Note 8 – Debt Including Debt with Related Parties

The following table represents Empire’s outstanding debt as of the dates presented:

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The following table represents Empire’s outstanding related-party debt as of the dates presented:

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On December 29, 2023, Empire North Dakota and Empire ND Acquisition LLC (“Original Borrowers”), entered into a revolver loan agreement with Equity Bank (the “Credit Facility”). Pursuant to the Credit Facility (a) the initial revolver commitment amount is $10.0 million; (b) the maximum revolver commitment amount is $15.0 million; (c) commencing on January 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is reduced by $150,000; (d) commencing on March 31, 2024, there are scheduled semiannual collateral borrowing base redeterminations each year on March 31 and September 30; (e) the final maturity date is December 29, 2026; (f) outstanding borrowings bear interest at a rate equal to the prime rate of interest plus 1.50%, and in no event lower than 8.50%; (g) a quarterly commitment fee is based on the unused portion of the commitments; and (h) Original Borrowers have the right to prepay loans under the Credit Facility at any time without a prepayment penalty.

The Credit Facility is guaranteed by the Company. Original Borrowers entered into a security agreement, pursuant to which the obligations under the Credit Facility are secured by liens on substantially all of the assets of Original Borrowers. Furthermore, the obligations under the Credit Facility are secured by a continuing, first priority mortgage lien, pledge of and security interest in not less than 80% of Original Borrowers’ producing oil, gas and other leasehold and mineral interests, including without limitation, those situated in the States of North Dakota and Montana.

On November 18, 2024, the Original Borrowers entered into the First Amendment to the Credit Facility (the “First Amendment”). Pursuant to the First Amendment (a) the maximum revolver commitment amount is $20.0 million; and (b) commencing on December 31, 2024, and occurring on the last day of each calendar month thereafter, the revolver commitment amount is reduced by $250,000.

On June 18, 2025, the Original Borrowers and Empire Texas Development LLC entered into the Second Amendment to the Credit Facility (the “Second Amendment”). The Second Amendment added Empire Texas Development LLC as a third borrower to the Original Borrowers (collectively “Borrowers”) to the original Credit Facility and extends the obligation security by liens on substantially all of the assets of Empire Texas Development LLC.

On December 29, 2025, the Borrowers entered into the Third Amendment to the Credit Facility (the “Third Amendment”). Pursuant to the Third Amendment, among other things, (a) the final maturity date was extended to December 29, 2028, (b) Borrowers delivered a replacement promissory note, (c) Empire Texas Development LLC executed and delivered an amended and restated security agreement, (d) Borrowers paid a fully earned and non-refundable loan extension fee of $0.05 million, and (e) the Company executed and delivered guarantor acknowledgment and ratification.

The Credit Facility requires Borrowers to maintain (a) a current ratio of 1.0 to 1.0 or more and (b) a ratio of funded debt to EBITDAX (as defined in the revolver loan agreement), calculated quarterly and annually based on a trailing twelve-month basis, of no more than 3.50 to 1.00. At June 30, 2026, the Borrowers were in compliance with all required covenants under the Credit Facility.

Promissory Note – Related Party

On June 17, 2025 (the “Original Issue Date”), the Company issued a promissory note (the “June Note”) in the aggregate principal amount of $4.0 million to Mr. Mulacek. On the Original Issue Date, Mr. Mulacek advanced the Company $2.0 million under the June Note (the “Original Issue Date Advance”). From time to time, during the period beginning 45 days after the Original Issue Date and ending 90 days after the Original Issue Date, the Company may request in writing that Mr. Mulacek advance up to another $2.0 million to the Company, provided that no Event of Default (as defined in the June Note) has occurred or is continuing. Within five business days of receipt of such notice, Mr. Mulacek shall either advance the funds requested (an “Additional Advance”) or decline to make such additional advance. The June Note may be prepaid at any time without the consent of Mr. Mulacek and without penalty or premium.

The June Note matures on June 17, 2027 (the “June Maturity Date”) and accrues interest at the rate of 5.5% per annum. After the Maturity Date, any principal balance of the June Note remaining unpaid accrues interest at the rate of 9% per annum. All accrued but unpaid interest is payable in cash on the June Maturity Date, except upon the occurrence of an Event of Default, in which case all accrued and unpaid interest shall immediately be due and payable. In the event that after the Original Issue Date, the Company closes a sale of its equity (an “Equity Raise”), the Company shall promptly, but in no event later than five business days after receipt of the proceeds from such Equity Raise, repay the lesser of (a) the Original Issue Date Advance (including any interest or fees thereon) or (b) the amount of the Equity Raise to Mr. Mulacek (an “Equity Raise Repayment”). In the event the Company receives proceeds from the sale of any of its equity after an Equity Raise Repayment and an Additional Advance, the Company shall use such proceeds to promptly repay such Additional Advance, and all accrued and unpaid interest thereon, to Mr. Mulacek. In August 2025, Empire completed an Equity Raise and repaid the outstanding June Note balance and all accrued and unpaid interest.

On September 24, 2025, Empire issued a convertible promissory note (the “September Note”) in the aggregate principal amount of $4.0 million to Mr. Mulacek with a maturity date of September 23, 2027 (the “September Maturity Date”), and accrues interest at the rate of 5.5% per annum with interest paid in cash on March 31, 2026, and on each semi-annual end date until the September Maturity Date. Mr. Mulacek advanced to the Company $2.0 million (“First Advance”) payable in full at the September Maturity Date and an additional $2.0 million may be advanced from time to time from March 23, 2026, and for a period of six months thereafter, provided no Event of Default further described in the September Note has occurred. Any unpaid balance after the September Maturity Date accrues interest at the rate of 9% per annum. The September Note carries no penalties for prepayment without the consent of Mr. Mulacek if Empire provides written notification within at least five business days. At the discretion of Mr. Mulacek all or any portion of the outstanding principal amount of the September Note may be converted into shares of common stock at a conversion price of $4.27 per share, subject to customary adjustments up to a maximum conversion shares amount of 936,768. On November 5, 2025, the September Note was amended to increase the conversion price for the First Advance to $4.32 per share for a maximum conversion shares amount of 462,962 and to provide that any further advances are at the discretion of Mr. Mulacek. The conversion price for each subsequent advance shall be determined per the terms of the amendment on November 5, 2025. The Company repaid the full outstanding balance and all related interest in February 2026. A loss on extinguishment of debt of approximately $0.7 million was recorded in connection with repayment.

Empire determined that an embedded conversion feature included in the September Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value and revalued at each reporting period. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $0.3 million as of December 31, 2025, and was determined using a binomial lattice model using certain assumptions and inputs. Accordingly, Empire recognized total gains on the fair value adjustment of the derivative liability in the amount of approximately $0.6 million for the year ended December 31, 2025, reflected within other income (expense) on the unaudited interim condensed consolidated statements of operations. The embedded derivative was revalued prior to the September Note being repaid and a gain of approximately $0.1 million was recorded in the first quarter of 2026. All of the other embedded features of the September Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.

As partial consideration for the September Note, the Company issued Mr. Mulacek a warrant certificate to purchase up to 281,030 common shares at a $4.27 exercise price which will expire on September 24, 2028. On November 5, 2025, the warrant certificate was amended to change the exercise price to $4.32 and the maximum purchase to 138,889 common shares. In the event Mr. Mulacek advances an additional $2.0 million under the terms of the September Note, an additional warrant certificate will be issued to purchase a number of common shares at an exercise price determined at the issuance of the additional warrant certificate per the terms of the amendment on November 5, 2025. In no event will Mr. Mulacek be entitled to receive an aggregate amount of the Company’s common stock in excess of 1,217,798 shares in connection with conversions under the September Note, exercises under the warrant certificate and/or exercises under one or more additional warrant certificates related to subsequent advances.

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Empire determined the warrants shall be classified as equity and accounted for as a discount to the outstanding September Note balance at its relative fair value and amortized over the life of the September Note. The amortization shall be recognized within interest expense in the consolidated statements of operations. The estimated relative fair value of the warrants on the date the warrant certificate was issued was approximately $0.4 million and determined using a Black-Scholes model with certain assumptions and inputs discussed in Note 15 – Fair Value Measurements. On the amendment date of November 5, 2025, the warrants were revalued using a Black-Scholes model to approximately $0.1 million. As of December 31, 2025, the unamortized discount was approximately $0.1 million. The remaining unamortized discount was fully amortized during the first quarter of 2026 once the September Note was repaid.

On February 19, 2026, Empire issued a convertible promissory note (the “February 2026 Note”) in the aggregate principal amount of $3.0 million to Mr. Mulacek with a maturity date of May 19, 2026, and accrues interest at the rate of 5.5% per annum until the earlier of the date Mr. Mulacek elects to convert some or all of the February 2026 Note or the maturity date paid in cash. Any unpaid balance after the maturity date accrues interest at 9% per annum. The February 2026 Note carries no penalties for prepayment without the consent of Mr. Mulacek if Empire provides written notification within at least five business days. At the discretion of Mr. Mulacek all or any portion of the outstanding principal amount of the February 2026 Note may be converted into shares of common stock at a conversion price of $2.99 per share, subject to customary adjustments up to a maximum conversion shares amount of 1,003,344. In March 2026, Mr. Mulacek converted the full February 2026 Note for total common shares of 1,003,344 in accordance with the terms of the February 2026 Note. The Company also paid all outstanding interest in cash.

Empire determined that an embedded conversion feature included in the February 2026 Note required bifurcation from the host contract that is recognized as a separate derivative liability carried at fair value and revalued at each reporting period. The estimated fair value of the derivative liability, which represents a Level 3 valuation, was approximately $0.2 million on February 19, 2026, and was determined using a binomial lattice model using certain assumptions and inputs. Upon conversion, the embedded derivative liability was removed. All of the other embedded features of the February 2026 Note were clearly and closely related to the debt host and did not require bifurcation as a derivative liability.