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Item
1.01
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Entry
into a Material Definitive Agreement.
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Pro-Tech
Acquisition
Stock
Purchase Agreement
On
July 31, 2018, Victory Oilfield Tech, Inc. (“Victory”) entered into a stock purchase agreement (the “Purchase
Agreement”) with Pro-Tech Hardbanding Services, Inc., an Oklahoma corporation (“Pro-Tech”), and Stewart Matheson
(the “Seller”), pursuant to which Victory purchased from the Seller 100% of Pro-Tech’s issued and outstanding
common stock (the “Acquired Shares,” and such sale and purchase of the Acquired Shares, the “Acquisition”).
The closing of the Acquisition (the “Closing”) also occurred on July 31, 2018 (the “Closing Date”).
The
aggregate purchase price for the Acquired Shares was $1,600,000 paid as follows: (i) $150,000 that was previously deposited into
an escrow account was released to the Seller (the “Deposit”); (ii) $350,000 in cash (the “Cash Portion”);
(iii) the modification of the named beneficiary of two life insurance policies for which the Seller is the named insured (the
“Policies”), the aggregate value of which is approximately $118,000 as of the Closing Date, from Pro-Tech to a beneficiary
other than Pro-Tech to be determined by the Seller; (iv) 11,000 shares of Victory’s common stock, par value $0.001 per share
(“Victory’s Common Stock”); (v) on the 60
th
day following the Closing Date, $300,000 in cash, to
the extent that such amount of accounts receivable exist as of the Closing Date (the “Closing Receivables Payment”);
and (vi) $700,000 in cash paid by Victory to the Seller over a period of two years following the Closing in equal quarterly installments
of $87,500 each, with the first such installment payable on October 31, 2018 and the last such installment payable on July 31,
2020 (the “Deferred Portion”), provided that upon a change of control of Victory, the Deferred Portion shall become
immediately due and payable.
Pursuant
to the terms of the Purchase Agreement, the Cash Portion of the purchase price was decreased by the amount of any outstanding
indebtedness for borrowed money of Pro-Tech existing as of the Closing Date, if any, and the deducted amount was to pay off such
outstanding indebtedness for borrowed money at the Closing.
The
Purchase Agreement contains customary representations, warranties and covenants, and includes a covenant that the Seller will
not compete with the business of Pro-Tech for a period of five (5) years following the Closing. The Purchase Agreement also contains
mutual indemnification for breaches of representations or warranties and failure to perform covenants or obligations contained
in the Purchase Agreement. The Seller’s indemnification obligations are limited to the sum of (i) the cash value of the
Policies and (ii) to the extent actually paid to the Seller, the Deposit, the Cash Portion, the Closing Receivables Payment and
the Deferred Portion.
The
foregoing summary of the terms and conditions of the Purchase Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of that agreement filed as an exhibit to this report.
Pledge
and Security Agreement
Pursuant
to the terms of the Purchase Agreement, on July 31, 2018 Victory entered into a pledge and security agreement with Pro-Tech and
the Seller (the “Security Agreement”), which grants to the Seller a first priority security interest in the assets
of Pro-Tech (the “Collateral”) and the Acquired Shares, to secure Victory’s obligation to pay to the Seller
the Closing Receivables Payment and the Deferred Portion. The Security Agreement contains customary representations, warranties
and covenants. Any uncured default in the payment of the Closing Receivables Payment and the Deferred Portion in accordance with
the terms of the Security Agreement constitutes an event of default under the Security Agreement, the occurrence and continuation
of which provides the Seller with certain rights and remedies, including the right to: (i) make such payments and do such acts
as the Seller reasonably considers necessary to protect his security interest in the Collateral; (ii) ship, reclaim, recover,
store, finish, maintain, repair, prepare for sale, advertise for sale and sell the Collateral; and (iii) sell the Acquired Shares
or the Collateral.
The
foregoing summary of the terms and conditions of the Security Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of that agreement filed as an exhibit to this report.
Kodak
Loan
Loan
Agreement and Note
On
July 31, 2018, Victory entered into a loan agreement (the “Loan Agreement”) with Kodak Brothers Real Estate Cash Flow
Fund, LLC, a Texas limited liability company (“Kodak”), pursuant to which Victory borrowed from Kodak $375,000 (the
“Loan”) to fund payment for the Acquisition. The Loan is evidenced by a secured convertible promissory note, dated
July 31, 2018 (the “Note”), in the principal amount of $375,000, which shall accrue interest at an annual rate of
10% (the “Interest Rate”) and has a maturity date of March 31, 2019 (the “Maturity Date”). Provided that
Victory is not in default under the Note or the Loan Agreement, it may extend the Maturity Date to June 30, 2019 so long as Victory
pays to Kodak a $9,375 extension fee. Under the Loan Agreement, Victory issued to Kodak a five-year warrant to purchase 375,000
shares of Victory’s Common Stock with an exercise price of $0.75 per share, which includes a cashless exercise provision
(the “Warrant”).
The
terms of the Note provide that Victory will pre-pay (i), upon the Closing, the interest due for the period from the Closing Date
through December 31, 2018 in the amount of $15,625; (ii) on or before January 10, 2019, the interest due for the period from January
1, 2019 through March 31, 2019 in the amount of $9,375; and (iii) in the event Victory extends the Maturity Date, on or before
April 10, 2019, the interest due for the period from April 1, 2019 through June 30, 2019 in the amount of $9,375.
Pursuant
to the terms of the Note, at any time from and after the Maturity Date and prior to payment in full of the principal amount, Kodak
may convert all or any portion of the outstanding principal amount plus all accrued but unpaid interest, into shares of Victory’s
Common Stock at a conversion price of $0.75 per share or such lower price as shares of Victory’s Common Stock are sold to
investors in the current, ongoing $5 million private placement, subject to certain adjustments. If Kodak elects to convert the
Note into shares of Victory’s Common Stock, Victory will issue to Kodak a five-year warrant to purchase the number of shares
of Victory’s Common Stock issuable upon conversion of the Note, at an exercise of $0.75 per share, including a cashless
exercise provision, and upon such other terms as are mutually agreeable to the parties.
The
Note contains customary events of default, the occurrence of which will cause the Interest Rate on the unpaid principal to increase
to the lesser of: (i) 12% per annum; or (ii) the maximum interest rate permitted under applicable law.
The
foregoing summary of the terms and conditions of the Loan Agreement, the Note and the Warrant does not purport to be complete
and is qualified in its entirety by reference to the full text of the Loan Agreement, the Note and the Warrant, each filed as
an exhibit to this report.
Guaranty
and Security Agreement
On
July 31, 2018 and in connection with the Loan Agreement, Pro-Tech and Kodak entered into a guaranty and security agreement (the
“Guaranty Agreement”), pursuant to which the Note is guaranteed by Pro-Tech and is secured by (i) a first priority
interest in all of the assets of Victory, excluding the Acquired Shares and the Collateral, such first priority interest being
pari passu with a prior security interest granted by Victory to Visionary Private Equity Group I, LP, a Missouri limited partnership
(“VPEG”); and (ii) a second priority interest in the Acquired Shares and the Collateral, such security interest being
subordinated to the first priority lien on the Acquired Shares and the Collateral granted to the Seller under the Security Agreement.
The
foregoing summary of the terms and conditions of the Guaranty Agreement does not purport to be complete and is qualified in its
entirety by reference to the full text of that agreement filed as an exhibit to this report.
Intercreditor
Agreement
On
July 31, 2018 and in connection with the Loan, Victory entered in an intercreditor agreement with Pro-Tech, Kodak, VPEG and the
Seller (the “Intercreditor Agreement”), pursuant to which (i) VPEG agreed that, notwithstanding its automatic security
interest in all the assets of Victory, including after-acquired assets, granted under the loan agreement, dated April 10, 2018,
between Victory and VPEG and the related secured convertible promissory note (together, the “VPEG Loan Documents”),
it will relinquish any claim it may have to a security interest in the Acquired Shares and the Collateral; (ii) VPEG agreed that
Kodak’s security interest in the assets of Victory, excluding the Acquired Shares and the Collateral, is pari passu with
VPEG’s security interest in such assets of Victory; and (iii) Kodak’s security interest in the Acquired Shares and
the Collateral is subordinated to the Seller’s security interest in the Acquired Shares and the Collateral.
The
foregoing summary of the terms and conditions of the Intercreditor Agreement does not purport to be complete and is qualified
in its entirety by reference to the full text of that agreement filed as an exhibit to this report.
