LOAN AGREEMENT
This
Loan
Agreement (this “Agreement”)
is
dated as of April 6, 2007 between
Universal Property Development and Acquisition Corporation,
a
Nevada corporation whose principal place of business is located at 00000 XX
XXX,
0 Xxxxx 000, Xxxx Xxxxx, XX 00000 (“UPDA” or the “Company”), Canyon
Creek Oil and Gas, Inc.
and
Xxxxxx
Oil and Gas, Inc.
(the
“Operating Subsidiaries”), Nevada corporations whose principal place of business
is located at 00000 XX XXX, 0 Xxxxx 000, Xxxx Xxxxx, XX 00000, Xxxxx
Xxxxxxxx,
a US
citizen and resident of the state of Texas, whose primary residence is 0 Xxxxx
Xxxxx, Xxx Xxxxxxx, XX 00000, Xxxxxxxxxxx
X. XxXxxxxx,
a US
citizen and resident of the state of Ohio, whose primary residence is 0000
Xxxxxx Xxxx., Xxxxxxxxxxx, XX 00000 (Messrs. Abdallah and XxXxxxxx,
collectively, the “Guarantors”), and Sheridan
Asset Management, LLC,
a
Delaware limited liability company whose principal place of business is located
at 0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxx Xxxxxx, XX 00000 (“Sheridan” or the
“Lender”).
WHEREAS,
subject to the terms and conditions set forth in this Agreement, the Company
desires to borrow, and the Lender desires to lend to the Company, certain funds
as more fully described in this Agreement.
NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and the Lender agree as
follows:
ARTICLE
I.
DEFINITIONS
1.1 Definitions.
In
addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms
that are not otherwise defined herein have the meanings given to such terms
in
the Note (as defined herein), and (b) the following terms have the meanings
indicated in this Section 1.1:
“Action”
shall
have the meaning ascribed to such term in Section 3.1(h).
“Affiliate”
means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities
Act.
With
respect to a Lender, any investment fund or managed account that is managed
on a
discretionary basis by the same investment manager as the Lender will be deemed
to be an Affiliate of the Lender.
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a federal legal
holiday in the United States 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.
“Closing”
means
the closing of the Loan pursuant to Section 2.1.
“Closing
Date”
means
the Business Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to
(i)
the Lenders’ obligations to deliver the Loan Amount and (ii) the Company’s
obligations to deliver the Note, have been satisfied or waived.
“Common
Stock”
means
the common stock of the Company, par value $.001, and any securities into which
such common stock shall hereinafter have been reclassified into.
“Company’s
Counsel”
means
McGuireWoods LLP.
“Disclosure
Schedules”
shall
have the meaning ascribed to such term in Section 3.1 hereof.
“Escrow
Agreement”
means
that certain Escrow Agreement, dated the date hereof, between the Lender, the
Company, and Xxxxxx Xxxxxx Xxxxxxxx LLP, as escrow agent.
“GAAP”
shall
have the meaning ascribed to such term in Section 3.1(f) hereof.
“Guaranties”
means
those certain Guaranty Agreements given by each of the Guarantors.
“Guarantor
Shares”
means
the shares of Common Stock and Preferred Stock pledged by the Guarantors to
the
Lender pursuant to the Security Agreement.
“Liens”
means
a
lien, charge, security interest, encumbrance, right of first refusal, preemptive
right or other restriction.
“Loan”
shall
have the meaning ascribed to such term in Section 2.1.
“Loan
Amount”
means,
as to the Lender, the aggregate principal amount of the Note, in United States
Dollars.
“Loan
Party”
means
any of the Company, the Subsidiaries and the Guarantors.
“Material
Adverse Effect”
shall
have the meaning assigned to such term in Section 3.1(a) hereof.
“Material
Permits”
shall
have the meaning ascribed to such term in Section 3.1(k).
“Mortgages”
shall
mean the mortgages in favor of the Lender secured by each property listed on
Schedule A attached hereto.
“Note”
means
the Senior Secured Promissory Note due, subject to the terms therein, one year
from its date of issuance, issued by the Company to the Lender hereunder, in
the
form of Exhibit
A.
“Person”
means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.
“Pledged
Shares”
shall
mean the shares of capital stock of the Operating Subsidiaries pledged to the
Lenders by the Company pursuant to the Security Agreement.
“Preferred
Stock”
shall
mean the Company’s Class A convertible preferred stock, par value $10.00, and
any other classes of preferred stock authorized or outstanding.
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“Proceeding”
means
an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Registration
Rights Agreement”
means
that certain Registration Rights Agreement dated the date hereof, between the
Lender and the Company.
“Rule
144”
means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such
Rule.
“Securities
Act”
means
the Securities Act of 1933, as amended.
“Security
Agreement”
means
the Security Agreement, dated the date hereof, among the Company, the Lender
and
any and all of the Company’s Subsidiaries, in the form of Exhibit
B
attached
hereto.
“Security
Documents”
means
the Security Agreement, any Subsidiary Guarantee(s), the Guaranties, the
Mortgages, and any other documents and filings required thereunder in order
to
grant the Lenders a perfected security interest in all of the assets of the
Company and the property pledged or encumbered by the Guaranties or the
Mortgages, including but not limited to all UCC-1 filing receipts, the Guarantor
Shares and the Pledged Shares.
“Subscription
Amount”
means
$2,726,250.
“Subordination
Agreement”
means
that certain Subordination Agreement, dated the date hereof, between the Lender
and Xxxxx Xxxxxxxx.
“Subsidiary”
means
any subsidiary of the Company.
“Subsidiary
Guarantee(s)”
means
the Subsidiary Guarantee(s) executed by each of the Operating Subsidiaries,
in
the form of Exhibit
C
attached
hereto.
“Transaction
Documents”
means
this Agreement, the Note, the Security Documents, the Registration Rights
Agreement, the Warrant, the Subordination Agreement, the Escrow Agreement,
and
any other documents or agreements executed in connection with the transactions
contemplated hereunder or required to be executed pursuant to the terms of
any
Transaction Document.
“Warrant”
means
that certain Warrant, dated the hereof, issued by the Company to the Lender,
in
the Form of Exhibit D.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
On the
Closing Date, upon the terms and subject to the conditions set forth herein
and
in the Note, concurrent with the execution and delivery of this Agreement by
the
parties hereto, the Company agrees to borrow, and the Lender agrees to make
a
term loan to the Company (the “Loan”), in the aggregate principal amount of
THREE MILLION SIX HUNDRED AND THIRTY FIVE THOUSAND DOLLARS $3,635,000 (with
original issue discount of $908,750), secured by a lien, more fully described
in
the Security Agreement, on all assets of the Company and any and all
Subsidiaries, and secured by the pledges, mortgages and other security interests
set forth in the Security Documents.
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The
Lender shall deliver to the Company or at the Lender’s sole discretion, on
behalf of the Company, to Xxxxxx Xxxxxx Rosenman LLP, as escrow agent pursuant
to the Escrow Agreement, via wire transfer, immediately available funds equal
to
the Subscription Amount, and the Company shall deliver to the Lender its Note
and the other items set forth in Section 2.2 issuable at the Closing. Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall
occur
at the offices of the Lender, or such other location as the parties shall
mutually agree.
If
no
Escrow Notice is delivered pursuant to the Escrow Agreement within the time
period specified therein, the Lender shall cancel and return the Note to the
Company and all fees and other amounts payable under this Agreement shall
continue to constitute Obligations (as such term is defined under the Security
Agreement) secured under the Security Documents. The Subscription Amount shall
be released in whole or in part, first to pay any outstanding expenses under
Section 5.1 hereunder, and then, simultaneously with the consummation of the
acquisition of the outstanding capital stock of HOGC (as defined below) and
the
SDS Note (as defined below).
2.2 Deliveries
a) |
On
the Closing Date, the Company shall deliver to the counsel for the
Lender
with respect to the Loan the
following:
|
(i) |
this
Agreement duly executed by the
Company;
|
(ii) |
a
Note with a principal amount equal to the Lender’s Loan Amount, in the
name of such Lender;
|
(iii) |
the
Security Agreement, duly executed by the Company, along with all
of the
Security Documents;
|
(iv) |
the
Warrant, duly executed by the Company,
|
(v) |
the
Registration Rights Agreement, duly executed by the
Company;
|
(vi) |
the
Subordination Agreement, duly executed by Xxxxx Xxxxxxxx;
|
(vii) |
a
legal opinion of Company’s Counsel in form and substance satisfactory to
the Lender;
|
(viii) |
an
executed copy of IRS form W-9 certifying that the Company is not
subject
to withholding requirements; and
|
(ix) |
evidence
satisfactory to the Lender, in its discretion, as to the Company’s entry
into definitive agreements to acquire (i) a majority of the outstanding
capital stock of Heartland Oil and Gas Corporation (“HOGC”) and (ii) that
certain note in the aggregate principal amount of $5.5 million made
by
HOGC in favor of SDS Capital SPC Ltd. (the “SDS
Note”).
|
b) |
On
the Closing Date, the Lender shall deliver or cause to be delivered
to
Company Counsel the following:
|
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(i) |
this
Agreement duly executed by such
Lender;
|
(ii) |
the
Lender’s Subscription Amount in accordance with Section
2.1;
|
(iii) |
the
Security Agreement, duly executed by such Lender;
|
(iv) |
the
Registration Rights Agreement, duly executed by the Lender;
and
|
(v) |
the
Subordination Agreement, duly executed by the
Lender.
|
2.3 Closing
Conditions.
a) |
The
obligations of the Company hereunder in connection with the Closing
are
subject to the following conditions being
met:
|
(i) |
the
accuracy in all material respects when made and on the Closing Date
of the
representations and warranties of the Lender contained
herein;
|
(ii) |
all
obligations, covenants and agreements of the Lender required to be
performed at or prior to the Closing Date shall have been performed;
and
|
(iii) |
the
delivery by the Lender of the items set forth in Section 2.2(b) of
this
Agreement.
|
b) |
The
obligations of the Lender hereunder in connection with the Closing
are
subject to the following conditions being
met:
|
(i) |
the
accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained
herein;
|
(ii) |
all
obligations, covenants and agreements of the Company required to
be
performed at or prior to the Closing Date shall have been
performed;
|
(iii) |
the
Lender shall be satisfied with the results of its due diligence
investigation of the Company;
|
(iv) |
the
Lender shall be satisfied with the Company’s current and projected uses of
cash;
|
(v) |
the
delivery by the Company of the items set forth in Section 2.2(a)
of this
Agreement;
|
(vi) |
the
Company shall have no outstanding indebtedness (other than trade
payables
and liabilities incurred in the ordinary course of business) or Liens,
other than those in favor of Xxxxx Xxxxxxxx pursuant to the Subordinated
Debt;
|
(vii) |
there
shall have been no Material Adverse Effect with respect to the Company
since the date hereof; and
|
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(viii) |
No
banking moratorium have been declared either by the United States,
Nevada
or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse
change in, any financial markets which, in each case, in the reasonable
judgment of such Lender, makes it impracticable or inadvisable to
purchase
the Notes at the Closing.
|
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
Except
as set forth in the Disclosure
Schedule
which
Disclosure Schedule shall be deemed a part hereof, the Company hereby makes
the
representations and warranties set forth below to the Lender:
(a) Organization
and Qualification.
The
Company and each Subsidiary is an entity duly incorporated, validly existing
and
in good standing under the laws of the State of Nevada, with the requisite
power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company and each Subsidiary is not in
violation or default of any of the provisions of its certificate of
incorporation, bylaws or other organizational or charter documents. The Company
and each Subsidiary is duly qualified to conduct business and is in good
standing as a foreign corporation or other entity in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in
good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability
of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or financial condition of the Company
or
any Subsidiary, taken as a whole, or (iii) a material adverse effect on any
Loan
Party’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material
Adverse Effect”)
and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or
curtailing or seeking to revoke, limit or curtail such power and authority
or
qualification.
(b) Authorization;
Enforcement.
The
Company and each Subsidiary have the requisite corporate power and authority
to
enter into and to consummate the transactions contemplated by each of the
Transaction Documents to which it is a party and otherwise to carry out its
respective obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and each Subsidiary and the consummation
by
it of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company and each Subsidiary and no further
action is required by the Company or any Subsidiary in connection therewith.
Each Transaction Document has been (or upon delivery will have been) duly
executed by the Loan Parties signatory thereto, and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of each such Loan Party enforceable against such Loan Party in
accordance with its terms.
(c) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents by each Loan
Party and the consummation by such Loan Party of the other transactions
contemplated thereby do not and will not: (i) conflict with or violate any
provision of such Loan Party’s certificate of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become
a
default) under, result in the creation of any Lien upon any of the properties
or
assets of such Loan Party, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Loan Party debt or otherwise) or other understanding to which
such
Loan Party is a party or by which any property or asset of such Loan Party
is
bound or affected, or (iii) conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of
any court or governmental authority to which such Loan Party is subject
(including federal and state securities laws and regulations), or by which
any
property or asset of such Loan Party is bound or affected; except in the case
of
each of clauses (ii) and (iii), such as could not have or reasonably be expected
to result in a Material Adverse Effect.
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(d) Filings,
Consents and Approvals.
Each
Loan Party is not required to obtain any consent, waiver, authorization or
order
of, give any notice to, or make any filing or registration with, any court
or
other federal, state, local or other governmental authority or other Person
in
connection with its execution, delivery and performance of the Transaction
Documents.
(e) Capitalization.
The
capitalization of the Company and each Operating Subsidiary is as set forth
in
the Capitalization section of the Disclosure Schedule. Other than as set forth
on the Disclosure Schedule, the Company has no indebtedness. The Company has
not
issued any capital stock not reflected on the Disclosure Schedule. No Person
has
any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction
Documents. Except as set forth in the Disclosure Schedule, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights
or
obligations convertible into or exchangeable for, or giving any Person any
right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issuance and sale
of the Note will not obligate the Company to issue shares of Common Stock or
other securities to any Person and will not result in a right of any holder
of
Company securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued
in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Note. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
(f) Financial
Condition.
The
Company has heretofore furnished to the Lender the draft consolidated audited
balance sheet of the Company as at December 31, 2006 and the related draft
consolidated audited statement of income for the fiscal year ended on said
date,
the consolidated unaudited balance sheet of the Company as at September 30,
2006
and the related consolidated unaudited statement of income for the nine month
period ended on said date (the “Financial Statements”). The Financial Statements
of the Company have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited Financial Statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company as the case may be, as of and for the dates
thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
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(g) Material
Changes.
Since
the date of its latest audited financial statements, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent
with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP, (iii) the Company has not altered its
method of accounting, (iv) the Company has not declared or made any dividend
or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
(h) Litigation.
There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company or any Loan Party, threatened
against or affecting the Company or any Loan Party, or any of its properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”)
which
(i) adversely affects or challenges the legality, validity or enforceability
of
any of the Transaction Documents or the Note or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any director or officer thereof is
or
has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty.
(i) Labor
Relations.
No
material labor dispute exists or, to the knowledge of any Loan Party, is
imminent with respect to any of the employees of the Company or any Subsidiary
which could reasonably be expected to result in a Material Adverse
Effect.
(j) Compliance.
Each
Loan Party (i) is not in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by such Loan Party under), nor has such Loan Party
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement
or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is not
in
violation of any order of any court, arbitrator or governmental body, and (iii)
is not or has not been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state
and local laws applicable to its business except in each case as could not
have
a Material Adverse Effect.
(k) Regulatory
Permits.
Each
Loan Party possesses all certificates, authorizations and permits issued by
the
appropriate federal, state, local or foreign regulatory authorities necessary
to
conduct its businesses, except where the failure to possess such permits could
not have or reasonably be expected to result in a Material Adverse Effect
(“Material
Permits”),
and
the Company has not received any notice of proceedings relating to the
revocation or modification of any Material Permit.
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(l) Title
to Assets.
Each
Loan Party has good and marketable title in fee simple to all real property
it
owns that is material to its business and good and marketable title in all
personal property and other tangible or intangible assets it owns that is
material to its business, including but not limited to oil and gas exploration
and drilling rights, in each case free and clear of all Liens, except for a
Lien
on the assets of the Company, in favor of Xxxxx Xxxxxxxx that is subordinated
to
the Company’s obligation to the Lender under the Transaction Documents pursuant
to the Subordination Agreement. Any real property and facilities held under
lease by each Loan Party are held under valid, subsisting and enforceable leases
of which such Loan Party is in compliance.
(m) Patents
and Trademarks.
Each
Loan Party has, or has rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights necessary or material for use in connection
with its respective businesses and which the failure to so have could have
a
Material Adverse Effect (collectively, the “Intellectual
Property Rights”).
No
Loan Party has received a written notice that the Intellectual Property Rights
used by each Loan Party violates or infringes upon the rights of any Person.
To
the knowledge of each Loan Party, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any
of
the Intellectual Property Rights of others.
(n) Insurance.
Each
Loan Party is insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary in the
businesses in which such Loan Party is engaged, at least equal to the aggregate
Loan Amount. To the best such Loan Party’s knowledge, such insurance contracts
and policies are accurate and complete. Each Loan Party has no reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may
be necessary to continue its business without a significant increase in
cost.
(o) Transactions
With Affiliates and Employees.
None of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company or any Subsidiary is presently a party
to
any transaction with the Company or any Subsidiary (other than for services
as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in each case in excess of
$10,000.
(p) Internal
Accounting Controls.
The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and
(iv)
the recorded accountability for assets is compared with the existing assets
at
reasonable intervals and appropriate action is taken with respect to any
differences.
(q) Certain
Fees.
No
brokerage or finder’s fees or commissions are or will be payable by any Loan
Party to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Lender shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement.
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(r) Private
Placement.
Assuming the accuracy of the Lender’s representations and warranties set forth
in Section 3.2, no registration under the Securities Act is required for the
offer and sale of the Note by the Company to the Lender as contemplated
hereby.
(s) Investment
Company.
The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Note, will not be or be an Affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended. The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(t) Sophisticated
Borrower.
The
Company has assets of at least $2,000,000 in value as reflected in its financial
statements dated not more than ninety (90) days prior to the date of this
Agreement which financial statements have been prepared in accordance with
generally accepted accounting principles, and the Company and the Guarantors
by
reason of their business and financial experience, or that of their professional
advisors, have the capacity to protect their own interests and the interests
of
the Company in connection with the Loan.
(u) Rule
144.
In the
event that the Lender forecloses on the Guarantor Shares pursuant to the
Security Documents, the Guarantor Shares will be eligible for resale by the
Lender pursuant to Rule 144(k) without the need for an additional holding period
by the Lender.
(v) Application
of Takeover Protections.
The
Company and its Board of Directors have taken all necessary action, if any,
in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company's Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Lender as a result
of
the Lender and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a result
of the Company's issuance of the Note and the Lender’s ownership of the
Note.
(w) Disclosure.
All
disclosure provided to the Lender regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, furnished by or on behalf of the Company with respect to the
representations and warranties made herein are true and correct with respect
to
such representations and warranties and do not contain any untrue statement
of a
material fact or omit to state any material fact necessary in order to make
the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that the Lender does
not make and has not made any representations or warranties with respect to
the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
(x) Federal
Reserve Regulations.
No Loan
Party is engaged in the business of extending credit for the purpose of buying
or carrying Margin Stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, and no part of the proceeds of any
advance will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, for any purpose that entails a violation of, or
that
is inconsistent with, the provisions of the Regulations of the Board of
Governors of the Federal Reserve System, including, to the extent applicable,
Regulation U and Regulation X.
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(y) Solvency.
Based
on the financial condition of the Company as of the Closing Date after giving
effect to the receipt by the Company of the proceeds from the sale of the Note
hereunder and the application of the proceeds thereof, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be
paid
on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business
for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were
it to
liquidate all of its assets, after taking into account all anticipated uses
of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
The Financial Statements of the Company set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or for which
the
Company has commitments. For the purposes of this Agreement, “Indebtedness”
shall
mean (a) any liabilities for borrowed money or amounts owed other than trade
accounts payable incurred in the ordinary course of business, (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected
in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value
of
any lease payments
due under leases required to be capitalized in accordance with GAAP.
The
Company is not in default with respect to any Indebtedness.
(z) Tax
Status.
Except
for matters that would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the Company has no knowledge
of a tax deficiency which has been asserted or threatened against
it.
(aa) Patriot
Act.
The
Company certifies that, to the best of Company’s knowledge, neither the Company
nor any of its Subsidiaries has been designated, and is not owned or controlled,
by a “suspected terrorist” as defined in Executive Order 13224. The Company
hereby acknowledges that the Lender seeks to comply with all applicable
laws concerning money laundering and related activities. In furtherance of
those
efforts, the Company hereby represents, warrants and agrees that: (i) none
of
the cash or property that the Company or any of its Subsidiaries will pay or
will contribute to the Lender has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii)
no
contribution or payment by the Company or any of its Subsidiaries to
the Lender, to the extent that they are within the Company’s and/or its
Subsidiaries’ control shall cause the Lender to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Lender if any of these representations ceases to be true and
accurate regarding the Company or any of its Subsidiaries. The Company agrees
to
provide the Lender any additional information regarding the Company or any
of its Subsidiaries that the Lender deem necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, the Lender may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or acceleration of the obligations to the Lender under the
Note
and the other Transaction Documents. The Company further understands that
the Lender may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if a Lender, in its sole discretion, determines that it is in
the best interests of such Lender in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
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(bb) Foreign
Corrupt Practices.
Neither
the Company, nor to the knowledge of the Company, any agent or other person
acting on behalf of the Company, has (i) directly or indirectly, used any
corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or
to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made
by
any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of
the
Foreign Corrupt Practices Act of 1977, as amended
(cc) Seniority.
As of
the Closing Date, no indebtedness or other equity of the Company is senior
to,
or pari passu with, the Note in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is senior
only
as to underlying assets covered thereby) and capital lease obligations (which
is
senior only as to the property covered thereby).
(dd) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect to
any
fees owed to its accountants and lawyers. By making this representation, the
Company does not, in any manner, waive the attorney/client privilege or the
confidentiality of the communications between the Company and its
lawyers.
(ee) Acknowledgment
Regarding Lender’s Making the Loan.
The
Company acknowledges and agrees that the Lender is acting solely in the capacity
of an arm's length Lender with respect to the Transaction Documents and the
transactions contemplated hereby. The Company further acknowledges that the
Lender is not acting as a financial advisor or fiduciary of the Company (or
in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Lender or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Lender’s making of the Loan. The
Company further represents to the Lender that the Company’s decision to enter
into this Agreement has been based solely on the independent evaluation of
the
transactions contemplated hereby by the Company and its representatives.
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(ff) Press
Release.
The
Company will issue a press release reasonably satisfactory to the Lender and
subject to the Lender’s prior approval publicly announcing the material terms of
this deal within one Business Day of the Closing Date.
3.2 Representations
and Warranties of the Lender.
The
Lender hereby, for itself and for no other Person, represents and warrants
as of
the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization;
Authority.
The
Lender is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with full right, corporate
or
partnership power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by the Lender
of
the transactions contemplated by this Agreement have been duly authorized by
all
necessary corporate or similar action on the part of the Lender. Each
Transaction Document to which it is a party has been duly executed by the
Lender, and when delivered by the Lender in accordance with the terms hereof,
will constitute the valid and legally binding obligation of the Lender,
enforceable against it in accordance with its terms, except (i) as limited
by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be
limited by applicable law.
(b) Experience
of the Lender.
The
Lender, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Note and the Warrant, and has so evaluated the merits and risks of such
investment. The Lender is able to bear the economic risk of an investment in
the
Note and the Warrant and, at the present time, is able to afford a complete
loss
of such investment.
The
Company acknowledges and agrees that the Lenders do not make or have not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 Securities
Laws Disclosure; Publicity.
The
Company and the Lender shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither
the
Company nor the Lender shall issue any such press release or otherwise make
any
such public statement without the prior consent of the Company, with respect
to
any press release of the Lender, or without the prior consent of the Lender,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in
which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication.
4.2 Shareholder
Rights Plan.
No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that the Lender is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that the Lender could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving the Note
and
the Warrant, or the exercise thereof, under the Transaction Documents or under
any other agreement between the Company and the Lender. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
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4.3 Reserved.
4.4 Use
of
Proceeds.
The
Company’s use of the net proceeds from the Subscription Amount hereunder shall
be as follows:
i) $1,000,000
will be used to acquire 52% of HOGC’s outstanding common stock.
ii) $1,500,000
will be used to acquire the SDS Note.
and
the
remainder, first to pay at Closing (a) a $100,000 origination fee to the Lender
and (b) Lender’s closing costs in connection with the transactions contemplated
hereunder (including but not limited to Lender’s legal fees), and then any
remainder will be used as working capital for the Company.
4.5 Reimbursement.
If the
Lender becomes involved in any capacity in any Proceeding by or against any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by the Lender to or with any
current stockholder), solely as a result of the Lender’s acquiring the Note
under this Agreement, the Company will reimburse the Lender for its reasonable
legal and other expenses (including the cost of any investigation preparation
and travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of
the
Lender who are actually named in such action, proceeding or investigation,
and
partners, directors, agents, employees and controlling persons (if any), as
the
case may be, of the Lender and any such Affiliate, and shall be binding upon
and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Lender and any such Affiliate and any such
Person. The Company also agrees that neither the Lender nor any such Affiliates,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any Person asserting claims on behalf of or in
right
of the Company solely as a result of acquiring the Note under this
Agreement.
4.6 Indemnification
of Lender.
Subject
to the provisions of this Section 4.6, each Loan Party will indemnify and hold
the Lender and its directors, officers, shareholders, partners, employees and
agents (each, a “Lender
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any Lender Party may suffer or incur as a result of or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction
Documents or (b) any action instituted against the Lender, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of the Lender, with respect to any of the transactions contemplated
by
the Transaction Documents (unless such action is based upon a breach of the
Lender’s representation, warranties or covenants under the Transaction Documents
or any agreements or understandings the Lender may have with any such
stockholder or any violations by the Lender of state or federal securities
laws
or any conduct by the Lender which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought against any Lender
Party in respect of which indemnity may be sought pursuant to this Agreement,
the Lender Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Lender Party shall have the right to employ separate counsel
in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Lender Party except
to
the extent that (i) the employment thereof has been specifically authorized
by
the Company in writing, (ii) the Company has failed after a reasonable period
of
time to assume such defense and to employ counsel or (iii) in such action there
is, in the reasonable opinion of such separate counsel, a material conflict
on
any material issue between the position of the Company and the position of
the
Lender Party. The Company will not be liable to any Lender Party under this
Agreement (i) for any settlement by a Lender Party effected without the
Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Lender Party’s breach of any of the
representations, warranties, covenants or agreements made by the Lender in
this
Agreement or in the other Transaction Documents.
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4.7 Additional
Perfection Requirements.
The
Loan Parties shall execute and file any additional documents and take all
necessary action to perfect a first priority security interest in all of
the collateral described in the Security Documents, including but not
limited to oil and gas exploration and drilling rights, within 45 days of the
Closing. The Company shall deliver all shares of HOGC capital stock (“HOGC
Shares”) directly to the Lender immediately upon the acquisition of such HOGC
capital stock (the “HOGC Closing”), and shall cause HOGC to become a signatory
to the Security Agreement and the Subsidiary Guarantee. In addition, as soon
as
practicable, but not more than 30 days after the HOGC Closing, the Company
shall
take any actions necessary to cause HOGC to enter into a registration rights
agreement (the “HOGC Registration Rights Agreement”) providing for the filing of
a registration statement (the “HOGC Registration”) covering the resale by the
Lender of the HOGC Shares in the event of a foreclosure upon such HOGC Shares
pursuant to the Transaction Documents. The HOGC Registration shall be filed
by
the Company no later than 45 days after the HOGC Closing, and shall be declared
effective by the Securities and Exchange Commission no later than 150 days
after
the HOGC Closing; in the event of any failure of the HOGC Registration to be
filed or declared effective by such dates, or to cease to be effective or
available to the Lender after effectiveness, the Company shall pay to the
Lender, as liquidated damages and not as a penalty, $10,000 (representing 1%
of
the intrinsic value of the HOGC shares)(the “HOGC Late Fee”) on the last day of
each calendar month after any such deadline is not met, and the HOGC Late Fee
shall increase to $15,000 per month if any such deadline is not met for 180
days
or more.
ARTICLE
V.
MISCELLANEOUS
5.1 Fees.
At the
Closing, the Company has agreed to (i) pay the Lender a closing fee of $100,000
and (ii) reimburse the Lender’s reasonable out-of-pocket expenses, including but
not limited to due diligence and legal expenses. The Company has previously
delivered to the Lender a non-refundable deposit of $20,000 for legal fees
and
due diligence. Except as expressly set forth in the Transaction Documents to
the
contrary, the Loan Parties shall pay the fees and expenses of its advisers,
counsel, accountants and other experts for both parties, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay
Lender a $70,000.00 “break-up fee” plus or minus any due diligence expense
adjustments should Lender stand ready to close a financing substantially in
conformance with the terms provided hereunder and Company chooses not to
close
5.2 Entire
Agreement.
The
Transaction Documents, together with the exhibits and schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.
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5.3 Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a Business
Day,
(b) the next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth
on
the signature pages attached hereto on a day that is not a Business Day or
later
than 5:30 p.m. (New York City time) on any Business Day, (c) the second Business
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom
such
notice is required to be given. The address for such notices and communications
shall be as set forth in the introductory paragraph of the
Agreement.
5.4 Amendments;
Waivers.
No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of amendments, by the Company and Lender, or,
in
the case of a waiver, by the party against whom enforcement of any such waiver
is sought. No waiver of any default with respect to any provision, condition
or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either
party
to exercise any right hereunder in any manner impair the exercise of any such
right.
5.5 Construction.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party.
5.6 Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Lender. The Lender may assign any or all of its rights under
this
Agreement and the other Transaction Documents to any Person.
5.7 No
Third-Party Beneficiaries.
This
Agreement is not for the benefit of, nor may any provision hereof be enforced
by, any Person other than the parties hereto and their successors and permitted
assigns.
5.8 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced
in
accordance with the internal laws of the State of New York, without regard
to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively
in
the state and federal courts sitting in the City of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect
to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The parties hereby waive all rights to a trial by jury. If
either party shall commence an action or proceeding to enforce any provisions
of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.
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5.9 Survival.
The
representations and warranties contained herein shall survive the Closing for
the applicable statue of limitations.
5.10 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
5.11 Severability.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that is
a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.12 Rescission
and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting
any
similar provisions of) the Transaction Documents, whenever the Lender exercises
a right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then the Lender may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand
or
election in whole or in part without prejudice to its future actions and
rights.
5.13 Replacement
of Note.
If any
certificate or instrument evidencing the Note is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
customary and reasonable indemnity, if requested. The applicants for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs associated with the issuance of such replacement
Note.
5.14 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Lender and the Company will
be
entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation the defense that a remedy at law would be adequate.
5.15 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to the Lender pursuant
to
any Transaction Document or a Lender enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
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5.16 Usury.
To the
extent it may lawfully do so, the Company hereby agrees not to insist upon
or
plead or in any manner whatsoever claim, and will resist any and all efforts
to
be compelled to take the benefit or advantage of, usury laws wherever enacted,
now or at any time hereafter in force, in connection with any claim, action
or
proceeding that may be brought by the Lender in order to enforce any right
or
remedy under any Transaction Document. Notwithstanding any provision to the
contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents
for payments in the nature of interest shall not exceed the maximum lawful
rate
authorized under applicable law (the “Maximum
Rate”),
and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents
from the effective date forward, unless such application is precluded by
applicable law. If under any circumstances whatsoever, interest in excess of
the
Maximum Rate is paid by the Company to the Lender with respect to indebtedness
evidenced by the Transaction Documents, such excess shall be applied by the
Lender to the unpaid principal balance of any such indebtedness or be refunded
to the Company, the manner of handling such excess to be at the Lender’s
election.
(Signature
Pages Follow)
18
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IN
WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.
UNIVERSAL
PROPERTY DEVELOPMENT AND ACQUISITION
CORPORATION
|
Name:
Title:
|
With
a copy to (which shall not constitute notice):
|
CANYON
CREEK OIL AND GAS INC
|
Name:
Title:
|
With
a copy to (which shall not constitute notice):
|
XXXXXX
OIL AND GAS, INC.
|
Name:
Title:
|
With
a copy to (which shall not constitute notice):
|
XXXXX
XXXXXXXX
|
Xxxxx
Xxxxxxxx
|
With
a copy to (which shall not constitute notice):
|
19
of 26
XXXXXXXXXXX
X. XXXXXXXX
|
Xxxxxxxxxxx
X. XxXxxxxx
|
With
a copy to (which shall not constitute notice):
|
SHERIDAN
ASSET MANAGEMENT LLC
|
Name:
Title:
|
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
20
of 26
Schedule
A
Personal
Assets of Xxxxx
Xxxxxxxx
|
Acquired
On
|
Cost
|
Market
|
Mortgage
|
|||||
Investment
RE Property
|
0
Xxxxxx Xx., Xxxx Xxxxx, XX 00000
|
2004
|
300,000
|
400,000
|
225,000
|
|||
Investment
RE Property
|
000
Xxxxxxxxx Xxxx, Xxxxxx, XX 00000
|
2004
|
200,000
|
275,000
|
160,000
|
|||
Investment
RE Property
|
0000
Xxxxxxxx Xxxxxx, Xxxxxxx, XX 00000
|
2004
|
180,000
|
225,000
|
150,000
|
|||
Total
|
Disclosure
Schedule -- Capitalization
Exhibit
A
Note
Exhibit
B
Security
Agreement
Schedule
C
Subsidiary
Guaranty
Exhibit
D
Warrant