Camber Energy, Inc. 8-K [cei-8k_123119.htm]

 

 

Exhibit 10.2

 

PROMISSORY NOTE NO. 2

 

US $800,000

Effective December 31, 2019

 

NOW THEREFORE FOR VALUE RECEIVED, the undersigned, Lineal Star Holdings, LLC, a
Delaware limited liability company (the “Company”), hereby promises to pay to
the order of Camber Energy, Inc., a Nevada corporation and its assigns
(“Holder”), the principal sum of Eight Hundred Thousand Dollars and No Cents (US
$800,000) (the “Principal”), in lawful money of the United States of America,
which shall be legal tender, bearing interest and payable as provided herein.
This Promissory Note No. 2 (this “Note” or “Promissory Note No. 2”) has an
effective date of December 31, 2019 (the “Effective Date”). This Note is entered
into to evidence amounts loaned from the Holder to the Company pursuant to the
terms of that certain Preferred Stock Redemption Agreement by and between the
Company, the Holder, Lineal Industries Inc., Lineal Star Incorporated, and the
holders of the Series E Redeemable Convertible Preferred Stock and Series F
Redeemable Preferred Stock of the Holder, dated on or around December 31, 2019
(the “Redemption Agreement”). Concurrently with its entry into this Note, the
Company and Holder have entered into a Promissory Note in the principal amount
of $1,539,719, to evidence further amounts owed by the Company to the Holder
(the “Other Note”). Certain capitalized terms used below, but not otherwise
defined, have the meanings given to such terms in the Redemption Agreement.

 

1.         Interest (“Interest”) shall accrue on the principal amount of this
Note outstanding from time to time at the rate of eight percent (8%) per annum
(the “Interest Rate”), accruing from the Effective Date until the Maturity Date.
All Interest payable hereunder shall be calculated by multiplying the actual
days elapsed in the period for which Interest is being calculated by a daily
rate based on the Interest Rate (or Default Rate, as applicable) and a 365 day
year. Interest shall be due and payable quarterly, in arrears, within five (5)
Business Days of the end of each calendar quarter that this Note is outstanding,
beginning on March 31, 2020 and continuing through the Maturity Date. All
past-due Principal and Interest shall bear interest at the lesser of (a) the
rate of eighteen percent (18%) per annum; and (b) the Maximum Rate, until paid
in full (the “Default Rate”).

 

2.         The “Maturity Date”, when the entire amount of this Note (Principal
and accrued but unpaid Interest) is required to be paid in full, shall be the
earlier of (a) December 31, 2021; and (b) the date that Holder has effected an
Acceleration (as defined below).

 

3.         Notwithstanding any of the forgoing, all payments of interest and
principal under this Note shall be suspended, and during such time additional
interest shall not accrue, upon the Holder’s failure to pay any of its
Indemnification Obligations provided for in the Redemption Agreement when due. 
Payments will commence upon the payment in full of the Holder’s Indemnification
Obligations then due; provided, however, if the Indemnification Obligations are
not paid within thirty (30) days of the date due, then the amount of principal
and interest outstanding under this note shall be offset by the amount of unpaid
Indemnification Obligations to the extent of actual reasonable costs incurred or
paid that it was agreed to by the parties or judicially determined to be
required.  If judicially determined that amounts were provided for
indemnification to Company and Company affiliated parties that was not required
to be paid, such amounts shall be reimbursed to Holder with interest.  Amounts
to be indemnified shall first be covered under promissory note being executed on
or around the same time as this Promissory Note No. 2 in an approximate amount
of $1,539,719.

 

Page 1 of 8

Promissory Note No. 2

 

4.         Upon payment in full of this Note, the original Note provided by the
Company to the Holder shall be returned to the Company by the Holder for
cancellation.

 

5.         Upon the occurrence of an Event of Default hereunder the Principal
amount of this Note and any accrued Interest thereon shall bear interest at the
Default Rate.

 

6.         This Note may be prepaid in whole or in part, at any time and from
time to time, without premium or penalty.

 

7.         All payments made by Company under this Note will be applied: (i)
first, to late charges, costs of collection or enforcement, and similar amounts
due, if any, under the Note; (ii) second, to Interest that is due and payable
under this Note, if any; and (iii) third, the remainder to Principal due and
payable under this Note.

 

8.         If any payment of Principal or Interest on this Note shall become due
on a Saturday, Sunday or any other day on which national banks are not open for
business, such payment shall be made on the next succeeding business day
(“Business Day”).

 

9.         This Note shall be binding upon Company and inure to the benefit of
Holder and Holder’s respective successors and assigns. Each holder of this Note,
by accepting the same, agrees to and shall be bound by all of the provisions of
this Note. Holder may assign this Note or any of its rights, interests or
obligations to this Note without the prior written approval of Company.

 

10.       No provision of this Note shall alter or impair the obligation of
Company to pay the Principal of and Interest on this Note at the times, places
and rates, and in the coin or currency, herein prescribed.

 

11.       Company will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all laws applicable to Company, except where the
failure to comply could not reasonably be expected to have a material adverse
effect on Company.

 

12.       Notwithstanding anything to the contrary in this Note or any other
agreement entered into in connection herewith, whether now existing or hereafter
arising and whether written or oral, it is agreed that the aggregate of all
Interest and any other charges constituting interest, or adjudicated as
constituting interest, and contracted for, chargeable or receivable under this
Note or otherwise in connection with this loan transaction, shall under no
circumstances exceed the Maximum Rate.

 

Page 2 of 8

Promissory Note No. 2

 

13.       The Company represents and warrants to Holder as follows:

 

(a)        The execution and delivery by Company of this Note (i) are within
Company’s power and authority, and (ii) have been duly authorized by all
necessary action.

 

(b)        This Note is a legally binding obligation of Company, enforceable
against Company in accordance with the terms hereof, except to the extent that
(i) such enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of
creditors’ rights, and (ii) the availability of the remedy of specific
performance or injunctive or other equitable relief is subject to the discretion
of the court before which any proceeding therefore may be brought.

 

14.       If an Event of Default (as defined herein) occurs (unless all Events
of Default have been cured or waived by Holder), Holder may, by written notice
to Company, declare the Principal amount then outstanding of, and the accrued
Interest and all other amounts payable on, this Note to be immediately due and
payable (an “Acceleration”) (provided that upon the occurrence of an Event of
Default described in Section 14(h) below, the Principal amount then outstanding
of, and the accrued Interest and all other amounts payable on, this Note shall
immediately be due and payable) and can take any and all other actions provided
for under applicable law. The following events and/or any other Events of
Default defined elsewhere in this Note are “Events of Default” under this Note:

 

(a)        Company shall fail to pay, when and as due, the Principal, Interest
or any other amount payable hereunder, within five (5) days from the due date of
such payment, and, in the case of up to two Interest payments, such payment
shall not have been made within five (5) additional days following the five days
from the due date of such payment (ten days in total); or

 

(b)        Company (or any of its subsidiaries) shall have breached in any
material respect any covenant, term or condition in this Note or the Other Note,
and, with respect to breaches capable of being cured, such breach shall not have
been cured within ten (10) days after written notice thereof has been provided
by Holder to Company; or

 

(c)        any material representation or warranty of the Company (or any of its
subsidiaries) made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith or therewith shall be false or
misleading in any material respect as of the date made; or

 

(d)       the occurrence of an Event of Default (as defined in the Other Note)
under the Other Note shall occur; or

 

Page 3 of 8

Promissory Note No. 2

 

(e)        the occurrence of a Change of Control. “Change of Control” means the
occurrence of any of the following events: (i) a change in the ownership of the
Company which occurs on the date that any one Person, or more than one Person
acting as a group (each a “Person”), acquires ownership of the stock of the
Company that, together with the stock held by such Person, constitutes more than
fifty percent (50%) of the total (a) voting power; or (b) economic rights, of
the securities of the Company; provided, however, the purchase of more than
fifty percent (50%) of the stock by a passive investor which does not result in
a change in management or operations shall not be considered a “Change of
Control”; (ii) the adoption of a plan of merger, reorganization or consolidation
of the Company, or similar agreement, with any Person as a result of which the
holders of the voting capital stock of the Company as a group and/or the holders
of the economic interests of the Company, would receive less than 50% of the
voting capital stock or economic interests of the surviving or resulting
corporation or entity; or (iii) the occurrence of a transaction whereby, a
change in the ownership of 75% or more of the Company’s assets on a consolidated
basis will/has occurred, in one or a series of related transactions, including
but not limited to, through any transaction or series of transactions involving
a sale, disposition, license, gift or other transfer. For purposes of this
definition, and as a non-exclusive example only, without limiting any other
provision of this definition, Persons will be considered to be acting as a group
if they are owners of an entity that enters into a merger, reorganization,
consolidation, purchase or acquisition of stock, or similar business transaction
with the Company; or

 

(f)        the dissolution or liquidation of the Company; or

 

(g)        the distribution of any cash or other assets to the members of the
Company, other than amounts to cover estimated taxes of the members, which shall
not exceed 37.5% of each member’s estimated income for the year of distribution,
without the prior written consent of the Holder; or

 

(h)        Company shall: (i) be adjudicated insolvent or take any action which
constitutes its admission of inability to pay its debts as they mature; (ii)
make an assignment for the benefit of creditors, file a petition in bankruptcy,
petition or apply to any tribunal for the appointment of a custodian, receiver
or a trustee for it or a substantial portion of its assets; (iii) commence any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation or statute of any jurisdiction, whether now or
hereafter in effect; (iv) have filed against it any such petition or application
in which an order for relief is entered or which remains undismissed for a
period of ninety (90) days or more; (v) indicate its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for relief
or the appointment of a custodian, receiver or trustee for it or a substantial
portion of its assets; (vi) suffer any such custodianship, receivership or
trusteeship to continue undischarged for a period of ninety (90) days or more;
or (vii) Company shall take any action authorizing, or in furtherance of, any of
the foregoing; or

 

Page 4 of 8

Promissory Note No. 2

 

(i)         the Holder or its Board shall take any action authorizing, or in
furtherance of, any of the foregoing.

 

The Company shall provide the Holder prompt written notice, but in no event
later than three (3) days after, the occurrence of an Event of Default,
including a description of the Event of Default which occurred.

 

In case any one or more Events of Default shall occur and be continuing, Holder
may proceed to protect and enforce its rights by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or for an injunction against a violation of any
of the terms hereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise. In case of a default in the payment of any
Principal of or premium, if any, or Interest on this Note, Company will pay to
Holder such further amount as shall be sufficient to cover the reasonable cost
and expenses of collection, including, without limitation, reasonable attorneys’
fees, expenses and disbursements. No course of dealing and no delay on the part
of Holder in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice Holder’s rights, powers or remedies. No right,
power or remedy conferred by this Note upon Holder shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise.

 

15.       Except as expressly provided otherwise in this Note, Company and every
endorser or guarantor, if any, of this Note waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note, and assent to any
extension or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral available to Holder, if any, and
to the addition or release of any other party or person primarily or secondarily
liable.

 

16.       If from any circumstance any holder of this Note shall ever receive
Interest or any other charges constituting interest, or adjudicated as
constituting interest, the amount, if any, which would exceed the Maximum Rate
shall be applied to the reduction of the Principal amount owing on this Note,
and not to the payment of interest; or if such excessive interest exceeds the
unpaid balance of Principal hereof, the amount of such excessive interest that
exceeds the unpaid balance of Principal hereof shall be refunded to Company. In
determining whether or not the interest paid or payable exceeds the Maximum
Rate, to the extent permitted by applicable law (i) any non-Principal payment
shall be characterized as an expense, fee or premium rather than as Interest;
and (ii) all Interest at any time contracted for, charged, received or preserved
in connection herewith shall be amortized, prorated, allocated and spread in
equal parts during the period of the full stated term of this Note. The term
“Maximum Rate” shall mean the maximum rate of interest allowed by applicable
federal or state law.

 

17.       This Note may be executed in several counterparts, each of which is an
original. It shall not be necessary in making proof of this Note or any
counterpart hereof to produce or account for any of the other counterparts. A
copy of this Note signed by one party and faxed or scanned and emailed to
another party (as a PDF or similar image file) shall be deemed to have been
executed and delivered by the signing party as though an original. A photocopy
or PDF of this Note shall be effective as an original for all purposes.

 

Page 5 of 8

Promissory Note No. 2

 

18.       It is the intention of the parties hereto that the terms and
provisions of this Note are to be construed in accordance with and governed by
the laws of the State of Texas, except as such laws may be preempted by any
federal law controlling the rate of Interest which may be charged on account of
this Note. The parties hereby consent and agree that, in any actions predicated
upon this Note, venue is properly laid in Texas and that the Circuit Court in
and for Harris County, Texas, shall have full subject matter and personal
jurisdiction over the parties to determine all issues arising out of or in
connection with the execution and enforcement of this Note.

 

19.       The term “Company” as used herein in every instance shall include
Company’s successors, legal representatives and permitted assigns, including all
subsequent grantees, either voluntarily by act of Company or involuntarily by
operation of law and shall denote the singular and/or plural and the masculine
and/or feminine and natural and/or artificial persons, whenever and wherever the
contexts so requires or properly applies. The term “Holder” as used herein in
every instance shall include Holder’s successors, legal representatives and
assigns, as well as all subsequent assignees and endorsees of this Note, either
voluntarily by act of the parties or involuntarily by operation of law. Captions
and paragraph headings in this Note are for convenience only and shall not
affect its interpretation.  As used herein, words in the singular shall be held
to include the plural and vice versa, and words of one gender shall be held to
include the other gender as the context requires.

 

20.       Holder may not assign or pledge this Note and its rights hereunder
without the prior written approval of Company which may be withheld in Company’s
sole discretion. Company may not assign its obligations hereunder, whether by
operation of law or otherwise, without the prior written approval of Holder
which may be withheld in Holder’s sole discretion.

 

21.       Anything else in this Note to the contrary notwithstanding, in any
action arising out of this Agreement, the prevailing party shall be entitled to
collect from the non-prevailing party all of its attorneys’ fees. For the
purposes of this Note, the party who receives or is awarded a substantial
portion of the damages or claims sought in any proceeding shall be deemed the
“prevailing” party and attorneys’ fees shall mean the reasonable fees charged by
an attorney or a law firm for legal services and the services of any legal
assistants, and costs of litigation, including, but not limited to, fees and
costs at trial and appellate levels.

 

22.       If any term or other provision of this Note is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Note shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Note so as to affect the original intent of the parties as closely
as possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.

 

Page 6 of 8

Promissory Note No. 2

 

23.       No modification, amendment, addition to, or termination of this Note,
nor waiver of any of its provisions, shall be valid or enforceable unless in
writing and signed by all the parties hereto.

 

24.       Section 13.7 of the Redemption Agreement is incorporated by reference
herein.

 

25.       The Note, the Other Note and the Redemption Agreement constitute the
entire agreement of the parties regarding the matters contemplated herein, or
related thereto, and supersede all prior and contemporaneous agreements, and
understandings of the parties in connection therewith.

 

[Remainder of page left intentionally blank. Signature page follows.]

 

Page 7 of 8

Promissory Note No. 2

 

IN WITNESS WHEREOF, Company has duly executed this Promissory Note as of
December 31, 2019, with an Effective Date as provided above.

 

 

“Company”

 

 

 

 

Lineal Star Holdings, LLC

 

 

 

 

By:

/s/ Timothy J. Connolly 

 

 

 

 

Its:

Chief Executive Officer 

 

 

Printed Name:

Timothy J. Connolly 

 

Page 8 of 8

Promissory Note No. 2