UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14F-1
INFORMATION STATEMENT
PURSUANT TO
SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
| Victory Oilfield Tech, Inc. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 002-76219-NY | 87-0564472 | ||
| (State
or other jurisdiction of incorporation) |
(Commission File Number) | (IRS
Employer Identification No.) |
| 3355 Bee Caves Road, Suite 608, Austin, Texas | 78746 | |
| (Address of principal executive offices) | (Zip Code) |
| 512-347-7300 |
| (Registrant’s telephone number, including area code) |
December 4, 2023
VICTORY OILFIELD TECH, INC.
3355 Bee Caves Road, Suite 608,
Austin, Texas 78746
INFORMATION STATEMENT
PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
NOTICE OF PROPOSED CHANGE IN THE MAJORITY OF THE BOARD OF DIRECTORS
No vote or other action by stockholders is required in response to this Information Statement.
Proxies are not being solicited.
INTRODUCTION
This Information Statement is being furnished by Victory Oilfield Tech, Inc. (the “Company,” “we,” “us” or “our”) pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14f-1 promulgated under the Exchange Act (“Rule 14f-1”). This Information Statement is being provided solely for informational purposes and not in connection with a vote of our stockholders.
This Information Statement is being mailed on or about December 4, 2023 to the holders of our common stock, par value $0.001 per share (the “Common Stock”), regarding a change of a majority of the members of our board of directors (the “Board”) to be effected in connection with the transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated July 25, 2023 and as amended on December 1, 2023, by and among Victory Oilfield Tech, Inc., a Nevada corporation (“Victory”), Victory H2EG Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Victory (“Merger Sub”) and H2 Energy Group Inc., a Delaware corporation (“H2EG”). Each party to the Merger Agreement is sometimes referred to individually as a “Party” and, collectively, as the “Parties.”
Pursuant to the Merger Agreement, H2EG will be merged with and into Merger Sub, the separate corporate existence of Merger Sub will cease, and H2EG will continue as a surviving corporation and as a wholly owned subsidiary of Victory (the “Merger”). The surviving corporation after the Merger is hereinafter referred to as the “Surviving Corporation.”
Pursuant to the Merger Agreement, the closing of the Merger (the “Closing”) will take place by the reciprocal delivery of closing documents by electronic mail, regular mail, fax or any other means mutually agreed upon on a mutually agreeable date as soon as practicable and in any event not later than three business days after the satisfaction or waiver of all conditions (excluding the delivery of any documents to be delivered at the Closing by any of the Parties) set forth in Article VII of the Merger Agreement (the “Closing Date”). On the Closing Date, the Parties will cause the Merger to be consummated by filing Certificate of Merger in substantially the form attached in the Merger Agreement, with the Secretary of State of the State of Delaware (the “Certificate of Merger”), in accordance with the applicable provisions of Delaware Law (the time of the acceptance of such filing by the Secretary of State of the State of Delaware will be referred to herein as the “Effective Time”).
At the Effective Time, each share of H2EG’s Class A Common Stock, Class B Common Stock and H2EG Preferred Stock (“H2EG Capital Stock”) issued and outstanding immediately prior to the Effective Time, subject to and upon the terms and conditions set forth in the Merger Agreement, will be cancelled and extinguished and be converted automatically into the right to receive 418,822,708 shares of Victory’s Common Stock (“Victory Common Stock”), of which: (i) 243,000,000 shares of Victory Common Stock will be issued upon the Closing, and; (i) 175,822,708 shares of Victory Common Stock will be issued after an amendment to Victory’s articles of incorporation increasing the Authorization Limit. The H2EG Stockholders will own 81% of Victory’s issued and outstanding Common Stock immediately upon Closing. As contemplated in the Merger Agreement, VPEG Note holder will convert the VPEG Note at the Effective Time and will receive: (i) 7,866,034 shares of Victory Common Stock, and (ii) 43,095,923 Prefunded Warrants, each with an exercise price of $0.000001, which contain a provision prohibiting the exercise thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit to a number of shares that is sufficient to allow for the exercise of such Victory Prefunded Warrants in full. In addition, Victory is currently conducting a private placement financing (“Common Financing”), in which we expect that Victory will raise approximately $1,212,000 from the investors in the Common Financing (the “Common Financing Investors”). Victory also plans to raise an additional $4,000,000 within sixteen (16) months after the Effective Time through Victory’s preferred equity financing (“Preferred Financing”). In the Preferred Financing, we anticipate issuing a total of 67,796 shares of newly authorized and issued preferred stock which are convertible to 67,796,610 shares of our common stock; provided, however, the parties agreed that the 67,796 shares of preferred stock shall not be converted to common shares until the Share Authorization Increase (as defined below).
Pursuant to the Merger Agreement, at or prior to the Effective Time and subject to compliance with Rule 14F-1 of the Exchange Act, the Board of Directors of Victory will consist of the following directors: Christopher Headrick, who will serve as Chairman of the board of directors, Kevin DeLeon, James McGinley, Neil Goulden and one director to be selected by the investor(s) in the Preferred Financing. Each nominee to be appointed by H2EG will be subject to such background and credit checks as Victory may require. Unless removed for cause, death or disability, Kevin DeLeon, who is presently serving on the board of directors of Victory and who will continue to serve on the board of directors of Victory, will so serve until the next annual meeting of the stockholders of Victory; provided, however, that unless Kevin DeLeon fails to provide his consent or unless he has committed a “bad actor” disqualification event of the type described in Rule 506(d) of the Securities Act, the Surviving Company shall nominate such individual to serve as director at such next annual meeting of the stockholders. In addition, our executive officers will be restructured according to Section 7.1(g) of the Merger Agreement. See “Directors and Executive Officers—Directors and Officers After the Closing” for information concerning the appointees.
The Agreement and Plan of Merger, dated July 25, 2023 and as amended on December 1, 2023 are included as Exhibit 10.1 and 10.2 to this Information Statement.
As a result of a change in a majority of the members of our Board, pursuant to Rule 14f-1 we are required to file with the Securities and Exchange Commission (the “SEC”) and transmit to our stockholders this Information Statement at least ten days before the appointment of the new directors becomes effective.
No action is required by our stockholders in connection with this Information Statement. Please read this Information Statement carefully. It contains certain biographical and other information concerning the persons who will be appointed as directors at the time of the Closing. However, their appointment will not become effective until at least ten days after we have filed this Information Statement with the SEC and transmitted it to our stockholders. All of our filings with the SEC and exhibits thereto may be inspected without charge at the public reference room of the SEC at 100 F Street, N.E., Washington, DC 20549 or obtained on the SEC’s website at www.sec.gov.
The approximate date of mailing of this Information Statement is December 4, 2023.
INFORMATION STATEMENT
TABLE OF CONTENTS
| i |
We entered into the Merger Agreement on July 25, 2023 and as amended on December 1, 2023, pursuant to which, at the Effective Time, each share of H2EG’s Capital Stock issued and outstanding immediately prior to the Effective Time, subject to and upon the terms and conditions set forth in the Merger Agreement, will be cancelled and extinguished and be converted automatically into the right to receive 418,822,708 shares of Victory’s Common Stock (“Victory Common Stock”), of which: (i) 243,000,000 shares of Victory Common Stock will be issued upon the Closing, and; (i) 175,822,708 shares of Victory Common Stock will be issued after an amendment to Victory’s articles of incorporation increasing the Authorization Limit. The H2EG Stockholders will own 81% of Victory’s issued and outstanding Common Stock immediately upon Closing. As contemplated in the Merger Agreement, VPEG Note holder will convert the VPEG Note at the Effective Time and will receive: (i) 7,866,034 shares of Victory Common Stock, and (ii) 43,095,923 Prefunded Warrants, each with an exercise price of $0.000001, which contain a provision prohibiting the exercise thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit to a number of shares that is sufficient to allow for the exercise of such Victory Prefunded Warrants in full. In addition, Victory is currently conducting a private placement financing (“Common Financing”), in which we expect that Victory will raise approximately $1,212,000 from the investors in the Common Financing (the “Common Financing Investors”). Victory also plans to raise an additional $4,000,000 within sixteen (16) months after the Effective Time through Victory’s preferred equity financing (“Preferred Financing”). In the Preferred Financing, we anticipate issuing a total of 67,796 shares of newly authorized and issued preferred stock which are convertible to 67,796,610 shares of our common stock; provided, however, the parties agreed that the 67,796 shares of preferred stock shall not be converted to common shares until the Share Authorization Increase (as defined below).
Victory has 300,000,000 shares of common stock authorized. In connection with the Merger, the H2EG Stockholders are entitled to receive a total of 418,822,708 shares of common stock, and the VPEG Note holder is entitled to receive a total of 50,961,957. Since our authorized common stock is not sufficient to allow us to issue to the H2EG stockholders all of the common stock that we are required to issue in the Merger along with all of the common stock that we are required to issue to Visionary Private Equity Group I, LP (“VPEG”) upon the conversion of its convertible notes, which will occur at the closing of the Merger, we will issue common stock up to our authorized amount and then issue prefunded warrants for the balance of what we are required to issue. The prefunded warrants will be fully funded except for $0.000001 exercise price, but the prefunded warrants will not be exercisable unless and until the stockholders of the Surviving Company approve an amendment to the Surviving Company’s articles of incorporation that increases the Surviving Company’s authorized common stock to an amount that is sufficient to allow for all required common stock issuances pursuant to the Merger Agreement and related transactions.
Funds from the Common Financing amounts shall be immediately disbursed to H2EG when received and not held in escrow. In addition, at the Effective Time, all H2EG Capital Stock held by H2EG as treasury equity immediately prior to the Effective Time shall be automatically cancelled and will cease to exist, and no consideration will be delivered in exchange therefor. Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. In addition, any shares of H2EG Capital Stock held by a holder who demands and perfects such holder’s appraisal rights (collectively, the “Dissenting Shares”) under Delaware Law will not be converted into or represent a right to receive the applicable consideration for H2EG Capital Stock, but the holder thereof will only be entitled to such rights as are provided by Delaware Law. Pursuant to the Merger Agreement, the Closing will take place by the reciprocal delivery of closing documents by electronic mail, regular mail, fax or any other means mutually agreed upon on a mutually agreeable date as soon as practicable and in any event not later than three business days after the satisfaction or waiver of all conditions (excluding the delivery of any documents to be delivered at the Closing by any of the Parties) set forth in Article VII of the Merger Agreement. On the Closing Date, the Parties will cause the Merger to be consummated by filing Certificate of Merger in substantially the form attached in the Merger Agreement, with the Secretary of State of the State of Delaware, in accordance with the applicable provisions of Delaware Law.
| 1 |
Following the issuance of shares under the Merger Agreement, the H2EG Stockholders will beneficially own approximately 81% of Victory’s issued and outstanding Common Stock immediately upon Closing and a change in control of the Company will occur. The Closing is expected to occur within three business days if all conditions precedent to the Closing are waived or satisfied.
Pursuant to the Merger Agreement, at or prior to the Effective Time and subject to compliance with Rule 14F-1 of the Exchange Act, the Board of Directors of Victory will consist of the following directors: Christopher Headrick, who will serve as Chairman of the board of directors, Kevin DeLeon, James McGinley, Neil Goulden and one director to be selected by the investors in the Preferred Financing. Each nominee to be appointed by H2EG will be subject to such background and credit checks as Victory may require. Unless removed for cause, death or disability, Kevin DeLeon, who is presently serving on the board of directors of Victory and who will continue to serve on the board of directors of Victory, will so serve until the next annual meeting of the stockholders of Victory; provided, however, that unless Kevin DeLeon fails to provide his consent or unless he has committed a “bad actor” disqualification event of the type described in Rule 506(d) of the Securities Act, the Surviving Company shall nominate such individual to serve as director at such next annual meeting of the stockholders. In addition, our executive officers will be restructured according to Section 7.1(g) of the Merger Agreement. See “Directors and Executive Officers—Directors and Officers After the Closing” for information concerning the appointees.
It is currently anticipated that at or prior to the Effective Time, Ronald W. Zamber, Robert Grenley and Ricardo A. Salas will resign from our Board, Kevin DeLeon will remain on our Board, and Christopher Headrick, James McGinley, Neil Goulden will be appointed to our Board (with Mr. Headrick appointed as the Chairman of the Board). In addition, our executive officers will be restructured according to Section 7.1(g) of the Merger Agreement. See “Directors and Executive Officers—Directors and Officers After the Closing” for information concerning the appointees.
| 2 |
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Officers Prior to the Closing
Set forth below is biographical information for each of our directors and executive officers prior to the Closing.
| NAME | AGE | POSITION | ||
| Kevin DeLeon | 56 | Chief Executive Officer, President, Principal Financial and Accounting Officer and Director | ||
| Ronald W. Zamber | 61 | Chairman of the Board of Directors | ||
| Robert Grenley | 65 | Director | ||
| Ricardo A. Salas | 59 | Director |
Kevin DeLeon. Mr. DeLeon has served as a member of our Board of Directors since August 21, 2017. He has served as a General Partner and Director of Corporate Strategy for Visionary Private Equity Group I, LP, a private equity firm that invests in early stage, high growth companies, since 2015. Mr. DeLeon has spent more than twenty-five years in global finance, both on the buy and sell side, in New York, London, and Tokyo. For the past decade, his focus has been in natural resources, most recently as Senior Advisor to our Company since February, 2015. Prior to joining our Company, he served in the same capacity at Miller Energy, a NYSE-listed Alaska focused oil and gas exploration and production company, from June 2013 to February 2015. At Miller, Mr. DeLeon was responsible for overseeing corporate strategy, with particular focus on financing the company’s drilling program and acquisitions, as well as investor relations and corporate governance. Prior to Miller, Mr. DeLeon spent approximately six years spearheading the U.S. operations for a boutique U.K. investment bank, with a strong focus in E&P and metals & mining. Early in his career, he worked for Yamaichi, one of the Big Four Japanese securities houses, where he received the Chairman’s award for his consistent revenue contributions. Mr. DeLeon was also a founding partner of Bracken Partners, a London-based corporate finance advisory and fund management firm with particular focus on the U.K. private equity markets. He has served as both a senior executive and non-executive director of numerous public and private U.K. and U.S. companies. Mr. DeLeon is a 1990 graduate of Yale University, with a B.A in Economics. Mr. DeLeon was selected to serve on our Board of Directors due to his extensive global finance experience.
Ronald W. Zamber, M.D. Dr. Zamber has served as a member of our Board of Directors since January 24, 2009. Dr. Zamber is founder, Managing Director and Chairman of Visionary Private Equity Group I, LP since 2010, and a Managing Director of Navitus since 2011, Navitus Partners since 2011 and James Capital Energy since 2007. He brings more than 20 years of experience in corporate management and business development extending across the public, private and non-profit arenas. Dr. Zamber has helped build profitable companies in healthcare, private and public petroleum E&P, consumer products and Internet technology industries. Dr. Zamber is a Board-Certified Ophthalmologist and founder of International Vision Quest, a non-profit organization that performs humanitarian medical and surgical missions, builds water treatment facilities and supports food delivery programs to impoverished communities around the world. He has served as an examiner with the American Board of Ophthalmologists and Secretariat for State Affairs with the American Academy of Ophthalmology. Dr. Zamber is the 2009 recipient of Notre Dame’s prestigious Harvey Foster Humanitarian Award. He now serves on the advisory board of Feed My Starving Children, one of the highest rated and fastest growing charities in the country. Dr. Zamber received his Bachelor’s degree with high honors from the University of Notre Dame and his medical degree with honors from the University of Washington. Dr. Zamber was selected to serve on our Board of Directors due to his over 20 years of experience in corporate management and business development extending across the public, private and non-profit arenas.
| 3 |
Robert Grenley. Mr. Grenley has served as a member of our Board of Directors since June 1, 2010. Mr. Grenley has over 25 years of experience in financial management, business development and entrepreneurial experience. This financial experience includes 12 years managing early-stage organizations with equity capital. Mr. Grenley’s broader financial management experience includes over 10 years of direct portfolio management and investment expertise including common and preferred stock, stock options, corporate and municipal bonds as well as syndicated investments and private placements. Recently, Mr. Grenley has been associated with the Visionary Private Equity Group I, LP since 2012, and is currently its Director of Capital Development, as well as the Chief Financial Officer of the Visionary Media Group, a wholly owned subsidiary. Mr. Grenley served as the Chief Financial Officer of POP Gourmet, a fast-growing Seattle-based snack food company, since early 2013, where he was responsible for the creation, production, and execution of POP Gourmet’s first equity financing ($2.5 million in 2013), its second equity financing ($8.5 million in 2015), and its first credit facility ($2 million in 2015). As the company has matured, it has been able to attract a consumer product group specialist as Chief Financial Officer, and Mr. Grenley currently retains the Director, Corporate Finance title, focusing on credit facilities, investor relations, and other related matters. Mr. Grenley holds a BA in Economics from Duke University. Mr. Grenley was selected to serve on our Board of Directors due to his over 25 years of experience in financial management, business development and entrepreneurial experience.
Ricardo A. Salas. Mr. Salas has served as a member of our Board of Directors since August 21, 2017. Between 2008 and 2015, Mr. Salas served as Executive Vice President and a Director of Liquidmetal Technologies, Inc., a pioneer in developing and commercializing a family of amorphous metal alloys. In 2001, he founded and became CEO of iLIANT Corporation, a health care information technology and outsourcing service provider. Following iLIANT’s merger with MED3000 Group, Inc., he continued to serve as a Director of MED3000 Group, Inc. and on its Special Committee leading up to its sale to McKesson Corporation in December of 2012. He served as a Director of Advantum Health, a private equity backed healthcare IT enabled services company from 2017 to 2023. Mr. Salas received an Economics degree from Harvard College in 1986. Mr. Salas was selected to serve on our Board of Directors due to his extensive management experience.
It is currently anticipated that at the time of the Closing, Ronald W. Zamber, Robert Grenley and Ricardo A. Salas will resign from the Board.
Our directors currently have terms which will end at our next annual meeting of the stockholders or until their successors are elected and qualify, subject to their prior death, resignation or removal.
Directors and Officers After the Closing
It is currently anticipated that one of our existing directors, Kevin DeLeon, will continue to serve on our Board, and Christopher Headrick, James McGinley, Neil Goulden will be appointed to our Board at the Closing.
In addition, it is anticipated that Kevin DeLeon will resign as our Chief Executive Officer, President, and Principal Financial and Accounting Officer. The executive officers named below will be appointed as of the Closing.
Set forth below is biographical information for each of our directors and executive officers after the Closing.
| NAME | AGE | POSITION | ||
| Christopher Headrick | 60 | Executive Chairman | ||
| James McGinley | 68 | Chief Executive Officer, President, and Director | ||
| Neil Goulden | 63 | Chief Administrative Officer, Treasurer, Secretary, and Director | ||
| Paul Powers | 64 | Chief Development Officer | ||
| Don Turner | 67 | Chief Operating Officer | ||
| Kevin DeLeon | 56 | Director |
The biographical information for Kevin DeLeon are set forth above under “—Directors and Officers Prior to the Closing.”
| 4 |
Christopher Headrick. Executive Chairman.
The early years of Chris’ career were devoted to developing corporate interpersonal skills with Pepsico, Morco and General Mills. In 1989 Chris began the development of real estate and energy lease consolidations in the coal, oil, and gas industries. In 2009, Chris became the first outside investor in a truly transformative energy technology that can change the way we power our world: zero emission, sustainable, and renewable Hydrogen derived from biomass. Chris founded H2 Energy Group Inc. in 2015.
James McGinley. Chief Executive Officer, President, and Director.
James is an exceptional technology business builder and strategist with strong commitment to renewable energy and green hydrogen. James has over 25 years’ experience in technology ventures, specifically renewable energy, fiber optics, electronic components, and advanced materials. James is a named inventor on 27 patents and previously led a $200 million initial public offering as Chief Executive Officer of Stratos Lightwave, Inc. James joined H2 Energy Group in February 2019. From March 2018 to July 2020, James was employed at Marketshare IQ.
Neil Goulden. Chief Administrative Officer, Treasurer, Secretary, and Director.
Neil has 35 years’ experience as a lawyer, banker, C-Level executive, and entrepreneur. He has structured, restructured, and managed dozens of businesses in many industries, including green energy and environmental services. Neil founded and is the Senior Managing Director of Structuring and Restructuring Advisory Partners. In May 2018, Neil co-founded both Water Integrated Treatment Systems Holdings, LLC and Greenline Environmental Solutions, LLC. Neil joined H2 Energy Group in January 2020.
Paul Powers. Chief Administrative Officer, Treasurer, Secretary, and Director.
Paul spent his entire career—over 37 years—in the financial industry, including advisory roles in company restructuring and strategic planning. Paul founded and has been working as the principal at P. Powers Consulting, LLC, which focuses on providing guidance for strategic initiatives, investments, and insurance for domestic and international clients since March 2015. An experienced entrepreneur and negotiator, Paul has worked as the Chief Development Officer in the renewable sector since May 2015 at H2 Energy Group Inc.
Don Turner. Chief Operating Officer.
Don is an innovative executive with a track record of success in engineering and technology-intensive marketplaces. From Group President of a leading-edge public telecom to CEO of multiple privately held companies in artificial intelligence, voice recognition, and high-end engineering animation, he is known for bringing clarity to complex problems. Known as a top strategist, he architected and led a billion-dollar initial public offering and his VOGI® methodology is used internationally. Don joined H2 Energy Group as the Chief Operating Officer and Managing Member in January 2021. Prior to that, Don was employed at TurnerWord LLC from June 2008 to January 2021.
There are no family relationships among any of our officers or directors before or after the Closing.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers before or after the Closing has, during the past ten years:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences); |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
| 5 |
| ● | been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
As of December 1, 2023, our authorized capital stock consists of 300,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. As of December 1, 2023, we had 28,591,593 shares of Common Stock and 8,333 shares of Series D Preferred Stock outstanding. Each share of Common Stock entitles the holder thereof to one vote on each matter which may come before a meeting of the stockholders. As of the date of this Information Statement, the H2EG Stockholders do not own any shares of our Common Stock.
Prior to the Closing Date, we plan to issue a total of 3,350,000 prefunded warrants with an exercise price of $0.000001 per common share to existing members of our board of directors, executive officers and employees of Victory as compensation for past services provided to Victory (“Management’s Warrants”). In addition, we plan to issue a total of 2,825,515 warrants to holders of our existing expired warrants in exchange for a release from such holders of any claims they may have against Victory (“Reissued Warrants”). However, none of the Management’s Warrants and Reissued Warrants shall be converted to common shares until the Share Authorization Increase (as defined below). After these warrants are issued and after all outstanding Victory convertible debt is converted, Victory will have a total of 85,729,064 shares of common stock outstanding.
| 6 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Prior to the Closing
The following table sets forth information regarding beneficial ownership of our voting stock as of December 1, 2023 (i) by each person who is known by us to beneficially own more than 5% of our voting stock; (ii) by each of our officers, directors and director nominees; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of our Company, 3355 Bee Caves Road, Suite 608, Austin, Texas 78746.
| Name and Address of Beneficial Owner | Amount of Beneficial Ownership(1) | Percent of Common and Voting Stock(2) | ||||||
| Ronald Zamber, Director (3) | 7,261,501 | 25.40 | % | |||||
| Robert Grenley, Director (4) | 3,357 | 0.00 | % | |||||
| Ricardo A. Salas, Director (5) | 20,000,000 | 69.95 | % | |||||
| Kevin DeLeon, Interim CEO and Director | 0 | 0.00 | % | |||||
| All directors and officers as a group (4 persons named above) | 27,264,858 | 95.36 | % | |||||
Less than 1%
| (1) | Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator. |
| (2) | Based on 28,591,593 shares of our common stock outstanding as of December 1, 2023, excluding the 8,333 shares of Series D Preferred Stock outstanding. |
| (3) | Includes 291,866 shares of common stock; 4,382,872 shares of common stock owned by Navitus Energy Group, of which Mr. Zamber is the managing member of its managing partner, James Capital Consulting, LLC; 2,787 shares of common stock and warrants for the purchase of 2,343 shares of common stock exercisable within 60 days owned by James Capital Consulting, LLC; 64,951 shares of common stock owned by Visionary Investments, LLC, of which Dr. Zamber is sole member; and 2,519,025 shares of common stock and warrants for the purchase of 1,900,800 shares of common stock exercisable within 60 days owned by Visionary Private Equity Group I, LP, of which Dr. Zamber is senior managing director of its general partner, Visionary PE GP I, LLC. |
| (4) | Includes 3,357 shares of common stock. |
| (5) | Represents 20,000,000 shares issued to Armacor Victory Ventures, LLC, pursuant to the Supplementary Agreement, dated April 10, 2018 among the Company and Armacor Victory Ventures, LLC. Mr. Salas is the managing member of Armacor Victory Ventures, LLC. |
Except as contemplated by the Merger Agreement, we do not currently have any arrangements which if consummated may result in a change of control of our Company.
| 7 |
Security Ownership After the Closing
The following table sets forth information regarding beneficial ownership of our voting stock following the Closing by (i) each of our directors and executive officers following the Closing; (ii) all of our directors and executive officers following the Closing as a group; and (iii) each person who is known by us that is expected to beneficially own more than 5% of our voting stock following the Closing. This table assumes the successful closing of the Merger according to the Merger Agreement and that the Company raised an aggregate of $5,212,000 from the Common Financing and Preferred Financing. As of December 1, 2023, the Company is currently authorized to issue a total of 300,000,000 shares of common stock (the “Authorization Limit”) under its articles of incorporation. To allow the Company to consummate the transactions contemplated by the Merger Agreement without having to first amend its articles of incorporation to sufficiently increase the Authorization Limit, the parties to the Merger Agreement agreed that the Company will issue to the stockholders who are entitled to receive shares of common stock pursuant to the Merger Agreement the maximum number of shares of common stock up to the Authorization Limit as follows (i) the Company will issue to the H2EG Shareholders 243,000,000 common shares immediately upon the closing of the Meger, and the Surviving Company will issue an additional 175,822,708 common shares to the H2EG Shareholders after the Share Authorization Increase (as defined below) (ii) the Company will issue to the VPEG Note holder 7,866,034 common shares and prefunded warrants convertible to 43,095,923 common shares with an exercise price of $0.000001. The prefunded warrants will be fully funded except for $0.000001 exercise price, but the prefunded warrants will not be exercisable unless and until the stockholders of the Surviving Company approve an amendment, which shall be completed as soon as practicable after the Merger, to the Surviving Company’s articles of incorporation that increases the Surviving Company’s authorized common stock to an amount that is sufficient to allow for all required common stock issuances pursuant to the Merger Agreement and related transactions (the “Share Authorization Increase”). In addition, prior to the Effective Date, we expect that the holder of the 8,333 shares of Series D Preferred Stock will convert all the 8,333 shares of Series D Preferred Stock into a prefunded warrant to purchase a total of 3,961,539 shares of Victory’s common stock with an exercise price of $0.000001 per common stock. Unless otherwise specified, the address of each of the persons set forth below is in care of our Company, 3355 Bee Caves Road, Suite 608, Austin, Texas 78746.
| Name of Beneficial Owner | Amount of Beneficial Ownership(1) | Percent of Common and Voting Stock(2) | ||||||
| Christopher Headrick(3) | 119,726,100 | 42.84 | % | |||||
| James McGinley(4) | 38,345,400 | 13.72 | % | |||||
| Neil Goulden(5) | 44,668,260 | 15.98 | % | |||||
| Paul Powers(6) | 34,593,480 | 12.37 | % | |||||
| Ricardo A. Salas(7) | 20,000,000 | 7.15 | % | |||||
| Kevin DeLeon(8) | 0 | 0 | % | |||||
| Don Turner | 0 | 0 | % | |||||
| Ronald Zamber(9) | 15,127,535 | 5.41 | % | |||||
| All directors and officers as a group | 237,333,240 | 84.49 | % | |||||
Less than 1%
| (1) | Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock. For each beneficial owner above, any options exercisable within 60 days have been included in the denominator. |
| (2) | Based on 279,457,627 shares of our common stock that will be outstanding after the Closing, excluding: |
| ● | 8,333 shares of Series D Preferred Stock which will be converted to a prefunded warrant to purchase a total of 3,961,539 shares of Victory’s common stock with an exercise price of $0.000001 per common stock, but the prefunded warrants will not be exercisable unless and until the stockholders of the Surviving Company approve an amendment to the Surviving Company’s articles of incorporation that increases the Surviving Company’s authorized common stock to an amount that is sufficient to allow for all required common stock issuances pursuant to the Merger Agreement and related transactions. |
| ● | 570,000,000 shares of our common stock reserved under our 2017 Equity Incentive Plan and up to 15% of the outstanding shares of our common stock issuable under our 2014 Long Term Incentive Plan. |
| ● | Prefunded warrants convertible to 41,994,228 shares of common stock with an exercise price of $0.000001 that we expect to issue to the VPEG Note holder $0.000001, but the prefunded warrants will not be exercisable unless and until the stockholders of the Surviving Company approve an amendment to the Surviving Company’s articles of incorporation that increases the Surviving Company’s authorized common stock to an amount that is sufficient to allow for all required common stock issuances pursuant to the Merger Agreement and related transactions. 157,335,526 shares of common stock that we expect to issue to the H2EG Shareholders after the Share Authorization Increase. |
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| ● | 20,542,373 shares of our common stock expected to be issued pursuant to the Common Financing. |
| ● | 67,796 shares of newly authorized and issued preferred stock which are convertible to 67,796,610 shares of our common stock expected to be issued pursuant to the Preferred Financing. The 67,796 shares of preferred stock will not be exercisable unless and until the stockholders of the Surviving Company approve an amendment to the Surviving Company’s articles of incorporation that increases the Surviving Company’s authorized common stock to an amount that is sufficient to allow for all required common stock issuances pursuant to the Merger Agreement and related transactions. |
| ● | Warrants to purchase a total number of 8,059,809 shares of the Company’s common stock as allocated below: |
| ○ | Ronald Zamber’s prefunded warrant to purchase 2,882,294 shares of our common stock with an exercise price of $0.000001 per share |
| ○ | Kevin Deleon’s prefunded warrant to purchase 1,650,000 shares of our common stock with an exercise price of $0.000001 per share |
| ○ | Robert Grenley’s prefunded warrant to purchase 250,000 shares of our common stock with an exercise price of $0.000001 per share |
| ○ | Ricardo A. Salas’ prefunded warrant to purchase 250,000 shares of our common stock with an exercise price of $0.000001 per share |
| ○ | Shawn Grucella’s prefunded warrant to purchase 100,000 shares of our common stock with an exercise price of $0.000001 per share |
| ○ | Gary Lovett’s prefunded warrant to purchase 100,000 shares of our common stock with an exercise price of $0.000001 per share |
| ○ | Warrants to purchase 2,827,515 shares of our common stock to be issued to the holders of certain warrants to purchase the Company’s common stock that were previously issued and have since expired, in exchange for a release by such holders of any and all claims against the Company. |
| (3) | Christopher Headrick is entitled to receive a total of 206,353,948 shares of our common stock pursuant to the Merger Agreement. Due to the Authorization Limit, Christopher Headrick will receive 119,726,100 shares of our common stock immediately after closing of the Merger and an additional 86,627,848 shares of our common stock after the post-closing Share Authorization Increase. |
| (4) | James McGinley is entitled to receive a total of 66,090,223 shares of our common stock pursuant to the Merger Agreement. Due to the Authorization Limit, James McGinley will receive 38,345,400 shares of our common stock immediately after closing of the Merger and an additional 27,744,823 shares of our common stock after the post-closing Share Authorization Increase. |
| (5) | Neil Goulden is entitled to receive a total of 76,987,990 shares of our common stock pursuant to the Merger Agreement, including 36,790,834 shares of our common stock owned by Simonellie LLC, in which Neil Goulden is the beneficial owner. Due to the Authorization Limit, Neil Goulden will receive 44,668,260 shares of our common stock immediately after closing of the Merger and an additional 32,319,730 shares of our common stock after the post-closing Share Authorization Increase. |
| (6) | Paul Powers is entitled to receive a total of 59,623,600 shares of our common stock pursuant to the Merger Agreement including 1,616,655 shares of our common stock owned by Amie L Lyson Irrevocable Gift Trust, in which Paul Powers is the beneficial owner. Due to the Authorization Limit, Paul Powers will receive 34,593,480 shares of our common stock immediately after closing of the Merger and an additional 25,030,120 shares of our common stock after the post-closing Share Authorization Increase. |
| (7) | Represents 20,000,000 shares of our common stock issued to Armacor Victory Ventures, LLC, pursuant to the Supplementary Agreement, dated April 10, 2018 among the Company and Armacor Victory Ventures, LLC. Mr. Salas is the managing member of Armacor Victory Ventures, LLC. Excluding a prefunded warrant to purchase 250,000 shares of our common stock that will be issued to Ricardo A. Salas after the Closing. |
| (8) | Excluding a prefunded warrant to purchase 1,650,000 shares of our common stock that will be issued to Kevin DeLeon after the Closing. |
| (9) | Including 7,261,501 shares of our common stock owned by Ronald Zamber prior to the Closing. Visionary Private Equity Group I, LP, of which Ronald Zamber is senior managing director of its general partner, Visionary PE GP I, LLC, is entitled to receive a total of 50,961,956 shares of our common stock after the Closing. Due to the Authorization Limit, Visionary Private Equity Group I, LP will receive 7,866,034 shares of our common stock and a prefunded warrant to purchase 43,095,923 shares of our common stock with an exercise price of $0.000001 after the Closing. |
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We chose to appoint a separate chairman of our Board of Directors who is not our Chief Executive Officer. Our Board of Directors has made this decision based on their belief that an independent Chairman of the Board can act as a balance to the Chief Executive Officer, who also serves as a non-independent director.
The Board’s Role in Risk Oversight
Our Board of Directors administers its risk oversight function as a whole by making risk oversight a matter of collective consideration. While management is responsible for identifying risks, our Board of Directors has charged the Audit Committee of the Board of Directors with evaluating financial and accounting risk and the Compensation Committee of the Board of Directors with evaluating risks associated with employees and compensation. Investor- related risks are usually addressed by the Board of Directors as a whole.
In considering and making decisions as to the independence of each of the directors of the Company, the Board considered transactions and relationships between the Company (and its subsidiaries) and each director (and each member of such director’s immediate family and any entity with which the director or family member has an affiliation such that the director or family member may have a material indirect interest in a transaction or relationship with such entity).
It is currently anticipated that, as of the Closing, none the members of our Board following the Closing will be “independent.”
Our Board of Directors has established an Audit Committee to assist it in fulfilling its responsibilities for general oversight of our accounting and financial reporting processes, audits of our financial statements, and internal control and audit functions. The Audit Committee is responsible for, among other things:
| ● | appointing, evaluating and determining the compensation of our independent auditors; |
| ● | establishing policies and procedures for the review and pre-approval by the Audit Committee of all auditing services and permissible non-audit services (including the fees and terms thereof) to be performed by the independent auditor; |
| ● | reviewing with our independent auditors any audit problems or difficulties and management’s response; |
| ● | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act of 1933, as amended; |
| ● | discussing our financial statements with management and our independent auditors; |
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| ● | reviewing and discussing reports from the independent auditor on critical accounting policies and practices used by our Company and alternative accounting treatments; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant internal control deficiencies; |
| ● | reviewing and discussing with management our major financial risk exposures and the steps management has taken to monitor and control such exposures; |
| ● | meeting separately and periodically with management and our internal and independent auditors; |
| ● | reviewing matters related to the corporate compliance activities of our Company; |
| ● | reviewing and approving our code of ethics, as it may be amended and updated from time to time, and reviewing reported violations of the code of ethics; |
| ● | annually reviewing and reassessing the adequacy of our Audit Committee charter; and |
| ● | such other matters that are specifically delegated to our Audit Committee by our Board from time to time. |
The Audit Committee works closely with management as well as our independent auditors. The Audit Committee has the authority to obtain advice and assistance from, and receive appropriate funding from us for, outside legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties.
It is currently anticipated that upon the successful completion of the Merger and after ten days of the filing and mailing of this Information Statement, Ronald W. Zamber, Robert Grenley, and Ricardo A. Salas would have resigned from the Board and will cease to serve as members of the Audit Committee. Since, at such time, no other directors of the Surviving Company will be independent, we will not be able to appoint any members to our Audit Committee and such committee will not function until we are again able to satisfy the independence requirements of Audit Committee charter. After the Closing of the Merger, we will not have a functioning Audit Committee and our entire Board of Directors will undertake the functions that would otherwise be undertaken by the Audit Committee.
The Board determined that each member of the Audit Committee satisfies the independence and other composition requirements of the SEC prior to the Merger. Due to changes to our Board composition that are disclosed in this information statement and will occur at the Closing of the Merger but subject to the requirements of Rule 14f-1 of the Exchange Act, we will not have an independent director who also meets the qualifications for “audit committee financial expert” as defined under Item 407(d)(5) of Regulation S-K. Furthermore, since none of our directors will be independent at the Closing of the Merger, we will not satisfy our audit committee independence requirements. Accordingly, from and after the Closing of the Merger until we are able to appoint independent directors, we will not have a functioning Audit Committee.
Our Board of Directors has established a Compensation Committee to discharge our Board’s responsibilities relating to compensation of our Chief Executive Officer and other executive officers and to provide general oversight of compensation structure. Other specific duties and responsibilities of the Compensation Committee include:
| ● | reviewing and approving objectives relevant to executive officer compensation; |
| ● | evaluating performance and recommending to the Board of Directors the compensation, including any incentive compensation, of our Chief Executive Officer and other executive officers in accordance with such objectives; |
| ● | reviewing and approving compensation packages for new executive officers and termination packages for executive officers; |
| ● | recommending to the Board of Directors the compensation for our directors; |
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| ● | administering our equity compensation plans and other employee benefit plans; |
| ● | reviewing periodic reports from management on matters relating to our personnel appointments and practices; |
| ● | evaluating periodically the Compensation Committee charter; |
| ● | such other matters that are specifically delegated to our Compensation Committee by our Board from time to time. |
It is currently anticipated that upon the successful completion of the Merger and after ten days of the filing of this Information Statement, Ronald W. Zamber, Robert Grenley, and Ricardo A. Salas would have resigned from the Board and will cease to serve as members of the Compensation Committee. Since, at such time, no other directors of the Surviving Company will be independent, we will not be able to appoint any members to our Compensation Committee and such committee will not function until we are again able to satisfy the independence requirements of our Compensation Committee. After the Closing of the Merger, we will not have a functioning Compensation Committee and our entire Board of Directors will undertake the functions that would otherwise be undertaken by the Compensation Committee.
We currently do not have a standing nominating committee or committee performing similar functions. Our entire Board of Directors undertakes the functions that would otherwise be undertaken by a nominating committee.
Our Board utilizes a variety of methods for identifying and evaluating nominees for our directors. Our Board regularly assesses the appropriate size of our Board and whether any vacancies on the Board are expected due to retirement or other circumstances.
When considering potential director nominees, the Board considers the candidate’s character, judgment, diversity, age, skills, including financial literacy and experience in the context of the needs of our Company and of our existing directors. The Board also seeks director nominees who are from diverse backgrounds and who possess a range of experiences as well as a reputation for integrity. The Board considers all of these factors to ensure that our Board as a whole possesses a broad range of skills, knowledge and experience useful to the effective oversight and leadership of our Company.
Our Board does not have a specific policy with regard to the consideration of candidates recommended by stockholders, however any nominees proposed by our stockholders will be considered on the same basis as nominees proposed by the Board. If a stockholder wants to submit a candidate for consideration to the Board, the stockholder may submit a proposal to our Director, Kevin DeLeon, with the stockholder communication procedures set forth below.
Stockholder Communications with the Board of Directors
Our Board of Directors has established a process for stockholders to communicate with the Board of Directors or with individual directors. Stockholders who wish to communicate with our Board of Directors or with individual directors should direct written correspondence to Kevin DeLeon, Chief Executive Officer, Principal Financial and Accounting Officer, and Director, at be kdeleon@vpeg.net, or to the following address (our principal executive offices): Board of Directors, c/o Chief Executive Officer , 3355 Bee Caves Road, Suite 608, Austin, Texas 78746.
We have adopted a code of ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations of the code.
We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.
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Summary Compensation Table - Fiscal Years Ended December 31, 2022 and 2021
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000.
| Name and Principal Position | Year | Salary ($) | Option Awards ($)(1) | Total ($) | |||||||||||
| Kevin DeLeon, Chief Executive Officer (2) | 2022 | 120,000 | — | 120,000 | |||||||||||
| 2021 | 109,000 | — | 109,000 | ||||||||||||
| (1) | These amounts shown represent the aggregate grant date fair value for options granted to the named executive officers computed in accordance with FASB ASC Topic 718. |
| (2) | On October 25, 2019 we entered into an employment agreement with Mr. Kevin DeLeon having a term of one year. Pursuant to the employment agreement, we agreed to pay Mr. DeLeon a salary of $120,000 per year, effective November 1, 2019. In addition, in consideration for past services, we issued Mr. DeLeon a three year warrant to purchase 100,000 shares of the Company’s stock at $0.80 per share. Mr. DeLeon will also be eligible to participate in the standard benefits plans offered to similarly situated employees by us from time to time, subject to plan terms and our generally applicable policies. On October 26, 2020, the term of the employment agreement was extended to October 31, 2021, with all other terms in the employment agreement remaining in effect. Mr. DeLeon and the Company have agreed to continue Mr. DeLeon’s employment beyond the extended October 31, 2021 termination of the employment agreement, on the same terms as set forth in the employment agreement, terminable at the option of either party. |
No member of our Board of Directors received any compensation for services as a director during the fiscal year ended December 31, 2022.
TRANSACTIONS WITH RELATED PERSONS
On August 21, 2017, the Company entered into a secured convertible original issue discount promissory note issued by the Company to VPEG (the “VPEG Note”). The VPEG Note was subsequently amended on October 11, 2017 and again on January 17, 2018. On April 10, 2018, the Company and Visionary Private Equity Group I, LP, a Missouri limited partnership (“VPEG”) entered into a settlement agreement and mutual release (the “Settlement Agreement”), pursuant to which VPEG agreed to release and discharge the Company from its obligations under the VPEG Note (see below). Pursuant to the Settlement Agreement, and in consideration and full satisfaction of the outstanding indebtedness of $1,410,200 under the VPEG Note, the Company issued to VPEG 1,880,267 shares of its common stock and a five-year warrant to purchase 1,880,267 shares of its common stock at an exercise price of $0.75 per share, to be reduced to the extent the actual price per share in a proposed future private placement (the “Proposed Private Placement”) is less than $0.75. The Company recorded share-based compensation of $11,281,602 in connection with the Settlement Agreement.
On April 10, 2018, in connection with the Settlement Agreement, the Company and VPEG entered into a loan Agreement (the “New Debt Agreement”), pursuant to which VPEG loaned to the Company $2,000,000 under a secured convertible original issue discount promissory note (the “New VPEG Note”). The loans made pursuant to the New VPEG Note reflect a 10% original issue discount, do not bear interest in addition to the original issue discount, are secured by a security interest in all of the Company’s assets, and at the option of VPEG are convertible into shares of the Company’s common stock at a conversion price equal to $0.75 per share or, such lower price as shares of Common Stock are sold to investors in the Proposed Private Placement. On October 30, 2020, the Company and VPEG amended the New Debt Agreement to increase the loan amount to up to $3,000,000. On January 31, 2021, the Company and VPEG amended the New Debt Agreement to increase the loan amount to up to $3,500,000. On September 3, 2021, the Company and VPEG amended the New Debt Agreement to increase the loan amount to up to $4,000,000.
As of June 30, 2023, the outstanding balance on the New VPEG Note was $3,815,926. After the Closing, the loan amount of $3,815,926, including principal and accrued interest, will convert to the Company’s common stock and prefunded warrants at a conversion price of $0.075914.
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None.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers and beneficial holders of more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our equity securities. We believe, based solely on a review of the copies of such reports furnished to us and representations of these persons, that our directors and executive officers and beneficial holders of more than 10% of our common stock have timely filed all such reports.
We file annual, quarterly and current reports, proxy statements and other information with the SEC under the Exchange Act. You may read and copy this information at, or obtain copies of this information by mail from, the SEC’s Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 for further information about the public reference room. Our filings with the SEC are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov.
Any person, including any beneficial owner, to whom this Information Statement is delivered may request copies of proxy statements or other information concerning us, without charge, by written request directed to 3355 Bee Caves Road, Suite 608, Austin, Texas, or by calling us at 512-347-7300.
| By Order of the Board of Directors | |
| /s/ Kevin DeLeon | |
| Kevin DeLeon | |
| Chief Executive Officer, Principal Financial and Accounting Officer, and Director |
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EXHIBIT INDEX
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Exhibit 10.1
Confidential
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
VICTORY OILFIELD TECH, INC.,
VICTORY H2EG MERGER SUB INC.
AND
H2 ENERGY GROUP INC.
Dated as of July 25, 2023
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the “Agreement”) is made and entered into as of July 25, 2023 by and among Victory Oilfield Tech, Inc., a Nevada corporation (“Victory”), Victory H2EG Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Victory (“Merger Sub”) and H2 Energy Group Inc., a Delaware corporation (“H2EG”). Each party to this Agreement is sometimes referred to individually as a “Party” and, collectively, as the “Parties.” Capitalized terms not otherwise defined herein will have the meaning set forth in ARTICLE I.
RECITALS
A. The boards of directors of each Party believe it is in the best interests of each company and its respective stockholders that Victory acquire H2EG through the statutory merger of Merger Sub with and into H2EG (the “Merger”) and, in furtherance thereof, have approved this Agreement.
B. Pursuant to the Merger, among other things, and subject to the terms and conditions of this Agreement, all of the issued and outstanding capital stock of H2EG will be converted into the right to receive shares of Victory Common Stock in the aggregate constituting 70% of the fully diluted issued and outstanding capital stock of Victory, subject to adjustment pursuant to Section 2.3(b) of this Agreement (the “Merger Consideration”).
D. The Parties desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.
E. The Merger is intended to be an exchange governed by Section 351 of the Code.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and other promises set forth herein, the mutual benefits to be gained by the performance thereof, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For all purposes of this Agreement, the following terms will have the following respective meanings:
(a) “Affiliate” will mean with respect to any Person, any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control,” when used with respect to any specified Person, will mean the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through ownership of voting securities or by contract or otherwise, and the terms “controlling” and “controlled by” have correlative meanings to the foregoing.
(b) “Benefit Plan” will mean any plan, program, policy, practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, deferred compensation, retirement benefits, performance awards, stock or stock-related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA which is maintained, contributed to, or required to be contributed to, by a Party or any ERISA Affiliate for the benefit of any Employee, and with respect to which a Party or any ERISA Affiliate has or may have any liability or obligation.
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(c) “Charter Documents” will mean a Party’s certificate of incorporation or articles of incorporation, as the case may be, and bylaws, in each case as amended or amended and restated to date and in full force and effect on the date hereof.
(d) “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.”
(e) “Contract” will mean any written or binding oral agreement, contract, subcontract, lease, binding understanding, instrument, note, bond, mortgage, indenture, option, warranty, purchase order, license, sublicense, obligation, commitment or undertaking, including any amendments or supplements thereto.
(f) “Employee” will mean any current or former employee, consultant, independent contractor or director of a Party, or any ERISA Affiliate.
(g) “Employee Agreement” will mean each management, employment, severance, separation, settlement, consulting, contractor, relocation, change of control, retention, bonus, repatriation, expatriation, loan, visa, work permit or other agreement, or contract between a Party or any ERISA Affiliate and any Employee under which such Party or any ERISA Affiliate has any liability or obligation.
(h) “Environmental Laws” will mean all Laws relating to pollution or protection of the environment, including Laws relating to emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to the manufacture, processing, registration, distribution, labeling, recycling, use, treatment, storage, disposal, transport or handling of Hazardous Materials and including any Hazardous Materials related electronic waste, product content or product take-back requirements.
(i) “Environmental Permit” will mean any approval, consent, permit, or authorization required by a Governmental Entity pursuant to Environmental Law for the operations of a Party, as of the Closing Date.
(j) “ERISA Affiliate” shall mean any person or entity under common control of a Party within the meaning of Section 414(b), (c), (m) or (o) of the Code, and the regulations issued.
(k) “ERISA” will mean the Employee Retirement Income Security Act of 1974, as amended.
(l) “GAAP” will mean United States generally accepted accounting principles consistently applied.
(m) “Governmental Entity” will mean any court, administrative agency or commission or other federal, state, county, local or other foreign governmental or regulatory authority, instrumentality, agency or commission.
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(n) “Hazardous Materials” will mean chemicals, pollutants, contaminants, wastes, toxic substances, radioactive materials and hazardous substances, including petroleum and petroleum products or any fraction thereof.
(o) “H2EG Capital Stock” will mean H2EG Common Stock and H2EG Preferred Stock, taken together.
(p) “H2EG Common Stock” will mean H2EG’s Class A Common Stock, $0.00001 par value per share and H2EG Class B Common Stock, $0.00001.
(q) “H2EG Entities” (each, a “H2EG Entity”) means (a) H2EG, (b) each subsidiary of H2EG, and (c) after the Effective Time (as applicable), the Surviving Corporation.
(r) “H2EG Plan” will mean any equity incentive plan adopted by the board of directors of H2EG.
(s) “H2EG Stockholder” will mean any holder of any H2EG Capital Stock that is issued and outstanding immediately prior to the Effective Time.
(t) “Intellectual Property” will mean the Intellectual Property Rights that are owned by or purported to be owned by a Party and its Subsidiaries.
(u) “Intellectual Property Rights” will mean the rights associated with (A) patents and patent applications, (B) copyrights, copyright registrations and copyright applications and “moral” rights, (C) trade and industrial secrets and confidential information, (D) logos, trademarks, trade names and service marks and (E) all other intellectual property, industrial property or proprietary rights throughout the world, whether or not subject to statutory registration or protection, in any jurisdiction.
(v) “IRS” will mean the United States Internal Revenue Service.
(w) “Knowledge” or “Known” will mean, with respect to (i) H2EG and any of its subsidiaries, the actual knowledge of the following individuals Christopher Headrick, James McGinley, Paul Powers and Neil Goulden and such knowledge that those named Persons would reasonably be expected to obtain following due inquiry of their respective direct reports, and (ii) Victory and its Subsidiaries, the actual knowledge of the following individuals: Kevin DeLeon, Gary Lovett, Rick Salas and Ron Zamber and such knowledge that those named Persons would reasonably be expected to obtain following due inquiry of their respective direct reports.
(x) “Law” will mean any applicable foreign, federal, state or local law, statute, regulation, ordinance, rule, order, injunction, judgment, doctrine, decree, ruling, writ, assessment, award or arbitration award of a governmental entity, settlement, Contract or governmental requirement enacted, promulgated, entered into, or imposed by, any Governmental Entity (including, for the sake of clarity, common law).
(y) “Lien” will mean any lien, pledge, charge, claim, mortgage, security interest or other encumbrance of any sort.
(z) “Material Adverse Effect” with respect to a Party, will mean any change that has had or is reasonably expected to have a materially adverse effect on the business operations, financial condition, assets, liabilities or results of operations of such Party and its Subsidiaries taken as a whole.
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(aa) “Person” will mean any individual, company, corporation, limited liability company, general or limited partnership, trust, proprietorship, joint venture, or other business entity, unincorporated association, organization or enterprise, or any Governmental Entity.
(bb) “Pro-Tech” means Pro-Tech Hardbanding Services, Inc., a wholly-owned subsidiary of Victory.
(cc) “Pro-Tech Convertible Notes” means convertible notes issued by Victory to Visionary Private Equity Group I, LP that are being converted to equity in connection with the Pro-Tech Disposition in consideration for all of the equity, or all or substantially all, of the assets, of Pro-Tech.
(dd) “Related Agreements” will mean any and all agreements that are necessary to effect this Agreement, which for the avoidance of doubt, includes the Certificate of Merger.
(ee) “SEC” will mean the U.S. Securities and Exchange Commission.
(ff) “Subsidiary” will mean any corporation more than fifty percent (50%) of whose outstanding voting securities, or any partnership, limited liability company, joint venture or other entity more than fifty percent (50%) of whose total equity interest, is directly or indirectly owned by a Party.
(gg) “Tax” or, collectively, “Taxes” will mean any and all U.S. federal, state, local and non-U.S. taxes, assessments and other governmental charges, duties, impositions and liabilities in the nature of taxes, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, escheat, excise and property taxes as well as social security charges, together with all interest, penalties and additions imposed with respect to such amounts
(hh) Transaction Proposal” means any unsolicited written bona fide proposal made by a third party relating to (i) any direct or indirect acquisition or purchase of all or substantially all assets of H2EG, (ii) any direct or indirect acquisition or purchase of a majority of the combined voting power of the H2EG Capital Stock, (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving H2EG in which the other party thereto or its stockholders will own 51% or more of the combined voting power of the Victory Entity resulting from any such transaction, or (iv) any other transaction that is inconsistent with the intent and purpose of this Agreement.
(ii) “Victory Entities” (each, a “Victory Entity”) means (a) Victory, (b) each subsidiary of Victory, and (c) after the Effective Time (as applicable), the Surviving Corporation.
(jj) “Victory Capital Stock” will mean Victory Common Stock and Victory Preferred Stock, taken together.
(kk) “Victory Common Stock” will mean Victory’s Common Stock, $0.001 par value per share.
(ll) “Victory Capital Stock” will mean Victory Common Stock and Victory Preferred Stock, taken together.
(mm) “Victory Preferred Stock” will mean Victory’s Preferred Stock, $0.001 par value per share.
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(nn) “Victory Material Contract” will mean any Contract filed with the SEC as an exhibit to a Victory SEC Document.
(oo) “Victory Plan” will mean any equity incentive plan adopted by the board of directors of Victory.
(pp) “Victory Restricted Share” means any Victory Common Stock subject to vesting, repurchase, or other lapse of restrictions granted under any Victory Plan.
(qq) “Victory Stock Option” means any option to purchase Victory Common Stock granted under any Victory Plan.
(rr) “Victory Stockholders” will mean any holder of any Victory Capital Stock that is issued and outstanding immediately prior to the Effective Time.
1.2 Interpretation. When a reference is made in this Agreement to (a) an Annex, Exhibit or Schedule, such reference will be to an Annex, Schedule or Exhibit to this Agreement unless otherwise indicated, and (b) an Article or a Section, such reference will be to an Article or a Section of this Agreement unless otherwise indicated. The words “include,” “includes” and “including” when used herein will be deemed in each case to be followed by the words “without limitation.” The table of contents and headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. The parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document. All references to currency herein are to lawful money of the United States unless otherwise indicated. The meanings given to terms defined herein will be equally applicable to both the singular and plural forms of such terms. For purposes of this Agreement, whenever the context requires, (i) the singular number will include the plural, and vice versa; (ii) the masculine gender will include the feminine and neuter genders; (iii) the feminine gender will include the masculine and neuter genders; and (iv) the neuter gender will include the masculine and feminine genders. Unless the context otherwise requires, all references in this Agreement to (i) H2EG will be deemed to be a reference to each of H2EG and all of its direct and indirect Subsidiaries and (ii) Victory will be deemed to be a reference to Victory and all of its direct and indirect Subsidiaries. The phrase “made available” will mean with respect to (i) H2EG that H2EG has made available such materials by delivering them to an officer of Victory by electronic mail or otherwise and (ii) Victory that Victory has made available such materials by delivering them to an officer of H2EG by electronic mail or otherwise.
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ARTICLE II
THE MERGER
2.1 Merger.
(a) Merger. At the Effective Time subject to and upon the terms and conditions of this Agreement and the applicable provisions of the Delaware General Corporations Law, as amended (“Delaware Law”), H2EG will be merged with and into Merger Sub, the separate corporate existence of Merger Sub will cease, and H2EG will continue as a surviving corporation and as a wholly owned subsidiary of Victory. The surviving corporation after the Merger is hereinafter referred to as the “Surviving Corporation.” At the Effective Time, the effect of the Merger will be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise agreed to pursuant to the terms of this Agreement, all of the rights, privileges, powers and franchises of H2EG and Merger Sub and will vest in the Surviving Corporation, and all restrictions, disabilities and duties of H2EG and Merger Sub will become the restrictions, disabilities and duties of the Surviving Corporation. All of the issued and outstanding capital stock of H2EG will be converted into the right to receive the Merger Consideration.
(b) Section 351(a). The Parties to this Agreement intend, for federal income Tax purposes, that the Merger qualify as an exchange governed by Section 351(a) of the Code and the applicable Treasury Regulations promulgated with respect thereto, and Victory and H2EG will file all Tax Returns (including amended returns and claims for refunds) in a manner consistent with such treatment and will use their commercially reasonable efforts to sustain such treatment in any subsequent tax audit or dispute.
2.2 Closing. The closing of the Merger (the “Closing”) will take place by the reciprocal delivery of closing documents by electronic mail, regular mail, fax or any other means mutually agreed upon on a mutually agreeable date as soon as practicable (and in any event not later than three business days) after the satisfaction or waiver of all conditions (excluding the delivery of any documents to be delivered at the Closing by any of the Parties) set forth in Article VII of this Agreement (the “Closing Date”). On the Closing Date, the Parties will cause the Merger to be consummated by filing Certificate of Merger in substantially the form attached hereto as Exhibit A, with the Division of Corporation of the State of Delaware (the “Certificate of Merger”), in accordance with the applicable provisions of Delaware Law (the time of the acceptance of such filing by the Division of Corporations of the State of Delaware will be referred to herein as the “Effective Time”).
2.3 Effects of the Merger. At the Effective Time, by virtue of the Merger and without any action on the part of Parties or any other Person, the following shall occur:
(a) Treasury Stock. At the Effective Time, all H2EG Capital Stock held by H2EG as treasury equity immediately prior to the Effective Time shall be automatically cancelled and will cease to exist, and no consideration will be delivered in exchange therefor.
(b) H2EG Capital Stock. At the Effective Time, each share of H2EG Capital Stock issued and outstanding immediately prior to the Effective Time, subject to and upon the terms and conditions set forth in this Agreement, will be cancelled and extinguished and be converted automatically into the right to receive shares of Victory Common Stock, after which the H2EG Stockholders will own, in the aggregate, 70% of the issued and outstanding Victory Common Stock on a fully-diluted basis (the “H2EG Percentage”), Victory Stockholders will own, in the aggregate, 15% of the issued and outstanding Victory Common Stock on a fully-diluted basis (the “Victory Percentage”), and investors in the Financing (as defined in Section 5.7 below) will own, in the aggregate, 15% of the issued and outstanding Victory Common Stock on a fully-diluted basis (the “Investor Percentage”) assuming the full amount is raised in the Financing; provided that, if less than the full amount of $5,000,000 is raised in the Financing, the Investor Percentage will decrease proportionately. For the avoidance of doubt and by way of example, if 60% of the full amount ($3,000,000) is raised in the Financing, then the Investor Percentage will decrease by 40% to 9% of the issued and outstanding Victory Common Stock on a fully-diluted basis, the H2EG Percentage will increase to 76% of the issued and outstanding Victory Common Stock on a fully-diluted basis and the Victory Percentage will remain at 15% of the issued and outstanding Victory Common Stock on a fully-diluted basis. Financing amounts shall be immediately disbursed to H2EG when received and not held in escrow.
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(c) Capital Stock of Merger Sub. Each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation.
(d) Dissenting Shares.
(i) Notwithstanding any other provisions of this Agreement to the contrary, any shares of H2EG Capital Stock held by a holder who demands and perfects such holder’s appraisal rights (collectively, the “Dissenting Shares”) under Delaware Law will not be converted into or represent a right to receive the applicable consideration for H2EG Capital Stock set forth in Section 2.3, but the holder thereof will only be entitled to such rights as are provided by Delaware Law.
(ii) Notwithstanding the provisions of Section 2.3(d)(i), if any holder of Dissenting Shares will effectively withdraw or lose (through failure to perfect or otherwise) such holder’s appraisal rights under Delaware Law, then, as of the later of the Effective Time and the occurrence of such event, such holder’s shares will automatically be converted into and represent only the right to receive the consideration for H2EG Capital Stock, as applicable, set forth in Section 2.3, without interest thereon, upon surrender of the certificate representing such shares.
(iii) H2EG will give Victory (A) prompt notice of any written demand for appraisal received by H2EG pursuant to the applicable provisions of Delaware Law, and (B) the opportunity to participate in all negotiations and proceedings with respect to such demands.
2.4 Withholding Taxes. Notwithstanding any other provision in this Agreement, the Parties will have the right to deduct and withhold Taxes from any payments to be made hereunder if such withholding is required by Law. To the extent that any of the aforementioned amounts are so withheld and paid over to the appropriate taxing authority, such withheld amounts will be treated for all purposes of this Agreement as having been delivered and paid to the Person in respect of which such deduction and withholding was made.
2.5 Formation Documents. The (i) articles of incorporation of H2EG will be amended and restated as of the Effective Time to be identical to the articles of incorporation of Merger Sub as in effect immediately prior to the Effective Time, and as so amended and restated will be the articles of incorporation of the Surviving Corporation until thereafter amended in accordance with Delaware Law and as provided in the certificate of incorporation of the Surviving Corporation; and (ii) bylaws of H2EG will be amended and restated as of the Effective Time to be identical to the bylaws of Merger Sub , as in effect immediately prior to the Effective Time, and as so amended and restated will be the bylaws of the Surviving Corporation at the Effective Time until thereafter amended in accordance with Delaware Law and as provided in the certificate of incorporation and bylaws of the Surviving Corporation; provided, however, that the name of the Surviving Corporation will be H2 Energy Group Inc.
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2.6 Directors and Officers of Surviving Corporation.
(a) Directors of Surviving Corporation. The directors of Merger Sub will be those persons set forth on Schedule 2.6 immediately after the Effective Time, each to hold the office of a director of the Surviving Corporation in accordance with the provisions of Delaware Law and the articles of incorporation and bylaws of the Surviving Corporation until their respective successors are duly elected and qualified.
(b) Officers of Surviving Corporation. The officers of Merger Sub will be those persons set forth on Schedule 2.6 after the Effective Time, each to hold office in accordance with the provisions of the bylaws of the Surviving Corporation.
2.7 Delivery of Merger Consideration; Book Entry Notation of H2EG Capital Stock.
(a) Delivery of Merger Consideration. Subject to and upon the terms and conditions set forth in this Agreement, at the Effective Time, Victory will cause its transfer agent to issue to the H2EG Stockholders the shares of Victory Common Stock constituting the Merger Consideration in exchange for outstanding shares of H2EG Capital Stock.
(b) Book Entry Notation of H2EG Capital Stock. H2EG acts as the transfer agent for the H2EG Capital Stock. H2EG maintains an official ledger and stock certificates are only issued in book entry format with electronic certificates being issued as a book entry receipt. At the Effective Time, H2EG will update its official stock ledger to reflect the cancellation of all of the H2EG Capital Stock outstanding immediately prior to the Effective time and the conversion of each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation in accordance with Section 2.3.
2.8 No Further Ownership Rights in H2EG Capital Stock. The Merger Consideration issued in respect of the surrender for exchange of shares of H2EG Capital Stock in accordance with the terms hereof will be deemed to be full satisfaction of all rights pertaining to such shares of H2EG Capital Stock, and from and after the Effective Time there will be no further registration of transfers on the records of the Surviving Corporation of shares of H2EG Capital Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Stock Certificates are presented to the Surviving Corporation for any reason, they will be canceled.
2.9 Victory’s Obligations Fulfilled. Upon Victory making each aggregate delivery required of it under this Agreement to the Stockholders, Victory will have fulfilled its obligations with respect to such deliveries.
2.10 Taking of Necessary Action; Further Action. If at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest Victory with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Surviving Corporation, and the officers and directors of H2EG are fully authorized in the name of H2EG or otherwise to take, and will take, all such lawful and necessary action.
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2.11 Treatment of Stock Options and Other Stock-Based Compensation.
(a) H2EG Stock Options. As of the Effective Time, each option to acquire shares of H2EG Common Stock (each, an “H2EG Stock Option”) that is outstanding under any H2EG Plan immediately prior to the Effective Time, whether or not then vested or exercisable, will be, by virtue of the Merger and without any action on the part of the holder thereof, or any other Person, be assumed by Victory and will be converted into a Victory Stock Option in accordance with this Section 2.11. Each such Victory Stock Option as so assumed and converted will continue to have, and will be subject to, the same terms and conditions as applied to the H2EG Stock Option immediately prior to the Effective Time. As of the Effective Time, each such Victory Stock Option as so assumed and converted will be an option to acquire that number of whole shares of Victory Common Stock (rounded down to the nearest whole share) equal to the product of: (i) the number of shares of H2EG Common Stock subject to such H2EG Stock Option; and (ii) the Exchange Ratio, at an exercise price per share of Victory Common Stock (rounded up to the nearest whole cent) equal to the quotient obtained by dividing (A) the exercise price per share of H2EG Common Stock of such H2EG Stock Option by (B) the Exchange Ratio; provided, that the exercise price and the number of shares of Victory Common Stock subject to the Victory Stock Option will be determined in a manner consistent with the requirements of Section 409A of the Code, and, in the case of H2EG Stock Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code, consistent with the requirements of Section 424(a) of the Code.
(b) H2EG Restricted Shares. H2EG will take all requisite action so that, at the Effective Time, each share of H2EG Common Stock subject to vesting, repurchase, or other lapse of restrictions (a “H2EG Restricted Share”) that is outstanding under any H2EG Plan as of immediately prior to the Effective Time will, by virtue of the Merger and without any action on the part of the holder thereof, be assumed by Victory and will be converted into a Victory Restricted Share in accordance with this Section 2.11. Each Victory Restricted Share will continue to have and be subject to substantially the same terms and conditions as were applicable to such H2EG Restricted Share immediately before the Effective Time (including vesting, repurchase, or other lapse restrictions). As of the Effective Time, each such holder of H2EG Restricted Shares so assumed and converted will receive that number of whole Victory Restricted Shares equal to the product (rounded down to the nearest whole number) of: (i) the number of shares of H2EG Restricted Shares held by that holder as of immediately prior to the Effective Time; and (ii) the Exchange Ratio.
(c) Resolutions and Other H2EG Actions. At or prior to the Effective Time, H2EG, the H2EG Board, and the compensation committee of such board, as applicable, will adopt any resolutions and take any actions (including obtaining any employee consents) that may be necessary to effectuate the provisions of this Section 2.11.
(d) Victory Actions. At or prior to the Effective Time, Victory will reserve for future issuance a number of shares of Victory Common Stock at least equal to the number of shares of Victory Common Stock that will be subject to Victory Stock Options and Victory Restricted Shares, as a result of the actions contemplated by this Section 2.11.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF H2EG
H2EG hereby represents and warrants to Victory, subject to such exceptions as are disclosed in the disclosure schedule supplied by H2EG (the “H2EG Disclosure Schedule”) and dated as of the date hereof (referencing the appropriate section and paragraph numbers, provided that the disclosures in any section or paragraph of the H2EG Disclosure Schedule will qualify other sections and paragraphs of the H2EG Disclosure Schedule to the extent that it is reasonably apparent that such disclosure is applicable to such other sections and paragraphs), on the date hereof and as of the Effective Time, as though made at the Effective Time (except to the extent expressly made as of a specified date, in which case as of such date), as follows (as used in this ARTICLE III, the term “H2EG” includes Subsidiaries of H2EG, unless the context clearly otherwise indicates):
3.1 Organization; Standing and Power; Charter Documents; Minutes; Subsidiaries
(a) H2EG and each if its Subsidiaries is a corporation , limited liability company or other legal entity duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization and has the requisite corporate, limited liability company or other organizational, as appropriate, power and authority to own, lease and operate its assets and to carry on its business as now conducted. Each of H2EG and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation, limited liability company or other legal entity and is in good standing in each jurisdiction in which such qualification or licensure is required by Law, except for those jurisdictions where the failure to be so qualified or licensed and in good standing would not reasonably be expected to have, individually or in the aggregate, a H2EG Material Adverse Effect.
(b) H2EG and each if its Subsidiaries has made available to Victory a true and correct copy of its Charter Documents. Neither H2EG nor any of its Subsidiaries is in violation of any of the provisions of its Charter Documents.
(c) H2EG has made available to Victory true and correct copies of the minutes (or, in the case of minutes that have not yet been finalized, a summary of the meeting) of all meetings of stockholders, the board of directors of H2EG and each committee of the board of directors of H2EG since 2021.
3.2 Capital Structure
(a) The authorized capital stock of H2EG consists of 15,000,000 shares of common stock consisting of (i) 10,000,000 shares of Class A Common Stock, par value $0.00001 per share, of which 1,088,240.00 shares are issued and outstanding, and (ii) 5,000,000 shares of Class B Common Stock, par value $0.00001 per share, of which 21,366.08 shares are issued and outstanding, and 5,000,000 shares of Preferred Stock, of which no shares are issued and outstanding as of the date hereof. All outstanding shares of H2EG Capital Stock are, and all shares of H2EG Capital Stock that may be issued as contemplated or permitted by this Agreement will be, when issued, duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the Charter Documents, or any agreement to which H2EG is a party or by which it is bound, have been issued in compliance in all material respects with all applicable federal and state securities Laws. As of the date hereof, there are no declared and unpaid dividends with respect to any shares of H2EG Capital Stock.
(b) Except for the H2EG Plan, H2EG has never adopted, sponsored or maintained any stock option plan or any other plan or agreement, providing for equity compensation to any person. H2EG has reserved 1,000,000,000 shares of H2EG Common Stock under the H2EG Plan for issuance to employees and directors of, and consultants to, H2EG upon the exercise of options or other awards granted under the H2EG Plan or any other plan, agreement or arrangement (whether written or oral, formal or informal), of which no shares are issuable, as of the date hereof, upon the exercise of outstanding, unexercised options or other awards.
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(c) There are no (i) options, warrants, calls, rights, convertible securities, commitments or agreements of any character, written or oral, to which H2EG is a party or by which H2EG is bound obligating H2EG to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of H2EG Capital Stock or obligating H2EG to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement; (ii) outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to H2EG; (iii) voting trusts, proxies, or other agreements or understandings with respect to the voting securities of H2EG; (iv) Contracts to which H2EG is a party relating to the registration, sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any H2EG Capital Stock.
(d) H2EG has made available to Victory a true and accurate list of each of the stockholders of H2EG showing the number of shares of H2EG Capital Stock held by such stockholder of H2EG.
(e) H2GE does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.
3.3 Authority. H2GE has all requisite corporate power and authority to enter into this Agreement and any Related Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. H2GE has obtained the requisite approval of the H2GE Stockholders of this Agreement under Delaware Law and the Charter Documents, the execution and delivery of this Agreement and any Related Agreements to which H2GE is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of H2GE and no further action is required on the part of H2GE to authorize this Agreement and any Related Agreements to which it is a party and the transactions contemplated hereby and thereby. This Agreement has been approved by the board of directors of H2GE. This Agreement and each of the Related Agreements to which H2GE is a party has been duly executed and delivered by H2GE and assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute the valid and binding obligations of H2GE enforceable against it in accordance with their respective terms, except as such enforceability may be subject to the Laws of general application relating to bankruptcy, insolvency, reorganization and the relief of debtors and rules of Law governing specific performance, injunctive relief, or other equitable remedies; provided, however, that the Certificate of Merger will not be effective until filed with and accepted by the Division of Corporations of the State of Delaware.
3.4 No Conflict. The execution, delivery and performance by H2EG of this Agreement and the Certificate of Merger, and the consummation of the transactions contemplated hereby and thereby, do not and will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any right or benefit under (any such event, a “Conflict”) (a) any provision of the Charter Documents of H2EG, (b) any Material Contract of H2EG except for any such conflicts, defaults, rights of termination, cancellations, modifications or accelerations that would not reasonably be expected to have, individually or in the aggregate, a H2EG Material Adverse Effect or (c) any material Law applicable to H2EG or any of its properties (whether tangible or intangible) or assets.
3.5 Governmental Consents. No consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with Governmental Entity is required to be obtained or made by H2EG in connection with the execution and delivery of this Agreement and the Certificate of Merger or the consummation of the transactions contemplated hereby and thereby, except for the filing of the Certificate of Merger with the Division of Corporations of the State of Delaware.
3.6 Financial Statements. Final copies of H2EG’s audited balance sheet as of December 31, 2022 and 2021 (the “H2EG Balance Sheet Date”) and the statements of income, cash flow and stockholders’ equity for the twelve (12) month period ended December 31, 2022 and 2021(collectively, the “H2EG Financials”) will be provided to Victory prior the Initial Financing. The H2EG Financials are true and correct in all material respects and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and consistent with each other. The H2EG Financials fairly present in all material respects H2EG’s financial condition, operating results and cash flows as of the dates and during the periods indicated therein.
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3.7 No Undisclosed Liabilities. H2EG has no liability, indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued, absolute, contingent, matured, unmatured or otherwise, required to be reflected in financial statements in accordance with GAAP, which individually or in the aggregate (a) has not been reflected in the H2EG Balance Sheet, or (b) has not arisen (i) in the ordinary course of business, consistent with past practices, since the Balance Sheet Date, (ii) pursuant to or in connection with this Agreement, the Merger or the other transaction contemplated hereby or (c) are not executory performance obligations to be performed after the date hereof in the ordinary course of business pursuant to agreements of H2EG that were entered into in the ordinary course of business, consistent with past practices, or any agreements or Material Contracts.
3.8 No Changes. Since the H2EG Balance Sheet Date through the date of this Agreement, H2EG has conducted its business in the ordinary course and in a manner consistent with past practices and there has not been or occurred any Material Adverse Effect or any event, condition, change or effect that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.9 Tax Matters
(a) Tax Returns and Audits.
(i) H2EG has (a) prepared and timely filed all material U.S. federal, state, local and non-U.S. returns, estimates, information statements and reports (“Tax Returns”) relating to any and all Taxes of H2EG and such Tax Returns have been completed in accordance with applicable Law in all material respects and (b) timely paid all material Taxes it is required to pay.
(ii) To the Knowledge of H2EG, no audit or other examination of any Return of H2EG is presently in progress, nor has H2EG been notified in writing of any request for such an audit or other examination. No adjustment that remains outstanding relating to any Return filed by H2EG has been proposed in writing by any Tax authority to H2EG or any representative thereof. No written claim has ever been made by a taxing authority that H2EG is or may be subject to taxation in a jurisdiction in which it does not file Tax Returns.
(iii) H2EG has made available copies of all income and other material Tax Returns for H2EG filed for all periods since 2020.
(iv) There are no Liens on the assets of H2EG relating to or attributable to Taxes, other than Liens for Taxes not yet due and payable.
(b) Notwithstanding anything in this Agreement to the contrary, H2EG makes no representations or warranties regarding the amount value or condition of, or any limitations on, any Tax asset or attribute of H2EG (e.g., net operating losses) (each, a “Tax Attribute”), or the ability of Victory or any of its Affiliates (including the Surviving Corporation) to utilize such Tax Attributes after the Closing.
3.10 Tangible and Intangible Assets; Absence of Liens and Encumbrances.
(a) H2EG has good and marketable title to, or valid leasehold interests in, all of its respective assets and interests in assets, whether personal, mixed, tangible, or intangible, owned or leased, that constitute all the assets and interests in assets that are used in the operation of H2EG’s business. All these assets are free and clear of restrictions on or conditions to transfer or assignment and free and clear of mortgages, liens, pledges, charges, encumbrances, equities, claims, easements, rights of way, covenants, conditions, or restrictions, except for any lien of current taxes not yet due and payable.
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(b) H2EG does not own, lease, sublease or license, or otherwise use or occupy any real property for the operation of its business.
(c) All equipment owned or leased by H2EG currently in use and necessary for the conduct of its business as presently conducted is in good operating condition, regularly and properly maintained, subject to normal wear and tear.
3.11 Intellectual Property.
(a) H2EG has not granted to any third party any exclusive license to any H2EG Intellectual Property.
(b) To the Knowledge of H2EG, the operation of the business as of H2EG as it is presently conducted does not infringe, misappropriate or violate the Intellectual Property of any third party and the H2EG Intellectual Property constitutes all of the Intellectual Property Rights necessary for the operation of H2EG’s business as presently conducted. H2EG has not received any written communication alleging that H2EG has violated any Intellectual Property Rights of a third party.
(c) H2EG has taken reasonable steps to protect and preserve the confidentiality of all trade secrets and other confidential or non-public information of H2EG.
3.12 Agreements, Contracts and Commitments.
(a) As of the date hereof, H2EG is not a party to or bound by any: (i) Contract not contemplated by this Agreement that materially limits the ability of the H2EG to engage or compete in any manner of the business presently conducted by the H2EG; (ii) Contract that creates a partnership or joint venture or similar arrangement with respect to any material business of the H2EG; (iii) indenture, credit agreement, loan agreement, security agreement, guarantee, note, mortgage or other evidence of indebtedness or agreement providing for indebtedness in excess of $100,000; (iv) Contract that relates to the acquisition or disposition of any material business (whether by merger, sale of stock, sale of assets or otherwise) other than this Agreement; and (v) Contract that involves performance of services or delivery of goods or materials by or to the H2EG in an amount or with a value in excess of $100,000 in any 12-month period (which period may extend past the Closing).
(b) H2EG has made available to Victory true and complete copies of each of the Contracts set forth in Schedule 3.12(a) of the Disclosure Schedule. To the Knowledge of H2EG, (i) all such Contracts are valid and binding, (ii) all such Contracts are in full force and effect (except for those that have terminated or will terminate by their own terms), and (iii) neither H2EG nor any other party to such Contracts is in violation or breach of or default under (or with notice or lapse of time, or both, would be in violation or breach of or default under) the terms of any such Contract, in each case, except where such default would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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3.13 Interested Party Transactions. No officer or director, or to the Knowledge of H2EG, Stockholder of H2EG (nor, to the Knowledge of H2EG, any ancestor, sibling, descendant or spouse of any of such persons, or any trust, partnership or corporation in which any of such persons has or has had an interest), has directly or indirectly, (a) an interest in any entity which furnishes or sells or licenses H2EG’s products and services, or (b) any interest in any entity that purchases from or sells or furnishes to H2EG, any goods or services, or (c) a beneficial interest in any Material Contract to which H2EG is a party (other than in such person’s capacity as a stockholder, director, officer or employee of H2EG); provided, however, that ownership of no more than five percent (5%) of the outstanding voting stock of a publicly traded corporation will not be deemed to be an “interest in any entity” for purposes of this Section 3.13. No H2EG Stockholder has any loans outstanding from H2EG except for business travel expenses in the ordinary course of business, consistent with past practices, to employee Stockholders of H2EG.
3.14 Governmental Authorization. Each material consent, license, permit, grant or other authorization of any Governmental Entity (a) pursuant to which H2EG currently operates or holds any interest in any of its properties, or (b) which is required for the operation of H2EG’s business as currently conducted or the holding of any such interest (collectively, “H2EG Authorizations”) has been issued or granted to H2EG by such Governmental Entity, as the case may be. H2EG Authorizations are in full force and effect and constitute all H2EG Authorizations required to permit H2EG to operate or conduct its business as presently conducted or hold any interest in its properties or assets.
3.15 Litigation. There are no claims, actions, suits, arbitrations, proceedings or investigations (each, a “Legal Action”) pending (i) against H2EG (nor has H2EG received written notice of any threat thereof) before any court or governmental agency, or (ii) that questions the validity of this Agreement or the Related Agreements or the right of H2EG to enter into them, or the right of H2EG to perform its obligations contemplated thereby, or that, either individually or in the aggregate, if determined adversely to H2EG, would or could reasonably be expected to have a H2EG Material Adverse Effect or result in any change in the current equity ownership of H2EG. H2EG is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by H2EG pending or which H2EG intends to initiate. The foregoing includes actions, suits, proceedings, or investigations pending or threatened in writing (or any basis therefor known to H2EG) involving the prior employment of any H2EG employees or their services provided in connection with H2EG’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.
3.16 Environmental Matters. H2EG: (a) has not received any written notice of any alleged claim, violation of or Liability under any Environmental Law which has not heretofore been cured or for which there is any remaining liability; (b) has not disposed of, emitted, discharged, handled, stored, transported, used or released any Hazardous Materials, arranged for the disposal, discharge, storage or release of any Hazardous Materials, or to the Knowledge of H2EG, exposed any employee or other individual to any Hazardous Materials so as to give rise to any material liability or corrective or remedial obligation under any Environmental Laws; (c) holds all Environmental Permits required for its operations and is in compliance with the terms and conditions of any such permits; (d) has made available all Phase 1 and Phase II environmental assessments of any facility owned or leased by H2EG in H2EG’s possession, custody or control.
3.17 Brokers’ and Finders’ Fees; Third Party Expenses. H2EG has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions, fees related to investment banking or similar advisory services or any similar charges in connection with the Agreement or any transaction contemplated hereby.
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3.18 Employee Benefit Plans and Compensation.
(a) Schedule 3.18(a) of the Disclosure Schedule includes a list of all Benefit Plans maintained or contributed to by H2EG (the “H2EG Benefit Plans”). H2EG has delivered or made available to Victory copies of (i) each H2EG Benefit Plan, (ii) the most recent summary plan description for each H2EG Benefit Plan for which such a summary plan description is required and (iii) the most recent favorable determination letters from the IRS with respect to each H2EG Benefit Plan intended to qualify under Section 401(a) of the Code.
(b) (i) none of the H2EG Benefit Plans is subject to Title IV of ERISA; (ii) each H2EG Benefit Plan that is intended to be qualified under Section 401(a) of the Code is subject to a favorable determination letter from the IRS and, to the Knowledge of H2EG, no event has occurred and no condition exists that is reasonably likely to result in the revocation of any such determination; and (iii) each H2EG Benefit Plan is in compliance with all applicable provisions of ERISA and the Code, except for instances of noncompliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
3.19 Labor. There are no written employment agreements that obligate H2EG to pay an annual salary of $240,000 or more and to which H2EG is a party, other than those provided in Schedule 3.19. To the Knowledge of H2EG, there are no pending labor disputes, work stoppages, requests for representation, pickets, work slow-downs due to labor disagreements or any actions or arbitrations that involve the labor or employment relations of H2EG. H2EG is not party to any collective bargaining agreement.
3.20 Compliance with Laws. H2EG has complied in all material respects with, is not in material violation of, and has not received any written notices of material violation with respect to, any Laws.
3.21 H2EG Material Contracts.
(a) Schedule 3.21(a) of the H2EG Disclosure Schedule sets forth a true and complete list of each of the following Contracts to which any H2EG Entity is a party or by which any of its assets or properties are bound (collectively, the “H2EG Material Contracts”):
(i) Contracts with Company customers;
(ii) Contracts with Material suppliers;
(iii) Leases for the leased real properties;
(iv) joint venture, partnership or other Contracts (however named) involving a sharing of profits, losses, liabilities, or Taxes with any other Person;
(v) Contracts containing any covenant that purports to restrict, limit or control the business activities of a H2EG Entity or the ability of a H2EG Entity to freely engage (or not engage) in any line of business or to compete (or not compete) with any Person, including all Contracts providing for (A) non-competition and/or non-solicitation restrictions on a H2EG Entity with respect to employees, suppliers, customers, or other business relations, (B) exclusivity or requirements supply terms, or (C) “most favored nation” pricing or other rebates, discounts, payment terms, or other pricing concessions outside of the ordinary course of business;
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(vi) Contracts with any labor union, works council or other labor organization;
(vii) Contracts relating to indebtedness of any H2EG Entity or imposing an encumbrance on any of the assets or properties of a H2EG Entity;
(viii) Contracts with any director, officer, individual employee or independent contractor that provide for employment or engagement (other than any “at-will” employment or engagement Contract that may be terminated by the applicable H2EG Entity upon thirty (30) days or less advance notice and without penalty), severance, separation, change in control, retention or similar payments;
(ix) settlement or conciliation Contracts with respect to which there remains outstanding liabilities on the part of any H2EG Entity;
(x) Contracts pursuant to which a H2EG Entity has made any loan (other than advances to H2EG employees for business expenses to be incurred in the ordinary course of business or transactions with customers on credit in the ordinary course of business) or capital contribution to, or other debt or equity investment in, any Person, in each case with respect to which there remains outstanding liabilities on the part of the applicable H2EG Entity;
(xi) Contracts relating to the acquisition or disposition (whether by merger, sale of stock, sale of assets or otherwise) of any Person (or any division, segment, or unit thereof) with respect to which there remains outstanding liabilities on the part of any H2EG Entity;
(xii) to the extent not covered by any of the other subsections of this Section 3.7, any Contract, whether or not involving the performance of services or delivery of goods or materials by or to a H2EG Entity, with (A) a total remaining commitment by or to a H2EG Entity in excess of $100,000 or (B) a term which extends more than one (1) year after the date of this Agreement which is not terminable for convenience by a H2EG Entity upon less than sixty (60) days’ notice without a penalty; and
(xiii) Contracts with a Governmental Entity.
(b) Each H2EG Material Contract is valid and binding and in full force and effect. No H2EG Entity is in breach of, or default under, any H2EG Material Contract to which it is a party and, to the Knowledge of H2EG, no counterparty thereto is in breach of, or default under, any H2EG Material Contract. H2EG has delivered or made available to the purchaser true and complete copies of all H2EG Material Contracts, including any amendments to and/or restatements of.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF VICTORY
Except: (a) as disclosed in the Victory SEC Documents at least five business days prior to the date hereof and that is reasonably apparent on the face of such disclosure to be applicable to the representation and warranty set forth herein (other than any disclosures contained or referenced therein under the captions “Risk Factors,” “Forward-Looking Statements,” “Quantitative and Qualitative Disclosures About Market Risk,” and any other disclosures contained or referenced therein of information, factors, or risks that are predictive, cautionary, or forward-looking in nature); or (b) as set forth in the disclosure schedule supplied by Victory (the “Victory Disclosure Schedule”) and dated as of the date hereof (referencing the appropriate section and paragraph numbers, provided that the disclosures in any section or paragraph of the Victory Disclosure Schedule shall qualify other sections and paragraphs of the Victory Disclosure Schedule to the extent that it is reasonably apparent that such disclosure is applicable to such other sections and paragraphs), on the date hereof and as of the Effective Time, as though made at the Effective Time (except to the extent expressly made as of a specified date, in which case as of such date), as follows (as used in this ARTICLE IV, the term “Victory” includes Subsidiaries of Victory, unless the context clearly otherwise indicates):
4.1 Organization of Victory and Sub. Each of Victory and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Victory has the corporate power to own its properties and to carry on its business as currently conducted. Victory is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which such qualification or licensure is required by Law, except for those jurisdictions where the failure to be so qualified or licensed and in good standing would not reasonably be expected to have, individually or in the aggregate, a Victory Material Adverse Effect. The copies of the Certificate of Incorporation and By-Laws of Victory as most recently filed with the Victory SEC Documents are true, correct, and complete copies of such documents as in effect as of the date of this Agreement. Victory has made available a true and correct copy of its Charter Documents.
4.2 Capital Structure
(a) The authorized capital stock of Victory consists of 300,000,000 shares of common stock, $0.001 par value, of which 28,037,713 shares are issued and outstanding as of the date hereof, and 20,000 shares of Preferred Stock, $0.001 par value, of which 8,333 shares are issued and outstanding as of the date hereof. All outstanding shares of Victory Capital Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the Charter Documents, or any agreement to which Victory is a party or by which it is bound, have been issued in compliance in all material respects with all applicable federal and state securities Laws. As of the date hereof, there are no declared and unpaid dividends with respect to any shares of Victory Capital Stock.
(b) Except for the Victory Plan, Victory has never adopted, sponsored or maintained any stock option plan or any other plan or agreement, providing for equity compensation to any person. Victory has not reserved shares of Victory Common Stock under the Victory Plan for issuance to employees and directors of, and consultants to, Victory upon the exercise of options or other awards granted under the Victory Plan or any other plan, agreement or arrangement (whether written or oral, formal or informal), of which no shares are issuable, as of the date hereof, upon the exercise of outstanding, unexercised options or other awards.
(c) Except as set forth in Schedule 4.2(c) of the Victory Disclosure Schedule, there are no (i) options, warrants, calls, rights, convertible securities, commitments or agreements of any character, written or oral, to which Victory is a party or by which Victory is bound obligating Victory to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of Victory Capital Stock or obligating Victory to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement; (ii) outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to Victory; (iii) voting trusts, proxies, or other agreements or understandings with respect to the voting securities of Victory; (iv) Contracts to which Victory is a party relating to the registration, sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any Victory Capital Stock.
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4.3 Subsidiaries. Except as set forth in Schedule 4.3 of the Victory Disclosure Schedule, Victory does not have any Subsidiaries and does not otherwise directly or indirectly own any equity or similar interest in or any interest convertible, exchangeable or exercisable for, any equity or similar interest in, any other Person. Each Victory Subsidiary is wholly-owned by Victory.
4.4 Authority. Victory has all requisite corporate power and authority to enter into this Agreement and any Related Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Victory and no further action is required on the part of Victory to authorize this Agreement and any Related Agreements to which it is a party and the transactions contemplated hereby and thereby. This Agreement has been approved by the board of directors of Victory. This Agreement and each of the Related Agreements to which Victory is a party has been duly executed and delivered by Victory and assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute the valid and binding obligations of Victory enforceable against it in accordance with their respective terms, except as such enforceability may be subject to the Laws of general application relating to bankruptcy, insolvency, reorganization and the relief of debtors and rules of Law governing specific performance, injunctive relief, or other equitable remedies; provided, however, that the Certificate of Merger will not be effective until filed with and accepted by the Division of Corporations of the State of Delaware.
4.5 No Conflict. The execution and delivery by Victory of this Agreement and the Certificate of Merger, and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a Conflict under (a) any provision of the Charter Documents of Victory, (b) any Material Contract of Victory except for any such conflicts, defaults, rights of termination, cancellations, modifications or accelerations that would not reasonably be expected to have, individually or in the aggregate, a Victory Material Adverse Effect or (c) any material Law applicable to Victory or any of its properties (whether tangible or intangible) or assets.
4.6 Governmental Consents. No consent, notice, waiver, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity, is required to be obtained or made by Victory in connection with the execution and delivery of this Agreement and the Certificate of Merger or the consummation of the transactions contemplated by this Agreement, except for the filing of the Division of Corporations of the State of Delaware.
4.7 SEC Filings; Financial Statements.
(a) Victory has filed with or furnished to, as applicable, the SEC all registration statements, prospectuses, reports, schedules, forms, statements, and other documents (including exhibits and all other information incorporated by reference) required to be filed or furnished by it with the SEC (the “Victory SEC Documents”). True, correct, and complete copies of all the Victory SEC Documents are publicly available on EDGAR. As of their respective filing dates or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), each of the Victory SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”), the Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act, and the rules and regulations of the SEC thereunder applicable to such Victory SEC Documents. None of the Victory SEC Documents, including any financial statements, schedules, or exhibits included or incorporated by reference therein at the time they were filed (or, if amended or superseded by a subsequent filing prior to the date hereof, as of the date of the last such amendment or superseding filing), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. To the Knowledge of Victory, none of the Victory SEC Documents is the subject of ongoing SEC review or outstanding SEC investigation and there are no outstanding or unresolved comments received from the SEC with respect to any of the Victory SEC Documents. None of Victory’s Subsidiaries are required to file or furnish any forms, reports, or other documents with the SEC and neither Victory nor any of its Subsidiaries is required to file or furnish any forms, reports, or other documents with any securities regulation (or similar) regime of a non-United States Governmental Entity.
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(b) Financial Statements. Each of the consolidated financial statements (including, in each case, any notes and schedules thereto)contained in or incorporated by reference into the Victory SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto as of their respective dates; (ii) was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and, in the case of unaudited interim financial statements, as may be permitted by the SEC for Quarterly Reports on Form 10-Q or other rules and regulations of the SEC); and (iii) fairly presented in all material respects the consolidated financial position and the results of operations and cash flows of Victory and its consolidated Subsidiaries as of the respective dates of and for the periods referred to in such financial statements, subject, in the case of unaudited interim financial statements, to normal and year-end audit adjustments as permitted by the applicable rules and regulations of the SEC (but only if the effect of such adjustments would not, individually or in the aggregate, be material).
4.8 No Undisclosed Liabilities. The audited balance sheet of Victory dated as of December 31, 2022 contained in the Victory SEC Documents filed prior to the date hereof is hereinafter referred to as the “Victory Balance Sheet.” Neither Victory nor any of its Subsidiaries have any liabilities other than those liabilities that: (i) are reflected or reserved against in the Victory Balance Sheet (including in the notes thereto); (ii) were incurred since the date of the Victory Balance Sheet in the ordinary course of business consistent with past practice; (iii) are incurred in connection with the transactions contemplated by this Agreement; or (iv) would not reasonably be expected to have, individually or in the aggregate, a Victory Material Adverse Effect.
4.9 No Changes. Since the Balance Sheet Date through the date of this Agreement, Victory has conducted its business in the ordinary course and a in a manner consistent with past practices.
4.10 Litigation. There are no Legal Actions pending (i) against Victory (nor has Victory received written notice of any threat thereof) before any court or governmental agency, or (ii) that questions the validity of this Agreement or the Related Agreements or the right of Victory to enter into them, or the right of Victory to perform its obligations contemplated thereby, or that, either individually or in the aggregate, if determined adversely to Victory, would or could reasonably be expected to have a Victory Material Adverse Effect or result in any change in the current equity ownership of Victory. Victory is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by Victory pending or which Victory intends to initiate. The foregoing includes actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to Victory) involving the prior employment of any of Victory employees, their services provided in connection with Victory’s business, or any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers.
4.11 Brokers’ and Finders’ Fees; Third Party Expenses. Victory has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions, fees related to investment banking or similar advisory services or any similar charges in connection with the Agreement or any transaction contemplated hereby.
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4.12 Compliance with Laws. Victory has complied in all material respects with, is not in material violation of, and has not received any written notices of material violation with respect to, any Laws.
4.13 Environmental Liabilities. Victory has not engaged in operations that could subject it to liability related to the handling, storage or processing of hazardous or toxic substances that include but are not limited to environmental cleanup or injury to persons.
ARTICLE V
COVENANTS
5.1 Conduct of Business of the Parties. Each Party will, and will cause each of its Subsidiaries to, during the period from the date of this Agreement until the Effective Time, except as expressly contemplated by this Agreement or as required by applicable Law or with the prior written consent of the other Party, conduct its business in the ordinary course of business consistent with past practice, and, to the extent consistent therewith, each Party will, and will cause each of its Subsidiaries to, use its reasonable best efforts to preserve substantially intact its and its Subsidiaries’ business organization, to keep available the services of its and its Subsidiaries’ current officers and employees, to preserve its and its Subsidiaries’ present relationships with customers, suppliers, distributors, licensors, licensees and other Persons having business relationships with it. Without limiting the generality of the foregoing, between the date of this Agreement and the Effective Time, or as required by applicable Law, neither Party will, nor will it permit any of its Subsidiaries to, without the prior written consent of the other Party (which consent will not be unreasonably withheld or delayed):
(a) amend or propose to amend its Charter Documents;
(b) (i) split, combine or reclassify, with respect to Victory any Victory Capital Stock, and with respect to H2EG any H2EG Capital Stock, (ii) repurchase, redeem or otherwise acquire, or offer to repurchase, redeem or otherwise acquire, with respect to Victory any Victory Capital Stock, and with respect to H2EG any H2EG Capital Stock, (iii) declare, set aside or pay any dividend or distribution (whether in cash, stock, property or otherwise) in respect of, or enter into any Contract with respect to the voting of, any shares of Victory Capital Stock or H2EG Capital Stock, as the case may be;
(c) issue, sell, pledge, dispose of or encumber, with respect to Victory any Victory Capital Stock, and with respect to H2EG any H2EG Capital Stock, other than (i) the issuance of shares of Victory Common Stock or H2EG Common Stock, as the case may be, upon the exercise of any equity award outstanding as of the date of this Agreement in accordance with its terms, (ii) the issuance of shares of Victory Capital Stock or H2EG Capital Stock, as the case may be, in respect of other equity compensation awards outstanding under a Benefit Plan as of the date of this Agreement in accordance with its terms, (iii) the issuance of shares of Victory Capital Stock or H2EG Capital Stock, as the case may be, upon exercise of any warrant that is outstanding as of the date of this Agreement, or (iv) the issuance of shares of Victory Capital Stock or H2EG Capital Stock, as the case may be, upon the conversion of Convertible Notes;
(d) except as required by applicable Law or by any Benefit Plan or Contract in effect as of the date of this Agreement, (i) increase the compensation payable or that could become payable by a Party to its directors, officers or employees, other than increases in compensation made in the ordinary course of business consistent with past practice, (ii) enter into any new or amend in any material respect, any existing employment, severance, retention or change in control agreement with any of its past or present officers or employees, (iii) promote any officers or employees, except in connection with any annual or quarterly compensation review cycle or as the result of the termination or resignation of any officer or employee, or (iv) establish, adopt, enter into, amend, terminate, exercise any discretion under, or take any action to accelerate rights under any Company Employee Plans or any plan, agreement, program, policy, trust, fund or other arrangement that would be a Party’s Benefit Plan if it were in existence as of the date of this Agreement, or make any contribution to any Benefit Plan, other than contributions required by Law, the terms of such Benefit Plan as in effect on the date hereof or that are made in the ordinary course of business consistent with past practice;
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(e) acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or Person or division thereof or make any loans, advances or capital contributions to or investments in any Person in excess of $50,000 in the aggregate;
(f) (i) transfer, license, sell, lease or otherwise dispose of any assets (whether by way of merger, consolidation, sale of stock or assets, or otherwise), including the capital stock or other equity interests in any Victory Subsidiary or H2EG Subsidiary, as the case may be, provided that the foregoing will not prohibit a Party or its Subsidiaries from transferring, licensing, selling, leasing or disposing of obsolete equipment or assets being replaced, in each case in the ordinary course of business consistent with past practice, or (ii) adopt or effect a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization;
(g) repurchase, prepay or incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of Victory and its Subsidiaries or H2EG and its Subsidiaries, as the case may be, guarantee any debt securities of another Person, enter into any “keep well” or other Contract to maintain any financial statement condition of any other Person (other than any wholly owned Subsidiary) or enter into any arrangement having the economic effect of any of the foregoing, other than in connection with the financing of ordinary course trade payables consistent with past practice;
(h) enter into or amend or modify in any material respect, or consent to the termination of (other than at its stated expiry date), with respect to Victory any Victory Material Contract, and with respect to H2EG any H2EG Material Contract, or any other Contract applicable to the Party that, if in effect as of the date hereof would constitute a Victory Material Contract or H2EG Material Contract, as the case may be, hereunder;
(i) institute, settle or compromise any Legal Actions pending or threatened before any arbitrator, court or other Governmental Entity involving the payment of monetary damages by of any amount exceeding $50,000 in the aggregate, other than (i) any Legal Action brought against a Party arising out of a breach or alleged breach of this Agreement by another Party, and (ii) the settlement of claims, liabilities or obligations reserved against on a Party’s most recent balance sheet; provided that neither the Parties nor their Subsidiaries, as the case may be, will not settle or agree to settle any Legal Action which settlement involves a conduct remedy or injunctive or similar relief or has a restrictive impact on a Party’s business;
(j) make any material change in any method of financial accounting principles or practices, in each case except for any such change required by a change in GAAP or applicable Law;
(k) (i) settle or compromise any material Tax claim, audit or assessment, (ii) make or change any material Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, (iii) amend any material Tax Returns or file claims for material Tax refunds, or (iv) enter into any material closing agreement, surrender in writing any right to claim a material Tax refund, offset or other reduction in Tax liability or consent to any extension or waiver of the limitation period applicable to any material Tax claim or assessment relating to a Party or its Subsidiaries;
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(l) enter into any material agreement, agreement in principle, letter of intent, memorandum of understanding or similar Contract with respect to any joint venture, strategic partnership or alliance;
(m) take any action to exempt any Person from, or make any acquisition of a Party’s securities by any Person not subject to, any state takeover statute or similar statute or regulation that applies to such Party with respect to a Takeover Proposal or otherwise, including the restrictions on “business combinations” set forth, with respect to H2EG, in Section 203 of the Delaware Law, and with respect to Victory, in Section 78.378 of the Nevada Revised Statutes, except for a Party, a Party’s Subsidiaries or Affiliates, or the transactions contemplated by this Agreement;
(n) abandon, encumber, convey title (in whole or in part), exclusively license or grant any right or other licenses to Intellectual Property, other than in the ordinary course of business consistent with past practice; or
(o) agree or commit to do any of the foregoing.
5.2 Other Actions. From the date of this Agreement until the earlier to occur of the Effective Time, the Parties will not take, and will not permit any of their respective Subsidiaries to take, or agree or commit to take, any action that would reasonably be expected to, individually or in the aggregate, prevent, materially delay or materially impede the consummation of the Merger or the other transactions contemplated by this Agreement.
5.3 Access to Information. From the date of this Agreement until the earlier to occur of the Effective Time, each Party (in this context, a “Requested Party”) will afford to each other Party (in this context, a “Requesting Party”) reasonable access, at reasonable times and in a manner as will not unreasonably interfere with any business or operations thereof, to the Requested Party’s officers, employees, accountants, agents, properties, offices and other facilities and to all books, records, contracts and other assets, and the Requested Party will furnish promptly to the such other information concerning its business and properties as the Requesting Party may reasonably request from time to time; provided, however, that a Requested Party will not be required to provide access to or disclose information where such access or disclosure would jeopardize the protection of attorney-client privilege or contravene any Law (it being agreed that the Parties will use their reasonable best efforts to cause such information to be provided in a manner that would not result in such jeopardy or contravention). No investigation will affect the Requested Party’s representations and warranties contained herein, or limit or otherwise affect any remedies available to the Parties pursuant to this Agreement.
5.4 RESERVED.
5.5 Schedule 14F-1. As soon as reasonably practicable following the execution of this Agreement and the determination by the Parties of those persons that will serve as board members of Victory at the Effective Time in accordance with Section 7.1(f), Victory shall file with the U.S. Securities and Exchange Commission an information statement on Schedule 14F-1 that discloses the requisite information regarding the persons who will become directors of Victory in accordance with Section 7.1(f). Such filing shall be made sufficiently in advance of the Effective Time such that the board composition can be changed as described in Section 7.1(f) at the Effective Time in accordance with applicable law.
5.6 Disposition of Pro-Tech. On or before the thirtieth (30th) day following the Effective Time, Victory shall enter into a definitive agreement (the “Pro-Tech Disposition Agreement”) with Visionary Private Equity Group I, LP (“Visionary”) regarding the transfer to Visionary or its designee of all of the equity interests held by Victory in Pro-Tech or the transfer of all or substantially all of the assets of Pro-Tech to Visionary or its designee (the “Pro-Tech Disposition”) and shall consummate the Pro-Tech Disposition on or before the sixtieth (60th) day following the Effective Time. Each of the Parties acknowledges that the Pro-Tech Disposition to Visionary pursuant to the Pro-Tech Disposition Agreement is a material term of the Merger transaction contemplated hereby.
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5.7 Financing. The Parties shall use reasonable best efforts to complete a private placement financing for gross proceeds of up to $5,000,000 (the “Financing”) and the Investors in the Financing will receive Victory Common Stock in accordance with Section 2.3(b), provided however, that H2EG shall have the right in its sole discretion to proceed with or terminate this Agreement in the event that at least $500,000 of the Financing is not raised, whether through Victory’s efforts or otherwise, on or before August 4, 2023 (the “Initial Financing”), unless otherwise agreed to by the Parties. The Financing shall be promptly disbursed to H2EG when received and shall be represented by a promissory note in a form reasonably satisfactory to the Parties (the “Financing Note”). The Financing Note shall be forgiven upon consummation of the Merger, provided however that the Financing Note shall be payable by H2EG to Victory in accordance with its terms if the Merger is not completed.
5.8 Post-Closing Matters.
(a) Conversion of Convertible Notes. As soon as practicable following the Closing, each Party, will use its best efforts to cause the conversion of its outstanding convertibles notes.
(b) Victory Expired Warrants. As soon as practicable following the Closing, Victory will solicit the holders of certain warrants to purchase Victory Common Stock that were previously issued and have since expired, and issue up to 2,827,515 new warrants to such holders in exchange for a release by such holders of any and all claims against Victory.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Confidentiality. Each of the Parties agree that the information obtained in any investigation in connection with the transactions contemplated hereby, or pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated by the Agreement, will be governed by the confidentiality provisions of that certain terms of that certain Letter of Intent, dated October 4, 2022, between Victory and H2EG (the “Confidential Disclosure Agreement”).
6.2 Public Disclosure. No Party will issue any statement or communication to any third party (other than their respective agents that are bound by confidentiality restrictions, H2EG’s Stockholders, and in connection with the satisfaction of any conditions set forth in ARTICLE VI regarding the subject matter of this Agreement or the transactions contemplated hereby, including, if applicable, the termination of this Agreement and the reasons therefor, without the consent of Victory (which consent will not be unreasonably withheld)).
6.3 Additional Documents and Further Assurances; Reasonable Efforts. Each Party, at the reasonable request of another Party, will execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the Merger and the transactions contemplated hereby.
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ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of H2EG and Victory to effect the Merger will be subject to the satisfaction, at or prior to the Effective Time, of the following conditions:
(a) Completion of Due Diligence. The Parties will have completed a thorough and satisfactory review of each other’s respective businesses, assets, liabilities, financial condition, operations, legal and regulatory compliance, and any other material information necessary for the Parties to make an informed decision regarding the Merger and the results thereof shall be reasonably satisfactory to each Party including, but not limited to, satisfactory confirmation of H2EG’s perpetual license rights and access to the Proton Power technology, with firm pricing, for the first facility/project.
(b) No Order. No Governmental Entity will have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger or the Contribution illegal or otherwise prohibiting consummation of the Merger or the Contribution.
(c) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger will be in effect, nor will any action or proceeding be brought and pending by an administrative agency or commission or other Governmental Entity or instrumentality, domestic or foreign, seeking any of the foregoing.
(d) Governmental Approval. Any approvals from any Governmental Entity, instrumentality, agency, or commission (if any) necessary for the consummation of the Merger listed on Schedule 7.1(d) will have been timely obtained.
(e) Outstanding Indebtedness. On the Closing Date, other than as disclosed on Schedule 7.1(e), neither Party will have any outstanding indebtedness, liabilities or payables, including, convertible debt, whether contingent, accrued or otherwise in excess of $50,000, other than trade payables in accordance with each Party’s current business and incurred in the ordinary and historic course of its business.
(f) Board Nominees. At or prior to the Effective Time and subject to compliance with Rule 14F-1 of the Exchange Act, the size of the Board of Directors of Victory will be increased to five (5) members and will consist of the following directors: Chris Headrick, who will serve as Chairman of the board of directors, Kevin DeLeon, Jim McGinley, Neil Goulden and one director to be selected by the investor group. H2EG will provide an agreement of each such individual to perform such background and credit checks of such individual. Unless removed for cause, death or disability, the two individuals who are presently serving on the board of directors of Victory and who will continue to serve on the board of directors of Victory will so serve until the next annual meeting of the stockholders of Victory; provided, however, that unless such individuals fail to provide his consent or unless such individuals have committed a “bad actor” disqualification event of the type described in Rule 506(d) of the Securities Act, Victory shall nominate such individuals to serve as directors at such next annual meeting of the stockholders.
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(g) Officer Appointments. As of the Effective Time, the board of directors of Victory will appoint the following individuals to serve as executive officers of the Surviving Company in the following positions:
(i) Chris Headrick, Executive Chairman;
(ii) Jim McGinley, Chief Executive Officer and President; and
(iii) Neil Goulden, Chief Administrative Officer, Treasurer and Secretary.
(iv) Paul Powers, Chief Development Officer
(v) Don Turner, Chief Operating Officer
(h) Pending Litigation. On the Closing Date, neither the Parties nor any of their respective Subsidiaries or Affiliates will have any outstanding, pending or to its knowledge threatened litigation.
7.2 Conditions to Obligations of H2EG. The obligations of H2EG to consummate and effect the Merger and the transactions contemplated hereby will be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by H2EG:
(a) Representations, Warranties and Covenants. (i) The representations and warranties of Victory in this Agreement (disregarding for this purpose all exceptions in those representations and warranties relating to materiality or a Victory Material Adverse Effect or any similar standard or qualification) will be true and correct on and as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except to the extent expressly made as of a specified date, in which case as of such date), except where such failure to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a Victory Material Adverse Effect, and (ii) each of Victory and Merger Sub will have performed and complied in all material respects with all covenants and obligations under this Agreement required to be performed and complied with by such parties as of the Closing.
(b) Third Party Consents. H2EG will have received all necessary consents, waivers and approvals of parties to any Victory Material Contracts, each in such form and substance that is reasonably acceptable to H2EG.
(c) Certificate of Secretary of Victory. H2EG will have received a certificate, validly executed by the Secretary of Victory, certifying (i) as to the terms and effectiveness of the Charter Documents of Victory and Merger Sub and (ii) as to the valid adoption of resolutions of the Board of directors of Victory and Merger Sub (whereby this Agreement was approved by the board of directors of each such Party).
(d) Certificates of Good Standing. H2EG will have received a certificate of good standing of each of Victory and Merger Sub from the Secretary of State of the State of Nevada.
(e) Lock-Up Agreements. Victory shall cause each of its officers, directors and the legacy record and beneficial holders of 5% or more of outstanding Victory Common Stock who will hold such percentage following the Effective Time, including holders of warrants, options, preferred stock and other Victory securities, exercisable, and/or exchangeable into Victory Common Stock to have entered into twelve (12) month lock-up agreements with respect to their Victory securities in a form substantially similar to that attached hereto as Exhibit B.
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(f) Victory Material Adverse Effect. Since the date of this Agreement, there will not have been any Victory Material Adverse Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
7.3 Conditions to Obligations of Victory and Merger Sub. The obligations of Victory and Merger Sub to consummate and effect the Merger and the transactions contemplated hereby will be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, exclusively by Victory:
(a) Representations, Warranties and Covenants. (i) The representations and warranties of H2EG in this Agreement (disregarding for this purpose all exceptions in those representations and warranties relating to materiality or H2EG Material Adverse Effect or any similar standard or qualification) will be true and correct on and as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except to the extent expressly made as of a specified date, in which case as of such date), except where such failure to be so true and correct would not reasonably be expected to have, individually or in the aggregate, a H2EG Material Adverse Effect, and (ii) H2EG will have performed and complied in all material respects with all covenants and obligations under this Agreement required to be performed and complied with by such parties as of the Closing.
(b) Third Party Consents. Victory will have received all necessary consents, waivers and approvals of parties to any H2EG Material Contract, each in such form and substance that is reasonably acceptable to Victory.
(c) Certificate of Secretary of H2EG. Victory will have received a certificate, validly executed by the Secretary of H2EG, certifying (i) as to the terms and effectiveness of the Charter Documents of H2EG, and (ii) as to the valid adoption of resolutions of the Board of directors of H2EG (whereby this Agreement was approved by the board of directors of H2EG).
(d) Certificates of Good Standing. Victory will have received a certificate of good standing of H2EG from the Division of Corporations of the State of Delaware.
(e) Lock-Up Agreements. H2EG shall cause each of its officers, directors and those of its stockholders who will become the record and beneficial holders of 5% or more of outstanding Victory Common Stock following the Effective Time, including holders of warrants, options, preferred stock and other Victory securities, exercisable, and/or exchangeable into Victory Common Stock to have entered into twelve (12) month lock-up agreements with respect to their Victory securities in a form substantially similar to that attached hereto as Exhibit B.
(f) H2EG Material Adverse Effect. Since the date of this Agreement, there will not have been any H2EG Material Adverse Effect or any event, change, or effect that would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.
(g) DeLeon Employment Agreement. H2EG and Kevin DeLeon shall have entered into an employment agreement for a term of at least two (2) years that includes an annual salary, form and substance mutually satisfactory to the parties thereto.
(h) Amendments to H2EG Employment Agreements. All written employment agreements by and between H2EG and another Person will be amended to the satisfaction of Victory and H2EG.
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ARTICLE VIII
EMPLOYEE MATTERS
8.1 Continuation of Employment. The employment relationship of the H2EG Employees identified in Schedule 8.1 will continue, without material change to the terms and condition of employment, with the applicable H2EG Entity as of the Closing. The Parties will take any and all actions reasonably necessary (which will not include any obligation to pay any additional compensation or provide any additional benefits) to ensure the continued employment of the H2EG Employees with the applicable H2EG Entity as of the Closing, the termination of all H2EG Plans at or after the Closing, and the eligibility of H2EG Employees for the employee benefit plans maintained by Victory for similarly-situated employees.
8.2 [Reserved]
8.3 No Third-Party Beneficiaries. Notwithstanding anything to the contrary in this Article VIII or elsewhere in this Agreement, except to the extent otherwise provided or required by applicable Law, nothing expressed or implied herein will confer upon any H2EG Employee or any other Person the right or obligation to continue in employment with Victory following the Closing Date, or is intended to interfere with any right or ability of Victory (a) to terminate the employment of any H2EG Employee or any other Person for any reason or no reason following the Closing Date or (b) subject to the provisions of this Article VIII, to amend, modify or terminate any H2EG Plan in the sole and absolute discretion of Victory. Nothing in this Article VIII will be considered an amendment of any H2EG Plan. The Parties acknowledge and agree that all of the provisions contained in this Article VIII are included for the sole benefit of the Parties hereto and will not create any right in any Person, including any employees, former employees, any participant in any H2EG Plan or any beneficiary thereof.
ARTICLE IX
TERMINATION
9.1 Termination. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the Merger contemplated herein may be abandoned at any time prior to the Effective Time:
(a) By the mutual written consent of H2EG and Victory;
(b) By either of Victory or H2EG;
(i) if any governmental entity of competent jurisdiction shall have issued an order permanently restraining, enjoining or otherwise prohibiting the Merger and such order shall have become final and non-appealable; or
(ii) if the Merger shall not have been consummated by September 20, 2023 (the “Outside Date”); provided, however, that the right to terminate this Agreement pursuant to this Section 9.1(b)(ii) shall not be available to any party whose breach of any representation, warranty, covenant or agreement set forth in this Agreement has been the cause of, or resulted in, the failure of the Merger to be consummated on or before the Outside Date.
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(c) By Victory:
(i) if H2EG shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.3 and (ii) is incapable of being cured by H2EG by the Outside Date (as the same may be extended).
(d) By H2EG:
(i) if Victory shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.2 and (ii) is incapable of being cured by Victory by the Outside Date (as the same may be extended).
9.2 Effect of Termination. In the event of the termination of this Agreement by either H2EG or Victory as provided in Section 9.1, written notice thereof shall forthwith be given by the terminating Party to the other Party specifying the provision hereof pursuant to which such termination is made. In the event of the termination of this Agreement pursuant to Section 9.1, this Agreement shall be terminated and this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of H2EG, the Merger Sub or Victory, other than this Section 9.2 and Article X, which provisions shall survive such termination; provided, however, that nothing in this Section 9.2 shall relieve any party from liability for any fraud, willful breach of a representation or warranty or willful breach of any covenant or other agreement contained in this Agreement.
9.3 Expenses. All fees and expenses incurred by the Parties hereto shall be borne solely by the Party that has incurred such fees and expenses.
ARTICLE X
GENERAL PROVISIONS
10.1 Amendment. Except as is otherwise required by applicable Law, this Agreement may be amended at any time by execution of an instrument in writing signed by each Party.
10.2 Extension; Waiver. The Parties may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations of the other Party, (ii) waive any inaccuracies in the representations and warranties made to such Party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the covenants, agreements or conditions for the benefit of such Party contained herein. Any agreement on the part of a Party to any such extension or waiver will be valid only if set forth in an instrument in writing signed on behalf of such Party.
10.3 Non-Survival of Representations and Warranties. None of the representations and warranties in this Agreement or in any schedule, instrument or other document delivered pursuant to this Agreement will survive the Effective Time. This Section 10.3 will not limit any covenant or agreement of the Parties which by its terms contemplates performance after the Effective Time.
10.4 Notices. All notices and other communications hereunder will be in writing and will be deemed given if delivered personally or by commercial messenger or overnight or same-day courier service of national reputation (including U.S. Postal Service overnight delivery), or sent by email to the parties at the addresses set forth on the signature pages hereto (or at such other address for a Party as will be specified by like notice); provided, however, that notices sent by mail will not be deemed given until received.
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10.5 Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile or other electronic transmission), all of which will be considered one and the same agreement and will become effective when one or more counterparts have been signed by each of the parties and delivered to the other Party, it being understood that all parties need not sign the same counterpart.
10.6 Entire Agreement; Assignment; Beneficiaries. This Agreement, the Exhibits hereto, the H2EG Disclosure Schedule, the Victory Disclosure Schedule, any Related Agreements, the Confidential Disclosure Agreement, and the other documents and instruments and other agreements among the parties hereto referenced herein constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings both written and oral, among the parties with respect to the subject matter hereof. No Party is relying upon any express or implied representations or warranties of any nature, whether in writing, orally or otherwise, made by or on behalf of or imputed to any other Party, except as set forth in this Agreement.
10.7 Severability. In the event that any provision of this Agreement or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The Parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
10.8 Specific Performance. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties will be entitled to obtain an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at Law or in equity.
10.9 Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto irrevocably consents to the exclusive jurisdiction and venue of any court within the State of New York in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the Laws of the State of New York for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction, venue and such process.
10.10 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
[Signature page follows]
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IN WITNESS WHEREOF, the Parties have caused this Agreement and Plan of Merger to be signed, all as of the date first written above.
| H2 ENERGY GROUP INC. | ||
| By: | ||
| Name: | Christopher L. Headrick | |
| Title: | Founder & Chairman | |
| Address: | 1774 Derby Downs Dr. | |
| Friendsville, TN 37737 | ||
| Email: | c.headrick@h2eg.com | |
| VICTORY OILFIELD TECH, INC. | ||
| By: | ||
| Name: | Kevin DeLeon | |
| Title: | Chief Executive Officer | |
| Address: | ||
| Email: | ||
| VICTORY H2EG MERGER SUB INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
| Address: | ||
| Email: | ||
EXHIBIT A
CERTIFICATE OF MERGER
(See Attached)
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
(See Attached)
H2EG Schedules
Schedule 3.5 & 8.1 Employment Agreements & Continuing Employees
Christopher Headrick – Employment agreement provided supplementally.
Paul Powers – Employment agreement provided supplementally.
Neil Goulden – Employment agreement provided supplementally.
Jim McGinley – Employment agreement provided supplementally.
Don Turner – Employment agreement provided supplementally.
Schedule 3.6 H2EG Financial Statements
H2EG’s audited balance sheet as of December 31, 2022 and 2021 and the statements of income, cash flow and stockholders’ equity for the twelve (12) month period ended December 31, 2022 and 2021 will be provided to Victory prior to the Initial Financing.
Schedule 3.18(a) H2EG Benefit Plans
None other than those included in Employment agreements identified in Schedule 3.5
Schedule 3.19 Labor
The employment agreements have performance increases.
Schedule 3.12(a), 3.21(a) H2EG Material Contracts
Tribal Agreement- Copy of agreement provided supplementally.
OEM Offtake LOI- Copy of agreement provided supplementally.
Neil Goulden has loaned H2EG $100,000 and paid for expenses of the company that will be reimbursed
Victory Schedules
The following disclosure schedule (this “Disclosure Schedule”) is being delivered by Victory Oilfield Tech, Inc., a Nevada corporation (“Victory”), simultaneously with the execution and delivery of that certain Agreement and Plan of Merger, dated as of the date hereof (the “Agreement”), between Victory and H2 Energy Group Inc., a Delaware corporation (“H2EG”). Capitalized terms which are used herein and not defined shall have the meanings set forth in the Agreement.
This Disclosure Schedule shall be considered a part of the Agreement as if set forth therein in full. Any information expressly disclosed in this Disclosure Schedule is deemed to qualify the particular representation or warranty to which it expressly relates. In addition, any information, item or other disclosure set forth in any part of this Disclosure Schedule shall be deemed to have been set forth in all other applicable parts of this Disclosure Schedule to the extent that the applicability of such disclosure to such other parts is reasonably apparent. Nothing in this Disclosure Schedule is intended to broaden the scope of any representation or warranty of Victory in the Agreement.
All headings are inserted for convenience of reference only and shall not be used in the construction or interpretation of the information contained in this Disclosure Schedule. This preamble is expressly made part of this Disclosure Schedule and hence a part of the Agreement.
Schedule 4.2(c)
All Victory securities, and agreements or commitments that result in the issuance thereof, that are required to be disclosed in this Schedule 4.2(c) which were issued or executed prior to November 24, 2017, the effective date of the Company’s 1-for-38 reverse stock split according to the filing of the Company’s Amended and Restated Articles of Incorporation on November 21, 2017, will be disclosed on a post-split basis.1
The following is a complete list of Victory’s outstanding options for the purchase of an aggregate of 211,186 shares of common stock:
| Issuance Date | Name | Number of Shares | Strike Price | Vesting (months) | Vesting Complete | Vested Shares | Term (years) | Expiration Date | LTIP? | ||||||||||||||||||||
| 4/23/2014 | Kenny Hill | 3,948 | $ | 13.30 | 36 | 4/23/2014 | 3,948 | 10 | 4/23/2024 | Yes | |||||||||||||||||||
| 8/28/2015 | Kenny Hill | 9,869 | $ | 10.26 | 36 | 8/28/2018 | 9,869 | 10 | 8/28/2025 | Yes | |||||||||||||||||||
| 8/21/2017 | Kenny Hill | 197,369 | $ | 1.52 | 36 | 8/31/2020 | 197,369 | 10 | 8/21/2027 | Yes | |||||||||||||||||||
| TOTAL | 211,186 | 211,186 | |||||||||||||||||||||||||||
The following is a complete list of Victory’s outstanding warrants for the purchase of an aggregate of 2,828,8262,3 shares of common stock:
| Purpose | Holder | Issuance Date | Exercise Price | Warrants Outstanding | Expiration Date | |||||||||
| Services | James Capital Consulting | 9/30/2008 | $ | 9.50 | 548 | 9/30/23 | ||||||||
| Services | James Capital Consulting | 12/31/2008 | $ | 9.50 | 472 | 12/31/23 | ||||||||
| Services | James Capital Consulting | 3/31/2009 | $ | 9.50 | 188 | 3/30/24 | ||||||||
| Services | James Capital Consulting | 6/30/2009 | $ | 9.50 | 43 | 6/29/24 | ||||||||
| Services | James Capital Consulting | 9/30/2009 | $ | 9.50 | 8 | 9/29/24 | ||||||||
| Services | James Capital Consulting | 12/31/2009 | $ | 9.50 | 52 | 12/30/24 | ||||||||
| Loan Agreement | Kodak Brothers All American Fund, LP | 7/31/2018 | $ | 0.75 | 375,000 | 7/31/2023 | ||||||||
| Re-issuance | $ | 0.1777 | 2,452,515 | 4 | ||||||||||
| TOTAL | 2,828,826 | |||||||||||||
| 1 | In addition to the securities described in this Schedule 4.2(c) and the footnotes thereto, Victory intends to compensate two key ProTech employees for their service, in a manner and amount to be determined. |
| 2 | This number includes 2,452,515 expired warrants and 375,000 warrants that will expire on July 31, 2023, in each case that Victory intends to reissue at an exercise price equal to the 20 day rolling average (which as of June 15, 2023 is $0.1777) and such warrants will be exercisable on a cashless basis. This number does not include 553,808 shares to be issued to Bevilacqua PLLC as compensation for deferred fees. |
| 3 | Victory intends to issue a number of warrants to: (i) the current directors of Victory as compensation for services, and (ii) Kevin DeLeon as a finder’s fee in connection with the Transaction Agreement, in each case at an exercise price equal the 20 day rolling average (which as of June 15, 2023 is $0.1777) and exercisable on a cashless basis. |
| 4 | This number does not include 375,000 warrants that will expire on July 31, 2023 that Victory intends to reissue at an exercise price equal to the 20 day rolling average (which as of June 15, 2023 is $0.1777) and such warrants will be exercisable on a cashless basis. See footnote 2 above. |
Schedule 4.2(c) Cont.
The following is a complete list of Victory’s outstanding convertible notes:
| Purpose | Holder | Issuance Date | Principal Plus Accrued Interest | Conversion Price | Shares Issuable Upon Conversion | ||||||||||
| Financing | Visionary Private Equity Group I, LP | 9/3/2021 | $ | 3,815,926.39 | $ | 0.1777 | 5 | 21,473,981 | 4 | ||||||
| 5 | As of June 15, 2023, the principal and accrued interest of the Visionary Private Equity Group I, LP Note is convertible into common stock at an exercise price equal to the 20 day rolling average (which as of June 15, 2023 is $0.1777). |
Schedule 4.2(c) Cont.
Pro-Tech Hardbanding Services, Inc.
Exhibit 10.2
AMENDMENT NO. 1 TO
THE AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 (the “Amendment”) to the Agreement and Plan of Merger dated July 25, 2023, by and among Victory Oilfield Tech, Inc., Victory H2EG Merger Sub Inc., and H2 Energy Group Inc. (the “Merger Agreement”) is made and entered into as of December 1, 2023 (the “Effective Date”), by and among Victory Oilfield Tech, Inc., a Nevada corporation (“Victory”), Victory H2EG Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Victory (“Merger Sub”) and H2 Energy Group Inc., a Delaware corporation (“H2EG” and collectively with Victory and Merger Sub, the “Parties”). Capitalized terms used herein but not defined below shall have the meanings ascribed to such terms in the Merger Agreement.
BACKGROUND
A. On July 25, 2023, Victory and Merger Sub entered into the Merger Agreement with H2EG, pursuant to which Merger Sub agreed to merge with and into H2EG, which will survive in the merger and become a wholly owned subsidiary of Victory, in a transaction that is intended to qualify for tax-free treatment under the Code.
B. The Merger Agreement requires the:
| (1) | conversion of the Visionary Convertible Notes in the aggregate principal amount of $3,815,926.39 with accrued interest thereon through June 15, 2023, that are held by Visionary Private Equity Group I, LP, at a conversion price of $0.1777, and the transfer of all the equity interests in Pro-Tech that are held by Victory to Visionary in consideration for the conversion of the Visionary Convertible Notes at the Closing; |
| (2) | filing of an information statement on Schedule 14F-1 with the SEC that discloses the requisite information about the New Board Members who will serve as board members of Victory at the Effective Time; |
| (3) | issuance of Victory Common Stock to the H2EG Stockholders which, in the aggregate, constitutes at least 70% of the issued and outstanding capital stock of Victory on a fully diluted basis after the Closing;; (or at least 400,335,526 shares of Victory Common Stock); |
| (4) | reissuance of up to 2,882,634 Reissue Warrants (defined below) to holders of existing expired warrants of Victory in consideration for a release by such holders of any and all claims against Victory; |
| (5) | issuance of 3,350,000 Victory warrants to current employees of Victory as compensation for services provided thereto; |
| (6) | investment in Victory of up to $5,000,000 by investors in a private placement offering in exchange for Victory Common Stock constituting up to 15% of Victory’s outstanding Common Stock on a fully diluted basis (assuming the full amount of $5,000,000 is raised in the Financing); and |
| (7) | the granting of a right to select a director to serve on the board of directors of Victory to the investors in the Financing. |
C. The Merger Agreement also states that: (1) Victory’s authorized capital stock consists of (i) 300,000,000 shares of Common Stock, of which 28,591,593 shares are issued and outstanding as of the date thereof (or 85,786,184 shares on a fully diluted basis); and (ii) 20,000 shares of Series D Preferred Stock, of which 8,333 are issued and outstanding as of the date hereof; and that (2) for their investments in Victory, the Financing investors will receive, in the aggregate, roughly $5,000,000 worth of Victory Common Stock (or up to 85,786,184 shares of Victory Common Stock which are reserved for issuance thereunder).
D. With respect to the provisions referenced in paragraphs (B)(3) and (C) above, only 128,427,632 shares of Victory Common Stock remain available for issuance under Victory’s articles of incorporation, which is insufficient to account for the 400,335,526 shares of Victory Common Stock which the H2EG Stockholders are due under the Merger Agreement, together with the 50,961,957 shares of Victory Common Stock which are due to Visionary at the Effective Time upon conversion of the Visionary Convertible Notes according to the Merger Agreement.
E. To allow Victory to consummate the Merger Agreement prior to amending its articles of incorporation to sufficiently increase its authorized capital stock, the Parties desire to amend the Merger Agreement to provide that: (i) Victory will sell $1,212,000 worth of Victory Common Stock (or 20,542,373 shares of Common Stock) in the Financing; (ii) the H2EG Stockholders will receive 243,000,000 shares of Common Stock at the Effective Time, and 175,822,708 shares of Common Stock following an increase to Victory’s authorized capital stock, and (iii) Visionary will receive 7,866,034 shares of Victory Common Stock at the Closing, and 43,095,923 pre-funded warrants to purchase Victory Common Stock, in a form mutually agreed upon by the Parties, provided that the pre-funded warrants will contain an exercise limitation that prohibits the exercise of such pre-funded warrants until Victory has increased its authorized capital stock (the “Pre-funded Warrants”).
F. The Parties also desire to amend the Merger Agreement to:
| (1) | correct the disclosure concerning Victory’s authorized capital stock; |
| (2) | clarify that as soon as practicable after the Closing, the H2EG Stockholders, as owners of 81% of the issued and outstanding Victory Common Stock on a post-Closing basis, shall vote in favor of, and shall cause Victory to take all necessary actions to effect, an amendment to Victory’s articles of incorporation to increase the Authorization Limit thereunder to at least 1,170,318,154 shares of Common Stock; |
| (3) | provide that Victory’s equity ownership interest in Pro-Tech shall be transferred to Pro-Tech Holdings, LLC, a Texas limited liability company, instead of Visionary, so long as Flagstaff International, LLC, a Delaware limited liability company and the owner of Pro-Tech Holdings commits pursuant to a binding agreement to invest at least $4,000,000 in Victory on terms to be mutually agreed upon by Flagstaff and Victory, which will include the right to appoint a director to the board of directors of Victory; |
| (4) | correct the disclosure regarding the Reissue Warrants which Victory intends to issue so that the number thereof contains a certain amount of warrants of Victory that are set to expire by December 31, 2024; |
| (5) | provide that the Series D Holder (defined below) has agreed to convert his 8,333 shares of Series D Preferred Stock, constituting all of the issued and outstanding shares thereof, for 3,961,539 Pre-funded Warrants at the Closing. |
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| (6) | clarify that the 3,350,000 new warrants being issued to current employees of Victory are exercisable on a cashless basis; |
| (7) | provide that the Schedule 14F-1 Filing can occur after the Effective Time; |
| (8) | change the conversion price of the Visionary Convertible Notes from $0.1777 to $0.075914, such that at the Closing, the principal amount and accrued interest thereunder will convert to Victory Common Stock at a price that is approximately equal to the price in the Financing; |
| (9) | provide that the investors in the Financing will not have the right to appoint a director to Victory’s board of directors; and |
| (10) | provide that the Merger is intended as a transaction that qualifies as a tax-free reorganization under Section 368(a)(2)(E) of the Code. |
G. In accordance with Section 10.1 of the Merger Agreement, the same may be amended by an instrument in writing signed on behalf of Victory, Merger Sub, and H2EG.
H. This Amendment has been authorized by Victory’s board of directors, Merger Sub’s board of directors, and H2EG’s board of directors and is being executed by the Parties on the Effective Date hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained in the Merger Agreement and this Amendment thereto, the parties hereto agree to amend the Merger Agreement as follows:
1. Amendment to Section 1.1(cc). Section 1.1(cc) of the Merger Agreement is hereby amended and restated in its entirety as follows:
| (cc) | [Reserved] |
2. Amendments to Section 1.1. Section 1.1 of the Merger Agreement is hereby amended to add the following additional definitions:
“Authorization Limit” means the 300,000,000 authorized shares of Common Stock of Victory available for issuance under Victory’s articles of incorporation.
“Flagstaff” means Flagstaff International, LLC, a Delaware limited liability company that has committed to investing in Victory per the Flagstaff Financing Agreement.
“Flagstaff Financing Agreement” means the agreement between Victory and Flagstaff by which Flagstaff has agreed to invest at least $4,000,000 in Victory in exchange for the transfer of all of the equity of Pro-Tech to Pro-Tech holdings according to the Merger Agreement.
“New Board Members” means the Board members of Victory as of the Effective Time which are named in Section 7.1(f) of the Merger Agreement.
“Pre-funded Warrants” means the Pre-funded Warrants for the purchase of Victory Common Stock which are being issued to Visionary and the Series D Holder according to the Amendment, in a form mutually agreed upon by the Parties, provided that the Pre-funded Warrants will contain an exercise limitation that prohibits the exercise of such Pre-Funded warrants until Victory has increased its authorized capital stock.
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“Pro-Tech Holdings” means Pro-Tech Holdings, LLC, a Texas limited liability company and an affiliate of Flagstaff that will acquire all of Victory’s equity ownership in Pro-Tech.
“Schedule 14F-1 Filing” means the information statement on Schedule 14F-1 which Victory will file with the SEC to disclose the requisite information about the New Board Members who will serve as board members of Victory at the Effective Time.
“Series D Holder” means David McCall, the holder of all of the issued and outstanding Series D Preferred Stock of Victory.
“Series D Preferred Stock” means Victory’s Series D Preferred Stock, of which 8,333 are issued and outstanding and held by the Series D Holder, which will be canceled in exchange for Pre-funded Warrants at the Effective Time, according to Section 5.8(b).
“Visionary” means Visionary Private Equity Group I, LP, the holder of the Visionary Convertible Note.
“Visionary Convertible Note” means the convertible note(s) issued to Visionary by Victory, which are convertible into Victory Common Stock.
3. Amendments to Section 2.1(b). Section 2.1(b) of the Merger Agreement is hereby amended and restated as follows:
(b) Tax-Free Merger. The Parties to this Agreement intend, for federal income Tax purposes, that the Merger qualify as reorganization governed by Section 368(a)(2)(E) of the Code and the applicable Treasury Regulations promulgated with respect thereto, and Victory and H2EG will file all Tax Returns (including amended returns and claims for refunds) in a manner consistent with such treatment and will use their commercially reasonable efforts to sustain such treatment in any subsequent tax audit or dispute.
4. Amendments to Section 2.3(b). Section 2.3(b) of the Merger Agreement is hereby amended and restated in its entirety as follows:
“(b) H2EG Capital Stock. At the Effective Time, each share of H2EG Capital Stock issued and outstanding immediately prior to the Effective Time, subject to and upon the terms and conditions set forth in this Agreement, will be cancelled and extinguished and be converted automatically into the right to receive 418,822,708 shares of Victory Common Stock, of which: (i) 243,000,000 shares of Victory Common Stock will be issued upon the Closing (“H2EG’s Post-Closing Issuance), and; (i) 175,822,708 shares of Victory Common Stock will be issued after an amendment to Victory’s articles of incorporation increasing the Authorization Limit according to Section 5.8(c). For clarity, according to this Section 2.3(b), the H2EG Stockholders will own 81% of Victory’s issued and outstanding Common Stock on a post-Closing basis.”
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5. Amendments to Section 4.2. Section 4.2 of the Merger Agreement is hereby amended and restated in its entirety as follows:
“4.2 Capital Structure
(a) Except as set forth on Schedule 4.2(a) of the Victory Disclosure Schedule, the authorized capital stock of Victory immediately prior to the Closing consists of: (i) 300,000,000 shares of Common Stock, par value $0.001 per share, of which 28,591,593 shares are issued and outstanding, and (ii) 20,542,373 shares are reserved for issuance in the Financing, and (ii) 20,000 shares of Series D Preferred Stock, par value $0.001 per share, of which 8,333 shares are issued and outstanding. All outstanding shares of Victory Capital Stock are duly authorized, validly issued, fully paid and non-assessable and are not subject to preemptive rights created by statute, the Charter Documents, or any agreement to which Victory is a party or by which it is bound, have been issued in compliance in all material respects with all applicable federal and state securities Laws. As of the date hereof, there are no declared and unpaid dividends with respect to any shares of Victory Capital Stock.
(b) Except as set forth on Schedule 4.2(b) of the Victory Disclosure Schedule, Victory has never adopted, sponsored, or maintained any stock option plan or any other plan or agreement, providing for equity compensation to any person. Victory has not reserved shares of Victory Common Stock under the Victory Plan for issuance to employees and directors of, and consultants to, Victory upon the exercise of options or other awards granted under the Victory Plan or any other plan, agreement, or arrangement (whether written or oral, formal or informal), of which no shares are issuable, as of the date hereof, upon the exercise of outstanding, unexercised options or other awards.
(c) Except as set forth in Schedule 4.2(c) of the Victory Disclosure Schedule, there are no (i) options, warrants, calls, rights, convertible securities, commitments or agreements of any character, written or oral, to which Victory is a party or by which Victory is bound obligating Victory to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of Victory Capital Stock or obligating Victory to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such option, warrant, call, right, commitment or agreement; (ii) outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to Victory; (iii) voting trusts, proxies, or other agreements or understandings with respect to the voting securities of Victory; (iv) Contracts to which Victory is a party relating to the registration, sale or transfer (including agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any Victory Capital Stock.”
6. Amendments to Section 5.5. Section 5.5 of the Merger Agreement is hereby amended and restated in its entirety as follows:
“5.5 Schedule 14F-1. As soon as reasonably practicable following the Closing and the determination by the Parties of the New Boards Members in accordance with Section 7.1(f), Victory shall file with the U.S. Securities and Exchange Commission the Schedule 14F-1 Filing disclosing the requisite information regarding the New Board Members.”
7. Amendments to Section 5.6. Section 5.6 of the Merger Agreement is hereby amended and restated in its entirety as follows:
“5.6 Flagstaff Financing; Pro-Tech Disposition. Before the Effective Time, Victory will enter into a financing agreement with Flagstaff International, LLC, under which Flagstaff will commit to invest $4,000,000.00 in Victory, as a single sum or in separate tranches, in exchange for (i) Victory Preferred Stock and (ii) the transfer to Pro-Tech Holdings of all the equity interests held by Victory in Pro-Tech or the transfer to Pro-Tech Holdings of all or substantially all of the assets of Pro-Tech (the “Pro-Tech Disposition”). Each of the Parties acknowledges that the Pro-Tech Disposition pursuant to the Flagstaff Financing Agreement is a material term of the Merger Agreement contemplated hereby.”
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8. Amendments to Section 5.7. Section 5.7 of the Merger Agreement is hereby amended and restated in its entirety as follows:
“5.7 Financing. The Parties shall use reasonable best efforts to complete a private placement financing for gross proceeds of up to $1,212,000, or the sale of up to 20,542,373 shares of Victory Common Stock (the “Financing Shares”) at a purchase price of $0.059 per share (the “Financing”). The Financing shall be promptly disbursed to H2EG when received and shall be represented by a note or a series of notes in a form reasonably satisfactory to the Parties (the “Financing Notes”). The Financing Notes shall be forgiven upon consummation of the Merger, provided however that the Financing Notes shall be payable by H2EG to Victory in accordance with its terms if the Merger is not completed.”
9. Amendments to Section 5.8. Section 5.8 of the Merger Agreement is hereby amended and restated in its entirety as follows:
“5.8 Closing and Post-Closing Matters.
(a) Conversion of Visionary Convertible Notes. Visionary will convert the Visionary Convertible Notes at the Effective Time according to this Section 5.8(a), and will receive: (i) 7,866,034 shares of Victory Common Stock, and (ii) 43,095,923 Pre-funded Warrants, each with an exercise price of $0.000001, which contain a provision prohibiting the exercise thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit to a number of shares that is sufficient to allow for the exercise of such Victory Pre-funded Warrants in full.
(b) Cancelation and Exchange of the Series D Preferred Stock. The Series D Holder has agreed to the cancellation and exchange of his 8,333 shares of Series D Preferred Stock for 3,961,539 Pre-funded Warrants at the Effective Time.
(c) Amendment Increasing the Authorization Limit. As soon as practicable after the Closing, the H2EG Stockholders, as owners of 81% of the issued and outstanding Victory Common Stock on a post-Closing basis, shall vote in favor of, and shall cause Victory to take all necessary actions to effect, an amendment to Victory’s articles of incorporation to increase the Authorization Limit thereunder to at least 1,170,318,154 shares of Common Stock, which is an amount that is sufficient to allow for the issuance of:
(1) 175,822,708 shares of Victory Common Stock to the H2EG Stockholders according to Section 2.3(b);
(2) 43,095,923 shares of Victory Common Stock upon exercise of the Pre-funded Warrants being issued to Visionary according to Section 5.8(a);
(3) 67,797,000 shares of Victory Common Stock upon the conversion of Victory Preferred Stock being granted to Flagstaff according to the Flagstaff Financing Agreement;
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(4) 3,961,539 shares of Victory Common Stock upon exercise of the Victory Pre-funded Warrants being issued to the Series D Holder according to Section 5.8(b);
(2) 3,350,000 shares of Victory Common Stock upon the cashless exercise of 3,350,000 warrants which Victory will issue to current employees and Victory board members to compensate each for services provided;
(3) 2,882,634 shares of Victory Common Stock upon the exercise of up to 2,882,634 Reissue Warrants (defined below); and
(4) the reservation of Common Stock for issuance under Victory’s 2014 Long Term Incentive Plan, and the 2017 Equity Incentive Plan, as the same may be amended from time to time.
(d) Victory Reissue Warrants. As soon as practicable following the Closing, Victory will solicit the holders of 2,881,871 warrants to purchase Victory Common Stock that were previously issued and have since expired, and 763 warrants to purchase Victory Common Stock that are currently outstanding but which Victory expects will expire before the exercise thereof, the latest of which having an expiration date of December 31, 2024, and issue up to 2,882,634 new warrants (the “Reissue Warrants”) to such holders in exchange for a release by such holders of any and all claims against Victory. The Reissue Warrants will contain an exercise limitation that prohibits the exercise of such Reissue Warrants until Victory has increased its Authorization Limit to a number of shares that is sufficient to allow for the exercise of such Reissue Warrants in full.”
10. Amendments to Section 7.1(f). Section 7.1(f) of the Merger Agreement is hereby amended and restated in its entirety as follows:
“(f) Board Nominees. In accordance with Section 5.5 of the Merger Agreement and subject to compliance with Rule 14F-1 of the Exchange Act, the size of the Board of Directors of Victory will be increased to five (5) members and will consist of the following directors: Chris Headrick, who will serve as Chairman of the board of directors, Kevin DeLeon, Jim McGinley, Neil Goulden and one director to be selected by Flagstaff according to the terms of the Flagstaff Financing Agreement. H2EG will provide an agreement of each such individual to perform such background and credit checks of such individual. Unless removed for cause, death or disability, the two individuals who are presently serving on the board of directors of Victory and who will continue to serve on the board of directors of Victory will so serve until the next annual meeting of the stockholders of Victory; provided, however, that unless such individuals fail to provide his consent or unless such individuals have committed a “bad actor” disqualification event of the type described in Rule 506(d) of the Securities Act, Victory shall nominate such individuals to serve as directors at such next annual meeting of the stockholders.”
11. Addition of Schedule 4.2(a). Schedule 4.2(a), attached hereto as Exhibit A to this Amendment is added to the Victory Disclosure Schedule attached to the Merger Agreement.
12. Addition of Schedule 4.2(b). Schedule 4.2(b), attached hereto as Exhibit B to this Amendment is added to the Victory Disclosure Schedule attached to the Merger Agreement.
13. Amendments to Schedule 4.2(c). Schedule 4.2(c) of the Merger Agreement is hereby amended and restated in its entirety, and attached hereto as Exhibit C.
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14. Representations and Warranties. Each party represents and warrants that it has all necessary rights and authority to enter into this Amendment, and that this Amendment has been duly and validly executed and delivered and, assuming due authorization and execution by the other parties hereto, constitutes its legal, valid, and binding obligation enforceable against it in accordance with its terms.
15. Defined Terms; Conflict. Capitalized terms used but not defined herein shall have the meaning assigned to them in the Merger Agreement. In the event of any conflict between the Merger Agreement and this Amendment, this Amendment will control.
16. No Other Modification. The Merger Agreement shall not be modified by this Amendment in any respect except as expressly set forth herein.
17. Governing Law. This Amendment will be governed by and construed in accordance with the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of laws thereof. Each of the parties hereto irrevocably consents to the exclusive jurisdiction and venue of any court within the State of New York in connection with any matter based upon or arising out of this Amendment or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the Laws of the State of New York for such persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction, venue and such process.
18. Counterparts. This Amendment No.1 may be executed in counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. This Amendment may be executed by facsimile, scan, PDF, or other electronic means (e.g., DocuSign), and each counterpart, facsimile or electronic copy shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first set forth above.
| H2 ENERGY GROUP INC. | ||
| By: | ||
| Name: | Christopher L. Headrick | |
| Title: | Founder & Chairman | |
| Address: | 810 Woodbine Ave. | |
| Oak Park, IL 60302 | ||
| Email: | c.headrick@h2eg.com | |
| VICTORY OILFIELD TECH, INC. | ||
| By: | ||
| Name: | Kevin DeLeon | |
| Title: | Chief Executive Officer | |
| Address: | 3355 Bee Caves Road, Suite 608, | |
| Austin, Texas 78746 | ||
| Email: | kdeleon@vpeg.net | |
| VICTORY H2EG MERGER SUB INC. | ||
| By: | ||
| Name: | Ronald Zamber | |
| Title: | Director | |
| Address: | 3355 Bee Caves Road, Suite 608, | |
| Austin, Texas 78746 | ||
| Email: | rzamber@vpeg.net | |
[Exhibits Follow]
EXHIBIT A
SCHEDULE 4.2(a)
(See Attached)
Schedule 4.2(a)
The authorized capital stock of the Company immediately prior to the Closing is as follows:
| Authorized(1) | Shares Outstanding | Shares Outstanding Fully Diluted | % Owned Fully Diluted | |||||||||||||
| Stock: | ||||||||||||||||
| Common Stock | 300,000,000 | 28,591,593 | 28,591,593 | 33 | % | |||||||||||
| Subtotal: | 300,000,000 | 28,591,593 | 28,591,593 | (2) | 33 | % | ||||||||||
| Convertible Securities: | ||||||||||||||||
| New Warrants to Victory Board and Employees | 3,350,000 | (3) | 4 | % | ||||||||||||
| Reissued Warrants | 2,882,634 | (3), (4) | 3 | % | ||||||||||||
| Visionary Convertible Note | 50,961,957 | (5) | 60 | % | ||||||||||||
| Subtotal: | 85,786,184 | 67 | % | |||||||||||||
| TOTALS: | 300,000,000 | 28,591,593 | 85,786,184 | (6) | 100.00 | % | ||||||||||
| (1) | Victory has reserved 2,000,000, and 570,000,000 shares of Common Stock for issuance upon exercise of awards issued pursuant to the Company’s 2014 Long Term Incentive Plan, or the 2017 Equity Incentive Plan, respectively. However, due to the Authorization Limit, the Company’s Board of Directors has adopted a resolution that they will not issue any more awards under the plans until the Company has enough authorized capital stock. |
| (2) | Does not include: (i) 20,000 shares of Series D Preferred Stock, par value $0.001 per share, of which 8,333 shares are issued and outstanding, and which the holder thereof has agreed to the conversion of such Series D Preferred Stock into 3,961,539 Victory Pre-funded Warrants at the Effective Time. The Victory Pre-funded Warrants contain a provision prohibiting the exercise thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit; |
| (3) | The New Warrants and Reissued Warrants will contain a provision which prohibits the exercising thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit. |
| (4) | Includes 2,881,871 warrants to purchase Victory Common Stock that were previously issued and have since expired, and 763 warrants to purchase Victory Common Stock that are currently outstanding but which Victory expects will expire before the exercise thereof, the latest of which having an expiration date of December 31, 2024. |
| (5) | Visionary will receive an amount of Victory Common Stock and Victory Pre-funded Warrants which will equal 50,961,957 shares of Victory Common Stock on a fully diluted basis after the Closing. The Victory Pre-funded Warrants contain a provision prohibiting the exercise thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit. |
| (6) | This value does not account for 19,440,678 shares of Common Stock which are reserved for issuance in the Financing. |
EXHIBIT B
SCHEDULE 4.2(b)
(See Attached)
Schedule 4.2(b)
The following is a list of all Victory Benefit Plans:
| 1. | The Victory Oilfield Tech. Inc. 2014 Long Term Incentive Plan; |
| 2. | The Victory Oilfield Tech. Inc. 2017 Equity Incentive Plan. |
EXHIBIT C
AMENDED AND RESTATED SCHEDULE 4.2(c)
(See Attached)
Schedule 4.2(c)
All Victory securities, and agreements or commitments that result in the issuance thereof, that are required to be disclosed in this Schedule 4.2(c) which were issued or executed prior to November 24, 2017, the effective date of the Company’s 1-for-38 reverse stock split according to the filing of the Company’s Amended and Restated Articles of Incorporation on November 21, 2017, will be disclosed on a post-split basis.1
The following is a complete list of Victory’s outstanding options for the purchase of an aggregate of 211,186 shares of common stock:
Issuance Date | Name | Number of Shares | Strike Price | Vesting (months) | Vesting Complete | Vested Shares | Term (years) | Expiration Date | LTIP? | ||||||||||||||||||||||
| 4/23/2014 | Kenny Hill | 3,948 | $ | 13.30 | 36 | 4/23/2014 | 3,948 | 10 | 4/23/2024 | Yes | |||||||||||||||||||||
| 8/28/2015 | Kenny Hill | 9,869 | $ | 10.26 | 36 | 8/28/2018 | 9,869 | 10 | 8/28/2025 | Yes | |||||||||||||||||||||
| 8/21/2017 | Kenny Hill | 197,369 | $ | 1.52 | 36 | 8/31/2020 | 197,369 | 10 | 8/21/2027 | Yes | |||||||||||||||||||||
| TOTAL | 211,186 | 211,186 | |||||||||||||||||||||||||||||
The following is a complete list of Victory’s outstanding warrants for the purchase of an aggregate of 2,882,634 2,3 shares of common stock:
Purpose | Holder | Issuance Date | Exercise Price | Warrants Outstanding | Expiration Date | |||||||||
| Services | James Capital Consulting | 12/31/2008 | $ | 9.50 | 472 | 12/31/23 | ||||||||
| Services | James Capital Consulting | 3/31/2009 | $ | 9.50 | 188 | 3/30/24 | ||||||||
| Services | James Capital Consulting | 6/30/2009 | $ | 9.50 | 43 | 6/29/24 | ||||||||
| Services | James Capital Consulting | 9/30/2009 | $ | 9.50 | 8 | 9/29/24 | ||||||||
| Services | James Capital Consulting | 12/31/2009 | $ | 9.50 | 52 | 12/30/24 | ||||||||
| Re-issuance | $ | 0.075914 | 2,881,871 | |||||||||||
| TOTAL | 2,882,634 | |||||||||||||
The following is a complete list of Victory’s outstanding convertible notes:
Purpose | Holder | Issuance Date | Principal Plus Accrued Interest | Conversion Price | Shares Issuable Upon Conversion | |||||||||||
| Financing | Visionary Private Equity Group I, LP | 9/3/2021 | $ | 3,868,726.00 | $ | 0.075914 | 4 | 50,961,957 | 5 | |||||||
| 1 | In addition to the securities described in this Schedule 4.2(c) and the footnotes thereto, Victory intends to compensate two key Pro-Tech employees for their service, and amount to be determined. |
| 2 | This number includes 2,881,871 expired warrants that Victory intends to reissue at an exercise price of $0.075914 and such warrants will be exercisable on a cashless basis, and the unexpired warrants listed in the table which Victory expects to reissue as a part of the Reissued Warrants. These Reissued Warrants will not be exercisable until Victory has sufficient authorized capital stock after giving effect to the Meger Agreement. |
| 3 | Victory intends to issue 3,350,000 of warrants: (i) the current directors of Victory as compensation for services, and (ii) Kevin DeLeon as a finder’s fee in connection with the Merger Agreement, in each case at an exercise price of $0.075914 and exercisable on a cashless basis. Any warrants issued to the current directors of Victory as compensation or to Kevin DeLeon as a finder’s fee will not be exercisable until Victory has sufficient authorized capital stock after giving effect to the Meger Agreement. |
| 4 | The principal and accrued interest of the Visionary Private Equity Group I, LP Note as of June 15, 2023 will be convertible into common stock at an assumed exercise price of $0.075914 after an amendment to the note. |
| 5 | Visionary will receive an amount of Victory Common Stock and Victory Pre-funded Warrants which will equal 50,961,957 shares of Victory Common Stock on a fully diluted basis after the Closing. The Victory Pre-funded Warrants will contain a provision that prohibits the exercising thereof until Victory’s shareholders approve an amendment to the Victory articles of incorporation, increasing the Authorization Limit. |
Schedule 4.2(c) Cont.
Pro-Tech Hardbanding Services, Inc.