Basic Energy CorporationBSC

Execution of Joint Development Shareholders Agreement (JDSHA) Between Basic Energy Corporation and RENOVA Inc.; subsequent subscription and/or transfer of 10 million (10,000,000) common shares in Mabini Energy Corporation to RENOVA Inc. at a par value of Php 1.0/share

On April 17, 2024, Basic Energy Corporation ("BSC"; "the Company") entered into a Joint Development Shareholders Agreement (JDSHA) with RENOVA Inc. ("RENOVA") which effectively establishes the agreement to form a Joint Venture partnership between the aforementioned companies at the level of BSC’s subsidiary – Mabini Energy Corporation (MEC) at a 50:50 equity ratio.

The implementation of the JDSHA will entail the transfer a portion of MEC shares currently owned by BSC to RENOVA in order for the latter to enter MEC as a 50% shareholder. After which event, the BSC and RENOVA will be deemed Joint Venture partners in MEC and shall jointly develop the Mabini Wind Energy Project.

Compliance of the Conditions Precedent is expected to be done on or before eight (8) months from execution date of JDSHA (April 17, 2024) or December 18, 2024; and transfer of shares from BSC to RENOVA is set to be done on the set Closing Date – December 18, 2024. Regulatory requirements include, securing of E-Certificate Authorizing Registration for the transfer of shares, MEC updating its Certificate of Registration issued by the Bureau of Internal Revenue to reflect changes in the current principal office address, and BSC complying with reportorial or other requirements within anti-money laundering regulations.

The partnership with RENOVA is seen as a necessary step toward realizing the fulfilment of the Mabini Wind Energy Project. RENOVA brings with it its years of expertise and knowledge base in the development of renewable energy projects.

With this partnership, the investment cost is also evenly distributed among the shareholder-investors and preparing the project’s foundation for the future developments when construction and implementation is expected to transpire.

BSC as the proponent of the Mabini Wind Power Project will be paid by RENOVA a development premium of USD150,000/MW, subject to RENOVA’s achieving a target Equity IRR of 15%. Development premium. The Development Premium will be payable as follows:

(i) 10% at Closing Date;
(ii) 10% upon achieving agreed milestones;
(iii) 40% at Financial Close Date; and,
(iv) 40% at Commercial Operation Date.

At an initial target capacity of 50MW, BSC is expected to receive a total development premium of USD7.5 million for its 50% interest in the Mabini Wind Power Project.

RENOVA will acquire BSC’s 50% interest in Mabini Energy Corporation (“MEC”). The purchase price for RENOVA’s acquisition of BSC’s 50% interest in MEC will be equal to 50% of the prior costs plus a prior cost premium of 10% p.a. less the amount of outstanding advances by BSC to MEC as of the Closing Date.

As of 29 February 2024, total prior cost is at Php34,049,857.01 with prior costs premium calculated at Php3,980,417.75. Estimated development cost to be incurred prior to Closing date is estimated at around Php50 million. Final amount of prior costs, prior costs premium and advances will be updated and agreed to by both parties 10-business days prior to Closing Date.

Further development of the Mabini Wind Power Project to bring it to RTB stage is estimated at USD3.8 million which costs will be shared by RENOVA and BSC equal to their shareholding interests in MEC.

Budget for the construction of the Mabini Wind Power Project will be determined and agreed to by both parties at Financial Close Date and is envisioned to be funded via debt and equity with a target DE ratio of 70:30. Equity portion of the funds for construction will be shared in accordance with the shareholding interest of each party. As of this date, total project cost is estimated to around Php5 billion.

BSC and RENOVA will have 49% and 51% common (voting) shares, respectively , with BSC being issued additional 2% non-voting preferred shares in MEC to achieve a 50:50 economic/equity sharing of the Parties.

Renova will be entitled to nominate three (3) directors, while BSC will nominate two (2) directors. Furthermore, RENOVA shall have the right to nominate the President and Assistant Treasurer to MEC, while BSC has the right to nominate the Chairman, Treasurer, and Corporate Secretary to MEC. Lastly, the management of the Project shall consist of Officers and other employees appointed from persons nominated by the President.

(for further illustration and explanation please refer to attached narrative on the matter)

The share reclassification (a portion of the issued and/or unissued shares of MEC being reclassified into non-voting preferred shares and issued to BSC to effectuate the 50:50 economic/equity share of the Parties) should have been completed as of closing.

The Corporation's authorized capital stock will be divided into two types of shares: Common Shares and Preferred Shares. Preferred Shares have no voting rights, are redeemable at the Corporation's discretion, and are non-convertible to Common Shares. Upon redemption, they are retired by the Corporation. Holders of Preferred Shares have pre-emptive rights only for additional issuance of new Preferred Shares based on their proportionate shareholding percentage, but not for any other class of shares.

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While the Joint Venture between BSC and RENOVA does not materially affect the business and operations of Issuer (BSC) itself since the level of the Joint Venture partnership is at BSC's subsidiary – Mabini Energy Corporation – the partnership is deemed an integral step to continue the development of the Mabini Wind Energy Project and seeing it to actual fruition. In terms of BSC's financial condition, an income is expected as natural when BSC sells its shares in MEC to RENOVA when it enters MEC to attain the agreed equity share ration indicated in the JDSHA.

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