▇▇▇▇▇▇ ENERGY, INC.
SECURED CONVERTIBLE NOTE
PURCHASE AGREEMENT
This Secured Convertible Note Purchase Agreement (the "Agreement") is
made as of the February 1, 2006 by and between ▇▇▇▇▇▇ Energy, Inc., a Nevada
corporation (the "Company") and each of the purchasers listed on Exhibit A
attached to this Agreement (each a "Purchaser" and together the "Purchasers").
RECITALS
In 2005, the Company borrowed $355,250 in the form of demand notes from
certain of the Purchasers the proceeds of which were used to fund the purchase
of working interests in the ▇▇▇▇▇ Ranch oil and gas drilling project. The
Company desires to borrow up to an additional $500,000 from certain other
Purchasers in order to increase its holdings in the ▇▇▇▇▇ Ranch project. The
Company desires to issue and sell, and each Purchaser desires to purchase, a
secured convertible promissory note in substantially the form attached to this
Agreement as Exhibit B (the "Note") which shall be convertible into equity
securities of the Company and which shall contain certain piggyback registration
rights on the terms stated therein. As additional consideration for the
Purchasers' purchase of the Notes, the Company will pay each Purchaser the loan
fee as described below. The Loan Fee, the Notes and the equity securities
issuable upon conversion thereof (and the securities issuable upon conversion of
such equity securities) are collectively referred to herein as the "Securities."
AGREEMENT
In consideration of the mutual promises contained herein and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
to this Agreement agree as follows:
1. Purchase and Sale of Notes; Loan Fee.
(a) Sale and Issuance of Notes. Subject to the terms and
conditions of this Agreement, each Purchaser agrees to purchase at the Closing
(as defined below) and the Company agrees to sell and issue to each Purchaser a
Note in the principal amount set forth opposite such Purchaser's name on Exhibit
A. The purchase price of each Note shall be equal to 100% of the principal
amount of such Note. The Company's agreements with each of the Purchasers are
separate agreements, and the sales of the Notes to each of the Purchasers are
separate sales.
(b) Loan Fee. The Company shall pay the Purchasers a loan fee
equal to one restricted share of the Company's common stock for each $5.00 of
principal loaned to the Company pursuant to this Agreement (the "Loan Fee"). The
number of restricted shares of each Purchaser's Loan Fee is set forth opposite
such Purchaser's name on Exhibit A.
(b) Closing; Delivery.
(i) The purchase and sale of the Notes shall take
place at the offices of the Company, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ at 10:00 a.m., on February 1, 2006, or at such other time
and place as the Company and the Purchasers mutually agree upon, orally or in
writing (which time and place are designated as the "Initial Closing"). In the
event there is more than one closing, the term "Closing" shall apply to each
such closing, unless otherwise specified herein.
(ii) At each Closing, the Company shall deliver to
each Purchaser the Note to be purchased by such Purchaser against (1) payment of
the purchase price therefor by check payable to the Company or by wire transfer
1
to a bank designated by the Company or the cancellation of the Purchasers' 2005
demand notes, (2) delivery of counterpart signature pages to this Agreement, the
Security Agreement and the Note, and (3) delivery of a validly completed and
executed IRS Form W-8 BEN or IRS Form W-9, as applicable, establishing such
Purchaser's exemption from withholding tax, which forms are attached to this
Agreement as Exhibit C. Upon receipt thereof, the Company shall give its
transfer agent, ▇▇▇▇▇▇▇▇ Stock Transfer Company, irrevocable instructions to
issue the restricted shares representing each Purchaser's Loan Fee.
(iii) Until the earlier of (A) such time as the
aggregate amount of principal indebtedness evidenced by the Notes equals a total
of $855,250, or (B) the date 20 days from the date hereof, the Company may sell
additional Notes to such persons or entities as determined by the Company, or to
any Purchaser who desires to acquire additional Notes. All such sales shall be
made on the terms and conditions set forth in this Agreement. For purposes of
this Agreement, and all other agreements contemplated hereby, any additional
purchaser so acquiring Notes shall be deemed to be a "Purchaser" for purposes of
this Agreement, and any notes and so acquired such additional purchaser shall be
deemed to be "Notes" and "Securities" as applicable.
2. Stock Purchase Agreement. Each Purchaser understands and agrees that
the conversion of the Notes into equity securities of the Company will require
such Purchaser's execution of certain agreements relating to the purchase and
sale of such securities as well as any rights relating to such equity
securities.
3. Security Interest. The indebtedness represented by the Notes shall
be secured by all of the assets of the Company in accordance with the provisions
of a security agreement among the Company and the Purchasers in the form
attached to this Agreement as Exhibit D (the "Security Agreement").
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser that:
(a) Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Nevada and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties.
(b) Authorization. All corporate action on the part of the
Company, its officers and directors necessary for the authorization, execution
and delivery of this Agreement and the authorization, sale, issuance and
delivery of the Notes, the shares of the Company's capital stock issuable on
conversion thereof, and the performance of all obligations of the Company
hereunder and thereunder has been taken or will be taken prior to the Closing.
The Agreement and the Notes, when executed and delivered by the Company, shall
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their respective terms except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies.
(c) Capitalization. The authorized capital of the Company
consists of:
(i) 500,000,000 shares of Common Stock, 17,291,316
shares of which are issued and outstanding immediately prior to the Initial
2
Closing. All of the outstanding shares of Common Stock have been duly
authorized, are fully paid and nonassessable and were issued in compliance with
all applicable federal and state securities laws.
(ii) there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock.
5. Representations and Warranties of the Purchasers. Each Purchaser
hereby represents and warrants to the Company that:
(a) Authorization. Such Purchaser has full power and authority
to enter into this Agreement. This Agreement, when executed and delivered by the
Purchaser, will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies.
(b) Purchase Entirely for Own Account. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring any of the Securities.
(c) Knowledge. The Purchaser is aware of the Company's
business affairs and financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision to acquire the
Securities.
(d) Restricted Securities. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act
of 1933, as amended (the "Securities Act"), by reason of a specific exemption
from the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Purchaser's representations as expressed herein. The Purchaser understands
that the Securities are "restricted securities" under applicable U.S. federal
and state securities laws and that, pursuant to these laws, the Purchaser must
hold the Securities indefinitely unless they are registered with the Securities
and Exchange Commission and qualified by state authorities, or an exemption from
such registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Securities for resale. The Purchaser further acknowledges that if an exemption
from registration or qualification is available, it may be conditioned on
various requirements including, but not limited to, the time and manner of sale,
the holding period for the Securities, and on requirements relating to the
Company which are outside of the Purchaser's control, and which the Company is
under no obligation and may not be able to satisfy.
(e) Limited Public Market. The Purchaser understands that a
limited public trading market now exists for the securities issued by the
Company on an auction basis on the pink sheets and that the Company has made no
assurances that a substantial public trading market will ever be developed for
the Securities.
3
(f) Legends. The Purchaser understands that the Securities,
and any securities issued in respect thereof or exchange therefor, may bear one
or all of the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(ii) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
(g) Accredited Investor. The Purchaser is an accredited
investor as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
(h) Foreign Investors. If a Purchaser is not a United States
person (as defined by Rule 902(k) under the Securities Act), such Purchaser
hereby represents that it has satisfied itself as to the full observance of the
laws of its jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within its jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale or transfer of the Securities. Such Purchaser's subscription
and payment for, and his or her continued beneficial ownership of the
Securities, will not violate any applicable securities or other laws of
Purchaser's jurisdiction. Such Purchaser also hereby represents that such
Purchaser is not a "10-percent shareholder" as defined in Section 871(h) of the
Internal Revenue Code of 1986, as amended.
6. Conditions of the Purchasers' Obligations at Closing. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Representations and Warranties. The representations and
warranties of the Company contained in Section 4 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
(b) Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement shall be obtained and effective as
of the Closing.
(c) Security Agreement. The Company and the Purchasers shall
have executed the Security Agreement.
7. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) Representations and Warranties. The representations and
warranties of each Purchaser contained in Section 5 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
4
(b) Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement shall be obtained and effective as
of the Closing.
(c) Delivery of Form W-8 BEN or Form W-9. Each Purchaser shall
have completed and delivered to the Company a validly executed IRS Form W-8 BEN
or IRS Form W-9, as applicable, establishing such Purchaser's exemption from
withholding tax.
8. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) Governing Law. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Nevada, without giving effect to principles of conflicts of law.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(d) Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service or confirmed
facsimile, or 48 hours after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below or
as subsequently modified by written notice.
(f) Amendments and Waivers. Any term of this Agreement may
only be amended or waived with the written consent of the Company and the
holders of at least a majority in interest of the Notes. Any amendment or waiver
effected in accordance with this Section 8(g) shall be binding upon each
Purchaser and each transferee of the Securities, each future holder of all such
Securities, and the Company.
(g) Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith, in order to maintain the economic
position enjoyed by each party as close as possible to that under the provision
rendered unenforceable. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto are expressly canceled.
5
(i) Exculpation among Purchasers. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Securities.
(j) Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
(k) Waiver of Conflicts. Each party to this Agreement
acknowledges that ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Attorney at Law, LLC, counsel for the
Company, has in the past performed and may continue to perform legal services
for certain of the Purchasers in matters unrelated to the transactions described
in this Agreement. Accordingly, each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for information relevant
to this disclosure; and (b) gives its informed consent to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Attorney at Law, LLC's representation of certain of the Purchasers in such
unrelated matters and to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Attorney at Law, LLC's representation
of the Company in connection with this Agreement and the transactions
contemplated hereby.
6
The parties have executed this Secured Convertible Note Purchase
Agreement as of the date first written above.
COMPANY:
▇▇▇▇▇▇ ENERGY, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
PURCHASERS:
______________________________________
(Purchaser)
By: __________________________________
Name:_________________________________
(print)
Title:________________________________
SIGNATURE PAGE TO SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
Exhibit A - Schedule of Purchasers
Exhibit B - Form of Promissory Note
Exhibit C - Purchaser Withholding Exemptions
Exhibit D - Form of Security Agreement
7
EXHIBIT A
SCHEDULE OF PURCHASERS
------------------------------------------------------- ------------------ ---------------------
Name and Address of Purchaser Original Principal Loan Fee- Number of
Amount of Note Shares
------------------------------------------------------- ------------------ ---------------------
Auburn Orthopaedic Medical Group $100,000 20,000
Profit Sharing Plan--▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Trustee
------------------------------------------------------- ------------------ ---------------------
Auction Specialists, Inc. $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
Fiserv ISS Co. Trustee FOB--H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ $109,000 21,800
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, M.D. $100,000 20,000
------------------------------------------------------- ------------------ ---------------------
JES Holdings, LLC $10,000 2,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇. $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ $5,000 1,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇, ▇▇▇▇ $20,000 4,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. $35,000 7,000
------------------------------------------------------- ------------------ ---------------------
LKY Real Estate, LLC $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇, ▇▇▇▇▇▇, J. $125,000 25,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. $30,000 6,000
------------------------------------------------------- ------------------ ---------------------
Pamplona, Inc. $10,000 2,000
------------------------------------------------------- ------------------ ---------------------
RGH, Inc. Profit Sharing Plan--▇▇▇▇▇▇▇ ▇▇▇▇, Trustee $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇, ▇▇▇▇▇ ▇. $25,000 5,000
------------------------------------------------------- ------------------ ---------------------
Tanye Capital $75,000 15,000
------------------------------------------------------- ------------------ ---------------------
TATS, a Limited Liability Company $20,000 4,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ $90,000 18,000
------------------------------------------------------- ------------------ ---------------------
▇▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. $15,000 3,000
------------------------------------------------------- ------------------ ---------------------
TOTAL $919,000 183,800 shares
------------------------------------------------------- ------------------ ---------------------
EXHIBIT B
FORM OF SECURED CONVERTIBLE PROMISSORY NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
SECURED CONVERTIBLE PROMISSORY NOTE
$ ____________________ February 1, ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
For value received, ▇▇▇▇▇▇ Energy, Inc., a Nevada corporation (the
"Company"), promises to pay to ____________ the "Holder"), the principal sum of
___________________ Dollars ($_________). Interest shall accrue from the date of
this Note on the unpaid principal amount at a rate equal to 9 % per annum,
compounded annually. This Note is one of a series of Secured Convertible
Promissory Notes containing substantially identical terms and conditions issued
pursuant to that certain Secured Convertible Promissory Note Purchase Agreement
dated as of February 1, 2006 (the "Purchase Agreement"). Such Notes are referred
to herein as the "Notes," and the holders thereof are referred to herein as the
"Holders." This Note is subject to the following terms and conditions.
1. Maturity. Unless converted as provided in Section 2, this Note will
automatically mature and be due and payable on February 2, 2008 (the "Maturity
Date"). Subject to Section 2 below, interest shall accrue on this Note and
accrued interest shall be due and payable on a quarterly basis with the first
payment of accrued interest due on May 1, 2006. Notwithstanding the foregoing,
the entire unpaid principal sum of this Note, together with accrued and unpaid
interest thereon, shall become immediately due and payable upon the insolvency
of the Company, the commission of any act of bankruptcy by the Company, the
execution by the Company of a general assignment for the benefit of creditors,
the filing by or against the Company of a petition in bankruptcy or any petition
for relief under the federal bankruptcy act or the continuation of such petition
without dismissal for a period of ninety (90) days or more, or the appointment
of a receiver or trustee to take possession of the property or assets of the
Company.
2. Conversion.
(a) Conversion by the Company. The entire principal amount of
this Note shall be converted into shares of the Company's equity securities (the
"Equity Securities") issued and sold at the close of the Company's next equity
financing in a single transaction or a series of related transactions yielding
gross proceeds to the Company of at least $2,000,000 in the aggregate (excluding
the conversion of the Notes) (the "Next Equity Financing"), provided that the
Next Equity Financing closes on or before September 30, 2006. The number of
shares of Equity Securities to be issued upon such conversion shall be equal to
the quotient obtained by dividing (i) the entire principal amount of this Note
by (ii) 0.35, rounded up to the nearest whole share.
(b) Conversion by Holder. The entire principal amount of this
Note may be converted into shares of Equity Securities by election of Holder at
any time during the term of this Note. The number of shares of Equity Securities
1
to be issued upon such conversion shall be equal to the quotient obtained by
dividing (i) the entire principal amount of this Note by (ii) 0.35, rounded up
to the nearest whole share.
(c) Mechanics and Effect of Conversion. Upon conversion of
this Note pursuant to this Section 2, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Company or any transfer agent of the
Company. At its expense, the Company will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office, a certificate or
certificates for the number of shares to which such Holder is entitled upon such
conversion, together with any other securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any accrued interest due. Upon conversion of this
Note, the Company will be forever released from all of its obligations and
liabilities under this Note with regard to that portion of the principal amount
being converted including without limitation the obligation to pay such portion
of the principal amount and accrued interest.
(d) Payment of Interest. Upon conversion of the principal
amount of this Note into the Company's Equity Securities, any interest accrued
on this Note shall be immediately paid to the Holder.
3. Piggy-Back Registration Rights. If the Company proposes to file a
Registration Statement with the United States Securities and Exchange Commission
respecting the registration for resale of any shares of any class of its equity
securities for its own account or for the account of other holders of securities
of the Company, the Company shall give prompt written notice to all the Holders
at least 30 Business Days prior to the initial filing of the registration
statement relating to such registration (the "Registration Statement"). Each
such Holder shall have the right, within 10 Business Days after delivery of such
notice, to request in writing that the Company includes all or a portion of the
Equity Securities issued upon conversion of this Note in such Registration
Statement ("Piggy-back Registration Rights"). The Company shall include in such
registration all of the Equity Securities that a Holder has requested be
included. Each Holder shall furnish to the Company in writing such information
and affidavits regarding the Holder, the securities of the Company held by the
Holder and the intended method of disposition of such securities as the Company
may reasonably require in connection with and in order to effect the
registration of Holder's Equity Securities.
4. Payment; Prepayment. All payments shall be made in lawful money of
the United States of America at such place as the Holder hereof may from time to
time designate in writing to the Company. Payment shall be credited first to the
accrued interest then due and payable and the remainder applied to principal.
5. Transfer; Successors and Assigns. The terms and conditions of this
Note shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Notwithstanding the foregoing, the Holder may not
assign, pledge, or otherwise transfer this Note without the prior written
consent of the Company. Subject to the preceding sentence, this Note may be
transferred only upon surrender of the original Note for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument of
transfer in form satisfactory to the Company. Thereupon, a new note for the same
principal amount and interest will be issued to, and registered in the name of,
the transferee. Interest and principal are payable only to the registered holder
of this Note.
6. Governing Law. This Note and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Nevada,
without giving effect to principles of conflicts of law.
7. Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
2
48 hours after being deposited in the U.S. mail as certified or registered mail
with postage prepaid, if such notice is addressed to the party to be notified at
such party's address or facsimile number as set forth below or as subsequently
modified by written notice.
8. Amendments and Waivers. Any term of this Note may be amended only
with the written consent of the Company and at least a majority in interest of
the Holders. Any amendment or waiver effected in accordance with this Section 8
shall be binding upon the Company, each Holder and each transferee of any Note.
9. Stockholders, Officers and Directors Not Liable. In no event shall
any stockholder, officer or director of the Company be liable for any amounts
due or payable pursuant to this Note.
10. Security Interest. This Note is secured by all of the assets of the
Company in accordance with a separate security agreement (the "Security
Agreement") of even date herewith between the Company and the Holder. In case of
an Event of Default (as defined in the Security Agreement), the Holder shall
have the rights set forth in the Security Agreement.
11. Counterparts. This Note may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which
together will constitute a single agreement.
12. Action to Collect on Note. If action is instituted to collect on
this Note, the Company promises to pay all costs and expenses, including
reasonable attorney's fees, incurred in connection with such action.
13. Loss of Note. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and indemnity satisfactory to the Company (in case of loss,
theft or destruction) or surrender and cancellation of such Note (in the case of
mutilation), the Company will make and deliver in lieu of such Note a new Note
of like tenor.
COMPANY:
▇▇▇▇▇▇ ENERGY, INC.
By: _________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Address:1940 ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile:(▇▇▇) ▇▇▇-▇▇▇▇
AGREED TO AND ACCEPTED:
By:__________________________________
Name:________________________________
(print)
Title:_______________________________
3
EXHIBIT C
PURCHASER WITHHOLDING EXEMPTIONS
EXHIBIT D
FORM OF SECURITY AGREEMENT
▇▇▇▇▇▇ ENERGY, INC.
SECURITY AGREEMENT
This Security Agreement (the "Agreement") is made as of February 1,
2006, by and between ▇▇▇▇▇▇ Energy, Inc., a Nevada corporation (the "Debtor"),
in favor of each of the secured parties listed on Exhibit A attached to this
Agreement (each a "Secured Party" and together the "Secured Parties").
RECITALS
The Debtor and each of the Secured Parties are parties to a Secured
Convertible Note Purchase Agreement of even date with this Agreement (the
"Purchase Agreement") pursuant to which the Secured Parties shall purchase the
Notes (as defined in the Purchase Agreement) from the Debtor. The parties intend
that the Debtor's obligations to repay the Notes be secured by all of the assets
of the Debtor.
AGREEMENT
In consideration of the purchase of the Notes by the Secured Parties
and for other good and valuable consideration, the Debtor hereby agrees with the
Secured Parties as follows:
1. Grant of Security Interest.
(a) To secure the Debtor's full and timely performance of all
of the Debtor's obligations and liabilities to the Secured Parties pursuant to
the Notes (including, without limitation, Debtor's obligations to convert the
Notes into shares of the Company's equity securities and to timely pay the
principal amount of, and interest on, the Notes and any other amounts payable
with respect to the Note) (the "Obligations"), the Debtor hereby grants to the
Secured Parties as a whole, and to each individual Secured Party the undivided
percentage interest in the Collateral that is set forth opposite such Secured
Party's name on Exhibit A (the "Participating Interest"), a continuing lien on
and security interest (the "Security Interest") in, all of the Debtor's right,
title and interest in and to its personal property and assets (both tangible and
intangible), including, without limitation, the following, whether now owned or
hereafter acquired and wherever located: (a) all Receivables; (b) all Equipment;
(c) all Fixtures; (d) all General Intangibles; (e) all Inventory; (f) all
Investment Property; (g) all Deposit Accounts; (h) all Cash; (i) all Oil and Gas
Interests; (j) all other Goods of the Debtor; and (k) all Proceeds of each of
the foregoing and all accessions to, and replacements for, each of the foregoing
(collectively, the "Collateral"). The Security Interest shall be a first and
prior interest in all of the Collateral.
(b) The following terms shall have the following meanings for
purposes of this Agreement:
"Account" means any "account," as such term is defined in the
UCC (as defined below), now owned or hereafter acquired by Debtor or in which
Debtor now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts, rights to
payment and other forms of obligations (other than forms of obligations
evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter
received or acquired by or belonging or owing to Debtor whether or not arising
1
out of goods or software sold or services rendered by Debtor or from any other
transaction, whether or not the same involves the sale of goods or services by
Debtor and all of Debtor's rights in, to and under all purchase orders or
receipts now owned or hereafter acquired by it for goods or services, and all of
Debtor's rights to any goods represented by any of the foregoing, and all monies
due or to become due to Debtor under all purchase orders and contracts for the
sale of goods or the performance of services or both by Debtor or in connection
with any other transaction (whether or not yet earned by performance on the part
of Debtor), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
"Cash" means all cash, money, currency, and liquid funds,
wherever held, in which Debtor now or hereafter acquires any right, title, or
interest.
"Chattel Paper" means any "chattel paper," as such term is
defined in the UCC, now owned or hereafter acquired by Debtor or in which Debtor
now holds or hereafter acquires any interest.
"Deposit Accounts" means any "deposit accounts," as such term
is defined in the UCC, and includes any checking account, savings account, or
certificate of deposit, now owned or hereafter acquired by Debtor or in which
Debtor now holds or hereafter acquires any interest.
"Documents" means any "documents," as such term is defined in
the UCC, now owned or hereafter acquired by Debtor or in which Debtor now holds
or hereafter acquires any interest.
"Equipment" means any "equipment," as such term is defined in
the UCC, now owned or hereafter acquired by Debtor or in which Debtor now holds
or hereafter acquires any interest and any and all additions, upgrades,
substitutions and replacements of any of the foregoing, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto, now owned or hereafter acquired by Debtor or in which Debtor
now holds or hereafter acquires interest.
"Fixtures" means any "fixtures," as such term is defined in
the UCC, together with all right, title and interest of Debtor in and to all
extensions, improvements, betterments, accessions, renewals, substitutes, and
replacements of, and all additions and appurtenances to any of the foregoing
property, and all conversions of the security constituted thereby, immediately
upon any acquisition or release thereof or any such conversion, as the case may
be, now owned or hereafter acquired by Debtor or in which Debtor now holds or
hereafter acquires any interest.
"General Intangibles" means any "general intangibles," as such
term is defined in the UCC, now owned or hereafter acquired by Debtor or in
which Debtor now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all right, title and interest that Debtor may
now or hereafter have in or under any contracts, rights to payment, payment
intangibles, confidential information, interests in partnerships, limited
liability companies, corporations, joint ventures and other business
associations, permits, goodwill, claims in or under insurance policies,
including unearned premiums and premium adjustments, uncertificated securities,
deposit, checking and other bank accounts, but shall not include any
Intellectual Property.
"Goods" means any "goods," as such term is defined in the UCC,
now owned or hereafter acquired by Debtor or in which Debtor now holds or
hereafter acquires any interest.
"Instruments" means any "instrument," as such term is defined
in the UCC, now owned or hereafter acquired by Debtor or in which Debtor now
holds or hereafter acquires any interest.
2
"Inventory" means any "inventory," as such term is defined in
the UCC, now owned or hereafter acquired by Debtor or in which Debtor now holds
or hereafter acquires any interest, and, in any event, shall include, without
limitation, all inventory, goods and other personal property that are held by or
on behalf of Debtor for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Debtor's business, or
the processing, packaging, promotion, delivery or shipping of the same, and all
finished goods, whether or not the same is in transit or in the constructive,
actual or exclusive possession of Debtor or is held by others for Debtor's
account, including, without limitation, all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers and all such
property that may be in the possession or custody of any carriers, forwarding
agents, truckers, warehousemen, vendors, selling agents or other Persons.
"Investment Property" means any "investment property," as such
term is defined in the UCC, and includes certificated securities, uncertificated
securities, money market funds and U.S. Treasury bills or notes, now owned or
hereafter acquired by Debtor or in which Debtor now holds or hereafter acquires
any interest.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest, encumbrance, ▇▇▇▇,
▇▇▇▇ or charge of any kind, whether voluntarily incurred or arising by operation
of law or otherwise, against any property, any conditional sale or other title
retention agreement, any lease in the nature of a security interest, and the
filing of any financing statement (other than a precautionary financing
statement with respect to a lease that is not in the nature of a security
interest) under the UCC or comparable law of any jurisdiction.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
other entity or government (whether federal, state, county, city, municipal,
local, foreign, or otherwise, including any instrumentality, division, agency,
body or department thereof).
"Proceeds" means "proceeds," as such term is defined in the
UCC and, in any event, shall include, without limitation, (a) any and all
Accounts, Chattel Paper, Instruments, cash or other forms of money or currency
or other proceeds payable to Debtor from time to time in respect of the
Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Debtor from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) the proceeds, damages, or recovery based on any
claim of Debtor against third parties (i) for past, present or future
infringement of any copyright, patent or patent license or (ii) for past,
present or future infringement or dilution of any trademark or trademark license
or for injury to the goodwill associated with any trademark, trademark
registration or trademark licensed under any trademark license and (e) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.
"Oil and Gas Interests" means all of Debtor's leasehold
interests, working interests or any other interest of any nature in oil and gas
properties or exploration ventures, including all income and proceeds and rights
to income and proceeds therefrom.
"Receivables" means all of Debtor's Accounts, Instruments,
Documents, Chattel Paper, Supporting Obligations, and letters of credit and
Letter of Credit Rights.
3
"Supporting Obligations" means any "supporting obligations,"
as such term is defined in the UCC, now owned or hereafter acquired by Debtor or
in which Debtor now holds or hereafter acquires any interest.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Nevada; provided, that in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, Secured Party's Lien on
any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of Nevada, the term "UCC" shall
mean the Uniform Commercial Code as enacted and in effect, from time to time, in
such other jurisdiction solely for purposes of the provisions thereof relating
to such attachment, perfection, priority or remedies and for purposes of
definitions related to such provisions. Unless otherwise defined herein, terms
that are defined in the UCC and used herein shall have the meanings given to
them in the UCC.
2. Representations and Warranties. The Debtor hereby represents and
warrants to the Secured Party that:
(a) Ownership of Collateral. Except for the Security Interest
granted to the Secured Parties pursuant to this Agreement, the Debtor has rights
in or the power to transfer the Collateral free and clear of any adverse lien,
security interest or encumbrance except as created by this Security Interest. No
financing statements covering any Collateral or any proceeds thereof are on file
in any public office (other than filings listing Secured Parties as the secured
party).
(b) Valid Security Interest. The Security Interest granted
pursuant to this Agreement will constitute a valid and continuing perfected
security interest in favor of the Secured Parties in the Collateral for which
perfection is governed by the UCC. Such Security Interest will be prior to all
other liens on the Collateral.
(c) Organization and Good Standing. The Debtor has been duly
incorporated, and is validly existing and in good standing, under the laws of
the State of Nevada and has a Nevada corporate identification number of
C1739-2004.
(d) Location, State of Incorporation and Name of Debtor.
Debtor's chief executive office is located in ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. Debtor's state of incorporation is Nevada and the
exact legal name of the organization is as set forth in the first paragraph of
this Agreement.
3. Rights and Obligations of Secured Parties.
(a) Ratable Sharing of Collateral. Each Secured Party
acknowledges and it is the intent of the Secured Parties that the Security
Interest granted by Debtor is evidenced by a single Security Agreement and each
Secured Party hereby agrees (and each Secured Party hereby irrevocably advises
and instructs Debtor to recognize) that each Secured Party shall participate in
the percentage of the total amount of any Collateral and proceeds of the
Collateral calculated by multiplying the Debtor's total Obligations by each
Secured Party's Participating Interest in the Collateral as set forth on Exhibit
A.
(b) Event of Default. If an Event of Default shall have
occurred and is continuing, those Secured Parties, who are not officers or
directors of the Company, holding a majority of the Participating Interests in
the Collateral shall notify ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (the "Secured Party Representative")
of such default and direct the Secured Party Representative with the course of
action to take in enforcing the Secured Parties' rights and remedies under this
4
Agreement against the Debtor and Collateral including foreclosing on the
Collateral if necessary. In the event of foreclosure on the Collateral, if the
Collateral is not purchased by a third party at a trustees sale or otherwise as
provided under the UCC, the Secured Party Representative shall cause title to
vest in the names of each Secured Party, as tenants in common, with undivided
interests in the Collateral in accordance with its Participating Interest. The
Secured Parties may also direct Secured Party Representative to exercise any
further rights or remedies under this Agreement, the Purchase Agreement, or
Notes; provided, however, that any interest in or amounts recorded with respect
to the Collateral shall be vested in the names of each Secured Party in
accordance herewith. Any proceeds received from any such foreclosure, remedial
action, redemption or receivership proceeding related to the Collateral shall be
shared between the Secured Parties pari passu in a manner proportionate to their
undivided interest in the Collateral at the time of determination.
(c) Secured Party Representative Fees. In the event that the
Secured Party Representative is required to take any action on behalf of the
Secured Parties in enforcing the Secured Parties' rights and remedies under this
Agreement, the Secured Parties shall pay the Secured Party Representative a fee
of 2% of all amounts collected by the Secured Party Representative (the
"Representative Fee"). The Representative Fee shall be in addition to all third
party fees and costs, including attorney fees and costs, incurred by Secured
Party Representative in connection with the exercise of such remedies.
(d) Actions by Secured Parties; Settlement of Claims. All
actions by Secured Parties or decisions effecting the rights of the Secured
Parties including any settlement of claims the Secured Parties may have against
Debtor shall only be effected by those Secured Parties, who are not officers or
directors of the Company, holding a majority of the Participating Interest in
the Collateral.
4. Covenants. The Debtor covenants and agrees with the Secured Parties
that, from and after the date of this Agreement until the Obligations are paid
in full:
(a) Other Liens. Except for the Security Interest, the Debtor
has rights in or the power to transfer the Collateral and its title and will be
able to do so hereafter free from any adverse lien, security interest or
encumbrance (other than purchase money security interests that will be
discharged upon Debtor's payment of the purchase price for the applicable
property), and the Debtor will defend the Collateral against the claims and
demands of all persons at any time claiming the same or any interest therein.
(b) Further Documentation. At any time and from time to time,
upon the written request of a Secured Party, and at the sole expense of the
Debtor, the Debtor will promptly and duly authenticate and deliver such further
instruments and documents and take such further action as the Secured Party may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted (with the
exception of filing any financing or continuation statements under the UCC in
effect with respect to the Liens created hereby, which shall be the
responsibility of the Secured Parties), including, without limitation, filing
any financing or continuation statements under the UCC in effect with respect to
the Liens created hereby, obtaining acknowledgment (as reasonably acceptable to
the Secured Party) of any bailee having possession of any Collateral that it
holds the Collateral for the benefit of the Secured Party, and obtaining control
of any Investment Property, Deposit Accounts, or Oil and Gas Interests. The
Debtor also hereby authorizes the Secured Parties file any such financing or
continuation statement without the authentication of the Debtor to the extent
5
permitted by applicable law, and to describe the collateral covered by any such
statements as "all assets of the Debtor," "all personal property of the Debtor"
or words of similar effect. A reproduction of this Agreement shall be sufficient
as a financing statement (or as an exhibit to a financing statement on form
UCC-1) for filing by the Secured Parties any jurisdiction.
(c) Indemnification. The Debtor agrees to defend, indemnify
and hold harmless the Secured Parties against any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses)
("Liabilities"): (i) with respect to, or resulting from, any delay in paying,
any and all excise, sales or other taxes which may be payable or determined to
be payable with respect to any of the Collateral, (ii) with respect to, or
resulting from, any delay in complying with any law, rule, regulation or order
of any governmental authority applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this Agreement. However,
Debtor shall have no obligation hereunder to indemnify or hold harmless the
Secured Parties for any Liabilities that have arisen as a result of the Secured
Parties' willful misconduct or gross negligence.
(d) Maintenance of Records. The Debtor will keep and maintain
at its own expense complete and satisfactory records of the Collateral.
(e) Inspection Rights. The Secured Parties shall have full
access during normal business hours, and upon reasonable prior notice, to all
the books, correspondence and other records of the Debtor relating to the
Collateral. The Secured Parties or their representatives may examine such
records and make photocopies or otherwise take extracts from such records. The
Debtor agrees to render to the Secured Parties, at the Debtor's expense, such
clerical and other assistance as may be reasonably requested with regard to the
exercise of its rights pursuant to this paragraph.
(f) Compliance with Laws, etc. The Debtor will comply in all
material respects with all laws, rules, regulations and orders of any
governmental authority applicable to any part of the Collateral or to the
operation of the Debtor's business; provided, however, that the Debtor may
contest any such law, rule, regulation or order in any reasonable manner which
does not, in the reasonable opinion of the Debtor, adversely affect the Secured
Parties' rights or the priority of its liens on the Collateral.
(g) Payment of Obligations. The Debtor will pay promptly when
due all taxes, assessments and governmental charges or levies imposed upon the
Collateral or with respect to any its income or profits derived from the
Collateral, as well as all claims of any kind (including, without limitation,
claims for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if (i) the validity of such
charge is being contested in good faith by appropriate proceedings, (ii) such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest in the Collateral and (iii) such charge
is adequately reserved against on the Debtor's books in accordance with
generally accepted accounting principles.
(h) Limitation on Liens on Collateral. The Debtor will not
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any lien or claim on or to the
Collateral, other than the Security Interest, and will defend the right, title
and interest of the Secured Parties in and to any of the Collateral against the
claims and demands of all other persons.
(i) Limitations on Dispositions of Collateral. The Debtor will
not sell, transfer, lease, or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so.
(j) Further Identification of Collateral. The Debtor will
furnish to the Secured Parties from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Secured Parties may reasonably request,
6
all in reasonable detail. If Debtor shall obtain rights to any new Collateral,
the provisions of this Agreement shall automatically apply thereto. Debtor shall
give prompt notice in writing to Secured Parties with respect to any such new
Collateral.
(k) Notice of Change of State of Incorporation. The Debtor
will provide written notice to the Secured Parties at least 30 days prior to a
change of the Debtor's state of incorporation. The Debtor will provide written
notice to the Secured Parties at least 30 days prior to a change in the location
of its chief executive office.
(l) No Merger. The Debtor will not merge or consolidate into
or transfer any of the Collateral to any other Person without the prior written
consent of the Secured Parties.
(m) Change of Debtor's Name. The Debtor will provide written
notice to the Secured Parties at least 20 days prior to a change in the Debtor's
name.
5. Event of Default; Secured Party's Appointment as Attorney-in-Fact.
(a) Event of Default. For purposes of this Agreement, the
occurrence of any one of the following events (each, an "Event of Default")
shall constitute a default hereunder and under the Note:
(i) The Debtor's failure to pay or discharge the
Obligations in full in accordance with the terms of the Note;
(ii) A material breach of a representation or
warranty made by the Debtor under the Purchase Agreement as of the date thereof;
(iii) The insolvency of the Debtor, the commission of
any act of bankruptcy by the Debtor, the execution by the Debtor of a general
assignment for the benefit of creditors, the filing by or against the Debtor of
a petition in bankruptcy or any petition for relief under the federal bankruptcy
act or the continuation of such petition without dismissal for a period of
ninety (90) days or more, or the appointment of a receiver or trustee to take
possession of the property or assets of the Debtor; or
(iv) If any amendment to or termination of a
financing statement naming the Debtor as debtor and the Secured Parties as
secured party, or any correction statement with respect thereto, is filed in any
jurisdiction by any party other than the Secured Parties or their counsel,
without the prior written consent of the Secured Parties.
(b) Powers. The Debtor hereby appoints the Secured Parties and
any officer or agent of the Secured Parties, with full power of substitution, as
its attorney-in-fact with full irrevocable power and authority in the place of
the Debtor and in the name of the Debtor or its own name, from time to time in
the Secured Parties' discretion so long as an Event of Default has occurred and
is continuing, for the purpose of carrying out the terms of this Agreement, to
take any appropriate action and to authenticate any instrument which may be
necessary or desirable to accomplish the purposes of this Agreement. Without
limiting the foregoing, so long as an Event of Default has occurred and is
continuing, the Secured Parties shall have the right, without notice to, or the
consent of, the Debtor, to do any of the following on the Debtor's behalf:
(i) to pay or discharge any taxes or liens levied or
placed on or threatened against the Collateral;
7
(ii) to direct any party liable for any payment under
any of the Collateral to make payment of any and all amounts due or to become
due thereunder directly to the Secured Parties or as the Secured Parties
directs;
(iii) to ask for or demand, collect, and receive
payment of and receipt for, any payments due or to become due at any time in
respect of or arising out of any Collateral;
(iv) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
enforce any right in respect of any Collateral;
(v) to defend any suit, action or proceeding brought
against the Debtor with respect to any Collateral;
(vi) to settle, compromise or adjust any suit, action
or proceeding described in subsection (v) above and to give such discharges or
releases in connection therewith as the Secured Parties may deem appropriate;
(vii) to assign any patent right included in the
Collateral of Debtor (along with the goodwill of the business to which any such
patent right pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Secured Parties shall in its sole
discretion determine; and
(viii) generally, to sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral and
to take, at the Secured Parties' option and the Debtor's expense, any actions
which the Secured Parties deem necessary to protect, preserve or realize upon
the Collateral and the Secured Parties' liens on the Collateral and to carry out
the intent of this Agreement, in each case to the same extent as if the Secured
Parties were the absolute owner of the Collateral for all purposes.
The Debtor hereby ratifies whatever actions the Secured Parties shall lawfully
do or cause to be done in accordance with this Section 5. This power of attorney
shall be a power coupled with an interest and shall be irrevocable.
(c) No Duty on Secured Parties' Part. The powers conferred on
the Secured Parties by this Section 5 are solely to protect the Secured Parties'
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. The Secured Parties shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Secured Parties nor any of their officers, directors, employees or agents shall,
in the absence of willful misconduct or gross negligence, be responsible to the
Debtor for any act or failure to act pursuant to this Section 5.
6. Performance by Secured Parties Debtor's Obligations. If the Debtor
fails to perform or comply with any of its agreements or covenants contained in
this Agreement and the Secured Parties perform or comply, or otherwise cause
performance or compliance, with such agreement or covenant in accordance with
the terms of this Agreement, then the reasonable expenses of the Secured Parties
incurred in connection with such performance or compliance shall be payable by
the Debtor to the Secured Parties on demand and shall constitute Obligations
secured by this Agreement.
7. Remedies. If an Event of Default has occurred and is continuing, the
Secured Parties may exercise, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or agreement
relating to the Obligations, all rights and remedies of a secured party under
8
the UCC. Without limiting the foregoing, the Secured Parties, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law) to or upon the Debtor or any other
person (all of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances collect, receive, appropriate and realize
upon any or all of the Collateral, and/or may sell, lease, assign, give an
option or options to purchase, or otherwise dispose of and deliver any or all of
the Collateral (or contract to do any of the foregoing), in one or more parcels
at a public or private sale or sales, at any exchange, broker's board or office
of any Secured Party or elsewhere upon such terms and conditions as the Secured
Parties may deem advisable, for cash or on credit or for future delivery without
assumption of any credit risk. The Secured Parties shall have the right upon any
such public sale or sales and, to the extent permitted by law, upon any such
private sale or sales, to purchase all or any part of the Collateral so sold,
free of any right or equity of redemption in the Debtor, which right or equity
is hereby waived or released. To the extent permitted by applicable law, the
Debtor waives all claims, damages and demands it may acquire against the Secured
Parties arising out of the exercise by the Secured Parties of any of its rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least five (5) days before such sale or other disposition. The Debtor
shall remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the Obligations and the
fees and disbursements of any attorneys employed by the Secured Parties to
collect such deficiency.
8. Private Sale and Compliance with Law.
(a) Secured Parties shall not incur any liability as a result
of the sale of Collateral, or any part thereof, at any private sale conducted in
a commercially reasonable manner. Debtor hereby waives any claim against Secured
Parties arising by reason of the fact that the price at which Collateral may
have been sold at such a private sale conducted in a commercially reasonable
manner was less than the price which might have been obtained at a public sale
or was less than the aggregate amount of the Obligations, even if Secured
Parties accept the first offer received and does not offer Collateral to more
than one offeree.
(b) Debtor agrees that in any sale of any of the Collateral
whenever an event of default hereunder shall have occurred and be continuing,
Lender is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of applicable law or in order to obtain any required
approval of the sale or of the purchaser by any governmental regulatory
authority or official, and Debtor further agrees that such compliance shall not
result in such sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall Secured Parties be liable or
accountable to Debtor for any discount allowed by reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.
9. Application of Payments with Respect to the Collateral. In the event
of any foreclosure, sale or other disposition of or realization in any manner
upon any of the Collateral, all monies or other property collected or received
by the Secured Parties or their representatives or counsel with respect to the
Collateral, in excess of the amount paid to discharge liens upon the Collateral
(if any), shall be distributed by the Secured Parties as follows:
(a) First: to the ratable, pari passu payment of any advances
made by any of the Secured Parties to satisfy any lien or other claim that may
impair the Collateral, ratably according to the total amounts owing to the
respective Secured Party as a result of such advances;
9
(b) Second: to the Secured Parties and their representatives
and counsel in the amount of, and to apply to, the payment of reasonable costs
and expenses incurred by Secured Parties representatives and counsel in
connection with the administration and enforcement of the foreclosed upon
Collateral, as the case may be, including the reasonable fees and out-of-pocket
expenses of counsel employed by the Secured Parties to the extent that such
fees, advances, costs and expenses, shall not previously have been paid or
reimbursed to the Secured Parties; and
(c) Third: to each Secured Party, pari passu, in a manner
proportionate to its Participating Interests in the Collateral at the time of
determination until all indebtedness and other obligations owed by Debtor under
the Notes have been satisfied in full, then any excess amount to Debtor.
10. Limitation on Duties Regarding Preservation of Collateral. The
Secured Parties' sole duty with respect to the custody, safekeeping and
preservation of the Collateral, under Section 9-207 of the UCC or otherwise,
shall be to deal with it in the same manner as the Secured Parties deal with
similar property for their own account. Neither the Secured Parties nor any of
their directors, officers, employees or agents shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Debtor or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
contained in this Agreement with respect to the Collateral are irrevocable and
are powers coupled with an interest.
12. No Waiver; Cumulative Remedies. The Secured Parties shall not by
any act (except by a written instrument pursuant to Section 14(f) hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any default under the Notes or in any
breach of any of the terms and conditions of this Agreement. No failure to
exercise, nor any delay in exercising, on the part of the Secured Parties, any
right, power or privilege hereunder shall operate as a waiver thereof. No single
or partial exercise of any right, power or privilege hereunder shall preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Secured Parties of any right or remedy under this
Agreement on any one occasion shall not be construed as a bar to any right or
remedy which the Secured Parties would otherwise have on any subsequent
occasion. The rights and remedies provided in this Agreement are cumulative, may
be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
13. Termination of Security Interest. Upon satisfaction of the Debtor's
obligations pursuant to the Note, or conversion of the Notes into shares of the
Company's equity securities pursuant to the terms of the Notes, the security
interest granted herein shall terminate and all rights to the Collateral shall
revert to the Debtor. Upon any such termination, the Secured Parties shall
authenticate and deliver to the Debtor such documents as the Debtor may
reasonably request to evidence such termination.
14. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall be binding upon the Debtor and its successors and assigns, as
well as all persons who become bound as a debtor to this Agreement and inure to
the benefit of the Secured Parties and their successors and assigns. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
10
(b) Governing Law. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Nevada, without giving effect to principles of conflicts of law.
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(d) Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service or confirmed
facsimile, or 48 hours after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below or
as subsequently modified by written notice.
(f) Amendments and Waivers. Any term of this Agreement may be
amended with the written consent of the parties or their respective successors
and assigns. Any amendment or waiver effected in accordance with this Section
11(f) shall be binding upon the parties and their respective successors and
assigns.
(g) Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith, in order to maintain the economic
position enjoyed by each party as close as possible to that under the provision
rendered unenforceable. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto concerning such subject matter
are expressly canceled.
The Debtor and Secured Parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
DEBTOR:
▇▇▇▇▇▇ ENERGY, INC.
By: _______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
11
SECURED PARTIES:
____________________________________
(Secured Party)
By:_________________________________
Name:_______________________________
(print)
Title:______________________________
12
EXHIBIT A
SCHEDULE OF SECURED PARTIES
---------------------------------------------------- --------------------------- ------------------------
Name and Address of Secured Party Original Principal Amount Participating Interest
of Note in Collateral in %
---------------------------------------------------- --------------------------- ------------------------
Auburn Orthopaedic Medical Group $100,000 10.88
Profit Sharing Plan--▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Trustee
---------------------------------------------------- --------------------------- ------------------------
Auction Specialists, Inc. $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
Fiserv ISS Co. Trustee FOB--H. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ $109,000 11.86
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇ $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, M.D. $100,000 10.88
---------------------------------------------------- --------------------------- ------------------------
JES Holdings, LLC $10,000 1.09
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇. $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ $5,000 0.55
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇, ▇▇▇▇ $20,000 2.18
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. $35,000 3.81
---------------------------------------------------- --------------------------- ------------------------
LKY Real Estate, LLC $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇, ▇▇▇▇▇▇, J. $125,000 13.60
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. $30,000 3.26
---------------------------------------------------- --------------------------- ------------------------
Pamplona, Inc. $10,000 1.09
---------------------------------------------------- --------------------------- ------------------------
RGH, Inc. Profit Sharing Plan--▇▇▇▇▇▇▇ ▇▇▇▇, Trustee $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ ▇. $25,000 2.72
---------------------------------------------------- --------------------------- ------------------------
Tanye Capital $75,000 8.16
---------------------------------------------------- --------------------------- ------------------------
TATS, LLC $20,000 2.18
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ $90,000 9.79
---------------------------------------------------- --------------------------- ------------------------
▇▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. $15,000 1.63
---------------------------------------------------- --------------------------- ------------------------
TOTAL $919,000 100%
---------------------------------------------------- --------------------------- ------------------------
