Exhibit 10.3

 

THIS INSTRUMENT RELATES TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION
TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE 1933
ACT) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”). NONE OF THE SECURITIES TO WHICH THIS INSTRUMENT
RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES
LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED HEREIN EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT.

 

USD $7,000,000.00

October 1, 2011

 

ARKANOVA ACQUISITION CORPORATION

 

SECURED PROMISSORY NOTE

 

FOR VALUE RECEIVED, Arkanova Acquisition Corporation, a corporation organized
and existing under the laws of the State of Nevada (the “Company”), promises to
pay to Aton Select Funds Limited, the registered holder hereof (the “Holder”),
the principal sum of Seven Million and No/100 United States Dollars (US
$7,000,000.00) on the Maturity Date (as defined below) and to pay interest on
the principal sum outstanding from time to time in arrears at the rate of six
percent (6.0 %) per annum (computed on the basis of the actual number of days
elapsed and a year of 365 days), accruing from the date of initial issuance of
this Note, until payment in full of the principal sum has been made or duly
provided for (whether before or after the Maturity Date).  This Note is being
issued by the Company in exchange for the loan by the Holder to the Company of
an additional One Million and No/100 United States Dollars (US $1,000,000.00)
plus the cancellation of that certain Secured Promissory Note from the Company
to Investor dated October 1, 2009, with a currently outstanding principal amount
of Six Million and No/100 United States Dollars (US $6,000,000.00).

 

This Note is also being issued pursuant to the terms of a Note Purchase
Agreement of even date herewith (the “NPA”), to which the Company and the Holder
(or the Holder’s predecessor in interest) are parties.  Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the NPA.

 

This Note is subject to the following additional provisions:

 

1.                                       Maturity Date.  The term “Maturity
Date” means September 30, 2012.

 

2.                                       Security.  The payment when due of this
Note is secured by a pledge of all of the membership interests in the Company’s
wholly owned subsidiary, Provident Energy of Montana, LLC, a Montana limited
liability company, in accordance with the terms and conditions of a Pledge
Agreement of even date herewith.

 

--------------------------------------------------------------------------------

 

3.                                       Manner of Payments of Principal.  All
payments of principal on this Note shall be made “in cash” in immediately
available good funds of United States of America currency by wire transfer to an
account designated in writing by the Holder to the Company (which account may be
changed by notice similarly given).  For purposes of this Note, the phrase “date
of payment” means the date good funds are received in the account designated by
the notice which is then currently effective.

 

4.                                       Payment of Interest.  Interest on this
Note shall be paid within ten (10) Business Days following the Maturity Date in
shares of common stock of Arkanova Energy Corporation, the publicly traded
parent corporation of the Company (“AEC”).  The number of shares of common stock
of AEC payable as interest on the Note shall be determined by dividing Four
Hundred Twenty Thousand and No/100 United States Dollars (US $420,000.00) by the
average stock price for AEC’s common stock over the fifteen (15) Business Day
period immediately preceding the Maturity Date.

 

5.                                       Prepayment Provisions.  This Note may
be prepaid in whole or in part at any time prior to the Maturity Date, without
penalty, so long as all accrued interest is paid in shares of common stock AEC
as determined in Section 3 above with the date of payment (as such term is
defined in Section 7 hereof) being substituted for the Maturity Date in making
the calculation of the number of shares to be delivered to the Holder by the
Company.

 

6.                                       Default.  The Company shall be in
default hereunder if payment is not made by the end of the Holder’s close of
business on the tenth (10th) Business Day following the Maturity Date.

 

7.                                       No Impairment; Direct Obligation. 
Subject to the terms of the NPA, no provision of this Note shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place, and rate, and in
the coin or currency, as herein prescribed. This Note is a direct obligation of
the Company.

 

8.                                       Limited Recourse.  No recourse shall be
had for the payment of the principal of, or the interest on, this Note, or for
any claim based hereon, or otherwise in respect hereof, against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.

 

9.                                       Restrictions on Resale.  The Holder of
the Note, by acceptance hereof, agrees that this Note is being acquired for
investment and that such Holder will not offer, sell or otherwise dispose of
this Note except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state blue sky or foreign
laws or similar laws relating to the sale of securities.

 

10.                                 Notices.  Any notice given by any party to
the other with respect to this Note shall be given in the manner contemplated by
the NPA in the Section entitled “Notices.”

 

11.                                 Applicable Laws.  This Note shall be
governed by and construed in accordance with the laws of the State of Texas. 
Each of the parties consents to the exclusive jurisdiction of the Courts of the
State of Texas in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions.  To the extent determined by such court, the
Company shall reimburse the Holder for any reasonable legal fees and
disbursements incurred by the Holder in enforcement of or protection of any of
its rights under any of this Note.

 

2

--------------------------------------------------------------------------------

 

12.                                 Jury Trial Waiver. The Company and the
Holder hereby waive a trial by jury in any action, proceeding or counterclaim
brought by either of the Parties hereto against the other in respect of any
matter arising out of or in connection with this Note.

 

13.                                 Events of Default.  Each of he following
shall constitute an “Event of Default”:

 

(a)                                  Default in Payment.  The Company shall
default in the payment of principal or interest on this Note or any other amount
due; or

 

(b)                                 Breach of Representation or Warranty.  Any
of the representations or warranties made by the Company herein, in the NPA or
any of the other Transaction Agreements shall be false or misleading in any
material respect at the time made; or

 

(c)                                  Change of Management.  The occurrence of
any event which results in the current executive officers of the Company no
longer serving in their respective current capacities with the Company; or

 

(d)                                 Assignment for Creditors.  The Company shall
(i) make an assignment for the benefit of creditors or commence proceedings for
its dissolution; or (ii) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its property or
business; or

 

(e)                                  Appointment of Trustee.  A trustee,
liquidator or receiver shall be appointed for the Company or for a substantial
part of its property or business without its consent; or

 

(f)                                    Court Control.  Any governmental agency
or any court of competent jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole or any substantial portion
of the properties or assets of the Company; or

 

(g)                                 Bankruptcy Proceedings. Bankruptcy,
reorganization, insolvency or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company.

 

If an Event of Default shall have occurred, then, or at any time thereafter, and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder’s sole
discretion, the Holder may consider this Note immediately due and payable (and
the Maturity Date shall be accelerated accordingly), without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and interest shall accrue on the total amount due (the
“Default Amount”) on the date of the Event of Default (the “Default Date”) at
the rate of 12% per annum or the maximum rate allowed by law, whichever is
lower, from the Default Date until the date payment is made, and the Holder may
immediately enforce any and all of the Holder’s rights and remedies provided
herein or any other rights or remedies afforded by law.

 

3

--------------------------------------------------------------------------------

 

14.                                 Covenants of the Company.  The Company
covenants and agrees that, so long as any principal of, or interest on, this
Note shall remain unpaid, unless the Holder shall otherwise consent in writing,
it will comply with the following terms:

 

(a)                                  Reporting Requirements. The Company will
furnish to the Holder or make publicly available:

 

(i)                                     as soon as possible, and in any event
within ten (10) days after obtaining knowledge of the occurrence of (A) an Event
of Default, (B) an event which, with the giving of notice or the lapse of time
or both, would constitute an Event of Default, or (C) a material adverse change
in the condition or operations, financial or otherwise, of the Company, taken as
whole, the written statement of the Chief Executive Officer or the Chief
Financial Officer of the Company, setting forth the details of such Event of
Default, event or material adverse change; and

 

(ii)                                  promptly after the commencement thereof,
notice of each action, suit or proceeding before any court or other governmental
authority or other regulatory body or any arbitrator as to which there is a
reasonable possibility of a determination that would (A) materially impact the
ability of the Company to conduct its business, (B) materially and adversely
affect the business, operations or financial condition of the Company, or
(C) impair the validity or enforceability of the Note or the ability of the
Company to perform their obligations under the Note.

 

(b)                                 Compliance with Laws. The Company will
comply, in all material respects with all applicable laws, rules, regulations
and orders, except to the extent that noncompliance would not have a Material
Adverse Effect upon the business, operations or financial condition of the
Company taken as a whole.

 

(c)                                  Preservation of Existence. The Company will
maintain and preserve its existence.

 

(d)                                 Maintenance of Properties. The Company will
maintain and preserve all of its material properties which are necessary in the
proper conduct of its business in good working order and condition, ordinary
wear and tear excepted, and comply, at all times with the provisions of all
material leases (including oil and gas leases) to which it is a party as lessee
or under which it occupies property, so as to prevent any material forfeiture or
material loss thereof thereunder.

 

(e)                                  Maintenance of Insurance. The Company will
maintain, with responsible and reputable insurers, insurance with respect to its
properties and business, in such amounts and covering such risks, as is carried
generally in accordance with sound business practice by companies in similar
businesses in the same localities in which the Company is situated.

 

(f)                                    Keeping of Records and Books of Account.
The Company will keep adequate records and books of account, with complete
entries made in accordance with generally accepted accounting principles,
reflecting all of its financial and other business transactions.

 

15.                                 Qualification.  In the event for any reason,
any payment by or act of the Company or the Holder shall result in payment of
interest which would exceed the limit authorized by or be in violation of the
law of the jurisdiction applicable to this Note, then ipso facto the obligation
of the Company to pay interest or perform such act or requirement shall be
reduced to the limit authorized under such law, so that in no event shall the
Company be obligated to pay any such interest, perform any such act or be bound
by any requirement which would result in the payment of interest in excess of
the limit so authorized. In the

 

4

--------------------------------------------------------------------------------

 

event any payment by or act of the Company shall result in the extraction of a
rate of interest in excess of a sum which is lawfully collectible as interest,
then such amount (to the extent of such excess not returned to the Company)
shall, without further agreement or notice between or by the Company or the
Holder, be deemed applied to the payment of principal, if any, hereunder
immediately upon receipt of such excess funds by the Holder, with the same force
and effect as though the Company had specifically designated such sums to be so
applied to principal and the Holder had agreed to accept such sums as an
interest-free prepayment of this Note. If any part of such excess remains after
the principal has been paid in full, whether by the provisions of the preceding
sentences of this Section or otherwise, such excess shall be deemed to be an
interest-free loan from the Company to the Holder, which loan shall be payable
immediately upon demand by the Company. The provisions of this Section shall
control every other provision of this Note.

 

Signature

 

To evidence the binding effect of the foregoing provisions, the Company has
caused this instrument to be duly executed by an officer thereunto duly
authorized as of, but not necessarily on, the date first above written.

 

 

 

ARKANOVA ACQUISITION CORPORATION

 

 

 

 

 

 

By:

/s/Pierre Mulacek

 

 

Pierre Mulacek, President

 

5

--------------------------------------------------------------------------------