NOTE AND SECURITY AGREEMENT
Exhibit
10.3
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND THEREFORE
THESE SECURITIES MAY NOT BE TRANSFERRED WITHOUT REGISTRATION THEREUNDER OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION
This
Note
is secured by a pledge of all of the limited liability membership interests
of
Osage Energy, L.L.C., an Oklahoma limited liability company (“Osage”) by the
Borrower (as defined below), the sole owner of all of the membership interests
of Osage. Osage is the assignee of certain producing oil and natural gas leases
located in Osage County, Oklahoma (the “Osage Property”), which property
consists of twenty three xxxxx (ten currently producing) on 480 acres. The
note
is to secure for Holder such sums as shall be necessary to preserve and protect
the collateral which is the subject of this Note and the collection of the
sums
due under the Note secured hereby.
SECURED CONVERTIBLE
NOTE
FOR
VALUE RECEIVED,
Osage
Energy Corporation, a Nevada corporation (hereinafter called the "Borrower"),
hereby promises to pay to Vision Opportunity Master Fund, Ltd., a Cayman Islands
corporation (the "Holder"
or
“Secured
Party”)
the
sum of Two
Hundred Fifty Thousand Dollars ($250,000) with
compound interest accruing at the annual rate of ten
percent (10%),
on July
31, 2007 (the "Maturity Date"). All payments shall be in lawful currency of
the
United States of America.
The
following terms shall apply to this Note:
ARTICLE
I
PAYMENT
DEMAND AND DEFAULT RELATED PROVISIONS
1.1 Payment:
Default Rate and Grace Period.
All
interest shall be due and payable at the Maturity Date. On the Maturity Date,
all unpaid interest and principal due under this Note shall be payable. If
any
amount, whether of principal or interest on this Note, is not paid when due
(after giving effect to any applicable grace period), then from and after such
date the entire outstanding balance of the Note shall bear interest at the
Default Rate. The Borrower shall have a five
(5) day grace period
to pay
any monetary amounts due under this Note after its due date, after which grace
period a default interest rate of eighteen
percent (18%)
per
annum shall apply to the amounts owed hereunder. In the event of an Event of
Default, defined below, such default interest shall accrue against all
previously accrued but unpaid interest and outstanding principal at the Default
Rate, and all such principal and interest shall be immediately due and payable
upon demand by the Holder to Borrower. All payments to be made under this Note
shall be made to Holder at its office stated on the first page of this Note,
or
at such other address or, if by wire, such other bank account, as may be
designated in writing by Holder from time to time.
1.2 Conversion
Privileges.
The
Conversion Privileges set forth in Article II shall remain in full force and
effect immediately from the date hereof and until the Note is paid in
full.
1.3 Interest
Rate.
Interest payable on this Note shall accrue from and after the first advance
hereunder, and only on the amount so advanced plus any accrued but unpaid
interest, at the annual rate of
ten percent (10%)
and be
payable on the Maturity Date, accelerated or otherwise, when the principal
and
all accrued but unpaid interest shall be due and payable, or sooner as described
below. Interest shall accrue from the date hereof, on the full amount of
principal advanced hereunder and any accrued but unpaid interest, until this
Note is paid in full. Interest and any fees and charges payable under this
Note
shall be calculated on the basis of a 360-day year for the actual days
elapsed.
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1.4 Minimum
Interest.
The
Holder shall be entitled to a minimum interest of $25,000, regardless of when
the Note is converted pursuant to the Conversion Privileges set forth in Article
II or when the Note is redeemed by the Borrower.
1.5 Upfront
Fee.
At
closing, the Holder shall be entitled to 300,000 shares of Common Stock of
the
Borrower. The Holder shall be entitled to customary “piggy-back” registration
rights with respect to Borrower’s Common Stock.
1.6 No
Setoff or Counterclaim.
All
payments (including prepayments) by the undersigned on account of principal
and
interest and fees, if any, shall be made to Holder without set-off, recoupment
or counterclaim. If any payment becomes due and payable on a day other than
a
Business Day, the due date of such payment shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
1.7 Waiver
of Presentment and Enforcement.
All
parties now or subsequently liable with respect to this Note, whether maker,
principal, surety, guarantor, endorser or otherwise, hereby waive presentation
for payment, demand, notice of nonpayment or dishonor, protest and notice of
protest and any and all lack of diligence or delay in collection or enforcement
hereof.
ARTICLE
II
CONVERSION
RIGHTS
At
any
time during the term of this Note and continuing until this Note is paid in
full, the Holder may deliver a written notification (the “Notice
of Conversion”)
to the
Borrower setting forth the portion of the principal amount of the Note and/or
interest due and payable (the “Investment
Amount”)
that
the Holder exercises its conversion rights with respect thereto, subject to
the
terms and provisions set forth below.
2.1. Conversion
into the Borrower's Common Stock.
(a) The
Holder shall have the right, but not the obligation, from and after the
Borrower’s receipt of a Notice of Conversion or the occurrence of any Event of
Default, as the case may be, and then at any time and from time to time until
this Note is fully paid, to convert all or any portion of the principal of
this
Note and/or interest due and payable set forth in each such Notice of Conversion
or the entire amount or a portion of the principal portion of this Note and/or
interest due and payable following the occurrence of an Event of Default, as
the
case may be, into fully paid and nonassessable shares of common stock of the
Borrower as such stock exists on the date of issuance of this Note, or any
shares of capital stock of the Borrower into which such stock shall hereafter
be
changed or reclassified or exchanged for (the "Common
Stock")
at the
conversion price as defined in Section 2.1(b) hereof (the "Conversion
Price"),
determined as provided herein. Upon delivery to the Borrower of the Holder’s
written request for conversion (a “Notice of Conversion”, the date of giving
such notice of conversion being a Conversion
Date),
the
Borrower shall issue and deliver to the Holder within ten business days from
the
Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note to be converted and accrued
interest, if any, by the Conversion Price.
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(b) Subject
to adjustment as set forth in section 2.1, the
Note
(including for all purposes herein accrued interest thereon) is convertible
in
whole or in part at any time prior to receipt by Holder of payment in full,
into
common stock of the Borrower at the conversion rate equal to $0.25 (twenty-five
cents) (the “Fixed
Conversion Price”)
per
share of Common Stock. It is understood that the shares be to issued to Holder
shall be restricted, and that there is little to no liquidity or resale market
in the shares. The Holder shall be entitled to customary “piggy-back”
registration rights with respect to Borrower’s Common Stock.
A. Merger,
Sale of Assets, etc.
If the
Borrower at any time shall consolidate with or merge into or sell or convey
all
or substantially all its assets to any other person or entity, this Note, as
to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number and kind
of
shares or other securities and property as would have been issuable or
distributable on account of such consolidation, merger, sale or conveyance,
upon
or with respect to the securities subject to the conversion or purchase right
immediately prior to such consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to successive transactions of a
similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification,
etc.
If the
Borrower at any time shall, by reclassification or otherwise, change the Common
Stock into the same or a different number of securities of any class or classes,
this Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to purchase an
adjusted number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.
C. Stock
Splits, Combinations and Dividends.
If the
shares of Common Stock are subdivided or combined into a greater number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in
the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior
to
such event. In the event that the number of shares is reduced to a smaller
number of shares as in a stock reverse, the conversion price shall remain the
same pursuant to the provisions of 2.1(b).
(c) During
the period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Common Stock upon the full conversion of this Note. The
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. The Borrower agrees that its issuance
of
this Note shall constitute full authority to its officers, agents, and transfer
agents who are charged with the duty of executing and issuing stock certificates
to execute and issue the necessary certificates for shares of Common Stock
upon
the conversion of this Note.
2.2 Method
of Conversion.
This
Note may be converted by the Holder in whole or in part as described in Section
2.1(a). Upon partial conversion of this Note, in which case the remaining
balance of the note will remain in full force and effect for the principal
balance of this Note and interest which shall not have been converted or
paid.
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ARTICLE
III
EVENT
OF DEFAULT
The
occurrence of any of the following events of default ("Event
of Default")
shall,
at the option of the Holder hereof, make all sums of principal and interest
then
remaining unpaid hereon and all other amounts payable hereunder immediately
due
and payable, all without demand, presentment or notice, or grace period, all
of
which hereby are expressly waived, except as set forth below:
3.1 Failure
to Pay Principal or Interest.
The
Borrower fails to pay ANY portion of the principal or interest due under this
Note when due and such failure continues for a period of five (5) calendar
days
after the due date.
3.2 Breach
of Covenant.
The
Borrower breaches any covenant or other term or condition of this Note in any
material respect and such breach, if subject to cure, continues for a period
of
five (5) calendar days after written notice to the Borrower from the
Holder.
3.3 Breach
of Representations and Warranties.
Any
representation or warranty of the Borrower made herein, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
therewith shall be false or misleading. It is agreed that Borrower will not
issue more than ten percent of the issued and outstanding shares of the company
unless the Note has been paid in full.
3.4 Receiver
or Trustee.
The
Borrower shall make an assignment for the benefit of creditors, or apply for
or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business; or such a receiver or trustee shall otherwise
be appointed.
3.5 Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Borrower.
3.6 Failure
to Deliver Common Stock or Replacement Note.
The
Borrower's failure to timely deliver Common Stock to the Holder pursuant to
and
in the form required by this Note or if required a replacement
Note.
3.7 Remedies
of Holder are Cumulative.
The
remedies of Holder as provided herein, and any one or more of them, whether
in
law or in equity, shall be cumulative and concurrent, and may be pursued
singularly, successively or together at Holder’s sole discretion, and may be
exercised as often as Holder may decide in its sole and absolute
discretion.
ARTICLE
IV
GRANT
OF SECURITY INTEREST
4.1 Grant
of Security.
As
security for the Obligations (as defined below), Borrower hereby delivers,
assigns, pledges, sets over and grants to Secured Party a first priority
security interest in, all of its right, title and interest, whether now existing
or hereafter arising or acquired, in Borrower’s entire membership interest in
Osage Energy, L.L.C. ( “Osage”),
together with all and any proceeds thereof (the “Collateral”).
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4.2 Security
for Obligation.
This
Note and Security Agreement secures the payment of all now existing or hereafter
arising obligations of Borrower to Secured Party under this Note, whether for
principal, interest, fees, expenses or otherwise, together with all costs of
collection or enforcement, including, without limitation, reasonable attorneys’
fees incurred in any collection efforts or in any action or proceeding (all
such
obligations being the “Obligations”).
4.3 Grantor
Remains Liable.
This
Note and Security Agreement shall not affect Borrower’s liability to perform all
of its duties and obligations with respect to the transaction giving rise to
the
Obligations. The exercise by Secured Party of its rights hereunder shall not
release Borrower from any of its duties or obligations under the transaction
giving rise to the Obligations, which shall remain unchanged as if this Note
and
Security Agreement had not been executed. Secured Party shall not have any
obligation or liability with respect to the transaction giving rise to the
Obligations by reason of this Note and Security Agreement.
4.4 Continuing
Agreement.
This
Note and Security Agreement shall create a continuing security interest in
the
Collateral and shall remain in full force and effect until payment in full
of
the Obligations.
ARTICLE
V
REPRESENTATIONS,
WARRANTIES AND COVENANTS
5.1 Title;
Liens and Encumbrances.
Borrower
represents and warrants that it is the sole record and beneficial owner of
good
and marketable title to the Collateral pledged by it hereunder, free of any
and
all Liens, or options in favor of, or claims of, any other person, except the
liens created by this Note and Security Agreement. Borrower will promptly notify
Secured Party of any such other lien or claim made or asserted against the
Collateral and will defend the Collateral against any such lien or other
claim.
5.2 Validity
of Oil and Natural Gas Leases.
Osage
has the full right and authority to operate the producing oil and natural gas
leases located in Osage County, Oklahoma and as more fully described in Exhibit
A annexed hereto (the “Leases”)
and to
extract oil and natural gas from xxxxx subject to such Leases. The Leases and
the Assignment and Xxxx of Sale between Osage and Conquest Exploration Company,
L.L.C. are in full force and effect.
5.3 Perfection
of Security Interest.
Borrower
authorizes Secured Party to file all such financing statements and amendments
thereto pursuant to the Uniform Commercial Code or other notices appropriate
under applicable law, as Secured Party may require, each in form satisfactory
to
Secured Party. Borrower authorizes Secured Party to take all other actions
which
Secured Party may deem necessary or desirable to perfect or otherwise protect
the lien created hereunder and to obtain the benefits of this Note and Security
Agreement.
ARTICLE
VI
MISCELLANEOUS
6.1 Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Holder hereof in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
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6.2 Notices.
Any
notice herein required or permitted to be given shall be in writing and shall
be
deemed effectively given: (a) upon personal delivery to the party notified,
(b)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient, if not, then on the next business day, (c) three days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification
of
receipt. All communications shall be sent to the Borrower and Holder at the
addresses on the first page of this Note or at such other address as the
Borrower or the Holder may designate by ten days advance written notice to
the
other parties hereto. A Notice of Conversion shall be deemed given when made
to
the Borrower.
6.3 Amendment
Provision.
The
term "Note" and all reference thereto, as used throughout this instrument,
shall
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
6.4 Assignability.
This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and assigns, and
may
be assigned by the Holder.
6.5 Cost
of Collection.
If
default is made in the payment of this Note, the Borrower shall pay the Holder
hereof reasonable costs of collection, including reasonable attorneys'
fees.
6.6 Governing
Law.
This
Note shall be governed by and construed in accordance with the laws of the
State
of California, without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of
or
in the federal courts located in the State of California, city of San Diego.
Both parties and the individual signing this Note on behalf of the Borrower
agree to submit to the jurisdiction of such courts. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees
and
costs. In the event that any provision of this Note is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or unenforceability of any other provision of this Note.
6.7 Maximum
Payments.
Nothing
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess
of
such maximum shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.
6.8 Prepayment.
This
Note may be paid (in whole or in part) prior to the Maturity Date without the
consent of the Holder subject to Holder’s conversion rights (section
2.1).
6.9 Time. Where
this Note authorizes or requires the payment of money or the performance of
a
condition or obligation on a Saturday or Sunday or a public holiday, or
authorizes or requires the payment of money or the performance of a condition
or
obligation within, before or after a period of time computed from a certain
date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Note. A “business day” shall mean
a day on which the banks in New York are not required or allowed to be closed.
Time is of the essence as to all matters in and related to this Note and
Security Agreement.
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6.10 Construction.
Each
party acknowledges that its legal counsel participated in the preparation of
this Note and, therefore, stipulates that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be applied
in the interpretation of this Note to favor any party against the
other.
IN
WITNESS WHEREOF,
the
Borrower has caused this Note to be signed in its name by its Chief Executive
Officer on this ___ day of February 2007.
| OSAGE ENERGY CORPORATION | ||
| |
|
|
| By: | ||
|
Name:
Xxx Xxxxxxxx
Title:
President and Chief Executive Officer
|
||
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NOTICE
OF CONVERSION
(To
be
executed by the Holder in order to convert the Note)
The
undersigned hereby irrevocably elects, as of the Date of Conversion stated
below, to convert $_______ of the principal and interest due on the $250,000
Note issued by OSAGE
ENERGY CORPORATION on
February __, 2007 into Shares of Common Stock of OSAGE
ENERGY CORPORATION
(the
"Company") according to the conditions set forth in such Note, as of the date
written below.
Date
of
Conversion: _______________
Conversion
Price: $0.25 (Twenty-five cents) per share
Number
of
Shares To Be Delivered: ________
Signature:______________________________________
Print
Name:_____________________________________
Print
Title:______________________________________
Print
Name of Current Note Holder:__________________
Address:______________________________________________________________
____________________________________________________________________
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Exhibit
A
The
following is a list of certain producing oil and natural gas leases located
in
Osage County, Oklahoma (the “Osage Property”), which property consists of twenty
three xxxxx (ten currently producing) on 480 acres:
Osage
Lease: XX/0 Xxxxxxx 00-00X-00X, XXX Contract Number 17700, dated 7/21/99.
Xxxxxx
Lease: XX/0 Xxxxxxx 00-00X-00X, XXX Contract Number 17701, dated 7/21/99.
Xxxxxx
Lease: NW/4 Section 31-2IN-10E, BIA Contract Number 17702, dated 7/21/99.
All
of
the above said Oil and Gas Leases shall be delivered to Assignee at a 81.25%
Net
Revenue Interest Lease.
Xxxxx
and
Associated: Sub-Surface Pipe and Equipment and Surface Equipment:
Osage
#1,
2, 3, 4, 5, 6, 7, 8 and 10 located in SE/4 of Section 30-21N-1OE.
Xxxxxx
#1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19 located
in
N/2 of Section 31-21N-10E.
Any
and
all other wel1s, property and equipment located and associated with any xxxxx
located in the SE/4 of Section 30 and the N/2 of Section 31, all in Township
21N, Range 10E, Osage County, Oklahoma and not specifically described
hereinabove.”
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