SERIES A CONVERTIBLE DEBENTURE DUE APRIL 16, 2010
Exhibit
4.1
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.
Original
Issue Date: April 16, 2007
Original
Conversion Price (subject to adjustment herein):
$5,770.48
$__________
SERIES
A CONVERTIBLE DEBENTURE
DUE
APRIL 16, 2010
THIS
SERIES A CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly
issued convertible debentures of SRS Energy, Inc., a Delaware corporation (the
“Company”), designated as its Series A Convertible Debenture, due April
16, 2010 (this debenture, the “Debenture” and collectively with the other
such series of debentures, the “Debentures”).
FOR
VALUE
RECEIVED, the Company promises to pay to ____________ or its registered assigns
(the “Holder”), or shall have paid pursuant to the terms hereunder, the
principal sum of $_________ by April 16, 2010, or such earlier date as this
Debenture is required or permitted to be repaid as provided hereunder (the
“Maturity Date”), and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the
following additional provisions:
Section
1. Definitions. For the purposes hereof, in addition
to the terms defined elsewhere in this Debenture, capitalized terms not
otherwise defined herein shall have the meanings set forth in the Purchase
Agreement and the following terms shall have the following
meanings:
“Bankruptcy
Event” means any of the following events: (a) the Company or any subsidiary
thereof commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any subsidiary thereof; (b) there is commenced against the Company
or
any subsidiary thereof any such case or proceeding that is not dismissed within
60 days after commencement; (c) the Company or any subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
subsidiary thereof suffers any appointment of any custodian or the like for
it
or any substantial part of its property that is not discharged or stayed within
60 calendar days after such appointment; (e) the Company or any subsidiary
thereof makes a general assignment for the benefit of creditors; or (f) the
Company or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.
“Change
of Control Transaction” means the occurrence after the date hereof of any of
the following events: (a) an acquisition after the date hereof by an individual
or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under
the Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 33% of the voting securities of the Company (other than by means
of
conversion or exercise of the Debentures and the Securities issued together
with
the Debentures); (b) the Company merges into or consolidates with any other
Person, or any Person merges into or consolidates with the Company and, after
giving effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 66% of the aggregate voting power of
the
Company or the successor entity of such transaction; (c) the Company sells
or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less
than
66% of the aggregate voting power of the acquiring entity immediately after
the
transaction; (d) a replacement at one time or within a three year period of
more
than one-half of the members of the Company’s board of directors that is not
approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof); or (e) the execution by the Company of an agreement
to which the Company is a party or by which it is bound, providing for any
of
the events set forth in clauses (a) through (d) above.
“Common
Stock” means the common stock no par value of the Company and stock of any
other class of securities into which such common stock may hereafter be
reclassified or changed into.
“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon
conversion of this Debenture in accordance with the terms hereof.
“Effectiveness
Period” shall have the meaning set forth in the Registration Rights
Agreement.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
“Interest
Conversion Rate” means the lesser of (a) the Conversion Price or (b) the 90%
of the lesser of (i) the average of the VWAPs for the 10 consecutive Trading
Days ending on the Trading Day that is immediately prior to the applicable
Interest Payment Date or (ii) the average of the VWAPs for the 10 consecutive
Trading Days ending on the Trading Day that is immediately prior to the date
the
applicable Interest Conversion Shares are issued and delivered if after the
Interest Payment Date.
“Original
Issue Date” means the date of the first issuance of the Debentures,
regardless of any transfers of any Debenture and regardless of the number of
instruments which may be issued to evidence such Debentures.
“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
“Purchase
Agreement” means the Debenture Purchase Agreement among the Company and the
original Holders, dated as of April 16, 2007, as amended, modified or
supplemented from time to time in accordance with its terms.
“Registration
Rights Agreement” means the Investors’ Rights Agreement among the Company
and the original Holders, dated as of the date of the Purchase Agreement, as
amended, modified or supplemented from time to time in accordance with its
terms.
“Registration
Statement” means a registration statement that registers the resale of all
Conversion Shares and Interest Conversion Shares of the Holder, who shall be
named as a “selling stockholder” therein, and meets the requirements of the
Registration Rights Agreement.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“Trading
Day” means a day on which the principal Trading Market is open for
business.
“Trading
Market” means the following markets or exchanges on which the Common Stock
is listed or quoted for trading on the date in question: the American Stock
Exchange, the Nasdaq Capital Market, the Nasdaq National Market or the New
York
Stock Exchange.
“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based
on a Trading Day from 8:30 a.m. (St. Louis, MO time) to 3:02 p.m. (St. Louis,
MO
time); (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or
(d) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder
and
reasonably acceptable to the Company.
Section
2. Interest.
(a) Interest
Accrual. Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to six percent (6%). Interest shall be calculated on
the
basis of a 360-day year and the actual number of days elapsed, to the extent
permitted by applicable law. Interest hereunder will be paid to the Holder
or
its assignee in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of Debentures (the “Debenture
Register”).
(b) Interest
Payment. The Company shall make payment of all outstanding and accrued
interest at the Maturity Date in shares of the Company’s Common Stock or cash,
at the Company’s election. If such Schedule Payment is made in Common
Stock, such number of shares of the Company’s Common Stock due as payment shall
be calculated based on the amount of interest due divided by the Conversion
Price. Notwithstanding the foregoing, this Debenture shall become due and
immediately payable, including all accrued but unpaid interest, upon an Event
of
Default.
Section
3. No Prepayment. Except as otherwise set forth in this
Debenture, the Company may not prepay any portion of the principal amount of
this Debenture without the prior written consent of the Holder.
Section
4. Conversion.
(a) Voluntary
Conversion. At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture (principal and accrued and unpaid
interest thereon) shall be convertible, in whole or in part, into shares of
Common Stock at the option of the Holder, at any time and from time to time.
The
Holder shall effect conversions by delivering to the Company a Notice of
Conversion, the form of which is attached hereto as Annex A (a “Notice
of Conversion”), specifying therein the principal amount of this Debenture
to be converted and the date on which such conversion shall be effected (a
“Conversion Date”). If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder. To effect conversions hereunder, the Holder
shall
not be required to physically surrender this Debenture to the Company unless
the
entire principal amount of this Debenture, plus all accrued and unpaid interest
thereon, has been so converted. Conversions hereunder shall have the effect
of
lowering the outstanding principal amount of this Debenture and accrued and
unpaid interest thereon in an amount equal to the applicable conversion. The
Holder and the Company shall maintain records showing the principal amount(s)
converted and the date of such conversion(s). The Holder, and any
assignee by acceptance of this Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may
be
less than the amount stated on the face hereof.
(b) Conversion
Price. The conversion price in effect on any Conversion Date shall be equal
to $5,770.48 (subject to adjustment herein) (the “Conversion
Price”).
(c) Mechanics
of Conversion.
(i) Conversion
Shares Issuable Upon Conversion of Principal Amount. The number of shares of
Common Stock issuable upon a conversion hereunder shall be determined by the
quotient obtained by dividing (A) the outstanding principal amount of this
Debenture and accrued and unpaid interest thereon to be converted by (B) the
Conversion Price.
(ii) Delivery
of Certificate Upon Conversion. Not later than three Trading Days after each
Conversion Date (the “Share Delivery Date”), the Company shall deliver,
or cause to be delivered, to the Holder (A) a certificate or certificates
representing the Conversion Shares representing the number of shares of Common
Stock being acquired upon the conversion of this Debenture and (B) a bank check
in the amount of accrued and unpaid interest (if the Company has elected or
is
required to pay accrued interest in cash). On or after the
Effective Date, the Company shall use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under this
Section 4 electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.
(iii) Failure
to Deliver Certificates. If in the case of any Notice of Conversion such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date, the Holder
shall be entitled to elect by written notice to the Company at any time on
or
before its receipt of such certificate or certificates, to rescind such
Conversion, in which event the Company shall promptly return to the Holder
any
original Debenture delivered to the Company and the Holder shall promptly return
the Common Stock certificates representing the principal amount of this
Debenture tendered for conversion to the Company.
(iv) Obligation
Absolute; Partial Liquidated Damages. The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Debenture in accordance
with the terms hereof are absolute and unconditional, irrespective of any action
or inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any Person
or any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or
any
other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company
to
the Holder in connection with the issuance of such Conversion Shares;
provided, however, that such delivery shall not operate as a
waiver by the Company of any such action the Company may have against the
Holder. In the event the Holder of this Debenture shall elect to convert any
or
all of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or affiliated
with the Holder has been engaged in any violation of law, agreement or for
any
other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Debenture shall
have been sought and obtained. If the Company fails for any reason to deliver
to
the Holder such certificate or certificates pursuant to Section 4(c)(ii) by
the
Share Delivery Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, for each $1000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading Day on
the
fifth Trading Day after such liquidated damages begin to accrue) for each
Trading Day after the second Trading Day following the Share Delivery Date
until
such certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages or declare an Event of Default pursuant to Section 7
hereof for the Company’s failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation,
a
decree of specific performance and/or injunctive relief. The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.
(v) Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In
addition to any other rights available to the Holder, if the Company fails
for
any reason to deliver to the Holder such certificate or certificates by two
Trading Days following the Share Delivery Date pursuant to Section 4(c)(ii),
and
if after two Trading Days following such Share Delivery Date the Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “Buy-In”), then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number
of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue
(if
surrendered) this Debenture in a principal amount equal to the principal amount
of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued if the Company had timely complied
with
its delivery requirements under Section 4(c)(ii). The Holder shall provide
the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In and, upon request of the Company, evidence of the amount of such
loss.
(vi) Reservation
of Shares Issuable Upon Conversion. The Company covenants that it will at
all times reserve and keep available out of its authorized and unissued shares
of Common Stock for the sole purpose of issuance upon conversion of this
Debenture and payment of interest on this Debenture, each as herein provided,
free from preemptive rights or any other actual contingent purchase rights
of
Persons other than the Holder (and the other holders of the Debentures), not
less than such aggregate number of shares of the Common Stock as shall (subject
to the terms and conditions set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 5) upon the
conversion of the outstanding principal amount of this Debenture and payment
of
interest hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.
(vii) Fractional
Shares. Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock,
but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the VWAP at such time. If the Company elects not, or is
unable, to make such a cash payment, the Holder shall be entitled to receive,
in
lieu of the final fraction of a share, 1 whole share of Common
Stock.
(viii) Transfer
Taxes. The issuance of certificates for shares of the Common Stock on
conversion of this Debenture shall be made without charge to the Holder hereof
for any documentary stamp or similar taxes that may be payable in respect of
the
issue or delivery of such certificates, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of this Debenture so converted and the Company
shall not be required to issue or deliver such certificates unless or until
the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section
5. Certain Adjustments.
(a) Stock
Dividends and Stock Splits. If the Company, at any time while this Debenture
is outstanding: (i) pays a stock dividend or otherwise makes a distribution
or
distributions payable in shares of Common Stock on shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible
into
or exchangeable for shares of Common Stock (“Common Stock Equivalents”);
(ii) subdivides outstanding shares of Common Stock into a larger number of
shares; (iii) combines (including by way of a reverse stock split) outstanding
shares of Common Stock into a smaller number of shares; or (iv) issues, in
the
event of a reclassification of shares of the Common Stock, any shares of capital
stock of the Company, then the Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding any treasury shares of the Company) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant
to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
(b) Subsequent
Equity Sales. If the Company or any subsidiary thereof, as applicable, at
any time while this Debenture is outstanding, sells or grants any option to
purchase or sells or grants any right to reprice its securities, or otherwise
disposes of or issues (or announces any sale, grant or any option to purchase
or
other disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock at an effective price per share that
is
lower than the then Conversion Price (such lower price, the “Base Conversion
Price” and such issuances collectively, a “Dilutive Issuance”) (if
the holder of the Common Stock or Common Stock Equivalents so issued shall
at
any time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price. Such adjustment shall be made whenever such Common Stock
or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 5(b) in respect of a conversion
of
any convertible debt existing at the Original Issue Date or the granting of
securities to employees of the Company pursuant to an equity incentive plan
adopted by the board of directors of the Company, provided that the
fully-diluted aggregate number of shares of Common Stock issuable under such
plans is equal to or less than 15% of the total issued and outstanding shares
of
Common Stock (collectively, “Exempt Issuances”). The Company shall notify
the Holder in writing, no later than the business day following the issuance
of
any Common Stock or Common Stock Equivalents subject to this Section 5(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”). For purposes of clarification, whether or
not the Company provides a Dilutive Issuance Notice pursuant to this Section
5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled
to
receive a number of Conversion Shares based upon the Base Conversion Price
on or
after the date of such Dilutive Issuance, regardless of whether the Holder
accurately refers to the Base Conversion Price in the Notice of
Conversion.
(c) Subsequent
Rights Offerings. If the Company, at any time while the Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares
of
Common Stock at a price per share that is lower than the VWAP on the record
date
referenced below other than Exempt Issuances, then the Conversion Price shall
be
multiplied by a fraction of which the denominator shall be the number of shares
of the Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights
or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered (assuming delivery to the Company in full
of
all consideration payable upon exercise of such rights, options or warrants)
would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights,
options or warrants.
(d) Pro
Rata Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends)
or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price
in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the
then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good faith.
In
either case the adjustments shall be described in a statement delivered to
the
Holder describing the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to 1 share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(e) Fundamental
Transaction. If, at any time while this Debenture is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one transaction or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (iv) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence
of
such Fundamental Transaction, the same kind and amount of securities, cash
or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of 1 share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the determination of
the Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of 1 share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of
the Alternate Consideration. If holders of Common Stock are given any choice
as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Debenture following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new debenture consistent with the foregoing
provisions and evidencing the Holder’s right to convert such debenture into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section
5(e)
and insuring that this Debenture (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
(f) Calculations.
All calculations under this Section 5 shall be made to the nearest cent or
the
nearest 1/100th of a share, as the case may be. For purposes of this Section
5,
the number of shares of Common Stock deemed to be issued and outstanding as
of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Company) issued and outstanding.
(g) Notice
to the Holder.
(i) Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly mail to each Holder
a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. If the Company
issues a variable rate security, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible conversion
or
exercise price at which such securities may be converted or
exercised.
(ii) Notice
to Allow Conversion by ▇▇▇▇▇▇. If (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption
of
the Common Stock, (C) the Company shall authorize the granting to all holders
of
the Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which
the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common
Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of
the affairs of the Company, then, in each case, the Company shall cause to
be
filed at each office or agency maintained for the purpose of conversion of
this
Debenture, and shall cause to be delivered to the Holder at its last address
as
it shall appear upon the Debenture Register, at least 20 calendar days prior
to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day period commencing on the date of such notice through the effective date
of the event triggering such notice.
Section
6. Negative Covenants. As long as Debentures representing
at least 51% of the aggregate principal amount of Debentures issued on the
Original Issue Date are outstanding and without the prior written consent of
Holders holding a majority of the then issued and outstanding Debentures, the
Company shall not, and shall not permit any of its subsidiaries to, directly
or
indirectly:
(a) enter
into, create, incur, assume, guarantee or suffer to exist any indebtedness
for
borrowed money senior to or having any priority over the Debentures, including
but not limited to, a guarantee, on or with respect to any of its property
or
assets now owned or hereafter acquired or any interest therein or any income
or
profits therefrom;
(b)
enter into, create, incur, assume or suffer to exist any liens, security
interests or other encumbrances of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or
any income or profits therefrom;
(c) amend
its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;
(d) repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a
deminimis number of shares of its Common Stock or Common Stock
Equivalents;
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(e)
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enter
into any agreement with respect to any of the foregoing;
or
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(f)
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pay
cash dividends or distributions on any equity securities of the
Company.
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Section
7. Events of Default.
(a) “Event
of Default” means, wherever used herein, any of the following events
(whatever the reason for such event and whether such event shall be voluntary
or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative
or
governmental body):
(i) any
default in the payment of (A) the principal amount of any Debenture or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured within three Trading Days;
(ii) the
Company shall fail to observe or perform any other covenant or agreement
contained in the Debentures (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (x) below) which failure is not cured,
if
possible to cure, within the earlier to occur of (A) five Trading Days after
notice of such failure sent by the Holder or by any other Holder and (B) 10
Trading Days after the Company has become or should have become aware of such
failure;
(iii) a
default or event of default (subject to any grace or cure period provided in
the
applicable agreement, document or instrument or any unanimous waiver thereof)
shall occur under any other material agreement, lease, document or instrument
to
which the Company or any subsidiary is obligated;
(iv) any
representation or warranty made in this Debenture, any written statement
pursuant hereto or any other report, financial statement or certificate made
or
delivered to the Holder or any other Holder shall be untrue or incorrect in
any
material respect as of the date when made or deemed made;
(v) the
Company or any subsidiary shall be subject to a Bankruptcy Event;
(vi) the
Common Stock shall not be eligible for listing or quotation for trading on
a
Trading Market and shall not be eligible to resume listing or quotation for
trading thereon within five Trading Days;
(vii) the
Company
shall be a party to any Change of Control Transaction or Fundamental Transaction
or shall agree to sell or dispose of all or in excess of 33% of its assets
in
one transaction or a series of related transactions (whether or not such sale
would constitute a Change of Control Transaction);
(viii) a
Registration Statement shall not have been declared effective by the Commission
on or prior to the 210th calendar
day after
the Closing Date;
(ix) if,
during the Effectiveness Period (as defined in the Registration Rights
Agreement), either (A) the effectiveness of the Registration Statement lapses
for any reason or (B) the Holder shall not be permitted to resell Registrable
Securities (as defined in the Registration Rights Agreement) under the
Registration Statement for a period of more than 20 consecutive Trading Days
or
30 non-consecutive Trading Days during any 12 month period; provided,
however, that if the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a similar
transaction and, in the written opinion of counsel to the Company, the
Registration Statement would be required to be amended to include information
concerning such pending transaction(s) or the parties thereto which information
is not available or may not be publicly disclosed at the time, the Company
shall
be permitted an additional 10 consecutive Trading Days during any 12 month
period pursuant to this Section 7(a)(ix);
(x) the
Company shall fail for any reason to deliver certificates to a Holder prior
to
the tenth Trading Day after a Conversion Date pursuant to Section 4(c) or the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of any Debentures in accordance with the terms hereof;
or
(xi) any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or
other
assets for more than $250,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.
(b) Remedies
Upon Event of Default. If any Event of Default occurs, the outstanding
principal amount of this Debenture, plus accrued but unpaid interest, liquidated
damages and other amounts owing in respect thereof through the date of
acceleration, shall become, at the Holder’s election, immediately due and
payable in cash at the Mandatory Default Amount. Commencing five days after
the
occurrence of any Event of Default that results in the eventual acceleration
of
this Debenture, the interest rate on this Debenture shall accrue at an interest
rate equal to the lesser of 22% per annum or the maximum rate permitted under
applicable law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Debenture to or as directed by the Company.
In connection with such acceleration described herein, the Holder need not
provide, and the Company hereby waives, any presentment, demand, protest or
other notice of any kind, and the Holder may immediately and without expiration
of any grace period enforce any and all of its rights and remedies hereunder
and
all other remedies available to it under applicable law. Such acceleration
may
be rescinded and annulled by ▇▇▇▇▇▇ at any time prior to payment hereunder
and
the Holder shall have all rights as a holder of the Debenture until such time,
if any, as the Holder receives full payment pursuant to this Section 7(b).
No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereon.
Section
8. Miscellaneous.
(a) Notices.
Any and all notices or other communications or deliveries to be provided by
the
Holder hereunder, including, without limitation, any Notice of Conversion,
shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at
_____________________, facsimile number (____) _______, Attn:
____________ or such other facsimile number or address as
the Company may specify for such purpose by notice to the Holder delivered
in
accordance with this Section 8. Any and all notices or other communications
or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address
of
such ▇▇▇▇▇▇ appearing on the books of the Company, or if no such facsimile
number or address appears, at the principal place of business of the Holder.
Any
notice or other communication or deliveries hereunder shall be deemed given
and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified
in
this Section 8 prior to 5:00 p.m. (St. Louis, MO time), (ii) the date
immediately following the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number specified in this Section
8
between 5:00 p.m. (St. Louis, MO time) and 11:59 p.m. (St. Louis, MO time)
on
any date, (iii) the second Business Day following the date of mailing, if sent
by nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.
(b) Absolute
Obligation. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, liquidated damages and accrued
interest, as applicable, on this Debenture at the time, place, and rate, and
in
the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks paripassu with all
other Debentures of the same series now or hereafter issued under the terms
set
forth herein.
(c) Lost
or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu
of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed, but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, reasonably satisfactory to
the
Company.
(d) Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of this Debenture shall be governed by and construed and enforced
in accordance with the internal laws of the State of Delaware, without regard
to
the principles of conflict of laws thereof. If either party shall commence
an
action or proceeding to enforce any provisions of this Debenture, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys’ fees and other costs and expenses incurred in the
investigation, preparation and prosecution of such action or
proceeding.
(e) Waiver.
Any waiver by the Company or the Holder of a breach of any provision of this
Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Debenture on one or more occasions shall not
be
considered a waiver or deprive that party of the right thereafter to insist
upon
strict adherence to that term or any other term of this Debenture. Any waiver
by
the Company or the Holder must be in writing.
(f) Severability.
If any provision of this Debenture is invalid, illegal or unenforceable, the
balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any Person or circumstance, it shall nevertheless remain
applicable to all other Persons and circumstances. If it shall be found that
any
interest or other amount deemed interest due hereunder violates the applicable
law governing usury, the applicable rate of interest due hereunder shall
automatically be lowered to equal the maximum rate of interest permitted under
applicable law. The Company covenants (to the extent that it may lawfully do
so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on this Debenture as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company
(to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any
such
law, hinder, delay or impeded the execution of any power herein granted to
the
Holder, but will suffer and permit the execution of every such as though no
such
law has been enacted.
(g) Next
Business Day. Whenever any payment or other obligation hereunder shall be
due on a day other than a business day, such payment shall be made on the next
succeeding business day.
(h) Headings.
The headings contained herein are for convenience only, do not constitute a
part
of this Debenture and shall not be deemed to limit or affect any of the
provisions hereof.
(i) Assumption.
Any successor to the Company or any surviving entity in a Fundamental
Transaction shall (A) assume, prior to such Fundamental Transaction, all of
the
obligations of the Company under this Debenture, the Debenture Purchase
Agreement and the other transaction documents pursuant to written agreements
in
form and substance satisfactory to the Holder (such approval not to be
unreasonably withheld or delayed) and (B) issue to the Holder a new debenture
of
such successor entity evidenced by a written instrument substantially similar
in
form and substance to this Debenture, including, without limitation, having
a
principal amount and interest rate equal to the principal amount and the
interest rate of this Debenture and having similar ranking to this Debenture,
which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 8(i)
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations of this
Debenture.
[Remainder
of page intentionally left blank; signature page to follow]
IN
WITNESS WHEREOF, the Company has caused this Debenture to be duly executed
by a
duly authorized officer as of the date first above indicated.
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SRS
ENERGY, INC.
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By:
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Name:
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Title:
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ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal under the Series A Convertible
Debenture of SRS Energy, Inc., a Delaware corporation (the “Company”),
due on April 16, 2010, into shares of common stock, par value $0.001 per share
(the “Common Stock”), of the Company according to the conditions hereof,
as of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates and opinions
as reasonably requested by the Company in accordance therewith. No fee will
be
charged to the holder for any conversion, except for such transfer taxes, if
any.
The
undersigned agrees to comply with the prospectus delivery requirements under
the
applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.
Conversion
Calculations:
Date
to
Effect Conversion:
Principal
Amount of Debenture to be Converted:
Number
of
shares of Common Stock to be issued:
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Signature:
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Name:
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Address:
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Schedule
1
The
Series A Convertible Debentures due on April 16, 2010, in the aggregate
principal amount of $____________ issued by SRS Energy, Inc. This Conversion
Schedule reflects conversions made under Section 4 of the above referenced
Debenture.