Item 8.01 Other Events.
Petrolia Energy Corporation ("Petrolia" or the "Company") is filing this Current
Report on Form 8-K to summarize the history of, and provide the current status
of, the pending litigation matters disclosed below:
As previously disclosed, on March 11, 2022, the Company and Petrolia Canada
Corporation ("Petrolia Canada"), an affiliate of Petrolia, filed a lawsuit in
the 133rd Judicial District Court, Harris County Texas (Cause No. 2022-15278),
against Jovian Petroleum Corporation, Zel Khan ("Khan") and Quinten Beasley
("Beasley") (collectively, the "Defendants").
In the petition against the Defendants, Petrolia and Petrolia Canada alleged
causes of action for fraud and breach of contract against all the named
Defendants and breach of fiduciary duty claims against Defendants Zel Khan and
Quinten Beasley. Defendant Zel Khan was a former CEO and Director of Petrolia,
and Defendant Quinten Beasley was a former Senior Vice President and Director of
Petrolia Canada.
Petrolia and Petrolia Canada demanded a jury trial and are seeking monetary
relief of more than $1 million against the Defendants.
In April and May 2022, each of the Defendants filed an Original Answer,
generally denying all of the allegations of Petrolia and Petrolia Canada.
Subsequently, in September 2022, Defendants filed an amended answer and
counterclaims. Pursuant to the amended answer, Defendants generally denied the
allegations of Petrolia and Petrolia Canada and are seeking indemnification
under the Company's governing documents and statutory provisions.
Beasley is seeking repayment of the outstanding balance of $5,000 plus accrued
interest ($4,710) alleged owed to him by the Company in connection with a
promissory note entered into with the Company on July 14, 2016.
In September 2022, Joel Oppenheim ("Oppenheim") and Critical Update, Inc., owned
by Beasley ("Critical Update" and collectively with Oppenheim, the
"Intervenors"), filed a Petition in Intervention. Oppenheim alleges that he
advanced at least $797,000 to the Company from 2015 to 2019 (including $416,900
alleged owed under a loan agreement) and that he also provided various
certificates of deposit to the Company in the aggregate amount of $258,251.
Oppenheim is seeking return of amounts advanced with interest, a declaratory
judgment establishing the amount of Company stock and warrants owed to him, and
attorney's fees. Separately, Critical Update is seeking $120,000 CAD alleged
owed to it in consideration for services rendered to Petrolia Canada, plus
interest and attorney's fees.
On October 11, 2022, Petrolia and Petrolia Canada filed a general denial of all
the Defendants' counterclaims.
Subsequently, on December 6, 2022, Oppenheim filed a motion for severance asking
the court to sever his breach of loan agreement claim from the other claims in
this lawsuit and adjudicate the claim as Cause No. 2022-15278-B. The same day,
Oppenheim also filed a motion for partial summary judgment on his breach of loan
agreement claim. On December 22, 2022, Oppenheim filed a separate lawsuit and
application for temporary injunction (Cause No. 2022-83054) in the 157th
Judicial District Court, Harris County Texas against the Company and Petrolia
Canada and their individual board members. That action is a shareholder
derivative lawsuit filed against the Company alleging, among other things,
breach of duty of loyalty and breach of duty of obedience, as well as seeking to
compel a shareholder meeting and seeking expedited discovery. On December 30,
2022, Jovian Petroleum Corporation filed a petition in intervention to join this
newly filed lawsuit.
In January 2023, Petrolia and Petrolia Canada filed a motion to strike the
intervention of Oppenheim and on February 3, 2023, Oppenheim filed a response to
that motion arguing that such intervention is proper. Such motions are still
pending with the court.
On February 9, 2023, Edna Meyer-Nelson, Suzanne Klein, and Laura S. Ward (the
"Additional Intervenors"), each a shareholder of the Company, filed a separate
Petition in Intervention to join in Oppenheim's derivative suit against the
Defendants. The Additional Intervenors are seeking an order compelling an annual
shareholder meeting of the Company; a temporary injunction requiring the
Defendants to hold an annual and special meeting of the shareholders of the
Company within 30 days to elect directors of the Company and conduct such other
proper business as may come before it; a temporary injunction enjoining the
Defendant Directors from voting their Series B Preferred Shares; an order
combining the hearing on the temporary injunction with a trial on the merits;
expedited discovery; and upon final trial, the Additional Intervenors are
requesting: (i) rescission of the Series B Preferred Stock; (ii) forfeiture of
all compensation paid to the Defendant Directors by the Company after the Series
B Preferred Stock issuance; (iii) actual damages in an amount to be proven at
trial; (iv) exemplary damages sufficient to deter the directors of other Texas
corporations from disenfranchising a corporation's shareholders, as alleged by
the Additional Intervenors; (v) attorneys' fees and expenses; and (vi) such
other and further relief to which Additional Intervenors are entitled.
The outcome of the above litigation is currently unknown; however, the Company
disputes the Defendants' counterclaims and the allegations of the Intervenors
and intends to defend the matter vigorously, while also continuing to seek all
damages which it is due.
Regardless of the merit of the particular claims summarized above, litigation
may be expensive, time-consuming, disruptive to the Company's operations, and
distracting to management. Additionally, the outcome of the litigation matters
discussed above may result in significant compensatory, punitive or other
monetary damages, and/or remedial corporate measures or injunctive relief
against the Company that could materially adversely affect its financial
condition, cash flow, available cash, and the value of its securities and
prospects.
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