Exhibit 10.4
SECURED TERM NOTE
-----------------
FOR VALUE RECEIVED, TEXAURUS ENERGY, INC., a Delaware corporation (the
"COMPANY"), promises to pay to LAURUS MASTER FUND, LTD., c/o M&C Corporate
Services Limited, P.O. Box 309 GT, ▇▇▇▇▇▇ House, South Church Street, ▇▇▇▇▇▇
Town, Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "HOLDER") or its
registered assigns or successors in interest, the sum of Eight Million Five
Hundred Thousand Dollars ($8,500,000), together with any accrued and unpaid
interest hereon, on March , 2009 (the "MATURITY DATE") if not sooner paid. The
---
original principal amount of this Note subject to amortizing payments pursuant
to Section 1.2 hereof is hereinafter referred to as the "AMORTIZING PRINCIPAL
AMOUNT" and the remaining original principal amount of this Note is hereinafter
referred to as the "NON-AMORTIZING PRINCIPAL AMOUNT."
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Securities Purchase Agreement dated as of
the date hereof by and between the Company and the Holder (as amended, modified
and/or supplemented from time to time, the "PURCHASE AGREEMENT").
The principal amount of this Note that is contained in the Restricted
Account (as defined in the Restricted Account Agreement referred to in the
Purchase Agreement) on the date of the issuance of this Note is $2,669,234.65.
The following terms shall apply to this Secured Term Note (this
"NOTE"):
ARTICLE 1
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest payable
-------------
on the outstanding principal amount of this Note (the "PRINCIPAL AMOUNT")
shall accrue at a rate per annum equal to the "PRIME RATE" published in The
---
Wall Street Journal from time to time (the "PRIME RATE"), plus two percent
--------------------
(2.0%) (the "CONTRACT RATE"). The Contract Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime
Rate in an amount equal to such increase or decrease in the Prime Rate;
each change to be effective as of the day of the change in the Prime Rate.
The Contract Rate shall not at any time be less than eight percent (8.0%).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on April 1, 2006, on the first
business day of each consecutive calendar month thereafter through and
including the Maturity Date, and on the Maturity Date, whether by
acceleration or otherwise. Accrued interest on the Non-Amortizing Principal
Amount shall be payable only on the Maturity Date, whether by acceleration
or otherwise.
1.2 Principal Payments. Amortizing payments of the aggregate principal
------------------
amount outstanding under this Note not contained in the Restricted Account
(as defined in the Restricted Account Agreement) at any time (the
"PRINCIPAL AMOUNT") shall be made by the Company on June 1, 2006 and on the
first business day of each succeeding month thereafter through and
including the Maturity Date (each, an "AMORTIZATION DATE"). Subject to
Article III below, commencing on the first Amortization Date, the Company
shall make monthly payments to the Holder on each Amortization Date
equal to the Amortization Amount. Any outstanding Principal Amount together
with any accrued and unpaid interest and any and all other unpaid amounts
which are then owing by the Company to the Holder under this Note, the
Purchase Agreement and/or any other Related Agreement shall be due and
payable on the Maturity Date. For purposes of this Section, (a) the term
"AMORTIZATION AMOUNT" shall mean an amount equal to the Net Revenue
relating to all oil and gas properties of the Company (collectively, the
"OIL AND GAS PROPERTIES") for the calendar month immediately preceding the
Amortization Date and (b) "NET REVENUE" shall mean eighty percent (80%) of
the gross proceeds paid to the Company in respect of oil, gas and/or other
hydrocarbon production in which the Company has an interest whether or not
such proceeds are remitted to the lockbox account and/or any other blocked
account established by the Company in connection with the transactions
contemplated hereby.
ARTICLE 2
EVENTS OF DEFAULT
2.1 Events of Default. The occurrence of any of the following events
------------------
set forth in this Section 4.1 shall constitute an event of default ("EVENT
OF DEFAULT") hereunder:
(a) Failure to Pay. The Company fails to pay when due any
----------------
installment of principal, interest or other fees hereon in accordance
herewith, or the Company fails to pay any of the other Obligations
(under and as defined in the Master Security Agreement) when due, and,
in any such case, such failure shall continue for a period of three
(3) days following the date upon which any such payment was due.
(b) Breach of Covenant. The Company or any of its Subsidiaries
--------------------
breaches any covenant or any other term or condition of this Note in
any material respect and such breach, if subject to cure, continues
for a period of fifteen (15) days after the occurrence thereof.
(c) Breach of Representations and Warranties. Any representation,
----------------------------------------
warranty or statement made or furnished by Texhoma Energy, Inc. (the
"Parent"), the Company, any of its Subsidiaries or any guarantor (each
a "Guarantor") issuing to the Holder a guaranty agreement (each a
"Guaranty") in connection with the transaction contemplated hereby in
this Note, the Purchase Agreement or any other Related Agreement shall
at any time be false or misleading in any material respect on the date
as of which made or deemed made.
(d) Default Under Other Agreements. The occurrence of any default
------------------------------
(or similar term) in the observance or performance of any other
agreement or condition relating to any indebtedness or contingent
obligation, in each case in an aggregate amount of not less than
$50,000, of the Parent, the Company or any of its Subsidiaries beyond
the period of grace (if any), the effect of which default is to cause,
or permit the holder or holders of such indebtedness or beneficiary or
beneficiaries of such contingent obligation to cause, such
indebtedness to become due prior to its stated maturity or such
contingent obligation to become payable;
(e) Material Adverse Effect. Any change or the occurrence of any
-----------------------
event which could reasonably be expected to have a Material Adverse
Effect;
(f) Bankruptcy. The Parent, the Company, any of its Subsidiaries
----------
or any Guarantor shall (i) apply for, consent to or suffer to exist
the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a
bankrupt or insolvent, (v) file a petition seeking to take advantage
of any other law providing for the relief of debtors, (vi) acquiesce
to, without challenge within ten (10) days of the filing thereof, or
failure to have dismissed, within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the
foregoing;
(g) Judgments. Attachments or levies in excess of $50,000 in the
---------
aggregate are made upon the Parent, the Company, or its Subsidiary's
or any Guarantor's assets or a judgment is rendered against the
Company's, any of its Subsidiary's or any Guarantor's property
involving a liability of more than $50,000 which shall not have been
vacated, discharged, stayed or bonded within thirty (30) days from the
entry thereof;
(h) Insolvency. The Parent or the Company or any Guarantor shall
----------
admit in writing its inability, or be generally unable, to pay its
debts as they become due or cease operations of its present business;
(i) Change of Control. A Change of Control (as defined below)
-------------------
shall occur with respect to the Company, unless Holder shall have
expressly consented to such Change of Control in writing. A "CHANGE OF
CONTROL" shall mean any event or circumstance as a result of which (i)
any "PERSON" or "GROUP" (as such terms are defined in Sections 13(d)
and 14(d) of the Exchange Act, as in effect on the date hereof), other
than the Holder, is or becomes the "BENEFICIAL OWNER" (as defined in
Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of 35% or more on a fully diluted basis of the then
outstanding voting equity interest of the Company (other than a
"PERSON" or "GROUP" that beneficially owns 35% or more of such
outstanding voting equity interests of the Company on the date
hereof), (ii) unless the Holder provides its written consent thereto
(which shall not be unreasonably withheld), the Board of Directors of
the Company shall cease to consist of a majority of the Company's
board of directors on the date hereof (or directors appointed by a
majority of the board of directors in effect immediately prior to such
appointment) or (iii) the Company or any of its Subsidiaries merges or
consolidates with, or sells all or substantially all of its assets to,
any other person or entity;
(j) Indictment; Proceedings. The indictment or threatened
------------------------
indictment of the Parent, the Company, any of its Subsidiaries or any
Guarantor or any executive officer of the Parent, the Company or any
of its Subsidiaries under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against the
Parent, the Company, any of its Subsidiaries or any Guarantor or any
executive officer of the Parent, the Company, any of its Subsidiaries
or any Guarantor pursuant to which statute or proceeding penalties or
remedies sought or available include forfeiture of any of the property
of the Company, any of its Subsidiaries or any Guarantor; or
(k) The Purchase Agreement and Related Agreements. (i) An Event
----------------------------------------------
of Default shall occur under and as defined in the Purchase Agreement
or any other Related Agreement (including, without limitation, the
breach by any Guarantor of any provision of any Guaranty), (ii) the
Parent, the Company, any of its Subsidiaries or any Guarantor shall
breach any term or provision of the Purchase Agreement or any other
Related Agreement in any material respect and such breach, if capable
of cure, continues unremedied for a period of fifteen (15) days after
the occurrence thereof, (iii) the Parent, the Company, any of its
Subsidiaries or any Guarantor attempts to terminate, challenges the
validity of, or its liability under, the Purchase Agreement or any
Related Agreement, (iv) any proceeding shall be brought to challenge
the validity, binding effect of the Purchase Agreement or any Related
Agreement or (v) the Purchase Agreement or any Related Agreement
ceases to be a valid, binding and enforceable obligation of the
Parent, the Company, any of its Subsidiaries or any Guarantor (to the
extent such persons or entities are a party thereto).
2.2 Default Interest. Following the occurrence and during the
-----------------
continuance of an Event of Default, the Company shall pay additional
interest on this Note in an amount equal to two percent (2%) per month, and
all outstanding obligations under this Note, the Purchase Agreement and
each other Related Agreement, including unpaid interest, shall continue to
accrue interest at such additional interest rate from the date of such
Event of Default until the date such Event of Default is cured or waived.
2.3 Default Payment. Following the occurrence and during the
----------------
continuance of an Event of Default, the Holder, at its option, may demand
repayment in full of all obligations and liabilities owing by Company to
the Holder under this Note, the Purchase Agreement and/or any other Related
Agreement and/or may elect, in addition to all rights and remedies of the
Holder under the Purchase Agreement and the other Related Agreements and
all obligations and liabilities of the Company under the Purchase Agreement
and the other Related Agreements, to require the Company to make a Default
Payment ("DEFAULT PAYMENT"). The Default Payment shall be 130% of the
outstanding principal amount of the Note, plus accrued but unpaid interest,
all other fees then remaining unpaid, and all other amounts payable
hereunder. The Default Payment shall be applied first to any fees due and
payable to the Holder pursuant to this Note, the Purchase Agreement, and/or
the other Related Agreements, then to accrued and unpaid interest due on
this Note and then to the outstanding principal balance of this Note. The
Default Payment shall be due and payable immediately on the date that the
Holder has exercised its rights pursuant to this Section 2.3.
ARTICLE 3
MISCELLANEOUS
3.1 Cumulative Remedies. The remedies under this Note shall be
--------------------
cumulative.
3.2 Failure or Indulgence Not Waiver. No failure or delay on the part
--------------------------------
of the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
3.3 Notices. Any notice herein required or permitted to be given shall
-------
be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not,
then on the next business day, (c) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or
(d) one day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the Company at the address provided in the
Purchase Agreement executed in connection herewith, and to the Holder at
the address provided in the Purchase Agreement for such Holder, with a copy
to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ number (▇▇▇) ▇▇▇-▇▇▇▇, or at such other address as the
Company or the Holder may designate by ten days advance written notice to
the other parties hereto. A Notice of Conversion shall be deemed given when
made to the Company pursuant to the Purchase Agreement.
3.4 Amendment Provision. The term "NOTE" and all references thereto,
--------------------
as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so
amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.
3.5 Assignability. This Note shall be binding upon the Company and its
-------------
successors and assigns, and shall inure to the benefit of the Holder and
its successors and assigns, and may be assigned by the Holder in accordance
with the requirements of the Purchase Agreement. The Company may not assign
any of its obligations under this Note without the prior written consent of
the Holder, any such purported assignment without such consent being null
and void.
3.6 Cost of Collection. In case of any Event of Default under this
--------------------
Note, the Company shall pay the Holder reasonable costs of collection,
including reasonable attorneys' fees.
3.7 Governing Law, Jurisdiction and Waiver of Jury Trial.
-----------------------------------------------------------
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE
OTHER HAND, PERTAINING TO THIS NOTE OR ANY OF THE OTHER RELATED
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR
ANY OF THE RELATED AGREEMENTS; PROVIDED, THAT THE COMPANY ACKNOWLEDGES
--------
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE
----------------
TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION
IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE HOLDER. THE
COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. THE
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS
SET FORTH IN THE PURCHASE AGREEMENT AND THAT SERVICE SO MADE SHALL BE
DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION,
THE COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER AND THE COMPANY
ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE,
ANY OTHER RELATED AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR
THERETO.
3.8 Severability. In the event that any provision of this Note is
------------
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Note.
3.9 Maximum Payments. Nothing contained herein shall be deemed to
-----------------
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the
rate of interest required to be paid or other charges hereunder exceed the
maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Company to the Holder
and thus refunded to the Company.
3.10 Security Interest, Guarantee and Mortgage. The Holder has been
-------------------------------------------
granted a security interest (i) in certain assets of the Company and the
Parent as more fully described in the Master Security Agreement dated as of
the date hereof, (ii) in the equity interests of the Parent in the Company
pursuant to the Stock Pledge Agreement dated as of the date hereof and
(iii) in the oil and gas properties of the Company pursuant to one or more
mortgages dated as of the date hereof. The obligations of the Company under
this Note are guaranteed by the Parent pursuant to the Guaranty dated as of
the date hereof.
3.11 Construction. Each party acknowledges that its legal counsel
------------
participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against
the drafting party shall not be applied in the interpretation of this Note
to favor any party against the other.
3.12 Registered Obligation. This Note is intended to be a registered
----------------------
obligation within the meaning of Treasury Regulation Section
1.871-14(c)(1)(i) and the Company (or its agent) shall register this Note
(and thereafter shall maintain such registration) as to both principal and
any stated interest. Notwithstanding any document, instrument or agreement
relating to this Note to the contrary, transfer of this Note (or the right
to any payments of principal or stated interest thereunder) may only be
effected by (i) surrender of this Note and either the reissuance by the
Company of this Note to the new holder or the issuance by the Company of a
new instrument to the new holder, or (ii) transfer through a book entry
system maintained by the Company (or its agent), within the meaning of
Treasury Regulation Section 1.871-14(c)(1)(i)(B).
[Balance of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the Company has caused this Secured Term Note to be signed
in its name effective as of this 23 day of March 2006.
TEXAURUS ENERGY, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
WITNESS:
/s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------
▇▇▇▇ ▇▇▇▇▇▇
Barrister & Solicitor
Suite ▇▇▇▇-▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. V6Z 1S4