THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,...
THIS
NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No.
A1(b) up
to U.S. $200,000.00 Original Issue Date: February 12, 2007
|
Holder:
|
Xxxx
Xxxx
|
Re-Issue
Date: March 13, 2007
|
Address: 000
Xxxx Xxxxxx Xxxxx
Suite
301
Chicago,
IL 60601
|
SERIES
2007 SECURED NOTE DUE July 12,
2007
|
THIS
Note, in the principal amount of
up to Two Hundred Thousand and 00/100 Dollars ($200,000.00), evidencing a loan
(the “Loan”) made on February 12, 2007 (the “Loan Origination Date”), is
one of a duly authorized issue of Notes of Apollo Resources International,
Inc.,
a Utah corporation with offices at 0000 Xxxx Xxxxxx, Xxxxx 000, Xxxxxx,
XX 00000 (the “Maker”), collectively or individually
designated as the Note, as the case may be (the “Note”), due not later
than July 12, 2007 (“Maturity Date”), in an aggregate face amount of up
to Two Million Five Hundred Thousand and 00/100 Dollars
($2,500,000.00).
FOR
VALUE RECEIVED, the Maker promises
to pay to the Holder or registered assigns, the principal sum of Two Hundred
Thousand Dollars ($200,000.00) if paid on or prior to ninety (90) day
anniversary (the “Maturity Date”) of the Loan Origination Date, hereof;
upon the occurrence of an Event of Default, the amount of principal due
hereunder shall conclusively be Two Hundred Thousand Dollars ($200,000.00),
and
all amounts due hereunder shall be immediately due and payable, together with
a
default fee equal to ten percent (10%) of the Maturity Amount, and any amounts
not so paid shall bear interest at the rate of 18% per annum from the of such
default through and including the date of payment. The principal of,
and interest on, this Note are payable in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address of the Holder last appearing on the
Note Register.
This
Note is subject to the following
additional provisions:
Section
1. Representations
and Warranties of the Borrower. The Borrower represents
and warrants to the Holder, as of the date hereof as follows:
(a) Authorization
of Agreement. The Borrower, if not a natural person, is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization with full right, corporate, partnership
or other applicable power and authority to enter into and to consummate the
transactions contemplated by this Note and otherwise to carry out its
obligations hereunder, and the execution, delivery and performance by the
Borrower of this Note and all other documents delivered in connection herewith
(the “Transaction Documents”) have been duly authorized by all necessary
corporate or similar action on the part of the Borrower. Each
of the Transaction Agreements, when executed and delivered by the Borrower,
will
constitute a valid and legally binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement
of
creditors’ rights generally, (b) as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies, or
(c)
to the extent the indemnification provisions contained herein may be limited
by
federal or state securities laws.
(b) No
Conflicts; Advice. Neither the execution and delivery of
the Transaction Documents, nor the consummation of the transactions contemplated
thereby, does or will violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of
any
government, governmental agency, or court to which the Borrower is subject
or
any provision of its organizational documents or other similar governing
instruments, or conflict with, violate or constitute a default under any
agreement, credit facility, debt or other instrument or understanding to which
the Borrower is a party. The Borrower has consulted such legal, tax
and investment advisors as it, in its sole discretion, has deemed necessary
or
appropriate in connection with its entering into the Note and the other
Transaction Documents and consummating the transactions contemplated hereby
and
thereby.
(c) No
Litigation. There is no action, suit, proceeding,
judgment, claim or investigation pending, or to the knowledge of the Borrower,
threatened against the Borrower which could reasonably be expected in
any manner to challenge or seek to prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Note or the other documents
delivered in connection herewith.
(d) Consents. No
authorization, consent, approval or other order of, or declaration to or filing
with, any governmental agency or body or other person is required for the valid
authorization, execution, delivery and performance by the Borrower of the Note
and the other documents delivered in connection herewith and the consummation
of
the transactions contemplated hereby and thereby.
(e) Bankruptcy. The
Borrower is not under the jurisdiction of a court in a Title 11 or similar
case
(within the meaning of Bankruptcy Code Section 368(a)(3)(A) (or related
provisions)) or involved in any insolvency proceeding or
reorganization.
(f) Purpose
of Loan, Means of Repayment. The Borrower intends to use
proceeds for capital improvements to oil and gas producing assets. The Borrower
has a reasonable, good-faith belief in its ability to repay the Loan evidenced
by this Note as and when the same may become due and payable. The
basis for such belief is set forth in Schedule A attached hereto, and the
Borrower has sufficient unencumbered oil and gas production revenue to enable
such repayment to be made, as more fully set forth in Schedule A attached
hereto.
Section
2. Exchangeability
and Transferability. This Note is exchangeable for an
equal aggregate principal amount of Notes of different authorized denominations,
as requested by the Holder surrendering the same, but shall not be issuable
in
denominations of less than integral multiples of Twenty Thousand Dollars
($20,000) unless such amount represents the full principal balance of Notes
outstanding to such Holder. No service charge will be made for such
registration of transfer or exchange. The Holder, by acceptance
hereof, agrees to give written notice to the Maker before transferring this
Note; such notice will describe briefly the proposed transfer and will give
the
Maker the name, address, and tax identification number of the proposed
transferee, and will further provide the Maker with an opinion of the Holder’s
counsel that such transfer can be accomplished in accordance with federal and
applicable state securities laws (unless such transaction is permitted by the
plan of distribution in an effective Registration
Statement). Promptly upon receiving such written notice, the Maker
shall present copies thereof to the Maker’s counsel.
Section
3. Plan
of
Repayment. The
Maker intends to repay this Note through application of proceeds that it expects
to receive as set forth in Schedule A to this Note.
Section
4. Covenants. The
Maker covenants and agrees that, so long as any amount is due and owing under
the Note, it shall not:
(a) Fail
to make any payment of the principal of, interest on, or other obligations
in
respect of, this Note, free of any claim of subordination, as and when the
same
shall become due and payable (whether on the Maturity Date or by acceleration
or
otherwise), for five (5) business days after the same shall be due and
payable;
(b) Fail
to observe or perform any other covenant, agreement or warranty contained in,
or
otherwise commit, any breach of, this Note;
(c) Suffer
to have the guarantor (the “Guarantor”) under the guarantee (the
“Guarantee”) or the pledgor (the “Pledgor”) under the stock pledge
agreement (the “Stock Pledge Agreement”) entered into contemporaneously
herewith and of even date herewith fail to observe or perform any covenant,
agreement or warranty contained therein, or otherwise commit any breach thereof
(this Note, the Guaranty, the Stock Pledge Agreement and all other documents
delivered contemporaneously and in connection herewith collectively are referred
to as the “Loan Documents”);
(c) Commence
or suffer to have the Guarantor or the Pledgor commence a voluntary case under
the United States Bankruptcy Code or insolvency laws as now or hereafter in
effect or any successor thereto (the "Bankruptcy Code"); or suffer to have
an
involuntary case commenced against it, the Guarantor or the Pledgor under the
Bankruptcy Code in which the petition is not controverted within thirty (30
days), or is not dismissed within sixty (60) days, after commencement of such
involuntary case; or suffer to have a "custodian" (as defined in the Bankruptcy
Code) appointed for, or take charge of, all or any substantial part of the
property of the Maker, the Guarantor or the Pledgor, or commence any other
proceeding under any reorganization, arrangement, adjustment of debt, relief
of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Maker, the
Guarantor or the Pledgor, or suffer to have commenced against it, the Guarantor
or the Pledgor any such proceeding which remains undismissed for a period of
sixty (60) days; or be, or suffer to have the Guarantor or the Pledgor be,
adjudicated insolvent or bankrupt; or suffer to have any order of relief or
other order approving any such case or proceeding entered; or suffer to have
any
appointment of any custodian or the like for any thereof or any substantial
part
of its property or the property of the Guarantor or the Pledgor which continues
undischarged or unstayed for a period of sixty (60) days; or make, or suffer
to
have the Guarantor or the Pledgor make, a general assignment for the benefit
of
creditors; or fail to pay, or state that it is unable to pay, its debts
generally as they become due; call, or suffer to have the Guarantor or the
Pledgor call, a meeting of all of its respective creditors with a view to
arranging a composition or adjustment of its debts; or by any act or failure
to
act indicate, or suffer to have the Guarantor or the Pledgor indicate, its
consent to, approval of or acquiescence in any of the foregoing; or take any
corporate or other action for the purpose of effecting any of the
foregoing;
(d) Default,
or suffer to have the Guarantor or the Pledgor default, in any of its respective
obligations under any mortgage, credit agreement or other facility, indenture,
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced any indebtedness thereof in an amount exceeding
thirty-seven thousand five hundred dollars ($37,500.00), whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior
to
the date on which it would otherwise become due and payable;
(e) Be,
or suffer to have the Guarantor or the Pledgor be, a party to any Change of
Control Transaction (as defined below), or sell or dispose of all or in excess
of forty-nine (49%) percent of its respective assets (based on book value
calculation as reflected in the its most recent financial statements) in one
or
more transactions (whether or not such sale would constitute a Change of Control
Transaction);
(f) Suffer
to have the Common Stock, or the common stock of the Guarantor or the Pledgor,
suspended or delisted from trading for in excess of three (3) Trading
Days;
(g) Suffer
to have the average daily trading volume of the Common Stock, during any
consecutive ten (10) trading-day period, be less than
seventy-five thousand ($75,000) dollars in value;
(h) Suffer
a determination by the U.S. Securities and Exchange Commission or National
Association of Securities Dealers, or any applicable state regulatory authority,
that it, the Guarantor or the Pledgor has violated applicable Securities
Laws;
(i) Fail,
or suffer to have the Pledgor or the Guarantor fail, to file a Form 10-KSB,
Form
10-QSB or a Form 8-K when due;
(j) Enter,
or suffer to have the Pledgor or the Guarantor enter, into a transaction or
series of transactions that would violate the “Twenty Percent Rule” if the
Common Stock or the common stock of the Guarantor or the Pledgor were traded
on
the NASDAQ market;
(k) Suffer
to have the value of the shares of Common Stock that are pledged to secure
the
obligations due under the Notes pursuant to the Stock Pledge Agreement (the
“Collateral Shares”) be equal to not more than four (4) times the
Maturity Amount on any trading day during the term of this Note; provided,
that
for purposes of measuring compliance with this covenant, the value of the
Collateral Shares shall be deemed to be the average of the Volume-Weighted
Average Price (the “VWAP”) of Common Stock, as reported by Xxxxxxxxx, L.P., for
the previous five (5) trading days;
(l) Suffer
to have an action, suit or proceeding commenced against it, the Guarantor or
the
Pledgor seeking damages in an amount exceeding thirty-seven thousand five
hundred dollars ($37,500); or
(m) Make
any representation or warranty that is not true and correct in all material
respects as of the date of this Note, except for representations and warranties
that are expressly made as of a particular date, which shall be true and correct
in all material respects as of such date.
Section
5. Events
of Default. "Event of Default" wherever used
herein, means the breach of any covenant hereof (whatever the reason and whether
it shall be voluntary or involuntary or effected by operation of law or pursuant
to any judgment, decree or order of any court, or any order, rule or regulation
of any administrative or governmental body). Upon the occurrence of
an Event of Default, which Event of Default is not cured within five (5) days
after its occurrence, the sum of Two Hundred Thousand dollars ($200,000.00)
shall be immediately due and payable to the Holder, together with a default
penalty in the amount of Twenty-Five Thousand, Dollars ($25,000), and thereupon
default interest shall begin to accrue at the annual rate of eighteen (18%)
percent per annum and the Holder shall be entitled to all remedies under law
and
as set forth in the Guarantee or the Pledge Agreement.
Section
6. Interest
Rate Limitation. The parties intend to conform strictly
to the applicable usury laws in effect from time to time during the term of
the
Loan. Accordingly, if any transaction contemplated hereby would be
usurious under such laws, then notwithstanding any other provision hereof:
(i)
the aggregate of all interest that is contracted for, charged, or received
under
this Note or under any other Document shall not exceed the maximum amount of
interest allowed by applicable law (the "Highest Lawful Rate"), and any
excess shall be promptly credited to the Maker by the Holder (or, to the extent
that such consideration shall have been paid, such excess shall be promptly
refunded to the Maker by the Holder); (ii) neither the Maker nor any other
person now or hereafter liable hereunder shall be obligated to pay the amount
of
such interest to the extent that it is in excess of the Highest Lawful Rate;
and
(iii) the effective rate of interest shall be reduced to the Highest Lawful
Rate. All sums paid, or agreed to be paid, to the Holder for the use,
forbearance, and detention of the debt of the Maker to the Holder shall, to
the
extent permitted by applicable law, be allocated throughout the full term of
the
Note until payment is made in full so that the actual rate of interest does
not
exceed the Highest Lawful Rate in effect at any particular time during the
full
term thereof. If the total amount of interest paid or accrued
pursuant to this Note under the foregoing provisions is less than the total
amount of interest that would have accrued if a varying rate per annum equal
to
the interest rate under the Note had been in effect, then the Maker agrees
to
pay to the Holder an amount equal to the difference between (x) the lesser
of
(A) the amount of interest that would have accrued if the Highest Lawful Rate
had at all times been in effect, or (B) the amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under this Note
had at all times been in effect, and (y) the amount of interest accrued in
accordance with the other provisions of this Note.
|
Section
7.
|
Prepayment/Extension.
|
(a) The
Maker shall have the right to prepay this Note in whole or in part prior to
the
Maturity Date.
(b) The
Maker shall give at least five (5) Business Days, but not more than ten (10)
Business Days, written notice of any intention to prepay this Note prior to
the
Maturity Date or any extension thereof to the Holder, which notice shall specify
the “Prepayment Date”.
Section
8. Definitions. For
the purposes hereof, the following terms shall have the following
meanings:
|
|
"Business
Day" means any day except Saturday, Sunday and any day which shall
be
a legal holiday or a day on which banking institutions in the State
of New
York are authorized or required by law or other government action
to
close.
|
|
|
"Change
of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity
or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act) of in excess of 49% of the voting securities of a person, coupled
with a replacement of more than one-half of the members of such person's
board of directors which is not approved by those individuals who
are
members of the board of directors on the date hereof in one or a
series of
related transactions, or (ii) the merger of such person with or into
another entity, consolidation or sale of all or substantially all
of the
assets of such person in one or a series of related transactions,
unless
following such transaction, the holders of such person's securities
continue to hold at least 40% of such securities following such
transaction. The execution by such person of an agreement to
which such person is a party or by which it is bound providing for
any of
the events set forth above in (i) or (ii) does not constitute the
occurrence of the event until after the event in fact
occurs.
|
|
|
“Common
Stock” means the Common Stock of the
Borrower.
|
Section
9. Except
as expressly provided herein, no provision of this Note shall alter or impair
the obligation of the Maker, which is absolute and unconditional, to pay the
principal of, interest and liquidated damages (if any) on, this Note at the
time, place, and rate, and in the coin or currency, herein
prescribed. This Note is a direct obligation of the
Maker.
Section
10. If
this Note shall be mutilated, lost, stolen or destroyed, the Maker shall execute
and deliver, in exchange and substitution for and upon cancellation of a
mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such Note, and of the ownership hereof, and indemnity, if
requested, all reasonably satisfactory to the Maker.
|
|
Section
11. Choice of Law and Venue; Submission
to Jurisdiction; Service of
Process.
|
|
(a)
|
THE
VALIDITY OF THIS NOTE , ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT,
AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS
(WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF). THE
PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS NOTE
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED
IN THE COUNTY OF COOK, STATE OF ILLINOIS OR, AT THE SOLE OPTION OF
HOLDER,
IN ANY OTHER COURT IN WHICH HOLDER SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN
CONTROVERSY.
|
|
(b)
|
THE
MAKER HEREBY SUBMITS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, TO THE JURISDICTION OF THE AFORESAID COURTS
AND
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT IT
MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION.
|
|
(c)
|
THE
MAKER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, OR
OTHER
PROCESS ISSUED IN ANY ACTION OR PROCEEDING AND AGREES THAT SERVICE
OF SUCH
SUMMONS, COMPLAINT, OR OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO MAKER.
|
|
(d)
|
NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT
OF THE
HOLDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW,
OR TO
PRECLUDE THE ENFORCEMENT BY HOLDER OF ANY JUDGMENT OR ORDER OBTAINED
IN
SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE
SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
|
(e) To
the extent determined by such court, the Maker 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.
|
Section
12.
|
Any
waiver by the Maker or the Holder of a breach of any provision of
this
Note shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision
of this
Note. The failure of the Maker or the Holder to insist upon
strict adherence to any term of this Note on one or more occasions
shall
not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of
this
Note. Any waiver must be in
writing.
|
|
Section
13.
|
If
any provision of this Note is invalid, illegal or unenforceable,
the
balance of this Note shall remain in effect, and if any provision
is
inapplicable to any person or circumstance, it shall nevertheless
remain
applicable to all other persons and
circumstances.
|
|
Section
14.
|
Whenever
any payment or other obligation hereunder shall be due on a day other
than
a Business Day, such payment shall be made on the next succeeding
Business
Day (or, if such next succeeding Business Day falls in the next calendar
month, the preceding Business Day in the appropriate calendar
month).
|
|
Section
15.
|
Security. The
obligation of the Maker for payment of principal, interest and all
other
sums hereunder, in the event of a default and failure of the Maker
to
perform hereunder, is secured by (i) a Guarantee of the Guarantor,
and
(ii) the pledge of certain securities (the “Pledged Shares”) by the
Guarantor as Pledgor under the terms and conditions of a Stock Pledge
Agreement.
|
|
Section
14.
|
Waiver
of Jury Trial.
|
|
THE
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THE MAKER
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
|
|
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]
|
IN
WITNESS WHEREOF,
the Maker has caused this instrument to be duly executed by an officer duly
authorized for such purpose, as of the date first above indicated.
APOLLO
RESOURSES INTERNATIONAL,
INC.
By: ___________________________________
Name: Xxxxxx
X. XxXxxxxxxx, XXX
Title: Chief
Executive Officer, Chairman
Attest:
By:___________________________
SCHEDULE
A
PLAN
OF REPAYMENT
The
loan
will be repaid out of revenues from the production of oil and natural gas from
assets owned by the Company in New Mexico, Arizona, and Utah.
|
Net
Estimated Monthly Cash Flow
|
||||||
|
BC&D
oil field
|
Oil
|
200
BBls/day
|
$288,000
|
|||
|
Mountain
States Oil and Gas fields*
|
Oil
|
250
BBls/day
|
$360,000
|
|||
|
*(Unencumbered)
|
||||||
|
Gas
|
3000
MCF/day
|
$270,000
|
||||
|
Total
|
$918,000
|
|||||
|
Debt
Service (Principal) on BC&D only
|
$800,000
|
3YR
|
Monthly
P/I
|
($ 30,000)
|
||
|
Net
Estimated Unencumbered Cash Flow/Month
|
$888,000
|
|||||
