Press release BoxID: 402957 (Recovery Energy, Inc.)
  • Recovery Energy, Inc.
  • 1515 Wynkoop Street, Suite 200
  • CO 80202 Denver
  • Contact person
  • +41 (44) 87167-67

Entry into a Material Definitive Agreement, Unregistered Sale of Equity Sec

Item 1.01 Entry into a Material Definitive Agreement / Oil and Gas Property Letters of Intent and Convertible Debenture Private Placement

(PresseBox) (Denver, ) The Company recently entered into letters of intent to acquire oil and gas leases on approximately 9,500 acres in Goshen County, Wyoming and Weld County, Colorado. On February 2, 2011 the Company entered into a purchase agreement for a private placement sale of $8,000,000 aggregate principal amount of three year 8% Senior Secured Convertible Debentures (the "Debentures") with a group of accredited investors. The Debentures will be issued upon the closing of the acquisitions which are expected to occur in the first half of February, 2011. $3,000,000 of the proceeds from the sale of the Debentures is restricted to acquisition of and drilling activities on the acquired properties, which will be pledged as collateral for the Debentures. The balance of the proceeds are to be used by the Company for working capital.

The Debentures are convertible at any time at the holders' option into shares of Recovery Energy common stock at $2.35 per share, subject to adjustment. Interest on the Debentures is payable quarterly on each May 15, August 15, November 15 and February 15 in cash or at the Company's option in shares of common stock, valued at 95% of the volume weighted average price of the common stock for the 10 trading days prior to an interest payment date. The Company can redeem some or all of the Debentures at any time. The redemption price is 115% of principal plus accrued interest. If the holders of the Debentures elect to convert the Debentures following notice of redemption the conversion price will include a make-whole premium equal to the remaining interest through the 18 month anniversary of the original issue date of the Debentures, payable in common stock.

Copies of the forms of securities purchase agreement and Debenture are included as Exhibits 10.1 and 10.2 hereto, and the description herein is qualified in its entirety by reference to such exhibits.

T.R. Winston & Company LLC acted as placement agent for the private placement and received compensation in the form of Debentures with an aggregate principal amount equal to 5% of the gross proceeds from the sale (the "Placement Agent Debentures").

Item 3.02 Unregistered Sale of Equity Securities

Issuance of the Debentures, including the Placement Agent Debentures, described above was not registered under the Securities Act of 1933. The issuance of the Debentures, including the Placement Agent Debentures, was exempt from registration, pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D and Rule 506 promulgated thereunder. These securities qualified for exemption since the issuance securities by us did not involve a public offering and the purchasers are all accredited investors as defined in Regulation D. The offering was not a "public offering" as defined in Section 4(2) due to the insubstantial number of persons involved in the sale, size of the offering, manner of the offering and number of securities offered. In addition, these shareholders have the necessary investment intent as required by Section 4(2) since each agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a "public offering." Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act and Regulation D for this transaction.