Business Context and Reporting Period
This Form 8-K is filed by Creek Road Miners, Inc. (not Prairie Operating Co.) for the reporting period of September 13, 2022. The filing addresses a significant legal and financial dispute regarding a senior secured convertible debenture.
Key Financial Metrics and Obligations
- Debt Instrument: 12% Senior Secured Convertible Debenture dated December 19, 2019.
- Principal Amount: $2,496,850.
- Accrued Demand: The holder demanded payment of $5,004,978.76, representing principal, accrued interest, and liquidated damages.
- Recent Financing: Issuance of a $900,000 convertible note on August 24, 2022, in exchange for 600,000 shares of common stock.
- Liquidity Impact: Potential acceleration of the full debenture obligation if the default is upheld.
Material Changes and Events
On September 13, 2022, Barlock Capital Management LLC (an affiliate of the Company's former Co-CEO, Scott Kaufman) delivered a notice of alleged event of default. The notice cites two triggers:
- The issuance of the $900,000 convertible note on August 24, 2022.
- The resignation of Scott Kaufman as Co-CEO and director on August 8, 2022.
The Company disputes these assertions, arguing the note issuance was an equity exchange under Section 3(a)(9) of the Securities Act and not "indebtedness for borrowed money," and that the resignation was voluntary and unrelated to default conditions.
Outlook, Risks, and Management Commentary
Management Position: The Company strongly disagrees with the default notice, stating the holder lacks the authority to declare default as remedies were delegated to an agent. The Company has demanded the withdrawal of the notice.
Legal Action: The Company intends to pursue causes of action against Mr. Kaufman and others for intentional fraud, self-dealing, conspiracy, and breaches of fiduciary duties.
Acceleration Terms: If a default is ultimately determined, the debt may be accelerated. The payoff amount would be the greater of the principal plus interest divided by the conversion price multiplied by the VWAP, or 130% of the principal plus 100% of accrued interest. Additionally, the interest rate could increase to 18% per annum (or the maximum permitted by law) commencing five days after acceleration.
Investor Verification Checklist
- Verify the legal standing of the $900,000 convertible note issuance and whether it constitutes "indebtedness for borrowed money" under the Debenture terms.
- Confirm the authority of Barlock Capital Management LLC to declare an event of default versus the authority of the designated agent.
- Assess the Company's liquidity position to determine if it can satisfy the $5,004,978.76 demand if the default is upheld.
- Monitor the status of the Company's counter-suits for fraud and breach of fiduciary duty against former management.