Contract
THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO QUEST OIL CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE
NOTE
FOR VALUE
RECEIVED, QUEST OIL CORPORATION, a Nevada corporation (hereinafter called
"Borrower"), hereby promises to pay to _______________________________ (the
"Holder") or order, without demand, the sum of
___________________________________________ Dollars ($__________), with simple
interest accruing at the annual rate of ten percent (10%), on May ___, 2006 (the
"Maturity Date").
This Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription Agreement.
Unless otherwise separately defined herein, all capitalized terms used in this
Note shall have the same meaning as is set forth in the Subscription Agreement.
The following terms shall apply to this Note:
ARTICLE
I
GENERAL
PROVISIONS
1.1 Payment
Grace Period. The
Borrower shall have a ten (10) day grace period to pay any monetary amounts due
under this Note, after which grace period a default interest rate of fifteen
percent (15%) per annum shall apply to the amounts owed hereunder.
1.2 Conversion
Privileges. The
Conversion Privileges set forth in Article II shall remain in full force and
effect immediately from the date hereof and until the Note is paid in full
regardless of the occurrence of an Event of Default. The Note shall be payable
in full on the Maturity Date, unless previously converted into Common Stock in
accordance with Article II hereof; provided, that if an Event of Default has
occurred, the Borrower may not pay this Note, without the consent of the Holder,
until one year after the later of the date the Event of Default has been cured
or one year after the Maturity Date.
1.3 Interest
Rate. Simple
interest payable on this Note shall accrue at the annual rate of ten percent
(10%) and be payable upon each Conversion, quarterly commencing July 1, 2005,
and on the Maturity Date, accelerated or otherwise, when the principal and
remaining accrued but unpaid interest shall be due and payable, or sooner as
described below.
ARTICLE
II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the principal due under this Note into
Shares of the Borrower's Common Stock, $.001 par value per share (“Common
Stock”) as set forth below.
2.1. Conversion
into the Borrower's Common Stock.
(a) The
Holder shall have the right from and after the date of the issuance of this Note
and then at any time until this Note is fully paid, to convert any outstanding
and unpaid principal portion of this Note, and accrued interest, at the election
of the Holder (the date of giving of such notice of conversion being a
"Conversion Date") into fully paid and nonassessable shares of Common Stock as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the conversion price as defined in Section 2.1(b) hereof (the
"Conversion Price"), determined as provided herein. Upon delivery to the
Borrower of a completed Notice of Conversion, a form of which is annexed hereto,
Borrower shall issue and deliver to the Holder within three (3) business days
from the Conversion Date (such third day being the “Delivery Date”) that number
of shares of Common Stock for the portion of the Note converted in accordance
with the foregoing. At the election of the Holder, the Borrower will deliver
accrued but unpaid interest on the Note in the manner provided in Section 1.3
through the Conversion Date directly to the Holder on or before the Delivery
Date (as defined in the Subscription Agreement). The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note and interest to be converted,
by the Conversion Price.
(b) Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
share shall be equal to the lesser of $0.30 (“Maximum Base Price”), or seventy
percent (70%) of the average of the three lowest closing bid prices of the
Common Stock as reported by the Principal Market for the thirty trading days
preceding a Conversion Date.
(c) The
Conversion Price and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a), shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
X. Xxxxxx,
Sale of Assets, etc. If the Borrower at any time shall consolidate with or merge
into or sell or convey all or substantially all its assets to any other
corporation, this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
such number and kind of shares or other securities and property as would have
been issuable or distributable on account of such consolidation, merger, sale or
conveyance, upon or with respect to the securities subject to the conversion or
purchase right immediately prior to such consolidation, merger, sale or
conveyance. The foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or purchaser. Without
limiting the generality of the foregoing, the anti-dilution provisions of this
Section shall apply to such securities of such successor or purchaser after any
such consolidation, merger, sale or conveyance.
B. Reclassification,
etc. If the Borrower at any time shall, by reclassification or otherwise, change
the Common Stock into the same or a different number of securities of any class
or classes that may be issued or outstanding, this Note, as to the unpaid
principal portion thereof and accrued interest thereon, shall thereafter be
deemed to evidence the right to purchase an adjusted number of such securities
and kind of securities as would have been issuable as the result of such change
with respect to the Common Stock immediately prior to such reclassification or
other change.
C. Stock
Splits, Combinations and Dividends. If the shares of Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, or if a
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of shares, in
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event..
D. Share
Issuance. So long as this Note is outstanding, if the Borrower shall offer,
issue or agree to issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) for a consideration less
than the Conversion Price [determined as being the lesser of the Conversion
Price set forth in Sections 2.1(b)(i) and 2.1(b)(ii) above, without regard to
the last sentence of Section 2.1(b)] in effect at the time of such issue, then,
and thereafter successively upon each such issue, the Maximum Base Price shall
be reduced to such other lower issue price. For purposes of this adjustment, the
issuance of any security carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of the
above-described security and again upon the issuance of shares of Common Stock
upon exercise of such conversion or purchase rights if such issuance is at a
price lower than the then applicable Maximum Base Price. The reduction of the
Conversion Price described in this paragraph is in addition to other rights of
the Holder described in this Note and the Subscription Agreement.
(d) Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring such
adjustment.
(e) During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock not less than
three hundred
percent
(300%) of
the number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note.
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and
non-assessable. Xxxxxxxx agrees that its issuance of this Note shall constitute
full authority to its officers, agents, and transfer agents who are charged with
the duty of executing and issuing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the conversion of this
Note.
2.2 Method
of Conversion. This
Note may be converted by the Holder in whole or in part as described in Section
2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this
Note, a new Note containing the same date and provisions of this Note shall, at
the request of the Holder, be issued by the Borrower to the Holder for the
principal balance of this Note and interest which shall not have been converted
or paid.
2.3 Maximum
Conversion. The
Holder shall not be entitled to convert on a Conversion Date that amount of the
Note in connection with that number of shares of Common Stock which would be in
excess of the sum of (i) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock
issuable in connection with the unconverted portion of the Note, and (iii) the
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Holder and
its affiliates of more than 4.99% of the outstanding shares of Common Stock of
the Borrower on such Conversion Date. For the purposes of the provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
shall not be limited to aggregate conversions of only 4.99% and aggregate
conversion by the Holder may exceed 4.99%. The Holder shall have the authority
and obligation to determine whether the restriction contained in this Section
2.3 will limit any conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may waive the conversion
limitation described in this Section 2.3, in whole or in part, upon and
effective after 61 days prior written notice to the Borrower. The Holder may
allocate which of the equity of the Borrower deemed beneficially owned by the
Holder shall be included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
2.4. No
Effective Registration.
Notwithstanding anything to the contrary herein, no amount payable hereunder
may made
in shares of Common Stock by
the Borrower without the Holder’s consent unless (a) either (i) an effective
current Registration Statement covering the shares of Common Stock to be issued
in satisfaction of such obligations exists, or (ii) an exemption from
registration of the Common Stock is available pursuant to Rule 144(k) of the
Securities Act, and (b) no Event of Default hereunder exists and is continuing,
unless such Event of Default is cured within any applicable cure period or is
otherwise waived in writing by the Holder in whole or in part at the Holder's
option.
2.5. Optional
Redemption of Principal Amount.
Provided one or more Events of Default have not occurred and accrued
collectively for thirty or more days and further provided that an Event of
Default is not pending, the Borrower will have the option of prepaying the
outstanding Principal Amount ("Optional Redemption"), in whole or in part, by
paying to the Holder a sum of money equal to one hundred fifty percent (150%) of
the Principal Amount to be redeemed, together with one hundred fifty percent
(150%) of accrued but unpaid interest thereon and any and all other sums due,
accrued or payable to the Holder arising under this Note, the Subscription
Agreement or any Transaction Document through the Redemption Payment Date as
defined below (the "Redemption Amount"). Xxxxxxxx’s election to exercise its
right to prepay must be by notice in writing (“Notice of Redemption”). The
Notice of Redemption shall specify the date for such Optional Redemption (the
"Redemption Payment Date"), which date shall be not less than ten (10) business
days after delivery of the Notice of Redemption (the "Redemption Period"). A
Notice of Redemption shall not be effective with respect to any portion of the
Principal Amount for which the Holder has a pending election to convert pursuant
to Section 3.1, or for conversions initiated or made by the Holder pursuant to
Section 3.1 during the Redemption Period. On the Redemption Payment Date, the
Redemption Amount less any portion of the Redemption Amount against which the
Holder has exercised its rights pursuant to Section 3.1, shall be paid in good
funds to the Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date as set forth herein, then (i) such Notice
of Redemption will be null and void, (ii) Borrower will have no right to deliver
another Notice of Redemption, and (iii) Borrower’s failure may be deemed by
Holder to be a non-curable Event of Default.
ARTICLE
III
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event of Default") shall,
at the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:
3.1 Failure
to Pay Principal or Interest. The
Borrower fails to pay any installment of principal, interest or other sum due
under this Note when due and such failure continues for a period of ten (10)
days after the due date. The ten (10) day period described in this Section 3.1
is the same ten (10) day period described in Section 1.1 hereof.
3.2 Breach
of Covenant. The
Borrower breaches any material covenant or other term or condition of the
Subscription Agreement or this Note in any material respect and such breach, if
subject to cure, continues for a period of ten (10) business days after written
notice to the Borrower from the Holder.
3.3 Breach
of Representations and Warranties. Any
material representation or warranty of the Borrower made herein, in the
Subscription Agreement, or in any agreement, statement or certificate given in
writing pursuant hereto or in connection therewith shall be false or misleading
in any material respect as of the date made and the Closing Date.
3.4 Receiver
or Trustee. The
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed.
3.5 Judgments. Any
money judgment, writ or similar final process shall be entered or filed against
Borrower or any of its property or other assets for more than $50,000, and shall
remain unvacated, unbonded or unstayed for a period of forty-five (45)
days.
3.6 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance of
any notice in relation to such event, for the relief of debtors shall be
instituted by or against the Borrower and if instituted against Borrower are not
dismissed within 45 days of initiation.
3.7 Delisting.
Delisting of the Common Stock from the OTC Bulletin Board (“Bulletin Board”) or
Principal Market; failure to comply with the requirements for continued listing
on the Bulletin Board for a period of three consecutive trading days; or
notification from the Bulletin Board or any Principal Market that the Borrower
is not in compliance with the conditions for such continued listing on the
Bulletin Board or other Principal Market.
3.8 Non-Payment. A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $75,000 for more than twenty days after the due
date.
3.9 Stop
Trade. An SEC
or judicial stop trade order or Principal Market trading suspension that lasts
for five or more consecutive trading days.
3.10 Failure
to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Sections 7 and 11 of the Subscription
Agreement, or, if required, a replacement Note.
3.11 Non-Registration
Event. The
occurrence of a Non-Registration Event as described in Section 11.4 of the
Subscription Agreement.
3.12 Reservation
Default. Failure
by the Borrower to have reserve for issuance upon conversion of the Note the
amount of Common stock as set forth in this Note and the Subscription
Agreement.
3.13 Cross
Default. A
default by the Borrower of a material term, covenant, warranty or undertaking of
any other agreement to which the Borrower and Holder are parties, or the
occurrence of a material event of default under any such other agreement which
is not cured after any required notice and/or cure period.
ARTICLE
IV
SECURITY
INTEREST
4. Security
Interest/Waiver of Automatic Stay. This
Note is secured by a security interest granted to the Collateral Agent for the
benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower
to Holder. The Borrower acknowledges and agrees that should a proceeding under
any bankruptcy or insolvency law be commenced by or against the Borrower, or if
any of the Collateral (as defined in the Security Agreement) should become the
subject of any bankruptcy or insolvency proceeding, then the Holder should be
entitled to, among other relief to which the Holder may be entitled under the
Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER
EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO
ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay
that may be filed by the Holder in any bankruptcy or insolvency proceeding
initiated by or against the Borrower and, further, agrees not to file any
opposition to any motion for relief from stay filed by the Holder. The Borrower
represents, acknowledges and agrees that this provision is a specific and
material aspect of the Loan Documents, and that the Holder would not agree to
the terms of the Loan Documents if this waiver were not a part of this Note. The
Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Holder nor any
person acting on behalf of the Holder has made any representations to induce
this waiver, that the Borrower has been represented (or has had the opportunity
to he represented) in the signing of this Note and the Loan Documents and in the
making of this waiver by independent legal counsel selected by the Borrower and
that the Borrower has discussed this waiver with counsel.
ARTICLE
V
MISCELLANEOUS
5.1 Failure
or Indulgence Not Waiver. No
failure or delay on the part of 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.
5.2 Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Borrower to: Quest Oil Corporation, 0000
Xxxx Xxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx 00000, Attn:
___________________, telecopier number: (817) ______________, with a copy by
telecopier only to: _________________________________, telecopier number:
_________________, and (ii) if to the Holder, to the name, address and telecopy
number set forth on the front page of this Note, with a copy by telecopier only
to Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000, telecopier number: (000) 000-0000.
5.3 Amendment
Provision. The
term "Note" and all reference 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.
5.4 Assignability. This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and
assigns.
5.5 Cost
of Collection. If
default is made in the payment of this Note, Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys'
fees.
5.6 Governing
Law. This
Note shall be governed by and construed in accordance with the laws of the State
of New York. Any action brought by either party against the other concerning the
transactions contemplated by this Agreement shall be brought only in the state
courts of New York or in the federal courts located in the state of New York.
Both parties and the individual signing this Agreement on behalf of the Borrower
agree to submit to the jurisdiction of such courts. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs.
5.7 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 permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.
5.8 Shareholder
Status. The
Holder shall not have rights as a shareholder of the Borrower with respect to
unconverted portions of this Note. However, the Holder will have all the rights
of a shareholder of the Borrower with respect to the shares of Common Stock to
be received by Holder after delivery by the Holder of a Conversion Notice to the
Borrower.
IN
WITNESS WHEREOF,
Xxxxxxxx has caused this Note to be signed in its name by an authorized officer
as of the 17 day of May, 2005.
QUEST OIL
CORPORATION
By:________________________________
Name:
Title:
WITNESS:
NOTICE
OF CONVERSION
(To be
executed by the Registered Holder in order to convert the Note)
The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by QUEST OIL CORPORATION on May ____,
2005 into Shares of Common Stock of QUEST OIL CORPORATION (the "Borrower")
according to the conditions set forth in such Note, as of the date written
below.
Date of
Conversion:____________________________________________________________________
Conversion
Price:______________________________________________________________________
Shares To
Be
Delivered:_________________________________________________________________
Signature:____________________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_____________________________________________________________________________
____________________________________________________________________________
