Exhibit 10.3
Note
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.
6% SENIOR SECURED CONVERTIBLE NOTE DUE 2008
OF
CONSOLIDATED ENERGY, INC.
Note No.: ___ Original Principal Amount: $_______
Issuance Date: February __, 2005 Coral Springs, Florida
FOR VALUE RECEIVED, the Company hereby promises to pay to or upon the order
of _______________________ or its registered assigns or successors-in-interest
(the "Holder") the principal sum of _________________ Dollars
($___________.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 6% per annum 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 semi-annually 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 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 February __, 2005, 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 Small Cap,
the Nasdaq, 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) 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 50% 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) 50% 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 either an Optional Conversion Notice or a
Mandatory Conversion Notice.
"Conversion Price" means $1.70, subject to adjustment as set forth herein.
"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, the Warrant
Shares and the AIR 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 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.
"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 February __, 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 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 Payment Date" means each July 1 and January 1, commencing July 1,
2005, and the Final Maturity Date.
"Mandatory Conversion Notice" shall have the meaning provided in Section
3(a).
"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
February __, 2005, 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 the earlier of (i) the later of (A) the Effectiveness Date
(as defined in the Registration Rights Agreement), and (B) the nine-month
anniversary of the Closing Date, and (ii) the one-year anniversary of the
Closing Date.
"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.
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, semi-annually
on the Interest Payment Dates, commencing on July 1, 2005, in cash; provided
that the Default Rate shall apply in the circumstances set forth above.
(b) 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.
(a) 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. In addition, upon
written notice by the Company to the Holder (the "Mandatory Conversion
Notice"), the Company may cause the Holder to convert all (but not less than
all) of the outstanding Principal Amount and accrued and unpaid interest
thereon into Common Stock, if (and only if) (i) there is Effective
Registration on the date that the Holder receives the Mandatory Conversion
Notice, and (ii) the closing price of the Common Stock exceeded 235% of the
Conversion Price then in effect for each and every of the 20 consecutive
Trading Days immediately preceding (but not including) the date that the
Holder receives the Mandatory Conversion Notice, and (iii) the average daily
trading volume for the Common Stock during such 20 consecutive Trading Days
exceeded 250,000 shares. Notwithstanding anything to the contrary herein, this
Note and the outstanding Principal Amount hereunder shall not be convertible
into Common Stock at any time to the extent, and only to the extent, that such
conversion at such time would result in the Holder exceeding the limitation
contained in, or otherwise violating the provisions of, Section 3.13 of the
Purchase Agreement.
(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 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 Xxxxxx 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 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 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 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 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 the event that the 30-day moving average closing price of the Common
Stock ending on the Reset Date is less than the Conversion Price in effect
immediately prior to the Reset Date, then the Conversion Price shall be
adjusted so that the Conversion Price immediately following the Reset Date
shall equal such 30-day moving average closing price of the Common Stock.
Notwithstanding the foregoing, in no event shall the Conversion Price be
adjusted pursuant to this subsection (B) below $1.00.
(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.
(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
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.
(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.
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 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)); (v) a material breach by the Company
of its representations or warranties in this Note or in any other Transaction
Document; (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 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.
(ii) Jurisdiction. The Company (i) hereby irrevocably submits to the
non-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 Xxxxxx, upon surrendering the same. No service charge will be
made for such registration or exchange. In the event that Xxxxxx 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.
[Signature Page Follows]
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: Xxxxx Xxxxxxx, President
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)
EXHIBIT A
FORM OF CONVERSION NOTICE
(To be executed by the Holder in order
to convert 6% Senior Secured Convertible Note Due 2008)
Re: 6% Senior Secured Convertible Note Due 2008 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
