EXHIBIT 4.3
EXHIBIT B
FORM OF ADDITIONAL 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 DATE THAT IS 42 MONTHS AFTER THE ISSUANCE DATE], or if
there has been a Maturity Date Extension, [INSERT THE DATE
THAT IS FIFTY-FOUR (54) MONTHS AFTER 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 [INSERT THE FIRST DAY
OF THE FIRST CALENDAR QUARTER COMMENCING AFTER THE ISSUANCE
DATE] 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 DATE THAT
IS 30 MONTHS AFTER 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
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Period, the "RESPONSE PERIOD"), agreed in writing to extend
the Maturity Date of all the 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
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effectively stayed; (g) easements, rights of way,
restrictions, minor defects or 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
9
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
24
right 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 or the New York Stock Exchange and the
Common Stock has not been suspended from trading on the NASDAQ National Market
26
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:________________________