

We are exposed to credit risk on our prepayments to cryptocurrency mining equipment suppliers. This risk is heightened during periods when economic conditions worsen.

 

We have made prepayments to suppliers of cryptocurrency mining equipment, and there can be no assurance that we will effectively limit our credit risk and avoid losses, which could have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to secure adequate insurance, or any insurance at all, on our cryptocurrency mining equipment that are subject to physical and environmental damage.

 

Our miners and mobile data centers are located in areas where we may not be able to secure adequate insurance, or any insurance at all. Our miners and mobile data centers are subject to physical and environmental damage and any damage, including a complete loss, if it occurs without being adequately insured, or insured at all, could have a material adverse effect on our business, results of operations and financial condition.

 

Additionally, although we seek to control our insurance risk and costs, the premiums we pay to obtain insurance coverage have increased over time and are likely to continue to increase in the future. These increases in insurance premiums can occur unexpectedly and without regard to our efforts to limit them, and, because of these rising costs, we may not be able to obtain similar levels of insurance coverage on reasonable terms, or at all. If this occurs, we may choose or be forced to self-insure our assets, which could expose us to significant financial risk due to the high cost of new miners. If insurance costs become unacceptably high and we elect to self-insure, and we experience a significant casualty event resulting in the loss of some or all of our miners, we could be forced to expend significant capital resources to acquire new miners to replace those we lose.

 

Furthermore, if such casualty loss of our miners is not adequately covered by insurance and we do not have access to sufficient capital resources to acquire replacement miners, we may not be able to compete in our rapidly evolving and highly competitive industry, which could materially and adversely affect our financial condition and results of operations, and our business could suffer.

 

We may lose our private key to our digital wallet, causing a loss of all of our digital assets.

 

Digital assets, such as cryptocurrencies, are stored in a so-called “digital wallet”, which may be accessed to exchange a holder’s digital assets, and is controllable by the processor of both the public key and the private key relating to this digital wallet in which the digital assets are held, both of which are unique. We will publish the public key relating to digital wallets in use when we verify the receipt of transfers and disseminate such information into the network, but we will need to safeguard the private keys relating to such digital wallets, which are stored in the possession of certain of our officers. If the private key is lost, destroyed, or otherwise compromised, we may be unable to access our cryptocurrencies held in the related digital wallet which will essentially be lost. If the private key is acquired by a third party, then this third party may be able to gain access to our cryptocurrencies. Any loss of private keys relating to digital wallets used to store our cryptocurrencies could have a material adverse effect on our ability to continue as a going concern or could have a material adverse effect on our business, prospects, financial condition, and operating results.

 

 

The storage and custody of our Bitcoin assets and any other cryptocurrencies that we may potentially acquire or hold in the future are subject to cybersecurity breaches and adverse software events.

 

In addition to the risk of a private key loss to our digital wallet, see “—We may lose our private key to our digital wallet, causing a loss of all of our digital assets,” the storage and custody of our digital assets could also be subject to cybersecurity breaches and adverse software events. All of the bitcoin mined by our miners at the Atlas Facility are placed into a wallet under the custody and control of Atlas. Atlas will deduct a hosting service fee from the monthly total mined currency produced by our miners and remit the net mined currency to us in cash. We currently do not store or hold, or expect to acquire or hold, any cryptocurrencies. If and when we decide to acquire or hold cryptocurrencies, in order to minimize risk, we plan to establish processes to manage wallets, or software programs where assets are held, prior to holding cryptocurrency. We intend to adopt policies that are in line with industry standards. However, our investors will not have a chance to evaluate what our custody policies and procedures will be until they are already implemented and may disagree with our policies and procedures.

 

A “hot wallet” refers to any cryptocurrency wallet that is connected to the Internet. Generally, hot wallets are easier to set up and access than wallets in “cold” storage, but they are also more susceptible to hackers and other technical vulnerabilities.

 

“Cold storage” refers to any cryptocurrency wallet that is not connected to the Internet. Cold storage is generally more secure than hot storage, but is not ideal for quick or regular transactions and we may experience lag time in our ability to respond to market fluctuations in the price of our digital assets.

 

If and when we decide to acquire or hold cryptocurrencies, we plan to hold the majority of our cryptocurrencies in cold storage to reduce the risk of malfeasance; however we may also use third-party custodial wallets and, from time to time, we may use hot wallets or rely on other options that may develop in the future. If we use a custodial wallet, there can be no assurance that such services will be more secure than cold storage or other alternatives. Human error and the constantly evolving state of cybercrime and hacking techniques may render present security protocols and procedures ineffective in ways which we cannot predict. The Master Services Agreement currently does not contain any contractual arrangements for Atlas to store the Company’s crypto assets and does not address any security precautions Atlas is required to undertake, any inspection rights the Company has or what type of insurance Atlas is required to have to protect the Company from loss. As a result, if and when we decide to acquire or hold cryptocurrencies, we will need to enter into a revised agreement to address the storage of the Company’s crypto assets, including insurance, inspection rights and security precautions. There is no guarantee that we will successfully come to an agreement with Atlas on such matters.

 

Regardless of the storage method, the risk of damage to or loss of our digital assets cannot be wholly eliminated. If our security procedures and protocols are ineffective and our cryptocurrency assets are compromised by cybercriminals, we may not have adequate recourse to recover our losses stemming from such compromise. A security breach could also harm our reputation. A resulting perception that our measures do not adequately protect our digital assets could have a material adverse effect on our business, prospects, financial condition, and operating results.

 

Bitcoin exchanges and wallets, and to a lesser extent, the Bitcoin network itself, may suffer from hacking and fraud risks, which may adversely erode user confidence in Bitcoin which would decrease the demand for the Company’s products and services. Further, digital asset exchanges on which crypto assets trade are relatively new and largely unregulated, and thus may be exposed to fraud and failure. Incorrect or fraudulent cryptocurrency transactions may be irreversible.

 

Bitcoin transactions are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. Hackers can target Bitcoin exchanges and Bitcoin transactions, to gain access to thousands of accounts and digital wallets where Bitcoins are stored. Bitcoin transactions and accounts are not insured by any type of government program and all Bitcoin transactions are permanent because there is no third party or payment processor. Bitcoin has suffered from hacking and cyber-theft as such incidents have been reported by several cryptocurrency exchanges and miners, highlighting concerns about the security of Bitcoin and therefore affecting its demand and price.

 

 

To the extent that cryptocurrency exchanges or other trading venues are involved in fraud or experience security failures or other operational issues, a reduction in cryptocurrency prices could occur. Cryptocurrency market prices depend, directly or indirectly, on the prices set on exchanges and other trading venues, which are new and, in most cases, largely unregulated as compared to established, regulated exchanges for securities, derivatives and other currencies. For example, during the past three years, a number of Bitcoin exchanges have been closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin exchanges. Also, the price and exchange of Bitcoin may be affected due to fraud risk. While Bitcoin uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false Bitcoins. All of the above may adversely affect the operation of the Bitcoin network which would erode user confidence in Bitcoin, which would negatively affect demand for the Company’s products and services. In addition, smaller exchanges are less likely to have the infrastructure and capitalization that provide larger exchanges with additional stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information, or gain access to private computer systems) and may be more likely to be targets of regulatory enforcement action.

 

For example, during the past three years, a number of Bitcoin exchanges have been closed due to fraud, business failure or security breaches. In many of these instances, the customers of the closed Bitcoin exchanges were not compensated or made whole for the partial or complete losses of their account balances in such Bitcoin exchanges. While smaller exchanges are less likely to have the infrastructure and capitalization that provide larger exchanges with additional stability, larger exchanges may be more likely to be appealing targets for hackers and “malware” (i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information, or gain access to private computer systems) and may be more likely to be targets of regulatory enforcement action.

 

Further, digital asset exchanges on which cryptocurrencies trade are relatively new and, in most cases, largely unregulated. Many digital exchanges do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, cryptocurrency exchanges, including prominent exchanges handling a significant portion of the volume of digital asset trading. During 2022, a number of companies in the crypto industry have declared bankruptcy, including Compute North, Core Scientific, Alameda Research, Celsius Network, Voyager Digital, Three Arrows, BlockFi, and FTX. In June 2022, Celsius began pausing all withdrawals and transfers between accounts on its platform, and in July 2022, it filed for Chapter 11 bankruptcy protection. Further, in November 2022, FTX, one of the major cryptocurrency exchanges, also filed for Chapter 11 bankruptcy. Such bankruptcies have contributed, at least in part, to further price decreases in Bitcoin, a loss of confidence in the participants of the digital asset ecosystem and negative publicity surrounding digital assets more broadly, and other participants and entities in the digital asset industry have been, and may continue to be, negatively affected. These events have also negatively impacted the liquidity of the digital assets markets as certain entities affiliated with FTX engaged in significant trading activity.

 

The Company has not been directly impacted by any of the recent bankruptcies in the crypto asset space, as it has no contractual privity or relationship to the relevant parties. However, the Company is dependent on the overall crypto assets industry, and such recent events have contributed, at least in part, to its peers’ stock price as well as the price of Bitcoin. If the liquidity of the digital assets markets continues to be negatively impacted, digital asset prices (including the price of Bitcoin) may continue to experience significant volatility and confidence in the digital asset markets may be further undermined. A perceived lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset exchanges due to business failure, hackers or malware, government-mandated regulation, or fraud, may reduce confidence in digital asset networks and result in greater volatility in cryptocurrency values. These potential consequences of a digital asset exchange’s failure could adversely affect an investment in the Company, discourage overall participation in the cryptocurrency industry, and result in loss of customer demand for the Company’s products and services. Cryptocurrency investments may be subject to losses or impairments if cryptocurrency values decrease as a result of failure of any digital asset exchange, however, the Company does not anticipate to actively participate in such activities in the foreseeable future.

 

 

We are subject to risks associated with our need for significant power for our miners. Government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations.

 

Our Bitcoin mining operations have required significant amounts of power, and, as we continue to expand, we anticipate our demand for power will continue to grow. If we are unable to continue to obtain sufficient power to operate our miners on a cost-effective basis, we may not realize the anticipated benefits of our significant capital investments in new miners. There may be significant competition for suitable mine locations, and government regulators may potentially restrict the ability of electricity suppliers to provide electricity to mining operations in times of electricity shortage, or may otherwise potentially restrict or prohibit the provision or electricity to mining operations. Additionally, our mining operations could be materially adversely affected by prolonged power outages. Our cryptocurrency mining operations require that our miners and mining equipment function without interruption. If we experience and any unplanned or prolonged outages that re not remediated in a timely manner, or at all, could disrupt our operations. Given the power requirement, it would not be feasible to run miners on back-up power generators in the event of a government restriction on electricity or a power outage. If we are unable to receive adequate power supply and are forced to reduce our operations due to the availability or cost of electrical power, it could have a material adverse effect on our business, results of operations and financial condition.

 

Interruptions to our internet access could disrupt our operations, which could adversely affect our business and results of operations.

 

Our cryptocurrency mining operations require access to high-speed internet to be successful. If we lose internet access for a prolonged period, we may be required to reduce our operations or cease them altogether. If this occurs, it could have a material adverse effect on our business, results of operations and financial condition.

 

Our reliance primarily on a single model of miner may subject our operations to increased risk.

 

We currently only use Bitmain Antminer type miners, if there are issues with those machines, such as a design flaw in the application-specific integrated circuit chips they employ, our entire system could be affected. Any system error or failure may significantly delay response times or even cause our system to fail. Any disruption in our ability to continue mining could result in lower yields and harm our reputation and business. Any exploitable weakness, flaw, or error common to Bitmain miners affects all our miners; therefore, if a defect or other flaw exists and is exploited, our entire mine could go offline simultaneously. Any interruption, delay or system failure could have a material adverse effect on our business, results of operations and financial condition.

 

We may not be able to find suitable locations, or any locations at all, for our mobile data centers.

 

Our mobile data centers are located close to natural gas wellheads, and we may be forced to leave our current location, not be able to find suitable locations, or any locations at all, for our current and/or future mobile data centers. If this occurs it could have a material adverse effect on our business, results of operations and financial condition.

 

We depend on the services of a small number of key personnel, and may not be able to operate and grow our business effectively if we lose their services or are unable to attract qualified personnel in the future.

 

Our success depends in part upon the continued service of a small number of key personnel. They are critical to the overall management of our company, and our strategic direction. We rely heavily on them because they have substantial experience with our company and business strategies. Our ability to retain them is therefore very important to our future success. We have employment agreements with our key personnel, but these employment agreements do not ensure that they will not voluntarily terminate their employment with us. The loss of any key personnel would require the remaining key personnel to divert immediate attention to seeking a replacement. Competition for senior management personnel is intense, and our inability to find a suitable replacement for any departing key personnel in a timely basis could adversely affect our ability to operate and grow our business.

 

 

Our future success depends upon, in large part, our continuing ability to attract and retain qualified personnel.

 

Expansion of our business and operations may require additional managers and employees with industry experience, in which case our success will be dependent on our ability to attract and retain experienced management personnel and other employees. There can be no assurance that we will be able to attract or retain qualified personnel. Competition may also make it more difficult and expensive to attract, hire and retain qualified managers and employees. If we fail to attract, train and retain sufficient numbers of the qualified personnel, our prospects, business, financial condition and results of operations will be materially and adversely affected.

 

We rely on key contracts and business relationships, and if our current or future business partners or contracting counterparties fail to perform or terminate any of their contractual arrangements with us for any reason or cease operations, or should we fail to adequately identify key business relationships, our business could be disrupted and our reputation may be harmed.

 

If any of our business partners or contracting counterparties fails to perform or terminates their agreement(s) with us for any reason, or if our business partners or contracting counterparties with which we have short-term agreements refuse to extend or renew the agreement or enter into a similar agreement, our ability to carry on operations may be impaired. In addition, we depend on the continued operation of our long-term business partners and contracting counterparties and on maintaining good relations with them. If one of our long-term partners or counterparties is unable (including as a result of bankruptcy or a liquidation proceeding) or unwilling to continue operating in the line of business that is the subject of our contract, we may not be able to obtain similar relationships and agreements on terms acceptable to us or at all. If a partner or counterparty fails to perform or terminates any of the agreements with us or discontinues operations, and we are unable to obtain similar relationships or agreements, such events could have an adverse effect on our operating results and financial condition.

 

Breaches of our data systems or unintended disclosure of data could result in large expenditures to repair or replace such systems, to remedy any security breaches and to protect us from similar events in the future.

 

Our infrastructure may be vulnerable to physical or electronic break-ins, computer viruses, or similar disruptive problems. In addition to shutdowns, our systems are subject to risks caused by misappropriation, misuse, leakage, falsification and accidental release or loss of information. Disruptions or security compromises of our systems could result in large expenditures to repair or replace such systems, to remedy any security breaches and protect us from similar events in the future. We also could be exposed to negligence claims or other legal proceedings, and we could incur significant legal expenses and our management’s attention may be diverted from our operations in defending ourselves against and resolving lawsuits or claims. In addition, if we were to suffer damage to our reputation as a result of any system failure or security compromise, it could have a material adverse effect on our business, results of operations and financial condition.

 

We are exposed to risks associated with PCI compliance.

 

The PCI Data Security Standard (“PCI DSS”) is a specific set of comprehensive security standards required by credit card brands for enhancing payment account data security, including but not limited to requirements for security management, policies, procedures, network architecture, and software design. PCI DSS compliance is required in order to maintain credit card processing services. Compliance does not guarantee a completely secure environment and notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card processing services. Compliance is an ongoing effort and the requirements evolve as new threats are identified. In the event that we were to lose PCI DSS compliance status (or fail to renew compliance under a future version of the PCI DSS), we could be exposed to increased operating costs, fines and penalties and, in extreme circumstances, may have our credit card processing privileges revoked, which would have a material adverse effect on our business.

 

 

Our Board or management have experience in risk management. However, if we are not able to timely and appropriately adapt to changes in our business environment or to accurately assess where we are positioned within a business cycle and make adjustments to our risk management policies, our business, financial condition, or results of operations may be materially and adversely affected.

 

Our Board or management have experience in risk management. Our Board or management is evaluating the risk exposure on a regular basis and constantly adapting to the latest trend of the industry. Specifically, in light of current crypto asset market conditions and to mitigate the effect of Bitcoin price volatility, our risk management policies focus on finding cost-effective hosting sites, raising funds with a low financing cost, and renegotiating with existing site hosts to reduce cost.

 

However, the Bitcoin mining and related industries are emerging and evolving, which may lead to period-to-period variability and may make it difficult to evaluate our risk exposures. If we are not able to timely and appropriately adapt to changes in our business environment or to accurately assess where we are positioned within a business cycle and make adjustments to our risk management policies, our business, financial condition, or results of operations may be materially and adversely affected.

 

The ability to generate enough cash flows to meet, our future debt obligations could adversely affect our business.

 

As of June 30, 2023, the Company has an outstanding balance of $149,900 under the loan agreement with the Small Business Administration entered into on May 31, 2020 (the “SBA Loan”). The Company repaid the SBA Loan in full in September 2023 and does not currently have any long-term debt obligations. Our ability to pay interest and principal on our indebtedness and to satisfy our other obligations will depend on our future operating performance, our financial condition and the availability of refinancing indebtedness, which will be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. We may not be able to generate sufficient cash flows to pay the interest on our debt and future working capital, and borrowings or equity financing may not be available to pay or refinance such debt. Factors that will affect our ability to raise cash through an offering of our capital stock or a refinancing of our debt include financial market conditions, the value of our assets and our performance at the time we need capital.

 

In the future, we may incur significant indebtedness in order to make future acquisitions or to develop our properties. If we were to take on future debt, a substantial decrease in our operating cash flow or an increase in our expenses could make it difficult for us to meet debt service requirements and could require us to modify our operations, including by selling assets, reducing or delaying capital investments, seeking to raise additional capital or refinancing or restructuring our debt. We may or may not be able to complete any such steps on satisfactory terms. Any ability to generate sufficient cash flows to satisfy our debt obligations or contractual commitments, or to refinance our debt on commercially reasonable terms, could materially and adversely affect our financial condition and results of operations.

 

We encounter competition in our business, and any failure to compete effectively could adversely affect our results of operations.

 

We anticipate that our competitors will continue to expand and aggressive expansion of our competitors or the entrance of new competitors into our markets could have a material adverse effect on our business, results of operations and financial condition.

 

Acquisitions, joint ventures or similar strategic relationships may disrupt or otherwise have a material adverse effect on our business and financial results.

 

As part of our strategy, we may explore strategic acquisitions and combinations, or enter into joint ventures or similar strategic relationships. These transactions are subject to the following risks:

 

	●	Acquisitions, joint ventures or similar relationships may cause a disruption in our ongoing business, distract our management and make it difficult to maintain our standards, controls and procedures;
	●	We may not be able to integrate successfully the services, products, and personnel of any such transaction into our operations;
	●	We may not derive the revenue improvements, cost savings and other intended benefits of any such transaction; and
	●	There may be risks, exposures and liabilities of acquired entities or other third parties with whom we undertake a transaction, that may arise from such third parties’ activities prior to undertaking a transaction with us.

 

Acquisitions may result in significant impairment charges and may operate at losses. We can provide no assurance that future acquisitions, joint ventures or strategic relationships will be accretive to our business overall or will result in profitable operations.

 

 

Our business and financial condition will be materially adversely affected if we are required to register as an investment company under the Investment Company Act.

 

We are not, and do not intend to become, an “investment company” as defined in the U.S. Investment Company Act of 1940, as amended (the “Investment Company Act”). Although the SEC and courts are providing increasing guidance on the treatment of cryptocurrencies for purposes of federal securities law, this continues to be an evolving area of law. Therefore, it is possible that the SEC or a court could take a position that may be adverse to the position we have taken on these matters. If we are required to register as an investment company but fails to do so, the consequences may be severe. Among the various remedies it may pursue, the SEC may seek an order of a court to enjoin us from continuing to operate as an unregistered investment company. In addition, all contracts that we have entered into in the course of our business, including securities that we have offered and sold to investors, will be rendered unenforceable except to the extent of any equitable remedies that might apply. An affected investor in such case may pursue the remedy of rescission. If we were to register as an investment company, we may be forced to significantly change our structure and operations in order to comply with the substantive requirements of the Investment Company Act. In particular, we may be forced to change our capital structure in order to satisfy the limits on leverage and classes of securities imposed by the Investment Company Act, modify the composition of our Board in order to maintain the required number of independent directors and the requirements of “independence” set forth in rules under the Investment Company Act, restrict transactions that we may engage in with affiliated persons, fair value our assets in the manner required by the Investment Company Act, etc. Compliance with the requirements of the Investment Company Act applicable to registered investment companies may make it difficult for us to continue our operations as a company that is engaged in the business of developing blockchain infrastructure and in activities related to cryptocurrency mining.

 

The unaudited pro forma condensed combined financial information included in this document may not be indicative of what our actual financial position or results of operations would have been.

 

The unaudited pro forma condensed combined financial information for the Company in this registration statement on Form S-1 is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Merger been completed on the dates indicated. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” for more information.

 

The COVID-19 pandemic could negatively impact our future operations and results.

 

We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.

 

The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity or results of operations is uncertain.

 

 

Our Charter provides for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.

 

Our Charter and applicable Delaware law provide for the indemnification of our directors and officers against attorney’s fees and other expenses incurred by them in any action to which they become a party arising from their association with or activities on our behalf. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.

 

We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter, if it were to occur, is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares if such a market ever develops.

 

Risks Related to Government Regulation Matters

 

Government regulations related to the Internet could increase our cost of doing business, affect our ability to grow or may otherwise negatively affect our business.

 

Governmental agencies and federal and state legislatures have adopted, and may continue to adopt, new laws and regulatory practices in response to the increasing use of the Internet and other online services. These new laws may be related to issues such as online privacy and data protection requirements, copyrights, trademarks and service mark, sales taxes, fair business practices, domain name ownership, and the requirement that our operating units register to do business as foreign entities or otherwise be licensed to do business in jurisdictions where they have no physical location or other presence. In addition, these new laws, regulations or interpretations relating to doing business through the Internet could increase our costs materially and adversely affect our revenue and results of operations.

 

Regulatory changes or actions may restrict the use of cryptocurrencies in a manner that adversely affects an investment in us.

 

As cryptocurrencies have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement Network and the Federal Bureau of Investigation) have begun to examine cryptocurrencies. On March 9, 2022, President Biden signed an executive order on cryptocurrencies. While the executive order did not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability.

 

Digital assets currently face an uncertain regulatory landscape in not only the United States but also in such foreign jurisdictions as the European Union and China. While certain governments such as Germany, have issued guidance as to how to treat cryptocurrencies, most regulatory bodies have not issued specific policy determinations.

 

Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability, but such change could be substantial and adverse to us and could adversely affect an investment in us. For example, several tax proposals have been set forth that would, if enacted, make significant changes to U.S. tax laws applicable to cryptocurrencies. Such proposals include the Biden Administration’s budget proposal, released on March 9, 2023, which includes (i) the imposition of an excise tax of up to 30 percent of the costs of electricity used in digital asset mining, and (ii) the imposition of information reporting requirements with respect to digital assets and digital asset brokers. Further, the Infrastructure Investment and Jobs Act (the “IIJA”), enacted November 15, 2021, contains, among other things, an expanded definition of the term “broker” for certain tax and information reporting obligations that could require cryptocurrency miners, including us, to provide to the IRS information relating to cryptocurrency transactions that cryptocurrency miners, including us, generally do not, and may not be able to, obtain, potentially rendering compliance impossible. Generally, the cryptocurrency provisions contained in the IIJA began applying to digital transactions beginning in 2023. The IRS has suspended the application of those provisions of the IIJA until the Treasury Department issues final regulations, which may provide further guidance on whether we are a “broker” under the IIJA. The U.S. Congress may consider, and could include, one or both of these proposals in connection with tax reform that may be undertaken. It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could take effect. The passage of any legislation as a result of these proposals and other similar changes in U.S. federal income tax laws could adversely affect our business and future profitability.

 

 

The Company is subject to a highly-evolving regulatory landscape and any adverse changes to, or its failure to comply with, any laws and regulations could adversely affect its business, reputation, prospects or operations.

 

Until recently, relatively little regulatory attention has been directed toward the crypto assets market by U.S. federal and state governments, non-U.S. governments and self-regulatory agencies. As crypto assets have grown in popularity and in market size, the U.S. regulatory regime — namely the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the SEC, the U.S. Commodity Futures Trading Commission (the “CFTC”), the Financial Crimes Enforcement Network (the “FinCEN”) and the Federal Bureau of Investigation), and local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining the operations of crypto networks, users and platforms, with a focus on how crypto assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers that hold crypto assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories describing the risks posed by crypto assets to users and investors. For instance, in March 2022, Federal Reserve Chair Jerome Powell expressed the need for regulation to prevent “cryptocurrencies from serving as a vehicle for terrorist finance and just general criminal behavior.” On March 8, 2022, President Biden announced an executive order on cryptocurrencies which seeks to establish a unified federal regulatory regime for cryptocurrencies. The significant uncertainty surrounding the regulation of the crypto assets industry requires the Company to exercise its judgment as to whether certain laws, rules and regulations apply to it, and it is possible that governmental bodies and regulators may disagree with its conclusions. To the extent the Company has not complied with such laws, rules and regulations, the Company could be subject to significant fines, revocation of licenses, limitations on its products and services, reputational harm, and other regulatory consequences, each of which may be significant and could adversely affect its business, operating results and financial condition.

 

Additionally, the recent bankruptcy filings of FTX, the third largest digital asset exchange by volume at the time of its filing, and its affiliated hedge fund Alameda Research, in addition to other bankruptcy filings of crypto companies throughout calendar year 2022, will likely attract heightened regulatory scrutiny from U.S. regulatory agencies such as the SEC and CFTC. Increasing regulation and regulatory scrutiny may result in additional costs for the Company and our management having to devote increased time and attention to regulatory matters, change aspects of the Company’s business or result in limits on the utility of Bitcoin. In addition, regulatory developments and/or the Company’s business activities may require us to comply with certain regulatory regimes. Increasingly strict legal and regulatory requirements and any regulatory investigations and enforcement may result in changes to the Company’s business, as well as increased costs, supervision and examination. Moreover, new laws, regulations or interpretations may result in additional litigation, regulatory investigations and enforcement or other actions. Adverse changes to, or the Company’s failure to comply with, any laws and regulations may have, an adverse effect on the Company’s reputation and brand and its business, operating results and financial condition.

 

Although the Company is not directly connected to the recent cryptocurrency market events, the Company may still suffer reputational harm due to its association with the cryptocurrency industry in light of the recent disruption in the crypto asset markets. Customers and counterparties may lose confidence with us and may deem our business to be risky. This may result in a loss of customer demand for our products and services. Counterparties and may be hesitant to enter into a business relationship with us, and it may be difficult for us to reach favorable business terms with counterparties. Ongoing and future regulation and regulatory actions could significantly restrict or eliminate the market for or uses of Bitcoin and/or may adversely affect the Company’s business, reputation, financial condition and results of operations.

 

 

The Company is subject to risks associated with legal, political or other conditions or developments regarding holding, using or mining of cryptocurrencies, in particular Bitcoin, which could negatively affect its business, results of operations and financial position.

 

Changes in government policies, taxes, general economic and fiscal conditions, as well as political, diplomatic or social events, expose the Company to financial and business risks. In particular, changes in policies and laws regarding holding, using and/or mining of Bitcoins could result in an adverse effect on the Company’s business operations and results of operations.

 

There are significant uncertainties regarding future regulations pertaining to the holding, using or mining of Bitcoins, which may adversely affect the Company’s results of operations. While Bitcoin has gradually gained more market acceptance and attention, it is anonymous and may be used for black market transactions, money laundering, illegal activities or tax evasion. As a result, governments may seek to regulate, restrict, control or ban the mining, use and holding of Bitcoins.

 

With advances in technology, cryptocurrencies are likely to undergo significant changes in the future. It remains uncertain whether Bitcoin will be able to cope with, or benefit from, those changes. In addition, as Bitcoin mining employs sophisticated and high computing power devices that need to consume a lot of electricity to operate, future developments in the regulation of energy consumption, including possible restrictions on energy usage in the jurisdictions where the Company mines, may also affect the Company’s business operations. For example, in the United States, certain local governments of the State of Washington have discussed measures to address environmental impacts of Bitcoin-related operations, such as the high electricity consumption of Bitcoin mining activities. We continue to monitor the economic benefits and risks of our cryptocurrency mining operations and may reduce or pause such operations from time to time, or may exit such operations altogether, if we determine that such operations are no longer beneficial to the Company.

 

Unfavorable general economic conditions in the United States, Europe, Asia, or in other major markets could negatively impact our financial performance.

 

Unfavorable general economic conditions, such as a recession or economic slowdown in the United States, Europe, Asia, or in one or more of our other major markets, could negatively affect demand for our services and our results of operations. Under difficult economic conditions, businesses may seek to reduce spending on our services, or shift away from our services to in-house alternatives.

 

Increased political scrutiny regarding the energy use and climate change impacts of crypto asset mining operations could result in new laws, regulations and policies that impose restrictions or compliance costs on our Bitcoin mining operations.

 

Crypto asset mining has become heavily scrutinized from a climate change and energy consumption perspective in recent years. Politicians, environmental groups and climate activists alike have called for increased oversight, regulation and reporting of energy use and greenhouse gas (“GHG”) emissions of crypto asset mining companies, among other measures. Certain members of the U.S. Congress and other non-governmental organizations have made investigations into, and published claims and reports regarding, the crypto asset mining industry’s impact on global GHG emissions and energy consumption and have raised concerns over the diversion of power sources for crypto mining and possible impacts on consumer electricity prices. For example, in early 2022, a group of U.S. Senators solicited information from various crypto asset mining companies on their respective energy use and emissions. Then, in July 2022, that same group of Senators authored a letter to the Environmental Protection Agency (“EPA”) and Department of Energy urging the agencies to investigate energy and climate impacts of mining companies and to consider regulations requiring the monitoring and reporting of emissions and energy consumption by certain crypto asset operations. Moreover, the Crypto Asset Environmental Transparency Act was introduced to the U.S. Senate on March 6, 2023, and, if passed, would impose emissions reporting obligations on mining operations that consume electricity above a specified threshold and would direct the EPA to investigate the environmental and climate impacts of the crypto asset mining industry. Separately, in September 2022, the Biden Administration released its report on Climate and Energy Implications of Crypto-Assets in the United States, which recommends that the federal government take action to develop environmental performance standards for crypto asset technologies, assess the impact of crypto asset mining on electricity system reliability, and minimize emissions and other environmental impacts associated with crypto asset mining, among other recommendations. Certain state governments have also introduced legislation imposing restrictions on the crypto asset mining industry, citing similar concerns. We are unable to predict whether currently proposed legislation or regulatory initiatives will be implemented, but any action by the federal government or the states in which we operate to restrict, limit, condition or otherwise regulate our crypto asset mining operations, whether as part of a climate change or energy transition policy initiative or otherwise, could adversely affect our business, financial condition and results of operations. Similarly, public statements by government officials and non-governmental organizations regarding the impact of crypto asset mining on global energy consumption, GHG emissions and grid stability, whether valid or not, could harm our reputation and stakeholder goodwill.

 

 

It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoin, ether, or other cryptocurrencies, participate in blockchains or utilize similar cryptocurrency assets in one or more countries, the ruling of which would adversely affect us.

 

Although currently cryptocurrencies generally are not regulated or are lightly regulated in most countries, several countries continue taking regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use these cryptocurrency assets or to exchange for fiat currency. In September 2021, China instituted a blanket ban on all crypto transactions and mining, including services provided by overseas crypto exchanges in mainland China, effectively making all crypto-related activities illegal in China. In other nations, including Russia, it is illegal to accept payment in Bitcoin or other crypto assets for consumer transactions, and banking institutions are barred from accepting deposits of Bitcoin. In January 2022, the Central Bank of Russia called for a ban on cryptocurrency activities ranging from mining to trading. Such restrictions may adversely affect us as the large-scale use of cryptocurrencies as a means of exchange is presently confined to certain regions globally. Such circumstances could have a material adverse effect on us, which could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account, and thus harm investors.

 

The cryptoeconomy is novel and has little to no access to policymakers or lobbying organizations, which may harm our ability to effectively react to proposed legislation and regulation of crypto assets or crypto asset platforms adverse to our business.

 

As crypto assets have grown in both popularity and market size, various U.S. federal, state, and local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining the operations of crypto networks, users and platforms, with a focus on how crypto assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers that hold crypto assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories describing the risks posed by crypto assets to users and investors. For instance, in July 2019, then-U.S. Treasury Secretary Steven Mnuchin stated that he had “very serious concerns” about crypto assets. In recent months, members of Congress have made inquiries into the regulation of crypto assets, and Gary Gensler, Chair of the SEC, has made public statements regarding increased regulatory oversight of crypto assets. Outside the United States, several jurisdictions have banned so-called initial coin offerings, such as China and South Korea, while Canada, Singapore, Hong Kong, have opined that token offerings may constitute securities offerings subject to local securities regulations. In July 2019, the United Kingdom’s Financial Conduct Authority proposed rules to address harm to retail customers arising from the sale of derivatives and exchange-traded notes that reference certain types of crypto assets, contending that they are “ill-suited” to retail investors due to extreme volatility, valuation challenges and association with financial crimes. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading, and in September 2021, Chinese regulators instituted a blanket ban on all crypto mining and transactions, including overseas crypto exchange services taking place in China, effectively making all crypto-related activities illegal in China. In January 2022, the Central Bank of Russia called for a ban on cryptocurrency activities ranging from mining to trading, and on March 8, 2022, President Biden announced an executive order on cryptocurrencies which seeks to establish a unified federal regulatory regime for currencies.

 

The crypto economy is novel and has little to no access to policymakers and lobbying organizations in many jurisdictions. Competitors from other, more established industries, including traditional financial services, may have greater access to lobbyists or governmental officials, and regulators that are concerned about the potential for crypto assets for illicit usage may affect statutory and regulatory changes with minimal or discounted inputs from the cryptoeconomy. As a result, new laws and regulations may be proposed and adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways, that harm the cryptoeconomy or crypto asset platforms, which could adversely impact our business.

 

 

Bitcoin’s status as a “security,” a “commodity” or a “financial instrument” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines and other penalties, which may adversely affect our business, operating results and financial condition.

 

The SEC and its staff have taken the position that certain crypto assets fall within the definition of a “security” under the U.S. federal securities laws. To date, the SEC staff has treated Bitcoin as a commodity. The legal test for determining whether any given crypto asset is a security is a highly complex, fact-driven analysis and the outcome is difficult to predict. Several foreign jurisdictions have taken a broad-based approach to classifying crypto assets as “securities,” while other foreign jurisdictions, such as Switzerland, Malta and Singapore, have adopted a narrower approach. As a result, certain crypto assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations or directives that affect the characterization of crypto assets as “securities.” The crypto assets we mine or any crypto assets that we hold could be deemed securities and the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular crypto asset could be deemed a “security” under applicable laws could be incorrect.

 

If Bitcoin or any other supported crypto asset is deemed to be a security under any U.S. federal, state or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such supported crypto asset. For instance, all transactions in such supported crypto asset would have to be registered with the SEC or other foreign authority, or conducted in accordance with an exemption from registration, which could severely limit its liquidity, usability and transactability. Moreover, the networks on which such supported crypto assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the crypto asset. Also, it may make it difficult for such supported crypto asset to be traded, cleared and custodied as compared to other crypto assets that are not considered to be securities. If we are unable to properly characterize a crypto asset, we may be subject to regulatory scrutiny, investigations, fines and other penalties, which may adversely affect our business, operating results and financial condition.

 

Risks Related to Ownership of our Common Stock

 

Our ability to uplist our Common Stock is subject to us meeting applicable listing criteria.

 

We intend to apply for our Common Stock to be listed on a national securities exchange. National securities exchanges require companies desiring to list their common stock to meet certain listing criteria including total number of stockholders; minimum stock price, total value of public float, and in some cases total shareholders’ equity and market capitalization. Our failure to meet such applicable listing criteria could prevent us from listing our Common Stock on a national securities exchange. In the event we are unable to uplist our Common Stock, our Common Stock will continue to trade on the OTCQB, which is generally considered less liquid and more volatile than a national securities exchange. Our failure to uplist our Common Stock could make it more difficult for you to trade our Common Stock, could prevent our Common Stock trading on a frequent and liquid basis and could result in the value of our Common Stock being less than it would be if we were able to uplist.

 

In order to raise sufficient funds to expand our operations, we may have to issue additional securities at prices which may result in substantial dilution to our stockholders.

 

If we raise additional funds through the sale of equity or convertible debt, our current stockholders’ percentage ownership will be reduced. In addition, these transactions may dilute the value of our Common Stock outstanding. We may also have to issue securities that may have rights, preferences and privileges senior to our Common Stock.

 

 

Our Common Stock is quoted on the OTCQB, which may have an unfavorable impact on our stock price and liquidity.

 

Our Common Stock is quoted on the OTCQB. The quotation of our shares on the OTCQB may result in a less liquid market available for existing and potential stockholders to trade shares of our Common Stock, could depress the trading price of our Common Stock and could have a long-term adverse impact on our ability to raise capital in the future.

 

There is limited liquidity on the OTCQB, which enhances the volatile nature of our equity.

 

When fewer shares of a security are being traded on the OTCQB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information. Due to lower trading volumes in shares of our Common Stock, there may be a lower likelihood that orders for shares of our Common Stock will be executed, and current prices may differ significantly from the price that was quoted at the time of entry of the order.

 

Our stock price is likely to be highly volatile because of our limited public float.

 

The market price of our Common Stock is likely to be highly volatile because there has been a relatively thin trading market for our Common Stock, which causes trades of small blocks of stock to have a significant impact on our stock price. You may not be able to resell shares of our Common Stock following periods of volatility because of the market’s adverse reaction to volatility. Other factors that could cause such volatility may include, among other things: actual or anticipated fluctuations in our operating results; the absence of securities analysts covering us and distributing research and recommendations about us; overall stock market fluctuations; economic conditions generally; announcements concerning our business or those of our competitors; our ability to raise capital when we require it, and to raise such capital on favorable terms; conditions or trends in the industry; litigation; changes in market valuations of other similar companies; announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships or joint ventures; future sales of Common Stock; actions initiated by the SEC or other regulatory bodies; and general market conditions. Any of these factors could have a significant and adverse impact on the market price of our Common Stock. These broad market fluctuations may adversely affect the trading price of our Common Stock.

 

Our Common Stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment in our Common Stock.

 

The market for our Common Stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share price is attributable to a number of factors. First, our Common Stock may be sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our Common Stock are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price. Secondly, an investment in us is a speculative or “risky” investment due to our lack of meaningful profits to date and uncertainty of future profits. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.

 

Additionally, the market price of our Common Stock could be subject to extreme volatility and fluctuations in response to industry-wide developments beyond its control, such as continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchanges FTX (including its affiliated hedge fund Alameda Research), crypto hedge fund Three Arrows, crypto miners Compute North and Core Scientific and crypto lenders Celsius Network, Voyager Digital and BlockFi. Although, as mentioned elsewhere in this Registration Statement, the Company has no exposure to any of the cryptocurrency market participants that recently filed for Chapter 11 bankruptcy, or who are known to have experienced excessive redemptions, suspended redemptions or have crypto assets of their customers unaccounted for; and the Company does not have any assets, material or otherwise, that may not be recovered due to these bankruptcies or excessive or suspended redemptions; the price of Common Stock may still not be immune to unfavorable investor sentiment resulting from these recent developments in the broader cryptocurrency industry and you may experience depreciation of the price of Common Stock.

 

 

Our Common Stock is thinly traded, so an investor may be unable to sell at or near ask prices or at all.

 

The shares of our Common Stock are traded on the OTCQB and are thinly traded, meaning that the number of persons interested in purchasing our Common Stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a smaller reporting company that is relatively unknown to stock analysts, stockbrokers, institutional investors and others in the investment community who generate or influence sales volume. Even in the event that we come to the attention of such persons, they would likely be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, our stock price may not reflect an actual or perceived value. Also, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as is currently the case, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broader or more active public trading market for our Common Stock may not develop or if developed, may not be sustained. Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire to liquidate your shares.

 

Currently, there is a limited public market for our securities, and there can be no assurances that any public market will ever develop and, even if developed, it is likely to be subject to significant price fluctuations.

 

We have a trading symbol for our Common Stock, namely “CRKRD,” which we expect will change to “PROP” following November 14, 2023. However, our Common Stock has been thinly traded, if at all. Consequently, there can be no assurances as to whether:

 

	●	any market for our shares will develop;
	●	the prices at which our Common Stock will trade; or
	●	the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.

 

Until our Common Stock is fully distributed and an orderly market develops in our Common Stock, if ever, the price at which it trades is likely to fluctuate significantly. Prices for our Common Stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our Common Stock, developments affecting our business, including the impact of the factors referred to elsewhere in these risk factors and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our Common Stock.

 

We cannot predict the extent to which an active public trading market for our Common Stock will develop or be sustained. If an active public trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our Common Stock.

 

We cannot predict the extent to which an active public market for our Common Stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of Common Stock until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that an active public trading market for our Common Stock will develop or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our Common Stock.

 

 

Other factors which could cause volatility in the market price of our Common Stock include, but are not limited to:

 

	●	actual or anticipated fluctuations in our financial condition and operating results or those of companies perceived to be similar to us;
	●	actual or anticipated changes in our growth rate relative to our competitors;
	●	commercial success and market acceptance of blockchain, Bitcoin and other cryptocurrencies;
	●	actions by our competitors, such as new business initiatives, acquisitions and divestitures;
	●	strategic transactions undertaken by us;
	●	integration of new businesses and opportunities into our existing business;
	●	implementation of new technologies in the industry;
	●	additions or departures of key personnel;
	●	prevailing economic conditions;
	●	sales of our common stock by our officers, directors or significant stockholders;
	●	other actions taken by our stockholders;
	●	future sales or issuances of equity or debt securities by us;
	●	business disruptions caused by earthquakes, tornadoes or other natural disasters;
	●	legal proceedings involving our company, our industry or both;
	●	changes in market valuations of companies similar to ours; and
	●	the prospects of the industry in which we operate.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on your investment may be limited to increases in the market price of our Common Stock.

 

We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. The payment of dividends on our Common Stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the Board may consider relevant. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment might only occur if the market price of our Common Stock appreciates.

 

Our Board has broad discretion to issue additional securities.

 

We are entitled under our Charter to issue up to 500,000,000 shares of Common Stock and 50,000,000 shares of Preferred Stock, although these amounts may change in the future subject to stockholder approval. Shares of our Preferred Stock provide our Board broad authority to determine voting, dividend, conversion and other rights. Any additional stock issuances could be made at a price that reflects a discount or premium to the then-current market price of our Common Stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for a significant amount of our Common Stock. Our Board may generally issue those shares of Common Stock and Preferred Stock, or convertible securities to purchase those shares, without further approval by our stockholders. Any Preferred Stock we may issue could have such rights, preferences, privileges and restrictions as may be designated from time-to-time by our Board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions. We may also issue additional securities to our directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our stock incentive plans. The issuance of additional securities may cause substantial dilution to our stockholders.

 

 

The conversion or exercise, as applicable, of the outstanding Series D Preferred Stock, Series E Preferred Stock, Series D PIPE Warrants, Series E PIPE Warrants, Non-Compensatory Options and Exok Warrants could substantially dilute your investment and adversely affect the market price of our Common Stock.

 

Following the Reverse Stock Split, the Series D Preferred Stock are convertible into an aggregate of 3,475,250 shares of Common Stock and the Series D PIPE Warrants are exercisable for an aggregate of 6,950,500 shares of Common Stock. The Series E Preferred Stock are convertible into an aggregate of 4,000,000 shares of Common Stock and the Series E PIPE Warrants are exercisable for an aggregate of 8,000,000 shares of Common Stock. The Exok Warrants are exercisable for an aggregate of 670,499 shares of Common Stock. In addition, there are outstanding Non-Compensatory Options to purchase an aggregate of 8,000,000 shares of Common Stock for $7.14 per share which are only exercisable if specific production hurdles are achieved, pursuant to the Option Agreements. 4,423 outstanding Series D Preferred Stock were issued in connection with the exchange of the Original Debentures for the AR Debentures.

 

In addition, sales of a substantial number of shares of Common Stock issued upon the conversion or exercise, as applicable, of the outstanding Series E Preferred Stock, Series E PIPE Warrants, Exok Warrants, Series D Preferred Stock, Series D PIPE Warrants, Non-Compensatory Options, or even the perception that such sales could occur, could adversely affect the market price of our Common Stock. The conversion or exercise of such securities could result in dilution in the interests of our other stockholders and adversely affect the market price of our Common Stock.

 

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could result in a restatement of our financial statements, cause investors to lose confidence in our financial statements and our Company and have a material adverse effect on our business and stock price.

 

We produce our financial statements in accordance with GAAP. Effective internal controls are necessary for us to provide reliable financial reports to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. Further, Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting. Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in our reported financial information and our company, which could result in a decline in the market price of our Common Stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise additional financing if needed in the future.

 

Risks Related to the Price of Bitcoin

 

The trading price of shares of our Common Stock has appeared at times to have a correlation with the trading price of Bitcoin, which may be subject to pricing risks, including “bubble” type risks, and has historically been subject to wide swings.

 

From time to time, the trading price of our Common Stock has appeared to have a correlation with the trading price of Bitcoin. Specifically, we have experienced adverse effects on our stock price when the value of Bitcoin has fallen, and we may experience similar outcomes if our stock price tracks the general status of that cryptocurrency. Furthermore, if the market for Bitcoin company stocks or the stock market in general experiences a loss of investor confidence, the trading price of our stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our Common Stock could be subject to arbitrary pricing factors that are not necessarily associated with traditional factors that influence stock prices or the value of non-cryptocurrency assets such as revenue, cash flows, profitability, growth prospects or business activity levels since the value and price, as determined by the investing public, may be influenced by future anticipated adoption or appreciation in value of cryptocurrencies or blockchains generally, factors over which we have little or no influence or control.

 

 

We may face risks of Internet disruptions, which could have an adverse effect on the price of cryptocurrencies.

 

A disruption of the Internet may affect the use of cryptocurrencies and subsequently the value of our securities. Generally, cryptocurrencies and our business of mining cryptocurrencies is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s network operations until the disruption is resolved and have an adverse effect on the price of cryptocurrencies and our ability to mine cryptocurrencies.

 

The impact of geopolitical and economic events on the supply and demand for cryptocurrencies is uncertain.

 

Geopolitical crises may motivate large-scale purchases of Bitcoin and other cryptocurrencies, which could increase the price of Bitcoin and other cryptocurrencies rapidly. Our business and the infrastructure on which our business relies is vulnerable to damage or interruption from catastrophic occurrences, such as war, civil unrest, terrorist attacks, geopolitical events, disease, such as the COVID-19 pandemic, and similar events. Specifically, the uncertain nature, magnitude and duration of hostilities stemming from Russia’s recent military invasion of Ukraine, including the potential effects of sanctions limitations, retaliatory cyber-attacks on the world economy and markets, and potential shipping delays, as well as the conflict in the Israel-Gaza region and any potential increase in hostilities in the Middle East have and may contribute to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, adversely affecting the value of our inventory following such downward adjustment. Such risks are similar to the risks of purchasing commodities in general uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in cryptocurrencies as investors focus their investment on less volatile asset classes as a means of hedging their investment risk. As an alternative to fiat currencies that are backed by central governments, Bitcoin, which is relatively new, is subject to supply and demand forces. How such supply and demand will be impacted by geopolitical events is largely uncertain but could be harmful to us and investors in our Common Stock. Political or economic crises may motivate large-scale acquisitions or sales of Bitcoin either globally or locally. Such events could have a material adverse effect on our ability to continue as a going concern or to pursue our strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin we mine or otherwise acquire or hold for our own account.

 

Acceptance and/or widespread use of cryptocurrency is uncertain.

 

There is a relatively limited use of any cryptocurrency in the retail and commercial marketplace, thus contributing to price volatility that could adversely affect an investment in our securities. Banks and other established financial institutions may refuse to process funds for cryptocurrency transactions, process wire transfers to or from cryptocurrency exchanges, cryptocurrency-related companies or service providers, or maintain accounts for persons or entities transacting in cryptocurrency. Conversely, a significant portion of Bitcoin demand is generated by investors seeking a long-term store of value or speculators seeking to profit from the short- or long-term holding of the asset. Price volatility undermines Bitcoin’s role as a medium of exchange, as retailers are much less likely to accept it as a form of payment. Market capitalization for Bitcoin as a medium of exchange and payment method may always be low. The relative lack of acceptance of cryptocurrencies in the retail and commercial marketplace, or a reduction of such use, limits the ability of end users to use them to pay for goods and services. Such lack of acceptance or decline in acceptance could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of Bitcoin or any other cryptocurrencies we mine or otherwise acquire or hold for our own account.

 

 

The markets for Bitcoin may be under-regulated and, as a result, the market price of Bitcoin may be subject to significant volatility or manipulation, which could decrease consumer confidence in cryptocurrencies and have a materially adverse effect on our business and results of operations.

 

Cryptocurrencies that are represented and trade on a ledger-based platform and those who hold them may not enjoy the same benefits as traditional securities available on trading markets and their investors. Stock exchanges have listing requirements and vet issuers, requiring them to be subjected to rigorous listing standards and rules, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The more lax a distributed ledger platform is about vetting issuers of cryptocurrency assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. We believe that Bitcoin is not a security under federal and state law.

 

Bitcoin and other cryptocurrency market prices have historically been volatile, are impacted by a variety of factors, and are determined primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of cryptocurrencies, or our share price, making their market prices more volatile or creating “bubble” type risks for both Bitcoin and shares of our Common Stock.

 

These factors may inhibit consumer trust in and market acceptance of cryptocurrencies as a means of exchange which could have a material adverse effect on our business, prospects, or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire.

 

Our cryptocurrencies may be subject to loss, theft or restriction on access.

 

There is a risk that some or all of our cryptocurrencies could be lost or stolen. Access to our cryptocurrency assets could also be restricted by cybercrime. Hackers or malicious actors may launch attacks to steal, compromise or secure cryptocurrencies, The loss or destruction of a private key required to access our digital wallets may be irreversible and we may be denied access for all time to our cryptocurrency holdings or the holdings of others held in those compromised wallets. Our loss of access to our private keys or our experience of a data loss relating to our digital wallets could adversely affect our investments and assets. Such events could have a material adverse effect on our business.

 

Demand for Bitcoin is driven, in part, by its status as the most prominent and secure crypto asset. It is possible that crypto assets other than Bitcoin could have features that make them more desirable to a material portion of the crypto asset user base, resulting in a reduction in demand for Bitcoin, which could have a negative impact on the price of Bitcoin and adversely affect an investment in us.

 

Bitcoin, as an asset, holds “first-to-market” advantages over other crypto assets. This first-to-market advantage is driven in large part by having the largest user base and, more importantly, the largest mining power in use to secure its blockchain and transaction verification system. Having a large mining network results in greater user confidence regarding the security and long-term stability of a crypto asset’s network and its blockchain; as a result, the advantage of more users and miners makes a crypto asset more secure, which makes it more attractive to new users and miners, resulting in a network effect that strengthens the first-to-market advantage.

 

Despite the marked first-mover advantage of the Bitcoin network over other crypto asset networks, it is possible that another crypto asset could become materially popular due to either a perceived or exposed shortcoming of the Bitcoin network protocol that is not immediately addressed by the Bitcoin contributor community or a perceived advantage of an altcoin that includes features not incorporated into Bitcoin. If a crypto asset obtains significant market share (either in market capitalization, mining power or use as a payment technology), this could reduce Bitcoin’s market share as well as other crypto assets we may become involved in and have a negative impact on the demand for, and price of, such crypto assets and could adversely affect an investment in us. It is possible that we will mine alternative crypto assets in the future, but we may not have as much experience to date in comparison to our experience mining Bitcoin, which may put us at a competitive disadvantage.

 

 

Bitcoin has forked multiple times and additional forks may occur in the future which may affect the value of Bitcoin we hold or mine.

 

To the extent that a significant majority of users and mining companies on a cryptocurrency network install software that changes the cryptocurrency network or properties of a cryptocurrency, including the irreversibility of transactions and limitations on the mining of new cryptocurrency, the cryptocurrency network would be subject to new protocols and software. However, if less than a significant majority of users and mining companies on the cryptocurrency network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the cryptocurrency running in parallel yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original cryptocurrency and which is the new cryptocurrency. Different metrics adopted by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a cryptocurrency, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the network of a particular cryptocurrency could adversely affect an investment in our securities or our ability to operate.

 

Since August 1, 2017, Bitcoin’s blockchain was forked multiple times creating alternative versions of the cryptocurrency such as Bitcoin Cash, Bitcoin Gold and Bitcoin SV. The forks resulted in a new blockchain being created with a shared history, and a new path forward. The value of the newly created versions including Bitcoin Cash, Bitcoin Gold and Bitcoin SV may or may not have value in the long run and may affect the price of Bitcoin if interest is shifted away from Bitcoin to the newly created cryptocurrencies. The value of Bitcoin after the creation of a fork is subject to many factors including the value of the fork product, market reaction to the creation of the fork product, and the occurrence of forks in the future. As such, the value of Bitcoin could be materially reduced if existing and future forks have a negative effect on Bitcoin’s value.

 

Incorrect or fraudulent cryptocurrency transactions may be irreversible.

 

Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. As a result, any incorrectly executed or fraudulent cryptocurrency transactions could have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations of and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.

 

Cryptocurrencies, including those maintained by or for us, may be exposed to cybersecurity threats and hacks.

 

Flaws in cryptocurrency codes may be exposed by malicious actors. Several errors and defects have been found previously, including those that disabled some functionality for users and exposed users’ information. Exploitations of flaws in the source code that allow malicious actors to take or create money have previously occurred. Our devices, as well as our miners, computer systems and those of third parties that we use in our operations, are vulnerable to cyber security risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and similar disruptions from unauthorized tampering with our miners and computer systems or those of third parties that we use in our operations. As technological change occurs, the security threats to our cryptocurrencies will likely change and previously unknown threats may emerge. Human error and the constantly evolving state of cybercrime and hacking techniques may render present security protocols and procedures ineffective in ways which we cannot predict. Such events could have a material adverse effect on our business, prospects or operations and potentially the value of any Bitcoin or other cryptocurrencies we mine or otherwise acquire or hold for our own account.

 

 

Risks Related to the Exok Assets

 

Oil, natural gas and NGL prices are highly volatile. An extended decline in commodity prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.

 

Following our acquisition and development of the Exok Assets, a portion of our revenues, profitability and cash flows will depend upon the prices for oil, natural gas and NGL. The prices we would receive for oil, natural gas and NGL production are volatile and a decrease in prices can materially and adversely affect our financial results and impede our growth, including our ability to maintain or increase our borrowing capacity, to repay current or future indebtedness and to obtain additional capital on attractive terms. Changes in oil, natural gas and NGL prices have a significant impact on the amount of oil, natural gas and NGL that we can produce economically, the value of our reserves and on our cash flows. Historically, world-wide oil, natural gas and NGL prices and markets have been subject to significant change and may continue to change in the future. Prices for oil, natural gas and NGLs may fluctuate widely in response to relatively minor changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, such as:

 

	●	the domestic and foreign supply of and demand for oil, natural gas and NGL;
	●	the price and quantity of foreign imports of oil, natural gas and NGL;
	●	political and economic conditions and events in foreign oil and natural gas producing countries, including embargoes, continued hostilities in the Middle East, Ukraine and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America, China and Russia, and acts of terrorism or sabotage;
	●	the ability of and actions taken by members of Organization of the Petroleum Exporting Countries and other oil-producing nations in connection with their arrangements to maintain oil prices and production controls;
	●	the impact on worldwide economic activity of an epidemic, outbreak or other public health events, such as COVID-19;
	●	the proximity of our production to and capacity of oil, natural gas and NGL pipelines and other transportation and storage facilities;
	●	federal regulations applicable to exports of liquefied natural gas (“LNG”), including the export of the first quantities of LNG liquefied from natural gas produced in the lower 48 states of the United States;
	●	the level of consumer product demand;
	●	weather conditions;
	●	U.S. and non-U.S. governmental regulations, including environmental initiatives and taxation;
	●	overall domestic and global economic conditions;
	●	the value of the dollar relative to the currencies of other countries;
	●	stockholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil, natural gas and NGL to minimize emissions of carbon dioxide, a greenhouse gas;
	●	technological advances affecting energy consumption, energy conservation and energy supply;
	●	the price and availability of alternative fuels; and
	●	the impact of energy consumption, supply, and conservation policies and activities by governmental authorities, international agreements, and non-governmental organizations to limit, restrict, suspend or prohibit the performance or financing of oil, natural gas and NGL exploration, production, development or marketing activities.

 

 

Drilling for and producing oil and gas wells is a high-risk activity with many uncertainties that could adversely affect our business, financial condition or results of operations.

 

Drilling oil and gas wells, including development wells, involves numerous risks, including the risk that we may not encounter commercially productive oil, natural gas and NGL reserves (including “dry holes”). We must incur significant expenditures to drill and complete wells, the costs of which are often uncertain. It is possible that we will make substantial expenditures on drilling and not discover reserves in commercially viable quantities. Specifically, we often are uncertain as to the future cost or timing of drilling, completing and operating wells, and our drilling operations and those of our third-party operators may be curtailed, delayed or canceled. The cost of our drilling, completing and operating wells may increase and our results of operations and cash flows from such operations may be impacted, as a result of a variety of factors, including:

 

	●	unexpected drilling conditions;
	●	title problems;
	●	pressure or irregularities in formations;
	●	equipment failures or accidents;
	●	adverse weather conditions, such as winter storms, flooding and hurricanes, and changes in weather patterns;
	●	compliance with, or changes in, environmental laws and regulations relating to air emissions, hydraulic fracturing and disposal of produced water, drilling fluids and other wastes, laws and regulations imposing conditions and restrictions on drilling and completion operations and other laws and regulations, such as tax laws and regulations;
	●	the availability and timely issuance of required governmental permits and licenses;
	●	the availability of, costs associated with and terms of contractual arrangements for properties, including mineral licenses and leases, pipelines, rail cars, crude oil hauling trucks and qualified drivers and related services, facilities and equipment to gather, process, compress, store, transport and market crude oil, natural gas and related commodities;
	●	compliance with environmental and other governmental requirements; and
	●	environmental hazards, such as natural gas leaks, oil and produced water spills, pipeline or tank ruptures, encountering naturally occurring radioactive materials, and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the air, surface and subsurface environment.

 

A failure to recover our investment in the Exok Assets, increases in the costs of our drilling operations or those of third-party operators, and/or curtailments, delays or cancellations of our drilling operations or those of our third-party operators in each case due to any of the above factors or other factors, may materially and adversely affect our business, financial condition and results of operations.

 

The Exok Assets currently have no producing properties and there is no assurance that we will be able to successfully drill producing wells. If the Exok Assets are not commercially productive of crude oil or natural gas, any funds spent on exploration and production may be lost.

 

All of the Exok Assets are in the pre-production stage and there is no assurance that we will be able to obtain the requisite permits to begin drilling or successfully drill producing wells. We are dependent on establishing sufficient reserves at the Exok Assets for additional cash flow and a return of our investment. If the Exok Assets are not economic, all of the funds that we have invested, or will invest, will be lost. In addition, the failure of the Exok Assets to produce commercially may make it more difficult for us to raise additional funds in the form of additional sale of our equity securities or working interests in other property in which we may acquire an interest.

 

 

Since we will operate a new business segment and have no operating history related to the exploration and production of oil and gas assets, investors have no basis to evaluate our ability to operate profitably in this segment.

 

We began cryptocurrency mining operations in October 2021 and have not generated any revenue in the exploration and production of oil and gas assets to date. We face many of the risks commonly encountered by other new businesses, including the lack of an established operating history, need for additional capital and personnel, and competition. There is no assurance that our business will be successful or that we can ever operate profitably. Additionally, our management will have less time to devote to the Company’s crypto operations. We may not be able to effectively manage the demands required of a new business segment in a new industry, such that we may be unable to successfully maintain our current business or implement our business plan or achieve profitability.

 

There may be conflicts of interest between certain of our officers and directors and our non-management stockholders.

 

Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of other stockholders. A conflict of interest may arise between our officers and directors’ personal pecuniary interests and their fiduciary duty to our stockholders. Furthermore, our officers and directors’ own pecuniary interests may not align with their fiduciary duties to our stockholders. As further described in the section entitled “Certain Relationships and Related Transactions,” Edward Kovalik (Chief Executive Officer and Chair), Gary C. Hanna (President and Director) and Paul Kessler (Director) have certain overriding royalty interests in the Exok Assets. To avoid any potential conflict of interest with certain members of the Board and management owning certain overriding royalty interests under the Exok Assets, all of the Company’s drilling programs will be approved by an independent committee of the Board on a quarterly basis.

 

Our plan to develop the Exok Assets may require substantial additional capital, which we may be unable to raise on acceptable terms in the future.

 

We currently plan to develop the Exok Assets. Obtaining permits, seismic data, as well as exploration, development and production activities entail considerable costs, and we may need to raise substantial additional capital, through future private or public equity offerings, strategic alliances or debt financing.

 

Our future capital requirements will depend on many factors, including:

 

	●	the scope, rate of progress and cost of our exploration, appraisal, development and production activities;
	●	oil and natural gas prices;
	●	our ability to obtain the requisite permits to begin drilling;
	●	our ability to locate and acquire hydrocarbon reserves;
	●	our ability to produce oil or natural gas from those reserves;
	●	the terms and timing of any drilling and other production-related arrangements that we may enter into;
	●	the cost and timing of governmental approvals and/or concessions; and
	●	the effects of competition by larger companies operating in the oil and gas industry.

 

Even if we succeed in selling additional equity securities to raise funds, at such time the ownership percentage of our existing stockholders would be diluted, and new investors may demand rights, preferences or privileges senior to those of existing stockholders. If we raise additional capital through debt financing, the financing may involve covenants that restrict our business activities. If we are not successful in raising additional capital, we may be unable to continue our future exploration, development and production activities.

 

 

Our estimated natural gas, NGL and oil reserve are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in the reserve estimates or the underlying assumptions will materially affect the quantities and present value of our reserves.

 

Numerous uncertainties are inherent in estimating quantities of natural gas, NGL and oil reserves. The process of estimating natural gas, NGL and oil reserves is complex, requiring significant decisions and assumptions in the evaluation of available geological, engineering and economic data for each reservoir, including assumptions regarding future natural gas, NGL and oil prices, subsurface characterization, production levels and operating and development costs. Our estimates of possible reserves and related projections as of August 1, 2023 were prepared by Collarini Energy Experts (“Collarini”). Collarini conducted a detailed review of all of our properties for the period covered by its reserve report using information provided by us. Over time, we may make material changes to reserve estimates taking into account the results of actual drilling, testing and production. As a result of the uncertainties, estimated quantities of natural gas, NGL and oil reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Over time, we may make material changes to our reserve estimates. Any significant variance in our assumptions and actual results could greatly affect our estimates of reserves, the economically recoverable quantities of natural gas, NGL and oil attributable to any particular group of properties, the classifications of reserves based on risk of non-recovery and estimates of future net cash flows. Estimates of possible reserves, and the future cash flows related to such estimates, are also inherently imprecise and are more uncertain than estimates of proved and probable reserves, respectively, and the respective future cash flows related to such estimates, but have not been adjusted for risk due to that uncertainty. Because of such uncertainty, estimates of possible reserves, and the future cash flows related to such estimates, may not be comparable to estimates of proved and probable reserves, respectively, and the respective future cash flows related to such estimates, and should not be summed arithmetically with estimates of either proved or probable reserves, respectively, and the respective future cash flows related to such estimates. When producing an estimate of the amount of natural gas, NGLs and oil that is recoverable from a particular reservoir, an estimated quantity of possible reserves is an estimate that might be achieved, but only under more favorable circumstances than are likely. Estimates of possible reserves are also continually subject to revisions based on production history, results of additional exploration and development, price changes and other factors. 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. Possible reserves may be assigned to areas of a reservoir adjacent to probable reserve 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. Possible reserves also include incremental quantities associated with a greater percentage of recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves. 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 we believe 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.

 

We will face strong competition from other oil and gas companies.

 

We will encounter competition from other oil and gas companies in all areas of our operations, including the acquisition of exploratory prospects and proven properties. Our competitors include major integrated oil and gas companies and numerous independent oil and gas companies, individuals and drilling and income programs. Many of our competitors are large, well-established companies that have been engaged in the oil and gas business much longer than we have and possess substantially larger operating staffs and greater capital resources than we do. These companies may be able to pay more for exploratory projects and productive oil and gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. In addition, these companies may be able to expend greater resources on the existing and changing technologies that we believe are and will be increasingly important to attaining success in the industry. Such competitors may also be in a better position to secure oilfield services and equipment on a timely basis or on favorable terms. These companies may also have a greater ability to continue drilling activities during periods of low oil and gas prices, such as the current commodity price environment, and to absorb the burden of current and future governmental regulations and taxation. We may not be able to conduct our operations, evaluate and select suitable properties and consummate transactions successfully in this highly competitive environment.

 

 

Government regulation and liability for oil and natural gas operations may adversely affect our business and results of operations.

 

If we are successful in our exploration, production and development activities, we will be subject to extensive federal, state, and local government regulations, which may change from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds and other financial assurance, reports concerning operations, the spacing of wells, unitization and pooling of properties, and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and natural gas from wells below actual production capacity in order to conserve supplies of oil and natural gas. These laws and regulations may affect the costs, manner, and feasibility of our operations by, among other things, requiring us to make significant expenditures in order to comply and restricting the areas available for oil and gas production. Failure to comply with these laws and regulations may result in substantial liabilities to third-parties or governmental entities. We are also subject to changing and extensive tax laws, the effects of which cannot be predicted. The implementation of new, or the modification of existing, laws or regulations, could have a material adverse effect on us, such as by imposing, penalties, fines and/or fees, taxes and tariffs on carbon that could have the effect of raising prices to the end user and thereby reducing the demand for our products.

 

Our operations will be subject to federal, state and local laws and regulations related to environmental and natural resources protection and occupational health and safety which may expose us to significant costs and liabilities and result in increased costs and additional operating restrictions or delays.

 

Our planned oil, natural gas and NGL exploration, production and development operations will be subject to stringent federal, state, local and other applicable laws and regulations governing worker health and safety, the release or disposal of materials into the environment or otherwise relating to environmental protection. Numerous governmental entities, including the EPA, the U.S. Occupational Safety and Health Administration (“OSHA”), and analogous state agencies, including the Colorado Department of Public Health & Environment (“CDPHE”) have the power to enforce compliance with these laws and regulations. These laws and regulations may, among other things, require the acquisition of permits to conduct drilling; govern the amounts and types of substances that may be released into the environment; limit or prohibit construction or drilling activities in environmentally-sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered species; require investigatory and remedial actions to mitigate pollution conditions; impose obligations to reclaim and abandon well sites and pits; and impose specific criteria addressing worker protection. Compliance with such laws and regulations may impact our operations and production, require us to install new or modified emission controls on equipment or processes, incur longer permitting timelines, restrict the areas in which some or all operational activities may be conducted, and incur significantly increased capital or operating expenditures, which costs may be significant. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability.

 

Additionally, certain environmental laws impose strict, joint and several liability for costs required to remediate and restore sites where hydrocarbons, materials or wastes have been stored or released. Failure to comply with these laws and regulations may also result in the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial and corrective action obligations or the incurrence of capital expenditures, the occurrence of restrictions, delays or cancellations in the permitting, development or expansion of projects and the issuance of orders enjoining some or all of our operations in affected areas. Moreover, accidental spills or other releases may occur in the course of our operations, and we cannot assure you that we will not incur significant costs and liabilities as a result of such spills or releases, including any third-party claims for damage to property, natural resources or persons. We may not be able to fully recover such costs from insurance. One or more of these developments that impact us, our service providers or our customers could have a material adverse effect on our business, results of operations and financial condition and reduce demand for our products.

 

Our oil and gas exploration, production, and development activities may be subject to a series of risks related to climate change and energy transition initiatives.

 

The threat of climate change continues to attract considerable attention in the United States and around the world. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG disclosure obligations and regulations that directly limit GHG emissions from certain sources. President Biden highlighted addressing climate change as a priority under his Administration and has issued, and may continue to issue, executive orders related to this.

 

 

At the federal level, the EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources, and impose new standards reducing methane emissions from oil and gas operations through limitations on venting and flaring and the implementation of enhanced emission leak detection and repair requirements. Although there has recently been considerable uncertainty surrounding regulation of methane emissions from oil and gas facilities, the EPA is currently also proposing new and updated rules for both new and existing sources. The EPA’s proposed rules, if finalized, would making existing regulations more stringent, expand the scope of source types covered by the rules, and require states to develop plans to reduce methane and volatile organic compound (“VOC”) emissions from existing sources that must be at least as effective as presumptive standards set by EPA. In addition, the U.S. Congress may continue to consider and pass legislation related to the reduction of GHG emissions, including methane and carbon dioxide. For example, the Inflation Reduction Act of 2022 (the “IRA”), which appropriates significant federal funding for renewable energy initiatives and, for the first time ever, imposes a fee on GHG emissions from certain facilities, was signed into law in August 2022. Furthermore, the SEC has proposed rules that, amongst other matters, will establish a framework for the reporting of climate risks. Separately, the SEC has also announced that it is scrutinizing existing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege an issuer’s existing climate disclosures misleading or deficient. These ongoing regulatory actions and the emissions fee and funding provisions of the IRA could increase operating costs within the oil and gas industry and accelerate the transition away from fossil fuels, which could in turn adversely affect our business and results of operations. We note that the regulatory activities discussed above are subject to intense political debate and could be subject to major modification depending upon the outcome of the 2024 election cycle.

 

At the international level, the United Nations-sponsored Paris Agreement, though non-binding, calls for signatory nations to limit their GHG emissions through individually-determined reduction goals every five years after 2020. In February 2021, President Biden recommitted the United States to long-term international goals to reduce emissions, including those under the Paris Agreement. President Biden announced in April 2021 a new, more rigorous nationally determined emissions reduction level of 50 to 52 percent from 2005 levels in economy-wide net GHG emissions by 2030. Moreover, the international community convenes annually to negotiate further pledges and initiatives, such as the Global Methane Pledge (a collective goal to reduce global methane emissions by 30 percent from 2020 levels by 2030). The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement or other international agreements cannot be predicted at this time.

 

Litigation risks are also increasing, as a number of states, municipalities and other plaintiffs have sought to bring suit against oil and natural gas exploration and production companies in state or federal court, alleging, among other things, that such energy companies created public nuisances by producing fuels that contributed to global warming effects, such as rising sea levels, and therefore, are responsible for roadway and infrastructure damages as a result, or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts. Involvement in such a case, regardless of the substance of the allegations, could have adverse reputational impacts and an unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition or operations.

 

There are also increasing financial risks for oil and gas producers as certain shareholders, bondholders and lenders may elect in the future to shift some or all of their investments into non-fossil fuel energy related sectors. Certain institutional lenders who provide financing to fossil-fuel energy companies have shifted their investment practices to those that favor “clean” power sources, such as wind and solar, making those sources more attractive, and some of them may elect not to provide funding for fossil fuel energy companies in the short or long term. Many of the largest U.S. banks have made “net zero” carbon emission commitments and have announced that they will be assessing financed emissions across their portfolios and taking steps to quantify and reduce those emissions. Additionally, there is also the possibility that financial institutions will be pressured or required to adopt policies that limit funding for fossil fuel energy companies. Although there has been recent political support to counteract these initiatives, these and other developments in the financial sector could lead to some lenders restricting access to capital for or divesting from certain industries or companies, including the oil and gas sector, or requiring that borrowers take additional steps to reduce their GHG emissions. Any material reduction in the capital available to us or our fossil fuel-related customers could make it more difficult to secure funding for exploration, development, production, transportation, and processing activities, which could reduce the demand for our products and services.

 

 

Our oil and gas exploration, production, and development activities may be subject to physical risks related to potential climate change impacts.

 

Increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that could have significant physical effects, such as increased frequency and severity of storms, droughts, wildfires, and floods and other climatic events, as well as chronic shifts in temperature and precipitation patterns. These climatic developments have the potential to cause physical damage to our assets or those of our vendors and suppliers and could disrupt our supply chains and thus could have an adverse effect on our operations.

 

Additionally, changing meteorological conditions, particularly temperature, may result in changes to the amount, timing, or location of demand for energy or its production. While our operational consideration of changing climatic conditions and inclusion of safety factors in design is intended to reduce the uncertainties that climate change and other events may potentially introduce, our ability to mitigate the adverse impacts of these events depends in part on the effectiveness of our facilities and disaster preparedness and response and business continuity planning, which may not have considered or be prepared for every eventuality.

 

Our business and ability to secure financing may be adversely impacted by increasing stakeholder and market attention to ESG matters.

 

Businesses across all industries are facing increasing scrutiny from stakeholders related to their ESG practices. Businesses that are perceived to be operating in contrast to investor or stakeholder expectations and standards, which are continuing to evolve, or businesses that are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such business entity could be materially and adversely affected. Increasing attention to climate change, societal expectations on companies to address climate change, investor and societal expectations regarding voluntary ESG related disclosures, increasing mandatory ESG disclosures, and consumer demand for alternative forms of energy may result in increased operating and compliance costs, reduced demand for our products, reduced profits, increased legislative and judicial scrutiny, investigations and litigation, reputational damage, and negative impacts on our access to capital markets. To the extent that societal pressures or political or other factors are involved, it is possible that the Company could be subject to additional governmental investigations, private litigation or activist campaigns as stockholders may attempt to effect changes to the Company’s business or governance practices.

 

While we may elect to seek out various voluntary ESG targets in the future, such targets are aspirational. We may not be able to meet such targets in the manner or on such a timeline as initially contemplated, including as a result of unforeseen costs or technical difficulties associated with achieving such results. Similarly, while we may decide to participate in various voluntary ESG frameworks and certification programs, such participation may not have the intended results on our ESG profile. In addition, voluntary disclosures regarding ESG matters, as well as any ESG disclosures currently required or required in the future, could result in private litigation or government investigation or enforcement action regarding the sufficiency or validity of such disclosures. Moreover, failure or a perception (whether or not valid) of failure to implement ESG strategies or achieve ESG goals or commitments, including any GHG emission reduction or carbon intensity goals or commitments, could result in private litigation and damage our reputation, cause investors or consumers to lose confidence in us, and negatively impact our operations and goodwill. Notwithstanding our election to pursue aspirational ESG-related targets in the future, we may receive pressure from investors, lenders or other groups to adopt more aggressive climate or other ESG-related goals, but we cannot guarantee that we will be able to implement such goals because of potential costs, technical or operational obstacles or other market or technological developments beyond our control.

 

 

Restrictions and regulations regarding hydraulic fracturing could result in increased costs, delays and cancellations in our planned oil, natural gas, and NGL exploration, production and development activities.

 

Our drilling operations will include hydraulic fracturing activities. Hydraulic fracturing is typically regulated by state oil and gas commissions, but the practice continues to attract considerable public, scientific and governmental attention in certain parts of the country, resulting in increased scrutiny and regulation, including by federal agencies. Many states have adopted rules that impose new or more stringent permitting, public disclosure or well construction requirements on hydraulic fracturing activities. For example, Colorado requires the disclosure of chemicals used in hydraulic fracturing and recently extended setback requirements for drilling activities. Local governments may also impose, or attempt to impose restrictions on the time, place, and manner in which hydraulic fracturing activities may occur. The EPA has also asserted federal regulatory authority over certain aspects of hydraulic fracturing. Additionally, certain federal and state agencies have evaluated or are evaluating potential impacts of hydraulic fracturing on drinking water sources or seismic events. These ongoing studies could spur initiatives to further regulate hydraulic fracturing or otherwise make it more difficult and costly to perform hydraulic fracturing activities. Any new or more stringent federal, state, local or other applicable legal requirements such as presidential executive orders or state or local ballot initiatives relating to hydraulic fracturing that impose restrictions, delays or cancellations in areas where we plan to operate could cause us to incur potentially significant added costs to comply with such requirements or experience delays, curtailment, or preclusion from the pursuit of exploration, development or production activities.

 

Our planned oil, natural gas and NGL exploration and production activities could be adversely impacted by restrictions on our ability to obtain water or dispose of produced water.

 

Our operations will require water for our planned oil and natural gas exploration during drilling and completion activities. Our access to water may be limited due to reasons such as prolonged drought, private third party competition for water in localized areas or our inability to acquire or maintain water sourcing permits or other rights as well as governmental regulations or restrictions adopted in the future. For example, the Governor of Colorado recently signed into law HB 1242 which places restrictions on the use of fresh water for oil and gas operations and requires oil and gas operators to report their water use. Any difficulty or restriction on locating or contractually acquiring sufficient amounts of water in an economical manner could adversely impact our planned operations.

 

Additionally, we must dispose of the fluids produced during oil and natural gas production, including produced water. We may choose to dispose of produced water into deep wells by means of injection, either directly ourselves or through third party contractors. While we may seek to reuse or recycle produced water instead of disposing of such water, our costs for disposing of produced water could increase significantly as a result of increased regulation or if reusing and recycling water becomes impractical. Disposal wells are regulated pursuant to the Underground Injection Control (“UIC”) program established under the federal Safe Drinking Water Act (“SDWA”) and analogous state laws. The UIC program requires permits from the EPA or an analogous state agency for construction and operation of such disposal wells, establishes minimum standards for disposal well operations, and restricts the types and quantities of fluids that may be disposed.

 

In recent years, wells used for the disposal by injection of flowback water or certain other oilfield fluids below ground into non-producing formations have been associated with an increased number of seismic events, with research suggesting that the link between seismic events and wastewater disposal may vary by region and local geology. The U.S. geological survey has recently identified Colorado as one of six states with the most significant hazards from induced seismicity. Concerns by the public and governmental authorities have prompted several state agencies to require operators to take certain prescriptive actions or limit disposal volumes following unusual seismic activity. The Colorado Oil and Gas Conservation Commission (“COGCC”) requires operators to monitor and evaluate for seismicity risks in certain situations. Restrictions on produced water disposal well injection activities or suspensions of such activities, whether due to the occurrence of seismic events or other regulatory actions could increase our costs to dispose of produced water and adversely impact our results of operations.

 

Laws and regulations pertaining to the protection of threatened and endangered species and their habitats could delay, restrict or prohibit our planned oil, natural gas, and NGL exploration and production operations and adversely affect the development and production of our reserves.

 

The Endangered Species Act (“ESA”) and comparable state laws protect endangered and threatened species and their habitats. Under the ESA, the U.S. Fish and Wildlife Service (“FWS”) may designate critical habitat areas that it believes are necessary for survival of species listed as threatened or endangered. Similar protections are offered to migratory birds under the MBTA. Such designations could require us to develop mitigation plans to avoid potential adverse effects to protected species and their habitats, and our oil and gas operations may be delayed, restricted or prohibited in certain locations or during certain seasons, such as breeding and nesting seasons, when those operations could have an adverse effect on the species. Moreover, the future listing of previously unprotected species as threatened or endangered in areas where we are operating in the future could cause us to incur increased costs arising from species protection measures or could result in delays, restrictions or prohibitions on our planned development and production activities.

 

 

Use of Proceeds

 

All of the shares of Common Stock offered by the Selling Stockholders pursuant to this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales. We will receive proceeds from any exercise of the Warrants for cash.

 

 

Determination of Offering Price

 

We cannot currently determine the price or prices at which shares of our Common Stock may be sold by the Selling Stockholders under this prospectus.

 

 

Market Information for Common Stock and Dividend Policy

 

Market Information

 

Our Common Stock is currently listed on the OTCQB. As of October 16, 2023, our ticker symbol is “CRKRD,” a transitionary stock ticker. The Company expects to commence trading under “PROP” on or about November 14, 2023, following the 20 trading day transition period. On October 20, 2023, the closing price of our Common Stock was $17.00.

 

As of October 19, 2023, there were 98 holders of record of our Common Stock. The Series D Preferred Stock, Series D PIPE Warrants, Series E Preferred Stock, Series E PIPE Warrants and Exok Warrants are not registered and we do not currently intend to list such securities on any exchange or stock market.

 

Dividend Policy

 

We have not paid any cash dividends on our Common Stock to date. We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay cash dividends for the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that the Board may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. We do not anticipate declaring any cash dividends to holders of the Common Stock in the foreseeable future.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

On May 9, 2011, the Company adopted the 2016 Incentive Stock Award Plan (the “2011 Plan”), on August 12, 2016, the Company adopted the 2016 Incentive Stock Award Plan (the “2016 Plan”), on August 3, 2020, the Company adopted the 2020 Stock Plan (the “2020 Plan”), and on December 1, 2021, the Company adopted the 2021 Incentive Stock Award Plan (the “2021 Plan” and collectively with the 2011 Plan, the 2016 Plan, and the 2020 Plan, the “Plans”). The purpose of the Plans was to provide for the grant of options to purchase our Common Stock and other incentive awards to our employees, directors and key consultants.

 

The maximum number of shares of Common Stock that may be issued pursuant to awards granted under the 2020 Plan was 17,500, as retroactively adjusted for the Reverse Stock Split. On December 1, 2021, all prior stock award plans were retired (except to the extent of outstanding options granted thereunder), and the 2021 Plan was adopted. The maximum number of shares of Common Stock that could be issued pursuant to awards granted under the 2021 Plan was 350,000. The shares of Common Stock underlying cancelled and forfeited awards issued under the 2021 Plan were permitted to again become available for grant under the 2021 Plan. As of December 31, 2022, there were 350,000 shares available for grant under the 2021 Plan, and no shares were available for grant under the 2020 Plan, 2016 Plan, or 2011 Plan. However, on August 25, 2023, in connection with the amendment and restatement of the A&R LTIP (defined below), the 2021 Plan was terminated and all shares available for issuance thereunder were retired.

 

The following table summarizes our equity compensation plans as of December 31, 2022:

 

Plan category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

⸻

⸻

⸻

Equity compensation plans not approved by security holders (1)

7,087

$

0.25

350,000

 

(1) Equity compensation plans not approved by shareholders include each of the 2016 Plan, the 2020 Plan and the 2021 Plan. The number of securities reflected in column (a) are comprised of 2,275 shares to be issued upon exercise of outstanding options previously granted under the 2016 Plan and 4,812 shares to be issued upon exercise of outstanding options previously granted under the 2020 Plan. However, neither the 2016 Plan nor the 2020 Plan have any shares remaining available for future grants, and the amount reflected in column (c) relates solely to the 2021 Plan, as of December 31, 2022, which reflects historic share counts and does not take into account the Reverse Stock Split.

 

In connection with the Merger and pursuant to the Merger Agreement, prior to the Effective Time, the Board assumed Prairie LLC’s Long Term Incentive Plan and immediately following the Effective Time, adopted the Amended and Restated Prairie Operating Co. Long Term Incentive Plan (the “A&R LTIP Plan”), which was an amendment and restatement of Prairie LLC’s Long Term Incentive Plan. Among other ministerial changes to reflect the Merger and conversion of all membership interests in Prairie LLC to shares of Common Stock, the A&R LTIP Plan provides for the assumption of shares remaining available for delivery as of immediately prior to the Effective Time (as appropriately adjusted to reflect the Merger, resulting in 625,000 shares of Common Stock) such that such shares shall be available for awards under the A&R LTIP Plan to individuals who were employed by Prairie LLC or its affiliates prior to the Effective Time. On August 25, 2023, in connection with the termination of the 2021 Plan and the consolidation of the Company’s available equity incentive plans into one arrangement, the A&R LTIP was further amended and restated to provide for the delivery of up to 35 million shares of Common Stock pursuant to incentive awards granted thereunder. However, following the Reverse Stock Split, the number of shares available for delivery under the A&R LTIP has been adjusted to 1,225,000.

 

We intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of Common Stock issued or issuable under the A&R LTIP Plan. Any such Form S-8 registration statement will become effective automatically upon filing. We expect that the initial registration statement on Form S-8 will cover shares of Common Stock underlying the A&R LTIP Plan. Once these shares are registered, they can be sold in the public market upon issuance, subject to applicable restrictions.

 

 

Unaudited Pro Forma Condensed Combined Financial Information

 

Unless otherwise indicated, defined terms included below shall have the same meaning as terms defined and included elsewhere in the prospectus.

 

The Company is providing the following unaudited pro forma condensed combined financial information to aid in the analysis of the financial aspects of the Merger, PIPE and Exok Transaction (collectively, 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 as described in Note 2 below.

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2023 combines the historical balance sheet of the Company as of June 30, 2023 on a pro forma basis as if the subsequent events, described in Note 2 below, had been consummated on June 30, 2023.

 

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2023 and the year ended December 31, 2022 combine the historical statements of operations of Prairie LLC and the historical statements of operations of the Company, as applicable, for such periods on a pro forma basis in accordance with Article 11 of Regulation S-X, as amended, as if the Transactions, summarized below, and subsequent events, described in Note 2 below, had been consummated on January 1, 2022.

 

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 for the fiscal year ended 2022 included in this document, (b) the Company’s unaudited historical condensed consolidated financial statements and related notes for the three and six months ended June 30, 2023 included in this document, (c) Prairie LLC’s audited financial statements for the period from June 7, 2022 (date of inception) to December 31, 2022 and related notes included in this document, and (d) the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.” incorporated by reference into this prospectus.

 

The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the financial condition or results of operations would have been had the Transactions or subsequent events, described in Note 2 below, occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the 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 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 Company completed its previously announced Merger with Prairie LLC pursuant to the terms of the Merger Agreement, pursuant to which, among other things, Merger Sub merged 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.

 

Upon consummation of the Merger, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.” Our Common Stock is currently listed on the OTCQB under the symbol “CRKRD,” a transitionary ticker symbol. The Company expects to commence trading under “PROP” on or about November 14, 2023, following the 20 trading day transition period. On October 20, 2023, the closing price of our Common Stock was $17.00.

 

 

Prior to the consummation of the Merger, the Company effectuated the 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:

 

(i) the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, plus accrued dividends, were converted, in the aggregate, into shares of Common Stock;

 

(ii) the Original Debentures, plus accrued but unpaid interest and a 30% premium, were exchanged, in the aggregate, for (a) 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 Board 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 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.

 

Prior to the Closing, the Company’s then-existing warrants to purchase shares of Common Stock, warrants to purchase shares of Series B Preferred Stock and options to purchase shares of Common Stock were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof.

 

At the Effective Time, all membership interests in Prairie LLC were converted into the right to receive each member’s pro rata share of 2,297,669 shares of Common Stock.

 

At the Effective Time, the Company assumed and converted options to purchase membership interests of Prairie LLC outstanding and unexercised as of immediately prior to the Effective Time into Non-Compensatory Options to acquire 8,000,000 shares of Common Stock for $0.25 per share, which are only exercisable if specific production hurdles are achieved, and the Company entered into the Option Agreements with each of Gary C. Hanna, Edward Kovalik, Paul Kessler and a third-party investor. An aggregate of 2,000,000 Non-Compensatory Options are subject to be transferred to the PIPE Investors, based on their then percentage ownership of PIPE Preferred Stock to the aggregate PIPE Preferred Stock outstanding and held by all PIPE Investors as of the Closing Date, if the Company does not meet certain performance metrics by May 3, 2026.

 

In addition, in connection with the Closing of the Merger, the Company consummated the purchase of oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 3,157 net mineral acres in, on and under approximately 4,494 gross acres from Exok for $3,000,000 pursuant to the Exok Agreement.

 

To fund the Exok Transaction, the Company received an aggregate of approximately $17.38 million in proceeds from the PIPE Investors, and the PIPE Investors were issued PIPE Preferred Stock, with a stated value of $1,000 per share and convertible into shares of Common Stock at a price of $5.00 per share, and 100% warrant coverage for each of the Series D A Warrants and Series D B Warrants in the Series D PIPE pursuant to the Series D Securities Purchase Agreement entered into with each Series D PIPE Investor.

 

The Merger has been 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 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 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 May 3, 2023 other than the Series E PIPE, the conversion of the AR Debentures, the SBA Loan repayment, the issuance of the Obligation Shares, and the Reverse Stock Split, each of which is described in Note 2 below and reflected in the pro forma financial information, nor do they reflect anticipated financings or other transactions that may occur in the future.

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet

as of June 30, 2023

 

		Prairie Operating				Pro Forma
		Co.				Transaction						Combined
		(Historical)				Adjustments				Note 3		Pro Forma
Assets
Current assets:
Cash and cash equivalents		$	8,551,483			$	20,000,000			(a)		$	10,130,850
							(18,000,000	)		(b)
							(200,000	)		(c)
							(25,000	)		(d)
							(156,967	)		(f)
							(38,666	)		(g)
Accounts receivable			94,649				-						94,649
Prepaid expenses			381,263				-						381,263
Total current assets			9,027,395				1,579,367						10,606,762
Property and equipment
Oil and natural gas properties			3,189,031				25,289,494			(b)			28,503,525
							25,000			(d)
Cryptocurrency mining equipment			4,293,422				-						4,293,422
Less: Accumulated depreciation, depletion and amortization			(132,851	)			-						(132,851	)
Total property and equipment, net			7,349,602				25,314,494						32,664,096
Deposits on mining equipment			150,000				-						150,000
Total assets		$	16,526,997			$	26,893,861					$	43,420,858
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	4,407,449			$	(6,967	)		(f)		$	4,381,149
							(19,333	)		(g)
Accrued interest and expenses – related parties			19,333				(19,333	)		(g)			-
Secured convertible debenture (related party)			1,361,000				(1,361,000	)		(g)			-
Secured convertible debenture			1,361,000				(1,361,000	)		(g)			-
Total current liabilities			7,148,782				(2,767,633	)					4,381,149
Long-term liabilities:
SBA loan payable			150,000				(150,000	)		(f)			--
Other long-term liabilities – share issuance obligation			1,235,823				(1,235,823	)		(e)			-
Total long-term liabilities			1,385,823				(1,385,823	)					-
Total liabilities			8,534,605				(4,153,456	)					4,381,149
Commitments and contingencies													-
Stockholders’ equity:
Preferred stock; 50,000 shares authorized:
Series D convertible preferred stock; $0.01 par value; 21,799 shares issued and outstanding at June 30, 2023			218				-						218
Series E convertible preferred stock; $0.01 par value; zero shares issued and outstanding at June 30, 2023 (See Note 2)			-				200			(a)			200
Common stock; $0.01 par value; 500,000,000 shares authorized and 6,158,659 shares issued and outstanding at June 30, 2023*			61,587				396			(a)			74,755
							6,705			(b)
							2,060			(e)
							4,007			(g)
Additional paid-in capital			28,916,597				19,999,404			(a)			55,606,190
							2,938,432			(b)
							(200,000	)		(c)
							1,233,763			(e)
							2,717,993			(g)
Accumulated deficit			(20,986,010	)			-						(20,986,010	)
Total stockholders’ equity			7,992,392				26,702,960						34,695,352
Total liabilities and stockholders’ equity		$	16,526,997			$	22,549,504					$	39,076,501

 

*The shares issued and outstanding at December 31, 2022 was 428,611 for Creek Road Miners, Inc.

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

Six Months Ended June 30, 2023

 

						Creek Road
						Miners, Inc.
		Prairie Operating Co. (Historical)				January 1, 2023 through May 2, 2023 (Historical)				Pro Forma Transaction Adjustments				Note 3		Combined Pro Forma
Revenue:
Cryptocurrency mining		$	179,318			$	73,584			$	-					$	252,902
Operating costs and expenses:
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)			93,244				80,140				-						173,384
Depreciation and amortization			132,851				116,724				138,339			(h)			387,914
Stock based compensation			-				170,120				-						170,120
General and administrative			2,921,863				1,119,277				-						4,041,140
Impairment of cryptocurrency mining equipment			16,794,688				-				-			(i)			16,794,688
Total operating expenses			19,942,646				1,486,261				138,339						21,567,246
Loss from operations			(19,763,328	)			(1,412,677	)			(138,339	)					(21,314,344	)
Other income (expense):
Interest income			43,037				-				-						43,037
Interest expense			(43,719	)			(214,344	)			135,250			(j)			-
											2,813			(k)
											120,000			(l)
Loss on adjustment to fair value - AR Debentures			(741,000	)			-				741,000			(m)			-
Gain on adjustment to fair value - Obligation Shares			(706,185	)			-				706,185			(n)			-
Total other income (expense)			(1,447,867	)			(214,344	)			1,705,248						43,037
Income (loss) from operations before provision for income taxes			(21,211,195	)			(1,627,021	)			1,566,909						(21,271,307	)
Provision for income taxes			-				-				-						-
Net income (loss)			(21,211,195	)			(1,627,021	)			1,566,909						(21,271,307	)
Dividends on preferred stock			-				(95,472	)			95,472			(o)			-
Net income (loss) attributable to common stockholders		$	(21,211,195	)		$	(1,722,493	)		$	1,662,381					$	(21,271,307	)
Income (loss) per common share:
Loss per share from continuing operations, basic and diluted		$	(10.75	)		$	(4.02	)		$	-					$	(6.46	)
Loss per share, basic and diluted		$	(10.75	)		$	(4.02	)		$	-					$	(6.46	)
Weighted average common shares outstanding, basic and diluted – Note 3(p)			1,973,493				428,611				-						3,290,243

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2022

 

		Prairie Operating
		Co., LLC
		June 7, 2022 (date of inception) through December 31, 2022 (Historical)				Creek Road Miners, Inc. (Historical)				Pro Forma Transaction Adjustments				Note 3		Combined Pro Forma
Revenue:
Cryptocurrency mining		$	-			$	517,602			$	-					$	517,602
Operating costs and expenses:
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)			-				1,071,458				-						1,071,458
Depreciation and amortization			-				658,080				117,748			(h)			775,828
Stock based compensation			-				2,681,201				-						2,681,201
General and administrative			461,520				3,606,522				-						4,068,042
Impairment of mined cryptocurrency			-				107,174				-						107,174
Total operating expenses			461,520				8,124,435				117,748						8,703,703
Loss from operations			(461,520	)			(7,606,833	)			(117,748	)					(8,186,101	)
Other income (expense):
Realized loss on sale of cryptocurrency			-				(127,222	)			-						(127,222	)
Impairment on fixed assets			-				(5,231,752	)			-			(i)			(5,231,752	)
Loss on sale of investment			-				(19,104	)			-						(19,104	)
PPP loan forgiveness			-				197,662				-						197,662
Interest expense			-				(613,827	)			368,202			(j)			-
											5,625			(k)
											240,000			(l)
Loss on adjustment to fair value – AR Debentures			-				-				-
Gain on adjustment to fair value – Obligation Shares			-				-				-
Total other income (expense)			-				(5,794,243	)			613,827						(5,180,416	)
Income (loss) from operations before provision for income taxes			(461,520	)			(13,401,076	)			496,079						(13,366,517	)
Provision for income taxes			-				-				-						-
Income (loss) from continuing operations			(461,520	)			(13,401,076	)			496,079						(13,366,517	)
Discontinued operations:
Income (loss) from discontinued operations			-				(17,738	)			-						(17,738	)
Net loss from discontinued operations			-				(17,738	)			-						(17,738	)
Net income (loss)		$	(461,520	)		$	(13,418,814	)		$	496,079					$	(13,384,255	)
Dividends on preferred stock			-				(364,384	)			364,384			(o)			-
Net income (loss) attributable to common stockholders		$	(461,520	)		$	(13,783,198	)		$	860,463					$	(13,384,255	)
Loss per common share:
Loss per share from continuing operations, basic and diluted		$	-			$	(33.78	)		$	-					$	(1.79	)
Loss per share from discontinued operations, basic and diluted		$	-			$	(0.04	)		$	-					$
Loss per share, basic and diluted			-			$	(33.82	)		$	-					$	(1.79	)
Weighted average common shares outstanding, basic and diluted - Note 3(i)			-				407,711				-						7,475,709

 

 

Note 1. Basis of Pro Forma Presentation

 

The Merger has been 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 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, 2023 combines the historical balance sheet of the Company as of June 30, 2023 on a pro forma basis in accordance with Article 11 of Regulation S-X, as amended, as if the subsequent events, described in Note 2 below, had been consummated on June 30, 2023.

 

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2023 and year ended December 31, 2022 combine the historical statements of operations of Prairie LLC and the historical statements of operations of the Company for such periods on a pro forma basis as if the Transactions and subsequent events, described in Note 2 below, had been consummated on January 1, 2022.

 

The pro forma basic and diluted earnings 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 2 below, occurred on January 1, 2022.

 

The unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with, the audited historical financial statements of each of Prairie LLC and the Company and the notes thereto, the unaudited historical financial statements of the Company 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.” contained elsewhere in this document.

 

The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily reflect what the financial condition or results of operations would have been had the Transactions or subsequent events, described in Note 2 below, occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the 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 are subject to change as additional information becomes available and analyses are performed.

 

Note 2. Subsequent Events

 

Exok Option

 

On August 14, 2023, Prairie LLC exercised the Exok Option and purchased oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 20,328 net mineral acres in, on and under approximately 32,695 gross acres from Exok. The Company paid $18.0 million in cash to Exok and issued equity consideration to certain affiliates of Exok, consisting of (i) 670,499 shares of Common Stock and (ii) Exok Warrants providing the right to purchase 670,499 shares of Common Stock at $7.43.

 

To fund the Exok Option Purchase, the Company entered into a securities purchase agreement with the Series E PIPE Investor on August 15, 2023, pursuant to which the Series E PIPE Investor agreed to purchase, and the Company agreed to sell to the Series E PIPE Investor, for an aggregate of $20.0 million, securities consisting of (i) 39,614 shares of Common Stock, (ii) 20,000 shares of Series E Preferred Stock and (iii) Series E PIPE Warrants to purchase 8,000,000 shares of Common Stock, in a private placement.

 

The Exok Option Purchase and the Series E PIPE closed on August 15, 2023. All pro forma adjustments relating to these events (see Note 3) are preliminary estimates and are subject to change.

 

 

Obligation Shares

 

On September 7, 2023, the Company issued 205,970 common shares pursuant to the Obligation Shares obligation.

 

SBA Loan

 

The Company elected to fully repay the SBA loan and all accrued interest in September 2023 utilizing cash on hand.

 

AR Debentures

 

In October 2023, the holders elected to convert the AR Debentures into 400,000 common shares. As a result, the AR Debentures were fully extinguished in October 2023.

 

Reverse Stock Split

 

On October 12, 2023, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State to effect a reverse stock split of outstanding shares of the Company’s common stock, par value $0.01 per share at an exchange ratio of 1:28.5714286 (the “Reverse Stock Split”). The Reverse Stock Split became effective on October 16, 2023. The Reverse Stock Split decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this reverse stock split for all periods presented.

 

Note 3. Unaudited Pro Forma Adjustments

 

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of June 30, 2023 are as follows:

 

	a)	Reflects gross proceeds from the Series E PIPE of $20.0 million and issuance of 39,614 shares of Common Stock, 20,000 shares of Series E Preferred Stock, Series E A Warrants and Series E B Warrants.
	b)	Reflects payment in the amount of $18.0 million, issuance of 670,499 shares of Common Stock and warrants for leasehold acquisition of the Exok Option Assets.
	c)	Reflects estimated transaction costs associated with the Series E PIPE.
	d)	Reflects estimated transaction costs associated with the acquisition of the Exok Option Assets.
	e)	Reflects the issuance of 205,970 shares of Common Stock pursuant to the Obligation Shares.
	f)	Reflects the payoff of the SBA Loan and accrued interest.
	g)	Reflects the conversion of the AR Debentures into common shares and payment of accrued interest in cash.

 

The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2023 and year ended December 31, 2022 are as follows:

 

	h)	Reflects the adjustment to depreciation expense due to fair value allocated at the Merger and useful life of the acquired assets.
	i)	Pursuant to the requirements of Article 11 of Regulation S-X, the $16.6 million adjustment required to write-off the excess of the allocated purchase price of the Merger over the fair value of the acquired net assets is not included in the combined statement of operations for the year ended December 31, 2022 as it is nonrecurring. It is included in the historical combined statement of operations of the Company for the six months ended June 30, 2023.
	j)	Reflects the adjustment to interest expense from the conversion of notes payable and the Original Debentures.
	k)	Reflects the adjustment to interest expense from the payoff of the SBA Loan.
	l)	Reflects the adjustment to interest expense from the conversion of the AR Debentures.
	m)	Reflects the adjustment to reflect the conversion of the AR Debentures into shares of Common Stock.
	n)	Reflects the adjustment to reflect the issuance of 205,970 shares of Common Stock pursuant to the Obligation Shares.
	o)	Reflects the adjustment to dividends due to the conversion of preferred stock upon the Merger.
	p)	Reflects weighted average shares of Common Stock after the impact of the Transactions and the subsequent events described in Note 2. Shares of Common Stock issuable upon conversion of Series E Preferred Stock, Series D Preferred Stock, Series A Warrants, Series B Warrants, options and warrants were excluded in the calculation of diluted net earnings per share as inclusion would have been anti-dilutive. The following table sets forth the computation of pro forma weighted average shares of Common Stock for the six months ended June 30, 2023 and year ended December 31, 2022:

 

		Six months ended June 30, 2023				Year ended December 31, 2022
Weighted average shares of Common Stock outstanding, basic and diluted (prior to the Transactions)			—				—
Net adjustment upon consummation of the Transactions to reflect the issuance of shares of Common Stock			1,973,493				6,158,659
Adjustment upon issuance of shares of Common Stock associated with the Exok Option Purchase and Series E PIPE			710,144				710,144
Adjustment upon issuance of shares of Common Stock associated with the Obligation Shares			205,970				205,970
Adjustment upon issuance of shares of Common Stock associated with conversion of the AR Debentures			400,666				400,666
Weighted average shares of Common Stock outstanding, basic and diluted (Pro Forma)			3,290,243				7,475,409

 

 

Business

 

Background

 

On May 3, 2023, the Company completed its previously announced Merger with Prairie LLC pursuant to the terms of the Merger Agreement, pursuant to which, among other things, Merger Sub merged 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.

 

Upon consummation of the Merger, the Company changed its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.” The Company traded under its former name and ticker symbol “CRKR” until October 16, 2023. Our Common Stock is listed on the OTCQB under the symbol “CRKRD,” a transitionary ticker symbol. The Company expects to commence trading under “PROP” on or about November 14, 2023, following the 20 trading day transition period. On October 20, 2023, the closing price of our Common Stock was $17.00.

 

Prior to the consummation of the Merger, the Company effectuated the 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:

 

(i) the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, plus accrued dividends, were converted, in the aggregate, into shares of Common Stock;

 

(ii) the Original Debentures, plus accrued but unpaid interest and a 30% premium, were exchanged, in the aggregate, for (a) 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 Board 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 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.

 

Prior to the Closing, the Company’s then-existing warrants to purchase shares of Common Stock, warrants to purchase shares of Series B Preferred Stock and options to purchase shares of Common Stock were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof.

 

At the Effective Time, all membership interests in Prairie LLC were converted into the right to receive each member’s pro rata share of 2,297,669 shares of Common Stock.

 

 

At the Effective Time, the Company assumed and converted options to purchase membership interests of Prairie LLC outstanding and unexercised as of immediately prior to the Effective Time into Non-Compensatory Options to acquire an aggregate of 8,000,000 shares of Common Stock for $0.25 per share, which are only exercisable if specific production hurdles are achieved, and the Company entered into the Option Agreements with each of Gary C. Hanna, Edward Kovalik, Paul Kessler and a third-party investor. An aggregate of 2,000,000 Non-Compensatory Options are subject to be transferred to the PIPE Investors, based on their then percentage ownership of Series D Preferred Stock to the aggregate Series D Preferred Stock outstanding and held by all PIPE Investors as of the Closing Date, if the Company does not meet certain performance metrics by May 3, 2026.

 

In addition, in connection with the Closing of the Merger, the Company consummated the purchase of oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 3,157 net mineral acres in, on and under approximately 4,494 gross acres from Exok for $3,000,000 pursuant to the Exok Agreement.

 

On August 1, 2023, all compensatory options that survived the Merger expired.

 

On August 30, 2023, the Company, Gary C. Hanna, Edward Kovalik, Bristol Capital and Georgina Asset Management, LLC (“Georgina Asset Management”) entered into a non-compensatory option purchase agreement, pursuant to which Georgina Asset Management agreed to purchase, and each of Gary C. Hanna, Edward Kovalik and Bristol Capital (collectively, the “Sellers”) agreed to sell to Georgina Asset Management Non-Compensatory Options to acquire an aggregate of 200,000 shares of Common Stock for an aggregate purchase price of $2,000 (the “Option Purchase”). The Option Purchase closed on August 30, 2023. In connection with the Option Purchase, the Company entered into an amendment to the Option Agreements with each of the Sellers (or an assignee thereof) to reflect that each Seller owns a lesser number of Non-Compensatory Options after the Option Purchase.

 

On September 18, 2023, the Company submitted its initial permit application with the Colorado Energy and Carbon Management Commission for the Genesis Oil & Gas Development Plan (“OGDP”) in Weld County, Colorado. The Genesis OGDP encompasses seventy-two (72) wells on two (2) pads, developing 9-square miles of subsurface minerals in rural Weld County, Colorado. The two (2) pads, the Burnett and Oasis, will develop eighteen (18) three-mile lateral wells and fifty-four (54) two-mile lateral wells, respectively.

 

On October 13, 2023, the holders of the AR Debentures elected to convert their AR Debentures into an aggregate of 400,667 shares of Common Stock.

 

On October 16, 2023, the Company effected the Reverse Stock Split at a ratio of 1:28.5714286. The share counts listed above have been retroactively adjusted to reflect the Reverse Stock Split. The following table shows the share counts before and after the Reverse Stock Split:

 

Source of shares		Shares prior to Reverse Stock Split				Shares following Reverse Stock Split
Restructuring Transaction			96,436,808				3,375,288
Merger Consideration			65,647,676				2,297,669
Shares underlying Series D Preferred Stock			99,292,858				3,475,250
Shares underlying Series D A Warrants			99,292,858				3,475,250
Shares underlying Series D B Warrants			99,292,858				3,475,250
Shares issued to Exok in the Exok Option Purchase			19,157,123				670,499
Shares underlying Exok Warrants			19,157,123				670,499
Shares issued to the Series E PIPE Investor			1,131,856				39,614
Shares underlying Series E Preferred Stock			114,285,714				4,000,000
Shares underlying Series E A Warrants			114,285,714				4,000,000
Shares underlying Series E B Warrants			114,285,714				4,000,000
Shares issued upon conversion of AR Debentures			11,447,619				400,667

 

In addition, the exercise prices and conversion rates of the Preferred Stock and Warrants were adjusted pursuant to their respective terms to reflect the Reverse Stock Split. The following table shows the applicable exercise prices and conversion rates before and after the Reverse Stock Split:

 

Securities		Pre-Split Conversion Rate or Exercise Price, as applicable				Post-Split Conversion Rate or Exercise Price, as applicable
Series D A Warrant		$	0.21			$	6.00
Series D B Warrant		$	0.21			$	6.00
Series D Preferred Stock		$	0.175			$	5.00
Exok Warrant		$	0.2620			$	7.4857
Series E A Warrant		$	0.21			$	6.00
Series E B Warrant		$	0.21			$	6.00
Series E Preferred Stock		$	0.175			$	5.00

 

The retroactive impact of the Reverse Stock Split on our financial statements as of and for the year ended December 31, 2022 and the six months ended June 30, 2023 is reflected in the unaudited pro forma condensed combined financial statements included herein. See “Unaudited Pro Forma Condensed Combined Financial Statements.”

 

Nature of Business

 

E&P

 

We are engaged in the development, exploration and production of oil, natural gas, and NGLs with operations focused on unconventional oil and natural gas reservoirs located in Colorado focused on the Niobrara and Codell formations. All of the Company’s E&P assets were acquired in the Exok Transaction and Exok Option Purchase and consist of certain oil and gas leasehold interests with no existing oil and gas production or revenue. Our current activities are focused on obtaining requisite permits to begin drilling wells and, as such, we have no current drilling or completion operations.

 

The Exok Assets

 

Prairie acquired the following assets from Exok in the Exok Transaction and the Exok Option Purchase:

 

	●	all of Exok’s right, title and interest in, to and under the fee oil and gas leases described more particularly in the Exok Agreement, including all working interests, operating rights, record title interests and other interests of every kind and character (the “Fee Leases”), that include and convey no less than a 75% net revenue interest (“NRI,” being the share of production of all hydrocarbons produced, saved and sold, after all burdens, such as royalty and overriding royalty, have been deducted from the working interest) in each Fee Lease;
	●	all of Exok’s right, title and interest in, to and under the State of Colorado Oil and Gas Lease described more particularly in the Exok Agreement, including all working interests, operating rights, record title interests and other interests of every kind and character (the “State Leases”), that include and convey no less than a 77.5% NRI in the State Leases;
	●	100% of Exok’s leasehold interest (Fee Leases and State Leases collectively referred to as the “Leases”) in approximately 23,485 net mineral acres in, on and under approximately 37,189 gross acres located in Weld County, Colorado, as described more particularly in the Exok Agreement (the “Lands”);
	●	to the extent transferable, Exok’s interests in and under all contracts, agreements and instruments by which the other Exok Assets are bound or that relate to or are used or useful in connection with the ownership, development or operation of the Leases or the Lands, to the extent applicable to the Leases or Lands, including all surface use agreements, surface rights, surface permits and other similar rights and instruments; and
	●	all of Exok’s records, files and geological and geophysical data directly related to the Exok Assets, including without limitation all seismic data and interpretations thereof, logs, core analyses, formation tests, films, surveyors’ notes, plane table sheets, shot point data bases, land files, contract files, lease files, title files (including title reports, title opinions, runsheets, abstracts, evidence of bonus and rental payments), maps, surveys and data sheets.

 

 

The assets are undeveloped oil and gas leasehold acreage located in northern Colorado, in Weld County covering approximately 4,494 gross acres and 3,157 net acres. The operating area is rural and free of development. Access to the leases is by paved and dirt country roads and private road access. Approximately 70% of the net leasehold is held under fee leases, with the remaining 30% held under State of Colorado leases. Prairie does not hold any interest in federal oil and gas leases. All of the acreage is held by crude oil and natural gas leases with varying expiration dates, some with options to extend ranging from 1 to 4 years. The fee leases are burdened with total royalties of 25%. The State of Colorado leases are burdened with total royalties of 22.5%. The leases can be held indefinitely by production. Unless production is established within the spacing units covering the undeveloped acreage, the leases for such acreage will eventually expire. There are no lease expirations prior to July 23, 2025.

 

The Exok Assets are located in and around wells drilled in both the Niobrara Shale and the Codell Sandstone formations within the D-J Basin. While production activities in the D-J Basin date back to the 1970s, production within the D-J Basin has increased rapidly since the horizontal drilling boom in 2009, with both the Niobrara and Codell formations contributing to this activity. Within the D-J Basin operating area, there are over 1,300 legacy vertical wells, with Noble Energy, Inc. (now Chevron Corporation), Civitas Resources, Inc., EOG Resources, Inc. and Samson Energy Company, LLC operating a substantial number of such wells.

 

The primary drilling objective in this area is crude oil production from the fractured Codell and Niobrara formations. The area has seen a renewed interest in drilling activity over the past decade in conjunction with drilling success in the Niobrara in the D-J Basin on the front range of Colorado. Active operators in the area have included Noble Energy, Inc. (now Chevron Corporation), Civitas Resources, Inc., EOG Resources, Inc., Samson Energy Company, LLC and others. There is ample takeaway infrastructure in place within several miles of the Exok Assets, including multiple midstream operators such as Summit Midstream Partners LP, Outrigger Energy II LLC, Rimrock Energy Partners LLC and Roaring Fork Midstream LLC.

 

Pursuant to the Exok Agreement, the Company has the option to purchase, from the Closing Date until the later of (x) the date that is ninety (90) days following the Closing Date and (y) August 15, 2023, approximately 20,327 net mineral acres in, on and under approximately 32,695 additional gross acres from Exok for a purchase price of $22,182,000, payable in (a) $18,000,000 in cash and (b) $4,182,000 in total equity consideration, consisting of (1) a number of shares of Common Stock equal to the quotient of $4,182,000 divided by the volume weighted average price for shares of Common Stock for twenty (20) consecutive trading days ending on the date such option is exercised by the Company and (2) an equal number of warrants to purchase shares of Common Stock (the “Exok Option”).

 

On August 14, 2023, Prairie LLC exercised the Exok Option and purchased oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 20,328 net mineral acres in, on and under approximately 32,695 gross acres from Exok. The Company paid $18.0 million in cash to Exok and issued equity consideration to certain affiliates of Exok, consisting of (i) 670,499 shares of Common Stock and (ii) Exok Warrants providing the right to purchase 670,499 shares of Common Stock at $7.43.

 

To fund the Exok Option Purchase, the Company entered into a securities purchase agreement with the Series E PIPE Investor on August 15, 2023, pursuant to which the Series E PIPE Investor agreed to purchase, and the Company agreed to sell to the Series E PIPE Investor, for an aggregate of $20.0 million, securities consisting of (i) 39,614 shares of Common Stock, (ii) 20,000 shares of Series E Preferred Stock and (iii) Series E PIPE Warrants to purchase 8,000,000 shares of Common Stock, in a private placement.

 

The Exok Option Purchase and the Series E PIPE closed on August 15, 2023.

 

The Company is currently applying for permits to begin drilling. We expect to begin drilling in the first quarter of 2024, subject to receiving approvals for the requisite permits and obtaining sufficient financing.

 

 

Summary of Our Possible Reserve Estimates

 

The Company’s estimated possible reserves as of August 1, 2023, as shown in the following table, have been prepared by Collarini Energy Experts, an independent Petroleum Reserve Evaluation Firm, in accordance with the Society of Petroleum Engineers’ Petroleum Resources Management System guidelines and guidelines established by the SEC, utilizing NYMEX Strip Pricing as of July 31, 2023. A copy of Collarini’s reserve report as of August 1, 2023 is included as an exhibit to this Registration Statement.

 

Reserve Category		Formation		Well Count				Net Oil (MBbl)				Net Gas (MMCF)				Net NGL (MGal)				Net Equiv. (MBoe)				PV10 ($000s)
POSS
		Codell			148				45,947				99,806				15,852				78,434				641,081
		Niobrara			264				96,688				338,511				53,766				206,873				1,722,856
Total					412				142,635				438,318				69,618				285,306				2,363,937

 

Note: PV-10 is a non-GAAP financial measure. PV-10 is derived from the Standardized Measure of Discounted Future Net Cash Flows (“Standardized Measure”), which is the most directly comparable GAAP financial measure for proved reserves. PV-10 is a computation of the Standardized Measure on a pre-tax basis. PV-10 is equal to the Standardized Measure at the applicable date, before deducting future income taxes, discounted at 10%. We believe that the presentation of PV10 is relevant and useful to our investors as supplemental disclosure to the standardized measure, or after-tax amount, because it presents the discounted future net cash flows attributable to our possible reserves before considering future corporate income taxes and our current tax structure. While the standardized measure is dependent on the unique tax situation of each company, PV10 is based on prices and discount factors that are consistent for all companies. Our possible reserves were derived from wells of offset operators in the same development area. We have shown possible reserves as we will not have proven reserves until our development plan commences.

 

Preparation of reserves estimates.

 

Collarini is a registered d.b.a of Collarini Energy Staffing Inc., a Louisiana S Corporation registered in Louisiana in 1995. It employs petroleum engineers, geoscientists and other experienced professionals. The report was prepared under the direction of Collarini’s Chairman and Project Supervisor, Reserves and Economics Expert, Cheryl Collarini, P.E. Ms. Collarini holds a B.S. in civil engineering from Massachusetts Institute of Technology and an MBA from the University of New Orleans, is a registered professional engineer in the state of Louisiana (License #PE.0022246) and has approximately 50 years of experience in production engineering, reservoir engineering, acquisitions and divestments, field operations and management. Ms. Collarini is a member of the Society of Petroleum Engineers, the Society of Women Engineers, and the Houston Producers’ Forum. She is also a member of the Advisory Board of the University of Houston’s Petroleum Engineering Department. Ms. Collarini meets or exceeds the education, training and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Ms. Collarini is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.

 

Bryan Freeman, our Executive Vice President of Operations, works closely with our independent reserve engineers to ensure the integrity, accuracy and timeliness of data furnished to our independent reserve engineers in their preparation of reserve estimates. Mr. Freeman is primarily responsible for overseeing the preparation of both our internal and external reserve estimates. Mr. Freeman is responsible for reservoir engineering, is a qualified reserve estimator and auditor and is primarily responsible for overseeing our independent reserve engineers during the preparation of our external reserve estimates. His professional qualifications meet or exceed the qualifications of reserve estimators and auditors set forth in the “Standards Pertaining to Estimation and Auditing of Oil and Natural Gas Reserves Information” promulgated by the Society of Petroleum Engineers. His qualifications include a Masters and Bachelor of Science degrees in Engineering from University of Texas; a member of the Society of Petroleum Engineers; and more than 19 years of practical experience in estimating and evaluating reserve information with more than 10 of those years overseeing estimating and evaluating reserves. For additional discussion of Mr. Freeman’s qualifications, please see Mr. Freeman’s biography in the section entitled “Management.”

 

Our independent reserve engineers were selected for their historical experience and geographic expertise in engineering similar resources. Under SEC rules, possible reserves are reserves which, by analysis of geoscience and engineering data, are those additional reserves that are less certain to be recovered than probable reserves. 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. 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. 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. The technical and economic data used in the estimation of our possible reserves include, but are not limited to, lease positions, estimated working and net revenue interests, indicative drilling and completion costs, facility and pipeline costs, expected operating expenses and schedules for proposed drilling and permitting, as well as regional production, well information and directional surveys from the Enverus PRISM data service. Our independent reserve engineers use this technical data, together with standard engineering and geoscience methods, or a combination of methods, including performance analysis, volumetric analysis and analogy. The reserve volumes and their respective classifications and categorizations were estimated by performance methods, volumetric methods, analogy, or combination of methods. Performance methods generally included decline-curve analysis and material balance analysis where representative data was available. Volumetric estimates generally included a combination of geological and engineering interpretations, while analogy methods included reserve estimates from historical performance of similar wells and reservoirs in the field or nearby fields.  Regional production, well information, and directional surveys were sourced from Enverus PRISM data service.

 

We maintain adequate and effective internal controls over our reserve estimation process as well as the underlying data upon which reserve estimates are based. The primary inputs to the reserve estimation process were technical information, financial data, ownership interest and third-party production data. The reserve estimates prepared by our independent reserve engineers were reviewed and compared to our internal estimates by Mr. Freeman and our technical staff. Material reserve estimation differences were reviewed between our independent reserve engineers and us, and additional data was provided to address the differences. If the supporting documentation did not justify additional changes, our independent reserve engineers reserves were accepted. 

 

 

The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. In addition, the results of drilling, testing and production may justify revisions of such estimates. Accordingly, reserve estimates often differ from the quantities of oil, natural gas and NGLs that are ultimately recovered. See “Risk Factors—Our estimated natural gas, NGL and oil reserve are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in the reserve estimates or the underlying assumptions will materially affect the quantities and present value of our reserves.” for more information.

 

Cryptocurrency Mining

 

During 2022, the Company participated in mining pools that pool the resources of groups of miners and split cryptocurrency rewards earned according to the “hashing” capacity each miner contributes to the mining pool. Cryptocurrency mined by the Company has historically been held short-term and sold to fund operations. As described further in the table provided below, the Company earned approximately 19 Bitcoin, net of fees, from its mining operations during the fourth quarter of 2021 and first half of 2022. Substantially all such Bitcoin was sold during the second quarter of 2022 in order to fund operations. The average period between receipt of crypto assets and the subsequent sale date from October 2021, when the Company began holding cryptocurrency, to December 2022, when the Company sold the last of its cryptocurrency, was 136 days. Historically, the Company’s liquidity and value of its Bitcoin held was subject to the risks associated with the volatility in Bitcoin pricing. The Company ceased its cryptocurrency mining operations in mid-2022 and began the process to reinitiate such operations upon the entering of the Master Services Agreement in March 2023 as described below.

 

The Company measures its operations by the number and U.S. Dollar (US$) value of the cryptocurrency rewards it earns from its cryptocurrency mining activities. The following table presents additional information regarding our cryptocurrency mining operations:

 

		Quantity of Bitcoin				US$ Amounts
Balance September 30, 2021			—			$	—
Revenue recognized from cryptocurrency mined			6.7				369,804
Mining pool operating fees			(0.1	)			(7,398	)
Impairment of cryptocurrencies			—				(59,752	)
Balance December 31, 2021			6.6			$	302,654
Revenue recognized from cryptocurrency mined			8.3				343,055
Mining pool operating fees			(0.2	)			(6,868	)
Impairment of cryptocurrencies			—				(106,105	)
Balance March 31, 2022			14.7			$	532,736
Revenue recognized from cryptocurrency mined			4.6				166,592
Mining pool operating fees			(0.1	)			(3,428	)
Proceeds from the sale of cryptocurrency			(18.9	)			(564,205	)
Realized loss on the sale of cryptocurrency			—				(131,075	)
Impairment of cryptocurrencies			—				(34	)
Balance June 30, 2022 (1)			0.3			$	586
Revenue recognized from cryptocurrency mined			0.3				7,955
Mining pool operating fees			—				(156	)
Impairment of cryptocurrencies			—				(1,035	)
Balance September 30, 2022 (1)			0.6			$	7,350
Revenue recognized from cryptocurrency mined			—				—
Mining pool operating fees			—				—
Proceeds from the sale of cryptocurrency			(0.6	)			(11,203	)
Realized gain on the sale of cryptocurrency			—				3,853
Balance December 31, 2022 (1)			—			$	—

 

(1)	After June 30, 2022 and through December 31, 2022 the Company did not receive meaningful cryptocurrency awards nor generate meaningful revenue from cryptocurrency mining.

 

On March 2, 2023, the Company entered into the Master Services Agreement with Atlas and began the process of reinitiating its cryptocurrency mining operations. Currently, we generate all our revenue through our cyptocurrency mining activities from assets we acquired in the Merger. We currently do not expect to receive rewards in the form of cryptocurrency in the future. We do not own, control or take custody of Bitcoin, and we currently do not have any policies regarding how long the Company holds any crypto assets it receives as payment or when the Company will sell any such received crypto assets. Atlas, our service provider, retains all Bitcoin rewards, deducts a hosting service fee from the monthly total mined currency produced by our miners and remits the net mined currency to us in cash. We currently do not intend to mine crypto assets other than Bitcoin. The Company currently does not have, and does not intend to enter into, any agreements with mining pool operators.

 

All of our miners were manufactured by Bitmain, and incorporate application-specific integrated circuit chips specialized to solve blocks on the Bitcoin blockchains using the 256-bit secure hashing algorithm in return for Bitcoin cryptocurrency rewards. At May 3, 2023, the assets acquired by the Company in the Merger included 606 Bitmain S19 XP miners for which deposits had been made and were located in Asia. On May 31, 2023, the Company paid a shipping fee of $54,000 and the miners were delivered to the Company on June 17, 2023. All of the miners are newly manufactured. Upon delivery of the last batch of products to the Company on June 17, 2023, the Bitmain Agreement terminated pursuant to its terms.

 

Factors Affecting Profitability

 

Our business is heavily dependent on the market price of Bitcoin. The prices of cryptocurrencies, specifically Bitcoin, have experienced substantial volatility and dropped throughout 2022 and Bitcoin reached its lowest price since December 2020 in late 2022. As of June 30, 2023, the market price of Bitcoin was $28,478, which reflects a decrease of approximately 40% from the beginning of 2022, and a decrease of approximately 58% from its all-time high of approximately $67,000. Further affecting the industry, and particularly for the Bitcoin blockchain, the cryptocurrency reward for solving a block is subject to periodic incremental halving. Halving is a process designed to control the overall supply and reduce the risk of inflation in cryptocurrencies using a Proof-of-Work consensus algorithm. At a predetermined block, the mining reward is cut in half, hence the term “halving.” For Bitcoin the reward was initially set at 50 Bitcoin currency rewards per block. The Bitcoin blockchain has undergone halving three times since its inception as follows: (1) on November 28, 2012 at block 210,000; (2) on July 9, 2016 at block 420,000; and (3) on May 11, 2020 at block 630,000, when the reward was reduced to its current level of 6.25 Bitcoin per block. While a precise date for the next halving of the Bitcoin blockchain is not known, based on industry data, we anticipate this to occur in the first half of 2024 at block 840,000, when the reward will be reduced to 3.125 Bitcoin per block. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted, which is currently estimated to occur in 2140. While Bitcoin prices have historically increased around these halving events, which increases in price have correspondingly mitigated the decrease in mining reward, there is no guarantee that the price change would be favorable or would compensate for the reduction in mining reward. If a corresponding and proportionate increase in the trading price of Bitcoin or a proportionate decrease in mining difficulty does not follow these anticipated halving events, the revenue we earn from our bitcoin mining operations would see a corresponding decrease. Many factors influence the price of Bitcoin, and potential increases or decreases in prices in advance of, or following, a future halving is unknown.

 

 

In addition to the market price of Bitcoin, the price of electricity can impact the profitability of Bitcoin mining operations. We use special cryptocurrency mining computers to solve complex cryptographic algorithms to support the Bitcoin blockchain and, in return, received Bitcoin as our reward through the third quarter of 2022 and beginning in March 2023, we receive the dollar value of Bitcoin net of costs as our reward. Miners measure their processing power, which is known as “hashing” power, in terms of the number of hashing algorithms solved per second, which is the miner’s “hash rate.” A miner with a higher hash rate consumes more electricity to run than a miner with a lower hash rate. The “hash rate” of our miners averaged 34.94PH during the three months ended June 30, 2023.

 

The term “hashing” power also relates to the total Bitcoin network’s mining difficulty of a given blockchain. When a new blockchain is launched, it sets a specific time frame to produce new blocks. If new miners join the network or performance of miners increases, the hash rate goes up, and blocks are mined faster than the set time. In such cases, the network increases the mining difficulty. The reverse also happens. If there are fewer miners, the hash rate decreases, blocks take longer to mine and the difficulty is lowered. When the Bitcoin network’s difficulty goes up, it takes every mining machine longer and requires more “hashing” power to maintain the same level of mining profits. We do not control nor attempt to forecast the Bitcoin network’s difficulty or the resulting network “hashing” rate.

 

The Company’s cost to earn a Bitcoin is predominantly driven by the cost of power or electricity which fluctuates based on many factors, including the impacts of weather and the price of natural gas. Through the third quarter of 2022, the Company paid the prevailing market rate for power without the benefit of a fixed cost. The price of natural gas can be volatile and increased substantially from the beginning of 2022 through the end of the year which increased the Company’s cost of power. This increase when coupled with the decrease in the price of Bitcoin throughout 2022 resulted in decreased cryptocurrency mining revenue, increased cryptocurrency mining costs and negative operating margins all of which had a material adverse effect on our business, financial condition and results of operations leading to the Company’s cessation of cryptocurrency mining operations in mid-2022.

 

In March 2023 and as described below, we entered into a Master Services Agreement with Atlas and began the process to reinitiate our cryptocurrency mining operations. Through this contract, we sought to normalize our mining costs and agreed to pay Atlas a flat fee of $20.00 per miner to cover set-up costs and thereafter pay a monthly fee to Atlas for the quantity of electricity consumed by the miners at a rate of $0.08 per kWh. As such, the Company’s per unit cost of electricity is currently fixed through the term of the contract which expires on March 2, 2025. However, the cost that Atlas is required to pay its electricity provider may not be fixed and could be greater than $0.08 per kWh or $80 per MW. In such cases, it can and does shut down the Company’s miners thereby reducing both our ability to earn revenue and our electricity costs. There were no such shutdowns during the three months ended June 30, 2023. However, there have been six days during the three months ended September 30, 2023 whereby Atlas has shut down miners due to its cost of electricity. As such, the Company’s operations continue to have exposure to increased power costs driven by market factors. Our Bitcoin mining business breaks even so long as it is economically beneficial for us to continue to operate our mining machines, and that is essentially when the mining machines contribute positive cash flow (i.e., when the variable cost to mine one Bitcoin, namely the electricity cost, equals the market price of a Bitcoin). Based on this overarching principle, our assumed cost to mine one Bitcoin is approximately $11,000. Such estimate is based on the following assumptions: (i) a Bitcoin network hashrate of 344.15 EH/s, which was the approximate network hashrate as of April 14, 2023, according to Blockchain.com; (ii) our average mining machine energy consumption remains at 31.26 joules/terahash, which represents the average mining machine energy consumption as of June 30, 2023; and (iii) electricity cost remains at $0.08 kWh, which is the contracted price we pay per kWh under the Master Services Agreement. As the Bitcoin network hashrate is constantly changing, we use April 14, 2023 as the date of measurement as that is the day our Bitcoin mining operations were fully re-initiated. The estimate of approximately $11,000 is essentially the “shutdown Bitcoin price” for our Bitcoin mining business, indicating that as long as the Bitcoin price is higher than $11,000 on average, we would continue to operate our mining machines and such operation would be economically beneficial to us.

 

Our electricity costs are determined by multiplying the price per kWh by the number of hours in the month by the metered rated power consumption of our miners hosted by Atlas. The more miners we have hosted by Atlas, the higher our electricity costs in total are. Conversely, when the price of electricity rises to the point where Atlas shuts off our miners, we experience lower electricity costs. The cost of electricity under the Master Services Agreement ranged from a low of $9,772 per Bitcoin to a high of $34,123 per Bitcoin for the second quarter of 2023.

 

A breakeven analysis of the Company’s Bitcoin mining operations in terms of one Bitcoin for the second quarter of 2023 follows:

 

		Average Second Quarter 2023
Bitcoin price		$	28,053
Power cost per Bitcoin			(14,872	)
Operating margin per Bitcoin		$	13,181
Key inputs to power cost:
Approximate average network hashrate (EH/s)			360
Average energy consumption per miner (watts) (1)			3,098
Electricity cost ($ per kWh)		$	0.08
Approximate average energy consumption per Bitcoin (kWh)			185,900

 

(1) This value represents the weighted average energy consumption per miner. This is a rated value as measured by the manufacturer of our miners, Bitmain.

 

The average trading price of Bitcoin for the second quarter of 2023 was $28,053. Our cost averaged $14,872 per Bitcoin in this period and was solely from the power cost of $0.08 per kWh. On average, our miners used 185,900 kWh to mine one Bitcoin. There were no set-up or other costs under the Master Services Agreement incurred during this period. This resulted in an average operating margin of $13,181 per Bitcoin during the second quarter of 2023. This cost is based on the following inputs: (i) the average Bitcoin network hashrate of 360 EH/s in the second quarter of 2023 (432 EH/s as of September 18, 2023), (ii) our average mining machine energy consumption of 3,098 watts, and (iii) electricity cost of $0.08 per kWh. As a result, the Company’s average breakeven cost to mine one Bitcoin in the second quarter of 2023 was equal to its power cost of $14,872 per Bitcoin. We experienced some inefficiencies in the second quarter of 2023, such as beginning operations on April 14, 2023, that may have affected results for this quarter. We do not expect such inefficiencies to occur in future quarters.

 

Recent industry-wide developments, including the continued industry-wide fallout from the recent Chapter 11 bankruptcy filings of cryptocurrency exchange FTX (including its affiliated hedge fund Alameda Research), crypto hedge fund Three Arrows, crypto miners Compute North and Core Scientific and crypto lenders Celsius Network, Voyager Digital and BlockFi are beyond our control. We are not directly affected by these recent incidents, as we do not have any counterparty credit exposure to the above-mentioned firms nor expect their potential bankruptcy to have any direct impact on our business or operations. We do not believe that our share price has been adversely affected by such incidents since June 30, 2023, but likely was adversely impacted in 2022 and the first half of 2023. The Company has no exposure to any of the cryptocurrency market participants that recently filed for Chapter 11 bankruptcy or any other counterparties, customers, custodians or other participants in crypto asset markets, or who are known to have experienced excessive redemptions, suspended redemptions, withdrawals of crypto assets or have crypto assets of their customers unaccounted for or material corporate compliance failures; and the Company does not have any assets, material or otherwise, that may not be recovered due to these bankruptcies or excessive or suspended redemptions. The price of Common Stock may still not be immune to unfavorable investor sentiment resulting from these recent developments in the broader cryptocurrency industry and you may experience depreciation of the price of Common Stock.

 

These price movements result in decreased cryptocurrency mining revenue and increased cryptocurrency mining costs, both of which have had a material adverse effect on our business, financial condition and results of operations. We continue to monitor the economic benefits and risks of our cryptocurrency mining operations and may reduce or pause such operations from time to time, or may exit such operations altogether, if we determine that such operations are no longer beneficial to the Company.

 

Master Services Agreement – Atlas

 

On March 2, 2023, the Company entered into the Master Services Agreement with Atlas pursuant to which Atlas will provide the Company with cryptocurrency mining services for the Company’s cryptocurrency miners at its facility in North Dakota for a term of two years. The Company has approximately 750 miners at the Atlas Facility and approximately 600 additional miners were shipped to the Company and deployed to the Atlas Facility on June 28, 2023.

 

Under the Master Services Agreement, the Company agreed to pay an initial flat fee of $20.00 per miner to cover set-up costs and thereafter pay a monthly fee to Atlas for the quantity of electricity consumed by the miners at a rate of $0.08 per kWh. Under the Master Services Agreement, the Company’s electricity costs are determined by multiplying the price per kWh by the number of hours in the month by the metered rated power consumption of the Company’s miners hosted by Atlas. In exchange for such payment, Atlas hosts the miners at its North Dakota facility, including providing rack space, electrical power, internet connectivity, physical security, installation, configuration and monitoring of the miners for any downtime, with a guarantee to maintain a minimum of 95% uptime for all of our miners, not including any power outages or other force majeure events.

 

The electricity fee is invoiced monthly, within five (5) business days following the end of each calendar month. Any mined cryptocurrency produced by the Company’s miners is deposited directly to wallets in the custody and control of Atlas on a daily basis. In exchange, the Company receives a corresponding credit to its account on a daily basis for any mined cryptocurrency that was deposited to the wallets in the custody and control of Atlas. The Company does not maintain any cryptocurrency assets or wallets and does not take possession of any cryptocurrency mined. Instead, Atlas maintains an account for the credit of the Company. Within five (5) business days following the end of each calendar month, Atlas first deducts the electricity fee from the monthly total mined currency produced by the miners, and then remits to the Company the net mined currency in cash. As a result, the Master Services Agreement does not contain any contractual arrangements for Atlas to store the Company’s crypto assets and does not address any security precautions Atlas is required to undertake, any inspection rights the Company has or what type of insurance Atlas is required to have to protect the Company from loss.

 

The term of the Master Services Agreement is two years. The Company has the right to terminate the Master Services Agreement if (a) Atlas fails to perform any of its obligations under the Master Services Agreement in any material respect that is not cured within 30 business days of receiving written notice from the Company or (b) Atlas enters into bankruptcy, dissolution, financial failure or insolvency which is not dismissed or otherwise remedied within thirty (30) days.

 

Atlas has the right to terminate the Master Services Agreement if the Company (a) (i) fails to deliver miners to Atlas; (ii) fails to make any payment(s) when due pursuant to the Master Services Agreement; (iii) breaches any of its representations or warranties in the Master Services Agreement; (iv) violates, or fails to perform or fulfill any covenant or provision of the Master Services Agreement, and any such breach of (a) is not cured within ten (10) business days after receipt of written notice from Atlas; or (b) enters into bankruptcy, dissolution, financial failure or insolvency which is not dismissed or otherwise remedied within thirty (30) days.

 

Upon expiration or termination of the Master Services Agreement and upon payment of all undisputed amounts owed under the Master Services Agreement, Atlas shall decommission and return all of the Company’s miners to the Company.

 

Government Regulation

 

Cryptocurrency is increasingly becoming subject to governmental regulation, both in the U.S. and internationally. State and local regulations also may apply to our activities and other activities in which we may participate in the future. Numerous regulatory bodies have shown an interest in regulating blockchain or cryptocurrency activities. For example, on March 9, 2022, President Biden signed an executive order on cryptocurrencies. While the executive order does not mandate any specific regulations, it instructs various federal agencies to consider potential regulatory measures, including the evaluation of the creation of a U.S. Central Bank digital currency. Future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability. As the regulatory and legal environment evolves, we may become subject to new laws and regulation which may affect our mining and other activities. For additional discussion regarding our belief about the potential risks existing and future regulation pose to our business, see the Section entitled “Risk Factors.”

 

Intellectual Property

 

We do not currently own any patents in connection with our existing and planned blockchain and cryptocurrency related operations.

 

Environmental and Occupational Health and Safety Regulations

 

Our planned oil, natural gas, and NGL exploration and production operations will be subject to stringent federal, regional, state and local laws and regulations regulating worker health and safety, the release or disposal of materials into the environment, or otherwise relating to protection of the environmental and natural resources. These laws and regulations may impose significant obligations on our operations, including the need to obtain permits to conduct drilling or other regulated activities; limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; restrict the types, quantities and concentration of materials that can be released into the environment in the performance of drilling and production activities; apply workplace health and safety standards for the benefit of employees; require remedial activities or corrective actions to mitigate environmental impacts from former or current operations, such as restoration of drilling pits and plugging of abandoned wells; and impose substantial liabilities for pollution or unauthorized releases of hazardous materials resulting from our operations.

 

 

The following is a summary of the more significant existing federal environmental and occupational health and safety laws and regulations, as amended from time to time, to which our planned oil, natural gas and NGL operations will be subject to.

 

	●	The Clean Air Act (“CAA”), which restricts the emission of air pollutants from many sources, imposes various pre-construction, operational, monitoring and reporting requirements and has been relied upon by the EPA as authority for adopting climate change regulatory initiatives relating to GHG emissions.
	●	The Federal Water Pollution Control Act, also known as the “Clean Water Act,” which regulates discharges of pollutants from facilities to state and federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States.
	●	The Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”), which imposes strict liability on generators, transporters, disposers and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur.
	●	The Resource Conservation and Recovery Act (“RCRA”), which governs the generation, treatment, storage, transport and disposal of non-hazardous and hazardous wastes.
	●	The Oil Pollution Act (“OPA”), which subjects owners and operators of vessels, onshore facilities and pipelines, as well as lessees or permittees of areas in which offshore facilities are located, to strict liability for removal costs and damages arising from an oil spill in waters of the United States.
	●	The Safe Drinking Water Act (“SDWA”), which ensures the quality of the nation’s public drinking water through adoption of drinking water standards and controlling the injection of waste fluids into below-ground formations that may adversely affect drinking water sources.
	●	The Occupational Safety and Health Act (“OSH Act”), which establishes workplace standards for the protection of the health and safety of employees, including the implementation of hazard communications programs designed to inform employees about hazardous substances in the workplace, potential harmful effects of these substances, and appropriate control measures.
	●	The Emergency Planning and Community Right-to-Know Act (“EPCRA”), which requires reporting on the storage, use, and release of certain chemicals to federal, state, tribal, and/or local governments to help protect communities from potential risks.
	●	The Endangered Species Act (“ESA”), which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating restrictions or a temporary, seasonal, or permanent ban in affected areas.

 

Additionally, Colorado, where our operations are conducted, has analogous environmental and occupational health and safety laws and regulations governing many of these same types of activities. In some cases these regulations may impose additional or more stringent conditions or controls that can significantly restrict, delay or cancel the permitting, development or expansion of our operations or substantially increase the cost of doing business. In 2019, Colorado passed SB 19-181, which changed Colorado Oil & Gas Conservation Commission’s mission from “fostering” oil and gas development to “regulating oil and gas development in a manner than protects public health, safety, welfare, the environment and wildlife resources.” The agency has since promulgated, and continues to develop, a number of rulemakings reflecting that mission change and imposing additional and stricter regulations on oil and natural gas operations throughout the state.

 

Our operations will also be subject to a variety of local environmental and regulatory requirements, including land use, zoning, building, and transportation requirements. Any failure to comply with these laws, regulations and regulatory initiatives or controls may result in the assessment of sanctions, including administrative, civil, and criminal penalties; the imposition of investigatory, remedial, and corrective action obligations or the incurrence of capital expenditures; the occurrence of restrictions, delays or cancellations in the permitting, development or expansion of projects; and issuance of injunctions restricting or prohibiting some or all of our activities in a particular area.

 

 

The trend in environmental and occupational health and safety laws and regulations over time has been the imposition of increasingly restrictive and limiting regulations on activities that may adversely affect the environment and natural resources or expose workers to injury. If existing regulatory requirements or enforcement policies change or new executive action or regulatory or enforcement initiatives are developed and implemented in the future, we may be required to make significant, unanticipated capital and operating expenditures which could have a material adverse impact on our financial condition or results of operations.

 

Additionally, the federal OSH Act and analogous state occupational safety and health laws that impose rigorous standards to prevent or mitigate workers’ exposure to injury will require us to organize information about materials, some of which may be hazardous or toxic, that are used, released or produced in our planned oil, natural gas, and NGL exploration and production operations. Moreover, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require that information be maintained concerning hazardous materials used or produced in our operations and that this information be provided to employees, state, local and other applicable government authorities and citizens.

 

Employees

 

As of August 21, 2023, we have ten employees. We have never experienced a work stoppage, and believe we maintain positive relationships with our employees.

 

Facilities

 

Our primary office is located at 602 Sawyer Street, Suite 710, Houston, Texas 77007.

 

Legal Proceedings

 

The Company is not involved in any disputes and does not have any litigation matters pending which the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our Common Stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

 

Management

 

Management and Board of Directors

 

Our directors and executive officers and their ages as of October 13, 2023 are as follows:

 

Name		Age		Position
Executive Officers
Gary C. Hanna		65		President and Director
Edward Kovalik		49		Chief Executive Officer and Chair
Craig Owen		54		Chief Financial Officer
Jeremy Ham		44		Chief Commercial Officer
Bryan Freeman		54		Executive Vice President of Operations
Daniel T. Sweeney		46		General Counsel and Secretary
Non-Employee Directors
Paul L. Kessler		63		Director
Gizman Abbas(1)(2)(3)		51		Director
Stephen Lee(1)(2)(3)		42		Director
Jonathan H. Gray(2)(3)		43		Director
Erik Thoresen(1)(2)(3)		51		Director

 

(1)	Member of the audit committee.
(2)	Member of the compensation committee.
(3)	Member of the nominating and corporate governance committee.

 

Executive Officers

 

Gary C. Hanna. Mr. Hanna has served as our President and a director since May 2023. Mr. Hanna is a co-Founder of Prairie LLC. Mr. Hanna served on the board of directors of Crown Electrokinetics Corp. (“Crown Electrokinetics”; NASDAQ: CKRN) from March 2021 to October 2022. Mr. Hanna served as the Chairman and Interim Chief Executive Officer of Rosehill Resources Inc. (“Rosehill Resources”; NASDAQ: ROSE), a business combination between KLR Energy Acquisition Corp. (“KLR SPAC”; NASDAQ: KLRE), a special purpose acquisition company, and Tema Oil & Gas Company, from 2017 to 2020. From 2015 to 2017, Mr. Hanna was the Chairman, President and Chief Executive Officer of KLR Group, LLC (“KLR”). From 2009 until its sale in June 2014, Mr. Hanna was the Chairman, President and Chief Executive Officer of EPL Oil and Gas, Inc. (NYSE: EPL), a publicly-traded company that was acquired by Energy XXI for $2.3 Billion. Mr. Hanna has 40 years of management and board of director experience in the energy and service sectors, with a primary focus in the Permian, Mid-Continent and GOM regions, with additional experience internationally in Southeast Asia, Mexico and Barbados. Mr. Hanna received a Bachelor’s of Business Administration Degree from the University of Oklahoma.

 

We believe that Mr. Hanna’s extensive operational, financial and management background, and his over 30 years of executive experience in the energy exploration and production and service sectors bring important and valuable skills to the Board.

 

Edward Kovalik. Mr. Kovalik has served as our Chief Executive Officer and Chair since May 2023. Mr. Kovalik is the co-Founder of Prairie LLC. Mr. Kovalik was the President and Chief Operation Officer of Crown Electrokinetics from February 2021 to October 2022 and served on its board of directors from December 2020 to October 2022. Previously, Mr. Kovalik was the Chief Executive Officer of Unity National Financial Services (“Unity National”), a minority owned boutique investment bank. He was also a co-Founder of Prairie Partners Solar & Wind LLC, a renewable energy investor in utility-scale solar and wind projects. Prior to Unity National, Mr. Kovalik was the co-Founder and, from April 2012 through October 2020, the Chief Executive Officer of KLR, a merchant bank focused on the energy sector. Mr. Kovalik also served as the Chief Executive Officer of Seawolf Water and the President of KLR SPAC, both of which were portfolio companies of KRL. His expertise includes private and public offerings of debt and equity, M&A and fund management. While at KLR, Mr. Kovalik led the creation of Rosehill Resources, an independent oil & gas company created through a merger of KLR SPAC with Tema Oil & Gas Company. Mr. Kovalik also led the creation of Seawolf Water, a premier provider of water solutions to the oil & gas industry, for which he also served as CEO. Prior to KLR, Mr. Kovalik served as the Head of Capital Markets at Rodman & Renshaw, the highest ranked PIPEs practice in the U.S. from 2005-2011. He has served on multiple private and public boards of directors and is a member of the National Association of Corporate Director.

 

 

We believe that Mr. Kovalik’s extensive financial and management background bring important and valuable skills to the Board.

 

Craig Owen. Mr. Owen has served as our Chief Financial Officer since May 2023, and he served as our Secretary from June 2023 to July 2023. Mr. Owen served as the Chief Financial Officer of Penn America Energy Holdings LLC from June 2022 to October 2022 where he oversaw the financing initiatives for a proposed liquified natural gas facility. From January 2021 to June 2022, Mr. Owen provided financial consulting services to various public and private companies in the energy and specialty construction industries. Prior to this, Mr. Owen was Chief Financial Officer of Rosehill Resources from June 2017 through December 2020 where he established and managed Rosehill Resources’ finance, treasury, accounting and tax departments. Prior to Rosehill Resources, Mr. Owen served as the Chief Financial Officer of Southwestern Energy Company (“Southwestern”; NYSE: SWN) from October 2012 to June 2017 after serving as Southwestern’s Chief Accounting Officer beginning in 2008. Prior to that, Mr. Owen held numerous positions with Anadarko Petroleum Corporation, finally serving as its Controller, Operations Accounting. Mr. Owen began his career at PricewaterhouseCoopers LLP serving as an audit manager. He also served in roles with Hilcorp Energy Company and Arco Pipe Line Company. Mr. Owen holds a bachelor’s degree in accounting from Texas A&M University and is a Certified Public Accountant (active) in Texas.

 

Jeremy Ham. Mr. Ham has served as our Chief Commercial Officer since May 2023. Mr. Ham has served as Chief Executive Officer of Greenfield Carbon Solutions since January 2019. Mr. Ham was the founder, President & Chief Executive Officer of Greenfield Midstream from January 2017 to February 2019, where he structured and negotiated a joint venture with Noble Midstream Partners, LP and acquired Black Diamond Gathering for approximately $639 million. Mr. Ham was previously Chief Financial Officer of Renewable Biomass Group from February 2019 to December 2021. He has lead or participated in over $4 billion of traditional and renewable energy transactions. He has over 20 years of experience in building, owning and operating both upstream and midstream oil and gas assets. He began his career at Enterprise Products Partners L.P. (NYSE: EPD). Mr. Ham holds a bachelor’s degree in Finance from the University of Houston.

 

Bryan Freeman. Mr. Freeman has served as our Executive Vice President of Operations since May 2023. Mr. Freeman served as the Senior Vice President of Drilling and Completions at Rosehill Resources from April 2017 to March 2020. Prior to that, Mr. Freeman served as Drilling and Operations Manager at Tema Oil & Gas Company from July 2016 until April 2017 and Production & Operation Engineering Manager for SM Energy Company (NYSE: SM) from July 2013 until July 2016. Before SM, Mr. Freeman served as a Senior Production Engineer at Hess Corporation (NYSE: HES), and Chevron Corporation (NYSE: CVX) before that. Mr. Freeman began his career in the service sector in roles at Schlumberger Limited (NYSE: SLB) & Weatherford International plc (Nasdaq: WFRD). Mr. Freeman holds a Bachelor’s of Science and Masters of Science in Engineering from the University of Texas.

 

Daniel T. Sweeney. Mr. Sweeney has served as our General Counsel and Corporate Secretary since July 2023. Mr. Sweeney served as Senior Vice President, General Counsel and Secretary of Great Western Petroleum, LLC from June 2018 until its sale to PDC Energy Inc. in May 2022, and afterwards, pursued personal ventures until he began serving as our General Counsel and Corporate Secretary in July 2023. Prior to that, Mr. Sweeney served as Director, Assistant Secretary and Associate General Counsel at Eclipse Resources Corp. and held legal roles at Chesapeake Energy Corporation (NASDAQ: CHK) and Rex Energy Corporation (NASDAQ: REXX). Mr. Sweeney received his bachelor’s degree in Political Science from Case Western Reserve University and juris doctorate from the Thomas R. Kline School of Law at Duquesne University.

 

Non-Employee Directors

 

Paul L. Kessler. Mr. Kessler has served as a director since March 2013. Mr. Kessler previously served as Executive Chairman of the Company from December 2021 to May 2023 and from December 2016 through November 2020. Mr. Kessler combines over 30 years of experience as an investor, financier and venture capitalist. In 2000, Mr. Kessler founded Bristol Capital Advisors, LLC, a Los Angeles based investment advisor, where he has served as the Principal and Portfolio Manager from 2000 through the present. Mr. Kessler has broad experience in operating, financing, capital formation, negotiating, structuring and re-structuring investment transactions. He is involved in all aspects of the investment process including identification and engagement of portfolio companies and structuring investments in these companies to maximize value to shareholders. His experience encompasses investment in both private and public companies. Mr. Kessler has actively worked with executives and boards of companies on corporate governance and oversight, strategic repositioning and alignment of interests with stockholders.

 

 

We believe that Mr. Kessler’s extensive experience in matters including capital formation, corporate finance, investment banking, operations, corporate governance, as well as his understanding of capital markets, bring important and valuable skills to the Board.

 

Gizman Abbas. Mr. Abbas has served as a director since May 2023. Mr. Abbas currently serves on the board of directors of New York Independent System Operator, Inc., Talen Energy Corp. and Qenta, Inc. Previously, he served as a member of the board of directors of Crown Electrokinetics from March 2021 to October 2022, Aranjin Resources Ltd. (OTC: “FVVSF”) from May 2016 to February 2021 and Handeni Gold Inc. from February 2012 to July 2017. He has served as Principal at Direct Invest Development, an impact-focused, sustainable real estate development company formed to mine value in disinvested urban communities, since December 2014. Mr. Abbas was a founding partner of the commodity investment business at Apollo Global Management (NYSE: APO). Previously, he was a Vice President at The Goldman Sachs Group, Inc. (NYSE: GS), where he invested successfully in the power, bio-fuels, metals & mining, and agriculture sectors. Mr. Abbas began his finance career in the investment banking division at Morgan Stanley (NYSE: MS), having previously been a Senior Project Engineer on oil & gas construction projects for Exxon Mobil Corporation (NYSE: XOM) and a Co-Op Power Engineer at The Southern Company (NYSE: SO). Mr. Abbas holds a Bachelor’s of Science degree in Electrical Engineering from Auburn University and a Master’s of Business Administration degree from the Kellogg School of Management at Northwestern University.

 

We believe that Mr. Abbas’ executive, financial and investment experience bring important and valuable skills to the Board.

 

Stephen Lee. Mr. Lee has served as a director since May 2023. Mr. Lee is the co-founder of Renewa, a private renewables real estate company and serves as its co-Chief Executive Officer since January 2021. Prior to Renewa, Mr. Lee co-founded KLR in April 2012 and served as a Partner and a Managing Member of the firm. Prior to founding KLR, Mr. Lee was a Director and co-Head of the Energy Investment Banking team at Rodman & Renshaw. Mr. Lee holds a bachelor’s degree in Economics from New York University.

 

We believe that Mr. Lee’s extensive experience in the corporate finance and energy industry bring important and valuable skills to the Board.

 

Jonathan H. Gray. Mr. Gray has served as a director since May 2023. Mr. Gray has served as the chief executive officer of First Idea International Ltd., a strategic advisory boutique, since he founded it in 2008. Mr. Gray has also served as the chief executive officer of the Intelligent Design Agency, a design firm, since he founded it 2018. In 2016, Mr. Gray established The Hideaway Entertainment, LLC, a financing and production entertainment media company focused on motion picture, television, digital media, and technology, and has served as chief executive officer since the company’s founding. In addition, Mr. Gray is the co-owner of Beauchamp Estates France, a division of Beauchamp Estates International, which he founded in March 2005. Mr. Gray served as the founder and chief executive officer of JG Events, an international event management company, from its founding in 2003 until closing it in 2019. Mr. Gray earned his Baccalauréat Littéraire in Litteréture from Lycée Carnot, Cannes in 1999 and his Bachelors in Business Administration from SKEMA Business School in 2001.

 

Mr. Gray’s extensive experience founding, financing and managing companies bring valuable and important skills to the Board.

 

Erik Thoresen. Mr. Thoresen has served as a director since May 2023. Mr. Thoresen has been a partner at Boka Group, LLC since November 2022. Since January 2022, Mr. Thoresen has also served as the chief financial officer of Fusion Acquisition Corp. II (NYSE: FSNB). Prior to that, he served as the chief business development officer of Glass House Group, Inc. (OTC: GLASF), a vertically integrated consumer packaged goods cannabis company, from August 2021 to June 2022. Mr. Thoresen was the vice president of mergers and acquisitions and real estate at Harvest Health and Recreation, Inc. (CSE: HARV, OTCQX: HRVSF), a multi-state cannabis company that is now part of Trulieve Cannabis Corp. (CSE: TRU, OTCQX: TCNNF), from January 2019 to March 2021. Previously, from November 2013 to July 2018, Mr. Thoresen was the chief operating, and investment, officer of Jonathan D. Pond, LLC, a wealth management firm, and prior to that held executive roles at the Bank of New York Mellon Corporation and E*TRADE Financial Corporation. He began his career at the US Trade and Development Agency focused on early stage infrastructure deals in Central and Eastern Europe. He currently serves on the board of Infleqtion, Inc., where he chairs the audit committee, and on the board of Fusion Acquisition Corp. II. In addition, he previously served on the board of directors of Sport-Haley, Inc. from 2010 to 2013 where he served as chairman of the audit committee and on the investment committee at various times. Mr. Thoresen is a Chartered Financial Analyst Charterholder. He received his Bachelor of Arts in International Relations from Syracuse University in 1994, and his Master of Business Administration from the Darden School at the University of Virginia in 2000.

 

Mr. Thoreson’s previous board and senior leadership experience, in addition to his expertise in strategic planning, business development, investor relations and corporate development activities, makes him a valuable asset to the Board.

 

 

Board Composition

 

Our business affairs are managed under the direction of the Board. The Board consists of seven members.

 

Our bylaws provide that the number of directors may be increased or decreased from time to time by a resolution of a majority of the members of the Board serving at that time. Each director shall hold office for the term for which such director is elected, and until such director’s successor shall have been elected and qualified or until such director’s earlier death, resignation or removal.

 

Director Independence

 

The Board determined that each of Gizman Abbas, Stephen Lee, Jonathan Gray and Erik Thoresen qualify as independent directors, as defined under applicable SEC rules. In addition, we are subject to the rules of the SEC, as discussed below.

 

In addition, our corporate governance guidelines (“Corporate Governance Guidelines”) provided that when the position of chair of the Board is not held by an independent director, a lead independent director may be designated by the Board.

 

Committees of the Board of Directors

 

Our Board is composed of three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee, each having the responsibilities described below. Each committee operates under a charter approved by the Board. Copies of each charter are posted on the Corporate Governance section of the Company’s website at www.prairieopco.com. The Company’s website and the information contained on, or that can be accessed through the website, is not deemed to be incorporated by reference in, and is not considered part of, this prospectus.

 

Audit Committee

 

The members of the audit committee are Gizman Abbas, Stephen Lee and Erik Thoresen, with Mr. Thoresen serving as the chair of the audit committee. Under the applicable SEC rules, all of the members of our audit committee must be independent. Each of Messrs. Abbas, Lee and Thoresen meet the independent director standard under Rule 10-A-3(b)(1) of the Exchange Act.

 

Each member of the audit committee is expected to be financially literate and the Board determined that Mr. Thoresen qualifies as an “audit committee financial expert” as defined in applicable SEC rules and has accounting or related financial management expertise.

 

The amended audit committee charter details the principal functions of the audit committee, including:

 

●

assisting board oversight of (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) the independent registered public accounting firm’s qualifications and independence and (4) the performance of our internal audit function and the independent registered public accounting firm;

 

 

	●	reviewing, evaluating and/or acting upon any conflicts of interests that may arise as between the rights and obligations of any director or executive officer on the one hand, and the rights and obligations of the Company and any of its subsidiaries, on the other hand;
	●	the appointment, compensation, retention, replacement, and oversight of the work of the independent registered public accounting firm engaged by us;
	●	pre-approving all audit and permitted non-audit services to be provided by the independent registered public accounting firm engaged by us, and establishing pre-approval policies and procedures;
	●	setting clear hiring policies for employees or former employees of the independent registered public accounting firm, including but not limited to, as required by applicable laws and regulations;
	●	setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
	●	obtaining and reviewing a report, at least annually, from the independent registered public accounting firm describing (i) the independent registered public accounting firm’s internal quality-control procedures, (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues and (iii) all relationships between the independent registered public accounting firm and us to assess the independent registered public accounting firm’s independence;
	●	meeting to review and discuss our annual audited financial statements and quarterly financial statements with management and the independent registered public accounting firm, including reviewing our specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Prairie Operating Co.”;
	●	reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and
	●	reviewing with management, the independent registered public accounting firm, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.

 

Compensation Committee

 

The members of the compensation committee are Messrs. Abbas, Lee, Gray and Thoresen, with Mr. Lee serving as the chair of the compensation committee.

 

The amended compensation committee charter details the principal functions of the compensation committee, including:

 

	●	reviewing, approving and determining, or making recommendations to our Board regarding, the compensation of our executive officers, including the Chief Executive Officer;
	●	reviewing on an annual basis our executive compensation policies and plans;
	●	implementing and administering our incentive compensation equity-based remuneration plans;
	●	assisting management in complying with our proxy statement and annual report disclosure requirements;

 

 

	●	approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees;
	●	if required, producing a report on executive compensation to be included in our annual proxy statement; and
	●	reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.

 

The charter provides that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the SEC.

 

Nominating and Corporate Governance Committee

 

The initial members of the nomination and governance committee Messrs. Abbas, Lee, Gray and Thoresen, with Mr. Abbas serving as the chair of the nomination and corporate governance committee.

 

The amended nominating and corporate governance committee charter details the principal functions of the nominating and corporate governance committee, including:

 

	●	identifying, screening and reviewing individuals qualified to serve as directors and recommending to the Board candidates for nomination for election at the annual meeting of stockholders or to fill vacancies on the Board;
	●	developing and recommending to the Board and overseeing implementation of our Corporate Governance Guidelines;
	●	coordinating and overseeing the annual self-evaluation of the Board, its committees, individual directors and management in the governance of the company; and
	●	reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary.

 

The charter will also provide that the nominating and corporate governance committee may, in its sole discretion, retain or obtain the advice of, and terminate, any search firm to be used to identify director candidates, and will be directly responsible for approving the search firm’s fees and other retention terms.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of the compensation committee is or has been at any time one of our officers or employees. None of our executive officers serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee (or other board of directors committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving as a member of the Board or compensation committee.

 

Code of Conduct

 

We adopted a code of conduct that will apply to all of our employees, officers and directors, including those officers responsible for financial reporting. To the extent required by law, any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

 

 

Limitation on Liability and Indemnification Matters

 

The Charter contains provisions that limit the liability of our directors and officers for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors and officers will not be personally liable to the Company or our stockholders for monetary damages for any breach of fiduciary duties as directors or officers, except liability for:

 

	●	any breach of the director’s or officer’s duty of loyalty to the Company or our stockholders;
	●	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	●	unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or
	●	any transaction from which the director or officer derived an improper personal benefit.

 

The Charter and our bylaws provide that the Company is required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under Delaware law. We entered into agreements to indemnify our directors, executive officers and other employees as determined by the Board. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, retainers and travel expenses incurred by any of these individuals in any action, suit or proceeding. We believe that these bylaws provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

 

The limitation of liability and indemnification provisions in the Charter and bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage.

 

 

Executive Compensation

 

As a “smaller reporting company,” we have opted to comply with reduced executive and director compensation disclosure rules applicable to “smaller reporting companies.” Our named executive officers (“NEOs”) consist of our principal executive officers and the next two most highly compensated executive officers. For the fiscal year ended December 31, 2022, our NEOs were:

 

	●	John D. Maatta, President and Chief Executive Officer, and Director;
	●	Scott Sheikh, Chief Operating Officer and General Counsel;
	●	Scott D. Kaufman, Former President and Chief Executive Officer, and Director; and
	●	Alan L. Urban, Chief Financial Officer.

 

As of the date of this registration statement on Form S-1, each NEO is no longer employed by the Company. In connection with the Merger, the Company has appointed new executive officers and directors as provided above under the section entitled “Management.”

 

In each of the tables below, any equity award share numbers or dollar values relate to the share numbers and dollar values computed as of the dates required under Item 402 of Regulation S-K for the relevant fiscal year, and as such, have not been adjusted to reflect the later occurring Reverse Stock Split.

 

Summary Compensation Table

 

The following table sets forth all of the compensation awarded to, earned by, or paid to our NEOs during fiscal years ended December 31, 2022 and 2021.

 

Name and Principal Position(1)		Fiscal Year		Salary ($)				Option Awards ($)				All other Compensation ($)				Total ($)
John D. Maatta, President and Chief Executive Officer,and Director (2)		2022			133,330				—			$	3,000				136,330
		2021			—				30,096	(3)			145,564	(4)			175,660
Scott Sheikh, Chief Operating Officer and General Counsel		2022			236,722	(5)			—				3,008				239,730
		2021			99,362				2,231,250	(6)			536				2,331,148
Scott D. Kaufman, Former President and Chief Executive Officer, and Director		2022			91,824	(7)			—				811				92,635
		2021			264,426	(8)			6,693,750	(9)			200,000	(10)			7,158,177
Alan L. Urban, Chief Financial Officer		2022			203,460	(11)			—				49,495				252,955
		2021			—				2,231,250	(6)			—				2,331,250

 

(1)	In connection with the Merger and effective as of May 3, 2023, Mr. Maatta resigned from his position as President and Chief Executive Officer, and director of the Board. Mr. Sheikh resigned his position as Chief Operating Officer and General Counsel on April 12, 2023. Mr. Urban resigned his position as Chief Financial Officer on March 8, 2023. Mr. Kaufman resigned his position as President and Chief Executive Officer, and a director of the Board on August 8, 2022.
(2)	The amount in the Salary column includes 13,333 shares of Series A Preferred Stock for settlement of $133,330 of compensation payable to Mr. Maatta under his employment agreement for the year ended December 31, 2022. The amount in the All Other Compensation column includes $3,000 in director compensation accrued for the portion of the year during which Mr. Maatta served as a non-employee director.
(3)	Represents the grant date fair value of warrants granted on October 12, 2021, to purchase 699 shares of Common Stock with an exercise price of $1.50 per share, and a term of 5 years granted to Mr. Maatta for his service as a member of the Board.
(4)	Includes (i) 8,500 shares of Series A Preferred Stock were issued in satisfaction of an aggregate of $85,546 due under a separation agreement and (ii) consulting fees paid for services rendered by Mr. Maatta to the Company.
(5)	Includes 15,258 shares of Series A Preferred Stock for settlement of $152,580 of compensation payable to Mr. Sheikh under his employment agreement for the year ended December 31, 2022.

 

 

(6)	Represents the grant date fair value of options granted on December 1, 2021, to purchase 30,625 shares of Common Stock with an exercise price of $2.65 per share, a term of 5 years, and a shall vest upon the volume weighted average price (“VWAP”) of Common Stock reaching the following targets: at such time as there is a VWAP equal to $2.50 when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.00 when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.50 when computed over 30 consecutive trading days, 25% shall vest; and at such time as there is a VWAP equal to $4.00 when computed over 30 consecutive trading days, 25% shall vest. These options were cancelled by the option holder during the year ended December 31, 2022.
(7)	Includes 6,972 shares of Series A Preferred Stock for settlement of $69,720 of compensation payable to Mr. Kaufman under his employment agreement for the year ended December 31, 2022.
(8)	Includes a pro-rated portion for January 1, 2021 through December 31, 2021 of 27,048 shares of Series A Preferred Stock for settlement of $270,812 of compensation payable to Mr. Kaufman under his employment agreement from November 24, 2020 through December 31, 2021.
(9)	Represents the grant date fair value of options granted on December 1, 2021, to purchase 91,874 shares of Common Stock with an exercise price of $2.65 per share, a term of 5 years, and a shall vest upon a VWAP of the Common Stock reaching the following targets: at such time as there is a VWAP equal to $2.50 when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.00 when computed over 30 consecutive trading days, 25% shall vest; at such time as there is a VWAP equal to $3.50 when computed over 30 consecutive trading days, 25% shall vest; and at such time as there is a VWAP equal to $4.00 when computed over 30 consecutive trading days, 25% shall vest. These options were cancelled by the option holder during the year ended December 31, 2022.
(10)	Represents a one-time non-accountable expense reimbursement of $200,000 in consideration for significant efforts and diligence in negotiating and structuring investment transactions paid on September 7, 2021.
(11)	Includes 685 shares of Series A Preferred Stock for settlement of $6,850 of compensation payable to Mr. Urban under his employment agreement for the year ended December 31, 2022.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information regarding stock options, warrants and other stock awards for each NEO as of December 31, 2022.

 

Name		Number of Securities Underlying Unexercised options/warrants exercisable (#)(1)				Number of Securities Underlying Unexercised options/warrants unexercisable (#)				Option/Warrant exercise price ($)				Option/Warrant expiration date
John D. Maatta			3,500				0			$	0.25			8/3/2025
John D. Maatta			699				0			$	0.25			1/22/2024
Scott D. Kaufman			1,312				0			$	0.25			8/3/2025

 

(1)	Each of these options were 100% vested on the date of grant.

 

Potential Payments upon Termination or Change in Control

 

As described in note 1 to the Summary Compensation Table, each of the NEOs terminated employment with the Company due to their resignations in 2022 or 2023. No amounts were paid by the Company to any of the NEOs in connection with their termination of employment.

 

Director Compensation

 

The following table sets forth compensation awarded or paid to our directors who served as our directors during the last fiscal year. Although Messrs. Kessler, Maatta and Kaufman also served as directors in 2022, because they were also employees, they did not earn any director compensation. All compensation paid for Messrs. Maatta and Kaufman is fully reflected in the Summary Compensation Table above. In connection with the Merger, Messrs. Maatta and Breen resigned from the Board effective May 3, 2023.

 

Name and Principal Position		Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)		Option Awards ($)		All Other Compensation ($)		Total ($)
Michael Breen		9,000		—		—		—		9,000
Richard G. Boyce		5,250		—		—		—		5,250

 

(1)	Mr. Breen’s outstanding equity awards as of December 31, 2022 consist of options to purchase 2,362 shares of Common Stock at an exercise price of $0.25 per share. Mr. Boyce held no outstanding equity awards as of December 31, 2022.

 

 

Certain Relationships and Related Transactions

 

Related Party Transactions Prior to the Merger

 

Bristol Capital, LLC

 

Bristol Capital, LLC is managed by Paul L. Kessler. Mr. Kessler served as Executive Chairman of the Company from December 29, 2016, through November 24, 2020, when Mr. Kessler resigned his position, but continued to serve as member of the Board. On December 1, 2021, Mr. Kessler was again appointed Executive Chairman of the Company. In connection with the Merger, Mr. Kessler resigned as Executive Chairman. Mr. Kessler is currently a director of the Company.

 

Consulting Agreement

 

On December 29, 2016, the Company entered into a Consulting Services Agreement (the “Consulting Agreement”) with Bristol Capital. Pursuant to the Consulting Agreement, Mr. Kessler agreed to serve as Executive Chairman of the Company. The initial term of the Agreement is from December 29, 2016 through March 28, 2017. The term of the Consulting Agreement will be automatically extended for additional terms of 90-day periods, unless either the Company or Bristol Capital gives prior written notice of non-renewal to the other party no later than thirty (30) days prior to the expiration of the then current term. Upon the execution of the agreement the Company granted Bristol Capital options to purchase up to an aggregate of 30,000 shares of Common Stock at an exercise price of $0.25 per share, as amended.

 

During the term, the Company will pay Bristol Capital, as amended, a monthly fee $18,750 payable in cash or Preferred Stock, at the Company’s election. In addition, Bristol Capital may receive an annual bonus in an amount and under terms determined by the Compensation Committee of the Board and approved by the Board in its sole and absolute discretion. The Company shall also, in association with the Uplisting, issue to Bristol Capital (i) shares of Common Stock equal to 5% of the fully diluted shares of Common Stock, calculated with the inclusion of Bristol Capital’s equity stock holdings and shares issuable upon conversion of convertible instruments, preferred stock, options, and warrants; and (ii) a one-time non-accountable expense reimbursement of $200,000.

 

On November 22, 2018, the Company agreed to issue 202,022 shares of Preferred Stock for settlement of $496,875 due under the Consulting Agreement as of October 31, 2018.

 

On August 3, 2020, the Company cancelled the 202,022 shares of Preferred Stock previously determined to be issued, and issued 49,688 shares of Series A Preferred Stock for the settlement of the previous outstanding amount due. In addition, on August 3, 2020, the Company issued 38,438 shares of Series A Preferred Stock for the settlement of $384,375 due under the Consulting Agreement as of July 31, 2020.

 

On March 1, 2021, the Company issued 22,500 shares of Series A Preferred Stock to Bristol Capital for the settlement of $225,000 due under the Consulting Agreement as of July 31, 2021.

 

During the three months ended March 31, 2023 and 2022, the Company incurred expenses of approximately $56,250, for each period for consulting services provided by Bristol Capital. As of March 31, 2023 and December 31, 2022, the amount accrued to Bristol Capital for consulting services was $375,000 and $318,750, respectively.

 

The Consulting Agreement was terminated at Closing.

 

Non-Accountable Expense Reimbursement

 

On September 7, 2021, Bristol Capital received a one-time non-accountable expense reimbursement of $200,000 in consideration for significant efforts and diligence in negotiating and structuring investment transactions.

 

Reimbursement of Legal Fees

 

In January 2022, Bristol Capital was reimbursed for $12,040 in legal fees.

 

 

Bristol Capital Advisors, LLC

 

Bristol Capital Advisors, LLC (“Bristol Capital Advisors”) is managed by Paul L. Kessler.

 

Operating Sublease

 

On June 16, 2016, the Company entered into a Standard Multi-Tenant Sublease (the “Sublease”) with Bristol Capital Advisors. The leased premises are owned by an unrelated third party and Bristol Capital Advisors passes the lease costs down to the Company. The term of the Sublease is for 5 years and 3 months beginning on July 1, 2016, with monthly payments of approximately $8,000. During the year ended December 31, 2022 and 2021, the Company paid lease obligations of $0 and $83,054, respectively, under the Sublease. On September 30, 2021, the lease term ended, and the Company vacated the premises.

 

Bristol Investment Fund, Ltd.

 

Bristol Investment Fund, Ltd. (“Bristol Investment Fund”) is managed by Bristol Capital Advisors, which in turn is managed by Paul L. Kessler.

 

Securities Purchase Agreement – December 2016

 

On December 1, 2016, the Company entered into the Securities Purchase Agreement (the “Bristol Purchase Agreement”) with Bristol Investment Fund, pursuant to which the Company sold to Bristol Investment Fund, for a cash purchase price of $2,500,000, securities comprising of: (i) a secured convertible debenture (the “Bristol Convertible Debenture”), (ii) Series A common stock purchase warrants and (iii) Series B common stock purchase warrants. Pursuant to the Bristol Purchase Agreement, the Company paid $25,000 to Bristol Investment Fund and issued 874 shares of Common Stock with a grant date fair value of $85,000 to Bristol Investment Fund to cover legal fees. The Company recorded as a debt discount of $25,791 related to the cash paid and the relative fair value of the shares issued for legal fees.

 

(A) Secured Convertible Debenture

 

On December 1, 2016, the Company issued the Bristol Convertible Debenture with an initial principal balance of $2,500,000, and a maturity date of December 30, 2018. The Bristol Convertible Debenture will accrue interest on the aggregate unconverted and then outstanding principal amount at the rate of 12% per annum. Interest is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2017, (ii) on each date the purchaser converts, in whole or in part, the Bristol Convertible Debenture into Common Stock (as to that principal amount then being converted), and (iii) on the day that is 20 days following the Company’s notice to redeem some or all of the of the outstanding principal of the Bristol Convertible Debenture (only as to that principal amount then being redeemed) and on the maturity date. Interest may be paid in cash, Common Stock, or a combination thereof at the sole discretion of the Company.

 

The Bristol Convertible Debenture is convertible into shares of Common Stock at any time at the option of the holder. The initial conversion price was $3.00 (as converted) per share, subject to adjustment. In the event of default occurs, the conversion price shall be the lesser of (i) the initial conversion price of $3.00 and (ii) 50% of the average of the three lowest trading prices during the 20 trading days immediately prior to the applicable conversion date.

 

The Bristol Convertible Debenture contains anti-dilution provisions where, if the Company, at any time while the Bristol Convertible Debenture is outstanding, sells or grants any option to purchase, right to reprice, or otherwise dispose of or issue any Common Stock or common stock equivalents, at an effective price per share less that is lower than the conversion price then in effect, the conversion price shall be reduced to the lower effective price per share.

 

On December 19, 2019, the maturity date of the Bristol Convertible Debenture was amended to December 30, 2021.

 

On May 1, 2020, the maturity date of the Bristol Convertible Debenture was amended to December 31, 2022.

 

 

On August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to $0.25 decreased the conversion price to $0.25. As of December 31, 2020, the Bristol Convertible Debenture held by Bristol Investment Fund was convertible into 350,000 shares of Common Stock.

 

On October 31, 2021, in consideration for the release of senior security interest in certain of the assets, properties, and rights of discontinued operations that were sold during the year, the Bristol Convertible Debenture was amended to reduce the conversion price to $0.175.

 

During March 31, 2022, the Bristol Convertible Debenture principal in the amount of $3,150 was converted into 18,000 shares of Common Stock using a conversion price of $0.175.

 

On December 31, 2022, the maturity date of the Bristol Convertible Debenture was amended to May 31, 2023.

 

As of March 31, 2023, the Bristol Convertible Debenture with a principal amount of $2,496,850 held by Bristol Investment Fund was convertible into 14,267,714 shares of Common Stock using a conversion price of $0.175.

 

As of March 31, 2023 and December 31, 2022, the amount of accrued interest payable to Bristol Investment Fund under the Bristol Convertible Debenture was $1,899,074, and $1,825,195, respectively.

 

As discussed further below, the Bristol Purchase Agreement and the Bristol Convertible Debenture were amended and restated in connection with the Closing.

 

On October 13, 2023, the Bristol Convertible Debenture, as one of the AR Debentures, was converted into 200,000 shares of Common Stock.

 

(B) Series A Common Stock Purchase Warrants

 

On December 1, 2016, the Company issued Series A common stock purchase warrants to acquire up to 29,166 shares of Common Stock at exercise price of $85.71, and expiring on December 1, 2021. The warrants contain anti-dilution provisions where, if the Company, at any time while the warrant is outstanding, sells or grants any option to purchase, right to reprice, or otherwise dispose of or issue any Common Stock or common stock equivalents, at an effective price per share less than the exercise price then in effect, the exercise price shall be reduced, and the number of warrant shares shall be increased such that the aggregate exercise price payable hereunder, shall be equal to the aggregate exercise price prior to such adjustment.

 

On December 19, 2019, as a result of the anti-dilution provisions, the issuance of the Barlock Convertible Debenture (as defined below) with a conversion price of $71.43 increased the number of shares of Common Stock issuable upon exercise of the Series A common stock purchase warrants to 35,000, and decreased the exercise price to $71.43.

 

On December 19, 2019, Bristol Investment Fund assigned 300,000 Series A common stock purchase warrants to Barlock Capital Management, LLC, and the expiration date of the warrants was extended to December 1, 2024. After the assignment, Bristol Investment Fund held Series A common stock purchase warrants to acquire 24,500 shares of Common Stock at an exercise price to $71.43.

 

On August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to $7.14 increased the number of shares of Common Stock issuable upon exercise of the Series A common stock purchase warrants to 245,000, and decreased the exercise price to $7.14. As of December 31, 2020, Bristol Investment Fund held Series A common stock purchase warrants to acquire 24,500 shares of Common Stock at an exercise price to $7.14.

 

On October 31, 2021, as a result of the anti-dilution provisions, the effect of reducing the conversion price of the Original Debentures to $5.00 increased the Common Stock issuable upon the exercise of the Series A common stock purchase warrants to 35,000, and decreased the exercise price to $5.00.

 

On September 9, 2022, Bristol Investment Fund assigned 20% of its Series A common stock purchase warrants to Leviston Resources, LLC.

 

 

As of March 31, 2023, Bristol Investment Fund held Series A common stock purchase warrants to acquire 35,000 shares of Common Stock at an exercise price of $5.00.

 

In addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the 6-month anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire.

 

Prior to the Closing, the Series A common stock purchase warrants were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof.

 

(C) Series B Common Stock Purchase Warrants

 

On December 1, 2016, the Company issued Series B common stock purchase warrants to acquire up to 29,166 shares of Common Stock at an initial exercise price of $0.06, and expiring on December 1, 2021. The Series B common stock purchase warrants were exercised immediately on the issuance date, and the Company received gross proceeds of $1,667.

 

Upon issuance of the Bristol Convertible Debenture, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using the relative fair value of $1,448,293 as debt discount on the consolidated balance sheet. Debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the condensed consolidated statement of operations. There was no unamortized debt discount as of March 31, 2023 and December 31, 2022.

 

Prior to the Closing, the Series B common stock purchase warrants were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof.

 

Employment Agreement – Kessler

 

In connection with Paul L. Kessler’s appointment to serve as Executive Chairman, the Company and Mr. Kessler entered into an Executive Chairman Employment Agreement (the “Kessler Employment Agreement”), effective as of December 23, 2021. The Kessler Employment Agreement provides for an initial term of two years, with automatic one-year renewals thereafter, unless terminated by either party with 30 days’ notice prior to any such renewal date. The Kessler Employment Agreement provides for an initial annual base salary of $250,000, which may be increased by the Board from time to time, and for a discretionary annual bonus with an annual target bonus opportunity equal to 150% of Mr. Kessler’s base salary and a maximum bonus opportunity equal to 300% of base salary, with the actual amount paid to be based upon Company and individual performance, as determined by the Board in its sole discretion. The Kessler Employment Agreement also requires that the Company issue to Mr. Kessler shares of Common Stock equal to five percent of the fully diluted shares of Common Stock of the Company, calculated as provided under the Kessler Employment Agreement, in association with the Uplisting. Mr. Kessler is also eligible to participate in the Company’s long-term equity arrangements and is entitled to certain employee benefits provided to other executive officers of the Company.

 

The Kessler Employment Agreement also provides for certain severance benefits upon Mr. Kessler’s termination by the Company without “Cause” or due to his resignation for “Good Reason,” each term as defined in the Kessler Employment Agreement, including (a) cash severance equal to two times the sum of Mr. Kessler’s annual base salary and annual target bonus opportunity (three times such sum if such termination occurs within 12 months following a “Change of Control,” as such term is defined in the Kessler Employment Agreement, which is the “Change of Control Protection Period”), and (b) a pro-rata annual bonus for the year of termination, determined as if Mr. Kessler had remained in good standing with the Company through the end of the performance period, but pro-rated for his period of employment during such year. Such severance shall be paid in equal annual installments over a 12-month period (or in a lump sum if the termination occurs within the Change of Control Protection Period).

 

These severance benefits are contingent upon Mr. Kessler’s execution and non-revocation of a release of claims and compliance with certain restrictive covenants. Additionally, upon any termination, Mr. Kessler is entitled to (i) any earned but unpaid base salary, (ii) any annual bonuses earned but unpaid for any calendar years prior to the calendar year in which the termination occurs, (iii) any unreimbursed business expenses, and (iv) any employee benefits under any employee benefit plan or program in which Mr. Kessler participates as of the termination date.

 

At the Effective Time of the Merger, Mr. Kessler resigned as Executive Chairman but remained a member of the Board.

 

 

Barlock 2019 Fund, LP

 

Barlock 2019 Fund, LP (“Barlock”) is managed by Scott D. Kaufman, who served as Chief Executive Officer of the Company from November 24, 2020, through May 11, 2022, and as co-Chief Executive Officer from May 12, 2022 through August 8, 2022, and as a Director from November 4, 2019, through August 8, 2022, and as Chairman of the Board of Directors from November 24, 2020, through December 1, 2021.

 

Securities Purchase Agreement – December 2019

 

On December 19, 2019, the Company entered into the Securities Purchase Agreement (the “Barlock Purchase Agreement”) with Barlock, pursuant to which the Company sold to Barlock, for a cash purchase price of $2,500,000, securities comprising of: (i) a secured convertible debenture (the “Barlock Convertible Debenture”) and (ii) Series A common stock purchase warrants assigned from Bristol Investment Fund. Pursuant to the Barlock Purchase Agreement, the Company paid $25,400 to Barlock for legal fees which was recorded as a debt discount.

 

(A) Secured Convertible Debenture

 

On December 19, 2019, the Company issued the Barlock Convertible Debenture with an initial principal balance of $2,500,000, and a maturity date of December 30, 2021. The Barlock Convertible Debenture accrues interest on the aggregate unconverted and then outstanding principal amount at the rate of 12% per annum. Interest is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on January 1, 2020, (ii) on each date the purchaser converts, in whole or in part, the Barlock Convertible Debenture into Common Stock (as to that principal amount then being converted), and (iii) on the day that is 20 days following the Company’s notice to redeem some or all of the of the outstanding principal of the Barlock Convertible Debenture (only as to that principal amount then being redeemed) and on the maturity date. Interest may be paid in cash, Common Stock, or a combination thereof at the sole discretion of the Company.

 

The Barlock Convertible Debenture is convertible into shares of Common Stock at any time at the option of the holder. The initial conversion price was $71.43 (as converted) per share, subject to adjustment. In the event default occurs, the conversion price shall be the lesser of (i) the initial conversion price of $71.43 and (ii) 50% of the average of the three lowest trading prices during the 20 trading days immediately prior to the applicable conversion date.

 

The Barlock Convertible Debenture contains anti-dilution provisions where, if the Company, at any time while the Barlock Convertible Debenture is outstanding, sells or grants any option to purchase, right to reprice, or otherwise dispose of or issue any Common Stock or common stock equivalents, at an effective price per share less that is lower than the conversion price then in effect, the conversion price shall be reduced to the lower effective price per share.

 

On August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to $7.14 decreased the conversion price to $7.14. As of December 31, 2020, the Barlock Convertible Debenture was convertible into 35,000 shares of Common Stock.

 

On October 31, 2021, in consideration for the release of senior security interest in certain of the assets, properties, and rights of discontinued operations that were sold during the year, the Barlock Convertible Debenture was amended to reduce the conversion price to $5.00, and the maturity date was amended to December 31, 2023.

 

In March 2022, the principal amount of $3,150 under the Barlock Convertible Debenture was converted into 18,000 shares of Common Stock at a conversion price of $5.00.

 

 

As of March 31, 2023, the Barlock Convertible Debenture with a principal amount of $2,496,850 was convertible into 14,267,714 shares of Common Stock at a conversion price of $0.175.

 

As of March 31, 2023 and December 31, 2022, the amount of accrued interest payable to Barlock under the Barlock Convertible Debenture was $985,923 and $912,044, respectively.

 

As discussed further below, the Barlock Purchase Agreement and the Barlock Convertible Debenture were amended and restated in connection with the Closing.

 

On October 13, 2023, the Barlock Convertible Debenture, as one of the AR Debentures, was converted into 200,667 shares of Common Stock.

 

(B) Series A Common Stock Purchase Warrants

 

On December 19, 2019, Bristol Investment Fund assigned to Barlock Capital Management, LLC Series A common stock purchase warrants to acquire up to 10,500 shares of Common Stock at exercise price of $2.50, and expiring on December 1, 2024. The warrants contain anti-dilution provisions where, if the Company, at any time while the warrant is outstanding, sells or grants any option to purchase, right to reprice, or otherwise dispose of or issue any Common Stock or common stock equivalents, at an effective price per share less than the exercise price then in effect, the exercise price shall be reduced, and the number of warrant shares shall be increased such that the aggregate exercise price payable hereunder, shall be equal to the aggregate exercise price prior to such adjustment.

 

On August 3, 2020, as a result of the anti-dilution provisions, the effect of repricing stock options held by directors and employees to $7.14 increased the number of shares of Common Stock issuable upon exercise of the Series A common stock purchase warrants to 105,000, and decreased the exercise price to $7.14. As of December 31, 2020, Barlock Capital Management, LLC held Series A common stock purchase warrants to acquire 105,000 shares of Common Stock at an exercise price to $7.14.

 

On October 31, 2021, as a result of the anti-dilution provisions, the effect of reducing the conversion price of the Original Debentures to $5.00 increased the number of shares of Common Stock issuable upon exercise of the Series A common stock purchase warrants to 149,999, and decreased the exercise price to $5.00.

 

As of March 31, 2023, Barlock Capital Management, LLC held Series A common stock purchase warrants to acquire 149,999 shares of Common Stock at an exercise price to $5.00.

 

In addition, the warrants may be exercised, in whole or in part, at any time until they expire. If at any time after the six month anniversary of the closing date there is no effective registration statement, or no current prospectus available for the resale of the warrant shares, then the warrants may be exercised, in whole or in part, on a cashless basis at any time until they expire. Shares of Common Stock issuable upon exercise of warrants are subject to a 4.99% beneficial ownership limitation, which may increase to 9.99% upon notice to the Company.

 

Upon issuance of the Barlock Convertible Debenture, the Company valued the warrants using the Black-Scholes Option Pricing model and accounted for it using the relative fair value of $545,336 as debt discount on the consolidated balance sheet. Debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the effective interest method which approximates the interest method. The amortization of debt discount is included as a component of interest expense in the condensed consolidated statement of operations. There was no unamortized debt discount as of March 31, 2023 and December 31, 2022.

 

Prior to the Closing, the Series A common stock purchase warrants were cancelled and retired and ceased to exist without the payment of any consideration to the holders thereof.

 

Barlock Capital Management, LLC

 

Barlock Capital Management, LLC, is managed by Scott D. Kaufman. From September 2021 through December 2021, the Company rented executive office space located at 2700 Homestead Road, Park City, UT 84098, for approximately $3,000 per month from Barlock Capital Management, LLC.

 

 

American Natural Energy Corporation

 

Scott D. Kaufman is a director and stockholder of American Natural Energy Corporation (“ANEC”). In addition, Richard G. Boyce, a former director of the Company who resigned from the Board on July 22, 2022, is also a director of ANEC. On October 22, 2021, the Company entered into an agreement with ANEC, where ANEC would: (i) allow the Company to moor a barge on the ANEC operations site with the Company’s mobile data center that houses cryptocurrency miners and a mobile turbine and (ii) supply natural gas to power a mobile turbine that produces electricity that, in turn, is used to power the miners. ANEC charged the Company for the amount of natural gas used based on the daily spot price of an unaffiliated third party, and a daily fee of $1,500 during the initial 90-day term, and $2,000 thereafter, for the use of their operations site to moor the barge. The agreement terminated on May 24, 2022. The total amount paid to ANEC under the agreement for the three months ended March 31, 2023 and March 31, 2022 was $0 and $230,000, respectively.

 

In addition, in January 2022, the Company began renting executive office space located at 2700 Homestead Road, Park City, UT 84098, for approximately $3,000 per month from ANEC. The amount of rent paid to ANEC for the three months ended March 31, 2023 and March 31, 2022 was $0 and $9,000, respectively.

 

Scott D. Kaufman, Former Chief Executive Officer

 

On September 7, 2021, Scott D. Kaufman received a one-time non-accountable expense reimbursement of $200,000 in consideration for significant efforts and diligence in negotiating and structuring investment transactions.

 

K2PC Consulting, LLC

 

K2PC Consulting, LLC is managed by the spouse of Scott D. Kaufman. The company paid marketing fees to K2PC Consulting, LLC in the amount of $0 and $7,850, for the three months ended March 31, 2023 and 2022, respectively.

 

John D. Maatta, Former Director, Chief Executive Officer and Interim Chief Financial Officer

 

John D. Maatta is a former director, and served as Chief Executive Officer of the Company until November 24, 2020, as co-Chief Executive Officer from May 12, 2022 through July 8, 2022, and again as Chief Executive Officer beginning on July 9, 2022 to May 3, 2023. Mr. Maatta also served as Interim Chief Financial Officer from March 8, 2023 to May 3, 2023.

 

On November 22, 2018, the Company agreed to issue 86,466 shares of Preferred Stock for settlement of the outstanding compensation due to Mr. Maatta of $212,707, for the period June 17, 2017 through November 15, 2018.

 

On August 3, 2020, the Company cancelled the 86,466 shares of Preferred Stock previously determined to be issued, and issued 21,271 shares of Series A Preferred Stock for the settlement of the previous outstanding amount due. In addition, on August 3, 2020, the Company issued 29,496 shares of Series A Preferred Stock for the settlement of $294,965 in additional outstanding compensation due to Mr. Maatta and 35,100 shares of Series A Preferred Stock for the settlement of $351,000 in loans to the Company made by Mr. Matta. The non-interest-bearing loans were made as follows: $100,000 to the Company during the year ended December 31, 2019, $125,000 to the Company during the year ended December 31, 2020 and other amounts on behalf of the Company amounting to $126,000. There were no outstanding balance of the loan payable to Mr. Maatta as of March 31, 2023 or December 31, 2022.

 

On March 1, 2021, 8,500 shares of Series A Preferred Stock were issued to Mr. Maatta in satisfaction of an aggregate of $85,546 due to Mr. Maatta under his separation agreement.

 

The Series A Preferred Stock were converted into shares of Common Stock in the Restructuring Transactions.

 

CONtv

 

CONtv is a joint venture with third parties and Bristol Capital. The Company holds a limited and passive interest of 10% in CONtv. As of March 31, 2023 and December 31, 2022, the investment in CONtv and the amount due to CONtv was $0 for both periods.

 

 

Related Party Transactions In Connection with the Merger

 

Merger Consideration

 

At the Effective Time, Edward Kovalik (Chief Executive Officer and Chairman) and Gary C. Hanna (President and Director) were each issued 1,148,834 shares of Common Stock as merger consideration pursuant to the Merger Agreement.

 

ORRI Agreement

 

On May 15, 2022, Exok entered into an agreement with Gary C. Hanna and Edward Kovalik whereby Exok agreed to share and assign certain of its overriding royalty interests under the Exok Assets to Gary C. Hanna and Edward Kovalik at the Closing. Following the Closing, these interests are owned in equal one-third shares by entities controlled by each of Gary Hanna, Edward Kovalik and Paul Kessler. To avoid any potential conflict of interest with certain members of the Board and management owning certain overriding royalty interests under the Exok Assets, all of the Company’s drilling programs will be approved by an independent committee of the Board on a quarterly basis.

 

Series D PIPE

 

Bristol Investment Fund purchased $1,250,000 of Series D Preferred Stock and Series D PIPE Warrants in the PIPE. First Idea Ventures LLC purchased $750,000 of Series D Preferred Stock and Series D PIPE Warrants in the PIPE. Jonathan H. Gray, a director of the Company, holds 50% and his spouse, Chloe Gray, holds 50% of the interests of First Idea Ventures LLC and each share voting and investment power over the securities held by First Idea Ventures LLC. John D. Maatta purchased $50,000 of Series D Preferred Stock and Series D PIPE Warrants in the PIPE.

 

Stockholders Agreement

 

Prior to the Effective Time, the Company, Bristol Capital Advisors, Paul L. Kessler, Gary C. Hanna and Edward Kovalik entered into a Stockholders Agreement (the “Stockholders Agreement”) pursuant to which the parties agreed to use reasonable best efforts, including taking certain necessary actions, to cause the Board to cause certain nominees to be elected to serve as a director on the Board under the following conditions: (i) one nominee designated by Bristol Capital Advisors and Paul L. Kessler, collectively, so long as Bristol Capital Advisors, Paul L. Kessler and their respective affiliates collectively beneficially own at least 50% of the number of shares of Common Stock collectively beneficially owned by such parties on the Closing Date; (ii) four nominees designated by Gary C. Hanna and Edward Kovalik (the “Prairie Members”) so long as the Prairie Members and their affiliates collectively beneficially own at least 50% of the number of shares of Common Stock collectively beneficially owned by such parties on the Closing Date; (iii) three nominees designated by the Prairie Members so long as the Prairie Members and their affiliates collectively beneficially own at least 40% (but less than 50%) of the number of shares of Common Stock collectively beneficially owned by such parties on the Closing Date; (iv) two nominees designated by the Prairie Members so long as the Prairie Members and their affiliates collectively beneficially own at least 30% (but less than 40%) of the number of shares of Common Stock collectively beneficially owned by such parties on the Closing Date; and (v) one nominee designated by the Prairie Members so long as the Prairie Members and their affiliates collectively beneficially own at least 20% (but less than 30%) of the number of shares of Common Stock collectively beneficially owned by such parties on the Closing Date.

 

Lock-up Agreements

 

In connection with the Closing, the Company entered into lock-up agreements with the Prairie Members, Paul Kessler, John D. Maatta, Michael Breen (former director), Alan Urban (former Chief Financial Officer) and Scott Sheikh (former Chief Operating Officer and General Counsel), that impose limitations on any sale of shares of Common Stock until 180 days after the Closing, subject to certain exceptions.

 

In addition, the Company entered into a lock-up agreement with Bristol Investment Fund that impose limitations on any sale of an aggregate of 50% of its shares of Common Stock until 120 days after the Closing, subject to certain exceptions, and Bristol Investment Fund agreed, subject to such lock-up, to effect only open market sales and not to sell an aggregate daily amount of shares of Common Stock exceeding 1%, for every $100,000 invested in the PIPE, of the average daily volume of the trading day on which the open market sales of the shares of Common Stock occurs.

 

 

Amended and Restated Senior Secured Convertible Debenture and Amended and Restated Security Agreement

 

In connection with the Closing, the Company entered into the AR Debentures due December 31, 2023 (the “Maturity Date”) with each of Bristol Investment Fund and Barlock, in the principal amount of $1,000,000. The AR Debentures will accrue interest on the aggregate unconverted and then outstanding principal amount of the AR Debentures at the rate of 12% per annum. Interest is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on the date of first issuance of the AR Debentures, (ii) each date the AR Debentures are converted into Common Stock (as to that principal amount then being converted), (iii) the day that is at least five trading days following the Company’s notice to redeem some or all of the then outstanding principal of the AR Debentures (only as to that principal amount then being redeemed), which may be provided at any time after the Uplisting, and (iv) the Maturity Date.

 

The AR Debentures are convertible into shares of Common Stock at any time at the option of the applicable holder, at a conversion price of $5.00 per share (as adjusted, the “Conversion Price”), provided, however, from and after an event of default, the Conversion Price shall be equal to the lesser of (i) the then Conversion Price and (ii) 50% of the average of the three lowest trade prices during the 20 trading days immediately prior to the date on which such conversion shall be effected. The initial Conversion Price is subject to adjustments in connection with, among other things, (i) the Company’s issuance of additional shares of Common Stock, or securities convertible into or exercisable for additional shares of Common Stock, at a price lower than the then current Conversion Price, and (ii) future stock splits, reverse stock splits, mergers or reorganizations, and similar changes affecting holders of Common Stock.

 

At any time after the Uplisting, the Company may, upon written notice to the holders of the AR Debentures, repay some or all of the then outstanding principal amount in cash or, for a period of six months following the Closing, in kind by the transfer of ownership of Collateral (as defined below) with a fair market value equal to the amount being repaid.

 

If any events of default described in the AR Debentures occur, the outstanding principal amount of the AR Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the applicable holder’s election, immediately due and payable in cash. Commencing five days after the occurrence of any event of default that results in the eventual acceleration of the AR Debentures, the interest rate on the AR Debentures shall accrue at an interest rate equal to the lesser of 18% per annum and the maximum rate permitted under applicable law.

 

The AR Debentures include customary negative covenants, including covenants restricting the Company from incurring certain additional indebtedness, granting security interests or liens on its assets (other than certain permitted liens), and entering into any transaction involving the repurchase of shares of Common Stock, except as permitted under the AR Debentures.

 

In connection with the Closing, the Company entered into the Amended and Restated Security Agreement with all of the subsidiaries of the Company and each of Bristol Investment Fund and Barlock, as holders of the AR Debentures, to change the collateral described in Exhibit A thereto (the “Collateral”) to reflect only certain cryptocurrency mining assets.

 

On October 13, 2023, the holders of the AR Debentures elected to convert the AR Debentures for an aggregate of 400,677 shares of Common Stock after.

 

Support Agreements

 

As of the date of the execution of the Merger Agreement, Bristol Investment Fund and Barlock each entered into a support agreement (the “Support Agreements”) with the Company pursuant to which, subject to the terms and conditions therein, Bristol Investment Fund and Barlock agreed to exchange their Original Debenture, in full satisfaction of the outstanding principal amount, accrued but unpaid interest and a 30% premium, for (a) the AR Debenture in substantially the same form as their respective Original Debenture, (b) shares of Common Stock and (c) shares of Series D Preferred Stock.

 

 

Amended and Restated Non-Compensatory Option Agreement

 

At the Effective Time, the Company assumed and converted options to purchase membership interests of Prairie LLC outstanding and unexercised as of immediately prior to the Effective Time into Non-Compensatory Options to acquire an aggregate of 8,000,000 shares of Common Stock for $0.25 per share, which are only exercisable if specific production hurdles are achieved, and the Company entered into the Option Agreements with each of Gary C. Hanna, Edward Kovalik, Paul Kessler and BOKA Energy LP, a third-party investor. Erik Thoresen, a director of the Company, is affiliated with BOKA Energy LP. An aggregate of 2,000,000 Non-Compensatory Options are subject to be transferred to the Series D PIPE Investors, based on their then percentage ownership of Series D Preferred Stock to the aggregate Series D Preferred Stock outstanding and held by all PIPE Investors as of the Closing Date, if the Company does not meet certain performance metrics by May 3, 2026.

 

Registration Rights Agreement

 

In connection with the closing of the Series D PIPE, the Company entered into the Series D Registration Rights Agreements with each Series D PIPE Investor pursuant to which the Company agreed to submit to or file with the SEC, within 45 calendar days after the Closing Date, a registration statement registering the resale of the shares of Common Stock underlying the Series D Preferred Stock and Series D PIPE Warrants, and the Company agreed to use its best efforts to have such registration statement declared effective as promptly as possible after the filing thereof but no later than ninety (90) calendar days (or one hundred twenty (120) calendar days if the SEC notifies the Company that it will review such registration statement) following the date of the closing.

 

Employment Agreements

 

In connection with the Merger and their appointment as officers of the Company, Prairie LLC entered into employment agreements with each of Edward Kovalik, Gary C. Hanna, Craig Owen (Chief Financial Officer), Jeremy Ham (Chief Commercial Officer) and Bryan Freeman (Executive Vice President of Operations) (collectively, the “New Officers”), effective May 3, 2023 (collectively, the “Employment Agreements”), which were previously approved by Prairie LLC prior to the Effective Time. The Employment Agreements have an indefinite term, and Prairie LLC has the right to terminate employment at any time for Cause (as defined in the Employment Agreements) or with 30 days’ written notice for a termination other than for Cause. The New Officers may terminate employment with Prairie LLC at any time and for any reason, or no reason at all, with written notice provided to Prairie LLC.

 

The Employment Agreements provide that the New Officers will each receive an annual base salary and be eligible for an annual bonus with a target amount equal to a percentage of annual base salary in the following amounts: for each of Messrs. Hanna and Kovalik, $550,000 in annual base salary and a target annual bonus equal to 250% of annual base salary and for each of Messrs. Owen, Ham and Freeman, $350,000 in annual base salary and a target annual bonus equal to 100% of annual base salary. The New Officers will also be eligible to participate in the A&R LTIP Plan.

 

The Employment Agreements also provide for certain severance benefits upon each New Officer’s termination of employment without “Cause” or upon their resignation for “Good Reason” (each quoted term as defined in the Employment Agreements), including (i) for Messrs. Hanna and Kovalik, (a) cash severance equal to three times (or, if termination occurs in connection with a “Change of Control” (as defined in the applicable Employment Agreement), four times) the sum of (1) the then-current annualized base salary, (2) the target annual bonus for the year of termination and (3) the amount payable under A&R LTIP Plan, payable in a lump sum on the first regularly scheduled pay date that is sixty (60) days after the termination date and (b) reimbursement of certain premiums paid for continuation coverage under Prairie LLC’s group health plans for a period of up to eighteen (18) months; and (ii) for Messrs. Owen, Ham and Freeman, (a) cash severance equal to two times the sum of (1) the then-current annualized base salary and (2) the target annual bonus for the year of termination, payable in a lump sum on the first regularly scheduled pay date that is sixty (60) days after the termination date and (b) reimbursement of certain premiums paid for continuation coverage under Prairie LLC’s group health plans for a period of up to eighteen (18) months. The severance benefits are contingent upon each New Officer’s execution and non-revocation of a release of claims in favor of Prairie LLC and its affiliates.

 

Additionally, upon any termination, each New Officer is entitled to (i) any earned but unpaid base salary, (ii) any annual bonuses earned but unpaid for any calendar years prior to the calendar year in which the termination occurs, (iii) a pro-rated annual bonus for the year in which the termination occurs, (iv) any amounts owed pursuant to the terms of A&R LTIP Plan, (v) any unreimbursed business expenses and (vi) any employee benefits under any employee benefit plan or program in which such New Officer participates as of the termination date. The Employment Agreements also contain certain restrictive covenants regarding confidential information.

 

 

Related Party Transactions Following the Merger

 

Reimbursements

 

Following the Merger, on May 5, 2023, the Board approved a one-time payment of $250,000 for each of Messrs. Kovalik, Hanna, and Kessler (on behalf of Bristol Capital) in light of the significant unpaid time and resources expended by each of these parties to finalize the Merger, including extensive travel, due diligence, negotiation, structuring, legal management and investment banking disciplines.

 

Series E PIPE

 

To fund the Exok Option Purchase, the Company entered into a securities purchase agreement with the Series E PIPE Investor on August 15, 2023, pursuant to which the Series E PIPE Investor agreed to purchase, and the Company agreed to sell to the Series E PIPE Investor, for an aggregate of $20.0 million, securities consisting of (i) 39,614 shares of Common Stock, (ii) 20,000 shares of Series E Preferred Stock, and (iii) Series E PIPE Warrants to purchase 8,000,000 shares of Common Stock, each at a price of $6.00 per share, in a private placement.

 

Registration Rights Agreement

 

In connection with the Series E PIPE and the Exok Option Purchase, the Company entered into the Series E Registration Rights Agreement with the Series E PIPE Investor and Exok Affiliates pursuant to which the Company agreed to submit to or file with the SEC, within the later of (i) 45 calendar days after the Closing Date and (ii) 45 calendar days after the SEC declares the Company’s registration statement on Form S-1 (File No. 333-272743) effective, a registration statement registering the resale of the Exok Shares, shares of Common Stock underlying the Series E Preferred Stock and Series E Warrants, Exok Shares and shares of Common Stock underlying the Exok Warrants, and the Company agreed to use its best efforts to have such registration statement declared effective as promptly as possible after the filing thereof but no later than ninety (90) calendar days (or one hundred twenty (120) calendar days if the SEC notifies the Company that it will review such registration statement) following the later of (x) Closing Date and (y) the date the SEC declares the prior registration statement effective.

 

Non-Compensatory Option Purchase Agreement

 

On August 30, 2023, the Company, Gary C. Hanna, Edward Kovalik, Bristol Capital and Georgina Asset Management, LLC (“Georgina Asset Management”) entered into a non-compensatory option purchase agreement, pursuant to which Georgina Asset Management agreed to purchase, and each of Gary C. Hanna, Edward Kovalik and Bristol Capital (collectively, the “Sellers”) agreed to sell to Georgina Asset Management, Non-Compensatory Options to acquire an aggregate of 200,000 shares of Common Stock for an aggregate purchase price of $2,000 (the “Option Purchase”). The Option Purchase closed on August 30, 2023. In connection with the Option Purchase, the Company entered into an amendment to the Option Agreements with each of the Sellers (or an assignee thereof) to reflect that each Seller owns a lesser number of Non-Compensatory Options after the Option Purchase.

 

Policies and Procedures for Related Person Transactions

 

A “Related Party Transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “Related Person” means:

 

	●	any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors;
	●	any person who is known by us to be the beneficial owner of more than 5% of our Common Stock;
	●	any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of our Common Stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of our Common Stock; and
	●	any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.

 

The Board has adopted a written related party transactions policy. Pursuant to this policy, our audit committee will review all material facts of all Related Party Transactions and either approved or disapproved entry into the Related Party Transaction, subject to certain limited exceptions. In determining whether to approve or disapprove entry into a Related Party Transaction, our audit committee shall take into account, among other factors, the following: (i) whether the Related Party Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and (ii) the extent of the Related Person’s interest in the transaction. Further, the policy requires that all Related Party Transactions required to be disclosed in our filings with the SEC be so disclosed in accordance with applicable laws, rules and regulations.

 

 

Beneficial Ownership of Securities

 

The following table sets forth information known to the Company regarding the beneficial ownership of the Common Stock by:

 

	●	each person who is known by the Company to be the beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock;
	●	each named executive officer, executive officer and director of the Company; and
	●	all current executive officers and directors of the Company, as a group.

 

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment power,” which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers within 60 days. The beneficial ownership percentages set forth in the table below are based on 213,564,120 shares of Common Stock issued and outstanding as of October 13, 2023 prior to the Reverse Stock Split and 7,475,411 shares of Common Stock issued and outstanding as of October 16, 2023, following the Reverse Stock Split.

 

		Shares of Common Stock Beneficially Owned
Name of Beneficial Owner(1)		Shares Pre-Reverse Stock Split				Shares Post-Reverse Stock Split				Percentage
5% Stockholders:
Bristol Investment Fund, Ltd.(2)(3)			20,095,910				703,357				12.09	%
James W. Wallis Living Trust(4)			20,177,324				706,206				9.44	%
Former Named Executive Officers:
John D. Maatta(5)			9,351,789				327,312				4.38	%
Scott Sheikh(6)			1,075,394				37,639				*
Alan Urban			300,383				10,513				*
Scott Kaufman(7)			16,816,286				588,570				7.87	%
Current Directors, Executive Officers and Named Executive Officers:
Gary C. Hanna(3)(8)			32,823,838				1,148,834				15.37	%
Edward Kovalik(3)(9)			32,823,838				1,148,834				15.37	%
Paul L. Kessler(2)(3)			36,918,414				1,292,144				17.28	%
Gizman Abbas			—								—
Stephen Lee			—								—
Jonathan H. Gray(10)			13,301,951				465,568				6.23	%
Erik Thoresen			—								—
Craig Owen			—								—
Jeremy L. Ham			—								—
Bryan Freeman			—								—
Current Directors and Executive Officers as a Group (10 persons)			115,868,041				4,055,381				54.25	%

 

(1)	Unless otherwise noted, the business address of each of the officers and directors is 602 Sawyer Street, Suite 710, Houston, Texas 77007. Share counts listed in the footnotes have been retroactively adjusted for the Reverse Stock Split.

 

 

(2)	According to a Schedule 13D/A filed with the SEC on October 13, 2023 on behalf of Bristol Investment Fund, Bristol Capital, Paul Kessler and Bristol Capital Advisors Profit Sharing Plan (“BCA PSP”), the shares reported herein include, retroactively adjusted for the Reverse Stock Split, (i) 868,356 shares of Common Stock held by Bristol Investment Fund, inclusive of the 200,000 shares of Common Stock that were issued to Bristol Investment Fund upon conversion of Bristol Investment Fund’s AR Debenture on October 13, 2023, (ii) 384,160 shares of Common Stock held by Bristol Capital, (iii) 3,249 shares of Common Stock held by Paul Kessler, (iv) 1,377 shares of Common Stock held by BCA PSP. The shares reported herein do not include (i) 797,072 shares issuable upon the conversion of Series D Preferred Stock and (ii) 597,543 shares issuable upon the exercise of the Series D PIPE Warrants, as the conversion of each such shares are subject to the holder holding less than 4.99% of the outstanding shares of Common Stock (a “4.99% Beneficial Ownership Limitation”). If, however, conversion or exercise of such shares are not subject to a 4.99% Beneficial Ownership Limitation, the shares reported herein would be 2,686,760 shares of Common Stock and percentage ownership would be 35.94%. Bristol Investment Fund is a privately held fund that invests primarily in publicly traded companies through the purchase of securities in private placement and/or open market transactions. The address of Bristol Investment Fund’s registered office is Citco Trustees (Cayman) Limited, 89 Nexus Way, Camana Bay, PO Box 311063, Grand Cayman KY1-1205, Cayman Islands. Bristol Capital Advisors, an entity organized under the laws of the State of Delaware, is the investment advisor to Bristol Investment Fund. Paul Kessler is manager of Bristol Capital Advisors and as such has voting and dispositive power over the securities held by Bristol Investment Fund. Bristol Capital is a privately held limited liability company that engages from time to time in investing in publicly traded companies through the purchase of securities in private placement and/or open market transactions. Paul Kessler is the sole manager of Bristol Capital and therefore has voting and dispositive power over the securities held by Bristol Capital. BCA PSP is a plan established by Bristol Capital Advisors which invests in various securities for the benefit of its employees. Mr. Kessler has voting and dispositive power over the securities held by BCA PSP. The address of the principal office for Bristol Capital Advisors, Bristol Capital, Mr. Kessler and BCA PSP is 555 Marin Street, Suite 140, Thousand Oaks, CA 91360.
(3)	By virtue of the arrangements of Mr. Kovalik and Mr. Hanna with Bristol Capital and Mr. Kessler under the Stockholders Agreement (as described in the section entitled “Certain Relationships and Related Transactions”), Mr. Kovalik and Mr. Hanna may be deemed to be members of a “group” with Bristol Capital, Mr. Kessler, Bristol Investment Fund and BCA PSP (together with Bristol Capital and Bristol Investment Fund, the “Bristol Entities”). The number of shares reported herein by Mr. Kovalik do not include the shares reported herein by Mr. Hanna, Mr. Kessler or Bristol Capital, the number of shares reported herein by Mr. Hanna do not include the shares reported herein by Mr. Kovalik, Mr. Kessler or Bristol Capital, and the number of shares reported herein by Mr. Kessler and Bristol Capital do not include the shares reported herein by Mr. Kovalik or Mr. Hanna. Based on the shares reported herein, Mr. Kovalik is the record holder of 1,148,834 shares of Common Stock, Mr. Hanna is the record holder of 1,148,834 shares of Common Stock and Mr. Kessler and the Bristol Entities are the record holders of 1,000,076 shares of Common Stock. In the aggregate, any group formed thereby would beneficially own 3,297,745 shares of Common Stock, or approximately 48.01% of the outstanding shares of Common Stock.
(4)	James W. Wallis has voting or investment control over the shares held by James W. Wallis Living Trust (“Wallis Trust”). The address of Wallis Trust is 6410 N. Santa Fe, Oklahoma City, OK 73116.
(5)	Accordingly to a Form 4 filed with the SEC on May 5, 2023, the shares reported herein, retroactively adjusted for the Reverse Stock Split, consist of (i) 294,413 shares of Common Stock held directly by John D. Maatta, (ii) 10,000 shares issuable upon the conversion the Series D Preferred Stock and (iii) 20,000 shares issuable upon the exercise of the Series D PIPE Warrants. The address of Mr. Maatta is 15266 Valley Vista Boulevard, Sherman Oaks, CA 91403.
(6)	The address of Mr. Sheikh is 6902 Ligustrum Cove, Austin, Texas 78750.
(7)	The shares reported herein include, retroactively adjusted for the Reverse Stock Split, (i) 142,088 shares of Common Stock held directly by Scott D. Kaufman accordingly to a Form 4 filed with the SEC on July 8, 2022, (ii) 41,359 shares of Common Stock issued in the Restructuring Transaction to Scott D. Kaufman, (iii) 271,455 shares of Common Stock issued in the Restructuring Transaction to Barlock, (iv) 33,000 shares of Common Stock held directly by ANEC and (v) 200,667 shares of Common Stock that were issued to Barlock upon conversion of Barlock’s AR Debenture on October 13, 2023. The shares reported herein do not include 380,000 shares of Common Stock issuable upon conversion of Series D Preferred Stock held by Barlock, as the conversion of each such shares are subject to a 4.99% Beneficial Ownership Limitation. If, however, conversion of such shares are not subject to a 4.99% Beneficial Ownership Limitation, the shares reported herein would be 967,903 shares of Common Stock and percentage ownership would be 12.99%. Scott D. Kaufman exercises voting and investment power over the shares held by Barlock. Scott D. Kaufman is a director and stockholder of ANEC and exercises voting and investment power over the shares held by ANEC. The address of Mr. Kaufman is 2700 Homestead Road, Park City, UT 84098.
(8)	The shares reported herein were issued to Gary C. Hanna as consideration pursuant to the Merger Agreement.
(9)	The shares reported herein were issued to Edward Kovalik as consideration pursuant to the Merger Agreement.
(10)	The shares reported herein reflect, in each case, retroactively adjusted for the Reverse Stock Split, shares held directly by First Idea Ventures LLC and First Idea International Ltd. First Idea Ventures LLC holds 80,159 shares of Common Stock. In addition, First Idea Ventures LLC also holds (i) Series D Preferred Stock convertible for 150,000 shares of Common Stock and (ii) Series D PIPE Warrants exercisable for 300,000 shares of Common Stock. First Idea International Ltd. holds 109,025 shares of Common Stock, in addition to (i) Series D Preferred Stock convertible for 50,975 shares of Common Stock and (ii) Series D PIPE Warrants exercisable for 101,950 shares of Common Stock. The shares reported herein include 276,383 shares of Common Stock issuable upon the conversion of the Series D Preferred Stock and/or exercise of the Series D PIPE Warrants, but do not include 173,616 of such shares as conversion or exercise of those shares are subject to a 4.99% Beneficial Ownership Limitation. If, however, conversion or exercise of such shares are not subject to a 4.99% Beneficial Ownership Limitation, the shares reported herein would be 1,242,109 shares of Common Stock and percentage ownership would be approximately 16.62%. Jonathan H. Gray holds 50% and his spouse, Chloe Gray, holds 50% of the interests of First Idea Ventures LLC and each share voting and investment power over the securities held by First Idea Ventures LLC. The address of First Idea Ventures LLC is c/o Jade Fiducial, 1925 Century Park East, Suite 1700, Los Angeles, CA 90067. First Idea International Ltd. is a limited company. Jonathan Gray has voting or investment control over the shares held by First Idea Ventures LLC. Mr. Gray is a director of the Company. The address of First Idea International Ltd. is 1 Duchess Street, Suite 1, First Floor, London W1W 6AN, United Kingdom.

 

 

Selling Stockholders

 

This prospectus relates to the possible resale by the Selling Stockholders of up to 24,286,304 shares of Common Stock, consisting of (i) up to 1,190,055 shares of Common Stock, (ii) up to 3,475,250 shares of Common Stock issuable upon the conversion of the Series D Preferred Stock, (iii) up to 6,950,500 shares of Common Stock issuable upon the exercise of the Series D PIPE Warrants, (iv) up to 4,000,000 shares of Common Stock issuable upon the conversion of the Series E Preferred Stock, (v) up to 8,000,000 shares of Common Stock issuable upon the exercise of the Series E PIPE Warrants, and (vi) up to 670,499 shares of Common Stock issuable upon the exercise of the Exok Warrants.

 

A description of our relationships with certain of the Selling Stockholders and their affiliates is set forth in “Certain Relationships and Related Transactions.”

 

When we refer to the “Selling Stockholders” in this prospectus, we mean the persons listed in the table below, and the pledgees, donees, or other transferees who later come to hold any of the Common Stock other than through a public sale, including through a distribution by such Selling Stockholders to their members.

 

The following table is prepared based on information provided to us by the Selling Stockholders. It sets forth the name and address of the Selling Stockholders, the aggregate number of shares of Common Stock that the Selling Stockholders may offer pursuant to this prospectus, and the beneficial ownership of the Selling Stockholders both before and after the offering. We have based percentage ownership prior to this offering on 213,564,120 shares of Common Stock issued and outstanding as of October 13, 2023 prior to the Reverse Stock Split and 7,475,411 shares of Common Stock issued and outstanding as of October 16, 2023, following the Reverse Stock Split. Unless otherwise noted, the share counts presented in the footnotes to the following table have been retroactively adjusted for the Reverse Stock Split. In calculating percentages of shares of Common Stock owned by a particular Selling Stockholders, we treated as outstanding the number of shares of our Common Stock issuable upon conversion and exercise of that particular Selling Stockholder’s Series D Preferred Stock, Series E Preferred Stock, Series D PIPE Warrants, Series E PIPE Warrants and Exok Warrants (if any), respectively, and did not assume the conversion and exercise of any other Selling Stockholder’s Series D Preferred Stock, Series E Preferred Stock, Series D PIPE Warrants, Series E PIPE Warrants and Exok Warrants, respectively. For purposes of the following table, we assume that the shares issuable upon conversion of the Series D Preferred Stock, Series E Preferred Stock, Series D PIPE Warrants, Series E PIPE Warrants and Exok Warrants are not subject to a 4.99% Beneficial Ownership Limitation.

 

We cannot advise you as to whether the Selling Stockholders will in fact sell any or all of such Common Stock. In addition, the Selling Stockholders may sell, transfer or otherwise dispose of, at any time and from time to time, the Series D Preferred Stock, Series E Preferred Stock, Series D PIPE Warrants, Series E PIPE Warrants and Exok Warrants in transactions exempt from the registration requirements of the Securities Act after the date of this prospectus. For purposes of this table, we have assumed that the Selling Stockholders will have sold all of the securities covered by this prospectus upon the completion of the offering.

 

 

Name of Selling Stockholder		Shares of pre-Reverse Stock Split Common Stock Beneficially Owned Prior to Offering				Number of Shares of pre-Reverse Stock Split Common Stock Being Offered				Shares of post-Reverse Stock Split Common Stock Beneficially Owned Prior to Offering				Number of Shares of post-Reverse Stock Split Common Stock Being Offered				Shares of Common Stock Beneficially Owned After the Offered Shares of Common Stock are Sold
																		Pre-Reverse Stock Split Shares				Post-Reverse Stock Split Shares				Percentage
Bristol Investment Fund, Ltd.(1)			52,035,331				31,939,421				1,821,236				1,117,879				20,095,910				703,356				9.41	%
Bronfman Family Investment Partnership LLP(2)			1,625,333				857,142				56,886				29,999				768,191				26,886				*
Cavalry Fund I LP(3)			11,356,650				6,428,571				397,482				224,999				4,928,079				172,482				2.31	%
Christopher A. Marlett Living Trust(4)			3,428,571				3,428,571				119,999				119,999				—				—				—
Citrus Hill Trust(5)			1,558,666				857,142				54,553				29,999				701,524				24,553				*
CR Financial Holdings, Inc.(6)			1,913,337				1,913,337				66,966				66,966				—				—				—
Creecal Holdings, LLC(7)			1,465,363				1,465,363				51,287				51,287				—				—				—
District 2 Capital Fund LP(8)			7,460,000				4,285,714				261,100				149,999				3,174,286				111,100				1.49	%
First Idea International Ltd.(9)			8,047,107				5,756,828				281,648				201,488				2,290,279				80,159				1.07	%
First Idea Ventures LLC(10)			12,857,142				12,857,142				449,999				449,999				—				—				—
Georgina Asset Management, LLC 401(k) PSP(11)			812,667				428,571				28,443				14,999				384,096				13,443				*
Green Coast Capital International(12)			4,875,248				3,138,105				170,633				109,833				1,737,143				60,800				*
Gregory Suess(13)			2,275,241				2,112,384				79,633				73,933				162,857				5,699				*
Hayward Dan Fisk and Diane H. Fisk, Trustee of the Fisk Family Trust, dated February 27, 2002(14)			857,142				857,142				29,999				29,999				—				—				—
Howie Energy Holdings, LLC(15)			1,056,194				1,056,194				36,966				36,966				—				—				—
Intracoastal Capital, LLC(16)			3,426,343				2,158,830				119,922				75,559				1,267,513				44,362				*
James Stewart(17)			342,857				342,857				11,999				11,999				—				—				—
James W. Wallis Living Trust(18)			38,683,549				38,683,549				1,353,924				1,353,924				—				—				—
Jeffrey Bronfman Revocable Living Trust(19)			4,609,333				2,571,428				161,326				89,999				2,037,905				71,326				*
John D. Maatta(20)			9,468,000				1,056,194				331,380				36,966				8,411,806				294,413				3.94	%
Joseph Held GST Exempt Trust(21)			3,117,333				1,714,285				109,106				59,999				1,403,048				49,106				*
Kevin R. Contreras Family Trust(22)			1,558,666				857,142				54,553				29,999				701,524				24,553				*
LAMA Investments LLC(23)			1,558,666				857,142				54,553				29,999				701,524				24,553				*
Mank Capital, LLC(24)			2,673,747				1,959,533				93,581				68,583				714,214				24,997				*
Melissa Ann Held Bordy GST Exempt Trust(25)			3,117,333				1,714,285				109,106				59,999				1,403,048				49,106				*
Michael M. G. Breen(26)			475,598				398,098				16,645				13,933				77,500				2,712				*
The Munt Trust(27)			298,575				298,575				10,450				10,450				—				—				—
Narrogal Nominees Pty Ltd ATF Gregory K. O’Neill Family Trust(28)			515,417,569				515,417,569				18,039,614				18,039,614				—				—				—
Robert Held GST Exempt Trust(29)			3,117,333				1,714,285				109,106				59,999				1,403,048				49,106				*
Robert Hoyt Revocable Trust(30)			2,311,434				2,311,434				80,900				80,900				—				—				—
Sixth Borough Capital Fund LP(31)			3,730,000				2,142,857				130,550				74,999				1,587,143				55,550				*
Steven D. Bryant(32)			5,747,136				5,747,136				201,149				201,149				—				—				—
Texas Independent Exploration Limited(33)			857,142				857,142				29,999				29,999				—				—				—
The 1998 Insurance Trust for Ashley Ziman(34)			779,334				428,571				27,276				14,999				350,763				12,276				*
The 1998 Insurance Trust for Michele Ziman(35)			779,334				428,571				27,276				14,999				350,763				12,276				*
The Danielle Lisa Behr Living Trust(36)			746,000				428,571				26,110				14,999				317,429				11,110				*
The Hewlett Fund LP(37)			10,444,000				6,000,000				365,539				209,999				4,444,000				155,539				2.08	%
The Rosalinde and Arthur Gilbert Foundation(38)			19,149,999				10,714,285				670,249				374,999				8,435,714				295,249				3.95	%
The RSZ Trust (May Ziman)(39)			746,000				428,571				26,110				14,999				317,429				11,110				*
The RSZ Trust (Richard Ziman)(39)			2,996,371				1,285,714				104,872				44,999				1,710,657				59,872				*
The Warley Avenue Trust(40)			12,169,480				12,169,480				425,931				425,931				—				—				—
Trester Family Trust(41)			1,726,442				1,714,285				60,425				59,999				12,157				425				*
Warberg WF XI LP(42)			2,540,913				2,112,384				88,931				73,933				428,529				14,998				*
TOTAL**			764,212,502				693,894,423				26,747,437				24,286,304				70,318,079				2,461,132

 

*	Represents beneficial ownership of less than 1%.
**	Totals may not sum due to rounding.
(1)	According to a Schedule 13D/A filed with the SEC on October 13, 2023 on behalf of Bristol Investment Fund, Bristol Capital, Paul Kessler and Bristol Capital Advisors Profit Sharing Plan (“BCA PSP”), the shares reported herein, retroactively adjusted for the Reverse Stock Split, includes (i) 903,357 shares of Common Stock held by Bristol Investment Fund, inclusive of the 200,000 shares of Common Stock that were issued to Bristol Investment Fund upon conversion of Bristol Investment Fund’s AR Debenture on October 13, 2023, (ii) 384,160 shares of Common Stock held by Bristol Capital, (iii) 3,250 shares of Common Stock held by Paul Kessler, (iv) 1,377 shares of Common Stock held by BCA PSP. Bristol Investment Fund is a privately held fund that invests primarily in publicly traded companies through the purchase of securities in private placement and/or open market transactions. The address of Bristol Investment Fund’s registered office is Citco Trustees (Cayman) Limited, 89 Nexus Way, Camana Bay, PO Box 311063, Grand Cayman KY1-1205, Cayman Islands. Bristol Capital Advisors, an entity organized under the laws of the State of Delaware, is the investment advisor to Bristol Investment Fund. Paul Kessler is manager of Bristol Capital Advisors and as such has voting and dispositive power over the securities held by Bristol Investment Fund. Bristol Capital is a privately held limited liability company that engages from time to time in investing in publicly traded companies through the purchase of securities in private placement and/or open market transactions. Paul Kessler is the sole manager of Bristol Capital and therefore has voting and dispositive power over the securities held by Bristol Capital. BCA PSP is a plan established by Bristol Capital Advisors which invests in various securities for the benefit of its employees. Mr. Kessler has voting and dispositive power over the securities held by BCA PSP. The address of the principal office for Bristol Capital Advisors, Bristol Capital, Mr. Kessler and BCA PSP is 555 Marin Street, Suite 140, Thousand Oaks, CA 91360.

 

 

(2)	Bronfman Family Investment Partnership LLLP (“Bronfman”) is a partnership. Jeffrey Bronfman has voting or investment control over the shares held by Bronfman. The address of Bronfman is 848 N. Rainbow Blvd. #353, Las Vegas, NV 89107.
(3)	Cavalry Fund I GP, LLC, the General Partner of Cavalry Fund I, LP, has discretionary authority to vote and dispose of the shares held by Cavalry Fund I, LP and may be deemed to be the beneficial owner of these shares. Thomas Walsh, in his capacity as chief executive officer of Cavalry Fund I GP LLC, may also be deemed to have investment discretion and voting power over the shares held by Cavalry Fund I, LP. Cavalry Fund I GP LLC and Mr. Walsh each disclaim any beneficial ownership of these shares. The address of Cavalry Fund I, LP is 82 East Allendale Rd, Suite 5B, Saddle River, NJ 07458.
(4)	Christopher A. Marlett has voting or investment control over the shares held by Christopher A. Marlett Living Trust (“Marlett Trust”). Mr. Marlett is registered with Public Ventures, a broker dealer. The address of Marlett Trust is 4506 Isabella Ln, Dallas, TX 75229.
(5)	Ramin Shamshiri has voting or investment control over the shares held by Citrus Hill Trust (“Citrus Trust”). The address of Citrus Trust is 6540 Sunset Boulevard, Los Angeles, CA 90028.
(6)	CR Financial Holdings, Inc. (“CR Financial”) is a corporation. BR Trust DTD (“BR Trust”) owns 86.644% of the outstanding shares of CR Financial. Byron Roth and Noemi Chavez-Hehn are the co-trustees of the BR Trust. BR Trust, Byron Roth and Noemi Chavez-Hehn have voting or investment control over the shares held by CR Financial. CR Financial owns 91.363% of Roth Capital Partners, LLC, a broker dealer. The address of CR Financial is 2340 Collins Ave., Suite 402, Miami Beach, FL 33134.
(7)	Creecal Holdings LLC (“Creecal”) is a New York limited liability company. Eliezer Drew has voting or investment control over the shares held by Creecal. The address of Creecal is 1800 Rockaway Ave. Ste 206, Hewlett, NY 11557.
(8)	District 2 Capital Fund LP (“District 2”) is a partnership. District 2 is managed by District 2 Capital GP (“District GP”). Michael Bigger, managing member of District GP, and Eric Schlanger, a partner of District GP, have voting or investment control over the shares held by District 2. The address of District 2 is 14 Wall Street, 2nd Floor, Huntington, NY 11743.
(9)	The shares reported herein reflect, in each case, retroactively adjusted for the Reverse Stock Split, include 109,025 shares of Common Stock, in addition to (i) Series D Preferred Stock convertible for 50,975 shares of Common Stock and (ii) Series D PIPE Warrants exercisable for 101,950 shares of Common Stock. First Idea International Ltd. is a limited company. Jonathan Gray has voting or investment control over the shares held by First Idea Ventures LLC. Mr. Gray is a director of the Company. The address of First Idea International Ltd. is 1 Duchess Street, Suite 1, First Floor, London W1W 6AN, United Kingdom.
(10)	The shares reported herein reflect, in each case, retroactively adjusted for the Reverse Stock Split, include (i) 80,159 shares of Common Stock. In addition, First Idea Ventures LLC also holds (ii) Series D Preferred Stock convertible for 150,000 shares of Common Stock and (iii) Series D PIPE Warrants exercisable for 300,000 shares of Common Stock. Jonathan H. Gray holds 50% and his spouse, Chloe Gray, holds 50% of the interests of First Idea Ventures LLC and each share voting and investment power over the securities held by First Idea Ventures LLC. Mr. Gray is a director of the Company. The address of First Idea Ventures LLC is c/o Jade Fiducial, 1925 Century Park East, Suite 1700, Los Angeles, CA 90067.
(11)	Georgina Asset Management 401(k) PSP is a 401(k) employee benefit plan. Robert H. Lipp has voting or investment control over the shares held by Georgina Asset Management. The address of Georgina Asset Management is 1201 Montana Ave, Suite 205, Santa Monica, CA 90403.
(12)	Green Coast Capital International (“Green Coast”) is a corporation. Kevin M. Bobryk has voting or investment control over the shares held by Green Coast. The address of Green Coast is 1st Floor, Landmark Square, 64 Earth Close, P.O. Box 715, George Town, Grand Cayman KY1-1107, Cayman Islands.
(13)	Gregory Suess was a director of the Company from May 9, 2011 to December 23, 2021. The address of Mr. Suess is 2838 Shook Hill Circle, Birmingham, AL 35223.
(14)	Hayward Dan Fisk and Diane H. Fisk have voting or investment control over the shares held by Hayward Dan Fisk and Diane H. Fisk, Trustee of the Fisk Family Trust, dated February 27, 2002 (“Fisk Trust”). The address of Fisk Trust is 1527 Stone Canyon Road, Los Angeles, CA 90077.
(15)	Howie Energy Holdings, LLC (“Howie Energy”) is a Delaware limited liability company. Howie Energy is managed by John K. Howie. John K. Howie has voting or investment control over the shares held by Howie Energy. The address of Howie Energy is 7670 Woodway Drive, Suite 340-A, Houston, Texas 77063-1520.
(16)	Intracoastal Capital, LLC (“Intracoastal”) is a limited liability company. Mitchell P. Kopin and Daniel B. Asher, each of whom are managers of Intracoastal, have shared voting control and investment discretion over the securities reported herein that are held by Intracoastal. The address of Intracoastal Capital, LLC is 245 Palm Trail, Delray Beach, Florida 33483.
(17)	The address of Mr. Stewart is 9600 Grand Isle Ln, Las Vegas, NV 89144.
(18)	James W. Wallis has voting or investment control over the shares held by James W. Wallis Living Trust (“Wallis Trust”). The address of Wallis Trust is 6410 N. Santa Fe, Oklahoma City, OK 73116.
(19)	Jeffrey Bronfman has voting or investment control over the shares held by Jeffrey Bronfman Revocable Living Trust (“Bronfman Trust”). The address of Bronfman Trust is 848 N. Rainbow Blvd. #353, Las Vegas, NV 89107.
(20)	Accordingly to a Form 4 filed with the SEC on May 5, 2023, the shares reported herein, retroactively adjusted for the Reverse Stock Split, consists of (i) 294,413 shares of Common Stock held directly by John D. Maatta, (ii) 10,000 shares issuable upon the conversion the Series D Preferred Stock and (iii) 20,000 shares issuable upon the exercise of the Series D PIPE Warrants. John D. Maatta served as a director of the Company from May 25, 2011 until the Closing and as Chairman of the Board from February 5, 2016 through April 22, 2016. Mr. Maatta also served as the Company’s President and Chief Executive Officer from May 3, 2016 through November 24, 2020, as co-Chief Executive Officer from May 12, 2022 through July 8, 2022, as Chief Executive Officer from July 9, 2022 until the Closing and as Interim Chief Financial Officer from March 8, 2023 until the Closing. The address of Mr. Maatta is 15266 Valley Vista Boulevard, Sherman Oaks, CA 91403.
(21)	Joseph Held has voting or investment control over the shares held by Joseph Held GST Exempt Trust (“Held Trust”). The address of Held Trust is 1880 Century Park East, Ste. 500, Los Angeles, CA 90067.
(22)	Kevin Contreras has voting or investment control over the shares held by Kevin R. Contreras Family Trust (“Contreras Trust”). The address of Contreras Trust is 146 Eucalyptus Hill Circle, Santa Barbara, CA 93103.
(23)	LAMA Investments LLC (“LAMA”) is a limited liability company. Matthew Held has voting or investment control over the shares held by LAMA. The address of LAMA is 666 Greenwich St., #843, New York, NY 10014.
(24)	Mank Capital, LLC (“Mank Capital”) is a limited liability company. The address of Mank Capital is 347 W. 87th Street, Apt. 2R, New York, NY 10024.
(25)	Melissa A. Held Bordy has voting or investment control over the shares held by Melissa Ann Held Bordy GST Exempt Trust (“Bordy Trust”). The address of Bordy Trust is 1880 Century Park East, Ste. 500, Los Angeles, CA 90067.
(26)	The address of Mr. Breen is Lowsley House, 133 Headley Road, Liphook, United Kingdom, GU30 7PU. Mr. Breen is a former director of the Company.
(27)	David Colin McGavin has voting or investment control over the shares held by The Munt Trust. The address of The Munt Trust is 64 Hurlingham Road, London, SW6 3RQ, United Kingdom.

 

 

(28)	Narrogal Nominees Pty Ltd ATF Gregory K. O’Neill Family Trust (“O’Neill Trust”) is managed by Nermone Nominees, as trustee. Gregory K. O’Neill, managing director and sole shareholder, has voting or investment control over the shares held by O’Neill Trust. The address of O’Neill Trust is Level 27, 60 City Road Southbank, Melbourne, Australia. The shares reported herein include 39,615 shares of Common Stock, 2,000,000 shares of Common Stock underlying the Series D Preferred Stock, 2,000,000 shares of Common Stock issuable upon exercise of the Series D A Warrants, 2,000,000 shares of Common Stock issuable upon exercise of the Series D B Warrants, 4,000,000 shares of Common Stock underlying the Series E Preferred Stock, 4,000,000 shares of Common Stock issuable upon exercise of the Series E A Warrants, 4,000,000 shares of Common Stock issuable upon exercise of the Series E B Warrants. On a fully diluted basis and assuming no other security holder has exercised any of their convertible securities, O’Neill Trust would own approximately 71% of the shares outstanding. The exercise of such Series D Preferred Stock, Series D Warrants, Series E Preferred and Series E Warrants are subject to O’Neill Trust holding less than 4.99% of the outstanding shares of Common Stock, which may be increased upon written notice to the Company, to any specified percentage not in excess of 9.99%. Such beneficial ownership limitation may only be modified, amended or waived with the written consent of both the Company and O’Neill Trust.
(29)	Robert Held has voting or investment control over the shares held by Robert Held GST Exempt Trust (“Held Trust”). The address of Held Trust is 1880 Century Park East, Ste. 500, Los Angeles, CA 90067.
(30)	Robert Hoyt has voting or investment control over the shares held by Robert Hoyt Revocable Trust (“Hoyt Trust”). The address of Hoyt Trust is 4550 NE 94th St., Seattle, WA 98115.
(31)	Sixth Borough Capital Fund LP (“Sixth Borough”) is a limited partnership. Sixth Borough is managed by Sixth Borough Capital Management LLC. Robert D. Keyser, Jr. has voting or investment control over the shares held by Sixth Borough. The address of Sixth Borough is 1515 N. Federal Highway, Suite 300, Boca Raton, FL 33432.
(32)	The address of Mr. Bryant is 3000 Cornwall Place, Oklahoma City, OK 73120.
(33)	Texas Independent Exploration Limited (“Texas Independent”) is a Texas limited partnership. Texas Independent is managed by Independent Operating LLC. Frederick W. Zimmerman has voting or investment control over the shares held Texas Independent. The address of Texas Independent is 6760 Portwest Drive, Houston, TX 77024.
(34)	Allan Ziman has voting or investment control over the shares held by The 1998 Insurance Trust for Ashley Ziman (“Ashley Ziman Trust”). The address of Ashley Ziman Trust is 1801 Century Park East, Ste. 2010, Los Angeles, CA 90067.
(35)	Allan Ziman has voting or investment control over the shares held by The 1998 Insurance Trust for Michele Ziman (“Michele Ziman Trust”). The address of Michele Ziman Trust is 1801 Century Park East, Ste. 2010, Los Angeles, CA 90067.
(36)	Danielle Behr has voting or investment control over the shares held by The Danielle Lisa Behr Living Trust (“Behr Trust”). The address of Behr Trust is 162 N. Carmelina Ave., Los Angeles, CA 90049.
(37)	The Hewlett Fund LP (“Hewlett”) is a partnership. Martin Chopp has voting or investment control over the shares held by Hewlett. The address of Hewlett is 100 Merrick Road, Suite 400W, Rockville Centre, NY 11570.
(38)	The Rosalinde and Arthur Gilbert Foundation (“Gilbert Foundation”). Martin H. Blank, Jr. and Richard S. Ziman have voting or investment control over the shares held by Gilbert Foundation. The address of Gilbert Foundation is 1801 Century Park East, Ste. 2010, Los Angeles, CA 90067.
(39)	Richard Ziman has voting or investment control over the shares held by The RSZ Trust. The address of The RSZ Trust is 1801 Century Park East, Ste. 2010, Los Angeles, CA 90067.
(40)	Mark Burnett has voting or investment control over the shares held by The Warley Trust. The address of The Warley Avenue Trust is 206 White Pine Canyon Road, Park City, UT 84060-6514.
(41)	Fredric Trester has voting or investment control over the shares held by Trester Family Trust. The address of Trester Family Trust is 828 S. Tremaine Ave., Los Angeles, CA 90005.
(42)	The shares reported herein includes 14,998 shares of Common Stock held by Warberg WF IX LP (“Warberg IX”). Warberg IX and Warberg WF XI LP (“Warberg XI”) are managed by Warberg Asset Management LLC, and Daniel Warsh is the manager of Warberg Asset Management LLC and has voting or investment control over the shares held by Warberg IX and Warberg XI. Warberg XI is a registered investment fund under the Investment Company Act. The address of Warberg XI is 716 Oak St., Winnetka, IL 60093.

 

 

Material U.S. Federal Income Tax Considerations For Non-U.S. Holders

 

The following is a summary of the material U.S. federal income tax considerations related to the purchase, ownership and disposition of our Common Stock by a non-U.S. holder (as defined below) that holds our Common Stock as a “capital asset” within the meaning of Section 1221 of the United States Internal Revenue Code of 1986, as amended (the “Code”) (generally, property held for investment). This summary is based on the provisions of the Code, U.S. Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as in effect on the date hereof, and all of which are subject to change or differing interpretations, possibly with retroactive effect. We cannot assure you that a change in law will not significantly alter the tax considerations that we describe in this summary. We have not sought any ruling from the IRS with respect to the statements made and the positions and conclusions described in the following summary, and there can be no assurance that the IRS or a court will agree with such statements, positions and conclusions.

 

This summary does not address all aspects of U.S. federal income taxation that may be relevant to non-U.S. holders in light of their personal circumstances. In addition, this summary does not address the impact of the Medicare surtax on certain net investment income, U.S. federal estate or gift tax laws, any U.S. state or local or non-U.S. tax laws or any tax treaties. This summary also does not address all U.S. federal income tax considerations that may be relevant to particular non-U.S. holders in light of their personal circumstances or that may be relevant to certain categories of investors that may be subject to special rules, such as:

 

	●	banks, insurance companies or other financial institutions;
	●	tax-exempt or governmental organizations;
	●	tax-qualified retirement plans;
	●	“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code (or any entities all of the interests of which are held by a qualified foreign pension fund);
	●	dealers in securities or foreign currencies;
	●	persons whose functional currency is not the U.S. dollar;
	●	traders in securities that use the mark-to-market method of accounting for U.S. federal income tax purposes;
	●	“controlled foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S. federal income tax;
	●	entities or arrangements treated as partnerships or pass-through entities for U.S. federal income tax purposes or holders of interests therein;
	●	persons deemed to sell our Common Stock under the constructive sale provisions of the Code;
	●	persons that acquired our Common Stock through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;
	●	certain former citizens or long-term residents of the U.S.; and
	●	persons that hold our Common Stock as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction or other integrated investment or risk reduction transaction.

 

PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS (INCLUDING ANY POTENTIAL FUTURE CHANGES THERETO) TO THEIR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER ANY OTHER TAX LAWS, INCLUDING U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY U.S. STATE OR LOCAL OR NON-U.S. TAXING JURISDICTION, OR UNDER ANY APPLICABLE INCOME TAX TREATY.

 

 

Non-U.S. Holder Defined

 

For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of our Common Stock that is not for U.S. federal income tax purposes a partnership or any of the following:

 

	●	an individual who is a citizen or resident of the U.S.;
	●	a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia;
	●	an estate the income of which is subject to U.S. federal income tax regardless of its source; or
	●	a trust (i) the administration of which is subject to the primary supervision of a U.S. court and which has one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our Common Stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, we urge partners in partnerships (including entities or arrangements treated as partnerships for U.S. federal income tax purposes) considering the purchase of our Common Stock to consult with their own tax advisors regarding the U.S. federal income tax considerations of the purchase, ownership and disposition of our Common Stock by such partnership.

 

Distributions

 

We do not expect to pay any distributions on our Common Stock in the foreseeable future. However, in the event we do make distributions of cash or other property on our Common Stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, the distributions will be treated as a non-taxable return of capital to the extent of the non-U.S. holder’s tax basis in our Common Stock and thereafter as capital gain from the sale or exchange of such Common Stock. See “—Gain on Sale or Other Taxable Disposition of Common Stock.” Subject to the withholding requirements under FATCA (as defined below) and with respect to effectively connected dividends, each of which is discussed below, any distribution made to a non-U.S. holder on our Common Stock generally will be subject to U.S. withholding tax at a rate of 30% of the gross amount of the distribution unless an applicable income tax treaty provides for a lower rate. To receive the benefit of a reduced treaty rate, a non-U.S. holder must provide the applicable withholding agent with an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form) certifying qualification for the reduced rate.

 

Dividends paid to a non-U.S. holder that are effectively connected with a trade or business conducted by the non-U.S. holder in the U.S. (and, if required by an applicable income tax treaty, are treated as attributable to a permanent establishment maintained by the non-U.S. holder in the U.S.) generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons. Such effectively connected dividends will not be subject to U.S. withholding tax if the non-U.S. holder satisfies certain certification requirements by providing the applicable withholding agent with a properly executed IRS Form W-8ECI certifying eligibility for exemption. If the non-U.S. holder is a corporation for U.S. federal income tax purposes, it may also be subject to a branch profits tax (at a 30% rate or such lower rate as specified by an applicable income tax treaty) on its effectively connected earnings and profits (as adjusted for certain items), which will include effectively connected dividends.

 

 

Gain on Sale or Other Taxable Disposition of Common Stock

 

Subject to the discussion below under “—Backup Withholding and Information Reporting,” a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax on any gain realized upon the sale or other taxable disposition of our Common Stock unless:

 

	●	the non-U.S. holder is an individual who is present in the U.S. for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met;
	●	the gain is effectively connected with a trade or business conducted by the non-U.S. holder in the U.S. (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States); or
	●	our Common Stock constitutes a United States real property interest by reason of our status as a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the non-U.S. holder’s holding period for the Common Stock and as a result such gain is treated as effectively connected with a trade or business conducted by the non-U.S. holder in the U.S.

 

A non-U.S. holder described in the first bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate as specified by an applicable income tax treaty) on the amount of such gain, which generally may be offset by U.S. source capital losses provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

 

A non-U.S. holder whose gain is described in the second bullet point above or, subject to the exceptions described in the next paragraph, the third bullet point above, generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons. If the non-U.S. holder is a corporation for U.S. federal income tax purposes whose gain is described in the second bullet point above, then such gain would also be included in its effectively connected earnings and profits (as adjusted for certain items), which may be subject to a branch profits tax (at a 30% rate or such lower rate as specified by an applicable income tax treaty).

 

Generally, a corporation is a USRPHC if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. We believe that we currently are, and expect to remain for the foreseeable future, a USRPHC for U.S. federal income tax purposes. However, as long as our Common Stock is and continues to be “regularly traded on an established securities market” (within the meaning of the U.S. Treasury regulations), only a non-U.S. holder that actually or constructively owns, or owned at any time during the shorter of the five-year period ending on the date of the disposition or the non-U.S. holder’s holding period for the Common Stock, more than 5% of our Common Stock will be treated as disposing of a United States real property interest and will be taxable on gain realized on the disposition of our Common Stock as a result of our status as a USRPHC. If our Common Stock were not considered to be regularly traded on an established securities market, each non-U.S. holder (regardless of the percentage of stock owned) would be treated as disposing of a United States real property interest and would be subject to U.S. federal income tax on a taxable disposition of our Common Stock (as described in the preceding paragraph), and a 15% withholding tax would apply to the gross proceeds from such disposition.

 

Non-U.S. holders should consult with their own tax advisors with respect to the application of the foregoing rules to their ownership and disposition of our Common Stock, including regarding potentially applicable income tax treaties that may provide for different rules.

 

Backup Withholding and Information Reporting

 

Any dividends paid to a non-U.S. holder must be reported annually to the IRS and to the non-U.S. holder. Copies of these information returns may be made available to the tax authorities in the country in which the non-U.S. holder resides or is established. Payments of dividends to a non-U.S. holder generally will not be subject to backup withholding if the non-U.S. holder establishes an exemption by properly certifying its non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form).

 

 

Payments of the proceeds from a sale or other disposition by a non-U.S. holder of our Common Stock effected by or through a U.S. office of a broker generally will be subject to information reporting and backup withholding (at the applicable rate) unless the non-U.S. holder establishes an exemption by properly certifying its non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form) and certain other conditions are met. Information reporting and backup withholding generally will not apply to any payment of the proceeds from a sale or other disposition of our Common Stock effected outside the U.S. by a non-U.S. office of a broker. However, unless such broker has documentary evidence in its records that the non-U.S. holder is not a U.S. person and certain other conditions are met, or the non-U.S. holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of our Common Stock effected outside the U.S. by such a broker if it has certain relationships within the U.S.

 

Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

 

Additional Withholding Requirements under FATCA

 

Sections 1471 through 1474 of the Code, and the U.S. Treasury regulations and administrative guidance issued thereunder (“FATCA”), impose a 30% withholding tax on any dividends on our Common Stock and, subject to the proposed U.S. Treasury regulations discussed below, on proceeds from sales or other dispositions of shares of our Common Stock, if paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code) (including, in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are non-U.S. entities with U.S. owners), (ii) in the case of a non-financial foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Code) or provides the applicable withholding agent with a certification identifying the direct and indirect substantial United States owners of the entity (in either case, generally on an IRS Form W-8BEN-E), or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the U.S. governing these rules may be subject to different rules. Under certain circumstances, a holder might be eligible for refunds or credits of such taxes. Proposed U.S. Treasury regulations provide that gross proceeds from a sale or other disposition of Common Stock do not constitute withholdable payments. Taxpayers may generally rely on these proposed U.S. Treasury regulations until they are revoked or final U.S. Treasury regulations are issued. Non-U.S. holders are encouraged to consult with their own tax advisors regarding the effects of FATCA on an investment in our Common Stock.

 

INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS (INCLUDING ANY POTENTIAL FUTURE CHANGES THERETO) TO THEIR PARTICULAR SITUATIONS AND THE APPLICABILITY AND EFFECT OF ANY OTHER TAX LAWS, INCLUDING U.S. FEDERAL ESTATE AND GIFT TAX LAWS AND ANY U.S. STATE OR LOCAL OR NON-U.S. TAX LAWS, AND TAX TREATIES

 

 

Description of Securities

 

The following summary of the material terms of our shares of Common Stock is not intended to be a complete summary of the rights and preferences of such securities, and is qualified by reference to the Charter and our bylaws, which are exhibits to the registration statement of which this prospectus is a part. We urge you to read each of our Charter and our bylaws for a complete description of the rights and preferences of our shares of Common Stock.

 

On October 25, 2022, the holders of approximately 88.2% of the voting power of the Company approved by written consent amendments to the Company’s Amended and Restated Certificate of Incorporation to effect the Reverse Stock Split.

 

On October 12, 2023, the Company filed a Certificate of Amendment to its Charter with the Delaware Secretary of State to effect the Reverse Stock Split. The Certificate of Amendment filed by the Company with the Delaware Secretary of State on October 12, 2023 took effect October 16, 2023 and, among other things, (i) effected the Reverse Stock Split; and (ii) changed the total number of shares of all classes of stock which the Company shall have authority to issue to 155,000,000 shares, consisting of (a) 150,000,000 shares of Common Stock and (b) 5,000,000 shares of Preferred Stock.

 

Immediately after the filing of the Certificate of Amendment on October 12, 2023, the Company filed the Second Amended and Restated Certificate of Incorporation (the “Charter”) with the Delaware Secretary of State, with an effective date of October 16, 2023, to, among other things, (i) eliminate certain provisions related to the Preferred Stock as a result of the elimination of certain classes of Preferred Stock; (ii) remove provisions providing for action by written consent of stockholders; (iii) include a waiver of the corporate opportunity doctrine; (iv) make certain modifications to the election and removal of directors of the Company; (v) adopt Delaware as the exclusive forum for certain shareholder litigation; and (vi) increase the total number of shares of all classes of stock which the Company shall have authority to issue 550,000,000 shares, consisting of (a) 500,000,000 shares of Common Stock and (b) 50,000,000 shares of Preferred Stock.

 

Authorized and Outstanding Stock

 

We are authorized to issue a total of 550,000,000 shares of stock, consisting of (i) 500,000,000 shares of Common Stock, par value $0.01 per share, and (ii) 50,000,000 shares of Preferred Stock, par value $0.01 per share.

 

The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding plus the number reserved for issuance upon the exercise, conversion or exchange of outstanding securities) by the affirmative vote of the majority of the voting power of the outstanding shares of stock of the Company entitled to vote generally on the election of directors, voting as a single class, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of either Common Stock or Preferred Stock voting separately as a class or series shall be required therefor.

 

Common Stock

 

Voting Power

 

Except as may otherwise be provided in our Charter, in a preferred stock designation or by applicable law, each stockholder shall be entitled to one vote for each share of Common Stock held by that stockholder. Except as may otherwise be provided in our Charter (including any preferred stock designation), the holders of shares of Common Stock shall have the exclusive right to vote for the election of directors and on all other matters upon which stockholders are entitled to vote.

 

Notwithstanding the foregoing, except as otherwise required by applicable law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to our Charter (including any preferred stock designation) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such class or series, to vote thereon pursuant to our Charter (including any preferred stock designation) or pursuant to the DGCL.

 

Dividends

 

Subject to the prior rights and preferences, if any, applicable to shares of Preferred Stock or any class or series thereof, and subject to the right of participation, if any, of the holders of Preferred Stock in any dividends, the holders of shares of Common Stock shall be entitled to receive ratably in proportion to the number of shares of Common Stock held by them such dividends and distributions (payable in cash, stock or otherwise), if any, as may be declared thereon by the Board at any time and from time to time out of any funds of the Company legally available therefor.

 

Liquidation, Dissolution and Winding Up

 

In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock or any class or series thereof, and subject to the right of participation, if any, of the holders of Preferred Stock in any dividends, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Company available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them. A liquidation, dissolution or winding-up of the Company shall not be deemed to be occasioned by or to include any consolidation or merger of the Company with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or a part of the assets of the Company.

 

 

Preemptive or Other Rights

 

The holders of our Common Stock have no preemptive, subscription, redemption or conversion rights.

 

Election of Directors

 

Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of Preferred Stock, the holders of Common Stock will possess all voting power for the election of our directors and all other matters requiring stockholder action. Cumulative voting is prohibited. Holders of Common Stock are entitled to one vote per share on matters to be voted on by stockholders.

 

Series D Preferred Stock and Series D PIPE Warrants

 

In connection with the Series D PIPE, the Company issued approximately 17,376 shares of Series D Preferred Stock, 99,292,858 Series D A Warrants and 99,292,858 Series D B Warrants pursuant to the Securities Purchase Agreements, on a pre-Reverse Stock Split basis, and 3,475,250 Series D A Warrants and 3,475,250 Series D B Warrants, on a post-Reverse Stock Split basis.

 

The Series D Preferred Stock have a stated value of $1,000 per share and are convertible to shares of Common Stock at a price of $5.00 per share. The Series D PIPE Warrants are exercisable at a price of $6.00 per share, subject to adjustments as provided under the terms of the Series D PIPE Warrants. The Series D PIPE Warrants are exercisable at any time until the expiration thereof, except that the Series D PIPE Warrants cannot be exercised by a Series D PIPE Investor if, after giving effect thereto, such Series D PIPE Investor would beneficially own more than 4.99% (the “Maximum Percentage”) of the outstanding shares of Common Stock, which Maximum Percentage may be increased or decreased by the Series D PIPE Investor, upon written notice to the Company, to any specified percentage not in excess of 9.99%. The Series D A Warrants have a term of five years from the date of issuance, and the Series D B Warrants have a term of one year from the date of issuance.

 

Subject to limited exceptions, a Series D PIPE Investor will not have the right to convert any portion of their Series D Preferred Stock if such Series D PIPE Investor, together with its affiliates, would beneficially own in excess of 4.99% (or up to 9.99% at the election of the holder) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. Such beneficial ownership limitation may only be modified, amended or waived with the written consent of both the Company and the security holder.

 

After the six-month anniversary of the Closing Date, if there is no effective registration statement registering the resale of the shares of Common Stock issuable from the exercise of the Series D PIPE Warrants, then the Series D PIPE Warrants may be exercised, in whole or in part, at such time by means of a “cashless exercise” pursuant to the terms therein.

 

Registration Rights Agreement

 

In connection with the Closing, we entered into the Registration Rights Agreement with the Series D PIPE Investors pursuant to which the Company agreed to submit to or file with the SEC, within 45 calendar days after the Closing Date, a registration statement registering the resale of the shares of Common Stock underlying the Series D Preferred Stock and Series D PIPE Warrants (the “PIPE Resale Registration Statement”), and the Company agreed to use its best efforts to have the PIPE Resale Registration Statement declared effective as promptly as possible after the filing thereof but no later than ninety (90) calendar days (or one hundred twenty (120) calendar days if the SEC notifies the Company that it will review the PIPE Resale Registration Statement) following the Closing Date.

 

Series E PIPE

 

To fund the Exok Option Purchase, the Company entered into a securities purchase agreement with the Series E PIPE Investor on August 15, 2023, pursuant to which the Series E PIPE Investor agreed to purchase, and the Company agreed to sell to the Series E PIPE Investor, for an aggregate of $20.0 million, securities consisting of (i) 39,614 shares of Common Stock, (ii) 20,000 shares of Series E Preferred Stock, par value $0.01 per share, with a stated value of $1,000 per share, convertible into shares of Common Stock at a price of $5.00 per share, and (iii) Series E PIPE Warrants to purchase 8,000,000 shares of Common Stock, each at a price of $6.00 per share, in the Series E PIPE.

 

The Series E PIPE Warrants are exercisable at a price $6.00 per share following the Reverse Stock Split, subject to adjustments as provided under the terms of the Series E PIPE Warrants. The Series E PIPE Warrants will be exercisable at any time on or after the closing of the Series E PIPE until the expiration thereof, except that the Series E PIPE Warrants cannot be exercised by the Series E PIPE Investor if, after giving effect thereto, the Series E PIPE Investor would beneficially own more than 4.99% (or up to 9.99% at the election of the Series E PIPE Investor) of the outstanding shares of Common Stock. Such beneficial ownership limitation may only be modified, amended or waived with the written consent of both the Company and the security holder.

 

The Series E A PIPE Warrants have a term of five years from the date of issuance, and the Series E B Warrants have a term of one year from the date of issuance.

 

Series E Registration Rights Agreement

 

In connection with the Series E PIPE, we entered into a registration rights agreement with the Series E PIPE Investor (the “Series E Registration Rights Agreement”), pursuant to which the Company agreed to submit to or file with the SEC, within the later of (i) 45 calendar days after the closing of the Series E PIPE or (ii) 45 days after the SEC declares the PIPE Resale Registration Statement effective, a registration statement registering the resale of the shares of Common Stock underlying the Series E Preferred Stock and Series E PIPE Warrants (the “Series E Registration Statement”), and the Company agreed to use its best efforts to have the Series E Registration Statement declared effective as promptly as possible after the filing thereof but no later than ninety (90) calendar days (or one hundred twenty (120) calendar days if the SEC notifies the Company that it will review the Series E Registration Statement. 

 

Exok Warrants

 

In connection with the exercise of the Exok Option, the Company issued equity consideration to certain affiliates of Exok, consisting of (i) 670,499 shares of Common Stock and (ii) Exok Warrants providing the right to purchase 670,499 shares of Common Stock at $7.43. The Exok Warrants are exercisable at any time on or after the closing of the Exok Option Purchase until the expiration thereof, except that the Exok Warrants cannot be exercised by Exok if, after giving effect thereto, Exok would beneficially own more than 4.99% (or up to 9.99% at the election of Exok) of the outstanding shares of Common Stock. Such beneficial ownership limitation may only be modified, amended or waived with the written consent of both the Company and the security holder.

 

The Exok Warrants have a term of five years from the date of issuance.

 

Dividends

 

The Company did not pay any cash dividends on its Common Stock prior to the Merger. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial conditions subsequent to completion of the Merger. The payment of any cash dividends subsequent to the Merger is within the discretion of our Board at such time. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.

 

Transfer Agent and Registrar

 

The transfer agent for our Common Stock is VStock Transfer, LLC. The transfer agent’s telephone number and address is (212) 828-8436 and 18 Lafayette Place, Woodmere, NY 11598.

 

 

Restrictions on Resale of Securities

 

Rule 144

 

Pursuant to Rule 144 of the Securities Act (“Rule 144”), a person who has beneficially owned restricted shares of our Common Stock for at least six months would be entitled to sell their securities, provided that (i) such person is not deemed to have been one of our “affiliates” at the time of, or at any time during the three months preceding, a sale, (ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and (iii) we have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale. After a one-year holding period, assuming we remain subject to the Exchange Act reporting requirements, such a person may sell their securities without regard to clause (iii) in the prior sentence.

 

Persons who have beneficially owned restricted shares of our Common Stock for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:

 

	●	one percent (1%) of the total number of shares of Common Stock then outstanding; or
	●	the average weekly reported trading volume of the Common Stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

 

Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Form S-8 Registration Statement

 

We intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of Common Stock issued or issuable under our A&R LTIP Plan. Any such Form S-8 registration statement will become effective automatically upon filing. We expect that the initial registration statement on Form S-8 will cover shares of Common Stock underlying the A&R LTIP Plan. Once these shares are registered, they can be sold in the public market upon issuance, subject to applicable restrictions.

 

Transfer Restrictions

 

Certain of the PIPE Investors are subject to certain restrictions on transfer until the termination of applicable lock-up periods.

 

In connection with the Closing, the Company entered into multiple lock-up agreements with the holders of the Series B Preferred Stock, Series C Preferred Stock, Original Debentures and a $500,000 convertible promissory note (collectively, the “Lock-up Holders”) that participated in the PIPE that impose limitations on any sale of an aggregate of 50% of their shares of Common Stock until 120 days after the Closing (the “50% Lock-up”), subject to certain exceptions. Additionally, the Lock-up Holders agree, subject to the 50% Lock-up, to effect only open market sales and not to sell an aggregate daily amount of shares of Common Stock exceeding 1%, for every $100,000 invested in the PIPE by such Lock-up Holder, of the average daily volume of the trading day on which the open market sales of the shares of Common Stock occurs.

 

In addition, the Company entered into a lock-up agreement with John D. Maatta that imposes limitations on any sale of shares of Common Stock until 180 days after the Closing, subject to certain exceptions.

 

 

Plan of Distribution

 

We are registering the resale by the Selling Stockholders of up to 24,286,304 shares of Common Stock, consisting of (i) up to 1,190,055 shares of Common Stock, (ii) up to 3,475,250 shares of Common Stock issuable upon the conversion of the Series D Preferred Stock, (iii) up to 6,950,500 shares of Common Stock issuable upon the exercise of the Series D PIPE Warrants, (iv) 4,000,000 shares of Common Stock issuable upon the conversion of the Series E Preferred Stock, (v) up to 8,000,000 shares of Common Stock issuable upon the exercise of the Series E PIPE Warrants and (vi) up to 670,499 shares of Common Stock issuable upon the exercise of the Exok Warrants. The Selling Stockholders may offer and sell, from time to time, the shares of Common Stock and the shares of Common Stock underlying their respective shares of Series D Preferred Stock, Series E Preferred Stock and Warrants covered by this prospectus.

 

We are required to pay all fees and expenses incident to the registration of the shares of our Common Stock to be offered and sold pursuant to this prospectus. The Selling Stockholders will bear all discounts and commissions, if any, attributable to their sale of shares of our Common Stock.

 

We will not receive any of the proceeds from the sale of the securities by the Selling Stockholders. The aggregate proceeds to the Selling Stockholders will be the purchase price of the securities less any discounts and commissions borne by the Selling Stockholders. The term “Selling Stockholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Selling Stockholder as a gift, pledge, partnership distribution or other transfer. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or in negotiated transactions. The Selling Stockholders may sell their shares of Common Stock by one or more of, or a combination of, the following methods:

 

	●	purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus;
	●	ordinary brokerage transactions and transactions in which the broker solicits purchasers;
	●	block trades in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
	●	an over-the-counter distribution in accordance with the rules of the applicable listing exchange;
	●	through trading plans entered into by a Selling Stockholder pursuant to Rule 10b5-1 under the Exchange Act, that are in place at the time of an offering pursuant to this prospectus and any applicable prospectus supplement hereto that provide for periodic sales of their securities on the basis of parameters described in such trading plans;
	●	to or through underwriters or broker-dealers;
	●	in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents;
	●	in privately negotiated transactions;
	●	in options transactions;
	●	through a combination of any of the above methods of sale; or
	●	any other method permitted pursuant to applicable law.

 

The Selling Stockholders may elect to make an in-kind distribution of its shares of Common Stock to its members, partners or stockholders. To the extent that such members, partners or stockholders are not affiliates of ours, such members, partners or stockholders would thereby receive freely tradeable shares of our Common Stock pursuant to the distribution through this registration statement.

 

 

In addition, any shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.

 

To the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. In connection with distributions of the shares or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of shares of Common Stock in the course of hedging the positions they assume with Selling Stockholders. The Selling Stockholders may also sell shares of Common Stock short and redeliver the shares to close out such short positions. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Stockholders may also pledge shares to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged shares pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

A Selling Stockholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If an applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by any Selling Stockholder or borrowed from any Selling Stockholder or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from any Selling Stockholder in settlement of those derivatives to close out any related open borrowings of stock. If applicable through securities laws, the third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement (or a post-effective amendment). In addition, any Selling Stockholder may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.

 

In effecting sales, broker-dealers or agents engaged by the Selling Stockholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the Selling Stockholders in amounts to be negotiated immediately prior to the sale.

 

In offering the securities covered by this prospectus, the Selling Stockholders and any broker-dealers who execute sales for the Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any profits realized by the Selling Stockholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions.

 

In order to comply with the securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

We have advised the Selling Stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities in the market and to the activities of the Selling Stockholders and their affiliates. In addition, we will make copies of this prospectus available to the Selling Stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

 

At the time a particular offer of securities is made, if required, a prospectus supplement will be distributed that will set forth the number of securities being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public.

 

 

Legal Matters

 

The validity of the securities offered by this prospectus will be passed upon for the Company by Vinson & Elkins L.L.P.

 

Experts

 

The consolidated financial statements of Prairie Operating Co. (formerly known as Creek Road Miners, Inc.) as of and for the years ended December 31, 2022 and 2021 incorporated by reference in this prospectus and registration statement from Prairie Operating Co.’s Annual Report on Form 10-K as filed on March 31, 2023 have been audited by MaughanSullivan LLC (“MaughanSullivan”), an independent registered public accounting firm at the time of such audit, as stated in their report appearing thereon and incorporated herein by reference. The report for the fiscal year ended December 31, 2022 contained an explanatory paragraph regarding the existence of substantial doubt about the Company’s ability to continue as a going concern. Such financial statements are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

The financial statements of Prairie Operating Co., LLC as of December 31, 2022 and for the period from June 7, 2022 (inception) through December 31, 2022 incorporated by reference in this prospectus and registration statement from Prairie Operating Co.’s Current Report on Form 8-K/A as filed on June 16, 2023, have been audited by Ham, Langston & Brezina, LLP (“HL&B”), an independent registered public accounting firm, as stated in their report appearing thereon and incorporated herein by reference, and have been incorporated in this prospectus and registration statement in reliance upon the report of such firm given their authority as experts in accounting and auditing.

 

Estimates of Prairie’s possible reserves as of August 1, 2023 and related information included or attached hereto have been prepared based on reports by Collarini Energy Experts, an independent Petroleum Reserve Evaluation Firm, and all such information has been so incorporated in reliance on the authority of such experts in such matters. 

 

Change in Auditor

 

On May 30, 2023, the Audit Committee of the Board approved the resignation of MaughanSullivan, the Company’s then independent registered public accounting firm, from its role as the Company’s independent registered public accounting firm. Neither the Audit Committee of the Board nor the Board took part in MaughanSullivan’s decision to resign. On May 30, 2023, the Audit Committee of the Board approved the engagement of HL&B as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for the year ended December 31, 2023.

 

The audit reports of MaughanSullivan on the consolidated financial statements of the Company for each of the two most recent fiscal years ended December 31, 2022 and December 31, 2021 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report for the fiscal year ended December 31, 2022 contained an explanatory paragraph regarding the existence of substantial doubt about the Company’s ability to continue as a going concern.

 

During the Company’s two most recent fiscal years ended December 31, 2022 and December 31, 2021 and during the subsequent interim period through March 31, 2023, (i) there were no disagreements with MaughanSullivan on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures that, if not resolved to MaughanSullivan’s satisfaction, would have caused MaughanSullivan to make reference to the subject matter of the disagreement in connection with its reports and (ii) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

 

During the Company’s two most recent fiscal years ended December 31, 2022 and December 31, 2021, and for the subsequent interim period through May 30, 2023, neither the Company nor anyone on its behalf consulted HL&B regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of the Company, in connection with which neither a written report nor oral advice was provided to the Company that HL&B concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.

 

Where You Can Find More Information

 

We have filed with the SEC a registration statement on Form S-1 to register the resale of the shares covered hereby. This prospectus, which forms part of the registration statement, does not contain all of the information included in that registration statement. For further information about us and the shares covered by this prospectus, you should refer to the registration statement and its exhibits. Certain information is also incorporated by reference in this prospectus as described under “Incorporation of Certain Documents by Reference.”

 

We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, in accordance therewith, file periodic reports and other information with the SEC. Such periodic reports and other information are available at the website of the SEC at http://www.sec.gov. We also furnish our stockholders with annual reports containing our financial statements audited by an independent registered public accounting firm and quarterly reports containing our unaudited financial information. We maintain a website at www.prairieopco.com. You may access our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC free of charge at our website as soon as reasonably practicable after this material is electronically filed with, or furnished to, the SEC. The reference to our website or web address does not constitute incorporation by reference of the information contained at that site.

 

We have not authorized anyone to provide you with any information other than that contained in this prospectus or in a document to which we expressly have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus.

 

 

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

 

The SEC allows us to incorporate by reference the information we file with it. This means that we can disclose information to you by referring you to those documents. The documents that have been incorporated by reference are an important part of the prospectus, and you should review that information in order to understand the nature of any investment by you in our securities. Information that we later provide to the SEC, and which is deemed to be “filed” with the SEC, will automatically update information previously filed with the SEC, and may update or replace information in this prospectus and information previously filed with the SEC. We are incorporating by reference the documents listed below; provided, however, that we are not incorporating any documents or information deemed to have been furnished rather than filed in accordance with SEC rules unless specifically referenced below.

 

	●	Our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 31, 2023;
	●	Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which was filed with the SEC on May 15, 2023, our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2023, filed with the SEC on June 1, 2023 and our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2023, filed with the SEC on June 16, 2023;
	●	Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, which was filed with the SEC on August 14, 2023; and
	●	Our Current Reports on Form 8-K filed on March 6, 2023, March 14, 2023, April 18, 2023, May 4, 2023, May 9, 2023, May 11, 2023, June 1, 2023, July 27, 2023, August 17, 2023, August 21, 2023, August 25, 2023, September 5, 2023, September 6, 2023, September 18, 2023, October 13, 2023 and October 16, 2023 and our Current Reports on Form 8-K/A filed on June 16, 2023 and August 18, 2023 (in each case excluding any information furnished pursuant to Item 2.02 or Item 7.01).

 

All documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including all such documents we may file with the SEC after the date of the initial registration and prior to the effectiveness of the registration statement, shall be deemed to be incorporated by reference in this prospectus until the termination of each offering under this prospectus, excluding in each case any information deemed furnished rather than filed.

 

Upon request, we will provide to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of any or all of the reports or documents that have been incorporated by reference in this prospectus. If you would like a copy of any of these documents, at no cost, please write or call us at:

 

Prairie Operating Co.

602 Sawyer Street, Suite 710

Houston, TX 77007

(713) 424-4247

Attn: General Counsel & Corporate Secretary

 

Any statement contained in a document which is incorporated by reference in this prospectus is automatically updated and superseded if information contained in this prospectus modifies or replaces this information

 

 

PART II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution

 

The following is an estimate of the expenses (all of which are to be paid by the registrant) that we may incur in connection with the securities being registered hereby.

 

		Amount to be Paid
SEC registration fee		$	46,242.10
Printing and engraving expenses			*
Legal fees and expenses			*
Accounting fees and expenses			*
Miscellaneous fees and expenses			*
Total			*

 

*	These fees are calculated based on the securities offered and the number of issuances and accordingly cannot be defined at this time.

 

Item 14. Indemnification of Directors and Officers

 

Section 145 of the DGCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the Company. The DGCL provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaws, agreement, vote of stockholders or disinterested directors or otherwise. The Charter and the Company’s bylaws provide for indemnification by the Company of its directors and officers to the fullest extent permitted by the DGCL.

 

Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions or (4) for any transaction from which the director derived an improper personal benefit. The Charter provides for such limitation of liability to the fullest extent permitted by the DGCL.

 

The Company has entered into indemnification agreements (the “Indemnification Agreements”) with each of its current directors and executive officers. These Indemnification Agreements require the Company to indemnify its directors and executive officers for certain expenses, including attorneys’ fees, retainers and travel expenses, incurred by a director or executive officer in any action, suit or proceeding arising out of their services as one of the Company’s directors or executive officers or out of any services they provide at the Company’s request to any other company or enterprise.

 

Item 15. Recent Sales of Unregistered Securities

 

We sold the securities described below within the past three years which were not registered under the Securities Act. On October 13, 2023, we implemented a 1:28.5714286 reverse stock split of our outstanding shares of Common Stock that was effective on October 16, 2023. Unless otherwise noted, all share and related option, warrant, and convertible security information presented has been retroactively adjusted to reflect the reduced number of shares, and the increase in the share price which resulted from this action.

 

 

Sales of Unregistered Securities Prior to the Merger

 

On March 24, 2021, the Company granted warrants to purchase shares of Common Stock to a consultant as follows: a warrant to purchase 10,500 shares with an exercise price of $28.57 per share, and a term of 5 years; and, in connection with the issuance of Series B Preferred Stock, a warrant to purchase 6,299 shares with an exercise price of $43.65 per share, and term of five years.

 

On June 30, 2021, we issued 6,249 shares of our Series A Preferred Stock to Scott D. Kaufman, our then Chief Executive Officer, for settlement of $62,490 of compensation payable to Mr. Kaufman under his employment agreement from April 1, 2021 through June 30, 2021. Each share of our Series A Preferred Stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A Preferred Stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $7.14 per share, and $5.00 as of December 31, 2021, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.

 

On September 30, 2021, we issued 6,249 shares of our Series A Preferred Stock to Scott D. Kaufman, our then Chief Executive Officer, for settlement of $62,490 of compensation payable to Mr. Kaufman under his employment agreement from July 1, 2021 through September 30, 2021. Each share of our Series A Preferred Stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A Preferred Stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $7.14 per share, and $5.00 as of December 31, 2021, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.

 

On October 12, 2021, the Company granted certain directors warrants to purchase a total of 1,050 shares of Common Stock with an exercise price of $42.86 per share, and a term of 3 years.

 

On October 20, 2021, the Company granted a director warrants to purchase 14,000 shares of Common Stock with an exercise price of $42.86 per share, a term of 3 years, and vesting as follows: 20% upon execution of a services agreement; 20% on January 20, 2022; 20% on April 20, 2022; 20% on July 20, 2022; and 20% on October 20, 2022.

 

On October 31, 2021, the Company granted a consultant warrants to purchase 26,250 shares of Common Stock with an exercise price of $42.86 per share, a term of 3 years, and vesting as follows: 40% upon execution of a services agreement; 20% on April 1, 2022; 20% on August 1, 2022; and 20% on December 1, 2022.

 

On December 1, 2021, the Company granted certain of its directors and employees options to purchase a total of 245,000 shares of Common Stock with an exercise price of $75.71 per share and a term of 5 years, and such shares shall vest upon a volume weighted average price (“VWAP”) of the Common Stock reaching the following targets: at such time as there is a VWAP equal to $71.43 of the Common Stock when computed over 30 consecutive trading days, 25% of each executive’s options shall vest; at such time as there is a VWAP equal to $85.71 of the Common Stock when computed over 30 consecutive trading days, 25% of each executive’s options shall vest; at such time as there is a VWAP equal to $100.00 of the Common Stock when computed over 30 consecutive trading days, 25% of each executive’s options shall vest; and at such time as there is a VWAP equal to $114,29 of the Common Stock when computed over 30 consecutive trading days, 25% of each executive’s options shall vest.

 

On December 31, 2021, we issued 6,250 shares of our Series A Preferred Stock to Scott D. Kaufman, our then Chief Executive Officer, for settlement of $62,500 of compensation payable to Mr. Kaufman under his employment agreement from October 1, 2021 through December 31, 2021. In addition, on December 31, 2021, we issued 673 shares of our Series A Preferred Stock to Paul L. Kessler, our then Executive Chairman, for settlement of $6,730 of compensation payable to Mr. Kessler under his employment agreement from December 23, 2021 through December 31, 2021. Each share of our Series A Preferred Stock is convertible into a number of shares of our Common Stock determined by dividing the aggregate stated value for the Series A Preferred Stock being converted (initially $10.00 per share, subject to adjustment as set forth in the currently effective Series A Certificate of Designation) by the then-applicable conversion price (initially $7.14 per share, and $5.00 as of December 31, 2021, subject to adjustment as set forth in the currently effective Series A Certificate of Designation). We issued the foregoing securities in reliance on the exemption from registration provided under Section 4(a)(2) of the Securities Act.

 

 

On January 1, 2022, the Company granted warrants to purchase shares of Common Stock to a consultant in connection with the issuance of Series C Preferred Stock as follows: a warrant to purchase 14,000 shares of Common Stock with an exercise price of $42.86 per share and a term of 5 years; a warrant to purchase 250,000 shares with an exercise price of $71.43 per share and term of 5 years; and a warrant to purchase 8,749 shares of Common Stock with an exercise price of $78.57 per share and term of 5 years.

 

On January 1, 2022, the Company granted an officer 7,722 shares Series A Preferred Stock for settlement of $77,216 in compensation under his employment agreement for services provided through March 31, 2022.

 

On January 25, 2022, the Company granted an officer 1,050 shares of Common Stock as compensation under his employment agreement for services provided through December 31, 2021. On December 31, 2022 the shares were rescinded and returned to the Company.

 

On May 31, 2022, the Company issued 5,922 shares of Common Stock to Highwire Energy Partners, Inc. under the terms of a Binding Memorandum of Understanding for a proposed transaction.

 

On August 24, 2022, the Company entered into an agreement (the “Settlement”) with Alpha Capital Anstalt (“Alpha”). The Settlement relates to a dispute with the Company’s then-CEO in connection with Alpha’s partial exercise on March 20, 2022 of its warrant to purchase 21,000 shares of Common Stock. Pursuant to the Settlement, Alpha agreed to exchange such warrants for a convertible promissory note in the principal amount of $900,000 due August 24, 2023. As of December 31, 2022, Alpha had returned 21,000 shares of Common Stock in connection with the Settlement.

 

On March 31, 2022, we issued 3,409 shares of our Series A Preferred Stock to Scott D. Kaufman, our then co-Chief Executive Officer, for settlement of $34,090 of compensation payable to Mr. Kaufman under his employment agreement from January 1, 2022 through March 31, 2022. In addition, on March 31, 2022, we issued 4,941 shares of our Series A Preferred Stock to Paul L. Kessler, our then Executive Chairman, for settlement of $49,410 of compensation payable to Mr. Kessler under his employment agreement from January 1, 2022 through March 31, 2022.

 

On June 30, 2022, we issued 5,361 shares of our Series A Preferred Stock to Scott D. Kaufman, our then co-Chief Executive Officer, for settlement of $53,610 of compensation payable to Mr. Kaufman under his employment agreement from April 1, 2022 through June 30, 2022. In addition, on June 30, 2022, we issued 4,941 shares of our Series A Preferred Stock to Paul L. Kessler, our then Executive Chairman, for settlement of $49,410 of compensation payable to Mr. Kessler under his employment agreement from April 1, 2022 through June 30, 2022.

 

On September 30, 2022, we issued: 902 shares of our Series A Preferred Stock to Scott D. Kaufman, our then co-Chief Executive Officer, for settlement of $9,020 of compensation payable to Mr. Kaufman under his employment agreement from July 1, 2022 through July 8, 2022; 2,958 shares of our Series A Preferred Stock to Paul L. Kessler, our then Executive Chairman, for settlement of $29,580 of compensation payable to Mr. Kessler under his employment agreement from July 1, 2022 through September 30, 2022; 8,333 shares of our Series A Preferred Stock to John D. Maatta, our then Chief Executive Officer, for settlement of $83,333 of compensation payable to Mr. Maatta under his employment agreement from May 1, 2022 through September 30, 2022; and 3,426 shares of our Series A Preferred Stock to Scott Sheikh, our then Chief Operating Officer and General Counsel, for settlement of $34,260 of compensation payable to Mr. Sheikh under his employment agreement from July 16, 2022 through September 30, 2022.

 

On December 31, 2022, we issued: 3,792 shares of our Series A Preferred Stock to Paul L. Kessler, our then Executive Chairman, for settlement of $37,920 of compensation payable to Mr. Kessler under his employment agreement from October 1, 2022 through December 31, 2022; 5,000 shares of our Series A Preferred Stock to John D. Maatta, our then Chief Executive Officer, for settlement of $50,000 of compensation payable to Mr. Maatta under his employment agreement from October 1, 2022 through December 31, 2022; 4,110 shares of our Series A Preferred Stock to Scott Sheikh, our then Chief Operating Officer and General Counsel, for settlement of $41,110 of compensation payable to Mr. Sheikh under his employment agreement from October 1, 2022 through December 31, 2022, and 685 shares of our Series A Preferred Stock to Alan Urban, our then Chief Financial Officer, for settlement of $6,850 of compensation payable to Mr. Urban under his employment agreement from October 1, 2022 through December 31, 2022.

 

 

Sales of Unregistered Securities In Connection with the Merger

 

Pursuant to the Merger Agreement, at the Effective Time, the Company issued to Edward Kovalik and Gary C. Hanna 1,148,834 shares of Common Stock each as merger consideration. Prior to the consummation of the Merger, the Company effectuated the Restructuring Transactions, and the Company 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.

 

Pursuant to the Option Agreements, at the Effective Time, the Company issued Non-Compensatory Options to acquire an aggregate of 8,000,000 shares of Common Stock for $0.25 per share, which are only exercisable if specific production hurdles are achieved, to Gary C. Hanna, Edward Kovalik, Paul Kessler and a third-party investor. An aggregate of 2,000,000 Non-Compensatory Options are subject to be transferred to the PIPE Investors, based on their then percentage ownership of Series D Preferred Stock to the aggregate Series D Preferred Stock outstanding and held by all PIPE Investors as of the Closing Date, if the Company does not meet certain performance metrics by May 3, 2026.

 

Pursuant to the Securities Purchase Agreements entered into with each PIPE Investor, the Company received an aggregate of approximately $17.38 million in proceeds from the PIPE Investors, and the PIPE Investors were issued approximately 17,376 shares of Series D Preferred Stock, with a stated value of $1,000 per share and convertible into shares of Common Stock at a price of $5.00 per share, and 3,475,250 Series D A Warrants and 3,475,250 Series D B Warrants in the PIPE.

 

Pursuant to the Support Agreement entered into with Barlock, at Closing, the Company issued to ANEC 33,000 shares of Common Stock at a price per share of $5.00 for an aggregate value of $165,000.

 

All such issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

 

Recent Developments

 

On August 1, 2023, all compensatory options that survived the Merger expired.

 

On August 14, 2023, Prairie LLC exercised the Exok Option and purchased oil and gas leases, including all of Exok’s right, title and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data and records, consisting of approximately 20,328 net mineral acres in, on and under approximately 32,695 gross acres from Exok. The Company paid $18.0 million in cash to Exok and issued equity consideration to certain affiliates of Exok, consisting of (i) 670,499 shares of Common Stock and (ii) Exok Warrants providing the right to purchase 670,499 shares of Common Stock at $7.43.

 

To fund the Exok Option Purchase, the Company entered into a securities purchase agreement with the Series E PIPE Investor on August 15, 2023, pursuant to which the Series E PIPE Investor purchased, and the Company sold to the Series E PIPE Investor, for an aggregate of $20.0 million, securities consisting of (i) 39,614 shares of Common Stock, (ii) 20,000 shares of Series E Preferred Stock and (iii) Series E PIPE Warrants to purchase 8,000,000 shares of Common Stock, in a private placement.

 

All such issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

 

On October 13, 2023, the holders of the AR Debentures elected to convert their AR Debentures into an aggregate of 400,667 shares of Common Stock. The shares of Common Stock were issued pursuant to the exemption from registration set forth in Section 3(a)(9) of the Securities Act of 1933.

 

Item 16. Exhibits

 

Exhibit No.		Description
2.1*		Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2023, by and among Creek Road Miners, Inc., Creek Road Merger Sub, LLC and Prairie Operating Co., LLC (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
3.1		Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed with the SEC on October 13, 2023).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
3.3		Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
3.4		Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).
4.1		Form of Series D PIPE Warrant (incorporated by reference to Exhibit C of Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
4.2		Form of Exok Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).
4.3		Form of Series E A Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).
4.4		Form of Series E B Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).

 

 

Exhibit No.		Description
5.1***		Opinion of Vinson & Elkins L.L.P.
10.1		Master Services Agreement and Order Form, dated February 16, 2023, by and between Atlas Power Hosting, LLC and Creek Road Miners, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on March 6, 2023).
10.2*		Amended and Restated Purchase and Sale Agreement, dated as of May 3, 2023, by and among Prairie Operating Co., LLC, Exok, Inc. and Creek Road Miners, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.3		Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.4*		Support Agreement (Series B Preferred Stock), dated as of May 3, 2023, by and between Creek Road Miners, Inc. and Bristol Investment Fund, Ltd. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.5*		Form of Support Agreement (Series C Preferred Stock) (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.6*		Support Agreement (Senior Secured Convertible Debenture), dated as of May 3, 2023, by and between Creek Road Miners, Inc. and Bristol Investment Fund, Ltd. (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.7*		Support Agreement (Senior Secured Convertible Debenture and Series A Preferred Stock), dated as of May 3, 2023, by and among Creek Road Miners, Inc., Barlock 2019 Fund, LP, Scott D. Kaufman and American Natural Energy Corporation (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.8		Support Agreement (Convertible Promissory Note), dated as of May 3, 2023, by and between Creek Road Miners, Inc. and Creecal Holdings, LLC (incorporated by reference to Exhibit 10.7 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.9		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.10		Stockholders Agreement, dated as of May 3, 2023, by and among Creek Road Miners, Inc., Bristol Capital Advisors, LLC, Paul Kessler, Edward Kovalik and Gary C. Hanna (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.11		Form of Lock-up Agreement (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.12		Form of Lock-up Agreement (incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.13		Form of Lock-up Agreement (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K, filed with the SEC on May 4, 2023).
10.14†		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.8 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.15*		Form of 12% Amended and Restated Senior Secured Convertible Debenture Due December 31, 2023 (incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.16		Amended and Restated Security Agreement, dated as of May 3, 2023, by and among Prairie Operating Co. and its subsidiaries, Barlock 2019 Fund, LP and Bristol Investment Fund, Ltd. (incorporated by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).

 

 

Exhibit No.		Description
10.17		Form of Amended and Restated Non-Compensatory Option Agreement (incorporated by reference to Exhibit 10.11 of the Company’s Current Report on Form 8-K, filed with the SEC on May 9, 2023).
10.18***†		Form of Amended and Restated Employment Agreement (President and CEO).
10.19***†		Form of Amended and Restated Employment Agreement (Other Executive Officers).
10.20*		Securities Purchase Agreement, dated as of August 15, 2023, by and between Prairie Operating Co. and Narrogal Nominees Pty Ltd ATF Gregory K O’Neill Family Trust (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).
10.21		Registration Rights Agreement, dated as of August 15, 2023, by and among Prairie Operating Co. and the holders thereto (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).
10.22*		Deed of Trust, Mortgage, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement, dated as of August 15, 2023, from Prairie Operating Co., LLC, as mortgagor, to Gregory O’Neill, as trustee, for the benefit of Narrogal Nominees Pty Ltd ATF Gregory K O’Neill Family Trust (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K, filed with the SEC on August 17, 2023).
10.23		Non-Compensatory Option Purchase Agreement, dated as of August 31, 2023, by and among Prairie Operating Co., Gary C. Hanna, Edward Kovalik, Bristol Capital, LLC and Georgina Asset Management, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on September 5, 2023).
10.24***†		Amended & Restated Prairie Operating Co. Long-Term Incentive Plan, effective as of August 25, 2023.
10.25***†		Form of Restricted Stock Unit Award Agreement (for Non-Employee Directors and Consultants)
10.26***†		Form of Restricted Stock Unit Award Agreement (for Employees)
16.1		Letter of MaughanSullivan LLC, dated June 1, 2023 (incorporated by referred to Exhibit 16.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 1, 2023).
21.1**		List of Subsidiaries.
23.1***		Consent of MaughanSullivan LLC.
23.2***		Consent of Ham, Langston & Brezina, LLP.
23.3**		Consent of Collarini Energy Experts.
23.4***		Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
24.1**		Power of Attorney.
99.1**		Report of Collarini Energy Experts, dated August 15, 2023, for possible reserves as of August 1, 2023.
104		Cover page Interactive Data File (formatted as inline XBRL).
107***		Filing fee table.

 

*	The schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon its request.
**	Previously filed.
***	Filed herewith.
†	Indicates a management contract or compensatory plan, contract or arrangement.

 

Item 17. Undertakings

 

(a)	The undersigned registrant hereby undertakes:

 

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

	(i)	to include any prospectus required by Section 10(a)(3) of the Securities Act;
	(ii)	to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
	(iii)	to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that: Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act, that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

 

 

	(2)	That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
	(3)	To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
	(4)	That, for the purpose of determining liability under the Securities Act to any purchaser:

 

	(i)	Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
	(ii)	Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

 

(5)

That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

	(i)	Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
	(ii)	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
	(iii)	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
	(iv)	Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(b)

The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c)

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Houston, Texas on October 24, 2023.

 

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

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Name		Title		Date
/s/ Edward Kovalik		Chief Executive Officer and Chair		October 24, 2023
Edward Kovalik		(Principal Executive Officer)
*		Chief Financial Officer		October 24, 2023
Craig Owen		(Principal Financial and Principal Accounting Officer)
*		President and Director		October 24, 2023
Gary C. Hanna
*		Director		October 24, 2023
Paul L. Kessler
*		Director		October 24, 2023
Gizman Abbas
*		Director		October 24, 2023
Stephen Lee
*		Director		October 24, 2023
Jonathan H. Gray
*		Director		October 24, 2023
Erik Thoresen

 

*By:	/s/ Edward Kovalik
	Edward Kovalik
	Attorney-in-fact

 

 

 

Exhibit 5.1

 

Prairie Operating Co.

8636 N. Classen Boulevard

Oklahoma City, Oklahoma 73114

 

Ladies and Gentlemen:

 

We have acted as counsel to Prairie Operating Co., a Delaware corporation (the “Company”), with respect to the filing of a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission, including a related prospectus filed with the Registration Statement (the “Prospectus”), covering the registration of the resale of an aggregate of 24,286,304 shares of common stock, par value $0.01 per share (“Common Stock”), of the Company by certain stockholders (“Selling Stockholders”), consisting of:

 

	(i)	1,190,055 shares of Common Stock (the “Selling Stockholder Shares”);
	(ii)	3,475,250 shares (the “Series D Shares”) of Common Stock issuable upon the conversion of Series D preferred stock, par value $0.01 per share (the “Series D Preferred Stock”);
	(iii)	3,475,250 shares (the “Series D A Warrant Shares”) of Common Stock issuable upon the exercise of outstanding Series A warrants (the “Series D A Warrants”);
	(iv)	3,475,250 shares (the “Series D B Warrant Shares”) of Common Stock issuable upon the exercise of outstanding Series B warrants (the “Series D B Warrants”);
	(v)	4,000,000 shares (the “Series E Shares”) of Common Stock issuable upon the conversion of Series D preferred stock, par value $0.01 per share (the “Series E Preferred Stock”);
	(vi)	4,000,000 shares (the “Series E A Warrant Shares”) of Common Stock issuable upon the exercise of outstanding Series A warrants (the “Series E A Warrants”);
	(vii)	4,000,000 shares (the “Series E B Warrant Shares”) of Common Stock issuable upon the exercise of outstanding Series B warrants (the “Series E B Warrants”); and
	(viii)	670,499 shares (the “Exok Warrant Shares”) of Common Stock issuable upon the exercise of outstanding warrants issued to Exok (as defined below) (the “Exok Warrants”).

 

The Series D Shares, Series D A Warrant Shares, Series D B Warrant Shares, Series E Shares, Series E A Warrant Shares, Series E B Warrant Shares and Exok Warrant Shares are collectively referred to as the “Reserved Shares” and together with the Selling Stockholder Shares, the “Registered Shares.” All of the Registered Shares are being registered on behalf of the Selling Stockholders. The Selling Stockholder Shares were issued pursuant to conversion of the Amended and Restated Debenture with Bristol Investment Fund, Ltd., the convertible promissory note with Creecal Holdings LLC and the convertible promissory note with Alpha Capital Anstalt. The Series D Preferred Stock, Series D A Warrants and Series D B Warrants were issued pursuant to Securities Purchase Agreements, dated May 3, 2023, between the Company and each Selling Stockholder (“Series D SPAs”). The Series E Preferred Stock, Series E A Warrants and Series E B Warrants were issued pursuant to Securities Purchase Agreements, dated August 15, 2023, between the Company and each Selling Stockholder (“Series E SPA,” together with the Series D SPAs, the “SPAs”). The Exok Warrants were issued as consideration for the Company’s exercise of its option to purchase certain oil and gas leases from Exok pursuant to the Amended and Restated Purchase and Sale Agreement, dated May 3, 2023 (the “Exok PSA”), by and among the Company, Prairie Operating Co., LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company, and Exok, Inc., an Oklahoma corporation (“Exok”).

 

 

In connection with this opinion, we have examined and relied upon (i) the Registration Statement and the Prospectus, (ii) the Company’s Second Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws, each as currently in effect, (iii) the SPAs, (iv) the Certificate of Designation Of Preferences, Rights and Limitations of Series D Convertible Preferred Stock (the “Series D Certificate of Designation”), (v) the Series D A Common Stock Purchase Warrants (the “Series D A Purchase Warrants”) and Series D B Common Stock Purchase Warrants (the “Series D B Purchase Warrants”); (vi) the Certificate of Designation Of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (the “Series E Certificate of Designation”), (vii) the Series E A Common Stock Purchase Warrants (the “Series E A Purchase Warrants”) and Series E B Common Stock Purchase Warrants (the “Series E B Purchase Warrants”); (viii) the Exok Common Stock Purchase Warrant (the “Exok Purchase Warrants”); (ix) the records of corporate proceedings with respect to the reverse stock split (as described in the Registration Statement and the Prospectus, the “Reverse Stock Split”), including the Certificate Of Amendment to the Amended and Restated Certificate of Incorporation; and (x) the originals, or copies identified to our satisfaction, of such corporate records of the Company, certificates of public officials, officers of the Company, and other persons, and such other documents, agreements and instruments as we have deemed relevant and necessary for the basis of our opinions hereinafter expressed. In such examination, we have assumed the following: (a) the authenticity of original documents and the genuineness of all signatures; (b) the conformity to the originals of all documents submitted to us as copies; (c) the truth, accuracy, and completeness of the information, representations and warranties contained in the records, documents, instruments and certificates we have reviewed; and (d) all persons executing and delivering the documents we examined were competent to execute and deliver such documents.

 

In connection with this opinion, we have assumed that (a) the Series D Shares will have been issued in accordance with the terms of the Series D Certificate of Designation; (b) the Series D A Warrant Shares will have been issued in accordance with the terms of the Series D A Purchase Warrants; (c) the Series D B Warrant Shares will have been issued in accordance with the terms of the Series D B Purchase Warrants; (d) the Series E Shares will have been issued in accordance with the terms of the Series E Certificate of Designation; (e) the Series E A Warrant Shares will have been issued in accordance with the terms of the Series E A Purchase Warrants; (f) the Series E B Warrant Shares will have been issued in accordance with the terms of the Series E B Purchase Warrants; (g) the Exok Warrant Shares will have been issued in accordance with the terms of the Exok Purchase Warrants; (h) the Reserved Shares will have been issued in the manner described in the Registration Statement and the Prospectus, (i) all of the Registered Shares will be sold in compliance with applicable federal and state securities laws and in the manner specified in the Prospectus and the Registration Statement; (j) the Prospectus identifying the Selling Stockholders will be delivered to any purchaser of the Registered Shares as required in accordance with applicable federal and state securities laws; and (k) the Registration Statement, and any subsequent amendments (including additional post-effective amendments), will be effective and comply with all applicable laws.

 

On the basis of the foregoing, and in reliance thereon, we are of the opinion that:

 

	1.	The Selling Stockholder Shares have been duly authorized and are validly issued, fully paid and nonassessable.
	2.	The Series D Shares, when issued upon conversion of the Series D Preferred Stock in accordance with the Series D Certificate of Designation, will be validly issued, fully paid and nonassessable.
	3.	The Series D A Warrant Shares, when issued and paid for upon exercise of the Series D A Warrants in accordance with the terms of the Series D A Purchase Warrants, will be validly issued, fully paid and nonassessable.
	4.	The Series D B Warrant Shares, when issued and paid for upon exercise of the Series D B Warrants in accordance with the terms of the Series D B Purchase Warrants, will be validly issued, fully paid and nonassessable.
	5.	The Series E Shares, when issued upon conversion of the Series E Preferred Stock in accordance with the Series E Certificate of Designation, will be validly issued, fully paid and nonassessable.
	6.	The Series E A Warrant Shares, when issued and paid for upon exercise of the Series E A Warrants in accordance with the terms of the Series E A Purchase Warrants, will be validly issued, fully paid and nonassessable.

 

 

	7.	The Series E B Warrant Shares, when issued and paid for upon exercise of the Series E B Warrants in accordance with the terms of the Series E B Purchase Warrants, will be validly issued, fully paid and nonassessable.
	8.	The Exok Warrant Shares, when issued and paid for upon exercise of the Exok Warrants in accordance with the terms of the Exok Purchase Warrants, will be validly issued, fully paid and nonassessable.

 

Our opinions expressed herein are limited in all respects to the General Corporation Law of the State of Delaware, which includes all applicable provisions of the Delaware Constitution and the reported judicial decisions interpreting such laws, and the federal laws of the United States of America. We do not express any opinion as to the applicability of, or the effect thereon, of the laws of any other jurisdiction, domestic or foreign.

 

We express no opinion as to any matter other than as set forth herein, and no opinion may be inferred or implied herefrom. Our opinion is given as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any change in any matter set forth herein.

 

We consent to the filing of this opinion as an exhibit to the Registration Statement, and the reference to Vinson & Elkins L.L.P. under the caption “Legal Matters” in the Registration Statement and the Prospectus. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended.

 

	Very truly yours,
		/s/ Vinson & Elkins L.L.P.
		Vinson & Elkins L.L.P.

 

 

 

Exhibit 10.18

 

[AMENDED AND RESTATED] EMPLOYMENT AGREEMENT

 

This [Amended and Restated] Employment Agreement (“Agreement”) is made and entered into by and between Prairie Operating Employee Co., LLC, a Delaware limited liability company (the “Company”), and [___________] (“Executive”), effective as of [___________] (the “Effective Date”)[, and evidences the assignment to the Company of, and supersedes and replaces in its entirety, that certain Employment Agreement previously entered into between Executive and Prairie Operating Co, LLC, a Delaware limited liability company (“Prairie”) dated as of [___________] (the “Original Agreement”). Prairie joins this Agreement solely for the purpose of acknowledging the assignment of its rights and obligations under, and interests in, the Original Agreement from Prairie to the Company].

 

1. Employment. During the Employment Period (as defined in Section 4), the Company shall employ Executive, and Executive shall serve, as [___________] of the Company and of Prairie Operating Co, a Delaware corporation (the “Parent”). Executive shall report directly to the board of directors of the Parent (the “Board”). In addition, for so long as he is employed hereunder, Executive shall serve on the Board.

 

2. Duties and Responsibilities.

 

(a) Executive’s duties and responsibilities shall include those commensurate with and normally incidental to the position identified in Section 1, as well as providing services commensurate with such position to the Company and to the Parent’s other direct and indirect subsidiaries as may exist from time to time (collectively, the Company, the Parent, and the Parent’s other direct and indirect subsidiaries, the “Company Group”) in addition to the Company.

 

(b) Executive may engage in personal investment, charitable, civic, and other activities, so long as such activities do not materially interfere with Executive’s ability to fulfill Executive’s duties and responsibilities under this Agreement.

 

(c) As of the Effective Date, Executive’s principal work location shall be [___________]. During the Employment Period, Executive’s principal work city may be changed only with the prior written agreement of Executive.

 

3. Compensation.

 

(a) Base Salary. During the Employment Period, the Company shall pay to Executive an annualized base salary of $550,000.00 (the “Base Salary”) in consideration for Executive’s services under this Agreement, payable in substantially equal installments in conformity with the Company’s customary payroll practices for similarly situated employees as may exist from time to time, but no less frequently than monthly. The Board shall review the Base Salary for potential increases (but in any event no decreases) no less frequently than annually on or before March 15^th of each calendar year, with the first such review to occur by no later than March 15, [____], and any increase to be effective as of January 1 of the calendar year in which such review occurs (or such earlier date as the Board may determine).

 

 

(b) Annual Bonus. For each calendar year during the Employment Period, Executive shall be eligible for bonus compensation (the “Annual Bonus”) with a target amount equal to two hundred and fifty percent (250%) of Executive’s Base Salary or such other percentage of Executive’s Base Salary as determined by the Compensation Committee of the Board (the “Compensation Committee”) or the Board for the applicable calendar year (the “Target Annual Bonus”). The amount of Annual Bonus for each calendar year shall be determined by the Compensation Committee or the Board. Notwithstanding the foregoing, Executive shall be eligible to receive a pro-rata bonus for the portion of the [____] fiscal year of the Company that Executive is employed by the Company hereunder (the “[____] Bonus”). The Target Annual Bonus for each calendar year and the target goals applicable to each Annual Bonus shall be established by the Compensation Committee or the Board following consultation with Executive within thirty (30) days following the start of the calendar year; provided, that such Target Annual Bonus and target goals for the [____] Bonus shall be established within thirty (30) days of the Effective Date. Each Annual Bonus and the [____] Bonus shall be paid as soon as administratively feasible after the Compensation Committee and the Board certifies the amount of any Annual Bonus, but in no event later than ninety (90) days following the end of such calendar year.

 

(c) Long Term Incentive Plan. Executive shall be eligible to participate in the Parent’s Long Term Incentive Plan (the “LTIP”) as established by the Board and as may be amended from time to time.

 

4. Term of Employment. Executive’s employment pursuant to this Agreement shall begin on the Effective Date and continue until such date as Executive’s employment hereunder is terminated in accordance with Section 7. The period from the Effective Date through the date of the termination of Executive’s employment pursuant to this Agreement, regardless of the time or reason for such termination, shall be referred to herein as the “Employment Period.”

 

5. Business Expenses.

 

(a) Subject to Section 18, the Company shall reimburse Executive for Executive’s out-of-pocket business-related expenses incurred in the performance of Executive’s duties under this Agreement. Any such reimbursement of expenses shall be made by the Company upon or as soon as practicable following receipt of Executive’s claim for such expense reimbursement (but in any event not later than the close of Executive’s taxable year following the taxable year in which the expense is incurred by Executive.

 

(b) The Company shall reimburse Executive for Executive’s expenses incurred in connection with the relocation of Executive and his family members to [___________], or a location near [___________], including such expenses for flights, packaging and transportation of possessions, storage, and temporary accommodation.

 

6. Benefits. During the Employment Period, Executive shall be eligible to participate in the same benefit plans and programs in which other executive-level Company employees are eligible to participate, subject to the terms and conditions of the applicable plans and programs in effect from time to time. No such benefit plans or programs may be withdrawn, altered or reduced without the prior written agreement of Executive.

 

 

7. Termination of Employment.

 

(a) Company’s Right to Terminate Executive’s Employment for Cause. The Company shall have the right to terminate Executive’s employment hereunder at any time for Cause. For purposes of this Agreement, “Cause” shall mean:

 

(i) Executive’s willful or continued failure to perform Executive’s duties;

 

(ii) Executive’s willful failure to comply with any valid and legal directive of the Board;

 

(iii) Executive’s willful engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, injurious to the Company or its parent or affiliates;

 

(iv) Executive’s embezzlement, misappropriation of funds, or fraud with respect to the Company or its parent or affiliates;

 

(v) Executive’s conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;

 

(vi) Executive’s material violation of the Company’s written policies or codes of conduct; or

 

(vii) Executive’s material breach of any material obligation under this Agreement or any other written agreement between Executive and the Company or its parent or affiliates.

 

For purposes of this provision, no act or failure to act on the part of Executive shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company.

 

With respect to an act described by clauses (i), (ii), and (vii), Executive shall have ten (10) business days from the delivery of written notice by the Company within which to cure any such acts constituting Cause; provided however, that, if the Company reasonably expects irreparable injury from a delay of ten (10) business days, the Company may give Executive notice of such shorter period within which to cure as is reasonable under the circumstances, which may include the termination of Executive’s employment without notice and with immediate effect.

 

(b) Company’s Right to Terminate Other than for Cause. The Company shall have the right to terminate Executive’s employment for convenience at any time and for any reason, or no reason at all, upon thirty (30) days’ advance written notice to Executive.

 

 

(c) Executive’s Right to Terminate for Good Reason. Executive shall have the right to terminate Executive’s employment with the Company at any time for Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following without Executive’s prior written consent:

 

(i) a material diminution in Executive’s (A) Base Salary, (B) Annual Bonus opportunity, (C) annual target LTIP opportunity (measured as the grant date fair value of Executive’s target LTIP awards, averaged over a historical period comprised of the lesser of (x) 3 years and (y) the number of years Executive has received grants of such annual LTIP awards, in either case, including the year in which Executive asserts grounds for a termination of employment for Good Reason and excluding, for the avoidance of doubt, any sign-on or one-time LTIP awards), or (D) benefits made available to Executive by any member of the Company Group; provided, however, that a material decrease in an element of compensation represented by either (A), (B), (C), or (D) of this paragraph that is offset by a corresponding increase or increases in the other element(s) of compensation shall not be deemed a condition for Good Reason so long as the Executive’s aggregate compensation from all such elements of compensation is not materially diminished;

 

(ii) a material diminution in Executive’s title, reporting relationship, authority, duties, or responsibilities with the Company or any other member of the Company Group (other than temporarily, while Employee is physically or mentally incapacitated or as required by applicable law);

 

(iii) a material breach by the Company of any of its obligations under this Agreement; or

 

(iv) the relocation of the geographic location of Executive’s principal place of employment by more than fifteen (15) miles; or

 

(v) a failure by the Board to consult, and reach an agreement with, Executive on any matter relating to the operations, investments, or business strategy of the Company Group.

 

Notwithstanding the foregoing provisions of this Section 7(c) or any other provision in this Agreement to the contrary, any assertion by Executive of a termination of employment for “Good Reason” shall not be effective unless all of the following conditions are satisfied: (x) Executive must provide written notice to the Company of the existence of the circumstances providing grounds for Good Reason in accordance with Section 16 within ninety (90) days of the initial existence of such grounds, (y) the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances, and (z) Executive terminates employment for Good Reason within one hundred and eighty (180) days after the first occurrence of the applicable grounds.

 

(d) Executive’s Right to Terminate for Convenience. In addition to Executive’s right to terminate Executive’s employment for Good Reason, Executive shall have the right to terminate Executive’s employment with the Company for convenience at any time and for any other reason, or no reason at all, upon written notice to the Company.

 

 

(e) Effect of Termination.

 

(i) If Executive’s employment hereunder is terminated by either party for any reason, or no reason at all, or as a result of Executive’s death, Executive (or Executive’s estate and heirs in the event of Executive’s death) shall be entitled to: (A) any earned but unpaid Base Salary earned during the Employment Period and applicable to all pay periods prior to the date on which Executive’s employment terminates (the “Termination Date”); (B) any Annual Bonuses earned but unpaid for any calendar years prior to the calendar year in which the Termination Date occurs; (C) a pro-rata Annual Bonus for the year in which the Termination Date occurs in an amount equal to the Target Annual Bonus for the year in which the Termination Date occurs multiplied by a fraction, the numerator of which is the number of days in the calendar year in which the Termination Date occurs on which Executive was employed by the Company and the denominator of which is 365, (D) any amounts owed pursuant to the terms of the LTIP; (E) any unreimbursed business expenses incurred pursuant to Section 5; and (F) any employee benefits to which Executive may be entitled under the Company Group’s employee benefit plans or programs in which Executive participates as of the Termination Date (collectively, the “Accrued Rights”).

 

(ii) If Executive’s employment hereunder is terminated by the Company without Cause pursuant to Section 7(b), or by Executive for Good Reason pursuant to Section 7(c), then so long as Executive executes on or before the Release Expiration Date (as defined below), and does not revoke within any time provided by the Company to do so, a release of claims Executive may have against the Company or any other member of the Company Group and arising out of Executive’s employment, in a form reasonably acceptable to the Company and Executive (the “Release”), which Release shall exclude all claims to the Accrued Rights, the Severance Payment and the COBRA Benefit hereunder, then the Company shall, in addition to the Accrued Rights: (1) pay to Executive (or Executive’s estate and heirs in the event of Executive’s death) a severance payment in a total amount equal to three times (3X) (or, if the effective date of Executive’s termination of employment occurs on or within twelve (12) months following a Change of Control (as defined below), a total amount equal to four times (4X)) the sum of: (x) the Base Salary; (y) the Target Annual Bonus; and (z) the amount payable under the LTIP for the year in which the Termination Date occurs (such total amount, the “Severance Payment”), and (2) make available the COBRA Benefit (as defined below). The Severance Payment will be paid in a single lump sum on the Company’s first regularly scheduled pay date that is on or after the date that is sixty (60) days after the Termination Date. As used herein, a “Change of Control” means the occurrence of any of the following events:

 

(A) the consummation of an agreement to acquire or a tender offer for beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) by any person or entity of 50% or more of either (x) the then outstanding equity securities (the “Outstanding Securities”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this paragraph (A), the following shall not constitute a Change of Control: (I) (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (4) any acquisition by any entity pursuant to a transaction that complies with clauses (I), (II) and (III) of paragraph (C) below; or (II) any Business Combination (as defined below) by and among the Company, Creek Road Miners, Inc., a Delaware corporation, and/or any of their respective affiliates;

 

 

(B) individuals who constitute the Incumbent Board (as defined below) cease for any reason to constitute at least a majority of the Board;

 

(C) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (I) the Outstanding Securities and Outstanding Company Voting Securities immediately prior to such Business Combination represent or are converted into or exchanged for securities which represent or are convertible into more than 50% of, respectively, the then outstanding equity interests and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other governing body, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company, or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (II) no person or entity (excluding any employee benefit plan (or related trust) of the Company or the entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding equity interests of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other governing body of such entity except to the extent that such ownership results solely from ownership of the Company that existed prior to the Business Combination, and (III) at least a majority of the members of the board of directors or similar governing body of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

 

(D) approval by the equity holders of the Company of a complete liquidation or dissolution of the Company.

 

For purposes of an award under the LTIP (an “Award”) that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules (as defined below), to the extent the impact of a Change of Control on such Award would subject Executive to additional taxes under the Nonqualified Deferred Compensation Rules, a Change of Control for purposes of such Award will mean both a Change of Control and a “change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation” within the meaning of the Nonqualified Deferred Compensation Rules.

 

 

As used herein, “Incumbent Board” means the portion of the Board constituted of the individuals who are members of the Board as of the Effective Date, and any individual who becomes a director of the Company after the Effective Date and whose election or appointment by the Board or nomination for election by the Company’s equityholders was approved by a vote of at least a majority of the directors then constituting the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person or entity other than the Incumbent Board; and “Nonqualified Deferred Compensation Rules” means the limitations or requirements of Section 409A of the Code (as such terms are defined below) and the guidance and regulations promulgated thereunder.

 

(iii) If Executive’s termination gives rise to Executive being eligible for the Severance Payment, then for the portion of the eighteen (18)-month period following the Termination Date (the “Reimbursement Period”) that Executive elects to continue coverage for Executive and Executive’s spouse and eligible dependents, if any, under the Company’s group health plans pursuant to Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall promptly reimburse Executive on a monthly basis for the difference between the amount Executive pays to effect and continue such coverage and the employee contribution amount that similarly situated employees of the Company pay for the same or similar coverage under such group health plans (the “COBRA Benefit”). Each payment of the COBRA Benefit shall be paid to Executive on the Company’s first regularly scheduled pay date in each calendar month. Executive shall be eligible to receive such reimbursement payments until the earliest of: (A) the last day of the Reimbursement Period; or (B) the date Executive is no longer eligible to receive COBRA continuation coverage.

 

(iv) As used herein, the “Release Expiration Date” is that date that is twenty-one (21) days following the date upon which the Company delivers the Release to Executive (which shall occur no later than seven (7) days after the Termination Date) or, in the event that such termination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967), the date that is forty-five (45) days following such delivery date.

 

8. Confidentiality.

 

(a) In the course of Executive’s employment with the Company and the performance of Executive’s duties on behalf of the Company Group hereunder, Executive will be provided with, and will have access to, Confidential Information (as defined below). Both during the Employment Period and thereafter, except as expressly permitted by this Agreement or by the Company, Executive shall not disclose any Confidential Information to any person or entity and shall not use any Confidential Information except for the benefit of the Company Group.

 

 

(b) Notwithstanding any provision of Section 8(a) to the contrary, Executive may make the following disclosures and uses of Confidential Information:

 

(i) disclosures to other employees of a member of the Company Group who have a need to know the information in connection with the businesses of the Company Group;

 

(ii) disclosures to customers, suppliers or other third parties when, in the belief of Executive, such disclosure is in connection with Executive’s performance of Executive’s duties under this Agreement and is in the interests of the Company Group;

 

(iii) disclosures and uses that are approved in writing by the Company; or

 

(iv) disclosures to a person or entity that has been retained by a member of the Company Group to provide services to one or more members of the Company Group.

 

(c) “Confidential Information” means all competitively valuable and non-public, proprietary or confidential information of the Company Group that is conceived, made, developed or acquired by or disclosed to Executive during the period that Executive is employed by the Company or any other member of the Company Group. For purposes of this Agreement, Confidential Information shall not include any information that: (i) is gained from Executive’s industry experience or constitutes Executive’s general mental impressions; (ii) is or becomes generally available to the public or to other entities within the Company Group’s industry other than as a result of a disclosure or wrongful act of Executive; (iii) was available to Executive on a non-confidential basis before its disclosure by a member of the Company Group; or (iv) becomes available to Executive on a non-confidential basis from a source other than a member of the Company Group.

 

(d) Notwithstanding the foregoing, nothing in this Agreement shall prohibit or restrict Executive from using his general industry knowledge or from lawfully: (i) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by, any governmental authority regarding a possible violation of any law; (ii) responding to any inquiry or legal process directed to Executive from any such governmental authority; (iii) testifying, participating or otherwise assisting in any action or proceeding by any such governmental authority relating to a possible violation of law; or (iv) making any other disclosures that are protected under the whistleblower provisions of any applicable law. Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney and (2) solely for the purpose of reporting or investigating a suspected violation of law; (B) is made to the individual’s attorney in relation to a lawsuit for retaliation against the individual for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or proceeding, if such filing is made under seal. Nothing in this Agreement requires Executive to obtain prior authorization before engaging in any conduct described in this paragraph or to notify the Company that Executive has engaged in any such conduct.

 

 

9. Arbitration.

 

(a) Subject to Section 9(b), any dispute, controversy or claim between Executive and any member of the Company Group arising out of or relating to this Agreement or Executive’s employment or engagement with any member of the Company Group (“Disputes”) will be finally settled by arbitration in Houston, Texas, in accordance with the then-existing American Arbitration Association (“AAA”) Rules. The arbitration award shall be final and binding on both parties. Any arbitration conducted under this Section 9 shall be heard by a single arbitrator (the “Arbitrator”) selected in accordance with the then-applicable rules of the AAA. The Arbitrator shall expeditiously hear and decide all matters concerning the Dispute. Except as expressly provided to the contrary in this Agreement, the Arbitrator shall have the power to (i) gather such materials, information, testimony and evidence as the Arbitrator deems relevant to the Dispute before him or her (and each party will provide such materials, information, testimony and evidence requested by the Arbitrator), and (ii) grant injunctive relief and enforce specific performance. All Disputes shall be arbitrated on an individual basis, and each party hereto hereby foregoes and waives any right to arbitrate any Dispute as a class action or collective action or on a consolidated basis or in a representative capacity on behalf of other persons or entities who are claimed to be similarly situated, or to participate as a class member in such a proceeding. The decision of the Arbitrator shall be reasoned, rendered in writing, be final and binding upon the disputing parties and the parties agree that judgment upon the award may be entered by any court of competent jurisdiction. The party whom the Arbitrator determines is the prevailing party in such arbitration (which shall be the party receiving substantially the relief sought) shall receive, in addition to any other award pursuant to such arbitration or associated judgment, reimbursement from the other party of all reasonable legal fees and costs associated with such arbitration and associated judgment.

 

(b) By entering into this Agreement and entering into the arbitration provisions of this Section 9, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVING THEIR RIGHTS TO A JURY TRIAL.

 

(c) Nothing in this Section 9 shall prohibit a party to this Agreement from (i) instituting litigation to enforce any arbitration award, or (ii) joining the other party to this Agreement in a litigation initiated by a person or entity that is not a party to this Agreement. Further, nothing in this Section 9 precludes Executive from filing a charge or complaint with a federal, state or other governmental administrative agency.

 

10. Withholdings; Deductions. The Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling and (b) any deductions consented to in writing by Executive.

 

 

11. Title and Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Unless the context requires otherwise, all references to laws, regulations, contracts, documents, agreements and instruments refer to such laws, regulations, contracts, documents, agreements and instruments as they may be amended, restated or otherwise modified from time to time, and references to particular provisions of laws or regulations include a reference to the corresponding provisions of any succeeding law or regulation. All references to “dollars” or “$” in this Agreement refer to United States dollars. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision hereof. Unless the context requires otherwise, the word “or” is not exclusive. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

 

12. Applicable Law; Submission to Jurisdiction. This Agreement shall in all respects be construed according to the laws of the State of Texas without regard to its conflict of laws principles that would result in the application of the laws of another jurisdiction. With respect to any claim or dispute related to or arising under this Agreement, the parties hereby consent to the arbitration provisions of Section 9 and recognize and agree that should any resort to a court be necessary and permitted under this Agreement, then they consent to the exclusive jurisdiction, forum and venue of the state and federal courts (as applicable) located in Harris County.

 

13. Entire Agreement and Amendment. This Agreement, together with the LTIP, contains the entire agreement of the parties with respect to the matters covered herein and supersedes all prior and contemporaneous agreements and understandings (including [the Prior Agreement and ]any offer letter or similar agreement), oral or written, between the parties hereto concerning the subject matter hereof. This Agreement may be amended only by a written instrument executed by both parties hereto.

 

14. Waiver of Breach. Any waiver of this Agreement must be executed by the party to be bound by such waiver. No waiver by either party hereto of a breach of any provision of this Agreement by the other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time.

 

15. Assignment. Neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise transferred by either party without the prior written consent of the other party.

 

16. Notices. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person, (b) on the first business day after such notice is sent by express overnight courier service, or (c) on the second business day following deposit with an internationally-recognized second-day courier service with proof of receipt maintained, in each case, to the following address, as applicable:

 

	If to the Company, addressed to:
		Prairie Operating Employee Co., LLC
		602 Sawyer Street, Suite 710
		Houston, Texas 77007
		Attention: Chair, Board of Directors

 

 

	If to Executive, addressed to:
		At the most recent home address for Executive in the Company’s personnel files

 

17. Counterparts. This Agreement may be executed in any number of counterparts, including by electronic mail or facsimile, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party, but together signed by both parties hereto.

 

18. Section 409A.

 

(a) Notwithstanding any provision of this Agreement to the contrary, all provisions of this Agreement are intended to comply with Section 409A of the Internal Revenue Code of 1986 (the “Code”) and the applicable Treasury regulations and administrative guidance issued thereunder (collectively, “Section 409A”) or an exemption therefrom and shall be construed and administered in accordance with such intent. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of Executive’s employment shall only be made if such termination of employment constitutes a “separation from service” under Section 409A.

 

(b) To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A), (i) any such expense reimbursement shall be made by the Company no later than the last day of Executive’s taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided, that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period in which the arrangement is in effect.

 

(c) Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Section 409A if Executive’s receipt of such payment or benefit is not delayed until the earlier of (i) the date of Executive’s death or (ii) the date that is six (6) months after the Termination Date (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to Executive (or Executive’s estate, if applicable) until the Section 409A Payment Date. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement are exempt from, or compliant with, Section 409A and in no event shall any member of the Company Group be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Executive on account of non-compliance with Section 409A.

 

 

19. Certain Excise Taxes. Notwithstanding anything to the contrary in this Agreement, if Executive is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the payments and benefits provided for in this Agreement, together with any other payments and benefits which Executive has the right to receive from the Company or any of its affiliates, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the payments and benefits provided for in this Agreement shall be either (a) reduced (but not below zero) so that the present value of such total amounts and benefits received by Executive from the Company or any of its affiliates shall be one dollar ($1.00) less than three times Executive’s “base amount” (as defined in Section 280G(b)(3) of the Code) and so that no portion of such amounts and benefits received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any other applicable taxes). The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order. The determination as to whether any such reduction in the amount of the payments and benefits provided hereunder is necessary (or whether Executive would be subject to such excise tax) shall be made at the expense of the Company by a firm of independent accountants, a law firm, or other valuation specialist selected by the Board in good faith prior to the consummation of the applicable change in control transaction, and the applicable independent accountants, law firm, or other valuation specialist shall consider the value of Executive’s restrictive covenants (including the non-competition restrictions set forth herein) as part of its analysis. If a reduced payment or benefit is made or provided and through error or otherwise that payment or benefit, when aggregated with other payments and benefits from the Company or any of its affiliates used in determining if a “parachute payment” exists, exceeds one dollar ($1.00) less than three times Executive’s base amount, then Executive shall immediately repay such excess to the Company upon notification that an overpayment has been made. Nothing in this Section 19 shall require the Company to provide a gross-up payment to Executive with respect to Executive’s excise tax liabilities under Section 4999 of the Code.

 

20. Clawback. To the extent required by company policy, applicable law, government regulation or any applicable securities exchange listing standards, amounts paid or payable under this Agreement or the LTIP shall be subject to the provisions of any applicable clawback policies or procedures adopted by the Company or any other applicable member of the Company Group including pursuant to applicable law, government regulation or applicable securities exchange listing requirements, which clawback policies or procedures may provide for forfeiture and/or recoupment of amounts paid or payable under this Agreement or the LTIP. The Company and each member of the Company Group reserves the right, without the consent of Executive, to adopt any such clawback policies and procedures that are consistent with the preceding sentence, including such policies and procedures applicable to this Agreement and the LTIP with retroactive effect.

 

 

21. Effect of Termination. The provisions of Sections 7, 8 and 9 and those provisions necessary to interpret and enforce them shall survive any termination of this Agreement and any termination of the employment relationship between Executive and the Company.

 

22. Severability. If an arbitrator or court of competent jurisdiction determines that any provision of this Agreement (or portion thereof) is invalid or unenforceable, then the invalidity or unenforceability of that provision (or portion thereof) shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect.

 

[Remainder of Page Intentionally Blank;

Signature Page Follows]

 

 

Executive and the Company each have caused this Agreement to be executed and effective as of the Effective Date.

 

	EXECUTIVE
	[___________]

 

	Prairie Operating EMPLOYEE Co., LLC
	By:
	Name:	[___________]
	Title:	[___________]

 

	Prairie Operating Co., LLC
	By:
	Name:	[___________]
	Title:	[___________]

 

Signature Page to Employment Agreement

 

 

 

Exhibit 10.19

 

[AMENDED AND RESTATED] EMPLOYMENT AGREEMENT

 

This [Amended and Restated] Employment Agreement (“Agreement”) is made and entered into by and between Prairie Operating Employee Co., LLC, a Delaware limited liability company (the “Company”), and [___________] (“Executive”), effective as of [___________] (the “Effective Date”)[, and evidences the assignment to the Company of, and supersedes and replaces in its entirety, that certain Employment Agreement previously entered into between Executive and Prairie Operating Co, LLC, a Delaware limited liability company (“Prairie”) effective as of [___________] (the “Original Agreement”). Prairie joins this Agreement solely for the purpose of acknowledging the assignment of its rights and obligations under, and interests in, the Original Agreement from Prairie to the Company].

 

1. Employment. During the Employment Period (as defined in Section 4), the Company shall employ Executive, and Executive shall serve, as [___________] of the Company and of Prairie Operating Co, a Delaware corporation (the “Parent”). Executive shall report directly to the Company’s President and CEO.

 

2. Duties and Responsibilities.

 

(a) Executive’s duties and responsibilities shall include those commensurate with and normally incidental to the position identified in Section 1, as well as providing services commensurate with such position to the Company and to the Parent’s other direct and indirect subsidiaries as may exist from time to time (collectively, the Company, the Parent, and the Parent’s other direct and indirect subsidiaries, the “Company Group”) in addition to the Company.

 

(b) Executive may engage in personal investment, charitable, civic, and other activities, so long as such activities do not materially interfere with Executive’s ability to fulfill Executive’s duties and responsibilities under this Agreement.

 

(c) As of the Effective Date, Executive’s principal work location shall be [___________]. During the Employment Period, Executive’s principal work city may be changed only with the prior written agreement of Executive.

 

3. Compensation.

 

(a) Base Salary. During the Employment Period, the Company shall pay to Executive an annualized base salary of $350,000.00 (the “Base Salary”) in consideration for Executive’s services under this Agreement, payable in substantially equal installments in conformity with the Company’s customary payroll practices for similarly situated employees as may exist from time to time, but no less frequently than monthly. The Parent’s Board of Directors (the “Board”) shall review the Base Salary for potential increases (but in any event no decreases) no less frequently than annually on or before March 31st of each calendar year, with the first such review to occur by no later than March 31, [____], and any increase to be effective as of January 1 of the calendar year in which such review occurs (or such earlier date as the Board may determine).

 

 

(b) Annual Bonus. For each calendar year during the Employment Period, Executive shall be eligible for bonus compensation (the “Annual Bonus”) with a target amount equal to [one-hundred percent (100%)][seventy-five percent (75%)] of Executive’s Base Salary or such other percentage of Executive’s Base Salary as determined by the Compensation Committee of the Board (the “Compensation Committee”) or the Board for the applicable calendar year (the “Target Annual Bonus”). The amount of Annual Bonus for each calendar year shall be determined by the Compensation Committee or the Board. Notwithstanding the foregoing, Executive shall be eligible to receive a pro-rata bonus for the portion of the [____] fiscal year of the Company that Executive is employed by the Company hereunder (the “[____] Bonus”). The Target Annual Bonus for each calendar year and the target goals applicable to each Annual Bonus shall be established by the Compensation Committee or the Board no later than thirty (30) days following the start of the then calendar year; provided, that such Target Annual Bonus and target goals for the [____] Bonus shall be established within thirty (30) days of the Effective Date. Each Annual Bonus and the [____] Bonus shall be paid as soon as administratively feasible after the Compensation Committee and the Board certifies the amount of any Annual Bonus, but in no event later than ninety (90) days following the end of such calendar year.

 

(c) Long Term Incentive Plan. Executive shall be eligible to participate in the Parent’s Long Term Incentive Plan (the “LTIP”) as established by the Board and as may be amended from time to time.

 

4. Term of Employment. Executive’s employment pursuant to this Agreement shall begin on the Effective Date and continue until such date as Executive’s employment hereunder is terminated in accordance with Section 7. The period from the Effective Date through the date of the termination of Executive’s employment pursuant to this Agreement, regardless of the time or reason for such termination, shall be referred to herein as the “Employment Period.”

 

5. Business Expenses. Subject to Section 18, the Company shall reimburse Executive for Executive’s out-of-pocket business-related expenses incurred in the performance of Executive’s duties under this Agreement. Any such reimbursement of expenses shall be made by the Company upon or as soon as practicable following receipt of Executive’s claim for such expense reimbursement (but in any event not later than the close of Executive’s taxable year following the taxable year in which the expense is incurred by Executive.

 

6. Benefits. During the Employment Period, Executive shall be eligible to participate in the same benefit plans and programs in which other executive-level Company employees are eligible to participate, subject to the terms and conditions of the applicable plans and programs in effect from time to time. No such benefit plans or programs may be withdrawn, altered or reduced without the prior written agreement of Executive.

 

7. Termination of Employment.

 

(a) Company’s Right to Terminate Executive’s Employment for Cause. The Company shall have the right to terminate Executive’s employment hereunder at any time for Cause. For purposes of this Agreement, “Cause” shall mean:

 

(i) Executive’s willful or continued failure to perform Executive’s duties;

 

 

(ii) Executive’s willful failure to comply with any valid and legal directive of the Board, the President or the CEO;

 

(iii) Executive’s willful engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, injurious to the Company or its parent or affiliates;

 

(iv) Executive’s embezzlement, misappropriation of funds, or fraud with respect to the Company or its parent or affiliates;

 

(v) Executive’s conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;

 

(vi) Executive’s material violation of the Company’s written policies or codes of conduct; or

 

(vii) Executive’s material breach of any material obligation under this Agreement or any other written agreement between Executive and the Company or its parent or affiliates.

 

For purposes of this provision, no act or failure to act on the part of Executive shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company.

 

With respect to an act described by clauses (i), (ii), and (vii), Executive shall have ten (10) business days from the delivery of written notice by the Company within which to cure any such acts constituting Cause; provided however, that, if the Company reasonably expects irreparable injury from a delay of ten (10) business days, the Company may give Executive notice of such shorter period within which to cure as is reasonable under the circumstances, which may include the termination of Executive’s employment without notice and with immediate effect.

 

(b) Company’s Right to Terminate Other than for Cause. The Company shall have the right to terminate Executive’s employment for convenience at any time and for any reason, or no reason at all, upon thirty (30) days’ advance written notice to Executive.

 

(c) Executive’s Right to Terminate for Good Reason. Executive shall have the right to terminate Executive’s employment with the Company at any time for Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following without Executive’s prior written consent:

 

(i) a material diminution in Executive’s (A) Base Salary, (B) Annual Bonus opportunity, (C) annual target LTIP opportunity (measured as the grant date fair value of Executive’s target LTIP awards, averaged over a historical period comprised of the lesser of (x) 3 years and (y) the number of years Executive has received grants of such annual LTIP awards, in either case, including the year in which Executive asserts grounds for a termination of employment for Good Reason and excluding, for the avoidance of doubt, any sign-on or one-time LTIP awards), or (D) benefits made available to Executive by any member of the Company Group; provided, however, that a material decrease in an element of compensation represented by either (A), (B), (C), or (D) of this paragraph that is offset by a corresponding increase or increases in the other element(s) of compensation shall not be deemed a condition for Good Reason so long as the Executive’s aggregate compensation from all such elements of compensation is not materially diminished;

 

 

(ii) a material diminution in Executive’s title, reporting relationship, authority, duties, or responsibilities with the Company or any other member of the Company Group (other than temporarily, while Employee is physically or mentally incapacitated or as required by applicable law);

 

(iii) a material breach by the Company of any of its obligations under this Agreement; or

 

(iv) the relocation of the geographic location of Executive’s principal place of employment by more than forty (40) miles.

 

Notwithstanding the foregoing provisions of this Section 7(c) or any other provision in this Agreement to the contrary, any assertion by Executive of a termination of employment for “Good Reason” shall not be effective unless all of the following conditions are satisfied: (x) Executive must provide written notice to the Company of the existence of the circumstances providing grounds for Good Reason in accordance with Section 16 within ninety (90) days of the initial existence of such grounds, (y) the Company has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances, and (z) Executive terminates employment for Good Reason within one hundred and eighty (180) days after the first occurrence of the applicable grounds.

 

(d) Executive’s Right to Terminate for Convenience. In addition to Executive’s right to terminate Executive’s employment for Good Reason, Executive shall have the right to terminate Executive’s employment with the Company for convenience at any time and for any other reason, or no reason at all, upon written notice to the Company.

 

(e) Effect of Termination.

 

(i) If Executive’s employment hereunder is terminated by either party for any reason, or no reason at all, or as a result of Executive’s death, Executive (or Executive’s estate and heirs in the event of Executive’s death) shall be entitled to: (A) any earned but unpaid Base Salary earned during the Employment Period and applicable to all pay periods prior to the date on which Executive’s employment terminates (the “Termination Date”); (B) any Annual Bonuses earned but unpaid for any calendar years prior to the calendar year in which the Termination Date occurs; (C) a pro-rata Annual Bonus for the year in which the Termination Date occurs in an amount equal to the Target Annual Bonus for the year in which the Termination Date occurs multiplied by a fraction, the numerator of which is the number of days in the calendar year in which the Termination Date occurs on which Executive was employed by the Company and the denominator of which is 365, (D) any amounts owed pursuant to the terms of the LTIP; (E) any unreimbursed business expenses incurred pursuant to Section 5; and (F) any employee benefits to which Executive may be entitled under the Company Group’s employee benefit plans or programs in which Executive participates as of the Termination Date (collectively, the “Accrued Rights”).

 

 

(ii) If Executive’s employment hereunder is terminated by the Company without Cause pursuant to Section 7(b), or by Executive for Good Reason pursuant to Section 7(c), then so long as Executive executes on or before the Release Expiration Date (as defined below), and does not revoke within any time provided by the Company to do so, a release of claims Executive may have against the Company or any other member of the Company Group and arising out of Executive’s employment, in a form reasonably acceptable to the Company and Executive (the “Release”), which Release shall exclude all claims to the Accrued Rights, the Severance Payment and the COBRA Benefit hereunder, then the Company shall, in addition to the Accrued Rights: (A) pay to Executive (or Executive’s estate and heirs in the event of Executive’s death) a severance payment in a total amount equal to two times (2X) the sum of: (x) the Base Salary; and (y) the Target Annual Bonus for the year in which the Termination Date occurs (such total amount, the “Severance Payment”), and (B) make available the COBRA Benefit (as defined below). The Severance Payment will be paid in a single lump sum on the Company’s first regularly scheduled pay date that is on or after the date that is sixty (60) days after the Termination Date.

 

(iii) If Executive’s termination gives rise to Executive being eligible for the Severance Payment, then for the portion of the eighteen (18)-month period following the Termination Date (the “Reimbursement Period”) that Executive elects to continue coverage for Executive and Executive’s spouse and eligible dependents, if any, under the Company’s group health plans pursuant to Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company shall promptly reimburse Executive on a monthly basis for the difference between the amount Executive pays to effect and continue such coverage and the employee contribution amount that similarly situated employees of the Company pay for the same or similar coverage under such group health plans (the “COBRA Benefit”). Each payment of the COBRA Benefit shall be paid to Executive on the Company’s first regularly scheduled pay date in each calendar month. Executive shall be eligible to receive such reimbursement payments until the earliest of: (A) the last day of the Reimbursement Period; or (B) the date Executive is no longer eligible to receive COBRA continuation coverage.

 

(iv) As used herein, the “Release Expiration Date” is that date that is twenty-one (21) days following the date upon which the Company delivers the Release to Executive (which shall occur no later than seven (7) days after the Termination Date) or, in the event that such termination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967), the date that is forty-five (45) days following such delivery date.

 

 

8. Confidentiality.

 

(a) In the course of Executive’s employment with the Company and the performance of Executive’s duties on behalf of the Company Group hereunder, Executive will be provided with, and will have access to, Confidential Information (as defined below). Both during the Employment Period and thereafter, except as expressly permitted by this Agreement or by the Company, Executive shall not disclose any Confidential Information to any person or entity and shall not use any Confidential Information except for the benefit of the Company Group.

 

(b) Notwithstanding any provision of Section 8(a) to the contrary, Executive may make the following disclosures and uses of Confidential Information:

 

(i) disclosures to other employees of a member of the Company Group who have a need to know the information in connection with the businesses of the Company Group;

 

(ii) disclosures to customers, suppliers or other third parties when, in the belief of Executive, such disclosure is in connection with Executive’s performance of Executive’s duties under this Agreement and is in the interests of the Company Group;

 

(iii) disclosures and uses that are approved in writing by the Company; or

 

(iv) disclosures to a person or entity that has been retained by a member of the Company Group to provide services to one or more members of the Company Group.

 

(c) “Confidential Information” means all competitively valuable and non-public, proprietary or confidential information of the Company Group that is conceived, made, developed or acquired by or disclosed to Executive during the period that Executive is employed by the Company or any other member of the Company Group. For purposes of this Agreement, Confidential Information shall not include any information that: (i) is gained from Executive’s industry experience or constitutes Executive’s general mental impressions; (ii) is or becomes generally available to the public or to other entities within the Company Group’s industry other than as a result of a disclosure or wrongful act of Executive; (iii) was available to Executive on a non-confidential basis before its disclosure by a member of the Company Group; or (iv) becomes available to Executive on a non-confidential basis from a source other than a member of the Company Group.

 

(d) Notwithstanding the foregoing, nothing in this Agreement shall prohibit or restrict Executive from using his general industry knowledge or from lawfully: (i) initiating communications directly with, cooperating with, providing information to, causing information to be provided to, or otherwise assisting in an investigation by, any governmental authority regarding a possible violation of any law; (ii) responding to any inquiry or legal process directed to Executive from any such governmental authority; (iii) testifying, participating or otherwise assisting in any action or proceeding by any such governmental authority relating to a possible violation of law; or (iv) making any other disclosures that are protected under the whistleblower provisions of any applicable law. Additionally, pursuant to the federal Defend Trade Secrets Act of 2016, an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (A) is made (1) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney and (2) solely for the purpose of reporting or investigating a suspected violation of law; (B) is made to the individual’s attorney in relation to a lawsuit for retaliation against the individual for reporting a suspected violation of law; or (C) is made in a complaint or other document filed in a lawsuit or proceeding, if such filing is made under seal. Nothing in this Agreement requires Executive to obtain prior authorization before engaging in any conduct described in this paragraph or to notify the Company that Executive has engaged in any such conduct.

 

 

9. Arbitration.

 

(a) Subject to Section 9(b), any dispute, controversy or claim between Executive and any member of the Company Group arising out of or relating to this Agreement or Executive’s employment or engagement with any member of the Company Group (“Disputes”) will be finally settled by arbitration in Houston, Texas, in accordance with the then-existing American Arbitration Association (“AAA”) Rules. The arbitration award shall be final and binding on both parties. Any arbitration conducted under this Section 9 shall be heard by a single arbitrator (the “Arbitrator”) selected in accordance with the then-applicable rules of the AAA. The Arbitrator shall expeditiously hear and decide all matters concerning the Dispute. Except as expressly provided to the contrary in this Agreement, the Arbitrator shall have the power to (i) gather such materials, information, testimony and evidence as the Arbitrator deems relevant to the Dispute before him or her (and each party will provide such materials, information, testimony and evidence requested by the Arbitrator), and (ii) grant injunctive relief and enforce specific performance. All Disputes shall be arbitrated on an individual basis, and each party hereto hereby foregoes and waives any right to arbitrate any Dispute as a class action or collective action or on a consolidated basis or in a representative capacity on behalf of other persons or entities who are claimed to be similarly situated, or to participate as a class member in such a proceeding. The decision of the Arbitrator shall be reasoned, rendered in writing, be final and binding upon the disputing parties and the parties agree that judgment upon the award may be entered by any court of competent jurisdiction. The party whom the Arbitrator determines is the prevailing party in such arbitration (which shall be the party receiving substantially the relief sought) shall receive, in addition to any other award pursuant to such arbitration or associated judgment, reimbursement from the other party of all reasonable legal fees and costs associated with such arbitration and associated judgment.

 

(b) By entering into this Agreement and entering into the arbitration provisions of this Section 9, THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY ARE KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVING THEIR RIGHTS TO A JURY TRIAL.

 

(c) Nothing in this Section 9 shall prohibit a party to this Agreement from (i) instituting litigation to enforce any arbitration award, or (ii) joining the other party to this Agreement in a litigation initiated by a person or entity that is not a party to this Agreement. Further, nothing in this Section 9 precludes Executive from filing a charge or complaint with a federal, state or other governmental administrative agency.

 

 

10. Withholdings; Deductions. The Company may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling and (b) any deductions consented to in writing by Executive.

 

11. Title and Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. Unless the context requires otherwise, all references to laws, regulations, contracts, documents, agreements and instruments refer to such laws, regulations, contracts, documents, agreements and instruments as they may be amended, restated or otherwise modified from time to time, and references to particular provisions of laws or regulations include a reference to the corresponding provisions of any succeeding law or regulation. All references to “dollars” or “$” in this Agreement refer to United States dollars. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision hereof. Unless the context requires otherwise, the word “or” is not exclusive. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

 

12. Applicable Law; Submission to Jurisdiction. This Agreement shall in all respects be construed according to the laws of the State of Texas without regard to its conflict of laws principles that would result in the application of the laws of another jurisdiction. With respect to any claim or dispute related to or arising under this Agreement, the parties hereby consent to the arbitration provisions of Section 9 and recognize and agree that should any resort to a court be necessary and permitted under this Agreement, then they consent to the exclusive jurisdiction, forum and venue of the state and federal courts (as applicable) located in Harris County.

 

13. Entire Agreement and Amendment. This Agreement, together with the LTIP, contains the entire agreement of the parties with respect to the matters covered herein and supersedes all prior and contemporaneous agreements and understandings (including [the Prior Agreement and ]any offer letter or similar agreement), oral or written, between the parties hereto concerning the subject matter hereof. This Agreement may be amended only by a written instrument executed by both parties hereto.

 

14. Waiver of Breach. Any waiver of this Agreement must be executed by the party to be bound by such waiver. No waiver by either party hereto of a breach of any provision of this Agreement by the other party, or of compliance with any condition or provision of this Agreement to be performed by such other party, will operate or be construed as a waiver of any subsequent breach by such other party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either party hereto to take any action by reason of any breach will not deprive such party of the right to take action at any time.

 

15. Assignment. Neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise transferred by either party without the prior written consent of the other party.

 

 

16. Notices. Notices provided for in this Agreement shall be in writing and shall be deemed to have been duly received (a) when delivered in person, (b) on the first business day after such notice is sent by express overnight courier service, or (c) on the second business day following deposit with an internationally-recognized second-day courier service with proof of receipt maintained, in each case, to the following address, as applicable:

 

	If to the Company, addressed to:
		Prairie Operating Employee Co., LLC
		602 Sawyer Street, Suite 710
		Houston, Texas 77007
		Attention: Chair, Board of Directors

 

	If to Executive, addressed to:
		At the most recent home address for Executive in the Company’s personnel files

 

17. Counterparts. This Agreement may be executed in any number of counterparts, including by electronic mail or facsimile, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party, but together signed by both parties hereto.

 

18. Section 409A.

 

(a) Notwithstanding any provision of this Agreement to the contrary, all provisions of this Agreement are intended to comply with Section 409A of the Internal Revenue Code of 1986 (the “Code”) and the applicable Treasury regulations and administrative guidance issued thereunder (collectively, “Section 409A”) or an exemption therefrom and shall be construed and administered in accordance with such intent. Any payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of Executive’s employment shall only be made if such termination of employment constitutes a “separation from service” under Section 409A.

 

(b) To the extent that any right to reimbursement of expenses or payment of any benefit in-kind under this Agreement constitutes nonqualified deferred compensation (within the meaning of Section 409A), (i) any such expense reimbursement shall be made by the Company no later than the last day of Executive’s taxable year following the taxable year in which such expense was incurred by Executive, (ii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (iii) the amount of expenses eligible for reimbursement or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year; provided, that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period in which the arrangement is in effect.

 

 

(c) Notwithstanding any provision in this Agreement to the contrary, if any payment or benefit provided for herein would be subject to additional taxes and interest under Section 409A if Executive’s receipt of such payment or benefit is not delayed until the earlier of (i) the date of Executive’s death or (ii) the date that is six (6) months after the Termination Date (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to Executive (or Executive’s estate, if applicable) until the Section 409A Payment Date. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement are exempt from, or compliant with, Section 409A and in no event shall any member of the Company Group be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Executive on account of non-compliance with Section 409A.

 

19. Certain Excise Taxes. Notwithstanding anything to the contrary in this Agreement, if Executive is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the payments and benefits provided for in this Agreement, together with any other payments and benefits which Executive has the right to receive from the Company or any of its affiliates, would constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code), then the payments and benefits provided for in this Agreement shall be either (a) reduced (but not below zero) so that the present value of such total amounts and benefits received by Executive from the Company or any of its affiliates shall be one dollar ($1.00) less than three times Executive’s “base amount” (as defined in Section 280G(b)(3) of the Code) and so that no portion of such amounts and benefits received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any other applicable taxes). The reduction of payments and benefits hereunder, if applicable, shall be made by reducing, first, payments or benefits to be paid in cash hereunder in the order in which such payment or benefit would be paid or provided (beginning with such payment or benefit that would be made last in time and continuing, to the extent necessary, through to such payment or benefit that would be made first in time) and, then, reducing any benefit to be provided in-kind hereunder in a similar order. The determination as to whether any such reduction in the amount of the payments and benefits provided hereunder is necessary (or whether Executive would be subject to such excise tax) shall be made at the expense of the Company by a firm of independent accountants, a law firm, or other valuation specialist selected by the Board in good faith prior to the consummation of the applicable change in control transaction, and the applicable independent accountants, law firm, or other valuation specialist shall consider the value of Executive’s restrictive covenants (including the non-competition restrictions set forth herein) as part of its analysis. If a reduced payment or benefit is made or provided and through error or otherwise that payment or benefit, when aggregated with other payments and benefits from the Company or any of its affiliates used in determining if a “parachute payment” exists, exceeds one dollar ($1.00) less than three times Executive’s base amount, then Executive shall immediately repay such excess to the Company upon notification that an overpayment has been made. Nothing in this Section 19 shall require the Company to provide a gross-up payment to Executive with respect to Executive’s excise tax liabilities under Section 4999 of the Code.

 

 

20. Clawback. To the extent required by company policy, applicable law, government regulation or any applicable securities exchange listing standards, amounts paid or payable under this Agreement or the LTIP shall be subject to the provisions of any applicable clawback policies or procedures adopted by the Company or any other applicable member of the Company Group including pursuant to applicable law, government regulation or applicable securities exchange listing requirements, which clawback policies or procedures may provide for forfeiture and/or recoupment of amounts paid or payable under this Agreement or the LTIP. The Company and each member of the Company Group reserves the right, without the consent of Executive, to adopt any such clawback policies and procedures that are consistent with the preceding sentence, including such policies and procedures applicable to this Agreement and the LTIP with retroactive effect.

 

21. Effect of Termination. The provisions of Sections 7, 8 and 9 and those provisions necessary to interpret and enforce them shall survive any termination of this Agreement and any termination of the employment relationship between Executive and the Company.

 

22. Severability. If an arbitrator or court of competent jurisdiction determines that any provision of this Agreement (or portion thereof) is invalid or unenforceable, then the invalidity or unenforceability of that provision (or portion thereof) shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect.

 

[Remainder of Page Intentionally Blank;

Signature Page Follows]

 

 

Executive and the Company each have caused this Agreement to be executed and effective as of the Effective Date.

 

	EXECUTIVE
	[___________]

 

	Prairie Operating EMPLOYEE Co., LLC
	By:
	Name:	[___________]
	Title:	[___________]

 

	Prairie Operating Co., LLC
	By:
	Name:	[___________]
	Title:	[___________]

 

Signature Page to Employment Agreement

 

 

 

Exhibit 10.24

 

Amended & Restated

PRAIRIE OPERATING CO.

LONG-TERM INCENTIVE PLAN

 

Effective as of August 25, 2023

 

1. Purpose. The purpose of the Amended & Restated Prairie Operating Co. Long Term Incentive Plan (the “Plan”) is to provide a means through which: (a) Prairie Operating Co., a Delaware corporation (the “Company”), and the Affiliates may attract, retain and motivate qualified persons as employees, directors, consultants, and other individual service providers, thereby enhancing the profitable growth of the Company and the Affiliates; and (b) persons upon whom the responsibilities of the successful administration and management of the Company and the Affiliates rest, and whose present and potential contributions to the Company and the Affiliates are of importance, can acquire and maintain stock ownership or awards, the value of which may be tied to the performance of the Company, thereby strengthening their concern for the Company and the Affiliates. Accordingly, the Plan provides for the grant of Options, SARs, Restricted Stock, Restricted Stock Units, Stock Awards, Dividend Equivalents, Other Stock-Based Awards, Cash Awards, Substitute Awards, or any combination of the foregoing, as determined by the Committee in its sole discretion.

 

2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below:

 

(a) “Affiliate” means, with respect to any person or entity, any corporation, partnership, limited liability company, limited liability partnership, association, trust or other organization that, directly or indirectly, controls, is controlled by, or is under common control with, such person or entity. For purposes of the preceding sentence, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any entity or organization, shall mean the possession, directly or indirectly, of the power (i) to vote more than 50% of the securities having ordinary voting power for the election of directors of the controlled entity or organization or (ii) to direct or cause the direction of the management and policies of the controlled entity or organization, whether through the ownership of voting securities, by contract, or otherwise.

 

(b) “ASC Topic 718” means the Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation, as amended or any successor accounting standard.

 

(c) “Award” means any Option, SAR, Restricted Stock, Restricted Stock Unit, Stock Award, Dividend Equivalent, Other Stock-Based Award, Cash Award, or Substitute Award, together with any other right or interest, granted under the Plan.

 

(d) “Award Agreement” means any written instrument (including any employment, severance or change in control agreement) that sets forth the terms, conditions, restrictions and/or limitations applicable to an Award, in addition to those set forth under the Plan.

 

(e) “Board” means the Board of Directors of the Company.

 

 

(f) “Cash Award” means an Award denominated in cash granted under Section ‎6(i).

 

(g) “Change in Control” means, except as otherwise provided in an Award Agreement, the occurrence of any of the following events after the Effective Date:

 

(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (x) the then-outstanding shares of Stock (the “Outstanding Stock”) or (y) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this clause (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company or its subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (D) any acquisition by any entity pursuant to a transaction that complies with clauses (A), (B) and (C) of clause (iii) below;

 

(ii) The individuals constituting the Board on the Effective Date (the “Incumbent Directors”) cease for any reason (other than death or disability) to constitute at least majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election, by the Company’s stockholders was approved by a vote of at least two-thirds of the Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) will be considered as though such individual were an Incumbent Director, but excluding, for purposes of this proviso, any such individual whose initial assumption of office occurs as a result of an actual or threatened proxy contest with respect to election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” (as used in Section 13(d) of the Exchange Act), in each case, other than the Board, which individual, for the avoidance of doubt, shall not be deemed to be an Incumbent Director for purposes of this definition, regardless of whether such individual was approved by a vote of at least two-thirds of the Incumbent Directors;

 

(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) the Outstanding Stock and Outstanding Company Voting Securities immediately prior to such Business Combination represent or are converted into or exchanged for securities which represent or are convertible into more than 50% of, respectively, the then-outstanding shares of common stock or common equity interests and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors or other governing body, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company, or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (B) no individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding the Company, its subsidiaries and any employee benefit plan (or related trust) sponsored or maintained by the Company or the entity resulting from such Business Combination (or any entity controlled by either the Company or the entity resulting from such Business Combination), beneficially owns, directly or indirectly, 50% or more of, respectively, the then-outstanding shares of common stock or common equity interests of the entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors or other governing body of such entity except to the extent that such ownership results solely from direct or indirect ownership of the Company that existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors or similar governing body of the entity resulting from such Business Combination were Incumbent Directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

 

 

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

 

Notwithstanding any provision of this Section ‎2(g), for purposes of an Award that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules, to the extent the impact of a Change in Control on such Award would subject a Participant to additional taxes under the Nonqualified Deferred Compensation Rules, a Change in Control described in subsection (i), (ii), (iii) or (iv) above with respect to such Award will mean both a Change in Control and a “change in the ownership of a corporation,” “change in the effective control of a corporation,” or a “change in the ownership of a substantial portion of a corporation’s assets” within the meaning of the Nonqualified Deferred Compensation Rules as applied to the Company.

 

(h) “Change in Control Price” means the amount determined in the following clause ‎(i), ‎(ii), ‎(iii), ‎(iv) or ‎(v), whichever the Committee determines is applicable, as follows: (i) the price per share offered to holders of Stock in any merger or consolidation, (ii) the per share Fair Market Value of the Stock immediately before the Change in Control or other event without regard to assets sold in the Change in Control or other event and assuming the Company has received the consideration paid for the assets in the case of a sale of the assets, (iii) the amount distributed per share of Stock in a dissolution transaction, (iv) the price per share offered to holders of Stock in any tender offer or exchange offer whereby a Change in Control or other event takes place, or (v) if such Change in Control or other event occurs other than pursuant to a transaction described in clauses ‎(i), ‎(ii), ‎(iii), or ‎(iv) of this Section ‎2(h), the value per share of the Stock that may otherwise be obtained with respect to such Awards or to which such Awards track, as determined by the Committee as of the date determined by the Committee to be the date of cancellation and surrender of such Awards. In the event that the consideration offered to stockholders of the Company in any transaction described in this Section ‎2(h) or in Section ‎8(d) consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash and such determination shall be binding on all affected Participants to the extent applicable to Awards held by such Participants.

 

(i) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including the guidance and regulations promulgated thereunder and successor provisions, guidance and regulations thereto.

 

(j) “Committee” means the Compensation Committee of the Board or such other committee of two or more directors designated, and appointed by, the Board to administer the Plan; provided, however, that, unless otherwise determined by the Board, the Committee shall consist solely of two or more Qualified Members.

 

 

(k) “Dividend Equivalent” means a right, granted to an Eligible Person under Section ‎6(g), to receive cash, Stock, other Awards, or other property equal in value to dividends or distributions paid with respect to a specified number of shares of Stock, or other periodic payments.

 

(l) “Effective Date” means August 25, 2023.

 

(m) “Eligible Person” means any individual who, as of the date of grant of an Award, is an officer or employee of the Company or of any Affiliate, and any other person who provides services to the Company or any Affiliate, including directors of the Company; provided, however, that, any such individual must be an “employee” of the Company or any of its parents or subsidiaries within the meaning of General Instruction A.1(a) to Form S-8 if such individual is granted an Award that may be settled in equity securities of the Company that are required to be registered securities. An employee on leave of absence may be an Eligible Person.

 

(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, including the guidance, rules and regulations promulgated thereunder and successor provisions, guidance, rules, and regulations thereto.

 

(o) “Fair Market Value” of a share of Stock means, as of any specified date, (i) if the Stock is listed on a national securities exchange, the closing sales price of the Stock, as reported on the stock exchange composite tape on that date (or if no sales occur on such date, on the last preceding date on which such sales of the Stock are so reported); (ii) if the Stock is not traded on a national securities exchange but is traded over the counter on such date, the average between the reported high and low bid and asked prices of Stock on the most recent date on which Stock was publicly traded on or preceding the specified date; or (iii) in the event Stock is not publicly traded at the time a determination of its value is required to be made under the Plan, the amount determined by the Committee in its discretion in such manner as it deems appropriate, taking into account all factors the Committee deems appropriate, including the Nonqualified Deferred Compensation Rules. Notwithstanding this definition of Fair Market Value, with respect to one or more Award types, or for any other purpose for which the Committee must determine the Fair Market Value under the Plan, the Committee may elect to choose a different measurement date or methodology for determining Fair Market Value so long as the determination is consistent with the Nonqualified Deferred Compensation Rules and all other applicable laws and regulations.

 

(p) “ISO” means an Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code.

 

(q) “Nonqualified Deferred Compensation Rules” means the limitations and requirements of Section 409A of the Code, as amended from time to time, including the guidance and regulations promulgated thereunder and successor provisions, guidance and regulations thereto.

 

(r) “Nonstatutory Option” means an Option that is not an ISO.

 

 

(s) “Option” means a right, granted to an Eligible Person under Section ‎6(b), to purchase Stock at a specified price during specified time periods, which may either be an ISO or a Nonstatutory Option.

 

(t) “Other Stock-Based Award” means an Award granted to an Eligible Person under Section ‎6(h).

 

(u) “Participant” means a person who has been granted an Award under the Plan that remains outstanding, including a person who is no longer an Eligible Person.

 

(v) “Qualified Member” means a member of the Board who is (i) a “non-employee director” within the meaning of Rule 16b-3(b)(3), and (ii) “independent” under the listing standards or rules of the securities exchange upon which the Stock is traded, but only to the extent such independence is required in order to take the action at issue pursuant to such standards or rules.

 

(w) “Restricted Stock” means Stock granted to an Eligible Person under Section ‎6(d) that are subject to certain restrictions and to a risk of forfeiture.

 

(x) “Restricted Stock Unit” means a right, granted to an Eligible Person under Section ‎6(e), to receive Stock, cash or a combination thereof at the end of a specified period (which may or may not be coterminous with the vesting schedule of the Award).

 

(y) “Rule 16b-3” means Rule 16b-3, promulgated by the SEC under Section 16 of the Exchange Act.

 

(z) “SAR” means a stock appreciation right granted to an Eligible Person under Section ‎6(c).

 

(aa) “SEC” means the Securities and Exchange Commission.

 

(bb) “Securities Act” means the Securities Act of 1933, as amended from time to time, including the guidance, rules and regulations promulgated thereunder and successor provisions, guidance, rules and regulations thereto.

 

(cc) “Stock” means the Company’s Common Stock, par value $0.01 per share, and such other securities as may be substituted (or re-substituted) for Stock pursuant to Section ‎8.

 

(dd) “Stock Award” means unrestricted shares of Stock granted to an Eligible Person under Section ‎6(f).

 

(ee) “Substitute Award” means an Award granted under Section ‎6(j).

 

 

3. Administration.

 

(a) Authority of the Committee. The Plan shall be administered by the Committee except to the extent the Board elects to administer the Plan, in which case references herein to the “Committee” shall be deemed to include references to the “Board.” Subject to the express provisions of the Plan, Rule 16b-3 and other applicable laws, the Committee shall have the authority, in its sole and absolute discretion, to:

 

(i) designate Eligible Persons as Participants;

 

(ii) determine the type or types of Awards to be granted to an Eligible Person;

 

(iii) determine the number of shares of Stock or the amount of cash to be covered by Awards;

 

(iv) determine the terms and conditions of any Award, including whether, to what extent and under what circumstances Awards may be vested, settled, exercised, cancelled or forfeited (including conditions based on continued employment or service requirements or the achievement of one or more performance goals);

 

(v) modify, waive or adjust any term or condition of an Award that has been granted, which may include the acceleration of vesting, waiver of forfeiture restrictions, modification of the form of settlement of the Award (for example, from cash to Stock or vice versa), early termination of a performance period, or modification of any other condition or limitation regarding an Award;

 

(vi) determine the treatment of an Award upon a termination of employment or other service relationship;

 

(vii) impose a holding period with respect to an Award or the shares of Stock received in connection with an Award;

 

(viii) interpret and administer the Plan and any Award Agreement;

 

(ix) correct any defect, supply any omission or reconcile any inconsistency in the Plan, in any Award, or in any Award Agreement; and

 

(x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.

 

The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. Any action of the Committee shall be final, conclusive and binding on all persons, including the Company, Affiliates, stockholders, Participants, beneficiaries, and permitted transferees under Section ‎7(a) or other persons claiming rights from or through a Participant. The Committee’s determinations need not be uniform with respect to Participants, and need not apply consistently across Awards.

 

 

(b) Exercise of Committee Authority. At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Award granted or to be granted to an Eligible Person who is then subject to Section 16 of the Exchange Act in respect of the Company where such action is not taken by the full Board may be taken either (i) by a subcommittee, designated by the Committee, composed solely of two or more Qualified Members, or (ii) by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action; provided, however, that upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of the Plan. For the avoidance of doubt, the full Board may take any action relating to an Award granted or to be granted to an Eligible Person who is then subject to Section 16 of the Exchange Act in respect of the Company.

 

(c) Delegation of Authority. The Committee may delegate any or all of its powers and duties under the Plan to a subcommittee of directors or to any officer of the Company, including the power to perform administrative functions and grant Awards; provided, that such delegation does not (i) violate state or corporate law, or (ii) result in the loss of an exemption under Rule 16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the Exchange Act in respect of the Company. Upon any such delegation, all references in the Plan to the “Committee,” other than in Section ‎8, shall be deemed to include any subcommittee or officer of the Company to whom such powers have been delegated by the Committee. Any such delegation shall not limit the right of such subcommittee members or such an officer to receive Awards; provided, however, that such subcommittee members and any such officer may not grant Awards to himself or herself, a member of the Board, or any executive officer of the Company or an Affiliate, or take any action with respect to any Award previously granted to himself or herself, a member of the Board, or any executive officer of the Company or an Affiliate. The Committee may also appoint agents who are not executive officers of the Company or members of the Board to assist in administering the Plan, provided, however, that such individuals may not be delegated the authority to grant or modify any Awards that will, or may, be settled in Stock.

 

(d) Limitation of Liability. The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or employee of the Company or any Affiliate, the Company’s legal counsel, independent auditors, consultants or any other agents assisting in the administration of the Plan. Members of the Committee and any officer or employee of the Company or any Affiliate acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the fullest extent permitted by law, be indemnified and held harmless by the Company with respect to any such action or determination.

 

(e) Participants in Non-U.S. Jurisdictions. Notwithstanding any provision of the Plan to the contrary, to comply with applicable laws in countries other than the United States in which the Company or any Affiliate operates or has employees, directors or other service providers from time to time, or to ensure that the Company complies with any applicable requirements of foreign securities exchanges, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which of the Affiliates shall be covered by the Plan; (ii) determine which Eligible Persons outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to Eligible Persons outside the United States to comply with applicable foreign laws or listing requirements of any foreign exchange; (iv) establish sub-plans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable (any such sub-plans and/or modifications shall be attached to the Plan as appendices), provided, however, that no such sub-plans and/or modifications shall increase the share limitations contained in Section ‎4(a); and (v) take any action, before or after an Award is granted, that it deems advisable to comply with any applicable governmental regulatory exemptions or approval or listing requirements of any such foreign securities exchange. For purposes of the Plan, all references to foreign laws, rules, regulations or taxes shall be references to the laws, rules, regulations and taxes of any applicable jurisdiction other than the United States or a political subdivision thereof.

 

 

4. Stock Subject to the Plan.

 

(a) Number of Shares Available for Delivery. Subject to adjustment in a manner consistent with Section ‎8, 35,000,000¹ shares of Stock are reserved and available for delivery with respect to Awards, and such total shall be available for the issuance of shares upon the exercise of ISOs. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or Substitute Awards), and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award.

 

(b) Availability of Shares Not Delivered under Awards. If all or any portion of an Award expires or is cancelled, forfeited, exchanged, settled in cash or otherwise terminated, or receives the functional equivalent of any of the preceding actions, the shares of Stock subject to such Award (including (i) shares forfeited with respect to Restricted Stock, and (ii) the number of shares withheld or surrendered to the Company in payment of any exercise or purchase of an Award or taxes relating to Awards) shall not be considered “delivered” under the Plan, shall be available for delivery with respect to Awards, and shall no longer be considered issuable or related to outstanding Awards for purposes of this Section ‎4(b). If an Award may be settled only in cash, such Award need not be counted against any share limit under this Section ‎4.

 

(c) Shares Available Following Certain Transactions. Substitute Awards granted in accordance with applicable stock exchange requirements and in substitution or exchange for awards previously granted by a company acquired by the Company or any subsidiary or with which the Company or any subsidiary combines shall not reduce the shares authorized for issuance under the Plan or the limitations on grants to non-employee members of the Board under Section 5(b), nor shall shares subject to such Substitute Awards be added to the shares available for issuance under the Plan as provided above (whether or not such Substitute Awards are later cancelled, forfeited or otherwise terminated).

 

(d) Stock Offered. The shares of Stock to be delivered under the Plan shall be made available from (i) authorized but unissued shares of Stock, (ii) Stock held in the treasury of the Company, or (iii) previously issued shares of Stock reacquired by the Company, including shares purchased on the open market

 

¹ This share amount has been subsequently adjusted to reflect a reverse stock split of the Stock, effected on October 16, 2023, at a ratio of 1:28.5714286, resulting in 1,225,000 shares available for issuance under this Plan.

 

 

5. Eligibility; Award Limitations for Non-Employee Members of the Board.

 

(a) Awards may be granted under the Plan only to Eligible Persons.

 

(b) In each calendar year during any part of which the Plan is in effect, a non-employee member of the Board may not be granted Awards for such individual’s service on the Board having a value (determined, if applicable, pursuant to ASC Topic 718) on the date of grant in excess of $750,000; provided, that for any calendar year in which a non-employee member of the Board (i) first commences service on the Board, (ii) serves on a special committee of the Board, or (iii) serves as lead director or chairman of the Board, additional Awards may be granted to such non-employee member of the Board in excess of such limit; provided, further, that the limit set forth in this Section ‎5(b) shall be applied without regard to (A) cash fees paid to a non-employee member of the Board during such calendar year (or grants of Awards, if any, made to a non-employee member of the Board in lieu of all or any portion of such cash fees) or (B) grants of Awards, if any, made to a non-employee member of the Board during any period in which such individual was an employee of the Company or any Affiliate or was otherwise providing services to the Company or to any Affiliate other than in the capacity as a director of the Company.

 

6. Specific Terms of Awards.

 

(a) General. Awards may be granted on the terms and conditions set forth in this Section ‎6. Awards granted under the Plan may, in the discretion of the Committee, be granted either alone, in addition to, or in tandem with any other Award. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section ‎9(n)), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including subjecting such awards to service- or performance-based vesting conditions. Without limiting the scope of the preceding sentence, with respect to any performance-based conditions, (i) the Committee may use one or more business criteria or other measures of performance as it may deem appropriate in establishing any performance goals applicable to an Award, (ii) any such performance goals may relate to the performance of the Participant, the Company (on a consolidated basis), or to specified subsidiaries, business or geographical units or operating areas of the Company, (iii) the performance period or periods over which performance goals will be measured shall be established by the Committee, and (iv) any such performance goals and performance periods may differ among Awards granted to any one Participant or to different Participants. Except as otherwise provided in an Award Agreement, the Committee may exercise its discretion to reduce or increase the amounts payable under any Award.

 

(b) Options. The Committee is authorized to grant Options, which may be designated as either ISOs or Nonstatutory Options, to Eligible Persons on the following terms and conditions:

 

(i) Exercise Price. Each Award Agreement evidencing an Option shall state the exercise price per share of Stock (the “Exercise Price”), as established by the Committee; provided, however, that except as provided in Section ‎6(j) or in Section ‎8, the Exercise Price of an Option shall not be less than the greater of (A) the par value per share of Stock or (B) 100% of the Fair Market Value per share of Stock as of the date of grant of the Option (or in the case of an ISO granted to an individual who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or any of its subsidiaries, 110% of the Fair Market Value per share of Stock on the date of grant). Notwithstanding the foregoing, the Exercise Price of a Nonstatutory Option may be less than 100% of the Fair Market Value per share of Stock as of the date of grant of the Option if the Option (1) does not provide for a deferral of compensation by reason of satisfying the short-term deferral exception set forth in the Nonqualified Deferred Compensation Rules or (2) provides for a deferral of compensation and is compliant with the Nonqualified Deferred Compensation Rules.

 

 

(ii) Time and Method of Exercise; Other Terms. The Committee shall determine the methods by which the Exercise Price may be paid or deemed to be paid, the form of such payment, including cash or cash equivalents, Stock (including previously owned shares or through a cashless exercise, i.e., “net settlement”, a broker-assisted exercise, or other reduction of the amount of shares otherwise issuable pursuant to the Option), other Awards or awards granted under other plans of the Company or any Affiliate, other property, or any other legal consideration the Committee deems appropriate (including notes or other contractual obligations of Participants to make payment on a deferred basis), the methods by or forms in which Stock will be delivered or deemed to be delivered to Participants, including the delivery of Restricted Stock subject to Section ‎6(d), and any other terms and conditions of any Option. In the case of an exercise whereby the Exercise Price is paid with Stock, such Stock shall be valued based on the Stock’s Fair Market Value as of the date of exercise. No Option may be exercisable for a period of more than ten years following the date of grant of the Option (or in the case of an ISO granted to an individual who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or any of its subsidiaries, for a period of more than five years following the date of grant of the ISO).

 

(iii) ISOs. The terms of any ISO granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. ISOs may only be granted to Eligible Persons who are employees of the Company or employees of a parent or any subsidiary corporation of the Company. Except as otherwise provided in Section ‎8, no term of the Plan relating to ISOs (including any SAR in tandem therewith) shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan or any ISO under Section 422 of the Code, unless notice has been provided to the Participant that such change will result in such disqualification. ISOs shall not be granted more than ten years after the earlier of the adoption of the Plan or the approval of the Plan by the Company’s stockholders. Notwithstanding the foregoing, to the extent that the aggregate Fair Market Value of shares of Stock subject to an ISO and the aggregate Fair Market Value of shares of stock of any parent or subsidiary corporation (within the meaning of Sections 424(e) and (f) of the Code) subject to any other incentive stock options of the Company or a parent or subsidiary corporation (within the meaning of Sections 424(e) and (f) of the Code) that are exercisable for the first time by a Participant during any calendar year exceeds $100,000, or such other amount as may be prescribed under Section 422 of the Code, such excess shall be treated as Nonstatutory Options in accordance with the Code. As used in the previous sentence, Fair Market Value shall be determined as of the date the ISO is granted. If a Participant shall make any disposition of shares of Stock issued pursuant to an ISO under the circumstances described in Section 421(b) of the Code (relating to disqualifying dispositions), the Participant shall notify the Company of such disposition within the time provided to do so in the applicable award agreement.

 

 

(c) SARs. The Committee is authorized to grant SARs to Eligible Persons on the following terms and conditions:

 

(i) Right to Payment. An SAR is a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Committee.

 

(ii) Grant Price. Each Award Agreement evidencing an SAR shall state the grant price per share of Stock established by the Committee; provided, however, that except as provided in Section ‎6(j) or in Section ‎8, the grant price per share of Stock subject to an SAR shall not be less than the greater of (A) the par value per share of Stock or (B) 100% of the Fair Market Value per share of Stock as of the date of grant of the SAR. Notwithstanding the foregoing, the grant price of an SAR may be less than 100% of the Fair Market Value per share of Stock subject to an SAR as of the date of grant of the SAR if the SAR (1) does not provide for a deferral of compensation by reason of satisfying the short-term deferral exception set forth in the Nonqualified Deferred Compensation Rules or (2) provides for a deferral of compensation and is compliant with the Nonqualified Deferred Compensation Rules.

 

(iii) Method of Exercise and Settlement; Other Terms. The Committee shall determine the form of consideration payable upon settlement, the method by or forms in which Stock (if any) will be delivered or deemed to be delivered to Participants, and any other terms and conditions of any SAR. SARs may be either free-standing or granted in tandem with other Awards. No SAR may be exercisable for a period of more than ten years following the date of grant of the SAR.

 

(iv) Rights Related to Options. An SAR granted in connection with an Option shall entitle a Participant, upon exercise, to surrender that Option or any portion thereof, to the extent unexercised, and to receive payment of an amount determined by multiplying (A) the difference obtained by subtracting the Exercise Price with respect to a share of Stock specified in the related Option from the Fair Market Value of a share of Stock on the date of exercise of the SAR, by (B) the number of shares as to which that SAR has been exercised. The Option shall then cease to be exercisable to the extent surrendered. SARs granted in connection with an Option shall be subject to the terms and conditions of the Award Agreement governing the Option, which shall provide that the SAR is exercisable only at such time or times and only to the extent that the related Option is exercisable and shall not be transferable except to the extent that the related Option is transferrable.

 

(d) Restricted Stock. The Committee is authorized to grant Restricted Stock to Eligible Persons on the following terms and conditions:

 

(i) Restrictions. Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose. Except as provided in Section ‎7(a)(iii) and Section ‎7(a)(iv), during the restricted period applicable to the Restricted Stock, the Restricted Stock may not be sold, transferred, pledged, hedged, hypothecated, margined or otherwise encumbered by the Participant.

 

 

(ii) Dividends and Splits. As a condition to the grant of an Award of Restricted Stock, the Committee may allow a Participant to elect, or may require, that any cash dividends paid on a share of Restricted Stock be automatically reinvested in additional shares of Restricted Stock, applied to the purchase of additional Awards or deferred without interest to the date of vesting of the associated Award of Restricted Stock. Unless otherwise determined by the Committee and specified in the applicable Award Agreement, Stock distributed in connection with a Stock split or Stock dividend, and other property (other than cash) distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed.

 

(e) Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to Eligible Persons on the following terms and conditions:

 

(i) Award and Restrictions. Restricted Stock Units shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee may impose.

 

(ii) Settlement. Settlement of vested Restricted Stock Units shall occur upon vesting or upon expiration of the deferral period specified for such Restricted Stock Units by the Committee (or, if permitted by the Committee, as elected by the Participant). Restricted Stock Units shall be settled by delivery of (A) a number of shares of Stock equal to the number of Restricted Stock Units for which settlement is due, or (B) cash in an amount equal to the Fair Market Value of the specified number of shares of Stock equal to the number of Restricted Stock Units for which settlement is due, or a combination thereof, as determined by the Committee at the date of grant or thereafter.

 

(f) Stock Awards. The Committee is authorized to grant Stock Awards to Eligible Persons as a bonus, as additional compensation, or in lieu of cash compensation any such Eligible Person is otherwise entitled to receive, in such amounts and subject to such other terms as the Committee in its discretion determines to be appropriate.

 

(g) Dividend Equivalents. The Committee is authorized to grant Dividend Equivalents to Eligible Persons, entitling any such Eligible Person to receive cash, Stock, other Awards, or other property equal in value to dividends or other distributions paid with respect to a specified number of shares of Stock. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award (other than an Award of Restricted Stock or a Stock Award). The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or at a later specified date and, if distributed at a later date, may be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles or accrued in a bookkeeping account without interest, and subject to such restrictions on transferability and risks of forfeiture, as the Committee may specify. With respect to Dividend Equivalents granted in connection with another Award, absent a contrary provision in the Award Agreement, such Dividend Equivalents shall be subject to the same restrictions and risk of forfeiture as the Award with respect to which the dividends accrue and shall not be paid unless and until such Award has vested and been earned.

 

 

(h) Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Eligible Persons such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the Committee to be consistent with the purposes of the Plan, including convertible or exchangeable debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment contingent upon performance of the Company or any other factors designated by the Committee, and Awards valued by reference to the book value of Stock or the value of securities of, or the performance of, specified Affiliates. The Committee shall determine the terms and conditions of such Other Stock-Based Awards. Stock delivered pursuant to an Other-Stock Based Award in the nature of a purchase right granted under this Section ‎6(h) shall be purchased for such consideration, paid for at such times, by such methods, and in such forms, including cash, Stock, other Awards, or other property, as the Committee shall determine.

 

(i) Cash Awards. The Committee is authorized to grant Cash Awards, on a free-standing basis or as an element of, a supplement to, or in lieu of any other Award under the Plan to Eligible Persons in such amounts and subject to such other terms as the Committee in its discretion determines to be appropriate, including for purposes of any annual or short-term incentive or other bonus program.

 

(j) Substitute Awards; No Repricing. Awards may be granted in substitution or exchange for any other Award granted under the Plan or under another plan of the Company or an Affiliate or any other right of an Eligible Person to receive payment from the Company or an Affiliate. Awards may also be granted under the Plan in substitution for awards held by individuals who become Eligible Persons as a result of a merger, consolidation or acquisition of another entity or the assets of another entity by or with the Company or an Affiliate. Such Substitute Awards referred to in the immediately preceding sentence that are Options or SARs may have an exercise price that is less than the Fair Market Value of a share of Stock on the date of the substitution if such substitution complies with the Nonqualified Deferred Compensation Rules, Section 424 of the Code and the guidance and regulations promulgated thereunder, if applicable, and other applicable laws and exchange rules. Except as provided in this Section ‎6(j) or in Section ‎8, without the approval of the stockholders of the Company, the terms of outstanding Awards may not be amended to (i) reduce the Exercise Price or grant price of an outstanding Option or SAR, (ii) grant a new Option, SAR or other Award in substitution for, or upon the cancellation of, any previously granted Option or SAR that has the effect of reducing the Exercise Price or grant price thereof, (iii) exchange any Option or SAR for Stock, cash or other consideration when the Exercise Price or grant price per share of Stock under such Option or SAR exceeds the Fair Market Value of a share of Stock or (iv) take any other action that would be considered a “repricing” of an Option or SAR under the applicable listing standards of the national securities exchange on which the Stock is listed (if any).

 

7. Certain Provisions Applicable to Awards.

 

(a) Limit on Transfer of Awards.

 

(i) Except as provided in Sections ‎7(a)(iii) and ‎(iv), each Option and SAR shall be exercisable only by the Participant during the Participant’s lifetime, or by the person to whom the Participant’s rights shall pass by will or the laws of descent and distribution. Notwithstanding anything to the contrary in this Section ‎7(a), an ISO shall not be transferable other than by will or the laws of descent and distribution.

 

 

(ii) Except as provided in Sections ‎7(a)(i), ‎(iii) and ‎(iv), no Award, other than a Stock Award, and no right under any such Award, may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate.

 

(iii) To the extent specifically provided by the Committee and permitted pursuant to Form S-8 and the instructions thereto, an Award may be transferred by a Participant on such terms and conditions as the Committee may from time to time establish; provided, however, that no Award (other than a Stock Award) may be transferred to a third-party financial institution for value.

 

(iv) An Award may be transferred pursuant to a domestic relations order entered or approved by a court of competent jurisdiction upon delivery to the Company of a written request for such transfer and a certified copy of such order.

 

(b) Form and Timing of Payment under Awards; Deferrals. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or any Affiliates upon the exercise or settlement of an Award may be made in such forms as the Committee shall determine in its discretion, including cash, Stock, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis (which may be required by the Committee or permitted at the election of the Participant on terms and conditions established by the Committee); provided, however, that any such deferred or installment payments will be set forth in the Award Agreement. Payments may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock.

 

(c) Evidencing Stock. The Stock or other securities of the Company delivered pursuant to an Award may be evidenced in any manner deemed appropriate by the Committee in its sole discretion, including in the form of a certificate issued in the name of the Participant or by book entry, electronic or otherwise, and shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Stock or other securities are then listed, and any applicable federal, state or other laws, and the Committee may cause a legend or legends to be inscribed on any such certificates to make appropriate reference to such restrictions. Further, if certificates representing Restricted Stock are registered in the name of the Participant, the Company may retain physical possession of the certificates and may require that the Participant deliver a stock power to the Company, endorsed in blank, related to the Restricted Stock.

 

(d) Consideration for Grants. Awards may be granted for such consideration, including services, as the Committee shall determine, but shall not be granted for less than the minimum lawful consideration.

 

 

(e) Additional Agreements. Each Eligible Person to whom an Award is granted under the Plan may be required to agree in writing, as a condition to the grant of such Award or otherwise, to subject an Award that is exercised or settled following such Eligible Person’s termination of employment or service to a general release of claims and/or a noncompetition or other restricted covenant agreement in favor of the Company and the Affiliates, with the terms and conditions of such agreement(s) to be determined in good faith by the Committee.

 

8. Subdivision or Consolidation; Recapitalization; Change in Control; Reorganization.

 

(a) Existence of Plans and Awards. The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Company, the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.

 

(b) Additional Issuances. Except as expressly provided herein, the issuance by the Company of shares of stock of any class, including upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Awards theretofore granted or the purchase price per share of Stock, if applicable.

 

(c) Subdivision or Consolidation of Shares. The terms of an Award and the share limitations under the Plan shall be subject to adjustment by the Committee from time to time, in accordance with the following provisions:

 

(i) If at any time, or from time to time, the Company shall subdivide as a whole (by reclassification, by a Stock split, by the issuance of a distribution on Stock payable in Stock, or otherwise) the number of shares of Stock then outstanding into a greater number of shares of Stock or in the event the Company distributes an extraordinary cash dividend, then, as appropriate (A) the maximum number of shares of Stock available for delivery with respect to Awards and applicable limitations with respect to Awards provided in Section ‎4 and Section ‎5 (other than cash limits) shall be increased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (B) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any then-outstanding Award shall be increased proportionately, and (C) the price (including the Exercise Price or grant price) for each share of Stock (or other kind of shares or securities) subject to then-outstanding Awards shall be reduced proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions; provided, however, that in the case of an extraordinary cash dividend that is not an Adjustment Event, the adjustment to the number of shares of Stock and the Exercise Price or grant price, as applicable, with respect to an outstanding Option or SAR may be made in such other manner as the Committee may determine that is permitted pursuant to applicable tax and other laws, rules and regulations. Notwithstanding the foregoing, Awards that already have a right to receive extraordinary cash dividends as a result of Dividend Equivalents or other dividend rights will not be adjusted as a result of an extraordinary cash dividend.

 

 

(ii) If at any time, or from time to time, the Company shall consolidate as a whole (by reclassification, by reverse Stock split, or otherwise) the number of shares of Stock then outstanding into a lesser number of shares of Stock, then, except as otherwise provided in an Award Agreement or as otherwise determined to be appropriate by the Committee, the following shall occur, as appropriate (A) the maximum number of shares of Stock available for delivery with respect to Awards and applicable limitations with respect to Awards provided in Section ‎4 and Section ‎5 (other than cash limits) shall be decreased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (B) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any then-outstanding Award shall be decreased proportionately, and (C) the price (including the Exercise Price or grant price) for each share of Stock (or other kind of shares or securities) subject to then-outstanding Awards shall be increased proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions.

 

(d) Recapitalization. In the event of any change in the capital structure or business of the Company or other corporate transaction or event that would be considered an “equity restructuring” within the meaning of ASC Topic 718 and, in each case, that would result in an additional compensation expense to the Company pursuant to the provisions of ASC Topic 718, if adjustments to Awards with respect to such event were discretionary or otherwise not required (each such an event, an “Adjustment Event”), then the Committee shall equitably adjust (i) the aggregate number or kind of shares that thereafter may be delivered under the Plan, (ii) the number or kind of shares or other property (including cash) subject to an Award, (iii) the terms and conditions of Awards, including the purchase price or Exercise Price of Awards and performance goals, as applicable, and (iv) the applicable limitations with respect to Awards provided in Section ‎4 and Section ‎5 (other than cash limits) to equitably reflect such Adjustment Event (“Equitable Adjustments”). In the event of any change in the capital structure or business of the Company or other corporate transaction or event that would not be considered an Adjustment Event, and is not otherwise addressed in this Section ‎8, the Committee shall have complete discretion to make Equitable Adjustments (if any) in such manner as it deems appropriate with respect to such other event.

 

(e) Change in Control and Other Events. In the event of a Change in Control or other changes in the Company or the outstanding Stock by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change occurring after the date of the grant of any Award, the Committee, acting in its sole discretion without the consent or approval of any holder, may exercise any power enumerated in Section ‎3 (including the power to accelerate vesting, waive any forfeiture conditions or otherwise modify or adjust any other condition or limitation regarding an Award) and may also effect one or more of the following alternatives, which may vary among individual holders and which may vary among Awards held by any individual holder:

 

(i) accelerate the time of exercisability of an Award so that such Award may be exercised in full or in part for a limited period of time on or before a date specified by the Committee, after which specified date all unexercised Awards and all rights of holders thereunder shall terminate.

 

 

(ii) redeem in whole or in part outstanding Awards by requiring the mandatory surrender to the Company by selected holders of some or all of the outstanding Awards held by such holders (irrespective of whether such Awards are then vested or exercisable) as of a date, specified by the Committee, in which event the Committee shall thereupon cancel such Awards and pay to each holder an amount of cash or other consideration per Award (other than a Dividend Equivalent or Cash Award, which the Committee may separately require to be surrendered in exchange for cash or other consideration determined by the Committee in its discretion) equal to the Change in Control Price, less the Exercise Price with respect to an Option and less the grant price with respect to an SAR, as applicable to such Awards; provided, however, that to the extent the Exercise Price of an Option or the grant price of an SAR exceeds the Change in Control Price, such Award may be cancelled for no consideration;

 

(iii) cancel Awards that remain subject to a restricted period as of the date of a Change in Control or other such event without payment of any consideration to the Participant for such Awards; or

 

(iv) make such adjustments to Awards then outstanding as the Committee deems appropriate to reflect such Change in Control or other such event (including the substitution, assumption, or continuation of Awards by the successor company or a parent or subsidiary thereof);

 

provided, however, that so long as the event is not an Adjustment Event, the Committee may determine in its sole discretion that no adjustment is necessary to Awards then outstanding. If an Adjustment Event occurs, this Section ‎8(e) shall only apply to the extent it is not in conflict with Section ‎8(d).

 

9. General Provisions.

 

(a) Tax Withholding. The Company and any Affiliate are authorized to withhold from any Award granted, or any payment relating to an Award, including from a distribution of Stock, taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company, the Affiliates and Participants to satisfy the payment of withholding taxes and other tax obligations relating to any Award in such amounts as may be determined by the Committee. The Committee shall determine, in its sole discretion, the form of payment acceptable for such tax withholding obligations, including the delivery of cash or cash equivalents, Stock (including through delivery of previously owned shares, net settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to the Award), other property, or any other legal consideration the Committee deems appropriate. Any determination made by the Committee to allow a Participant who is subject to Rule 16b-3 to pay taxes with shares of Stock through net settlement or previously owned shares shall be approved by either a committee made up of solely two or more Qualified Members or the full Board. If such tax withholding amounts are satisfied through net settlement or previously owned shares, the maximum number of shares of Stock that may be so withheld or surrendered shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, foreign and/or local tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to such Award, as determined by the Committee.

 

 

(b) Limitation on Rights Conferred under Plan. Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Company or any Affiliate, (ii) interfering in any way with the right of the Company or any Affiliate to terminate any Eligible Person’s or Participant’s employment or service relationship at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and/or employees and/or other service providers, or (iv) conferring on a Participant any of the rights of a stockholder unless and until the Participant is duly issued or transferred shares of Stock in accordance with the terms of an Award.

 

(c) Governing Law; Submission to Jurisdiction. All questions arising with respect to the provisions of the Plan and Awards shall be determined by application of the laws of the State of Delaware, without giving effect to any conflict of law provisions thereof, except to the extent Delaware law is preempted by federal law. The obligation of the Company to sell and deliver Stock hereunder is subject to applicable federal and state laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock.

 

(d) Severability and Reformation. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable law or, if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award and the remainder of the Plan and any such Award shall remain in full force and effect. If any of the terms or provisions of the Plan or any Award Agreement conflict with the requirements of Rule 16b-3 (as those terms or provisions are applied to Eligible Persons who are subject to Section 16 of the Exchange Act) or Section 422 of the Code (with respect to ISOs), then those conflicting terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 (unless the Board or the Committee, as appropriate, has expressly determined that the Plan or such Award should not comply with Rule 16b-3) or Section 422 of the Code, in each case, only to the extent Rule 16b-3 and such sections of the Code are applicable. With respect to ISOs, if the Plan does not contain any provision required to be included herein under Section 422 of the Code, that provision shall be deemed to be incorporated herein with the same force and effect as if that provision had been set out at length herein; provided, further, that, to the extent any Option that is intended to qualify as an ISO cannot so qualify, that Option (to that extent) shall be deemed a Nonstatutory Option for all purposes of the Plan.

 

(e) Unfunded Status of Awards; No Trust or Fund Created. The Plan is intended to constitute an “unfunded” plan for certain incentive awards. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any general unsecured creditor of the Company or such Affiliate.

 

 

(f) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable. Nothing contained in the Plan shall be construed to prevent the Company or any Affiliate from taking any corporate action which is deemed by the Company or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan. No employee, beneficiary or other person shall have any claim against the Company or any Affiliate as a result of any such action.

 

(g) Fractional Shares. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine in its sole discretion whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional shares of Stock or whether such fractional shares of Stock or any rights thereto shall be cancelled, terminated, or otherwise eliminated with or without consideration.

 

(h) Interpretation. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Words in the masculine gender shall include the feminine gender, and, where appropriate, the plural shall include the singular and the singular shall include the plural. In the event of any conflict between the terms and conditions of an Award Agreement and the Plan, the provisions of the Plan shall control. The use herein of the word “including” following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as “without limitation”, “but not limited to”, or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. References herein to any agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and not prohibited by the Plan.

 

(i) Facility of Payment. Any amounts payable hereunder to any individual under legal disability or who, in the judgment of the Committee, is unable to manage properly his financial affairs, may be paid to the legal representative of such individual, or may be applied for the benefit of such individual in any manner that the Committee may select, and the Company shall be relieved of any further liability for payment of such amounts.

 

 

(j) Conditions to Delivery of Stock. Nothing herein or in any Award Agreement shall require the Company to issue any shares with respect to any Award if that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect. In addition, each Participant who receives an Award under the Plan shall not sell or otherwise dispose of Stock that is acquired upon grant, exercise or vesting of an Award in any manner that would constitute a violation of any applicable federal or state securities laws, the Plan or the rules, regulations or other requirements of the SEC or any stock exchange upon which the Stock is then listed. At the time of any exercise of an Option or SAR, or at the time of any grant of any other Award, the Company may, as a condition precedent to the exercise of such Option or SAR or settlement of any other Award, require from the Participant (or in the event of his or her death, his or her legal representatives, heirs, legatees, or distributees) such written representations, if any, concerning the holder’s intentions with regard to the retention or disposition of the shares of Stock being acquired pursuant to the Award and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the Company, may be necessary to ensure that any disposition by that holder (or in the event of the holder’s death, his or her legal representatives, heirs, legatees, or distributees) will not involve a violation of the Securities Act, any other applicable state or federal statute or regulation, or any rule of any applicable securities exchange or securities association, as then in effect. Stock or other securities shall not be delivered pursuant to any Award until payment in full of any amount required to be paid pursuant to the Plan or the applicable Award Agreement (including any Exercise Price, grant price, or tax withholding) is received by the Company.

 

(k) Section 409A of the Code. It is the general intention, but not the obligation, of the Committee to design Awards to comply with or to be exempt from the Nonqualified Deferred Compensation Rules, and Awards will be operated and construed accordingly. Neither this Section ‎9(k) nor any other provision of the Plan is or contains a representation to any Participant regarding the tax consequences of the grant, vesting, exercise, settlement, or sale of any Award (or the Stock underlying such Award) granted hereunder, and should not be interpreted as such. In no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Participant on account of non-compliance with the Nonqualified Deferred Compensation Rules. Notwithstanding any provision in the Plan or an Award Agreement to the contrary, in the event that a “specified employee” (as defined under the Nonqualified Deferred Compensation Rules) becomes entitled to a payment under an Award that would be subject to additional taxes and interest under the Nonqualified Deferred Compensation Rules if the Participant’s receipt of such payment or benefits is not delayed until the earlier of (i) the date of the Participant’s death, or (ii) the date that is six months after the Participant’s “separation from service,” as defined under the Nonqualified Deferred Compensation Rules (such date, the “Section 409A Payment Date”), then such payment or benefit shall not be provided to the Participant until the Section 409A Payment Date. Any amounts subject to the preceding sentence that would otherwise be payable prior to the Section 409A Payment Date will be aggregated and paid in a lump sum without interest on the Section 409A Payment Date. The applicable provisions of the Nonqualified Deferred Compensation Rules are hereby incorporated by reference and shall control over any Plan or Award Agreement provision in conflict therewith.

 

(l) Clawback. The Plan and all Awards granted hereunder are subject to any written clawback policies that the Company, with the approval of the Board or an authorized committee thereof, may adopt either prior to or following the Effective Date, including any policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the SEC or the standards of any applicable national securities exchange upon which the Securities may be listed, and that the Company determines should apply to Awards. Any such policy may subject a Participant’s Awards and amounts paid or realized with respect to Awards to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including an accounting restatement due to the Company’s material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy.

 

 

(m) Status under ERISA. The Plan shall not constitute an “employee benefit plan” for purposes of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.

 

(n) Plan Effective Date and Term. This Plan was adopted by the Board to be effective on August 25, 2023 (the “Effective Date”). No Awards may be granted under the Plan on and after the tenth anniversary of the Effective Date, which is August 25, 2033. However, any Award granted prior to such termination (or any earlier termination pursuant to Section ‎9(n)), and the authority of the Board or Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award in accordance with the terms of the Plan, shall extend beyond such termination until the final disposition of such Award.

 

10. Amendments to the Plan and Awards. The Committee may amend, alter, suspend, discontinue or terminate any Award or Award Agreement, the Plan or the Committee’s authority to grant Awards without the consent of stockholders or Participants, except that any amendment or alteration to the Plan, including any increase in any share limitation, shall be subject to the approval of the Company’s stockholders not later than the annual meeting next following such Committee action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Committee may otherwise, in its discretion, determine to submit other changes to the Plan to stockholders for approval; provided, that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. For purposes of clarity, any adjustments made to Awards pursuant to Section ‎8 will be deemed not to materially and adversely affect the rights of any Participant under any previously granted and outstanding Award and therefore may be made without the consent of affected Participants.

 

End

 

 

 

Exhibit 10.25

 

RESTRICTED STOCK UNIT AWARD AGREEMENT

 

Amended & restated

PRAIRIE OPERATING CO.

LONG TERM INCENTIVE PLAN

 

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”) evidences an award made as of [●], 20__ (the “Date of Grant”), by Prairie Operating Co., a Delaware corporation (the “Company”), to [●] (“Grantee”). Capitalized terms used in this Agreement that are not defined below or in the body of this Agreement shall have the meanings given to them in the Plan.

 

1. Award. The Company hereby grants Grantee an award (this “Award”) to receive [●] Restricted Stock Units (the “Restricted Stock Units”). Each Restricted Stock Unit represents an unfunded and unsecured right to receive one share of common stock, par value $0.01, of the Company (“Stock”), plus an additional amount pursuant to Section 3 hereof, subject to certain restrictions and on the terms and conditions contained in this Agreement and the Amended & Restated Prairie Operating Co. Long Term Incentive Plan (as it may be amended or restated from time to time, the “Plan”). A copy of the Plan is available upon request. Except as provided below, to the extent that any provision of this Agreement conflicts with the terms of the Plan, Grantee acknowledges and agrees that those terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed amended so as to carry out the purpose and intent of the Plan.

 

2. No Stockholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle Grantee to any rights of a stockholder of the Company before the date shares of Stock are actually issued to Grantee in settlement of this Award. Grantee’s rights with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested in accordance with Section 4 or 5 hereof.

 

3. Dividend Equivalents. If the Company declares and pays an ordinary cash dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, Grantee holds unvested Restricted Stock Units, then a dividend equivalent equal to the per share amount of such dividend shall be credited on all Restricted Stock Units underlying this Award and outstanding on the record date for such dividend, such dividend equivalents to be payable in cash without interest on following the vesting of the Restricted Stock Units on which the dividend equivalents were credited, and such payment shall be delivered in accordance with the timing described in Section 6 hereof. Any such dividend equivalents shall be subject to the same terms and conditions, including vesting and forfeiture, as the Restricted Stock Units on which the dividend equivalents were credited. Dividends and distributions payable on Stock other than in cash will be addressed in accordance with Section 9 hereof.

 

 

4. Vesting of Restricted Stock Units. Subject to Section 5 hereof, the Restricted Stock Units will vest on [_______________] (the “Scheduled Vesting Date”); provided, that, Grantee has been in Continuous Service with the Company through the Scheduled Vesting Date. For purposes of this Agreement, Grantee’s “Continuous Service” with the Company shall mean that Grantee’s service with the Company or an Affiliate, whether as an employee, consultant, director, or other individual service provider, is not interrupted or terminated, and Grantee’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which Grantee renders service to the Company or an Affiliate as an employee, consultant director, or other individual service provider, or a change in the entity for which Grantee renders such service, provided that there is no interruption or termination of Grantee’s Continuous Service.

 

5. Ceasing Continuous Service prior to Scheduled Vesting Date.

 

(a) General. Unless vesting is otherwise accelerated in accordance with the terms of this Agreement or the Plan, if Grantee ceases Continuous Service (other than due to death, Disability, or upon a Change of Control) on or before the Scheduled Vesting Date, any unvested RSUs (and any dividend equivalent accumulations with respect thereto) shall be forfeited and Grantee shall have no further interest in such RSUs (or such dividend equivalent accumulations).

 

(b) Change of Control; Death; Disability. Upon a Change of Control or upon Grantee’s cessation of Continuous Service due to death or Disability, any unvested RSUs will become automatically fully vested. The term “Disability” means Grantee’s inability to engage in any substantial gainful activity necessary to perform his or her duties for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death, or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) consecutive months.

 

6. Settlement of Vested Restricted Stock Units.

 

(a) General. Subject to the terms of this Agreement, including, without limitation, Section 12 hereof, the Company shall issue to the Grantee or his or her beneficiary, as the case may be, (i) a number of shares of Stock equal to 60% of the Restricted Stock Units subject to this Award, and (ii) as determined by the Committee, either (A) an amount of cash equal to the Fair Market Value (determined as of the date of vesting of the underlying Restricted Stock Units) of a number of shares of Stock equal to 40% of the Restricted Stock Units subject to this Award or (B) a number of shares of Stock equal to 40% of the Restricted Stock Units subject to this Award (or a combination thereof), as soon as practicable following the date on which the underlying Restricted Stock Unit vests; provided, however, that, except as provided in Section 6(b) below, in no event will the issuance of such shares of Stock be deferred subsequent to March 15th of the year following the year in which such Restricted Stock Unit vests.

 

(b) Section 409A Deferral. Notwithstanding the foregoing, in accordance with Section 6(e)(ii) of the Plan, the Committee may, but is not required to, prescribe rules pursuant to which Grantee may elect to defer settlement of the Restricted Stock Units. Any deferral election must be made in compliance with such rules and procedures as the Committee deems advisable, including the requirements of Section 409A of the Code and the Treasury regulations promulgated thereunder (“Section 409A”). In the event that payment is deferred until Grantee’s termination of service, no payment shall be made until such Grantee incurs a “separation from service” within the meaning of Section 409A (“Separation from Service), and further, if Grantee is a “specified employee” of the Company, as defined in Treas. Reg. §1.409A-1(i), at the time of Grantee’s Separation from Service, the settlement date of any such payment shall be delayed until the first day of the seventh month following Grantee’s Separation from Service, to the extent such delay is required under Section 409A.

 

 

(c) Transfer of Shares. Any shares of Stock issued pursuant to this Agreement shall be in book entry form registered in the name of Grantee or his or her beneficiary, as the case may be. The value of any fractional vested Restricted Stock Units shall be paid in cash at the time the Stock is issued to Grantee in connection with the settlement of the vested Restricted Stock Units. The value of the fractional Restricted Stock Units shall equal the percentage of a Restricted Stock Unit represented by a fractional Restricted Stock Unit multiplied by the Fair Market Value of the Stock. The value of such shares of Stock shall not bear any interest owing to the passage of time.

 

7. Non-transferability of Award. The Restricted Stock Units granted hereunder may not be sold, transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Following Grantee’s death, any shares of Stock issuable to Grantee in respect of then-outstanding Restricted Stock Units will be issued to Grantee’s legal representative, at the time specified in Section 6 hereof.

 

8. Beneficiary Designation. Grantee may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to receive any shares of Stock issuable or cash payable hereunder to Grantee following Grantee’s death at the time specified in Section 6 hereof. Each designation will revoke all prior designations, shall be in a form prescribed by the Committee, and will be effective only when filed in writing with the Company during Grantee’s lifetime. In the absence of any such effective designation, shares of Stock issuable under this Agreement in connection with Grantee’s death shall be issued to Grantee’s surviving spouse, if any, or otherwise to Grantee’s estate.

 

9. Adjustments in Respect of Restricted Stock Units. In the event there is any change in the Stock by reason of any reorganization, recapitalization, stock split, stock dividend, combination of shares, or otherwise, the number of shares associated with the Restricted Stock Units subject to this Agreement shall be adjusted in the manner consistent with the adjustment provisions provided in Section 8 of the Plan.

 

10. Effect of Settlement. Upon issuance of a share of Stock in settlement of a Restricted Stock Unit, such Restricted Stock Unit shall be cancelled and terminated.

 

11. Furnish Information. Grantee agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.

 

 

12. Responsibility for Taxes. None of the Company nor any of its Affiliates shall be liable or responsible in any way for the tax consequences relating to a grant of the Restricted Stock Units, the lapse of the restrictions hereunder, or the settlement of the Restricted Stock Units. Grantee agrees to determine and be responsible for any and all tax consequences to Grantee relating to the grant of the Restricted Stock Units and the issuance of Stock or payment of cash hereunder. If the Company is obligated to withhold an amount on account of any tax imposed as a result of the issuance of shares of Stock or payment of cash in satisfaction of an award of Restricted Stock Units or the release of any restrictions or limitations in respect of Restricted Stock Units, the provisions of the Plan regarding tax withholding shall apply (including any required payments by Grantee). The award of Restricted Stock Units as provided in this Agreement and any issuance of shares of Stock or payment pursuant to this Agreement are intended to comply with (or qualify for an exemption from) Section 409A.

 

13. No Employment Rights; Service with the Company. No provision of this Agreement shall give Grantee any right to, or to continue in, service with the Company. In addition, no provision of this Agreement shall give Grantee any right to, or to the extent Grantee becomes an employee of the Company following the Date of Grant, to continue in, the employ of the Company, any Affiliate, or any other entity, or create any inference as to the length of employment of Grantee, or affect the right of the Company (or any Affiliate or any other entity) to terminate the employment or other service of Grantee (with or without “cause” or with or without prior notice) or give Grantee any right to participate in any employee welfare or benefit plan or other programs of the Company, any Affiliate or any other entity.

 

14. No Liability for Good Faith Determinations. Neither the Company, the Committee nor members of the Board shall be liable for any act, omission, or determination taken or made in good faith with respect to this Agreement or the Restricted Stock Units granted hereunder.

 

15. No Guarantee of Interests. The Board and the Company do not guarantee the Stock from loss or depreciation.

 

16. Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any such notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third business day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. The Company or Grantee may change, at any time and from time to time, by written notice to the other, the address which it or he or she had previously specified for receiving notices.

 

The Company and Grantee agree that any notices shall be given to the Company or to Grantee at the following addresses:

 

	Company:		Prairie Operating Co.
			Attn: General Counsel
			602 Sawyer Street
			Suite 710
			Houston, Texas 77007

 

 

Grantee:

At Grantee’s current address as shown in the Company’s records.

 

17. Waiver of Notice. Any person entitled to notice hereunder may waive such notice in writing.

 

18. Successor. This Agreement shall be binding upon Grantee and Grantee’s legal representatives, heirs, legatees, and distributees, and upon the Company, its successors and assigns.

 

19. Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in the construction of the provisions hereof.

 

20. Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Delaware except to the extent Delaware law is preempted by federal law. The obligation of the Company to sell and deliver Stock 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 such Stock.

 

21. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of shares of Stock or other property to Grantee, or to Grantee’s 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 Grantee or Grantee’s legal representative, heir, legatee, or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine.

 

22. Amendment. This Agreement may be amended at any time unilaterally by the Company; provided, however, that, notwithstanding anything in the Plan to the contrary, no amendment of this Agreement may materially and adversely affect Grantee’s rights under this Agreement without the prior written consent of Grantee, except to the extent the Company believes in good faith that an amendment is desirable or necessary to comply with applicable law, including, but not limited to, Section 409A.

 

23. The Plan; Entire Agreement. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan. This Agreement, together with the Plan, constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties, and agreements between the parties with respect to the Restricted Stock Units granted hereby. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.

 

24. Construction; Section 409A. It is intended that the terms of this Award will not result in the imposition of any tax liability pursuant to Section 409A. This Agreement shall be construed and interpreted consistent with that intent. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by Grantee on account of non-compliance with Section 409A

 

 

25. Compliance with Law. The receipt of the Restricted Stock Units or the lapse of any forfeiture restrictions and payments in connection therewith shall be subject to compliance by the Company and Grantee with all applicable requirements of federal and state securities laws and all applicable requirements of any stock exchange on which the Company’s shares of Stock may be listed. No shares of Stock shall be issued in payment for any Restricted Stock Unit (if applicable) unless and until any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. Grantee understands that the Company is under no obligation to register the shares of Common Stock with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance. Grantee represents and agrees that Grantee will not sell the Stock that may be issued to Grantee pursuant to Grantee’s Restricted Stock Units except pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from registration under the Securities Act (including Rule 144 promulgated thereunder).

 

26. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Grantee’s participation in the Plan, on the Restricted Stock Units, and on any shares of Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

27. Electronic Delivery and Acknowledgement. By Grantee’s acceptance of this Award, Grantee is acknowledging that he or she has received and read, understands, and accepts all the terms, conditions, and restrictions of this Agreement and the Plan. The Company may, in its sole discretion, deliver any documents related to this Award and this Agreement, or other awards that have been or may be awarded under the Plan, by electronic means, including prospectuses, proxy materials, annual reports, and other related documents, and the Company may, in its sole discretion, engage a third party to effect the delivery of these documents on its behalf and provide other administrative services related to this Award and the Plan. By Grantee’s acceptance of this Award, Grantee consents to receive such documents by electronic delivery and to the engagement of any such third party.

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Grantee has executed this Agreement, each effective as of the date first above written.

 

	PRAIRIE OPERATING CO:
	By:
	Name:
	Title:
	GRANTEE:
	[Insert Grantee Name]

 

 

 

Exhibit 10.26

 

RESTRICTED STOCK UNIT AWARD AGREEMENT

 

Amended & restated

PRAIRIE OPERATING CO.

LONG TERM INCENTIVE PLAN

 

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”) evidences an award made as of the [●] day of [●], [●] (the “Date of Grant”), by Prairie Operating Co., a Delaware corporation (“Company”), to [●] (“Employee”).

 

1. Award. Company hereby grants Employee an award (this “Award”) of [●] Restricted Stock Units (the “Restricted Stock Units”), which has been granted in an amount determined in contemplation of a reverse Stock split of the Company’s common stock such that the Restricted Stock Units shall not be subject to further adjustment pursuant to Section 8(c)(ii) of the Plan (defined below) in the event the Company shall consolidate as a whole by reverse Stock split. Each Restricted Stock Unit represents an unfunded and unsecured right to receive one share of common stock, par value $0.01, of the Company (the “Stock”), plus an additional amount pursuant to Section 4, subject to certain restrictions and on the terms and conditions contained in this Agreement and the Amended & Restated Long Term Incentive Plan (as it may be amended from time to time, the “Plan”). A copy of the Plan is available upon request. Except as provided below, to the extent that any provision of this Agreement conflicts with the terms of the Plan, Employee acknowledges and agrees that those terms of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed amended so as to carry out the purpose and intent of the Plan.

 

2. Definitions. Capitalized terms used in this Agreement that are not defined below or in the body of this Agreement shall have the meanings given to them in the Plan. In addition to the terms defined in the body of this Agreement, the following capitalized words and terms shall have the meanings indicated below:

 

(a) “Cause” means “Cause” as defined in the employment agreement between Employee and Company or one of its Affiliates, or if “Cause” is not defined in such employment agreement or in the absence of such employment agreement, “Cause” means the occurrence of any of the following events, as reasonably determined by the Committee or its delegate: (i) Employee’s willful or continued failure to perform his or her duties; (ii) Employee’s willful failure to comply with any valid and legal directive of the Board, [the President or the CEO]; (iii) Employee’s willful engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, injurious to the Company or any of its Affiliates; (iv) Employee’s embezzlement, misappropriation of funds, or fraud with respect to the Company or any of its Affiliates; (v) Employee’s conviction of. or plea of guilty or nolo contendere to, a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude; (vi) Employee’s material violation of the Company’s written policies or code of conduct; or (vii) Employee’s material breach of any obligation under this Agreement or any other written agreement between Employee and the Company or its Affiliates.

 

 

(b) “Change of Control Period” means the 24-month period beginning on the date on which occurs a Change of Control.

 

(c) “Disability” means “Disability” as defined in the employment agreement between Employee and Company, or if “Disability” is not defined in such employment agreement or in the absence of such employment agreement, “Disability” means Employee’s inability to engage in any substantial gainful activity necessary to perform his or her duties hereunder by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months. Employee agrees to submit to such medical examinations as may be necessary to determine whether a Disability exists, pursuant to such reasonable requests as may be made by the Company from time to time. Any determination as to the existence of a Disability will be made by a physician selected by the Company.

 

(d) “Good Reason” means “Good Reason” as defined in the employment agreement between Employee and Company or one of its Affiliates, or if “Good Reason” is not defined in such employment agreement or in the absence of such employment agreement, “Good Reason” means any of the following, but only if occurring without Employee’s written consent: (i) a material diminution in Employee’s base salary or target bonus opportunity (other than a general reduction that in salary or target bonus opportunity, as applicable, that affects all similarly situated employees in substantially the same proportions); (ii) a material diminution in Employee’s authority, duties, or responsibilities (other than temporarily, while Employee is physically or mentally incapacitated or as required by applicable law); or (iii) the relocation of Employee’s principal office to an area more than fifty (50) miles from its location immediately prior to such relocation; provided, however, that Good Reason shall not occur unless (x) Employee has provided written notice to the Company of the existence of the circumstances providing grounds for Good Reason within forty-five (45) days of the initial existence of such grounds, (y) the Company or applicable Affiliate has had at least thirty (30) days from the date on which such notice is provided to cure such circumstances, and (z) Employee terminates employment for Good Reason within 90 days after the first occurrence of the applicable grounds.

 

(e) “Involuntary Termination” means a termination of Employee’s employment by the Company and its Affiliates without Cause, or Employee’s voluntary termination of employment with the Company and each of its Affiliates for Good Reason.

 

3. No Stockholder Rights. The Restricted Stock Units granted pursuant to this Agreement do not and shall not entitle Employee to any rights of a stockholder of the Company before the date shares of Stock are actually issued to Employee in settlement of the Award. Employee’s rights with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested in accordance with Section 5 or 6.

 

4. Dividend Equivalents. If the Company declares and pays an ordinary cash dividend in respect of its outstanding shares of Stock and, on the record date for such dividend, Employee holds unvested Restricted Stock Units granted pursuant to this Agreement, the Company shall pay to Employee an amount in cash equal to the ordinary cash dividends Employee would have received if he or she were the beneficial owner, as of such record date, of a number of shares of Stock equal to such number of unvested Restricted Stock Units. The Company will make such payment to Employee as soon as practicable following the date the Company pays such dividend, but in no event more than thirty (30) calendar days following such date.

 

 

5. Vesting of Restricted Stock Units. Subject to Section 6 below, the Restricted Stock Units will vest in [__________] installments beginning on the [___________] (the date on which an installment vests, a “Vesting Date”); provided, that, Employee is continuously employed by the Company or an Affiliate from the Date of Grant through the applicable Vesting Date. Except as otherwise provided in Section 6 below, (a) Employee’s employment with the Company and its Affiliates for only a portion of the applicable vesting period for the Restricted Stock Units, even if a substantial portion, will not entitle Employee to any proportionate vesting, and (b) all Restricted Stock Units that are unvested as of the date of Employee’s termination of employment shall immediately terminate and Employee will have no further rights to such unvested Restricted Stock Units or the underlying shares of Stock. Any vested Restricted Stock Units that are vested as of the date on which Employee’s employment with the Company and its Affiliates terminates shall be settled in accordance with Section 7.

 

6. Termination of Employment; Change of Control.

 

(a) Death or Disability. If Employee’s employment with the Company and its Affiliates terminates due to Employee’s death or Disability, then all of the Restricted Stock Units granted pursuant to this Agreement shall immediately and fully vest.

 

(b) Normal Retirement. If Employee’s employment with the Company and each of its Affiliates terminates due to Employee’s retirement at or after having attained age 65, other than a termination by the Company or an Affiliate for Cause, a termination by Employee at a time that Cause exists, or a termination due to Employee’s death or Disability, then all of the Restricted Stock Units granted pursuant to this Agreement shall immediately vest and the shares of Stock issuable to Employee in settlement of such Restricted Stock Units shall be issued to Employee within ninety (90) calendar days following the Vesting Date(s) on which such Restricted Stock Units would have vested in accordance with Section 5 had Employee remained continuously employed by the Company or an Affiliate from the date of this Agreement through such Vesting Date(s).

 

(c) Involuntary Termination Outside of Change of Control Period. If Employee incurs an Involuntary Termination outside of a Change of Control Period, then a number of Restricted Stock Units shall immediately and fully vest such that the number of vested Restricted Stock Units subject to this Award as of immediately following Employee’s termination of employment will be equal to the product of (i) the total number of Restricted Stock Units subject to this Award, times (ii) a fraction, the numerator of which is the number of full calendar months that have elapsed since the Date of Grant (counting the month in which Employee’s termination of employment occurs as a full calendar month for this purpose), and the denominator of which is thirty-six (36).

 

 

(d) Involuntary Termination During Change of Control Period. If Employee incurs an Involuntary Termination during a Change of Control Period, then all of the Restricted Stock Units subject to this Award shall immediately and fully vest.

 

(e) Change of Control. Upon a Change of Control that involves a merger, reclassification, reorganization, or other similar transaction in which the surviving entity, Company’s successor, or the direct or indirect parent of the surviving entity or Company’s successor (the “Successor Entity”), fails to assume this Award or substitute this Award with a substantially equivalent award, then all of the Restricted Stock Units granted pursuant to this Agreement shall immediately and fully vest.

 

7. Settlement of Vested Restricted Stock Units.

 

(a) General. As soon as administratively practicable following the vesting of Restricted Stock Units pursuant to Section 5, but in no event later than sixty (60) calendar days after such vesting date, the Company shall deliver to Employee the number of shares of Stock equal to the number of Restricted Stock Units subject to this Agreement. All shares of Stock issued hereunder shall be delivered either by entering such shares in book entry form with the Company’s transfer agent and registered in the name of Employee or his or her beneficiary, as the case may be. The value of Shares shall not bear any interest owing to the passage of time obligation of any kind.

 

(b) Retirement. A share of Stock issuable with respect to a Restricted Stock Unit that vests as a result of Employee’s retirement in accordance with Section 6(b) shall be issued to Employee or his or her beneficiary, as the case may be, as soon as practicable following the Vesting Date on which such Restricted Stock Unit would have vested as provided in Section 5 had Employee remained continuously employed by the Company or an Affiliate from the date of this Agreement through such Vesting Date.

 

(c) Transfer of Shares. Any shares of Stock issued pursuant to this Agreement shall be in book entry form registered in the name of Employee or his or her beneficiary, as the case may be. The value of any fractional vested Restricted Stock Units shall be paid in cash at the time the Stock is issued to Employee in connection with the settlement of the vested Restricted Stock Units. The value of the fractional Restricted Stock Units shall equal the percentage of a Restricted Stock Unit represented by a fractional Restricted Stock Unit multiplied by the Fair Market Value of the Stock. The value of such shares of Stock shall not bear any interest owing to the passage of time.

 

8. Nontransferability of Awards. The Restricted Stock Units granted hereunder may not be sold, transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Following Employee’s death, any shares of Stock issuable to Employee in respect of then-outstanding Restricted Stock Units will be issued to Employee’s legal representative within ninety (90) calendar days following Employee’s death.

 

 

9. Beneficiary Designation. Employee may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to receive any shares of Stock issuable or cash payable hereunder to Employee following Employee’s death at the time specified in Section 8. Each designation will revoke all prior designations, shall be in a form prescribed by the Committee, and will be effective only when filed in writing with the Committee during Employee’s lifetime. In the absence of any such effective designation, shares of Stock issuable in connection with Employee’s death shall be paid to Employee’s surviving spouse, if any, or otherwise to Employee’s estate.

 

10. Adjustments in Respect of Restricted Stock Units. In the event there is any change in the Stock by reason of any reorganization, recapitalization, stock split, stock dividend, combination of shares, or otherwise, and except as otherwise provided in Section 1, the number of shares associated with the Award of Restricted Stock Units subject to this Agreement shall be adjusted in the manner consistent with the adjustment provisions provided in Section 8 of the Plan.

 

11. Effect of Settlement. Upon issuance of a share of Stock in settlement of a Restricted Stock Unit, such Restricted Stock Unit shall be cancelled and terminated.

 

12. Recoupment. Notwithstanding any other provision herein, to the extent required by (a) applicable law, including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, any Securities and Exchange Commission rule or any applicable securities exchange listing standards and/or (b) any policy that may be adopted or amended by the Board of the Directors of the Company (the “Board”) from time to time, all shares of Stock issued hereunder shall be subject to forfeiture, repurchase, recoupment and/or cancellation to the extent necessary to comply with such law(s) and/or policy.

 

13. Furnish Information. Employee agrees to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirements imposed upon the Company by or under any applicable statute or regulation.

 

14. No Right to Continued Employment, Service or Awards. Nothing contained in this Agreement shall confer upon Employee the right to continue in the employ of the Company or any Affiliate of the Company or interfere in any way with the rights of the Company or any Affiliate of the Company to terminate Employee’s employment at any time. The grant of the Restricted Stock Units is a one-time benefit and does not create any contractual or other right to receive a grant of Awards or benefits in lieu of Awards in the future. Any future Awards will be granted at the sole discretion of the Company.

 

15. No Liability for Good Faith Determinations. Neither the Company nor the members of the Committee and the Committee shall be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Restricted Stock Units granted hereunder.

 

16. No Guarantee of Interests. The Committee and the Company do not guarantee the Stock from loss or depreciation.

 

 

17. Company Records. Records of the Company or its Affiliates regarding Employee’s period of employment, termination of employment and the reason therefor, leaves of absence, re-employment, and other matters shall be conclusive for all purposes hereunder unless determined by the Committee to be incorrect.

 

18. Severability. If any provision of this Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and this Agreement shall be construed and enforced as if the illegal or invalid provision had never been included herein.

 

19. Notices. Whenever any notice is required or permitted hereunder, such notice must be in writing and personally delivered or sent by mail. Any such notice required or permitted to be delivered hereunder shall be deemed to be delivered on the date on which it is personally delivered, or, whether actually received or not, on the third Business Day after it is deposited in the United States mail, certified or registered, postage prepaid, addressed to the person who is to receive it at the address which such person has theretofore specified by written notice delivered in accordance herewith. Company or Employee may change, at any time and from time to time, by written notice to the other, the address which it or he had previously specified for receiving notices.

 

Company and Employee agree that any notices shall be given to the Company or to Employee at the following addresses:

 

	Company:	Prairie Operating Co.
		Attn: General Counsel
		602 Sawyer Street
		Suite 710
		Houston, Texas 77007
	Employee:	At Employee’s current address as shown in Company’s records.

 

20. Waiver of Notice. Any person entitled to notice hereunder may waive such notice in writing.

 

21. Successor. This Agreement shall be binding upon Employee, Employee’s legal representatives, heirs, legatees, and distributees, and upon Company, its successors, and assigns.

 

22. Headings. The titles and headings of Sections are included for convenience of reference only and are not to be considered in the construction of the provisions hereof.

 

23. Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Delaware except to the extent Delaware law is preempted by federal law. The obligation of the Company to sell and deliver Stock 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 such Stock.

 

 

24. Execution of Receipts and Releases. Any payment of cash or any issuance or transfer of shares of Stock or other property to Employee, or to Employee’s 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. Company may require Employee or Employee’s legal representative, heir, legatee, or distributee, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine.

 

25. Amendment. This Agreement may be amended at any time unilaterally by the Company provided that such amendment is consistent with all applicable laws and does not reduce any rights or benefits Employee has accrued pursuant to this Agreement. This Agreement may also be amended at any time unilaterally by the Company to the extent the Company believes in good faith that such amendment is necessary or advisable to bring this Agreement into compliance with any applicable laws, including Section 409A of the Code.

 

26. The Plan. This Agreement is subject to all the terms, conditions, limitations and restrictions contained in the Plan.

 

27. Construction. It is intended that the terms of the Award will not result in the imposition of any tax liability pursuant to Section 409A of the Code. This Agreement shall be construed and interpreted consistent with that intent.

 

28. Tax Withholding. To the extent that the receipt, vesting, or settlement of this Award results in compensation income or wages to Employee for federal, state, local, and/or foreign tax purposes, Employee shall make arrangements satisfactory to the Company for the satisfaction of obligations for the payment of withholding taxes and other tax obligations relating to this Award, which arrangements include the delivery of cash or cash equivalents, Stock (including previously owned Stock, net settlement, net early settlement, a broker-assisted sale, or other cashless withholding or reduction of the amount of shares otherwise issuable or delivered pursuant to this Award), other property, or any other legal consideration the Committee deems appropriate. If such tax obligations are satisfied through net settlement, net early settlement, or the surrender of previously owned Stock, the maximum number of shares of Stock that may be so withheld (or surrendered) shall be the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the greatest withholding rates for federal, state, local and/or foreign tax purposes, including payroll taxes, that may be utilized without creating adverse accounting treatment for the Company with respect to this Award, as determined by the Committee. Employee acknowledges that there may be adverse tax consequences upon the receipt, vesting, or settlement of this Award or disposition of the underlying shares and that Employee has been advised, and hereby is advised, to consult a tax advisor. Employee represents that they are in no manner relying on the Board, the Committee, the Company or any of its Affiliates, or any of their respective managers, directors, officers, employees, or authorized representatives (including, without limitation, attorneys, accountants, consultants, bankers, lenders, prospective lenders, and financial representatives) for tax advice or an assessment of such tax consequences.

 

 

29. Agreement Respecting Securities Act of 1933. Employee represents and agrees that Employee will not sell the Stock that may be issued to Employee pursuant to Employee’s Restricted Stock Units except pursuant to an effective registration statement under the Securities Act of 1933 (the “1933 Act”) or pursuant to an exemption from registration under the 1933 Act (including Rule 144 promulgated under the 1933 Act).

 

30. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Employee’s participation in the Plan, on the Restricted Stock Units, and on any shares of Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require Employee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

31. Electronic Delivery and Acknowledgement. By Employee’s acceptance of this award, Employee is acknowledging that he or she has received and read, understands, and accepts all the terms, conditions, and restrictions of this Agreement and the Plan. Company may, in its sole discretion, deliver any documents related to this award and this Agreement, or other awards that have been or may be awarded under the Plan, by electronic means, including prospectuses, proxy materials, annual reports, and other related documents, and the Company may, in its sole discretion, engage a third party to effect the delivery of these documents on its behalf and provide other administrative services related to this award and the Plan. By Employee’s acceptance of the Award represented by this Agreement, Employee consents to receive such documents by electronic delivery and to the engagement of any such third party.

 

[Signature page follows.]

 

 

IN WITNESS WHEREOF, Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Employee has executed this Agreement, each effective as of the date first above written.

 

	Prairie Operating Co.
	By:
	Name:
	Title:
	EMPLOYEE:
	[●]

 

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to incorporation by reference in the Prospectus constituting a part of this Amendment No. 4 to the Registration Statement on Form S-1 of our report dated March 31, 2023, relating to the consolidated balance sheets of Prairie Operating Co. (f/k/a Creek Road Miners, Inc.) as of December 31, 2022 and 2021, and the related consolidated statements of operations, consolidated statements of stockholders’ equity (deficit) and consolidated statements of cash flows for the years ended December 31, 2022 and 2021 and the related notes, which is incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission.

 

/s/ MaughanSullivan

 

Manchester, Vermont

October 24, 2023

 

 

 

Exhibit 23.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the reference to our firm under the caption “Experts” in this Registration Statement on Form S-1 and the related Prospectus of Prairie Operating Co. (the “Company”) and to the incorporation by reference therein of our report dated June 16, 2023, with respect to the balance sheet of Prairie Operating Co., LLC as of December 31, 2022, and the related statement of operations, statement of members’ deficit and statement of cash flows for the period from June 7, 2022 (date of inception) through December 31, 2022 and the related notes, incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 16, 2023.

 

/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
October 24, 2023

 

 

 

Exhibit 107

 

Calculation of Filing Fee Table

 

Form S-1

(Form Type)

 

Prairie Operating Co.

(Exact Name of Registrant as Specified in its Charter)

 

Table 1: Newly Registered Securities

 

		Security Type		Security Class Title		Fee Calculation Rule		Amount Registered				Proposed Maximum Offering Price Per Share				Maximum Aggregate Offering Price				Fee Rate		Amount of Registration Fee(1)
Fees To Be Paid		Equity		Common Stock, par value $0.01 per share(2)		Rule 457(o)			24,286,304	(3)		$	12.90	(4)		$	313,293,322.00			0.00014760		$	46,242.10
				Total Offering Amounts												$	313,293,322.00					$	46,242.10
				Total Fees Previously Paid																		$	16,081.51
				Total Fee Offsets																			0.00
				Net Fee Due																		$	30,160.59

 

	(1)	The registration fee for the securities registered hereby has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended (the “Securities Act”), by multiplying the proposed maximum aggregate offering price for the securities by 0.00014760.
	(2)	In the event of a stock split, stock dividend or other similar transaction involving the registrant’s common stock (“Common Stock”), in order to prevent dilution, the number of shares of Common Stock registered hereby shall be automatically increased to cover the additional shares of Common Stock in accordance with Rule 416(a) under the Securities Act.
	(3)	Consists of (i) 51,287 shares of Common Stock issued upon the conversion of a convertible promissory note, dated as of September 8, 2022, (ii) 3,475,250 shares of Common Stock issuable upon the conversion of Series D Preferred Stock, (iii) 3,475,250 shares of Common Stock issuable upon the exercise of Series D A Warrants, (iv) 3,475,250 shares of Common Stock issuable upon the exercise of Series D B Warrants, (v) 400,667 shares of Common Stock issued upon the conversion of the AR Debentures, (vi) 4,000,000 shares of Common Stock issuable upon the conversion of Series E Preferred Stock, (vii) 8,000,000 shares of Common Stock issuable upon the exercise of Series E PIPE Warrants and (viii) 670,499 shares of Common Stock issuable upon the exercise of Exok Warrants. Capitalized terms used but not defined herein have the meanings assigned to them in the accompanying registration statement.
	(4)	Estimated solely for the purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act. The price per share and aggregate offering price are based on the last sale of Common Stock on October 18, 2023, as reported on the OTCQB.

 

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