|
NOTE PURCHASE AGREEMENT
This
Note Purchase Agreement (the “Agreement”) is made
and entered into on July 3, 2008, by and between Knight Energy
Corp., a Maryland corporation, with its principal place of
business located at 909 Lake Carolyn Parkway, Suite 850,
Irving, Texas 75039 (the “Company”), and the party
listed on the attached “Schedule of Lenders” (the
“Lender”).
Recitals
A.
The Company and the Lender are executing and delivering this
Agreement in reliance upon the exemptions from securities
registration afforded by (i) the provisions of Regulation D
(“Regulation D”) as promulgated by the United
States Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as
amended (the “1933 Act”), and (ii) Section 4(2)
under the 1933 Act.
B.
The Lender desires to purchase from the Company, and the
Company desires to sell to the Lender, upon the terms and
conditions stated in this Agreement, the Company’s
$2,500,000 15% Senior Secured Promissory Note in the form
attached as
Exhibit A (the
“Note”). The Note shall be sold in a closing (the
“Closing”) as specified herein.
C.
Contemporaneously with the execution and delivery of this
Agreement, the Company is executing and delivering to the
Lender an Amendment to Security Agreement in the form attached
as
Exhibit B (the
“Amendment”), pursuant to which the Company has agreed
to secure its obligations under the Note with a first-priority
security interest in all existing and hereafter acquired assets
owned by the Company.
D.
As additional security for the Company’s obligations
under the Note, contemporaneously with the execution and
delivery of this Agreement, Charles Hill Drilling, Inc.
(“CHD”), which is a wholly-owned subsidiary of the
Company, is executing and delivering an Amendment to Corporate
Guaranty in the form attached as
Exhibit C (the
“Subsidiary Amendment”) pursuant to which CHD is
guarantying payment of the Note and securing its obligations under
that guaranty with a first-priority security interest in all of its
existing and hereafter acquired assets. Contemporaneously with the
execution and delivery of the Subsidiary Amendment, CHD is also
executing and delivering to the Lender an amendment to the Deed of
Trust, Security Agreement, Assignment of Production and Financing
Statement from CHD to J. Patrick Murphy, Trustee, for the benefit
of the Lender, dated May 20, 2008 (the “Deed of
Trust”), such amendment to be in the form attached as
Exhibit D (the
“Amendment to Deed of Trust”).
Agreements
NOW,
THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
the Company and the Lender hereby agree as
follows:
1.
Purchase and Sale of the Note
.
(a)
Purchase .
At the Closing, the Lender agrees to purchase the Note from the
Company, and the Company agrees to sell the Note to the Lender. The
purchase price for the Note (the “Purchase Price”)
shall be as set forth on the Schedule of Lenders. For the Closing,
out of the Purchase Price there shall be paid (i) to the Lender a
non-refundable origination fee in an amount equal to five percent
(5%) of the Purchase Price and (ii) such other amounts as may be
included in the Disbursement Instructions attached as
Exhibit E (the
“Disbursement Instructions”). The disbursements
specified in the Disbursement Instructions shall be made on the
Closing Date (as defined below).
(b)
The Closing .
The date of the Closing (the “Closing Date”) shall be
July 3, 2008, or such other date as the parties may mutually agree
in writing. On or before the Closing Date,
(i) the Lender shall have delivered the Purchase Price to the
Escrow Agent (as defined in the Escrow Agreement in the form
attached as
Exhibit F (the
“Escrow Agreement”)) in the manner set forth in
paragraph (c) below, (ii) the Company shall have delivered to the
Escrow Agent originals of (A) this Agreement, (B) the Note, (C) the
Amendment, (D) the Subsidiary Amendment, (E) the Amendment to Deed
of Trust, (F) the Disbursement Instructions, (G) the Escrow
Agreement and (H) such other items as may be required by this
Agreement or any of the other documents (collectively, the
“Closing Documents”), each duly authorized and executed
by the Company and/or any other parties thereto (other than the
Lender) and (iii) the Lender shall have delivered to the Escrow
Agent executed originals of those Closing Documents which are to be
signed by the Lender.
(c)
Payment .
The Lender shall pay the Purchase Price by wire transfer of
immediately available funds in United States Dollars, to be
deposited into the Escrow Account (as defined in the Escrow
Agreement), against delivery to the Escrow Agent of the Closing
Documents by the Company. At the Closing, the Escrow Agent shall be
responsible for disbursement of the Purchase Price according to the
Disbursement Instructions and delivery of the Closing Documents to
the Lender (with copies of the Closing Documents to the Company
duly executed by the Lender, where required), in each case in
accordance with the terms of the Escrow Agreement.
2.
The Lender’s Representations and
Warranties
. As
of the Closing, the Lender represents and warrants to the Company,
and agrees, as follows:
(a)
Investment Purposes; Compliance With 1933 Act
.
The Lender is purchasing the Note for its own account for
investment only and not with a view towards, or in connection with,
the public sale or distribution thereof, except pursuant to sales
registered, or exempt from registration, under the 1933 Act and
applicable state securities laws. The Lender does not by its
representations in this Section 2(a) agree to hold the Note for any
minimum or other specific term, and reserves the right to dispose
of the Note at any time in compliance with Section 5(a)
below.
(b)
Accredited Investor Status .
The Lender is an “accredited investor,” as that term is
defined in Rule 501(a) of Regulation D. The Lender has such
knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the investment
made pursuant to this Agreement. The Lender is aware that it may be
required to bear the economic risk of the investment made pursuant
to this Agreement for an indefinite period of time, and is able to
bear such risk.
(c)
Reliance on Exemptions .
The Lender understands that the Note is being offered and sold to
it in reliance on specific exemptions from the registration
requirements of applicable federal and state securities laws, and
that the Company is relying upon the truth and accuracy of, and the
Lender’s compliance with, the representations, warranties,
agreements and covenants of the Lender set forth herein in order to
determine the availability of such exemptions and the eligibility
of the Lender to acquire the Note.
(d)
Information .
The Lender and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Note
that have been requested by the Lender. The Lender and its
advisors, if any, have been afforded the opportunity to ask all
questions of the Company as they have in their discretion deemed
advisable. The Lender understands that its investment in the Note
involves a high degree of risk. The Lender has sought such
accounting, legal and tax advice as it has considered necessary to
an informed investment decision with respect to the investment made
pursuant to this Agreement.
(e)
No Government Review .
The Lender understands that no United States federal or state
agency or any other government or governmental agency has approved
or made any recommendation or endorsement of the Note or the
fairness or suitability of the investment in the Note, nor have
such authorities passed upon or endorsed the merits of the offering
of the Note.
(f)
Restrictions on Transfer or Resale .
The Lender understands that: (i) the Note has not been and is not
being registered under the 1933 Act or any state securities laws
and may not be offered for sale, sold or otherwise transferred
except as provided in Section 5(a) below and (ii) neither the
Company nor any other person is under any obligation to register
the Note under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption
thereunder.
(g)
Legend .
Subject to Section 5(b) below, the Lender understands that the Note
will bear a restrictive legend (the “Legend”) in
substantially the following form:
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES LAWS OF ANY STATE (COLLECTIVELY, THE
“LAWS”). THIS NOTE MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF EITHER (I) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE NOTE UNDER THE
APPLICABLE LAWS OR (II) AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER, TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED DUE TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
APPLICABLE LAWS.
(h)
Authorization; Enforcement .
The Closing Documents to be signed by the Lender have been duly and
validly authorized, executed and delivered by the Lender and are
each valid and binding agreements of the Lender enforceable in
accordance with their respective terms, subject as to
enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the
enforcement of creditors’ rights generally.
3.
The Company’s Representations and
Warranties
.
As
of the Closing, the Company represents and warrants to the Lender,
and agrees, as follows:
(a)
Organization and Qualification .
The Company is a corporation duly organized and existing in good
standing under the laws of the State of Maryland, and has the
requisite power to own its properties and to carry on its business
as now being conducted. CHD is a corporation duly organized and
existing in good standing under the laws of the State of Nevada,
and has the requisite power to own its properties and to carry on
its business as now being conducted. Both the Company and CHD are
duly qualified as foreign entities to do business and are in good
standing in every other jurisdiction in which the nature of the
business conducted by them makes such qualification necessary and
where the failure so to qualify would have a Material Adverse
Effect. As used herein, “Material Adverse Effect” means
any material and adverse effect on (i) the assets, liabilities,
sales, financial condition, business, operations, affairs,
circumstances or prospects of the Company and its subsidiaries
(taken as a whole) from those reflected in the SEC Documents (as
defined below) or from the facts represented or warranted in the
Closing Documents, (ii) the ability of the Company and its
subsidiaries to carry out their businesses as the same are being
conducted or are proposed to be conducted at the date of this
Agreement or to meet their obligations under the Closing Documents
on a timely basis or (iii) the rights and remedies of the Lender
under the Closing Documents.
(b)
Authorization; Enforcement .
The Company and CHD each have the requisite power and authority to
enter into and perform the Closing Documents to which each is a
party. The Company has the requisite power and authority to issue
and sell the Note in accordance with the terms thereof, and to
perform its obligations under the Note in accordance with their
terms. The Company’s and CHD’s execution, delivery and
performance of the Closing Documents to which each is a party, and
their consummation of the transactions contemplated thereby, have
been duly authorized by the Company’s and CHD’s Board
of Directors, and no further consent or authorization of the
Company or CHD, their shareholders, or any other person or entity,
is required. The Closing Documents to which the Company and CHD are
parties (i) have been duly and validly authorized, executed and
(when issued) delivered by the Company and/or CHD (as the case may
be) and (ii) constitute valid and binding obligations of the
Company and/or CHD (as the case may be), enforceable against the
Company and/or CHD (as the case may be) in accordance with their
respective terms, subject as to enforceability to general
principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors’
rights generally.
(c)
Capitalization .
As of the Closing Date, the authorized capital stock of the Company
consisted of (i) 500,000,000 shares of $.0001 par value common
stock, of which 31,145,785 shares were issued and outstanding or
issuable, and (ii) 50,000,000 shares of preferred stock, of which
-0-shares were issued and outstanding. All of such outstanding
shares have been validly issued and are fully paid and
non-assessable. As of the Closing Date, except as disclosed in the
attached
Schedule 3(c) ,
(i) there were no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever
issued or agreed to by the Company or CHD relating to, or
securities or rights convertible into, any equity interests of the
Company or CHD, or arrangements by which the Company or CHD is or
may become bound to issue additional equity interests and
(ii) there
are no outstanding debt securities of the Company or CHD. If
requested by the Lender, the Company has furnished to the Lender
true and correct copies of the Company’s and CHD’s
Articles of Incorporation, as in effect on the date hereof (the
“Articles of Incorporation”), and the Company’s
and CHD’s Bylaws, as in effect on the date
hereof.
(d)
Acknowledgment Regarding Lender’s Purchase of the
Note .
Except as disclosed on
Schedule 3(d) ,
(i) the Lender is not acting as a financial advisor to, or
fiduciary of, the Company or CHD (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby,
(ii) this Agreement and the transactions contemplated hereby, and
the relationship between the Lender and the Company and CHD, are
and will be considered “arms-length” notwithstanding
any other or prior agreements or nexus between the Lender and the
Company and/or CHD, whether or not disclosed, and (iii) any
statements made by the Lender, or any of its representatives or
agents, in connection with this Agreement and the transactions
contemplated hereby are not to be construed as advice or a
recommendation, are merely incidental to the Lender’s
purchase of the Note and have not been relied upon in any way by
the Company or CHD or their respective management. The
Company’s decision to enter into this Agreement and the
transactions contemplated hereby have been based solely upon an
independent evaluation by the Company and its
management.
(e)
No Integrated Offering .
Neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any
security under circumstances which would prevent the parties hereto
from consummating the transactions contemplated hereby pursuant to
an exemption from registration under the 1933 Act and,
specifically, in accordance with the provisions of
Regulation D.
The transactions contemplated hereby are exempt from the
registration requirements of the 1933 Act, assuming the accuracy of
the representations and warranties of the Lender contained
herein.
(f)
No Conflicts .
Except as set forth in the attached
Schedule 3(f) ,
neither the Company nor CHD (i) is in violation of its Articles of
Incorporation and (ii) is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company
or CHD in default) under, nor has there occurred any event giving
others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any
material agreement, indenture or other instrument to which the
Company or CHD is a party, except for defaults or rights as would
not, in the aggregate or individually, have a Material Adverse
Effect. The business of the Company and CHD is not being conducted
and, so long as the Lender owns the Note, shall not be conducted,
in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which neither
singly nor in the aggregate would have a Material Adverse Effect.
Except as specifically contemplated by this Agreement or as
required under the 1933 Act and any applicable state securities
laws, neither the Company nor CHD is required to obtain any
consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it
to execute, deliver and perform any of its obligations under the
Closing Documents in accordance with the terms
thereof.
(g)
SEC Documents; Financial Statements .
Except as disclosed on
Schedule 3(g) hereof,
the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “1934 Act”), with
all of the foregoing that were filed prior to the date hereof and
all exhibits included therein and all financial statements and
schedules thereto and all documents (other than exhibits)
incorporated by reference therein being hereinafter referred to as
the “SEC Documents.” The Company has delivered to the
Lender (to the extent requested by the Lender) true and complete
copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the 1934 Act and the applicable rules and regulations of the SEC
promulgated thereunder, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such
financial statements (i) have been prepared in accordance with
generally accepted accounting principles, consistently applied,
during the periods involved except (A) as may be otherwise
indicated in such financial statements or the notes thereto or (B)
in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements and
(ii) fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit
adjustments). No information provided by or on behalf of the
Company to any Lender contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein in order to make the statements therein, in the light of
the circumstances under which they are or were made, not
misleading. Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, in each case of clauses (i)
and (ii) above, which, individually or in the aggregate, are not
material to the financial condition, business, operations,
properties, operating results or prospects of the Company. The SEC
Documents contain a complete and accurate description of all
written and oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the
Company or any subsidiary is bound which are required by the rules
and regulations promulgated by the SEC to be disclosed (each a
“Contract”). None of the Company, its subsidiaries or,
to the best of the Company’s knowledge, any of the other
parties thereto, is in breach or violation of any Contract, which
breach or violation would, or with the lapse of time, the giving of
notice, or both, have a Material Adverse Effect.
(h)
Absence of Certain Changes; Bankruptcy .
Since December 31, 2007, there has been no Material Adverse Effect.
Neither the Company nor CHD has taken any steps, and neither
currently has any reasonable expectation of taking any steps, to
seek protection pursuant to any bankruptcy law, nor does the
Company or CHD have any knowledge that its creditors intend to
initiate involuntary bankruptcy proceedings.
(i)
Absence of Litigation .
Except as set forth in the attached
Schedule 3(i) ,
there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or governmental body pending
or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries, wherein an
unfavorable decision, ruling or finding would have a Material
Adverse Effect or which would materially and adversely affect the
validity or enforceability of, or the authority or ability of (i)
the Company to perform its obligations under this Agreement or any
of the documents contemplated herein or (ii) CHD to perform its
obligations under the Subsidiary Amendment.
(j)
Foreign Corrupt Practices .
Neither the Company nor any of its subsidiaries, nor any person
acting on behalf of the Company or any subsidiary has, in the
course of his, her or its actions for or on behalf of the Company,
(i) used any of the Company’s funds for any unlawful
contribution, gift, entertainment or other unlawful expense
relating to political activity, (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or
employee from the Company’s funds, (iii) violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
(k)
Brokers; No General Solicitation .
Except as set forth in
Schedule 3(k) ,
neither the Company nor any subsidiary has taken any action that
would give rise to any claim by any person for brokerage
commissions, finder’s fees or similar payments relating to
this Agreement and the transactions contemplated hereby other than
as set forth in the Disbursement Instructions. The Company
acknowledges that, except as set forth in
Schedule 3(k) ,
no broker or finder was involved with respect to the transactions
contemplated hereby other than as set forth in the Disbursement
Instructions. Neither the Company nor any other person or entity
participating on the Company’s behalf in the transactions
contemplated hereby, nor any person or entity acting for the
Company or any such other person or entity, has conducted any
“general solicitation,” as described in Rule 502(c)
under Regulation D, with respect to the Note.
(l)
Status of Assets .
Except as described on
Schedule 3(l) and
except as arise by operation of law, the Company and its
subsidiaries have good and marketable title to each of the assets
that is material to its business, free and clear of all liens,
claims, restrictions and other encumbrances. All of the outstanding
shares of CHD are owned by the Company.
4.
Covenants of the Parties
.
(a)
Best Efforts .
Each party shall use its best efforts to timely satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of
this Agreement.
(b)
Securities Laws .
The Company shall timely file a Form D (and any other equivalent
form or notice required by applicable state law) with respect to
the issuance of the Note if and as required under Regulation D and
applicable state securities laws, and shall, upon written request
of the Lender, provide a copy thereof to the Lender within five (5)
days of such request. The Company shall, on or before the Closing
Date, take all action necessary in order to sell the Note to the
Lender in compliance with federal and applicable state securities
laws, and shall provide written evidence of such action to the
Lender upon written request.
(c)
Intentional Acts or Omissions .
No party shall intentionally perform or fail to
|
