THE SECURITIES EVIDENCED HEREBY WERE ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITIES EVIDENCED HEREBY MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITIES EVIDENCED
HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON AN EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT. THE HOLDER OF THE SECURITIES
EVIDENCED HEREBY AGREES THAT (I) SUCH SECURITIES MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(A) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (B) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (C) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (2) TO THE ISSUER OF THE SECURITIES
EVIDENCED HEREBY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (II) THE PURCHASER WILL,
AND EACH SUBSEQUENT PURCHASER IS REQUIRED TO, NOTIFY ANY SUBSEQUENT PURCHASER
FROM IT OF THE SECURITIES EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH
IN (I) ABOVE.
FX ENERGY, INC.
US$5,000,000
9.5% CONVERTIBLE SECURED NOTE
March 9, 2001
This 9.5% Convertible Secured Note in the face amount of US$5,000,000
(this "Note") is delivered to Rolls-Royce Power Ventures Limited and its
successors and permitted assigns (the "Holder") by FX Energy, Inc., incorporated
with limited liability under the laws of the State of Nevada (the "Company") in
connection with a gas option agreement dated on the date hereof, by and among
the Holder and FX Energy Poland Sp. zo.o., and is subject to the terms and
conditions attached hereto (the "Conditions").
The Company (which term shall include any corporation which shall
succeed to or assume the obligations of the Company), for value received,
promises, in accordance with the Conditions, to pay to the Holder the principal
amount of this Note outstanding on the date and in the amount specified in the
Conditions and any additional amounts payable thereunder.
The Company hereby irrevocably authorizes the Holder to make (or cause
to be made) appropriate notations on the grid attached (or on any continuation
of such grid), which notations, if made and confirmed by the Company, shall
evidence, inter alia the outstanding principal of the Note. On each occasion
that a new notation is included, the Holder shall promptly send a copy of the
attached grid to the Company for confirmation and the Company shall promptly
confirm such notation or notify the Holder of its reasons for any objection
thereto.
IN WITNESS WHEREOF, FX Energy, Inc. has caused this Note to be signed
manually or by facsimile by one of its duly authorized officers on the date
first written above.
FX Energy, Inc.
By:
/s/ Andrew W. Pierce
--------------------------
Duly authorized signature
Name: Andrew W. Pierce
Title: Vice President
2
ADVANCES AND PAYMENTS
- --------------------------------------------------------------------------------
Advance Amount of Amount Converted Unpaid Notation
Date Amount Principal Repaid to Equity Principal Balance Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
ELECTION TO CONVERT
To FX Energy, Inc.
3006 Highland Drive
Salt Lake City, Utah 84106
USA
Attn:
[Date]
The undersigned Holder of this Note hereby irrevocably exercises the
option to convert this Note, or the portion below designated, into Common Stock
of FX Energy, Inc. in accordance with the Conditions of the Note, and directs
that the shares issuable and deliverable upon conversion, together with any
check in payment for fractional shares, be issued in the name of and delivered
to the undersigned.
The Holder of the Note, upon the exercise of its conversion rights in
accordance with the Conditions of the Note, agrees to be bound by the terms of
the Registration Rights Agreement relating to the Common Stock issuable upon
conversion of the Note.
in whole ___
Portion of Note to be converted
(US$100,000 or integral multiples thereof):
US$__________________________
______________________________
Duly authorized signature
Name and Address
______________________________
______________________________
4
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
____________________________________________
____________________________________________
(Print or type assignee's name and address)
and irrevocably instruct the registrar of the Company to transfer this Note on
the books of the Company.
Your Signature: Assignee's Signature:
- ----------------------------------- --------------------------
Duly authorized signature of Holder Duly authorized signature of Assignee
Name: Name:
Title: Title:
Date: __________________________
In connection with any transfer of the Note evidenced by this
certificate occurring prior to the date that is two years after the
later of the date of original issuance of such Note and the last date,
if any, on which such Note was owned by the Company or any Affiliate of
the Company, the undersigned confirms that such Note is being
transferred:
CHECK ONE BOX BELOW
(1) [ ] to the Company or any subsidiary thereof,
(2) [ ] outside the United States in compliance with Rule 904 under
the Securities Act,
(3) [ ] pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available) or
(4) [ ] pursuant to an effective registration statement under the
Securities Act.
5
STOCK OPTION EXERCISE FORM
FX Energy, Inc.
3006 Highland Drive
Salt Lake City, Utah 84106
USA
Attn:
[Date]
Re: US$5,000,000 9.5% CONVERTIBLE SECURED NOTE OF FX ENERGY, INC.
We refer to the US$5,000,000 9.5% Convertible Note of FX Energy, Inc.
dated as of March [ ], 2001 (as amended, changed or modified from time to time,
the "Note"), between FX Energy, Inc. (the "Company") and Rolls-Royce Power
Ventures Limited and its successors and permitted assigns (the "Holder").
Capitalized terms used but not defined herein shall have the meanings given to
them in the terms and conditions of the Note.
We hereby notify you of our intention to purchase [ ] shares of Common
Stock at the Conversion Price pursuant to our Stock Option under Section 8 of
the Note.
By: __________________________
Duly authorized signature of Holder
Name:
Title:
6
Terms and Conditions of the Note
In the event the obligations of the Company hereunder are evidenced by more than
one Note, these terms and conditions must be attached to each Note.
The issue of any Notes to the Holder are constituted by these terms and
conditions (the "Conditions").
1. Definitions.
For purposes of the Note, the following terms shall have the meanings indicated:
"Affiliate" means any Person which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such specified Person. For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Apache" shall have the meaning set forth in Section 3 hereof.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or
foreign law for the relief of debtors or the protection of creditors.
"Business Day" means any day other than a Saturday, Sunday or a day on which
state or federally chartered banking institutions in New York, New York or
London, England are not required to be open.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value US$0.001 per share,
which term shall include, where appropriate, in the case of any
reclassification, recapitalization or other change in the Common Stock, such
capital stock to which a holder of Common Stock shall be entitled upon the
occurrence of such event.
"Conditions Date" shall have the meaning set forth in Section 3 hereof.
"Conversion Date" shall have the meaning set forth in Section 7 hereof.
"Conversion Price" shall have the meaning set forth in Section 7 hereof.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
7
"Early Repayment Amount" shall have the meaning set forth in Section 8 hereof.
"Event of Default" shall have the meaning set forth in Section 10 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Exchange Rate Contract" means, with respect to any Person, any currency swap
agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, the principal purpose of
which is to provide protection against fluctuations in currency exchange rates.
An Exchange Rate Contract may also include an Interest Rate Agreement.
"Fences Area" means the "Contract Area" as defined in Article 1.9 of the Joint
Operating Agreement Covering Areas in the Foresudetic Monocline dated May 12,
2000 between FXEP and POGC.
"FXEP" means FX Energy Poland Sp. z o.o. a limited liability company with its
seat in Warsaw, Poland at al. Jana Pawla II 29, 00-867, entered into the
Commercial Register maintained by the District Court in Warsaw under the RHB no.
50620.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession
of the United States, which are in effect as of the Issuance Date.
"Gas Agreement" shall have the meaning set forth in the Gas Option Agreement.
"Gas Option Agreement" means the gas option agreement dated on the date hereof
between the Holder and FXEP.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases and sale-and-leaseback transactions) or representing any hedging
obligations under an Exchange Rate Contract or an Interest Rate Agreement, if
and to the extent any of the foregoing indebtedness (other than obligations
under an Exchange Rate Contract or an Interest Rate Agreement) would appear as a
liability upon a balance sheet of such
8
Person prepared in accordance with GAAP, and also includes, to the extent not
otherwise included, the Guarantee of items which would be included within this
definition. "Indebtedness" does not include accrued operating costs, expenses or
liabilities, open account advances or trade accounts payable.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Issuance Date" means the date on which the Note is first issued.
"Material Subsidiary" means (i) FXEP and (ii) any other subsidiary of the
Company which is a "significant subsidiary" as defined in Rule 1-02(w) of
Regulation S-X under the Securities Act and the Exchange Act (as such Regulation
is in effect on the date hereof).
"Note" means, collectively, (i) this Note or (ii) any note or notes which may be
issued in exchange or substitution of this Note, in whole or in part.
"Obligations" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Security Interest" means (i) any Security Interest arising by
operation of law in the ordinary course of business and securing amounts not
more than 90 days overdue; (ii) Security Interests expressly permitted in
writing by the Holder; (iii) easements, rights of way, servitudes, permits,
surface leases and other rights affecting the surface that do not interfere with
the use, operation, value or unrestricted alienability of the affected property
and do not interfere with the ability of the Holder to enforce any rights under
this Note or any Security Agreements nor in any way materially and adversely
affect the ongoing interests of the Company; and (iv) purchase money security
interests securing amounts no greater than US$100,000 incurred in the ordinary
course of business.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"POGC" shall have the meaning set forth in Section 3 hereof.
"Project Finance Debt" shall have the meaning ascribed to it in the Gas Option
Agreement.
"Registration Rights Agreement" means the registration rights agreement dated on
the date hereof between the Company and the Holder.
"Restricted Share Certificate" shall have the meaning set forth in Section 7
hereof.
9
"Restricted Share Legend" shall have the meaning set forth in Section 7 hereof.
"Restricted Shares" shall have the meaning set forth in Section 7 hereof.
"Security Interest" means any mortgage, pledge, lien, charge, assignment,
hypothecation or security interest or any other agreement or arrangement having
the effect of conferring security.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Security Agreements" means (i) the pledge agreements between the Holder and
FXEP described in Section 15 hereof, together with all other agreements or
instruments executed or delivered in connection therewith, and (ii) and any
other document agreed by the Holder, the Company and FXEP to be designated as
such from time to time.
"Shares" shall have the meaning set forth in Section 7 hereof.
"Stock Option" shall have the meaning set forth in Section 8 hereof.
"US dollars" and "US$" mean the lawful currency of the United States of America.
2. Ranking.
This Note, limited to US$5,000,000 in aggregate principal amount, is a direct,
unconditional, unsubordinated general obligation of the Company, secured by
certain assets of FXEP as provided in Section 13. The Company currently has no
Indebtedness and shall not issue any securities or incur any Indebtedness that
rank senior to or pari passu in right of payment with the Note or rights or
options exercisable for or convertible into any such securities without the
prior written consent of the Holder of the Note.
3. Advances.
The Holder shall lend the principal amount of this Note to the Company by way of
two advances, each in the amount of US$2,500,000. The first advance shall be
made by wire transfer within three (3) days after the date hereof. The second
advance shall be made upon satisfaction of the following conditions:
(a) receipt by the Holder of either:
(1) consents in the form set forth in Annex A, or as
otherwise agreed to in writing between the Company
and the Holder, from the Polish Oil and Gas Company
("POGC") and Apache Poland Sp. zo.o. ("Apache") to
the pledges created by the Security Agreements and
the Holder's rights thereunder; or
10
(2) (A) acknowledgements from POGC and Apache to the
pledges created by the Security Agreements and the
Holder's rights thereunder, together with (B)(i) a
valid pledge of a newly-established bank account in
Poland in the name of FXEP into which all proceeds to
be received by FXEP from the sale of natural gas from
the Kleka 11 well and any other well in the Fences
Area are to be deposited, (ii) irrevocable and
unconditional instructions from FXEP to POGC to pay
all amounts due to FXEP to such account and POGC's
acknowledgement of such instructions, and (iii)
irrevocable and unconditional instructions from FXEP
to the relevant bank concerning the management and
disposition of such account and such bank's
acknowledgement of such instructions; provided, that
all agreements and documents referred to in this
subsection (a) shall be in form and substance
reasonably acceptable to the Holder and deemed each
to be a Security Agreement; and
(b) receipt by the Holder of confirmation from the
Company that no Event of Default has occurred and is
continuing.
If the above conditions are not satisfied within 21 days after the date hereof
or such later date as the Company and the Holder may agree to in writing (the
"Conditions Date"), the Holder may in its discretion (i) waive such conditions
and make the second advance within 9 days after the Conditions Date, in which
case the Company shall continue to use its best efforts to satisfy the above
conditions following the Conditions Date, or (ii) accept alternative security
satisfactory to the Holder and the Company and make the second advance within 9
days after the Conditions Date or (iii) cancel its commitment to make the second
advance as of the Conditions Date, in which case the principal amount of the
first advance shall be immediately due and payable, the Gas Option Agreement
shall be terminated and the Stock Option revoked.
4. Interest.
No interest shall accrue or be payable on this Note during the period from the
Issuance Date to, and including, the first anniversary of the Issuance Date.
From the first anniversary of the Issuance Date until repayment in full, this
Note will accrue interest at a rate of nine and one-half percent (9.5%) per
year. Interest will be computed on the basis of a 360-day year. If the Gas
Agreement has been executed in accordance with the Gas Option Agreement,
interest shall be compounded quarterly from the first anniversary of the
Issuance Date until repayment in full. The Company will pay interest, if any, on
overdue principal and interest at the interest rate borne by this Note plus 3%,
compounded quarterly.
5. Payment.
The Company promises to pay principal and interest on this Note in arrears (i)
on the second anniversary of the Issuance Date in a single instalment of the
total amount outstanding if the Gas Agreement has not been executed by the first
anniversary of the Issuance Date, or (ii) if the Gas Agreement has been executed
on or before the
11
first anniversary of the Issuance Date, in accordance with the terms of the Gas
Option Agreement, in thirty two (32) consecutive equal quarterly payments of
principal and interest, commencing on the first day of the second month
following the first quarter in which the Buyer under the Gas Agreement has taken
or paid for the Quarterly Take or Pay Quantity of Gas specified in Section 11.1
of the gas supply heads of terms contained in the Gas Option Agreement. Unless
this Note has been previously converted pursuant to Section 7 hereof, all
payments under this Note shall be made without deductions or withholdings by
wire transfer of immediately available funds in US dollars to an account
nominated by the Holder.
6. Early Repayment.
The Company may, at any time and from time to time, without premium or penalty,
redeem the Note, in whole or in part and in a minimum amount of US$100,000 and
integral multiples of US$100,000, at a redemption price equal to the principal
amount thereof plus accrued and unpaid interest thereon to the applicable
redemption date. Notice of any redemption must be received by the Holder at
least 10 Business Days before the redemption date at the address set forth in
Section 15 hereof. On and after the redemption date, interest ceases to accrue
on the Notes or the portion of the Notes that is redeemed.
7. Conversion.
7.1. If the Holder has made an irrevocable election in writing to the
Company not to enter into the Gas Agreement, the Holder has the right,
exercisable at any time after the date hereof, to convert all or any
part of the outstanding principal payable by the Company on the Note
into shares of Common Stock (the "Shares") at the Conversion Price,
except that if the Note, or any part thereof, is called for early
repayment pursuant to Section 6, the conversion right will terminate on
the first anniversary of the Issuance Date or on receipt by the Holder
of notice of redemption, whichever is later. The conversion right shall
terminate in all events at the close of business (New York time) on the
second anniversary of the Issuance Date. No interest shall be payable
on any principal amount converted into Shares, and if any interest
shall have been paid on such principal it shall be repaid to the
Company at the time of Conversion.
7.2. The "Conversion Price" shall be US$5.00 per Share; provided that, if
all of the consents described in Section 3(a)(1) are not obtained prior
to the Conditions Date, the Conversion Price shall be automatically
adjusted to US$4.00 plus or minus one-half the variation from US$4.00
of the closing price of the Common Stock trading on Nasdaq on the first
trading day that is 90 days after the date hereof; provided that such
adjusted Conversion Price shall in no event be greater than US$5.00 per
Share or less than US$3.00 per Share. The Conversion Price shall be
subject to pro rata adjustment upon any alteration to the nominal value
of the Common Stock as a result of consolidation, subdivision or
reclassification.
12
7.3. The Holder may convert a portion of this Note equal to any integral
multiple of US$100,000. The provisions herein that apply to conversion
of all of this Note also apply to conversion of a portion of it.
7.4. To convert the Note, the Holder must (1) complete and sign a conversion
notice substantially in the form set forth above in the Note and (2)
surrender such Note to the Company. The date on which a Holder
satisfies these requirements is the conversion date (the "Conversion
Date"). For the avoidance of doubt, if the Conversion Date occurs prior
to 90 days after the date hereof, the Conversion Price shall remain
US$5.00 per Share.
7.5. As soon as practicable after the Conversion Date, the Company shall
deliver to the Holder a certificate for the number of whole Shares
issued. The Company will not issue fractional Shares upon conversion of
a Note. In lieu of fractional Shares, the Company will pay an amount in
cash based upon the closing price of the Common Stock on the trading
day prior to the Conversion Date. As of the Conversion Date, the Person
in whose name the certificate is made shall cease to have rights as a
Holder.
7.6. Upon surrender of any Note that is converted in part, the Company shall
issue and authenticate a new Note equal in principal amount to the
unconverted portion of the Note surrendered.
7.7. The issuance of certificates for Shares upon the conversion of this
Note shall be made without charge to the converting Holder for such
certificates or for any tax in respect of the issuance of such
certificates.
7.8. The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock,
solely for the purpose of issuance upon conversion of this Note as
herein provided, a sufficient number of Shares to permit the conversion
of the outstanding portion of this Note for Shares. All Shares which
may be issued upon conversion of this Note shall be duly authorized,
validly issued, fully paid and non-assessable when so issued.
7.9. For so long as the Note or any portion thereof may be converted into
Shares, and for two years after the Conversion Date of any Shares, and
in any event for two years from the Issuance Date, the Company shall
timely file all reports required to be filed by it pursuant to Section
13 of the Exchange Act in order to make Rule 144 available to the
Holder for any transfer of this Note or the Common Stock issuable upon
any conversion of this Note.
7.10. In accordance with Rule 144, with respect to all Shares: (i) no Shares
may be resold before one year from the Issuance Date; (ii) during the
next year resales of Shares shall not exceed the amounts allowed under
Rule 144(e); and (iii) thereafter, subject to Section 7.11, the Shares
may be resold without
13
restriction. Upon conversion of this Note to Common Stock,
each certificate representing the Shares will bear a legend
(the "Restricted Share Legend") so restricting the sale of
such Shares in substantially the following form:
The securities evidenced hereby were originally issued in a transaction
exempt from registration under Section 5 of the United States
Securities Act of 1933, as amended (the "Securities Act"), and the
securities evidenced hereby may not be offered, sold or otherwise
transferred in the absence of such registration or an applicable
exemption therefrom. Each purchaser of the securities evidenced hereby
is hereby notified that the seller may be relying on an exemption from
the provisions of Section 5 of the Securities Act. The holder of the
securities evidenced hereby agrees that (I) such securities may be
resold, pledged or otherwise transferred, only (1)(a) in a transaction
meeting the requirements of Rule 144 under the Securities Act, (b)
outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act or (c) in
accordance with another exemption from the registration requirements of
the Securities Act, (2) to the issuer of the securities evidenced
hereby or (3) pursuant to an effective registration statement and, in
each case, in accordance with any applicable securities laws of any
state of the United States or any other applicable jurisdiction and
(II) the purchaser will, and each subsequent purchaser is required to,
notify any subsequent purchaser from it of the securities evidenced
hereby of the resale restriction set forth in (I) above.(1)
(1) This paragraph shall be removed upon the earlier of (i)
registration of the Common Stock pursuant to the Registration Rights
Agreement or (ii) satisfaction of the requirements under Section 7.10
of the Note.
7.11. With respect to all Shares, and notwithstanding Rule 144d(3)(ii) under
the Securities Act:
(a) No Shares may be resold before one year after the Conversion
Date; and
(b) The aggregate sales of all Shares during the period that
begins one year after their issuance and ends two years after
their issuance shall not exceed the greater of (a) one percent
of the number of shares of Common Stock issued and outstanding
as shown by the most recent report or statement published by
the Company, or (ii) the average volume of trading in such
Common Stock reported through the Nasdaq Stock Market during
the four calendar weeks preceding the receipt of the order to
execute the sale by the broker or the date of execution of the
sale directly with a market maker.
14
(c) The certificates representing such Shares will bear an
additional Restricted Shares Legend (for two years following
the Conversion Date, after which such legend shall be removed)
substantially in the following form:
Resale of the securities evidenced hereby are subject to restrictions
set forth in that certain 9.5% Convertible Secured Note in the face
amount of US$5,000,000 payable to Rolls-Royce Power Ventures Limited
Company dated March 9, 2001 (the "Note"), a copy of which restrictions
may be obtained from the issuer of the securities evidenced hereby at
its principal executive offices. Notwithstanding Rule 144(d)(3)(ii)
under the Securities Act, such restrictions prohibit sales of such
securities for the period ending one year after their issuance and
limit, for the period beginning one year after their issuance and
ending two years after their issuance, the aggregate sales by the
holder or holders of all shares of Common Stock issued or issuable upon
conversion of the whole Note to not more than the greater of (a) one
percent of the shares of Common Stock issued and outstanding as shown
by the most recent report or statement published by the Company, or
(ii) the average volume of trading in such Common Stock reported
through the Nasdaq Stock Market during the four calendar weeks
preceding the receipt of the order to execute the sale by the broker or
the date of execution of the transaction directly with a market maker.
(1)
(1) This paragraph shall be removed upon the earlier of (i)
registration of the Common Stock pursuant to the Registration Rights
Agreement, (ii) satisfaction of the requirements of Section 7.11 of the
Note or (iii) upon demand of the Holder in exercising its rights under
Section 10.3(b) of the Note.
7.12. It is the intention of the Company and the Holder that all Shares shall
be tradable without restriction under the Securities Act on Nasdaq
after the holding periods described in Sections 7.10 and 7.11, upon
which the Company agrees and undertakes to take any and all steps
required to enable the Holder to trade any Shares without restriction
under the Securities Act, including registering the Shares pursuant to
the Registration Rights Agreement.
8. Early Repayment Stock Option.
8.1. Notwithstanding anything to the contrary in Section 7.1, if (i) the
Company makes an early repayment of all or a part of the amount
outstanding under the Note (the "Early Repayment Amount") prior to the
first anniversary of the Issuance Date and (ii) on or before the first
anniversary of the Issuance Date, the Holder has made an irrevocable
election in writing to the Company not to enter into the Gas Agreement,
the Holder shall have the option (the "Stock Option") at its discretion
to purchase Common Stock at the Conversion Price (as may be adjusted
pursuant to Section 7.2), up to a
15
number of Shares equal to the Early Repayment Amount divided by the
Conversion Price. The Stock Option shall expire on the close of
business (New York time) on the first anniversary of the Issuance Date.
8.2. The Stock Option may be exercised only by written notice in the form
attached to the Note delivered in accordance with Section 16. Payment
for the Common Stock issued pursuant to exercise of the Stock Option
shall be made by wire transfer of immediately available funds, and
shares evidencing such Common Stock shall be delivered to the Holder
within three Business Days thereafter.
8.3. Sections 7.2, 7.3, 7.5, 7.7, 7.8, 7.9, 7.10 and 7.11 shall apply to
this Section 8 mutatis mutandis as if references therein to conversion
of the Note were references to exercise of the Stock Option.
9. Representation and Warranties.
9.1. The Company represents and warrants:
(a) Status and Authority. (i) The Company is an entity duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it is organized and is qualified to do business
in all jurisdictions where it is required to be qualified; (ii) it has
the necessary power and authority to enter into and perform its
obligations under this Note; (iii) it has duly authorized the person(s)
signing this Note to execute this Note on its behalf; (iv) upon
execution, this Note will be a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its
terms; and (v) the execution and delivery of this Note and performance
hereunder will not violate, result in a breach of or conflict with any
law, rule, regulation, order or decree applicable to the Company, its
organizational documents or the terms of any other agreement binding on
the Company.
(b) Capitalization. FXE is authorized to issue (a) 100,000,000 shares of
common stock, $0.001 par value per share, of which 17,680,235 shares
are issued and outstanding and 4,575,167 shares are reserved for
issuance on the exercise of outstanding options and warrants, and (b)
5,000,000 shares of preferred stock, $0.001 par value per share, of
which 500,000 shares are designated as Series A Preferred Stock and are
reserved for issuance under a rights agreement dated as of 4 April
1997, between FXE and Fidelity Transfer Corporation, a copy of which is
available to RRPV. The common stock and the Series A Preferred Stock of
FXE have the voting powers, designations, preferences, rights and
qualifications, limitations, or restrictions set forth in the articles
of incorporation and amendments thereto. All of the issued and
outstanding shares of capital stock of FXE have been duly authorized
and validly issued and are fully paid and nonassessable and not issued
in violation of the preemptive right of any person. The undesignated
preferred stock may be issued in such series with the voting
16
powers, designations, preferences, rights and qualifications,
limitations, or restrictions as may be duly approved by the board of
directors.
(c) Issuance and Sale of Shares. The Shares contemplated by this Note have
been duly reserved for issuance by all necessary corporate action on
the part of the Company; and the Shares, when issued and delivered in
accordance with the terms of this Note, will be duly and validly
issued, fully paid, and nonassessable and not issued in violation of
the preemptive right of any person. Based in part on the
representations made by or on behalf of the Holder in Section 9.2, the
offer, issuance, and sale to the Holder of the Note and the issuance of
the Shares issuable upon conversion of the Note are exempt from
registration under the Securities Act and applicable state securities
laws.
(d) SEC Reports. The Company has furnished to Rolls-Royce Power Ventures
Limited complete and accurate copies, as amended or supplemented as of
the date hereof, of its (i) Annual Report on Form 10-K for the fiscal
year ended 31 December 1999, as filed with the Commission, (ii) all
proxy statements and other solicitation materials that have been issued
by the Company relating to the Company's meetings of stockholders held
or currently scheduled since 31 December 1999, and (iii) all other
reports filed by the Company with the Commission under the Exchange Act
since 31 December 1999 (such reports are collectively referred to
herein as the "FXE Reports"). The FXE Reports constitute all of the
documents required to be filed by the Company with the Commission under
Sections 13, 14 or 15(d) of the Exchange Act since 31 December 1999.
(e) Financial Statements. The audited consolidated financial statements of
the Company included in the Company's Annual Report on Form 10-K for
the fiscal years ended 31 December 1998 and 1999 (i) comply as to form
in all material respects with applicable accounting requirements and
the published rules and regulations of the Commission with respect
thereto, (ii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods covered thereby (except as may be indicated therein or in the
notes thereto), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Company as of
the respective dates thereof and for the periods referred to therein,
and (iv) are consistent with the books and records of the Company.
The unaudited consolidated financial statements of the Company included
in the Company's quarterly reports on Form 10-Q for the fiscal quarters
ended 31 March, 30 June, and 30 September 2000, and the unaudited
consolidated financial statement of the Company for the fiscal year
ended 31 December 2000, furnished to Rolls-Royce Power Ventures
Limited, fairly present the consolidated financial position of the
Company and its subsidiaries as of the respective dates thereof, and
the consolidated results of operations and cash flows for the periods
indicated (including reasonable estimates of normal and recurring
year-end adjustments), except (i) to the extent required by changes
17
in generally accepted accounting principles; (ii) as may be indicated
in the notes thereto; and (iii) as may be permitted by Article 10 of
Commission Regulation S-X.
(f) No Actions and Proceedings. There are no actions, suits or claims,
legal or arbitral proceedings, governmental inquiries, or
investigations pending or, to the Company's knowledge, threatened
against the Company or against any of its Affiliates or Material
Subsidiaries, that question the right of the Company to issue the Note
or that might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, assets, or
condition, financial or otherwise, of the Company.
(g) No Material Change. Since December 31, 2000, there has not been any
material adverse change in the assets, business, financial condition,
or results of operations of the Company.
(h) Senior Ranking. The Company's obligations under this Note rank senior
to all of its Indebtedness except for Permitted Security Interests. The
Company is not aware of any Indebtedness that ranks senior to or pari
passu with the Note other than Permitted Security Interests or other
obligations that would be mandatorily preferred by law applying to
companies generally.
(i) Assets. All of the Company's assets and property are free from any
Security Interests other than Permitted Security Interests, and are
free from any other material restrictions, covenants and conditions.
(j) Accuracy of Information. The information contained in the FXE Reports,
as of their respective dates, and the unaudited balance sheets of the
Company as of December 31, 2000, did not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
9.2. The Holder represents and warrants:
(a) Acquisition of the Shares. In connection with the acquisition by the
Holder of any Shares in accordance with the terms of the Note, the
Holder represents that the Shares are being acquired without a view to,
or for, resale in connection with any distribution of such Shares or
any interest therein without registration or an applicable exemption
under the Securities Act and that the Holder is not an "underwriter" as
defined in Section 2(a)(11) of the Securities Act.
(b) Authority. The Holder has full power and authority to execute, deliver,
and perform its obligations under this Note in accordance with the
Conditions. The Holder has not been organized, reorganized, or
recapitalized specifically for the purpose of investing in the Company.
This Note has been duly executed and delivered by the Holder and
constitutes a valid and binding
18
obligation of the Holder, enforceable against the Holder in accordance
with the Conditions.
(c) Accredited Investor. The Holder is an "accredited investor" as that
term is defined in Rule 501 of Regulation D promulgated under the
Securities Act. The Holder, either alone or with its duly constituted
representative, has sufficient knowledge and experience in investing in
companies similar to the Company, so as to be able to evaluate the
risks and merits of its investment in the Company and is able
financially to bear the risk thereof, including a complete loss of its
entire investment.
(d) Brokerage. No broker, finder, agent or similar intermediary has acted
on behalf of the Holder in connection with this Note or the
transactions contemplated hereby, and there are no brokerage
commissions, finder's fees, or similar fees or commissions, payable in
connection therewith based on any agreement, arrangement, or
understanding with the Holder.
10. Defaults and Remedies.
10.1. Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of principal and interest on the
Note when the same becomes due and payable;
(b) the Company fails to timely observe or perform or breaches any material
covenant, representation or warranty or agreement contained in the
Conditions;
(c) there is a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness (including for the avoidance of doubt, any Project
Finance Debt) for money borrowed by the Company (or the payment of
which is guaranteed by the Company), whether such Indebtedness or
guarantee now exists or is created after the Issuance Date, which
default:
(1) is caused by a failure to pay when due any amounts payable on
such Indebtedness within the grace period provided for in such
Indebtedness (which failure continues beyond any applicable
grace period) (a "Payment Default");
(2) results in the acceleration of such Indebtedness prior to its
express maturity; and
(3) in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such
Indebtedness under which there is a Payment Default or the
maturity of which has been so accelerated, aggregates
US$250,000 or more;
19
(d) the Company pursuant to or within the meaning of any Bankruptcy Law:
(1) commences a voluntary case;
(2) consents to the entry of an order for relief against it in an
involuntary case in which it is the debtor;
(3) consents to the appointment of a Custodian of it or for all or
substantially all of its property;
(4) makes a general assignment for the benefit of its creditors;
or
(5) generally is unable to pay its debts as the same become due;
(e) 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 of the Company for all or
substantially all of its property; or
(3) orders the liquidation of the Company, and the order
or decree remains unstayed and in effect for 60 days;
(f) the Company or FXEP fails to timely observe or
perform or breaches any material covenant,
representation or warranty or agreement contained in
the Gas Option Agreement, the Gas Agreement or any
Security Agreement; or
(g) the proceeds from the issuance of this Note are not used in accordance
with the development plan attached hereto as Annex B.
10.2. Acceleration. If an Event of Default (other than an Event of Default
specified in clauses (d) and (e) of Section 10.1 hereof) occurs and is
continuing, the Holder by notice to the Company, may declare this Note
to be due and payable. Upon such declaration, the principal of and
interest on, this Note shall be due and payable immediately. If an
Event of Default specified in clause (d) or (e) of Section 10.1 hereof
occurs, such an amount shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the
Holder. The Holder by notice to the Company may rescind an acceleration
and its consequences if the rescission would not conflict with any
judgment or decree.
10.3. Other Remedies.
(a) If an Event of Default occurs and is continuing, the Holder may declare
that all or any of its rights under the Security Agreements may be
exercised
20
and/or pursue any available remedy, including specific performance and
injunctive relief, to collect the payment of principal or interest on
this Note or to enforce the performance of any provision of this Note.
(b) If an Event of Default occurs and is continuing, the Holder may declare
and the Company hereby agrees that any additional restrictions which
may have been imposed by Section 7.11 on the Holder's ability to
transfer any Common Stock acquired by any conversion of this Note is
immediately rescinded.
(c) A delay or omission by the Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of, or acquiescence in, the Event of Default.
All remedies are cumulative to the extent permitted by law.
10.4. Waiver of Past Defaults. The Holder, in its sole discretion, by written
notice to the Company may waive an existing Default or Event of Default
and its consequences.
10.5. Rights of Holder to Receive Payment. Notwithstanding any other
provision of this Note, the right of the Holder to receive payment of
principal and interest on the Note, on or after the respective due
dates expressed in this Note, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder made pursuant to
this Section 10.5.
11. Transfer of the Note.
The Holder may sell or otherwise transfer or assign this Note, in whole or in
part, or the Holder's rights or obligations hereunder, in whole or in part,
without the consent of the Company to any of its Affiliates or a joint venture
entity formed with any such Affiliate if such transferee or assignee is the
"Buyer" under the Gas Agreement. The Holder may transfer this Note to any third
party at any time there is a Default hereunder. Any other transfer of this Note
shall require the prior written consent of the Company, which consent shall not
be unreasonably withheld.
12. Successor Corporation Substituted.
Upon any consolidation or merger of the Company, the successor corporation
formed thereby shall succeed to, and be substituted for and may exercise every
right and power of, the Company under this Note with the same effect as if such
successor Person had been named as the Company herein. The Company shall
condition any sale, assignment, transfer, lease, conveyance or other disposition
of all or substantially all of the assets of the Company on the agreement of the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition is made, to be substituted for and assume all obligations and
liabilities of, the
21
Company under this Note with the same effect as if such successor Person had
been named as the Company herein.
13. Activities in Poland.
The Company may not conduct any exploration, development or production
activities with respect to natural gas in Poland through any entity other than
FXEP without the prior written consent of the Holder.
14. Amendments and Supplements.
Except as otherwise expressly provided herein, this Note may only be amended or
supplemented with the prior written consent of the Holder.
15. Security Agreements.
15.1. This Note is secured by security interests in certain contractual
rights of FXEP, which security interests are granted by FXEP to the
Holder pursuant to the terms of the Security Agreements set forth in
Annex C. Subject to the prior written consent of the Holder, which
consent shall not be unreasonably withheld, the security interests
created by the Security Agreements may be replaced from time to time by
pledges or assignments of rights, assets or other property of FXEP or
any other security; provided that the value of the replacement security
interests are at the time of replacement at least twice the amount of
the outstanding principal and interest due on the Note at such time. If
the replacement security consists of Natural Gas reserves, the security
value shall be determined on the basis of P90 reserves net of estimated
capital expenditures and operating costs, discounted to present value
at a 10% discount rate.
15.2. If the consents described in Section 3(a)(1) are not obtained prior to
the Conditions Date, for so long as any amounts remain outstanding
under the Note, the Company undertakes to:
(a) cause all proceeds to be received by FXEP from any and all sales of
natural gas from the Kleka 11 well and any other well in the Fences
Area to be deposited into the bank account described in Section
3(a)(2)(B);
(b) procure that FXEP shall (i) open a bank account in Poland promptly upon
entering into any agreement to sell natural gas produced from the Wilga
well or from any other well pledged to the Holder in accordance with
Section 15.1, (ii) cause all proceeds to be received by FXEP from any
and all sales of natural gas from the Wilga well, or from any other
well pledged to the Holder in accordance with Section 15.1, to be
deposited into such bank account and (iii) pledge such account to the
Holder in a manner consistent with Section 3(a)(2)(B). Such pledge
shall be in addition to the security created under Section 15.1 and any
agreement or agreements evidencing
22
such pledge shall be in a form reasonably acceptable to the Holder and
deemed each to be a Security Agreement; and (c) continue to use its
best efforts to obtain the consents described in Section 3(a)(1).
16. Notices.
Any notice or communication required or permitted to be given under this Note
shall be in writing addressed to the respective party as set forth below and may
be personally served or mailed by registered or certified mail (return receipt
requested) postage prepaid or sent prepaid by recognized overnight courier
service or facsimile. The Company or the Holder by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
All other notices or communications shall be in writing.
If to the Company:
FX Energy, Inc.
3006 Highland Drive, Suite 206
Salt Lake City, UT 84106
Attention of: David Pierce
facsimile: (1) 801 486 5575
If to the Holder:
Rolls-Royce Power Ventures Limited
150 Victoria Street
London SW1E 5LB
Attention of: Graeme Fairbairn
facsimile: (44) 20 7227 9001
17. Cancellation.
After all unpaid principal and interest owed on this Note has been paid in full,
this Note shall be surrendered to the Company for cancellation and shall not be
reissued.
18. Replacement of Note.
In the event that this Note shall at any time become mutilated or destroyed or
stolen or lost and such mutilated Note or evidence of the loss, theft or
destruction of this Note has been delivered to the Company, a new Note of like
tenor will be issued by the Company in exchange for the Note so mutilated, or in
lieu of the Note so destroyed or stolen or lost. Every new Note issued in lieu
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone. Any
new Note delivered pursuant
23
to this paragraph shall be so dated that neither gain nor loss in interest shall
result from such exchange.
19. Expenses.
The Company will pay all costs associated with the Note and the Registration
Rights Agreement other than costs incurred by the Holder and the Holder's legal
fees.
20. Public Announcements.
Neither the Company nor the Holder shall issue any press release or make any
other public announcement relating to the transactions which are the subject of
this Note or the Gas Option Agreement or the material content of this Note or
the Gas Option Agreement without the prior written consent of the other party
hereto, except if required under applicable law or the rules of Nasdaq or any
stock exchange on which such party's shares are listed; provided, however, that
if such disclosure is required, prior to such disclosure, a party shall provide
a copy of such announcement to the other party hereto. At any time after the
date of hereof, the Company may make a public announcement in the form set forth
in Annex D.
21. Governing Law.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS NOTE WITHOUT REGARD
TO CONFLICT OF LAW PROVISIONS THEREOF.
22. Severability.
In case any provision in this Note shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
23. Headings.
The headings of the Sections of this Note have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
[The next page is the Signature Page.]
24
Signature Page to the Conditions
Agreed and Accepted:
- ------------------------------
for and on behalf of
FX Energy, Inc.
Name:
Title:
- ------------------------------
for and on behalf of
Rolls-Royce Power Ventures Limited
Name:
Title:
25