EXHIBIT 10.4
CONVERTIBLE PROMISSORY NOTE
Lender: Frank Bingham
1954 S. Lafayette St.
Denver, CO 80210
Borrower: Natural Resource Group, Inc.
1789 W. Littleton Blvd.
Littleton, CO 80120
Principal Amount: $70,000.00
Date of Issuance: May 18, 2012
Maturity Date: May 31, 2014
1. Principal and Interest.
1.1 Principal Draws. The Principal Amount is made available by Lender to
Borrower in two draws. The initial draw extended upon issuance of this
Note is $35,000. One additional draw of $35,000 shall be made
available to Borrower on or before May 31, 2012
1.2 Promise to Repay. Borrower hereby promises to repay to the order of
Lender the Principal drawn pursuant to paragraph 1.1 at the place and
in the manner hereinafter provided, together with interest thereon at
the rates described below, and any and all other amounts which may be
due and payable hereunder.
1.3 Maturity Date. This Note shall mature, and all sums remaining due
hereunder shall be due and payable in full, on the Maturity Date set
forth above.
1.4 Interest. Interest on the Principal shall accrue at a rate of 10% per
annum on principal sums drawn by Borrower.
1.5 Interest Payment. Borrower shall pay to Lender the interest described
in paragraph 1.4, above, monthly. All interest accrued through the
last day of each month shall be paid by Borrower and delivered to
Lender not later than the 5th day of the following month.
1.6 Place of Payment The Principal and Interest shall be payable at the
address of Lender set forth at the head of this Note. Lender may by
written notice to Borrower designate a different place of payment.
1.7 Principal Payment. The entire principal balance shall be due at the
Maturity Date.
1.8 Surrender Upon Payment. Upon payment in full of the Principal and
Interest hereunder this Note shall be surrendered by Lender to
Borrower for cancelation.
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2. Purpose. The purpose of this extension of credit is to provide funding
for Borrower's development operations in the Garcia Field, Las Animas
County, Colorado. Borrower shall use the funds provided for in this
Note to advance the operations in the Garcia Field. Such operations
shall be conducted in the sole discretion of the Borrower, acting in
good faith. Borrower makes no guarantee of any kind about the success
or failure of any such operations.
3. Security. Borrower hereby grants to Lender, and this Note shall be
secured by, a second priority Deed of Trust, Mortgage and Security
Agreement, together with UCC financing statements, covering the Oil
and Gas Leases described in Exhibit "A" attached hereto, together with
the wells, casing, piping, pumps, motors, jacks, tanks, gathering
lines, pipe lines and all other oil and gas field equipment located
thereon and used in connection therewith, and the oil and gas produced
therefrom, whether now owned or hereafter acquired, additions and
accessions thereto, the proceeds therefrom and products thereof.
Further, Borrower hereby grants to Lender, and this Note shall be
secured by, a first priority Deed of Trust, Mortgage and Security
Agreement, covering the assets listed on Exhibit B. Collectively the
assets described above and listed on Exhibits A and B shall be
referred to as the "Collateral". The Parties understand and agree that
the security shall not include any property or assets of Borrower
except for the Collateral. In the event of any sale by Borrower of the
Collateral, or Borrower's working interest in the Collateral, the Deed
of Trust, Mortgage and Security Agreement shall continue in force and
remain a lien against the Collateral, unless this Note is paid and
discharged in full. The Parties hereby agree that the proceeds from
any such sale shall be due to Lender in (a) an amount sufficient to
satisfy all Principal, Interest and such other sums as may be due
Lender as hereinafter provided, or (b) the entire amount of the sale,
whichever is less. It is the Parties intent that this Note and the
Deed of Trust, Mortgage and Security Agreement shall be binding upon
any successor or assign of Borrower with respect to the Collateral.
4. Election to Convert. Lender shall have the right, at any point during
the life of this Note, to convert the then remaining Principal balance
to (a) a 2% Working Interest in the Collateral, or (b) 70,000 shares
of Common Stock in Natural Resource Group, Inc. Lender shall make such
election by giving written notice to Borrower. Within ten (10) days of
receiving such notice, Borrower shall execute and deliver to Lender,
all necessary documents and assignments to effect Lender's election.
Upon conversion to a working interest owner, the Lender agrees to
become a party to any existing Operating or Accounting agreements
which apply to the Collateral. If no such Operating or Accounting
agreements exist, the parties shall enter in a Joint Operating
Agreement designating Assignor (its successors or assigns) as
"Operator" for the mutual interest of the working interest owners,
such Operating Agreement to be substantially in the form of the then
most recent version of AAPL Form 610 Joint Operating Agreement with
COP AS Accounting Procedures for Onshore Operations. Interest shall
continue to accrue (payable monthly by Borrower as herein provided)
until: (i) the Joint Operating Agreement is executed, and the first
day of the month within which Borrower has delivered and recorded a
good and sufficient Assignment and Bill of Sale to the 2% working
interest and such Assignment and Bill of Sale is made effective (i.e.,
Lender entitled to its proportionate share of revenue, subject to its
share of operating expense). In the event the election to convert is
made by Lender at a time when less than the Principal Amount ($70,000)
is due and owing, then the working interest into which Lender shall
convert shall be reduced proportionately (e.g., if the Principal
amount then outstanding is $35,000, then Lender shall be entitled to
convert into a 1% working interest).
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5. Event of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default:
a. Borrower fails make any payment of Interest or Principal due
hereunder, and such failure shall remain unremedied for a
period of five (5) business days; and
b. Lender shall fail to timely advance funds pursuant to the
terms of this Note, unless Borrower has failed to conform to
the purposes of this Note.
6. Prepayment. Borrower may prepay the Note at any time prior to the
Maturity Date, in whole or in part, without any penalty or fee of any
sort. Prior to prepaying the Note, Borrower shall give written notice
to Lender of its intent to prepay. Upon receiving such notice, Lender
shall have ten (10) days to provide Borrower with written notice of
its intent to convert the Principal to a working interest as provided
in paragraph 4, above. If Lender does not send written notice of its
election to convert, then Lender's right to convert shall expire and
Borrower may terminate the Note by repaying the Principal.
7. Failure to Pay on or Before the Maturity Date. If Borrower fails to
pay the Principal due on this Note contemporaneously with or prior to
the Maturity Date, and such failure is not remedied within 30 days,
the following shall apply:
a. Lender shall be entitled to seek and obtain an order
appointing Receiver of the Collateral for purposes of
protecting, preserving, operating and maintaining the
Collateral.
b. Lender shall have a Power of Sale concerning all of the
Collateral. Power of sale shall mean that Lender shall have
the right to sell and convey all or part of Borrower's
working interest in the Collateral. Lender shall endeavor in
good faith to obtain market value for Borrower's working
interest in the Collateral, but if the sale is conducted by
judicial means (judicial foreclosure, receiver's sale, or
other proceedings before a Court of competent jurisdiction)
the sole procedures authorized by such Court shall be deemed
to satisfy the Lender's obligations under the preceding
sentence. Lender shall apply the proceeds of any sale to the
Principal and Interest on this Note, as well as the costs of
any sale (subject to the limitations on attorney's fees set
forth in paragraph S, below). Any remaining proceeds from
the sale after satisfaction of Principal, Interest and costs
shall be tendered to Borrower. Any deficiency shall remain
due from Borrower.
c. As an alternative to the remedy described in such paragraph
7b, above, Lender shall have the right to the assignment of
5% of Borrower's ownership interest in the Collateral. This
right may be enforced by specific performance in a court of
law. Such 5% ownership interest shall be assigned to Lender
by good and sufficient Assignment and Bill of Sale, and the
parties shall enter into a mutually acceptable Joint
Operating Agreement and COP AS accounting procedures (as
provided in paragraph 4, above) naming a mutually acceptable
operator. Upon the assignment of 5% of its ownership
interest in the Collateral by Borrower to Lender, this Note
shall terminate, and Borrower shall have no further
obligation to Lender. Lender may exercise the right
described in this paragraph by sending written notice to
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Borrower of such intent to exercise. Upon receiving such
notice Borrower shall assign the interest to Lender within
ten (10) business days.
d. The remedies provided for in subparagraphs b. and c, above
are mutually exclusive.
8. Attorney's Fees. If the indebtedness represented by this Note or any
part thereof is collected in bankruptcy, receivership, other judicial
proceedings, or by exercise of the Power of Sale, or if this Note is
placed in the hands of a collection agency, Borrower agrees to pay. In
addition to the Principal and Interest, reasonable collection and
attorney's fees and costs, not to exceed $20,000, incurred in
collection by Lender. The limitation on attorney's fees shall not
apply if it is determined by a Court of competent jurisdiction that
any defenses, objections or other legal obstacles to Lender's
enforcement of this Note, and the remedies provided for herein, were
pled and asserted by, or on behalf of. Borrower in bad faith or for
the purpose of hindering and delaying enforcement without just cause
or excuse.
9. Waiver. Borrower waives presentment, demand and notice of dishonor and
protest with respect to this Note.
IN WITNESS WHEREOF, Natural Resource Group. Inc. has caused this Note to be
executed in its corporate name and this Note to be dated, issued and delivered,
all on the date first written above.
Borrower Lender
NATURAL RESOURCE GROUP, INC. FRANK BINGHAM
/s/ Brian Hedberg /s/ Frank Bingham
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By: Brian Hedberg - General Counsel Frank Bingham
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