EXHIBIT 10.16
SECURED TERM NOTE
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FOR VALUE RECEIVED, CARNEROS ENERGY, INC., a Delaware
corporation ("CARNEROS"), GOTLAND OIL, INC., a Texas corporation ("GOTLAND"),
and CARNEROS ACQUISITION CORP., a Delaware corporation ("HOLDINGS", and
collectively with Carneros and Gotland, the "COMPANIES" and each a "COMPANY"),
jointly and severally promise to pay to LAURUS MASTER FUND, LTD., c/o M&C
Corporate Services Limited, P.O. Box 309 GT, Xxxxxx House, South Church Street,
Xxxxxx Town, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the "HOLDER") or
its registered assigns or successors in interest, the sum of Twenty-One Million
Two Hundred Thousand Dollars ($21,200,000), together with any accrued and unpaid
interest hereon, on May 31, 2009 (the "MATURITY DATE") if not sooner paid.
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 among the Companies and the Holder
(as amended, modified and/or supplemented from time to time, the "PURCHASE
AGREEMENT").
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 2.2 and 3.9, 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%) (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%). Interest shall be (i)
calculated on the basis of a 360 day year, and (ii) payable monthly, in arrears,
commencing on the first day of the month immediately following the date on which
the Holder shall have released from escrow the proceeds from the sale of this
Note (the "First Payment Date"), 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.
1.2 PAYMENTS. Amortizing payments of the aggregate principal
amount outstanding under this Note at any time (the "PRINCIPAL AMOUNT") shall be
jointly and severally made by the Companies on the First Payment Date and on the
first business day of each succeeding month thereafter through and including the
Maturity Date (each, an "AMORTIZATION DATE"). Commencing on the first
Amortization Date, the Companies shall, jointly and severally, make monthly
payments of principal and interest to the Holder on each Amortization Date equal
to the Amortization Amount (as hereafter defined). All such payments shall be
applied by the Holder first to accrued and unpaid interest, fees and expenses
owing by the Companies to the Holder and then to the outstanding principal
balance owing hereunder. In the event the Amortization Amount during any month
is less than $150,000, then the Companies shall nevertheless be jointly and
severally required to make a monthly payment to the Holder during such month in
an amount equal to the difference between $150,000 and the then applicable
Amortization Amount, which such payment shall be applied by the Holder to
accrued and unpaid interest, fees and expenses owing by any Company to the
Holder. Any outstanding Principal Amount together with any accrued and unpaid
interest and any and all other unpaid amounts which are then owing by any
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
seventy-five percent (75%) of the Net Revenue relating to all oil and gas
properties of Carneros and Gotland (collectively, the "OIL AND GAS PROPERTIES")
for the calendar month immediately preceding the Amortization Date; PROVIDED,
HOWEVER, such percentage shall increase to one hundred percent (100%) upon the
occurrence and during the continuance of an Event of Default and (b) "NET
REVENUE" shall mean the gross proceeds paid to Carneros and Gotland in respect
of oil, gas and/or other hydrocarbon production in which it has an interest
whether or not such proceeds are remitted to the lockbox account and/or any
other blocked account established by any Company in connection with the
transactions contemplated hereby net of, in each case, with respect to the
period for which such Net Revenue relates, the reasonable ordinary day to day
expenses associated with Carneros' and Gotland's operation of the leases, xxxxx
and equipment, including fuel, materials, labor, maintenance, routine production
equipment replacement, repairs, routine workover costs to maintain production
from an existing completed well, royalty, severance tax and ad valorem tax, in
each case using accounting practices and procedures ordinary and customary in
the oil and gas industry, all of which shall be subject to the Holder's approval
which shall be provided in the exercise of the Holder's reasonable discretion
based on such supporting documentation from Carneros and Gotland as the Holder
shall request.
ARTICLE 2
EVENTS OF DEFAULT
2.1 EVENTS OF DEFAULT. The occurrence of any of the following
events set forth in this Section 2.1 shall constitute an event of default
("EVENT OF DEFAULT") hereunder:
(a) FAILURE TO PAY. Any Company fails to pay when due
any installment of principal, interest or other fees hereon in accordance
herewith, or any 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) business days following the
date upon which any such payment was due.
(b) BREACH OF COVENANT. Any Company or any Subsidiary
of any Company 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 any Company or any
Subsidiary of any Company in connection with the transaction contemplated
hereby, by 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.
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(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 $100,000, of any Company or
any Subsidiary of any Company 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. Any Company or any Subsidiary of any
Company 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 forty-five (45) 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
$100,000 in the aggregate are made upon any Company's or any Company's
Subsidiary's assets or a judgment is rendered against any Company's or any
Company's Subsidiary's property involving a liability of more than $100,000
which shall not have been vacated, discharged, stayed or bonded within forty
(40) days from the entry thereof;
(h) INSOLVENCY. Any Company or any Subsidiary of any
Company 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 any 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 any Company (other than a "PERSON" or
"GROUP" that beneficially owns 35% or more of such outstanding voting equity
interests of such Company on the date hereof), (ii) the Board of Directors of
any Company shall cease to consist of a majority of such 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) any
Company or any Subsidiary of any Company merges or consolidates with, or sells
all or substantially all of its assets to, any other person or entity;
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(j) INDICTMENT; PROCEEDINGS. The indictment or
threatened indictment of any Company, any Subsidiary of any Company or any
executive officer of any Company or any Subsidiary of any Company under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceeding against any Company, any Subsidiary of any Company or any
executive officer of any Company or any Subsidiary of any Company pursuant to
which statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Company or any Subsidiary of any
Company; 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, (ii) any Company or any Subsidiary of
any Company 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) any Company or any Subsidiary of any Company 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, (v) the Purchase Agreement or any Related Agreement ceases to be a
valid, binding and enforceable obligation of any Company or any Subsidiary of
any Company (to the extent such persons or entities are a party thereto) or (vi)
an Event of Default shall occur.
2.2 DEFAULT INTEREST. Following the occurrence and during the
continuance of an Event of Default, the Companies shall, jointly and severally,
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 each 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 each Company under the Purchase Agreement and the
other Related Agreements, to require the Companies, jointly and severally, to
make a Default Payment ("DEFAULT PAYMENT"). The Default Payment shall be 125% 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.
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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 Companies at the addresses 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 Xxxx X. Xxxxxx, Esq., 000 Xxxxx
Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, xxxxxxxxx number (000) 000-0000,
or at such other address as any Company or the Holder may designate by ten days
advance written notice to the other parties hereto.
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 jointly and severally
binding upon the Companies and their respective 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. No Company may 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 Companies shall, jointly and severally, 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.
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(b) EACH 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 SUCH 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 EACH 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. EACH COMPANY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH
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 SUCH COMPANY AT THE ADDRESS SET FORTH IN THE PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH
COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
(c) EACH 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, EACH
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 SUCH 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.
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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 Companies to the Holder and thus refunded
to the Companies.
3.10 SECURITY INTEREST AND MORTGAGE. The Holder has been
granted a security interest (i) in certain assets of the Companies as more fully
described in the Master Security Agreement dated as of the date hereof (as
amended, restated or otherwise modified from time to time), (ii) in the equity
interests of Holdings in Carneros pursuant to the Stock Pledge Agreement dated
as of the date hereof between Holdings and the Holder (as amended, restated or
otherwise modified from time to time), (iii) in the equity interests of Carneros
in Gotland pursuant to the Stock Pledge Agreement dated as of the date hereof
between Carneros and the Holder (as amended, restated or otherwise modified from
time to time) and (iv) in the oil and gas properties of Carneros and Gotland
pursuant to one or more deeds of trust 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 Companies (or their 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 Companies of this Note
to the new holder or the issuance by the Companies of a new instrument to the
new holder, or (ii) transfer through a book entry system maintained by the
Companies (or their agent), within the meaning of Treasury Regulation Section
1.871-14(c)(1)(i)(B).
[Balance of page intentionally left blank; signature page follows]
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IN WITNESS WHEREOF, the Companies have caused this Secured
Term Note to be signed in their respective names effective as of this 31st day
of May 2006.
CARNEROS ENERGY, INC.(1)
By:________________________
Name:
Title:
GOTLAND OIL, INC.(1)
By:________________________
Name:
Title:
CARNEROS ACQUISITION CORP.
By: /S/ XXXXXX XXXXX
-----------------------
Name: Xxxxxx Xxxxx
Title: President
WITNESS:
/S/ XXXXXX XXXXX
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___________________
(1) See Joinder and Amendment Agreement dated as of June 29, 2006 among
the Companies and the Holder pursuant to which Gotland and Carneros join the
Secured Term Note as Companies.
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