EXHIBIT 4.2
EXHIBIT A
FORM OF INITIAL NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 2(D)(VIII) HEREOF.
THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 2(D)(VIII) HEREOF.
SENIOR SECURED NOTE
__________ __, 200__ $____________
FOR VALUE RECEIVED, INFINITY, INC., a Colorado corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns (the "HOLDER") the principal amount of ___________________
United States Dollars ($________________) when due, whether upon maturity,
acceleration, redemption or otherwise, and to pay interest ("INTEREST") on the
unpaid principal balance hereof on each Interest Payment Date (as defined in
Section 2(a)(xix)) and upon maturity, or earlier upon conversion, acceleration
or redemption pursuant to the terms hereof, at the Applicable Interest Rate.
Interest on this Note payable on each Interest Payment Date and upon maturity,
or earlier upon conversion, acceleration or redemption pursuant to the terms
hereof, shall accrue from the Issuance Date and shall be computed on the basis
of a 365-day year and actual days elapsed.
(1) Payments of Principal. All payments of principal of this Note
(to the extent such principal is not converted into Shares (as defined in
Section 2(a)(xli) in accordance with the terms hereof) shall be made in lawful
money of the United States of America by wire transfer of immediately available
funds to such account as the Holder may from time to time designate by written
notice in accordance with the provisions of this Note. Except as provided in
Section 7, the Company has no right, but under certain circumstances may have an
obligation, to make payments of principal of this Note in cash prior to the
Maturity Date (as defined in Section 2(a)(xxiii)). Whenever any amount expressed
to be due by the terms of this Note is due on any
day that is not a Business Day (as defined in Section 2(a)(vi)), the same shall
instead be due on the next succeeding day that is a Business Day. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in the Securities Purchase Agreement, dated as of January 13,
2005, pursuant to which this Note and the Other Notes (as defined below) were
originally issued (as such agreement may be amended from time to time as
provided in such agreement, the "SECURITIES PURCHASE AGREEMENT"). This Note and
all Other Notes issued by the Company pursuant to the Securities Purchase
Agreement on the Initial Closing Date and any Additional Closing Dates and all
notes issued in exchange therefor or replacement thereof are collectively
referred to in this Note as the "NOTES." This Note and each of the Other Notes
originally issued by the Company on the same Closing Date shall be deemed to be
of the same "SERIES."
(2) Conversion of this Note. This Note shall be converted into
Shares on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Note, the
following terms shall have the following meanings:
(i) "3-MONTH LIBOR RATE" means the London Interbank
Offered Rate of LIBOR with respect to a three-month period for
deposits of United States Dollars as reported by Bloomberg Financial
Markets (or any successor thereto, "BLOOMBERG") at approximately
10:00 a.m. (New York time) through its "LIBOR Rates" function
(accessed by typing "LR" [GO] on a Bloomberg terminal, and looking
at the row entitled "3 MONTH" and under the column entitled "DOLLAR
LIBOR") (or such other page as may replace that page on that
service, or such other service as may be selected jointly by the
Company and the Holders of the Notes). If such rate appears on the
Bloomberg LIBOR Rates page on any date of determination of the
3-Month LIBOR Rate (a "LIBOR DETERMINATION DATE"), the 3-Month LIBOR
Rate for such date of determination will be such rate. If on any
LIBOR Determination Date such rate does not appear on the Bloomberg
LIBOR Rates page, the Company and the Holders of the Notes will
jointly request each of four major reference banks in the London
interbank market, as selected jointly by the Company and the Holders
of the Notes, to provide the Company with its offered quotation for
United States dollar deposits for the upcoming three-month period,
to prime banks in the London interbank market at approximately 4:00
p.m., London time on any such LIBOR Determination Date and in a
principal amount that is representative for a single transaction in
United States Dollars in such market at such time. If at least two
reference banks provide the Company with offered quotations, 3-Month
LIBOR Rate on such LIBOR Determination Date will be the arithmetic
mean of all such quotations. If on such LIBOR Determination Date
fewer than two of the reference banks provide the Company with
offered quotations, 3-Month LIBOR Rate on such LIBOR Determination
Date will be the arithmetic mean of the offered per annum rates that
three major banks in New York City selected jointly by the Company
and the Holders of the Notes quote at approximately 11:00 A.M.
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in New York City on such LIBOR Determination Date for three-month
United States dollar loans to leading European banks, in a principal
amount that is representative for a single transaction in United
States dollars in such market at such time. If these New York City
quotes are not available, then the 3-Month LIBOR Rate determined on
such LIBOR Determination Date will continue to be 3-Month LIBOR Rate
as then currently in effect on such LIBOR Determination Date.
(ii) "AFTER-TAX PV10" means, as of the date of any
determination, the present value of estimated future revenues to be
generated by the Company and its Subsidiaries, on a consolidated
basis, from the production of their proved reserves (calculated in
accordance with SEC guidelines and based on the most recent
independent reserve report), net of estimated lease operating
expenses, production taxes, federal income taxes and future
development costs, using price and costs as of the date of
determination without future escalation and without giving effect to
non-property related expenses such as general and administrative
expenses, debt service and depreciation, depletion and amortization,
and discounted using an annual discount rate of 10% (as most
recently disclosed by the Company on a Form 10-K, 10-Q or 8-K based
on an independent reserve report that was current as of the date
that the Company's After-tax PV10 was disclosed in such Form 10-K,
10-Q or 8-K); provided that After-tax PV10 shall mean zero unless
the Company has (A) publicly disclosed (either on a Form 10-K, 10-Q
or 8-K) its After-tax PV10 as of a date within 100 days of such date
of determination and (B) certified as of such date of determination
that, to the Knowledge of the Company, After-tax PV10, if determined
as of such date of determination, would not be materially lower than
After-tax PV10 as most recently disclosed by the Company on a Form
10-K, 10-Q or 8-K.
(iii) "AGGREGATE NOTES BALANCE" means, as of the date of
any determination, the aggregate outstanding principal amount of all
the Notes, together with all accrued but unpaid interest thereon.
(iv) "ALLOCATION PERCENTAGE" means, with respect to each
holder of Note as of the date of any determination, a fraction of
which the numerator is the aggregate principal amount of the Notes
originally purchased by such holder on the Initial Closing Date and
any Additional Closing Dates occurring on or prior to such date of
determination, and of which the denominator is the aggregate
principal amount of the Notes purchased by all holders on the
Initial Closing Date and such Additional Closing Dates.
(v) "APPLICABLE INTEREST RATE" initially shall mean the
per annum interest rate equal to the sum of (a) the 3-Month LIBOR
Rate in effect on the Issuance Date, and (b) six and three-quarter
percent (6.75%); provided, however, that on the first Business Day
of each calendar quarter commencing
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after the Issuance Date (each, an "INTEREST RESET DATE"), such rate
shall be adjusted to the per annum interest rate equal to the sum of
(a) the 3-Month LIBOR Rate in effect on such date, and (b) six and
three-quarter percent (6.75%). Each Applicable Interest Rate will be
applicable as of and after the Interest Reset Date to which it
relates to, but not including, the next succeeding Interest Reset
Date.
(vi) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in the city of New
York are authorized or required by law to remain closed.
(vii) "COMMON STOCK" means (A) the Company's common
stock, $0.0001 par value per share, and (B) any capital stock
resulting from a reclassification of such common stock.
(viii) "COMPANY ALTERNATIVE REDEMPTION RATE" means at
any time during a 12-month period beginning on and including a date
set forth below, the rate, expressed as a percentage, set forth
opposite such date below:
Issuance Date 105%
First Anniversary of the Issuance Date 104%
Second Anniversary of the Issuance Date 103%
Third Anniversary of the Issuance Date 102%
and, if there has been a Maturity Date Extension (as defined below),
the Company Alternative Redemption Rate, at any time during the
12-month period beginning on and including the fourth anniversary of
the Issuance Date, shall be 101%.
(ix) "CONVERSION AMOUNT" means (A) the sum of (1) the
principal amount of this Note to be converted, redeemed or otherwise
with respect to which this determination is being made and (2) the
Interest Amount with respect to the amount referred to in the
immediately preceding clause (1), or (B) in the case of an Interest
Conversion (as defined in Section 6), the Interest Amount to be
converted.
(x) "CONVERSION PRICE" means, as of any Conversion Date
or other date of determination, 95% of the Weighted Average Price of
the Common Stock on the Trading Day immediately preceding the
Conversion Date applicable to the conversion for which such
determination is being made, subject to adjustment as provided
herein.
(xi) "DOLLARS" or "$" means United States Dollars.
(xii) "EXPECTED TRADING DAYS" means, with respect to any
Company Alternative Conversion Period (as defined in Section 8(a)),
the number
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of regularly scheduled Business Days in such period on which the
Principal Market is scheduled to be open for trading of the Common
Stock.
(xiii) "FIXED MATURITY DATE" means [INSERT THE FOURTH
ANNIVERSARY OF THE ISSUANCE DATE], or if there has been a Maturity
Date Extension, [INSERT THE FIFTH ANNIVERSARY OF THE ISSUANCE DATE.]
(xiv) "FREE CASH FLOW AMOUNT" means, as of the date of
any determination, the sum of (I) the lesser of (A) the product of
(1) the Free Cash Multiple, multiplied by (2) the Services Business
Free Cash Flow and (B) the product of (x) 2, multiplied by (y) the
Services Business Revenue, plus (II) the lesser of (1) 50% of the
result of the immediately preceding clause (I), and (2) 30% of the
Company's After-tax PV10, plus (III) 10% of the Company's After-tax
PV10.
(xv) "FREE CASH FLOW MULTIPLE" shall be the following
number: 10 for any determination of the Free Cash Flow Amount on
December 31, 2004, 9.5 for any determination of the Free Cash Flow
Amount on March 31, 2005, 9.0 for any determination of the Free Cash
Flow Amount on June 30, 2005, 8.5 for any determination of the Free
Cash Flow Amount on September 30, 2005, and 8.0 for any
determination of the Free Cash Flow Amount after September 30, 2005.
(xvi) "FREE CASH FLOW TEST FAILURE" means that, as of
the date of any determination, the Free Cash Flow Amount is less
than or equal to the Aggregate Notes Balance.
(xvii) "FREE CASH FLOW TEST FAILURE AMOUNT" means that,
in the event that there is a Free Cash Flow Test Failure as of the
date of any determination, an amount equal to the product of (A) a
fraction, of which the numerator is the outstanding principal amount
of this Note, together with all accrued but unpaid Interest thereon
as of such date, and of which the denominator is the outstanding
principal amount of all Notes of the same Series as this Note,
together with all accrued but unpaid interest thereon as of such
date, multiplied by (B) an amount equal to the result of (x) the
Aggregate Notes Balance as of such date of determination, minus (y)
the Priority Notes Balance as of such date of determination, minus
(z) the Free Cash Flow Amount; provided that, for purposes of this
calculation of "Free Cash Flow Test Failure Amount," if the result
of (x)-(y)-(z) above is less than zero, then the amount used for (B)
in the above calculation shall be zero; and provided, further, that
the Free Cash Flow Test Failure Amount, as defined and determined
under this Note, shall not exceed the Principal of this Note
together with all accrued but unpaid Interest thereon.
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(xviii) "INTEREST AMOUNT" means, with respect to any
Principal, all accrued and unpaid Interest (including any Default
Interest as defined in Section 6) on such Principal through and
including such date of determination.
(xix) "INTEREST PAYMENT DATE" means the first Business
Day of each calendar quarter, beginning with the calendar quarter
that commences on April 1, 2005; through and including the last
calendar quarter that commences prior to the Maturity Date.
(xx) "ISSUANCE DATE" means the original date of issuance
of this Note pursuant to the Securities Purchase Agreement,
regardless of any exchange or replacement hereof.
(xxi) "LIEN" means, with respect to any asset, any
mortgage, lien, pledge, hypothecation, charge, security interest,
encumbrance or adverse claim of any kind and any restrictive
covenant, condition, restriction or exception of any kind that has
the practical effect of creating a mortgage, lien, pledge,
hypothecation, charge, security interest, encumbrance or adverse
claim of any kind (including any of the foregoing created by,
arising under or evidenced by any conditional sale or other title
retention agreement, the interest of a lessor with respect to a
Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing).
(xxii) "MANDATORY COMPLIANCE AMOUNT" means, as of the
date of any determination, (A) the Free Cash Flow Test Failure
Amount, minus (B) any Principal as to which a notice has been given
to the Holder by the Company for conversion or redemption in
accordance herewith, but which has not been converted or paid prior
to the date of such determination, provided the Company is in
compliance with Sections 7 and 8 in connection therewith (such
amount in this clause (B) being referred to as the "EXCLUDED
AMOUNT").
(xxiii) "MATURITY DATE" means the earliest to occur of
(A) the Fixed Maturity Date, (B) the date of a Maturity Date
Triggering Event, (C) such date as all amounts due under this Note
have been fully paid.
(xxiv) "MATURITY DATE EXTENSION" means the holders of
Notes representing at least two-thirds (2/3) of the aggregate
principal amount of the then outstanding Notes that are of the same
Series as this Note, have (A) received a notice from the Company no
earlier than sixty (60) days, and no later than thirty (30) days
prior to [INSERT THE THIRD ANNIVERSARY OF THE ISSUANCE DATE] (which
notice the Company may deliver on only one occasion with respect to
such Series of Notes), requesting the holders of such Series of
Notes to extend the Fixed Maturity Date by twelve (12) months and
(B) within ten (10) Business Days of receipt of the notice described
in clause (A) (such 10-Business-Day Period, the "RESPONSE PERIOD"),
agreed in writing to extend the Maturity Date of all the
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Notes of such Series by twelve (12) months, (provided that, for the
avoidance of doubt, if the Company does not receive such written
agreement within the Response Period from the requisite holders of
the Notes of such Series, such requested extension shall be deemed
denied and the Fixed Maturity Date shall not be extended).
(xxv) "MATURITY DATE TRIGGERING EVENT" means any
principal amount of the 7% Notes is outstanding on the Business Day
immediately preceding the scheduled maturity date of the 7% Notes,
unless the Free Cash Flow Amount as of the end of the quarterly or
annual period covered by the quarterly report on Form 10-Q or annual
report on Form 10-K most recently filed, or required to be filed, by
the Company with the SEC exceeds 150% of the Aggregate Notes Balance
as of the Business Day immediately preceding the scheduled maturity
of the 7% Notes.
(xxvi) "OTHER NOTES" means all of the senior secured
notes, other than this Note, that have been issued by the Company
pursuant to the Securities Purchase Agreement and all notes issued
in exchange therefor or replacement thereof.
(xxvii) "PERMITTED LIEN" means (a) Liens created by the
Security Documents; (b) Liens existing on the date of this Agreement
not otherwise described in any other clause of this definition and
set forth on Schedule 3(bb); (c) Liens for taxes or other
governmental charges not at the time due and payable so long as the
Company and its Subsidiaries maintain adequate reserves in
accordance with United States generally accepted accounting
principles ("GAAP") in respect of such taxes and charges; (d) Liens
arising in the ordinary course of business in favor of carriers,
warehousemen, mechanics and materialmen, or other similar Liens
imposed by law, which remain payable without penalty or which are
being contested in good faith by appropriate proceedings diligently
prosecuted, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto, and in each case
for which adequate reserves in accordance with GAAP are being
maintained; (e) Liens arising in the ordinary course of business in
connection with worker's compensation, unemployment compensation and
other types of social security (excluding Liens arising under ERISA)
or Liens consisting of cash collateral securing the Company's or any
of its Active Subsidiaries' performance of surety bonds, bids,
performance bonds and similar obligations (exclusive of obligations
for the payment of borrowed money) permitted pursuant to clause
(a)(IV) of Section 12 and, in each case, for which the Company
maintains adequate reserves; (f) attachments, appeal bonds (and cash
collateral securing such bonds), judgments and other similar Liens,
for sums not exceeding $500,000 in the aggregate for Company and its
Subsidiaries, arising in connection with court proceedings, provided
that the execution or other enforcement of such Liens is effectively
stayed; (g) easements, rights of way, restrictions, minor defects or
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irregularities in title and other similar Liens arising in the
ordinary course of business and not materially detracting from the
value of the property subject thereto and not interfering in any
material respect with the ordinary conduct of the business of the
Company or any Subsidiary; (h) Liens in favor of U.S. Bank and
LaSalle in respect of the Duke LC Account and the Returned Items
Account (each as defined in the Security Agreement) to the extent
such accounts are maintained and permitted to exist in accordance
with the terms of the Security Agreement; (i) Liens consisting of
cash collateral securing the Company's and its Active Subsidiaries'
reimbursement obligations under letters of credit permitted by
clauses (a)(VI) and (a)(VII) of Section 12, provided that the
aggregate amount of cash collateral securing such Indebtedness does
not exceed the undrawn face amount of all such letters of credit
outstanding at any one time; (j) Liens securing Indebtedness listed
on Schedule 4(u) of the Securities Purchase Agreement for up to
thirty (30) days following the Initial Closing Date; (k) Liens on
equipment subject to Capital Lease Obligations permitted to be
incurred pursuant to clause (a)(V) of Section 12, to the extent such
Liens secure such Capital Lease Obligations; and (l) Liens in favor
of Schlumberger Technology Corporation and Red Oak Capital
Management LP (collectively, the "SERVICE PARTIES"), granted
pursuant to the Joint Value Enhancement Agreement, dated December 3,
2003, among Infinity Oil & Gas of Wyoming, Inc. ("IOGW") and the
Service Parties (as in effect on the date hereof, the "JVEA"), on
the three (3) Project Wells (as such term is defined in the JVEA)
described on Exhibit C to Schedule VIII of the Security Agreement,
to the extent such Liens secure the obligations of IOGW to the
Service Parties under the JVEA.
(xxviii) "PERSON" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization or a government or any
department or agency thereof or any other legal entity.
(xxix) "PRINCIPAL" means the outstanding principal
amount of this Note as of any date of determination.
(xxx) "PRIORITY NOTES BALANCE" means, as of the date of
any determination, the aggregate outstanding principal amount of all
the Notes that have a Fixed Maturity Date that is later than the
Fixed Maturity Date of this Note, together with all accrued but
unpaid interest thereon.
(xxxi) "PRINCIPAL MARKET" means, with respect to the
Common Stock or any other security, the NASDAQ National Market or if
the Common Stock or such other security, as the case may be, is not
traded on the NASDAQ National Market, then the principal securities
exchange or trading market for the Common Stock or such other
security.
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(xxxii) "REGISTRABLE SECURITIES" for purposes of this
Note means Shares issued or issuable upon conversion of this Note,
and any shares of capital stock issued or issuable with respect to
such Shares as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of this Note.
(xxxiii) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement, dated as of January 13, 2005,
among the Company and the initial holders of the Notes relating to
the filing of registration statements covering, among other things,
the resale of Registrable Securities, as such agreement may be
amended from time to time as provided in such agreement.
(xxxiv) "REGISTRATION STATEMENT" means a registration
statement or registration statements filed under the 1933 Act
pursuant to the Registration Rights Agreement covering the resale of
Registrable Securities.
(xxxx) "SEC" means the United States Securities and
Exchange Commission, or any successor thereto.
(xxxvi) "SECURITY AGREEMENT" means that certain security
agreement among the Company, its Active Subsidiaries and the initial
holders of the Notes relating to the granting by the Company and the
Subsidiaries of a first-priority security interest in all the assets
of the Company and its Active Subsidiaries, as such agreement may be
amended from time to time as provided in such agreement.
(xxxvii) "SECURITY DOCUMENTS" means any agreement,
document or instrument executed concurrently herewith or at any time
hereafter pursuant to which the Company, its Active Subsidiaries or
any other Person either (i) guarantees payment or performance of all
or any portion of the obligations hereunder or under any other
instruments delivered in connection with the transactions
contemplated hereby and by the Securities Purchase Agreement, and/or
(ii) provides, as security for all or any portion of such
obligations, a Lien on any of its assets in favor of the Holder, as
any or all of the same may be amended, supplemented, restated or
otherwise modified from time to time.
(xxxviii) "SERIES ALLOCATION PERCENTAGE" means, with
respect to each holder of Notes of the same Series as this Note, a
fraction of which the numerator is the aggregate principal amount of
Notes of such Series initially purchased by such holder on the
Issuance Date and of which the denominator is the aggregate
principal amount of Notes of such Series purchased by all holders on
the Issuance Date.
(xxxix) "SERVICES BUSINESS FREE CASH FLOW" means, as of
the date of any determination, the result of (A) the consolidated
net operating income before interest, taxes, depreciation and
amortization of the oil field services
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segment of the operations of the Company and its Subsidiaries (as
such segment is described in the Company's annual report on Form
10-K for the year ended December 31, 2003), excluding net operating
income derived from the Company and its affiliates, for the 12-month
period ended on such date of determination, plus (B) the aggregate
amount of interest, service charges and fees paid by the Company in
connection with the LaSalle Facility and the mortgage Indebtedness
of Consolidated Oil Well Services, Inc. listed on Schedule 4(u) to
the Securities Purchase Agreement prior to December 31, 2004 but
during the 12-month period ended on such date of determination,
minus (C) all capital expenditures not funded solely out of the
proceeds of Permitted Subordinate Debt or issuances of
non-redeemable capital stock of the Company, interest and income
taxes, in each case, of such segment for such 12-month period, all
as determined in accordance with GAAP applied on a consistent basis
and disclosed in the Company's most recently filed quarterly report
on Form 10-Q and/or annual report on Form 10-K, as applicable.
(xxxx) "SERVICES BUSINESS REVENUE" means, as of the date
of any determination, the consolidated revenue from the oil field
services segment of the operations of the Company and its
Subsidiaries (as such segment is described in the Company's annual
report on Form 10-K for the year ended December 31, 2003) excluding
net revenue derived from the Company and its affiliates, for the
12-month period ended on such date of determination, determined in
accordance with GAAP applied on a consistent basis and disclosed in
the Company's most recently filed quarterly report on Form 10-Q
and/or annual report on Form 10-K, as applicable.
(xli) "SHARES" means shares of Common Stock.
(xlii) "TRADING DAY" means any day on which the Common
Stock is traded on its Principal Market; provided that "Trading Day"
shall not include any day on which the Principal Market is open for
trading for less than 4.5 hours.
(xliii) "WARRANTS" means the warrants issued to the
holders of the Notes pursuant to the Securities Purchase Agreement,
and all warrants issued in exchange or substitution therefor or
replacement thereof pursuant to the terms of such warrants or the
Securities Purchase Agreement.
(xliv) "WEIGHTED AVERAGE PRICE" means, for any security
as of any date, the dollar volume-weighted average price for such
security on its Principal Market during the period beginning at 9:30
a.m. New York City time (or such other time as its Principal Market
publicly announces is the official open of trading) and ending at
4:00 p.m. New York City time (or such other time as its Principal
Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or if
the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-
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counter market on the electronic bulletin board for such security
during the period beginning at 9:30 a.m. New York City time (or such
other time as such over-the-counter market publicly announces is the
official open of trading), and ending at 4:00 p.m. New York City
time (or such other time as such over-the-counter market publicly
announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average
of the highest closing bid price and the lowest closing ask price of
any of the market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Weighted
Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such
security on such date shall be the fair market value as mutually
determined by the Company and the holders of Notes representing at
least two-thirds (2/3) of the aggregate principal amount of the
Notes then outstanding as to which such determination is being made.
If the Company and the holders of the Notes representing at least
two-thirds (2/3) of the aggregate principal amount of the Notes then
outstanding as to which such determination is being made are unable
to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(d)(iii) below with
the term "Weighted Average Price" being substituted for the term
"Conversion Price." All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or
other similar transaction during any period during which the
Weighted Average Price is being determined.
(b) Holder's Conversion Right; Mandatory Redemption at
Maturity. Subject to the provisions of Section 5, at any time or times on or
after the Issuance Date, the Holder shall be entitled to convert all or any part
of the Principal (and the Interest Amount relating thereto) into fully paid and
nonassessable Shares in accordance with Section 2(d), at the Conversion Rate (as
defined in Section 2(c)). The Company shall not issue any fraction of a Share
upon any conversion. If the issuance would result in the issuance of a fraction
of a Share, then the Company shall round such fraction of a Share up or down to
the nearest whole share (with 0.5 rounded up). If any Principal remains
outstanding on the Maturity Date, then all such Principal (and the Interest
Amount relating thereto) shall be redeemed as of such date in accordance with
Section 2(d)(vii).
(c) Conversion Rate. The number of Shares issuable upon
conversion of any portion of this Note pursuant to Section 2 shall be determined
according to the following formula (the "CONVERSION RATE"):
Conversion Amount
Conversion Price
(d) Mechanics of Conversion. The conversion of this Note shall
be conducted in the following manner:
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(i) Holder's Delivery Requirements. To convert a
Conversion Amount into Shares on any date (the "CONVERSION DATE"),
the Holder shall (A) transmit by facsimile (or otherwise deliver),
for receipt on or prior to 11:59 p.m. New York City time on such
date, a copy of an executed conversion notice in the form attached
hereto as Exhibit I (the "CONVERSION NOTICE") to the Company, and
(B) if required by Section 2(d)(viii), surrender to a common carrier
for delivery to the Company, no later than three (3) Business Days
after the Conversion Date, the original Note being converted (or an
indemnification undertaking reasonably acceptable to the Company
with respect to this Note in the case of its loss, theft or
destruction).
(ii) Company's Response. Upon receipt or deemed receipt
by the Company of a copy of a Conversion Notice, the Company (I)
shall immediately send, via facsimile, a confirmation of receipt of
such Conversion Notice to the Holder and the Company's designated
transfer agent (the "TRANSFER AGENT"), which confirmation shall
constitute an instruction to the Transfer Agent to process such
Conversion Notice in accordance with the terms herein and (II) on or
before the second (2nd) Business Day following the date of receipt
or deemed receipt by the Company of such Conversion Notice (the
"SHARE DELIVERY DATE") (A) provided that the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program and provided that the Holder is eligible
to receive Shares through DTC, credit such aggregate number of
Shares to which the Holder shall be entitled to the Holder's or its
designee's balance account with DTC through its Deposit Withdrawal
Agent Commission system, or (B) if the foregoing shall not apply,
issue and deliver to the address as specified in the Conversion
Notice, a certificate, registered in the name of the Holder or its
designee, for the number of Shares to which the Holder shall be
entitled. If this Note is submitted for conversion, as may be
required by Section 2(d)(viii), and the Principal represented by
this Note is greater than the Principal being converted, then the
Company shall, as soon as practicable and in no event later than
three (3) Business Days after receipt of this Note (the "NOTE
DELIVERY DATE") and at its own expense, issue and deliver to the
Holder a new Note representing the Principal not converted.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Conversion Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the
Transfer Agent to issue to the Holder the Shares representing the
number of Shares that is not disputed and shall transmit an
explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within two (2) Business Day
of receipt or deemed receipt of the Holder's Conversion Notice or
other date of determination. If the Holder and the Company are
unable to agree upon the determination of the Conversion Price or
arithmetic calculation of the Conversion Rate within one (1)
Business Day of such disputed determination or arithmetic
calculation being transmitted to the Holder, then the Company shall
promptly (and in any event
12
within two (2) Business Days) submit via facsimile (A) the disputed
determination of the Conversion Price to an independent, reputable
investment banking firm agreed to by the Company and the holders of
the Notes representing at least two-thirds (2/3) of the aggregate
principal amounts of the Notes then outstanding as to which such
determination is being made, or (B) the disputed arithmetic
calculation of the Conversion Rate to the Company's independent,
outside accountant, as the case may be. The Company shall direct the
investment bank or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the
Holder of the results no later than two (2) Business Days from the
time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as
the case may be, shall be binding upon all parties absent
demonstrable error.
(iv) Record Holder. The person or persons entitled to
receive the Shares issuable upon a conversion of this Note shall be
treated for all purposes as the legal and record holder or holders
of such Shares on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If within three (3) Business
Days after the Company's receipt of the facsimile copy of a Conversion Notice or
deemed receipt of a Conversion Notice the Company shall fail to issue and
deliver a certificate to the Holder for, or credit the Holder's or its
designee's balance account with DTC with, the number of Shares to which the
Holder is entitled upon the Holder's conversion of any Conversion Amount, or if
the Company fails to issue and deliver a new Note representing the Principal to
which such Holder is entitled on or before the Note Delivery Date pursuant to
Section 2(d)(ii), then in addition to all other available remedies that the
Holder may pursue hereunder and under the Securities Purchase Agreement
(including indemnification pursuant to Section 8 thereof or at law or in
equity), the Company shall pay additional damages to the Holder for each day
after the Share Delivery Date such conversion is not timely effected and/or each
day after the Note Delivery Date such Note is not delivered in an amount equal
to 0.5% of the sum of (a) the product of (I) the number of Shares not issued to
the Holder or its designee on or prior to the Share Delivery Date and to which
the Holder is entitled and (II) the Weighted Average Price of the Common Stock
on the Share Delivery Date (such product is referred to herein as the "SHARE
PRODUCT AMOUNT"), and (b) in the event the Company has failed to deliver a Note
to the Holder on or prior to the Note Delivery Date, the product of (y) the
number of Shares issuable upon conversion of the Principal represented by the
Note as of the Note Delivery Date and (z) the Weighted Average Price of the
Common Stock on the Note Delivery Date; provided that in no event shall cash
damages accrue pursuant to this Section 2(d)(v)(A) with respect to the Share
Product Amount during the period, if any, in which the Conversion Price or the
arithmetic calculation of the Conversion Rate is subject to a bona fide dispute
that is subject to and being resolved pursuant to, and in compliance with the
time periods and other provisions of, the dispute resolution provisions of
Section 2(d)(iii), provided that the Shares are delivered to the Holder within
two (2) Business Days of the resolution of such bona fide dispute.
Alternatively, subject to Section 2(d)(iii), at the election of
13
the Holder made in the Holder's sole discretion, the Company shall pay to the
Holder, in lieu of the additional damages referred to in the preceding sentence
(but in addition to all other available remedies that the Holder may pursue
hereunder and under the Securities Purchase Agreement (including indemnification
pursuant to Section 8 thereof or at law or in equity)), 110% of the amount by
which (A) the Holder's total purchase price (including brokerage commissions, if
any) for the Shares purchased to make delivery in satisfaction of a sale by the
Holder of the Shares to which the Holder is entitled but has not received upon a
conversion exceeds (B) the net proceeds received by the Holder from the sale of
the Shares to which the Holder is entitled but has not received upon such
conversion. If the Company fails to pay the additional damages set forth in this
Section 2(d)(v)(A) within five (5) Business Days of the date incurred, then the
Holder entitled to such payments shall have the right at any time, so long as
the Company continues to fail to make such payments, to require the Company,
upon written notice, to immediately issue, in lieu of such cash damages, the
number of Shares equal to the quotient of (X) the aggregate amount of the
damages payments described herein divided by (Y) the Conversion Price in effect
on such Conversion Date as specified by the Holder in the Conversion Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason the Holder has not received all of the
Shares prior to the tenth (10th) Business Day after the Share Delivery Date with
respect to a conversion of this Note, other than due to the limitation contained
in Section 5(b) or to the pendency of a dispute being resolved in accordance
with Section 2(d)(iii) (a "CONVERSION FAILURE"), then the Holder, upon written
notice to the Company (a "VOID CONVERSION NOTICE"), may void its Conversion
Notice with respect to, and retain or have returned, as the case may be, any
portion of this Note that has not been converted pursuant to the Holder's
Conversion Notice; provided that the voiding of the Holder's Conversion Notice
shall not affect the Company's obligations to make any payments that have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise.
(C) Redemption. In the event of a Conversion
Failure, the Holder, upon written notice to the Company, may require that the
Company redeem, in accordance with Section 3, all of the Principal, including
the Principal previously submitted for conversion and with respect to which the
Company has not delivered shares of Common Stock; provided that the Holder shall
not be entitled to require redemption of any Principal pursuant to this clause
(C) solely as a result of a Conversion Failure caused by any Principal being the
subject of a bona fide dispute that is subject to and being resolved pursuant
to, and in compliance with the time periods and other provisions of, the dispute
resolution provisions of Section 2(d)(iii), provided the Shares are delivered to
the Holder within two (2) Business Days of the resolution of such bona fide
dispute.
(vi) Pro Rata Conversion. In the event the Company
receives a Conversion Notice from more than one holder of the Notes
for the same Conversion Date and the Company can convert some, but
not all, of such Notes, then, subject to Section 5(c), the Company
shall convert from each holder of the Notes electing to have Notes
converted at such time a pro rata amount of such holder's Note
submitted for conversion based on the principal amount of the Note
14
submitted for conversion on such date by such holder relative to the
principal amount of the Notes submitted for conversion on such date.
(vii) Mechanics of Mandatory Redemption. If any
Principal remains outstanding on the Maturity Date, then the Holder
shall surrender this Note, duly endorsed for cancellation, to the
Company, and such Principal shall be redeemed by the Company as of
the Maturity Date by payment on the Maturity Date to the Holder of
an amount equal to the sum of (A) 100% of such Principal plus (B)
the Interest Amount with respect to such Principal.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in
accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless all of the
Principal is being converted. The Holder and the Company shall
maintain records showing the Principal converted or redeemed and the
dates of such conversions or redemptions or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as
not to require physical surrender of this Note upon each such
conversion or redemption. In the event of any dispute or
discrepancy, such records of the Company establishing the Principal
to which the Holder is entitled shall be controlling and
determinative in the absence of demonstrable error. Notwithstanding
the foregoing, if this Note is converted or redeemed as aforesaid,
the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Company, whereupon the
Company will forthwith issue and deliver upon the order of the
Holder a new Note of like tenor, registered as the Holder may
request, representing in the aggregate the remaining Principal
represented by this Note. The Holder and any assignee, by acceptance
of this Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion or redemption of
any portion of this Note, the Principal of this Note may be less
than the principal amount stated on the face hereof.
(e) Taxes. The Company shall pay any and all taxes (excluding
income taxes, franchise taxes or other taxes levied on gross earnings, profits
or the like of the Holder) that may be payable with respect to the issuance and
delivery of Shares upon the conversion of this Note.
(3) Redemption at Option of the Holder.
(a) Redemption Option Upon Triggering Event. In addition to
all other rights of the Holder contained herein, after a Triggering Event (as
defined in Section 3(b)), the Holder shall have the right, at the Holder's
option, to require the Company to redeem all or a portion of the Principal at a
price ("REDEMPTION PRICE") equal to the sum of (i) 120% of such Principal plus
(ii) the Interest Amount with respect to such Principal.
15
(b) Triggering Event. A "TRIGGERING EVENT" shall be deemed to
have occurred at such time as any of the following events:
(i) the failure of any Note Registration Statement (as
defined in the Registration Rights Agreement) required to be filed
pursuant to Section 2(a)(iii) or Section 2(e)(iii) of the
Registration Rights Agreement to be declared effective by the SEC on
or prior to the date that is 45 days after the applicable
Effectiveness Deadline (as defined in the Registration Rights
Agreement);
(ii) while a Note Registration Statement filed pursuant
to Section 2(a)(iii), Section 2(a)(iv) or Section 2(e)(iii) of the
Registration Rights Agreement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such Note Registration Statement lapses for any
reason (including the issuance of a stop order) or is unavailable to
the Holder for sale of Note Registrable Securities (as defined in
the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five (5) consecutive Trading Days or for
more than an aggregate of ten (10) Trading Days in any 365-day
period (other than days during an Allowable Grace Period (as defined
in the Registration Rights Agreement));
(iii) the suspension from trading or failure of the
Common Stock to be listed on the NASDAQ National Market or the New
York Stock Exchange for a period of five (5) consecutive Trading
Days or for more than an aggregate of ten (10) Trading Days in any
365-day period;
(iv) the Company's or the Transfer Agent's notice to any
holder of the Notes, including by way of public announcement, at any
time, of its intention not to comply with a request for conversion
of any Notes into Shares that is tendered in accordance with the
provisions of the Notes (excluding, however, a notice that relates
solely to a bona fide dispute that is subject to and being resolved
pursuant to, and in compliance with the time periods and other
provisions of, the dispute resolution provisions of Section
2(d)(iii), provided neither such dispute nor such notice is publicly
disclosed);
(v) a Conversion Failure (as defined in Section
2(d)(v)(B));
(vi) upon the Company's receipt or deemed receipt of a
Conversion Notice, the Company not being obligated to issue Shares
upon such conversion due to the provisions of Section 5(c).
(vii) the Company or any of its Subsidiaries breaches
any representation, warranty, covenant or other term or condition of
the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrants, this Note, the Security Documents or any
other agreement, document, certificate or other
16
instrument delivered in connection with the transactions
contemplated thereby and hereby, except to the extent that such
breach would not have a Material Adverse Effect (as defined in
Section 3(a) of the Securities Purchase Agreement) and except, in
the case of a breach of a covenant or other term that is curable,
only if such breach continues for a period of at least ten (10) days
after any "officer" (as such term is defined in Rule 16a-1 under the
1934 Act) of the Company, or the principal financial officer of any
of the Company's Active Subsidiaries, knew or reasonably should have
known of such breach; or
(viii) the Company does not comply with the provisions
of Section 6, 7, 12 or 13 hereof or Section 4(l), 4(n), 4(o), 4(p),
4(q), 4(r), 4(s), 4(t) or 4(v) or the last sentence of Section 4(w)
of the Securities Purchase Agreement.
(c) Mechanics of Redemption at Option of Holder. Within one
(1) Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("NOTICE OF
TRIGGERING EVENT") to the Holder and each holder of the Other Notes. At any time
after the earlier of the Holder's receipt of a Notice of Triggering Event and
the Holder's becoming aware of a Triggering Event, the Holder may require the
Company to redeem up to all of the Principal by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
HOLDER") to the Company, which Notice of Redemption at Option of Holder shall
indicate (i) the Principal that the Holder is electing to have the Company
redeem from it and (ii) the applicable Redemption Price, as calculated pursuant
to Section 3(a) above; provided that a Notice of Redemption at Option of Holder
may only be sent during the period beginning on and including the date of the
Triggering Event and ending on and including the date which is twenty (20)
Business Days after the date on which the Holder receives a Notice of Triggering
Event from the Company with respect to such Triggering Event.
(d) Payment of Redemption Price. Upon the Company's receipt of
a Notice(s) of Redemption at Option of the Holder from any holder of the Other
Notes, the Company shall promptly notify the Holder by facsimile of the
Company's receipt of such notice(s). Each holder that has sent such a notice
shall, if required pursuant to Section 2(d)(viii), promptly submit to the
Company such holder's Note that such holder has elected to have redeemed. The
Company shall deliver the applicable Redemption Price to the Holder within five
(5) Business Days after the Company's receipt of a Notice of Redemption at
Option of Holder, provided that the Holder's Note shall have been so delivered
to the Company. If the Company is unable to redeem all of the Notes submitted
for redemption, the Company shall (i) redeem a pro rata amount from each holder
of the Notes based on the principal amount of the Notes submitted for redemption
by such holder relative to the aggregate principal amount of the Notes submitted
for redemption by all holders of the Notes, and (ii) in addition to any remedy
the Holder may have under this Note, the Securities Purchase Agreement and the
Security Documents, pay to the Holder interest at the rate of the lesser of 1.5%
per month (prorated for partial months) or the highest lawful maximum interest
rate in respect of the unredeemed Principal until paid in full.
17
(e) Void Redemption. In the event that the Company does not
pay the Redemption Price within the time period set forth in Section 3(d), at
any time thereafter and until the Company pays such unpaid Redemption Price in
full, the Holder shall have the option (the "VOID OPTIONAL REDEMPTION OPTION")
to, in lieu of redemption, require the Company to promptly return to the Holder
any or all of the Notes or any portion thereof representing the Principal that
was submitted for redemption by the Holder under this Section 3 and for which
the Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "VOID OPTIONAL
REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Holder shall be null and void
with respect to the Principal subject to the Void Optional Redemption Notice,
and (ii) the Company shall immediately return to the Holder any Note subject to
the Void Optional Redemption Notice.
(f) Disputes; Miscellaneous. In the event of a bona fide
dispute as to the determination of the arithmetic calculation of the Redemption
Price, such dispute shall be resolved pursuant to Section 2(d)(iii) above, with
the term "Redemption Price" being substituted for the term "Conversion Rate." A
holder's delivery of a Void Optional Redemption Notice and exercise of its
rights following such notice shall not affect the Company's obligations to make
any payments that have accrued prior to the date of such notice. In the event of
a redemption pursuant to this Section 3 of less than all of the Principal, the
Company shall promptly cause to be issued and delivered to the Holder a Note
representing the remaining Principal that has not been redeemed, if necessary.
(4) Other Rights of the Holders.
(a) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction that is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the
consummation of any (i) sale of all or substantially all of the Company's assets
to an acquiring Person (including, for the avoidance of doubt, the sale of all
or substantially all of the assets of the Company's Subsidiaries in the
aggregate) or (ii) other Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such assets
or the successor resulting from such Organic Change (in each case, the
"ACQUIRING ENTITY") a written agreement, in form and substance satisfactory to
the holders representing at least two-thirds (2/3) of the aggregate principal
amount of the Notes then outstanding, to deliver to the Holder in exchange for
this Note, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Note and satisfactory to the
holders representing at least two-thirds (2/3) of the aggregate principal amount
of the Notes then outstanding. Prior to the consummation of any other Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the holders representing at least two-thirds (2/3) of the
aggregate principal amount of the Notes then outstanding) to ensure that the
Holder will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the
18
Shares immediately theretofore acquirable and receivable upon the conversion of
this Note (without regard to any limitations or restrictions on conversion) such
shares of stock, securities or assets that would have been issued or payable in
such Organic Change with respect to or in exchange for the number of Shares that
would have been acquirable and receivable upon the conversion of this Note as of
the date of such Organic Change (without taking into account any limitations or
restrictions on the conversion of this Note).
(b) Optional Redemption Upon Change of Control. In addition to
the rights of the Holder under Section 4(a), upon a Change of Control (as
defined below) of the Company the Holder shall have the right, at the Holder's
option, to require the Company to redeem all or a portion of the Principal at a
price equal to 105% (or 115% in the case of an event satisfying the definition
of Change of Control pursuant to subsection (iii) below) of the Principal plus
the Interest Amount with respect to such Principal (the "CHANGE OF CONTROL
REDEMPTION PRICE"). No sooner than thirty (30) nor later than twenty (20)
Business Days prior to the consummation of a Change of Control, but not prior to
the public announcement of such Change of Control, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "NOTICE OF CHANGE
OF CONTROL") to the Holder. At any time during the period beginning after
receipt of a Notice of Change of Control (or, in the event a Notice of Change of
Control is not delivered at least twenty (20) Business Days prior to a Change of
Control, at any time on or after the date which is twenty (20) Business Days
prior to a Change of Control) and ending on the date of such Change of Control,
the Holder may require the Company to redeem all or a portion of the Principal
by delivering written notice thereof via facsimile and overnight courier (a
"NOTICE OF REDEMPTION UPON CHANGE OF CONTROL") to the Company, which Notice of
Redemption Upon Change of Control shall be irrevocable (provided that the
Company complies with its obligations under this Section 4(b)) and shall
indicate (i) the Principal that the Holder is submitting for redemption, and
(ii) the applicable Change of Control Redemption Price, as calculated pursuant
to this Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption
Upon Change of Control from any holder of the Other Notes, the Company shall
promptly, but in no event later than one (1) Business Day following such
receipt, notify the Holder by facsimile of the Company's receipt of such
Notice(s) of Redemption Upon Change of Control. The Company shall deliver the
Change of Control Redemption Price simultaneously with the consummation of the
Change of Control; provided that, if required by Section 2(d)(viii), this Note
shall have been so delivered to the Company. The Company shall not enter into
any binding agreement or other arrangement with respect to a Change of Control
unless the Company provides that the payments provided for in this Section 4(b)
shall have priority to payments to stockholders in connection with such Change
of Control and the Company complies with such provision. For purposes of this
Section 4(b), "CHANGE OF CONTROL" means (i) the consolidation, merger or other
business combination of the Company with or into another Person (other than (A)
a consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, a majority of the combined voting
power of the surviving entity or entities entitled to vote generally for the
election of a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (ii) the sale or transfer of all
or substantially all of the Company's assets (including, for the avoidance of
doubt,
19
the sale of all or substantially all of the assets of the Company's Subsidiaries
in the aggregate) or (iii) the consummation of a purchase, tender or exchange
offer made to and accepted by the holders of more than the 50% of the
outstanding Shares.
(5) Limitations on Conversion.
(a) Permitted Conversions. The Holder shall not have the right
to convert this Note except (i) at any time after the Holder delivers a Void
Optional Redemption Notice pursuant to Section 3(e), (ii) at any time after the
Holder delivers a Void Acceleration Notice pursuant to Section 11(c), (iii) at
any time after an Event of Default (as defined in Section 11(a)) arising from an
event described in clause (v) or (vi) of Section 11(a), and (iv) in connection
with a Company Alternative Conversion pursuant to Section 8, including in
connection with an Interest Conversion pursuant to Section 6 or a Mandatory
Compliance Conversion pursuant to Section 13.
(b) 4.99% Limitation. The Company shall not effect any
conversion of this Note and the Holder shall not have the right to convert
Principal or any Interest Amount in excess of that portion of the Principal
Amount or any Interest Amount that, upon giving effect to such conversion, would
cause the aggregate number of Shares beneficially owned by the Holder and its
affiliates to exceed 4.99% of the total outstanding Shares following such
conversion or issuance of Interest Shares. For purposes of the foregoing
proviso, the aggregate number of Shares beneficially owned by the Holder and its
affiliates shall include the Shares issuable upon conversion of this Note, with
respect to which the determination of such proviso is being made, but shall
exclude the Shares that would be issuable upon (i) conversion of the remaining,
unconverted Principal and any Interest Amount with respect thereto beneficially
owned by the Holder and its affiliates and (ii) exercise, conversion or exchange
of the unexercised, unconverted or unexchanged portion of any other securities
of the Company (including any warrants or convertible preferred stock) subject
to a limitation on conversion, exercise or exchange analogous to the limitation
contained herein beneficially owned by the Holder and its affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 5, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "1934 ACT"). For purposes of this Section
5(b), in determining the number of outstanding Shares the Holder may rely on the
number of outstanding Shares as reflected in (1) the Company's most recent
quarterly report on Form 10-Q, or annual report on Form 10-K, as the case may
be, (2) a more recent public announcement by the Company or (3) any other notice
by the Company or the transfer agent for the common stock setting forth the
number of Shares outstanding. Upon the written request of the Holder, the
Company shall promptly, but in no event later than two (2) Business Days
following the receipt of such request, confirm in writing to the Holder the
number of Shares then outstanding. In any case, the number of outstanding Shares
shall be determined after giving effect to the conversion, exercise or exchange
of securities of the Company, including the Notes and the Warrants, by the
Holder and its affiliates since the date as of which such number of outstanding
Shares was reported. For purposes of determining the maximum number of Shares
that the Company may issue to the Holder pursuant to Section 5(b) upon
conversion of this Note on a particular Conversion Date, Holder's delivery of a
Conversion Notice with respect to such conversion shall
20
constitute a representation (on which the Company may rely without
investigation) by the Holder that, upon the issuance of the Shares to be issued
to it on such Conversion Date, the shares of Common Stock beneficially owned by
the Holder and its affiliates shall not exceed 4.99% of the total outstanding
Shares immediately after giving effect to such conversion, as determined in
accordance with this Section 5(b).
(c) Limitation on Number of Shares Issuable Hereunder. The
Company shall not be obligated to issue any Shares upon conversion of this Note
if the issuance of such Shares would exceed that number of Shares which the
Company may issue upon conversion of the Notes and upon exercise of the Warrants
(the "EXCHANGE CAP") without breaching the Company's obligations under the rules
or regulations of the Principal Market, except that such limitation shall not
apply in the event that the Company (a) obtains Shareholder Approval or (b)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the Holders
representing at least two-thirds (2/3) of the aggregate principal amount of the
Notes then outstanding. Until Shareholder Approval or such written opinion is
obtained, no purchaser of Notes pursuant to the Securities Purchase Agreement
(the "PURCHASERS") shall be issued, upon conversion of, or as interest on, this
Note, a number of Shares greater than the product of (i) the difference of (x)
the Exchange Cap, minus (y) the sum of (A) the aggregate number of Shares that
have been issued upon exercise of any Warrants or upon conversion of any Notes
prior to the date of such determination and (B) 120% of the Shares issuable as
of the date of such determination upon exercise of all Warrants then
outstanding, multiplied by (ii) such Purchaser's Allocation Percentage (the "CAP
ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's Notes, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
holder of Notes shall convert all of such holder's Notes and exercise all of
such holder's Warrants into a number of Shares in an amount which, in the
aggregate, is less than such holder's Cap Allocation Amount, then the difference
between such holder's Cap Allocation Amount and the number of Shares actually
issued to such holder upon conversion of such holder's Notes and exercise of
such holder's Warrants shall be allocated to the respective Cap Allocation
Amounts of the remaining holders of Notes and Warrants on a pro rata basis in
proportion to the aggregate number of Shares issuable upon conversion of the
Notes and exercise of the Warrants then held by each such Holder.
(6) Interest. Interest shall be payable on each Interest Payment
Date, to the record holder of this Note on such Interest Payment Date, in cash
or, as permitted by the provisions of Section 8, by electing to convert such
Interest by giving a Company Alternative Conversion Notice (as defined below) at
least five (5) Business Days prior to such Interest Payment Date (each an
"INTEREST CONVERSION ELECTION") for a Company Alternative Conversion with
respect to an Interest Amount equal to the entire amount of such Interest (the
"INTEREST CONVERSION AMOUNT") in accordance with, and subject to the conditions
and requirements of, Section 8 (an "INTEREST CONVERSION"). If the Company does
not make an Interest Conversion Election with respect to such Interest, such
Interest shall be paid in cash. The Company may only make an Interest Conversion
Election if it makes the same election with respect to all the Notes of the same
Series. An Interest Conversion Election shall be irrevocable by the Company.
21
Upon delivery of an Alternative Conversion Notice with respect to an Interest
Conversion Amount, the Company shall comply with the provisions of Sections 8.
Any accrued and unpaid Interest which is not paid within five (5) Business Days
of such accrued and unpaid Interest's Interest Payment Date shall bear interest
at the rate of the lesser of 1.5% per month (prorated for partial months) or the
highest lawful maximum interest rate per annum from such Interest Payment Date
until the same is paid in full (the "DEFAULT INTEREST"). The Company shall pay
any and all taxes (excluding income taxes, franchise taxes or other taxes levied
on gross earnings, profits or the like of the Holder) that may be payable with
respect to the issuance and delivery of Interest Shares.
(7) Company Alternative Redemption.
(a) General. At any time after Issuance Date, the Company
shall have the right to redeem some or all of the Principal (a "COMPANY
ALTERNATIVE REDEMPTION") (excluding Principal that is part of a Pro Rata
Conversion Amount relating to a Company Alternative Conversion Notice Date
occurring prior to the Company Alternative Redemption Notice Date) for an amount
in cash equal to the product of (A) the applicable Company Alternative
Redemption Rate and (B) the sum of (i) the Principal being redeemed pursuant to
this Section 7 and (ii) the Interest Amount with respect to such Principal as of
the Company Alternative Redemption Date (as defined below) (the "COMPANY
ALTERNATIVE REDEMPTION PRICE"); provided that the Conditions to Company
Alternative Redemption (as set forth in Section 7(c)) and the conditions of this
Section 7(a) and Section 7(b) are satisfied (or waived in writing by the
Holder). The Company may exercise its right to Company Alternative Redemption by
delivering to the Holder written notice (the "COMPANY ALTERNATIVE REDEMPTION
NOTICE") at least five (5) Business Days prior to the date of consummation of
such redemption ("COMPANY ALTERNATIVE REDEMPTION DATE"). The date on which the
Holder receives the Company Alternative Redemption Notice is referred to as the
"COMPANY ALTERNATIVE REDEMPTION NOTICE DATE." A Company Alternative Redemption
Notice shall be irrevocable by the Company. If the Company elects a Company
Alternative Redemption pursuant to this Section 7(a), then it must
simultaneously take the same action with respect to all of the Other Notes of
the same Series as this Note. If the Company elects a Company Alternative
Redemption (and similar action under Other Notes of the same Series) with
respect to less than all of the aggregate principal amount of Notes of such
Series then outstanding, then the Company shall elect to redeem a principal
amount (together with the related Interest Amount) from each of the holders of
Notes of such Series equal to the product of (I) the aggregate principal amount
of the Notes of such Series that the Company has elected to redeem pursuant to
this Section 7 (or the similar provisions of such Other Notes), multiplied by
(II) the Holder's Series Allocation Percentage (such amount with respect to each
holder of the Notes is referred to as its "PRO RATA REDEMPTION AMOUNT" and with
respect to the Holder is referred to as the Pro Rata Redemption Amount). In the
event that the initial holder of any Notes of such Series shall sell or
otherwise transfer any of such holder's Notes, the transferee shall be allocated
a pro rata portion of such holder's Series Allocation Percentage. The Company
Alternative Redemption Notice shall state (i) the date selected by the Company
for the Company Alternative Redemption Date in accordance with this Section
7(a), (ii) the aggregate principal amount of Notes of such Series that the
Company has elected to redeem from all of the holders of Notes of such Series
pursuant to
22
this Section 7 and (iii) each holder's Pro Rata Redemption Amount of the
principal amount of Notes of such Series the Company has elected to redeem
pursuant to this Section 7(a).
(b) Mechanics of Company Alternative Redemption. If the
Company has exercised its right to Company Alternative Redemption in accordance
with Section 7(a) and the conditions of this Section 7 are satisfied on the
Company Alternative Redemption Date (including the Conditions to Company
Alternative Redemption as set forth in Section 7(c)) (or waived in writing by
the Holder), then the Holder's Pro Rata Redemption Amount, if any, that remains
outstanding on the Company Alternative Redemption Date shall be redeemed by the
Company on such Company Alternative Redemption Date by the payment by the
Company to the Holder on such Company Alternative Redemption Date, by wire
transfer of immediately available funds, of an amount equal to the Company
Alternative Redemption Price for the Holder's Pro Rata Redemption Amount.
Notwithstanding anything contained herein to the contrary, no notice delivered
by the Company to any Holder regarding a Condition to Company Alternative
Redemption shall contain any material non-public information.
(c) Conditions to Company Alternative Redemption. For purposes
of this Section 7, "CONDITIONS TO COMPANY ALTERNATIVE REDEMPTION" means the
following conditions: (i) during the period beginning on and including the
Issuance Date and ending on and including the applicable Company Alternative
Redemption Date, there shall not have occurred either (x) the public
announcement of a pending, proposed or intended Change of Control that has not
been abandoned, terminated or consummated and publicly disclosed as such at
least ten (10) Trading Days prior to the Company Alternative Redemption Notice
Date or (y) a Triggering Event or an Event of Default, or an event that with the
passage of time or the giving of notice and without being cured would constitute
a Triggering Event or an Event of Default; and (ii) on each day during the
period beginning 90 days prior to the Company Alternative Redemption Notice Date
and ending on and including the applicable Company Alternative Redemption Date,
the Company and its Subsidiaries otherwise shall have been in compliance with in
all material respects and shall not have breached or been in breach in any
material respect of any provision or covenant of the Securities Purchase
Agreement or any of the other Transaction Documents.
(d) Remedies. In the event that the Company does not pay the
Company Alternative Redemption Price in full for the Holder's Pro Rata
Redemption Amount on the Company Alternative Redemption Date and the Conditions
to Company Alternative Redemption were satisfied, or to the extent not
satisfied, were waived by the Holder, then in addition to any remedy the Holder
may have under this Note and the Securities Purchase Agreement (including
indemnification pursuant to Section 8 thereof or at law or in equity), the
Company Alternative Redemption Price payable in respect of such unredeemed Pro
Rata Redemption Amount shall bear interest at the rate of the lesser of 1.5% per
month (prorated for partial months) and the highest lawful maximum interest
rate.
(8) Company Alternative Conversion.
(a) General. After the date that is ten (10) Trading Days
after the
23
Registration Statement has been declared effective by the SEC, the Company shall
have the right, in accordance with the terms and subject to the conditions of
this Section 8 (and, in the case of any Interest Conversion Amount, Section 6,
and, in the case of any Mandatory Compliance Amount, Section 13) and provided
that the Conditions to Company Alternative Conversion (as set forth below) are
satisfied, to require that all or any portion of the Principal (together with
the Interest Amount with respect thereto) or any Interest payable on any
Interest Payment Date be converted at the applicable Conversion Price (a
"COMPANY ALTERNATIVE CONVERSION"). The Company may exercise its right to elect a
Company Alternative Conversion by delivering to the Holder written notice
thereof (a "COMPANY ALTERNATIVE CONVERSION NOTICE") at least five (5) Business
Days prior to the first Trading Day of the Company Alternative Conversion Period
(as defined below). The date on which the Holder receives the Company
Alternative Conversion Notice, as applicable is referred to as the "COMPANY
ALTERNATIVE CONVERSION NOTICE DATE"). If the Company elects a Company
Alternative Conversion (including an Interest Conversion pursuant to Section 6
or a Mandatory Compliance Conversion pursuant to Section 13) pursuant to this
Section 8, then it must simultaneously take the same action with respect to all
of the Other Notes of the same Series. The Company shall require conversion of a
Conversion Amount from each holder of Notes of such Series equal to (x) the
product of (I) the aggregate principal amount of Notes of such Series that the
Company has elected to convert pursuant to this Section 8 (or the similar
provisions of such Other Notes), together with the Interest Amount thereon,
multiplied by (II) such holder's Series Allocation Percentage or (y) in the case
of an Interest Conversion, the Interest Conversion Amount (such Conversion
Amount with respect to each such holder is referred to as its "PRO RATA
CONVERSION AMOUNT"). The Company Alternative Conversion Notice shall indicate
the number of consecutive Trading Days selected by the Company during which the
Holder must convert its Pro Rata Conversion Amount (the "COMPANY ALTERNATIVE
CONVERSION PERIOD") and the date of the first day of the Company Alternative
Conversion Period, which date must be at least five (5) Business Days after the
Company Alternative Conversion Notice Date, provided that (I) the Company
Alternative Conversion Period shall be at least ten (10) Trading Days and no
more than thirty (30) Trading Days, (II) in the case of a Company Alternative
Conversion that is a Mandatory Compliance Conversion under Section 13 or an
Interest Conversion under Section 6, the Company Alternative Conversion Period
shall be the twenty (20) consecutive Trading Days commencing five (5) Business
Days after such Company Alternative Conversion Notice Date, and (III) any
Company Alternative Conversion Period set forth in any Company Alternative
Conversion Notice given pursuant to any Other Notes on the same day shall be the
same as the Company Alternative Conversion Period set forth in the Company
Alternative Conversion Notice given pursuant to this Note. The Company
Alternative Conversion Notice shall also indicate the date selected by the
Company for the last Trading Day of the Company Alternative Conversion Period,
which is the last date by which the Holder must convert its Pro Rata Conversion
Amount (the "FINAL COMPANY ALTERNATIVE CONVERSION DATE"), (x) the aggregate
principal amount (or Interest in the case of an Interest Conversion Election) of
the Series of Notes that the Company has elected to convert from all the holders
of Notes of such Series pursuant to this Section 8 (or other similar provisions
in such Other Notes), and (y) each holder's Pro Rata Conversion Amount.
(b) Mechanics of Company Alternative Conversion. If the
Company has exercised its right
24
to Company Alternative Conversion in accordance with Section 8(a) and Section 6
or 13, as applicable, and the conditions of this Section 8 are satisfied (or
waived in writing by the Holder) on the Company Alternative Conversion Notice
Date and at each time the Holder delivers a Conversion Notice or is deemed to
have delivered a Conversion Notice with respect to any portion of the Pro Rata
Conversion Amount (a "COMPANY ALTERNATIVE CONVERSION DATE") (including the
Conditions to Company Alternative Conversion as set forth in Section 8(c)),
then, subject to Sections 5 and 8(d), the Holder shall convert the Pro Rata
Conversion Amount, together with any Interest Amount with respect to the
allocable portion of principal represented by such Pro Rata Conversion Amount
accruing through and including the applicable Conversion Date, in whole or in
part and at such time or times as the Holder, in its sole discretion determines,
during the Company Alternative Conversion Period; provided, however, that the
Holder shall not be permitted to convert during the Company Alternative
Conversion Period, any portion of the Conversion Amount that exceeds the product
of (i) the Holder's Series Allocation Percentage and (ii) twenty percent (20%)
of the sum of the daily dollar trading volume (as reported by Bloomberg) of the
Common Stock on its Principal Market on each of the Trading Days during the
Company Alternative Conversion Period (such limitation, the "VOLUME CONVERSION
RESTRICTION AMOUNT"). In the event any Pro Rata Conversion Amount has not been
converted by the Holder prior to the Final Company Alternative Conversion Date,
then, subject to the limitations set forth in Sections 5 and 8(e), the remaining
Pro Rata Conversion Amount shall be converted as of the Final Company
Alternative Conversion Date, as if the Holder had delivered a Conversion Notice
pursuant to Section 2 with respect to such Pro Rata Conversion Amount on the
Final Company Alternative Conversion Date but without the Holder being required
to actually deliver such Conversion Notice, provided that the Conditions to
Company Alternative Conversion are satisfied (or waived in writing by the
Holder) on the Final Company Alternative Conversion Date. In the event that the
Conditions to Company Alternative Conversion are not satisfied on the Final
Company Alternative Conversion Date (and, for the avoidance of doubt, on each
day during the Company Alternative Conversion Period), then the Company
Alternative Conversion shall be null and void with respect to all or any part
designated by the Holder of the unconverted Pro Rata Conversion Amount and the
Holder shall be entitled to all the rights of a holder of this Note with respect
to such amount of the Pro Rata Conversion Amount and, accordingly, shall be
subject to all the other provisions of this Note, including that if such amount
remains outstanding on the Maturity Date, then the Company shall redeem the
Principal represented by such amount in accordance with Section 2(d)(vii),
unless such Pro Rata Conversion Amount is an Interest Conversion Amount, a
Mandatory Compliance Amount or an Excluded Amount, in which the case Company
shall be deemed to have given a Company Alternative Redemption Notice with
respect to such unconverted Pro Rata Conversion Amount (and, for purposes of
Section 7(a), shall be entitled to give such Company Alternative Redemption
Notice), and such amount shall be redeemed or paid by the Company within five
(5) Business Days in accordance with Section 7. Notwithstanding the foregoing,
at any time during a Company Alternative Conversion Period that does not relate
to an Interest Conversion or a Mandatory Compliance Conversion, the Company may
give written notice to the Holder of termination of such Company Alternative
Conversion Period, provided that the Company gives the same notice to all
holders of Notes of this Series, and in such case, such Company Alternative
Conversion Period shall terminate at the end of the first Business Day following
the Holder's receipt of such notice of termination, the Company Alternative
Conversion shall be null
25
and void with respect to any part of the Pro Rata Conversion Amount that has not
been converted as of such termination of the Company Alternative Conversion
Period (by delivering a Conversion Notice on or prior to the first Business Day
following the Holder's receipt of such notice of termination), and the Holder
shall be entitled to all the rights of a holder of the Note with respect to such
amount of the Pro Rata Conversion Amount and, accordingly, shall be subject to
all the other provisions of this Note, including that if such amount remains
outstanding on the Maturity Date, then the Company shall redeem the Principal
represented by such amount in accordance with Section 2(d)(vii). Notwithstanding
anything contained herein to the contrary, no notice delivered by the Company to
any Holder regarding a Condition to Company Alternative Conversion shall contain
any material non-public information.
(c) Conditions to Company Alternative Conversion. "CONDITIONS
TO COMPANY ALTERNATIVE CONVERSION" means the following conditions: (i) except in
the case of an Interest Conversion or Mandatory Compliance Conversion, the
aggregate principal amount of the Notes of any Series selected for conversion by
the Company as reflected in the Company Alternative Conversion Notice is at
least $500,000 (or, if less, the aggregate principal amount of the Notes of such
Series then outstanding); (ii) none of the Expected Trading Days during the
Company Alternative Conversion Period to which the Company Alternative
Conversion Notice relates shall be Expected Trading Days in any Company
Alternative Conversion Period as to which another Company Alternative Conversion
Notice has been given pursuant to this Note or any Other Notes; (iii) the
aggregate Conversion Amount of the Notes selected for conversion by the Company
as reflected in the Company Alternative Conversion Notice shall not exceed
fifteen percent (15%) of the product of (I) the arithmetic average of the daily
dollar trading volume (as reported by Bloomberg) of the Common Stock on its
Principal Market over the twenty (20) consecutive Trading Days ending on and
including the date that is immediately preceding the Company Alternative
Conversion Notice Date multiplied by (II) the number of Expected Trading Days
during the Company Alternative Conversion Period to which the Company
Alternative Conversion Notice relates; (iv) the Company shall not have delivered
the Company Alternative Conversion Notice during any other Company Alternative
Conversion Period nor, except in the case of a Company Alternative Conversion
being effected for purposes of a Mandatory Compliance Conversion under Section
13, within twenty (20) Trading Days after the previous Final Company Alternative
Conversion Date; (v) during the period beginning on and including the Issuance
Date and ending on and including the Company Alternative Conversion Date, there
shall not have occurred either (x) the public announcement of a pending,
proposed or intended Change of Control that has not been abandoned, terminated
or consummated and publicly disclosed as such at least ten (10) Trading Days
prior to the Company Alternative Conversion Date or (y) a Triggering Event or an
Event of Default (as defined in Section 11); (v) during the period beginning on
the Issuance Date and ending on and including the Company Alternative Conversion
Date, the Company shall have delivered Shares upon conversion of the Notes and
upon exercise of the Warrants on a timely basis as set forth in Section 2(d)(ii)
of the Notes and Section 2(a) of the Warrants, respectively; (vi) on each day
during the period beginning on and including the date that is forty-five (45)
days prior to the Company Alternative Conversion Notice Date and ending on and
including the applicable Company Alternative Conversion Date, the Common Stock
is listed on the NASDAQ National Market
26
or the New York Stock Exchange and the Common Stock has not been suspended from
trading on the NASDAQ National Market or the New York Stock Exchange nor shall
delisting or suspension by the NASDAQ National Market or the New York Stock
Exchange have been threatened either (A) in writing by the NASDAQ National
Market or the New York Stock Exchange or (B) by falling below the minimum
listing maintenance requirements of the NASDAQ National Market or the New York
Stock Exchange; (vii) on each day during the period beginning on and including
the date that is ten (10) days prior to the Company Alternative Conversion
Notice Date and ending on and including the Company Alternative Conversion Date,
a Registration Statement shall be effective and available for the sale of not
less 150% of the Registrable Securities issuable upon conversion as of the
Company Alternative Conversion Notice Date of the aggregate Conversion Amount
selected for conversion by the Company as reflected in the Company Alternative
Conversion Notice, in accordance with the Registration Rights Agreement, and
there shall not have been any Grace Period applicable to such Registration
Statement (as defined in the Registration Rights Agreement); (viii) on each day
during the period beginning ninety (90) days prior to the Company Alternative
Conversion Notice Date, the Company and its Subsidiaries otherwise shall have
been in compliance with in all respects and shall not have breached or been in
breach of any provision or covenant of the Notes or any other Transaction
Documents; and (ix) the Company shall have obtained all requisite approvals of
its stockholders for the issuance of the Shares to the holders of the Notes.
(d) Company Alternative Conversion Floor. If the Weighted
Average Price of the Common Stock during the applicable Company Alternative
Conversion Period falls below $4.00 (subject to adjustment for stock splits,
stock dividends, stock combinations and other similar events after the date of
the Securities Purchase Agreement) or such higher price (which shall not exceed
85% of the lesser of (i) the arithmetic average of the Weighted Average Price of
the Common Stock on each of the five (5) Trading Days immediately preceding the
Company Alternative Conversion Notice Date and (ii) the Weighted Average Price
on the Trading Day immediately preceding the Company Alternative Conversion
Notice Date) as provided by the Company in the applicable Company Alternative
Conversion Notice (the "COMPANY ALTERNATIVE CONVERSION TRIGGER PRICE"), then any
Company Alternative Conversion pursuant to Section 8(b) shall automatically
terminate with respect to any Pro Rata Conversion Amount that is not subject to
a Conversion Notice delivered to the Company on or prior to the Company
Alternative Conversion Floor Trigger Date (as defined below), in accordance with
this Section 8(d). The Company Alternative Conversion Trigger Price shall be
subject to adjustment for any stock dividend, stock split, stock combination or
other similar transaction. The first Trading Day, if any, during the applicable
Company Alternative Conversion Period on which the Weighted Average Price of the
Common Stock is less than the Company Alternative Conversion Trigger Price shall
constitute a "COMPANY ALTERNATIVE CONVERSION FLOOR TRIGGER DATE" with respect to
such Company Alternative Conversion Period. On the first day immediately
following the Company Alternative Conversion Floor Trigger Date the Company
Alternative Conversion shall be null and void with respect any portion of the
Pro Rata Conversion Amount that the Holder has not converted on or prior to the
Company Alternative Conversion Floor Trigger Date (by delivering a Conversion
Notice on or prior to the Company Alternative Conversion Floor Trigger Date),
and the holder shall be entitled to all the rights of a holder of this Note with
respect to such amount of the Pro Rata Conversion Amount and, accordingly, shall
be subject to all the other provisions of this Note, including that if such
27
amount remains outstanding on the Maturity Date, then the Company shall redeem
the Principal represented by such amount in accordance with Section 2(d)(vii),
unless such Pro Rata Conversion Amount is an Interest Conversion Amount, a
Mandatory Compliance Amount or an Excluded Amount, in which case the Company
shall be deemed to have given a Company Alternative Redemption Notice with
respect to such unconverted Pro Rata Conversion Amount (and, for purposes of
Section 7(a) shall be entitled to give such Company Alternative Conversion
Notice), and such amount shall be redeemed or paid by the Company within two (2)
Business Days of the Company Alternative Conversion Floor Trigger Date in
accordance with Section 7.
(e) Company Alternative Conversion Period Volume Limitations.
Notwithstanding anything contained in this Section 8 to the contrary, on the
applicable Final Company Alternative Conversion Date, (i) the Holder shall not
be required (but shall be permitted subject to clause (ii) of this Section 8(e))
to convert (and shall not be deemed, solely as a result of Section 8(b), to have
converted) any portion of the Pro Rata Conversion Amount on the applicable Final
Company Alternative Conversion Date in excess of the difference between (A) the
product of (I) the Holder's Series Allocation Percentage and (II) ten percent
(10%) of the sum of the daily dollar trading volume (as reported by Bloomberg)
of the Common Stock on its Principal Market on each of the Trading Days during
the Company Alternative Conversion Period, minus (B) any Pro Rata Conversion
Amount converted by the Holder during the Company Alternative Conversion Period
and (ii) the Holder shall neither be required nor permitted to convert (and
shall not be deemed, solely as a result of Section 8(b) to have converted) any
portion of the Pro Rata Conversion Amount on the applicable Final Company
Alternative Conversion Date in excess of the difference between (A) the
applicable Volume Conversion Restriction Amount, minus (B) any Pro Rata
Conversion Amount converted by the Holder during the Company Alternative
Conversion Period. Following the Final Company Alternative Conversion Date, the
Company Alternative Conversion shall be null and void with respect to the
unconverted Pro Rata Conversion Amount, and the Holder shall be entitled to all
the rights of a holder of this Note with respect to such amount of the Pro Rata
Conversion Amount, and, accordingly, shall be subject to all the other
provisions of this Note, including that if such amount remains outstanding on
the Maturity Date, then the Company shall redeem the Principal represented by
such amount in accordance with Section 2(d)(vii), unless such Pro Rata
Conversion Amount is an Interest Conversion Amount, a Mandatory Compliance
Amount or an Excluded Amount, in which case the Company shall be deemed to have
given a Company Alternative Redemption Notice with respect to such unconverted
Pro Rata Conversion Amount (and, for purposes of Section 7(a), shall be entitled
to give such Company Alternative Redemption Notice), and such amount shall be
redeemed or paid by the Company within five (5) Business Days in accordance with
Section 7.
(9) Reservation of Shares.
(a) Reservation. The Company shall, so long as any of the
Notes are outstanding, take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number of Shares as shall from time
to time be sufficient to effect the conversion of all of the principal amount
then outstanding under the Notes (together with accrued and unpaid Interest
28
thereon); provided that the number of Shares so reserved shall at no time be
less than 100% of the number of Shares for which the Notes are at any time
convertible (without regard to any limitations on conversions) (the "REQUIRED
RESERVE AMOUNT"). The initial number of Shares reserved for conversions of the
Notes and each increase in the number of Shares so reserved shall be allocated
pro rata among the holders of the Notes based on the principal amount of the
Notes held by each holder at the time of issuance of the Notes or increase in
the number of reserved Shares, as the case may be. In the event the Holder shall
sell or otherwise transfer any portion of the Holder's Notes, each transferee
shall be allocated a pro rata portion of the number of Shares reserved for such
transferor. Any Shares reserved and allocated to any Person that ceases to hold
any Notes shall be allocated to the remaining holders of the Notes, pro rata
based on the principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time while any
of the Notes remain outstanding the Company does not have a sufficient number of
authorized and unreserved Shares to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of Shares equal to the
Required Reserve Amount, then the Company shall immediately take all action
necessary to increase the Company's authorized Shares to an amount sufficient to
allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding.
(10) Voting Rights. The Holders of the Notes shall have no voting
rights, except as required by law and as expressly provided in this Note.
(11) Defaults and Remedies.
(a) Events of Default. An "EVENT OF DEFAULT" is (i) default in
payment of any Principal of this Note, any Company Alternative Redemption Price,
or any Change of Control Redemption Price, when and as due; (ii) default in
payment of any Interest on this Note that is not included in an amount described
in the immediately preceding clause (i) that is not cured within two (2)
Business Days from the date such Interest was due; (iii) failure by the Company
for ten (10) days after notice to it to comply with any other provision of this
Note in all material respects; (iv) any default in payment of at least $300,000,
individually or in the aggregate, under or acceleration prior to maturity of, or
any event or circumstances arising such that, any person is entitled, or could,
with the giving of notice and/or lapse of time and/or the fulfillment of any
condition and/or the making of any determination, become entitled, to require
repayment before its stated maturity of, or to take any step to enforce any
security for, any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed of at least $300,000 by the Company or any of its Subsidiaries or for
money borrowed the repayment of at least $300,000 of which is guaranteed by the
Company or any of its Subsidiaries, whether such indebtedness or guarantee now
exists or shall be created hereafter; (v) if the Company or any of its
Subsidiaries pursuant to or within the meaning of any Bankruptcy Law (as defined
below); (A) commences a voluntary case; (B) consents to the entry of an order
for relief against it in an involuntary case; (C) consents to the appointment of
a Custodian of it or any of its Subsidiaries for all or substantially all of its
property; (D) makes a general assignment for the benefit of its creditors; or
29
(E) admits in writing that it is generally unable to pay its debts as the same
become due; (vi) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian (as defined below) of the Company or
any Subsidiary for all or substantially all of its property; or (3) orders the
liquidation of the Company or any Subsidiary; (vii) the Company fails to file,
or is determined to have failed to file, in a timely manner any report required
to be filed with the SEC pursuant to the 1934 Act, provided that any filing made
within the time period permitted by Rule 12b-25 under the 1934 Act and pursuant
to a timely filed Form 12b-25 shall, for purposes of this clause (vii), be
deemed to be timely filed; (viii) the Company or any of its Subsidiaries
breaches any representation, warranty, covenant or other term or condition of
the Security Documents that adversely affects the security interest of the
Holder (or any agent or representative thereof on their behalf) in any material
portion of the Collateral (as defined in the Security Agreement) or the
perfection or priority thereof; or (ix) one or more judgments, non-interlocutory
orders or decrees shall be entered by a U.S. state or federal or a foreign court
or administrative agency of competent jurisdiction against any the Company or
any of its Subsidiaries involving in the aggregate a liability (to the extent
not covered by independent third-party insurance) as to any single or related
series of transactions, incidents or conditions, of $300,000 or more, and the
same shall remain unsatisfied, unvacated, unbonded or unstayed pending appeal
for a period of thirty (30) days after the entry thereof. The term "BANKRUPTCY
LAW" means Title 11, U.S. Code, or any similar federal or state law for the
relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law. Within five (5)
Business Days after the occurrence of any Event of Default set forth in clause
(iv), (v), (vi), (viii) or (ix) above, the Company shall deliver written notice
thereof to the Holder.
(b) Remedies. If an Event of Default occurs and is continuing,
the Holder of this Note may declare all of this Note, including all amounts due
hereunder (the "ACCELERATION AMOUNT"), to be due and payable immediately, except
that in the case of an Event of Default arising from events described in clauses
(v) and (vi) of Section 11(a), this Note shall immediately become due and
payable without further action or notice. In addition to any remedy the Holder
may have under this Note and the Securities Purchase Agreement, such unpaid
amount shall bear interest at the rate of the lesser of 1.5% per month (prorated
for partial months) or the highest lawful maximum interest rate until paid in
full. Nothing in this Section 11 shall limit any other rights the Holder may
have under this Note, the Security Documents or the Securities Purchase
Agreement, including Sections 2 and 3 of this Note.
(c) Void Acceleration. In the event that the Company does not
pay the Acceleration Amount within five (5) Business Days of this Note becoming
due under Section 11(b), at any time thereafter and until the Company pays such
unpaid Acceleration Amount in full, the Holder shall have the option to, in lieu
of redemption, require the Company to promptly return this Note (to the extent
this Note has been previously delivered to the Company), in whole or any portion
thereof, to the Holder, by sending written notice thereof to the Company via
facsimile (the "VOID ACCELERATION NOTICE"). Upon the Company's receipt of such
Void Acceleration Notice, (i) the acceleration pursuant to Section 11(b) shall
be null and void with respect to the portion of this Note subject to such Void
Acceleration Notice, and (ii)
30
the Company shall promptly return the portion of this Note (to the extent this
Note has been previously delivered to the Company) subject to such Void
Acceleration Notice.
(12) Other Indebtedness. Payments of principal and other payments
due under this Note shall not be subordinated to any obligations of the Company.
The Holder of this Note is entitled to the benefits of the Security Documents,
and in the event of a transfer of this Note in accordance with the terms hereof
and the Securities Purchase Agreement, the Holder shall be deemed to have
assigned its rights under the Security Documents. For so long as this Note is
outstanding, the Company shall not, and shall not permit any of its Subsidiaries
to, (a) issue, incur, assume or extend the term of any Indebtedness (as defined
below) except for (I) Indebtedness under the Notes, (II) Indebtedness, (A) the
holders of which agree in writing to be subordinate to the Notes on terms and
conditions acceptable to the Buyers, including with regard to interest payments
and repayment of principal, (B) which does not mature or otherwise require or
permit redemption or repayment prior to or on the Maturity Date of any Notes
then outstanding; and (C) which is not secured by any assets of the Company or
any of its Subsidiaries, (III) Indebtedness solely between the Company and/or
one of its domestic Active Subsidiaries, on the one hand, and the Company and/or
one of its domestic Active Subsidiaries, on the other, provided that in each
case a majority of the equity of any such domestic Active Subsidiary is directly
or indirectly owned by the Company, such domestic Active Subsidiary is
controlled by the Company and such domestic Active Subsidiary is a party to the
Guaranty Agreement and the Security Agreement, (IV) surety bonds, bids,
performance bond, and similar obligations (exclusive of obligations for the
payment of borrowed money) obtained by the Company and its Subsidiaries in the
ordinary course of business for the purpose of satisfying federal, state and/or
local legal requirements for owning and operating their oil and gas properties
or operating the Services Business, (V) Capital Lease Obligations incurred in
connection with acquiring equipment for the Company's oil and gas exploration
and production business in amounts not exceeding individually, the fair market
value of the equipment subject to such Capital Lease Obligations and in an
aggregate outstanding amount not exceeding 7.5% of After-tax PV10 at any one
time, (VI) reimbursement obligations in respect of letters of credit issued by
one or more financial institutions for the account of the Company or any of its
Active Subsidiaries in connection with the Company's establishment and
maintenance of a Hedged position with respect to, at any time, a maximum of 2/3
of the Company's estimate of its oil and gas production for the succeeding 12
calendar months on a rolling 12-calendar month basis, (VII) reimbursement
obligations in respect of letters of credit issued for the account of the
Company or any of its Active Subsidiaries for the purpose of securing
performance obligations of the Company or its Active Subsidiaries incurred in
the ordinary course of business (and not issued in connection with the Company's
establishment and maintenance of a Hedged position) so long as the aggregate
face amount of all such letters of credit do not exceed $1,000,000 at any one
time, (VIII) Indebtedness under that certain unsecured promissory note, dated
January 27, 2003, in the name of Dobber Aviation, L.L.C., in a principal amount
not exceeding $2,500,000 (less any payments of principal thereon or other
reductions to principal made from time to time with respect thereto), and (IX)
that certain unsecured obligation of the Company to Premium Assignment
Corporation existing as of the date of this Agreement in an amount not to exceed
$159,623.86 (less any payments of such obligation or other reductions to such
obligation made from time to time with respect thereto); (b) issue, incur,
assume, or extend the term of any
31
Indebtedness in a principal amount in excess of $2,000,000 where the proceeds of
such Indebtedness are to be used to develop, or in connection with the
development of, assets located outside the United States in which the holders of
the Notes do not have a valid, perfected first priority security interest; (c)
issue any capital stock of the Company or any Subsidiary redeemable prior to the
Maturity Date; (d) directly or indirectly, create, assume or suffer to exist any
Lien, other than a Permitted Lien, on any asset now owned or hereafter acquired
by the Company or any of its Subsidiaries; or (e) except as required or
expressly permitted by Section 4(d), 4(q), 4(r) or 4(u) of the Securities
Purchase Agreement, redeem, or otherwise repay in cash any principal of, any
Indebtedness (other than Indebtedness under the Notes). For purposes of this
Note: (x) "INDEBTEDNESS" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
unsecured account trade payables that are (i) entered into or incurred in the
ordinary course of the Company's and its Subsidiaries' business, (ii) on terms
that require full payment within 90 days, (iii) not unpaid in excess of 90 days
beyond invoice due date or are being contested in good faith and as to which
such reserve as is required by GAAP has been made and (iv) not exceeding at any
one time an aggregate among the Company and its Subsidiaries of $5,000,000 in
the oil and gas production segment of the Company's business (as such segment is
described in the Company's annual report on Form 10-K for the year ended
December 31, 2003) or $1,000,000 in all other segments of the Company's
business, collectively, (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures, redeemable capital stock
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
Capital Lease Obligations, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
Lien, pledge, change, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person that owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above; (y) "CAPITAL LEASE OBLIGATION"
means, as to any Person, any obligation that is required to be classified and
accounted for as a capital lease on a balance sheet of such Person prepared in
accordance with GAAP, and the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with GAAP; and (z) "CONTINGENT
OBLIGATION" means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto.
32
(13) Free Cash Flow Amount and Mandatory Compliance Conversion or
Redemption. On the first Business Day following each date that the Company files
or is required to file an annual report on Form 10-K or a quarterly report on
Form 10-Q (which in each case shall disclose the Free Cash Flow Amount as of the
end of the period covered by such report and details of the calculation thereof,
and the components thereof), the Company shall deliver to the Holder a
certificate executed by its principal financial officer (an "OFFICER'S
CERTIFICATE") certifying as to whether or not as of the end of the period
covered by such report, there is a Free Cash Flow Test Failure and the related
calculations with respect thereto. Notwithstanding anything contained herein to
the contrary, no Officer's Certificate delivered by the Company to any Holder
regarding a Free Cash Flow Test Failure shall contain any material non-public
information. Upon each occurrence of a Free Cash Flow Test Failure, the Company
shall provide the Holder, by the third (3rd) Business Day following the delivery
of the Officer's Certificate either (i) if permitted by the provisions of
Section 8, a Company Alternative Conversion Notice for a Company Alternative
Conversion of Principal of this Note equal to the applicable Mandatory
Compliance Amount, and any Interest Amount related thereto, in accordance with,
and subject to the conditions and requirements of, Section 8 (a "MANDATORY
COMPLIANCE CONVERSION"), (ii) a Company Alternative Redemption Notice for a
Company Alternative Redemption of the Principal of this Note equal to the
applicable Mandatory Compliance Amount, and any Interest Amount related thereto,
in accordance with Section 7 (a "MANDATORY COMPLIANCE REDEMPTION") or (iii) a
combination of the immediately preceding clauses (i) and (ii); provided that all
of the outstanding applicable Mandatory Compliance Amount, and any Interest
Amount related thereto, must be converted or redeemed by the Company, subject to
the provisions of Section 7 and/or 8, as applicable; provided further that the
Company may elect more than one of the Mandatory Compliance Conversion and the
Mandatory Compliance Redemption, if each such election is with respect to at
least 20% of the Mandatory Compliance Amount and if such election is the same
for all Notes of the same Series. If the Company has not satisfied the
conditions required to make a Mandatory Compliance Conversion election with
respect to one or more Series of Notes, subject to satisfaction of the
conditions of Section 8, the Company may still make a Mandatory Compliance
Conversion election with respect to those Series of Notes for which it can
satisfy the conditions for delivery of a Mandatory Compliance Conversion
election. Upon delivery of a Company Alternative Redemption Notice or Company
Alternative Conversion Notice pursuant to the preceding sentence, the Company is
required to comply with the provisions of Sections 7 and 8, respectively. If a
Company Alternative Conversion Notice does not cover the entire applicable
Mandatory Compliance Amount or no Company Alternative Conversion Notice is given
with respect to an applicable Mandatory Compliance Amount, the Company will be
deemed to have elected a Mandatory Compliance Redemption hereunder with respect
to the remaining Mandatory Compliance Amount not covered by a Company
Alternative Conversion Notice (and, for purposes of Section 7(a), shall be
entitled to elect such Mandatory Compliance Redemption).
(14) Participation; Restrictions. While this Note is outstanding,
the Company shall not, and shall not permit any of its Subsidiaries to: (i)
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any
33
capital stock; provided however, that any Subsidiary may declare, set aside or
pay any dividends on or make any other distributions (whether in cash, stock,
equity securities or property) in respect of any of its capital stock that is
held solely by the Company or by a domestic Active Subsidiary, provided that a
majority of the equity of such domestic Active Subsidiary is directly or
indirectly owned by the Company, such domestic Active Subsidiary is controlled
by the Company and such domestic Active Subsidiary is a party to the Guaranty
Agreement and the Security Agreement, (ii) purchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital stock or the capital
stock of any of its Subsidiaries, direct or indirect, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof and set forth on Schedule 3(c) of the Securities
Purchase Agreement, or (iii) grant, issue or sell any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of its capital stock. While this
Note is outstanding, the Company and its Subsidiaries shall not enter into any
agreement which would limit or restrict the Company's or any of its
Subsidiaries' ability to perform under, or take any other voluntary action to
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it under, this Note, the Securities Purchase Agreement,
the Registration Rights Agreement, the Warrants and the Security Documents.
(15) Notices.
(a) The Company will give written notice to the Holder at
least ten (10) Business Days prior to the date on which the Company closes its
books or takes a record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with respect to
any Organic Change (as defined in Section 4(a)), dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
(b) The Company will also give written notice to the Holder at
least ten (10) Business Days prior to the date on which any Organic Change (as
defined in Section 4(a)), dissolution or liquidation will take place, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.
(16) Vote to Change the Terms of the Notes. The written consent of
the Company and the holders representing at least two-thirds (2/3) of the
principal amount then outstanding under the Notes of the same Series shall be
required for any change that relates only to such Series of Notes (including
this Note) and upon receipt of such consent, each such Note of the such Series
shall be deemed amended thereby. The written consent of the Company and the
holders representing at least two-thirds (2/3) of the principal amount then
outstanding under the all of the Notes shall be required for any change that
relates to all of the Notes (including this Note), and upon receipt of such
consent, each Note shall be deemed amended thereby.
(17) Lost or Stolen Notes. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note,
34
and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Holder to the Company in customary form and reasonably
satisfactory to the Company and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver a new Note of
like tenor and date; provided, however, the Company shall not be obligated to
re-issue a Note if the Holder contemporaneously requests the Company to convert
this Note in its entirety into Shares as permitted hereunder.
(18) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy, and nothing herein shall limit the
Holder's right to pursue actual damages for any failure by the Company to comply
with the terms of this Note. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(19) Specific Shall Not Limit General; Construction. No specific
provision contained in this Note shall limit or modify any more general
provision contained herein. This Note shall be deemed to be jointly drafted by
the Company and all Purchasers and shall not be construed against any person as
the drafter hereof.
(20) Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
(21) Notice. Whenever notice is required to be given under this
Note, unless otherwise provided herein, such notice shall be given in accordance
with Section 9(f) of the Securities Purchase Agreement.
(22) Transfer of this Note. The Holder may assign or transfer some
or all of its rights hereunder, subject to compliance with the 1933 Act and the
provisions of Section 2(f) of the Securities Purchase Agreement without the
consent of the Company, provided that any transfer of this Note to a Person that
is not an affiliate of the Holder of this Note of less than all of the Principal
represented hereby, shall be in Principal amount of not less than $2,000,000.
35
(23) Payment of Collection, Enforcement and Other Costs. If (a) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding; or (b) an attorney is
retained to represent the Holder in any bankruptcy, reorganization, receivership
of the Company or other proceedings affecting Company creditors' rights and
involving a claim under this Note, then the Company shall pay the costs incurred
by the Holder for such collection, enforcement or action, including reasonable
attorneys' fees and disbursements.
(24) Cancellation. After all principal and other amounts at any time
owed under this Note have been paid in full or converted into Shares in
accordance with the terms hereof, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.
(25) Note Exchangeable for Different Denominations. Subject to
Section 2(d)(viii), in the event of a conversion or redemption pursuant to this
Note of less than all of the Principal, the Company shall promptly cause to be
issued and delivered to the Holder, upon tender by the Holder of this Note, a
new Note of like tenor representing the remaining Principal that has not been so
converted or redeemed. This Note is exchangeable, upon the surrender hereof by
the Holder at the principal office of the Company, for a new Note or Notes
containing the same terms and conditions and representing in the aggregate the
Principal, and each such new Note will represent such portion of such Principal
as is designated by the Holder at the time of such surrender. The date the
Company issued this Note shall be the "Issuance Date" hereof regardless of the
number of times a new Note shall be issued.
(26) Waiver of Notice. To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, the Security Documents and the Securities Purchase Agreement.
(27) Governing Law. This Note shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
country or jurisdiction) that would cause the application of the laws of any
jurisdiction or country other than the State 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, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. 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 to such
party at the address for such notices to it under this Note 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
36
right to serve process in any manner permitted by law. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
(28) Effect of Redemption or Conversion; No Prepayment. Upon payment
of the Redemption Price, the Change of Control Redemption Price, the Company
Alternative Redemption Price or the amount provided for in Section 2(d)(vii),
each in accordance with the terms hereof with respect to any portion of the
Principal of this Note, or delivery of Shares upon conversion of any portion of
the Principal in accordance with the terms hereof, such portion of the Principal
of this Note shall be deemed paid in full and shall no longer be deemed
outstanding for any purpose. Except as specifically set forth in this Note,
including Section 2, the Company does not have any right, option, or obligation,
to pay any portion of the Principal at any time prior to the Maturity Date.
(29) Payment Set Aside. To the extent that the Company makes a
payment or payments to the Holder hereunder or the Holder enforces or exercises
its rights hereunder, 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,
by a trustee, receiver or any other person under any law (including any
bankruptcy law, U.S. 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.
(30) Interpretative Matters. Unless the context otherwise requires,
(a) all references to Sections, Schedules or Exhibits are to Sections, Schedules
or Exhibits contained in or attached to this Note, (b) each accounting term not
otherwise defined in this Note has the meaning assigned to it in accordance with
GAAP, (c) words in the singular or plural include the singular and plural and
pronouns stated in either the masculine, the feminine or neuter gender shall
include the masculine, feminine and neuter and (d) the use of the word
"including" in this Note shall be by way of example rather than limitation. If a
stock split, stock dividend, stock combination or other similar event occurs
during any period over which an average price is being determined, then an
appropriate adjustment will be made to such average to reflect such event.
* * * * * *
37
IN WITNESS WHEREOF, the Company has caused this Note to be signed by
_____________, its ____________________, as of the ___ day of _________ 200__.
INFINITY, INC.
By: _______________________________________
Name:
Title:
EXHIBIT I
INFINITY, INC.
CONVERSION NOTICE
Reference is made to the Convertible Note (the "NOTE") of Infinity, Inc.,
a Colorado corporation (the "COMPANY"). In accordance with and pursuant to the
Note, the undersigned hereby elects to convert the Conversion Amount (as defined
in the Note) of the Note indicated below into Shares of Common Stock, par value
$0.0001 per share (the "COMMON STOCK"), of the Company, as of the date specified
below.
Date of Conversion:_______________________________________________________
Aggregate Conversion Amount to be converted, other than pursuant to
Section 6:________________
Principal, applicable thereto, to be converted:___________________________
Interest Conversion Amount to be converted pursuant to Section 6:_________
Please confirm the following information:
Conversion Price:________________________________________________________
Number of shares of Common Stock to be issued:___________________________
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:_________________________________________________________________
Facsimile Number:_________________________________________________________
Authorization:__________________________
By:_____________________________
Title:__________________________
Dated:__________________________________
DTC Participant Number and Name (if electronic book entry transfer):______
Account Number (if electronic book entry transfer):_______________________
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ___________ ___, 200_
from the Company and acknowledged and agreed to by [TRANSFER AGENT].
INFINITY, INC.
By:________________________________
Name:______________________________
Title:_____________________________