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EXHIBIT 10.4
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE, (THE
"ACT") AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.
7.0% CONVERTIBLE SUBORDINATED NOTE
(the "NOTE")
__________, 1999 $_______________
FOR VALUE RECEIVED, Venus Exploration, Inc., a Delaware corporation
(the "COMPANY"), hereby promises to pay to the order of _____________or his
successor or assigns (the "NOTE HOLDER") at _______________________________the
principal amount of $___________, together with interest thereon calculated from
the date hereof (the "ORIGINAL ISSUE DATE"), in accordance with the provisions
of this Note.
This Note is issued in conjunction with a Piggyback Registration
Agreement dated as of _____________, 1999 among the Company and the Note Holder
(the "PIGGYBACK REGISTRATION AGREEMENT"). Unless otherwise indicated herein,
capitalized terms used in this Note have the same meanings as set forth in the
Piggyback Registration Agreement.
1. Payment of Interest.
(a) Interest will accrue at the rate of seven percent (7.0%) per
annum on the unpaid principal amount of this Note outstanding from time to time.
Interest will accrue at a rate of ten percent (10%) per annum on any interest
not paid on the date on which it is due and payable. Any accrued interest which
for any reason has not theretofore been paid will be paid in full on the date on
which the final principal payment under this Note is paid. Interest will accrue
on any principal payment outstanding from time to time under this Note, until
such time as payment thereof is actually delivered to the Note Holder. Interest
shall be payable at the Company's option in the form of either (i) cash or (ii)
common stock of the Company ("COMMON STOCK"). The number of shares to be issued
for the applicable period will be the whole number resulting from the division
of (i) the amount payable for that period to the Note Holder, by (ii) the
applicable Current Market Value. No fractional shares will be issued, and with
respect to any fraction of a share payable upon any dividend payment in kind,
the Company shall pay to the Note Holder an amount in cash equal to such
fraction multiplied by
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the same Current Market Value of a share used to determine the interest payment.
The "CURRENT MARKET PRICE" means, with respect to a security, the last price or
closing price of such security on the principal securities exchange or trading
market located in the United States where such security is listed or traded as
reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets
("BLOOMBERG") is not then reporting last or closing prices of such security, as
reported by Nasdaq, or if neither Bloomberg nor Nasdaq is reporting such prices,
as reported by a reporting service of national reputation comparable to
Bloomberg selected by the Company and reasonably acceptable to the holder of the
Note (an "ALTERNATIVE REPORTING SERVICE"), or if none of the foregoing apply,
the last reported price of such security in the U.S. over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg or an
Alternative Reporting Service or, if no price is reported for such security by
Bloomberg or an Alternative Reporting Service, the average of the prices of all
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Current Market Price cannot be calculated for such
security on any of the foregoing bases, the Current Market Price of such
security shall be the fair market value as reasonably determined by an
investment banking firm selected by the Note Holder and reasonably acceptable to
the Company, with the costs of such appraisal to be borne by the Company. If any
payment is due on a day on which banks in Texas are not open for banking
business (a "BUSINESS DAY"), the Company shall be entitled to delay such payment
until the next Business Day, but interest shall continue to accrue until the
payment is in fact made. Each payment or prepayment hereunder must be paid at
the office of Note Holder at the address set forth herein.
(b) On March 31, 1999 and on each subsequent June 30, September 30,
December 31 and March 31 (all of which dates, together with the dates specified
in Part 2(a) hereof, are "PAYMENT DATES"), all interest which has accrued on the
unpaid principal amount of this Note or on any past due interest on this Note
will become due and payable.
(c) The Company hereby acknowledges that this Note is issued in
conjunction with a series of unsecured convertible subordinated notes of even
date, aggregating a principal balance of $2,000,000, containing identical terms
and conditions, executed by the Company with other persons as the holders and
payees. Such other notes are referred to herein as the "OTHER NOTES" and the
holders thereof as the "OTHER NOTE HOLDERS." It is the intention of the Company
and the Note Holder that, except as otherwise expressly provided herein, this
Note and each of the Other Notes be treated pari passu in all respects involving
the payment of interest due under this Note and each of the Other Notes.
Accordingly, all interest payments made on this Note or on any of the Other
Notes will be paid pro rata based upon the outstanding principal amount of all
such notes.
(d) All agreements and transactions between the Company and the Note
Holder, whether now existing or hereafter arising, whether contained herein or
in any other instrument, and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of the maturity hereof, prepayment, demand for prepayment or
otherwise, shall the amount contracted for, charged or received by
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the Note Holder from the Company for the use, forbearance or detention of the
principal indebtedness or interest hereof, which remains unpaid from time to
time, exceed the maximum amount permissible under applicable law, it
particularly being the intention of the parties hereto to conform strictly to
the applicable law of usury. Any interest payable hereunder or under any other
instrument relating to the indebtedness evidenced hereby that is in excess of
the legal maximum, shall, in the event of acceleration of maturity, prepayment,
demand for prepayment or otherwise, be automatically, as of the date of such
acceleration, prepayment, demand or otherwise, applied to a reduction of the
principal indebtedness hereof and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of such principal, such excess
shall be refunded to the Company. To the extent not prohibited by law,
determination of the legal maximum rate of interest shall at all times be made
by amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the indebtedness, all interest at any time
contracted for, charged or received from the Company in connection with the
indebtedness, so that the actual rate of interest on account of such
indebtedness is uniform throughout the term hereof.
2. Payment of Principal on Note.
(a) The unpaid principal amount hereof shall be due and payable in
one lump sum payment, together with any remaining accrued but unpaid interest,
on the Maturity Date of this Note. The term "MATURITY DATE" shall be defined as
____________, 2004; provided, however, upon (i) the occurrence of an event
described in Part 5(e); (ii) the acceleration of any Senior Indebtedness (as
herein defined); (iii) any action by the Company causing it to cease to be
subject to the reporting requirements of Sections 12 or 15(d) of the Securities
Exchange Act of 1934; or (iv) incurring any Senior Indebtedness except in
conformity with the requirements of Part 10, the Note Holder, in any such event,
may by written notice to the Company, declare that the Maturity Date shall be
the date of the consummation or closing or occurrence of such transaction or
event; provided, further, an Other Note Holder who does not so declare, shall be
deemed solely with respect to such accelerated Maturity Date to have waived the
rights and benefits provided in Parts 1(c) and 2(c).
(b) It is the intention of the Company and the Note Holder
that, except as otherwise expressly provided herein, this Note and each of the
Other Notes be treated pari passu in all respects involving the payment of
principal due under this Note and each of the Other Notes. Accordingly, all
principal payments made on this Note or on any of the Other Notes will be paid
pro rata based upon the outstanding principal amount of all such notes.
3. Security and Subordination.
(a) This Note shall be unsecured.
(b) The Company irrevocably covenants and agrees, and the Note
Holder, by his, her or its acceptance thereof, likewise irrevocably
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covenants and agrees, that the payment of the principal of and interest on this
Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior indefeasible payment and/or cancellation (as
shall be appropriate) in full of all Senior Indebtedness (as hereinafter
defined). The provisions of this Part Three are made for the benefit of the
holders of Senior Indebtedness, and such holders shall, at any time, be entitled
to enforce such provisions against the Company or Note Holder. No holder of any
Senior Indebtedness shall be deemed to owe any fiduciary duty or any other
obligation to any holder of this Note now or at any time hereafter.
(c) No payment on account of principal, premium, if any, or interest
on this Note shall be made if, at the time of such payment or immediately after
giving effect thereto, (i) there shall exist a default in the payment of
principal, premium, if any, or interest with respect to any Senior Indebtedness
or (ii) there shall have occurred an event of default (other than a default in
the payment of principal, premium, if any, or interest) with respect to any
Senior Indebtedness or in the instrument under which the same is outstanding,
permitting the holders thereof to accelerate the maturity thereof, and such
event of default shall not have been cured or waived or shall not have ceased to
exist within the terms of any such Senior Indebtedness. Notwithstanding the
immediately preceding sentence, at such time as any event of default therein
described shall have been cured or waived, all payments due under this Note that
were held in abeyance by reason of such sentence shall be paid within five
business days thereafter, and all future payments called for under other
applicable provisions of this Note shall be payable in accordance with their
terms.
(d)(i) In the event of:
(a) any acceleration of the payment amount due on this Note;
(b) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities of the Company
upon any insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relative to the Company or
its creditors or its property;
(c) any proceeding for voluntary liquidation, dissolution or
other winding up of the Company whether or not involving insolvency or
bankruptcy proceedings; or
(d) any assignment for the benefit of creditors or any
marshaling of the assets of the Company, then and in any such event,
(A) all Senior Indebtedness (including interest accruing
on such Senior Indebtedness after the date of filing a petition or other
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action commencing any such proceeding) shall first be paid in full, or have
provision made for payment and/or cancellation (as shall be appropriate) in full
to the reasonable satisfaction of the holder of any Senior Indebtedness, before
the holder of this Note is entitled to receive any payment on account of the
principal of or premium, if any, or interest on the indebtedness evidenced by
this Note, and
(B) any payment or distribution of assets of the Company
of any kind or character, whether in cash, property or securities (other than
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment, provided the rights of the holders of Senior
Indebtedness are not altered by such reorganization or readjustment, the payment
of which is subordinate, at least to the extent provided in this Article Three
with respect to this Note, to the payment of all Senior Indebtedness at the time
outstanding and to the payment of all securities issued in exchange therefor to
the holders of Senior Indebtedness at the time outstanding), to which the holder
of this Note would be entitled except for the provisions of this Part 3, shall
be paid by the liquidating trustee or agent or other person making such payment
or distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the aggregate
amounts remaining unpaid on account of the principal of and premium, if any, and
interest on, the Senior Indebtedness held or represented by each, to the extent
necessary to make payment of and/or to cancel (as may be appropriate) in full
all Senior Indebtedness remaining unpaid and/or outstanding (as the case may
be), after giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of such Senior Indebtedness.
(ii) No payments on account of principal of or interest on
this Note shall be made unless full payment of amounts then due for principal of
(including any sinking fund payment), premium, if any, and interest on all
Senior Indebtedness has been made and/or canceled (as may be appropriate) or
otherwise duly provided for to the reasonable satisfaction of each holder of any
Senior Indebtedness.
(iii) In the event and during the continuation of any default
or event of default in respect of any Senior Indebtedness or under any agreement
under which any Senior Indebtedness was issued continuing beyond the period of
grace, if any, specified in such agreement, then, unless
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and until such default shall have been cured or waived or shall have ceased to
exist, no payment shall be made by the Company and no application of funds shall
be made with respect to the principal of or interest on this Note.
(iv) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than securities of the Company or
any other corporation provided for by a plan of reorganization or readjustment,
provided that the rights of the holders of Senior Indebtedness are not altered
by such reorganization or readjustment, the payment of which is subordinate, at
least to the extent provided in this Part 3 with respect to this Note, to the
payment of all Senior Indebtedness at the time outstanding and to the payment of
all securities issued in exchange therefor to the holders of Senior Indebtedness
at the time outstanding), shall be received by the Note Holder during the
continuance of any event specified in this Part 3(c) prohibiting such payment
and before all Senior Indebtedness is paid in full and/or canceled (as may be
appropriate), or provision made for its payment to the reasonable satisfaction
of each holder of any Senior Indebtedness, such payment or distribution (subject
to Part 3(c) shall be immediately paid by the holder hereof over to the holders
of Senior Indebtedness (or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments evidencing
any of such Senior Indebtedness may have been issued), upon their written
request remaining unpaid or unprovided for as provided in the foregoing
provisions of this Part 3(c), for application to the payment of such Senior
Indebtedness until all such Senior Indebtedness shall have been paid in full,
after giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of such Senior Indebtedness.
(v) Subject to the payment in full and/or cancellation (as
may be appropriate) of all Senior Indebtedness and the irrevocable and complete
termination of all commitments and obligations to issue or fund any Senior
Indebtedness (and not before such time), the Note Holder shall be subrogated
equally and ratably with the holders of all Pari Passu Debt to all rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Indebtedness
until the principal of and interest on this Note shall be paid in full; and, for
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of cash, property or securities distributable or paid over
to the holders of Senior Indebtedness under the provisions hereof to which the
Note Holder or a holder of Pari Passu Debt, or any trustee of Pari Passu Debt,
would be entitled except for the provisions of this Part Three shall, as between
the Company, its creditors other
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than the holders of Senior Indebtedness, and the Note Holder or a holder of Pari
Passu Debt, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness, it being understood that the provisions of this Part Three
are and are intended solely for the purpose of defining the relative rights of
the Note Holder, the holders of Pari Passu Debt and the holders of the Senior
Indebtedness.
(vi) Nothing contained in this Part 3 or elsewhere in this
Note is intended to or shall impair, as between the Company, its creditors other
than the holders of Senior Indebtedness (and the persons and entities committed
or obligated to issue or fund any Senior Indebtedness), and the Note Holder, the
obligation of the Company, which is absolute and unconditional, to pay to the
Note Holder hereof the principal of and premium, if any, and interest hereon, as
and when the same shall become due and payable in accordance with the terms
hereof, or is intended to or shall affect the relative rights of the Note Holder
hereof and other creditors of the Company other than the holders of the Senior
Indebtedness (and the persons and entities committed or obligated to issue or
fund any Senior Indebtedness), nor shall anything in this Note prevent the Note
Holder from exercising all remedies otherwise permitted by applicable law upon
the happening of any Event of Default under this Note, subject to the rights, if
any, under this Part 3 of the holders of Senior Indebtedness (and the persons
and entities committed or obligated to issue or fund any Senior Indebtedness) in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
(vii) The Company shall give prompt written notice to the
Note Holder of any event of default under any Senior Indebtedness or any
insolvency, bankruptcy, liquidation, reorganization, readjustment, composition,
dissolution, assignment, marshaling of assets or similar proceedings of the
Company within the meaning of this Part 3(c). Upon any payment or distribution
of assets of the Company referred to in this Part 3, the Note Holder shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
Three. If the Note Holder Note determines, in its sole discretion, that further
evidence is required with respect to the right of any person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant
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to this Part 3(c), such Note Holder may request such person to furnish evidence
to the reasonable satisfaction of such Note Holder as to the amount of Senior
Indebtedness held by such person, as to the extent to which such person is
entitled to participate in such payment or distribution, and as to other facts
pertinent to the rights of such person under this Part 3, and if such evidence
is not furnished, such Note Holder may defer any payment to such person pending
judicial determination as to the right of such person to receive such payment.
Such Note Holder shall be entitled to rely on the delivery to it of a written
notice by a person representing himself, herself or itself, to be a holder of
Senior Indebtedness (or a trustee on behalf of such holder) to establish that
notice has been given by a holder of Senior Indebtedness or a trustee on behalf
of any such holder. With respect to the holders of Senior Indebtedness, the Note
Holder undertakes to perform or to observe only such of its covenants and
obligations as are set forth in this Part 3, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Note against the Note Holder. The Note Holder shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness and in the absence
of receipt of written request as provided for herein shall not be liable to any
such holder if it shall retain or pay over to any other person, money or assets
to which any holder of Senior Indebtedness shall be entitled pursuant to this
Part 3 or otherwise.
(viii) Without notice to or the consent of the Note Holder,
the holders of the Senior Indebtedness or the persons or entities committed or
obligated to issue or fund any Senior Indebtedness may at any time and from time
to time, without impairing or releasing the subordination herein made, change
the manner, place or terms of payment, or change or extend the time of payment
of or renew or alter the Senior Indebtedness or the commitment or obligation to
issue or fund any Senior Indebtedness, or amend or supplement in any manner any
instrument evidencing the Senior Indebtedness or the commitment or obligation to
issue or fund any Senior Indebtedness, any agreement pursuant to which the
Senior Indebtedness was issued or incurred or any instrument securing or
relating to the Senior Indebtedness or the commitment or obligation to issue or
fund any Senior Indebtedness; release any person liable in any manner for the
payment or collection of the Senior Indebtedness; exercise or refrain from
exercising any rights in respect of the Senior Indebtedness against the Company
or any other person, apply any money or other property paid by any person or
released in any manner to the Senior Indebtedness; accept or release any
security for the Senior Indebtedness; sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Indebtedness;
or exercise or refrain from exercising any rights against the Company or any
other person; all without thereby impairing in any respect the rights of such
holders of Senior Indebtedness as provided in this Part 3.
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(e) In the event that, notwithstanding the provisions of this
Part 3, any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, shall be received by the
Note Holder, which payment or distribution the Note Holder is not entitled to
receive pursuant to this Part 3, such payment or distribution shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
such Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with its terms, after giving effect to any
prior or concurrent payment on or distribution to or for the holder of such
Senior Indebtedness.
(f) No right of any present or future holder of any Senior
Indebtedness of the Company to enforce subordination, as herein provided, shall
at any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the terms, provisions
and covenants of this Note, regardless of any knowledge thereof any such holder
may have or be otherwise charged with.
(g) Subject to the payment in full of all Senior Indebtedness
after an event of default with respect to Senior Indebtedness, the Note Holder
(together with the holders of any other indebtedness of the Company which is not
subordinate in right of payment to this Note and by its terms grants such right
of subrogation to the holders thereof) shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distribution of assets of
the Company made on the Senior Indebtedness until the principal, premium, if
any, and interest on this Note shall be paid in full; and for the purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Note Holder would
be entitled except for these provisions shall, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Note Holder, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that these provisions are intended solely for the purpose of
defining the relative rights of the Note Holder, on the one hand, and the
holders of Senior Indebtedness, on the other hand.
(h) Nothing contained in these provisions is intended to or
shall impair as between the Company, its creditors other than the holders of
Senior Indebtedness, and the Note Holder, the obligation of the Company, which
shall be absolute and unconditional, to pay to the Note Holder the principal,
premium, if any, and interest on this Note, as and when the same shall become
due and payable in accordance with its terms, or to affect the relative rights
of the Note Holder and creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or therein prevent the Note Holder from
exercising all
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remedies otherwise permitted by applicable law, upon default, subject to the
rights, if any, under these provisions of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
(i) Nothing contained in this Part 3 or elsewhere in this
Note, shall, however, affect the obligation of the Company to make, or prevent
the Company from making, at any time, except as provided in this Part 3,
payments of principal of or premium, if any, or interest on this Note.
(j) The Note Holder by his acceptance hereof irrevocably
authorizes and directs the Company on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this Part 3
and appoints the Company his attorney-in-fact for such purpose.
(k) Notwithstanding anything herein contained to the contrary,
all the provisions of this Note shall, except as otherwise provided herein, be
subject to the provisions of this Part 3, so far as the same may be applicable
thereto.
(l) (i) The term "PARI PASSU DEBT" shall mean any indebtedness
of the Company heretofore or hereafter created which, by the terms of the
instrument by which such indebtedness is created or evidenced, ranks pari passu
in right of payment with this Note and is entitled to like rights of
subrogation.
(ii) The term "SENIOR INDEBTEDNESS" shall mean the
following, whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, (a) the principal of, premium if any, and
interest on (i) indebtedness of the Company for money borrowed (other than this
Note, but including any indebtedness owed to the Senior Bank Lenders), (ii)
indebtedness of the Company evidenced by bonds, notes, debentures or similar
obligations (other than this Note and any other unsecured note issued in
connection with the acquisition of substantially all of the assets or stock of
an ongoing business by the Company to the sellers of such assets or stock),
(iii) capitalized lease obligations, (iv) indebtedness or obligations incurred,
assumed or guaranteed by the Company in connection with the acquisition or
improvement of any property or asset or the acquisition by it or by a Subsidiary
or any business, (v) indebtedness of others of the kinds described in the
clauses (i), (ii), (iii), and (iv) above, assumed or guaranteed by the Company
or in effect guaranteed by the Company through an agreement to purchase or
otherwise, (vi) obligations which would be classified as liabilities on the
balance sheet of the Company in accordance with generally accepted accounting
principles, evidencing the purchase price for the acquisition of assets of any
kind, tangible or intangible, by the Company, except in the ordinary course of
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business; unless in each case referred to in clauses (i), (ii), (iii), (iv), (v)
and (vi) above, by the terms of the instrument creating or evidencing the
indebtedness or obligation it is expressly provided that such indebtedness is
Pari Passu Debt or Junior Indebtedness under this Note, (b) any other
indebtedness, liability or obligation, contingent or otherwise other than that
arising pursuant to this Note, of the Company (any such indebtedness, liability
or obligation being hereinafter in this definition referred to as an
"Obligation"), and any guaranty, endorsement or other contingent obligation in
respect of any Obligation of another, which is created, assumed or incurred by
the Company after the date of this Note and which, when created, assumed or
incurred, is specifically designated by the Company as Senior Indebtedness for
the purposes hereof in the instrument creating or evidencing the Company's
liability with respect to the Obligations of another and (c) any increases,
refundings, renewals, rearrangements or extensions of and amendments,
modifications and supplements to any indebtedness, liability or obligation
described in clauses (a) or (b) above.
(iii) The term "SENIOR BANK LENDERS" means any commercial
lending institution or group of commercial lending institutions that are or
become parties to the Company's principal working capital, acquisition financing
or long-term debt credit facilities.
(iv) "JUNIOR INDEBTEDNESS" means any indebtedness
expressly subordinated to this Note.
4. Conversion.
(a) The Note Holder shall have the right, at its option, at any time
to convert the then outstanding principal amount of this Note or any portion
thereof into shares of fully paid and nonassessable Common Stock ((calculated as
to each conversion to the nearest 1/100th of a share) at the conversion price of
$1.15 per share, subject to adjustment from time to time as provided in Part 5
of this Note (which price, as most recently so adjusted, is herein called the
"CONVERSION PRICE"). The number of shares of Common Stock to be delivered by the
Company pursuant to a conversion shall be determined by dividing the principal
amount of the Note plus accrued but unpaid interest being converted by the
Conversion Price in effect on the applicable conversion date.
(b) Beginning on the date thirty-six (36) months from the Original
Issue Date, the Company shall have the right, at its option, to convert the
entire outstanding principal balance of the Note into fully paid and
nonassessable shares of Common Stock at the Conversion Price then in effect if,
and only if, the Current Market Price for the Common Stock is a per-share price
(appropriately adjusted for subdivisions and combinations of shares of Common
Stock as provided for in Parts 5(a) and (b) of this Note) equal to or greater
than
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$3.60 per share at the close of twenty-five (25) out of the preceding thirty
(30) consecutive trading days. The Company shall exercise this option by
providing written notice to the Note Holder within five (5) calendar days after
the end of the thirty (30) day consecutive trading day period. Upon the exercise
of such option by the Company, this Note shall be converted automatically
without any further action on behalf of the Note Holder, whether or not this
Note is surrendered to the Company; provided, however, the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless this Note is surrendered to the Company as provided
in Part 4(f).
(c) If at any time during the term of this Note, the Company
issues a Preferred Term Security (as that term is defined in Part 4(d) below),
the Company shall promptly notify the Note Holder thereof and the Note Holder
shall have the right, at his option, exercisable within 10 days of notice of
such issuance, to exchange this Note for a new note representing all unpaid
principal and accrued but unpaid interest under this Note, but having such other
terms and conditions as are at least as favorable to the Note Holder as those
set forth in the Preferred Term Security.
(d) A "PREFERRED TERM SECURITY" shall be defined as a
convertible subordinated note or other similar security bearing any of the
following terms and conditions when compared with this Note: (i) a higher stated
interest rate; (ii) a higher premium upon early redemption by the Company; (iii)
a lower per-share conversion price; or (iv) a longer period before which the
Company can cause a mandatory conversion.
(e) In order to convert this Note or any portion thereof, the
Note Holder shall surrender this Note at the principal office of the Company
accompanied by written notice to the Company at such office stating (i) in the
case of conversion pursuant to Part 4(a) hereof, that the holder elects to
convert this Note or, if less than the entire principal amount of this Note is
to be converted, the portion thereof to be converted and (ii) the name or names
(with address) in which the certificate or certificates for shares of Common
Stock issuable on such conversion shall be issued. This Note shall be
accompanied by proper assignment thereof to the Company or in blank for transfer
if the Common Stock is to be issued in a name other than that on the face of
this Note. In the event this Note is converted in part only, upon such
conversion the Company shall execute and deliver to the Note Holder, at the
expense of the Company, a new Note in principal amount equal to the unconverted
portion of such Note.
(f) As promptly as practicable, and in any event within ten
days, after the receipt of such notice and the surrender of this Note, the
Company shall issue, at its expense, and shall deliver to the Note Holder, or on
his written order, at the principal office of the Company (i) a certificate or
certificates for the number of shares of Common Stock issuable upon the
conversion of this Note (or specified portion thereof), and (ii) cash in lieu of
scrip as provided herein. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the date (the "CONVERSION DATE")
on which the Company shall have received both such notice and the surrendered
Note, in the case of conversion pursuant to Part 4(a) hereof, and at such time
the rights of the Note Holder with respect to the portion of this
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Note as shall have been converted shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
(g) Upon conversion of this Note, all unpaid accrued interest
to the Conversion Date shall be paid to the Note Holder with respect to the
portion of the Note converted. No payment or adjustment shall be made by or on
behalf of the Company on account of any dividends on the Common Stock issued
upon such conversion which were declared for payment to holders of Common Stock
of record as of a date prior to the Conversion Date.
(h) No fractional shares of Common Stock shall be issued upon
any conversion of this Note. In lieu of any fraction of a share of Common Stock
to which any Note Holder would otherwise be entitled upon conversion of this
Note or any portion hereof, the Company shall pay a cash adjustment for such
fraction in an amount equal to the same fraction of the Conversion Price per
share of Common Stock at the close of business on the Conversion Date. Common
Stock delivered to the Note Holder shall contain a restrictive legend under the
Securities Act of 1933 ("SECURITIES ACT") unless at the time of issuance: (i)
the sale or transfer of such Common Stock is covered by an effective
Registration Statement and the Note Holder or other person holding or entitled
to receive such Common Stock has represented to the Company, in the related
Conversion Notice or otherwise in writing, that such Note Holder has resold or
transferred such Common Stock in accordance with the terms of the Prospectus
relating to such Registration Statement, (ii) such Common Stock can and has been
sold pursuant to Rule 144 ("RULE 144") under the Securities Act, and a
registered broker-dealer provides to the Company a customary broker's Rule 144
letter and such Note Holder delivers to the Company a customary seller's
representation letter and a copy of any Form 144 that may have been required to
be filed by such Note Holder pursuant to Rule 144, or (iii) such Common Stock is
eligible for resale under Rule 144(k) or any successor rule or provision.
5. Adjustments to Conversion Price.
(a) If at any time or from time to time after the Original Issue
Date, the Company shall effect a subdivision of the outstanding Common Stock,
the Conversion Price then in effect shall be proportionately decreased, and
conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect shall be proportionately increased. Any
adjustment under this Part 5(a) shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(b) In the event the Company at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price then in effect shall be
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decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction, the numerator of
which shall be the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, if such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Conversion Price shall be recomputed accordingly as of the close of business
on such record date and thereafter the Conversion Price shall be adjusted
pursuant to this Part 5(b) as of the time of actual payment of such dividends or
distributions.
(c) In the event the Company at any time or from time to time after
the Original Issue Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then and in each such event provision shall be made so that the
Note Holder shall receive upon conversion hereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities of the
Company that it would have received had it converted this Note into Common Stock
on the date of such event and had thereafter, during the period from the date of
such event to and including the Conversion Date, retained such securities,
giving application to all adjustments called for during such period under this
Part 5.
(d) If the Common Stock issuable upon the conversion of this Note
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by reorganization, reclassification or otherwise
(other than a subdivision, combination, stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Part 5),
then and in each such event the Note Holder shall have the right thereafter to
convert this Note into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change, by holders of the number of shares of Common Stock into which this
Note might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) If at any time or from time to time there shall be a
reorganization of the Company (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Part 5) or
a merger or consolidation of the Company with or into another corporation or
entity, or the sale of all or substantially all of the Company's properties and
assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the Note Holder shall
thereafter be entitled to receive upon conversion of this Note, the number of
shares of stock or other securities or property of the Company, or of the
successor entity resulting from such merger of consolidation or sale, to which a
holder of Common Stock issuable upon conversion would
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have been entitled on such reorganization, merger, consolidation or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Part 5 with respect to the rights of the Note Holder after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Part 5 (including adjustment of the Conversion Price then in effect and
the number of shares issuable upon conversion of this Note) shall be applicable
after that event as nearly equivalent as may be practicable.
(f) If at any time or from time to time after the Original Issue
Date, the Company shall issue or sell any shares of Common Stock, securities
convertible into Common Stock, or rights to acquire Common Stock (other than:
(i) as a dividend or other distribution as provided in Part 5(b); (ii) upon a
subdivision or combination as provided in Part 5(a); (iii) pursuant to the
Company's 1997 Incentive Plan providing for an aggregate maximum of 1,500,000
shares of Common Stock; or (iv) pursuant to warrants, rights or options to
purchase Common Stock outstanding as of the Original Issue Date) for a
consideration per share for such Common Stock less than the Conversion Price in
effect immediately prior to such issue or sale, then upon such issue or sale the
Conversion Price shall be reduced to a price equal to the consideration per
share for which such shares of Common Stock or other securities or rights are
sold, such price being determined in accordance with Part 5(g)(1), below, to the
extent applicable. No adjustment of the Conversion Price, however, shall be made
in an amount less than one cent per share, but any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to one cent per share or more.
(g) For the purpose of making any adjustment in the Conversion Price
pursuant to this Part 5:
(1) In the event at any time after the Original Issue Date the
Company shall grant any rights to subscribe for, or any rights or options
to purchase, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such convertible or exchangeable
stock or securities being herein called "CONVERTIBLE SECURITIES"), whether
or not such rights or options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such rights
or options or upon conversion or exchange of such Convertible Securities
(determined by dividing (X) the total amount, if any, received or
receivable by the Company as consideration for the granting of such rights
or options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such rights or options, plus,
in the case of any such rights or options which relate to such Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and
upon the conversion or exchange thereof, by (Y) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options) shall be
less than the Conversion Price in effect immediately
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prior to the time of the granting of such rights and options, then the
total maximum number of shares of Common Stock issuable upon the exercise
of such rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise
of such rights or options shall (as of the date of granting of such rights
or options) be deemed to be outstanding and to have been issued for such
price per share. Except as provided in Part 5(h) no further adjustments of
the Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such rights or
options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(2) In case at any time after the Original Issue Date the
Company shall issue or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (X) the total amount
received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (Y) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be outstanding
and to have been issued for such price per share, provided that no further
adjustments of the Conversion Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities
is made upon exercise of any rights to subscribe for or to purchase or any
rights to subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Conversion Price have
been or are to be made pursuant to other provisions of this Part 5(g)(2),
no further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(3) In case at any time any shares of Common Stock or
Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the amount
received by the Company therefor, after deduction therefrom of any
finder's fees incurred or any underwriting commissions or concessions or
discounts paid or allowed by the Company in connection therewith. In case
any shares of Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible Securities shall
be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed to
be the fair value of such consideration as determined by the board of
directors of the Company, after deduction therefrom of any finder's fees
incurred or any underwriting commissions or concessions or discounts paid
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or allowed by the Company in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall be issued
in connection with any merger of another corporation into the Company, the
amount of consideration therefor shall be deemed to be the fair value of
the assets of such merged corporation as determined by the board of
directors of the Company after deducting therefrom all cash and other
consideration (if any) paid by the Company in connection with such merger.
(4) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of
the Company, and the disposition of any such shares shall be considered an
issue or sale of Common Stock for the purposes of Part 5(g).
(h) If the purchase price provided for in any right or option
referred to in Part 5(g)(1) or the rate at which any Convertible Securities
referred to in Parts 5(g)(1) or (2) are convertible into or exchangeable for
Common Stock, shall change or a different purchase price or rate shall become
effective at any time or from time to time (other than under or by reason of
provisions designed to protect against dilution), then, upon such change
becoming effective, the Conversion Price then in effect shall be decreased, if
applicable, to such Conversion Price as would have obtained had the adjustments
made upon the granting or issuance of such rights or options or Convertible
Securities been made upon the basis of (A) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such options
or rights or upon the conversion or exchange of such Convertible Securities and
the total consideration received therefor, and (B) the granting or issuance at
the time of such change of any such options, rights or Convertible Securities
then still outstanding for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed price. If the purchase
price provided for in any such right or option, or the rate at which any such
Convertible Securities are convertible into or exchangeable for Common Stock,
shall change at any time under or by reason or provisions with respect thereto
designed to protect against dilution, then in case of the delivery of Common
Stock upon the exercise of any such right or option or upon conversion or
exchange of any such Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be decreased, if applicable, to such Conversion Price
as would have obtained had the adjustments made upon the issuance of such right
or option or Convertible Security been made upon the basis of the issuance of
(and the total consideration received for) the shares of Common Stock delivered
as aforesaid.
(i) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock or shares of its Common Stock then
owned or held by or for the account of the Company, solely for the purpose of
delivery upon conversion of this Note as herein provided, such number of shares
of Common Stock as shall then be deliverable upon the conversion of this Note.
All shares of Common Stock which shall be so deliverable shall be duly and
validly issued and fully paid and nonassessable.
(j) Before taking any action which would cause an adjustment
reducing the
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Conversion Price at any time in effect below the then par value of the shares of
Common Stock issuable upon conversion of this Note, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such Conversion Price as so adjusted.
(k) Whenever the Conversion Price is adjusted, as herein provided,
the Company shall send to the Note Holder a certificate of the Chief Financial
Officer of the Company setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment. Such
certificate shall be presumptive or rebuttable evidence of the correctness of
such adjustment only if such calculations are confirmed at the Company's expense
by a firm of independent public accountants (who may be the accountants
regularly employed by the Company).
(l) In case: (i) the Company shall declare a dividend (or any other
distribution) on its Common Stock, (ii) the Company shall authorize the granting
to holders of Common Stock of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights, (iii) of any capital
reorganization or reclassification of the capital stock of the Company or of any
consolidation or merger of the Company with another corporation, or of the sale
of all or substantially all of its assets to another entity which is to be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities or other assets with respect to or in exchange for Common
Stock, (iv) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company, then the Company shall promptly send to the holder or this
Note at least 14 days prior to the applicable record date hereinafter specified,
a notice stating (A) the date on which a record is to be taken for the purpose
of such dividend or distribution of rights, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record would be entitled to
such dividend or distribution of rights, or (B) the date on which such capital
reorganization, reclassification, consolidation, merger, sale dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other assets
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up.
6. Redemption by Company.
(a) Beginning on the second anniversary of the Original Issue Date,
the Company shall have the right, at its option, to redeem this Note for cash.
The redemption price shall be the principal amount of this Note outstanding upon
redemption, plus accrued but unpaid interest, plus a redemption premium
calculated during the twenty-fifth month of the term hereof as an amount
initially equal to eighteen percent (18%) per annum, compounded annually from
the Original Issue Date to the date of redemption (such 18% or lesser percent to
include, however, all accrued interest at the stated rate of 7% per annum to the
date of redemption, whether or not paid); provided, however, such 18% initial
amount shall be reduced by one
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percent (1%) per month commencing at the twenty-sixth month and continuing with
a like reduction of one percent (1%) per month at the beginning of each
successive month thereafter.
(b) Redemption shall be effective under this Part 6 thirty (30) days
following the date the Company provides written notice to the Note Holder of its
election to redeem the Note; provided, however, the Note Holder shall be
entitled to convert the Note in accordance with other applicable terms hereof at
any time during such thirty (30) day period beginning upon the Note Holder's
receipt of written notice of redemption from the Company, and any adjustments to
the Conversion Price provided by Part 5 hereof shall be given effect, up to and
including the date on which the Note Holder converts.
(c) If the Company redeems this Note as herein provided, it shall
also offer to redeem each of the Other Notes, except to the extent any of the
Other Note Holders decline.
7. Use of Proceeds. The Company hereby covenants that the proceeds of
this Note will not be used for purposes other than general corporate purposes.
8. Right of First Offer.
(a) Except as authorized by Part 8(c) below, whenever the Note
Holder desires to sell the Note, the Note Holder shall first give written notice
(the "ROFO NOTICE") to the Company to such effect, specifying that the Note
Holder wishes to sell the Note and the terms (including the consideration) upon
which the Note Holder proposes to agree to sell the Note. Upon receipt of the
ROFO Notice, the Company (pursuant to the vote of a majority of the
disinterested members of the Board of Directors) shall have the first right and
option to purchase the Note for cash at the price specified in the ROFO Notice,
exercisable for 15 business days after receipt of the ROFO Notice. Failure of
the Company to respond to the ROFO Notice within such 15-day period shall be
deemed to constitute a notification to the Note Holder of the Company's decision
not to exercise its right and option to purchase the Note under this Part 8(a).
If the Company elects not to purchase the Note, the Note Holder may sell the
Note within 90 days to any person on substantially the same terms and for the
same or greater consideration as the Note Holder offered the Company in the ROFO
Notice. The right of first offer provisions of this Part 8 do not apply to any
shares of Common Stock issued upon conversion of the Note.
(b) If the consideration for the sale of the Note includes non-cash
consideration, the dollar value of such non-cash consideration shall be its Fair
Market Value as determined by a majority of the disinterested members of the
Board of Directors of the Company (the "FAIR MARKET VALUE"). For the purpose of
determining the Fair Market Value, the Company and the Note Holder shall each
select a qualified appraiser as soon as possible after the end of the 30-day
period to appraise the Fair Market Value. Each of the two appraisers shall, as
soon as reasonably possible thereafter select a third appraiser and the average
of the two appraised values closest in value shall be the Fair Market Value. All
costs of the appraisal shall be paid by the Company.
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(c) Notwithstanding the preceding provisions of this Part 8, the
Note Holder may transfer the Note free of any restrictions and requirements of
this Part 8 to his parents, spouse or children, or to a trust, partnership or
other business entity for the exclusive benefit of the Note Holder or the Note
Holder's parents, spouse or children; provided, however, that the provisions of
this Part 8 shall remain in full effect in respect of any disposition by such
successor Note Holder.
9. Events of Default.
For purposes of this Note, an Event of Default will be deemed to
have occurred if:
(a) the Company fails to pay when due the full amount of any
principal or interest on the Note at maturity or by acceleration or otherwise
and such failure continues for more than three business days;
(b) the Company fails to perform or observe any other material
covenant or agreement set forth herein;
(c) the Company fails to make any payment when due on any other
indebtedness or security or any event shall occur or any condition shall exist
in respect of any such indebtedness or security, or under any agreement securing
or relating to any such indebtedness or security, the affect of which is to
cause any holder of such indebtedness or security or a trustee to cause the
acceleration of any such indebtedness or security. As used herein, the term
"SECURITY" as the meaning given such term under the Securities Act;
(d) any representation or warranty contained in this Note, or any
information contained in filings made as of the Original Issue Date by the
Company with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, are false or misleading in any material respect on the
date made or furnished;
(e) the Company makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Company bankrupt or
insolvent; or the Company petitions or applies to any tribunal for the
appointment of a trustee, receiver or liquidator of the Company or of any
substantial part of the assets of the Company, or commences any proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced against the Company
and either (X) the Company takes any action indicating its approval thereof,
consent thereto, or acquiescence therein or (Y) such petition, application or
proceeding is not dismissed within 45 days;
(f) a judgment not covered by insurance, which, with other
outstanding
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judgments undischarged against the Company, exceeds in the aggregate $25,000, is
rendered against the Company and, within ten days after entry thereof, such
judgment is not discharged or satisfied or execution thereof stayed pending
appeal, or within ten days after the expiration of any such stay, such judgment
is not discharged or satisfied; or
If an Event of Default of the type described in Part 9(b) above has
occurred and continues for a period of 15 days, or if any other Event of Default
has occurred, the Note Holder may demand (by written notice delivered to the
Company) immediate repayment of all or any portion of the principal amount
hereof and payment of all accrued and unpaid interest hereon. If any Event of
Default exists, the Note Holder will also have any other rights which such
holder may have been afforded under any contract or agreement at any time and
any other rights which such holder may have pursuant to applicable law.
10. Indebtedness. The Company warrants and represents to the Note
Holder that as of the Original Issue Date, the Company is not in default under
any indebtedness, including without limitation any Senior Indebtedness. Without
the prior written consent of the Note Holder, the Company agrees after the
Original Issue Date and continuing until this Note is paid or converted in full
not to incur any Senior Indebtedness other than indebtedness incurred from time
to time under the Company's senior secured credit facility with Wells Fargo Bank
(Texas), N.A. or any successor facility thereto; provided, however, any such
successor facility shall not provide for maximum draws in excess of the maximum
amount provided as of the Original Issue Date under the Wells Fargo Bank
(Texas), N.A. facility.
11. Note Holder's Representations and Warranties.
(a) Investment Purpose. Note Holder is acquiring the Note to be
issued and the Common Stock issuable to it hereunder (collectively, the
"Securities") for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the Act;
provided, however, that by making the representations herein, such Note Holder
does not agree to hold any of the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the Act.
(b) Accredited Investor Status. Note Holder is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the Act.
(c) Reliance on Exemptions. Note Holder understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
Note Holder's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Note Holder set forth herein in order to
determine the availability of such exemptions and the eligibility of Note Holder
to acquire the Securities.
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(d) Information. Note Holder and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by Note Holder. Note Holder and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by Note Holder or
its advisors, if any, or its representatives shall modify, amend or affect Note
Holder's right to rely on the completeness and accuracy of the materials
provided to Note Holder by or on behalf of the Company with respect to the
transactions contemplated hereby or on the Company's representations and
warranties contained in this Agreement. Note Holder understands that its
investment in the Securities involves a high degree of risk. Note Holder has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
(e) No Governmental Review. Note Holder understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Note Holder understands that, except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) Note Holder shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that the
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, (C) Note Holder
provides the Company with reasonable assurance that the Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the Act (or a
successor rule thereto) ("RULE 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Act) may
require compliance with some other exemption under the Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder, or (D) such transferee or assignee is an affiliate
controlled by Note Holder.
(g) Residency. Note Holder is a resident of Texas.
12. Amendment. This Note may be amended by the Company only if the
Company has obtained the written consent of the Note Holder.
13. Cancellation. After all principal and accrued interest at any time
owed on this
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Note has been paid in full, this Note will be surrendered to the
Company for cancellation and will not be reissued.
14. Waiver of Notice, etc. The Company hereby waives presentment,
demand, notice, protest and all other demands and notice in connection with the
delivery, acceptance, performance and enforcement of this Note, and assents to
extension of the time of payment or forbearance or other indulgence without
notice.
15. Collection Costs. In addition to and not in limitation of the
foregoing, the Company further agrees, subject only to any limitation imposed by
applicable law, to pay all reasonable expenses, including reasonable attorneys'
fees and legal expenses, incurred by the Note Holder upon the collection of this
Note and any amounts payable hereunder which are not paid when due.
16. Governing Law; Venue. All questions concerning the construction,
validity and interpretations of this Note will be governed by the internal laws,
and not the law of conflicts, of the State of Texas. It is the intention of the
parties that proper venue for any action, suite or proceeding arising pursuant
to this Agreement or any exhibit hereto or in connection with the transactions
contemplated herein or therein shall be in Bexar County, Texas. Each party
agrees that any such action, suit or proceeding shall be brought before a state
or federal court sitting in the City of San Antonio, Bexar County, Texas and
waives any objection to venue in such court. Each party waives the right to
demand a jury in any action, suit or proceeding arising pursuant to this
Agreement or any exhibit hereto or in connection with the transactions
contemplated herein or therein.
IN WITNESS WHEREOF, the Company has executed and delivered this Note on
__________ ___, 1999.
VENUS EXPLORATION, INC.
By:
Eugene L. Ames, Jr.
Title: Chairman & Chief Executive Officer
23
24
7% Convertible Subordinated Noteholders
Noteholder Principal Amount of Note
- ---------- ------------------------
Betty Kelso $100,000
Robert A. Buschman $ 50,000
James Gorman $100,000
Tanager Investments LLC $200,000
Michael Little $250,000
L. Lowry Mays $300,000