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Item 1.01
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Entry into a Material Definitive Agreement.
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Term Loan Agreement
As previously reported in our quarterly
report on Form 10-Q for the quarter ended December 31, 2018, on February 11, 2019 GulfSlope Energy, Inc. (the “Company”)
executed a letter agreement (the “Letter Agreement” whereby the Company agreed to a new term loan facility (the “Term
Loan Facility”) to be provided by Delek GOM Investments LLC (“Delek GOM”), a wholly owned subsidiary of Delek
Group Ltd., as lender.
Pursuant to the Letter Agreement, on March
1, 2019, the Company entered into the Term Loan Agreement by and among the Company, as borrower, and Delek GOM, as lender. In the
Term Loan Agreement, Delek GOM agreed to provide the Company with multiple draw term loans in an aggregate stated principal amount
of up to $11.0 million (the “Term Loan Facility” and the loans thereunder, the “Loans”). As of March 6,
2019, the Company had borrowed a total of $10.0 million under the Term Loan Facility.
The maturity date of the Term Loan Facility
is six months following the closing date of the Term Loan Agreement. Until such maturity date, the Loans under the Term Loan Agreement
shall bear interest at a rate per annum equal to 5.0%, payable in arrears on the maturity date. If an event of default occurs,
all Loans under the Term Loan Agreement shall bear interest at a rate equal to 7.0%, payable on demand.
In connection
with the Term Loan Agreement, the Company entered into: (i) a Subordination Agreement (the “Subordination
Agreement”) by and among the Company, as borrower, John N. Seitz, as subordinated lender (the “Subordinated
Lender”), and Delek GOM, as senior lender; (ii) a Security Agreement (the “Security Agreement”) among the
Company, as debtor, and Delek GOM, as lender; and (iii) warrants to purchase 238,095,238 shares of the Company’s
common stock, par value $0.001 (the “Common Stock”) of the Company at an exercise price of $0.042 per share
issued to Delek GOM (the “Warrants”).
The Company may elect, at its option,
to prepay borrowings outstanding under the Term Loan Agreement in multiples of $100,000 and not less than $500,000 without
premium or penalty. The Company is required to prepay the Loans with any net cash proceeds resulting from an asset sale,
receipt of insurance proceeds from certain casualty events, proceeds from equity issuances or incurrence of
indebtedness other than the Loans (subject to a $500,000 carve-out to be applied toward the Company’s general corporate
purposes) or receipt of any cash proceeds from any payments, refunds, rebates or other similar payments and amounts under
the Company’s operative documents.
Amounts outstanding under the Term Loan
Agreement are secured by a security interest in substantially all of the properties and assets of the Company.
The Term Loan Agreement contains certain
customary representations and warranties, including organization; powers; authority; enforceability; approvals; no conflicts; litigation,
no indebtedness for borrowed money or off-balance sheet liabilities; environmental matters; compliance with laws and agreements;
no defaults; Investment Company Act; taxes; ERISA; employees; disclosure; no material misstatements; insurance; restriction on
liens under security documents; equity interests; subsidiaries; location of business and offices; properties and titles; solvency;
use of proceeds; and federal reserve regulations.
The Term Loan Agreement also
contains certain affirmative and negative covenants, including delivery of financial reports; notices of certain material
events; existence; conduct of business; payment of taxes and obligations; enforcement of the Company’s rights under the
Joint Operating Agreement; maintenance of books and records; inspection rights; compliance with laws; maintenance of liens;
further assurances; tax partnership; indebtedness; liens; distributions and
redemptions; restricted payments; investments, loans and advances; nature of business; no subsidiaries or joint ventures;
sale and leaseback transactions; use of proceeds; federal reserve regulations; sale or discount of receivables; mergers; sale
of properties; transactions with affiliates; equity interests; limitation on accounts; hedging agreements; junior payments;
and negative pledge agreements.
The Term Loan
Agreement also contains certain events of default, including non-payment; breaches of representations and warranties;
non-compliance with covenants or other agreements; default under or cessation of any document in connection with the Loans;
voluntary and involuntary bankruptcy; material breach of or assignment or transfer of rights under an operative document;
change of control; judgments; or certain ERISA events.
Warrants
In connection with the Term Loan Facility,
the Company issued to Delek GOM Warrants to purchase 238,095,238 shares of Common Stock at an exercise price of $0.042 per
share, with an expiration date of March 1, 2020. In lieu of paying the aggregate exercise price in cash, Delek GOM may, at its
option, exercise the Warrants in whole through an extinguishment of the then outstanding obligations of the Company in accordance
with Section 2.10(b) of the Term Loan Agreement (a “Loan Reduction Exercise”).
As of March 6, 2019, the Company had borrowed
a total of $10.0 million under the Term Loan Facility and issued to Delek GOM Warrants to purchase 238,095,238 shares of Common
Stock; and Delek GOM fully exercised the Warrants through a Loan Reduction Exercise, thereby extinguishing the Company’s
outstanding obligations to Delek GOM as of that date.
The foregoing description of the Term Loan
Agreement and the Warrants do not purport to be complete and are qualified in their entirety by the terms and conditions of the
Term Loan Agreement and the Form of Warrant Agreement, copies of which are filed as Exhibits 10.1 and 10.2 hereto and are
incorporated herein by reference.
Subordination Agreement
As a condition to the incurrence and continued
availability of the loans provided under the Term Loan Agreement, on March 1, 2019, the Company entered into the Subordination
Agreement by and among the Company, as borrower, the Subordinated Lender and Delek GOM, as senior lender.
Under the Subordination Agreement, the Subordinated
Lender expressly agrees to subordinate the payment of principal and interest on all amounts owed him to the prior indefeasible
and unconditional payment in full of obligations due under the Term Loan Agreement.
The foregoing description of the Subordination
Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Subordination Agreement,
a copy of which is filed as Exhibit 10.3 hereto and is incorporated herein by reference.
Security Agreement
As a condition to the incurrence and continued
availability of the loans provided under the Term Loan Agreement, on March 1, 2019, the Company entered into the Security Agreement
by and among the Company, as debtor and Delek GOM, as lender.
The Security Agreement creates a senior
security interest substantially all of the properties and assets of the Company to secure the amounts outstanding under the Term
Loan Agreement.
The foregoing description of the Security
Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the Security Agreement,
a copy of which is filed as Exhibit 10.4 hereto and is incorporated herein by reference.