Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(f) and 15d-15(f), of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management has assessed our internal control over financial reporting as of December 31, 2022. The unqualified report of management thereon is included in Item 8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K and is incorporated by reference herein.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the three months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Entry into a Material Definitive Agreement
On March 24, 2023, Battalion Oil Corporation (the “Company”) entered into a purchase agreement (the “Purchase Agreement”) with each of the purchasers set forth on Schedule A thereto (the “Buyers”), pursuant to which the Company agreed to sell to the Buyers, in a private placement, an aggregate of 25,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”). The private placement of the Series A Preferred Shares pursuant to the Purchase Agreement was undertaken in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. A copy of the Purchase Agreement is filed as Exhibit 10.8 to this Annual Report on Form 10-K and is incorporated herein by reference. A description of the material terms of the transaction is set forth below and is qualified in its entirety by reference to the documents filed herewith as Exhibits 3.1.1, 10.3.1, and 10.8 which are incorporated herein by reference.
The aggregate purchase price paid by the Buyers for the Series A Preferred Stock was approximately $24,375,000, with related expenses and fees to be paid out of the proceeds. The Company intends to use the proceeds for general corporate and working capital purposes including scheduled debt principal and interest payments.
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Purchase Agreement
The Purchase Agreement entered into by the Company and the Buyers contains representations, warranties, and covenants of the Company and each of the Buyers, as well as indemnification rights and other obligations of the parties.
The closing of the transaction was conditioned on customary closing conditions, including the accuracy of the representations and warranties in the Purchase Agreement, the compliance by the parties with the covenants in the Purchase Agreement, and no material adverse effect occurred with respect to the Company.
Description of Series A Preferred Stock
The powers, preferences, rights, qualifications, limitations and restrictions applicable to the Series A Preferred Stock to be issued in the transaction are set forth in the Series A Certificate of Designations of the Company (the “Certificate of Designations”), which form is filed as Exhibit 3.1.1 to this Annual Report on Form 10-K. The Certificate of Designations is filed with the Delaware Secretary of State.
The holders of shares of the Series A Preferred Stock generally will have no voting rights, except as required by the General Corporation Law of the State of Delaware, other applicable law, the Certificate of Incorporation (as amended from time to time in accordance with its terms and the General Corporation Law, the “Certificate of Incorporation”), or as otherwise described in the Certificate of Designations, and except that the consent of the holders of at least two-thirds of the outstanding Series A Preferred Stock would be required to: (i) authorize, create, or increase the authorized amount of, or issue any class or series of class or series that ranks senior to the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Company (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such capital stock, the “Senior Stock”), or reclassify or amend the provisions of any existing class of securities of the Company into shares of Senior Stock; (ii) authorize, create or issue any stock or debt instrument or other obligation that is convertible or exchangeable into shares of its Senior Stock (or that is accompanied by options or warrants to purchase such Senior Stock); (iii) amend, alter or repeal any provision of the Certificate of Incorporation or the Certificate of Designations, in either case, in a manner that materially adversely affects the special rights, preferences, privileges or voting powers of the Series A Preferred Stock; (iv) declare or pay any dividends or other distributions in cash or property with respect to its common stock, par value $0.0001 per share, of the Company (the “Common Stock”) or other class or series of capital stock of the Company, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Company (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such capital stock, the “Junior Stock”); (v) redeem, repurchase or acquire shares of its Common Stock or other Junior Stock (other than with respect to customary repurchase rights or tax withholding arrangements with respect to equity awards or benefit plans); or (vi) redeem, repurchase, recapitalize or acquire shares of its stock on a parity with any class or series of capital stock of the Company, the terms of which provide that such class or series ranks on a parity with the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Company (such capital stock, together with any warrants, rights, calls or options exercisable for or convertible into such capital stock, the “Parity Stock”) other than (A) pro rata offers to purchase all, or a pro rata portion, of the Series A Preferred Stock and such Parity Stock (B) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (C) the exchange or conversion of Parity Stock for or into other Parity Stock or Junior Stock or (D) the purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the security being converted or exchanged.
Holders of Series A Preferred Stock shall be entitled to receive dividends at the rate per share of Series A Preferred Stock equal to the Series A Dividend Rate (the “Series A Dividend”). The “Series A Dividend Rate” shall mean fourteen and one-half percent (14.50%) per annum on the then-applicable liquidation preference. If a Series A Dividend is not declared and paid in cash on a Dividend Payment Date, then in full discharge of such Series A Dividend for such Dividend Period, the Liquidation Preference of each outstanding share of Series A Preferred Stock, regardless of its date of issue, shall automatically increase on such Dividend Payment Date by an amount equal to sixteen percent (16.00%) per annum multiplied by the Liquidation Preference in effect immediately after the immediately prior Dividend Payment Date (or the Issuance Date in respect of the first Dividend Period) (such automatic increase, the “Unpaid Dividend
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Accrual”), which, for the avoidance of doubt, will be pro-rated for the period of time elapsed during such Dividend Period. The period from the closing date of the issuance of the shares of Series A Preferred Stock (the “Issuance Date”) to and including June 30, 2023, and each period from but excluding a Dividend Payment Date to and including the following Dividend Payment Date is herein referred to as a “Dividend Period.” “Dividend Payment Date” shall mean March 31, June 30, September 30 and December 31 of each year, commencing on June 30, 2023 and the “Liquidation Preference” shall equal one thousand dollars ($1,000) per share of Series A Preferred Stock, which amount shall be adjusted as the result of any Unpaid Dividend Accrual (or payment thereof), and as otherwise set forth in the Certificate of Designations.
Each Buyer shall have the option from time to time to convert all or a portion of such Buyer’s shares of Series A Preferred Stock into Common Stock at the Conversion Ratio. The “Conversion Ratio” means, for each share of Series A Preferred Stock, the quotient of (i) the liquidation preference as of the date of the conversion and (ii) the then applicable Conversion Price. The “Conversion Price” shall initially be $9.03, which may be adjusted from time to time as set forth herein.
First Amendment to Registration Rights Agreement
In connection with the Purchase Agreement, the Company also entered into the First Amendment to Registration Rights Agreement dated March 28, 2023 by and between the Company and the parties identified thereto (the “Amendment No. 1”) to the Registration Rights Agreement, dated as of October 8, 2019 (the “Registration Rights Agreement”). Under Amendment No. 1, the Company granted the parties certain registration rights with respect to Common Stock issuable upon conversion of the Series A Preferred Stock.
The foregoing summaries of the material terms of the Purchase Agreement, the Certificate of Designations, and the Registration Rights Agreement are not complete and are qualified in their entirety by reference to the full text thereof, copies of which are filed herewith as Exhibit 3.1.1, Exhibit 10.3.1, and Exhibit 10.8, respectively, and incorporated by reference herein.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to General Instruction 6 to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Stockholders.
The Company's Code of Conduct and Code of Ethics for the Principal Executive Officer and Senior Financial Officers can be found on the Company's website located at www.battalionoil.com . Any stockholder may request a printed copy of such materials by submitting a written request to the Company's Corporate Secretary. If the Company amends the Code of Ethics or grants a waiver, including an implicit waiver, from the Code of Ethics, the Company will disclose the information on its website. The waiver information will remain on the website for at least twelve months after the initial disclosure of such waiver.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction 6 to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table sets forth certain information as of December 31, 2022 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities
Weighted-Average
Equity Compensation
to be Issued Upon Exercise
Exercise Price of
Plans (Excluding
of Outstanding
Outstanding Options and
Securities Reflected in
Plan Category
Options and Rights(A) (1)
Rights
Column(A))
Equity compensation plans approved by security holders.
—
$
—
—
Equity compensation plans not approved by security holders (2)
1,367,546
28.32
243,623
1,367,546
$
28.32
243,623
(1) Consists of 889,394 unvested RSUs and outstanding 478,152 stock options.
(2) The formation of the plan was approved by the Bankruptcy Court upon confirmation of our Plan of Reorganization in 2019 and further approved by our board with an effective date of January 1, 2020.
Pursuant to General Instruction 6 to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Pursuant to General Instruction 6 to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Stockholders.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Pursuant to General Instruction 6 to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Stockholders.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Consolidated Financial Statements:
The consolidated financial statements of the Company and its subsidiaries and reports of independent registered public accounting firms listed in Section 8 of this Annual Report on Form 10-K are filed as a part of this Annual Report on Form 10-K.
(2) Consolidated Financial Statements Schedules:
All schedules are omitted because they are inapplicable or because the required information is contained in the financial statements or included in the notes thereto.
(3) Exhibits:
2.1
Order of the Bankruptcy Court, dated September 24 2019, confirming the Joint Prepackaged Plan of Reorganization of Halcón Resources Corporation, et al, under Chapter 11 of the Bankruptcy Code, together with such Joint Prepackaged Plan of Reorganization (Incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed September 26, 2019).
3.1
Amended and Restated Certificate of Incorporation of Battalion Oil Corporation ( formerly Halcón Resources Corporation) dated October 8, 2019, as amended by the Certificate of Amendment, dated January 21, 2020 (Incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-K filed March 25, 2020).
3.1.1
*
Certificate of Designations of Series A Redeemable Convertible Preferred Stock dated effective March 24, 2023
3.2
Seventh Amended and Restated Bylaws of Battalion Oil Corporation (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed January 27, 2020).
4.1
Description of Battalion Oil Corporation’s securities registered under Section 12 of the Exchange Act. (Incorporated by reference to Exhibit 4.1 of our Annual Report on Form 10-K filed March 25, 2020).
10.1
Amended and Restated Senior Secured Credit Agreement dated as of November 24, 2021, by and among Battalion Oil Corporation, as holdings, Halcón Holdings LLC, as borrower, the subsidiary guarantors party thereto, Macquarie Bank Limited, as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 29, 2021).
10.1.1
Second Amendment to Amended and Restated Senior Secured Credit Agreement dated as of November 14, 2022, by and among Halcón Holdings, LLC, as borrower, Macquarie Bank Limited, as administrative agent and the lenders party hereto, the guarantors party hereto and Battalion Oil Corporation, as holdings (Incorporated by reference to Exhibit 10.1.1 of our Quarterly Report on Form 10-Q filed November 14, 2022).
10.2
Warrant Agreement, dated as of October 8, 2019, by and between Halcón Resources Corporation and Broadridge Corporate Issuer Solutions, Inc., as warrant agent (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed October 8, 2019).
10.3
Registration Rights Agreement, dated as of October 8, 2019, by and among Halcón Resources Corporation and each of the parties thereto, as investors (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed October 8, 2019).
10.3.1
*
First Amendment to Registration Rights Agreement dated March 28, 2023, by and among Battalion Oil Corporation and each of the parties thereto, as investors.
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10.4
†
Battalion Oil Corporation 2020 Long-Term Incentive Plan, effective as of January 1, 2020 (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed January 31, 2020).
10.5
†
Employment Agreement between Richard H. Little and Battalion Oil Corporation effective as of January 28, 2020 (Incorporated by reference to Exhibit 10.5 of our Annual Report on Form 10-K filed March 25, 2020).
10.6
†
Employment Agreement between Daniel P. Rohling and Battalion Oil Corporation effective as of January 28, 2020 (Incorporated by reference to Exhibit 10.7 of our Annual Report on Form 10-K filed March 25, 2020).
10.7
*†
Offer Letter with Kristen McWatters dated January 20, 2023
10.8
*
Purchase Agreement, dated March 28, 2023, by and among Battalion Oil Corporation and each of the purchasers set forth on Schedule A thereto.
10.22
†
Form of Nonqualified Stock Option Award Agreement (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed January 31, 2020).
10.23
†
Form of Base Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed January 31, 2020).
10.24
†
Form of Performance-Based Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K filed January 31, 2020).
10.25
†
Form of M&A Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K filed January 31, 2020).
21.1
*
List of Subsidiaries of Battalion Oil Corporation
31.1
*
Sarbanes-Oxley Section 302 certification of Principal Executive Officer
31.2
*
Sarbanes-Oxley Section 302 certification of Principal Financial Officer
32
*
Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer
99.1
*
Report of Netherland, Sewell & Associates, Inc.
101.INS
*
Inline XBRL Instance Document
101.SCH
*
Inline XBRL Taxonomy Extension Schema Document
101.CAL
*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
*
Inline XBRL Taxonomy Extension Definition Document
101.LAB
*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Attached hereto.
†
Indicates management contract or compensatory plan or arrangement.
The registrant has not filed with this report copies of the instruments defining rights of all holders of long-term debt of the registrant and its consolidated subsidiaries based upon the exception set forth in Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of such instruments will be furnished to the SEC upon request.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BATTALION OIL CORPORATION
Date: March 30, 2023
By:
/s/ RICHARD H. LITTLE
Richard H. Little
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ RICHARD H. LITTLE
Richard H. Little
Director and Chief Executive Officer
March 30, 2023
/s/ KRISTEN MCWATTERS
Kristen McWatters
Executive Vice President, Chief Financial Officer and Treasurer
March 30, 2023
/s/ JONATHAN BARRETT
Jonathan Barrett
Chairman of the Board
March 30, 2023
/s/ DAVID CHANG
David Chang
Director
March 30, 2023
/s/ GREGORY HINDS
Gregory Hinds
Director
March 30, 2023
/s/ ALLEN LI
Allen Li
Director
March 30, 2023
/s/ WILLIAM ROGERS
William Rogers
Director
March 30, 2023
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