EXHIBIT A
NEITHER THIS SECURITY NOR THE ISSUANCE TO THE HOLDER OF THE SECURITIES INTO
WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION 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.
THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THIS NOTE IN THE EVENT OF A
PARTIAL REDEMPTION, REPAYMENT OR CONVERSION. AS A RESULT, FOLLOWING ANY
REDEMPTION, REPAYMENT OR CONVERSION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT
SET FORTH BELOW.
8% SENIOR SECURED CONVERTIBLE NOTE
OF
CONSOLIDATED ENERGY, INC.
Original Principal Amount: $_______
Issuance Date: January 13, 2006
THIS NOTE is one of a series of duly authorized and issued Senior Secured
Convertible Notes of Consolidated Energy, Inc., a Wyoming corporation, having a
principal place of business at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the
"Company"), designated as its 8% Senior Secured Convertible Notes.
FOR VALUE RECEIVED, the Company hereby promises to pay to or upon the order
of _______________________ or its registered assigns or successors-in-interest
(the "Holder") the principal sum of _________________ Dollars ($___________.00),
together with all accrued but unpaid interest thereon, if any, on the Final
Maturity Date, to the extent such principal amount and interest have not been
repaid or converted into shares of the Company's Common Stock, $.001 par value
(the "Common Stock"), in accordance with the terms hereof. Interest on the
unpaid principal balance hereof shall accrue at the rate of 8% per annum (the
"Interest Rate") from the date of original issuance hereof (the "Issuance Date")
until the Final Maturity Date, or such earlier date upon acceleration or by
conversion, repayment or redemption in accordance with the terms hereof.
Interest on this Note shall accrue daily commencing on the Issuance Date, shall
be compounded quarterly and shall be computed on the basis of a 360-day year,
30-day months and actual days elapsed and shall be payable in accordance with
Section 2 hereof. Notwithstanding anything contained herein, this Note shall
bear interest on the outstanding Principal Amount from and after the occurrence
and during the continuance of an Event of Default, at the rate (the "Default
Rate") equal to the lower of eighteen percent (18%) per annum or the highest
rate permitted by applicable law. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs,
then to unpaid interest and fees and any remaining amount to unpaid principal.
All payments of principal of and interest on this Note shall be made in
lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note. This Note may not
be prepaid in whole or in part except as specifically provided herein. Whenever
any amount expressed to be due by the terms of this Note is due on any day which
is not a Business Day (as defined below), the same shall instead be due on the
next succeeding day which is a Business Day and such extension shall be taken
into account in determining the amount of interest accrued on this Note.
The indebtedness evidenced by this Note is pari passu with the Company's
outstanding 6% Senior Secured Convertible Notes Due 2008 and the promissory
notes of the Company in the approximate aggregate principal amount of $2,502,500
issued pursuant to the Forbearance Agreement and is senior to all other current
and future indebtedness of the Company. Payment of the indebtedness evidenced by
this Note is (a) guaranteed by all of the Subsidiaries, and (b) secured by all
of the properties and assets of the Company and each Subsidiary pursuant to that
certain Security Agreement, dated as of January 13, 2006, by and among the
Company, the Subsidiaries and Gryphon Master Fund, L.P., as Collateral Agent for
the Purchasers (the "Security Agreement").
The following terms and conditions shall apply to this Note:
1. Definitions.
(a) Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Purchase Agreement.
(b) For purposes hereof the following terms shall have the meanings
ascribed to them below:
"Approved Market" means one of the OTC Bulletin Board, the Nasdaq Capital
Market, the Nasdaq National Market, the New York Stock Exchange or the American
Stock Exchange.
"Bankruptcy Event" means any of the following events: (a) the Company or
any material subsidiary 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 material subsidiary thereof; (b) there is
commenced against the Company or any material subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Company or any material 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 material subsidiary suffers any appointment of
any trustee, custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days; (e) the Company or any
material subsidiary makes a general assignment for the benefit of creditors; (f)
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the Company or any material subsidiary fails to pay, states that it is unable to
pay, or is unable to pay, its debts (excluding those reasonably disputed in good
faith by the Company in the case of failure to pay and for which it has reserves
on its books and financial statements) generally as they become due; (g) the
Company or any material subsidiary calls a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its debts; or (h) the
Company or any material subsidiary, 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.
"Board of Directors" means the Company's board of directors.
"Cash" or "cash" means at any time such coin or currency of the United
States of America as shall at such time be legal tender for the payment of
public and private debts.
"Change in Control Transaction" will be deemed to exist if (i) there occurs
any consolidation, merger, amalgamation or other business combination of the
Company with or into any other corporation or other entity or person (whether or
not the Company is the surviving corporation), or any other corporate
reorganization or transaction or series of related transactions in which in any
of such events the persons who are holders of the voting stock of the Company
immediately prior to such event cease to own more than 40% of the voting stock,
or corresponding voting equity interests, of the surviving corporation or other
entity immediately after such event (including without limitation any "going
private" transaction under Rule 13e-3 promulgated pursuant to the Exchange Act
or tender offer by the Company under Rule 13e-4 promulgated pursuant to the
Exchange Act for 20% or more of the Company's Common Stock), (ii) any person (as
defined in Section 13(d) of the Exchange Act), together with its affiliates and
associates (as such terms are defined in Rule 405 under the Securities Act),
beneficially owns or is deemed to beneficially own (as described in Rule 13d-3
under the Exchange Act without regard to the 60-day exercise period) 40% or more
of the voting power of the Company's voting stock or corresponding voting
securities, (iii) there is a replacement of more than one-half of the members of
the Board of Directors which is not approved by a majority of those individuals
who are either members of the Board of Directors on the date thereof or
individuals approved by a majority of such members or (iv) in one or a series of
related transactions, there is a sale or transfer of all or substantially all of
the assets of the Company, determined on a consolidated basis.
"Conversion Date" shall have the meaning provided in Section 3(b).
"Conversion Delay Payments" shall have the meaning provided in Section
3(b)(ii).
"Conversion Notice" means an Optional Conversion Notice.
"Conversion Price" means $0.90, subject to adjustment as set forth herein.
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"Conversion Ratio" means, at any time, a fraction, of which the numerator
is the entire outstanding Principal Amount of this Note (or such portion thereof
that is being redeemed or repurchased), and of which the denominator is the then
applicable Conversion Price.
"Current Market Price" means when used with respect to the Common Stock as
of a specified date with respect to each share of Common Stock: (i) if the
principal trading market for such securities is a national or regional
securities exchange, the closing price on such exchange on such day; or (ii) if
sales prices for shares of Common Stock are reported by the NASDAQ National
Market System (or a similar system then in use), the last reported sales price
(regular way) so reported on such day; or (iii) if neither (i) nor (ii) above
are applicable, and if bid and ask prices for shares of Common Stock are
reported in the over-the-counter market by NASDAQ (or, if not so reported, by
the National Quotation Bureau), the average of the high bid and low ask prices
so reported on such day. Notwithstanding the foregoing, if there is no reported
closing price, last reported sales price, or bid and ask prices, as the case may
be, for the day in question, then the Current Market Price shall be determined
as of the latest date prior to such day for which such closing price, last
reported sales price, or bid and ask prices, as the case may be, are available,
unless such securities have not been traded on an exchange or in the
over-the-counter market for 5 or more days immediately prior to the day in
question, in which case the Current Market Price shall be determined by an
Independent Financial Expert (and the costs of such determination shall be
bourne entirely by the Company). An "Independent Financial Expert" shall mean a
reputable accounting, appraisal or investment banking firm that is, in the
reasonable judgment of the Board of Directors, qualified to perform the task for
which such firm has been engaged hereunder, is nationally recognized and
disinterested and Independent with respect to the Company and its affiliates and
is reasonably acceptable to the Holder. "Independent" shall mean any person or
entity that (A) is in fact independent, (B) does not have any direct financial
interest or any material indirect financial interest in the Company or any of
its subsidiaries, or in any affiliate of the Company or any of its subsidiaries
(other than as a result of holding securities of the Company in trading
accounts), and (C) is not an officer, employee, promoter, trustee, partner,
director or person performing similar functions for the Company or any of its
subsidiaries or any affiliate of the Company or any of its subsidiaries.
"DTC" shall have the meaning provided in Section 3(b)(ii).
"EBITDA" means, for any period, the Company's earnings before interest,
income taxes, depreciation and amortization for such period, as reflected in the
Company's audited income statement, which income statement shall be prepared in
accordance with GAAP applied on a consistent basis to that of prior periods. For
purposes of calculating EBITDA, the Company shall exclude any extraordinary
gains or losses for such period and any non-operating income or losses for such
period from the calculation of EBITDA, each such exclusion to be reasonably
acceptable to the Holder.
"Effective Registration" means (i) the Company has complied in all material
respects with its obligations under all the Transaction Documents where the
failure to comply by the Company would have a material adverse effect on the
ability of the Holder to publicly resell the Underlying Shares and the Warrant
Shares, and no Event of Default shall have occurred and be continuing; (ii) the
resale of all Registrable Securities (as defined in the Registration Rights
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Agreement) is covered by an effective Registration Statement in accordance with
the terms of the Registration Rights Agreement and such Registration Statement
is not subject to any suspension or stop order and is expected to remain
effective and available for use by the selling stockholders named therein or in
any related prospectus supplement for at least 20 Trading Days thereafter; (iii)
the resale of such Registrable Securities may be effected pursuant to a current
and deliverable prospectus that is not subject to any blackout or similar
circumstance; (iv) such Registrable Securities are listed, or approved for
listing prior to issuance, on an Approved Market and are not subject to any
trading suspension (nor shall trading generally have been suspended on such
exchanges or markets), and the Company shall not have been notified of any
pending or threatened proceeding or other action to delist or suspend the Common
Stock on the Approved Market on which the Common Stock is then traded or listed;
(v) the requisite number of shares of Common Stock shall have been duly
authorized and shall be available for issuance as required by the terms of the
Transaction Documents; (vi) the Holder is not identified as an underwriter in
the Registration Statement; and (vii) the Company is not subject to any
Bankruptcy Event.
"Equity Conditions" shall mean, during the period in question, (i) the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notice of Conversions of the Holder,
if any, (ii) all liquidated damages and other amounts owing to the Holder in
respect of this Note shall have been paid, (iii) there is an effective
Registration Statement pursuant to which the Holder is permitted to utilize the
prospectus thereunder to resell all of the shares issuable pursuant to the
Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the
Common Stock is trading on an Approved Market and all of the shares issuable
pursuant to the Transaction Documents are listed for trading on an Approved
Market (and the Company believes, in good faith, that trading of the Common
Stock on an Approved Market will continue uninterrupted for the foreseeable
future), (v) there is a sufficient number of authorized but unissued and
otherwise unreserved shares of Common Stock for the issuance of all of the
shares issuable pursuant to the Transaction Documents, (vi) there is then
existing no Event of Default or event which, with the passage of time or the
giving of notice, would constitute an Event of Default, (vii) the issuance of
the shares in question to the Holder would not violate the limitations set forth
in Section 3(i) and (viii) no public announcement of a pending or proposed
Change of Control Transaction or acquisition transaction has occurred that has
not been consummated.
"Event of Default" shall have the meaning provided in Section 4(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Maturity Date" means June 30, 2008.
"Force Majeure Event" means an event or circumstance that prevents the
Company from performing its obligations under this Note or that prevents an act
or event required hereunder from happening or occurring (including, without
limitation, an act of God, war, insurrection, riot, nuclear disaster, labor
strike or threat of violence, labor and material shortage, fire, explosion,
flood, river freeze-up, breakdown or damage to mines, plant, equipment, or
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facilities (including a forced outage or an extension of a scheduled outage of
equipment or facilities to make repairs to avoid breakdowns thereof or damage
thereto), interruption to or slowdown in transportation, railcar shortage, barge
shortage, embargo, order, or act of civil or military authority, law,
regulation, or administrative ruling, or total or partial interruption of the
Company's operations which are due to any enforcement action or other
administrative or judicial action arising from an environmental law or
regulation), but in any case which is not within the reasonable control of, or
the result of the negligence of, the Company, and which by the exercise of due
diligence, the Company is unable to overcome or avoid or cause to be avoided or
is unable in good faith to obtain a substitute acceptable to the Holder
therefor.
"Holder Share Notice" shall have the meaning provided in Section 3(b)(ii).
"Interest Conversion Rate" means 80% of 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.
"Interest Conversion Shares" shall have the meaning set forth in Section
2(a).
"Interest Notice Period" shall have the meaning set forth in Section 2(a).
"Interest Payment Date" means the 7 month anniversary of the Issuance Date
and the 1st of each month thereafter, and the Final Maturity Date.
"Interest Share Amount" shall have the meaning set forth in Section 2(a).
"Monthly Conversion Period" shall have the meaning set forth in Section
3(a) hereof.
"Monthly Conversion Price" shall have the meaning set forth in Section 3(a)
hereof.
"Monthly Redemption" shall mean the redemption of this Note pursuant to
Section 3(a) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption,
$______(1) as to Monthly Redemption Amounts paid in shares of Common Stock and
[____(2) as to Monthly Redemption Amounts paid in cash. Notwithstanding anything
herein to the contrary, in the event the Monthly Redemption is paid in cash, the
additional amount required over the amount paid for cash (10%) shall be deemed a
liquidation charge and shall not be applied to reduce principal.
_______________________
(1) 1/24th of the original Principal Amount of this Note.
(2) 110% of 1/24th of the original Principal Amount of this Note.
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"Monthly Redemption Date" means July 1, 2006 and the 1st of each month
thereafter and ending upon the full redemption of this Note.
"Monthly Redemption Notice" shall have the meaning set forth in Section
3(a) hereof.
"Monthly Redemption Period" shall have the meaning set forth in Section
3(a) hereof.
"Monthly Redemption Share Amount" shall have the meaning set forth in
Section 3(a) hereof.
"Optional Conversion Notice" shall have the meaning provided in Section
3(a).
"Principal Amount" means at any time the sum of (i) the outstanding
principal amount of this Note at such time, (ii) all accrued but unpaid interest
hereunder to such time, and (iii) any default payments owing at such time to the
Holder under the Transaction Documents but not theretofore paid or added to the
Principal Amount.
"Principal Market" means the OTC Bulletin Board or such other U.S. market
or exchange which is the principal market on which the Common Stock is then
listed for trading.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
January 13, 2006, by and among the Company and the Purchasers named therein,
pursuant to which this Note was originally issued.
"QIB" means a qualified institutional buyer as defined in Rule 144A.
"Reset Date" means March 31, 2007.
"Rule 144A" means Rule 144A as promulgated by the SEC under the Securities
Act or any successor thereto.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Trading Day" means a day on which the Principal Market is open for the
general trading of securities.
"Underlying Shares" means the shares of Common Stock issued or issuable
upon conversion of, in lieu of cash payment of principal of, or interest on, as
repayment of principal under, or otherwise pursuant to, this Note in accordance
with the terms hereof and the Purchase Agreement.
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"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 Principal Market, the daily volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the Principal Market on
which the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m.
Eastern Time); (b) if the Common Stock is not then listed or quoted on a
Principal Market and if prices for the Common Stock are then reported in the
"Pink Sheets" published by the 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 (c) 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. Payments of Principal and Interest.
(a) Interest. The Company shall pay interest accruing on this Note (from
the date hereof) on all principal outstanding at the Interest Rate, on each
Interest Payment Date, provided that the Default Rate shall apply in the
circumstances set forth above, in cash or duly authorized, fully paid and
non-assessable shares of Common Stock at the Interest Conversion Rate, or a
combination thereof (the amount to be paid in shares, the "Interest Share
Amount"); provided, however, (i) payment in shares of Common Stock may only
occur if during the 20 Business Days immediately prior to the applicable
Interest Payment Date (the "Interest Notice Period") and through and including
the date such shares of Common Stock are issued to the Holder all of the Equity
Conditions, unless waived by the Holder in writing, have been met and the
Company shall have given the Holder notice in accordance with the notice
requirements set forth below and (ii) as to such Interest Payment Date, prior to
the such Interest Notice Period (but not more 5 Trading Days prior to the
commencement of the Interest Notice Period), the Company shall have delivered to
the Holder's account with The Depository Trust Company a number of shares of
Common Stock to be applied against such Interest Share Amount equal to the
quotient of (x) the applicable Interest Share Amount divided by (y) the then
Conversion Price (the "Interest Conversion Shares").
(b) Company's Election to Pay Interest in Kind. Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in shares of
Common Stock or cash shall be at the discretion of the Company. Prior to the
commencement of an Interest Notice Period, the Company shall provide the Holder
with written notice of its election to pay interest hereunder on the applicable
Interest Payment Date either in cash, shares of Common Stock or a combination
thereof (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised) and the Interest
Share Amount as to the applicable Interest Payment Date. During any Interest
Notice Period, the Company's election (whether specific to an Interest Payment
Date or continuous) shall be irrevocable as to such Interest Payment Date.
Subject to the aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest on such
Interest Payment Date in cash. At any time the Company delivers a notice to the
Holder of its election to pay the interest in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election. The aggregate number of shares of Common Stock otherwise issuable to
the Holder on an Interest Payment Date shall be reduced by the number of
Interest Conversion Shares previously issued to the Holder in connection with
such Interest Payment Date.
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(c) Interest Calculations. Interest hereunder will be paid to the Person in
whose name this Note is registered on the records of the Company regarding
registration and transfers of this Note (the "Note Register"). Except as
otherwise provided herein, if at any time the Company pays interest partially in
cash and partially in shares of Common Stock to the holders of the Notes, then
such payment shall be distributed ratably among the holders of the Notes based
on their (or their predecessor's initial purchases of Notes pursuant to the
Purchase Agreement.
(d) Late Fee. Notwithstanding anything to the contrary contained herein, if
on any Interest Payment Date the Company has elected to pay interest in Common
Stock and is not able to pay accrued interest in the form of Common Stock
because it does not then satisfy the conditions for payment in the form of
Common Stock set forth above, then, at the option of the Holder, the Company, in
lieu of delivering either shares of Common Stock pursuant to this Section 2 or
paying the regularly scheduled cash interest payment, shall deliver, within
three Trading Days of each applicable Interest Payment Date, an amount in cash
equal to the product of the number of shares of Common Stock otherwise
deliverable to the Holder in connection with the payment of interest due on such
Interest Payment Date and the highest closing bid price of the Common Stock
during the period commencing on the Interest Payment Date and ending on the
Trading Day prior to the date such payment is made. If any Interest Conversion
Shares are issued to the Holder in connection with an Interest Payment Date and
are not applied against an Interest Share Amount, then the Holder shall promptly
return such excess shares to the Company.
(e) Principal. The entire Principal Amount of this Note, plus any and all
default payments owing under the Transaction Documents but not previously paid,
shall become due and payable on the Final Maturity Date. Any principal of this
Note that is converted pursuant to Section 3 shall be applied to reduce the
principal payable under this Section 2(b).
Section 3. Conversion and Monthly Redemptions.
(a) (i) Conversion Rights. Upon the terms and subject to the conditions
hereof, the Holder shall have the right, at the Holder's option, to convert the
outstanding Principal Amount and accrued and unpaid interest thereon into Common
Stock, in whole at any time or in part from time to time, by delivering to the
Company a duly executed notice of conversion in the form attached hereto as
Exhibit A (the "Optional Conversion Notice"), which may be transmitted by
telephone line facsimile transmission.
(ii) Monthly Redemption. On each Monthly Redemption Date, the Company shall
redeem the Monthly Redemption Amount plus accrued but unpaid interest, the sum
of all liquidated damages and any other amounts then owing to such Holder in
respect of this Note (the "Monthly Redemption"). The Monthly Redemption Amount
due on each Monthly Redemption Date shall be paid in cash; provided, however, as
to any Monthly Redemption and upon 30 Trading Days' prior written irrevocable
notice (the "Monthly Redemption Notice" and the 30 Trading Day period
immediately following the Monthly Redemption Notice, the "Monthly Redemption
Period"), in lieu of a cash redemption payment the Company may elect to pay all
or part of a Monthly Redemption Amount in Conversion Shares (such dollar amount
to be paid on a Monthly Redemption Date in Conversion Shares, the "Monthly
Redemption Share Amount") based on a conversion price equal to the lesser of (i)
the then Conversion Price and (ii) 80% of the average of the VWAPs for the 10
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consecutive Trading Days ending on the Trading Day that is immediately prior to
the applicable Monthly Redemption Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 10 Trading Day period) (the price calculated during the
10 Trading Day period immediately prior to the Monthly Redemption Date, the
"Monthly Conversion Price" and such period, the "Monthly Conversion Period");
provided, further, that the Company may not pay the Monthly Redemption Amount in
Conversion Shares unless, (y) from the date the Holder receives the duly
delivered Monthly Redemption Notice through and until the date such Monthly
Redemption is paid in full, the Equity Conditions, unless waived in writing by
the Holder, have been satisfied and (z) as to such Monthly Redemption, prior to
such Monthly Redemption Period (but not more than 5 Trading Days prior to the
commencement of the Monthly Redemption Period), the Company shall have delivered
to the Holder's account with The Depository Trust Company a number of shares of
Common Stock to be applied against such Monthly Redemption Share Amount equal to
the quotient of (x) the applicable Monthly Redemption Share Amount divided by
(y) the then Conversion Price (the "Pre-Redemption Conversion Shares"). The
Holder may convert, pursuant to Section 3(a)(i), any principal amount of this
Note subject to a Monthly Redemption at any time prior to the date that the
Monthly Redemption Amount and all amounts owing thereon are due and paid in
full. Unless otherwise indicated by the Holder in the applicable Notice of
Conversion, any principal amount of this Note converted during the applicable
Monthly Redemption Period until the date the Monthly Redemption Amount is paid
in full shall be first applied to the principal amount subject to the Monthly
Redemption Amount payable in cash and then to the Monthly Redemption Share
Amount. Any principal amount of this Note converted during the applicable
Monthly Redemption Period in excess of the Monthly Redemption Amount shall be
applied against the last principal amount of this Note scheduled to be redeemed
hereunder, in reverse time order from the Maturity Date; provided, however, if
any such conversion is applied to such Monthly Redemption Amount, the
Pre-Redemption Conversion Shares, if any were issued in connection with such
Monthly Redemption or were not already applied to such conversions, shall be
first applied against such conversion. The Company covenants and agrees that it
will honor all Notice of Conversions tendered up until such amounts are paid in
full. The Company's determination to pay a Monthly Redemption in cash, shares of
Common Stock or a combination thereof shall be applied ratably to all of the
holders of the Notes based on their (or their predecessor's) initial purchases
of Notes pursuant to the Purchase Agreement. At any time the Company delivers a
notice to the Holder of its election to pay the Monthly Redemption Amount in
shares of Common Stock, the Company shall file a prospectus supplement pursuant
to Rule 424 disclosing such election.
(b) Common Stock Issuance Upon Conversion.
(i) Conversion Procedures. Upon any conversion of this Note
pursuant to Section 3(a) above, the outstanding Principal Amount being
converted and accrued and unpaid interest thereon to the applicable
Conversion Date shall be converted into such number of fully paid,
validly issued and non-assessable shares of Common Stock, free of any
liens, claims and encumbrances, as is determined by dividing the
outstanding Principal Amount being converted and accrued and unpaid
interest thereon to the applicable Conversion Date by the then
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applicable Conversion Price. The date of any Conversion Notice hereunder
shall be referred to herein as the "Conversion Date". If a conversion
under this Note cannot be effected in full for any reason, or if the
Holder is converting less than all of the outstanding Principal Amount
hereunder pursuant to a Conversion Notice, the Company shall, upon
request of the Holder, promptly deliver to the Holder (but no later than
five Trading Days after the surrender of this Note to the Company) a new
Note having a Principal Amount equal to the amount of such outstanding
Principal Amount as has not been converted. The Holder shall not be
required physically to surrender this Note to the Company upon any
conversion unless the full outstanding Principal Amount of this Note is
being converted or repaid. The Holder and the Company shall maintain
records showing the outstanding Principal Amount so converted and repaid
and the dates of such conversions or repayments or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as not
to require physical surrender of this Note upon each such conversion or
repayment. The Holder agrees that, if the outstanding Principal Amount
of this Note is less than the Principal ▇▇▇▇▇▇ stated on the face of
this Note, the Holder will not voluntarily transfer this Note at any
time when no Event of Default has occurred and is continuing without
first surrendering this Note to the Company for issuance, without charge
to the Holder, of a replacement instrument that reflects the outstanding
Principal Amount of this Note. The Company will deliver such replacement
instrument to the Holder as promptly as practical, but in no event later
than three Trading Days, after surrender by the Holder.
(ii) Stock Certificates or DWAC. The Company will deliver to the
Holder not later than five (5) Trading Days after a particular
Conversion Date, a certificate or certificates, which shall be free of
restrictive legends and trading restrictions (except to the extent
permitted under Article V of the Purchase Agreement), for the number of
shares of Common Stock issuable upon such conversion of this Note. In
lieu of delivering physical certificates for the shares of Common Stock
issuable upon any conversion of this Note, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC")
Fast Automated Securities Transfer ("FAST") program, upon request of the
Holder, the Company shall use commercially reasonable efforts to cause
its transfer agent electronically to transmit such shares issuable upon
conversion to the Holder (or its designee), by crediting the account of
the Holder's (or such designee's) broker with DTC through its Deposit
Withdrawal Agent Commission system (provided that the same time periods
herein as for stock certificates shall apply). If in the case of any
conversion hereunder, such shares are not delivered to or as directed by
the Holder by the third Trading Day after the applicable Conversion
Date, the Holder shall be entitled by written notice to the Company at
any time on or before its receipt of such shares, to rescind such
conversion, in which event the Company shall immediately return this
Note to the Holder if the Holder has tendered it to the Company in
connection with such conversion. If the Holder notifies the Company that
the Holder has not received such shares (free of any restrictions on
transfer or legends except as permitted by Article V of the Purchase
Agreement) within three Trading Days after a particular Conversion Date
(each, a "Holder Share Notice") and the Holder does not receive such
shares (free of any restrictions on transfer or legends except as
permitted by Article V of the Purchase Agreement) within two Trading
Days after giving such Holder Share Notice, then, in addition to any
other liability the Company may have, the Company shall pay to the
Holder, in cash, an amount, computed at the rate of 2% of the
outstanding Principal Amount per month, for the period such failure
continues (the "Conversion Delay Payments"). A Holder Share Notice may
be given by telephone or e-mail to the Company's Chief Financial Officer
or General Counsel or Chief Executive Officer. The Company's obligation
to issue and deliver such shares of Common Stock upon conversion of this
Note shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, of any waiver or consent
with respect to any provision hereof, the recovery of any judgment
11
against any Person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Company to the
Holder, 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 such exercise.
(iii) Liability for Late Delivery; Force Majeure. If in any case
the Company shall fail to issue and deliver the shares of Common Stock
to the Holder pursuant to this Note on the due date therefor, in
addition to any other liabilities the Company may have hereunder and
under applicable law (A) the Company shall pay or reimburse the Holder
on demand for all out-of-pocket expenses, including, without limitation,
reasonable fees and expenses of legal counsel, incurred by the Holder as
a result of such failure, so long as the Holder shall have given the
Company a Holder Share Notice with respect to such shares of Common
Stock, (B) if as a result of such failure the Holder shall suffer any
direct damages or liabilities from such failure (including, without
limitation, margin interest and the cost of purchasing securities to
cover a sale (whether by the Holder or the Holder's securities broker)
or borrowing of shares of Common Stock by the Holder for purposes of
settling any trade involving a sale of shares of Common Stock made by
the Holder during the period beginning on the Issuance Date and ending
on the date the Company delivers or causes to be delivered to the Holder
such shares of Common Stock), then the Company shall upon demand of the
Holder pay to the Holder an amount equal to the actual, direct
out-of-pocket damages and liabilities suffered by the Holder by reason
thereof which the Holder documents to the reasonable satisfaction of the
Company, so long as the Holder shall have given the Company a Holder
Share Notice with respect to such shares of Common Stock, and (C) the
Holder may by written notice (which may be given by mail, courier,
personal service or telephone line facsimile transmission) or oral
notice (promptly confirmed in writing), given at any time prior to
delivery to the Holder of the shares of Common Stock issuable in
connection with any exercise of the Holder's rights by reason of which
such shares are deliverable, rescind such exercise in whole or in part,
in which case the Holder shall thereafter be entitled to exercise its
rights with respect to that portion of this Note as to which such
exercise is so rescinded and to exercise its other rights and remedies
with respect to such failure by the Company. Notwithstanding the
foregoing and Section 3(b)(ii), (x) the Company shall not be liable to
the Holder under clauses (A) and (B) of the immediately preceding
sentence or (y) for Conversion Delay Payments, in either such case of
the preceding clause (x) or (y) to the extent the failure of the Company
to deliver or to cause to be delivered such shares of Common Stock
results from a Force Majeure Event (it being understood that the action
or failure to act of the Company's Transfer Agent shall not be deemed a
Force Majeure Event unless outside the control of such Transfer Agent or
resulting from the bankruptcy, liquidation or reorganization of such
Transfer Agent under any bankruptcy, insolvency or other similar law).
The Holder shall notify the Company in writing (or by telephone
conversation, confirmed in writing) as promptly as practicable following
the third Trading Day after the due date for delivery to it of shares of
Common Stock under this Note if the Holder becomes aware that such
shares of Common Stock so issuable have not been received as provided
12
herein, but any failure so to give such notice shall not affect the
Holder's rights under this Note or otherwise. If pursuant to this
Section 3(b)(iii) the Company is relieved of its obligation to make
Conversion Delay Payments, then the Principal Amount of this Note for
which a Conversion Notice has been given and for which the Company has
not issued the shares of Common Stock within the period provided in
Section 3(b)(ii) shall continue to bear interest at the applicable rate
provided in this Note from the applicable Conversion Date to the date
the Company so issues such shares of Common Stock.
(c) Conversion Price Adjustments.
(i) Stock Dividends, Splits and Combinations. In the event that
the Company shall (A) pay a dividend or make a distribution to all its
stockholders, in shares of Common Stock, on any class of capital stock
of the Company or any subsidiary which is not directly or indirectly
wholly owned by the Company, (B) split or subdivide its outstanding
Common Stock into a greater number of shares, or (C) combine its
outstanding Common Stock into a smaller number of shares, then in each
such case the Conversion Price in effect immediately prior thereto shall
be adjusted so that the Holder of this Note thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common
Stock that such Holder would have owned or have been entitled to receive
after the occurrence of any of the events described above had this Note
been fully converted immediately prior to the occurrence of such event.
An adjustment made pursuant to this Section 3(c)(i) shall become
effective immediately after the close of business on the record date in
the case of a dividend or distribution and shall become effective
immediately after the close of business on the effective date in the
case of such subdivision, split or combination, as the case may be. Any
shares of Common Stock issuable in payment of a dividend shall be deemed
to have been issued immediately prior to the close of business on the
record date for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under clause (ii) below.
(ii) Adjustment for Certain Issuances.
(A) In the event that the Company shall commit to issue or distribute
New Securities, in any such case at a price per share less than the Current
Market Price per share (but more than the then applicable Conversion Price,
which is addressed in Section 3(c)(ii)(B) below) on the earliest of (1) the date
the Company shall enter into a firm contract for such issuance or distribution,
(2) the record date for the determination of stockholders entitled to receive
any such New Securities, if applicable, or (3) the date of actual issuance or
distribution of any such New Securities (provided that the issuance of Common
13
Stock upon the exercise of New Securities that are rights, warrants, options or
convertible or exchangeable securities ("New Derivative Securities") will not
cause an adjustment in the Conversion Price if no such adjustment would have
been required at the time such New Derivative Security was issued), then the
Conversion Price in effect immediately prior to such earliest date shall be
adjusted so that the new Conversion Price shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to such earliest
date by the fraction:
(x) whose numerator shall be (I) the number of shares of Common Stock
outstanding on such date (on a fully-diluted basis after giving effect
to any securities (other than this Note) convertible or exchangeable
into Common Stock) plus (II) the number of shares of Common Stock which
the aggregate offering price of the total number of New Securities so
offered would have purchased at such Current Market Price (such amount,
with respect to any New Derivative Securities, determined by multiplying
the total number of shares of Common Stock subject thereto by the
exercise price of such New Derivative Securities, and dividing the
product so obtained by such Current Market Price), and
(y) whose denominator shall be (I) the number of shares of Common Stock
outstanding on such date (on a fully-diluted basis after giving effect
to any securities (other than this Note) convertible or exchangeable
into Common Stock) plus (II) the number of additional shares of Common
Stock to be issued or distributed or receivable upon exercise of any
such New Derivative Security.
Such adjustment shall be made successively whenever any such New Securities
are issued. In determining whether any New Derivative Securities entitle the
holders to subscribe for or purchase shares of Common Stock at less than such
Current Market Price, and in determining the aggregate offering price of shares
of Common Stock so issued, there shall be taken into account any consideration
received by the Company for such Common Stock or New Derivative Securities, the
value of such consideration, if other than cash, to be determined by the Board
of Directors, whose determination shall be conclusive and described in a
certificate filed with the records of corporate proceedings of the Company. If
any New Derivative Security to purchase or acquire Common Stock, the issuance of
which resulted in an adjustment in the Conversion Price pursuant to this
subsection (A) shall expire and shall not have been exercised, the Conversion
Price shall immediately upon such expiration be recomputed to the Conversion
Price which would have been in effect had the adjustment of the Conversion Price
made upon the issuance of such New Derivative Security been made on the basis of
offering for subscription, purchase or issuance, as the case may be, only of
that number of shares of Common Stock actually purchased or issued upon the
actual exercise of such New Derivative Security.
(B) In addition, if the Company or any Subsidiary thereof, as
applicable, at any time while this Note is outstanding, shall offer, sell, grant
any option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale, grant
or any option to purchase or other disposition) any Common Stock or New
Securities entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Conversion Price (such lower price,
14
the "Base Conversion Price" and such issuances collectively, a "Dilutive
Issuance"), as adjusted hereunder (if the holder of the Common Stock or New
Securities 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 is issued in
connection with such issuance, be entitled to receive shares of Common Stock at
an effective price per share which is less 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 New Securities are issued. The Company shall notify the Holder
in writing, no later than the Business Day following the issuance of any Common
Stock or New Securities subject to this section, indicating therein the
applicable issuance price, or of 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 3(c), upon the occurrence of
any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion.
(C) In the event that the Company's annualized EBITDA for the two fiscal
quarters ended December 31, 2006 is less than $17 million (based on the EBITDA
from the audited financial statements of the Company for the quarters ended
September 30, 2006 and December 31, 2006) (the "Annualized EBITDA"), the
Conversion Price shall be reset to a price equal to the greater of $0.30
(subject to adjustment for forward and reverse stock splits, stock dividends,
recapitalizations and the like) or a price determined by the following formula:
3xX/Y where X equals the Annualized EBITDA and Y equals the number of shares of
Common Stock outstanding on a fully diluted basis on December 31, 2006. Such
adjustment shall be effective on the Reset Date. Notwithstanding anything herein
to the contrary, any adjustment pursuant to this section may only decrease the
Conversion Price. By way of an example, if the Company's EBITDA for the quarters
ended September 30, 2006 and December 31, 2006 are $3 million and $2 million,
respectively, and there are 20,000,000 shares of Common Stock outstanding as of
December 31, 2006, the Conversion Price would be reduced to $0.50 ($2.5 million
x 4 divided by 20,000,000). The Company shall, at its own expense, have its
regular independent auditors conduct a special audit of the Company's financial
statements for such six-month period to determine such EBITDA. Such audit shall
be completed no later than January 31, 2007.
(iii) Rounding of Adjustments. No adjustment in the Conversion Price
shall be required unless the adjustment would require an increase or decrease of
at least 1% in the Conversion Price then in effect; provided, however, that any
adjustments that by reason of this Section 3(c) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 3 or Section 2 shall be made to the nearest
cent or nearest 1/100th of a share.
(iv) Notice of Adjustments. Whenever the Conversion Price is adjusted
pursuant to this Section 3(c), the Company shall promptly deliver to the Holder
a notice setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment, provided that
any failure to so provide such notice shall not affect the automatic adjustment
hereunder.
15
(v) Change in Control Transactions. In case of any Change in Control
Transaction, the Holder shall have the right thereafter, at its option, (A) to
convert this Note, in whole or in part, at the then applicable Conversion Price
into the shares of stock and other securities, cash and/or property receivable
upon or deemed to be held by holders of Common Stock following such Change in
Control Transaction, and the Holder shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock of
the Company into which this Note could have been converted immediately prior to
such Change in Control Transaction would have been entitled if such conversion
were permitted (determined without regard to any limitations contained in
Section 3.13 of the Purchase Agreement), subject to such further applicable
adjustments set forth in this Section 3, or (B) to require the Company or its
successor to redeem this Note, in whole or in part, at a redemption price equal
to 125% of the outstanding Principal Amount being redeemed, plus accrued
interest thereon. The terms of any such Change in Control Transaction shall
include such terms so as to continue to give to the Holder the right to receive
the amount of securities, cash and/or property upon any conversion or redemption
following such Change in Control Transaction to which a holder of the number of
shares of Common Stock deliverable upon conversion of this Note immediately
prior to such Change in Control Transaction would have been entitled to receive
in such Change in Control Transaction and if such Holder had continued to hold
such securities, cash and/or property until the date of such conversion or
redemption, and interest payable hereunder after such Change in Control
Transaction shall be paid in cash or such new securities and/or property, at the
Holder's option. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, amalgamations, sales, transfers or
share exchanges.
(vi) Notice of Certain Events. If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a tender
offer for, offer to purchase or redemption
of its Common Stock; or
C. the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of
any rights; or
D. the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation, amalgamation
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 of exchange whereby the
Common Stock is converted into other
securities, cash or property; or
16
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding up of the affairs of the Company; or
F. there exists an agreement to which the
Company is a party or by which it is bound
providing for a Change in Control
Transaction, or a Change in Control
Transaction has occurred;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Note, and shall cause to be mailed to the
Holder at its last address as it shall appear upon the books of the Company, on
or prior to the date notice of such matter to the Company's stockholders
generally is given, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, tender offer, offer to
purchase, redemption, rights or warrants, or if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distributions, tender offer, offer to purchase, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, amalgamation, merger, sale, transfer, share exchange or Change in
Control Transaction is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, amalgamation, merger,
sale, transfer, share exchange or Change in Control Transaction.
(d) Reservation and Issuance of Underlying Securities. The Company
covenants that it will at all times reserve from its authorized and unissued
Common Stock a sufficient number of shares solely for the purpose of issuance
upon conversion in full of this Note, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder (subject to
any additional requirements of the Company as to reservation of such shares set
forth in the Purchase Agreement and taking into account the adjustments under
this Section 3, but determined without regard to any ownership limitations
contained in the Purchase Agreement). The Company represents, warrants and
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly authorized, validly issued, fully paid, and nonassessable.
(e) No Fractions. Upon a conversion hereunder the Company shall not be
required to issue stock certificates for a fraction of a share of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any fraction
of a share based on the Current Market Price of a share of Common Stock 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 fraction of a share, one
whole share of Common Stock.
(f) Charges, Taxes and Expenses. Issuance of shares of Common Stock upon
the conversion of this Note shall be made without charge to the Holder for any
issue or transfer tax or other incidental expense in respect of the issuance of
such shares, all of which taxes and expenses shall be paid by the Company, and
such shares shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the Holder, the applicable Conversion Notice, when given for such
conversion shall be accompanied or followed by an assignment form for the
applicable portion of this Note or such shares, as the case may be; and provided
further, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any such transfer.
17
(g) Cancellation. After the entire Principal Amount (including accrued
but unpaid interest and default payments at any time owed on this Note) has been
paid in full or converted into Common Stock, this Note shall automatically be
deemed canceled and the Holder shall promptly surrender this Note to the Company
at the Company's principal executive offices; provided, however, that the
failure to surrender this Note shall not delay or limit such cancellation.
(h) Notice Procedures. Any and all notices or other communications or
deliveries to be provided by the Holder under this Note, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by confirmed facsimile, or by a nationally recognized overnight courier service
to the Company at the facsimile telephone number or address of the principal
place of business of the Company as set forth in, or provided pursuant to, the
Purchase Agreement. 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 by a nationally recognized overnight courier
service addressed to the Holder at the facsimile telephone number or address of
the Holder appearing on the books of the Company, or if no such facsimile
telephone number or address appears, at the principal place of business of the
Holder. Any notice or other communication or deliveries hereunder shall be
deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by
facsimile, upon receipt if received on a Business Day prior to 5:00 p.m.
(Eastern Time), or on the first Business Day following such receipt if received
on a Business Day after 5:00 p.m. (Eastern Time) or on a day that is not a
Business Day or (iii) upon receipt, when deposited with a nationally recognized
overnight courier service.
(i) Holder's Restriction on Conversion. The Company shall not effect any
conversion of this Note, and a Holder shall not have the right to convert any
portion of this Note to the extent that after giving effect to such conversion,
such Holder (together with such Holder's affiliates, and any other person or
entity acting as a group together with such Holder or any of such Holder's
affiliates), as set forth on the applicable Notice of Conversion, would
beneficially own in excess of the Beneficial Ownership Limitation (as defined
below). For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by such Holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (A)
conversion of the remaining, nonconverted principal amount of this Note
beneficially owned by such Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Notes or the Warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Holder or any of its affiliates.
Except as set forth in the preceding sentence, for purposes of this Section
3(i), beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder. To the
extent that the limitation contained in this Section 3(i) applies, the
determination of whether this Note is convertible (in relation to other
securities owned by such Holder together with any affiliates) and of which
amounts of this Note are convertible shall be in the sole discretion of such
Holder, and the submission of a Notice of Conversion shall be deemed to be such
Holder's determination of whether this Note may be converted (in relation to
other securities owned by such Holder) and which amounts of this Note are
convertible, in each case subject to such aggregate percentage limitations. To
18
ensure compliance with this restriction, each Holder will be deemed to represent
to the Company each time it delivers a Notice of Conversion that such Notice of
Conversion has not violated the restrictions set forth in this paragraph and the
Company shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 3(i), in determining the number of outstanding shares of Common
Stock, a Holder may rely on the number of outstanding shares of Common Stock as
reflected in the most recent of the following: (A) the Company's most recent
Form 10-QSB or Form 10-KSB, as the case may be, (B) a more recent public
announcement by the Company or (C) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall
within two Trading Days confirm orally and in writing to such Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Note, by
such Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The "Beneficial Ownership
Limitation" shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon conversion of this Note held by the Holder. The Beneficial
Ownership Limitation provisions of this Section 3(i) may be waived by such
Holder, at the election of such Holder, upon not less than 61 days' prior notice
to the Company to change the Beneficial Ownership Limitation to 9.99% of the
number of shares of the Common Stock outstanding immediately after giving effect
to the issuance of shares of Common Stock upon conversion of this Note held by
the Holder, and the provisions of this Section 3(i) shall continue to apply.
Upon such a change by a Holder of the Beneficial Ownership Limitation from such
4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation
may not be waived by such Holder. The provisions of this paragraph shall be
implemented in a manner otherwise than in strict conformity with the terms of
this Section 3(i) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Note.
Section 4. Defaults and Remedies.
(a) Events of Default. An "Event of Default" is: (i) a failure to pay
any Principal Amount of this Note when due, whether at the Final Maturity Date
or otherwise, (ii) a failure to pay any interest due on this Note on the date
such payment is due, which failure continues for two Business Days (or ten
Business Days if such failure results from a Force Majeure Event); (iii) a
failure timely to issue Underlying Shares upon and in accordance with terms
hereof, which failure continues for ten Business Days after the Company has
received written notice from the Holder informing the Company that it has failed
to issue shares or deliver stock certificates prior to the fifth Business Day
following the applicable Conversion Date; (iv) failure by the Company for 20
days (or 90 days if such failure results from a Force Majeure Event) after
written notice has been received by the Company from the Holder to comply with
any material provision (other than as provided in the immediately preceding
clauses (i), (ii) and (iii)) of any of this Note or any other Transaction
19
Document (including, without limitation, the failure to redeem this Note upon
the Holder's request following a Change in Control Transaction pursuant to
Section 3(c)(v)), provided, however, that the events described in Sections
9(a)(i)-(ii) of the Registration Rights Agreement shall not constitute an Event
of Default; (v) a material breach by the Company of its representations or
warranties in this Note or in any other Transaction Document, provided, however,
that the events described in Sections 9(a)(i)-(ii) of the Registration Rights
Agreement shall not constitute an Event of Default; (vi) any default after any
cure period under, or acceleration prior to maturity of, any note, mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company for in
excess of $1 million, or for money borrowed the repayment of which is guaranteed
by the Company for in excess of $1 million, whether such indebtedness or
guarantee now exists or shall be created hereafter; (vii) if the Company is
subject to any Bankruptcy Event; (viii) if the Registration Statement required
by Section 2 of the Registration Rights Agreement is not declared effective by
the SEC within 270 days following the Closing Date; (ix) any security interest
or lien purported to be created by the Security Agreement shall cease to be in
full force and effect with respect to a material portion of the collateral
thereunder or any such security interest or lien shall be asserted by the
Company or any Subsidiary of the Company not to be a valid, perfected, first
priority (except as otherwise permitted by the Transaction Documents) security
interest in or lien on the collateral covered thereby; or (x) any Transaction
Document or any material provisions thereof shall at any time and for any reason
be declared by a court of competent jurisdiction to be null and void, or the
Company or any Subsidiary of the Company shall repudiate or deny any portion of
its liabilities or obligations thereunder.
(b) Remedies. If an Event of Default occurs and is continuing, the
Holder may declare all of the then outstanding Principal Amount of this Note,
and any accrued and unpaid interest thereon, to be due and payable immediately
in cash, except that in the case of an Event of Default arising from events
described in clauses (vi) and (vii) of Section 4(a), this Note shall become
automatically due and payable without further action or notice, and the Holder
may exercise all other rights and remedies available at law or in equity. In the
event of such acceleration, the amount due and owing to the Holder shall be 125%
of the outstanding Principal Amount of this Note (plus all accrued and unpaid
interest, if any). In any event the Company shall pay interest on such amount in
cash at the Default Rate to the Holder if such amount is not paid within one
Business Day after such acceleration. The remedies under this Note shall be
cumulative.
Section 5. Certain Covenants; General.
(a) Rule 144A Information Requirement. Within the period prior to the
expiration of the holding period applicable to sales hereof under Rule 144(k)
under the Securities Act (or any successor provision), the Company covenants and
agrees that it shall, during any period in which it is not subject to Section 13
or 15(d) under the Exchange Act, make available to the Holder and any
prospective purchaser of this Note from the Holder, the information required
pursuant to Rule 144A(d)(4) under the Securities Act upon the request of the
Holder and it will take such further action as the Holder may reasonably
request, all to the extent required from time to time to enable the Holder to
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sell this Note without registration under the Securities Act within the
limitations of the exemption provided by Rule 144A, as Rule 144A may be amended
from time to time. Upon the request of the Holder, the Company will deliver to
the Holder a written statement as to whether it has complied with such
requirements.
(b) Payment of Expenses. The Company agrees to pay all charges and
expenses, including attorneys' fees and expenses, which may be incurred by the
Holder in seeking to enforce this Note.
(c) Savings Clause. In case any provision of this Note is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum allowable under law.
(d) Amendment. Neither this Note nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the Company and Holder.
(e) Assignment, Etc. The Holder may assign or transfer this Note,
subject to compliance with applicable securities laws, without the consent of
the Company. The Holder shall notify the Company of any such assignment or
transfer promptly. The Company may not assign its rights or obligations under
this Note. This Note shall be binding upon the Company and its successors and
shall inure to the benefit of the Holder and its successors and permitted
assigns.
(f) No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
(g) Governing Law; Jurisdiction.
(i) Governing Law. THIS NOTE WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ANY
CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
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(ii) Jurisdiction. The Company (i) hereby irrevocably submits to
the exclusive jurisdiction of the United States District Court sitting
in the Northern District of Texas and the courts of the State of Texas
located in Dallas, Texas, for the purposes of any suit, action or
proceeding arising out of or relating to this Note or the transactions
contemplated hereby, and (ii) hereby waives, and agrees not to assert in
any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the
suit, action or proceeding is improper. The Company consents to process
being served in any such suit, action or proceeding by mailing a copy
thereof to the Company at the address in effect for notices to it under
the Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in
this Section 5(g)(ii) shall affect or limit any right to serve process
in any other manner permitted by law. The Company hereby agrees that if
the Holder is the prevailing party in any suit, action or proceeding
arising out of or relating to this Note, the Holder shall be entitled to
reimbursement for legal fees from the Company.
(iii) NO JURY TRIAL. The Company knowingly and voluntarily
waives any and all rights it may have to a trial by jury with respect to
any litigation based on, or arising out of, under, or in connection
with, this Note.
(h) Replacement Notes. This Note may be exchanged by Holder at any time
and from time to time for a Note or Notes with different denominations
representing an equal aggregate outstanding Principal Amount, as reasonably
requested by ▇▇▇▇▇▇, upon surrendering the same. No service charge will be made
for such registration or exchange. In the event that ▇▇▇▇▇▇ notifies the Company
that this Note has been lost, stolen or destroyed, a replacement Note identical
in all respects to the original Note (except for registration number and
Principal Amount, if different than that shown on the original Note), shall be
issued to the Holder, without requirement for any surety bond, provided that the
Holder executes and delivers to the Company an agreement reasonably satisfactory
to the Company to indemnify the Company from any loss incurred by it in
connection with this Note.
(i) Texas Finance Code. The Company and Holder hereby acknowledge and
agree that the loan evidenced by this Note is a "qualified commercial loan", as
defined in and contemplated by Chapter 306 of the Texas Finance Code.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
on the day and in the year first above written.
CONSOLIDATED ENERGY, INC.
By:
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇,
President
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ASSIGNMENT
For value received hereby sell(s),_____________________ assign(s) and
transfer(s) unto__________________ (Please insert social security or other
Taxpayer Identification Number of assignee:_________________ ) the within Note,
and hereby irrevocably constitutes and appoints_____________ attorney to
transfer the said Note on the books of Consolidated Energy, Inc., a Wyoming
corporation (the "Company"), with full power of substitution in the premises.
In connection with any transfer of the Note within the period
prior to the expiration of the holding period applicable to sales thereof under
Rule 144(k) under the Securities Act (or any successor provision) (other than
any transfer pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Note is
being transferred:
[ ] To the Company or a subsidiary thereof; or
[ ] To a QIB pursuant to and in compliance with Rule 144A; or
[ ] To an "accredited investor" pursuant to and in compliance with
the Securities Act; or
[ ] Pursuant to and in compliance with Rule 144 under the
Securities Act;
and unless the box below is checked, the undersigned confirms that, to the
knowledge of the undersigned, such Note is not being transferred to an
"affiliate" of the Company as defined in Rule 144 under the Securities Act (an
"Affiliate").
[ ] The transferee is an Affiliate of the Company.
Capitalized terms used in this Assignment and not defined in this
Assignment shall have the respective meanings provided in the Note.
Dated: ______________________ NAME:_____________________________
__________________________________
Signature(s)
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EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order
to convert 8% Senior Secured Convertible Note)
Re: 8% Senior Secured Convertible Note issued by CONSOLIDATED
ENERGY, INC. identified below (the "Note")
The undersigned hereby elects to convert the outstanding Principal Amount (as
defined in the Note) indicated below of the Note into shares of Common Stock, of
CONSOLIDATED ENERGY, INC., a Wyoming corporation (the "Company") according to
the terms hereof and of the Note, as of the date written below. If shares are to
be issued in the name of a person other than 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.
Conversion information:
--------------------------------------------------
Note Number
--------------------------------------------------
Conversion Date
--------------------------------------------------
Principal Amount of Note Being Converted
--------------------------------------------------
Number of Shares of Common Stock to Be Issued
--------------------------------------------------
Applicable Conversion Price
--------------------------------------------------
Signature
--------------------------------------------------
Name
--------------------------------------------------
Address