OCTOBER 2006 WAIVER AND AMENDMENT
AGREEMENT
THIS OCTOBER 2006
WAIVER AND AMENDMENT AGREEMENT (this “ Agreement
”) is made as of October 2, 2006, among Infinity Energy
Resources, Inc., a Delaware corporation (including as successor to
Infinity, Inc., “ Infinity ” or the “
Company ”), Consolidated Oil Well Services, Inc., a
Kansas corporation and wholly-owned subsidiary of Infinity (“
Consolidated ”), CIS-Oklahoma, Inc., a Kansas
corporation and wholly-owned subsidiary of Infinity (“
CIS ”), Infinity Oil & Gas of Wyoming, Inc., a
Wyoming corporation and wholly-owned subsidiary of Infinity
(“ Infinity-Wyoming ”), Infinity Oil & Gas
of Kansas, Inc., a Kansas corporation and wholly-owned subsidiary
of Infinity (“ Infinity-Kansas ”), and Infinity
Oil and Gas of Texas, Inc., a Delaware corporation and wholly-owned
subsidiary of Infinity (“ Infinity-Texas ,” and
together with Consolidated, CIS, Infinity-Wyoming and
Infinity-Kansas, the “ Subsidiaries” ), HFTP
Investment L.L.C. (“ HFTP ”), Gaia Offshore
Master Fund, Ltd. (“ Gaia ”), AG Offshore
Convertibles, Ltd. (“ AG Offshore ”), Leonardo,
L.P. (“ Leonardo ”) and Portside Growth &
Opportunity Fund (“ Portside ” and collectively
with HFTP, Gaia, AG Offshore and Leonardo, the “
Buyers ”). Unless otherwise indicated or defined
herein, capitalized terms used herein shall have the meanings
ascribed to them in the Securities Purchase Agreement (as defined
below).
WHEREAS, Infinity,
HFTP, AG Offshore and AG Domestic Convertibles, L.P. (“ AG
Domestic ”) entered into that certain Securities Purchase
Agreement, dated as of January 13, 2005 (as amended, restated,
supplemented or otherwise modified and in effect from time to time,
the “ Securities Purchase Agreement
”);
WHEREAS, pursuant
to the Securities Purchase Agreement, Infinity issued to HFTP, AG
Domestic and AG Offshore senior secured notes (such notes, together
with any promissory notes issued in exchange or substitution
therefor or replacement thereof, and as any of the same may be
amended, restated, modified, supplemented or otherwise modified and
in effect from time to time, the “ January 2005
Notes ”), dated January 13, 2005, in an initial
aggregate principal amount of $30,000,000 and warrants (such
warrants, together with any warrants or other securities issued in
exchange or substitution thereof or replacement thereof and as any
of the same may be amended, restated, supplemented or otherwise
modified and in effect from time to time, the “
January 2005 Warrants ”), dated January 13,
2005, to purchase shares of the common stock, par value $0.0001 per
share of the Company (the “ Common Stock
”);
WHEREAS, AG
Domestic subsequently assigned to AG Offshore the January 2005
Notes and January 2005 Warrants held by AG Domestic and AG
Domestic’s rights and obligations with respect to any and all
future sales of Additional Notes and Additional Warrants by the
Company pursuant to the Securities Purchase Agreement;
WHEREAS, Infinity,
HFTP, Gaia, AG Offshore, the Subsidiaries and Promethean Asset
Management L.L.C., as collateral agent (the “ Agent
”), entered into that certain First Additional Closing
Agreement, dated as of September 7, 2005 (the “ First
Additional Closing
Agreement ”), pursuant to which, among things, the
January 2005 Notes were amended and Gaia was made a Buyer
under the Securities Purchase Agreement;
WHEREAS, pursuant
to the Securities Purchase Agreement and the First Closing
Agreement, the Company issued to HFTP, Gaia and AG Offshore senior
secured notes (such notes, together with any promissory notes
issued in exchange or substitution therefor or replacement thereof,
and as any of the same may be amended, restated, modified,
supplemented or otherwise modified and in effect from time to time,
the “ September 2005 Notes ”), dated
September 7, 2005, in an initial aggregate principal amount of
$9,500,000 and warrants (such warrants, together with any warrants
or other securities issued in exchange or substitution thereof or
replacement thereof and as any of the same may be amended,
restated, supplemented or otherwise modified and in effect from
time to time, the “ September 2005 Warrants
”), dated September 7, 2005, to purchase shares of
Common Stock;
WHEREAS, Infinity,
HFTP, Gaia, AG Offshore, the Subsidiaries and Agent entered into
that certain Master Assumption and Reaffirmation of Transaction
Documents, dated as of September 9, 2005, pursuant to which,
among other things, Infinity assumed all of the obligations of
Infinity, Inc. under the Securities Purchase Agreement, the
January 2005 Notes, the January 2005 Warrants, the
September 2005 Notes, the September 2005 Warrants and the
other Transaction Documents;
WHEREAS, pursuant
to the Securities Purchase Agreement, the Company issued to HFTP,
Gaia and AG Offshore senior secured notes (such notes, together
with any promissory notes issued in exchange or substitution
therefor or replacement thereof, and as any of the same may be
amended, restated, modified, supplemented or otherwise modified and
in effect from time to time, the “ December 2005
Notes ”), dated December 9, 2005, in an initial
aggregate principal amount of $5,500,000 and warrants (such
warrants, together with any warrants or other securities issued in
exchange or substitution thereof or replacement thereof and as any
of the same may be amended, restated, supplemented or otherwise
modified and in effect from time to time, the “
December 2005 Warrants ”), dated December 9,
2005, to purchase shares of Common Stock;
WHEREAS, Infinity,
HFTP, Gaia, AG Offshore, Leonardo the Subsidiaries and Agent
entered into that certain Third Additional Closing Agreement, dated
as of March 17, 2006, (the “ Third Additional Closing
Agreement ”), pursuant to which, among other things,
Leonardo was made a Buyer under the Securities Purchase
Agreement;
WHEREAS, pursuant
to the Securities Purchase Agreement and the Third Additional
Closing Agreement, the Company issued to Gaia and Leonardo senior
secured notes (such notes, together with any promissory notes
issued in exchange or substitution therefor or replacement thereof,
and as any of the same may be amended, restated, modified,
supplemented or otherwise modified and in effect from time to time,
the “ March 2006 Notes ” and, collectively
with the January 2005 Notes, the September 2005 Notes and
the December 2005 Notes, the “ Notes ”),
dated March 17, 2006, in an initial aggregate principal amount
of $8,000,000 and warrants (such warrants, together with any
warrants or other securities issued in exchange or substitution
thereof or replacement thereof and as any of the same may be
amended, restated, supplemented or otherwise modified and in effect
from time to time, the “ March 2006 Warrants
” and,
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collectively
with the January 2005 Warrants, the September 2005
Warrants and the December 2005 Warrants, the “
Warrants ”), dated March 17, 2006, to purchase
shares of Common Stock;
WHEREAS, Portside
currently holds a portion of the Notes and the Warrants;
WHEREAS, the
Company, the Subsidiaries and the Buyers entered into the Waiver
and Amendment, dated as of August 9, 2006 (the “
August 2006 Waiver and Amendment ”), pursuant to
which certain defaults of the Company and the Subsidiaries were
waived (subject to the conditions specified therein) and each of
the Notes and Warrants was amended;
WHEREAS, Infinity
issued a notice to each of the Buyers on September 7, 2006
(the “ September 7 Infinity Notice ”), pursuant
to which Infinity set forth its intention to redeem each of the
Notes on September 14, 2006, subject to conditions specified
therein, which conditions were not satisfied;
WHEREAS, the
Company has breached Section 4(n) of the Securities Purchase
Agreement, Section 12 of each of the Notes and the August 2006
Waiver and Amendment, resulting in a Triggering Event (as defined
in the Notes) under Sections 3(b)(vii) and 3(b)(viii) of each
of the Notes and an Event of Default (as defined in the Notes)
under Section 11(a)(iii) of each of the Notes, which, but for
the limited waiver set forth in Section 4(a) of the
August 2006 Waiver and Amendment, as the parties desire be
modified hereby, would (among other things) entitle each of the
holders of the Notes to require the Company to redeem all or a
portion of the Principal of each of the Notes held by such Buyer at
a price equal to the sum of (i) 120% of such Principal, (a
“ Triggering Event Redemption Amount ”) and
(ii) the Interest Amount with respect to such
Principal;
WHEREAS, the
Company failed to file with the SEC a Registration Statement (as
defined in the Registration Rights Agreement) by August 24,
2006 to register for resale by the Buyers Registrable Securities
consisting of at least that number of shares of Common Stock equal
to 110% of the number of Warrant Shares issuable upon exercise of
all of the outstanding Warrants as of August 9, 2006 (the
“ August 2006 Required Registration Statement
”), resulting in a breach of the Registration Rights
Agreement, an obligation of the Company to make Registration Delay
Payments (as defined in the Registration Rights Agreement) to each
of the Buyers and the occurrence of a Triggering Event (as defined
in the Notes) under Section 3(b)(vii) of each of the Notes,
which, but for the limited waivers set forth in Section 6(b)
hereof, would (among other things) entitle each of the holders of
the Notes to require the Company to redeem all or a portion of the
Principal of each of the Notes held by such Buyer at a price equal
to the sum of (i) the applicable Triggering Event Redemption
Amount and (ii) the Interest Amount with respect to the
Principal included therein; and
WHEREAS, as of the
date hereof, after giving effect to this Agreement, the aggregate
outstanding principal amount under all of the Notes is
$55,357,027.40, and the exercise of all outstanding Warrants as of
such date would entitle the holders thereof to purchase 5,829,726
shares of Common Stock.
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NOW, THEREFORE, in
consideration of the agreements, provisions and covenants contained
herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, each of the
undersigned agrees as follows:
1. No
October Interest Payment; Increase in Principal and Amendment of
Notes.
a.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that (i) the Company shall not pay any Interest on
any of the Notes held by such Buyer on the date hereof (which date
is an Interest Payment Date (as defined in the Notes)), as would be
required by Section 6 of each such Note, and the amount that
would otherwise be payable as Interest on such Note on the date
hereof (as set forth in the fourth column of Schedule A
attached hereto) (such Note’s “ October 2006
Interest Amount ”), shall instead be added to the
Principal of such Note, in accordance with clause (ii) of this
Section 1(a), and (ii) as of the date hereof, the
Principal of each of the Notes held by such Buyer shall increase to
an amount equal to the sum of (A) 120% of the Principal of
such Note (equal to the Triggering Event Redemption Amount with
respect thereto) as of the end of the day on October 1, 2006
(as set forth in the third column of Schedule A
attached hereto) and (B) such Note’s October 2006
Interest Amount. For avoidance of doubt, each of the Buyers,
severally and not jointly, hereby agrees with the Company that, as
a result of the preceding sentence, as of the date hereof, the
Principal of each of the Notes held by such Buyer shall be the
amount set forth for such Note in the fifth column of
Schedule A attached hereto.
b.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that (i) the Company shall not be obligated to
make any payment of Interest on any of the Notes held by such Buyer
on January 2, 2007, but such Interest shall accrue until, and
be payable on, the Fixed Maturity Date; and (ii) in the event
that all amounts owing under the Notes (including all principal
thereof and interest and premium thereon) are not paid in full on
the Fixed Maturity Date, the Interest that would otherwise have
been payable in respect of such Notes on January 2, 2007, as
well as all interest accruing under such Notes from January 2,
2007 through January 15, 2007 shall be paid in full by the
Company on January 15, 2007 (without limiting such
Buyer’s rights and remedies under the Transaction Documents,
including those resulting from such failure to pay all such
amounts’ constituting a Triggering Event (as defined in the
Notes)).
c.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that, as of the date hereof, the definition of
“Company Alternative Redemption Rate” set forth in
Section 2(a)(viii) of each of the Notes held by such Buyer shall be
amended to add at the end thereof the following:
“;
notwithstanding the foregoing, if all amounts owing under the Notes
are paid in full on or prior to the Fixed Maturity Date pursuant to
a Company Alternative Redemption, the Company Alternative
Redemption Rate shall be 100%.”
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d.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that, as of the date hereof, the definition of
“Fixed Maturity Date” set forth in
Section 2(a)(xiii) of each of the Notes held by such Buyer
shall be amended to read in its entirety as follows:
“
Fixed Maturity Date ” means January 15,
2007.
e.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that, as of the date hereof, the first sentence of
Section 4(b) of each of the Notes held by such Buyer shall be
amended by changing “105%” to “100%” and
that such sentence shall not otherwise be changed.
f.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that, as of the date hereof, the definition of
Triggering Event set forth in Section 3(b) of each of the Notes
shall be amended by deleting the period (.) at the end of paragraph
(viii) of such Section 3(b) and adding the following at the
end of such paragraph (viii):
“or of
that certain Waiver and Amendment, dated as of October 2,
2006, by and among the Company, its Subsidiaries and the Buyers;
or”
g.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that, as of the date hereof, the definition of
Triggering Event set forth in Section 3(b) of each of the Notes
shall be amended by adding a new paragraph (ix) immediately
after paragraph (viii) thereof, such paragraph (ix) to
read in its entirety as follows:
“(viii)
any failure of the Company to pay any Principal of this Note, when
and as due.”
h.
Each of the Buyers, severally and not jointly, hereby agrees with
the Company that, as of the date hereof, each of the Notes held by
such Buyer shall be amended by deleting Section 6.1 thereof in
its entirety.
2.
Company Alternative Conversions .
a.
For purposes of this Section 2, each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed
thereto in the Notes.
b.
Notwithstanding anything to the contrary contained in the
August 2006 Waiver and Amendment, the Company hereby elects to
cause the conversion of an aggregate of $3,357,027.40 (the “
Aggregate October 2006 Conversion Amount ”) of
Principal of the Notes (together with the aggregate Interest Amount
with respect thereto), as if the Company had delivered a Company
Alternative Conversion Notice pursuant to each of the Notes with
respect thereto, and this Section 2(b) shall be deemed a Company
Alternative Conversion Notice pursuant to Section 8(a) of each of
the Notes (which, for the avoidance of doubt, means each Note of
each Series), and the conversion elected by the foregoing shall be
deemed a Company Alternative Conversion pursuant to Section 8
of each of the Notes (the “ October 2006 Company
Conversion ”). The October 2006 Company Conversion
elected by the Company pursuant to this Section 1(b) shall be
irrevocable by the Company. With respect to each Buyer,
5
its aggregate
Pro Rata Conversion Amount of the Aggregate Conversion Amount shall
be as set forth across from such Buyer’s name in the second
column of Schedule B attached hereto (such
Buyer’s “ Aggregate October 2006 Pro Rata
Conversion Amount ”), and such Aggregate
October 2006 Pro Rata Conversion Amount shall apply on an
aggregate basis to the Notes held by such Buyer. Each of the Buyers
shall be entitled to convert its Aggregate October 2006 Pro
Rata Conversion Amount with respect to the Notes held by such
Buyer, together with the Interest Amount with respect to the
allocable portion of the principal represented by such Aggregate
October 2006 Pro Rata Conversion Amount accruing through and
including the applicable Conversion Date, in accordance with
Section 8 of each such Note. Each of the Buyers, severally and
not jointly, hereby waives, solely with respect to the
October 2006 Company Conversion, the requirement that the
Company Alternative Conversion Notice deemed to be delivered
pursuant to Section 2(b) be delivered at least five (5) Business
Days prior to the first Trading Day of the Company Alternative
Conversion Period. Notwithstanding anything to the contrary in the
Notes, each of the Buyers, severally and not jointly, hereby agrees
with the Company that the Company Alternative Conversion Period
with respect to the October 2006 Company Conversion shall be
the period commencing on and including October 3, 2006 through
but not including the Fixed Maturity Date.
c.
In addition to (and without in any way affecting the rights of each
of the Buyers with respect to) the October 2006 Company
Conversion and notwithstanding anything to the contrary contained
in the August 2006 Waiver and Amendment, the Company hereby
elects to cause the conversion of an aggregate of $2,000,000,
subject to reduction as provided in Section 2(g) (the “
Aggregate November 2006 Conversion Amount ”), of
Principal of the Notes (together with the aggregate Interest Amount
with respect thereto), as if the Company had delivered a Company
Alternative Conversion Notice pursuant to each of the Notes with
respect thereto, and this Section 2(c) shall be deemed a Company
Alternative Conversion Notice pursuant to Section 8(a) of each of
the Notes (which, for the avoidance of doubt, means each Note of
each Series), and the conversion elected by the foregoing shall be
deemed a Company Alternative Conversion pursuant to Section 8
of each of the Notes (the “ November 2006 Company
Conversion ”). The November 2006 Company Conversion
elected by the Company pursuant to this Section 2(c) shall be
irrevocable by the Company. With respect to each Buyer, its
aggregate Pro Rata Conversion Amount of the Aggregate Conversion
Amount shall be as set forth across from such Buyer’s name in
the third column of Schedule B attached hereto, subject
to reduction as provided in Section 2(g) (such Buyer’s
“ Aggregate November 2006 Pro Rata Conversion Amount
”), and such Aggregate November 2006 Pro Rata Conversion
Amount shall apply on an aggregate basis to the Notes held by such
Buyer. Each of the Buyers shall be entitled to convert its
Aggregate November 2006 Pro Rata Conversion Amount with
respect to the Notes held by such Buyer, together with the Interest
Amount with respect to the allocable portion of the principal
represented by such Aggregate November 2006 Pro Rata
Conversion Amount accruing through and including the applicable
Conversion Date, in accordance with Section 8 of each such
Note. Notwithstanding anything to the contrary in the Notes, each
of the Buyers, severally and not jointly, hereby agrees with the
Company that the Company Alternative Conversion Period with respect
to the November 2006 Company Conversion shall be the period
commencing on and including November 1, 2006 through but not
including the Fixed Maturity Date.
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d.
In addition to (and without in any way affecting the rights of each
of the Buyers with respect to) the October 2006 Company
Conversion and the November 2006 Company Conversion and
notwithstanding anything to the contrary contained in the
August 2006 Waiver and Amendment, the Company hereby elects to
cause the conversion of an aggregate of $2,000,000, subject to
reduction as provided in Section 2(g) (the “ Aggregate
December 2006 Conversion Amount, ” and each of the
Aggregate October 2006 Conversion Amount, the Aggregate
November 2006 Conversion Amount and the Aggregate
December 2006 Conversion Amount being referred to herein as an
“ Aggregate Special Conversion Amount ”), of
Principal of the Notes (together with the aggregate Interest Amount
with respect thereto), as if the Company had delivered a Company
Alternative Conversion Notice pursuant to each of the Notes with
respect thereto, and this Section 2(d) shall be deemed a Company
Alternative Conversion Notice pursuant to Section 8(a) of each of
the Notes (which, for the avoidance of doubt, means each Note of
each Series), and the conversion elected by the foregoing shall be
deemed a Company Alternative Conversion pursuant to Section 8
of each of the Notes (the “ December 2006 Company
Conversion ,” and each of the October 2006 Company
Conversion, the November 2006 Company Conversion and the
December 2006 Company Conversion being referred to herein as a
“ Special Company Conversion ”). The
December 2006 Company Conversion elected by the Company
pursuant to this Section 2(d) shall be irrevocable by the Company.
With respect to each Buyer, its aggregate Pro Rata Conversion
Amount of the Aggregate Conversion Amount shall be as set forth
across from such Buyer’s name in the fourth column of
Schedule B attached hereto, subject to reduction as
provided in Section 2(g) (such Buyer’s “ Aggregate
December 2006 Pro Rata Conversion Amount ,” and such
Buyer’s Aggregate October 2006 Pro Rata Conversion
Amount, Aggregate November 2006 Pro Rata Conversion Amount and
Aggregate December 2006 Pro Rata Conversion Amount being
collectively referred to herein as such Buyer’s “
Aggregate Special Pro Rata Conversion Amounts ”), and
such Aggregate December 2006 Pro Rata Conversion Amount shall
apply on an aggregate basis to the Notes held by such Buyer. Each
of the Buyers shall be entitled to convert its Aggregate
December 2006 Pro Rata Conversion Amount with respect to the
Notes held by such Buyer, together with the Interest Amount with
respect to the allocable portion of the principal represented by
such Aggregate December 2006 Pro Rata Conversion Amount
accruing through and including the applicable Conversion Date, in
accordance with Section 8 of each such Note. Notwithstanding
anything to the contrary in the Notes, each of the Buyers,
severally and not jointly, hereby agrees with the Company that the
Company Alternative Conversion Period with respect to the
December 2006 Company Conversion shall be the period
commencing on and including December 1, 2006 through but not
including the Fixed Maturity Date.
e.
Notwithstanding anything to the contrary in the Notes, each of the
Buyers, severally and not jointly, hereby agrees with the Company
that such Buyer may, but shall not be required to, convert all or
any portion of any of such Buyer’s Aggregate Special Pro Rata
Conversion Amounts (and the applicable Additional Amount with
respect thereto) with respect to the Notes held by such Investor,
and that any such conversion shall be at the sole election of such
Buyer. In the event that any of such Buyer’s Special Pro Rata
Conversion Amounts has not been converted by such prior to the
Fixed Maturity Date (by delivering a Conversion Notice (as defined
in the Notes) at any time prior to the Fixed Maturity Date), then,
notwithstanding anything to the contrary in the Notes, the Special
Company Conversions shall be null and void with respect to any of
such Buyer’s Special Pro Rata Conversion Amounts as to which
such Buyer has not delivered a Conversion Notice prior to the Fixed
Maturity Date, in accordance
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with the Notes,
and such Buyer shall be entitled to all the rights of a holder of
such Notes with respect to such aggregate amount of such
Buyer’s Special Pro Rata Conversion Amounts, and,
accordingly, shall be subject to all the other provisions of such
Notes, including that the Company shall redeem the Principal
represented by such amount in accordance with
Section 2(d)(vii) of such Notes.
f.
Each of the Buyers, severally and not jointly, hereby waives the
obligation of the Company to comply with the Conditions to Company
Alternative Conversion (as defined in the Notes) with respect to
each of the Special Company Conversions. Each of the Buyers,
severally and not jointly, and the Company hereby agree that
neither the Volume Conversion Restriction Amount (i.e., the volume
limitation set forth in Section 8(b) of each of the Notes held by
such Buyer) nor any of the provisions of Sections 8(d) and 8(e) of
each of the Notes held by such Buyer shall apply, nor shall be of
any force or effect with respect, to any of the Special Company
Conversions.
g.
In the event that at any time prior to November 1, 2006 the
Company consummates a private placement or public offering of
equity securities (which, for avoidance of doubt, shall not include
any securities that constitute, represent or are convertible into
or exercisable or exchangeable for any Indebtedness), (i) the
Aggregate November 2006 Company Conversion Amount shall be
reduced (provided that the Aggregate November 2006 Company
Conversion Amount shall not be reduced to below zero (0)) by an
amount (an “ October Offering Amount ”) equal to
the net proceeds to the Company from such offering (i.e., after
deducting all commissions, fees and expenses associated with such
offering), and each Buyer’s Aggregate November 2006 Pro
Rata Conversion Amount shall be reduced by an amount equal to the
product of such October Offering Amount, multiplied by the
percentage set forth across from such Buyer’s name in the
fifth column of Schedule B attached hereto (such
Buyer’s “ Conversion Amount Reduction Allocation
Percentage ”), and (ii) if the Aggregate November
2006 Company Conversion Amount has been reduced to zero (0), the
Aggregate December 2006 Company Conversion Amount shall be
reduced (provided that the Aggregate December 2006 Company
Conversion Amount shall
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