FORM OF]
Exhibit
10.2
[FORM
OF]
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.
|
Original
Issue Date:
|
November
9, 2007
|
|
Original
Conversion Price (subject to adjustment herein):
|
$1.05
|
|
8%
Senior Secured Convertible Note #____
|
$_________________
|
8%
SENIOR SECURED CONVERTIBLE NOTE
This
note is one of a series of duly
authorized and issued notes (each a “Convertible Note” or
collectively the “Convertible Notes”) of PETROSEARCH
ENERGYCORPORATION, a Nevada corporation, having its
principal place of business at 000 Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx
00000
(the “Company”), designated as its Eight Percent
(8%) Senior Secured Convertible Notes Due November 9, 2010, in an
aggregate principal face value for all Convertible Notes of this series of
Eight
Million One Hundred Thousand and no/100 United States Dollars (US$8,100,000.00)
issued in registered form under that certain Note and Warrant Purchase Agreement
(together with all amendments, supplements and modifications thereto in
accordance with the terms hereof from time to time, herein called the
“Purchase Agreement”), dated of even date herewith, by and
among the Company and the Holders, to which Purchase Agreement reference is
hereby made for additional rights, duties and obligations of the Company and
the
Holder.
FOR
VALUE RECEIVED, the Company promises to pay to the order of
CROSSCAP PARTNERS, LP, a Texas limited partnership, or its
registered assigns (the “Holder”), the principal sum of
________________________________ AND NO/100 DOLLARS
(US
$____________) on the three (3) year anniversary of the Original Issue
Date hereof or such earlier date as this Convertible Note is required or
permitted to be repaid as provided hereunder, whether by acceleration or
otherwise (such three (3) year anniversary date, or such
earlier date, the“Maturity Date”), and to pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of
this Convertible Note in accordance with the provisions hereof. This Convertible
Note is secured by the Collateral described herein and is subject to the
following additional provisions:
Section
1. Definitions. For
the purposes hereof, in addition to the terms defined elsewhere in this
Convertible Note, (a) capitalized terms not otherwise defined herein shall
have
the meanings set forth in the Purchase Agreement and (b) the following terms
shall have the following meanings:
“Affiliate”
means,
with respect
to a specified Person, any other Person, whether now in existence or hereafter
created, directly or indirectly controlling, controlled by or under direct
or
indirect common control with such specified Person. For purposes of
this definition, “control” (including, with correlative meanings, “controlling,”
“controlled by,” and “under common control with”) means the power to direct or
cause the direction of the management and policies of such Person, directly
or
indirectly, whether through the ownership of voting securities, by contract
or
otherwise.
“Xxxxxxx
Petrosearch” means
Xxxxxxx Petrosearch, L.L.C., a Texas limited liability company.
“Xxxxxxx
Shale Project” means
the project located in the Fort Worth basin of Texas comprised a 2 million
acre,
8-county contract area directed by the Partnership (as defined in the Pledge
and
Security Agreement) in which the Company indirectly owns a 5.54455%
interest.
“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant
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 Significant Subsidiary thereof; (b) there is commenced against
the Company or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 60 days after commencement; (c) the Company or
any
Significant 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 Significant 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 Significant Subsidiary thereof makes a general assignment for
the
benefit of creditors; (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or (g) 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.
“Business
Day” means any day except Saturday, Sunday, any day which shall be a federal
legal holiday in the United States or any day on which banking institutions
in
the State of New York are authorized or required by law or other governmental
action to close.
Convertible
Note
Page
2
“Capital
Lease” means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of
a
liability in accordance with GAAP.
“Collateral”
has the meaning set forth in the Pledge and Security Agreement and includes
without limitation the following:
|
|
(a)
|
the
Holder’s pro rata portion, as set forth on Schedule “A” to the Purchase
Agreement, of the 5.00% of the membership interests (ownership interests)
owned by the Company in Exploration Holding (the “Exploration
Holding Membership Interest”) as further described in the Pledge
and Security Agreement;
|
|
|
(b)
|
the
Holder’s pro rata portion of all products and proceeds of the foregoing
Exploration Holding Membership Interest, including, without limitation,
all revenues, distributions, dividends, stock dividends, securities
and
other property, rights, and interests that the Company is at any
time
entitled to receive on account of the
same.
|
“Collateral
Value” means 5.00% of the Fair Market Value of all assets of Xxxxxxx
Petrosearch (as long as Xxxxxxx Petrosearch continues to be owned directly,
or
indirectly, by the Company) as estimated by a third party engineer.
“Common
Stock” means the common stock, par value $0.001 per share, of the Company
and stock of any other class of securities into which such securities may
hereafter be reclassified or changed into.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.
“Exploration
Holding” means Exploration Holding Co., L.L.C., a Texas limited liability
company.
“Fair
Market Value” means the amount at which property would change hands between
a willing buyer and a willing seller, neither being under any compulsion to
buy
or sell and both having reasonable knowledge of the relevant facts.
“GAAP”
means generally accepted accounting principles in the United States set forth
in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession in the United States, that are applicable to the circumstances as
of
the date of determination, consistently applied.
Convertible
Note
Page
3
“Guarantee”
means, as to any Person, (a) any obligation, contingent or otherwise, of such
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation payable or performable by another Person (the
“primary obligor”) in any manner, whether directly or indirectly, and
including any obligation of such Person, direct or indirect, (i) to purchase
or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation, (ii) to purchase or lease property, securities
or services for the purpose of assuring the obligee in respect of such
Indebtedness or other obligation of the payment or performance of such
Indebtedness or other obligation, (iii) to maintain working capital, equity
capital or any other financial statement condition or liquidity or level of
income or cash flow of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or other obligation, or (iv) entered into for the
purpose of assuring in any other manner the obligee in respect of such
Indebtedness or other obligation of the payment or performance thereof or to
protect such obligee against loss in respect thereof (in whole or in part),
or
(b) any Lien on any assets of such Person securing any Indebtedness or other
obligation of any other Person, whether or not such Indebtedness or other
obligation is assumed by such Person (or any right, contingent or otherwise,
of
any holder of such Indebtedness to obtain any such Lien). The amount
of any Guarantee shall be deemed to be an amount equal to the stated or
determinable amount of the related primary obligation, or portion thereof,
in
respect of which such Guarantee is made or, if not stated or determinable,
the
maximum reasonably anticipated liability in respect thereof as determined by
the
guaranteeing Person in good faith. The term “Guarantee” as a
verb has a corresponding meaning.
“Indebtedness”
means as to the Company at a particular time, without duplication, all of the
following, whether or not included as indebtedness or liabilities in accordance
with GAAP:
(i)
all
obligations of the Company for borrowed money and all obligations of the Company
evidenced by bonds, debentures, notes, loan agreements or other similar
instruments;
(ii)
all
direct or contingent obligations of the Company arising under letters of credit
(including standby and commercial), bankers’ acceptances, bank guaranties,
surety bonds and similar instruments;
(iii)
net
obligations of the Company under any Swap Contract;
(iv)
all
obligations of the Company to pay the deferred purchase price of property or
services (other than trade accounts payable in the ordinary course of business
that are not unpaid for more than 120 days after the date on which such trade
account payable was created);
(v)
indebtedness (excluding prepaid interest thereon) secured by a Lien on property
owned or being purchased by the Company (including indebtedness arising under
conditional sales or other title retention agreements), whether or not such
indebtedness shall have been assumed by the Company or is limited in
recourse;
Convertible
Note
Page
4
(vi)
Capital Lease Obligations and Synthetic Lease Obligations;
(vii)
all
obligations of the Company to purchase, redeem, retire, defease or otherwise
make any payment in respect of any equity interest in the Company or any other
entity or company, valued, in the case of a redeemable preferred interest,
at
the greater of its voluntary or involuntary liquidation preference plus accrued
and unpaid dividends (but excluding undeclared dividends where the Company
is
not required to declare such dividends); and
(viii)
all Guarantees of the Company in respect of any of the foregoing.
“Interest
Shares” means the number of shares of Common Stock that could be paid as
interest pursuant to Section 2(a) at a rate of 8.5% under this Convertible
Note
during the term of this Convertible Note.
“Lien”
means
any mortgage,
pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge, or preference, priority or other security interest
or preferential arrangement in the nature of a security interest of any kind
or
nature whatsoever (including any conditional sale or other title retention
agreement, any easement, right of way or other encumbrance on title to real
property, and any financing lease having substantially the same economic effect
as any of the foregoing).
“Note
Shares” means the shares of Common Stock (i) to which the Holder is entitled
upon conversion of this Convertible Note and (ii) that have been issued in
lieu
of cash interest payments under this Convertible Note at the time of filing
the
applicable Registration Statement (as defined in the Registration Rights
Agreement) or Piggyback Registration Statement (as defined in the Registration
Rights Agreement).
“Optional
Redemption Amount” means the sum of (i) 110% of the principal amount of the
Convertible Note then outstanding and (ii) all accrued but unpaid
interest.
“Original
Issue Date” means the date of the first issuance of the Convertible Note,
regardless of any transfers of any Convertible Note and regardless of the number
of instruments which may be issued to evidence such Convertible
Note.
“Outstanding
Principal” means the outstanding principal balance of this Convertible Note
at the time and excludes any principal that has been converted into shares
of
Common Stock of the Company pursuant to the terms of this Convertible Note,
if,
and to the extent that, the Holder has received its Note Shares from the Company
with respect to any such excluded converted principal.
“Partnership”
means the DDJET Limited, LLP, a Texas limited liability limited partnership
as
further described in the recitals to the Pledge and Security
Agreement.
“Partnership
Interest” means the 5.54455% limited partnership interest in the Partnership
owned by Xxxxxxx Petrosearch.
Convertible
Note
Page
5
“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.
“Pledge
and Security Agreement” means the Pledge and Security Agreement, dated of
even date herewith, by and between the Company as pledgor and the Holder as
secured party.
“Purchase
Agreement” shall have the meaning set forth on page 1 of this Convertible
Note.
“Prime
Rate” shall mean the “prime rate” as published in the money rates section of
the Wall Street Journal (Southwest Edition)
“Proved
Reserves” means collectively, the Proved Developed Oil and Gas Reserves and
Proved Undeveloped Reserves of the Company and its subsidiaries, as such terms
are defined in § 210.4-10(a) of Regulation S-X.
“PV-10
Value” means the estimated future gross revenue to be generated from the
production of Proved Reserves of the Company and its subsidiaries, net of
estimated production and future development costs, using prices and costs in
effect at the determination date, without giving effect to non-property related
expenses such as general and administrative expenses, debt service and future
income tax expense or to depreciation, depletion and amortization, discounted
using an annual discount rate of 10%.
“Registration
Rights Agreement” means the Registration Rights Agreement, dated as of the
date of the Purchase Agreement, among the Company and the original Holders,
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 the
Note Shares and names such Holder as a “selling stockholder” therein, and meets
the requirements of the Registration Rights Agreement.
“SEC”
means the United States Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“Significant
Subsidiary” shall mean (i) Exploration Holding or Xxxxxxx Petrosearch and
(ii) any other Significant Subsidiary (as such term is defined in Rule 1-02(w)
of Regulation S-X ) but, at the option of the Company, shall exclude any
Significant Subsidiary (other than the Significant Subsidiaries listed in
foregoing clause (i)), which has Indebtedness for which recourse is exclusive
to
the assets of any such Significant Subsidiary and as to which there is no
recourse to the Company or to the Company’s other subsidiaries, from the
Indebtedness incurrence test set forth in Section 7(a)(i)
hereof.
Convertible
Note
Page
6
“Swap
Contract” means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity
options, forward commodity contracts, commodity futures contracts, equity or
equity index swaps or options, bond or bond price or bond index swaps or options
or forward bond or forward bond price or forward bond index transactions,
interest rate options, forward foreign exchange transactions, cap transactions,
floor transactions, collar transactions, currency swap transactions,
cross-currency rate swap transactions, currency options, spot contracts, or
any
other similar transactions or any combination of any of the foregoing (including
any options to enter into any of the foregoing), whether or not any such
transaction is governed by or subject to any master agreement, and (b) any
and
all transactions of any kind, and the related confirmations, which are subject
to the terms and conditions of, or governed by, any form of master agreement
published by the International Swaps and Derivatives Association, Inc., any
international foreign exchange master agreement, or any other master agreement
(any such master agreement, together with any related schedules, a “Master
Agreement”), including any such obligations or liabilities under any Master
Agreement.
“Synthetic
Lease Obligation” means the monetary obligation of a Person under a
so-called synthetic, off-balance sheet or tax retention lease.
“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 Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin
Board.
“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 9:30 a.m. (Eastern Standard Time) to 4:02 p.m. (Eastern
Standard 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.
Convertible
Note
Page
7
Section
2. Interest.
a) Payment
of Interest. Interest shall accrue at the rate of the lesser of (i) eight
percent (8%) per annum; and (ii) the maximum nonusurious interest rate under
applicable law (except that interest shall accrue at the 8.5% per annum interest
rate described below (limited by the maximum nonusurious rate) in the specified
circumstance) on the principal balance of this Convertible Note from time to
time outstanding commencing on the Original Issue Date. Accrued
interest from such time through December 31, 2007 shall be paid by the Company
to the Holder on January 1, 2008. Thereafter, commencing on January
1, 2008, the Company shall pay in cash (or restricted common stock) to the
Holder, on the aggregate unconverted and then outstanding principal amount
of
this Convertible Note, accrued interest quarterly in arrears and continuing
on
each, April 1, July 1, October 1 and January 1, thereafter throughout the term
of this Convertible Note and shall pay accrued interest on each Conversion
Date
(as to that principal amount then being converted), on each Redemption Date
(as
to that principal amount then being redeemed) and on the Maturity Date (each
of
the foregoing dates of payment, an “Interest Payment
Date”). If any Interest Payment Date is not a Business Day,
then the applicable payment shall be due on the next succeeding Business Day
and
the amount of the accrued interest shall include such additional Business Day
or
Days. At the sole discretion of the Company, interest shall accrue at
the rate of the lesser of (i) eight and 1/2 percent (8.5%) per annum; or (ii)
the maximum nonusurious rate of interest under applicable law, if, and to the
extent that Company opts to pay such interest in Common Stock of the Company
priced using the closing price of the last Trading Day of each quarter
immediately preceding the quarterly Interest Payment Date, or the date preceding
the Conversion Date, each Redemption Date or the Maturity
Date. Notwithstanding the foregoing, the Company shall not have the
option of paying interest in shares of Common Stock unless: (i) the Company
continues to be listed on a Trading Market; (ii) the Company is in compliance
with its obligations under the Registration Rights Agreement; and (ii) no Event
of Default (as defined herein) exists, in each case as of the
Interest Payment Date (collectively, the “Equity Conditions”). All
cash payments of interest payments shall be paid to the Holder in accordance
with wire transfer instructions provided by the Holder to the
Company. All interest payments made with Common Stock shall be made
by delivery to the Holder by overnight courier to the address for the Holder
provided under Section 11 hereof.
b) Default
Interest. The Company further agrees that if the
Company shall default in the payment of any payment required hereunder, whether
payment of principal, interest, or fees or otherwise, and whether paid in cash
or with Common Stock, the Company promises to pay, on demand, interest on any
such unpaid amounts, from the date the payment is due to the date of actual
payment, at the rate (the “Default Rate”) of the lesser of (i)
the Prime Rate plus 5.00% per annum; and (ii) the maximum nonusurious rate
permitted by applicable law.
Convertible
Note
Page
8
c) Interest
Calculations. Interest shall be calculated on the basis of a 360-day year,
consisting of twelve 30 calendar day periods, and shall accrue daily commencing
on the Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest shall cease to accrue with respect
to any principal amount converted, provided that the Company actually delivers
the Note Shares within the time period required by Section 4(c)(iii)
herein. Interest hereunder will be paid to the Person in whose name
this Convertible Note is registered on the records of the Company regarding
registration and transfers of this Convertible Note (the “Convertible
Note Register”).
d) Prepayment. Except
for Company’s right to redeem this Convertible Note in accordance with the
provisions of Section 6 hereof, the Company may not prepay any portion of the
principal amount of this Convertible Note, without the prior written consent
of
the Holder.
e) Maturity.
On the Maturity Date, the outstanding principal balance on this Convertible
Note, together with all accrued and unpaid interest shall be paid by the Company
to the Holder in cash in accordance with wire transfer instructions previously
provided by the Holder to the Company for use in connection with cash interest
payments.
Section
3. Registration of
Transfers and Exchanges.
a) Different
Denominations. This Convertible Note is exchangeable, from time to time, for
Convertible Note in different denominations and in the names of one or more
different designees, nominees or assignees, in an aggregate principal amount
equal to the aggregate principal balance outstanding on the Convertible Note
being exchanged at the time, as requested by the Holder surrendering the
same. No service charge will be payable for such exchanges,
transfers, or registrations of transfers.
b) Investment
Representations. This Convertible Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and
regulations.
c) Reliance
on Convertible Note Register. Prior to due presentment to the Company for
transfer of this Convertible Note, the Company and any agent of the Company
may
treat the Person in whose name this Convertible Note is duly registered on
the
Convertible Note Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not this
Convertible Note is overdue, and neither the Company nor any such agent shall
be
affected by notice to the contrary.
Convertible
Note
Page
9
Section
4. Conversion.
a) Voluntary
Conversion. This Convertible Note shall be convertible, in whole or in part,
into shares of Common Stock at a price of $1.05 per share at the option of
the
Holder at any time and from time to time after the Original Issue
Date. 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 Convertible Note to be converted and the date on which
such conversion shall be effected (such date, the “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 Convertible Note
to
the Company unless the entire principal amount of this Convertible Note, plus
all accrued and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of reducing the outstanding principal amount
of
this Convertible Note in an amount equal to the applicable conversion of
principal. The Holder and the Company shall maintain records showing
the principal amount(s) converted and the date of such
conversion(s). The Company may deliver an objection to any Notice of
Conversion within two (2) Business Days of delivery of such Notice of Conversion
based on an inaccuracy in such Notice but not on any other basis. In
the event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The
Holder, and any assignee by acceptance of this Convertible Note, acknowledge
and
agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Convertible Note, the unpaid and unconverted principal
amount of this Convertible Note will be less than the amount stated on the
face
hereof.
b)
Conversion
Price. The conversion price in effect on any Conversion Date
shall be $1.05 per share, subject to adjustment as provided herein (the
“Conversion Price”).
c) Mechanics
of Conversion.
i. Note
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 (x) the outstanding principal
amount of this Convertible Note to be converted by (y) the Conversion
Price.
ii. Delivery
of Certificate Upon Conversion. Not later than three (3) 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 Note Shares which, shall bear an appropriate
restrictive legend and trading restrictions as required by the Purchase
Agreement representing the number of shares of Common Stock being acquired
upon
the conversion of this Convertible Note 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).
Convertible
Note
Page
10
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 fifth 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 Convertible Note delivered to the Company and the Holder shall promptly
return the Common Stock certificates representing the principal amount of this
Convertible Note tendered for conversion to the Company.
iv. Obligation
Absolute. The Company’s obligations to issue and deliver the Note
Shares upon conversion of this Convertible Note 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 Note 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.
v. 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
Convertible Note and payment of interest on this Convertible Note, 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
Convertible Note), 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
Convertible Note 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.
vi. 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 calculated by the Company to be equal to the then fair value of
one
share of Common Stock of the Company, as determined by the Board of Directors
of
the Company in good faith, multiplied by such fraction computed to the nearest
whole cent. 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.
Convertible
Note
Page
11
vii. Transfer
Taxes. The issuance of certificates for shares of the Common
Stock on conversion of this Convertible Note 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 Convertible Note
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 Convertible Note is outstanding: (A) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any security of the Company convertible into Common
Stock (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon conversion of, or payment of interest on,
the
Convertible Note); (B) subdivides outstanding shares of Common Stock into a
larger number of shares; (C) combines (including by way of a reverse stock
split) outstanding shares of Common Stock into a smaller number of shares;
or
(D) 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) Pro
Rata Distributions. If the Company, at any time while this Convertible Note
is outstanding, distributes to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security,
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 one
outstanding share of the Common Stock as determined by the Board of Directors
of
the Company in good faith;
provided, however, that the adoption of any so-called “poison pill” by the
Company will not trigger any adjustment hereunder, but upon the conversion
of
any portion of the Convertible Note, any rights that attach to the Common Stock
under any such “poison pill” shall attach to the shares of Common Stock issued
upon conversion. 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 one 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.
Convertible
Note
Page
12
c) Fundamental
Transaction.
(i) If,
at any time while this Convertible Note is outstanding, (A) the Company effects
any merger or consolidation of the Company with or into another Person, (B)
the
Company effects any sale of all or substantially all of its assets in one
transaction or a series of related transactions, (C) 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 (D) 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 Convertible
Note, 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 one (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 one (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 Convertible Note 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 Convertible Note
consistent with the foregoing provisions and evidencing the Holder’s right to
convert such Convertible Note 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(c) and insuring that this Convertible Note (or
any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
Convertible
Note
Page
13
(ii) Any
successor to the Company or any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, all of the obligations
of the Company under this Convertible Note, the Purchase Agreement, the Pledge
and Security Agreement, the Registration Rights 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 (ii) issue to the Holder a new Convertible Note of such successor
entity evidenced by a written instrument substantially similar in form and
substance to this Convertible Note, including, without limitation, having a
principal amount and interest rate equal to the principal amount and the
interest rate of this Convertible Note and having similar ranking to this
Convertible Note, which shall be satisfactory to the Holder (any such approval
not to be unreasonably withheld or delayed). The provisions of this
Section 5(c) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this
Convertible Note.
d) 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.
e) 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
and
the calculations undergirding such adjustment.
Convertible
Note
Page
14
ii. Notice
to Allow Conversion by Xxxxxx. 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
some or 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
Convertible Note, and shall cause to be delivered to the Holder at its last
address as it shall appear upon the Convertible Note Register, at least 10
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 Convertible Note during the 10-day period commencing on the date
of
such notice through the effective date of the event triggering such
notice.
Section
6. Redemption At
Election Of Company.
a) Redemption
at Election of Company. Subject to the provisions of this Section
6, so long as the Company is in compliance with all Equity Conditions listed
in
Section 2.a. herein, the Company may redeem part or all of the outstanding
Convertible Note on or after twelve (12) months from the Original Issue Date
(the period beginning after the 12-month anniversary of the Original Issue
Date
being referred to herein as the “Redemption
Period”). During the Redemption Period, the Company may
deliver a notice to the Holder (the “Redemption Notice”) of its
irrevocable election to redeem some or all of the then outstanding principal
amount of this Convertible Note for cash in an amount equal to the Optional
Redemption Amount (“Redemption Amount”) on the 20th
Trading Day
following the date the Redemption Notice is received by Holder
(“Redemption Date”), and the Redemption Amount shall be payable
to Holder in full on the Redemption Date unless Holder elects to convert its
Convertible Note prior to such Redemption Date; provided, however, that the
Company may not deliver a Redemption Notice prior to the 12-month anniversary
of
the Original Issue Date. The Company covenants and agrees that it
will honor all Notices of Conversion tendered from the time of delivery of
the
Redemption Notice through the date the Redemption Amount is paid in
full.
Convertible
Note
Page
15
b) Redemption
Procedure. The Redemption Amount payment shall be payable in cash
on the Redemption Date. Notwithstanding anything herein contained to
the contrary, if any portion of the Redemption Amount remains unpaid after
such
date, the Holder may elect, by written notice to the Company given at any time
thereafter, to invalidate such Redemption, abinitio, and,
with respect to the Company’s failure to pay the Redemption Amount, the Company
shall have no further right to exercise such
Redemption. Notwithstanding anything to the contrary in this Section
6, the Company’s determination to redeem in cash shall be applied ratably among
the Holders of Convertible Note. The Holder may elect to convert the outstanding
principal amount of the Convertible Note pursuant to Section 4 prior to actual
payment in cash for any redemption under this Section 6 by the delivery of
a
Notice of Conversion to the Company.
Section
7. Negative Covenants
and Representations.
a) As
long as any portion of this Convertible Note remains outstanding and the Company
has any obligations to the Holder under the Convertible Note, the Purchase
Agreement, the Pledge and Security Agreement and any agreements executed in
connection therewith, the Company shall not, and shall not permit any of its
Significant Subsidiaries to, in the future, directly or indirectly:
|
|
i)
|
Incur
Indebtedness (including the Indebtedness evidenced by this Convertible
Note) in excess of fifty percent (50%) of the PV-10 Value of the
Company’s
(or such Significant Subsidiary’s) total Proved Reserves, plus the Fair
Market Value of the leases and pipeline assets associated with the
Xxxxxxx
Shale Project, without the prior written consent of the Holders
collectively holding at least 50% of the aggregate principal amount
then
outstanding under the Convertible
Notes;
|
|
|
ii)
|
Amend
its charter documents, including, without limitation, its certificate
of
incorporation or formation, and its articles and bylaws or limited
liability agreement or other operating agreement, as applicable,
in any
manner that materially and adversely affects any rights of the Holder,
without the prior written consent of the Holders collectively holding
at
least 50% of the aggregate principal amount then outstanding under
the
Convertible Notes; provided, however, that the Company shall not
take any
such action if they affect any Holder disproportionately to the other
Holders without such Holder's prior written
consent.
|
|
|
iii)
|
Sell,
transfer, or otherwise dispose of any of its membership interests
or
partnership interests in Exploration Holding or Xxxxxxx Petrosearch,
without the prior written consent of the Holders collectively holding
at
least 50% of the aggregate principal amount then outstanding under
the
Convertible Notes;
|
|
|
iv)
|
(A)
Pay any dividends or make any distributions on its equity securities;
(B)
purchase, redeem, retire, defease or otherwise acquire for value
any of
its equity securities; (C) return any capital to any holder of its
equity
securities; (D) make any distribution of assets, equity securities,
obligations or securities to any holder of its equity securities;
or (E)
set apart any sum for any such purpose; provided, however, that the
Company may repurchase its capital stock at cost from directors,
officers,
employees and consultants upon the exercise of its right of repurchase
upon termination of such person’s employment with or services to the
Company; and provided, further, however, that the Company and its
subsidiaries shall be permitted to take the actions described in
clauses
(A)-(D) as long as, and to the extent that, after taking such actions,
(Y)
no Event of Default or event which with the passage of time or the
giving
of notice would constitute an Event of Default shall have
occurred.
|
Convertible
Note
Page
16
As
to
Section 7(a)(i), on each quarterly Interest Payment Date, the Company shall
certify to the Holder, in a form satisfactory to the Holder, that no Event
of
Default, or event which, with the passage of time or the giving of notice would
become an Event of Default, has occurred. In making calculations of
the Indebtedness incurrence test under Section 7(a)(i) hereof, the Company
shall
not be entitled (i) to include either the assets or the Indebtedness of any
Significant Subsidiary which the Company has elected to exclude from the test
(which Significant Subsidiary must also meet the other requirements of the
definition of Significant Subsidiary in order to be excluded); or (ii) to
include the Fair Market Value of the leases and pipelines assets associated
with
the Xxxxxxx Shale Project, unless and only to the extent that, the Company
is a
direct or indirect owner thereof by virtue of Xxxxxxx Xxxxxxxxxxx’s Partnership
Interest therein.
b) The
Company represents, warrants and covenants (i) that the Company owns 100% of
the
membership interests in Exploration Holding (subject to outstanding security
interests); (ii) that Exploration Holding owns 100% of the membership interests
in Xxxxxxx Petrosearch; (iii) that Xxxxxxx Xxxxxxxxxxx owns the Partnership
Interest; (iv) that the sole asset of Xxxxxxx Petrosearch on the Original Issue
Date is the Partnership Interest; and (v) that after the Original Issue Date,
the only assets that Xxxxxxx Petrosearch, L.L.C. will own are the Partnership
Interest with Exxon Mobil Corporation and others relating to the development
of
the Xxxxxxx Shale geologic regions.
Section
8. Default By
Company.
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 Convertible Note or (B)
interest, liquidated damages and other amounts owing to a Holder on any
Convertible Note or under the Purchase Agreement, 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
five (5) Trading Days;
ii. the
Company shall fail the Indebtedness incurrence test set forth in Section 7(a)(i)
hereof, provided that the Company shall have 90 days to meet such test if
Company’s failure to meet such test was as a result of mark-to-market matters
out of the control of the Company, as for example fluctuations in the price
of
the commodity;
Convertible
Note
Page
17
iii. the
Company breaches its obligations to deliver shares of Common Stock to the Holder
upon conversion;
iv. any
covenant or agreement contained in the Purchase Agreement or the Convertible
Note other than those covered by the Events of Defaults described in foregoing
clause (i)-(iii),which failure is not cured, if possible to cure, within the
earlier to occur of (A) 60 days after notice of such failure sent by the Holder
or by any other Holder and (B) 90 days after the Company has become or should
have become aware of such failure;
v. any
representation or warranty made in this Convertible Note, the Purchase
Agreement, any written statement pursuant hereto or thereto 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 provided however, that in the event that the untrue or
incorrect representation or warranty is of the type capable of being cured
and
is cured by the Company within the time frame set forth in Section 8(a)(iv)
above, then it shall be deemed to be cured and non-material;
vi. the
Company or any Significant Subsidiary shall be subject to a Bankruptcy Event
or
shall fail to pay its debts in the aggregate amount of $500,000 or more, as
they
become due, or within 120 days of the stated due date, (except as to debts
that
are legitimately in dispute as to which the Company is taking action to resolve
the dispute and as to which reserves are set aside in accordance with and to
the
extent required by GAAP);
vii. the
Company or any Significant Subsidiary shall default, which default shall not
be
cured within any applicable cure period, on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $500,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;
viii. any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any Significant Subsidiary or any of their respective
property or other assets for $500,000 or more, and such judgment, writ or
similar final process shall remain unvacated, unbonded or unstayed for a period
of 45 calendar days;
Convertible
Note
Page
18
ix.
any Event of Default under the Pledge and Security Agreement, the
Registration Rights Agreement, or any other agreement executed in connection
with this Convertible Note occurs; or
x. any
tax lien
in the amount of $500,000 or more, is filed against the Company or
Exploration Holding or on any property of the Company or Exploration Holding
for
any past-due tax obligations (except as to tax liens that are legitimately
in
dispute as to which the Company is taking action to resolve the dispute and
as
to which reserves are set aside in accordance with and to the extent required
by
GAAP).
b) Remedies
Upon Event of Default. If any Event of Default occurs, interest on this
Convertible Note shall begin accruing at the Default Rate and the outstanding
principal amount of this Convertible Note, plus accrued but unpaid interest,
liquidated damages (if any) 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; provided however that in the case of an Event of
Default under Section 8(a)(vi) hereof, acceleration shall be automatic, without
action by the Holder and the indebtedness evidenced by this Convertible Note
shall be immediately due and payable. If an Event of Default occurs,
the Holder shall be entitled to pursue all rights and remedies with respect
to
the Collateral and to foreclose on it, take possession, and otherwise realize
on
it in accordance with the Pledge and Security Agreement. In
connection with such acceleration described herein, the Holder need not provide,
and the Company hereby waives, any presentment, demand, protest, notice of
intent to accelerate, notice of acceleration, and 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 Xxxxxx at any time prior to payment hereunder and
the
Holder shall have all rights as a holder of the Convertible Note until such
time, if any, as the Holder receives full payment pursuant to this Section
8(b). No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
Section
9. Registration
Rights. The Company shall comply with its obligations under the
Purchase Agreement and the Registration Rights Agreement executed in connection
therewith.
Convertible
Note
Page
19
Section
10. Senior Status/
Release/Partial Release of Collateral. This Convertible Note is a
senior secured note and is pari passu with all other senior indebtedness of
the
Company. This Convertible Note is secured by a first and prior
security interest in the Holder’s pro rata portion of a five percent (5.00%)
membership interest in Exploration Holding and certain other Collateral as
defined in and evidenced by the Pledge and Security Agreement. The
Holder shall execute and deliver to the Company a full release of the Holder’s
pro rata portion of the Collateral in the case of clauses (a)-(c) following,
or
a partial release of the Holder’s pro rata portion of the Collateral in the case
of clause (d), upon the occurrence of the following: (a) payment in
full of all principal, interest and other sums due and owing to the Holder
under
this Convertible Note in accordance with its terms and fulfillment of all
obligations under the Purchase Agreement and the Pledge and Security Agreement
and any other agreement executed in connection herewith; (b) redemption by
the
Company of the Convertible Note under the redemption terms set forth in this
Convertible Note and fulfillment of all obligations under the Purchase Agreement
and the Pledge and Security Agreement and any other agreement executed in
connection herewith; (c) conversion in full of this Convertible Note by Holder
under the terms set forth in this Convertible Note and fulfillment of all
obligations under the Purchase Agreement and the Pledge and Security Agreement
and any other agreement executed in connection herewith; or (d) as long as
no
Event of Default, or event which with the passage of time or the giving of
notice would constitute an Event of Default, occurs, and so long as the Company
continues to be listed on a Trading Market and the Company is in compliance
with
its obligations under the Registration Rights Agreement, if (i) the Company’s
shares of Common Stock trade above $1.50 for a period of ten (10) consecutive
Trading Days, (ii) the Holder has the right to convert this Convertible Note
under Section 4(a) hereof and (iii) the sooner of (A) three months of the
effective date of the Registration Statement or (B) twelve (12) months from
the
Original Issue Date has passed. The Holder shall, at the cost and
expense of the Company, and to the extent the Holder has not exercised any
of
its remedies in accordance with the Pledge and Security Agreement, (a) release
from the lien and security interest created by the Pledge and Security Agreement
and reassign to the Company the Collateral (and any property or rights assigned
by the Company to the Holder by the Pledge and Security Agreement or by any
agreement or agreements supplemental hereto with respect thereto) required
to be
released by this Section, and (b) do and execute all such acts, things and
instruments as are necessary to effect such release or reassignment
including the return to the Company of the certificates evidencing the released
Pledged Securities (as defined in the Pledge and Security Agreement, hereafter
the “Pledged Securities”), including, without limitation, where
appropriate, a release of any financing statement.
Section
11. 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 the address
set forth on page 1 hereof, facsimile number (000) 000-0000, Attn:
Xxxxx Xxxxxxx 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 11. 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 the Holder at the following address:
___________________________, _________________
__________, Attn: _____________________, facsimile number
_________________ or at such other address or facsimile number as the Holder
may
specify for such purpose by notice to the Company delivered in accordance with
this Section 11. 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 11 prior to 5:30 p.m. (Eastern
Standard 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 11 between 5:30 p.m. (Eastern Standard Time) and
11:59
p.m. (Eastern Standard 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.
Convertible
Note
Page
20
b) Absolute
Obligation. Except as expressly provided herein, no provision of this
Convertible Note 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 Convertible Note at the time, place,
and rate, and in the coin or currency, herein prescribed. This
Convertible Note is a direct debt obligation of the Company. This
Convertible Note ranks paripassu with all other Convertible Note
now or hereafter issued under the terms set forth herein.
c) Lost
or Mutilated Convertible Note. If this Convertible Note shall be
mutilated, lost, stolen or destroyed, the Company shall execute and deliver,
in
exchange and substitution for and upon cancellation of a mutilated Convertible
Note, or in lieu of or in substitution for a lost, stolen or destroyed
Convertible Note, a new Convertible Note for the principal amount of this
Convertible Note so mutilated, lost, stolen or destroyed, but only upon receipt
of evidence of such loss, theft or destruction of such Convertible Note, and
of
the ownership hereof, reasonably satisfactory to the Company and if requested
by
the Company, indemnity also reasonably satisfactory to the Company.
d) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Convertible Note shall be governed by
and
construed and enforced in accordance with the internal laws of the State of
Texas, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the Convertible Note (whether brought
against a party hereto or its respective Affiliates, directors, officers,
shareholders, employees or agents) shall be commenced in the state and federal
courts sitting in the City of Houston, Texas (the “Houston
Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the Houston Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert
in
any suit, action or proceeding, any claim that it is not personally subject
to
the jurisdiction of such Houston Courts, or that such Houston Courts are
improper or inconvenient venue for such proceeding. If either party shall
commence an action or proceeding to enforce any provisions of this Convertible
Note, then the prevailing party in such action or proceeding shall be reimbursed
by the other party for its attorney’s fees and other costs and expenses incurred
in the investigation, preparation and prosecution of such action or
proceeding. The Company agrees to reimburse the Holder on demand for
all costs, expenses and charges (including, without limitation, fees and charges
of counsel and court costs) in connection with the preparation or modification
of this Convertible Note, the Purchase Agreement, the Pledge and Security
Agreement and the other agreements executed in connection herewith, and the
collection, performance or enforcement of this Convertible Note and all such
agreements, and the defense or prosecution of any rights of the Holder pursuant
to this Convertible Note and such agreements.
Convertible
Note
Page
21
e) Waiver. Any
waiver by the Company or the Holder of a breach of any provision of this
Convertible Note 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
Convertible Note. The failure of the Company or the Holder to insist
upon strict adherence to any term of this Convertible Note 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 Convertible Note. Any waiver by the Company or the Holder must
be in writing.
f) Severability. If
any provision of this Convertible Note is invalid, illegal or unenforceable,
the
balance of this Convertible Note 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.
g) Usury
Savings Clause. It is the intention of the Company and the holder
of this Convertible Note to comply with applicable usury laws; accordingly,
it
is agreed that notwithstanding any provisions to the contrary in this
Convertible Note, in no event shall this Convertible Note and/or any other
instrument or document executed in connection with this Convertible Note require
or permit the payment, charge or receipt of interest, as defined under
applicable usury laws, in excess of the maximum amount permitted by such
laws. If any such excess of interest is contracted for, charged,
taken, reserved or received under this Convertible Note, or if the maturity
of
the indebtedness evidenced by this Convertible Note is accelerated, in whole
or
in part, or in the event that all or part of the principal of or interest on
this Convertible Note shall be prepaid, so that under any of such circumstances
the amount of interest contracted for, charged, taken, reserved or received
under this Convertible Note on the amount of principal actually outstanding
from
time to time under this Convertible Note shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither the Company
nor any other party now or hereafter liable for the payment of this Convertible
Note shall be obligated to pay the amount of such interest to the extent that
it
is in excess of the maximum amount of interest permitted to be contracted for
by, charged to, taken, reserved or received from the party obligated thereon
under applicable usury laws, (c) any such excess which may have been collected
either shall be applied as a credit against the then unpaid principal amount
on
this Convertible Note or refunded to the party paying the same, at the holder’s
option, (d) any such excess which may have been charged shall be canceled ab
initio and be of no force or effect, and (e) the effective rate of interest
shall be automatically reduced to the maximum lawful rate of interest permitted
under applicable usury laws as now or hereafter construed by the courts having
jurisdiction thereof. It is further agreed that, without limitation
of the foregoing, all calculations of the rate of interest contracted for,
charged, taken, reserved or received under this Convertible Note, which are
made
for the purpose of determining whether such rate exceeds the maximum lawful
rate
of interest shall be made, to the extent permitted by applicable usury laws,
by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the indebtedness evidenced by this Convertible Note,
all interest at any time contracted for, charged or received from the Company
or
otherwise by the holder or holders hereof in connection with this Convertible
Note.
Convertible
Note
Page
22
h) Waiver.
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 Convertible Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect
the
covenants or the performance of this Convertible Note and the related
agreements, 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 impede 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.
i) 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.
j) Business
Purpose. The Company agrees, represents, and acknowledges that
the purposes of consideration furnished by the Holder will be used for solely
for business, commercial, investment or other similar purposes and not personal,
family or agricultural purposes.
k) Headings. The
headings contained herein are for convenience only, do not constitute a part
of
this Convertible Note and shall not be deemed to limit or affect any of the
provisions hereof.
[SIGNATURES
APPEAR ON THE FOLLOWING PAGE.]
Convertible
Note
Page
23
IN
WITNESS WHEREOF, the Company has caused this Convertible Note to be duly
executed by a duly authorized officer as of the date first above
indicated.
|
PETROSEARCH
ENERGY CORPORATION
|
||
|
By:
|
|
|
|
Name:
|
||
|
Title:
|
||
Signature
Page to Note
ANNEX
A
NOTICE
OF CONVERSION
The
undersigned hereby elects to
convert principal under the 8% Senior Secured Convertible Note due November
9,
2010 of Petrosearch Energy Corporation, a Nevada corporation (the
“Company”), 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 of Common Stock 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 Convertible Note to be Converted:
|
||||
|
Number
of shares of Common Stock to be issued:
|
||||
|
Signature:
|
||||
|
Name:
|
||||
|
Address:
|
||||
Annex
A
Schedule
1
CONVERSION
SCHEDULE
The
8%
Senior Secured Convertible Note due November 9, 2010 in the aggregate principal
amount of $8,100,000 is issued by Petrosearch Energy
Corporation. This Conversion Schedule reflects conversions made under
Section 4 of the above referenced Convertible Note.
Dated:
|
Date
of Conversion
(or
for first entry, Original Issue Date)
|
Amount
of Conversion
|
Aggregate
Principal Amount Remaining Subsequent to Conversion
(or
original Principal Amount)
|
Company
Attest
|
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
|||
|
|
Schedule
1
