NOTE PURCHASE AGREEMENT
NOTE PURCHASE
AGREEMENT
THIS NOTE PURCHASE AGREEMENT
(this “Agreement”) is
made and entered inot as of, but not necessarily on, the day of
September, 2008, by and between Arkanova Acquisition
Corporation, a Delaware corporation (the “Company”), and the investor
indicated on the signature page hereof (the “Investor”).
Background
A. The
Company and the Investor are executing and delivering this Agreement in reliance
upon the exemptions from securities registration afforded by the provisions of
Regulation S (“Regulation
S”), as promulgated by the U.S. Securities and Exchange Commission under
the Securities Act of 1933, as amended; and
B. The
Investor wishes to purchase from the Company, and the Company wishes to sell and
issue to the Investor, upon the terms and conditions stated in this Agreement,
one or more secured promissory notes (each, a “Note”) in the aggregate
principal amount set forth on the signature page hereof (the “Principal Amount”), bearing
interest at the rate of eight percent (8.0%) per annum, in the form attached
hereto as Annex “A”. The Company is selling an aggregate of up to
Nine Million and No/100 United States Dollars ($9,000,000.00) principal amount
of promissory notes (the “Aggregate Offering”), of
which the Note is a part.
Terms and
Conditions
In
consideration of the mutual promises made herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. In
addition to those terms defined above and elsewhere in this Agreement, for the
purposes of this Agreement, the following terms shall have the meanings set
forth below:
(a) “Affiliate” means, with
respect to any Person, any other Person which directly or indirectly through one
or more intermediaries Controls, is controlled by, or is under common control
with, such Person;
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(b) “Business Day” means a day,
other than a Saturday or Sunday, on which banks in Houston, Texas, are open for
the general transaction of business;
(c) “Company’s Knowledge” means
the actual knowledge of the executive officers (as defined in Rule 405 under the
0000 Xxx) of the Company;
(d) “Control” (including the terms
“controlling”, “controlled by” or “under common control with”)
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise;
(e) “Guaranty” has the meaning set
forth in Section 2 hereof;
(f) “Material Adverse Effect”
means a material adverse effect on (i) the assets, liabilities, results of
operations, condition (financial or otherwise), business, or prospects of the
Company and its Subsidiaries taken as a whole, or (ii) the ability of the
Company to perform its obligations under the Transaction Documents;
(g) “Person” means an individual,
corporation, partnership, limited liability company, trust, business trust,
association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein;
(h) “Pledge Agreement” has the
meaning set forth in Section 2 hereof;
(i) “Purchase Price” means the
price paid for the Note set forth on the signature page hereof. Wire instructions for the payment of
the Purchase Price are provided in Annex “B” attached
hereto;
(j) “SEC” means the United States
Securities and Exchange Commission;
(k) “Subsidiaries” means the
wholly-owned or majority owned subsidiaries of the Company;
(l) “Transaction Documents” means
this Agreement, the Note, the Pledge Agreement and the Guaranty;
(m) “1933 Act” means the
Securities Act of 1933, as amended, or any successor statute, and the rules and
regulations promulgated thereunder; and
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2. Purchase and Sale of the
Notes; Security. Subject to the terms and conditions of this
Agreement, on the Closing Date, the Company shall sell and issue to the
Investor, a Note in the Principal Amount in exchange for the Purchase Price. The
Company shall also pledge to the Investor, pursuant to terms of the form of
Pledge Agreement attached hereto as Annex “C”, a proportionate part of the
outstanding shares of the common stock of Prism Corporation, an Oklahoma
corporation that owns, by virtue of its ownership of all of the membership
interests in Provident Energy Associates of Montana, LLC, the Two Medicine Cut Bank Sand Unit in
Pondera and Glacier Counties, Montana, to secure payment of the
indebtedness evidenced by the Note (the “Security
Interest”). The percentage of the issued and outstanding
shares of common stock of Prism Corporation that shall be pledged to the
Investor will be equal to the percentage that the Principal Amount is of the
Aggregate Offering. As an indirect beneficiary of the Investor’s
purchase of the Note and as further security for payment of the indebtedness
evidenced by the Note, the Company’s parent, Arkanova Energy Corp., has agreed
to guarantee the payment of the Note by the execution and delivery to the
Investor at the Closing of the form of Guaranty attached hereto as Annex
“D”.
3. Additional
Consideration. As further inducement to the Investor to
purchase the Note, the Company shall deliver to the Investor at the time of
payment in full of the outstanding principal and interest on the Note and at the
election of the Investor, either (i) cash in an amount equal to five percent
(5%) of then principal balance of the Note; or (ii) such number of shares of the
common stock of the Company as shall be determined by dividing an amount equal
to five percent (5%) of the then principal balance of the Note by USD
$.50.
4. Closing. There shall
be no formal closing ceremony with respect to the transactions contemplated by
this Agreement. Instead, the parties shall execute and exchange
the Transaction Documents by facsimile and email and the closing of the
transactions contemplated by this Agreement shall be deemed to have occurred
(the “Closing”) on the
date (the “Closing
Date”) that the Company receives the Purchase Price in
full. There may be multiple Closings of the Aggregate
Offering.
5. Representations and
Warranties of the Company. The Company hereby represents and warrants to
the Investor that, except as set forth in any schedules delivered herewith
(collectively, the “Disclosure
Schedules”):
(a) Organization, Good Standing
and Qualification. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own its properties. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or leasing necessary unless the
failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect.
(b) Authorization. The
Company has full power and authority and, has taken all requisite action on the
part of the Company, its officers, directors and stockholders necessary for (i)
the authorization, execution and delivery of the Transaction Documents, (ii)
authorization of the performance of ail obligations of the Company hereunder or
thereunder, and (iii) the authorization, issuance and delivery of the
Note. The Transaction Documents constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.
(c) Valid Issuance. The
Notes have been duly and validly authorized and, when issued and paid for
pursuant to this Agreement, shall be free and clear of all encumbrances and
restrictions (other than those created by the Investor), except for restrictions
on transfer set forth in the Transaction Documents or imposed by applicable
securities laws.
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(d) Consents. The
execution, delivery and performance by the Company of the Transaction Documents,
and the offer, issuance and sale of the Notes require no consent of, action by
or in respect of, or filing with, any Person, governmental body, agency, or
official other than filings that have been made pursuant to applicable state
securities laws, and post-sale filings pursuant to applicable state and federal
securities laws which the Company undertakes to file within the applicable time
periods.
(e) Use of Proceeds. The
proceeds of the sale of the Note hereunder shall be used by the Company for the
acquisition of the Two Medicine
Cut Bank Sand Unit in Pondera and Glacier Counties, Montana, including but not
limited to the oil and gas leases comprising same and the fixtures and
equipment used therewith, by purchasing all of the issued and outstanding
capital stock of Prism Corporation, and for general working capital purposes.
The proceeds of the sale of the Note hereunder will be held in escrow by Xxxxx
Xxxxx & Xxxxxxx, P.C., pending the closing of the purchase of the capital
stock of Prism Corporation by the Company, and if such closing does not occur by
September 30, 2008, then the proceeds shall be returned to the Investor within
five Business Days of such date.
(f) No Conflict, Breach,
Violation or Default. The execution, delivery and performance of the
Transaction Documents by the Company and the issuance and sale of the Notes will
not conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (i) the Company’s Certificate of
Incorporation or the Company’s Bylaws, both as in effect on the date hereof, or
(ii)(a) any statute, rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the Company or
any of its assets or properties, or (b) any agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of its
assets or properties is subject.
(g) Litigation. To the
Company’s knowledge, there are no disputes or actions pending or threatened
against the Company or its properties.
(h) No Directed Selling Efforts
or General Solicitation. Neither the Company nor any Person acting on its
behalf has conducted any general solicitation or general advertising (as those
terms are used in Regulation S) in connection with the offer or sale of any of
the Notes.
(i) No Integrated
Offering. Neither the Company nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any Company security or solicited any offers to buy any security, under
circumstances that would adversely affect reliance by the Company on Regulation
S for the exemption from registration for the transactions contemplated hereby
or would require registration of the Notes under the 1933 Act.
(j) Private Placement.
The offer and sale of the Notes to the Investor as contemplated hereby is exempt
from the registration requirements of the 1933 Act.
6. Representations and
Warranties of the Investor. The Investor hereby represents and warrants
to the Company that:
(a) Power. The
Investor has the necessary legal capacity (in the case of an individual person),
or has the power and authority (if other than an individual person) to execute
and deliver this Agreement and to perform such Investor’s obligations hereunder
and to consummate all of the transactions contemplated hereby, including but not
limited to, purchase of the Note.
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(b) Binding
Obligation. This Agreement has been duly executed and
delivered by the Investor and constitutes the legal, valid and binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms, except as such enforceability may be limited by the effect of
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors’ rights generally.
(c) Absence of Breaches and
Defaults. The execution, delivery and performance by the
Investor of this Agreement and the consummation of the transactions contemplated
hereby do not breach or constitute a default under any loan or purchase
agreement, indenture, mortgage, deed of trust, lease, instrument, contract or
other agreement binding on or affecting either such Investor or any of his
property or assets, the breach of which, either individually or in the
aggregate, could reasonably be expected to have a material adverse effect on
such Investor.
(d) Purchase Entirely for Own
Account. The Note to be received by such Investor hereunder will be
acquired for such Investor’s own account, not as nominee or agent, and not with
a view t the resale or distribution of any part thereof in
violation of the 1933 Act, and such Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same in
violation of the 1933 Act without prejudice, however, to such Investor’s right
at all times to sell or otherwise dispose of all or any part of such Note in
compliance with applicable federal and state securities laws. Nothing contained
herein shall be deemed a representation or warranty by such Investor to hold the
Note for any period of time. Such Investor is not a broker-dealer registered
with the SEC under the 1934 Act or an entity engaged in a business that would
require it to be so registered.
(e) Investment
Experience. Such Investor acknowledges that it can bear the economic risk
and complete loss of its investment in the Notes and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment contemplated hereby.
(f) Disclosure of
Information. Such Investor has had an opportunity to receive all
information related to the Company requested by it and to ask questions of and
receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Notes.
(g) No
Reliance. The Investor has not relied upon the Company or its
directors and officers, or the Company’s legal counsel or advisors for
investment, legal or tax advice, including advice with respect to the hold
periods and resale restrictions imposed upon the Notes by the securities
legislation in the jurisdiction in which the Investor resides, and has, if
desired, in all cases sought the advice of the Investor’s own personal
investment advisor, legal counsel and tax advisors, and the Investor is either
experienced in or knowledgeable with regard to the affairs of the Company or,
either alone or with its professional advisors, is capable by reason of
knowledge and experience in financial and business matters in general, and
investments in particular, of evaluating the merits and risks of an investment
in the Notes, and it is able to bear the economic risk of an investment in the
Notes and can otherwise be reasonably assumed to have the capacity to protect
its own interest in connection with the investment.
(h) Restricted
Securities. Such Investor understands that the Notes are characterized as
“restricted securities” under the U.S. federal securities laws and have not been
registered under the 1933 Act or under any state or “blue sky” laws of the
United States, and are being offered in a transaction not involving any public
offering within the meaning of the 1933 Act, and unless so registered, may not
be offered or sold in the United States or to U.S. Persons as defined in
Regulation S promulgated under the 1933 Act, and in each case only in accordance
with applicable securities laws.
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(i) Further Representations and
Acknowledgements. The Investor further represents and
acknowledges that:
(i) The
Investor is not a “U.S. Person” as that term is defined in Regulation
S.
(ii) The
Investor is located outside the United States.
(iii) The
Investor is not aware of any advertisement of any of the Notes to be issued
hereunder.
(iv) The
Investor will not acquire the Note as a result of, and will not itself engage
in, any “directed selling
efforts” (as defined in Regulation S under the 0000 Xxx) in the United
States in respect of the Notes which would include any activities undertaken for
the purpose of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for the resale of the Notes;
provided, however, that the Investor may sell or otherwise dispose of the Notes
pursuant to registration under the 1933 Act and any applicable state securities
laws or under an exemption from such registration requirements and as otherwise
provided herein.
(v) The
Investor agrees that the Company will refuse to register any transfer of the
Notes not made in accordance with the provisions of Regulation S, pursuant to an
effective registration statement under the 1933 Act or pursuant to an available
exemption from the registration requirements of the 1933 Act and in accordance
with applicable state securities laws.
(vi) The
Investor understands and agrees that offers and sales of any Note prior to the
expiration of a period of one year after the date of transfer of the Notes (the
“Distribution Compliance
Period”), shall only be made in compliance with the safe harbor
provisions set forth in Regulation S, pursuant to the registration provisions of
the 1933 Act or an exemption therefrom, and that all offers and sales after the
Distribution Compliance Period shall be made only in compliance with the registration provisions of the 1933 Act or an exemption therefrom
and in each case only in accordance with all applicable securities
laws.
(j) No Hedging
Transactions. The Investor understands and agrees not to
engage in any hedging transactions involving the Notes prior to the end of the
Distribution Compliance Period unless such transactions are in compliance with
the provisions of the 1933 Act.
(k) Restrictions on
Transfer. The Investor hereby acknowledges and agrees to the
Company making a notation on its records or giving instructions to the registrar
and transfer agent of the Company in order to implement the restrictions on
transfer set forth and described herein.
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(l) Legends. It is
understood that, except as provided below, certificates evidencing the Notes
will bear the following or any similar legend, as well as the legend required by
any state authority if required in connection with the issuance of sale of the
Notes:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR OTHER
APPLICABLE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH THE PROVISIONS OF
REGULATIONS S, RULE 901 THROUGH RULE 905, AND PRELIMINARY NOTES UNDER THE U.S.
SECURITIES ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE U.S. SECURITIES ACT OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT
BE CONDUCTED UNLESS IN COMPLIANCE WITH THE U.S. SECURITIES ACT.
(m) No General
Solicitation. Such Investor did not learn of the investment in the Notes
as a result of any public advertising or general solicitation.
(n) Brokers and Finders.
No Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company or an Investor for any commission, fee or other compensation pursuant to
any agreement, arrangement or understanding entered into by or on behalf of such
Investor.
7. Conditions to
Closing:
(a) Conditions to the Investor’s
Obligations. The obligation of the Investor to purchase the
Notes at the Closing is subject to the fulfillment to such Investor’s
satisfaction, on or prior to the Closing Date, of the following conditions, any
of which may be waived by the Investor:
(i) The
representations and warranties made by the Company in Section 4. hereof
qualified as to materiality shall be true and correct at all times prior to and
on the Closing Date, except to the extent any such representation or warranty
expressly speaks as of an earlier date, in which case such representation or
Warranty shall be true and correct as of such earlier date, and, the
representations and warranties made by the Company in Section 4 hereof not
qualified as to materiality shall be true and correct in all material respects
at all times prior to and on the Closing Date, except to the extent any such
representation or warranty expressly speaks as of an earlier date, in which case
such representation or warranty shall be true and correct in all
material respects as of such earlier date. The Company shall have performed in
all material respects all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.
(ii) The
Company shall have obtained any and all consents, permits, approvals,
registrations and waivers necessary or appropriate for consummation of the
purchase and sale of the Notes, and the consummation of the other transactions
contemplated by the Transaction Documents, all of which shall be in full force
and effect.
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(iii) No
judgment, writ, order, injunction, award or decree of or by any court, or judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any governmental authority, shall have been issued, and no action or
proceeding shall have been instituted by any governmental authority, enjoining
or preventing the consummation of the transactions contemplated hereby or in the
other Transaction Documents.
(b) Conditions to Obligations of
the Company. The Company’s obligation to sell and issue the Notes at the
Closing is subject to the fulfillment to the satisfaction of the Company on or
prior to the Closing Date of the following conditions, any of which may be
waived by the Company:
(i) The
representations and warranties made by the Investor in Section 5 hereof shall be
true and correct in all respects on the Closing Date with the same force and
effect as if they had been made on and as of said date. The Investor shall have
performed in all material respects all obligations and conditions herein
required to be performed or observed by them on or prior to the Closing
Date.
(ii) The
Investor shall have paid the Purchase Price to the Company.
(c) Termination of Obligations
to Effect Closing; Effects.
(i) The
obligations of the Company, on the one hand, and the Investor, on the other
hand, to effect the Closing shall terminate as follows:
(A) Upon the
mutual written consent of the Company and the Investor;
(B) By the
Company if any of the conditions set forth in Paragraph 6(b) shall have become
incapable of fulfillment, and shall not have been waived by the
Company;
(C) By an
Investor (with respect to itself only) if any of the conditions set forth in
Paragraph 6(a) shall have become incapable of fulfillment, and shall not have
been waived by the Investor; or
(D) By either
the Company or the Investor if the Closing has not occurred on or prior to
September 30, 2008;
provided,
however, that, except in the case of clause (i) above, the party seeking to
terminate its obligation to effect the Closing shall not then be in breach of
any of its representations, warranties, covenants or agreements contained in
this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.
8. Covenants and Agreements of
the Company:
(a) Reports. The Company
will furnish to the Investor and/or their assignees such information relating to
the Company and its Subsidiaries as from time to time may reasonably be
requested by the Investor and/or their assignees; provided, however, that the
Company shall not disclose material nonpublic information to the Investor, or to
advisors to or representatives of the Investor, unless prior to disclosure of
such information the Company identifies such information as being material
nonpublic information and provides the Investor, such advisors and
representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review and the Investor wishing to obtain such
information enters into an appropriate confidentiality agreement with the
Company with respect thereto.
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(b) No Conflicting
Agreements. The Company will not take any action, enter into any
agreement or make any commitment that would conflict or interfere in any
material respect with the Company’s obligations to the Investor under the
Transaction Documents.
(c) Compliance with Laws.
The Company will comply in all material respects with all applicable laws,
rules, regulations, orders and decrees of all governmental
authorities.
(d) Security Interest.
The Company shall cooperate with the Investor in all reasonable respects in
connection with the establishment and maintenance of the Security
Interest. The Company agrees to execute such further documents and
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of the Security
Agreement. The Company shall be responsible for the payment of all
costs and expenses reasonably incurred by Investor in connection with the
preparation of any documents, instruments or agreements required to create or
perfect the Security Interest and for all filing fees related
thereto.
(e) Termination of
Covenants. The provisions of Sections 8(a), (b), (c) and (d) above shall
terminate and be of no further force and effect on the date on which the
Company’s obligations under the Note terminate.
9. Survival and
Indemnification:
(a) Survival. The
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing of the transactions contemplated by this
Agreement until the repayment in full of the Note.
(b) Indemnification. The
Company agrees to indemnify and hold harmless each Investor and its Affiliates
and their respective directors, officers, employees and agents from and against
any and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which such Person
may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person.
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10. Miscellaneous. The
following miscellaneous provisions shall apply to this Agreement:
(a) Successors and
Assigns. This Agreement may not be assigned by a party hereto without the
prior written consent of the Company or the Investor, as applicable, provided,
however, that an investor may assign its rights and delegate its duties
hereunder in whole or in part to an Affiliate or to a third party acquiring the
Notes in a private transaction without the prior written consent of the Company,
after notice duly given by such Investor to the Company. The
provisions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted 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) Counterparts: Faxes.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile,
which shall be deemed an original.
(c) 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.
(d) Notices. Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by telex or telecopier, then such notice
shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be
deemed given upon the earlier of (A) receipt of such notice by the recipient or
(B) three days after such notice is deposited in first class mail, postage
prepaid, and (iv) if given by an internationally recognized overnight air
courier, then such notice shall be deemed given one business day after delivery
to such carrier. All notices shall be addressed to the party to be notified at
the address as follows, or at such other address as such party may designate by
ten days’ advance written notice to the other party:
If to the
Company:
Arkanova
Acquisition Corporation
Xxxxx
000
00
Xxxxxxxx Xxxxxx
Xxx
Xxxxxxxxx XX 00000
Fax:
000-000-0000
Attention:
Xxxxxx Xxxxxxx, President
If to the
Investor:
To the
Address for Notice as provided on the signature page hereof.
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(e) Expenses. The parties
hereto shall pay their own costs and expenses in connection herewith. In the
event that legal proceedings are commenced by any party to this Agreement
against another party to this Agreement in connection with this Agreement or the
other Transaction Documents, the party or parties which do not prevail in such
proceedings shall severally, but not jointly, pay their pro rata share of the
reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses
incurred by the prevailing party in such proceedings.
(f) Amendments and
Waivers. Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investor. Any amendment or waiver effected in
accordance with this Paragraph shall be binding upon each holder of any Notes
purchased under this Agreement at the time outstanding, each future holder of
all such Notes, and the Company.
(g) Publicity. Except as
set forth below, no public release or announcement concerning the transactions
contemplated hereby shall be issued by the Company or the Investor without the
prior consent of the Company (in the case of a release or announcement by the
Investor) or the Investor (in the case of a release or announcement by the
Company) (which consents shall not be unreasonably withheld), except as such
release or announcement may be required by law or the applicable rules or
regulations of any securities exchange or securities market, in which case the
Company or the Investor, as the case may be, shall allow the Investor or the
Company, as applicable, to the extent reasonably practicable in the
circumstances, reasonable time to comment on such release or announcement in
advance of such issuance.
(h) Severability. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions hereof but shall be interpreted as if it were written so as
to be enforceable to the maximum extent permitted by applicable law, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which
renders any provision hereof prohibited or unenforceable in any
respect.
(i) Entire Agreement.
This Agreement, including the exhibits and any disclosure schedules, and the
other Transaction Documents constitute the entire agreement among the parties
hereof with respect to the subject matter hereof and thereof and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter hereof and thereof.
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(j) Further Assurances.
The parties shall execute and deliver all such further instruments and documents
and take all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the
agreements herein contained.
(k) Governing Law: Consent to
Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Texas without regard
to the choice of law principles thereof. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the Courts of the State of Texas for
the purpose of any suit, action, proceeding or judgment relating to or arising
out of this Agreement and the transactions contemplated hereby. Service of
process in connection with any such suit, action or proceeding may be served on
each party hereto anywhere in the world by the same methods as are specified for
the giving of notices under this Agreement. Each of the parties hereto
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. Each party hereto
irrevocably waives any objection to the laying of venue of any such suit, action
or proceeding brought in such courts and irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE
PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION
WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.
[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]
12
To
evidence the binding effect of the terms and conditions set forth above, the
parties have executed this Agreement or caused their duly authorized officers to
execute this Agreement as of the date first above written.
ARKANOVA
ENERGY CORPORATION
By:
_______________________________
Xxxxxx
Xxxxxxx, President
THE
INVESTOR
By:
_______________________________
Authorized
Signatory
Print
Name:
Print
Title (if
applicable):
Principal
Amount of Note purchased: USD $______________
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ADDRESS
FOR NOTICE
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C/o:
_____________________________________________________
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Street:
___________________________________________________
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City/State/Zip:
_____________________________________________
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Attention:
________________________________________________
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Tel:
_____________________________________________________
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Fax:
_____________________________________________________
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DELIVERY
INSTRUCTIONS
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(if
different from above)
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C/o:
_____________________________________________________
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Street:
___________________________________________________
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City/State/Zip:
_____________________________________________
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Attention:
________________________________________________
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Tel:
_____________________________________________________
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13
ANNEX
“A”
THIS
INSTRUMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO
PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT)
PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS INSTRUMENT
RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES
LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933
ACT.
USD $
________________ September
_____, 2008
ARKANOVA
ACQUISITION CORPORATION
8%
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, Arkanova Acquisition
Corporation, a corporation organized and existing under the laws of the
State of Delaware (the “Company”), promises to pay to
______________________ of _______________, the
registered holder hereof (the “Holder”), the principal sum
of ________________($____________)
United States Dollars on the Maturity Date (as defined below) and to
pay interest on the principal sum outstanding from time to time in arrears at
the rate of eight percent (8.0 %) per annum (computed on the basis of the actual
number of days elapsed and a year of 365 days), accruing from the date of
initial issuance of this Note (the “Issue Date”), until payment
in full of the principal sum has been made or duly provided for (whether before
or after the Maturity Date).
This Note
is being issued pursuant to the terms of a Note Purchase Agreement of even date
herewith (the “NPA”),
to which the Company and the Holder (or the Holder’s predecessor in interest)
are parties. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the NPA.
This Note
is subject to the following additional provisions:
1. Maturity
Date. The term “Maturity Date” means the date
occurring at any time after the first anniversary of this Note upon which the
Holder demands payment of this Note in writing. This Note shall be in
default if payment is not made within five (5) days of demand after the Maturity
Date.
2. Security. The
payment when due of this Note is secured by a pledge of shares of shares of the
outstanding common stock of the Company’s wholly owned subsidiary, Prism
Corporation, in accordance with the terms and conditions of a Pledge Agreement
of even date herewith.
14
3. Prepayment
Provisions. This Note may be prepaid in whole or in part at
any time prior to the Maturity Date, without penalty. Any payment
shall be applied as provided in Section 4.
4. Application of
Payments. Any payment made on account of the Note shall be
applied in the following order of priority: (i) first, to accrued interest
through and including the date of payment, and then (ii) to principal of this
Note.
5. Default. The
Company shall be in default hereunder if any payment is not made within five (5)
days of demand on or after the Maturity Date.
6. Manner of
Payments. All payments contemplated hereby to be made “in
cash” shall be made in immediately available good funds of United States of
America currency by wire transfer to an account designated in writing by the
Holder to the Company (which account may be changed by notice similarly
given). For purposes of this Note, the phrase “date of payment” means
the date good funds are received in the account designated by the notice which
is then currently effective.
7. No Impairment; Direct
Obligation. Subject to the terms of the NPA, no provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Note at the
time, place, and rate, and in the coin or currency, as herein prescribed. This
Note is a direct obligation of the Company.
8. Limited
Recourse. No recourse shall be had for the payment of the
principal of, or the interest on, this Note, or for any claim based hereon, or
otherwise in respect hereof, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
9. Restrictions on
Resale. The Holder of the Note, by acceptance hereof, agrees
that this Note is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Note except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended, or any
applicable state blue sky or foreign laws or similar laws relating to the sale
of securities.
10. Notices. Any
notice given by any party to the other with respect to this Note shall be given
in the manner contemplated by the NPA in the Section entitled
“Notices.”
11. Applicable
Laws. This Note shall be governed by and construed in
accordance with the laws of the State of Texas. Each of the parties
consents to the exclusive jurisdiction of the Courts of the State of Texas in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non coveniens, to the
bringing of any such proceeding in such jurisdictions. To the extent
determined by such court, the Company shall reimburse the Holder for any
reasonable legal fees and disbursements incurred by the Holder in enforcement of
or protection of any of its rights under any of this Note.
12. Jury Trial Waiver.
The Company and the Holder hereby waive a trial by jury in any action,
proceeding or counterclaim brought by either of the Parties hereto against the
other in respect of any matter arising out of or in connection with this
Note.
13. Events of
Default. Each of he following shall constitute an “Event of
Default”:
(a) Default in
Payment. The Company shall default in the payment of principal
or interest on this Note or any other amount due; or
15
(b) Breach of Representation or
Warranty. Any of the representations or warranties made by the
Company herein, in the NPA or any of the other Transaction Agreements shall be
false or misleading in any material respect at the time made; or
(c) Change of
Management. The occurrence of any event which results in the
current executive officers of the Company no longer serving in their respective
current capacities with the Company; or
(d) Assignment for
Creditors. The Company shall (i) make an assignment for the
benefit of creditors or commence proceedings for its dissolution; or (ii) apply
for or consent to the appointment of a trustee, liquidator or receiver for its
or for a substantial part of its property or business; or
(e) Appointment of
Trustee. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its property or business without
its consent; or
(f) Court
Control. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the Company; or
(g) Bankruptcy
Proceedings. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the
Company.
If an
Event of Default shall have occurred, then, or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder’s sole
discretion, the Holder may consider this Note immediately due and payable (and
the Maturity Date shall be accelerated accordingly), without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and interest shall accrue on the total amount due (the
“Default Amount”) on
the date of the Event of Default (the “Default Date”) at the rate of
16% per annum or the maximum rate allowed by law, whichever is lower, from the
Default Date until the date payment is made, and the Holder may immediately
enforce any and all of the Holder’s rights and remedies provided herein or any
other rights or remedies afforded by law.
14. Covenants of the
Company. The Company covenants and agrees that, so long as any
principal of, or interest on, this Note shall remain unpaid, unless the Holder
shall otherwise consent in writing, it will comply with the following
terms:
(a) Reporting
Requirements. The Company will furnish to the Holder or make publicly
available:
(i) as soon
as possible, and in any event within ten (10) days after obtaining knowledge of
the occurrence of (A) an Event of Default, (B) an event which, with the giving
of notice or the lapse of time or both, would constitute an Event of Default, or
(C) a material adverse change in the condition or operations, financial or
otherwise, of the Company, taken as whole, the written statement of the Chief
Executive Officer or the Chief Financial Officer of the Company, setting forth
the details of such Event of Default, event or material adverse change;
and
16
(ii) promptly
after the commencement thereof, notice of each action, suit or proceeding before
any court or other governmental authority or other regulatory body or any
arbitrator as to which there is a reasonable possibility of a determination that
would (A) materially impact the ability of the Company to conduct its business,
(B) materially and adversely affect the business, operations or financial
condition of the Company, or (C) impair the validity or enforceability of the
Note or the ability of the Company to perform their obligations under the
Note.
(b) Compliance with Laws.
The Company will comply, in all material respects with all applicable laws,
rules, regulations and orders, except to the extent that noncompliance would not
have a Material Adverse Effect upon the business, operations or financial
condition of the Company taken as a whole.
(c) Preservation of
Existence. The Company will maintain and preserve its
existence.
(d) Maintenance of
Properties. The Company will maintain and preserve all of its material
properties which are necessary in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, and comply, at all
times with the provisions of all material leases (including oil and gas leases)
to which it is a party as lessee or under which it occupies property, so as to
prevent any material forfeiture or material loss thereof
thereunder. The Company shall not allow any of its direct or indirect
subsidiaries to dispose of any of their material assets, including any material
assets in the Two Medicine Cut Bank Sand Unit in Pondera and Glacier Counties,
Montana, and shall further not allow any such subsidiary to encumber any of such
assets or incur any indebtedness, except trade payables incurred in the ordinary
course of business.
(e) Maintenance of
Insurance. The Company will maintain, with responsible and reputable
insurers, insurance with respect to its properties and business, in such amounts
and covering such risks, as is carried generally in accordance with sound
business practice by companies in similar businesses in the same localities in
which the Company is situated.
(f) Keeping of Records and Books
of Account. The Company will keep adequate records and books of account,
with complete entries made in accordance with generally accepted accounting
principles, reflecting all of its financial and other business
transactions.
15. Qualification. In
the event for any reason, any payment by or act of the Company or the Holder
shall result in payment of interest which would exceed the limit authorized by
or be in violation of the law of the jurisdiction applicable to this Note, then
ipso facto the
obligation of the Company to pay interest or perform such act or requirement
shall be reduced to the limit authorized under such law, so that in no event
shall the Company be obligated to pay any such interest, perform any such act or
be bound by any requirement which would result in the payment of interest in
excess of the limit so authorized. In the event any payment by or act of the
Company shall result in the extraction of a rate of interest in excess of a sum
which is lawfully collectible as interest, then such amount (to the extent of
such excess not returned to the Company) shall, without further agreement or
notice between or by the Company or the Holder, be deemed applied to the payment
of principal, if any, hereunder immediately upon receipt of such excess funds by
the Holder, with the same force and effect as though the Company had
specifically designated such sums to be so applied to principal and the Holder
had agreed to accept such sums as an interest-free prepayment of this Note. If
any part of such excess remains after the principal has been paid in full,
whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Note.
17
Signature
To
evidence the binding effect of the foregoing provisions, the Company has caused
this instrument to be duly executed by an officer thereunto duly authorized as
of, but not necessarily on, the date first above written.
| ARKANOVA ACQUISITION CORPORATION | |||
|
|
By:
|
||
| Xxxxxx Xxxxxxx, | |||
| President | |||
18
ANNEX
“B”
Wire
Instructions
| Bank: | COMERICA BANK | |
| Swift Code: | XXXXXX00 | |
| Account of: | Pegasus Bank; Account No. 1851661080 | |
| Final Credit BNF: | Xxxxx Xxxxx & Xxxxxxx; Account No. 00000000 | |
|
SWT
Credit to:
|
(1305.0004)
|
19
ANNEX
“C”
THIS
AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO
PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT)
PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES
HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND,
UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN
THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.
PLEDGE
AGREEMENT
THIS PLEDGE AGREEMENT (this
“Agreement”) is made
and entered into this ___ day of September, 2008, by and between Arkanova Acquisition
Corporation, a Delaware corporation, (“Pledgor”), and the investor
indicated on the signature page hereof (“Secured Party”).
Background
A. On even
date herewith, Pledgor and the Secured Party entered into a Note Purchase
Agreement (the “NPA”)”)
pursuant to which Pledgor issued to Secured Party a Secured Promissory Note (the
“Note”) and agreed to
pledge shares of the issued and outstanding common stock of the Pledgor’s wholly
owned subsidiary, Prism Corporation, to secure payment of the indebtedness
evidenced by the Note; and
B. The
parties desire to set forth in writing their agreement as to the terms and
conditions of the administration and disposition of the pledge of shares of
Prism Corporation and certain other matters as set forth herein;
Terms and
Conditions
In
consideration of the mutual benefits to be derived from the covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Pledge. As
collateral security for the payment and performance of the Obligations (as
defined in Section 2 hereof) by Pledgor, Pledgor hereby pledges to the Secured
Party, and grants, transfers, assigns and hypothecates to the Secured Party a
continuing security interest in, the following property owned by Pledgor (the
“Pledged
Collateral”):
20
(a) Pledged
Shares. The number of issued and outstanding shares of common
stock of Prism Corporation set forth on the signature page hereto and delivered
this date to Secured Party in accordance with Section 3(a) hereof as security
for the indebtedness evidenced by the Note, together with any and all
certificates, stock powers and other instruments evidencing or relating to such
shares of stock (collectively, the “Pledged
Shares”).
(b) Dividends and
Proceeds. Except as provided in Section 10(b) hereof, all
dividends, cash, products, proceeds, securities, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Pledged Shares, including, but not limited to,
all distributions or payments in partial or complete liquidation or redemption
of the Pledged Shares.
(c) Additional
Shares. All additional shares of common stock of Prism
Corporation from time to time hereafter acquired by Pledgor arising from the
Pledged Shares as a result of any reclassification, readjustment, stock split,
stock dividend, or reorganization and the certificates representing such
additional shares, and all dividends, cash, products, proceeds, securities,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares.
2. Obligations
Secured. This Agreement secures the payment and performance of
(i) all obligations of Pledgor to the Secured Party now or hereafter existing
under the Note whether for indebtedness (principal and interest), fees, damages,
expenses or otherwise, and whether evidenced by any instrument, agreement or
book account, (ii) all obligations of Pledgor to the Secured Party now or
hereafter existing under the NPA, and (iii) all obligations of Pledgor to the
Secured Party now or hereafter existing under this Agreement, regardless of
whether the amounts referred to in clause (i), (ii) or (iii) above are due or to
become due, direct or indirect, primary or secondary, joint, several, or joint
and several, or fixed or contingent obligations of Pledgor. All of
such obligations are collectively referred to herein as the “Obligations".
3. Delivery
of Pledged Collateral. (a) Upon the
execution of this Agreement, Pledgor shall deliver and deposit with the Secured
Party the stock certificate or certificates or other instruments evidencing the
Pledged Shares, along with such assignments, financing statements, endorsements,
and transfer powers duly executed by Pledgor in blank as will enable the Secured
Party to register the Pledged Shares in the Secured Party's name or in the name
of the Secured Party's nominee in the appropriate record books of Prism
Corporation in the Event of Default (as such term is herein after
defined).
4. Return of Pledged
Collateral. Secured Party shall return the Pledged Collateral
or the balance thereof, if any, in its possession to Pledgor upon payment in
full of the Obligations.
5. Further Assurances and
Documentation. Pledgor agrees that at any time and from time
to time, at the expense of Pledgor, Pledgor will promptly execute and deliver
all further instruments and documents, and take all further action that the
Secured Party may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable the
Secured Party to exercise and enforce the Secured Party's rights and remedies
hereunder with respect to any Pledged Collateral.
21
6. Responsibility for Pledged
Collateral. Secured Party shall exercise reasonable care in
the custody and preservation of the Pledged Collateral. The Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of the Pledged Collateral in the Secured Party's possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Secured Party accords the Secured Party's own property of similar
nature. The Secured Party shall be under no duty or responsibility to
(i) fix or preserve the rights of Pledgor with respect to the Pledged
Collateral
against prior parties, (ii) fix or preserve rights against any parties to any
instrument or chattel paper which may be a part of the Pledged Collateral, (iii)
sell or otherwise realize upon the Pledged Collateral, or (iv) seek payment from
any particular source. Without limiting the generality of the
foregoing, the Secured Party shall not have any responsibility or obligation for
any action in connection with any conversion, call, exchange, maturity,
redemption, retirement, tender or any other event relating to any of the Pledged
Collateral whether or not the Secured Party has or is deemed to have knowledge
of such matters. The Secured Party shall never be liable for the
Secured Party's failure to use diligence to collect any amount payable with
respect to the Pledged Collateral, but shall be liable only to account to
Pledgor for what the Secured Party may actually collect or receive
thereon. After payment of part of the Obligations, the Secured Party
may, at the Secured Party's option, retain all or any portion of the Pledged
Collateral as security for any remaining Obligations and retain this Agreement
as evidence of such security.
7. Representations and
Warranties. Pledgor represents and warrants to Secured Party
as follows:
(a) Authorization. The
execution, delivery and performance of this Agreement are within Pledgor's
powers and are not in contravention of any applicable law.
(b) Absence of
Conflicts. Pledgor is not obligated under any contract or
agreement, which materially or adversely affects Pledgor's properties or assets,
or Pledgor's financial condition, and neither the execution nor delivery of this
Agreement nor the consummation of any transaction contemplated hereby will
conflict with or result in any breach of the terms, conditions, or provisions
of, or constitute a default under any agreement or instrument relative thereto
to which Pledgor is subject.
(c) Authorized
Shares. The Pledged Shares have been duly authorized and
validly issued by Prism Corporation and are fully paid and
non-assessable.
(d) Unencumbered Title to
Pledged Collateral. Pledgor is the legal and beneficial owner
of the Pledged Collateral owned by Pledgor, free and clear of any lien, security
interest, option or other charge or encumbrance whatsoever except for the
security interest created by this Agreement. Until such time as the
Obligations have been paid in full, Pledgor, at Pledgor's sole expense, will
keep the Pledged Collateral free from other liens, security interests,
encumbrances or claims; and Pledgor will defend the Pledged Collateral against
the claims and demands of all persons claiming the Pledged Collateral or any
part thereof or interest therein.
(e) Perfected Security
Interest. The pledge of the Pledged Shares and the delivery
thereof to the Secured Party pursuant to this Agreement creates a valid and
perfected first priority security interest in the Pledged Collateral, securing
the payment of the Obligations.
(f) No Approval
Required. No authorization, approval, or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required either (i) for the pledge by Pledgor of the Pledged Collateral pursuant
to this Agreement or for the execution, delivery or performance of the Agreement
by Pledgor or (ii) for the exercise by the Secured Party of the rights provided
for in this Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Agreement (except as may be required in connection with such
disposition by laws affecting the offering and sale of securities
generally).
22
(g) Accurate
Information. All information contained in statements furnished
or to be furnished to the Secured Party by or on behalf of Pledgor in connection
with the Pledged Collateral or the Obligations is complete and accurate in all
material respects.
8. Affirmative Covenants of
Pledgor. For and during such period of time as any portion of
the Obligations shall remain unpaid or Pledgor shall have any commitment or
obligation hereunder, Pledgor shall comply with each of the following provisions
of this Section, unless the Secured Party shall otherwise consent in
writing:
(a) Performance of
Obligations. Pledgor will duly and punctually pay and perform
each of the Obligations to the extent such party is liable therefor, including,
without limitation, its obligations under this Agreement and each of the other
documents securing the Obligations, as the same may at any time be amended or
modified.
(b) Preservation of Existence
and Franchises and Conduct of Business. Pledgor will do , and
will cause both Prism Corporation and its wholly owned subsidiary,
Provident Energy Associates of Montana, LLC, to do, or cause to be done, all
things necessary to preserve and keep in full force and effect their respective
corporate existence, rights, leases (including oil and gas leases), agreements,
and all other licenses or rights necessary to comply with all laws, regulations,
rules, statutes, or other provisions applicable to the respective entity in the
operation of their respective business, noncompliance with which would
materially and adversely affect either the business or credit of such
entity.
(c) Sales or Encumbrances of
Subsidiary Assets. Pledgor shall not allow any of its direct
or indirect subsidiaries to dispose of any of their material assets,
including any material assets in the Two Medicine Cut Bank
Sand Unit in Pondera and Glacier Counties, Montana, and shall further not allow
any such subsidiary to encumber any of such assets or incur any indebtedness,
except trade payables incurred in the ordinary course of business.
(d) Confidential
Information. Pledgor will, and will cause its
subsidiaries to, furnish to the Secured Party any information which the Secured
Party may from time to time reasonably request concerning any covenant,
provision or condition of the Agreement or any matter in connection with the
business and operations of Pledgor and its subsidiaries. Secured
Party agrees that, until the occurrence of an Event of Default, it will take all
reasonable steps to keep confidential any proprietary information given to it by
Pledgor, provided, however, that this restriction shall not apply to information
which (i) has at the time in question entered the public domain through no
default of this provision, or (ii) is required to be disclosed by law or by any
order, rule or regulation (whether valid or invalid) of any court or
governmental agency, or authority.
(e) Notice of Material Events
and Defense of Action. Pledgor will promptly notify Secured
Party of: (i) any material adverse change in Pledgor’s or any
subsidiary’s financial condition, (ii) the occurrence of any Event of Default,
(iii) the acceleration of the maturity of any debt owed by Pledgor or sub
sididary or of any default by Pledgor or any subsidiary under any indenture,
mortgage, agreement, contract or other instrument to which Pledgor or any
subsidiary is a party or by which any of them or any of the properties is bound;
(iv) any material adverse claim (or any claim of $25,000 or more) asserted
against Pledgor or any subsidiary or with respect to Pledgor’s or any
subsidiary’s properties, or (v) the filing of any suit or proceeding against
Pledgor or any subsidiary. Upon the occurrence of any of the
foregoing, Pledgor will take, or cause to be taken, all reasonably necessary or
appropriate steps to remedy promptly any such material adverse change or
default, to protect against any such adverse claim, to appear in and defend any
such suit or proceeding, and to resolve all controversies on account of any of
the foregoing at Pledgor’s expense.
23
(f) Reporting
Requirements. Within ten (10) days of the end of each calendar
quarter, Pledgor shall furnish Secured Party with a sworn statement of Pledgor,
stating that Pledgor has no knowledge that an Event of Default has occurred, or
such event has occurred and is continuing as of the date of such statement and a
statement as to the nature thereof and the action which Pledgor proposes to take
with respect thereto.
9. Expenses. Pledgor
will upon demand pay to Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of the Secured Party's
counsel and of any experts and agents, which the Secured Party may incur after
the occurrence of an Event of Default (as hereinafter defined) in connection
with (i) the custody or preservation of, or the sale of, collection from, or
other realization upon, any of the Pledged Collateral, or (ii) the exercise or
enforcement of any of the rights of the Secured Party hereunder.
10. Voting Rights and
Dividends. So long as no Event of Default or event that, with
the giving of notice or the lapse of time, or both, would become an Event of
Default shall have occurred and be continuing:
(a) Pledgor
shall be entitled to exercise any and all voting and other consensual rights
pertaining to the Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement; provided, however, Pledgor may
not exercise such voting rights so as to impair the value of the Pledged
Collateral or to dilute the Secured Party's ownership percentage represented by
the Pledged Collateral and Secured Party shall not be required to exercise
preemptive rights.
(b) Pledgor
shall be entitled to receive and retain any and all dividends and interest paid
in respect of the Pledged Collateral; provided, however, that any and all (A)
dividends and interest paid or payable other than cash in respect of, and
instruments and other property received, receivable or otherwise distributed in
respect of, or in exchange for, any Pledged Collateral; (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash
paid, payable or otherwise distributed in redemption of, or in exchange for, any
Pledged Collateral, shall be, and shall be forthwith delivered to the Secured
Party to hold as, Pledged Collateral and shall, if received by Pledgor, be
received in trust for the benefit of the Secured Party, be segregated from the
other property or funds of Pledgor, and be forthwith delivered to Secured Party
as Pledged Collateral in the same form as so received (with any necessary
endorsements); and provided further, that Pledgor shall promptly notify the
Secured Party of the occurrence of any of the above matters upon the occurrence
thereof.
(c) Secured
Party shall execute and deliver (or cause to be executed and delivered) to
Pledgor all such proxies and other instruments as Pledgor may reasonably request
for the purpose of enabling Pledgor to exercise the voting and other rights
which Pledgor is entitled to exercise pursuant to paragraph (i) above and to
receive the dividends or interest payments which Pledgor is authorized to
receive and retain pursuant to Subsection (b) above.
24
11. Events of
Default. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder:
(a) Default Under
Obligations. Pledgor shall be in default under the terms of
the Obligations, including the Note, the NPA and this Agreement.
(b) Defaults Under Other
Instruments. Pledgor shall be in default under the terms of
any other documents and instruments relating to the Aggregate Offering, as such
term is defined in the NPA.
(c) Insolvency. Pledgor
or any subsidiary shall admit in writing Pledgor's or subsidiary’s inability to
pay its debts, or shall make a general assignment of Pledgor's or any
subsidiary’s assets or property rights for the benefit of Pledgor's or any
subsidiary’s creditors; or any proceeding shall be instituted by or against
Pledgor or any subsidiary seeking to adjudicate Pledgor or any subsidiary as a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or
composition of Pledgor or any subsidiary or Pledgor's or any subsidiary’s debts
under any law relating to bankruptcy, insolvency or reorganization or release of
debtors, or seeking appointment of a receiver, custodian, trustee, or other
similar official for Pledgor or any subsidiary or for any substantial part of
the property of Pledgor or any subsidiary and in the case of any such proceeding
instituted against Pledgor or any subsidiary shall remain undismissed for a
period of ninety (90) days.
(d) Failure to Perform
Obligations. Pledgor shall fail to perform any of Pledgor’s
covenants or obligations set forth in this Agreement.
(e) Falsity of
Representation. Any warranty, representation or statement made
or furnished to Secured Party by Pledgor pursuant to this Agreement shall prove
to have been false in any material respect when made or furnished.
(f) Levy Against
Collateral. The levy against the Pledged Collateral, or any
part thereof, of any execution, attachment, sequestration or other
writ.
12. Remedies Upon
Default.
(a) Remedies. Upon
the occurrence of an Event of Default, and in addition to any and all other
rights and remedies which Secured Party may then have hereunder, or under the
Texas Business and Commerce Code or any comparable uniform commercial code
applicable to Pledgor (the “Code”), or otherwise, Secured
Party may at Secured Party's option (i) declare the entire unpaid balance of
principal of, and all accrued interest on, the Obligations immediately due and
payable without demand, presentment, notice of default, notice of intent to
accelerate or notice of acceleration of maturity, all of which are hereby
expressly waived; (ii) notify any person obligated on any of the Pledged
Collateral of the security interest of Secured Party therein and request such
person to make payment directly to the Secured Party, (iii) demand, xxx
for, collect or otherwise reduce Secured Party's claims to judgment, foreclose
or otherwise enforce the Secured Party's security interest through judicial
procedure or make any settlement or compromise Secured Party deems desirable
with respect to any of the Pledged Collateral; (iv) after notification,
expressly provided for herein, if any, sell or otherwise dispose of, at the
office of Secured Party, or elsewhere, as chosen by Secured Party, all or any
part of the Pledged Collateral, and any such sale or other disposition may be as
a unit or in parcels, by public or private proceedings, and by way of one or
more contracts (it being agreed that the sale of any part of the Pledged
Collateral shall not exhaust the power of sale granted hereunder, but sales may
be made from time to time until all of the Pledged Collateral has been sold or
until the Obligations have been paid in full) and at such sale it shall not be
necessary to exhibit the Pledged Collateral; (v) at Secured Party's discretion,
retain the Pledged Collateral in satisfaction of the Obligations whenever the
circumstances are such that Secured Party is entitled to do so under the Code;
(vi) apply by appropriate judicial proceedings for appointment of a
receiver for the Pledged Collateral, or any part thereof; (vii) purchase
the Pledged Collateral at any public sale; (viii) purchase the Pledged
Collateral at any private sale; and/or (ix) exercise the rights set forth
in Section 13(b) hereof. The foregoing remedies shall be cumulative
and except for the provisions of Section 13(a)(v) above without prejudice to the
Secured Party's right to recover any deficiency including reasonable attorneys'
fees and costs permitted by this Agreement.
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(b) Sale of Pledged
Collateral. Secured Party is authorized, at any sale of the
Pledged Collateral, if Secured Party deems it advisable, to restrict the
prospective bidders or purchasers to those persons who will represent and agree
that they are purchasing for their own account, for investment, and not with a
view to distribution or sale of any of the Pledged Collateral. Upon
any such sale, Secured Party shall have the right to deliver, assign, and
transfer to the purchaser thereof the Pledged Collateral so
sold. Each purchaser at any such sale shall hold the property sold
absolutely, free from any claim or right of whatsoever kind. Secured Party shall
give Pledgor ten (10) days’ written notice of Secured Party’s intention to make
any such public or private sales or sale at broker’s board or on a securities
exchange. Such notice, in case of sale at broker’s board or a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Pledged Collateral, or that portion thereof so
being sold, will first be offered to sale at such board or
exchange. At any such sale, the Pledged Collateral may be sold in one
lot as an entirety or in separate parcels, as the Secured Party may
determine. Secured Party shall not be obligated to make any such sale
pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Pledged
Collateral on credit or for future delivery, the Pledged Collateral so sold may
be retained by the Secured Party until the selling price is paid by the
purchaser thereof, but the Secured Party shall not incur any liability in case
of the failure of such purchaser to take up and pay such selling price, and such
Pledged Collateral may again be sold upon like notice. Secured Party
may also, at Secured Party's discretion, proceed by a suit or suits at law, or
in equity to foreclose the pledge and sell the Pledged Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction. If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Pledged Collateral,
or any part thereof, Pledgor will execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use its best efforts to secure the
same.
(c) Notification. Reasonable
notification of the time and place of any public sale of the Pledged Collateral,
or any reasonable notification of the time after which any private sale or other
intended disposition of the Pledged Collateral is to be made, shall be sent to
Pledgor and to any other person entitled under the Code to notice; provided,
however, that if the Pledged Collateral threatens to decline quickly in value,
Secured Party may sell or otherwise dispose of the Pledged Collateral without
notification, advertisement or other notice of any kind. It is agreed
that notice sent or given not less than ten (10) calendar days prior to the
taking of the action to which the notice relates is reasonable notification and
notice for the purpose of this Agreement. Notice shall be deemed to
be sent when it is deposited in the United States Mail, return receipt
requested, bearing the proper postage and addressed to Pledgor and any other
person entitled to receive notice, at their last known address according to the
records of the Secured Party.
26
(d) Application of
Proceeds. Upon the occurrence of an Event of Default or
maturity of any instrument evidencing the Obligations or any part thereof,
whether such maturity be by such terms of such instruments or through the
exercise of any power of acceleration, Secured Party is authorized and empowered
to apply any and all funds realized from the sale of the Pledged Collateral not
previously credited against the Obligations first toward the payment of the
costs, charges and expenses, if any, incurred in the collection of such funds
hereunder, and then toward the payment of the Obligations, and shall pay any
balance remaining to Pledgor in accordance with the written instructions
executed by Pledgor or as prescribed by the Code.
(e) Deficiency. In
the event that the proceeds of any sale, collection or realization upon the
Pledged Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Pledgor shall be liable for the deficiency,
together with interest thereon at such rate as shall be fixed by applicable law,
together with the costs of collection and the reasonable fees of any attorneys
employed by Secured Party to collect such deficiency.
13. Secured Party Appointed
Attorney-in-Fact. Pledgor hereby irrevocably appoints Secured
Party as Pledgor's attorney-in-fact, with full authority in the place and stead
of Pledgor and in the name of Pledgor or otherwise, from time to time in the
Secured Party's discretion after the occurrence of an Event of Default to take
any action and to execute any instrument which the Secured Party may deem
necessary or advisable to accomplish the purpose of this Agreement, including,
without limitation, (i) the right and power to execute and deliver any and all
powers and other instruments, documents, certificates and agreements necessary
or appropriate to transfer ownership of the Pledged Collateral, and (ii) the
right and power to receive, endorse and collect all checks and other instruments
made payable to Pledgor representing any dividend, interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full acquittance for the same. The foregoing appointment of the
Secured Party as Pledgor's attorney-in-fact is irrevocable and is coupled with
an interest.
14. Certain Rights Before and
After a Default.
(a) Secured Party May
Perform. If Pledgor fails to perform any agreement contained
herein, the Secured Party may perform, or cause performance of, such agreement,
and the expenses of the Secured Party incurred in connection therewith shall be
payable by Pledgor pursuant to the provisions of Section 9 hereof.
(b) Notification of
Issuer. Secured Party shall have the right to notify the
issuer of the Pledged Collateral that the Pledged Collateral has been
pledged.
15. Cumulative Rights and
Remedies. All rights and remedies of Secured Party hereunder
are cumulative of each other and of every other right or remedy which Secured
Party may otherwise have at law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligations, and the exercise by Secured Party of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies. Secured Party shall not be
required to first endeavor to collect from Pledgor or any other party obligated
for the Obligations or to proceed against or exhaust other collateral or
security for the Obligations hereby secured before pursuing any of Secured
Party’s rights pursuant to this Agreement against Pledgor. Should
Pledgor have theretofore executed or hereafter execute any other security
agreement in favor of Secured Party in which a security interest is created as
security for the debts of Pledgor or another or others, in respect of which
Pledgor may not be personally liable, the security interest therein created and
all other rights, powers and privileges vested in Secured Party by
the terms thereof shall exist concurrently with the security interest created
herein, and, in addition, all property in which Secured Party holds a security
interest under any such other security agreement shall also be part of the
Pledged Collateral hereunder, and all or any part of the proceeds of the sale or
other disposition of such property may, in the discretion of Secured Party, be
applied by it in accordance with the terms hereof, and of such other security
agreement, or agreements, or any of them.
27
16. Surrender of
Collateral. Secured Party may surrender, release, exchange or
alter any collateral or security for the Obligations without affecting the
liability of Pledgor under this Agreement, and this Agreement shall continue
effective notwithstanding any legal disability of Pledgor to incur any
indebtedness or obligation incurred to Secured Party.
17. Effect of Other
Agreements. This Agreement shall in no way be construed as a
limitation or extinguishment of any guaranty, security agreement, pledge
agreement, assignment, or any other instrument, document or agreement granting
an interest in collateral for or guaranteeing the payment or performance of the
Obligations executed by any person prior to, or contemporaneously with, the
execution of this Agreement, but all prior or contemporaneous guaranties,
security agreements, pledge agreements, assignments, or any other instruments,
documents, or agreement granting an interest in collateral for or guaranteeing
the payment or performance of the Obligations shall remain in full force and
effect in accordance with their terms.
18. General
Provisions.
(a) Amendment. This
Agreement may not be modified, altered, amended, or terminated except by the
written agreement of the Secured Party and Pledgor.
(b) Severability. If
a court of competent jurisdiction determines that any provision contained in
this Agreement is void, illegal or unenforceable, the other provisions shall
remain in full force and effect and the provision held to be void, illegal or
unenforceable shall be limited so that it shall remain in effect to the extent
permissible by law.
(c) Choice of Law and
Venue. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ANY LITIGATION,
SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE PARTIES THAT MAY BE
BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH OR BY REASON OF THIS AGREEMENT
SHALL BE BROUGHT IN THE APPLICABLE FEDERAL OR STATE COURT IN AND FOR XXXXXX
COUNTY, TEXAS, WHICH COURTS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND
VENUE.
(d) Notices. Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given as hereinafter
described (i) if given by personal delivery, then such notice shall be deemed
given upon such delivery, (ii) if given by telex or telecopier, then such notice
shall be deemed given upon receipt of confirmation of complete transmittal,
(iii) if given by mail, then such notice shall be deemed given upon the earlier
of (A) receipt of such notice by the recipient or (B) three days after such
notice is deposited in first class mail, postage prepaid, and (iv) if given by
an internationally recognized overnight air courier, then such notice shall be
deemed given one business day after delivery to such carrier. All notices shall
be addressed to the party to be notified at the address as follows, or at such
other address as such party may designate by ten days’ advance written notice to
the other party:
28
If to
Pledgor:
Arkanova
Acquisition Corporation
00
Xxxxxxxx Xxxxxx
Xxxxx
000
Xxx
Xxxxxxxxx XX 00000
Fax:
000-000-0000
Attention:
Xxxxxx Xxxxxxx, President
If to the
Investor:
To the
Address for Notice as provided on the signature page of the NPA.
(e) Continuing Security
Interest. This Agreement shall create a continuing security
interest in the Pledged Collateral and shall remain in full force and effect
until payment in full of the Obligations.
(f) Preparation of
Agreement. Each party to this Agreement acknowledges
that: (i) the party had the advice of, or sufficient opportunity to
obtain the advice of, legal counsel separate and independent of legal counsel
for any other party hereto; (ii) the terms of the transactions contemplated by
this Agreement are fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transactions contemplated by this Agreement without
duress or coercion. Each party further acknowledges that such party
was not represented by the legal counsel of any other party hereto in connection
with the transactions contemplated by this Agreement, nor was he or it under any
belief or understanding that such legal counsel was representing his or its
interests. Each party agrees that no conflict, omission or ambiguity
in this Agreement, or the interpretation thereof, shall be presumed, implied or
otherwise construed against any other party to this Agreement on the basis that
such party was responsible for drafting this Agreement.
(g) Nonwaiver. Unless
otherwise expressly provided herein, no waiver by the Secured Party of any
provision hereof shall be deemed to have been made unless expressed in writing
and signed by the Secured Party. No delay or omission in the exercise
of any right or remedy accruing to the Secured Party upon any breach under this
Agreement shall impair such right or remedy or be construed as a waiver of any
such breach theretofore or thereafter occurring. The waiver by the
Secured Party of any breach of any term, covenant or condition herein stated
shall not be deemed to be a waiver of any other breach, or of a subsequent
breach of the same or any other term, covenant or condition herein
contained.
(h) Entire
Agreement. This Agreement sets forth the entire understanding
of the parties with respect to the Pledged Collateral and supersedes all prior
or contemporaneous representations, understandings and agreements, oral or
written, made between the parties effecting the subject matter hereof, and all
such prior or contemporaneous representations, understandings and agreements are
hereby terminated.
(i) Parties
Bound. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, assigns, heirs and
personal representatives.
(j) Counterpart
Execution. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK]
29
Signatures
To evidence the binding effect of the
foregoing terms and condition, the parties have executed and delivered this
Agreement as of, but not necessarily on, the date first above
written.
| ARKANOVA ENERGY CORPORATION | |||
|
|
By:
|
||
| Xxxxxx Xxxxxxx | |||
| President | |||
| THE INVESTOR | |||
| By: | |||
| Authorized Signatory | |||
| Print Name: | |||
| Print Title (if applicable): | |||
| Number of Shares of Prism Corporation Pledged: ______________________ | |||
30
ANNEX
“D”
THIS
AGREEMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO
PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933 ACT)
PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS AGREEMENT RELATES
HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND,
UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN
THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL APPLICABLE SECURITIES
LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.
GUARANTY
AGREEMENT
THIS GUARANTY AGREEMENT (this
“Guaranty”) is made and
entered into as of, but not necessarily on, the ____ day of September, 2008 and
between Arkanova Energy
Corp. a Nevada corporation (“Guarantor”),and the investor
indicated on the signature page hereof (the “Investor”)
Background
A. On even
date herewith Arkanova Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Guarantor (“Maker”), and the Investor
(“Payee”), consummated
the sale by Payee and the purchase by Maker of certain secured indebtedness of
Maker (the “Indebtedness”), and to
evidence the obligation of Maker to pay the Indebtedness Maker executed and
delivered to Payee that certain 8% Promissory Note (the “Note”) evidencing Maker’s
obligation to pay to Payee the principal and interest set forth therein;
and
B. As a
material inducement to Payee purchase the Indebtedness and accept the Note as
evidence of Maker’s obligation to pay for same, Guarantor, being the sole
shareholder of Maker, has agreed to guarantee the payment of the indebtedness
evidenced by the Note and the performance of the obligations of Maker under the
Note pursuant to the terms and conditions set forth herein;
Terms and
Conditions
In
consideration of the mutual benefits to be derived from the covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, hereby agree as
follows:
1. Guarantee of Maker’s
Obligations. Guarantor, as primary obligor and not merely as
surety and intending to be legally bound hereby, hereby absolutely, irrevocably,
unequivocally and unconditionally, guarantees to Payee the due, prompt and
faithful performance of, compliance with and execution of all of the terms,
provisions, conditions, covenants, warranties, obligations and agreements of
Maker contained in, described in or pursuant to the Note and this Guaranty,
including the prompt and full payment of all indebtedness of Maker to Payee
arising pursuant to the Note and all renewals and extensions thereof, now
existing or hereafter arising pursuant to the Note (the “Guaranteed
Obligations”). In the event of default by Maker in payment or
performance of the indebtedness evidenced by the Note, or any part thereof, when
such indebtedness or other obligations become due, whether by maturity,
prepayment or by acceleration, Guarantor shall, on demand and without further
notice of dishonor, pay the amount due thereon to Payee. In the event
of such payment is made by Guarantor, then Guarantor shall be subrogated to the
rights then held by Payee with respect to the Guaranteed Obligations to the
extent to which the Guaranteed Obligations were discharged by
Guarantor. Upon payment by Guarantor of any sums to Payee hereunder,
all rights of Guarantor against Maker arising as a result therefrom by way of
right of subrogation or otherwise, shall in all respects be subordinate and
junior in right of payment to the prior indefeasible payment in full of all the
obligations of Maker to Payee under the Note. This Guaranty shall be
irrevocable by Guarantor until all of the Guaranteed Obligations have been
finally, completely and indefeasibly paid in full and completely
performed.
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2. Nondischargeability of
Guaranty. Guarantor hereby agrees that Guarantor’s obligations
under the terms of this Guaranty shall not be released, diminished, impaired,
modified, affected or limited in any manner whatsoever by the occurrence of any
reason or event, including without limitation, one or more of the following
events: (a) the taking or accepting of any other security for any or
all of the Guaranteed Obligations; (b) any indulgence, compromise, settlement or
release which may be extended by Payee to Maker, Guarantor or any one or more
other parties liable in whole or in part for the Guaranteed
Obligations for such consideration as Payee may deem proper; (c) the
lack of corporate power of Maker, the insolvency or bankruptcy of Maker, or any
party at any time liable for the payment of any or all of the Guaranteed
Obligations, whether now existing or hereafter occurring; (d) any renewal,
extension, and/or rearrangement of the payment of any or all of the Guaranteed
Obligations with or without notice to or consent of Guarantor; (e) any neglect,
delay, omissions, failure, or refusal of Payee to take or prosecute any action
for the collection of any of the Guaranteed Obligations or to foreclose or take
or prosecute any action in connection with any instrument or agreement
evidencing or securing all or any part of the Guaranteed Obligations; (f) the
enforceability of all or any part of the Guaranteed Obligations against Maker by
reason of the fact that the Guaranteed Obligations exceed the amount permitted
by law, the act of creating the Guaranteed Obligations, or any part thereof, is
ultra xxxxx, or the officers creating same acted in excess of their authority;
(g) any payment by Maker to Payee is held to constitute a preference under the
bankruptcy laws or if for any other reason Payee is required to refund such
payment or pay the amount thereof to someone else; or (h) any impairment,
modification, change, release or limitation of the liability of Maker or
Guarantor, or of any remedy for the enforcement thereof, resulting from the
operation of any present or future provision of the Federal Bankruptcy Code or
any similar law or statute of the United States or the State of
Texas.
3. No
Setoff. The obligations, guaranties, covenants, agreements and
duties of Guarantor under this Guaranty are primary obligations of Guarantor and
shall not be subject to any counterclaim, setoff, deduction, diminution,
abatement, recoupment, suspension, deferment, reduction or defense based upon
any claim that Maker, Guarantor or any other person or entity may have against
Payee. The obligations of Guarantor set forth herein constitute
recourse obligations of Guarantor enforceable against Guarantor to the full
extent of Guarantor’s assets and properties.
4. Continuation of
Guaranty. Guarantor covenants that this Guaranty will not be
discharged except by complete performance of the Guaranteed Obligations
contained in this Guaranty. This Guaranty shall not be affected by,
and shall remain in full force and effect notwithstanding, any bankruptcy,
insolvency, liquidation, or reorganization of Maker or Guarantor.
32
5. Reliance on
Guaranty. Guarantor recognizes that Payee is relying upon this
Guaranty and the undertakings of Guarantor hereunder in purchasing the
Indebtedness and accepting the Note in connection therewith, and Guarantor
further recognizes that the execution and delivery of this Guaranty is a
material inducement to Payee in purchasing the Indebtedness and accepting the
Note as evidence of Maker’s obligation to pay for same in accordance with the
terms of the Note.
6. Payments under
Guaranty. All amounts to be payable under this Guaranty shall
be payable at the address of Payee set forth in the Note or at such other
address as Payee may from time to time designate in writing.
7. Representations of
Guarantor. Guarantor hereby represents, warrants and covenants
to Payee as follows:
(a) Authorization. Guarantor
has all requisite corporate power and authority to execute, deliver and perform
this Guaranty. The Guaranty constitutes the valid and binding
obligation of Guarantor, enforceable against Guarantor in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization or other laws or equitable principles relating to or
affecting creditors' rights generally.
(b) Benefit to
Guarantor. Guarantor has derived, or expects to derive,
financial and other advantage and benefit, directly or indirectly, from the
consummation of the transactions contemplated by the Note and the making of this
Guaranty.
8. Waiver. Guarantor
hereby waives notice to Guarantor of the acceptance of this Guaranty, and of any
default on the part of Maker of Maker’s obligations under the Note to Payee, and
all other notices in connection herewith or in connection with the liabilities,
obligations and duties guaranteed hereby. Guarantor further waives
diligence, presentment and suit on part of Payee in the enforcement of any
liability, obligation or duty guaranteed by Guarantor hereunder.
9. Enforcement of
Guaranty. Guarantor agrees that Payee shall not be first
required to enforce against Maker or any other person any liability, obligation
or duty guaranteed hereby before seeking enforcement thereof against
Guarantor. Suit may be brought and maintained against Guarantor by
Payee to enforce any liability, obligation or duty guaranteed hereby without
joinder of Maker or any other party or without Payee first exhausting Payee’s
remedies against Maker or without Payee first exhausting Payee’s rights against
any security which shall ever have been given to Payee to secure the payment or
performance of the Guaranteed Obligations.
10. Payment of Expenses and
Attorneys’ Fees. Guarantor agrees to pay, on demand, and to
save Payee harmless against liability for, any and all costs and expenses
(including reasonable fees and disbursements of counsel) incurred or expended by
Payee in connection with the enforcement of or preservation of any rights under
this Guaranty.
11. Governing
Law. THIS GUARANTY IS MADE, ENTERED INTO AND PERFORMABLE IN
DALLAS COUNTY, TEXAS, AND ALL PAYMENTS ARE DUE AND PAYABLE IN DALLAS COUNTY,
TEXAS. CONSEQUENTLY, THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ITS
CONFLICTS OF LAW RULES AND ANY LITIGATION OR OTHER PROCEEDING AS BETWEEN
GUARANTOR AND PAYEE THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH OR
BY REASON OF THIS GUARANTY SHALL BE BROUGHT IN THE APPLICABLE FEDERAL OR STATE
COURT IN AND FOR XXXXXX COUNTY, TEXAS WHICH COURTS SHALL BE THE EXCLUSIVE COURTS
OF JURISDICTION AND VENUE.
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12. Termination of
Guaranty. This Guaranty shall terminate and be of no further
force or effect upon the payment of the Guaranteed Obligations in
full.
13. Reformation and
Severability. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof (i) in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as a part of this Guaranty a provision as
similar in terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable, and (ii) the legality, validity
and enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
14. Successors and
Assigns. This Guaranty shall be binding upon Guarantor and its
heirs, personal representatives, successors and permitted
assigns. Guarantor may not assign or transfer any of Guarantor’s
rights or obligations hereunder without the prior written consent of
Payee. In the event of an assignment by Payee of its rights or
interest in the Guaranteed Obligations including the Note, or any part thereof,
the rights and benefits hereunder, to the extent applicable to the indebtedness
so assigned shall automatically pass with a transfer or assignment of the Note
or any interest therein to any holder thereof.
15. Entire
Agreement. This Guaranty embodies the final, entire agreement
of Guarantor with respect to the subject matter hereof and supersedes any and
all prior or contemporaneous agreements, representations and understandings,
whether written or oral, relating to this Guaranty.
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BLANK]
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Guarantor
Signature
To evidence the binding effect of the
foregoing terms, Guarantor has executed and delivered this Guaranty as of, but
not necessarily on, the date first above written.
| ARKANOVA ENERGY CORPORATION | |||
|
|
By:
|
||
| Xxxxxx Xxxxxxx | |||
| President | |||
| ACCEPTED: | |||
| THE INVESTOR | |||
| By: | |||
| Authorized Signatory | |||
| Print Name: | |||
| Print Title (if applicable): | |||
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